-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UiqIv8ALvn+ZL61dMlcwms/3Hb5xfBO2jRoffktzWOUz8SFQljuihHqu9rTLpQvL VfI7n1ooKzFJd0qitTWa8Q== 0001021408-99-000179.txt : 19990208 0001021408-99-000179.hdr.sgml : 19990208 ACCESSION NUMBER: 0001021408-99-000179 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 20 FILED AS OF DATE: 19990205 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONSOL ENERGY INC CENTRAL INDEX KEY: 0001070412 STANDARD INDUSTRIAL CLASSIFICATION: BITUMINOUS COAL & LIGNITE MINING [1220] FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-68987 FILM NUMBER: 99522891 BUSINESS ADDRESS: STREET 1: C/O CONSOL INC STREET 2: 1800 WASHINGTON RD CITY: PITTSBURGH STATE: PA ZIP: 15241 MAIL ADDRESS: STREET 1: CONSOL INC STREET 2: 1800 WASHINGTON RD CITY: PITTSBURGH STATE: PA ZIP: 15241 S-1/A 1 AMENDMENT NO. 1 TO FORM S-1 As filed with the Securities and Exchange Commission on February 5, 1999 Registration No. 333-68987 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ___________________ AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ___________________ CONSOL ENERGY INC. (Exact name of Registrant as specified in its charter)
DELAWARE 1222 51-0337383 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification incorporation or organization) Classification Code Number) Number)
___________________ CONSOL ENERGY INC. 300 DELAWARE AVENUE, SUITE 567 WILMINGTON, DELAWARE 19801-1622 TELEPHONE: (302) 477-1260 (Address, including zip code, and telephone number of Registrant's principal executive offices) ___________________ DANIEL L. FASSIO, ESQ. C/O CONSOL INC. CONSOL PLAZA, 1800 WASHINGTON ROAD PITTSBURGH, PENNSYLVANIA 15241 TELEPHONE: (412) 831-4000 (Name, address, including zip code, and telephone number of agent for service) ___________________ Copies to: STEVEN L. WASSERMAN, ESQ. RICHARD J. SANDLER, ESQ. THELEN REID & PRIEST LLP DAVIS POLK & WARDWELL 40 WEST 57TH STREET 450 LEXINGTON AVENUE NEW YORK, NEW YORK 10019 NEW YORK, NEW YORK 10017 TELEPHONE: (212) 603-2000 TELEPHONE: (212) 450-4000 ___________________ Approximate date of commencement of proposed sale of the securities to the AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, please check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] ___________________ CALCULATION OF REGISTRATION FEE
=================================================================================================================================== PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF EACH CLASS OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF REGISTERED REGISTERED UNIT PRICE(1) REGISTRATION FEE(1) - ------------------------------------------------------------------------------------------------------------------------------------ COMMON STOCK, PAR VALUE $.01 PER SHARE 25,990,000 $21.00 $545,790,000 $151,729.62 ====================================================================================================================================
(1) The filing fee has been calculated pursuant to Rule 457(o) promulgated under the Securities Act of 1933. Includes $2,780 previously paid. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. ================================================================================ The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted. PROSPECTUS SUBJECT TO COMPLETION DATED FEBRUARY 5, 1999 22,600,000 Shares CONSOL ENERGY INC. [Logo] Common Stock CONSOL Energy Inc. is offering shares of its common stock. This is our initial public offering and no public market currently exists for our common stock. We estimate that the initial public offering price will be between $18 and $21 per share. We will apply to list the common stock on the New York Stock Exchange under the symbol "CNX". INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 12. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- ------------------------------------------------------------------------------------------------------------------------------------ PRICE TO UNDERWRITING PROCEEDS TO PUBLIC DISCOUNTS CONSOL - --------------------------------------------------------------------------------------------------------------------- Per Share $ $ $ - --------------------------------------------------------------------------------------------------------------------- Total $ $ $ - ---------------------------------------------------------------------------------------------------------------------
CONSOL has granted the underwriters the right to purchase up to an additional 3,390,000 shares of common stock to cover over-allotments. It is expected that delivery of the shares will be made to investors on or about , 1999. J. P. MORGAN & CO. MERRILL LYNCH & CO. , 1999 TABLE OF CONTENTS
Page Prospectus Summary............................................................................................ 3 Risk Factors.................................................................................................. 12 Use of Proceeds............................................................................................... 21 Dividend Policy............................................................................................... 21 Capitalization................................................................................................ 22 Selected Consolidated Financial and Operating Data............................................................ 23 Management's Discussion and Analysis of Results of Operations and Financial Condition........................................................... 26 Coal Industry Overview........................................................................................ 37 Business...................................................................................................... 47 Regulation.................................................................................................... 67 Management.................................................................................................... 73 Certain Relationships and Related Party Transactions.......................................................... 82 Principal Stockholders........................................................................................ 84 Shares Eligible for Future Sale............................................................................... 85 Description of Capital Stock.................................................................................. 86 Tax Considerations............................................................................................ 88 Underwriting.................................................................................................. 91 Legal Matters................................................................................................. 93 Experts....................................................................................................... 93 Glossary...................................................................................................... 94
In deciding whether to buy our common stock, you should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the common stock. Until , 1999, all dealers that buy, sell or trade common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. 2 PROSPECTUS SUMMARY This section summarizes certain information about CONSOL Energy Inc. You should refer to the more detailed information about us contained elsewhere in this prospectus, including the Consolidated Financial Statements and the related notes thereto. All references to "tons" are references to short tons. For definitions of certain coal-related terms, see "Glossary" at page 94. The market data presented in this prospectus are based upon our management's estimates, using various third-party sources where available. Unless otherwise indicated, (1) the information set forth in this prospectus assumes an initial public offering price of $19.50 per share of common stock and no exercise of the underwriters' over-allotment option and (2) all share and per share data give effect to an approximate 1,088-for-one stock split effective on , 1999. CONSOL ENERGY We rank among the largest coal companies in the United States based upon total revenue, net income and operating cash flow. We produced 73 million tons of coal during 1997. Our production accounted for 7% of the total tons produced in the United States and 12% of the total tons produced in the eastern United States in 1997. We are one of America's premier coal companies by several measures: . We mined more high-Btu bituminous coal than any other U.S. producer in 1997. . We are the largest coal producer east of the Mississippi River. . We are the largest U.S. producer of coal from underground mines. . We export more coal from the United States than any other coal producer or trading company. . We have the second largest coal reserves among U.S. coal producers. Our consistent financial performance has enabled us to establish a strong history of cash generation and dividend payments. PRINCIPAL MARKETS Coal is an important source of energy for power generators in the United States. Coal-fired plants produced 57% of the country's electricity in 1997. In 1997, we sold 68% of our coal to U.S. electricity generators, most of which were located east of the Mississippi River. More than two-thirds of the country's capacity for generating electricity using coal is located east of the Mississippi River. We can sell coal to these customers at a low delivered cost because of the following factors: . Our mines are located close to eastern generating plants. . Our mines are located on or near the inland waterway system and the major coal hauling railroads in the eastern United States. This reduces our customers' cost of transporting coal. . We are able to use highly productive mining techniques because we have favorable geologic conditions for mining. DEMAND FOR CONSOL'S COALS We believe that eastern, high-Btu coal will continue to be a valued source of energy and that demand for such coal will continue to grow for the following reasons. 3 . The electric utility industry soon will be deregulated in the United States which should increase competition and influence power companies to seek the lowest cost fuel for their generating plants. Fuel costs represent up to 78% of the variable cost of generating electricity at power plants that burn fossil fuels. Coal is the lowest cost fuel available to most electricity generators. . Electricity demand will grow as the economy grows. Generators of electricity can increase existing capacity at their plants by burning high-Btu coal. According to RDI, a coal industry consultant, in the aggregate, domestic coal-fired generating plants currently run at 65% capacity utilization. The optimal sustainable capacity utilization is 85% for a typical plant, although many can run at higher rates for short periods of time. Electricity generators that burn coal will seek to meet increased electricity demand by using the available capacity of their existing power plants rather than building new power plants. Expanding capacity at existing power plants using coal makes economic sense if the price of electricity exceeds variable costs. However, a new plant would be built only if the price of electricity is expected to cover all costs, including capital costs. . A significant portion of the generating plants that use nuclear fuel is likely to be retired during the next 15 years because the operating licenses for many plants will expire. We believe that it is likely that licenses will not be renewed or costly requirements will be imposed as a condition to renewal. Although natural gas will replace some of this capacity, we believe that coal also will be used to replace retired nuclear capacity. Coal producers that can reduce mining costs and which have access to low-cost transportation should be well positioned to increase their share of the market. The Clean Air Act regulates the emission of sulfur dioxide and oxides of nitrogen from coal combustion. This has led electric utilities to retrofit generating plants with scrubbers, purchase emission allowances or burn low-sulfur coal. To the extent that the cost of environmental control technology continues to decline and environmental regulations tighten, we expect more electricity generators that use coal to install scrubbers. As scrubbing increases at existing generating plants, we believe that high- and medium-sulfur coals with low delivered costs and high-Btu content will become increasingly attractive to electricity generators because the cost of operating the scrubber is typically less than 10% of variable costs. We believe that high-Btu content is an important advantage because it lowers the delivered energy cost of the coal. Transportation costs are based on tons and not heat content or heat content per ton. As a result, higher Btu coals can have an inherent transportation cost advantage, which lowers the delivered cost on a heat content or energy content basis. We believe that once a scrubber is built, it can offer economic advantages because of its relatively low operating costs, combined with the lower fuel costs that higher sulfur, higher Btu coal can offer at many plants. We already ship 65% of our high-sulfur coal product to scrubbed generating plants. The retrofitting of additional generating plants with scrubbers would be an advantage to us because we have large reserves of coal with a high-Btu content. The advantage of retrofitting scrubbers to generating plants should become apparent as the current bank of sulfur dioxide emission allowances declines and the more restrictive phase of the Clean Air Act becomes effective in 2000. A sulfur dioxide emission allowance is an authorization under the Clean Air Act for a power generating plant to emit one ton of sulfur dioxide. RDI recently forecast that by 2015 the owners of plants with up to 80,000 megawatts of existing coal-fired capacity may invest in scrubbers to comply with the new environmental regulations. The majority of these plants are located east of the Mississippi River. We believe that we are well positioned to benefit from these developments. Increased investment in scrubbers may result from the ownership of generating plants by independent power producers as a result of the deregulation of the electricity generating industry. For example, in August 1998, Mission Energy announced its intention to acquire a large generating station in central Pennsylvania, Homer City, and to install a scrubber and other environmental control technologies. Mission Energy has stated publicly that its strategy is to continue to use high-Btu coal from Pennsylvania in order to maintain its position as a low-cost producer of electricity. COAL RESERVES AND MINING OPERATIONS At December 31, 1997, we had 4.8 billion tons of proved and probable coal reserves. Our reserves are located in northern Appalachia (52%), central Appalachia (13%), the midwest (21%) and the western United States and Canada (14%). Approximately 65% of our coal reserves consist of high-Btu coal, which is favored by many 4 power generators. In 1998, CONSOL produced 31.8 million tons of high-sulfur coal, or 42% of our total production, and 33.7 million tons of low-and medium sulfur coal, or 44% of our total production. In addition we produced 10.5 million tons of metallurgical grade tons, or 14% of our total 1998 production. Approximately 77% of our coal reserves consist of high- and medium-sulfur coal and 23% consist of low-sulfur coal. The size, quality and strategic location of our reserves allow for the cost-effective expansion of many of our existing mines and for new mine development. We currently operate 25 mining complexes. We lead the U.S. coal industry in using longwall systems. Longwall systems are a mechanized, high-extraction method of underground mining. We use these systems at 14 of our mines. Mines with longwall systems accounted for 84% of the coal we mined in 1997. We are able to expand production at longwall mines at very low incremental cost. Our ability to source coal from our multiple longwall mines provides us with great flexibility in meeting customer fuel requirements. STRATEGY Our objective is to maintain and enhance our position as one of the premier coal companies in the United States based on our financial strength, operating capability and reserve position. We believe that we are well-positioned to grow faster than the industry by reason of our low-cost structure and strong financial position. Our strategy for achieving long-term growth does not depend on either the construction of new coal combustion facilities or on high overall growth in coal demand. Instead, we believe that most growth in demand for coal will come from the expansion and increased use of existing power generating facilities. We further believe that there will be a growing demand from electricity generators for high-Btu fuels available at low delivered cost and that the sulfur content of coal will not be the principal quality determining coal demand within many markets. Our strategy reflects our belief that delivered cost and Btu content will be the chief determinants of coal demand in these markets. Accordingly, we believe that coal produced in the eastern United States will continue to be an attractive fuel for electricity producers. Other markets will continue to expand for lower Btu, low-sulfur coals as well, and we may make acquisitions to participate in those markets. Specifically, we will implement our strategy by: . strengthening our core operating position in northern Appalachia by continuing to make productivity improvements and by expanding the low- cost production capacity of existing mines at low incremental costs; . developing new mining complexes in locations with reserves controlled by us where price levels or volume demand would generate attractive returns and where we can achieve low mining costs; . making large-scale acquisitions, both in the United States and abroad, that will enable us to bring our mining expertise to coal markets where we do not have an existing presence; and . making opportunistic acquisitions in our existing markets that will enable us to leverage our existing infrastructure and operations. For example, we recently acquired the Rochester & Pittsburgh Coal Company and the Vesta coal reserves in southwestern Pennsylvania. These acquisitions have strengthened our position in northern Appalachia. COMPETITIVE STRENGTHS STRONG FINANCIAL PERFORMANCE We are one of the most profitable coal companies in the United States and have shown strong net income growth and cash flow generation. . Net income has grown since 1994 at a compound annual growth rate of 11% and reached $184 million in 1997. Growth has been in large measure based on the ability to expand production and improve productivity at existing mining complexes. 5 . Net cash provided by operating activities has averaged $361 million per year since 1994, more than double capital expenditures, which averaged $173 million per year for the same period. During the same period, we paid $700 million in dividends, including an extraordinary dividend of $380 million in 1997, while reducing borrowings by $33 million. . We have investment-grade debt ratings. We believe that our financial strength will enable us to be a major consolidating force in the coal industry. The top ten coal producers have increased their share of production from 40% in 1990 to 54% in 1997, primarily by acquiring other producers. EXPERIENCE IN ACQUIRING AND INTEGRATING COAL PROPERTIES Since 1990, we have acquired and successfully integrated the Rochester & Pittsburgh Coal Company, Island Creek Coal Company from Occidental Petroleum, Kentucky Criterion (now called Mill Creek) from Westmoreland Coal Company, Greene Hill Coal Company properties from Pennsylvania Power and Light and the Vesta coal reserves from A.T. Massey Coal Company. PRODUCTIVITY LEADERSHIP We have maintained our strong financial performance despite generally lower coal prices by increasing productivity and reducing unit costs. . From 1994 to 1997, we maintained annual coal production at approximately 72 million tons while reducing our workforce by approximately 20% and reducing the number of mining complexes that we operate from 30 to 24. Consistent improvement in mine productivity reflects investment in capital improvements, including deployment of longwall mining systems, expertise in operations and favorable geologic conditions. . Between 1990 and 1996, we achieved a compound annual growth rate in productivity at our underground mines (measured in tons per manday) of 8.4% compared with a growth rate for the industry for underground mines of 6.5%. As a result, we reduced costs per ton of coal mined by 9.9% during the period. . In 1997, our productivity increased by 11.3%. We operate 25% of the longwall mining systems in the United States. Because of the high production levels of these mining systems, we operate seven of the 20 largest mines east of the Mississippi River, measured by tons of coal produced in 1997. These mines have high productivity and low variable cost structures. Our extensive reserve base supports the expansion and life extension of existing mines. Expansion of production at our longwall mines can be achieved at low incremental cost because they are close to our reserves and are highly mechanized operations. This is in contrast to many other producers with higher cost structures and less extensive reserves, particularly certain companies dependent on operations in central Appalachia. HIGH-QUALITY, STRATEGICALLY LOCATED RESERVE BASE Our northern Appalachian reserves accounted for 52% of our total reserves at year-end 1997. These reserves are near many coal users in the United States, particularly generators of electricity, and are served by major coal-transporting railroads and low-cost river transportation. Mining from these reserves accounted for 68% of our production in 1997. Fifty-two percent of our reserve base is ranked as high-Btu and high-sulfur. The high energy content of our coals benefits customers because they can produce more electricity per pound of coal than with lower Btu fuels. However, the sulfur content of the fuel creates combustion emissions which, by law, must be controlled. During the past two decades, air quality laws have created some market advantages for lower sulfur coals by imposing restrictions on sulfur-dioxide emissions. These usually require high-sulfur coal users to switch to lower sulfur coals, install scrubbers or, in more recent years, to buy pollution allowances. Nevertheless, our 6 high-sulfur coal remains competitive because of our transportation advantage and generally higher Btu content. In addition, we have maintained our margins by progressively reducing unit costs and increasing mine productivity. Further, we believe as more generating plants are retrofitted with scrubbers, the high-Btu content of our coals will become more desirable to electricity generators. EXPERIENCED MANAGEMENT TEAM Our management team is one of the most experienced in the coal industry with an average of over 24 years of coal industry experience. The management team has demonstrated its ability to streamline operations and reduce costs. Management has successfully expanded existing mines, built new mines and acquired additional operations leading to an increase in our production, productivity and earnings. RESEARCH AND DEVELOPMENT CAPABILITIES We operate the largest private research and development facility in the United States devoted to the mining and use of coal. Our Research and Development Department has pioneered several major technical developments in mining technology. We also are in the forefront of U.S. coal companies in solving coal-combustion and other challenges for customers which enables us to create new business opportunities. The Research and Development Department also works to improve the effectiveness and the cost of pollution-control technologies. Our facilities and staff, including 100 scientists and engineers, provide both testing and field-diagnostic service to customers and potential customers. BROAD, DIVERSE CUSTOMER BASE We currently sell coal to more than 160 different customers, including financially strong domestic utilities. Our three largest customers are Allegheny Energy, Pennsylvania Power Company and Detroit Edison. During 1998, we will sell about 61% of our production under contracts with terms exceeding one year. These contract customers represent a base of nearly 60 companies, both domestic and foreign, including generators of electricity, steel mills, heavy manufacturers, chemical plants, cement plants and paper manufacturers. EXECUTIVE OFFICES Our principal executive office is located at 300 Delaware Avenue, Suite 567, Wilmington, Delaware 19801. Our telephone number is (302) 477-1260. 7
THE OFFERING Common Stock Offered......................... 22,600,000 shares of our common stock(1) Common Stock Outstanding After this Offering............................... 80,267,558 shares of our common stock(1)(2) Use of Proceeds............................. We estimate that we will receive net proceeds of approximately $417 million (or $480 million if the underwriters exercise their over-allotment option in full). We anticipate using these proceeds to repay a portion of $600 million of commercial paper issued by us in order to finance the acquisition of the Rochester & Pittsburgh Coal Company, the payment of dividends during 1998 and the repurchase of common stock. See "Use of Proceeds." Dividends................................... The Board of Directors currently intends to pay quarterly dividends on our common stock. We expect the first quarterly dividend to be $.27 per share (a rate of $1.08 per share annually) to be paid in the third quarter of 1999. See "Dividend Policy." Proposed New York Stock Exchange Trading Symbol for Common Stock........................................ "CNX"
___________________________________ (1)This number excludes up to 3,390,000 shares of common stock subject to an over-allotment option granted by us to the underwriters. (2)This number excludes shares issuable upon exercise of options to be granted under our 1999 Equity Incentive Plan upon consummation of this offering, which will have exercise prices at or above the initial public offering price. It also excludes an additional shares of common stock reserved for future issuance under the plan. 8 SUMMARY FINANCIAL AND OPERATING DATA The following table provides summary financial and operating data of CONSOL Energy for the periods indicated. We have derived the summary financial data for the years ended December 31, 1993, 1994, 1995, 1996 and 1997 from our consolidated financial statements, which have been audited by Ernst & Young LLP, independent auditors. You may read the report of Ernst & Young LLP elsewhere in this prospectus with respect to the financial statements at December 31, 1996 and 1997 and for the years ended December 31, 1995, 1996 and 1997. We have derived the summary financial data for the nine months ended September 30, 1997 and 1998 and at September 30, 1998 from our unaudited interim financial statements included elsewhere in this prospectus which, in our opinion, include all adjustments necessary for the fair presentation of such data for the unaudited interim periods. The results of operations for the nine months ended September 30, 1998 do not necessarily indicate what the results of operations will be for the entire year ending December 31, 1998. After this offering, we expect to change our fiscal year from a calendar year to a year ending on June 30. We will have a transitional fiscal period ending June 30, 1999. Our first full fiscal year ending June 30 will be the year that starts July 1, 1999 and ends June 30, 2000. You should read the information in the following tables in conjunction with "Management's Discussion and Analysis of Results of Operations and Financial Condition" and the Consolidated Financial Statements, included elsewhere in this prospectus.
-------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30, ---------------------------------------------------------------------- ------------------------- 1993(1) 1994 1995 1996 1997 1997 1998 ------------ ------------ ----------- ----------- ----------- ----------- ------------ In thousands, except per share data STATEMENT OF INCOME DATA Revenue Sales(2).......... $ 1,730,209 $ 2,326,104 $ 2,269,211 $ 2,336,014 $ 2,285,197 $ 1,684,523 $ 1,680,063 Other income...... 55,743 86,377 45,024 60,940 64,441 50,968 37,450 ------------ ------------ ----------- ----------- ---------- ----------- ----------- Total revenue.. 1,785,952 2,412,481 2,314,235 2,396,954 2,349,638 1,735,491 1,717,513 Costs Costs of goods sold and other operating charges 1,490,869 1,703,678 1,600,271 1,687,836 1,592,489 1,189,645 1,157,674 Selling, general and administrative expense......... 50,338 53,546 53,537 53,354 55,353 41,109 40,689 Depreciation, depletion and amortization.... 231,655 265,262 253,113 235,159 233,304 171,353 175,575 Interest expense.. 41,770 50,678 53,915 44,510 45,876 34,468 32,496 Taxes other than income.......... 144,776 204,356 200,605 187,396 188,940 143,208 147,951 ------------ ------------ ----------- ----------- ---------- ----------- ----------- Total costs.... 1,959,408 2,277,520 2,161,441 2,208,255 2,115,962 1,579,783 1,554,385 ------------ ------------ ----------- ----------- ---------- ----------- ----------- Earnings (loss) before income taxes (173,456) 134,961 152,794 188,699 233,676 155,708 163,128 Income taxes........ (84,645) 380 22,744 35,970 49,887 35,824 38,431 ------------ ------------ ----------- ----------- ---------- ----------- ----------- Net income (loss)... $ (88,811)(3) $ 134,581 $ 130,050 $ 152,729 $ 183,789 $ 119,884 $ 124,697 ============ ============ =========== =========== ========== =========== =========== Pro forma net income(4)......... - - - - $ 169,751 - $ 122,543 ========== =========== Pro forma net income per share(5)...... - - - - $ 2.11 - $ 1.53 ========== =========== Pro forma weighted average number of common shares outstanding(5).... - - - - 80,267,559 - 80,267,559 ========== ===========
9
----------------------------------------------------------------------------------------------------- AT DECEMBER 31, AT SEPTEMBER 30, 1998 -------------------------------------------------------- ------------------------------------------ PRO PRO FORMA AS 1993 1994 1995 1996 1997 ACTUAL FORMA(6) ADJUSTED(7) ---------- ---------- ---------- ---------- ---------- --------- ---------- -------------------- In thousands BALANCE SHEET DATA Working capital........ $ 75,368 $ 208,079 $ 277,678 $ 358,030 $ 77,313 $ (77,615) $ (657,615) $ (240,615) Total assets .......... 3,664,762 3,952,988 3,871,978 3,857,508 3,548,011 3,989,229 3,989,229 3,989,229 Short-term debt........ 0 132,567 78,166 46,378 55,051 105,476 685,476 268,476 Long-term debt (including current portion)............. 435,316 450,332 442,385 449,170 397,275 430,427 430,427 430,427 Total deferred credits and other liabilities 2,399,378 2,413,510 2,325,262 2,315,397 2,262,702 2,466,108 2,466,108 2,466,108 Stockholders' equity .. 401,616 456,197 506,247 578,976 302,765 427,462 (152,538) 264,462
--------------------------------------------------------------------------------------------- NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ---------------------------------------------------------------- --------------------------- 1993(1) 1994 1995 1996 1997 1997 1998 ------ ----------- ----------- ---------- ---------- ----------- ----------- OTHER OPERATING DATA Tons sold (in thousands)(8)............ 52,072 74,199 72,741 77,000 75,170 55,302 56,417 Tons produced (in thousands)............... 45,646 72,140 71,324 71,411 72,505 53,754 54,860 Productivity (tons per manday).............. 28.35 29.60 31.22 34.57 38.46 37.34 39.99 Average production cost ($ per ton produced)................ $26.22 $22.91 $22.31 $21.87 $21.05 $21.33 $21.34 Average sales price of tons produced ($ per ton produced)............ $28.36 $27.32 $26.61 $26.29 $26.49 $26.41 $26.59 Coal reserves (tons in millions)(9) 5,176 4,956 5,072 5,063 4,776 5,009 4,847 Number of mining complexes (at period end)..................... 31 30 26 26 24 24 27(10) Number of employees (at period end).......... 10,036 9,739 8,743 8,206 7,711 7,852 8,716
------------------------------------------------------------------------------------------------------ NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ------------------------------------------------------------------------------------------------------ 1993(1) 1994 1995 1996 1997 1997 1998 ---------------- ------------ ------------ ----------- ----------- -------------- ----------- In thousands OTHER FINANCIAL DATA Capital expenditures $ 138,124 $ 144,438 $ 179,022 $ 169,367 $ 200,617 $ 135,330 $ 188,624 EBIT(11)........... (135,033) 167,668 188,715 212,708 256,934 171,341 187,547 EBITDA(11)......... 96,622 432,930 441,828 447,867 490,238 342,694 363,122 Net cash provided by operating activities......... 261,182 344,629 298,290 372,582 427,913 243,265 262,517 Net cash provided by (used in) investing activities....... (231,441) (357,153) (160,856) (251,236) 52,243 (74,850) (233,424) Net cash provided by (used in) financing activities....... (67,074) 50,418 (140,805) (119,254) (501,354) (87,356) (9,955)
_______________________________ (1)Results of operations for 1993 reflect the adverse effects of the ten-month strike by employees represented by the United Mine Workers of America in connection with the renegotiation of the National Bituminous Wage Agreement which expired on February 1, 1993. See "Risk Factors--Union Represented Labor Force" and "Business--Employees and Labor Relations." (2)Includes sales of Fairmont Supply Company, other than to CONSOL, of $157 million in 1993, $179 million in 1994, $212 million in 1995, $203 million in 1996, and $217 million in 1997, and $161 million in the first nine months of 1997 and $132 million in the first nine months of 1998. Fairmont Supply Company is a wholly owned subsidiary of CONSOL that distributes mining and industrial supplies. 10 (3) Excludes cumulative effect of change in accounting principle. In 1993, we changed accounting methods of accruing provisions for coal workers' pneumoconiosis and workers' compensation. These changes were the result of a reevaluation of measurement methods in light of the issuance of Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" (SFAS 112). We recorded income classified as a cumulative effect of accounting change of $46.3 million representing income of $70.3 million (net of contract deferrals of $67.0 million and income taxes of $47.2 million) for the change in accounting for coal workers' pneumoconiosis, and a charge of $23.9 million (net of income taxes of $16.1 million) for the change in accounting for workers' compensation. (4) Pro forma net income assumes (A) payment of the extraordinary dividend in 1997 and the purchase of stock from DuPont Energy in 1998 as if they had occurred at the beginning of each period presented and were funded by the reduction of marketable securities and the issuance of commercial paper and (B) the application of the net proceeds from the offering. (5) Pro forma net income per share and pro forma weighted average number of common shares outstanding assumes the stock split, the purchase of shares of common stock from DuPont Energy and the issuance of shares of common stock in the offering. (6) Gives effect to the purchase by us of shares of our common stock owned by DuPont Energy and the payment of dividends in 1998 and related borrowings incurred to finance the purchase and dividend. See "Certain Relationships and Related Party Transactions." (7) Gives effect to the receipt and application by us of an estimated $417 million in net proceeds from the offering. See "Use of Proceeds." (8) Includes sales of coal produced by us and purchased from third parties. We sold 3.3 million, 3.5 million, 2.7 million, 3.2 million, 3.1 million, 2.2 million and 2.1 million tons of coal that we purchased from third parties during 1993, 1994, 1995, 1996 and 1997 and the nine months ended September 30, 1997 and 1998, respectively. (9) Represents proved and probable reserves at period end. See "Business?Coal Reserves" and "Glossary." (10) In November 1998, we exchanged two mining complexes, Holden and Twin Branch, with A.T. Massey Coal Company for the Vesta coal reserves located in southwestern Pennsylvania. (11) EBIT is defined as earnings, before cumulative effective of accounting changes, before deducting net interest expense (interest expense less interest income) and income taxes. EBITDA is defined as earnings, before cumulative effect of accounting changes, before deducting net interest expense (interest expense less interest income), income taxes and depreciation, depletion and amortization. Although EBIT and EBITDA are not measures of performance calculated in accordance with generally accepted accounting principles, management believes that they are useful to an investor in evaluating CONSOL Energy because they are widely used in the coal industry as measures to evaluate a company's operating performance before debt expense and its cash flow. EBIT and EBITDA do not purport to represent cash generated by operating activities and should not be considered in isolation or as a substitute for measures of performance in accordance with generally accepted accounting principles. In addition, because EBIT and EBITDA are not calculated identically by all companies, the presentation here may not be comparable to other similarly titled measures of other companies. Management's discretionary use of funds depicted by EBIT and EBITDA may be limited by working capital, debt service and capital expenditure requirements and by restrictions related to legal requirements, commitments and uncertainties. 11 RISK FACTORS You should consider the following factors and the other information in this prospectus before deciding to invest in the common stock. THE COAL INDUSTRY IS HIGHLY COMPETITIVE We sell coal in markets that are highly competitive and affected by factors beyond our control. We compete with coal producers in various regions of the United States for domestic sales, and we compete both with domestic and overseas producers for sales to international markets. Continued demand for our coal and the prices that we will be able to obtain primarily will depend upon coal consumption patterns of the domestic electric utility industry. Consumption by the domestic utility industry is affected by the demand for electricity, environmental and other governmental regulations, technological developments and the price of competing coal and alternative fuel supplies including nuclear, natural gas, oil or renewable energy sources, including hydroelectric power. We also sell coal to overseas utilities and to the more specialized metallurgical coal market which is significantly affected by both international demand and competition. See "Business--Competition." SIGNIFICANT DECLINES IN COAL PRICES COULD ADVERSELY AFFECT US Our results of operations are highly dependent upon the prices received for our coal. Any significant decline in prices for coal could have a material adverse effect on our business, financial condition, results of operations and quantities of reserves recoverable on an economic basis. If the industry experiences significant price declines from current levels or other adverse market conditions, we may not be able to generate sufficient cash flow from operations to meet our obligations, including debt service obligations, make planned capital expenditures and pay dividends. See "Management's Discussion and Analysis of Results of Operations and Financial Condition." WE DEPEND ON A FEW CUSTOMERS FOR A SIGNIFICANT PORTION OF OUR REVENUES During 1997, we derived 23% of our total revenue from sales to our two largest customers, Allegheny Energy and a consortium of utility companies, including Cleveland Electric Illuminating Company, Duquesne Light Company, Ohio Edison Company, Pennsylvania Power Company and The Toledo Edison Company, referred to as the CAPCO companies. Allegheny Energy alone accounted for more than 10% of our total revenues during 1997. We currently have five contracts with Allegheny Energy and one with CAPCO. The CAPCO contract expires December 31, 1999. Our contracts with Allegheny Energy expire in 2001, 2002, 2004 and 2005. We have engaged in discussions with both customers to either extend existing long-term contracts or enter into new contracts. There can be no assurance that these customers either will extend or enter into new long-term contracts or, in the absence of long-term contracts, that they will continue to purchase the same amount of coal as they have in the past or on terms, including pricing terms, as favorable to us as under existing agreements. Based on current market conditions, we anticipate that the contract expiring in 1999, if renegotiated, would provide for less favorable pricing terms. The loss of either customer or changes in the amounts of coal that they purchase from us or the terms on which they buy could have a material adverse effect on our business, financial condition and results of operations. See "Management's Discussion and Analysis of Results of Operations and Financial Condition" and "Business--Coal Contracts." 12 OUR CUSTOMERS MAY NOT EXTEND EXISTING OR ENTER INTO NEW LONG-TERM CONTRACTS During 1997, sales under long-term coal supply contracts generated approximately 66% of our total revenue from coal sales. These contracts contribute to the stability and profitability of our operations by providing predictability of production volumes and sales prices. Changes in regulations governing the electric utility industry may make it more difficult for us to enter into long-term contracts with our electric utility customers, as these customers may become more sensitive to long-term price or quantity commitments in a more competitive environment. A substantial decrease in the amount of coal sold by us pursuant to long-term contracts could subject our revenue stream to increased volatility and adversely affect our profitability. See "Business--Coal Contracts." THE EXPIRATION OF LONG-TERM CONTRACTS WITH FAVORABLE PRICING OR CONTRACT PROVISIONS ALLOWING FOR THE RENEGOTIATION OF PRICES COULD REDUCE OUR PROFITABILITY The profitability of our long-term coal supply contracts depends on a variety of factors, varies from contract to contract and fluctuates during the contract term, depending on contract provisions, our actual production costs and other factors. In addition, provisions for adjustment or renegotiation of prices and other provisions may increase our exposure to short-term coal price volatility. If a substantial portion of our long-term contracts were modified or terminated, we would be affected adversely to the extent that we are unable to find other customers at the same level of profitability. Because the price of coal has declined in recent years, some of our long-term contracts are for prices above current spot market prices. The loss of certain of our long-term contracts could have a material adverse effect on our business, financial condition and results of operations. See "Management's Discussion and Analysis of Results of Operations and Financial Condition" and "Business--Coal Contracts." DISPUTES WITH OUR CUSTOMERS CONCERNING CONTRACTS CAN RESULT IN LITIGATION From time to time we have disputes with our customers over the provisions of long-term contracts relating to, among other things, coal quality, pricing and quantity. We currently are involved in litigation with one customer and another customer has made an arbitration demand. We may become involved in similar proceedings in the future. There can be no assurance that we will be able to resolve existing and future disputes in a satisfactory manner. See "Business--Legal Proceedings." COAL MINING IS SUBJECT TO UNEXPECTED DISRUPTIONS Our mining operations are predominantly underground mines using longwall mining methods. These mines are subject to conditions or events beyond our control that could disrupt operations and affect the cost of mining at particular mines for varying lengths of time. These include: fires and explosions from methane; mining and processing equipment failures; changes in geologic or hydrologic conditions; inability to acquire mining rights or permits; or other disruptions to the mining process. We generally do not maintain third-party insurance against underground mining risks. DECLINES IN THE PRICES WE RECEIVE REQUIRE THAT WE CONTINUE TO REDUCE OPERATING COSTS AND IMPROVE EFFICIENCIES We historically have improved productivity and reduced the costs of our operations. Such improvements are important because they have enabled us to maintain margins even despite the expiration of above market long-term contracts. We intend to continue to reduce operating costs and improve efficiencies. However, there can be no assurance that such efforts will be successful. See "Management's Discussion and Analysis of Results of Operations and Financial Condition." 13 UNION REPRESENTED LABOR FORCE At September 30, 1998, the United Mine Workers of America represented approximately 50% of our workforce. Of our coal production in 1997, 65% or 47.1 million tons of coal was produced at mines where the maintenance and production workforce was represented by the United Mine Workers of America. The current National Bituminous Coal Wage Agreement, the wage agreement which applies to substantially all of our represented employees at our mining operations, became effective on January 1, 1998, and continues through December 31, 2002. Certain of our competitors have lesser levels of representation. Because of the increased risk of strikes and other related work actions, in addition to higher labor costs, which may be associated with represented operations in the coal industry, our non-represented competitors may have a competitive advantage in areas where they compete with our represented operations. If some or all of our current non-represented operations were to become represented, we could incur increased risk of work stoppages and higher labor costs. The ten-month United Mine Workers of America strike in 1993 had a material adverse effect on our results of operations. See "Business--Employees and Labor Relations." TRANSPORTATION DISRUPTIONS COULD IMPAIR OUR ABILITY TO SELL COAL Coal producers depend upon rail, barge, trucking, overland conveyor and other systems to provide access to markets. One of our major rail transportation providers, Conrail, recently was acquired by CSX Transportation, Inc. and Norfolk Southern Corporation. The integration of Conrail into CSX Transportation and Norfolk Southern is expected to begin June 1, 1999, although we understand that certain steps have been taken already. We have had meetings with both rail carriers to discuss specifically issues relating to the integration of Conrail, CSX Transportation and Norfolk Southern operations and to seek to ensure continued service during the period of integration. Although we have not yet experienced any service disruptions because of the merger, disruptions in service may occur during the transition period. We do not know how long the transition period will last. Disruption of transportation services because of problems arising from the integration process or from weather-related problems, strikes, lock-outs or other events could temporarily impair our ability to supply coal to customers and could have a material adverse effect on our business, financial condition and results of operations. TRANSPORTATION COSTS ARE CRITICAL TO OUR CUSTOMERS' PURCHASING DECISIONS Transportation costs represent a significant portion of the total cost of coal and, as a result, the cost of delivery is a critical factor in a customer's purchasing decision. Although increases in transportation costs could give our operations in northern Appalachia a competitive advantage over coal mined in other regions, such increases could make coal a less competitive source of energy. Such increases could have a material adverse effect on our ability to compete with other energy sources and on our business, financial condition and results of operations. See "Management's Discussion and Analysis of Results of Operations and Financial Condition." A SUBSTANTIAL PORTION OF OUR COAL HAS HIGH-SULFUR CONTENT WHICH MAY MAKE IT MORE COSTLY TO USE BECAUSE OF THE CLEAN AIR ACT The Clean Air Act limits the ability of some of our customers to burn higher sulfur coals unless they install scrubbers, purchase sulfur dioxide emission allowances or blend high-sulfur coal with low-sulfur coal. The development of our high-sulfur coal reserves is dependent on the cost of such emission allowances, the cost and availability of low-sulfur coal and whether electric utilities install scrubbers to meet the more stringent SO2 emissions requirements of the Clean Air Act which will become effective in 2000. See "Coal Industry Overview" and "Business--Coal Reserves." 14 THE DEVALUATION OF FOREIGN CURRENCIES COULD ADVERSELY AFFECT THE COMPETITIVENESS OF OUR COAL ABROAD We compete in international markets with coal produced in other countries, including principally Australia, South Africa, Colombia, Venezuela and Indonesia. Coal is sold internationally in U.S. dollars. As a result, mining costs in competing producing countries may be reduced in U.S. dollar terms based on currency exchange rates. Devaluation of currencies in producing countries could adversely affect the competitiveness of U.S. coal in international markets and could have a material adverse effect on our business, financial condition and results of operations. We do not engage in currency hedging transactions. See "Business--Competition." WE ACCRUE FOR CERTAIN LONG-TERM LIABILITIES BASED UPON CERTAIN ASSUMPTIONS WHICH MAY NOT MATERIALIZE We provide various health and welfare benefits to inactive and retired employees. These obligations have been estimated by us based on certain assumptions described in Notes 1, 14 and 15 of the Notes to Consolidated Financial Statements. At September 30, 1998, the current and non-current portions of these obligations include: post retirement medical and life insurance ($1,289 million); coal workers' pneumoconiosis ($496 million); workers' compensation ($248 million); salary retirement ($23 million), and long-term disability ($28 million). These obligations are unfunded except for salary retirement and long-term disability which are partially funded. We have obligations arising under various federal and state environmental laws and regulations. These obligations are estimated by us based on permit requirements and various assumptions concerning costs and production. At September 30, 1998, the current and non-current portion of these obligations include mine closing ($286 million) and reclamation ($34 million). These obligations are unfunded. If our assumptions do not materialize as expected, cash expenditures and costs could be materially greater than those reflected in our financial statements. See "Management's Discussion and Analysis of Results of Operations and Financial Condition." REGULATORY RISKS ARE INHERENT AND SUBSTANTIAL IN OUR BUSINESS General Risks. The coal mining industry is subject to regulation by federal, state and local authorities on matters such as employee health and safety, permit and licensing requirements, air quality standards, water pollution, plant and wildlife protection, reclamation and restoration of mining properties after mining is completed, the discharge of materials into the environment, surface subsidence from underground mining and the effects that mining has on groundwater quality and availability. In addition, the industry is affected by legislation mandating certain benefits for current and retired coal miners. Numerous governmental permits and approvals are required for mining operations. We may be required to prepare and present to federal, state and local authorities data pertaining to the effect or impact that any proposed exploration for or production of coal may have upon the environment. Requirements imposed by any such authority may be costly and time-consuming and may delay commencement or continuation of exploration or production operations. The possibility also exists that new legislation or regulations and orders may be adopted which may materially adversely affect our mining operations, our cost structure or our customers' ability to use coal. New legislation and new regulations under existing laws related to the protection of the environment, which would further regulate or tax the coal industry, may also require us or our customers to change operations significantly or incur increased costs. Such legislation, if enacted, could have a material adverse effect on our business, financial condition and results of operations. See "Regulation." The Clean Air Act Affects Our Operations and Could Influence The Purchasing Decisions Of Our Customers. The Clean Air Act and corresponding state laws that regulate emissions into the air affect coal mining 15 operations. Direct impact on coal mining and processing operations may occur through the Clean Air Act permit and emissions control requirements relating to particulate matter including, without limitation, fugitive dust. In July 1997, the U.S. Environmental Protection Agency adopted new, more stringent National Ambient Air Quality Standards for particulate matter and ozone which are expected to be implemented by 2003. The impact of the new National Ambient Air Quality Standards on the coal industry will depend on the policies and control strategies implemented by states under the Clean Air Act, but could have a material adverse effect on our business, financial condition and results of operations. The Clean Air Act affects coal mining operations indirectly by extensively regulating the emission into the air of SO2 and other compounds, including nitrogen oxides, emitted by coal-fueled power plants. The Clean Air Act places limits on SO2 emissions from electric power generation plants. The initiation of a second phase of emission reductions beginning in 2000 could affect adversely the demand for higher sulfur coal, which currently accounts for a substantial portion of our sales, as additional coal-burning electric power generation plants become subject to the restrictions of the Clean Air Act. The extent to which the switch by utilities to lower sulfur coal or other low-sulfur fuels would materially adversely affect us would depend upon a number of factors, including the cost structure of our operations. The Clean Air Act also affects coal mining operations by requiring utilities that currently are major sources of nitrogen oxides in moderate or higher ozone nonattainment areas to install reasonably available control technology. The Environmental Protection Agency recently announced a proposal that would require 22 eastern states to reduce substantially nitrogen oxide emissions by the year 2003. The effect which such regulations or other requirements that may be imposed in the future could have on the coal industry in general and on us in particular cannot be predicted with certainty. No assurance can be given that the implementation of the Clean Air Act, the new National Ambient Air Quality Standards or any other future regulatory provisions will not materially adversely affect our business, financial condition and results of operation. The Passage Of Legislation Responsive To The Framework Convention On Global Climate Change Could Have An Adverse Effect On Our Business. The United States and more than 160 other nations are signatories to the 1992 Framework Convention on Global Climate Change which is intended to limit or capture emissions of greenhouse gases, such as carbon dioxide. Although the U.S. Senate has not yet ratified the Kyoto Protocol and no comprehensive regulations controlling greenhouse gas emissions have been enacted, efforts to control greenhouse gas emissions could result in reduced use of coal if electric power generators switch to lower carbon sources of fuel. Such restrictions could have a material adverse effect on our business, financial condition and results of operations. We Are Subject to the Clean Water Act Which Imposes Monitoring and Reporting Obligations. The federal Clean Water Act affects coal mining operations by, among other things, imposing restrictions on effluent discharge into waters. Regular monitoring, as well as compliance with reporting requirements and performance standards, are preconditions for the issuance and renewal of permits governing the discharge of pollutants into water. We believe that we have obtained all permits required under the Clean Water Act. However, there can be no assurance that requirements under the Clean Water Act will not materially adversely affect our business, financial condition and results of operations. See "Regulation." Deregulation of the Electric Utility Industry Could Lead to Efforts to Reduce Coal Prices. Deregulation of the electric utility industry, when implemented, will enable industrial, commercial and residential customers to shop for the lowest cost supply of electricity. This fundamental change in the power industry may result in efforts to reduce coal prices, which could have a material adverse effect on our business, financial condition and results of operations. We Have Significant Employee and Retiree Benefit Obligations. Under Black Lung benefits legislation, each coal mine operator is required to make payments of pneumoconiosis (black lung) benefits to (1) current and 16 former coal miners, (2) certain survivors of a miner who dies from black lung disease and (3) a trust fund for the payment of benefits and medical expenses to claimants who last worked in the coal industry prior to January 1, 1970, or where no responsible coal mine operator has been identified for claims where a miner's last coal employment was after December 31, 1969. In addition to federal acts, we are also liable under various state statutes for pneumoconiosis claims. Our pneumoconiosis (black lung) benefits liabilities totaled approximately $496 million on our balance sheet at September 30, 1998. The impact of these costs has not been significant for the nine-month period ended September 30, 1998. The related cash payment for such liability was $7 million. In recent years, legislation on black lung reform has been introduced but not enacted in Congress. It is possible that such legislation will be reintroduced for consideration by Congress. If any of the proposals included in such or similar legislation is passed, the number of claimants who are awarded benefits could significantly increase. There can be no assurance that any such changes in black lung legislation, if approved, will not have a material adverse effect on our business, financial condition and results of operation. The U.S. Department of Labor has issued proposed amendments to the regulations implementing the federal black lung laws which, among other things, establish a presumption in favor of a claimant's treating physician and limit a coal operator's ability to introduce medical evidence regarding the claimant's medical condition. If adopted, the amendments could have an adverse effect on us, the extent of which cannot be accurately predicted. Additionally, we are required to compensate employees for work-related injuries. Our workers' compensation liabilities were $248 million at September 30, 1998. The amount that was included as a cost for the nine-month period ended September 30, 1998 was $37 million, while the related cash payment for such liability was $31 million. In addition, several states in which we operate consider changes in workers' compensation laws from time to time. Such changes, if enacted, could adversely affect our business, financial condition and results of operation. The Coal Industry Retiree Health Benefits Act of 1992 requires us to make payments to fund the cost of health benefits for our and other coal industry retirees. We made payments of $32 million and $27 million in 1997 and for the nine months ended September 30, 1998, respectively. See Note 14 of Notes to Consolidated Financial Statements. As a result of a U.S. Supreme Court decision rendered in 1998, we may be required to increase our share of such payments. However, the magnitude of such increase, if any, cannot be determined at this time. We Are Subject To Reclamation, Mine Closure and Subsidence Regulations And Must Accrue For The Estimated Costs Of Complying With Such Regulations. The federal Surface Mining Control and Reclamation Act of 1977 and similar state statutes require that we obtain and periodically renew permits for mining operations and that our mine property be restored in accordance with specified standards and an approved reclamation plan. States also impose on mine operators the responsibility for repairing or compensating for damage occurring on the surface as a result of mining operations. We accrue for the costs of current mine disturbance and of final mine closure, including the cost of treating mine water discharge where necessary, over the estimated useful mining life of the property. The establishment of liability for the current disturbance and final mine closure reclamation is based upon permit requirements and requires various estimates and assumptions, principally associated with costs and production levels. The reclamation costs, mine-closing costs and other environmental liability accruals were $321 million at September 30, 1998. The amount that was included as an operating expense for the nine-month period ended September 30, 1998 was $7 million, while the related cash payment for such liability in such period was $22 million. Although our management believes it is making adequate provisions for all expected reclamation and other costs 17 associated with mine closures, future operating results would be adversely affected if such accruals were later determined to be insufficient. We Could Incur Significant Costs Under Federal and State Superfund Statutes. Risks of environmental liability are inherent with respect to both current and past coal mining activities. The Comprehensive Environmental Response, Compensation and Liability Act and similar state laws create liabilities for investigation and remediation for releases of hazardous substances to the environment and damages to natural resources. Our current and former coal mining operations currently incur, and will continue to incur, expenditures associated with the investigation and remediation of environmental matters, including underground storage tanks, solid and hazardous waste disposal and other matters under the Comprehensive Environmental Response, Compensation and Liability Act and state environmental laws. From time to time, we have been the subject of administrative proceedings, litigation and investigations relating to environmental matters. We have been named as a potentially responsible party at several Superfund sites. Based on various factors, we believe that the liabilities associated with such Superfund sites should not have a material adverse effect on our financial condition or results of operations. However, there can be no assurance that we will not become involved in future proceedings, litigation or investigations or that such liabilities will not be material. While we believe that we have accrued for the costs likely to be incurred for these environmental matters, and that those costs are not likely to have a material adverse effect upon our business, financial condition and results of operations, there can be no assurance that total costs and liabilities for these environmental matters will not increase in the future. The magnitude of the liability and the cost of complying with these environmental laws cannot be predicted with certainty due to the lack of specific information available with respect to many sites, the potential for new or changed laws and regulations and for the development of new remediation technologies and the uncertainty regarding the timing of work with respect to particular sites. As a result, there can be no assurance that material liabilities or costs related to environmental matters will not be incurred in the future or that our liabilities will not be adversely affected by such environmental liabilities or costs. In addition, there can be no assurance that changes in laws or regulations would not affect the manner in which we are required to conduct our operations. See "Regulation." RHEINBRAUN MAY OWN AS MUCH AS 67.8% OF OUR COMMON STOCK AFTER THE OFFERING AND WILL BE ABLE TO CONTROL SIGNIFICANT DECISIONS BY CONSOL After this offering, Rheinbraun A.G. and Rheinbraun US GmbH will together own 67.8% of our outstanding shares of common stock (65% if the underwriters' over-allotment option is exercised in full). These principal stockholders will be able to direct the election of all of the members of our Board of Directors and exercise a controlling influence over our business and affairs, including any determinations with respect to: . mergers or other business combinations; . our acquisition or disposition of assets; . our incurrence of indebtedness; . the issuance of any additional shares of our common stock or other equity securities; and . the payment of dividends. 18 Similarly, the principal stockholders will have the power to: . determine matters submitted to a vote of our stockholders without the consent of our other stockholders; . prevent or cause a change in control; or . take other actions that might be favorable to the principal stockholders. In the foregoing situations or otherwise, various conflicts of interest between us and our principal stockholders could arise. Ownership interests of our directors or officers in voting securities of our principal stockholders or their affiliates or service as a director or officer or other employee of both us and one of our principal stockholders or one of their affiliates could create or appear to create potential conflicts of interest when directors and officers and employees are faced with decisions that could have different implications for us and our principal stockholders. See "Management" and "Principal Stockholders." OUR SHARE PRICE MAY DECLINE DUE TO SHARES ELIGIBLE FOR FUTURE SALE After this offering, a total of 54,403,357 shares of common stock will be owned by Rheinbraun A.G. and Rheinbraun U.S. GmbH and 3,264,201 shares of common stock will be owned by DuPont Energy. We cannot predict the effect, if any, that future sales of shares of our common stock, or the availability of such shares for sale would have on the market price prevailing from time to time. Nevertheless, sales by us, Rheinbraun A.G., Rheinbraun U.S. GmbH or DuPont Energy of substantial amounts of our common stock in the public market, or the perception that such sales could occur, could adversely affect prevailing market prices for our common stock offered in this offering. Such a reduction in the market price of our common stock could impair our ability to raise additional capital through future public offerings of our equity securities. Each of Rheinbraun A.G., Rheinbraun U.S. GmbH and DuPont Energy has agreed not to dispose of its shares for a period of 180 days after the date of this prospectus without the prior written consent of J.P. Morgan Securities Inc. See "Shares Eligible for Future Sale." THE MARKET PRICE OF OUR COMMON STOCK COULD BE VOLATILE The trading price of our common stock could be subject to wide fluctuations in response to, among other things, the following factors: . variations in operating results; . expectations of securities analysts; . technological innovations by us or our competitors; . changes in financial estimates by securities analysts; or . the operating and stock price performance of other companies that investors may consider comparable to us. In addition, the stock market in general has experienced extreme volatility that often has been unrelated to the operating performance of particular companies which are traded on the market. These broad market and industry fluctuations may adversely affect the trading price of our common stock, regardless of our actual performance. 19 OUR OPERATIONS COULD BE ADVERSELY AFFECTED BY DATA PROCESSING FAILURES AFTER DECEMBER 31, 1999 The year 2000 issue is the result of computer programs being written using two digits rather than four to identify the applicable year and is an issue which exists for all companies that rely on computers as the year 2000 approaches. The failure to correct any such programs may result in incorrect results when computers perform arithmetic operations, comparisons or data field sorting and some non-information systems functions that rely on computers making calculations. Based on recent assessments, we have determined that we will be required to modify or replace some portions of our software, and, to a lesser extent, our hardware so that those systems will properly utilize dates beyond December 31, 1999. We do not expect costs in connection with any such modifications and replacements to be material. However, if such modifications and replacements are not made, or are not completed in a timely manner, the year 2000 issue may have a material adverse effect on our business, results of operations and financial condition. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Impact of Year 2000 Issue." THE ACCURACY OF FORWARD-LOOKING STATEMENTS CONTAINED IN THIS PROSPECTUS IS UNCERTAIN This prospectus contains certain "forward-looking statements" (as defined in Section 27A of the Securities Act) that are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. The words "anticipates," "believes," "estimates," "expects," "plans," "intends" and similar expressions are intended to identify these forward-looking statements, but are not the exclusive means of identifying them. These forward-looking statements reflect the current views of our management and are subject to certain risks, uncertainties and contingencies which could cause our actual results, performance or achievements to differ materially from those expressed in, or implied by, these statements. These risks, uncertainties and contingencies include, but are not limited to, the following: . the success or failure of our efforts to implement our business strategy; . reliance on major customers and long-term contracts; . actions of our competitors and our ability to respond to such actions; . risks inherent to mining; . the effect of government regulation; and . the other factors discussed above under the heading "Risk Factors" and elsewhere in this prospectus. We assume no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. 20 USE OF PROCEEDS The net proceeds to CONSOL from the offering, after underwriting discounts, commissions and expenses payable by CONSOL, are estimated to be approximately $417 million (assuming an initial public offering price of $19.50 per share and no exercise of the underwriter's over-allotment option). Such net proceeds will be used to repay a portion of $600 million of commercial paper issued by CONSOL in order to finance: . the November 1998 purchase of shares of common stock from DuPont Energy Company for $500 million, . the payment of dividends in 1998 totalling $48.8 million to Rheinbraun A.G. and Rheinbraun U.S. GmbH and $31.2 million to DuPont Energy Company and . the September 1998 acquisition of the Rochester & Pittsburgh Coal Company for $150 million and the refinancing of certain indebtedness aggregating $50 million of Rochester & Pittsburgh. The commercial paper to be repaid has maturities of up to 90 days and currently bears interest at rates ranging from 5.55% to 5.68% per annum. DIVIDEND POLICY The Board of Directors currently intends to declare and pay quarterly dividends on common stock. It is expected that the first quarterly dividend after the offering will be $.27 per share (a rate of $1.08 per share annually) and will be paid in the third quarter of 1999. The declaration and payment of dividends by CONSOL is subject to the discretion of the Board of Directors, and no assurance can be given that CONSOL will pay such dividend or any further dividends. The determination as to the payment of dividends will depend upon, among other things, general business conditions, CONSOL's financial results, contractual and legal restrictions regarding the payment of dividends by CONSOL, the credit ratings of CONSOL, planned investments by CONSOL and such other factors as the Board of Directors deems relevant. CONSOL paid ordinary cash dividends to its stockholders of $80 million in each of 1995, 1996, 1997 and 1998. CONSOL also paid an extraordinary cash dividend to its stockholders of $380 million in 1997. The dividends historically paid by CONSOL are not indicative of its future dividend policy, particularly because CONSOL was closely held prior to the offering. See "Management's Discussion and Analysis of Results of Operations and Financial Condition--Liquidity and Capital Resources." 21 CAPITALIZATION The following table sets forth the consolidated capitalization of CONSOL at September 30, 1998 (1) on an actual basis, (2) on a pro forma basis reflecting (A) the purchase by CONSOL of shares of common stock for $500 million held by DuPont Energy and the payment of dividends totalling $80 million and (B) borrowings incurred to purchase the shares and pay the dividend and (3) on a pro forma, as adjusted basis reflecting the offering and the application by CONSOL of the estimated net proceeds therefrom. See "Principal Stockholders--Certain Transactions."
-------------------------------------------- PRO FORMA ACTUAL PRO FORMA AS ADJUSTED --------- --------- ----------- Dollars in thousands Short-term debt............................................. $ 105,476 $685,476 $ 268,476 Current portion of long-term debt........................... $ 108,540 $ 108,540 $ 108,540 Long-term debt Notes due 2002......................................... $ 66,000 $ 66,000 $ 66,000 Notes due 2004......................................... 45,000 45,000 45,000 Notes due 2007......................................... 44,784 44,784 44,784 Baltimore Port Facility revenue bonds in series due 2010 and 2011.................. 102,865 102,865 102,865 Variable rate notes payable at various dates through 2001...................... 2,119 2,119 2,119 Advance royalty commitments............................ 26,556 26,556 26,556 Long-term capitalized leases........................... 22,164 22,164 22,164 Other long-term notes maturing --------- --------- --------- at various dates through 2007...................... 12,399 12,399 12,399 Total long-term debt............................... 321,887 321,887 321,887 Stockholders' equity Common Stock, $.01 par value, 500,000,000 shares authorized; Issued and outstanding, actual 108,806,714 shares; issued and outstanding, pro forma 57,667,559 shares; issued and outstanding, pro forma as adjusted 80,267,559 shares(1)............. 1,088 577 803 Capital in excess of par value......................... 801,916 302,427 719,201 Retained earnings (deficit)............................ (375,542) (455,542) (455,542) --------- --------- --------- Total stockholders' equity........................... 427,462 (152,538) 264,462 --------- --------- --------- Total capitalization.......................... $ 749,349 $169,349 $ 586,349 ========= ========= =========
- ------------------- (1) The number of shares, pro forma as adjusted, set forth above excludes shares of common stock issuable upon exercise of options to be granted under the 1999 Equity Incentive Plan upon consummation of the offering and an additional shares of common stock reserved for future issuance under the 1999 Equity Incentive Plan. See "Management." 22 SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA The following table sets forth selected consolidated financial and operating data of CONSOL for the periods indicated. The selected consolidated financial data for the years ended December 31, 1993, 1994, 1995, 1996 and 1997 have been derived from the consolidated financial statements of CONSOL which financial statements have been audited by Ernst & Young LLP, independent auditors. The report of Ernst & Young LLP with respect to the financial statements at December 31, 1996 and 1997 and for the years ended December 31, 1995, 1996 and 1997 appears elsewhere in this Prospectus. The selected financial data for the nine months ended September 30, 1997 and 1998 and at September 30, 1998 have been derived from CONSOL's unaudited interim financial statements included elsewhere in this Prospectus which, in the opinion of CONSOL, include all adjustments necessary for the fair presentation of such data for the unaudited interim periods. The results of operations for the nine months ended September 30, 1998 are not necessarily indicative of the results of operations to be expected for the entire year ending December 31, 1998. After the offering, CONSOL expects to change its fiscal year from a calendar year to a year ending on June 30. CONSOL will have a transitional fiscal period ending June 30, 1999. CONSOL's first full fiscal year ending June 30 will be the year that starts July 1, 1999 and ends June 30, 2000. The information in the following table should be read in conjunction with "Management's Discussion and Analysis of Results of Operations and Financial Condition" and the Consolidated Financial Statements included elsewhere in this Prospectus.
---------------------------------------------------------------------------------------------------- NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ---------------------------------------------------------------------------------------------------- 1993(1) 1994 1995 1996 1997 1997 1998 --------- ----------- ----------- ----------- ----------- ----------- ----------- In thousands, except per share data STATEMENT OF INCOME DATA Revenue Sales(2)................. $ 1,730,209 $ 2,326,104 $ 2,269,211 $ 2,336,014 $ 2,285,197 $ 1,684,523 $ 1,680,063 Other income............. 55,743 86,377 45,024 60,940 64,441 50,968 37,450 ------------ ----------- ----------- ----------- ----------- ----------- ----------- Total revenue......... 1,785,952 2,412,481 2,314,235 2,396,954 2,349,638 1,735,491 1,717,513 Costs Costs of goods sold and other operating charges...... 1,490,869 1,703,678 1,600,271 1,687,836 1,592,489 1,189,645 1,157,674 Selling, general and administrative expense................ 50,338 53,546 53,537 53,354 55,353 41,109 40,689 Depreciation, depletion and amortization....... 231,655 265,262 253,113 235,159 233,304 171,353 175,575 Interest expense......... 41,770 50,678 53,915 44,510 45,876 34,468 32,496 Taxes other than income.. 144,776 204,356 200,605 187,396 188,940 143,208 147,951 ------------ ----------- ----------- ----------- ----------- ----------- ----------- Total costs........... 1,959,408 2,277,520 2,161,441 2,208,255 2,115,962 1,579,783 1,554,385 ------------ ----------- ----------- ----------- ----------- ----------- ----------- Earnings (loss) before income taxes............. (173,456) 134,961 152,794 188,699 233,676 155,708 163,128 Income taxes............... (84,645) 380 22,744 35,970 49,887 35,824 38,431 ------------ ----------- ----------- ----------- ----------- ----------- ----------- Net income (loss).......... $ (88,811)(3) $ 134,581 $ 130,050 $ 152,729 $ 183,789 $ 119,884 $ 124,697 ============ =========== =========== =========== =========== =========== =========== Pro forma net income(4).... - - - - $ 169,751 - $ 122,543 =========== =========== Pro forma net income per share(5)............. - - - - $ 2.11 - $ 1.53 =========== =========== Pro forma weighted average number of common shares outstanding (5).......... - - - - 80,267,559 - 80,267,559 =========== ===========
23
-------------------------------------------------------------------------------------- AT DECEMBER 31, AT SEPTEMBER 30, 1998 -------------------------------------------------------------------------------------- PRO 1993 1994 1995 1996 1997 ACTUAL FORMA(6) ---------- ---------- ---------- ---------- ---------- ---------- ----------- In thousands BALANCE SHEET DATA Working capital................ $ 75,368 $ 208,079 $ 277,678 $ 358,030 $ 77,313 $ (77,615) $ (657,615) Total assets................... 3,664,762 3,952,988 3,871,978 3,857,508 3,548,011 3,989,229 3,989,229 Short-term debt................ 0 132,567 78,166 46,378 55,051 105,476 685,476 Long-term debt (including current portion)............. 435,316 450,332 442,385 449,170 397,257 430,427 430,427 Total deferred credits and other liabilities............ 2,399,378 2,413,510 2,325,262 2,315,397 2,262,702 2,466,108 2,466,108 Stockholders' equity .......... 401,616 456,197 506,247 578,976 302,765 427,462 (152,538)
-------------------------------------------------------------------------------------- NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, -------------------------------------------------------------------------------------- 1993 1994 1995 1996 1997 1997 1998 ------ ------ ------ ------ ------ ------ ------ OTHER OPERATING DATA Tons sold (in thousands)(7)............. 52,072 74,199 72,741 77,000 75,170 55,302 56,417 Tons produced (in thousands)................ 45,646 72,140 71,324 71,411 72,505 53,754 54,860 Productivity (tons per manday)................... 28.35 29.60 31.22 34.57 38.46 37.34 39.99 Average production cost ($ per ton produced)................. $26.22 $22.91 $22.31 $21.87 $21.05 $21.33 $21.34 Average sales price of tons produced ($ per ton produced)............. $28.36 $27.32 $26.61 $26.29 $26.49 $26.41 $26.59 Coal reserves (tons in millions)(8).............. 5,176 4,956 5,072 5,063 4,776 5,009 4,847 Number of mining complexes (at period end)...................... 31 30 26 26 24 24 27(9) Number of employees (at period end)........... 10,036 9,739 8,743 8,206 7,711 7,852 8,716
----------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30, ----------------------------------------------------------------------------------------- 1993 1994 1995 1996 1997 1997 1998 --------- --------- --------- --------- --------- --------- --------- In thousands OTHER FINANCIAL DATA Capital expenditures........ $ 138,124 $ 144,438 $ 179,022 $ 169,367 $ 200,617 $ 135,330 $ 188,624 EBIT(10).................... (135,033) 167,668 188,715 212,708 256,934 171,341 187,547 EBITDA(10).................. 96,622 432,930 441,828 447,867 490,238 342,694 363,122 Net cash provided by operating activities..... 261,182 344,629 298,290 372,582 427,913 243,265 262,517 Net cash provided by (used in) investing activities............... (231,441) (357,153) (160,856) (251,236) 52,243 (74,850) (233,424) Net cash provided by (used in) financing activities............... (67,074) 50,418 (140,805) (119,254) (501,354) (87,356) (9,955)
_________________ (1)Results of operations for 1993 reflect the adverse effects of the ten-month strike by employees represented by the United Mine Workers of America ("UMWA") in connection with the renegotiation of the National Bituminous Coal Wage Agreement (the "NBCWA") which expired on February 1, 1993. See "Risk Factors--Union Represented Labor Force" and "Business--Employees and Labor Relations." (2)Includes sales of Fairmont Supply Company, other than to CONSOL, of $157 million in 1993, $179 million in 1994, $212 million in 1995, $203 million in 1996, and $217 million in 1997, and $161 million in the first nine months of 1997 and $132 million in the first nine months of 1998. Fairmont Supply Company is a wholly owned subsidiary of CONSOL that distributes mining and industrial supplies. (3)Excludes cumulative effect of change in accounting principle. In 1993, CONSOL changed accounting methods of accruing provisions for coal workers' pneumoconiosis and workers' compensation. These changes were the result of 24 a reevaluation of measurement methods in light of the issuance of Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" (SFAS 112). CONSOL recorded income classified as a cumulative effect of accounting change of $46.3 million representing income of $70.3 million (net of contract deferrals of $67.0 million and income taxes of $47.2 million) for the change in accounting for coal workers' pneumoconiosis, and a charge of $23.9 million (net of income taxes of $16.1 million) for the change in accounting for workers' compensation. (4)Pro forma net income assumes (A) payment of the extraordinary dividend in 1997 and the purchase of stock from DuPont Energy in 1998 as if they had occurred at the beginning of the period and were funded by the reduction of marketable securities and the issuance of commercial paper and (B) the application of the net proceeds from the offering. (5)Pro forma net income per share and pro forma weighted average number of common shares outstanding assumes the stock split, the purchase of shares of common stock from DuPont Energy and the issuance of shares of common stock in the offering. (6)Gives effect to the purchase by CONSOL of shares of common stock owned by DuPont Energy and the payment of dividends in 1998 and related borrowings incurred to finance the purchase and dividend. See "Certain Relationships and Related Party Transactions." (7)Includes sales of coal produced by CONSOL and purchased from third parties. CONSOL sold 3.3 million, 3.5 million, 2.7 million, 3.2 million, 3.1 million, 2.2 million and 2.1 million tons of coal that we purchased from third parties during 1993, 1994, 1995, 1996 and 1997 and the nine months ended September 30, 1997 and 1998, respectively. (8)Represents proved and probable reserves at period end. See "Business--Coal Reserves" and "Glossary." (9)In November 1998, CONSOL exchanged two mining complexes, Holden and Twin Branch, with A.T. Massey Coal Company for the Vesta coal reserves located in southwestern Pennsylvania. (10)EBIT is defined as earnings, before cumulative effect of accounting changes, from continuing operations, before deducting net interest expense (interest expense less interest income) and income taxes. EBITDA is defined as earnings, before cumulative effect of accounting changes, before deducting net interest expense (interest expense less interest income), income taxes and depreciation, depletion and amortization. Although EBIT and EBITDA are not measures of performance calculated in accordance with generally accepted accounting principles, management believes that they are useful to an investor in evaluating CONSOL because they are widely used in the coal industry as measures to evaluate a company's operating performance before debt expense and its cash flow. EBIT and EBITDA do not purport to represent cash generated by operating activities and should not be considered in isolation or as a substitute for measures of performance in accordance with generally accepted accounting principles. In addition, because EBIT and EBITDA are not calculated identically by all companies, the presentation here may not be comparable to other similarly titled measures of other companies. Management's discretionary use of funds depicted by EBIT and EBITDA may be limited by working capital, debt service and capital expenditure requirements and by restrictions related to legal requirements, commitments and uncertainties. 25 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION GENERAL CONSOL ranks among the largest coal companies in the United States based upon total revenue, net income and operating cash flow. CONSOL is the largest U.S. producer of high-Btu bituminous coal, the largest producer of coal east of the Mississippi River, the largest producer from underground mines and the largest U.S. exporter of coal to international markets. CONSOL sells coal to more than 20 nations and serves markets in Europe, South America, Southeast Asia, Africa, the Caribbean and North America. Production in 1997 totalled 73 million tons. CONSOL accounted for 7% of total domestic tons produced and for 12% of tons produced in the eastern United States during 1997. CONSOL currently operates 25 mining complexes. At December 31, 1997, CONSOL had 4.8 billion tons of proved and probable coal reserves, the second largest reserve base among U.S. coal producers. CONSOL has increased earnings over the last five years by (1) reducing unit costs of production through productivity improvements, (2) expanding CONSOL mines by investing in technology, thereby using the resulting production increases to replace older, higher cost mines with depleted reserves, (3) investing in acquisitions that complement existing operations, and (4) successfully selling coal at prices that have enabled CONSOL to maintain margins despite the expiration of above-market sales contracts. CONSOL will attempt to continue to use these methods in the future. CONSOL has maintained the delivered-cost competitiveness of its coals by increasing productivity. CONSOL operates 25% of all longwall mining systems in the United States, more than any other coal producer. The distinguishing characteristic of longwall mines relative to other types of mines is a low variable-cost structure due to highly mechanized operations. Expansion of production from these mines can be achieved at low incremental cost. This has allowed CONSOL to generate positive cash margins even under pricing pressures. While tons produced by CONSOL have increased in each of 1995, 1996 and 1997, CONSOL reduced employment at its mining complexes in operation by 11.8% from December 31, 1995 through December 31, 1997 and the number of mining complexes in operation from 30 to 24. During the same period, net income increased in each year, from $130 million in 1995 to $153 million in 1996 and $184 million in 1997, as did net cash provided by operating activities which increased from $298 million in 1995 to $373 million in 1996 and $428 million in 1997. CONSOL expects to continue to reduce its unit cost of production in the future. CONSOL currently is expanding the preparation plant that serves the Bailey and Enlow Fork operation and plans to improve underground haulage to ultimately increase production nearly 25% from what already is a record level. CONSOL replaced track haulage with more efficient belt haulage at its McElroy mine in 1997 and its Blacksville mine in 1998. Also at the McElroy mine, CONSOL is constructing a raw coal silo that will allow greater efficiency at both the plant and in the mine. At the Blacksville mine, CONSOL plans to accelerate the lifting of coal from the vertical shaft in the mine, which is the current bottleneck. CONSOL intends to convert the Shoemaker mine to an all-belt haulage mine to further reduce its costs. CONSOL has plans to replace the Cardinal River mine with the lower-cost Cheviot mine subject to satisfactory market conditions. In 1999, the higher-cost Powhatan mine will deplete its reserves and it is anticipated that the expanded McElroy and Shoemaker mines will more than offset the production loss and do so at lower costs. CONSOL incorporates such improvements routinely in its plans to continue to reduce cost. CONSOL also will increase its production through acquisitions where CONSOL believes it has a competitive advantage and can generate value from underperforming assets. In September 1998, CONSOL acquired Rochester & Pittsburgh Coal Company. Rochester & Pittsburgh's principal asset is Mine No. 84, which has 26 similar characteristics to the Bailey and Enlow Fork mines, and has the potential to become a highly efficient mine. CONSOL has successfully marketed its coal production, and has been able to maintain margins despite the implementation in 1995 of the first phase of the Clean Air Act. The second phase of the implementation of the Clear Air Act will take effect in the year 2000. CONSOL plans to sell a significant portion of its high-sulfur coal production after 2000 to scrubbed plants or to export markets. Its medium-sulfur coals, such as coal produced at the Bailey, Enlow Fork and Mine 84 mines, will be targeted to power plants that are unscrubbed but that can continue to burn such coals with sulfur dioxide allowances. Although the Clean Air Act has had some effect on the price per ton of high-sulfur coal, CONSOL believes that production costs will continue to be a significant factor in setting prices. The coal market is a very competitive market in which prices often are set by marginal cost producers. As producers deplete their reserves, their cost of mining will increase. To date, productivity improvements throughout the industry have offset cost pressures resulting from the depletion of existing reserves. Generally, the price of high-sulfur coal on a delivered basis is less than the price of low-sulfur coal on a delivered basis. CONSOL believes that the price difference between high-and low-sulfur coal likely will widen in the future because low-sulfur producers will be required to mine higher cost reserves. The price of higher sulfur coals also will rise because of depletion, but this increase may not be as fast as the increase in low-sulfur coal. CONSOL believes that it is in a favorable position in which cost reductions are available through continued productivity improvements by mining its extensive reserves that are accessible to its existing mines. CONSOL believes that many of the unscrubbed power plants also will retrofit scrubbers when economical. Because of potential further tightening of clean air regulations, particularly for sulfur dioxide and for mercury control, scrubbers may be required. To the extent that plants install scrubbers, the cost of operating a scrubber is approximately $.09 to $.12 per million Btus. In addition, CONSOL believes that technologically-advantaged clean power plants using high-Btu, low-delivered-cost coals to be more competitive than plants generating electricity with natural gas. Because scrubbers are needed for all new power plants that burn coal and may be required for existing coal burning plants to continue to operate under tighter air regulations, CONSOL's coals should sustain their advantage over low-sulfur coal that is produced farther from CONSOL's markets and, as a result, have higher transportation costs. LONG-TERM CONTRACTS During 1997, approximately 66% of CONSOL's total revenue from coal sales (representing 46.9 million tons) resulted from sales under long-term contracts (in excess of one year). These contracts contribute to the stability and profitability of CONSOL's operations by providing predictability of production volumes and sales prices. In addition, because the price of coal has declined in recent years, some of CONSOL's long-term contracts are at prices above current spot market. CONSOL's long-term contracts, existing at September 30, 1998, have remaining terms ranging from one to 18 years and provide, in the aggregate, for the delivery of 46 million tons in 1998, 42 million tons in 1999 and 24 million tons in 2000, subject generally, to the satisfaction of certain conditions and each contracting party's right to vary the number of tons delivered. The average original term of our long-term contracts is 6.5 years. The average remaining term of these contracts is 2.7 years. CONSOL's net income primarily is generated by low-cost mining operations with sales volumes at market prices. However, CONSOL has fixed-price and base-price-plus-escalation steam coal contracts that are above or below current market prices. The following table sets forth for such contracts that were in effect in 1997 (1) the number of tons deliverable, (2) the weighted average price per ton paid or estimated to be payable and (3) the number of contracts. Where contracts have price reopener provisions, such contracts have been excluded from the table after the date on which they revert to market prices. Of our 65 long-term contracts, 40 of these contracts have price reopener provisions. The price reopener provisions in all but one of these 40 contracts are 27 at market price at the time of the reopening. One contract reopener is based on production costs for labor and supplies for the mines supplying the coal. BASE-PRICE-PLUS ESCALATION AND FIXED-PRICE SALES CONTRACTS ----------------------------------------------------------
1997 1998 1999 2000 2001 2002 ---- ---- ---- ---- ---- ---- Sales volumes 35.0 28.4 25.5 12.8 11.3 8.9 (Millions of tons) Weighted average price $27.70 $28.90 $29.20 $27.20 $28.60 $31.10 (Free on board at mine) Number of Contracts 37 25 19 10 9 8
Contracts that provided for the sale of 22 million tons in 1997 expire or revert to market price prior to 2000. These contracts generated total revenues of $620 million in 1997. Based on CONSOL's estimate of market prices in 1997, if sales under these contracts had been at market prices, CONSOL's revenues and net income in 1997 would have been reduced by approximately $120 million and $75 million, respectively. During the past five years, CONSOL has been able to offset the effects of the expiration of long-term contracts through cost savings and productivity improvements. CONSOL anticipates that it will be able to mitigate the impact of the expiration of such contracts. However, there cannot be any assurance that it will be able to do so, particularly with the larger volume expiring in 2000, and the inability to reduce costs and improve productivity could have a material adverse effect on CONSOL's business, operations and financial condition. CHANGE OF FISCAL YEAR After the offering, CONSOL expects to change its fiscal year from a calendar year to a year ending on June 30. CONSOL will have a transitional fiscal period ending June 30, 1999. CONSOL's first full fiscal year ending June 30 will be the year that starts July 1, 1999 and ends June 30, 2000. CONSOL is undertaking this change in order to align its fiscal year with that of Rheinbraun. CONSOL is a consolidated subsidiary of Rheinbraun. RESULTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH NINE MONTHS ENDED SEPTEMBER 30, 1997 Revenue. Sales decreased 0.3% to $1,680 million for the nine-month interim period ended September 30, 1998 from $1,685 million for the nine-month interim period ended September 30, 1997. The decrease of $5 million was due mainly to a decrease in sales of industrial supplies by $29 million due to a loss of a sales contract and a decrease in sales of purchased coal by $10 million due to a loss of a contract. It also reflected a general decrease in coal purchased by CONSOL and sold to the export market. These decreases were offset by increased produced coal sales of $37 million due mainly to a 2.3% increase in the volume of coal sold. Coal sales prices for the 1998 interim period were comparable to those for the 1997 interim period. Other income, which consists of interest income, gain (loss) on the disposition of assets, service income, royalty income, rental income and certain other income, decreased 27.5% to $37 million for the 1998 interim period compared with $51 million for the 1997 interim period. The decrease of $14 million was due primarily to a 28 decrease in interest income resulting from a lower level of investment in marketable securities and a decrease in the gain on sale of assets, partially offset by a one-time payment received in 1998 pursuant to an agreement that compensated CONSOL for not mining certain coal reserves. Costs. Cost of goods sold and other operating charges decreased 2.7% to $1,158 million for the 1998 interim period compared with $1,190 million for the 1997 interim period. The decrease of $32 million primarily reflected lower costs as a result of decreased industrial supply sales and decreased purchased coal sales. Coal mine productivity (calculated in tons per manday) increased 7.1% for the 1998 interim period compared with the 1997 interim period. The productivity increase was driven, in part, by increases in production at the McElroy mine, which completed installation of a new belt haulage system at the end of 1997, and the Enlow Fork mine, which installed a new longwall early in 1998. Selling, general and administrative expenses remained stable at $41 million for the 1998 interim period and for the 1997 interim period. Depreciation, depletion and amortization increased 2.9% to $176 million for the 1998 interim period compared with $171 million for the 1997 interim period. The increase of $5 million was primarily due to the increase in equipment placed in service in the 1998 interim period. Interest Expense decreased 5.9% to $32 million for the 1998 interim period compared with $34 million for the 1997 interim period. The decrease of $2 million was primarily due to a decrease in the average principal amount of long-term debt outstanding during the period and more interest expense capitalized in the 1998 interim period than in the 1997 interim period. This decrease was partially offset by higher interest costs for short term commercial paper due to higher principal balances outstanding during the 1998 interim period compared to the 1997 interim period. Taxes other than income increased 3.5% to $148 million for the 1998 interim period compared with $143 million for the 1997 interim period. The increase of $5 million was primarily the result of an increase in production related taxes due to increased production volumes and the exhaustion of the West Virginia Business Investment and Jobs Expansion Tax Credit carryforward utilized in 1997. This increase was partially offset by a reduction of property tax expense due primarily to reduced assessments at recently closed facilities. Income Taxes. Income taxes increased 5.6% to $38 million for the 1998 interim period compared with $36 million for the 1997 interim period, reflecting increased earnings in the 1998 interim period. The estimated effective tax rate was 23.6% for the 1998 interim period compared to 23.0% compared to the 1997 interim period. 1997 COMPARED WITH 1996 Revenue. Sales decreased 2.2% to $2,285 million for 1997 compared with $2,336 million for 1996. The decrease of $51 million primarily was due to a decrease of 1.8 million tons, or 2.4%, due to a decrease in the volume of U.S. metallurgical and international steam coal sold, partially offset by an improvement in average sales price per ton. Other income increased 4.9% to $64 million for 1997 compared with $61 million for 1996. The increase of $3 million primarily was due to an increase in royalty income from a coal lease in Kentucky that began generating revenue in September 1996 and continued to generate revenue for the full year of 1997. Costs. Cost of goods sold and other operating charges decreased 5.7% to $1,592 million for 1997 compared with $1,688 million for 1996 primarily as a result of lower volume of CONSOL-produced coal sold in 1997 and lower average production costs per ton. Coal mine productivity increased 11.3% in 1997 compared with 1996, 29 and nine mines set production records in 1997. The productivity improvement is attributable mainly to investment in a longwall mining system at Shoemaker, in underground coal haulage at McElroy, and in an underground storage bunker at Buchanan. Selling, general and administrative expenses increased 3.8% to $55 million for 1997 compared with $53 million for 1996. The increase of $2 million primarily was due to an increase in salaries and related benefits. Depreciation, depletion and amortization decreased 0.9% to $233 million for 1997 compared with $235 million for 1996. Interest expense increased 2.2% to $46 million for 1997 compared with $45 million for 1996. The increase of $1 million reflected interest charges related to disputed coal royalty payments offset by lower average debt levels resulting from the repayment of $44 million of long-term debt during 1997. Taxes other than income increased 1.1% to $189 million for 1997 compared with $187 million in 1996. The increase of $2 million resulted from increases in severance taxes and required tax payments for pneumoconiosis (black lung) benefits, which arose because of higher production. The increase in severance taxes also resulted from the expiration in December 1996 of the West Virginia Business and Job Expansion Tax Credit representing a portion of the tax credit that was carried forward to 1997. The increase in taxes was partially offset by a reduction in property tax expense as a result of mine closures. Income Taxes. Income taxes increased 38.9% to $50 million for 1997 compared with $36 million for 1996. The increase of $14 million resulted primarily from increased earnings and an increase in the effective tax rate from 19.1% in 1996 to 21.3% in 1997. The increased effective tax rate for 1997 primarily was influenced by a decline in the impact of percentage depletion. 1996 COMPARED WITH 1995 Revenue. Sales increased 3.0% to $2,336 million for 1996 compared with $2,269 million for 1995. The increase of $67 million resulted from an increase of 5.9% in the volume of coal sold. Volumes improved because of continued growth in the U.S. economy and colder than normal temperatures in the first quarter which boosted demand for steam coal from electricity generators. Record sales volumes were recorded for CONSOL. Other income increased 35.6% to $61 million for 1996 compared with $45 million for 1995. The increase primarily reflected aggregate gains on sales of assets of $14 million in 1996 compared to aggregate losses of $5 million on such sales in 1995. The loss in 1995 was influenced by the sale of gas properties in Virginia. Costs. Cost of goods sold and other operating charges increased 5.5% to $1,688 million for 1996 compared with $1,600 million for 1995. The increase of $88 million primarily reflected increased volume of coal sales during 1996 offset in part by lower average production costs per ton. Coal mine productivity improved 10.7%. Eight mines set productivity records and nine mines set production records, including Enlow Fork, which produced 8.7 million tons, the most ever for a U.S. underground mine. Productivity at Loveridge was enhanced following the installation of a new longwall mining system. Selling, general and administrative expenses remained stable at $53 million for 1996 and 1995. Depreciation, depletion and amortization decreased 7.1% to $235 million for 1996 compared with $253 million for 1995. The decrease of $18 million primarily was due to the amortization in full of certain capitalized mining costs and to the sale of certain gas properties in 1995. 30 Interest expense decreased 16.7% to $45 million for 1996 compared with $54 million for 1995. The decrease of $9 million primarily was due to the lower average principal amount and lower effective interest rates during 1996 compared with 1995. Taxes other than income decreased 7.0% to $187 million for 1996 compared with $201 million for 1995. The decrease of $14 million was due primarily to the enactment of the Virginia Coalfield Employment Enhancement Tax Credit in 1996, which encouraged the creation and maintenance of coal mining jobs, and reduced severance tax due to mines that were closed in 1995. Income Taxes. Income taxes increased 56.5% to $36 million for 1996 compared with $23 million for 1995. The increase of $13 million primarily was due to the increase in earnings and an increase in the effective tax rate from 14.9% for 1995 to 19.1% for 1996. The effective tax rate increase resulted from a reduction in alternative fuel tax credits because of the sale in 1995 of coalbed methane gas operations that were eligible for such credit. LIQUIDITY AND CAPITAL RESOURCES CONSOL generally has satisfied its working capital requirements and funded its capital expenditures and debt-service obligations from cash generated from operations. CONSOL believes that cash generated from operations and its borrowing capacity will be sufficient to meet its working capital requirements, anticipated capital expenditures (other than major acquisitions), scheduled debt payments and anticipated dividend payments for at least the next several years. Nevertheless, the ability of CONSOL to satisfy its debt service obligations, to fund planned capital expenditures or pay dividends will depend upon its future operating performance, which will be affected by prevailing economic conditions in the coal industry and financial, business and other factors, certain of which are beyond CONSOL's control. CONSOL frequently evaluates potential acquisitions. In the past, CONSOL has funded acquisitions primarily with cash generated from operations, but CONSOL may consider a variety of other sources, depending on the size of any transaction, including debt or equity financing. There can be no assurance that such additional capital resources will be available to CONSOL on terms which CONSOL finds acceptable, or at all. OPERATING CASH FLOWS Net cash provided by operating activities was $298 million, $373 million and $428 million in 1995, 1996 and 1997, respectively, and $243 million in the 1997 interim period and $263 million in the 1998 interim period. The increases in net cash provided by operating activities reflect increases in net income and changes in certain working capital requirements. CAPITAL EXPENDITURES Capital expenditures were approximately $179 million in 1995, $169 million in 1996 and $201 million in 1997. CONSOL made such expenditures for replacement of mining equipment, the expansion of mining capacity and projects to improve the efficiency of mining operations. During the 1998 interim period, CONSOL spent approximately $189 million for capital expenditures excluding the costs associated with the acquisition of Rochester & Pittsburgh. Capital expenditures included $42 million for replacement of longwall equipment, $31 million for expansion of the Bailey preparation plant, $20 million for drilling new wells and installing associated gas gathering equipment for CONSOL's coalbed methane joint venture and $96 million for other maintenance-of-production projects, including air shafts, replacement equipment and equipment rebuilds. Capital expenditures during the fourth 31 quarter of 1998 will be for maintenance of production. CONSOL anticipates that it will spend approximately an additional $47 million for capital expenditures during the fourth quarter of 1998. CONSOL spent approximately $150 million for the acquisition of Rochester & Pittsburgh and $50 million to repay certain indebtedness of Rochester & Pittsburgh. CONSOL used cash generated from operations and cash made available from the issuance of commercial paper to fund capital expenditures in the second half of 1998, the acquisition of Rochester & Pittsburgh and the repayment of indebtedness of Rochester & Pittsburgh. CONSOL anticipates making capital expenditures of approximately $260 million during 1999 and approximately $314 million during 2000, primarily for maintenance and replacement of mining equipment and operations, and including $5 million during 1999 for pollution abatement and mine reclamation expenditures. Capital expenditures for pollution abatement and reclamation currently are projected to be $6.2 million for 2000 and $4.3 million for 2001. The Company expects to fund its capital expenditures with cash generated by operations and the issuance of commercial paper. DEBT At September 30, 1998, CONSOL had total long-term debt of $430 million, including current portion of long-term debt of $109 million. Such long-term debt consisted of (1) an aggregate principal amount of $256 million of unsecured notes which bear interest at rates ranging from 7.88% to 8.28% per annum and are due at various dates between 1999 and 2007, (2) an aggregate principal amount of $103 million of two series of industrial revenue bonds which were issued in order to finance CONSOL's Baltimore port facility and bear interest at the rate of 6.5% per annum and mature in 2010 and 2011, (3) an aggregate principal amount of $3 million of variable rate notes due at various dates through 2001, (4) $28 million in advance royalty commitments, (5) an aggregate principal amount of $14 million of notes maturing at various dates through 2007 and (6) an aggregate principal amount of $26 million of capital leases. An aggregate principal amount of $109 million in long-term debt will come due during 1999. In addition, at September 30, 1998, CONSOL had an aggregate principal amount of $105 million of commercial paper outstanding which had maturities ranging up to 30 days and bore interest at varying rates. CONSOL issued $600 million in commercial paper in November, 1998 in order to fund the purchase of shares from DuPont Energy, a dividend of $60 million and the acquisition of Rochester & Pittsburgh and the refinancing of certain indebtedness incurred by Rochester & Pittsburgh. The commercial paper pays interest at varying rates and will be retired in part with the net proceeds of the offering. At November 30, 1998, there was $543 million principal amount of commercial paper outstanding. CONSOL will retire outstanding commercial paper with proceeds of the offering. After retiring the outstanding commercial paper, CONSOL believes that it will continue to be able to issue commercial paper. CONSOL has a Senior Credit Facility available to it under which it may borrow up to $700 million. At November 30, 1998, there were no borrowings outstanding under the Senior Credit Facility. To date, CONSOL has used the Senior Credit Facility to support the payment of its commercial paper. However, CONSOL could borrow amounts under the Senior Credit Facility for other purposes. Borrowings under this facility bear interest based on the London Interbank Offer Rate or the Prime Rate at CONSOL's option. Funds may be borrowed for periods ranging from one to 360 days, depending upon the interest rate selected by CONSOL. CONSOL has not engaged in any hedging transactions since 1995. STOCKHOLDERS' EQUITY AND DIVIDENDS CONSOL had stockholders' equity of $303 million at December 31, 1997 and $427 million at September 30, 1998. CONSOL paid ordinary cash dividends of $80 million during each of 1995, 1996 and 1997. CONSOL paid a dividend of $60 million in November 1998 and a $20 million dividend in December 1998. CONSOL also paid an extraordinary cash dividend to its stockholders of $380 million in 1997. The Board of Directors currently intends to pay quarterly dividends on the common stock. It is expected that the first quarterly dividend will be $ per share (a rate of per share annually) and will be declared and paid in the third quarter 32 of 1999. Current outstanding indebtedness of CONSOL does not restrict CONSOL's ability to pay cash dividends. ACCRUALS FOR CERTAIN LONG-TERM LIABILITIES CONSOL has accrued for the costs it will incur in the future to satisfy certain obligations. CONSOL had accrued $2,484 million, $2,460 million, $2,433 million and $2,466 million at December 31, 1995, 1996, 1997 and September 30, 1998 for deferred credits and other liabilities. These accruals are chiefly comprised of post retirement health care benefits, workers' compensation, pneumoconiosis (black lung) benefits and costs associated with closing mines. These obligations are unfunded. The accruals of these items are based on estimates of future liabilities, which estimates are periodically reviewed in light of CONSOL's experience, changes in mining plans and legislation and other developments. Thus, from time to time, CONSOL's results of operations may be significantly affected by changes to such deferred credits and other liabilities. See Notes 14 and 15 of the Notes to Consolidated Financial Statements. CONSOL provides medical and life insurance benefits to retired employees not covered by the Coal Industry Retiree Health Benefit Act of 1992. Substantially all of CONSOL's employees may become eligible for these benefits if they have worked ten years and attained the age of 55. The associated plans are unfunded. CONSOL had accrued $1,145 million, $1,144 million, $1,145 million and $1,289 million at December 31, 1995, 1996 and 1997 and September 30, 1998, respectively. The net costs of maintaining CONSOL's post retirement benefits plans were $47 million, $54 million, $61 million and $55 million during 1995, 1996, 1997 and the nine months ended September 30, 1998, respectively. CONSOL used a 7.5% annual rate increase in per capita cost of covered health care benefits in determining such costs for 1997. CONSOL had assumed that the rate of such increases will gradually decline to 4.5% in 2003 and remain level thereafter. An increase in the assumed health care cost trend rates by 1% in each year would increase the accumulated post retirement benefit obligation at December 31, 1997 by $85 million and increase the aggregate of the service and interest cost component of net cost of maintaining CONSOL's post retirement benefits plan for 1997 by $8 million. CONSOL is required to pay pneumoconiosis (black lung) benefits to eligible employees and former employees and their dependents under the Black Lung Benefits Act of 1969 and the Black Lung Benefits Revenue Act of 1977 and the Black Lung Benefits Reform Act of 1977. CONSOL is also liable under various state statutes for pneumoconiosis claims. CONSOL provides self-insured accruals for present and future liabilities for such benefits and determines such liabilities by employing the projected unit credit method. Under this method, the costs determined by the actuarial study are amortized over the employees' requisite service periods. CONSOL amortizes the actuarial gains and losses over the remainder of the average service life of the employees, which approximates 15.4 years. CONSOL had accrued $518 million, $518 million, $511 million and $496 million for such benefits at December 31, 1995, 1996, 1997 and September 30, 1998. The cost of providing such benefits was $6 million, $12 million and $4 million during 1995, 1996, 1997. The impact of these costs has not been significant for the 1998 Period. Actual claims paid by CONSOL could change significantly if current legislation is amended or if new legislation is enacted. See "Regulation--Employee and Retirement Benefits--Black Lung Legislation" and Note 14 of Notes to Consolidated Financial Statements. CONSOL estimates and accrues for costs associated with closing mines and the perpetual care of mines over the productive life of mines on a units-of-production basis. CONSOL had accrued $246 million, $244 million, $250 million and $286 million at December 31, 1995, 1996, 1997 and September 30, 1998 for such costs. CONSOL accrues for workers' compensation claims resulting from traumatic injuries based on historical claims rates and periodically adjusts these estimates based on the estimated costs of claims made. CONSOL had accrued $225 million, $215 million, $211 million and $248 million at December 31, 1995, 1996, 1997 and September 30, 1998 for such costs. 33 INFLATION Inflation in the United States has been relatively low in recent years and did not have a material impact on CONSOL's results of operations for the nine months ended September 30, 1998 or the years ended December 31, 1995, 1996 or 1997. IMPACT OF YEAR 2000 ISSUE The year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of CONSOL's computer programs or hardware that have date-sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. The failure to correct any such programs or hardware could result in system failures or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices or engage in similar normal business activities. Based on recent assessments, CONSOL has determined that it will be required to modify or replace some portions of its software, and, to a lesser extent, its hardware so that those systems will properly utilize dates beyond December 31, 1999. CONSOL believes that with modification and replacement of existing software and hardware, the year 2000 issue can be substantially mitigated. However, if such modifications and replacements are not made, or are not completed on a timely basis, which CONSOL currently does not anticipate, the year 2000 issue could have a material impact on the operations of CONSOL. CONSOL's plan to resolve year 2000 issues involves four phases: assessment, remediation, testing and implementation. In September 1997, CONSOL formed a committee to address this issue. The committee has completed its assessment of all material information technology systems that would be affected by the year 2000 issue if not modified and has initiated a program to modify or replace portions of its software so that CONSOL's computer systems will function properly in the year 2000 and thereafter. To date, CONSOL is 50% complete on the remediation and testing phase of the systems. CONSOL expects software reprogramming and replacement, testing and implementation to be completed by the second quarter of 1999. CONSOL is in the process of assessing its operating equipment that uses microprocessors to determine the extent that they are at risk for year 2000 problems. This equipment includes coal mining, processing and loadout equipment. The remediation of operating equipment depends primarily on the manufacturers of that equipment for modifications. CONSOL is also in the process of assessing the extent to which its suppliers of other products and services will be able to supply CONSOL through the year 2000. CONSOL has initiated formal communications with all of its significant equipment vendors and other suppliers. CONSOL has not obtained timetables of expected completion dates of modification, testing and implementation from all of the vendors and suppliers. CONSOL does not control its suppliers and vendors, but is attempting to have such timetables submitted in the first quarter of 1999. The effect on CONSOL's operations of not having these systems remediated, while not estimable at this time, could be significant. CONSOL conducts transactions that interface directly with systems of suppliers and customers. There is no guarantee that the systems of other companies on which CONSOL's systems rely will be timely converted and would not have an adverse effect on CONSOL's systems. Furthermore, there can be no assurance that CONSOL's suppliers will not experience material business disruptions that could affect CONSOL as a result of the year 2000 problem. CONSOL plans to complete communications with important suppliers and customers, which do not have system interfaces, as to their year 2000 readiness in the first quarter of 1999. The communications to date from such third parties to CONSOL's inquiries do not indicate that these third parties expect, at this time, to be non-compliant by the year 2000 based on their progress to date. However, the inability of a substantial number of third parties to complete their year 2000 resolution process could materially impact CONSOL. For example, the failure to be year 2000 compliant by banks with whom CONSOL has material banking relationships could cause significant disruptions in CONSOL's ability to make 34 payments, deposit funds and make investments, which could have a material adverse effect on CONSOL's financial condition. CONSOL is utilizing both internal and external resources to reprogram or replace, test and implement the software and operating equipment for year 2000 modifications. The total cost of the year 2000 project is estimated to be less than $2 million and is being expensed as incurred and funded through operating cash flows. In 1998, CONSOL expects to expense $539,000 related to all phases of the year 2000 project. CONSOL has not established contingency plans in case of failure of its information technology systems since it expects to have its material systems in place by the second quarter of 1999. In connection with CONSOL's assessment of third party readiness and operating equipment, in the first quarter of 1999 CONSOL will evaluate the necessity of contingency plans based on the level of uncertainty regarding such compliance. In the event CONSOL's intermediaries or vendors do not expect to be year 2000 compliant, CONSOL's contingency plan may include replacing such intermediaries or vendors or conducting the particular operations itself. CONSOL plans to complete the year 2000 modifications are based on management's best estimates, which were derived utilizing numerous assumptions of future events including the continued availability of certain resources, and other factors. Estimates on the status of completion and the expected completion dates are based on progress to date compared to the timetable established by its year 2000 committee. CONSOL has not employed the services of independent contractors to verify CONSOL's assessment and estimates related to the year 2000 problem. There can be no guarantee that these estimates will be achieved and actual results could differ materially from these plans. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes and similar uncertainties. CONSOL believes that it is difficult to fully assess the risks of the year 2000 issue due to numerous uncertainties surrounding the issue. Management believes that the primary risks are external to CONSOL and relate to the year 2000 readiness of customers, suppliers, transportation suppliers such as railroads, barge lines, terminal operators, ocean vessel brokers, and others. The inability of CONSOL or such third parties to adequately address the year 2000 issues on a timely basis could result in a material financial risk, including loss of revenue, substantial unanticipated costs and service interruptions. Accordingly, CONSOL plans to devote the resources it concludes are appropriate to address all significant year 2000 issues in a timely manner. RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, SFAS No. 130, "Reporting Comprehensive Income" was issued which establishes new rules for the reporting and display of comprehensive income and its components. CONSOL adopted this statement for the year ending December 31, 1998. CONSOL has no significant items of other comprehensive income. In June 1997, SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information" ("SFAS 131) was issued which establishes standards for disclosure about operating segments in annual financial statements and selected information in interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas and major customers. This statement supersedes SFAS No. 14 "Financial Reporting for Segments of a Business Enterprise." The new standard requires that comparative information from earlier years be restated to conform to requirements. CONSOL adopted this standard for 1997. In February 1998, SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits" was issued which improves and standardizes disclosures by eliminating certain existing reporting requirements and adding new disclosures. The statement addresses disclosure issues only and does not change the measurement of recognition provisions specified in previous statements. The statement supersedes 35 the disclosure requirements of SFAS No. 87, "Employer's Accounting for Pensions," SFAS No. 88, "Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits" and SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions." CONSOL intends to adopt this statement for the year ending December 31, 1998. In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" was issued which establishes accounting procedures for derivative instruments including certain derivative instruments embedded in other contracts and hedging activities. This statement amends SFAS No. 52, "Foreign Currency Translation" to permit special accounting for a hedge of a foreign currency forecasted transaction with a derivative. It supersedes SFAS No. 80, "Accounting for Futures Contracts, SFAS No. 105, Disclosure of Information about Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit Risk", SFAS No. 119 "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments." It also amends SFAS No. 107, "Disclosure about Fair Value of Financial Instruments" to include the disclosure provisions about concentration of credit risk from Statement 105. CONSOL intends to adopt this statement for the year ending December 31, 1998. No effect from this adoption is anticipated. 36 COAL INDUSTRY OVERVIEW Coal is one of the world's major energy sources. The International Energy Agency estimates that nearly 20% of the world's total primary energy supply came from coal in 1996. In most parts of the world, coal is primarily used for the generation of electricity. World-wide, coal combustion accounted for 37% of the generation of electricity in 1996. In the United States, coal combustion accounted for 57% of electricity generation in 1997. The major coal producers in the world are China, the United States, Russia, Ukraine, India, Australia and South Africa. More than 60 countries produce coal. The United States has the largest reserve base, with an estimated 29% of the world's recoverable bituminous and subbituminous coal reserves, followed by Russia, China, India, South Africa and Australia. U.S. COAL MARKETS Production of coal in the United States has increased from 434 million tons in 1960 to 1.1 billion tons in 1997. The following table shows actual consumption of U.S. produced coal during 1996 and 1997 and projected consumption through 2015.
HISTORICAL AND PROJECTED U.S. COAL CONSUMPTION ---------------------------------------------------------------------------- COMPOUND ANNUAL GROWTH RATE 1996- SECTOR 1996 1997 2000P 2005P 2010P 2015P 2015 - ---------------------------------- ------- ------- ------- ------- ------- ------- ------ in millions of tons Utility........................... 873.2 899.8 979.3 1027.9 1,050.6 1,070.6 1.1 % Industrial........................ 68.2 68.2 67.7 67.9 66.1 66.5 (0.1) Non-utility generators........... 22.1 23.0 24.8 29.3 38.3 49.8 4.4 Coke plants/steel mills Metallurgical quality.......... 31.7 31.0 30.2 19.2 18.4 15.2 (3.8) Steam quality.................. 5.0 7.2 9.2 15.4 15.8 17.9 6.9 ------- ------- ------- ------- ------- ------- Total domestic.............. 1,000.2 1,029.2 1,111.2 1,159.8 1,189.2 1,220.0 1.1 ------- ------- ------- ------- ------- ------- 90.9 83.5 76.3 74.5 75.4 77.0 (0.9) ------- ------- ------- ------- ------- ------- Export............................ Total....................... 1,091.1 1,112.7 1,187.5 1,234.3 1,264.6 1,297.0 0.9 % ======= ======= ======= ======= ======= =======
- ----------------------------- Source: RDI, Outlook for Coal, Winter 1998-1999. GENERATION OF ELECTRICITY Coal is the predominant fuel used in the generation of electricity. Over the past 20 years, generators of electricity have increased consumption of coal from less than 500 million tons per year in 1977 to almost 900 million tons in 1997. Coal's share of the fuel market for electricity generation has risen from 46% to 57% 37 during that period. The increase in consumption was due in part to changes in attitudes toward fuel supply security following the Arab oil embargoes during the 1970s. More important, coal has a low delivered cost relative to other competing fuels. The following table shows a comparison of the average generating costs of electricity for each primary fuel.
AVERAGE PRODUCTION COSTS OF ELECTRICITY GENERATION --------------- $/megawatt Hour Coal.................................. $17.40 Natural Gas........................... $33.67 Nuclear............................... $20.02 Hydro................................. $0.65
- ----------------------------- Source: RDI Database On average, coal-fired electricity generation is less expensive than generation from natural gas or nuclear power. Hydro-electric power is inexpensive but cannot grow due to a lack of suitable new dam sites. RDI expects generators of electricity to increase their demand for coal as demand for electricity increases. Because coal-fired generation is used in most cases to meet base-load requirements, coal consumption has generally grown at the pace of growth in demand for electricity. The base-load requirement of a power generator is the amount of power that is required 24 hours a day. This is compared to peak requirements that only occur at times during a day when electricity demand is at its greatest. The following table shows fuel source comparisons for the generation of electricity in terms of kilowatts generated.
DOMESTIC ELECTRICITY FUEL SOURCES COMPARISON -------------------------- 1990 1996 1997 ------ ------ ----- Coal....................................................... 55% 56% 57% Nuclear.................................................... 21 22 20 Hydro...................................................... 10 11 11 Natural Gas................................................ 9 9 9 Other...................................................... 5 2 3 ------ ------ ----- Total................................................ 100% 100% 100% ====== ====== =====
- ----------------------------- Source: Department of Energy, EIA Monthly Energy Review, February 1998. EXPORTS Current world seaborne trade in hard coal is about 480 million tons, with about 61% used to generate heat and produce steam, and about 39% used in steel-making processes. Of the world's coal producing countries, only the United States, Australia and South Africa are significant exporters. Prior to 1984, the United States was the world's leading exporter of coal, but in the past 15 years that role has diminished and traditional markets for 38 U.S. coal exports have changed. In general, the United States is a swing producer of coal for international markets. Higher labor costs and transportation costs in the United States tend to make U.S. coals less competitive when ample supplies of coal from other producing areas are available. When supplies are restricted, for example because of a strike of workers in a producing country, U.S. coal tends to fill the gap because of the ability of U.S. producers to ship large amounts of coal on short notice. The quality of U.S. coals, particularly the heat content, ash and coking capabilities of Appalachian coals, and the well developed transportation infrastructure in the East, are advantages for the United States. CONSOL believes that its high-Btu, low ash coals from northern Appalachia and CONSOL's control of a major export terminal at Baltimore position it to take advantage of steam coal market opportunities overseas when they occur. The U.S. Department of Energy estimates that the United States exported 83.5 million tons of coal in 1997. The most coal ever exported by the United States was in 1981 when exports reached 112.5 million tons. Since 1990, exports have averaged 90.7 million tons per year. More than 98% of the coal exported by the United States is bituminous coal, most of which is mined in northern and central Appalachia. The remainder of the coal exported is anthracite and lignite. In 1997, Canada (14.5 million tons), Japan (7.9 million tons), and Brazil (7.5 million tons) were the three largest purchasers of U.S. coal overseas. Metallurgical coal historically has been the principal type of coal exported from the United States. In 1997, more than 63% of the coal exported was bituminous, metallurgical-grade coal used in steel making. The remainder of the coal was used for the generation of electricity, cement making and other industrial processes. Major international purchasers of U.S. metallurgical coals are Brazil, Canada, Japan, Italy, The Netherlands, Belgium and France. CONSOL expects growth over the long term in steel making and metallurgical coal consumption in Brazil, India, Korea and Taiwan to offset a slight decline in metallurgical coal use in Europe. CONSOL believes that increased steel production in these countries will lead to increased metallurgical coal consumption. Europe will continue to be a primary market for U.S. metallurgical coal because of the transportation advantage U.S. coals have over coals from Canada or Australia. In addition, aging European coke ovens increasingly will need high quality, low-expansion coals which produce high carbon content and low porous structure coke. These features are common in CONSOL's low-volatile metallurgical coal produced in Virginia. In addition, CONSOL expects its premium low-volatile metallurgical coal to continue to play an important role in the coking coal blends of the future. These coals enhance the strength of the coke produced. This is particularly important to large blast furnaces operated with low coke rates and with high pulverized-coal, oil or gas injection rates. COAL IMPORTS Coal imports into the United States represent a small percentage of the total U.S. market for coal. In 1997, total consumption of coal in the United States was 1,021.2 million tons while imports of coal from overseas were 7.4 million tons, or 0.7%. The largest exporter of coal to the United States was Colombia with 3.0 million tons in 1997. Imported coal typically competes only in coastal markets in the eastern United States. COAL PRODUCTION U.S. coal production was a record 1,088.6 million tons in 1997. During 1996, the most recent year for which complete data is available, bituminous coal accounted for 59% of production, subbituminous coal accounted for 32%, lignite accounted for 8% and anthracite accounted for 1%. 39 The following table shows principal U.S. production statistics for the period 1990 to 1997. U.S. PRODUCTION STATISTICS
------------------------------------------------------------------------------------ CATEGORY 1990 1991 1992 1993 1994 1995 1996 1997 - -------- ------- ----- ----- ----- ------- ------- ------- ------- TOTAL TONS 1,026.3 995.9 997.5 945.4 1,033.5 1,032.9 1,063.8 1,088.6 (in millions) PERCENTAGE OF TOTAL TONS East 61.2% 59.3% 59.0% 54.5% 54.8% 52.7% 52.9% 53.0% West 38.8 40.7 41.0 45.5 45.2 47.3 47.1 47.0 Underground 41.3 40.9 40.8 37.1 38.6 38.4 38.5 38.5 Surface 58.7 59.1 59.2 62.9 61.4 61.6 61.5 61.5 NUMBER OF MINES Total 3,430 3,022 2,746 2,475 2,354 2,104 1,903 1,810 Underground 1,690 1,489 1,354 1,196 1,143 977 885 810 Surface 1,740 1,533 1,392 1,279 1,211 1,127 1,018 1,000 NUMBER OF MINE EMPLOYEES Total 131,306 120,602 110,196 101,322 97,590 90,252 83,462 78,000 Underground 84,154 78,050 70,907 64,604 61,652 57,879 53,796 51,000 Surface 47,152 42,552 39,289 36,718 35,938 32,373 29,666 27,000 AVERAGE PRODUCTION PER MINE (in thousands of tons) Total 300 330 363 382 439 491 559 N.A.(1) Underground 251 273 301 268 349 406 463 N.A.(1) Surface 347 384 424 465 524 565 642 N.A.(1)
_______________________ Source: U.S. Department of Energy/Energy Information Agency/National Mining Association (1)Information was not available at the date of this prospectus. U.S. coal production increased 3.5% from 1990 to 1996, while the number of operating mines declined 44.5% during the same period. In part, this reflected a shift from smaller, high-cost operations to larger, more efficient, technologically advanced, lower-cost operations. In particular, the production attributable to large, capital intensive underground mines in the East and large surface mines in the Powder River Basin in the West 40 has grown. The cost structure of these mines has contributed to a steady decline in steam coal prices that has allowed coal to maintain more than half of the market in the United States for fuel used in generating electricity. MINING METHODS Coal is mined by underground or surface methods depending upon several factors, including the location of the coal seam and the geology of the surrounding area. In general, coal that is more than 200 feet below the surface is mined by underground, or "deep" mining methods. Seams closer to the surface are extracted by surface mining. Underground mining accounted for 39% of total U.S. coal production in 1996. There are two principal methods of underground mining: continuous mining, which accounted for 45% of underground coal produced in 1996, and longwall mining, which accounted for 47% of underground coal produced in 1996. In continuous mining, coal is mined by the room-and-pillar system. This involves the excavation of a series of "rooms" into the coal seam, leaving "pillars" or columns of coal to help support the mine roof. Mining conditions in certain areas may allow the coal pillars to be extracted during the "retreat" phase of mining. A mining machine called a continuous miner tears at the coal in the seam. Typically, the coal is loaded onto shuttle cars which transport the coal to a conveyor belt or to rail cars for transport to the surface. The use of shuttle cars to transport coal from the "section" where mining is taking place to the belt or rail transportation system, is a bottleneck in the production cycle and results in lost mining time at the coal seam while the continuous miner waits for shuttle cars to remove the coal from the working area. Where geology is favorable, the most efficient method of underground extraction of coal is with longwall mining systems. With these systems, two sets of parallel "entries" up to 10,000 feet in length are excavated by continuous miners on either side of a block of coal to be mined by the longwall equipment. The entries are joined together at the far end by crosscuts in the coal. The block of coal thus outlined is called a "panel," and the 1000-1200 foot dimension of the panel (hence the name "longwall") is referred to as the "face" where the longwall mining machine will begin cutting coal. A rotating shearer on a mining machine moves back and forth across the width of the face, cutting and transporting coal from the face in one operation. The longwall machine has its own moveable electro-hydraulic roof supports that are advanced down the length of the block of coal as the shearer cuts the coal away. This method of mining removes all the coal in the panel without leaving coal in place for roof support. Mining by longwall methods has revolutionized underground mining operations in the last 20 years. Over that period, the share of coal mined underground by longwall mining machines has increased from less than 10% to 47%. Surface mining consists of the following operations: removal of the covering layer of rock and soil, called overburden, extraction of the coal using power shovels, which load the coal into trucks to transport the coal from the "pit," backfilling the excavation with earth, and restoring the site to its approximate original vegetation and appearance. In smaller surface mines, bulldozers and front-end loaders are often used to remove overburden. Front-end loaders can also be used to load coal. After mining, coal often is prepared for shipment in a preparation plant. This facility utilizes sizing, gravity, centrifugal force and chemical baths to separate the coal from the non-combustible rock material. This cleaning process upgrades the quality and heat value of the coal by removing or reducing pyritic sulfur deposits, rock, clay and other non-combustible, ash producing material. After cleaning, coal is transported to the customer immediately or stored on the ground or in large, concrete silos for transportation to customers later. 41 COAL PRODUCING REGIONS Coal is mined from coalfields throughout the United States, with the major production centers located in northern Appalachia, central Appalachia, the Illinois Basin, the Powder River Basin and in other western coalfields. [Map of the U.S. indicating the locations of major coal basins] NORTHERN APPALACHIA Medium- and high-sulfur coal is found in the northern Appalachia coalfields of western Pennsylvania, southeastern Ohio and northern West Virginia. Production in the region was approximately 156 million tons in 1997, up from 147 million tons in 1996. In 1997, 121 million tons were sold to electric utilities. Coal production has increased slightly in recent years and production has shifted from high-cost, inefficient, low-volume operations to lower cost, more efficient, high-volume operations. As a result, much of the production in this region is concentrated in a few highly productive longwall mining operations in southwestern Pennsylvania and northern West Virginia. The coal from northern Appalachia has a heat content ranging from 12,500 to 13,000 Btus per pound and generally has medium- to high-sulfur content. Coal producers in southwestern Pennsylvania enjoy strong competitive advantages for markets within the state, due to the proximity of many power plants to the coal producing region. Power plants located along the Monongahela and Ohio rivers have access to a wide variety of coals, particularly those produced in West Virginia. Two other markets in which southwestern Pennsylvania and northern West Virginia coal producers enjoy a transportation advantage are utility companies with plants in New York and Maryland that can burn medium- to high-sulfur coal and are served by railroads. Railroads also offer this coal good access into Ohio and other Great Lake states. CENTRAL APPALACHIA The central Appalachia region includes coalfields in eastern Kentucky, southwestern Virginia and central and southern West Virginia. Production in central Appalachia was 288 million tons in 1997 compared with 279 million tons in 1996. In 1997, 175 million tons produced in central Appalachia were sold to electric utilities principally in the southeast United States. Central Appalachia operations also sell to the export market and to industrial customers. Geologic conditions in central Appalachia led to the creation of over 100 significant coalbeds, 60 of which currently are mined. A variety of mining techniques are used as seams are found on mountaintops and below valley floors. The coal from central Appalachia has an average heat content of 12,500 Btus per pound and generally has low-sulfur content. The southeast United States has significant potential for the growth of coal demand. Much of the demand growth in the 1980s was attributable to new coal-fired power plants. At the same time, however, nuclear plants were being brought on-line by some utilities. Thus, some utilities were reducing the use of existing coal plants because of new nuclear plants while other utilities were increasing coal burn because of new plants. The result is that some utilities have excess coal-fired capacity despite the growth of electricity demand over the past ten years. ILLINOIS BASIN The Illinois Basin is located under most of Illinois, western Indiana and western Kentucky. Production in the basin was 112 million tons in 1997 and in 1996. In 1997, 103 million tons were sold to electric utilities. With the depletion of surface minable reserves, mining today is predominantly done underground. Coal production in the area has experienced significant consolidation in the past several years. The Illinois Basin is a declining 42 production center due to the region's relatively high-sulfur coal and competition from lower-sulfur western coal. Production in the Illinois Basin peaked at 141 million tons in both 1984 and 1990. Since 1990, production has decreased by 20%. In 1996, production stabilized in several of the Illinois Basin's sub-regions, including central Illinois, due to stabilized demand and limited capacity. The coal from the Illinois Basin has a heat content ranging from 10,000 to 12,000 Btus per pound and generally has medium- to high-sulfur content. The principal utility markets for Illinois Basin coal are the rail- or truck-served plants located within the coal producing states of Illinois, Indiana, and Kentucky that comprise the region and in the neighboring states of Missouri, Iowa, Kansas, and Wisconsin. Barge-served plants on the lower Ohio, Cumberland, Tennessee and Mississippi rivers, as well as a few plants in Florida and along the Gulf Intracoastal waterway are also important markets. The close proximity of the Illinois Basin to the mouth of the Ohio, Tennessee and Cumberland rivers and the Port of New Orleans provides the region with several advantages in serving its primary markets when compared to Northern Appalachia or other high sulfur producing regions. A shorter transit time for western Kentucky and southern Illinois coal to these markets minimizes transit costs. POWDER RIVER BASIN The Powder River Basin is located in northeastern Wyoming and southeastern Montana. Production in 1997 was 306 million tons compared with 299 million tons in 1996. In 1997, 306 million tons were sold to electric utilities. Quality varies between lignite and subbituminous coals, with current production of subbituminous coal averaging 9,100 Btus per pound and 0.5% sulfur in Montana, to 8,600 Btus per pound and 0.3% sulfur in Wyoming. WESTERN BITUMINOUS COAL REGIONS The western bituminous coal regions include the Hanna Basin in Wyoming, the Uinta Basin of northwestern Colorado and Utah, the Four Corners Region in New Mexico and Arizona and the Raton Basin in southern Colorado. Production in 1997 was 116 million tons compared with 110 million tons in 1996. In 1997, 95 million tons were sold to electric utilities. These regions produce high quality, low-sulfur steam coal for selected markets in the region, for export through West Coast ports and for shipments to some Midwestern power plants for which Powder River Basin's subbituminous coals are not suitable. Coal from the western bituminous coal region has a heat content ranging from 9,000 to 11,500 Btus per pound and generally has low-sulfur content. COAL CHARACTERISTICS There are four types of coal: anthracite, bituminous, subbituminous and lignite. Each has characteristics that make it more or less qualified for different end uses. In general, coal is characterized by end use as either "steam coal" or "metallurgical coal." Steam coal is used by utilities for electricity generation and by industrial activities to produce steam, electricity, or both. Metallurgical coal is converted into coke, which is used in the production of steel. Heat value, sulfur content and transportation costs are the most important variables in the marketing of steam coal. HEAT VALUE The heat value of coal is commonly measured in British thermal units, or Btus. Coal found in the eastern and midwestern regions of the United States tends to have a heat content ranging from 10,000 to 14,000 Btus per pound. Most coal found in the western United States yields less than 11,000 Btus per pound. By comparison, 43 one barrel of crude oil contains between 4.8 million and 5.4 million Btus and one cubic foot of natural gas contains between 950 and 1,050 Btus. Anthracite coal has a heat content as high as 15,000 Btus per pound. A limited amount of anthracite deposits is located primarily in northeastern Pennsylvania, and is used primarily for industrial and home heating purposes. Bituminous coal has a heat content that ranges from 10,500 to 14,000 Btus per pound. This coal is located primarily in Appalachia, the midwestern United States, Colorado, Arizona and Utah, and is the type most commonly used for electric power generation in the United States. Bituminous coal is used for utility and industrial steam purposes, and as a feedstock for coke. Subbituminous coal has a heat content that ranges from 7,800 to 9,500 Btus per pound. Most subbituminous reserves are located in Montana, Wyoming, Colorado, New Mexico, Washington and Alaska. Subbituminous coal is used almost exclusively by electric utilities and some industrial consumers. Lignite has a heat content that generally ranges from 6,500 to 8,300 Btus per pound. Major lignite operations are located in Texas, North Dakota, Montana and Louisiana. Lignite is used almost exclusively in power plants located adjacent to or near such mines because any significant transportation costs, coupled with mining costs, would render its use uneconomical. SULFUR The sulfur content of a coal deposit can vary from seam to seam and within each seam. When coal is burned, it produces sulfur dioxide, a regulated pollutant, the amount of which varies depending upon the chemical composition and the concentration of sulfur in the coal. Low-sulfur coal has a variety of definitions, but it generally refers to coal with a sulfur content of 1% or less by weight. During the past two decades, air quality laws have created some market advantages for lower-sulfur coals by imposing restrictions on the amount of sulfur dioxide that can be released into the atmosphere when coal is burned. The restrictions usually require high-sulfur coal users to install scrubbers or to buy pollution allowances under the Clean Air Act. CONSOL believes that future demand for coal will be influenced by the heat content of the coal and by the proximity of the coal to major electricity generating stations more than by the sulfur content of the coal. See "Business?Competitive Strengths?High-Quality, Strategically-Located Reserve Base." ASH Ash is the inorganic residue remaining after combustion of coal. As with sulfur content, ash content varies from seam to seam and within seams. Ash content is an important characteristic of coal because power plants must handle and dispose of ash following combustion. MOISTURE Moisture content of coal varies by the type of coal, the region where it is mined and the location of coal within a seam. In general, high moisture content decreases the heat value and increases the weight of the coal, making it more expensive to transport. COKING PROPERTIES OF METALLURGICAL COAL When some types of coal are super-heated in the absence of oxygen, they form a hard, dry, caking product called coke, which is chiefly used in the steel production process as a fuel and reducing agent to smelt iron ore in a blast furnace. 44 COST STRUCTURE COAL PRICES Coal prices vary dramatically among coals and are affected primarily by the marginal cost of production and transportation costs to the customer. Factors that influence coal prices are geological characteristics (such as seam thickness, overburden ratios and depth to underground reserves), transportation costs, regional coal production capacity relative to demand and coal quality characteristics including heat value, ash, moisture and sulfur content. Industrial coal generally costs more to produce and is shipped in smaller volumes than steam coal from the same region used by generators of electricity. As a result, industrial coal's prices are $3 to $5 dollars per ton higher. Metallurgical coal, with higher carbon content and lower ash content generally costs more to mine and typically has prices $4 to $10 per ton higher than steam coal produced from the same region. Even higher prices are paid for premium metallurgical coal. The following table summarizes steam coal prices for the generation of electricity by supply region. HISTORICAL STEAM COAL SPOT PRICES
------------------------------------------------------------------------------- Nominal Dollars per Ton, Free on Board at Mine POUNDS SO/2/ BTUS PER PER MILLION POUND BTUS 1996 1997 1998 REGION/BASIN - --------------------------------------------- ------------------- ---------------------- ------ ------ ------ Central Appalachia....................... greater than 12,500 less than equal to 1.2 $26.35 $25.01 $26.93 greater than 12,500 1.21-1.70 25.46 24.89 25.84 greater than 12,500 1.71-2.5 24.62 23.92 24.63 less than 12,500 less than equal to 1.2 22.31 23.22 24.77 less than 12,500 1.21-1.70 21.77 22.85 23.31 less than 12,500 1.71-2.5 21.20 21.24 22.99 Northeastern Appalachia.................. greater than 12,750 1.2-2.5 $25.98 $25.83 $24.52 greater than 12,750 greater than 2.5 22.91 24.12 23.20 Illinois Basin........................... greater than 11,000 greater than 2.5 $19.55 $19.69 $20.47 less than 11,000 greater than 2.5 17.50 18.89 18.26 Southern Powder River Basin.............. greater than 8,600 less than equal to 1.2 $ 4.27 $ 4.04 $ 4.40 less than 8,600 less than equal to 1.2 3.23 3.25 3.30 Northern Powder River Basin.............. greater than 8,800 less than equal to 1.2 $ 6.24 $ 6.14 $ 6.73 Four Corners............................. greater than 9,500 less than equal to 1.2 $15.80 $17.56 $15.66
- ----------------------------- Source: RDI, Outlook for Coal, Winter 1998-1999. 45 TRANSPORTATION Coal for domestic consumption generally is sold at the mine and transportation costs are normally borne by the purchaser. Export coal is usually sold at the loading port. Coal producers are responsible for shipment to the export coal-loading facility and the buyer pays the ocean freight. Coal for electricity generation is purchased on the basis of its delivered cost per million Btus. Most utilities arrange long-term shipping contracts with rail or barge companies to assure stable delivered costs. Transportation is often a large component of the buyer's cost. Although the customer pays the freight, transportation cost is still important to coal mining companies because the customer may choose a supplier largely based on the cost of transportation. According to RDI, in 1995, transportation costs represented 69%, 28% and 25% of the overall delivered cost of coal produced in the western United States, eastern United States and midwestern United States. According to the National Mining Association in 1997, approximately 77% of all U.S. coal was shipped by rail or barge, making these modes the keys to domestic coal distribution. Trucks and overland conveyors are used to haul coal over shorter distances. Lake carriers and ocean carriers transport coal to export markets. Some domestic coal is shipped over the Great Lakes to domestic markets. Railroads move more coal than any other commodity, and in 1996 coal accounted for 22% of total U.S. rail freight revenue and 44% of total rail freight tonnage. DEREGULATION OF THE ELECTRIC UTILITY INDUSTRY In October 1992, the National Energy Policy Act was signed in the United States, giving wholesale suppliers access to the transmission lines. In April 1996, the Federal Energy Regulatory Commission issued orders establishing rules providing for open access to electricity transmission systems, thereby encouraging competition in the generation of electricity. While broad deregulation legislation is still being considered at the federal level, a number of states have taken significant deregulation initiatives as provided for by the Federal Energy Regulatory Commission. Deregulation of the electric utility industry, if and where implemented, would enable industrial, commercial and residential customers to shop for the lowest cost supply of power and the best available service. This fundamental change in the industry is expected to compel electric utilities to be more aggressive in developing and defending market share, to be more focused on their cost and pricing structure, and to be more flexible in reacting to changes in the market. CONSOL believes that the move toward a competitive market for electricity should prove beneficial to coal demand. According to RDI, 21 of the 25 lowest cost electric generating stations are coal fired. As deregulation occurs and competition among generators increases, electricity generators will become increasingly sensitive to fuel costs because such costs typically represent about 78% of the variable cost of generating electricity from fossil fuels. 46 BUSINESS OVERVIEW CONSOL ranks among the largest coal companies in the United States based upon total revenue, net income and operating cash flow. CONSOL is the largest U.S. producer of high-Btu bituminous coal, the largest coal producer east of the Mississippi River, the largest producer of coal from underground mines and the largest U.S. exporter of coal to international markets. Production in 1997 totalled 73 million tons. CONSOL accounted for 7% of total domestic tons produced and for 12% of tons produced in the eastern United States during 1997. CONSOL's consistent financial performance has enabled it to establish a strong history of cash generation and dividend payments. In 1997, CONSOL sold 68% of the tons of coal it produced directly to domestic electricity generators, 16% to domestic industrial customers, domestic steel mills and trading companies and 16% directly to export markets. The electricity generating market is, by far, the most important market for U.S. coal producers and for CONSOL, and coal is the fuel of choice for base-load power plants in the United States. In 1997, coal was used to generate 57% of the electricity in the United States. CONSOL's proximity to generating plants, access to low-cost transportation, favorable geologic conditions for mining and the high-Btu content of its coal enable it to provide fuel to electricity generators at low delivered cost. CONSOL's large, highly mechanized eastern mines are located near major electricity generators in the northeastern, Mid-Atlantic, southeastern and midwestern United States. In 1997, almost 40% of CONSOL's coal moved on inland waterways, the mode of transport considered the most cost-effective for bulk commodities. Approximately 65% of CONSOL's reserves consist of high-Btu coal. CONSOL had 4.8 billion tons of proved and probable reserves at December 31, 1997, the second largest among U.S. coal producers. Reserves are located in northern Appalachia (52%), central Appalachia (13%), the midwest (21%) and in the western United States and Canada (14%). The size, quality and strategic location of CONSOL's reserves provide a basis for the expansion of many existing mines and for new mine development. CONSOL operated 24 mining complexes at December 31, 1997. The Company added three complexes in September 1998 by acquiring Rochester & Pittsburgh. Two complexes, Holden and Twin Branch, were exchanged in November 1998, for the Vesta coal reserves located in southwestern Pennsylvania. CONSOL uses high-extraction longwall technology at 14 of its mines and leads the industry in the deployment of longwall systems. The mines operating these advanced mining systems accounted for approximately 84% of the coal mined by CONSOL in 1997. CONSOL's ability to source coal from its multiple longwall mines provides it with great flexibility in meeting customer fuel requirements. CONSOL can expand production at longwall mines at very low incremental cost. CONSOL'S HISTORY CONSOL Energy Inc. was organized as a Delaware corporation in 1991. CONSOL is a holding company for 64 direct and indirect wholly owned operating subsidiaries, including Consolidation Coal Company and CONSOL Inc. Consolidation Coal Company is CONSOL'S principal operating subsidiary and CONSOL Inc. is CONSOL'S direct holding company subsidiary that provides executive, management and administrative services. 47 CONSOL'S earliest predecessor, Consolidation Coal Company, was formed on March 9, 1860 with the merger of several small western Maryland coal holdings. Formal incorporation was delayed until April 19, 1864 because of the Civil War. By 1927, Consolidation Coal Company had become the largest bituminous coal producer in the United States. Consolidation Coal Company merged with Pittsburgh Coal Company in 1945 to form the then largest coal company in the United States. During the next 20 years, Consolidation Coal Company continued to grow through acquisitions. In 1966, Continental Oil Company, a vertically integrated petroleum company, acquired Consolidation Coal Company. E.I. du Pont de Nemours and Company acquired Conoco in 1981. In 1991, RWE A.G., through its direct and indirect wholly owned subsidiaries Rheinbraun A.G. and Rheinbraun U.S. GmbH, purchased 50% of our common stock. RWE A.G. is a leading international energy-based industrial conglomerate headquartered in Germany and is the fifth largest industrial group in Germany based on annual sales. DuPont held its remaining 50% interest in our common stock through DuPont Energy Company, its wholly owned subsidiary. In November 1998, CONSOL purchased shares of its common stock from DuPont Energy. After the purchase, and before this offering, Rheinbraun A.G. and Rheinbraun U.S. GmbH together owned approximately 94% and DuPont Energy owned approximately 6% of the outstanding shares of common stock. MINING METHODS CONSOL mines coal using both underground and surface mining methods. In 1997, 94% of CONSOL's production came from underground mines and 6% from surface mines. The percentage of coal produced by surface mines has declined in recent years because several CONSOL surface mines have depleted their mineable reserves, and because production from existing underground mines has increased. Nevertheless, CONSOL maintains engineering expertise in both mining methods. Where the geology is favorable and where reserves are sufficient, CONSOL employs longwall mining systems in its underground mines. In 1997, 84% of CONSOL's production came from mines equipped with longwall mining systems. Underground mines equipped with longwall systems are highly mechanized, capital intensive operations. These mines have a low variable cost structure compared with other types of mines and can achieve high productivity levels compared with other underground mining methods. Because CONSOL has substantial reserves readily suitable to these operations, and because of their existing cost structure, these longwall mines can increase capacity at low incremental cost. CONSOL operates approximately 25% of the U.S. longwall mining systems. Because of the high production levels of these mining systems, which CONSOL uses at 14 of its mines, it operates seven of the 20 largest underground mines east of the Mississippi River. The following table ranks the 20 largest underground mines in the United States by tons of coal produced in 1997. 48 MAJOR U.S. UNDERGROUND COAL MINES, 1997
in millions of tons ------------------------------------------------------------ MINE NAME OPERATING COMPANY TONNAGE - --------- ----------------- ------- Enlow Fork CONSOL 8.4 Bailey CONSOL 7.5 Twenty Mile Twenty Mile Coal Company 7.3 Baker Lodestar Energy Inc. 6.5 Cumberland Cyprus Cumberland Resources Corp. 6.4 Eastern Kentucky MAPCO Coal Company 5.9 Mountaineer Mingo Logan Coal Co. 5.7 West Elk Mountain Coal Co. 5.6 McElroy CONSOL 5.4 Pinnacle U.S. Steel Mining 5.2 Powhatan No. 6 The Ohio Valley Coal Company 5.1 Galatia Kerr-McGee Coal Co. 5.0 SUFCO Canyon Fuel Company 4.9 Loveridge CONSOL 4.8 Shoemaker CONSOL 4.8 Robinson Run CONSOL 4.8 Mine 84 CONSOL 4.8 Upper Big Branch A.T. Massey Coal Company 4.7 Emerald Cyprus Emerald Resources Corp. 4.7 Federal Mine No. 2 Eastern Associated Coal Corp. 4.5
- ----------------- Source: National Mining Association CONSOL's Research and Development Department has worked on a number of advances that have enhanced longwall mining methods. CONSOL has developed proprietary automation software that allows the shearer to guide itself in the coal seam, reducing incursions into the rock above and below the seam, thus improving initial coal quality and improving cutting bit life. The Research and Development Department has also developed methods for automating shield advances as mining progresses, which improves overall system efficiency. The Research and Development Department has done geotechnical studies on pillar design that have allowed continuous miners to advance more quickly and at lower cost when developing the panels in advance of longwall mining. CONSOL's Research and Development Department has developed several technological advances that allow coal to be moved in more continuous fashion from the coal face, thus improving utilization for the mining machinery, resulting in lower costs and higher productivity. See "Business?Research and Development." 49 The following table shows the growth in production from CONSOL's longwall operations since 1994.
PRODUCTION BY YEAR =========================================================== COMPOUND in millions of tons ANNUAL GROWTH MINE 1994 1995 1996 1997 RATE - ---------------------------- ------- ------- ------- ------- --------- Bailey 6.6 7.3 7.5 7.5 4.4% Enlow Fork 8.1 8.0 8.7 8.4 1.2% Dilworth 2.7 3.0 3.6 4.4 17.7% Buchanan 3.0 3.2 3.6 4.3 12.7% Shoemaker 1.8 3.8 4.4 4.8 12.4% McElroy 4.1 4.1 4.2 5.2 8.2% Loveridge 3.1 2.7 3.1 4.8 15.7% Blacksville 3.7 3.8 3.5 3.4 (2.8%) Robinson Run 3.3 3.7 4.2 4.8 13.3% Rend Lake 2.7 3.3 3.2 4.1 14.9% VP 8 0.9 2.3 2.8 1.3 21.7% VP 3 1.7 1.8 1.6 2.2 9.0% Powhatan No. 4 3.1 2.7 3.4 3.2 1.1% ------- ------- ------- ------- -------- Total 44.8 49.7 53.8 58.4 9.2% ======= ======= ======= ======= ========
The calculation of the compound amount growth rate for the Shoemaker and VP 8 mines does not include periods during which such mines were shutdown. The calculation for the McElroy mine excludes 200,000 tons of coal mined in connection with construction activities. With the exception of Dilworth, VP 3 and Powhatan No. 4, these mines have the potential to further expand production through investment in various projects to debottleneck the coal mine or by instituting continuous work schedules to maximize utilization of existing equipment. With the exception of Dilworth, VP 3 and Powhatan No. 4, these mines all have access to extensive, CONSOL-controlled reserves to support expansion in capacity at low incremental cost. According to an RDI database, CONSOL operated ten of the top 20 most productive underground mines in 1997, in terms of tons per man day produced, based on an analysis of production of large eastern U.S. underground mines (with production greater than 3.0 million tons). The following graph shows the growth of underground mine productivity at CONSOL. [Graph shows tons per manday for each year from 1982 to 1998] 50 MINING OPERATIONS CONSOL currently operates 25 mining complexes. At September 30, 1998, CONSOL operated a total of 27 mining complexes, including a 50% interest in a surface mine in Alberta, Canada, all located in North America. In November 1998, CONSOL exchanged the Holden Complex and the Twin Branch Complex with the A.T. Massey Coal Company for the Vesta coal reserves located in southwestern Pennsylvania. The exchange of properties reduced the number of mining complexes to 25. All of CONSOL's mining complexes are underground operations except the Mahoning Valley and Cardinal River mines which employ only surface mining techniques. The Mill Creek complex employs a combination of underground and surface mining systems. Mining machinery used in all of CONSOL's underground mines is powered by electricity. Coal is transported from CONSOL's mining complexes to customers by means of railroad cars, river barges, trucks, conveyor belts or a combination of these means of transportation. The McElroy and Robinson Run mines transport coal to customers by conveyor belt. The McElroy, Shoemaker, Dilworth, Powhatan No. 4, Humphrey, Mahoning Valley and Ohio No. 11 complexes ship coal to customers by means of river barges. Trucks are used to transport coal from Loveridge, Blacksville, Powhatan No. 4, Rend Lake, Keystone, Helvetia and Emery complexes. The Enlow Fork, Bailey, Mine No. 84, Robinson Run, Loveridge, Blacksville, Buchanan, Mill Creek, VP-3, Jones Fork, VP-8, Amonate, Elk Creek, Rend Lake and Cardinal River complexes transport coal to customers by rail. The following table provides the location and a summary of the main characteristics of CONSOL's mining complexes and the coal reserves associated with these operations. 51
CONSOL MINING COMPLEXES ================================================================================================ AVERAGE QUALITY ON DRY BASIS ASSIGNED RESERVES 1997 ------------------ ---------------------------- PRODUCTION HEAT SULFUR TOTAL (MILLIONS CONTENT CONTENT (MILLIONS OWNED LEASED OPERATIONS LOCATION OF TONS)(1) (BTU/LB.) (%) OF TONS) (%) (%) - ----------------------- --------------------------- ----------- --------- ------- --------- -------- ------- NORTHERN APPALACHIA Enlow Fork Mine Enon, Pennsylvania 8.4 14,173 1.62 52.4 34 66 Bailey Mine Enon, Pennsylvania 7.5 14,101 1.85 81.6 1 99 McElroy Mine Glen Easton, West Virginia 5.2 13,999 3.18 234.0 100 0 Loveridge Mine Fairview, West Virginia 4.8 13,969 2.40 21.0 100 0 Robinson Run Mine Shinnston, West Virginia 4.8 14,126 3.36 60.6 76 24 Shoemaker Mine Moundsville, West Virginia 4.8 13,860 3.13 79.5 100 0 Mine No. 84 Eighty-Four, Pennsylvania 4.8 14,040 1.84 42.2 75 25 Dilworth Mine Rices Landing, Pennsylvania 4.4 14,126 1.51 24.1 0 100 Blacksville Mine Wana, West Virginia 3.4 14,165 2.87 41.2 100 0 Powhatan No. 4 Mine Clarington, Ohio 3.2 13,545 4.72 5.8 8 92 Keystone Complex Indiana, Pennsylvania 2.1 13,042 1.62 7.0 86 14 Helvetia Complex Blairsville, Pennsylvania 1.7 11,839 2.08 5.4 97 3 Humphrey Mine Maidsville, West Virginia 1.5 13,600 2.75 6.5 100 0 Mahoning Valley Mine Cadiz, Ohio 0.4 12,214 2.31 2.0 93 7 CENTRAL APPALACHIA Buchanan Mine Mavisdale, Virginia 4.3 14,950 0.78 31.5 1 99 Mill Creek Complex Deane, Kentucky 3.1 13,643 1.18 15.1 100 0 VP-3 Mine Vansant, Virginia 2.2 15,185 0.77 8.1 0 100 Jones Fork Complex Mousie, Kentucky 2.0 13,245 1.00 10.3 85 15 VP-8 Mine Rowe, Virginia 1.3 14,903 0.31 17.3 1 99 Amonate Complex Amonate, Virginia 1.1 14,422 0.77 9.3 64 36 Elk Creek Complex Emmett, Virginia 0.3 13,750 0.78 7.0 27 73 ILLINOIS BASIN Rend Lake Mine Sesser, Illinois 4.1 13,738 1.02 13.6 100 0 Ohio No. 11 Mine Morganfield, Kentucky 1.4 13,500 3.13 3.9 0 100 WESTERN U.S. Emery Mine Emery County, Utah 0.0 12,933 0.74 14.8 84 16 WESTERN CANADA Cardinal River Mine Hinton, Alberta, Canada 1.5 14,000 0.37 4.2 0 100 TOTAL ACCESSIBLE AND ASSIGNED YEAR RESERVES ESTABLISHED (MILLIONS OR ACQUIRED OPERATIONS OF TONS) BY CONSOL - -------------------- ---------- ----------- NORTHERN APPALACHIA Enlow Fork Mine 215.8 1990 Bailey Mine 209.3 1984 McElroy Mine 234.0 1968 Loveridge Mine 161.8 1956 Robinson Run Mine 154.0 1966 Shoemaker Mine 146.4 1966 Mine No. 84 159.6 1998 Dilworth Mine 24.1 1984 Blacksville Mine 126.0 1970 Powhatan No. 4 Mine 5.8 1987 Keystone Complex 7.0 1998 Helvetia Complex 11.7 1998 Humphrey Mine 6.5 1956 Mahoning Valley Mine 3.2 1974 CENTRAL APPALACHIA Buchanan Mine 124.4 1983 Mill Creek Complex 21.5 1994 VP-3 Mine 8.1 1993 Jones Fork Complex 28.7 1992 VP-8 Mine 17.3 1993 Amonate Complex 20.7 1925 Elk Creek Complex 14.9 1993 ILLINOIS BASIN Rend Lake Mine 49.3 1986 Ohio No. 11 Mine 17.1 1993 WESTERN U.S. Emery Mine 14.8 1945 WESTERN CANADA Cardinal River Mine 5.1 1969
CONSOL acquired (1) the Dilworth mine from USX, (2) the Rend Lake Mine from Inland Steel, (3) the Powhatan No. 4 mine from North American Coal Company, (4) the Mill Creek Complex from Kentucky Criterion Coal Company and (5) VP-3 mine, the Elk Creek Complex, the VP-8 mine and Ohio No. 11 mine from Occidental Petroleum. CONSOL acquired Mine No. 84, the Keystone Complex and the Helvetia complex when it acquired the Rochester and Pittsburgh Coal Company. CONSOL established all other mines and complexes. 52 The Burning Star No. 4 mine and the Potomac mine, which in the aggregate, produced 2.0 million tons of coal during 1997, have been closed. Two mining complexes, Twin Branch Complex and the Holden Complex, which, in the aggregate, produced 500,000 tons in 1997, were exchanged in November 1998 for the Vesta coal reserves owned by the A.T. Massey Coal Company. The mines and complexes sold or exchanged are not shown in the table. There are, in the aggregate, approximately 680 leases with respect to assigned coal reserves. The leases have terms extending up to 30 years and generally provide for renewal through the anticipated life of the associated mine. These renewals are exercisable by the payment of minimum royalties. Total accessible and assigned reserves represents proved and probable coal reserves at December 31, 1997. CONSOL assigns coal reserves to each of its mining operations, but each mine also may have access to reserves that have not yet been assigned to any particular mine. Unassigned reserves may be accessed by more than one mining operation. Information with respect to proved and probable coal reserves has been determined by CONSOL geologists and mining engineers. See Note 22 of Notes to the Consolidated Financial Statements. [Map showing the location of CONSOL's mines in relation to major coal basins.] The following provides a description of the operating characteristics of CONSOL's principal mines by geographic region. NORTHERN APPALACHIA MINES Enlow Fork. The Enlow Fork mine produces coal from the Pittsburgh #8 Seam using two longwall systems and six continuous mining machines. Coal is transported to the surface by conveyor belts. The coal is processed in the Bailey Central Preparation Plant which can fully wash coal at a rate of 3,600 tons of raw coal per hour. From January 1, 1996 to September 30, 1998, capital expenditures at the mine totaled $56 million. The Enlow Fork mine will complete in 1999 installation of a 5,000-ton underground storage bunker that will level the flow of coal between the producing face and the plant. In addition, a new longwall system was placed in service in 1997. Bailey. The Bailey mine produces coal from the Pittsburgh #8 Seam using two longwall systems and seven continuous mining machines. Coal is transported to the surface by conveyor belts. The coal is processed in the Bailey Central Preparation Plant which can fully wash coal at the rate of 3,600 tons of raw coal per hour. From January 1, 1996 to September 30, 1998, capital expenditures at the mine totaled $33 million. From January 1, 1996 to September 30, 1998, capital expenditures at the preparation plant totaled $44 million. The Bailey Central Preparation Plant, which serves both the Bailey and Enlow Fork mines, currently is being expanded. When completed, the expansion will increase total processed coal capacity from 16 million tons per year to 20 million tons per year. McElroy. The McElroy mine produces coal from the Pittsburgh #8 Seam using one longwall system and four continuous mining machines. Coal is transported to the surface by conveyor belts. The coal is partially washed in a preparation plant capable of processing 1,400 tons of raw coal per hour. From January 1, 1996 to September 30, 1998, capital expenditures at the mine totaled $48 million. In 1997, the mine completed the installation of an underground conveying system that replaced a less efficient underground track haulage system. Mine No. 84. Mine No. 84 produces coal from the Pittsburgh #8 Seam using one longwall and three continuous mining machines. Coal is transported to the surface by conveyor belts. The coal is processed in a preparation 53 plant capable of processing 2,500 tons of raw coal per hour. Mine No. 84 was acquired as part of the acquisition of Rochester & Pittsburgh on September 22, 1998. Robinson Run. The Robinson Run mine produces coal from the Pittsburgh #8 Seam using one longwall system and four continuous mining machines. Coal is transported to the surface by conveyor belts. The coal is partially washed in a preparation plant capable of processing 1,500 tons of raw coal per hour. From January 1, 1996 to September 30, 1998, capital expenditures at the mine totaled $21 million. In 1995, the Robinson Run mine installed an underground belt conveying system to move coal to the surface, replacing a less efficient rail haulage system as well as increasing the mine's production capacity. Shoemaker. The Shoemaker mine produces coal from the Pittsburgh #8 Seam using one longwall system and three continuous mining machines. Coal is transported to the surface by a conveyor belt and underground track locomotives. The coal is fully washed in a preparation plant capable of processing 1,275 tons of raw coal per hour. From January 1, 1996 to September 30, 1998, capital expenditures at the mine totaled $47 million. In 1997, the mine installed new longwall mining equipment and added a new yard track-loop system, both of which contributed to increases in production. Loveridge. The Loveridge mine produces coal from the Pittsburgh #8 Seam using one longwall system and four continuous mining machines. Coal is transported to the surface by a conveyor belt. The coal is fully washed in a preparation plant capable of processing 1,400 tons of raw coal per hour. From January 1, 1996 to September 30, 1998, capital expenditures at the mine totaled $44 million. In 1996, the mine installed a new longwall system that included many new automated functions which improved production rates, enhanced coal quality and reduced unscheduled maintenance. Dilworth. The Dilworth mine produces coal from the Pittsburgh #8 Seam using one longwall system and three continuous mining machines. Coal is conveyed to the surface with conveyor belts. The coal is transported by barge to the Robena preparation plant where it is fully washed. The Robena preparation plant can process 1,200 tons of raw coal per hour. From January 1, 1996 to September 30, 1998, capital expenditures at the mine totaled $13 million. Capital expenditures at the Robena preparation plant for the same period totaled $9 million. In 1997, a raw coal storage silo was installed at the Robena preparation plant permitting direct discharge of raw coal to and from river barges. The silo eliminated the need for more costly handling and increased flexibility in blending raw coal and processed coal. Blacksville. The Blacksville mine produces coal from the Pittsburgh #8 Seam using one longwall system and three continuous mining machines. Coal is transported underground by conveyor belts to a skip hoist which lifts the coal to the surface. The coal is partially or fully washed in a preparation plant capable of processing 1,000 tons of raw coal per hour. From January 1, 1996 to September 30, 1998, capital expenditures at the mine totaled $48 million. In 1998, CONSOL completed the construction of a large, underground coal storage bunker at the mine which allows storage of up to 2,400 tons of coal, leveling the flow of coal both from the producing coal face and to the preparation plant. Powhatan No. 4. The Powhatan No. 4 mine produces coal from the Pittsburgh #8 Seam utilizing one longwall system and one continuous mining machine. Coal is transported to the surface using a combination of conveyor belts and rail haulage. The coal is washed in a preparation plant capable of processing 1,100 tons of raw coal per hour. From January 1, 1996 to September 30, 1998, capital expenditures at the mine totaled $8 million. The mine will deplete its economically minable reserves in 1999. Helvetia Complex. The Helvetia Complex produces coal from the Upper Freeport and Upper Kittanning seams. Coal is produced at two CONSOL-operated underground mines and a CONSOL-operated surface mine. Coal is mined with a total of eight continuous mining machines at the underground mines and with an end-loader at the surface mine. Coal is transported from the underground mines to the surface on conveyor belts and is 54 transported to a small wash plant by truck. Coal from the surface mine is transported to the wash plant by truck. The small wash plant has a capacity of 250 tons of raw coal per hour. The Helvetia Complex was acquired on September 22, 1998. Keystone Complex. The Keystone Complex produces coal from the Upper Freeport and Upper Kittanning seams. Coal is produced at three CONSOL-operated underground mines. Additional coal is purchased from outside sources to be blended and processed with CONSOL-produced coal. Coal is mined with a total of 11 continuous mining machines at the underground mines. Coal is transported to the surface by conveyor belt and is transported to the preparation plant by overland conveyor or truck. The coal is processed at a preparation plant capable of processing 900 tons of raw coal per hour. The Keystone Complex was acquired on September 22, 1998. Humphrey. The Humphrey mine produces coal from the Pittsburgh #8 Seam using two continuous mining machines. Coal is sold raw. From January 1, 1996 to September 30, 1998, capital expenditures at the mine totaled $2 million. In 1997, the Humphrey mine reduced production and started using continuous mining equipment after longwall-minable reserves were depleted. Mahoning Valley. The Mahoning Valley mine produces coal from the #9 Seam. Coal is uncovered at this surface mine using a large, electrically powered stripping shovel. A smaller shovel loads the uncovered coal into trucks for transport from the pit. CONSOL made no capital expenditures on the mine between January 1, 1996 to September 30, 1998. The mine will deplete its economically mineable reserves in 1999. CENTRAL APPALACHIA MINES Buchanan. The Buchanan mine produces coal from the Pocahontas #3 Seam using one longwall system and four continuous mining machines. The coal is transported to a skip hoist by conveyor belts where the coal is then lifted to the surface. The coal is washed in a preparation plant that is capable of processing 1,000 tons of raw coal per hour. From January 1, 1996 to September 30, 1998, capital expenditures at the mine totaled $23 million. In 1997, CONSOL constructed a large, underground coal-storage bunker at the mine. The bunker allows storage of up to 4,700 tons of coal, leveling the flow of coal both from the face and to the preparation plant. Also in 1997, the mine instituted a continuous work schedule that allowed higher coal-hoisting and preparation plant utilization. Mill Creek Complex. The Mill Creek complex produces coal from the Hazard #4 Seam and the Elkhorn #3 Seam. Coal is produced at two CONSOL-operated underground mines, a CONSOL-operated surface mine and by several small underground and surface mines operated by independent contractors. Mining at CONSOL-operated underground mines is done with a continuous mining machine. Coal is conveyed to the surface using conveyor belts. Mining at CONSOL-operated surface mines is done with front-end loaders and trucks. Coal from all of the mines is transported by truck or conveyor belt to a central preparation plant for processing. The plant has the capacity to process 950 tons of raw coal per hour. From January 1, 1996 to September 30, 1998, capital expenditures at the mine totaled $13 million. VP-3. The VP-3 mine produced coal from the Pocahontas #3 Seam utilizing one longwall system and three continuous mining machines. Coal was carried underground by conveyor belts to a skip hoist which lifted the coal to the surface. The coal was processed in a preparation plant which has a capacity to process 750 tons of raw coal per hour. From January 1, 1996 to September 30, 1998, capital expenditures at the mine totaled $5 million. VP-3 mine was placed on long-term shutdown status because of excess production capacity for the type of coal produced at this mine. Jones Fork Complex. The Jones Fork mining complex produces coal from the Hazard #4 Seam and the Elkhorn #3 Seam. Coal is produced from three CONSOL-operated underground mines and two contractor-operated 55 underground mines. Mining at CONSOL-operated underground mines is accomplished with continuous mining machines. Coal is conveyed to the surface with conveyor belts. Coal from all operations is transported by conveyor belt or by truck to a central preparation facility which has the capacity to process 825 tons of raw coal per hour. From January 1, 1996 to September 30, 1998, capital expenditures at the mine totaled $12 million. VP-8. The VP-8 mine produces coal from the Pocahontas #3 Seam utilizing one longwall system and two continuous mining machines. Coal is carried underground by conveyor belts to a skip hoist which lifts the coal to the surface. The coal is processed at two preparation plants which together have the capacity to process 1,350 tons of raw coal per hour. From January 1, 1996 to September 30, 1998, capital expenditures at the mine totaled $9 million. Amonate Complex. The Amonate mining complex processes coal from the Pocahontas #3, #5, #8, #10, and #11 and Squire Jim Seams. The coal typically is produced from approximately ten underground mines operated by independent contractors on CONSOL-owned reserves. The preparation plant has the capacity to process 700 tons of raw coal per hour. From January 1, 1996 to September 30, 1998, capital expenditures at the complex totaled $2 million. Elk Creek Complex. The Elk Creek complex produces coal from the Lower Cedar Grove "C" and the Alma Seams. The coal is produced from two underground mines operated by independent contractors on CONSOL-controlled reserves. The coal is taken by truck for processing to the Elk Creek preparation plant, which has the capacity to process 550 tons of raw coal per hour. The preparation plant also processes coal that CONSOL purchases from other mine operators. From January 1, 1996 to September 30, 1998, capital expenditures at the complex totaled less than $1 million. ILLINOIS BASIN MINES Rend Lake. The Rend Lake mine produces coal from the Herrin #6 Seam utilizing two longwall systems and five continuous mining machines. Coal is conveyed underground by conveyor belts to a skip hoist which lifts the coal to the surface. The coal is processed at a preparation plant which has the capacity to process 1,000 tons of raw coal per hour. From January 1, 1996 to September 30, 1998, capital expenditures at the mine totaled $14 million. Ohio No. 11. The Ohio No. 11 mine produces coal from the West Kentucky #11 Seam utilizing four continuous mining machines. Coal is conveyed to the surface by conveyor belts. Coal is processed at a preparation plant which has the capacity to process 700 tons of raw coal per hour. From January 1, 1996 to September 30, 1998, capital expenditures at the mine totaled $5 million. WESTERN U.S. MINES Emery. The Emery mine is capable of producing coal from the I Seam. The mine is configured for underground mining operations. The mine has been idle for several years. CONSOL made no capital expenditures at the mine between January 1, 1996 and September 30, 1998. WESTERN CANADA MINES Cardinal River. The Cardinal River mine produces coal from the Jewel Seam. Mining is done with stripping shovels and front-end loaders, which are either powered with electricity or diesel. Coal is hauled from the pit in large, diesel or electric powered haul trucks. The coal is processed at a preparation plant which has the capacity to process 800 tons of raw coal per hour. From January 1, 1996 to September 30, 1998, capital expenditures at the mine totaled $6 million. The mine is a joint-venture operation with Luscar Ltd. in which CONSOL maintains a 50% interest. 56 COAL RESERVES CONSOL had an estimated 4.8 billion tons of proved and probable reserves at December 31, 1997. Reserves are the portion of the "demonstrated" tonnage (equivalent to "proved" and "probable") that meet CONSOL's general economic criteria regarding mining height, preparation plant recovery, depth of overburden and stripping ratio. Generally, these reserves would be commercially minable at year-end price and cost levels. CONSOL's reserves are located in northern Appalachia (52%), central Appalachia (13%), the midwestern United States (21%) and in the western United States and in Canada (14%). 57 The following table summarizes CONSOL's reserves at December 31, 1997. For unassigned reserves, CONSOL assumes 60% recovery for reserves that can be mined using longwall mining, 50% recovery for reserves that will be mined using other underground methods and 90% recovery for surface mines. CONSOL RESERVES
-------------------------------------------------------------------------------------------------- in thousands of LESS THAN 1.20 LBS. GREATER THAN 1.20 LBS. tons OF SO\\2\\ OF SO\\2\\ PER PER MILLION BTUS MILLION BTUS PERCENTAGE --------------------------------- --------------------------------- BY REGION AND PRODUCT LOW BTU MEDIUM BTU HIGH BTU LOW BTU MEDIUM BTU HIGH BTU TOTAL REGION - ------------------ ------- ---------- -------- ------- ---------- -------- ----- ---------- NORTHERN APPALACHIA Steam 0 49,359 0 56,010 135,471 2,031,239 2,272,079 High-vol met 0 0 0 0 0 211,754 211,754 Subtotal 0 49,359 0 56,010 135,471 2,242,993 2,483,833 52.0% CENTRAL APPALACHIA Steam 31,350 51,826 2,261 40,577 48,915 61,597 236,526 High-vol met 0 8,642 41,828 0 2,134 12,704 65,308 Medium-vol met 0 4,191 90,947 0 4,537 18,423 118,098 Low-vol met 0 0 205,013 0 0 6,867 211,880 Subtotal 31,350 64,659 340,049 40,577 55,586 99,591 631,812 13.2% MIDWESTERN U.S. Steam 0 0 0 130,524 746,391 129,833 1,006,748 21.1% WESTERN U.S. PRB steam 0 193,017 248,609 0 0 4,126 445,752 W. Colo. and S. 12,456 0 14,772 0 5,584 9,574 42,386 Ut. steam Subtotal 12,456 193,017 263,381 0 5,584 13,700 488,138 10.2% CANADA Medium-vol met 16,286 119,649 29,172 0 0 0 165,107 3.5% ------- ---------- -------- ------- --------- --------- --------- ------ TOTAL 60,092 426,684 632,602 227,111 943,032 2,486,117 4,775,638 100.0% ======= ========== ======== ======= ========= ========= ========= ====== PERCENTAGE OF TOTAL BY BTU CONTENT 5.4% 38.1% 56.5% 6.2% 25.8% 68.0% ------- ---------- -------- ------- --------- --------- 100% 100% --------------------------------- ---------------------------------
The following table characterizes the relative Btus value (low, medium and high) for each coal producing region.
------------------------------------------------------------------- REGION LOW MEDIUM HIGH - ---------------------------------------------- --------------- --------------- ------------------- in Btus per lb. NORTHERN AND CENTRAL APPALACHIA AND CANADA less than 12,500 12,500 - 13,000 greater than 13,000 MIDWEST less than 11,600 11,600 - 12,000 greater than 12,000 POWDER RIVER BASIN less than 8,400 8,400 - 8,800 greater than 8,800 WESTERN COLORADO AND SOUTHERN UTAH less than 11,000 11,000 - 12,000 greater than 12,000
58 Reserve estimates are based on geological data assembled and analyzed by CONSOL's staff, which includes 14 geologists and more than 40 mining engineers, located at individual mines, operations offices and at CONSOL's headquarters. The reserve estimates and general economic criteria upon which they are based are reviewed and adjusted annually to reflect production of coal from the reserves, analysis of new engineering and geological data, changes in property control, modification of mining methods and other factors. Reserve information, including the quantity and quality of reserves, coal and surface ownership, lease payments and other information relating to CONSOL's coal reserve and land holdings, is maintained through a system of interrelated computerized databases developed by CONSOL. CONSOL's reserve estimates are predicated on information obtained from its extensive, ongoing exploration drilling and in-mine channel sampling programs. Data including elevation thickness and, where samples are available, the quality of the coal from individual drill holes and channel samples are input into a computerized geologic database. The information derived from the geologic database is then combined with data on ownership or control of the mineral and surface interests to determine the extent of the reserves in a given area. COAL CONTRACTS CONSOL sells coal to customers under arrangements that are the result of both bidding procedures and extensive negotiations. Coal typically is sold by contracts for terms that range from a single shipment to multi-year agreements for millions of tons. Many contracts now allow the coal to be sourced from more than one mine, an advantage to CONSOL because of the number of its mining complexes, particularly in northern Appalachia. CONSOL currently sells 61% of its coal under contracts with terms of one year or more. The pricing mechanisms under these agreements typically consist of (1) base-price-plus-escalation methods which allow for periodic price adjustments based on inflation indices, or in some cases, pass-through of actual cost changes or (2) annually negotiated prices adjusted to market. Certain contracts have features of both types of contracts, such as limited price reopener provisions within a base-price-plus-escalation agreement. Such reopener provisions allow both the customer and CONSOL an opportunity to adjust price to a level close to then current market conditions. Almost all of CONSOL's existing contracts with reopener provisions adjust the contract price to market price at the time the reopener provision is triggered. Market price is generally based on recent published transactions for similar quantities and quality of coal. Reopener provisions could result in early termination of a contract or of requirements that certain volumes be purchased if the parties were to fail to agree on price and other terms that may be subject to renegotiation. Contracts also typically contain force majeure provisions allowing suspension of performance by CONSOL or the customer for the duration of certain events beyond the control of the affected party, including labor disputes. Certain contracts may terminate upon continuance of an event of force majeure for an extended period (generally six to 12 months). Contracts also typically specify certain minimum and maximum quality specifications regarding the coal to be delivered. Failure to meet these conditions could result in substantial price reductions or termination of the contract. Although the volume to be delivered pursuant to a long-term contract is stipulated, buyers or CONSOL have the option to vary the volume within specified limits. In addition, a contract may provide for early termination of all or part of the specified sales volume due to failure to agree on price or other terms for which renegotiation is provided or for suspension of performance or termination by the customer for force majeure events or failure of performance. 59 The following table shows the tons of coal delivered in 1997 and the total stated tons of coal deliverable in the year indicated for all contracts held by CONSOL at September 30, 1998. CONTRACT TONS OF DELIVERED COAL
============================================================================= 1997 1998 1999 2000 2005 2010 ------ ------- ------ ------ ------ ------ In millions of nominal tons per year Volume under long-term contracts.............. 46.9 45.7 41.7 24.2 5.3 1.1
CONSOL routinely engages in efforts to renew or extend contracts scheduled to expire. Although there are no guarantees that contracts will be renewed, CONSOL frequently has been successful in the past in renewing or extending contracts. The length of term, volumes specified and price typically are adjusted during the renegotiation. MARKETING AND SALES CONSOL sells coal produced by its mining complexes and additional coal which is purchased for resale from other producers through a sales force of 20 people. CONSOL maintains U.S. sales offices in Atlanta, Chicago, Cleveland, Norfolk, Philadelphia, Pittsburgh and overseas in Brussels, Belgium. In addition, CONSOL sells coal through agents, brokers and trading companies. In 1997, CONSOL sold 75.2 million tons of coal, 84% of which was sold in domestic markets to electricity generators, steel companies and other consumers of coal. Direct sales by CONSOL to domestic electricity generators represented 68% of total sales and 81% of U.S. sales in 1997. The three largest customers were Allegheny Energy, Pennsylvania Power Company and Detroit Edison. During 1997, CONSOL derived 23% of its total revenue from sales to its two largest customers, Allegheny Energy and a consortium of utility companies referred to as the CAPCO companies, which includes among others, Pennsylvania Power Company. During 1997, contracts with Allegheny Energy accounted for more than 10% of CONSOL's revenues. More than 100 technical specialists work with the direct sales force to meet the needs of current and potential customers. Specialists review customer bid solicitations with the sales force and then identify the coal or coal-blends that CONSOL could provide. Specialists also may accompany the sales force on customer calls to suggest, from a technical standpoint, how CONSOL coals could be used to improve combustion efficiency or lower customers' costs. If additional technical resources are required, the sales force utilizes expertise provided by CONSOL's Research and Development Department. CONSOL's research and development expertise in areas, including combustion, emission control, coal coking and power plant performance, allows CONSOL to address customer concerns on detailed technical basis. See "-- Research and Development." DISTRIBUTION CONSOL employs transportation specialists who negotiate freight and equipment agreements with various transportation suppliers, including railroads, barge lines, terminal operators, ocean vessel brokers and trucking companies. 60 In addition, CONSOL's transportation managers coordinate with customers and with CONSOL's mining complexes to establish shipping schedules and to order transportation equipment necessary to meet the customer's needs. CONSOL owns or leases more than 1,100 railroad cars for moving coal either directly to domestic customers or to the river and sea ports for transloading to barges or vessels. CONSOL has five towboats and a fleet of nearly 300 barges to serve customers along the Ohio and Monongahela rivers. The barge operation allows CONSOL to exercise control of delivery schedules and serves as temporary floating storage of coal where land storage is unavailable. The towboat and barge fleet is sized to accommodate the narrower channels and smaller locking facilities along the Monongahela River on which much of CONSOL's coal is moved. In 1997, CONSOL transported 14.8 million tons of coal by river. Third-party shippers transported an additional 13.5 million tons of CONSOL's coal. Nearly 40% of CONSOL-produced coal moved on the inland waterways in 1997. CONSOL estimates that shipping coal by water is as much as 80% less expensive than rail transportation. Coal shipped on the Monongahela, Ohio and Mississippi rivers is transported to electricity generators, steel makers and industrial customers in the United States and overseas. Water-borne shipments of coal originate from mines in every state in which CONSOL operates. International customers and domestic coastal customers receive coal through CONSOL's terminal at Baltimore, Maryland. The Baltimore Terminal is a 100 acre site with a throughput capacity of 18 million tons annually and ground storage capacity for steam and metallurgical coal. The ground storage capacity is significant to CONSOL for several reasons. First, it provides additional inventory storage to allow mines to continue to operate at optimal levels. Second, the large storage capacity allows CONSOL to ensure overseas buyers that coal will be available for rapid loading when the transporting vessel arrives at the port, thereby minimizing demurrage charges. Finally, the storage capacity of the terminal allows CONSOL to inventory coals of various qualities and to then produce custom blends for overseas customers. The terminal is served by both the Norfolk Southern and CSX Transportation railroads. The terminal berths have been dredged to a depth of 50 feet to allow CONSOL to load larger oceangoing vessels. RESEARCH AND DEVELOPMENT CONSOL's Research and Development Department is the largest private research organization in the United States devoted to coal. The function of the department is to identify, develop and apply technology to support the production and marketing objectives of CONSOL's coal and gas operations and to serve as a technical resource to other staff departments. The Research and Development Department works closely with CONSOL's mines, preparation plants, sales offices, engineering, environmental affairs and government relations departments to address current opportunities and problems while pursuing a longer term strategic mission to maintain CONSOL's competitive advantage in mining and sales. The Research & Development Department employs approximately 100 engineers, scientists and staff at two locations and has an annual budget of $11 million. The strategic objectives of the Research and Development Department are to understand and control the geologic factors that can limit productivity or impair safety, to develop systems and procedures to optimize resource extraction and utilization, to assess the value of CONSOL's products in the market place and to address operational and environmental issues that can affect CONSOL's customers and, as a consequence, limit the market for CONSOL's coal. CONSOL's research and development effort is directed at both production ("upstream") and marketing ("downstream") issues. This approach recognizes that profitability is a function of the ability to control costs of production and the ability to develop and access the highest value markets for CONSOL's products. 61 The goal of the upstream research is to reduce costs, to improve productivity and to enhance the safety of CONSOL's mines and preparation plants. Among the significant areas of research are the geophysical evaluation of reserves and mines, the automation of mining systems, including robotic control of longwall shearers, the improvement of underground haulage technology, the hydrological modeling of mines and the associated geology, the control of dust and methane in mines, and the development of computer technology for preparation plants. CONSOL has developed sophisticated measurement and computer modeling techniques for ground control and hydrologic modeling. These tools are used to design and operate safe and productive mines, and to understand better the effect of mining on the environment. CONSOL also maintains extensive testing and sampling capabilities at its research and development facilities to address coal quality issues, and to solve in a cost-effective manner such environmental problems as acid mine drainage and plant emission controls. In recent years, CONSOL has obtained (or applied for) various patents, including froth floatation control systems to improve preparation plant efficiencies and costs, the TramVeyor(TM) coal haulage systems to increase productivity in continuous miner sections, devices to extend conveyor belts as mining advances without interrupting belt operations, and a device that allows continued mine ventilation during periodic testing. The downstream program supports CONSOL's coal sales through the development of improved coal use technologies, and by assigning research and development staff to participate in the government regulatory process where it affects the use of coal. The Research and Development Department operates a pilot combustor and a moveable-wall coke oven to test and qualify coal for virtually any customer application and to diagnose and solve operating problems at customer facilities that might otherwise limit the use of CONSOL's coal. The Research and Development Department has developed the proprietary CONSOL, Coal Quality Cost Model ("CQCM") as a tool for determining the value of specific coals based on the busbar power cost when they are used in electricity generating stations. Alone, or in combination with the pilot combustor, the CQCM allows CONSOL's sales force and its customers to identify the best coals for a given application. CONSOL not only has extensive coal-testing capabilities, but it can provide customers with field diagnostic services to evaluate and solve coal combustion problems. These capabilities not only help preserve existing business, but allow CONSOL to generate new business opportunities. For example, CONSOL recently resolved concerns about the use of CONSOL coal for blending in an electricity generating station of an upper midwest electric utility. The station primarily burned low-Btu, Western coal for blending with a lesser amount of high-sulfur Eastern coal from another producer. The utility wanted to consider CONSOL's high Btu, fully-washed, Pittsburgh # 8 seam coal, but was concerned that this coal would create slagging and fouling problems, if substituted in the blend. By testing blends in the Research & Development Department's pilot-scale coal combustion facility and working with the utility's station operators, CONSOL demonstrated that fully washed, high Btu coal could be part of the blend. As a result, CONSOL's coal was qualified and ultimately chosen by the customer. The Research and Development Department's work on the development of coal utilization technology is directed principally at reducing the cost of compliance with environmental regulations for existing coal-fired boilers. CONSOL believes that existing electricity generating stations will be the site of increased coal use as operators of these stations seek to increase the utilization of the capacity of the generating units. The Research and Development Department is engaged in the development and demonstration of low-cost retrofit technology for the control of sulfur dioxide, oxides of nitrogen and other post-combustion air emissions and for the control of solid waste. For example, CONSOL was recently awarded a grant from the U.S. Department of Energy to construct a pilot plant to turn scrubber sludge into pellets that can be used as aggregate in road construction. A test of asphalt using sludge pellets currently is being conducted at a road repair and construction project. If successful, this technology will transform scrubber sludge, which would otherwise have to be land-filled into a commercial product, reducing the costs of using high-sulfur coal. 62 EMPLOYEES AND LABOR RELATIONS At September 30, 1998, CONSOL had a total of 8,716 employees, of whom approximately 4,364 were represented by the UMWA and covered by the terms of the 1998 NBCWA. The NBCWA became effective on January 1, 1998 and will expire on December 31, 2002. This agreement is negotiated with the UMWA by the Bituminous Coal Operators' Association on behalf of its members, which includes several subsidiaries of CONSOL. The NBCWA also serves as a pattern agreement for other coal producers with UMWA-represented employees. About 41% of the U.S. miners are represented by the UMWA. The NBCWA provided moderate wage and benefit increases and pension improvements. The NBCWA also provided CONSOL with additional scheduling flexibility and will reduce required contributions to multi-employer benefits funds over the life of the contract. Since 1984, the UMWA has had only one nationwide strike, which occurred in 1993. CONSOL believes that the current labor environment is stable. COMPETITION The U.S. coal industry is highly competitive, with numerous producers in all coal producing regions. CONSOL competes against other large producers and hundreds of small producers in the United States and overseas. The largest producer is estimated to have less than 15% (based on tonnage sold) of the total U.S. market. The U.S. Department of Energy reports 1,810 active coal mines in the United States in 1997, the latest year for which government statistics are available. The U.S. coal industry is going through a period of rapid consolidation. Oil, steel and utility companies have been selling their coal assets, which have been acquired for the most part by mining companies. The most important factors on which CONSOL competes are coal price at the mine, coal quality, transportation costs from the mine to the customer and the reliability of supply. Continued demand for CONSOL's coal and the prices that CONSOL obtains are affected by demand for electricity, environmental and government regulation, technological developments and the availability and price of competing coal and alternative fuel supplies, including nuclear, natural gas, oil or renewable energy, including hydroelectric power. NON-MINING OPERATIONS CONSOL's non-mining operations started as service, support or ancillary functions for its mining operations. Several have grown to be stand-alone businesses that obtain a large part of their revenues from outside customers. FAIRMONT SUPPLY COMPANY Fairmont Supply Company, headquartered in Washington, Pennsylvania, is one of the largest general-line distributors of mining and industrial supplies in the United States. Fairmont Supply has more than 30 customer service centers nationwide. All Fairmont Supply sites are linked by computer to manage large inventories of name-brand parts, supplies and equipment, which helps reduce Fairmont Supply's distribution and product acquisition costs. Fairmont Supply also provides integrated supply procurement and management services. Integrated supply procurement is a materials management strategy that utilizes a single, full-line distributor to minimize total cost in the MRO (maintenance, repair and operating) supply chain. Fairmont Supply offers value-added services including on-site stores management and procurement strategies. In 1997, Fairmont Supply received ISO 9002 re-certification at its Wilmington, Delaware, Charleston, West Virginia and Parkersburg, West Virginia customer service centers as well as at its purchasing department in Washington, Pennsylvania. ISO 9002 is an international certification that provides independent verification that 63 a company's operating, purchasing and other procedures meet a prescribed standard. The certification requires annual renewal. CONSOL believes that its ISO 9002 certification gives Fairmont Supply a marketing advantage because many customers require that their suppliers meet this standard. Fairmont Supply provides mine supplies to CONSOL's mining operations. Approximately 26% of Fairmont Supply's sales in 1997 were made to CONSOL mines. Fairmont Supply also serves DuPont sites in the United States providing maintenance and repair services and operating supplies and equipment in a central location near each plant. About 32% of Fairmont Supply's revenues in 1997 were derived from sales made and services provided to DuPont, based on contract terms and conditions. See Note 21 of Notes to Consolidated Financial Statements. Fairmont Supply operates under a Strategic Alliance Agreement with DuPont. Fairmont Supply provides various maintenance, repair and operating supplies to DuPont plant sites both in the United States and abroad. The products supplied are primarily valves, fittings, bearings, electrical products, safety products and miscellaneous industrial products. The majority of the products are shipped to 31 large plant sites in the United States with smaller volume shipments to approximately another 50 sites in the United States and abroad. Under the Strategic Alliance Agreement, Fairmont provides other material management services to 16 of the larger sites in the United States. The additional services may include a single source integrated supply program, "in-plant" delivery services, storeroom management, procurement services, and critical material inspection services. The specific programs are tailored to individual plant requirements and may vary from site to site. In 1998, DuPont was Fairmont Supply's second largest customer in sales volume. The terms of the Strategic Alliance Agreement are comparable to terms negotiated by Fairmont Supply with unaffiliated parties. BALTIMORE TERMINAL More than 90 million tons of coal have been shipped through CONSOL's exporting terminal in the Port of Baltimore during the terminal's 14 years of operation. Constructed in the early 1980s at a cost of about $100 million, the terminal can either store coal or transload coal directly into vessels from rail cars. It is also one of the few terminals in the United States served by two railroads, Norfolk Southern and CSX Transportation. In 1997, 8 million tons of coal were shipped through the terminal. One half of the tonnage shipped was produced by CONSOL coal mines, the remainder by other coal producers through several coal trading companies. In 1998, about 33% of the revenue at the terminal was generated from coal that CONSOL shipped but that had been produced by others. The terminal has capacity to ship 18 million tons annually. The terminal's berth has a depth of 50 feet, enabling the facility to handle larger ocean-going vessels. More than 1 million tons of coal can be stored on site, which gives the terminal the advantage of having coal available at the site for immediate loading onto ocean-going vessels or to provide blending capability. NEPTUNE BULK TERMINAL CONSOL also has a 19% interest in the Neptune Bulk Terminal located in Vancouver, Canada. The terms of the contract governing this joint venture permit CONSOL to transship its coal through the terminal at cost. CONSOL believes that this arrangement gives it a competitive advantage in selling coal mined from its Cardinal River operations. RIVER OPERATIONS CONSOL's river operations transport coal from CONSOL mines with river loadout facilities along the Monongahela River in northern West Virginia and southwestern Pennsylvania to customers along the Monongahela and Ohio rivers. The river operations employ five company-owned towboats and nearly 300 64 barges. Coal is towed directly to customers. In 1997, CONSOL transported 15 million tons of coal by river. Third-party shippers transported an additional 13.5 million tons of CONSOL's coal. KELLOGG DOCK Kellogg Dock is located in Moduc, Randolph County on the Mississippi River in southern Illinois. This facility transfers coal from CONSOL's Rend Lake Mine from railcars to barges. In 1997, 1 million tons were supplied by rail to the Kellogg dock and then transported to commercial river shippers. ALICIA DOCK Alicia Dock, located on the Monongahela River north of the Dilworth mine, is a new transshipment facility with design capacity of 6 million tons of coal per year and potential storage capacity for 0.2 million tons of coal. Coal is transferred from rail cars to barges for customers that receive coal on the river system. The facilities include a single-car rotary dump with a positioner, capable of handling an average of 25 cars per hour. The rail siding provides space for 105 cars on each side of the dumper. The Alicia Dock facility became operational in April 1997 and throughput was 1 million tons through the end of 1997. ASH DISPOSAL CONSOL operates an ash disposal facility on a 61-acre site in northern West Virginia to handle ash residues for coal customers that are unable to dispose of ash on-site at their generating facilities. This facility became operational in early 1994. The ash disposal facility can process 200 tons of material per hour. CONSOL has a long-term contract with a cogeneration facility to supply coal and take the residual fly ash and bottom ash. The fly ash is transported to the disposal site by CONSOL-leased pressure differential rail cars. Bottom ash is sold locally for road construction and other purposes. GAS OPERATIONS CONSOL has a 50% interest in the Pocahontas Gas Partnership which engages in the production and transportation of commercial coalbed methane gases. The Pocahontas Gas Partnership recovers pipeline-quality coalbed methane from mining activities in southwestern Virginia and transports the gas to the interstate pipeline system. The production from the Pocahontas Gas Partnership was approximately 36 million cubic feet per day in 1997. CONSOL serves as operator of the Pocahontas Gas Partnership and as operator of an adjacent coalbed methane property. The total gas production supervised by CONSOL from these two ventures was 53 million cubic feet per day in 1997. LEGAL PROCEEDINGS CONSOL is subject to numerous legal proceedings in the ordinary course of its business. Except as described below, CONSOL does not believe that the outcome of any such legal proceedings, if adversely determined, would have a material adverse effect on its business, financial condition or results of operations. On September 18, 1996, Union Electric, a Missouri corporation, commenced an action in the U.S. District Court for the Eastern District of Missouri against Consolidation Coal Company, an indirect wholly owned subsidiary of CONSOL, CONSOL, Inc., and CONSOL Energy Inc. alleging, among other things, breach of contract and asserting unjust enrichment claims against each defendant. The claims relate to a long-term coal supply contract originally entered into between Union Electric and Consolidation Coal Company on December 30, 1966. Union Electric claims that Consolidation Coal Company breached the contract by refusing to agree to price reductions in the per-ton price for coal when requested to do so by Union Electric under the 65 contract's gross inequities clause. The defendants dispute all of Union Electric's allegations and do not believe that Union Electric has suffered any gross inequity or is entitled to any relief under the contract. Union Electric has estimated its damages to be $124 million plus $66 million in interest. On August 31, 1998, CONSOL was awarded a summary judgment dismissing Union Electric's claims against it. Union Electric has appealed the court's order dismissing the suit. CONSOL is engaged in a contract dispute with Cleveland Electric Illuminating Company, Duquesne Light Company, Ohio Edison Company, Pennsylvania Power Company and The Toledo Edison Company. CAPCO claims that CONSOL under the terms of the Mansfield Plant Coal Sales Agreement dated April 10, 1987 made improper adjustments to the coal price for certain labor, retirement and benefit costs. CAPCO claims that they were improperly assessed $40 million as a result of the price adjustments made by CONSOL. CONSOL has responded to CAPCO and has denied the claims. The agreement provides for resolution of disputes by arbitration. CONSOL has received a notice from CAPCO of its intention to submit the claims to arbitration. AVAILABLE INFORMATION CONSOL has filed with the Securities and Exchange Commission a registration statement in order to register the shares of common stock being offered under the Securities Act and the rules and regulations promulgated thereunder. This prospectus omits certain information contained in the registration statement and the exhibits and schedules thereto, and we sometimes refer you to the registration statement for further information with respect to us and the common stock. We have summarized the contents of contracts, agreements or other documents in this prospectus. Although we have disclosed all material elements of such contracts or documents required to be disclosed in this prospectus, we qualify each such disclosure in its entirety by reference to the copy of such contract or document filed as an exhibit to the registration statement. You may inspect and copy the registration statement and all exhibits filed with the registration statement at the public reference facilities maintained by the Securities and Exchange Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the regional offices of the Securities and Exchange Commission at 7 World Trade Center, 13th Floor, New York, New York 10048, and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You also may obtain copies of such material from the Public Reference Section of the Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Securities and Exchange Commission also maintains a web site that contains reports, proxy and information statements and other materials that are filed through the Securities and Exchange Commission's Electronic Data Gathering, Analysis and Retrieval System. You may access this web site at http://www.sec.gov. We will apply to list our common stock on The New York Stock Exchange. Accordingly, our reports and other information also can be inspected at the offices of The New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005. 66 REGULATION The coal mining industry is subject to regulation by federal, state and local authorities on matters such as employee health and safety, permitting and licensing requirements, air quality standards, water pollution, plant and wildlife protection, the reclamation and restoration of mining properties after mining is completed, the discharge of materials into the environment, surface subsidence from the underground mining and the effects of mining on groundwater quality and availability. In addition, the utility industry is subject to extensive regulation regarding the environmental impact of its power generation activities which could affect demand for CONSOL's coal. The possibility exists that new legislation or regulations may be adopted which may have a significant impact on CONSOL's mining operations or its customers' ability to use coal and may require CONSOL or its customers to change their operations significantly or incur substantial costs. Numerous governmental permits or approvals are required for mining operations. CONSOL believes all permits currently required to conduct its present mining operations have been obtained. CONSOL may be required to prepare and present to federal, state or local authorities data pertaining to the effect or impact that any proposed exploration for or production of coal may have upon the environment. All requirements imposed by any such authority may be costly and time-consuming and may delay commencement or continuation of exploration or production operations. Future legislation and administrative regulations may emphasize the protection of the environment and, as a consequence, the activities of CONSOL may be more closely regulated. Such legislation and regulations, as well as future interpretations of existing laws, may require substantial increases in equipment and operating costs to CONSOL and delays, interruptions or a termination of operations, the extent of which cannot be predicted. CONSOL endeavors to conduct mining operations in compliance with all applicable federal, state and local laws and regulations. However, because of extensive and comprehensive regulatory requirements, violations during mining operations are not unusual in the industry and, notwithstanding compliance efforts, CONSOL does not believe such violations can be eliminated completely. None of the violations to date or the monetary penalties assessed have been material. While it is not possible to quantify the costs of compliance with all applicable federal and state laws, those costs have been and are expected to continue to be significant. It is estimated that CONSOL will make capital expenditures for environmental control facilities in the amount of approximately $4 million in 1998, as compared to $4 million and $5 million in 1996 and 1997, respectively. These costs are in addition to reclamation costs. Compliance with these laws has substantially increased the cost of coal mining, but is, in general, a cost common to all domestic coal producers. MINE HEALTH AND SAFETY LAWS Stringent safety and health standards have been imposed by federal legislation since 1969 when the Federal Coal Mine Health and Safety Act of 1969 was adopted. The Mine Health and Safety Act of 1969 resulted in increased operating costs and reduced productivity. The Federal Mine Safety and Health Act of 1977, which significantly expanded the enforcement of health and safety standards of the Mine Health and Safety Act of 1969, imposes comprehensive safety and health standards on all mining operations. Regulations are comprehensive and affect numerous aspects of mining operations, including training of mine personnel, mining procedures, blasting, the equipment used in mining operations and other matters. The Mine Safety and Health Administration monitors compliance with these federal laws and regulations. In addition, as part of the Mine Health and Safety Act of 1969 and the Mine Safety and Health Act of 1977, the Black Lung Acts require payments of benefits by all businesses conducting current mining operations to coal miners with pneumoconiosis (black lung) and to certain survivors of a miner who dies from pneumoconiosis. 67 Most of the states in which CONSOL operates have state programs for mine safety and health regulation and enforcement. In combination, federal and state safety and health regulation in the coal mining industry is perhaps the most comprehensive and pervasive system for protection of employee safety and health affecting any segment of the industry. Even the most minute aspects of mine operations, particularly underground mine operations, are subject to extensive regulation. This regulation has a significant effect on CONSOL's operating costs. However, CONSOL's competitors in all of the areas in which it operates are subject to the same degree of regulation. One of CONSOL's goals is to achieve excellent health and safety performance as measured by accident frequency rates and other measures. CONSOL believes that attainment of this goal is inherently tied to the attainment of productivity and financial goals. CONSOL seeks to implement this goal by training employees in safe work practices; openly communicating with employees; establishing, following, and improving safety standards; involving employees in establishing safety standards; and recording, reporting and investigating all accidents, incidents and losses to avoid reoccurrences. BLACK LUNG LEGISLATION In order to compensate (1) miners who are totally disabled due to pneumoconiosis and (2) certain survivors of miners who died from the disease and who were last employed as miners prior to 1970 or where no responsible coal mine operator has been identified for claims where the miner's last coal employment was after December 31, 1969, the Black Lung Acts levied a tax on production of $1.10 per ton for deep-mined coal and $.55 per ton for surface-mined coal, but not to exceed 4.4% of the sales price. In addition, the Black Lung Acts provide that certain claims for which coal operators had previously been responsible will be obligations of the government trust funded by the tax. The Revenue Act of 1987 extended the termination date of the tax from January 1, 1996 to the earlier of January 1, 2014, or the date on which the government trust becomes solvent. For miners last employed as miners after 1969 who are determined to have contracted black lung, CONSOL self insures against potential cost using actuarial determined estimates of the cost of present and future claims. CONSOL's subsidiaries are also liable under state statutes for pneumoconiosis (black lung) claims. In the past, legislation on black lung reform has been introduced, but not enacted, in Congress. It is possible that such legislation will be reintroduced. Such legislation could restrict the evidence that can be offered by a mining company, establish a standard for evaluation of evidence that greatly favors black lung claimants, allow claimants who have been denied benefits at any time since 1981 to refile their claims for consideration under the new law, make surviving spouse benefits significantly easier to obtain and retroactively waive repayment of preliminarily awarded benefits that are later determined to have been improperly paid. If this or similar legislation is passed, the number of claimants who are awarded benefits could significantly increase. There can be no assurance that such proposed legislation or other proposed changes in black lung legislation will not have an adverse effect on CONSOL. The U.S. Department of Labor has issued proposed amendments to the regulations implementing the federal black lung laws which, among other things, establish a presumption in favor of a claimant's treating physician and limit a coal operator's ability to introduce medical evidence regarding the claimant's medical condition. If adopted, the amendments could have an adverse impact on CONSOL, the extent of which cannot be accurately predicted. 68 WORKERS' COMPENSATION CONSOL is required to compensate employees for work-related injuries. Several states in which CONSOL operates consider changes in workers compensation laws from time to time. Such changes, if enacted, could adversely affect CONSOL's financial condition and results of operation. RETIREE HEALTH BENEFITS LEGISLATION The Coal Industry Retiree Health Benefits Act of 1992 requires CONSOL to make payments to fund the cost of health benefits for CONSOL's and other coal industry retirees. As a result of a recent U.S. Supreme Court decision, CONSOL may be required to increase its share of such payments. ENVIRONMENTAL LAWS CONSOL is subject to various Federal environmental laws, including the federal Surface Mining Control and Reclamation Act of 1977, the Clean Air Act, the Clean Water Act, the federal Comprehensive Environmental Response, Compensation and Liability Act, and the federal Resource Conservation Recovery Act as well as state laws of similar scope in each state in which CONSOL operates. These environmental laws require permitting and/or approval of many aspects of coal mining operations, and to that end both federal and state inspectors regularly visit CONSOL's mines and other facilities to assure compliance. CONSOL has ongoing compliance and permitting programs to assure compliance with such Environmental Laws. Given the retroactive nature of certain environmental laws, CONSOL has incurred and may in the future incur liabilities in connection with properties and facilities currently or previously owned or operated as well as sites to which it sent waste materials. SURFACE MINING CONTROL AND RECLAMATION ACT The Surface Mining Control and Reclamation Act establishes operational, reclamation and closure standards for all aspects of surface mining as well as many aspects of deep mining. The act requires that comprehensive environmental protection and reclamation standards be met during the course of and upon completion of mining activities. Permits for surface mining operations must be obtained from the federal Office of Surface Mining Reclamation and Enforcement or, where state regulatory agencies have adopted federally approved state programs under the act, the appropriate state regulatory authority. All states in which CONSOL's active mining operations are located have achieved primary jurisdiction for enforcement of the act through approved state programs. The Surface Mining Control and Reclamation Act and similar state statutes, among other things, require that mined property be restored in accordance with specified standards and approved reclamation plans. The act requires CONSOL to restore the surface to approximate the original contours as contemporaneously as practicable with the completion of surface mining operations. The mine operator must submit a bond or otherwise secure the performance of these reclamation obligations. The earliest a reclamation bond can be released is five years after reclamation has been achieved. Some states, including Pennsylvania, impose on mine operators the responsibility for repairing or compensating for damage occurring on the surface as a result of mine subsidence, a consequence of longwall mining. In addition, the Abandoned Mine Lands Act, which is part of the Surface Mining Control and Reclamation Act, imposes a tax on all current mining operations, the proceeds of which are used to restore mines closed before 1977. The maximum tax is $.35 per ton on surface-mined coal and $.15 per ton on underground-mined coal. CONSOL accrues for the costs of final mine closure, including the cost of treating mine water discharge where necessary, over the estimated useful mining life of the property and for current mine disturbance which will be reclaimed prior to final mine closure. The establishment of liability for the current disturbance and final mine 69 closure reclamation is based upon permit requirements and requires various estimates and assumptions, principally associated with costs and production levels. The reclamation costs, mine-closing costs and other environmental liability accruals were $321 million at September 30, 1998. The amount that was included as an operating expense for the nine-month period ended September 30, 1998 was $7 million, while the related cash expense for such liability in such period was $22 million. Although CONSOL's management believes it is making adequate provisions for all expected reclamation and other costs associated with mine closures, future operating results would be adversely affected if such accruals were later determined to be insufficient. Under the Surface Mining Control and Reclamation Act, responsibility for unabated violations, unpaid civil penalties and unpaid reclamation fees of independent contract mine operators can be imputed to other companies which are deemed, according to the regulations, to have "owned" or "controlled" the contract mine operator. Sanctions against the "owner" or "controller" are quite severe and can include being blocked from receiving new permits and revocation of any permits that have been issued since the time of the violations or, in the case of civil penalties and reclamation fees, since the time such amounts became due. CONSOL is not aware of any currently pending or asserted claims relating to the "ownership" or "control" theories discussed above. However, there can be no assurance that such claims may or may not develop in the future. CLEAN AIR ACT The federal Clean Air Act and similar state laws, which regulate emissions into the air, affect coal mining and processing operations primarily through permitting and/or emissions control requirements. In addition, the U.S. Environmental Protection Agency has issued certain and is considering further regulations relating to fugitive dust and coal combustion emissions which could restrict CONSOL's ability to develop new mines or require CONSOL to modify its operations. In July 1997, the Environmental Protection Agency adopted new, more stringent National Ambient Air Quality Standards for particulate matter which may require some states to change existing implementation plans. These National Ambient Air Quality Standards are expected to be implemented by 2003. Because coal mining operations emit particulate matter, CONSOL's mining operations and utility customers are likely to be directly affected when the revisions to the National Ambient Air Quality Standards are implemented by the states. Regulations may restrict CONSOL's ability to develop new mines or could require CONSOL to modify its existing operations, and may have a material adverse effect on CONSOL's financial condition and results of operations. The Clean Air Act also indirectly affects coal mining operations by extensively regulating the air emissions of coal-fueled electric power generating plants. The Clean Air Act requires reduction of sulfur dioxide emissions from electric power generation plants in two phases. Only certain facilities are subject to the Phase I requirements. By the year 2000, Phase II requires nearly all facilities to reduce such emissions. The affected utilities will be able to meet these requirements by switching to lower sulfur fuels, by installing pollution control devices such as scrubbers, by reducing electricity generating levels or by purchasing or trading so-called pollution "credits." Specific emissions sources receive these "credits" which utilities and industrial concerns can trade or sell to allow other units to emit higher levels of sulfur dioxide. In addition, the Clean Air Act requires a study of utility power plant emission of certain toxic substances and their eventual regulation, if warranted. The effect of the Clean Air Act cannot be completely ascertained at this time, although the sulfur dioxide emissions reduction requirement is projected generally to increase the demand for low-sulfur coal and potentially decrease demand for high sulfur coal. The Clean Air Act also indirectly affects coal mining operations by requiring utilities that currently are major sources of nitrogen oxides in moderate or higher ozone nonattainment areas to install reasonably available control technology for nitrogen oxides, which are precursors of ozone. The Environmental Protection Agency recently announced a proposal that would require 22 eastern states to make substantial reductions in nitrogen oxide 70 emissions by the year 2003. The Environmental Protection Agency expects such states will achieve these reductions by requiring power plants to make substantial reductions in their nitrogen oxide emissions. This in turn will require power plants to install reasonably available control technology and additional control measures. Installation of reasonably available control technology and additional measures required under the Environmental Protection Agency proposal will make it more costly to operate coal-fired plants and, depending on the requirements of individual state implementation plans and the development of revised new source performance standards, could make coal a less attractive fuel alternative in the planning and building of utility power plants in the future. Any reduction in coal's share of the capacity for power generation could have a material adverse effect on CONSOL's business, financial condition and results of operations. The effect such regulations, or other requirements that may be imposed in the future, could have on the coal industry in general and on CONSOL in particular cannot be predicted with certainty. No assurance can be given that the implementation of the Clean Air Act, the new National Ambient Air Quality Standards or any other future regulatory provisions will not materially adversely affect CONSOL's business, financial condition or results of operations. Impact of the Framework Convention On Global Climate Change. The United States and more than 160 other nations are signatories to the 1992 Framework Convention on Global Climate Change which is intended to limit or capture emissions of greenhouse gases, such as carbon dioxide. In the Kyoto Protocol, the signatories to the Framework Convention on Global Climate Change established a binding set of emissions targets for developed nations. The specific limits vary from country to country. Under the terms of Kyoto Protocol, the United States would be required to reduce emissions to 93% of 1990 levels over a five-year budget period from 2008 through 2012. The Clinton Administration signed the protocol in November 1998. Although the U.S. Senate has not yet ratified the Kyoto Protocol and no comprehensive regulations focusing on greenhouse gas emissions have been enacted, efforts to control greenhouse gas emissions could result in reduced use of coal if electric power generators switch to lower carbon sources of fuel. Such restrictions, if established through regulation or legislation, could have a material adverse effect on CONSOL's business, financial condition and results of operations. CLEAN WATER ACT The federal Clean Water Act affects coal mining operations by imposing restrictions on effluent discharge into waters. Regular monitoring, as well as compliance with reporting requirements and performance standards, are preconditions for the issuance and renewal of permits governing the discharge of pollutants into water. CONSOL believes it has obtained all permits required under the Clean Water Act and that compliance with the Clean Water Act will not materially adversely affect its business, financial condition and results of operations. CONSOL has received several notices of violations from the Ohio Environmental Protection Agency at its Powhatan Mine No. 4, located near Clarington, Monroe County, Ohio. In September 1998, CONSOL entered into a settlement agreement with the Ohio Environmental Protection Agency and finalized a consent decree with the Ohio Environmental Protection Agency reflecting the resolution of outstanding issues. This settlement included a payment of $102,620 and a schedule to achieve compliance with its permit. CONSOL is meeting all Ohio Environmental Protection Agency requirements on the schedule set forth in the consent decree. COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY ACT The Comprehensive Environmental Response, Compensation and Liability Act and similar state laws affect coal mining operations by, among other things, imposing cleanup requirements for threatened or actual releases of hazardous substances that may endanger public health or welfare or the environment. Under the Comprehensive Environmental Response, Compensation and Liability Act, joint and several liability may be imposed on waste generators, site owners and operators and others regardless of fault or the legality of the original disposal activity. Although waste substances generated by coal mining and processing are generally not regarded as hazardous substances for the purposes of the Comprehensive Environmental Response, Compensation and Liability Act, some products used by coal companies in operations, such as chemicals, and 71 the disposal of such products, are governed by the statute. Thus, coal mines currently or previously owned or operated by CONSOL, and sites to which CONSOL sent waste materials, may be subject to liability under the Comprehensive Environmental Response, Compensation and Liability Act and similar state laws. CONSOL has been, from time to time, the subject of administrative proceedings, litigation and investigations relating to environmental matters and has also been named as a potentially responsible party at several Superfund sites. CONSOL believes, based on various factors, that the liabilities associated with the Superfund sites should not have a material adverse effect on its financial condition or results of operations. However, there can be no assurances that CONSOL will not become involved in future proceedings, litigation or investigations or that such liabilities will not be material. RESOURCE CONSERVATION RECOVERY ACT The federal Resource Conservation Recovery Act affects coal mining operations by imposing requirements for the treatment, storage and disposal of hazardous wastes. Although many mining wastes are excluded from the regulatory definition of hazardous waste, and coal mining operations covered by the Surface Mining Control and Reclamation Act permits are exempted from regulation under the Resource Conservation Recovery Act by statute, the Environmental Protection Agency may consider the possibility of expanding regulation of mining wastes under the Resource Conservation Recovery Act. Such expansion could have a material adverse affect on CONSOL's results of operations and financial condition. FEDERAL COAL LEASING AMENDMENTS ACT Although CONSOL currently does not have mining operations on federal coal leases, mining operations on federal lands in the West are affected by regulations of the U.S. Department of the Interior. The Federal Coal Leasing Amendments Act of 1976 amended the Mineral Lands Leasing Act of 1920 which authorized the leasing of federal lands for coal mining. The Federal Coal Leasing Amendments Act increased the royalties payable to the U.S. Government for federal coal leases and required diligent development and continuous operations of leased reserves within a specified period of time. Regulations adopted by the U.S. Department of the Interior to implement such legislation could affect coal mining by CONSOL from federal leases if operations were developed on such leases. 72 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS Set forth below are the names and ages at December 1, 1998, of the executive officers and directors of CONSOL Energy Inc. and certain executive officers of CONSOL Inc. and Consolidation Coal Company. Consolidation Coal Company is the principal operating subsidiary of CONSOL Energy Inc. and CONSOL Inc. is the direct holding company subsidiary of CONSOL Energy Inc. that provides executive, management and administrative services to CONSOL. No family relationship exists among these people. Executive officers are appointed by, and hold office at, the discretion of the Board of Directors of CONSOL Energy Inc., CONSOL Inc. and Consolidation Coal Company, respectively.
================================================================================================================ NAME AGE POSITION - ---------------------------------------------------------------------------------------------------------------- J. Brett Harvey............................ 48 Director and President and Chief Executive Officer, CONSOL and CONSOL Inc. Ronald J. FlorJancic....................... 48 Executive Vice President -- Marketing, CONSOL Inc. C. Wesley McDonald......................... 59 Executive Vice President -- Operations, CONSOL Inc. Ronald E. Smith............................ 50 Executive Vice President -- Engineering Services, Environmental Affairs and Exploration, CONSOL Inc. Dr. Rolf Zimmermann........................ 54 Executive Vice President of CONSOL Inc. and Director, CONSOL and CONSOL Inc. Michael F. Nemser.......................... 48 Vice President and Treasurer, CONSOL and Senior Vice President -- Administration, CONSOL Inc. Grayson G. Heard........................... 51 Senior Vice President -- Mining, Consolidation Coal Company Benjamin M. Statler........................ 47 Senior Vice President -- Mining, Consolidation Coal Company Daniel L. Fassio........................... 51 Vice President and Secretary, CONSOL and Vice President, General Counsel and Secretary of CONSOL Inc. B. R. Brown................................ 66 Director, CONSOL and CONSOL Inc. Dr. Dieter Henning......................... 62 Director, CONSOL and CONSOL Inc. Berthold Bonekamp.......................... 48 Director, CONSOL and CONSOL Inc. Bernd J. Breloer........................... 56 Director, CONSOL and CONSOL Inc.
J. BRETT HARVEY has been President, Chief Executive Officer and a Director of CONSOL since January 1998. Prior to joining CONSOL, Mr. Harvey served as the president and chief executive officer of PacifiCorp Energy Inc., a subsidiary of PacifiCorp, one of the country's largest electric utility companies, beginning in 1995. Between 1993 and 1995, Mr. Harvey was president and chief executive officer of both Interwest Mining Company and PacifiCorp Fuels. Mr. Harvey is a member of the Board of Directors of the National Mining Association, the National Coal Council, and the Utah Mining Association. He received a bachelor's degree in mining engineering from the University of Utah. He is a former director of the Wasatch Crest Mutual Insurance Company and has served on the Construction Board of the College of Eastern Utah. 73 RONALD J. FLORJANCIC has been Executive Vice President-Marketing of CONSOL Inc. since May 1995. He was Vice President-Supply and Distribution and Vice President-Sales from January 1992 to December 1993 and December 1993 to May 1995, respectively. From September 1982 to January 1992, he served as Vice President-Supply and Distribution for Consolidation Coal Company. Prior thereto, he served in a variety of operations and management positions. Mr. FlorJancic joined Consolidation Coal Company in 1974. He received a bachelor's degree in business and a master's degree in business administration, in each case magna cum laude, from Indiana University (Bloomington). Mr. FlorJancic completed the Emory University Executive Management Program in 1987. C. WESLEY MCDONALD has been Executive Vice President--Operations of CONSOL Inc. since January 1992. He was employed by Consolidation Coal Company in June 1967, and held numerous operating and management positions from 1975 to 1981, including Vice President and Assistant to the President for Consolidation Coal Company from 1980 to 1981. He also served as Senior Vice President--Engineering, Exploration and Environmental Affairs from 1981 to 1982, Senior Vice President--Mining from 1982 to 1985 and Executive Vice President--Operations for Consolidation Coal Company from 1985 to 1992. Mr. McDonald received a bachelor's degree in mining engineering from the University of Alabama. He attended Harvard Business School's Program for Management Development. He was named a Distinguished Engineering Fellow in 1987 at the University of Alabama, and is a member of the Board of Directors, Capstone Engineering Society, College of Engineering, at the University. In addition, Mr. McDonald is former Chairman of the Mineral Engineering Advisory Committee, University of Alabama College of Engineering. He is also a member of the West Virginia University Visiting Committee, which advises the University on engineering program matters. RONALD E. SMITH has been Executive Vice President--Engineering Services, Environmental Affairs & Exploration of CONSOL Inc. since April 1992. He joined Consolidation Coal Company in June 1969 and has held numerous operating and management positions, including Administrative Assistant to the Vice President--Tazewell Operations in 1981, Vice President and Assistant to the Executive Vice President in 1987 and Senior Vice President--Engineering Services, Environmental Affairs & Exploration for Consolidation Coal Company from April 1990 to January 1992. Mr. Smith received a bachelor's degree in mining engineering from Virginia Polytechnic Institute and was named a Distinguished Alumnus in 1998. DR. ROLF ZIMMERMANN has been Executive Vice President of CONSOL Inc. since January 1999 and has been on the Board of CONSOL since November 1993, where he serves as a representative of Rheinbraun AG. In 1973, he served in the Corporate Planning Department of the oil refinery subsidiary of Rheinbraun A.G. He became Vice President and head of supply in 1985. He joined Rheinbraun AG in 1989 and was the head of Corporate Structure and Internal Audit Department until 1990. From 1990 to 1991, he was a member of the management board of a consulting firm established to prepare for the privatization of the East German lignite industry. In 1992, he became Senior Vice President of Rheinbraun and head of the Business Development, Corporate Structure and Information Processing Division. Mr. Zimmermann has received a master's degree (Diplom-Volkswirt) in Economics from Bonn University and holds a doctor's degree (Dr.rer.pol.) in Economics from Cologne University in Germany. MICHAEL F. NEMSER has been Vice President and Treasurer for CONSOL since January 1992 and has been Senior Vice President--Administration for CONSOL Inc. since January 1, 1996. From January 1992 to January 1, 1996, he was Vice President and Treasurer for CONSOL Inc. Before joining CONSOL, Mr. Nemser was employed by DuPont from 1974 to 1987, and held a variety of positions in DuPont's Accounting, Finance, Textile Fibers, International and Polymer Products Departments. He received a bachelor's degree in economics from Hobart College and a master's degree of business administration degree from the Wharton School. Mr. Nemser is a past President of the Financial Executives Institute, Pittsburgh Chapter, a current member of the National Leadership Board of the Financial Executives Institute and Chairman of the Finance Advisory Board of the Duquesne University A.J. Palumbo School of Business. 74 GRAYSON G. HEARD has been Senior Vice President--Mining and a Director of Consolidation Coal Company since May 1985. He has been employed by Consolidation Coal Company since February 1970 and has held numerous operational and management positions. From 1980 until 1984, he was Vice President of Fairmont Operations. From 1984 until 1985 he was Vice President and Assistant to the Executive Vice President--Operations. Mr. Heard received a bachelor's degree in mining engineering from Penn State University. In 1996, he was honored as a Centennial Fellow of Penn State University. BENJAMIN M. STATLER has been Senior Vice President--Mining and a Director of Consolidation Coal Company since September 1994. He has been employed by Consolidation Coal Company since February 1970 and has held numerous operational and management positions. He served as Vice President of Moundsville Operations from September 1983 to June 1994. From June 1994 until September 1994, he was Vice President and Assistant to the Executive Vice President of Consolidation Coal Company. Mr. Statler received a bachelor's degree in mining engineering from West Virginia University. He is a past director of the Executive Committee of the Society for Mining, Metallurgy & Exploration, Inc. (SME), Pittsburgh Chapter. In addition, he is past General Campaign Chairman of the United Way of the Upper Ohio Valley and has served on the Board of Directors of the Ohio Valley Medical Center, United Way, Wheeling Chamber of Commerce, and Wheeling Symphony. He is also a member of the West Virginia University Visiting Committee, which advises the University on engineering program matters. DANIEL L. FASSIO has been Secretary for CONSOL and Vice President, General Counsel and Secretary of CONSOL Inc. since March 1994. He has been Vice President of CONSOL since November 1998. He joined Consolidation Coal Company in March 1981 as the Attorney for Consolidation Coal Company's former Eastern Region and subsequently served as Counsel and Senior Counsel to Consolidation Coal Company and CONSOL Inc. Prior to March 1981, he was a partner with Rose Schmidt & Dixon, a law firm in Pittsburgh, Pennsylvania. Mr. Fassio received bachelor's and master's degrees from the University of Virginia and a doctor of law degree from Samford University. Besides membership in the American Bar Association and the Pennsylvania Bar Association, Mr. Fassio is Chairman of the Lawyers Committee for the Bituminous Coal Operators Association and a Trustee of the Eastern Mineral Law Foundation. B.R. BROWN has served as a Director of CONSOL since January 1992. Mr. Brown was the Chairman of the Board of Directors of CONSOL from January 1992 until January 1999. From January 1992 to January 1996, he served as CONSOL's President and Chief Executive Officer and has served in the Executive Office of Chairman of the Board from January 1, 1996. Mr. Brown joined Consolidation Coal Company in March 1977 as Executive Vice President. He served as President and Chief Operating Officer from November 1977 to September 1982, as Chairman and Chief Executive Officer from September 1982 to March 1987 and as President and Chief Executive Officer from March 1987 to January 1992 of Consolidation Coal Company. Prior to March 1977 Mr. Brown was employed by Conoco, including most recently as Senior Vice President -- Personnel. Mr. Brown serves as a Director of Remington Arms Co., Inc. He also serves as a Director and is Chairman of the Bituminous Coal Operators Association Negotiating Committee, is a past Chairman of the National Mining Association, a Director and former Chairman of the Coal Industry Advisory Board of the International Energy Agency and a Trustee of the Nature Conservancy. Mr. Brown holds honorary doctorates from several colleges, including Bluefield State College, Robert Morris College, Waynesburg College, and Wheeling College. He is a graduate of the University of Arkansas. DR. ING. DIETER HENNING has been a member of the Board of CONSOL as a representative of Rheinbraun AG and on the Executive Committee of the Board of CONSOL since November 1994. He started as Superintendent Mine Operations at the former Frechen open cast mine of Rheinbraun AG in 1969. After various positions in the headquarters and mines of Rheinbraun AG, he was promoted to General Manager of the Hambach open cast mine in 1977. From 1990 to 1993 he served as Chairman of the Executive Board and Chief Executive Officer of the Lausitzer Braunkohle AG (LAUBAG), Senftenberg, the major company that was formed as a result of the privatization of the East-German lignite production. In 1993, he became Chairman of the Executive Board and 75 Chief Executive Officer of Rheinbraun AG and is a member of the Executive Board of RWE AG. Mr. Henning holds a degree (Diplom Ingenieur) in mine engineering from Clausthal Technical University in Germany. He holds a doctor's degree (Dr.- Ing.) in mining from Clausthal University and a honorary doctor's degree (Dr.- Ing.E.h.) from Aachen University. BERTHOLD BONEKAMP has served on the Board of CONSOL as a representative of Rheinbraun AG since July 1998. He started at the Accounting Department of Rheinbraun AG in 1981. He held a variety of positions in the Rheinbraun Accounting Department and was promoted to Vice President and Division Head - Corporate Development, Organization and Information Processing in 1994. From 1995 to 1998 he served as Chairman of the Executive Board and Chief Executive Officer of RV Rheinbraun Handel und Dienstleistungen GmbH, Cologne, the trading and logistic services branch of the Rheinbraun group. In 1998 he became member of the Executive Board of Rheinbraun AG, where he serves as Executive Vice President - International Operations. Mr. Bonekamp holds a mechanical engineering degree from the Muenster College of Applied Science and holds a master's degree in business administration (Diplom-Kaufmann) from Muenster University in Germany. BERND JOBST BRELOER was appointed to the Board of CONSOL in September 1998, where he serves as a representative of Rheinbraun AG. Mr. Breloer has held various executive positions in the RWE AG group's nuclear division. From 1988 to 1992 he served as Chairman of the Executive Board and as Chief Executive Officer of Nukem GmbH, the group's nuclear fuel cycle services entity. In 1993, he joined Rheinbraun AG, where he became member of the Executive Board with responsibility for the Finance and Accounting Division. Mr. Breloer holds a master's degree in business administration (Diplom-Kaufmann) from Muenster University in Germany. Following the offering, CONSOL will have a Board of Directors consisting of the then current members of the Board of Directors and at least two other persons who will not be officers or directors of CONSOL or Rheinbraun. The Board of Directors will appoint members to a compensation committee of the Board of Directors (the "Compensation Committee") and an audit committee of the Board of Directors (the "Audit Committee"). Both such committees will be comprised solely of independent directors. The Compensation Committee will establish remuneration levels for certain officers of CONSOL and perform such functions as may be delegated to it under certain benefit and executive compensation programs. The Audit Committee will select and engage the independent public accountants to audit CONSOL's annual financial statements. The Audit Committee will also review and approve the planned scope of the annual audit. The Board of Directors may from time to time establish certain other committees to facilitate the management of CONSOL. DIRECTOR COMPENSATION Each of Mr. Brown, Dr. Henning and Dr. Zimmermann received a retainer fee of $18,000 for serving as members of the Board of Directors for 1997. It is anticipated that directors who are not employees or officers of CONSOL or Rheinbraun or of any subsidiary of either of them will be paid an annual Board membership fee of $ , an attendance fee of $ for each meeting of the Board of Directors, and an annual fee of $ for service on any committee of the Board of Directors. 76 EXECUTIVE COMPENSATION The following table discloses the compensation awarded to or earned by Mr. Brown, William G. Karis, the former President and Chief Executive Officer of CONSOL, and the other four most highly compensated executive officers of CONSOL at December 31, 1997 whose annual salary plus other forms of compensation exceeded $100,000.
SUMMARY COMPENSATION TABLE LONG-TERM ANNUAL COMPENSATION COMPENSATION ---------------------------------------- ---------------- NAME AND ALL OTHER OTHER ANNUAL LTIP COMPEN- PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($) PAYMENTS ($) SATION ($) - ------------------------ ------ ------------- ------------ ------------------- ------------- ------------- B.R. Brown 1997 0 425,000 0 0 558,000 Chairman of the Board William G. Karis 1997 200,000 220,000 0 255,000 3,530,387 President and Chief Executive Officer C. Wesley McDonald 1997 277,650 160,000 0 300,000 9,600 Executive Vice President Ronald J. FlorJancic 1997 193,650 185,000 75,000 0 9,600 Executive Vice President Ronald E. Smith 1997 205,650 120,000 0 202,500 9,600 Executive Vice President Benjamin M. Statler 1997 181,860 120,000 0 150,000 9,600 Senior Vice President
All other compensation for Mr. Brown includes $540,000 paid to Mr. Brown under a consulting agreement among Mr. Brown and CONSOL and CONSOL Inc. and a $18,000 retainer fee for serving as a Director of CONSOL. Mr. Brown performed the functions of CONSOL's Chief Executive Officer during the interim period between the resignation of Mr. Karis and the election of Mr. Harvey as CONSOL's President and Chief Executive Officer. All other compensation for Messrs. McDonald, FlorJancic, Smith and Statler represents matching contributions to CONSOL's employee investment plan. Other annual compensation for Mr. FlorJanic represents an award payable in 1997 under CONSOL's Long-Term Incentive Plan but deferred at the election of Mr. FlorJancic. Mr. Karis resigned as the President, Chief Executive Officer and a Director of CONSOL on August 31, 1997 to pursue other opportunities. All other compensation for Mr. Karis includes $3,510,587 accrued for payment to Mr. Karis under CONSOL's bonus and long-term compensation plan, severance policy, qualified retirement plan and vacation benefits. All other compensation also includes a $12,000 retainer fee for serving as a director and $7,800 in matching contributions to CONSOL's employee investment plan. 77 Long-Term Incentive Plan Certain officers of CONSOL and its subsidiaries participate in a long-term incentive plan which is administered by the Vice President-Human Resources of CONSOL Inc. at the direction of the Chairman of the Board of Directors of CONSOL. The Board of Directors may adjust award targets to reflect certain extraordinary events, including strategic restructuring and new investments for capital expansion. The Board of Directors has the discretion to terminate, suspend, withdraw or modify the Long-Term Incentive Plan in whole or in part. Awards under the Long-Term Incentive Plan are based on CONSOL's results of operations. Performance targets are tied to after tax operating income and operating cash flow. Awards under the Long-Term Incentive Plan are granted in units, each of which has a nominal value of $100. The awards have a three-year term and are payable in the third year. The target for the first year is the profit objective of CONSOL for that year. Years two and three are based upon targets stated in CONSOL's long-term business plan in place prior to the beginning of the award cycle. Awards may vary from 0% to 150% of the nominal value of the unit depending upon the targeted results of operations for CONSOL. For example, if the results of operations average 100% of the target for the relevant period, each unit would have a value of $100.00. If the results of operations average less than 100% of the target for the relevant period, each unit would have a value of $0.00. If the results of operations average 150% or more of the target for the relevant period, each unit would have a value of $150.00. A recipient may elect to receive payment when an award is earned or he may defer the payment of such award. Deferred awards accrue compounded interest at an annual rate equal to Moody's AAA 10-year municipal bond rate. 78 The following table provides certain information with respect to awards granted to Mr. Brown, Mr. Harvey and the other four most highly compensated executive officers of CONSOL Executive Officers during the year ended December 31, 1997.
LONG-TERM INCENTIVE PLAN TABLE ESTIMATED FUTURE PAYOUTS UNDER NON-STOCK PRICE-BASED PLANS ------------------------------------------ PERFORMANCE NUMBER OF PERIOD UNTIL THRESHOLD TARGET MAXIMUM NAME UNITS PAYOUT (YEARS) ($) ($) ($) - ----------------------- ---------------- --------------------- -------------- ------------ ------------ B.R. Brown 7,100 3 0 710,000 1,065,000 William G. Karis 0 - - - - C. Wesley McDonald 1,700 3 0 170,000 255,000 Ronald J. FlorJancic 2,000 3 0 200,000 300,000 Ronald E. Smith 1,400 3 0 140,000 210,000 Benjamin M. Statler 1,200 3 0 120,000 180,000
1999 Equity Incentive Plan General CONSOL has adopted the 1999 Equity Incentive Plan (the "Plan"). A maximum of shares of common stock has been reserved for issuance under the Plan, generally subject to equitable adjustment upon the occurrence of any stock dividend, stock split, subdivision or consolidation. Pursuant to the Plan, CONSOL may grant Stock Options (including "incentive stock options" and "nonqualified stock options"), stock appreciation rights ("SARs") (either in connection with stock options granted under the Plan or independently of options), performance awards and other stock- or cash-based awards ("Awards"). It is the intent of CONSOL that certain Awards under the Plan will satisfy applicable requirements of section 162(m) ("Section 162(m)") of the Code. The Plan will be administered by the Compensation Committee. The Compensation Committee has full authority, subject to the provisions of the Plan and except with respect to nonemployee directors, to, among other things, determine the persons to whom Awards will be granted, determine the terms and conditions (including any applicable performance criteria) of such Awards, and prescribe, amend and rescind rules and regulations relating to the Plan. Grants of Awards may be made under the Plan to selected employees of CONSOL and its present or future subsidiaries, in the discretion of the Compensation Committee. 79 Stock Options and Appreciation Rights Stock options may be either "incentive stock options," as such term is defined in Section 422 of the Code, or nonqualified stock options. The exercise price per share of Class A common stock subject to an option may not be less than the fair market value of a share of common stock on the date of grant. Stock Options and SARs will be exercisable at such times and upon such conditions as the Compensation Committee may determine, as reflected in the applicable Award agreement. The exercise period shall be determined by the Compensation Committee except that, in the case of an incentive stock option, such exercise period may not exceed ten years from the date of grant of such incentive stock option. The Compensation Committee will set forth in the applicable Award agreement the treatment of stock options and SARs in the event that the employment of a participant is terminated. Stock Awards A Stock Award is an Award of the right to receive cash or common stock at a future date that may be subject to such restrictions on transferability and other restrictions as the Compensation Committee may impose at the date of grant or thereafter, which restrictions may lapse separately or in combination at such times, under such circumstances (including without limitation a specified period of employment or the satisfaction of preestablished performance goals), in such installments, or otherwise, as the Compensation Committee may determine. All other terms and conditions of Stock Awards will be set forth in the applicable Award agreement. Performance Awards The Performance Award component of the Plan provides for the payment of Awards to participants if, and only to the extent that, performance goals established by the Compensation Committee are met with respect to the appropriate applicable performance period. The Compensation Committee will establish performance goals expressed in terms of the achievement of one or more performance measures. Certain Limitations No participant in the Plan may be granted, in respect of any calendar year, Stock Options or SARs representing an aggregate of more than shares of common stock, Stock Awards covering or relating to more than shares of common stock or Performance Awards having an aggregate value determined on the date of grant in excess of $ . Change in Control Unless otherwise provided in an Award agreement, in the event of a "Change in Control" of CONSOL (as defined in the Plan), each unvested equity Award outstanding under the Plan will be vested. Amendment and Termination The Plan may, at any time and from time to time, be altered, amended, suspended, or terminated by the Board of Directors, in whole or in part, except that (i) no amendment or alteration that would adversely affect the rights of any participant under any Award previously granted to such participant shall be made without the consent of such participant and (ii) no amendment or alteration shall be effective prior to its approval by the stockholders of CONSOL to the extent such approval is required by applicable law. 80 Transferability Except as otherwise determined by the Compensation Committee, awards granted under the Plan may not be transferred other than by will or by the laws of descent and distribution. EMPLOYMENT AGREEMENTS Employment Agreement With Mr. Harvey. J. Brett Harvey entered into an employment agreement with CONSOL and CONSOL Inc. on December 11, 1997. Under the terms of this contract, Mr. Harvey assumed his current positions as the President and Chief Executive Officer of both companies on January 1, 1998. The employment agreement terminates on December 31, 2002 unless it is terminated earlier. Mr. Harvey's employment will terminate if (1) he becomes disabled and would be eligible to receive disability benefits under CONSOL Inc.'s employee retirement plan, (2) if either party terminates the agreement or (3) for cause as determined by the Board of Directors of CONSOL at any time. If the agreement is terminated other than by CONSOL for cause or if Mr. Harvey resigns, Mr. Harvey will receive severance payments in an amount equal to any incentive compensation received in the preceding 12 months and his then current base salary. These amounts would be paid to Mr. Harvey until the end of the term of the employment agreement. In the event of termination for cause, Mr. Harvey's compensation and benefits terminate at the end of the month in which the notice of termination is given. As compensation for his services during the term of the employment agreement, Mr. Harvey receives a yearly base salary of $390,000. He is entitled to participate in all incentive compensation programs for senior management of CONSOL Inc., including short-term and long-term incentive pay programs. He also is eligible for all employee benefit plans and policies applicable to CONSOL Inc. employees. For employee retirement plans purposes, Mr. Harvey will receive 11 years of additional service credit representing his years of employment at PacifiCorp, deducting from any such benefits amounts payable to him pursuant to any retirement or similar plans of PacifiCorp. Mr. Harvey's employment agreement contains certain confidentiality and non- competition obligations. Mr. Harvey must keep CONSOL's non-public information confidential during the term of the employment agreement and for a period of 12 months after his termination. Mr. Harvey has agreed not to compete with the business of CONSOL for so long as he receives severance benefits under the terms of the employment agreement. Consulting Arrangement With Mr. Brown. Mr. Brown entered into a consulting agreement with CONSOL Inc. on December 9, 1996 which terminated on June 30, 1998. CONSOL Inc. and Mr. Brown have agreed to continue this consulting arrangement on a month-to-month basis. Mr. Brown will receive a base consulting fee of $540,000 per year which will be paid in equal monthly installments. The base fee may be increased by the Board of Directors of CONSOL Inc. 81 CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS PURCHASE OF SHARES FROM DUPONT ENERGY Indemnification Under Purchase Agreement. In November 1998, CONSOL purchased 51,139,156 shares of common stock from DuPont Energy for a purchase price of $500 million. The purchase of shares from DuPont Energy was completed pursuant to an agreement entered into in September 1998 among DuPont, DuPont Energy, Rheinbraun and CONSOL. Subject to certain limitations, DuPont agreed to indemnify Rheinbraun and CONSOL in respect of any losses incurred by Rheinbraun as a result of the purchase of shares from DuPont Energy, and 47% of any and all losses incurred by CONSOL and its subsidiaries arising or related to the period prior to the closing date of the purchase of shares from DuPont Energy with respect to the following: . environmental matters (including the failure to obtain any permits or to comply with laws governing the generation, handling, storage, transportation, disposal or remediation of hazardous material only to the extent these losses exceed $50 million), . litigation, only to the extent losses then exceed $40 million . taxes, and . properties of Conoco or its mineral divisions. Except for indemnification as to the mineral divisions of Conoco, DuPont is only obligated to indemnify CONSOL and Rheinbraun at such time that all losses exceed $20 million (calculated on a pre-tax basis). At that time, DuPont's indemnification will include the first $20 million of such losses. DuPont is obligated to indemnify CONSOL and Rheinbraun for liabilities arising out of the mineral division of Conoco on a dollar-for-dollar basis. In no event will DuPont's indemnification obligations in the aggregate exceed $500 million. Registration Rights. In connection with the purchase of shares from DuPont Energy, DuPont and DuPont Energy agreed not to dispose of any of the remaining shares of common stock held by DuPont Energy (including securities issued in exchange for, in lieu of or as a dividend on such shares of common stock) during the 180 days after the closing date of the purchase of shares from DuPont Energy. After the 180 days, DuPont Energy will have the right to dispose of the shares . pursuant to registration rights previously granted to DuPont Energy under the Shareholders Agreement, or . in a private sale or sales conforming to the Securities Act. DuPont Energy may not, and DuPont will cause DuPont Energy not to, effect any public sale of shares during the seven days prior to and the 90 days after any underwritten registered financing by CONSOL has become effective or such longer period (not to exceed 180 days) as the underwriter may require consistent with customary practice. The agreement provides that DuPont will have two demand registration rights at DuPont's expense prior to December 31, 2001. PAYMENT OF DIVIDENDS Prior to the closing of the purchase of shares from DuPont Energy, CONSOL paid a dividend of $60 million, an amount which approximates CONSOL's regular annual dividend based on 1998 results for the period elapsed 82 prior to the payment of the purchase price of the shares. In December 1998, CONSOL paid an additional dividend of $20 million. REGISTRATION RIGHTS CONSOL and Rheinbraun A.G. and Rheinbraun US GmbH have entered into a Registration Rights Agreement that provides that, upon the request of Rheinbraun A.G. or Rheinbraun US GmbH, CONSOL will use its best efforts to effect the registration under the applicable federal and state securities laws of any of the shares of common stock (or any other securities issued with respect to such common stock). Rheinbraun will also have the right, subject to certain limitations, to include these securities in certain other registrations of securities initiated by CONSOL on its own behalf or on behalf of its other stockholders. CONSOL generally will be required to pay all out-of-pocket costs and expenses in connection with each such registration. Such registration rights will be assignable by Rheinbraun. The agreement contains customary terms and provisions with respect to, among other things, registration procedures and certain rights to indemnification and contribution granted by the parties thereunder in connection with such a registration. OTHER INFORMATION ABOUT RELATED PARTY TRANSACTIONS See Note 3 of Notes to the Consolidated Financial Statements for information with respect to certain transactions between CONSOL and affiliates of CONSOL. 83 PRINCIPAL STOCKHOLDERS The following table sets forth at February 4, 1999 certain information with respect to beneficial ownership of the common stock before and after the completion of the offering and the beneficial ownership of shares of Common Shares of RWE, A.G. (the "RWE Common Shares"). Except as indicated in the footnotes below, the persons in this table have sole voting and investment power with respect to all shares beneficially owned by them.
--------------------------------------------------------------------------- COMMON STOCK BENEFICIALLY OWNED --------------------------------------------------------------------------- BEFORE THE AFTER THE OFFERING OFFERING ------------------------------------ ---------------------------------- NAME AND ADDRESS(1) NUMBER PERCENT NUMBER PERCENT - ---------------------------------- ------------------ ------------- -------------- -------------- RWE, A.G............................. 54,403,357 (2) 94.3% 54,403,357 67.8% Opernplatz 1 45128 Essen, Germany E.I. du Pont de Nemours and Company 3,264,201 (3) 5.7% 3,264,201 4.1% 1007 Market Street Wilmington, Delaware 19898 B.R. Brown........................... -- -- -- -- J. Brett Harvey...................... -- -- -- -- C. Wesley McDonald................... -- -- -- -- Ronald E. Smith...................... -- -- -- -- Benjamin M. Statler.................. -- -- -- -- Ronald J. FlorJancic................. -- -- -- -- Dr. Dieter Henning................... -- -- -- -- Berthold Bonekamp.................... -- -- -- -- Bernd Breloer........................ -- -- -- -- Dr. Rolf Zimmerman................... -- -- -- -- All directors and executive officers as a group (persons)........ -- -- -- --
_____________________ (1) The address of the directors and executive officers of CONSOL is c/o CONSOL Inc., 1800 Washington Road, Pittsburgh, Pennsylvania 15241. (2) Represents shares held of record by Rheinbraun A.G. and Rheinbraun U.S. GmbH, direct and indirect subsidiaries of RWE, A.G. (3) Represents shares held of record by DuPont Energy, a wholly owned subsidiary of DuPont. 84 SHARES ELIGIBLE FOR FUTURE SALE After the offering, CONSOL will have 80,267,559 shares of common stock outstanding. If the underwriters exercise their over-allotment option in full, CONSOL will have a total of 83,657,559 shares outstanding. All of the common stock sold in the offering will be freely transferable without restriction or further registration under the Securities Act of 1933, except for shares acquired by certain of CONSOL's directors and senior officers. Rheinbraun, DuPont and certain of CONSOL's directors and senior officers have agreed not to sell or dispose of any common stock for a period of 180 days after the date of this prospectus, without J.P. Morgan Securities Inc.'s prior written consent. CONSOL can give no assurance concerning how long these parties will continue to hold their common stock after the offering. See "Risk Factors--Shares Eligible for Future Sale" and "Underwriting." Any common stock held by one of CONSOL's affiliates will be subject to the resale limitations required by Rule 144 under the Securities Act of 1933. Rule 144 defines an affiliate as a person that directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, the issuer. After the offering, Rheinbraun will be an affiliate of CONSOL. Therefore, as long as Rheinbraun remains an affiliate, Rheinbraun may sell its common stock only: . pursuant to an effective registration statement under the Securities Act of 1933; . in accordance with Rule 144; or . pursuant to another exemption from registration. Rheinbraun is not under any contractual obligation to retain its common stock, except during the 180-day period noted above. In general, a stockholder subject to Rule 144 who has owned common stock of an issuer for at least one year may, within any three-month period, sell up to the greater of (1) 1% of the total number of shares of common stock then outstanding and (2) the average weekly trading volume of the common stock during the four weeks preceding the stockholder's required notice of sale. Rule 144 requires stockholders to aggregate their sales with other affiliated stockholders for purposes of complying with this volume limitation. A stockholder who has owned common stock for at least two years, and who has not been an affiliate of the issuer for at least 90 days, may sell common stock free from the volume limitation and notice requirements of Rule 144. DuPont and Rheinbraun each is entitled to require CONSOL to register its shares for sale under the Securities Act of 1933 after the expiration of the 180-day period noted above. See "Risk Factors?Shares Eligible for Future Sale." CONSOL cannot estimate the number of shares of common stock that may be sold pursuant to the above sale methods because such sales will depend on market prices, the circumstances of sellers and other factors. Prior to this offering, there has been no market for the common stock. CONSOL can make no prediction about the effect, if any, that future sales of common stock or the availability of such shares for sale would have on the prevailing market price of the common stock. Nevertheless, future sales by CONSOL, Rheinbraun or DuPont of substantial amounts of common stock, or the perception that such sales may occur, could adversely affect the prevailing market price of the common stock. In addition, sales and the perception of likely sales 86 could impair CONSOL's ability to raise additional capital through the sale of additional common stock or other equity securities. See "Certain Relationships and Related Party Transactions--Registration Rights" 87 DESCRIPTION OF CAPITAL STOCK CONSOL's authorized capital stock consists of 500,000,000 shares of common stock, $.01 par value per share. After giving effect to the offering, the issued and outstanding capital stock of CONSOL will consist of 80,267,558 shares of common stock (or 83,657,558 if the Underwriters' over-allotment option is exercised in full). COMMON STOCK As of February 1, 1999, there were 57,667,559 shares of common stock outstanding, which were held of record by three stockholders. The holders of common stock are entitled to one vote per share on all matters submitted to a vote of the stockholders. Cumulative voting of shares of common stock is prohibited, which means that the holders of a majority of shares voting for the election of directors can elect all members of the Board of Directors. Except as otherwise required by applicable law, a majority vote is sufficient for any act of stockholders. The holders of common stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the Board of Directors out of funds legally available therefor. In the event of liquidation, dissolution, or winding up of CONSOL, the holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities. The holders of common stock have no preemptive or conversion rights or other subscription rights, and there are no redemption or sinking fund provisions applicable to the common stock. All of the outstanding shares of common stock are fully paid and nonassessable, and all of the shares of common stock offered hereby, when issued, will be fully paid and nonassessable. DuPont has the right to require CONSOL to effect the registration of its shares under the Securities Act in certain circumstances. DELAWARE STATUTE CONSOL is a Delaware corporation subject to Section 203 of the Delaware General Corporation Law. Section 203 provides that a corporation generally may not engage in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder. Section 203 applies unless: . prior to the time a stockholder becomes an interested stockholder, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; . upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced (excluding certain shares); or . on or after such date the stockholder became an interested stockholder, the business combination is approved by the board of directors of the corporation and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. An "interested stockholder" is defined to include: . any person that is the owner of 15% or more of the outstanding voting stock of the corporation or is an affiliate or associate of the corporation and was the owner of 15% or more of the outstanding voting stock of the corporation at any time within the three-year period immediately prior to the relevant date; and 88 . the affiliates and associates of any such person. Section 203 defines a business combination to include: . any merger or consolidation involving the corporation and the interested stockholder; . any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder; . certain transactions that result in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; . any transaction involving the corporation that increases the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or . the receipt by the interested stockholder of any loans, advances, guarantees, pledges or other financial benefits provided through the corporation. In general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by such entity or person. Under certain circumstances, Section 203 makes it more difficult for an interested stockholder to effect various business combinations with a corporation during the three-year period, although the stockholders may elect to exclude a corporation from the restrictions imposed under Section 203. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the common stock is. 89 TAX CONSIDERATIONS The following is a general discussion of certain United States federal tax considerations applicable to the ownership and disposition of common stock by "Non-U.S. Holders." In general, a "Non-U.S. Holder" is a beneficial owner of common stock other than: . a citizen or resident of the United States, . a corporation or partnership created or organized in the United States or under the laws of the United States or of any state, . an estate or partnership, the income of which is includible in gross income for United States federal income tax purposes regardless of its source, or . a trust the administration of which is subject to the primary supervision of a court within the United States and for which one or more U.S. fiduciaries have the authority to control all substantial decisions. An individual may, subject to certain exceptions, be deemed a resident of the United States by virtue of being present in the United States for at least 31 days in the current calendar year and for an aggregate of at least 183 days during the prior three year period ending in the current calendar year (counting for such purposes all days present in the current calendar year, one-third of the days present in the immediately preceding calendar year, and one-sixth of the days present in the second preceding calendar year). The term "Non-U.S. Holder" does not include individuals who were United States citizens within the ten-year period immediately preceding the date of this Prospectus and whose loss of United States citizenship had as one of its principal purposes the avoidance of United States taxes. The following summary deals only with common stock held as capital assets within the meaning of Section 1221 of the Internal Revenue Code and does not deal with special situations, such as those of dealers in securities or currencies, financial institutions, life insurance companies, tax exempt organizations, or persons holding common stock as a part of a hedging or conversion transaction or a straddle. Furthermore, the discussion below is based upon the provisions of the Internal Revenue Code and Treasury regulations, administrative and judicial decisions thereunder as of the date hereof, and such authorities may be repealed, revoked or modified with possible retroactive effect so as to result in federal income and estate tax consequences different from those discussed below. PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISERS REGARDING THE UNITED STATES FEDERAL, STATE, LOCAL AND NON-UNITED STATES INCOME AND OTHER TAX CONSEQUENCES OF HOLDING AND DISPOSING OF SHARES OF COMMON STOCK. DIVIDENDS If dividends are paid on the common stock, these payments will be treated as dividends for United States federal income tax purposes to the extent of CONSOL's current or accumulated earnings and profits as determined under U.S. income tax principles. The portion of a payment that exceeds such earnings and profits will be treated as a return of capital to the extent of each Non-U.S. Holder's tax basis in the common stock. The portion of a payment that exceeds such earnings and profits and tax basis will be treated as a gain from the sale or other disposition of the common stock to the extent of such excess, with the tax consequences described below under ".Sale of Common Stock." 90 In general, any dividends (i.e., distributions to the extent of current or accumulated earnings and profits for United States federal income tax purposes) paid to a Non-U.S. Holder of common stock will be subject to United States withholding tax at a 30% rate (or a lower rate prescribed by an applicable tax treaty) unless the dividends are either (1) effectively connected with a trade or business carried on by the Non-U.S. Holder within the United States or (2) if certain income tax treaties apply, attributable to a permanent establishment in the United States maintained by the Non-U.S. Holder. For purposes of determining whether tax is to be withheld at a 30% rate or at a lower rate as prescribed by an applicable tax treaty, CONSOL will presume, consistent with currently effective Treasury Regulations, that dividends paid to an address in a foreign country are paid to a resident of such country absent knowledge that such presumption is not warranted. However, under United States Treasury regulations applicable to dividends paid after December 31, 1999, a Non-U.S. Holder of common stock would be required to satisfy applicable certification and other requirements in order to claim the benefits of an applicable tax treaty. Dividends effectively connected with a United States trade or business or attributable to a United States permanent establishment generally will not be subject to withholding tax (if the Non-U.S. Holder files certain forms, including IRS Form 4224, or any successor form, with the payor of the dividend) and generally will be subject to United States federal tax on a net income basis, in the same manner as if the Non-U.S. Holder were a resident of the United States. In the case of a Non-U.S. Holder that is a corporation, such dividend income so connected or attributable may also be subject to the branch profits tax (which is generally imposed on a foreign corporation on the repatriation from the United States of its effectively connected earnings and profits subject to certain adjustments) at a 30% rate (or a lower rate prescribed by an applicable income tax treaty). A Non-U.S. Holder that is eligible for a reduced rate of United States withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts currently withheld by filing an appropriate claim for refund with the IRS. SALE OF COMMON STOCK In general, a Non-U.S. Holder will not be subject to United States federal income tax on any gain recognized upon the disposition of common stock unless: . the gain is effectively connected with a trade or business carried on by the Non-U.S. Holder within the United States or, alternatively, if certain tax treaties apply, attributable to a permanent establishment in the United States maintained by the Non-U.S. Holder (and in either such case, the branch profits tax may also apply if the Non-U.S. Holder is a corporation), . in the case of a Non-U.S. Holder who is a nonresident alien individual and holds common stock as a capital asset, such individual is present in the United States for 183 days or more in the taxable year of disposition, and either (a) such individual has a "tax home" (as defined for United States federal income tax purposes) in the United States or (b) the gain is attributable to an office or other fixed place of business maintained by such individual in the United States, . the Non-U.S. Holder is subject to tax pursuant to the provisions of the United States tax law applicable to certain United States expatriates, or . subject to the exception discussed below, CONSOL is or has been a United States real property holding corporation for United States federal income tax purposes (which CONSOL believes that it is) at any time within the shorter of the five-year period preceding such disposition or such Non-U.S. Holder's holding period. If CONSOL is or becomes a United States real property holding corporation, gains realized upon a disposition of common stock by a Non-U.S. Holder that did not directly or indirectly own more than 5% of the 91 common stock during the shorter of the periods described above generally would not be subject to United States federal income tax so long as the common stock was "regularly traded" on an established securities market (within the meaning of Section 897(c)(3) of the Internal Revenue Code and the Treasury regulations promulgated under such section) at the time of the disposition. ESTATE TAX Common stock owned or treated as owned by an individual who is not a citizen or resident (as defined for United States federal estate tax purposes) of the United States at the time of death will be includible in the individual's gross estate for United States federal estate tax purposes unless an applicable estate tax treaty provides otherwise, and therefore may be subject to United States federal estate tax. BACKUP WITHHOLDING, INFORMATION REPORTING AND OTHER REPORTING REQUIREMENTS CONSOL must report annually to the IRS the amount of dividends paid to, and the tax withheld with respect to, each Non-U.S. Holder. These reporting requirements apply regardless of whether withholding was reduced or eliminated by an applicable tax treaty. Copies of this information also may be made available under the provisions of a specific treaty or agreement with the tax authorities in the country in which the Non-U.S. Holder resides or is established. United States backup withholding (which generally is imposed at the rate of 31% on certain payments to persons that fail to furnish the information required under the United States information reporting requirements) and information reporting (other than reporting requirements described in the preceding paragraph) generally will not apply to dividends paid on common stock to a Non- U.S. Holder at an address outside the United States. The payment of proceeds from the disposition of common stock to or through a United States office of a U.S. broker will be subject to information reporting and United States backup withholding unless the owner, under penalties of perjury, certifies among other things, its status as a Non-U.S. Holder, or otherwise establishes an exemption. The payment of proceeds from the disposition of common stock to or through a non-U.S. office of a U.S. or non- U.S. broker generally will not be subject to backup withholding and information reporting, except as noted below. In the case of proceeds from the disposition of common stock paid to or through a non-United States office of a U.S. broker, or a non-U.S. broker that is: . a United States person, . a "controlled foreign corporation" for United States federal income tax purposes, or . a foreign person 50% or more of whose gross income for a specified three-year period is effectively connected with a United States trade or business, information reporting (but not backup withholding) will apply unless the broker has documentary evidence in its files that the owner is a Non-U.S. Holder (and the broker has no actual knowledge to the contrary). Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment to a Non-U.S. Holder can be refunded or credited against the Non-U.S. Holder's United States federal income tax liability, if any, provided that the required information is furnished to the IRS. 92 UNDERWRITING CONSOL and the underwriters named below have entered into an underwriting agreement covering the common stock to be offered in this offering. J.P. Morgan Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated are acting as representatives of the underwriters. Subject to certain conditions, each underwriter has agreed to purchase the number of shares of common stock set forth opposite its name in the following table.
UNDERWRITERS ------------------- NUMBER OF SHARES ------------------- J.P. Morgan Securities Inc.......................................... Merrill Lynch, Pierce, Fenner & Smith Incorporated................................................. ----------- Total.............................................................. 22,600,000 ===========
The underwriting agreement provides that if the underwriters take any of the shares set forth in the table above, then they must take all of these shares. No underwriter is obligated to take any shares allocated to a defaulting underwriter except under the limited circumstances described in the underwriting agreement. The underwriters are offering the shares of common stock, subject to the prior sale of such shares, and when, as and if such shares are delivered to and accepted by them. The underwriters will initially offer to sell shares to the public at the initial public offering price set forth on the cover page of this prospectus. The underwriters may sell shares to securities dealers at a discount of up to $ per share from the initial public offering price. Any such securities dealers may resell shares to certain other brokers or dealers at a discount of up to $ per share from the initial public offering price. After the initial public offering, the underwriters may vary the public offering price and other selling terms. If the underwriters sell more shares than the total number set forth in the table above, the underwriters have the option to buy up to an additional 3,390,000 shares of common stock from CONSOL to cover such sales. They may exercise this option during the 30-day period from the date of this prospectus. If any shares are purchased pursuant to this option, the underwriters will purchase shares in approximately the same proportion as set forth in the table above. The following table shows the per share and total underwriting discounts and commissions that CONSOL will pay to the underwriters. These amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase additional shares.
PAID BY CONSOL ----------------------- NO FULL EXERCISE EXERCISE -------- -------- Per share.................................................................................. $ $ Total...................................................................................... $ $
93 The underwriters may purchase and sell shares of common stock in the open market in connection with this offering. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering. Stabilizing transactions consist of certain bids or purchases made for the purpose of preventing or slowing a decline in the market price of the common stock while the offering is in progress. The underwriters may also impose a penalty bid, which means that an underwriter must repay to the other underwriters a portion of the underwriting discount received by it. An underwriter may be subject to a penalty bid if the representatives of the underwriters, while engaging in stabilizing or short covering transactions, repurchase shares sold by or for the account of that underwriter. These activities may stabilize, maintain or otherwise affect the market price of the common stock. As a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. If the underwriters commence these activities, they may discontinue them at any time. The underwriters may carry out these transactions on the New York Stock Exchange, in the over-the-counter market or otherwise. CONSOL estimates that the total expenses of this offering, excluding underwriting discounts and commissions, will be $ . CONSOL has agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933. CONSOL, Rheinbraun, DuPont and certain directors and senior officers of CONSOL have agreed with the underwriters not to dispose of or hedge any of their common stock (or securities convertible into or exchangeable for shares of common stock) for a period of 180 days after the date of this prospectus, except with the prior written consent of J.P. Morgan Securities Inc. This agreement does not apply to any of CONSOL's employee benefit plans existing on or outstanding as of the date of this prospectus. At CONSOL's request, the underwriters have reserved shares of common stock for sale to certain directors, officers, employees and retirees of CONSOL who have expressed an interest in participating in the offering. CONSOL expects these persons to purchase no more than 5% of the common stock offered in the offering. The number of shares available for sale to the general public will be reduced to the extent such persons purchase such reserved shares. The underwriters will offer unpurchased reserved shares to the general public on the same basis as the other offered shares. CONSOL has applied to list the common stock on the New York Stock Exchange under the trading symbol "CNX." There has been no public market for the common stock prior to this offering. CONSOL and the underwriters will negotiate the initial offering price. In determining the price, CONSOL and the underwriters expect to consider a number of factors in addition to prevailing market conditions, including: . the history of and prospects for the coal industry, . an assessment of CONSOL's management; . CONSOL's present operations; . CONSOL's historical results of operations; . the trend of CONSOL's revenues and earnings; and 94 . CONSOL's earnings prospects. CONSOL and the underwriters will consider these and other relevant factors in relation to the prices of similar securities of generally comparable companies. Neither CONSOL nor the underwriters can assure investors that an active trading market will develop for the common stock, or that the common stock will trade in the public market at or above the initial offering price. The underwriters and their affiliates have in the past engaged in commercial and investment banking transactions with CONSOL and its affiliates in the ordinary course of business. They may continue to do so in the future. LEGAL MATTERS The validity of the common stock will be passed upon for CONSOL by Thelen Reid & Priest LLP, New York, New York. Certain legal matters in connection with the offering will be passed upon for the Underwriters by Davis Polk & Wardwell, New York, New York. EXPERTS The Consolidated Financial Statements of CONSOL as of December 31, 1996 and 1997 and for each of the three years in the period ended December 31, 1997 included in this Prospectus have been audited by Ernst & Young LLP, independent auditors, as stated in their report appearing herein, and are included herein in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. 95 GLOSSARY Accessible Reserves. Coal adjacent to and accessible by an active mine and that is anticipated to be mined by that active mine but has not yet been assigned. In some cases, accessible reserves can be accessed by more than one mine. Assigned Reserves. Coal that is designated to be mined by a specific mine. Anthracite. The highest rank of economically usable coal with moisture content less than 15% by weight and heating value as high as 15,000 Btus per pound. It is jet black with a high luster. It is mined primarily in Pennsylvania. Ash. Impurities consisting of iron, alumina and other incombustible matter that are contained in coal. Since ash increases the weight of coal, it adds to the cost of handling and can affect the burning characteristics of coal. Bituminous Coal. The most common type of coal with moisture content less than 20% by weight and heating value of 10,500 to 14,000 Btus per pound. It is dense and black and often has well-defined bands of bright and dull material. British Thermal Unit ("Btu"). A measure of the energy required to raise the temperature of one pound of water one degree Fahrenheit. Coal Seam. Coal deposits occur in layers. Each such layer is called a "seam." Continuous Mining. A form of underground room-and pillar mining, which involves the excavation of a series of "rooms" into the coal seam leaving "pillars" or columns of coal to help support the mine roof. A specialized cutting machine, the continuous miner, mechanizes the extraction procedure. Continuous miners tear the coal from the seam and load it onto conveyors or into shuttle cars in a continuous operation. Longwall Mining. A form of underground mining in which two sets of parallel entries, which can be up to 1,000 feet apart, are joined together at their far ends by a crosscut, called the longwall. The longwall machine consists of a rotating drum that moves back and forth across the longwall. The loosened coal falls onto a conveyor for removal from the mine. Metallurgical Coal. The various grades of coal suitable for carbonization to make coke for steel manufacture. Also known as "met" coal, it possesses four important qualities: volatility, which affects coke yield; the level of impurities, which affects coke quality; composition, which affects coke strength; and basic characteristics, which affect coke oven safety. Met coal has a particularly high Btu, but low ash content. Nitrogen Oxide (NO\\2\\). A gas formed in high temperature environments such as coal combustion. It is reported to contribute to ground level ozone and visibility degradation. Preparation Plant. Usually located on a mine site, although one plant may serve several mines. A preparation plant is a facility for crushing, sizing and washing coal to prepare it for use by a particular customer. The washing process has the added benefit of removing some of the coal's sulfur content. Probable Reserves. Reserves for which quantity and/or quality are computed from information similar to that used for proved reserves, but the sites for inspection, sampling, and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proved reserves, is high enough to assume continuity between points of observation. 96 Proved Reserves. Reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well-established. Reserves. That part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. Scrubber (flue gas desulfurization unit). Any of several forms of chemical/physical devices which operate to neutralize sulfur compounds formed during coal combustion. These devices combine the sulfur in gaseous emissions with other chemicals to form inert compounds, such as gypsum, which must then be removed for disposal. Steam Coal. Coal used by power plants and industrial steam boilers to produce electricity or process steam. It generally is lower in Btu heat content and higher in volatile matter than metallurgical coal. Subbituminous Coal. Dull, black coal that ranks between lignite and bituminous coal. Its moisture content is between 20% and 30% by weight, and its heat content ranges from 7,800 to 9,500 Btus per pound of coal. Sulfur. One of the elements present in varying quantities in coal. Sulfur dioxide (S0\\2\\) is produced as a gaseous by-product of coal combustion. Tons. A "short" or net ton is equal to 2,000 pounds. A "long" or British ton is 2,240 pounds; a "metric" ton is approximately 2,205 pounds. The short ton is the unit of measure referred to in this document. Unassigned Reserves. Coal that has not yet been designated for mining by a specific operation but is part of the proved and probable reserve reported by the company at year-end. 97 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE Independent Auditors' Report................................. F-2 Consolidated Balance Sheets at December 31, 1996 and 1997.... F-3 Consolidated Statements of Income for the Years Ended December 31, 1995, 1996 and 1997............................ F-5 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1995, 1996 and 1997........ F-6 Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1996 and 1997...................... F-7 Notes to Consolidated Financial Statements................... F-8 Unaudited Consolidated Balance Sheets at December 31, 1997 and September 30, 1998...................................... F-29 Unaudited Consolidated Statements of Income for Nine Months Ended September 30, 1997 and 1998........................... F-31 Unaudited Consolidated Statement of Stockholders' Equity for the Nine Months Ended September 30, 1998......... F-32 Unaudited Consolidated Statements of Cash Flows for the Nine Months September 30, 1997 and 1998..................... F-33 Notes to Unaudited Consolidated Financial Statements......... F-34
F-1 REPORT OF INDEPENDENT AUDITORS Board of Directors and Stockholders CONSOL Energy Inc. We have audited the consolidated balance sheets of CONSOL Energy Inc. and subsidiaries (CONSOL) as of December 31, 1996 and 1997, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of CONSOL's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of CONSOL at December 31, 1996 and 1997, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. Pittsburgh, Pennsylvania February 15, 1998, except as to Note 22, as to which the date is _______,1999. The foregoing report is the form that will be signed upon completion of the recapitalization described in Note 22. ERNST & YOUNG LLP F-2 CONSOL ENERGY INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
------------------------------------ AT DECEMBER 31, ------------------------------------ 1996 1997 ------------- ---------- ASSETS Current Assets Cash and Cash Equivalents......................................... $ 39,986 $ 18,788 Marketable Securities............................................. 354,273 114,829 Accounts and Notes Receivable Trade.......................................................... 269,659 252,901 Related Parties (Note 3)....................................... 5,403 6,305 Other Receivables.............................................. 26,721 23,392 Inventories (Note 8).............................................. 132,677 140,724 Deferred Income Taxes (Note 7).................................... 80,939 94,027 Prepaid Expenses.................................................. 16,574 19,273 ---------- ---------- Total Current Assets........................................... 926,232 670,239 Property, Plant and Equipment (Note 9) Property, Plant and Equipment..................................... 4,351,574 4,506,797 Less -- Accumulated Depreciation, Depletion and Amortization...... 1,872,996 2,067,707 ---------- ---------- Total Property, Plant and Equipment - Net...................... 2,478,578 2,439,090 Other Assets Deferred Income Taxes (Note 7).................................... 198,334 201,270 Advance Mining Royalties.......................................... 143,139 131,079 Other............................................................. 111,225 106,333 ---------- ---------- Total Other Assets............................................. 452,698 438,682 Total Assets................................................... $3,857,508 $3,548,011 ========== ==========
F-3 CONSOL ENERGY INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
------------------------------ AT DECEMBER 31, ------------------------------ 1996 1997 --------- ---------- Liabilities and Stockholders' Equity Current Liabilities Accounts Payable............................... $ 189,644 $ 211,059 Short-Term Notes Payable (Note 10)............. 46,378 55,051 Current Portion of Long-Term Debt.............. 54,237 7,639 Accrued Income Taxes........................... 2,770 13,581 Other Accrued Liabilities (Note 13)............ 275,173 305,596 ---------- ---------- Total Current Liabilities................... 568,202 592,926 Long-Term Debt (Note 11).......................... 394,933 389,618 Deferred Credits and Other Liabilities Postretirement Benefits Other Than Pensions (Note 15)................................ 1,084,617 1,082,061 Pneumoconiosis Benefits (Note 14)................. 506,421 500,429 Mine Closing...................................... 227,011 232,767 Workers' Compensation............................. 183,389 177,453 Reclamation....................................... 39,868 24,331 Other............................................. 274,091 245,661 ---------- ---------- Total Deferred Credits and Other Liabilities 2,315,397 2,262,702 Stockholders' Equity Common Stock, $.01 Par Value; 500,000,000 Shares Authorized; 108,806,714 Shares Issued and Outstanding............................... 1,088 1,088 Capital in Excess of Par Value................. 801,916 801,916 Retained Earnings Deficit...................... (224,028) (500,239) ---------- ---------- Total Stockholders' Equity.................. 578,976 302,765 ---------- ---------- Total Liabilities and Stockholders' Equity.. $3,857,508 $3,548,011 ========== ==========
The accompanying notes are an integral part of these financial statements. F-4 CONSOL ENERGY INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (DOLLARS IN THOUSANDS)
---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- 1995 1996 1997 ---------- ---------- ---------- Sales (Note 3)................................................ $2,269,211 $2,336,014 $2,285,197 Other Income (Note 4)......................................... 45,024 60,940 64,441 ---------- ---------- ---------- Total Revenue.............................................. 2,314,235 2,396,954 2,349,638 Costs of Goods Sold and Other Operating Charges..................................... 1,600,271 1,687,836 1,592,489 Selling, General and Administrative Expense................... 53,537 53,354 55,353 Depreciation, Depletion and Amortization...................... 253,113 235,159 233,304 Interest Expense (Note 5)..................................... 53,915 44,510 45,876 Taxes Other Than Income (Note 6).............................. 200,605 187,396 188,940 ---------- ---------- ---------- Total Costs................................................ 2,161,441 2,208,255 2,115,962 ---------- ---------- ---------- Earnings Before Income Taxes.................................. 152,794 188,699 233,676 Income Taxes (Note 7)......................................... 22,744 35,970 49,887 ---------- ---------- ---------- Net Income................................................. $ 130,050 $ 152,729 $ 183,789 ========== ========== ==========
The accompanying notes are an integral part of these financial statements. F-5 CONSOL ENERGY INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DOLLARS IN THOUSANDS)
---------------------------------------------------------------------- CAPITAL IN RETAINED) TOTAL) COMMON EXCESS OF PAR EARNINGS) STOCKHOLDERS') STOCK VALUE DEFICIT) EQUITY) --------- ------------- --------- -------------- Balance December 31, 1994 (as previously reported)......................... $ 100 $802,904 $(346,807) $ 456,197 Recapitalization effected as an approximate 1,088 to 1 stock split........... 988 (988) - - -------- -------- --------- --------- Balance December 31, 1994 (as adjusted)....... 1,088 801,916 (346,807) 456,197 Net Income.................................... - - 130,050 130,050 Dividends..................................... - - (80,000) (80,000) -------- -------- --------- --------- Balance December 31, 1995..................... 1088 801,916 (296,757) 506,247 Net Income.................................... - - 152,729 152,729 Dividends..................................... - - (80,000) (80,000) -------- -------- --------- --------- Balance December 31, 1996..................... 1088 801,916 (224,028) 578,976 Net Income.................................... - - 183,789 183,789 Dividends..................................... - - (460,000) (460,000) -------- -------- --------- --------- Balance December 31, 1997..................... $ 1,800 $801,916 $(500,239) $ 302,765 ======== ======== ========= =========
The accompanying notes are an integral part of these financial statements. F-6 CONSOL ENERGY INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
--------------------------------------------------- Year Ended December 31, --------------------------------------------------- 1995 1996 1997 --------- --------- --------- Cash Flow from Operations Net Income............................................. $ 130,050 $ 152,729 $ 183,789 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities Depreciation, Depletion and Amortization......... 253,113 235,159 233,304 (Gain) Loss on Sale of Assets.................... 4,770 (13,959) (13,134) Amortization of Advance Mining Royalties......... 12,994 22,809 14,617 Deferred Income Taxes............................ (30,069) (23,149) (16,024) Changes in Operating Assets Accounts and Notes Receivable.................... 39,322 (7,787) 19,185 Inventories...................................... (36,015) 60,884 (8,997) Prepaid Expenses................................. (15,928) 7,396 (2,699) Changes in Other Assets.......................... 14,166 2,931 4,892 Changes in Operating Liabilities Accounts Payable................................. 2,115 (24,848) 22,562 Other Operating Liabilities...................... 16,631 (25,603) 39,222 Changes in Other Liabilities..................... (94,421) (13,088) (47,415) Other.................................................. 1,562 (892) (1,389) --------- --------- --------- 168,240 219,853 244,124 --------- --------- --------- Net Cash Provided by Operating Activities.............. 298,290 372,582 427,913 Cash Flow From Investing Activities Capital Expenditures................................... (179,022) (169,367) (200,617) Additions to Advance Mining Royalties.................. (4,469) (5,444) (6,119) Proceeds from Sales of Assets (Note 2)................. 98,432 19,669 19,535 Acquisitions (Note 2).................................. (52,520) - - Changes in Marketable Securities -- Net................ (23,277) (96,094) 239,444 --------- --------- --------- Net Cash Provided by (Used in) Investing Activities................................... (160,856) (251,236) 52,243 Cash Flow from Financing Activities Payments on Borrowings................................. (60,805) (39,254) (41,354) Dividends Paid......................................... (80,000) (80,000) (460,000) --------- --------- --------- Net Cash Used in Financing Activities.................. (140,805) (119,254) (501,354) --------- --------- --------- Net (Decrease) Increase in Cash and Cash Equivalents....................................... (3,371) 2,092 (21,198) Cash and Cash Equivalents at Beginning of Period.......... 41,265 37,894 39,986 --------- --------- --------- Cash and Cash Equivalents at End of Period................ $ 37,894 $ 39,986 $ 18,788 ========= ========= =========
The accompanying notes are an integral part of these financial statements. F-7 CONSOL ENERGY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies of CONSOL Energy Inc. and subsidiaries (CONSOL) is presented below. These, together with the other notes that follow, are an integral part of the consolidated financial statements. BASIS OF CONSOLIDATION The consolidated financial statements include the accounts of majority-owned subsidiaries. Investments in affiliates owned 20 percent to 50 percent are accounted for under the equity method. Investments in non-corporate joint ventures, for which CONSOL owns undivided interests in the assets and liabilities, are consolidated on a pro rata basis. Other securities and investments are carried at cost. All significant intercompany transactions and accounts have been eliminated in consolidation. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash on hand and in banks as well as all highly liquid short-term securities with a maturity of three months or less at the time of purchase. Overdrafts representing outstanding checks in excess of funds on deposit are classified as accounts payable. MARKETABLE SECURITIES Marketable securities are considered available-for-sale and consist primarily of financial instruments for which the yield (dividend or interest) is established periodically through a market auction mechanism. These investments are readily convertible to cash and are stated at cost plus accrued interest, which approximates fair value, due to the liquidity provided by the auction process. At December 31, 1997, these securities generally had no contractual maturity date but had yield reset periods of less than 30 days. During the three years ended December 31, 1997, all transactions in the portfolio were at par resulting in no realized gains or losses from the contractual yields. INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined by the last-in first-out (LIFO) method for 54% and 46% of coal inventories at December 31, 1996 and December 31, 1997, respectively. The cost of coal inventories not on LIFO is determined by the first-in, first-out (FIFO) method. Coal inventory costs include labor, supplies, equipment costs, overhead, and other related costs. The cost of merchandise for resale is determined by the LIFO method. The cost of supplies inventory is determined by the average cost method. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is carried at cost. Expenditures, which extend the useful lives of existing plant and equipment, are capitalized. Interest costs applicable to major asset additions are capitalized during the construction period. Coal exploration costs are expensed as incurred. Development costs applicable to the opening of new coal mines and certain mine expansion projects are capitalized. Costs of additional mine F-8 CONSOL ENERGY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS) facilities required to maintain production after a mine reaches the production stage, generally referred to as "receding face costs," are expensed as incurred; however, the costs of additional airshafts and new portals are capitalized. Maintenance, repairs and minor renewals are expensed as incurred. When properties are retired or otherwise disposed, the related cost and accumulated depreciation are removed from the respective accounts and any profit or loss on disposition is credited or charged to income. Depreciation of plant and equipment, including assets leased under capital leases, is provided on the straight-line method over their estimated useful lives or lease terms. Depletion of coal lands and amortization of mine development costs are computed using the units-of-production method over the estimated recoverable tons. ADVANCE MINING ROYALTIES Advance mining royalties are advance payments made to lessors under terms of mineral lease agreements that are recoupable against future production. These advance payments are deferred and charged against income as the coal reserves are mined. IMPAIRMENT OF LONG-LIVED ASSETS Impairment of long-lived assets is recorded when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying value. The carrying value of the assets are then reduced to their estimated fair value which is usually measured based on an estimate of future discounted cash flows. INCOME TAXES The provision for income taxes has been determined under Statement of Financial Accounting Standards No. 109, which requires use of the asset and liability approach to accounting for income taxes. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for the current year and the change in deferred taxes during the year. Deferred taxes result from differences between the financial and tax bases of the company's assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. Valuation allowances are recorded to reduce deferred tax assets where it is more likely than not that a deferred tax benefit will not be realized. PNEUMOCONIOSIS BENEFITS CONSOL is required by federal and state statutes to provide benefits to employees for awards related to coal workers' pneumoconiosis. CONSOL is self- insured for these benefits. Provisions are made for estimated benefits based on annual evaluations prepared by outside actuaries. F-9 CONSOL ENERGY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS) MINE CLOSING COSTS Estimated final mine closing and perpetual care costs are accrued over the productive life of mines on a units of production basis. WORKERS' COMPENSATION CONSOL is primarily self-insured for workers' compensation. Annual provisions are made for the estimated liability for awarded and pending claims. RECLAMATION Generally, CONSOL records a liability for the estimated costs to reclaim land as the acreage is disturbed during the ongoing surface mining process. REVENUE RECOGNITION Coal sales are recorded at contract prices when title passes to the customer. Generally, for domestic sales, this occurs when coal is loaded onto transportation vehicles at mine or offsite storage locations. For most export sales, this occurs when coal is loaded onto marine vessels at terminal locations. Industrial supplies and equipment sales are recorded when the products are shipped. RECLASSIFICATIONS Certain reclassifications of prior years' data have been made to conform to 1997 classifications. NOTE 2 - ACQUISITIONS AND DISPOSITIONS On December 1, 1995, CONSOL sold Reid Holding, Inc. and Oakwood Gathering, Inc. for $77,483. These operations consist mainly of coal bed methane reserve properties and gas collection facilities. The carrying amount of assets sold in connection with this sale amounted to $89,196 resulting in a pre-tax loss of $11,713. CONSOL continues to serve as operator for these companies, and retains certain rights for participation in future gas operations. The results of these operations were not material to the 1995 consolidated financial statement. On November 20, 1995, CONSOL acquired the Greene Hill Coal Company from Realty Company of Pennsylvania, a coal reserve holding subsidiary of Pennsylvania Power & Light Company for $52,520. The acquisition included approximately 183 million clean recoverable tons of Pittsburgh seam coal in Greene County, Pennsylvania. This acquisition has been accounted for under the purchase method and accordingly, the purchase price has been allocated to the assets acquired, based on the fair values at the date of the acquisition. CONSOL's financial statements include the results of the acquisition on a consolidated basis effective November 20, 1995. F-10 CONSOL ENERGY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (DOLLARS IN THOUSANDS) NOTE 3 -- TRANSACTIONS WITH RELATED PARTIES CONSOL is structured as a corporate joint venture owned 50% by E. I. du Pont de Nemours and Company (DuPont) and 50% by subsidiaries of RWE A.G. of Germany (collectively Rheinbraun). CONSOL sells coal to DuPont and Rheinbraun and industrial supplies to DuPont on a basis reflecting the market value of the products. Related party sales, which are included in Sales, were as follows:
============================================================= FOR THE YEAR ENDED DECEMBER 31, ------------------------------------------------------------- 1995 1996 1997 ------------------ --------------- ---------------- Coal sales........................................... $ 37,921 $ 39,212 $ 39,406 Industrial supplies and equipment sales.............. 102,645 89,232 98,855 -------- -------- -------- Total Sales - Related Parties........................ $140,566 $128,444 $138,261 ======== ======== ========
DuPont and CONSOL have entered into an annually renewable service agreement to provide each other with certain services and functions. Charges are based on each party's fully allocated cost as distributed to its own organizational units and are paid currently. Net amounts charged and credited under this agreement were not significant in 1995, 1996 or 1997. NOTE 4 -- OTHER INCOME
======================================================= FOR THE YEAR ENDED DECEMBER 31, ------------------------------------------------------- 1995 1996 1997 ------------- ------------ ------------- Interest income...................................... $17,994 $20,501 $22,618 Gain (loss) on disposition of assets................. (4,770) 13,959 13,134 Service income....................................... 9,954 6,277 5,702 Royalty income....................................... 8,095 9,758 13,338 Rental income........................................ 4,778 6,020 5,165 Other................................................ 8,973 4,425 4,484 ------- ------- ------- Total Other Income................................... $45,024 $60,940 $64,441 ======= ======= =======
F-11 CONSOL ENERGY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (DOLLARS IN THOUSANDS) NOTE 5 -- INTEREST EXPENSE
======================================================= FOR THE YEAR ENDED DECEMBER 31, ------------------------------------------------------- 1995 1996 1997 ------------- ------------ ------------- Interest on debt..................................... $41,895 $34,505 $32,021 Interest on other payables........................... 9,630 7,742 9,246 Non-cash interest accretion.......................... 4,788 4,975 6,425 Interest capitalized................................. (2,398) (2,712) (1,816) ------- ------- ------- Total Interest Expense............................... $53,915 $44,510 $45,876 ======= ======= =======
Non-cash interest accretion includes interest accrued on perpetual care obligations which are stated at present values. NOTE 6 -- TAXES OTHER THAN INCOME
======================================================= FOR THE YEAR ENDED DECEMBER 31, ------------------------------------------------------- 1995 1996 1997 ------------- ------------ ------------- Production taxes..................................... $118,160 $113,452 $121,969 Payroll taxes........................................ 41,926 39,632 37,346 Property taxes....................................... 31,292 32,099 27,786 Other................................................ 9,227 2,213 1,839 -------- -------- -------- Total Taxes Other Than Income........................ $200,605 $187,396 $188,940 ======== ======== ========
F-12 CONSOL ENERGY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (DOLLARS IN THOUSANDS) NOTE 7 -- INCOME TAXES Income taxes provided on earnings consisted of:
======================================================= FOR THE YEAR ENDED DECEMBER 31, ------------------------------------------------------- 1995 1996 1997 ------------- ------------ ------------- Current U.S. federal....................................... $ 41,783 $ 50,533 $ 52,015 U.S. state......................................... 6,446 5,928 6,677 Non-U.S............................................ 4,584 2,658 7,219 -------- -------- -------- 52,813 59,119 65,911 Deferred U.S. federal....................................... (30,750) (19,288) (14,001) U.S. state......................................... (532) (3,518) (2,413) Non-U.S............................................ 1,213 (343) 390 -------- -------- -------- (30,069) (23,149) (16,024) -------- -------- -------- Total Income Taxes................................... $ 22,744 $ 35,970 $ 49,887 ======== ======== ========
F-13 CONSOL ENERGY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (DOLLARS IN THOUSANDS) The components of the net deferred tax asset are as follows:
============================================= DECEMBER 31, --------------------------------------------- 1996 1997 --------------- --------------- DEFERRED TAX ASSETS Postretirement benefits other than pensions.............. $ 445,139 $ 445,527 Pneumoconiosis benefits.................................. 201,456 198,939 Mine closing............................................. 94,938 96,965 Workers' compensation.................................... 79,443 78,273 Alternative minimum tax.................................. 48,479 48,307 Reclamation.............................................. 17,030 14,560 Other.................................................... 104,179 111,677 --------- --------- Total Deferred Tax Assets................................... 990,664 994,248 DEFERRED TAX LIABILITIES Property, plant and equipment............................ (655,117) (636,756) Advance mining royalties................................. (41,232) (38,950) Other.................................................... (15,042) (23,245) --------- --------- Total Deferred Tax Liabilities.............................. (711,391) (698,951) --------- --------- Net Deferred Tax Asset...................................... $ 279,273 $ 295,297 ========= =========
The following is a reconciliation, stated as a percentage of pretax income of the U.S. statutory federal income tax rate to CONSOL's effective tax rate:
======================================================= FOR THE YEAR ENDED DECEMBER 31, ------------------------------------------------------- 1995 1996 1997 ------------- ------------ ------------- Statutory U.S. federal income tax rate............... 35.0% 35.0% 35.0% Excess tax depletion................................. (17.4) (17.3) (13.8) Alternative fuel tax credit.......................... (6.3) (.8) (1.2) Net effect of state tax.............................. 2.5 .8 1.2 Net effect of foreign tax............................ .1 (.5) 1.3 Other................................................ 1.0 1.9 (1.2) ----- ----- ----- Effective Income Tax Rate............................ 14.9% 19.1% 21.3% ===== ===== =====
F-14 CONSOL ENERGY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (DOLLARS IN THOUSANDS) Foreign income before taxes totaled $14,507 in 1995, $10,273 in 1996 and $13,832 in 1997. NOTE 8 -- INVENTORIES
================================= DECEMBER 31, --------------------------------- 1996 1997 ------------ ------------ Coal............................................. $ 43,399 $ 57,947 Merchandise for resale........................... 39,794 38,994 Supplies......................................... 49,484 43,783 -------- -------- Total Inventories................................ $132,677 $140,724 ======== ========
Replacement cost of coal inventories exceeded LIFO cost by $8,639 and $10,476 at December 31, 1996 and 1997, respectively. Merchandise for resale is valued using the LIFO cost method. The excess of replacement cost of merchandise for resale inventories over carrying LIFO value was $6,216 and $6,261 at December 31, 1996 and 1997, respectively. NOTE 9 -- PROPERTY, PLANT AND EQUIPMENT
================================= DECEMBER 31, --------------------------------- 1996 1997 ------------ ------------ Coal and surface lands............................................. $1,421,795 $1,417,847 Plant and equipment................................................ 2,559,522 2,681,224 Mine development and airshafts..................................... 370,257 407,726 ---------- ---------- 4,351,574 4,506,797 Less -- Accumulated depreciation, depletion and amortization.... 1,872,996 2,067,707 ---------- ---------- Net Property, Plant and Equipment.................................. $2,478,578 $2,439,090 ========== ==========
F-15 CONSOL ENERGY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (DOLLARS IN THOUSANDS) NOTE 10 -- SHORT-TERM NOTES PAYABLE CONSOL has commercial paper notes outstanding of $46,378 and $55,051 (net of discount of $122 and $114) at December 31, 1996 and 1997, respectively. The weighted average interest rate of the commercial paper notes outstanding was 5.60 and 6.26 percent with an average maturity of 18 and 14 days at December 31, 1996 and 1997, respectively. CONSOL has a $199,500 senior revolving credit facility with several banks. This facility is used to support the commercial paper program. The term of this facility is 360 days renewable on a 360-day basis. In the aggregate, the total amount of funds borrowed under this facility and outstanding commercial paper cannot exceed $199,500. Borrowings under this revolving credit facility bear interest based on the London Interbank Offer Rate (LIBOR), the CD Rate, or the Prime Rate at CONSOL's option. Funds may be borrowed for periods of 1 to 360 days depending on the interest rate method. There were no borrowings under this facility at December 31, 1996 and 1997. NOTE 11 - LONG-TERM DEBT Long-term debt is as follows:
================================= DECEMBER 31, --------------------------------- 1996 1997 ------------ ------------ Baltimore Port Facility revenue bonds in series due 2010 and 2011 at 6.50%....................................................... 102,865 102,865 Unsecured Debt Notes due 1997 at average of 7.32%.................................. $ 43,995 $ - Notes due 1999 at 7.88%............................................. 99,942 99,970 Notes due 2002 at average of 8.28%.................................. 66,000 66,000 Notes due 2004 at 8.21%............................................. 45,000 45,000 Notes due 2007 at 8.25%............................................. 44,755 44,771 Variable rate note payable due at various dates through 2001.... 4,340 3,709 Advance royalty commitments..................................... 30,503 28,328 Other long-term notes maturing at various dates through 2007.... 11,571 6,614 -------- -------- 448,971 397,257 Less amounts due in one year........................................... 54,038 7,639 -------- -------- Total Long-Term Debt................................................... $394,933 $389,618 ======== ========
F-16 CONSOL ENERGY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (DOLLARS IN THOUSANDS) The Baltimore Port Facility revenue bonds are guaranteed by DuPont. The variable rate note, advance royalty commitments, and the other long-term notes had an average interest rate of approximately 7.4% at December 31, 1996 and 7.5% at December 31, 1997. The bonds and notes are carried net of debt discount, which is being amortized by the interest method over the life of the issue. Annual undiscounted maturities on long-term debt during the next five years are as follows:
YEAR AMOUNT ---- ------ 1998 $ 7,639 1999 $104,756 2000 $ 2,705 2001 $ 2,718 2002 $ 68,212
NOTE 12 -- LEASES CONSOL uses various leased facilities and equipment in its operations. Currently, no capital leases are in effect. Future minimum lease payments under operating leases at December 31, 1997, are as follows:
OPERATING YEAR LEASES ---- --------- 1998 $12,150 1999 8,867 2000 8,494 2001 7,596 2002 3,154 Remainder 11,941 ------- Total minimum lease payments $52,202 =======
Rental expense under operating leases was $16,271 in 1995, $15,589 in 1996 and $14,596 in 1997. F-17 CONSOL ENERGY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (DOLLARS IN THOUSANDS) NOTE 13 -- OTHER ACCRUED LIABILITIES
======================================= DECEMBER 31, --------------------------------------- 1996 1997 ------------ ----------- Accrued payroll and benefits........................................ $ 45,063 $ 41,559 Accrued other taxes................................................. 33,364 35,133 Accrued royalties................................................... 12,851 14,230 Accrued interest.................................................... 7,217 9,930 Other............................................................... 31,987 34,122 Current portion of long-term liabilities Postretirement benefits other than pensions...................... 59,700 63,254 Workers' compensation............................................ 31,302 33,213 Reclamation...................................................... 18,636 20,221 Salary retirement................................................ 6,149 20,013 Mine closing..................................................... 17,389 16,824 Pneumoconiosis benefits.......................................... 11,460 10,982 Other............................................................ 55 6,115 -------- -------- Total Other Accrued Liabilities..................................... $275,173 $305,596 ======== ========
NOTE 14 -- EMPLOYEE BENEFIT PLANS PENSION PLANS CONSOL has non-contributory defined benefit plans covering substantially all employees not covered by multi-employer retirement plans. The benefits for these plans are based primarily on years of service and employees' pay near retirement. CONSOL's funding policy is consistent with the funding requirements of federal law and regulations. Net pension charges for defined benefit plans include the following components:
====================================================== FOR THE YEAR ENDED DECEMBER 31, ------------------------------------------------------ 1995 1996 1997 -------------- ------------- ------------ Service cost -- benefits earned during the period........... $ 10,400 $ 12,556 $ 12,657 Interest cost on projected benefit obligation............... 13,508 14,418 15,107 Return on assets: Actual gain.............................................. (31,857) (21,612) (26,273) Deferred gain............................................ 19,536 8,649 13,034 -------- -------- -------- Net return on assets........................................ (12,321) (12,963) (13,239) Amortization of net losses and prior service costs.......... 771 568 4,029 -------- -------- --------
F-18 CONSOL ENERGY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (DOLLARS IN THOUSANDS) Net Pension Charges......................................... $ 12,358 $ 14,579 $ 18,554 ======== ======== ========
The status of these plans at December 31, 1996 and 1997 are as follows:
1996 1997 --------- --------- TOTAL TOTAL --------- --------- Actuarial present value of Vested benefit obligation............................................. $(142,609) $(149,344) ---------- --------- Accumulated benefit obligation........................................... $(163,305) $(176,175) ========= ========= Projected benefit obligation............................................. $(220,643) $(227,671) Plan assets at fair value................................................ 158,453 173,287 --------- --------- Projected benefit obligation in excess of assets......................... (62,190) (54,384) Unrecognized net losses.................................................. 46,500 30,324 Unrecognized prior service cost.......................................... 2,787 2,434 --------- --------- Accrued pension cost(1).................................................. $ (12,903) $ (21,626) ========= =========
______________________ (1) Accrued pension cost for plans where accumulated benefits exceed assets excludes the additional pension liability of $1,201 in 1996 and $551 in 1997 (included in Other Deferred Credits and Other Liabilities) needed to meet the minimum liability requirements. The projected benefit obligation was determined using a discount rate of 7.25% in 1996 and in 1997. The assumed long-term rate of compensation increase was 5% in 1996 and in 1997. The assumed long-term rate of return on plan assets was 9% in all years. Plan assets consist principally of common stocks and U.S. government obligations. F-19 UMWA PENSION AND BENEFIT TRUSTS CONSOL ENERGY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (DOLLARS IN THOUSANDS) Certain subsidiaries of CONSOL are required under the National Bituminous Coal Wage Agreement (NBCWA) of 1993 with the United Mine Workers of America (UMWA) to pay amounts to the UMWA Pension Trusts based principally on hours worked by UMWA represented employees. These multi-employer pension trusts provide benefits to eligible retirees through a defined benefit plan. Amounts charged to expense for these benefits were $7,166 in 1995, $6,441 in 1996 and $5,831 in 1997. The Employee Retirement Income Security Act of 1974 (ERISA) as amended in 1980, imposes certain liabilities on contributors to multi-employer pension plans in the event of a contributor's withdrawal from the plan. The withdrawal liability would be calculated based on the contributor's proportionate share of the plan's unfunded vested liabilities. The Coal Industry Retiree Health Benefit Act of 1992 (The Act) created two multi-employer benefit plans: (1) the United Mine Workers of America Combined Benefit Fund (The Combined Fund) into which the former UMWA Benefit Trusts were merged, and (2) the 1992 Benefit Fund. CONSOL subsidiaries account for required contributions to these multi-employer trusts as expense when incurred. The Combined Fund provides medical and death benefits for all beneficiaries of the former UMWA Benefit Trusts who were actually receiving benefits as of July 20, 1992. The Act provides for the assignment of beneficiaries to former employers and the allocation of unassigned beneficiaries (referred to as orphans) to companies using a formula set forth in The Act. The Act requires that responsibility for funding the benefits to be paid to beneficiaries be assigned to their former signatory employers or related companies. Amounts charged to expense for the Combined Fund were $22,730 in 1995, $25,828 in 1996 and $32,980 in 1997. The 1992 Benefit Fund provides medical and death benefits to orphan UMWA- represented members eligible for retirement on February 1, 1993, and who actually retired between July 20, 1992 and September 30, 1994. Amounts charged to expense for the 1992 Benefit Fund were $1,855 in 1995, $3,269 in 1996 and $5,564 in 1997. The UMWA 1993 Benefit Plan is a defined contribution plan that was created as the result of negotiations for the NBCWA of 1993. This plan provides health care benefits to orphan UMWA retirees who are not eligible to participate in the Combined Fund, the 1992 Benefit Fund, or whose last employer signed the NBCWA of 1993 and subsequently goes out of business. Contributions to the trust are fixed at ten cents per hour worked by UMWA represented employees. The NBCWA of 1993 specifies that benefits provided under this plan are only for the duration of the contract. Amounts charged to expense for the UMWA 1993 Benefit Plan were $956 in 1995, $857 in 1996 and $779 in 1997. A new five-year labor agreement was reached in December 1997 and will be effective from January 1, 1998 through December 31, 2002. This agreement replaces the National Bituminous Coal Wage Agreement (NBCWA) of 1993. F-20 CONSOL ENERGY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (DOLLARS IN THOUSANDS) INVESTMENT PLAN CONSOL has an Investment Plan available to all domestic, non-represented employees. CONSOL matches employee contributions for an amount up to 6% of the employee's base pay. Amounts charged to expense were $12,170 in 1995, $11,324 in 1996 and $11,372 in 1997. LONG-TERM DISABILITY CONSOL has a Long-Term Disability Plan available to all full-time salaried employees. The benefits for this plan are based on a percentage of monthly earnings, offset by all other income benefits available to the disabled. Liabilities (net of Plan Assets) included in Deferred Credits and Other Liabilities - Other amounted to $18,960 and $22,342 at December 31, 1996, and December 31, 1997, respectively. The liabilities were determined using a discount rate of 7.25% in 1996 and 1997. Amounts charged to expense were $1,740 in 1995, $2,988 in 1996 and $8,449 in 1997. COAL WORKERS' PNEUMOCONIOSIS (CWP) CONSOL is liable under the Federal Coal Mine Health and Safety Act of 1969, as amended, for medical and disability benefits to employees and their dependents resulting from occurrences of coal workers' pneumoconiosis disease. CONSOL is also liable under various state statutes for pneumoconiosis benefits. CONSOL provides for these claims through a self-insurance program. CONSOL employs the projected unit credit method to determine the CWP liability and expense. Under this method, the costs determined by the actuarial study are being amortized over the employees' requisite service period. Actuarial gains and losses are being amortized over the remainder of the service life of the employees which approximates 15.4 years. Coal Workers' Pneumoconiosis cost included the following components:
======================================================= FOR THE YEAR ENDED DECEMBER 31, ------------------------------------------------------- 1995 1996 1997 --------------- ------------ ------------ Service cost................................................ $ 7,661 $ 8,971 $ 7,128 Interest cost............................................... 21,030 20,436 16,075 Amortization of actuarial gain............................. (22,643) (17,326) (18,756) -------- -------- -------- Net Coal Workers' Pneumoconiosis Cost....................... $ 6,048 $ 12,081 $ 4,447 ======== ======== ========
CWP payments were $12,084 in 1995, $12,543 in 1996 and $10,928 in 1997. F-21 CONSOL ENERGY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (DOLLARS IN THOUSANDS) NOTE 15 - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS Certain subsidiaries of CONSOL provide medical and life insurance benefits to retired employees not covered by the Coal Industry Retiree Health Benefit Act of 1992. Substantially all employees may become eligible for these benefits if they have worked ten years and attained age 55. The associated plans are unfunded. The medical plan contains certain cost sharing and containment features, such as deductibles, coinsurance, health care networks and coordination with Medicare. The following table sets forth the status of the plans, reconciled with amounts recognized in the consolidated balance sheet:
====================================== DECEMBER 31, -------------------------------------- 1996 1997 --------------- ------------- Accumulated Postretirement Benefit Obligation: Retirees......................................................... $ 667,352 $ 697,540 Fully eligible active plan participants.......................... 60,432 66,845 Other active plan participants................................... 180,942 190,766 ---------- ---------- Total accumulated postretirement obligation...................... 908,726 955,151 Unrecognized net reduction in prior service costs................ 48,359 39,528 Unrecognized net gain............................................ 187,232 150,636 ---------- ---------- Total......................................................... 1,144,317 1,145,315 Less current portion (included in Other Accrued Liabilities)..... 59,700 63,254 ---------- ---------- Long-Term Liability.............................................. $1,084,617 $1,082,061 ========== ==========
The accumulated postretirement benefit obligation was calculated using a discount rate of 7.25% at December 31, 1996 and December 31, 1997. Net Periodic Postretirement Benefit Cost included the following components:
======================================================== FOR THE YEAR ENDED DECEMBER 31, -------------------------------------------------------- 1995 1996 1997 --------------- ------------ ------------- Service cost................................................ $ 7,298 $ 9,227 $ 9,884 Interest cost............................................... 67,223 62,736 65,968 Other -- net................................................ (27,388) (18,278) (15,276) -------- -------- -------- Net Periodic Postretirement Benefit Cost.................... $ 47,133 $ 53,685 $ 60,576 ======== ======== ========
F-22 CONSOL ENERGY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (DOLLARS IN THOUSANDS) A 7.5% annual rate of increase in per capita cost of covered health care benefits was assumed for 1997, gradually decreasing to 4.5% in 2003, and remaining level thereafter. The health care cost trend rate assumption has a significant effect on the amount of the obligation and periodic cost reported. An increase in the assumed health care cost trend rate by 1% in each year would increase the accumulated postretirement benefit obligation as of December 31, 1997 by $84,920 and increase the aggregate of the service and interest cost component of net periodic postretirement benefit cost for 1997 by $8,085. The National Bituminous Coal Wage Agreement of 1993 included additional cost containment features, including increased deductibles, pre-certification requirements, and the implementation of a health care network, which reduced the obligation for future represented retirees. This plan amendment resulted in an unrecognized reduction in prior service cost of $49,459, which is being amortized over the average remaining years of service to full eligibility of those plan participants active at the date of the plan amendment. Effective July 1, 1994, the benefit plans for non-represented employees were changed similarly which reduced the obligation for current and future non-represented retirees. This plan amendment resulted in an unrecognized reduction in prior service cost of $24,153, which is being amortized over the average remaining years of service to full eligibility of those plan participants active at the date of the plan amendment. NOTE 16 - OTHER INCOME STATEMENT INFORMATION Research and development costs charged to expense aggregated $11,533 in 1995, $9,442 in 1996 and $9,484 in 1997. Maintenance and repairs charged to expense aggregated $277,838 in 1995, $277,396 in 1996 and $281,820 in 1997. NOTE 17 - SUPPLEMENTAL CASH FLOW INFORMATION Cash used in operating activities includes:
-------------------------------------------------- FOR THE YEAR ENDED DECEMBER 31, 1995 1996 1997 -------------------------------------------------- Interest paid (net of amounts capitalized).................. $48,937 $36,544 $33,031 Income taxes paid........................................... $62,393 $64,547 $55,554
Cash dividends paid to stockholders amounted to $80,000 in 1995, $80,000 in 1996 and $460,000 in 1997. NOTE 18 - CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS CONSOL markets steam coal, principally to electric utilities in the United States, Canada and Western Europe, and metallurgical coal to steel and coke producers worldwide. As of December 31, 1996 and 1997, accounts F-23 CONSOL ENERGY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (DOLLARS IN THOUSANDS) receivable from utilities were $134,711 and $137,857, respectively, and from steel and coke producers were $62,743 and $47,015, respectively. Credit is extended based on an evaluation of the customer's financial condition, and generally collateral is not required. Credit losses consistently have been minimal. CONSOL is committed under several long-term contracts to supply coal that meets certain quality requirements at specified prices. These prices are generally adjusted based on indices. Quantities sold under some of these contracts may vary from year to year within certain limits at the option of the customer. Sales (including spot sales) to a major customer were $302,968 in 1995, $318,899 in 1996 and $357,605 in 1997. As of December 31, 1996 and 1997, accounts receivable from this customer were $35,146 and $31,818, respectively. In 1995, 1996 and 1997, CONSOL U.S. operations had export sales, principally to Canadian and Western European customers, of $359,370, $357,854 and $325,544, respectively. NOTE 19 - FAIR VALUES OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of financial instruments: Cash and cash equivalents The carrying amount reported in the balance sheet for cash and cash equivalents approximates its fair value due to the short maturity of these instruments. Marketable securities The carrying value of marketable securities approximates fair value based on impending auction dates and routine trading at par value for those or similar investments. Short-term notes payable The carrying amount reported in the balance sheet for short-term notes payable approximates its fair value due to the short-term maturity of these instruments. Long-term debt The fair values of long-term debt are estimated using discounted cash flow analyses, based on CONSOL's current incremental borrowing rates for similar types of borrowing arrangements. The carrying amounts and fair values of financial instruments are as follows:
====================================================================== DECEMBER 31, ---------------------------------------------------------------------- 1996 1997 ------------------------------ ------------------------------ CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE ---------- ---------- ---------- ---------- Cash and cash equivalents................. $ 39,986 $ 39,986 $ 18,788 $ 18,788 Marketable securities..................... $ 354,273 $ 354,273 $ 114,829 $ 114,829 Short-term notes payable.................. $ (46,378) $ (46,378) $ (55,051) $ (55,051) Long-term debt............................ $(448,971) $(470,023) $(397,257) $(420,215)
F-24 CONSOL ENERGY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (DOLLARS IN THOUSANDS) NOTE 20 - COMMITMENTS AND CONTINGENT LIABILITIES CONSOL has various purchase commitments for materials, supplies and items of permanent investment incidental to the ordinary conduct of business. Such commitments are not at prices in excess of current market. CONSOL is subject to various lawsuits and claims with respect to such matters as personal injury, damage to property, governmental regulations including environmental remediation, and other actions, arising out of the normal course of business. The costs of mine closing and reclamation are accrued over the productive life of the mine. In addition, CONSOL has accrued $3,275 in other liabilities for remediation of a waste disposal site. In the opinion of management, the ultimate liabilities resulting from such lawsuits and claims will not materially affect CONSOL. A public utility filed suit against CONSOL alleging breach of a long-term coal supply contract based upon CONSOL's refusal to agree to price reductions in the price for coal under the contract's "gross inequities" clause. Damages claimed, including interest, are approximately $190 million. Discovery is in progress, and the case is set for trial October 5, 1998. CONSOL is vigorously defending the suit. Management believes that the claims are without merit, and, accordingly, CONSOL has not accrued any liability associated with the action. CONSOL received from a group of public utilities, two notices of intent to submit certain price disputes to arbitration pursuant to a 1987 coal sales contract. The notices claim that the utilities have been overcharged by approximately $40 million for coal under the price adjustment clause of the contract. In accordance with contract procedure, CONSOL submitted its response asserting that the price adjustments were made in conformity with the contract. The parties have not yet submitted their positions to an arbitrator. Management believes that the claims are without merit, and, accordingly, CONSOL has not accrued any liability associated with this proceeding. A subsidiary has a long-term sales contract to supply coal to a group of public utilities. This contract was conditioned on the purchase of the subsidiary that will supply a portion of the contracted coal. By agreement between the parties, a portion of the amounts payable by the group of public utilities includes debt service (long-term debt and capital lease obligations) that the company is obligated to pay for the benefit of the group of public utilities, which has severally guaranteed to the holders the discharge of the long-term debt and capital lease obligations. Accordingly, that portion of the contract receivable has been assigned to reduce the unpaid amounts of long-term debt and capital lease obligations (which aggregated $81,189 at December 31, 1997), as such amounts are funded and guaranteed by, and are under the responsibility and control of, the group of public utilities. F-25 CONSOL ENERGY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS) NOTE 21 - INDUSTRY SEGMENT INFORMATION CONSOL conducts its operations through a coal segment and an industrial supplies and equipment segment. The principal business of the coal segment is the mining, preparation and marketing of steam coal, sold primarily to electric utilities, and metallurgical coal, sold to steel and coke producers. CONSOL's other segment markets industrial supplies and equipment through Fairmont Supply Company. Products are sold between segments on a basis reflecting the market value of the products. Industry segment results for 1997 are:
======================================================================== INDUSTRIAL SUPPLIES & COAL EQUIPMENT ELIMINATION CONSOLIDATED ---------- --------- ----------- ------------ Sales - outside..................... $2,029,095 $117,841 $ - $2,146,936 Sales - related companies........... 39,406 98,855 - 138,261 Intersegment transfers.............. - 77,714 (77,714) - ---------- --------- ----------- ------------ Total Sales................... $2,068,501 $294,410 $(77,714) $2,285,197 ---------- --------- ----------- ------------ Earnings before income taxes........ $ 232,395 $ 1,281 $ 233,676 Income taxes........................ 49,541 346 49,887 ---------- --------- ------------ Net Income.......................... $ 182,854 $ 935 $ 183,789 ---------- --------- ------------ Identifiable assets................. $3,480,303 $ 67,708 $3,548,011 ---------- --------- ------------ Depreciation, depletion and amortization..................... $ 232,225 $ 1,079 $ 233,304 ---------- --------- ------------ Additions to property, plant and equipment........................ $ 201,907 $ 526 $ 202,433 ---------- --------- ------------
Industry segment results for 1996 are:
======================================================================== INDUSTRIAL SUPPLIES & COAL EQUIPMENT ELIMINATION CONSOLIDATED ---------- --------- ----------- ------------ Sales - outside..................... $2,094,137 $113,433 - $2,207,570 Sales - related companies........... 39,212 89,232 - 128,444 Intersegment transfers.............. - 76,569 (76,569) - ---------- --------- ----------- ------------ Total Sales................... $2,133,349 $279,234 $(76,569) $2,336,014 ---------- --------- ----------- ------------ Earnings before income taxes........ $ 185,367 $ 3,332 $ 188,699
F-26 CONSOL ENERGY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS) Income taxes........................ 34,813 1,157 35,970 ---------- --------- ------------ Net Income.......................... $ 150,554 $ 2,175 $ 152,729 ========== ========= ============ Identifiable assets................. $3,791,145 $ 66,363 $3,857,508 ========== ========= ============ Depreciation, depletion and amortization..................... $ 233,934 $ 1,225 $ 235,159 ========== ========= ============ Additions to property, plant and equipment........................ $ 171,104 $ 975 $ 172,079 ========== ========= ============
Industry segment results for 1995 are:
======================================================================== INDUSTRIAL SUPPLIES & COAL EQUIPMENT ELIMINATION CONSOLIDATED ---------- --------- ----------- ------------ Sales - outside..................... $2,019,439 $109,206 - $2,128,645 Sales - related companies........... 37,921 102,645 - 140,566 Intersegment transfers.............. - 77,604 (77,604) - ---------- --------- ----------- ------------ Total Sales................... $2,057,360 $289,455 $(77,604) $2,269,211 ========== ========= =========== ============ Earnings before income taxes........ $ 151,901 $ 893 $ 152,794 Income taxes........................ 22,414 330 22,744 ---------- --------- ------------ Net Income.......................... $ 129,487 $ 563 $ 130,050 ========== ========= ============ Identifiable assets................. $3,805,531 $ 66,447 $3,871,978 ========== ========= ============ Depreciation, depletion and amortization..................... $ 251,830 $ 1,283 $ 253,113 ========== ========= ============ Additions to property, plant and equipment........................ $ 237,475 $ 1,307 $ 238,782(1) ========== ========= ============
_____________ (1) Includes $52,513 acquired from Greene Hill Coal Company. NOTE 22 - SUBSEQUENT EVENT On ___________, 1999, the Board of Directors acted to recapitalize CONSOL with one class of common stock with a par value of $.01 per share and authorized 500 million shares. Upon the effective date of the recapitalization, 57,667,559 shares were issued in exchange for the Class A and Class B shares previously outstanding to effect an approximate 1,088 for 1 stock split. F-27 CONSOL ENERGY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS) NOTE 23 - SUPPLEMENTAL COAL DATA (UNAUDITED)
============================================== (Millions of Tons) 1995 1996 1997 ------ ------ ------ Proved and probable coal reserves at January 1*............. 4,956 5,072 5,063 Purchased reserves.......................................... 191 120 10 Reserves sold in place...................................... (65) (17) (31) Production.................................................. (71) (72) (73) Revisions and other changes................................. 61 (40) (193) ------ ------ ------ Proved and Probable Coal Reserves at December 31*........... 5,072 5,063 4,776 ====== ====== ======
____________ * Proved and probable coal reserves are the equivalent of "demonstrated reserves" under the coal resource classification system of the U.S. Geological Survey. Generally, these reserves would be commercially minable at year-end prices and cost levels, using current technology and mining practices. The coal reserves are located in nearly every major coal-producing region in North America. At December 31, 1997, 858 million tons were assigned to mines either in production or under development. The proved and probable reserves at December 31, 1997 include 4,020 million tons of steam coal, of which approximately 15 percent has a sulfur content equivalent to less than 1.2 pounds sulfur dioxide per million British thermal unit (Btu), and an additional 15 percent has a sulfur content equivalent to between 1.2 and 2.5 pounds sulfur dioxide per million Btu. The reserves also include 756 million tons of metallurgical coal, of which approximately 65 percent has a sulfur content equivalent to less than 1.2 pounds sulfur dioxide per million Btu, and the remaining 35 percent has a sulfur content equivalent to between 1.2 and 2.5 pounds sulfur dioxide per million Btu. A significant portion of this metallurgical coal can also serve the steam coal market. F-28 CONSOL ENERGY INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
========================================================== AT SEPTEMBER 30, AT DECEMBER 31, 1998 PRO FORMA 1997 HISTORICAL (SEE NOTE 3) ---------------- --------------- ------------- Assets (UNAUDITED) (UNAUDITED) Current Assets Cash and Cash Equivalents.............................. $ 18,788 $ 37,926 $ 37,926 Marketable Securities.................................. 114,829 60,545 60,545 Accounts and Notes Receivable Trade............................................... 252,901 288,394 288,394 Related Parties..................................... 6,305 4,309 4,309 Other Receivables................................... 23,392 23,971 23,971 Inventories............................................ 140,724 160,029 160,029 Deferred Income Taxes.................................. 94,027 92,105 92,105 Prepaid Expenses....................................... 19,273 28,878 28,878 ---------- ---------- ---------- Total Current Assets............................. 670,239 696,157 696,157 Property, Plant and Equipment Property, Plant and Equipment.......................... 4,506,797 4,973,932 4,973,932 Less __ Accumulated Depreciation, Depletion and Amortization.............................................. 2,067,707 2,204,903 2,204,903 ---------- ---------- ---------- Total Property, Plant and Equipment __ Net....... 2,439,090 2,769,029 2,769,029 Other Assets Deferred Income Taxes.................................. 201,270 206,882 206,882 Advance Mining Royalties............................... 131,079 125,377 125,377 Other.................................................. 106,333 191,784 191,784 ---------- ---------- ---------- Total Other Assets............................... 438,682 524,043 524,043 ---------- ---------- ---------- Total Assets..................................... $3,548,011 $3,989,229 $3,989,229 ========== ========== ==========
The accompanying notes are an integral part of these financial statements. F-29 CONSOL ENERGY INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
============================================================= AT SEPTEMBER 30, AT DECEMBER 31, 1998 PRO FORMA 1997 HISTORICAL (SEE NOTE 3) ----------------- ------------------ ---------------- Liabilities (UNAUDITED) (UNAUDITED) Current Liabilities Accounts Payable....................................... $ 211,059 $ 225,021 $ 225,021 Short-Term Notes Payable............................... 55,051 105,476 685,476 Current Portion of Long-Term Debt...................... 7,639 108,540 108,540 Accrued Income Taxes................................... 13,581 5,279 5,279 Other Accrued Liabilities.............................. 305,596 329,456 329,456 ------------ ------------ ------------ Total Current Liabilities........................... 592,926 773,772 1,353,772 Long-Term Debt............................................ 389,618 321,887 321,887 Deferred Credits and Other Liabilities Postretirement Benefits Other Than Pensions............ 1,082,061 1,222,716 1,222,716 Pneumoconiosis Benefits................................ 500,429 484,234 484,234 Mine Closing........................................... 232,767 268,996 268,996 Workers' Compensation.................................. 177,453 215,094 215,094 Reclamation............................................ 24,331 17,902 17,902 Other............................................... 245,661 257,166 257,166 ------------ ------------ ------------ Total Deferred Credits and Other Liabilities........ 2,262,702 2,466,108 2,466,108 Stockholders' Equity Common Stock, $.01 Par Value; 500,000,000 shares authorized; Issued and outstanding, actual 108,806,714 shares; outstanding, pro forma 57,667,559 shares......................... 1,088 1,088 577 Capital in Excess of Par Value......................... 801,916 801,916 302,427 Retained (Deficit)..................................... (500,239) (375,542) (455,542) ------------ ------------ ------------ Total Stockholders' Equity.......................... 302,765 427,462 (152,538) ------------ ------------ ------------ Total Liabilities and Stockholders' Equity.......... $3,548,011 $3,989,229 $3,989,229 ============ ============ ============
The accompanying notes are an integral part of these financial statements. F-30 CONSOL ENERGY INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DOLLARS IN THOUSANDS)
=================================================================== CAPITAL IN RETAINED TOTAL COMMON EXCESS OF PAR EARNINGS STOCKHOLDERS' STOCK VALUE DEFICIT EQUITY ------------- ------------- ----------- --------------- Balance December 31, 1997.............. $ 1,088 801,916 (500,239) 302,765 Net Income............................. -- -- 124,697 124,697 Dividends.............................. -- -- -- -- ---------- ---------- ---------- --------- Balance September 30, 1998............. $ 1,088 $801,916 $(375,542) $427,462 ========== ========== ========== =========
The accompanying notes are an integral part of these financial statements. F-31 CONSOL ENERGY INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
========================================== NINE MONTHS ENDED SEPTEMBER 30, ------------------------------------------ 1997 1998 ----------------- ---------------- (UNAUDITED) (UNAUDITED) CASH FLOW FROM OPERATING Net Income........................................................ $ 119,884 $ 124,697 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities Depreciation, Depletion and Amortization.................... 171,353 175,575 (Gain) Loss on Sale of Assets............................... (10,944) (2,618) Amortization for Advance Mining Royalties................... 9,651 10,877 Deferred Income Taxes....................................... (8,228) (3,690) Changes in Operating Assets...................................... (16,967) (8,059) Changes in Other Assets.......................................... 1,728 (207) Changes in Operating Liabilities................................. 5,244 (36,895) Changes in Other Liabilities..................................... (27,781) 4,695 Other............................................................ (675) (1,858) ----------- ----------- 123,381 137,820 ----------- ----------- Net Cash Provided by Operating Activities........................ 243,265 262,517 CASH FLOW FROM INVESTING ACTIVITIES Capital Expenditures............................................ (135,330) (188,624) Additions to Advance Mining Royalties........................... (5,083) (5,068) Acquisition of R&P Coal Co. -- Net of Cash Acquired............. -- (100,410) Proceeds from Sale of Assets.................................... 14,865 6,394 Changes in Marketable Securities -- Net......................... 50,698 54,284 ----------- ----------- Net Cash Used in Investing Activities........................... (74,850) (233,424) CASH FLOW FROM FINANCING ACTIVITIES Payments on Long-Term Notes...................................... (44,000) -- Payments (Proceeds) on Borrowings............................... (43,356) (9,955) ----------- ----------- Net Cash Used in Financing Activities........................... (87,356) (9,955) ----------- ----------- Net (Decrease) Increase in Cash and Cash Equivalents............ 81,059 19,138 Cash and Cash Equivalents at Beginning of Period..................... 39,986 18,788 ----------- ----------- Cash and Cash Equivalents at End of Period........................... $ 121,045 $ 37,926 =========== ===========
The accompanying notes are an integral part of these financial statements. F-32 CONSOL ENERGY INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) NOTE 1 - BASIS OF PRESENTATION The Company considers that all adjustments (all of which are normal recurring accruals) necessary for a fair statement of financial position and results of operations for these periods have been made; however, results for such interim periods are subject to year-end audit adjustments. Results for such interim periods are not necessarily indicative of results for a full year. NOTE 2 - ACQUISITION On September 22, 1998, CONSOL purchased 100% of the outstanding stock of the Rochester and Pittsburgh Coal Company (R&P) for $149,683. The acquisition has been accounted for as a purchase and, accordingly, the operating results of R&P have been included in the Company's consolidated financial statements since the date of acquisition. Pro forma revenues were $646,015 and $629,540 for the third quarter 1998 and 1997 respectively, and were $1,972,247 and $1,893,997 for the nine months ended September 30, 1998 and 1997 respectively. Pro forma net income would not materially change for these periods. NOTE 3 - SUBSEQUENT EVENTS On September 14, 1998, the Company entered into a definitive agreement to purchase 47,000 shares of Class A Common Stock from DuPont and affiliated companies at a price of $500,000. The closing of the transaction occurred on November 5, 1998. The Board of Directors agreed that prior to the closing, CONSOL would pay the pro rata annual dividend based on to-date results for the days of 1998 elapsed prior to the payment of the purchase price of the shares. The pro rata dividend of $59,677 was paid on November 5, 1998. On December 28, 1998, and additional dividend of $20,323 was paid, bringing the total dividends paid in 1998 to $80,000. The Company issued commercial paper in November 1998 in order to finance, together with other available funds, the purchase of the shares, the payment of the dividend and the acquisition of R&P and the refinancing of certain indebtedness incurred by R&P. F-33 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The estimated expenses in connection with the offering, all of which will be borne by CONSOL, are as follows: SEC Registration Fee...................................... $151,729.62 Blue Sky Fees and Expenses................................ * Printing and Engraving Expenses........................... * Legal Fees................................................ * Accounting Fees........................................... * NASD Filing Fee........................................... 30,500 Miscellaneous............................................. * _________ TOTAL................................................... $ *
_____________ *To be completed by amendment. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. CONSOL's Certificate of Incorporation and By-Laws provide, in part, that CONSOL shall indemnify its directors, officers, employees and agents to the fullest extent permitted by the Delaware General Corporation Law (the "DGCL"). The DGCL permits Delaware corporations to indemnify their directors and officers against all reasonable expenses incurred in the defense of any lawsuit to which they are made parties by reason of being directors or officers, in cases of successful defense, and against such expenses in other cases, subject to specified conditions and exclusions. Such indemnification is not exclusive of any other rights to which those indemnified may be entitled under any by-law, agreement, vote of stockholders or otherwise. The DGCL contains a provision eliminating the personal liability of a director to a corporation or its stockholders for monetary damages for breach of, or failure to perform, any duty resulting solely from his status as a director, except with respect to (a) a willful failure to deal fairly with the corporation or its stockholders where a director has a material conflict of interest, (b) a violation of criminal law unless the director had reasonable cause to believe his conduct was lawful, (c) a transaction yielding an improper personal profit, and (d) willful misconduct. The foregoing statute also is applicable to situations wherein a director has voted for, or assented to the declaration of, a dividend, repurchase of shares, distribution, or the making of a loan to an officer or director, in each case where the same occurs in violation of applicable law. CONSOL has purchased directors' and officers' liability insurance covering certain liabilities incurred by its directors in connection with the performance of their duties. The Underwriting Agreement filed herewith as Exhibit 1 contains provisions by which the Underwriters agree to indemnify CONSOL, each person who controls CONSOL within the meaning of Section 15 of the Securities Act or Section 20 of the Securities Exchange Act of 1934, as amended, each director of CONSOL II-1 and each officer of CONSOL who signs the Registration Statement with respect to information furnished in writing by the Underwriters for use in the Registration Statement. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. CONSOL has not issued securities during the prior three years. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Exhibits -------- 1 -- Form of Underwriting Agreement between CONSOL, J.P. Morgan & Co. Incorporated and Merrill Lynch, Pierce, Fenner & Smith Incorporated as Representatives of the several Underwriters.* 3.1 -- Certificate of Incorporation of CONSOL.* 3.2 -- By-Laws of CONSOL.* 4.1 -- Specimen Common Stock Certificate.* 5 -- Opinion of Thelen Reid & Priest LLP regarding legality.* 10.1 -- Senior Revolving Loan Agreement dated as of December 23, 1993, between Consolidation Coal Company and Morgan Guaranty Trust Company of New York for a maximum principal amount at any one time outstanding not to exceed $25,000,000 10.2 -- First Amendment to Senior Revolving Loan Agreement dated as of November ___, 1994, between Consolidation Coal Company and Morgan Guaranty Trust Company of New York 10.3 -- Second Amendment to Senior Revolving Loan Agreement dated as of October 1, 1995, between Consolidation Coal Company and Morgan Guaranty Trust Company of New York 10.4 -- Third Amendment to Senior Revolving Loan Agreement dated as of December 14, 1995, between Consolidation Coal Company and Morgan Guaranty Trust Company of New York 10.5 -- Fourth Amendment to Senior Revolving Loan Agreement dated as of March 1, 1996, between Consolidation Coal Company and Morgan Guaranty Trust Company of New York 10.6 -- Fifth Amendment to Senior Revolving Loan Agreement dated as of December 2, 1997, between Consolidation Coal Company and Morgan Guaranty Trust Company of New York II-2 10.7 -- Sixth Amendment to Senior Revolving Loan Agreement dated as of October 29, 1998, between Consolidation Coal Company and Morgan Guaranty Trust Company of New York 10.8 -- Seventh Amendment to Senior Revolving Loan Agreement dated as of January 19, 1999, between Consolidation Coal Company and Morgan Guaranty Trust Company of New York 10.9 -- Senior Revolving Loan Agreement, dated as of October 29, 1998, between Consolidation Coal Company and First National Bank of Chicago for a maximum principal amount at any one time outstanding not to exceed $100,000,000 10.10 -- Note issued by Consolidation Coal Company in the aggregate principal amount of $100,000,000 10.11 -- Parent Guaranty, dated November 13, 1998, from CONSOL Energy Inc. and CONSOL Inc. to First National Bank of Chicago 10.12 -- Significant Subsidiary Guaranty, dated November 13, 1998, to First National Bank of Chicago 10.13 -- Subordination Agreement, dated November 13, 1998, among CONSOL Energy Inc, and certain subsidiaries of CONSOL Energy Inc. for the benefit of the First National Bank of Chicago 10.14 -- Share Purchase Agreement, dated September 14, 1998, among E.I. DuPont De Nemours and Company, DuPont Energy Company, Rheinbraun A.G. and CONSOL Energy Inc. 10.15 -- Amendatory Amendment No. 3, dated October 1, 1997, to the Shareholders Agreement, dated December 6, 1991, as amended 10.16 -- Amendatory Amendment No. 4, dated September 14, 1998, to the Shareholders Agreement, dated December 6, 1991, as amended 10.17 -- Consulting Agreement dated as of February 1, 1999, between CONSOL Inc. and B.R. Brown 10.18 -- Employment Agreement dated December 11, 1997, between CONSOL Inc. and J. Brett Harvey 11 -- Statement regarding computation of per share earnings.* 21 -- Subsidiaries of CONSOL.* 23.1 -- Consent of Ernst & Young LLP. 23.2 -- Consent of Thelen Reid & Priest LLP (included as part of Exhibit 5 above).* 24 -- Power of Attorney.+ II-3 27 -- Financial data schedule.+ (b) Schedules --------- No schedules are required to be presented by CONSOL pursuant to Regulation S-X in connection with the filing of this Registration Statement. _________________________________ *To be filed by amendment. +Filed previously. ITEM 17. UNDERTAKINGS. (a) The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser. (b) Insofar as indemnification for liabilities arising under the Securities Act of 1933, may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (c) The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Amended Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Pittsburgh, Pennsylvania on February 4, 1999. CONSOL ENERGY INC. By: /s/ J. Brett Harvey ------------------------------------- J. Brett Harvey, President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated:
Name Title Date ---- ----- ---- * - ------------------------------------- Director February 4, 1999 B. R. Brown /s/ J. Brett Harvey President and Chief Executive February 4, 1999 - ------------------------------------- J. Brett Harvey Officer and Director (Principal Executive Officer) * Vice President and Treasurer February 4, 1999 - ------------------------------------- Michael F. Nemser (Principal Financial Officer) * Vice President and Controller February 4, 1999 - ------------------------------------- William J. Lyons (Principal Accounting Officer) * February 4, 1999 - ------------------------------------- Director Dr. Dieter Henning * February 4, 1999 - ------------------------------------- Director Berthold Bonekamp * February 4, 1999 - ------------------------------------- Director Bernd J. Breloer
II-5
Name Title Date ---- ----- ---- * Director February 4, 1999 - ------------------------------------- Dr. Rolf Zimmermann *By:/s/ Daniel L. Fassio February 4, 1999 Daniel L. Fassio, As Attorney-In-Fact
II-6 INDEX TO EXHIBITS
Exhibit Number Document Page - ------ -------- ---- 10.1 -- Senior Revolving Loan Agreement dated as of December 23, 1993, between Consolidation Coal Company and Morgan Guaranty Trust Company of New York for a maximum principal amount at any one time outstanding not to exceed $25,000,000..................................... 10.2 -- First Amendment to Senior Revolving Loan Agreement dated as of November ___, 1994, between Consolidation Coal Company and Morgan Guaranty Trust Company of New York.......................................... 10.3 -- Second Amendment to Senior Revolving Loan Agreement dated as of October 1, 1995, between Consolidation Coal Company and Morgan Guaranty Trust Company of New York.......................................... 10.4 -- Third Amendment to Senior Revolving Loan Agreement dated as of December 14, 1995, between Consolidation Coal Company and Morgan Guaranty Trust Company of New York ......................................... 10.5 -- Fourth Amendment to Senior Revolving Loan Agreement dated as of March 1, 1996, between Consolidation Coal Company and Morgan Guaranty Trust Company of New York.......................................... 10.6 -- Fifth Amendment to Senior Revolving Loan Agreement dated as of December 2, 1997, between Consolidation Coal Company and Morgan Guaranty Trust Company of New York ......................................... 10.7 -- Sixth Amendment to Senior Revolving Loan Agreement dated as of October 29, 1998, between Consolidation Coal Company and Morgan Guaranty Trust Company of New York ......................................... 10.8 -- Seventh Amendment to Senior Revolving Loan Agreement dated as of January 19, 1999, between Consolidation Coal Company and Morgan Guaranty Trust Company of New York ......................................... 10.9 -- Senior Revolving Loan Agreement, dated as of October 29, 1998, between Consolidation Coal Company and First National Bank of Chicago for a maximum principal amount at any one time outstanding not to exceed $100,000,000 ............................................................... 10.10 -- Note issued by Consolidation Coal Company in the aggregate principal amount of $100,000,000 ..................................................... 10.11 -- Parent Guaranty, dated November 13, 1998, from CONSOL Energy Inc. and CONSOL Inc. to First National Bank of Chicago ..................................... 10.12 -- Significant Subsidiary Guaranty, dated November 13, 1998, to First National Bank of Chicago ............................................................ 10.13 -- Subordination Agreement, dated November 13, 1998, among CONSOL Energy Inc, and certain subsidiaries of CONSOL Energy Inc. for the benefit of the First National Bank of Chicago.................................................... 10.14 -- Share Purchase Agreement, dated September 14, 1998, among E.I. DuPont De Nemours and Company, DuPont Energy Company, Rheinbraun A.G. and CONSOL Energy Inc. ....................................................................... 10.15 -- Amendatory Amendment No. 3, dated October 1, 1997, to the Shareholders Agreement, dated December 6, 1991, as amended .............................. 10.16 -- Amendatory Amendment No. 4, dated September 14, 1998, to the Shareholders Agreement, dated December 6, 1991, as amended .............................. 10.17 -- Consulting Agreement dated as of February 1, 1999, between CONSOL Inc. and B.R. Brown ................................................................. 10.18 -- Employment Agreement dated December 11, 1997, between CONSOL Inc. and J. Brett Harvey ..................................................................... 23.1 -- Consent of Ernst & Young LLP. .............................................
EX-10.1 2 SENIOR LOAN AGREEMENT 12/23/93 MORGAN GUARANTY EXHIBIT 10.1 ------------ U.S. $25,000,000 SENIOR REVOLVING LOAN AGREEMENT, dated as of December 23, 1993 among CONSOLIDATION COAL COMPANY as the Borrower and MORGAN GUARANTY TRUST COMPANY OF NEW YORK as the Bank TABLE OF CONTENTS
Page ARTICLE I DEFINITIONS.................................... 1 SECTION 1.1 Defined Terms......................................... 1 SECTION 1.2 Use of Defined Terms.................................. 15 SECTION 1.3 Accounting and Financial Determinations............... 15 ARTICLE II COMMITMENTS.................................... 15 SECTION 2.1 Commitments........................................... 15 SECTION 2.2 Total Commitment Amount............................... 16 SECTION 2.3 Fees.................................................. 16 SECTION 2.4 Commitment Termination Date........................... 16 ARTICLE III LOANS AND NOTES................................ 17 SECTION 3.1 Borrowing Procedure................................... 17 SECTION 3.2 Note.................................................. 17 SECTION 3.3 Principal Payments and Prepayments.................... 17 SECTION 3.4 Interest.............................................. 18 SECTION 3.5 Post-Maturity Rates................................... 19 SECTION 3.6 Payment Dates......................................... 19 SECTION 3.7 Payments, Computations, etc........................... 19 SECTION 3.8 Setoff................................................ 20 SECTION 3.9 Taxes................................................. 20 ARTICLE IV BASE RATE, CD RATE AND LIBO RATE OPTIONS FOR THE LOANS.......................... 22 SECTION 4.1 Elections............................................. 22 SECTION 4.2 Fixed Rate Lending Unlawful........................... 24 SECTION 4.3 Deposits Unavailable.................................. 24 SECTION 4.4 Capital Adequacy; Increased Costs, etc................ 24 SECTION 4.5 Funding Losses........................................ 25 ARTICLE V
CONDITIONS PRECEDENT............................ 26 SECTION 5.1 Initial Borrowing................................... 26 SECTION 5.1.1 Resolutions, etc.................................... 26 SECTION 5.1.2 Delivery of Notes................................... 27 SECTION 5.1.3 Opinions of Counsel................................. 27 SECTION 5.1.4 Parent Guaranty..................................... 27 SECTION 5.1.5 Significant Subsidiary Guaranty..................... 27 SECTION 5.1.6 Subordination Agreement............................. 27 SECTION 5.1.7 Credit Rating....................................... 27 SECTION 5.1.8 Facilities to be Terminated......................... 27 SECTION 5.1.9 Satisfactory Legal Form............................. 27 SECTION 5.2 All Loans........................................... 28 SECTION 5.2.1 Compliance with Warranties, non-Default. etc........ 28 SECTION 5.2.2 Absence of Litigation, etc.......................... 28 SECTION 5.2.3 Loan Request........................................ 28 ARTICLE VI WARRANTIES, ETC................................. 29 SECTION 6.1 Organization, Power, Authority, etc................. 29 SECTION 6.2 Due Authorization................................... 29 SECTION 6.3 Validity, etc....................................... 29 SECTION 6.4 Financial Information............................... 29 SECTION 6.5 Absence of Certain Default.......................... 30 SECTION 6.6 Litigation, etc..................................... 30 SECTION 6.7 Regulation U........................................ 30 SECTION 6.8 Government Regulation............................... 30 SECTION 6.9 Certain Contractual Obligations or Organic Documents........................................... 31 SECTION 6.10 Taxes............................................... 31 SECTION 6.11 Pension and Welfare Plans........................... 31 SECTION 6.12 Labor Controversies................................. 31 SECTION 6.13 Subsidiaries and Significant Subsidiaries........... 31 SECTION 6.14 Patents, Trademarks, etc............................ 31 SECTION 6.15 Ownership of Properties; Liens...................... 32 SECTION 6.16 Accuracy of Information............................. 32 SECTION 6.17 Environmental Warranties............................ 32 ARTICLE VII COVENANTS....................................... 34 SECTION 7.1 Certain Affirmative Covenants....................... 34 SECTION 7.1.1 Financial Information, etc.......................... 34 SECTION 7.1.2 Maintenance of Corporate Existences, etc............ 35 SECTION 7.1.3 Foreign Qualification............................... 35
ii SECTION 7.1.4 Payment of Taxes, etc............................... 35 SECTION 7.1.5 Insurance........................................... 35 SECTION 7.1.6 Notice of Default, Litigation, etc.................. 36 SECTION 7.1.7 Performance of Loan Documents....................... 37 SECTION 7.1.8 Books and Records................................... 37 SECTION 7.1.9 Significant Subsidiary Guaranty..................... 37 SECTION 7.1.10 Environmental Covenant.............................. 37 SECTION 7.2 Certain Negative Covenants.......................... 37 SECTION 7.2.1 Indebtedness for Borrowed Money..................... 37 SECTION 7.2.2 Liens............................................... 38 SECTION 7.2.3 Consolidation, Merger, etc.......................... 39 SECTION 7.2.4 Transactions with Affiliates........................ 39 SECTION 7.2.5 Sale or Discount of Receivables..................... 39 SECTION 7.2.6 Dividends........................................... 40 SECTION 7.2.7 Inconsistent Agreements............................. 40 SECTION 7.2.8 Loans, Advances and Investments..................... 40 SECTION 7.2.9 Guaranties.......................................... 40 SECTION 7.2.10 Securities.......................................... 41 SECTION 7.2.11 Business Activities................................. 41 ARTICLE VIII EVENTS OF DEFAULT............................... 42 SECTION 8.1 Events of Default................................... 42 SECTION 8.1.1 Non-Payment of Liabilities.......................... 42 SECTION 8.1.2 Non-Performance of Certain Covenants................ 42 SECTION 8.1.3 Certain Defaults on Other Indebtedness for Borrowed Money............................................... 42 SECTION 8.1.4 Bankruptcy, Insolvency, etc......................... 42 SECTION 8.1.5 Control of the Borrower or CEI...................... 43 SECTION 8.1.6 Non-Performance of Other Obligations................ 43 SECTION 8.1.7 Breach of Representation or Warranty................ 43 SECTION 8.1.8 Pension Plans....................................... 43 SECTION 8.1.9 Judgments........................................... 43 SECTION 8.1.10 Parent Guaranty, Significant Subsidiary Guaranty and Subordination....................................... 43 SECTION 8.1.11 Credit Rating....................................... 44 SECTION 8.2 Action if Bankruptcy................................ 44 SECTION 8.3 Action if Other Event of Default.................... 44 ARTICLE IX NO PREFERENTIAL PROVISIONS.......................... 44 SECTION 9.1 No Preferential Provisions.......................... 44
iii SECTION 9.2 Pro Rate Borrowings and Payments.................... 45 ARTICLE X MISCELLANEOUS................................... 45 SECTION 10.1 Waivers, Amendments, etc............................ 45 SECTION 10.2 Notices............................................. 45 SECTION 10.3 Costs and Expenses.................................. 45 SECTION 10.4 Indemnification..................................... 45 SECTION 10.5 Survival............................................ 46 SECTION 10.6 Severability........................................ 46 SECTION 10.7 Headings............................................ 46 SECTION 10.8 Counterparts, Effectiveness, etc.................... 46 SECTION 10.9 Governing Law; Entire Agreement..................... 46 SECTION 10.10 Successors and Assigns.............................. 47 SECTION 10.11 Sale and Transfers, etc., of Loans and Notes; Participations in Loans and Notes................... 47 SECTION 10.12 Other Transactions.................................. 49 SECTION 10.13 Waiver of Jury Trial................................ 49 SECTION 10.14 Consent to Jurisdiction and Service of Process...... 49
iv EXHIBITS EXHIBIT A - Note EXHIBIT B - Loan Request EXHIBIT C - Continuation/Conversion Notice EXHIBIT D - Confidentiality Agreement EXHIBIT E - Disclosure Schedule EXHIBIT F - Opinion of Borrower's General Counsel EXHIBIT G - Parent Guaranty EXHIBIT H - Significant Subsidiary Guaranty EXHIBIT I - Assignment and Acceptance EXHIBIT J - Commitment Termination Date Extension Request EXHIBIT K - Not assigned EXHIBIT L - Subordination Agreement EXHIBIT M - Permitted Investments EXHIBIT N - LIBOR and Domestic Offices of Banks and Addresses for Notices 1 SENIOR REVOLVING LOAN AGREEMENT THIS SENIOR REVOLVING LOAN AGREEMENT, dated as of December 23, 1993, between CONSOLIDATION COAL COMPANY, a Delaware corporation (the "Borrower"), and MORGAN GUARANTY TRUST COMPANY OF NEW YORK (the "Bank"). W I T N E S S E T H: WHEREAS, the Bank granted to the Borrower a $19,700,000 Commitment pursuant to which Loans were to be made under a $200,000,000 Senior Revolving Loan Agreement dated December 31, 1991, among the Borrower, the Bank, various other banks and the Bank of Nova Scotia, acting as Agent (the "1991 Agreement"), and WHEREAS, the Borrower desires to obtain a Commitment from the Bank under this Agreement pursuant to which Loans, in a maximum aggregate principal amount at any one time outstanding not to exceed $25,000,000, will be made to the Borrower from time to time prior to the Commitment Termination Date; and WHEREAS, the Bank is willing, on the terms and conditions hereinafter set forth (including Article V), to extend such Commitment and make such Loans to the Borrower; and WHEREAS, the proceeds of such Loans will be used for general corporate purposes and working capital purposes of the Borrower and Subsidiaries of CEI; NOW, THEREFORE, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS SECTION 1.1 Defined Terms. The following terms (whether or not ------------- underscored) when used in this Agreement, including its preamble and recitals, shall, except where the context otherwise requires, have the following meanings (such definitions to be equally applicable to the singular and plural forms thereof): "Affiliate" of any Person means any other Person which, directly or --------- indirectly, controls or is controlled by or under common control with such Person (excluding any trustee under, or any committee with responsibility for administering, any Pension Plan). A Person shall be deemed to be "controlled by" any other Person if such other Person possesses, directly or indirectly, power: (a) to vote 10% or more of the securities (on a fully diluted basis) having ordinary voting power for the election of directors or managing general partners of such Person; or (b) to direct or cause the direction of the management and policies of such Person whether by contract or otherwise. "Agreement" means, at any date, this loan agreement, a reconstituted 1991 --------- Agreement, as originally in effect on the Effective Date, and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified and in effect on such date. "Applicable Margin" means, for any Interest Period, the amount indicated ----------------- below for each type of Loan based upon the Credit Rating for each day during such Interest Period: LIBO CD Base Rate Rate Rate Credit Rating Loans Loans Loans - ------------- ----- ----- ----- Level I 0.375% 0.50% 0% Level II 0.50% 0.625% 0% Level III 1.25% 1.25% 1.0% "Approval" means each and every approval, consent, filing and registration -------- by or with any Federal, state or other regulatory authority necessary to authorize or permit the execution, delivery or performance of this Agreement, the Notes or any other Loan Document or for the validity or enforceability hereof or thereof. "Assessment Rate" means, for any Interest Period for CD Rate Loans, the net --------------- annual assessment rate (rounded upwards, if necessary, to the next higher 1/100 of 1%) estimated by the Bank to be the then current annual assessment payable by insured banks to the Federal Deposit Insurance Corporation (or any successor) for insuring time deposits at such banks in the United States. "Assignment and Acceptance" means any assignment and acceptance, ------------------------- substantially in the form of Exhibit I hereto. --------- "Authorized Officer" means, relative to any Loan Party, those of its ------------------ officers whose signatures and incumbency shall have been certified to the Bank . "Bank" is defined in the preamble. ---- -------- 2 "Base Rate" means at any time and with respect to all Base Rate Loans, a --------- fluctuating rate of interest per annum equal to the higher of: (a) the rate of interest most recently announced by the Bank in New York, New York as its base rate or prime rate or prime commercial lending rate (of which announcements the Bank shall make all reasonable efforts to give notice promptly to the Borrower); and (b) the Federal Funds Rate plus 1/2%. The Base Rate is not necessarily intended to be the lowest rate of interest charged by the Bank in connection with extensions of credit. Changes in the rate of interest on Loans maintained as Base Rate Loans shall take effect simultaneously with each change in the Base Rate. "Base Rate Loan" is defined in Section 4.1. -------------- ----------- "Borrower" is defined in the preamble. -------- -------- "Borrowing" means the Loans made by the Bank on any Business Day in --------- accordance with Section 3.1. ----------- "Business Day" means: ------------ (a) any day which is neither a Saturday or Sunday nor a legal holiday in the State of New York or Pennsylvania or Georgia on which Banks are authorized or required to be closed in New York City or Pittsburgh or Atlanta; and (b) relative to the date of (i) making or continuing any portion of any Loans as, or converting any portion of any Loans from or into LIBO Rate Loans, (ii) making any payment or Prepayment of principal of or payment of interest on the portion of the principal amount of the Loans being maintained as LIBO Rate Loans, and (iii) the Borrower's giving any notice (or the number of Business Days to elapse prior to the effectiveness thereof) in connection with any matter referred to in clause (b)(i) or (b)(ii), ------ ------- a banking business day of the Bank at, and on which dealings in Dollars are carried on in the interbank eurodollar market of, the Bank's LIBOR Office. 3 "CD Rate" means, relative to an Interest Period, the rate (expressed as a ------- decimal) of interest determined by the Bank to be the average (rounded upwards, if necessary, to the nearest 1/16 of 1%) of the bid rates quoted to the Bank in the secondary market at approximately 10:00 a.m. New York City time (or as soon thereafter as practicable) on the first day of such Interest Period by two certificate of deposit dealers of recognized standing selected by the Bank in its sole discretion for the purchase from the Bank at face value of certificates issued by the Bank in an amount approximately equal or comparable to the amount of the Bank's CD Rate Loan to be outstanding during such Interest Period and for the number of days comprised therein. "CD Rate Loan" is defined in Section 4.1. ------------ ----------- "CD Rate (Reserve Adjusted)" means a rate per annum (rounded upwards, if -------------------------- necessary, to the nearest 1/16 of 1%) determined pursuant to the following formula: CDR(RA) = CDR + AR ----------------------- (1.00 - CDRR) where, CDR(RA) = CD Rate (Reserve Adjusted) CDR = CD Rate CDRR = CD Reserve Requirement AR = Assessment Rate "CD Reserve Requirement" means, relative to each Interest Period, a ---------------------- percentage (expressed as a decimal) equal to the aggregate reserve requirement (including all basic, supplemental, marginal and other reserves and taking into account any transitional adjustments or other scheduled changes in reserve requirements during such Interest Period) on the first day of such Interest Period, as specified under Regulation D of the F.R.S. Board, or any other regulation of the F.R.S. Board which prescribes reserve requirements applicable to non-personal time deposits as presently defined in Regulation D, as then applicable to the class of banks of which the Bank is a member, on deposits of the type used as a reference in determining the CD Rate and having a maturity approximately equal to such Interest Period. "CEI" means Consol Energy Inc., a Delaware corporation. --- "CERCLA" means the Comprehensive Environmental Response, Compensation and ------ Liability Act of 1980, as amended. "CERCLIS" means the Comprehensive Environmental Response Compensation ------- Liability Information System List. "Change in Control" means: ----------------- 4 (a) with respect to the Borrower, the failure of CEI to own, directly or indirectly, free and clear of all Liens or other encumbrances, one hundred percent (100%) of the outstanding shares of capital stock of the Borrower on a fully diluted basis; and (b) with respect to CEI, the failure of Du Pont and/or Rheinbraun AG and RG to own, directly or indirectly, a cumulative total of at least fifty-one percent (51%) of the outstanding shares of capital stock of CEI, on a fully diluted basis, in each case, free and clear of all Liens or other encumbrances. "CII" means Consol Inc., a Delaware corporation. --- "Code" means the Internal Revenue Code of 1986, and the regulations ---- thereunder, as amended from time to time. "Commercial Paper Indebtedness" means commercial paper issued by the ----------------------------- Borrower with an original maturity of not more than 270 days from the date of issuance, incurrence or other creation thereof and, at the time any determination thereof is to be made, means the then aggregate outstanding face amount (if issued, incurred or created on a discount basis) or principal amount together with interest thereon to stated maturity (if issued, incurred or created on an interest-bearing basis) of such commercial paper. "Commitment" means the Bank's obligation to make Loans pursuant to Section ---------- ------- 2.1. - --- "Commitment Termination Date" means the earliest of --------------------------- (a) December 18, 1994 as such date may be extended pursuant to Section 2.4; --- (b) five Business Days after notice is given by the Borrower to the Bank for purposes of designating a Commitment Termination Date pursuant to this clause, provided that, on such designated Commitment Termination Date, -------- no Loans are outstanding; (c) immediately and without further action upon the occurrence of any Default described in Section 8.1.4 with respect to the Borrower; and ------------- (d) immediately when any other Event of Default shall have occurred and be continuing and the Loans shall be declared to be due and payable pursuant to Section 8.3. ----------- "Commitment Termination Date Extension Request" means a request --------------------------------------------- substantially in the form of Exhibit J attached hereto duly executed by an --------- Authorized Officer of the Borrower. 5 "Confidentiality Agreement" means a confidentiality agreement duly executed ------------------------- by an Authorized Officer of the Borrower and the Bank substantially in the form of Exhibit D attached hereto (as such may be amended, supplemented, restated or --------- otherwise modified and in effect from time to time with the consent of the Borrower and the Bank). "Consolidated Subsidiary" of any Person means, at any time, every ----------------------- Subsidiary which would be included as a consolidated subsidiary of such Person in its consolidated financial statements as of such time; unless otherwise specified, "Consolidated Subsidiary" means a Consolidated Subsidiary of CEI and shall include the Borrower. "Continuation/Conversion Notice" means a notice of continuation or ------------------------------ conversion and certificate duly executed by the chief executive or financial Authorized Officer of the Borrower substantially in the form of Exhibit C --------- attached hereto. "Contractual Obligation" means, relative to any Person, any provision of ---------------------- any security issued by such Person or of any Instrument or undertaking to which such Person is a party or by which it or any of its property is bound. "Controlled Group" means all members of a controlled group of corporations ---------------- and all members of a controlled group of trades or businesses (whether or not incorporated) under common control which, together with the Borrower or either Guarantor, are treated as a single employer under Section 414 of the Code or Section 4001 of ERISA. "Credit Rating" means the credit rating of the Borrower's long-term ------------- unsecured debt securities without third-party credit enhancement by any two of S&P, Moody's, D&P, or Fitch, one of which must be S&P or Moody's. "Level I" Credit Rating means a Credit Rating of any two credit rating agencies, one of which must be by S&P or Moody's, of at least A- in the case of S&P, at least A3 in the case of Moody's, at least A- in the case of D&P and at least A- in the case of Fitch. "Level III" Credit Rating means a Credit Rating of any two credit rating agencies, one of which must be by S&P or Moody's, of less than A- but at least BBB- in the case of S&P, less than A3 but at least Baa3 in the case of Moody's, less than A-but at least BBB- in the case of D&P or less than BBB- in the case of Fitch. "Level III" Credit Rating means a Credit Rating of any two credit rating agencies, one of which must be by S&P or Moody's, of less than BBB- in the case of S&P, less than Baa3 in the case of Moody's, less than BBB- in the case of D&P and less than BBB- in the case of Fitch, or there being neither a Credit Rating from S&P nor Moody's, at the same time. "Default" means any Event of Default or any condition or event which, after ------- notice or lapse of time or both, would constitute an Event of Default. "Dollar" and the sign "$" mean lawful money of the United States of ------ America. "Domestic Office" means, relative to the Bank, the office of the Bank --------------- designated as such on Exhibit N hereto or such other office of the Bank (or any --------- successor or assign of the 6 Bank) within the United States of America as may be designated from time to time by notice from the Bank to each other Person party hereto. "D&P" means Duff & Phelps Credit Rating Co. --- "Du Pont" means E.I. Du Pont de Nemours and Company, a Delaware ------- corporation. "Effective Date" means the date this Agreement becomes effective pursuant -------------- to Section 10.8. ------------ "Environmental Laws" means all applicable federal, state or local statutes, ------------------ laws, ordinances, codes, rules, regulations and guidelines (including consent decrees and administrative orders) relating to public health and safety and protection of the environment, including CERCLA and SMCRA. "ERISA" means the Employee Retirement Income Security Act of 1974, as ----- amended. "Event of Default" is defined in Section 8.1. ---------------- ----------- "Exemption Agreement" is defined in Section 3.9(c). ------------------- -------------- "Exemption Presentation" is defined in Section 3.9(d). ---------------------- -------------- "Extension Effective Date" means, with respect to any Commitment ------------------------ Termination Date, the date which is 60 days prior to such Commitment Termination Date. "Facilities to be Terminated" means certain commitments made under the 1991 --------------------------- Agreement, all of which will be terminated on or prior to the Effective Date as provided in Section 5.1.8. "Federal Funds Rate" means, for any day, a fluctuating interest rate per ------------------ annum equal to (a) the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York; or (b) if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Bank from three federal funds brokers of recognized standing selected by it. "Fiscal Quarter" means any quarter of a Fiscal Year. -------------- 7 "Fiscal Year" means any period of twelve consecutive calendar months ending ----------- on December 31. "Fitch" means Fitch Investors Service, Inc. ----- "Fixed Rate Loan" is defined in Section 4.1. --------------- ----------- "F.R.S. Board" means the Board of Governors of the Federal Reserve System ------------ (or any successor). "GAAP" means generally accepted United States accounting principles. ---- "Guarantors" means CEI and CI. ---------- "Guaranty" means any agreement, undertaking or arrangement by which any -------- Person guarantees, endorses or otherwise becomes or is contingently liable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to, or otherwise to invest in, a debtor, or otherwise to assure a creditor against loss) the debt, obligation or other liability of any other Person (other than by endorsements of instruments in the course of collection), or guarantees the payment of dividends or other distributions upon the shares of any other Person. The amount of the obligor's obligation under any guaranty shall (subject to any limitation set forth therein) be deemed to be the outstanding principal amount (or maximum outstanding principal amount, if larger) of the debt, obligation or other liability thereby guaranteed. "Hazardous Material" means ------------------ (a) any "hazardous substance", as defined by CERCLA; (b) any "hazardous waste", as defined by RCRA; (c) any petroleum product; or (d) any pollutant or contaminant or hazardous, dangerous or toxic chemical, material or substance within the meaning of any other Environmental Law. "hereof", "hereto", "hereunder" and similar terms refer to this Agreement ------ ------ --------- and not to any particular Section or provision of this Agreement. "Impermissible Qualification" means, relative to the opinion by independent --------------------------- public accountants as to any financial statement of CEI, any qualification or exception to such opinion: (a) which is of a "going concern" or similar nature; 8 or (b) which relates to the limited scope of examination of matters relevant to such financial information. "including" means including without limiting the generality of any --------- description preceding such term. "Indebtedness" of any Person means, without duplication: ------------ (a) Indebtedness for Borrowed Money; (b) all items other than as described in clause (a) which, in ---------- accordance with GAAP, would be included as liabilities on the liability side of a balance sheet of such Person as of the date at which Indebtedness is to be determined; and (c) whether or not so included as liabilities in accordance with GAAP (i) all indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements) whether or not such indebtedness shall have been assumed by such Person, (ii) all Guaranties issued by such Person "Indebtedness for Borrowed Money" of any Person means, without duplication, ------------------------------- all obligations of such Person, and all Guaranties issued by such Person, for borrowed money (including all notes payable and drafts accepted representing extensions of credit and all obligations evidenced by bonds, debentures, notes, unpaid reimbursement obligations under drawn letters of credit or other similar instruments) on which interest charges are customarily paid. "Indemnified Liabilities" is defined in Section 10.4. ----------------------- ------------ "Instrument" means any document or writing (whether by formal agreement, ---------- letter or otherwise) under which any obligation is evidenced, assumed or undertaken, or any right to any Lien is granted or perfected. "Interest Period" means, relative to any Fixed Rate Loan, the period which --------------- shall begin on (and include) the date on which such Fixed Rate Loan is made or continued as, or converted into, a Fixed Rate Loan pursuant to Section 4.1, and, ----------- unless the final maturity of such Fixed Rate Loan is accelerated, shall end on (but exclude) the day which is, in the case of a CD Rate Loan 30, 60 or 90 days thereafter, or which, in the case of a LIBO Rate Loan, numerically corresponds to such date one week or one, two, or three months thereafter, in 9 either case as the Borrower may select in its relevant notice pursuant to Section 4.1; provided, however, that: - ----------- (a) the Borrower shall not be permitted to select Interest Periods to be in effect at any one time which have expiration dates occurring on more than eight different dates; (b) absent such selection, the Borrower shall be deemed to have selected an Interest Period of one month or 30 days, as the case may be; provided, that if another duration shall be required in order to comply -------- with clause (a) such Loan shall be a Base Rate Loan for such duration; ---------- (c) if such Interest Period applies to LIBO Rate Loans and there exists no numerically corresponding day in such month, such Interest Period shall end on the last Business Day of such month; (d) if such Interest Period applies to LIBO Rate Loans and such Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end on the Business Day next following such numerically corresponding day (unless such next following Business Day is the first Business Day of a calendar month, in which case such Interest Period shall end on the preceding Business Day); and (e) no Interest Period shall end later than the date established pursuant to clause (a) or (b) of the definition of Commitment Termination ---------- --- Date. "Liabilities" means all obligations (monetary or otherwise) of the Borrower ----------- under this Agreement, the Notes and each other Loan Document. "LIBO Rate" means, relative to each Interest Period applicable to any LIBO --------- Rate Loans comprising all or any part of any Borrowing, conversion or continuation, the rate per annum which appears on Telerate page 3750 or Telerate page 4833 as of 11:00 a.m., London time, two Business Days prior to the beginning of such Interest Period, provided that (i) if more than one such offered rate appears on the Telerate page, the LIBO Rate will be the arithmetic average (rounded, if necessary, to the nearest 1/100th of 1%) of such offered rates; and (ii) if no such offered rates appear on such page, the LIBO Rate for such Interest Period will be the arithmetic average (rounded, if necessary, to the nearest 1/100th of 1%) of rates quoted by not less than two major banks in New York City, selected by the Borrower, at approximately 11:00 a.m., New York City time, two Business Days prior to the beginning of such Interest Period, for delivery on the first day of such Interest Period, for the number of days comprised therein and in an amount equal to the amount of the LIBO Rate Loan of the Bank to be outstanding during such Interest Period. "LIBO Rate Loan" is defined in Section 4.1. -------------- ----------- 10 "LIBO Rate (Reserve Adjusted)" means, relative to any portion of a Loan to ---------------------------- be made, continued or maintained as, or converted into, a LIBO Rate Loan for any Interest Period, a rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) determined pursuant to the following formula: LIBO Rate = LIBO Rate ----------------------------- (Reserve Adjusted) 1 - LIBOR Reserve Percentage The Bank shall determine the LIBO Rate (Reserve Adjusted) for each Interest Period, applicable to LIBO Rate Loans comprising all or part of any Borrowing, conversion or continuation and promptly notify the Borrower thereof (which determination shall, in the absence of demonstrable error, be conclusive and binding on the Borrower) and, if requested by the Borrower, deliver a statement showing the computation used by the Bank in making such determination. "LIBOR Office" means the office of the Bank designated as such on Exhibit N ------------ ------- hereto or such other domestic or foreign office or offices of the Bank (as designated from time to time by notice from the Bank to the Borrower). "LIBOR Reserve Percentage" means, relative to each Interest Period, a ------------------------ percentage (expressed as a decimal) equal to the daily average during such Interest Period of the percentages in effect on each day of such Interest Period, as prescribed by the F.R.S. Board, for determining reserve requirements applicable to "Eurocurrency Liabilities" pursuant to Regulation D or any other applicable regulation of the F.R.S. Board which prescribes reserve requirements applicable to "Eurocurrency Liabilities" as presently defined in Regulation D as applicable to the Bank or any Participant of the Bank with respect to such participation. "Lien" means any mortgage, pledge, hypothecation, charge, assignment, ---- deposit arrangement, encumbrance, lien (statutory or other), or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever securing Indebtedness (including any conditional sale or other title retention agreement, any financing lease involving substantially the same economic effect as any of the foregoing, accompanied by the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction). "Loans" is defined in Section 2.1. ----- ----------- "Loan Document" means this Agreement and each Instrument and any other ------------- document from time to time executed and delivered to the Bank pursuant hereto, whether or not mentioned herein, including the Notes, the Parent Guaranty, the Significant Subsidiary Guaranty and the Subordination Agreement. "Loan Party" means the Borrower, each Guarantor, each Significant ---------- Subsidiary and any other party (other than the Bank) that executes and delivers a Loan Document. 11 "Loan Request" means a loan request and certificate duly executed by the ------------ chief executive or financial Authorized Officer of the Borrower substantially in the form of Exhibit B attached hereto. --------- "Materially Adverse Effect" means any occurrence of whatever nature ------------------------- (including any adverse determination in any litigation, arbitration or governmental investigation or proceeding) which would reasonably be expected, on a consolidated basis for CEI and its Subsidiaries (including the Borrower) in accordance with GAAP, to have a materially adverse effect on (a) the consolidated financial condition, business, operations or properties of CEI and its Subsidiaries (including the Borrower) taken as a whole or (b) the ability of the Borrower or any other Loan Party to perform any of its payment or other material obligations under this Agreement or any other Loan Document. "Maturity" means, relative to any Loan, the date on which such Loan is -------- stated to be due and payable, in whole or in part (in accordance with the Note evidencing such Loan, this Agreement, or otherwise), or such earlier date when such Loan (or any portion thereof) shall be or become due and payable, in whole or in part, in accordance with the terms of this Agreement, whether by required prepayment, declaration, or otherwise. "Monthly Payment Date" means the last day of each calendar month, or if --------------- such day is not a Business Day, the next succeeding Business Day. "Moody's" means Moody's Investors Service, Inc. ------- "Non-United States Person" means a Person who is not (i) a citizen, ------------------------ national or resident of the United States, (ii) a corporation, partnership or other entity created or organized in or under the laws of the United States or any political subdivision thereof, or (iii) an estate or trust, in each case the income of which is subject to United States Federal income taxation regardless of the source of its income. "Note" means any promissory note of the Borrower, dated the date hereof, ---- substantially in the form of Exhibit A attached hereto (as such promissory note --------- may be amended, endorsed, or otherwise modified from time to time) and all other promissory notes accepted from time to time in substitution, replacement, or renewal therefor. "Ongoing Indebtedness" means the Indebtedness described in Item 7.2.1(iii) -------------------- --------------- of Exhibit E hereto. --------- "Organic Document" means, relative to any corporation, its certificate of ---------------- incorporation, its by-laws and all shareholder agreements, voting trusts and similar arrangements applicable to any of its authorized shares of capital stock. 12 "Parent Guaranty" means that certain guaranty, executed by each Guarantor, --------------- substantially in the form of Exhibit G attached hereto (as such may be amended, --------- supplemented, restated or otherwise modified and in effect from time to time). "Participant" is defined in Section 10.11. ----------- ------------- "PBGC" means the Pension Benefit Guaranty Corporation, a United States ---- corporation and any entity succeeding to all or any of its functions under ERISA. "Pension Plan" means a "pension plan", as such term is defined in section ------------ 3(2) of ERISA, which is subject to Title IV of ERISA (other than a multiemployer plan as defined in section 4001(a)(3) of ERISA), and to which the Borrower or any corporation, trade or business that is, along with the Borrower, a member of a Controlled Group, may have any liability, including any liability by reason of having been a substantial employer within the meaning of section 4063 of ERISA at any time during the five years preceding this Agreement, or by reason of being deemed to be a contributing sponsor under section 4069 of ERISA. "Permitted Investment" means, at any time, each of the investments listed -------------------- on Exhibit M hereto. --------- "Person" means any natural person, corporation, firm, association, ------ government, governmental agency or any other entity, whether acting in an individual, fiduciary or other capacity. "Purchasing Bank" is defined in Section 10.11(b). --------------- ---------------- "Quarterly Payment Date" means the last day of any Fiscal Quarter or, if ----------------- such day is not a Business Day, the next succeeding Business Day. "RCRA" means the Resource Conservation and Recovery Act, 42 U.S.C. Section ---- 6901, et seq., as in effect from time to time. "Regulatory Change" means, relative to any Bank, any change after the date ----------------- hereof in any (or the adoption after the date hereof of any new): (a) United States Federal or state law or foreign law applicable to such Bank; or (b) rule, regulation, interpretation, directive or request (whether or not having the force of law) applying to such Bank of any court or governmental authority charged with the interpretation or administration of any law referred to in clause (a) or of any fiscal, monetary or other ---------- authority having jurisdiction over such Bank. 13 "Release" means a "release", as such term is defined in CERCLA. ------- "Reportable Event" means a "reportable event" described in Section 4043(b) ---------------- of ERISA for which the 30-day notice requirement contained in 29 C.F.R. (S)2613.8(a) has not been waived. "RG" means Rheinbraun US Gmbh, a corporation existing under the laws of The -- Federal Republic of Germany. "Rheinbraun AG" means, Rheinbraun AG, a corporation existing under the laws ---------- of The Federal Republic of Germany. "SEC" means the Securities and Exchange Commission (or any government body --- or agency succeeding to the functions of such Commission). "Significant Subsidiary" means McElroy Coal Company, a Delaware ---------------------- corporation; Conrhein, a Pennsylvania general partnership; Consol Pennsylvania Coal Company, a Delaware corporation; Consol Sales Company, a Delaware corporation; Fairmont Supply Company, a Delaware corporation; Consolidation Coal Sales Company, a Delaware corporation; Island Creek Coal Company, a Delaware corporation, Island Creek Corporation, a California corporation; Laurel Run Mining Company, a Virginia corporation; and Nineveh Coal Company, a Delaware corporation, and any other wholly-owned direct or indirect Subsidiary of CEI whose assets exceed 5% of the consolidated assets of CEI and the Consolidated Subsidiaries or whose revenues exceed 5% of the consolidated revenues of CEI and the Consolidated Subsidiaries or any other wholly-owned direct or indirect Subsidiary of CEI so designated by the Borrower after the Effective Date. "Significant Subsidiary Guaranty" means that certain guaranty, executed by ------------------------------- each Significant Subsidiary, substantially in the form of Exhibit H attached --------- hereto (as such may be amended, supplemented, restated or otherwise modified and in effect from time to time). "SMCRA" means the Federal Surface Mining Control and Reclamation Act of ----- 1977, as in effect from time to time. "S&P" means Standard & Poor's Corporation. --- "Subordination Agreement" means that certain subordination agreement, ----------------------- substantially in the form of Exhibit L attached hereto (as such may be amended, --------- supplemented, restated or otherwise modified with the written consent of the Bank and in effect from time to time). "Subsidiary" of any corporation means any other corporation more than 50% ---------- of the outstanding shares of capital stock of which having ordinary voting power for the election of directors is owned directly or indirectly by such corporation, and, except as otherwise 14 indicated herein, references to Subsidiaries shall refer to Subsidiaries of CEI (other than the Borrower). "Taxes" is defined in Section 3.09. ----- ------------ "Total Commitment Amount" is defined in Section 2.2. ----------------------- ----------- "Transferee" is defined in Section 10.11(c). ---------- ---------------- "type" means, relative to the outstanding principal amount of all or any ---- portion of a Loan, the portion thereof, if any, being maintained as a Base Rate Loan, a CD Rate Loan or a LIBO Rate Loan. "United States" or "U.S." means the United States of America, its 50 States ------------- ---- and the District of Columbia. "Welfare Plan" means a "welfare plan", as such term is defined in section ------------ 3(1) of ERISA (other than a multiemployer plan as defined in section 3(37) of ERISA), under which the Borrower, either Guarantor or any Subsidiary may have any liability, including any obligation to contribute. SECTION 1.2 Use of Defined Terms. Terms for which meanings are provided -------------------- in this Agreement shall, unless otherwise defined or the context otherwise requires, have such meanings when used in the Exhibits attached hereto, each Loan Request, Continuation/ Conversion Notice, notice and other communication delivered from time to time in connection with this Agreement or any Loan Document and the definitions of such terms are applicable to the singular as well as the plural form of such terms, as the context requires. SECTION 1.3 Accounting and Financial Determinations. Where the --------------------------------------- character or amount of any asset or liability or item of income or expense is required to be determined, or any accounting computation is required to be made, for the purpose of this Agreement, such determination or calculation shall, to the extent applicable and except as otherwise specified in this Agreement, be made in accordance with GAAP used in, and consistently applied with, the financial statements referred to in Section 6.4. ----------- ARTICLE II COMMITMENTS SECTION 2.1 Commitments. Subject to the terms and conditions of this ----------- Agreement (including Article V), the Bank agrees that it will, from time to time --------- on any Business Day occurring during the period commencing on the Effective Date and continuing to (but not including) the Commitment Termination Date, make loans ("Loans") to the ----- 15 Borrower equal to the amount of the Borrowing requested on each such Business Day; provided, however, that the Bank shall not be permitted or required to make -------- ------- any Loan if, after giving effect thereto, the sum of the aggregate amount of Commercial Paper Indebtedness and the aggregate principal amount of all Loans outstanding at any one time from the Bank plus the aggregate amount of all loans outstanding at any one time under the other Senior Revolving Loan Agreements would exceed $200,000,000. Subject to the terms hereof, the Borrower may from time to time prior to the Commitment Termination Date borrow, prepay, and reborrow amounts pursuant to the Commitment. SECTION 2.2 Total Commitment Amount. The aggregate amount (the "Total ----------------------- ----- Commitment Amount") of the Bank's Commitment on any date on or prior to the - ----------------- Commitment Termination Date shall be $25,000,000 less all voluntary reductions to such amount made by the Borrower; provided, however, that all such reductions -------- ------- shall require at least three Business Days' prior notice to the Bank and be permanent, and all partial reductions of such amount, in the case of any voluntary reduction, shall be in minimum amounts of $500,000 and in integral multiples of $100,000 in excess thereof. SECTION 2.3 Fees. The Borrower agrees to pay ---- the Bank, for the period (including any portion thereof when its Commitment is suspended by reason of the Borrower's inability to satisfy any condition of Article V) commencing on the Effective Date and continuing --------- through the Commitment Termination Date, a commitment fee at the rate of (i) 0.10% per annum for each day in such period when the Credit Rating is Level I and (ii) 0.15% per annum for each day in such period when the Credit Rating is Level II and (iii) 0.20% per annum for each day in such period when the Credit Rating is Level III, on the daily average of the excess of the Commitment Amount over the outstanding principal amount of the Bank's Loans. Such commitment fees shall be payable by the Borrower quarterly in arrears to the Bank for the period ending on each Quarterly Payment Date, commencing with the first such day following the Effective Date, and on the Commitment Termination Date. SECTION 2.4 Commitment Termination Date. The Commitment shall terminate --------------------------- and the Bank shall be relieved of its obligation to make any Loan on the Commitment Termination Date. The Borrower may from time to time request an extension of the Commitment Termination Date for an additional 360 days by executing and delivering to the Bank a Commitment Termination Date Extension Request at least thirty (30) but not more than forty-five (45) days prior to the then current Extension Effective Date. The Commitment Termination Date shall be so extended if the Bank on or prior to the then current Extension Effective Date duly executes a counterpart of such Commitment Termination Date Extension Request; provided, that any such extension shall not be effective before the -------- then current 16 Extension Effective Date. The Bank may in its sole and absolute discretion withhold its consent to any such Commitment Termination Date Extension Request. ARTICLE III LOANS AND NOTES SECTION 3.1 Borrowing Procedure. By giving notice to the Bank on or ------------------- before 12:00 noon, New York time, the Borrower may from time to time irrevocably request, on not less than three (or same-day in the case of a Base Rate Loan) nor more than five Business Days' notice, that a Borrowing be made by the Bank in an aggregate amount equal to the lesser of (i) a minimum amount of $500,000 and an integral multiple of $100,000 in excess thereof, or (ii) the unused amount of the Commitment then available pursuant to Section 2.1. Such notice may ----------- be oral and shall be confirmed in writing on or before the first Business Day following such request by delivering a Loan Request to the Bank. Subject to the terms and conditions of this Agreement, each Borrowing shall be made on the Business Day specified in the Loan Request therefor. On such Business Day and subject to such terms and conditions, the Bank shall provide the Borrower with funds, on or before 11:00 a.m., New York time (or 3:00 p.m., New York time, in the case of a Base Rate Loan), in an amount equal to such Loan Request by transferring same day or immediately available funds to such account as the Borrower shall specify from time to time by notice to the Bank. SECTION 3.2 Note. All Loans made by the Bank shall be evidenced by a ---- Note payable to the order of the Bank in a maximum principal amount equal to the Bank's original Total Commitment Amount. The Borrower hereby irrevocably authorizes the Bank to make (or cause to be made) appropriate notations on the grid attached to the Bank's Note (or on a continuation of such grid attached to any such Note and made a part thereof), which notations, if made, shall evidence, inter alia, the date of, the outstanding principal of, and the ----- ---- interest rate (including any conversions thereof pursuant to Section 4.2) and ----------- Interest Period applicable to, the Loans evidenced thereby. Any such notations on any such grid (and on any such continuation) indicating the outstanding principal amount of the Bank's Loans shall be rebuttable presumptive evidence of the principal amount thereof owing and unpaid, but the failure to record any such amount on such grid (or on such continuation) shall not limit or otherwise affect the obligations of the Borrower hereunder or under such Note to make payments of principal of or interest on such Loans when due. SECTION 3.3 Principal Payments and Prepayments. The Borrower will repay ---------------------------------- the outstanding principal amount of the Notes on the Commitment Termination Date. In addition, the Borrower: (a) may make a voluntary prepayment in part in an aggregate principal amount of not less than $500,000 and an integral multiple of $100,000 in excess thereof, or in full of the outstanding principal amount of the Notes from time to time 17 at any time, in each case upon at least three Business Days' prior notice (or same day notice in the case of a Base Rate Loan) to the Bank; (b) shall, on each date when any reduction in the Total Commitment Amount shall become effective pursuant to Section 2.2, make a mandatory ----------- prepayment of the Notes equal to the excess, if any, of the outstanding principal amount of all Loans over the Total Commitment Amount as so reduced; and (c) shall, on each date when the sum of the aggregate principal amount of all Loans outstanding plus the Commercial Paper Indebtedness exceeds the Total Commitment Amount, make a mandatory prepayment of the then aggregate outstanding principal amount of all Loans in an aggregate amount equal to such excess. Each prepayment of a Note made pursuant to this Section shall be without premium or penalty, except as may be required by Section 4.5. All interest accrued on ----------- the principal amount of Notes prepaid shall be paid on the date of such prepayment. No prepayment of principal of the Notes pursuant to clause (a) or --- (c) above prior to the Commitment Termination Date shall cause a reduction in - --- the Total Commitment Amount. Each prepayment of the Notes shall, except as the Borrower may otherwise have notified the Bank, be applied, to the extent of such prepayment: (a) first, to the principal amount thereof being maintained as a Base Rate Loan; (b) second, to the principal amount thereof being maintained as a CD Rate Loan; and (c) third, to the principal amount thereof being maintained as a LIBO Rate Loan. SECTION 3.4 Interest. The Borrower agrees to pay interest on the -------- principal amount of the Notes from time to time unpaid prior to and at Maturity at a rate per annum: (a) on that portion of the outstanding principal amount thereof maintained from time to time as a Base Rate Loan, equal to the sum of the Base Rate from time to time most recently announced plus the Applicable Margin per annum, (b) on that portion of the outstanding principal amount thereof maintained from time to time as one or more CD Rate Loans during each applicable Interest Period, equal to the sum of the CD Rate (Reserve Adjusted) for such Interest Period plus the Applicable Margin per annum, and 18 (c) on that portion of the outstanding principal amount thereof maintained from time to time as one or more LIBO Rate Loans during each applicable Interest Period, equal to the sum of the LIBO Rate (Reserve Adjusted) for such Interest Period plus the Applicable Margin per annum. SECTION 3.5 Post-Maturity Rates. After the Maturity of all or any ------------------- portion of the principal amount of the Loans or after any other monetary Liabilities shall have become due, the Borrower shall pay interest (after as well as before judgment) on the principal amount of all types of Loans so matured or on such other monetary Liabilities, as the case may be, at a rate per annum which is determined by increasing each of the Applicable Margins set forth in clauses (a), (b) and (c) of Section 3.4 by 2% per annum for Loans so matured ----------- --- --- ----------- and, to the extent permitted by applicable law, at a rate per annum equal to the Base Rate plus 2% for such other monetary Liabilities. SECTION 3.6 Payment Dates. Interest accrued on the Notes prior to ------------- Maturity (as aforesaid) shall be payable, without duplication: (a) on that portion of the outstanding principal amount of each Note maintained as a Base Rate Loan, on each Monthly Payment Date, commencing with the first such Monthly Payment Date following the date of such Notes; (b) on that portion of the outstanding principal amount of each Note maintained as one or more Fixed Rate Loans, on the last day of each applicable Interest Period; and (c) on that portion of the outstanding principal amount of each Note converted into a Base Rate Loan or a Fixed Rate Loan, as the case may be, on a day when interest would not otherwise have been payable pursuant to clause (a) or (b), on the date of such conversion. ---------- --- Interest on the Notes shall be payable at Maturity (as aforesaid) and, thereafter, on demand. The Bank shall give prompt notice to the Borrower of each computation of accrued interest before the due date thereof. SECTION 3.7 Payments, Computations, etc. Unless otherwise expressly ---------------------------- provided in this Agreement, all payments by the Borrower pursuant to this Agreement, the Notes, or any other Loan Document, whether in respect of principal or interest, shall be made by the Borrower to the Bank without set- off, deduction, or counterclaim, not later than 2:00 pm, New York time, on the date due, in same day or immediately available funds, to such account as the Bank shall specify from time to time by notice to the Borrower. Funds received after that time shall be deemed to have been received by the Bank on the next following Business Day. All interest and fees shall be computed on the basis of the actual number of days (including the first day but excluding the last day) occurring during the period for which fee is payable over a year comprised of 360 days. Whenever any payment to be 19 made shall otherwise be due on a day which is not a Business Day, such payment shall (except as otherwise required by clause (d) of the definition of the term ---------- "Interest Period" with respect to payments then due of principal of or interest --------------- on any Notes being maintained as LIBO Rate Loans) be made on the next succeeding Business Day and such extension of time shall be included in computing interest, if any, in connection with such payment. SECTION 3.8 Setoff. In addition to and not in limitation of any rights ------ of the Bank or other holder of any Note under applicable law, the Bank shall, upon the occurrence of any Default described in Section 8.1.4 or upon the ------------- occurrence of any other Event of Default, have the right to set off, appropriate and apply to the payment of the Liabilities owing to it any and all balances, credits, deposits, accounts, or moneys of the Borrower then maintained with the Bank and (as security for such Liabilities) the Borrower hereby grants to the Bank a continuing security interest in any and all balances, credits, deposits, accounts or moneys of the Borrower then or thereafter maintained with such Bank. The Bank agrees promptly to notify the Borrower after any such setoff and application made by the Bank; provided, however, that the failure to give such -------- ------- notice shall not affect the validity of such setoff and application. The rights of the Bank under this Section are in addition to other rights and remedies (including other rights of setoff under applicable law or otherwise) which the Bank may have. SECTION 3.9 Taxes. (a) All payments by the Borrower of principal of, ----- and interest on, the Loans and all other amounts payable hereunder to any recipient (including any Purchasing Bank) shall be made free and clear of and without deduction or withholding for any present or future income, stamp, or other taxes, fees, duties or other charges of any nature whatsoever imposed by any taxing authority, other than taxes imposed on or measured by such recipient's net income or receipts (such nonexcluded items being hereinafter referred to as "Taxes"), except to the extent that such deduction or withholding ----- is required pursuant to any applicable law, rule, or regulation. In the event that any deduction or withholding from any payment to be made by the Borrower hereunder is required in respect of any Taxes pursuant to any applicable law, rule, or regulation, then the Borrower will: (i) pay to the relevant authority the full amount required to be so withheld or deducted; (ii) promptly forward to the Bank an official receipt or other documentation satisfactory to the Bank evidencing such payment to such authority; and (iii) (except to the extent that such deduction or withholding results from the breach, by a recipient of a payment, of its Exemption Agreement, or would not be required if such recipient's Exemption Representation were true) pay to the Bank or holder of a Note such additional amount or amounts as is necessary to ensure that the net amount actually received by the Bank or such holder, after giving effect to any credit against Taxes received by the Bank or such holder as a result of such deduction or withholding, will equal the full amount the Bank or such holder would have 20 received had no such deduction or withholding been required. The Bank and holder shall determine such additional amount or amounts payable to it (which determination shall, in the absence of demonstrable error, be conclusive and binding on the Borrower). Moreover, if any Taxes are directly imposed on the Bank, as a result of any change in law or any applicable double taxation treaty of the United States, the jurisdiction of the Bank's incorporation or the jurisdiction in which the Bank's Domestic Office or LIBOR Office is located, with respect to any payment received by the Bank hereunder, the Bank may pay such Taxes and the Borrower will promptly pay such additional amounts (including any penalties, interest or out- of-pocket expenses) as are necessary in order that the net amount received by the Bank after the payment of such Taxes (including any Taxes on such additional amount) shall equal the amount such Person would have received had such Taxes not been imposed (except to the extent that such Taxes result from the breach, by such payee, of its Exemption Agreement, or would not be required if such payee's Exemption Representation were true). (b) If the Borrower fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to the Bank the required receipts or other required documentary evidence, the Borrower shall indemnify the Bank for any incremental Taxes, interest or penalties that may become payable by the Bank as a result of any such failure. (c) The Bank and each subsequent holder of any Note that is a Non-United States Person agrees (the Bank's "Exemption Agreement") (to the extent it is ------------------- permitted to do so under the laws and any applicable double taxation treaties of the United States, the jurisdiction of the Bank's incorporation, and the jurisdictions in which the Bank's Domestic Office and the Bank's LIBOR office are located) to execute and deliver to the Borrower prior to the first scheduled payment date in each Fiscal Year, a United States Internal Revenue Service Form 1001 or Form 4224 (or any successor form), appropriately completed and claiming complete (or, in the case it becomes appropriate due to any change in law or such applicable double taxation treaties, partial) exemption from withholding and deduction of United States Federal Taxes. (d) The Bank and each Purchasing Bank hereby represents and warrants (such Bank's "Exemption Representation") to the Borrower that on the date hereof (or, ------------------------ in the case of a Purchasing Bank, on the date on which such Purchasing Bank becomes a Bank hereunder) (i) its Domestic Office and its LIBOR Office are entitled to receive payments of principal of, and interest on, Loans made hereunder without deduction or withholding for or on account of any Taxes imposed by the United States or any political subdivision thereof, (ii) it is permitted to take the actions described in clause (c) above (with respect to ---------- complete exemption from withholding and deduction of United States Federal Taxes) under the laws and any applicable double taxation treaties of the jurisdictions specified in such clause (c) and (iii) any payment received by ---------- such Bank hereunder is not subject to any Taxes, whether or not such Taxes are required to be deducted or withheld by the Borrower. 21 (e) The Bank agrees to use reasonable efforts to change its Domestic Office or LIBOR Office or prepare, execute and file any additional forms or other documents which may be necessary or advisable to avoid or to minimize any amounts otherwise payable under this Section 3.9, in each case solely if such ----------- change or such preparation, execution and filing can be made or done in a manner so that the Bank, in its reasonable determination, suffers no legal, economic or regulatory disadvantage. (f) In the event that the Borrower becomes required to pay an additional amount pursuant to this Section 3.10 to the Bank, then the Borrower shall have ------------ the right to seek a substitute bank or banks to promptly replace the Bank under this Agreement in accordance with the provisions of Section 10.11(b). ---------------- (g) The parties agree to cooperate with each other in connection with any Taxes matters pertaining to this Agreement and the Bank shall promptly notify the Borrower of any Taxes imposed on it with respect to any payment received by the Bank hereunder, stating the reasons therefor and the amount, if any, payable by the Borrower hereunder in respect of such Taxes. ARTICLE IV BASE RATE, CD RATE AND LIBO RATE OPTIONS FOR THE LOANS SECTION 4.1 Elections. The Loans comprising any Borrowing may be made --------- as a "Base Rate Loan" or, at the Borrower's election made in accordance with --------- this Section, as a loan (a "Fixed Rate Loan") having for each particular --------------- Interest Period a fixed rate of interest determined by reference to either the LIBO Rate (Reserve Adjusted) (a "LIBO Rate Loan") or, the CD Rate (Reserve -------------- Adjusted) (a "CD Rate Loan"), as specified in the Loan Request for such Loan. ------------ The Borrower may from time to time by delivering to the Bank a Continuation/Conversion Notice request, on not less than one (or not less than three if a Loan is to be continued as, or converted into, a LIBO Rate Loan) nor more than five Business Days' notice: (a) that all, or any portion in a minimum amount of $500,000 or an integral multiple of $100,000 in excess thereof, of the outstanding principal amount of any Borrowing be converted from Base Rate Loans into Fixed Rate Loans of either type or, subject to Section 4.5, from either ----------- type of Fixed Rate Loans into Base Rate Loans or Fixed Rate Loans of the other type; and (b) on the expiration of the Interest Period applicable to any Fixed Rate Loans, that all, or any portion in a minimum amount of $500,000 or an integral multiple of $100,000 in excess thereof, of the outstanding principal amount of such Fixed Rate Loans be continued as Fixed Rate Loans of such type or be converted into 22 Base Rate Loans or Fixed Rate Loans of the other type (in the absence of the delivery of a Continuation/Conversion Notice pursuant to this clause, the Borrower will be deemed to have requested that such Fixed Rate Loans be converted into Base Rate Loans); provided, however, that: (c) no portion of the outstanding principal amount of any Loans may be continued as, or be converted into, Fixed Rate Loans if, after giving effect to such action, the Interest Period applicable thereto shall extend beyond the date of any prepayment required by Section 3.3, unless a ----------- sufficient principal amount of other Loans are being maintained as Base Rate Loans to permit such prepayment to be applied in full to such Base Rate Loans; and (d) no portion of the outstanding principal amount of any Loans may be continued as, or be converted into, a Fixed Rate Loan when any Default has occurred and is continuing. Each Continuation/Conversion Notice requesting that all, or any portion, of the principal amount of the Loans be continued as, or be converted into, Fixed Rate Loans shall specify the duration of the Interest Period commencing upon such continuation or conversion. The Bank may, if it so elects, fulfill its commitment to make or continue any portion of the principal amount of a Loan as, or to convert any portion of the principal amount of a Loan into, one or more Fixed Rate Loans by causing a foreign branch or Affiliate of the Bank to make any such Fixed Rate Loan; provided, however, that in such event such Fixed Rate Loan shall be deemed to - -------- ------- have been made by the Bank, and the obligation of the Borrower to repay such Fixed Rate Loan shall nevertheless be to the Bank and shall be deemed to be held by it, to the extent of such Fixed Rate Loan, for the account of such foreign branch or Affiliate; and provided, further, that the making of such Fixed Rate -------- ------- Loans by a foreign branch or Affiliate of the Bank does not result in any additional Taxes assessable against the Bank in connection with any payments made by the Borrower hereunder. Whenever the Bank makes any notations pursuant to Section 3.2 on the grid ----------- attached to the Note (or on the continuation of such grid) and whenever the Bank converts a Loan into a Base Rate Loan or a Fixed Rate Loan, the Bank will make further notations on the grid attached to such Note (or on such continuation) reflecting the portions of the outstanding principal amounts thereof being maintained as a Base Rate Loan and Fixed Rate Loans. Failure to record any such amounts on the grid shall not limit or otherwise affect the obligations of the Borrower to make payments of principal and interest on each Note when due. The Borrower understands that, if it elects that any portion of the principal amount of a Borrowing be made, continued as, or converted into, a Fixed Rate Loan, the Bank may 23 (while being entitled to fund all or any portion of such Fixed Rate Loan as it may see fit) wish to be able to fund such Fixed Rate Loan by issuing Dollar certificates of deposit in New York City or purchasing Dollar deposits in its LIBOR Office's interbank eurodollar market. Accordingly, in connection with any determination to be made for purposes of Section 4.2, 4.3, 4.4 or 4.5, it shall ----------- --- --- --- be conclusively presumed that the Bank has elected to fund all Fixed Rate Loans by issuing Dollar certificates of deposit in New York City, in the case of CD Rate Loans, or purchasing Dollar deposits in such interbank eurodollar market, in the case of LIBO Rate Loans. SECTION 4.2 Fixed Rate Lending Unlawful. If as the result of any --------------------------- Regulatory Change the Bank shall determine (which determination shall, in the absence of demonstrable error, be conclusive and binding on the Borrower) that it is unlawful for the Bank to make, continue or maintain a Loan as, or to convert a Loan into, one or more Fixed Rate Loans of a certain type, the obligation of the Bank under Section 4.1 to make, continue or maintain any ----------- portion of the principal amount of a Loan as, or to convert such Loan into, one or more Fixed Rate Loans of such type shall, upon such determination (and telephonic notice thereof confirmed in writing to the Borrower), forthwith terminate, and any portion of the principal amount of a Loan then maintained as one or more Fixed Rate Loans of such type by the Bank shall automatically convert into a Base Rate Loan. If circumstances subsequently change so that the Bank shall determine that it is no longer so affected, the obligation of the Bank under Section 4.1 to make or continue Loans as, or to convert Loans into, ----------- Fixed Rate Loans shall, upon such determination and telephonic notice thereof confirmed in writing to the Borrower), forthwith be reinstated. SECTION 4.3 Deposits Unavailable. If prior to the date on which all or -------------------- any portion of the principal amount of any Loan is to be made, continued as, or converted into, a Fixed Rate Loan, the Bank shall determine for any reason whatsoever (which determination shall, in the absence of demonstrable error, be conclusive and binding on the Borrower) that dollar deposits in the relevant amount and for the relevant Interest Period are not available to the Bank in its relevant market, the Bank shall promptly give telephonic notice of such determination confirmed in writing to the Borrower, and the obligation under Section 4.1 of the Bank to make, continue any portion of the principal amount of - ----------- a Loan as, or to convert a Loan into, one or more Fixed Rate Loans of such type shall, upon such notification, forthwith terminate; and the portion of all Loans then maintained as Fixed Rate Loans of such type by the Bank shall on the expiration of the Interest Period applicable thereto automatically convert into Base Rate Loans. If circumstances subsequently change so that the Bank shall no longer be so affected, the Bank shall promptly give telephonic notice thereof confirmed in writing to the Borrower and the obligations of the Bank under Section 4.1 to ----------- make or continue Loans as, or convert Loans into, Fixed Rate Loans shall be reinstated. SECTION 4.4 Capital Adequacy; Increased Costs, etc. The Borrower --------------------------------------- further agrees to reimburse the Bank for any increase in the cost to the Bank of making, continuing, 24 maintaining or converting (or of its obligation to make, continue, maintain or convert) any of its Loans hereunder (or any portion thereof) and for any reduction in the amount of any sum receivable by the Bank hereunder in respect of making, continuing, maintaining or converting (or of its obligation to make, continue, maintain or convert) any of its Loans hereunder (or any portion thereof) from time to time by reason of: (a) to the extent not included in the calculation of the LIBO Rate (Reserve Adjusted), the adoption or compliance with any capital adequacy, reserve, special deposit, or similar requirement against assets of, deposits with or for the account of, or credit extended by, the Bank, under or pursuant to any law, treaty, rule, regulation (including any F.R.S. Board regulation), or requirement in effect on the date hereof, or as the result of any Regulatory Change; or (b) any Regulatory Change which shall subject the Bank to any tax (other than taxes on net income or receipts), levy, impost, charge, fee, duty, deduction, or withholding of any kind whatsoever or change the taxation of any Loan made or maintained as a Fixed Rate Loan and the interest thereon (other than any change which affects, and to the extent that it affects, the taxation of net income or receipts). In any such event, the Bank shall promptly notify the Borrower thereof stating the reasons therefor and the additional amount required fully to compensate the Bank for such increased cost or reduced amount. Such additional amounts shall be payable on demand after receipt of such notice. A statement as to any such increased cost or reduced amount or any change therein (including calculations thereof in reasonable detail) shall be submitted by the Bank to the Borrower and shall, in the absence of demonstrable error, be conclusive and binding on the Borrower. In the event that the Borrower is required to pay an additional amount pursuant to this Section 4.4 to the Bank, then the Borrower shall have ----------- the right to seek a substitute bank or banks to replace the Bank under this Agreement in accordance with the provisions of Section 10.11(b). ---------------- SECTION 4.5 Funding Losses. In the event the Bank shall incur any loss -------------- or expense (including any loss or expense incurred by reason of the liquidation, or reemployment of deposits or other funds acquired by the Bank to make, continue or maintain any portion of the principal amount of any Loan as, or to convert any portion of the principal amount of any Loan into, a Fixed Rate Loan) as a result of: (a) payment or prepayment of the principal amount of any Fixed Rate Loan on a date other than the scheduled last day of the Interest Period applicable thereto, whether pursuant to Section 3.3 or otherwise; ----------- (b) any conversion of all or any portion of the outstanding principal amount of any Fixed Rate Loan to a Base Rate Loan pursuant to Section 4.1 prior to the expiration of the Interest Period then applicable ----------- thereto (but excluding in each case any 25 loss or expense resulting therefrom to the extent the Bank is reimbursed therefor by interest payable pursuant to clause (c) of Section 3.6); or ---------- ----------- (c) a Loan not being made, continued as, or converted into, a Fixed Rate Loan in accordance with a Loan Request or the Continuation/Conversion Notice given therefor (other than as the result of a default by the Bank in complying with such Loan Request or such Continuation/Conversion Notice); then, upon the request of the Bank, the Borrower shall pay directly to the Bank such amount as will (in the reasonable determination of the Bank) reimburse the Bank for such loss or expense. A certificate as to any such loss or expense (including calculations thereof in reasonable detail) shall be submitted by the Bank to the Borrower and shall, in the absence of demonstrable error, be conclusive and binding on the Borrower. ARTICLE V CONDITIONS PRECEDENT SECTION 5.1 Initial Borrowing. The obligations of the Banks to fund the ----------------- initial Borrowing (which does not include the first Borrowing following any extension of the Commitment Termination Date) shall be subject to the prior or concurrent satisfaction of each of the following conditions precedent. SECTION 5.1.1 Resolutions, etc. The Bank shall have received: ----------------- (a) a certificate, dated the date of the initial Borrowing, of the Secretary or an Assistant Secretary of the Borrower as to (i) resolutions of its Board of Directors then in full force and effect authorizing the execution, delivery and performance of the Loan Documents to be executed by it hereunder; (ii) the incumbency and signatures of those of its officers authorized to act with respect to this Agreement and each Loan Document executed by it, upon which certificate the Bank may conclusively rely until it shall have received a further certificate of the Secretary or an Assistant Secretary of the Borrower cancelling or amending such prior certificate; and (iii) a true and correct copy of the By-laws as then in effect; (b) a certificate of the Secretary or any Assistant Secretary of each Guarantor, each Significant Subsidiary and each Subsidiary party to the Subordination Agreement as to 26 (i) resolutions of its Board of Directors then in full force and effect authorizing the execution, delivery and performance by such Loan Party of the Loan Documents to be executed and delivered by it hereunder; (ii) the incumbency and signatures of those of its officers authorized to act with respect to such Loan Documents upon which certificate the Bank may conclusively rely until it shall have received a further certificate of such Loan Party cancelling or amending such prior certificate; and (iii) a true and correct copy of the By-laws as then in effect. SECTION 5.1.2 Delivery of Notes. Borrower shall have delivered to the ----------------- Bank a Note, duly executed and delivered and conforming to the requirements of Section 3.2. - ----------- SECTION 5.1.3 Opinions of Counsel. The Bank shall have received opinions ------------------- from the general counsel of the Borrower, the Guarantors, each Significant Subsidiary and each Subsidiary party to the Subordination Agreement, substantially in the form of Exhibit F attached hereto. ------- SECTION 5.1.4 Parent Guaranty. The Bank shall have received the Parent --------------- Guaranty duly executed by each Guarantor. SECTION 5.1.5 Significant Subsidiary Guaranty. The Bank shall have ------------------------------- received the Significant Subsidiary Guaranty duly executed by each Person that is a Significant Subsidiary as of the Effective Date. SECTION 5.1.6 Subordination Agreement. The Bank shall have received the ----------------------- Subordination Agreement duly executed by each Subsidiary, the Borrower and each Guarantor which, as of the Effective Date, is expected to make any loans to any Significant Subsidiary, the Borrower or either Guarantor. SECTION 5.1.7 Credit Rating. The Borrower shall have delivered to the ------------- Bank a letter from each of S&P and Moody's stating its intention to confirm the Borrower a Level I Credit Rating upon review of all documents in support of the Borrower's commercial paper program and medium term note issuance. SECTION 5.1.8 Facilities to be Terminated. The Facilities to be --------------------------- Terminated shall have been terminated and all Indebtedness for Borrowed Money thereunder shall have been paid in full. SECTION 5.1.9 Satisfactory Legal Form. All documents executed or ----------------------- submitted pursuant hereto by or on behalf of the Borrower, each Guarantor, any Significant Subsidiary or any Subsidiary party to the Subordination Agreement shall be satisfactory in form and substance to the Bank and its counsel; the Bank and its counsel shall have received all 27 information, and such counterpart originals or such certified or other copies of such materials, as the Bank or its counsel may request; and all legal matters incident to the transactions contemplated by this Agreement and each other Loan Document shall be satisfactory to counsel to the Bank. SECTION 5.2 All Loans. The obligation of the Bank to make any Loan --------- shall be subject to the satisfaction of each of the conditions precedent set forth in Sections 5.2.1 through 5.2.3, and each request that a Borrowing be made ---------------------------- hereunder shall constitute a certification by the Borrower that each of such conditions precedent will be satisfied on the date of such requested Borrowing (and after giving effect to such Borrowing). SECTION 5.2.1 Compliance with Warranties, non-Default. etc. The --------------------------------------------- representations and warranties set forth in Article VI shall have been true and ---------- correct in all material respects as of the date initially made, and on the date (and after giving effect to the incurrence) of such Loan: (a) such representations and warranties shall be true and correct in all material respects with the same effect as if then made; (b) no Default shall have then occurred and be continuing; and (c) since the Effective Date, there shall have been no occurrence which, individually or in the aggregate, as of the date on which such Loan is to be made, would reasonably be expected to have a Materially Adverse Effect. SECTION 5.2.2 Absence of Litigation, etc. No litigation, arbitration or --------------------------- governmental investigation or proceeding shall be pending or, to the knowledge of the Borrower, threatened against the Borrower, either Guarantor or any Subsidiary or shall affect the business, operations or prospects of any thereof which was not disclosed by the Borrower to the Bank pursuant to Section 6.6 (or ----------- prior to the date of the Loans most recently made hereunder, if any, pursuant to Section 7.1.6), and no development not so disclosed shall have occurred in any - ------------- litigation, arbitration or governmental investigation or proceeding so disclosed, which, in either event, as of the date on which such Loan is to be made, would reasonably be expected to have a Materially Adverse Effect. SECTION 5.2.3 Loan Request. The Bank shall have received a Loan Request ------------ for such Borrowing. 28 ARTICLE VI WARRANTIES, ETC. In order to induce the Bank to enter into this Agreement and to make Loans hereunder, the Borrower represents and warrants to the Bank as follows: SECTION 6.1 Organization, Power, Authority, etc. Each Loan Party is a ----------------------------------- corporation validly organized and existing and in good standing under the laws of the state of its incorporation, is duly qualified to do business and in good standing as a foreign corporation in each jurisdiction where the nature of its business makes such qualification necessary and where the failure to so qualify would reasonably be expected to have a Materially Adverse Effect and has full power and authority to own and hold under lease its property and conduct its business substantially as presently conducted by it. Each Loan Party has full power and authority to enter into and to perform its obligations under this Agreement and each Loan Document to which each is a party and to obtain the Loans hereunder, in the case of the Borrower. SECTION 6.2 Due Authorization. The execution and delivery by each ----------------- Loan Party of this Agreement and each Loan Document executed by it and the performance by each of its respective obligations hereunder and thereunder and the borrowings hereunder by the Borrower have been duly authorized by all necessary corporate action, do not require any Approval, do not and will not conflict with, result in any violation of, or constitute any default under, any provision of any Organic Document or material Contractual Obligation of such Loan Party (or any other material Contractual Obligation) or any present law or governmental regulation or court decree or order applicable to any Loan Party and will not result in or require the creation or imposition of any Lien in any of their respective properties pursuant to the provisions of any Contractual Obligation. SECTION 6.3 Validity, etc. This Agreement is, and each Loan Document -------------- executed by any Loan Party will on the due execution and delivery thereof be, the legal, valid and binding obligation of such Loan Party enforceable in accordance with its terms, subject, as to enforcement, only to bankruptcy, insolvency, reorganization, moratorium or other similar laws at the time in effect affecting the enforceability of the rights of creditors generally, and by general equitable principles. SECTION 6.4 Financial Information. All balance sheets, statements of --------------------- operations, of total owners' equity and of changes in cash flows and other financial information of CEI and the Consolidated Subsidiaries (or, in the case of any such balance sheets or statements prepared prior to the date hereof, of the Borrower and its Consolidated Subsidiaries) which have been or shall hereafter be furnished by or on behalf of the Borrower to the Bank for the purposes of or in connection with this Agreement or any transaction contemplated hereby pursuant to Section 7.1.1(a) or Section 7.1.1(b) (except Section ---------------- ---------------- ------- 7.1.1(a)(iii)) have been or will be prepared in accordance with GAAP - -------------- consistently applied 29 throughout the periods involved (except as disclosed therein), and, in the case of information relating to coal reserves, have been or will be prepared in accordance with all relevant rules and regulations promulgated by the SEC, as in effect on the Effective Date, and do or will present fairly the consolidated financial condition of the corporations covered thereby as at the dates thereof and the results of their operations for the periods then ended and the consolidated statements of earnings, of operations and of total owners' equity, for each of the fiscal periods then ended, of CEI and the Consolidated Subsidiaries (or, in the case of any such balance sheets or statements prepared prior to the date hereof, of the Borrower and its Consolidated Subsidiaries). Since December 31, 1990, there has been no occurrence which, individually or in the aggregate, would reasonably be expected to have a Materially Adverse Effect. Except as disclosed in Item 6.6 ("Litigation") of the Disclosure Schedule, none -------- of the Guarantors, the Borrower or the Consolidated Subsidiaries have any material contingent liabilities (including any liability pursuant to the Federal Black Lung Benefits Act of 1972, as in effect from time to time) not provided for or disclosed in the financial statements of CEI and the Consolidated Subsidiaries most recently delivered by or on behalf of the Borrower to the Banks. SECTION 6.5 Absence of Certain Default. -------------------------- Neither the Borrower, either Guarantor nor any Subsidiary is in default, (a) in the payment of (or in the performance of any material obligation applicable to) any Indebtedness outstanding in a principal amount exceeding $10,000,000 in the aggregate; or (b) under any law or governmental regulation or court decree or order which would reasonably be expected to have a Materially Adverse Effect. SECTION 6.6 Litigation, etc. Except as described in Item 6.6 ---------------- ---- --- ("Litigation") of the Disclosure Schedule, no litigation, arbitration or governmental investigation or proceeding against the Borrower, either Guarantor or any Subsidiary or to which any of the properties of any thereof is subject is pending or, to the knowledge of the Borrower, threatened which would reasonably be expected to result in a liability in excess of $10,000,000. SECTION 6.7 Regulation U. None of the Borrower, either Guarantor or any ------------ Subsidiary is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock, and less than 25% of the assets of each consists of margin stock. Terms for which meanings are provided in Regulation U of the F.R.S. Board or any regulations substituted therefor, as from time to time in effect, are used in this Section with such meanings. SECTION 6.8 Government Regulation. None of the Borrower, either --------------------- Guarantor or any Subsidiary is an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a 30 "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. SECTION 6.9 Certain Contractual Obligations or Organic Documents. None ---------------------------------------------------- of the Borrower, either Guarantor or any Subsidiary is a party or subject to any Contractual Obligation or Organic Document which would reasonably be expected to have a Materially Adverse Effect. SECTION 6.10 Taxes. The Borrower, each Guarantor and all subsidiaries ----- have filed all tax returns and reports required by law to have been filed by them and have paid all taxes and governmental charges thereby shown to be owing, except any such taxes or charges which are being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on their books. SECTION 6.11 Pension and Welfare Plans. During the twelve-consecutive- ------------------------- month period prior to the Effective Date and prior to the date of any Borrowing hereunder, (a) no steps have been taken to terminate any Pension Plan the assets of which are insufficient to satisfy all benefit liabilities thereunder (as defined in section 4001(a)(16) of ERISA) for which the Borrower, either Guarantor or any Subsidiary could be held liable, and (b) no contribution failure has occurred with respect to any Pension Plan sufficient to give rise to a Lien under section 302(f) of ERISA. No condition exists or event or transaction has occurred with respect to any Pension Plan which might result in the incurrence by the Borrower, either Guarantor or any Subsidiary of any material liability, fine or penalty. None of the Borrower, either Guarantor or any Subsidiary has any contingent liability with respect to any post-retirement benefit under a Welfare Plan, other than liability for continuation coverage described in Part 6 of Subtitle B of Title I of ERISA. SECTION 6.12 Labor Controversies. There are no labor controversies ------------------- pending or, to the best of the Borrower's knowledge, threatened against the Borrower, either Guarantor or any Subsidiary, which would reasonably be expected to have a Materially Adverse Effect. SECTION 6.13 Subsidiaries and Significant Subsidiaries. Neither the ----------------------------------------- Borrower nor any Guarantor has any Subsidiaries or Significant Subsidiaries except those identified in Item 6.13 ("Existing Subsidiaries and Significant --------- Subsidiaries") of the Disclosure Schedule or those acquired or created subsequent to the date hereof. SECTION 6.14 Patents, Trademarks, etc. Each of the Borrower, each ------------------------- Guarantor and each Subsidiary owns and possesses all such patents, patent rights, trademarks, trademark rights, trade names, trade name rights, service marks, service mark rights and copyrights as the Borrower considers necessary for the conduct of the businesses of the Borrower, such Guarantor or such subsidiary as now conducted without any infringement upon rights of others which would reasonably be expected to have a Materially Adverse Effect. There is no individual patent or patent license used by the Borrower or either Guarantor or any Subsidiary 31 in the conduct of its business the loss of which would reasonably be expected to have a Materially Adverse Effect. SECTION 6.15 Ownership of Properties; Liens. Each of the Borrower, each ------------------------------ Guarantor and each Subsidiary has good and marketable title to or good leasehold interests in all of its material properties and assets, real and personal, of any nature whatsoever, free and clear of all Liens except as permitted pursuant to Section 7.2.2. ------------- SECTION 6.16 Accuracy of Information. All factual information heretofore ----------------------- or contemporaneously furnished by the Borrower to the Bank in connection with execution and delivery of this Agreement and the various transactions contemplated hereby, as supplemented from time to time and when taken as a whole, to the best of the Borrower's knowledge, has been, and all other such factual information hereafter furnished by the Borrower, either Guarantor or any Subsidiary, to the Bank, as supplemented from time to time and when taken as a whole, will be, true and accurate in every material respect on the date as of which such information is dated or certified and as of the Effective Date and not incomplete by omitting to state any material fact necessary to make such information not misleading. All projections and pro forma financial information contained in any materials furnished by the Borrower or either Guarantor or any Subsidiary to the Bank are based on good faith estimates and assumptions by the management of the Borrower, the applicable Guarantor or the applicable Subsidiary, it being recognized by the Bank, however, that projections and statements as to future events are not to be viewed as fact and that actual results during the period or periods covered by any such projections or statements may differ from the projected results and that the differences may be material. SECTION 6.17 Environmental Warranties. ------------------------ (a) no facility or property (including underlying groundwater) owned or leased by either Guarantor, the Borrower or any Significant Subsidiary have been, and continue to be, owned or leased by the Borrower, the Guarantor or such Significant Subsidiary is out of compliance with any Environmental Law to the extent that such noncompliance, either singly or in the aggregate, has or could reasonably be expected to have a Materially Adverse Effect; (b) there are no pending or threatened (i) claims, complaints, notices or requests for information received by either Guarantor, the Borrower or any Significant Subsidiary with respect to any alleged violation of any Environmental Law, or (ii) complaints, notices or inquiries to either Guarantor, the Borrower or any Significant Subsidiary regarding potential liability under any Environmental Law, 32 in each case, which singly, or in the aggregate, have or could reasonably be expected to have a Materially Adverse Effect; (c) there have been no Releases of Hazardous Materials at, on or under any property now or previously owned or leased by either Guarantor, the Borrower or any significant Subsidiary that, singly or in the aggregate, have, or could reasonably be expected to have, a Materially Adverse Effect; (d) each Guarantor, the Borrower and the Significant Subsidiaries have been issued and are in material compliance with all material permits, certificates, approvals, licenses and other authorizations relating to environmental matters and necessary or desirable for their businesses; (e) no property now or previously owned or leased by either Guarantor, the Borrower or any Significant Subsidiary is listed or proposed for listing (with respect to owned property only) (i) on the CERCLIS or on any similar state list of sites requiring investigation or clean-up to the extent that such listing relates to liabilities, individually or in the aggregate, that could reasonably be expected to have a Materially Adverse Effect, or (ii) on the National Priorities List pursuant to CERCLA; (f) there are no underground storage tanks, active or abandoned, including petroleum storage tanks, on or under any property now or previously owned or leased by either Guarantor, the Borrower or any Significant Subsidiary that, singly or in the aggregate, have, or could reasonably be expected to have, a Materially Adverse Effect; (g) none of either Guarantor, the Borrower or any Significant Subsidiary has directly transported or directly arranged for the transportation of any Hazardous Material to any location which is listed or proposed for listing on the National Priorities List pursuant to CERCLA, on the CERCLIS or on any similar state list or which is the subject of federal, state or local enforcement actions or other investigations which may lead to material claims against such Guarantor, the Borrower or such Significant Subsidiary for any remedial work, damage to natural resources or personal injury, including claims under CERCLA that, either singly or in the aggregate, have, or could reasonably be expected to have, a Materially Adverse Effect; (h) there are no polychlorinated biphenyls or friable asbestos present at any property now or previously owned or leased by either Guarantor, the Borrower or any Significant Subsidiary that, singly or in the aggregate, have, or could reasonably be expected to have, a Materially Adverse Effect; (i) no conditions exist at, on or under any property now or previously owned or leased by either Guarantor, the Borrower or any Significant Subsidiary which, with the passage of time, or the giving of notice or both, would give rise to 33 liability under any Environmental Law that, either singly or in the aggregate, have, or could reasonably be expected to have, a Materially Adverse Effect; and (j) none of either Guarantor, the Borrower or any Subsidiary owns or leases any "industrial establishment" (as such term is defined in the New Jersey Environmental Cleanup Responsibility Act, N.J.S.A. 13:1K-6, et seg.) -- --- in the State of New Jersey. ARTICLE VII COVENANTS SECTION 7.1 Certain Affirmative Covenants. The Borrower agrees with the ----------------------------- Bank that, until the Commitment shall have terminated and all of the Liabilities have been paid and performed in full, the Borrower will perform the obligations set forth in this Section 7.1. ----------- SECTION 7.1.1 Financial Information, etc. The Borrower will furnish, or --------------------------- will cause to be furnished, to the Bank copies of the following financial statements, reports and information: (a) promptly when available and in any event within 90 days after the close of each Fiscal Year (i) a balance sheet at the close of such Fiscal Year, and statements of operations, of Total Owners' Equity and of cash flows for such Fiscal Year, of CEI and the Consolidated Subsidiaries certified without Impermissible Qualification by independent public accountants of recognized standing selected by the Borrower or CEI and reasonably acceptable to the Bank, (ii) a letter report of such accountants at the close of such Fiscal Year to the effect that they have reviewed the provisions of this Agreement and are not aware of any Default hereunder (insofar as any Default may relate to accounting matters) continuing at the end of such Fiscal Year, except such Default, if any, as may be disclosed in such statement, and (iii) a certificate of an Authorized Officer of the Borrower that no Default has occurred and is continuing, or specifying any such Default and the actions, if any, being taken by the Borrower with respect thereto, (b) promptly when available and in any event within 45 days after the close of each of the first three Fiscal Quarters of each Fiscal Year 34 (i) a balance sheet at the close of such Fiscal Quarter and statements of operations, of total owners' equity and of changes in cash flows for the period commencing at the close of the previous Fiscal Year and ending with the close of such Fiscal Quarter, of CEI and the Consolidated Subsidiaries; (c) promptly upon the incorporation or acquisition thereof, information regarding the creation or acquisition of any new Significant Subsidiary; (d) such other information with respect to the financial condition, business, property, assets, revenues, and operations of the Borrower, either Guarantor and the Subsidiaries as the Bank may from time to time reasonably request. SECTION 7.1.2 Maintenance of Corporate Existences, etc. Except as ----------------------------------------- permitted by Section 7.2.4, the Borrower will cause to be done at all times all ------------- things necessary to maintain and preserve the corporate existences of the Borrower, each Guarantor and each significant Subsidiary, and to comply in all material respects with all applicable laws, rules, regulations and orders. Except as permitted by Section 7.2.4, the Borrower or the Guarantors will ------------- continue to own and hold directly or indirectly, free and clear of all Liens (except as permitted by Section 7.2.2), all of the outstanding shares of capital ------------- stock of each Subsidiary now owned or hereafter acquired. SECTION 7.1.3 Foreign Qualification. The Borrower will, and will cause --------------------- each Guarantor and each Subsidiary to, cause to be done at all times all things necessary to be duly qualified to do business and in good standing as a foreign corporation in each jurisdiction where the nature of its business makes such qualification necessary and where the failure to so qualify would reasonably be expected to have a Materially Adverse Effect, and to comply in all material respects with all applicable laws, rules, regulations and orders. SECTION 7.1.4 Payment of Taxes, etc. The Borrower will, and will cause ---------------------- each Guarantor and each Subsidiary to, pay and discharge, prior to becoming delinquent, all federal, state and local taxes, assessments and other governmental charges or levies against or on any of its property, as well as claims of any kind which, if unpaid, might become a Lien in a material amount upon any of its properties; provided, however, that the foregoing shall not -------- ------- require the Borrower, either Guarantor or any Subsidiary to pay or discharge any such tax, assessment, charge, levy or other Lien so long as it shall contest the validity thereof in good faith by appropriate proceedings and shall set aside on its books adequate reserves in accordance with GAAP with respect thereto. SECTION 7.1.5 Insurance. The Borrower will, and will cause each Guarantor --------- and each Subsidiary to, maintain or cause to be maintained through self- insurance and with responsible insurance companies insurance with respect to its properties and business against such casualties and contingencies and of such types and in such amounts as has been historically maintained by the Borrower, the Guarantors and the Subsidiaries, or which is consistent with sound business practice in the reasonable opinion of the Borrower, and will, 35 upon request of the Bank, furnish to the Bank at reasonable intervals a certificate of an Authorized officer setting forth the nature and extent of all insurance maintained by the Borrower, the Guarantors and the Subsidiaries in accordance with this Section. SECTION 7.1.6 Notice of Default, Litigation, etc. The Borrower will give ----------------------------------- prompt notice (with a description in reasonable detail) to the Bank of: (a) the occurrence of any Default or any Event of Default; (b) the occurrence of any litigation, arbitration or governmental investigation or proceeding not previously disclosed by the Borrower to the Bank which has been instituted or, to the knowledge of the Borrower, is threatened against the Borrower, either Guarantor or any Subsidiary or to which any of their respective properties is subject which would reasonably be expected to result in a liability to the Borrower, either Guarantor or any Subsidiary not covered by the Borrower's, such Guarantor's or such Subsidiary's insurers, as applicable, in excess of 10,000,000; (c) any material development which shall occur in any litigation, arbitration or governmental investigation or proceeding previously disclosed by the Borrower to the Banks; (d) the occurrence of any event which would reasonably be expected to have a Materially Adverse Effect; (e) the occurrence of (i) a Reportable Event with respect to any Pension Plan; (ii) the institution of steps by the Borrower, either Guarantor or any Subsidiary to terminate, any Pension Plan where the unfunded liability is in excess of $10,000,000; or (iii) a partial or complete withdrawal (as described in ERISA section 4203 or 4205) by the Borrower, either Guarantor or any Subsidiary from a multiemployer plan (as defined in Section 4001(a)(3) of ERISA) where the unfunded liability is in excess of $10,000,000; and (f) the occurrence of (i) the institution of any steps by the PBGC to terminate any Pension Plan; (ii) the failure to make a required contribution to any Pension Plan if such failure is sufficient to give rise to a Lien under section 304(f) of ERISA; (iii) the adoption of an amendment or the application for a funding waiver that could result in a requirement that the Borrower, either Guarantor or any Subsidiary furnish a bond or other security to the PBGC or to a Pension Plan pursuant to sections 306 or 307 of ERISA; (iv) the assertion of any claim with respect to any Pension Plan which could, if determined adversely, result in the incurrence by the Borrower, either Guarantor or any Subsidiary of any material liability, fine or penalty; or (v) any material increase in the contingent liability of the Borrower, either Guarantor or any Subsidiary with respect to post- retirement benefits under any Welfare Plan, as determined under Financial Accounting Standards Board No. 106. 36 SECTION 7.1.7 Performance of Loan Documents. The Borrower will, and will ----------------------------- cause each Loan Party to, perform promptly and faithfully all of its obligations under each Loan Document executed by it. SECTION 7.1.8 Books and Records. The Borrower will, and will cause each ----------------- Guarantor and each Subsidiary to, keep books and records reflecting all of its business affairs and transactions in accordance with GAAP and permit the Bank or any of its representatives, at reasonable times and intervals and as arranged through the Treasurer or chief legal officer of the Borrower, to visit all of its offices, discuss its financial matters with its officers and independent accountants, examine and photocopy extracts from (a) any of its financial books and records and (b) any of its other corporate records other than such corporate records that are reasonably determined by the Borrower to be proprietary. SECTION 7.1.9 Significant Subsidiary Guaranty. The Borrower agrees to ------------------------------- promptly notify the Bank each time a Subsidiary becomes a Significant Subsidiary and to cause such Significant Subsidiary to deliver to the Bank a duly executed Significant Subsidiary Guaranty along with an opinion of counsel and a certificate of the type required by Section 5.1.1(b) both in form and substance ---------------- acceptable to the Required Banks. SECTION 7.1.10 Environmental Covenant. The Borrower will, and will cause ---------------------- each Guarantor and each Significant Subsidiary to, (a) use and operate all of its facilities and properties in material compliance with all Environmental Laws, keep all necessary permits, approvals, certificates, licenses and other authorizations relating to environmental matters in effect and remain in material compliance therewith, and handle all Hazardous Materials in material compliance with all applicable Environmental Laws; (b) immediately notify the Bank and provide copies upon receipt of all material written claims, complaints, notices or inquiries relating to the condition of its facilities and properties or compliance with Environmental Laws, in each case which involve or could reasonably be expected to involve obligations of the Borrower, either Guarantor or any Significant Subsidiary, as the case may be, in excess of $10,000,000; and (c) provide such information and certifications which the Bank may reasonably request from time to time to evidence compliance with this Section 7.1.10. -------------- SECTION 7.2 Certain Negative Covenants. The Borrower agrees with the -------------------------- Bank that, until the Commitment shall have terminated and all of the Liabilities have been paid and performed in full: SECTION 7.2.1 Indebtedness for Borrowed Money. The Borrower will not ------------------------------- permit any Subsidiary to incur or permit to exist any Indebtedness for Borrowed Money, 37 except (i) Indebtedness for Borrowed Money of any significant Subsidiary to the Borrower, either Guarantor or any Subsidiary which is subordinated to such Significant Subsidiary's obligations under the Significant Subsidiary Guaranty pursuant to a Subordination Agreement; (ii) Indebtedness for Borrowed Money of any Subsidiary (other than a Significant Subsidiary) to any other Subsidiary or to the Borrower or either Guarantor; (iii) Indebtedness for Borrowed Money outstanding on the date hereof and listed in Item 7.2.1(iii) of the Disclosure ---- ---------- Schedule and refinancings thereof; provided that such Indebtedness for Borrowed -------- Money is not increased as the result of such refinancing; (iv) additional unsecured Indebtedness for Borrowed Money of all Subsidiaries (other than Significant Subsidiaries) not to exceed $25,000,000 in the aggregate at any one time outstanding; and (v) additional unsecured Indebtedness for Borrowed Money of any Subsidiary acquired with such indebtedness existing at the time of acquisition/merger of such Subsidiary. SECTION 7.2.2 Liens. The Borrower will not, and will not permit either ----- Guarantor or any Subsidiary to, create, incur, assume or suffer to exist any Lien upon any of its property or assets, whether now owned or hereafter acquired, except: (a) Liens in favor of the Bank or the other Senior Revolving Lenders to secure the Liabilities or liabilities under Senior Revolving Loan Agreements up to a maximum of $200,000,000; (b) Liens which were granted prior to the date hereof in (and only in) assets identified in Item 7.2.1(iii) ("Ongoing Indebtedness") and Item ---------- ---- 7.2.2(b) ("Liens") of the Disclosure Schedule; -------- (c) Liens in (and only in) stock or assets permitted to be acquired under the terms of this Agreement granted to secure Indebtedness incurred at the time of such acquisition (or within one year thereof) to finance the acquisition of such stock or assets; provided, that the amount of -------- Indebtedness secured thereby is not increased; (d) statutory and common law banker's Liens and rights of setoff on bank deposits; (e) Liens for taxes, assessments or other governmental charges or levies not at the time delinquent or thereafter payable without penalty or being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books; (f) Liens of carriers, warehousemen, mechanics, materialmen and landlords incurred in the ordinary course of business for sums not overdue or being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books; 38 (g) Liens incurred or existing in the ordinary course of business, consistent with past practice and not to secure Indebtedness for Borrowed Money, such as in connection with workers' compensation, unemployment insurance or other forms of governmental insurance or benefits, or to secure performance of tenders, statutory obligations, leases and contracts entered into in the ordinary course of business or to secure obligations on surety or appeal bonds; (h) judgment Liens in existence less than 30 days after the entry thereof or with respect to which execution has been stayed or the payment of which is covered in full (subject to a customary deductible) by insurance; (i) Liens existing on any assets at the date of acquisition of such assets permitted to be acquired under the terms of this Agreement acquired after the date of this Agreement; (j) Liens granted to secure Indebtedness incurred to refinance any Indebtedness secured by Liens permitted by clauses (b), (c) and (i) of this Section 7.2.2; provided, that such Indebtedness is not increased as the ------------- -------- result of such refinancing and that such Liens attach only to.the same assets subject to Lien prior to the refinancing. SECTION 7.2.3 Consolidation, Merger, etc. The Borrower will not, and will --------------------------- not permit either Guarantor or any Subsidiary to, consolidate with or merge into or with any other corporation, or sell, transfer, lease or sell and lease back or otherwise dispose of all or substantially all of its assets to any Person, without prior written consent of the Bank, except for the voluntary liquidation or dissolution of any wholly-owned Subsidiary into the Borrower, the merger of any Person with a Subsidiary, provided that after giving effect to such merger, such Subsidiary remains a "Subsidiary" as defined herein, or the merger of any Subsidiary into the Borrower provided that the Borrower is the surviving corporation; SECTION 7.2.4 Transactions with Affiliates. The Borrower will not, and ---------------------------- will not permit either Guarantor or any Significant Subsidiary to, enter into, or cause, suffer or permit to exist any transaction, arrangement or contract with any of its Affiliates (except for Significant Subsidiaries) which would not be entered into by a prudent Person in the position of the Borrower, such Guarantor or such Subsidiary, or which is on terms which are not on an arms- length basis. SECTION 7.2.5 Sale or Discount of Receivables. The Borrower will not, and ------------------------------- will not permit either Guarantor or any Subsidiary to, directly or indirectly, sell with recourse any of its notes or accounts receivable in excess of $100,000,000 in the aggregate at any one 39 time, other than those arising from the export outside of the United States of goods or services. SECTION 7.2.6 Dividends. Neither the Borrower nor either Guarantor shall --------- pay any dividends to its respective shareholders upon the occurrence, or during the continuance of, any Default. SECTION 7.2.7 Inconsistent Agreements. The Borrower will not, and will ----------------------- not permit either Guarantor or any Subsidiary to, enter into any agreement containing any provision which would be violated or breached by any borrowing by the Borrower made hereunder or by the performance by the Borrower or any other Loan Party of their respective obligations hereunder or under any Loan Document. SECTION 7.2.8 Loans, Advances and Investments. The Borrower will not, and ------------------------------- will not permit either Guarantor or any Subsidiary to, make or permit to remain outstanding any loan or advance to, or own, purchase or acquire any stock, obligations or securities of, or any other interest in, or make any capital contribution to, any Person, except: (i) advances or extensions of credit on terms customary in the industry involved in the form of accounts or other receivables incurred, and investments, loans and advances made in settlement of such accounts receivable, all in the ordinary course of business; (ii) Permitted Investments; (iii) investments, loans or advances to or in the Borrower or in any Subsidiary or in either Guarantor; (iv) loans or advances to employees of the Borrower, either Guarantor or any Subsidiary in the ordinary course of their respective businesses, consistent with past practices, not to exceed $1,000,000 in aggregate amount at any time outstanding; and (v) other investments, loans or advances not exceeding $100,000,000 in the aggregate at any time outstanding. SECTION 7.2.9 Guaranties. Except as described in Item 7.2.9 ---------- ---------- ("Guaranties") of the Disclosure Schedule, neither the Borrower, either of the Guarantors nor any subsidiary will enter into any Guaranty prior to the Commitment Termination Date, except for (a) Guaranties relating to operating and capital leases on which the Borrower, such Guarantor or such Subsidiary is lessee; (b) the Parent Guaranty and any Significant Subsidiary Guaranty; 40 (c) Guaranties (other than Guaranties described in clause (b) of this ---------- Section 7.2.9 and Guaranties described in Item 7.2.9 of the Disclosure ------------- ---------- Schedule) not to exceed $25,000,000 in aggregate amount at any time outstanding of Indebtedness for Borrowed Money; (d) contingent obligations arising or existing as the result of the sale or other disposition of assets; (e) Guaranties by the Borrower or either Guarantor of any Indebtedness for Borrowed Money of any Subsidiary permitted under Section 7.2.1; -------------- (f) Guaranties by the Borrower or either Guarantor not to exceed $75,000,000 in aggregate amount at any time outstanding of any obligations of any Person other than any Subsidiary or any of its Affiliates; and (g) Guarantees by the Borrower, any Subsidiary or either Guarantor of any obligation of the Borrower, any Subsidiary or other Guarantor incurred or existing in the ordinary course of business, consistent with past practice and not to secure indebtedness for Borrowed Money, such as in connection with workers' compensation, unemployment insurance or other forms of governmental insurance or benefits, or to secure performance of tenders, statutory obligations, leases and contracts entered into in the ordinary course of business or to secure obligations on surety or appeal bonds. SECTION 7.2.10 Securities. The Borrower will not, and will not permit ---------- either Guarantor or any Subsidiary to, make any distributions, redemptions, prepayments, defeasances or repurchases of its securities upon the occurrence or during the continuance of any Default. The Borrower will not, and will not permit any Significant Subsidiary to, issue any capital stock to any Person other than either Guarantor, any other Significant Subsidiary or the Borrower. SECTION 7.2.11 Business Activities. The Borrower will not, and will not ------------------- permit the Guarantors or any Significant Subsidiary to: (a) operate its business other than in the ordinary and usual course; and (b) engage in any type of business except the businesses of the type or substantially related to the type so operated by the Borrower, such Guarantor or such Significant Subsidiary on the Effective Date. 41 ARTICLE VIII EVENTS OF DEFAULT SECTION 8.1 Events of Default. The term "Event of Default" shall mean ----------------- ---------------- each of the following events: SECTION 8.1.1 Non-Payment of Liabilities. The Borrower shall default in -------------------------- the payment or prepayment when due, whether at stated maturity, by acceleration, or otherwise, of any principal of any Note, or the Borrower shall default (and such default shall continue unremedied for a period of three days) in the payment when due, whether at stated maturity, by acceleration, or otherwise, of interest on any Note, of any commitment fee or of any other Liability. SECTION 8.1.2 Non-Performance of Certain Covenants. The Borrower ------------------------------------ shall default in the due performance and observance of any of its obligations under Section 7.2 of this Agreement and such default shall continue unremedied ----------- for 10 days after notice thereof shall have been given to the Borrower by the Bank at the request of the Bank. SECTION 8.1.3 Certain Defaults on Other Indebtedness for Borrowed --------------------------------------------------- Money. Any default shall occur under the terms applicable to any Indebtedness - ----- for Borrowed Money outstanding in a principal amount exceeding individually or in the aggregate $25,000,000 of the Borrower, the Guarantors or any Significant Subsidiary representing any borrowing or financing or arising under any other lease or material agreement, and such default shall: (a) consist of the failure to pay Indebtedness for Borrowed Money at the maturity thereof; or (b) continue without being cured or waived (so long as such cure or waiver did not involve any payment of principal of such Indebtedness for Borrowed Money) for a period of time sufficient to permit acceleration of Indebtedness for Borrowed Money. SECTION 8.1.4 Bankruptcy, Insolvency, etc. The Borrower, either Guarantor ---------------------------- or any Significant Subsidiary shall become insolvent or generally fail to pay, or admit in writing its inability to pay, debts as they become due; or the Borrower, either Guarantor or any Significant Subsidiary shall apply for, consent to, or acquiesce in, the appointment of a trustee, receiver, sequestrator or other custodian for the Borrower, such Guarantor or such Significant Subsidiary or any property of any thereof, or make a general assignment for the benefit of creditors; or, in the absence of such application, consent or acquiescence, a trustee, receiver, sequestrator or other custodian shall be appointed for the Borrower, either Guarantor or any Significant Subsidiary or for a substantial part of the property of any thereof and not be discharged within 60 days; or any bankruptcy, reorganization, debt arrangement, or other case or proceeding under any bankruptcy or insolvency law, or any dissolution, winding up or 42 liquidation proceeding, shall be commenced in respect of the Borrower, either Guarantor or any Significant Subsidiary, and, if such case or proceeding is not commenced by the Borrower, such Guarantor or such significant Subsidiary, such case or proceeding shall be consented to or acquiesced in by the Borrower, such Guarantor or such Significant Subsidiary or shall result in the entry of an order for relief or shall remain for 60 days undismissed; or the Borrower, either Guarantor or any Significant Subsidiary shall take any corporate action to authorize, or in furtherance of, any of the foregoing. SECTION 8.1.5 Control of the Borrower or CEI. Any Change in Control shall ------------------------------ occur on or after January 1, 1992. SECTION 8.1.6 Non-Performance of Other Obligations. Any Loan Party shall ------------------------------------ default in the due performance and observance of any other agreement, applicable to it, contained in this Agreement or in any other Loan Document, and such default shall continue unremedied for a period of 30 days after notice thereof shall have been given to the Borrower by the Bank. SECTION 8.1.7 Breach of Representation or Warranty. Any representation or ------------------------------------ warranty of any Loan Party in any Loan Document or in any writing furnished after the date of this Agreement by or on behalf of any Loan Party to the Bank for the purposes of or in connection with this Agreement is or shall be incorrect in any material respect when made. SECTION 8.1.8 Pension Plans. Any of the following events shall occur with ------------- respect to any Pension Plan (a) the institution of any steps by the Borrower, any member of its Controlled Group or any other Person to terminate a Pension Plan if, as a result of such termination, the Borrower or any such member could be required to make a contribution to such Pension Plan, or could reasonably expect to incur a liability or obligation to such Pension Plan, in excess of $25,000,000; or (b) a contribution failure occurs with respect to any Pension Plan sufficient to give rise to a Lien under Section 302(f) of ERISA. SECTION 8.1.9 Judgments. A final judgment to the extent not covered by --------- insurance that, with other such outstanding final judgments against the Borrower, either Guarantor and the Subsidiaries exceeds an aggregate of $10,000,000 shall be rendered against the Borrower, either Guarantor or any Subsidiary and if, within 60 days after entry thereof, such judgment shall not have been discharged or otherwise satisfied or execution thereof stayed pending appeal, or if, within 60 days after the expiration of any such stay, such judgment shall not have been discharged or otherwise satisfied. SECTION 8.1.10 Parent Guaranty, Significant Subsidiary Guaranty and ---------------------------------------------------- Subordination. The Parent Guaranty or any Significant Subsidiary Guaranty or - ------------- any 43 Subordination Agreement shall cease to be in full force and effect or any Loan Party or any Person by, through or on behalf of any Loan Party shall contest in any manner in writing the validity, binding nature or enforceability of either the Parent Guaranty, any Significant Subsidiary Guaranty or any Subordination Agreement. SECTION 8.1.11 Credit Rating. Borrower having neither a Credit Rating from ------------- S&P nor Moody's, at the same time. SECTION 8.2 Action if Bankruptcy. If any Event of Default described in -------------------- Section 8.1.4 shall occur with respect to the Borrower, the outstanding - ------------- principal amount of all outstanding Notes and all other Liabilities shall be and become immediately due and payable, without notice or demand. SECTION 8.3 Action if Other Event of Default. If any Event of Default -------------------------------- (other than an Event of Default described in Section 8.1.4 with respect to the ------------- Borrower) shall occur for any reason, whether voluntary or involuntary, and be continuing, the Bank may, without notice or demand, declare all or any portion of the outstanding principal amount of the Loans to be due and payable and any or all other Liabilities to be due and payable, whereupon the full unpaid amount of such Loans and any and all other Liabilities which shall be so declared due and payable shall be and become immediately due and payable, without further notice, demand, or presentment. ARTICLE IX NO PREFERENTIAL PROVISIONS SECTION 9.1 No Preferential Provisions. The Borrower is a party to -------------------------- separate senior revolving loan agreements having terms substantially similar to the terms of this Agreement and may from time to time enter into additional or replacement senior revolving loan agreements with one or more financial institutions having terms substantially similar to the terms of this Agreement (any such agreement [including this Agreement], a "Senior Revolving Loan Agreement", and each lender under a Senior Revolving Loan Agreement [including the Bank], a "Senior Revolving Lender"). The Borrower shall not consent to or otherwise effect any amendment to a Senior Revolving Loan Agreement or any document or instrument delivered pursuant thereto, or enter into any additional agreement or deliver any additional instrument in respect of a Senior Revolving Loan Agreement, that places another Senior Revolving Lender in a position that is materially superior to that of the Bank, unless prior to taking any such action, the Borrower shall have offered to the Bank the opportunity to incorporate the terms of such proposed amendment into the terms of this Agreement or the documents or instruments delivered pursuant hereto or to become party to or otherwise benefit from the terms of such additional document or instrument or a similar document or instrument. 44 SECTION 9.2 Pro Rate Borrowings and Payments. All Borrowings, all -------------------------------- interest payments and all principal payments and prepayments under all Senior Revolving Loan Agreements shall be made based on each Senior Revolving Lender's pro rata share of the aggregate total of the Commitments of all Senior Revolving - --- ---- Loan Agreements. ARTICLE X MISCELLANEOUS SECTION 10.1 Waivers, Amendments, etc. The provisions of this Agreement ------------------------- and of each Loan Document may from time to time be amended, modified, or waived, if such amendment, modification or waiver is in writing and consented to by the Borrower and the Bank. No failure or delay on the part of the Bank or the holder of any Note in exercising any power or right under this Agreement or any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such power or right preclude any other or further exercise thereof or the exercise of any other power or right. No notice to or demand on the Borrower in any case shall entitle it to any notice or demand in similar or other circumstances. No waiver or approval by the Bank, or the holder of any Note under this Agreement or any other Loan Document shall, except as may be otherwise stated in such waiver or approval, be applicable to subsequent transactions. No waiver or approval hereunder shall require any similar or dissimilar waiver or approval thereafter to be granted hereunder. SECTION 10.2 Notices. All notices and other communications provided to ------- any party hereto under this Agreement or any other Loan Document shall be in writing or by telex or by facsimile and addressed or delivered to it at its address set forth in Exhibit N hereto or at such other address as may be --------- designated by such party in a notice to the other parties. Any notice, if mailed and properly addressed with postage prepaid or sent by nationally recognized courier, shall be deemed given when received; any notice, if transmitted by telex or facsimile, shall be deemed given when transmitted (answerback confirmed in the case of telexes and electronically confirmed in the case of any facsimile). SECTION 10.3 Costs and Expenses. The Borrower agrees to reimburse the ------------------ Bank upon demand for all reasonable out-of-pocket expenses (including attorneys' fees and legal expenses and the allocated costs of in-house counsel and legal staff) incurred by the Bank in enforcing the obligations of the Borrower, either Guarantor or any Significant Subsidiary under this Agreement or any other Loan Document. SECTION 10.4 Indemnification. In consideration of the execution and --------------- delivery of this Agreement by the Bank and the extension of the Commitment, the Borrower hereby indemnifies, exonerates and holds the Bank and each of its officers, directors, employees, and 45 agents (the "Bank Parties") free and harmless from and against any and all ------------ actions, causes of action, suits, losses, costs, liabilities and damages, and expenses actually incurred in connection therewith (irrespective of whether such Bank Party is a party to the action for which indemnification hereunder is sought), including reasonable attorneys' fees and disbursements (the "Indemnified Liabilities"), incurred by the Bank Parties or any of them as a - ------------------------ result of, or arising out of, or relating to the entering into and performance of this Agreement and any other Loan Document by any of the Bank Parties; except for any such Indemnified Liabilities arising for the account of a particular Bank Party by reason of the relevant Bank Party's breach of this Agreement or of any Loan Document or gross negligence or wilful misconduct, and if and to the extent that the foregoing undertaking may be unenforceable for any reason, the Borrower hereby agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. SECTION 10.5 Survival. The obligations of the Borrower under Sections -------- -------- 4.4, 4.5, 10.3, and 10.4 shall in each case survive any termination of this - --- --- ---- ---- Agreement. The representations and warranties made by each Loan Party in this Agreement and in each other Loan Document shall survive the execution and delivery of this Agreement and each such other Loan Document. SECTION 10.6 Severability. Any provision of this Agreement or any other ------------ Loan Document which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or such Loan Document or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 10.7 Headings. The various headings of this Agreement and of -------- each other Loan Document are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or such Loan Document or any provisions hereof or thereof. SECTION 10.8 Counterparts, Effectiveness, etc. This Agreement may be --------------------------------- executed by the parties hereto in several counterparts, each of which shall be executed by the Borrower and the Bank and be deemed to be an original and all of which shall constitute together but one and the same agreement. This Agreement shall become effective when counterparts hereof are executed on behalf of the Borrower and the Bank. SECTION 10.9 Governing Law; Entire Agreement. THIS AGREEMENT, THE NOTES, ------------------------------- AND EACH OTHER LOAN DOCUMENT SHALL EACH BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK. THIS AGREEMENT, THE NOTES, AND THE OTHER LOAN DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ANY PRIOR AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT THERETO. 46 SECTION 10.10 Successors and Assigns. This Agreement shall be binding ---------------------- upon and shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that: -------- ------- (a) the Borrower may not assign or transfer its rights or obligations hereunder without the prior written consent of the Bank; and (b) the rights of sale, assignment, participation and transfer by the Bank are subject to Section 10.11. ------------- SECTION 10.11 Sale and Transfers, etc., of Loans and Notes; Participations ------------------------------------------------------------ in Loans and Notes. - ------------------ (a) The Bank may at any time sell to one or more banks or other entities ("Participants") participating interests in all or any portion of ------------ its Commitment and Loans or any other rights or interest of the Bank hereunder (its "Credit Exposure"). In the event of any such sale by a Bank --------------- of participating interests to a Participant, the Bank shall notify the Borrower of the identity of such Participant, the Bank's obligations under this Agreement shall remain unchanged, the Bank shall remain solely responsible for the performance thereof, the Bank shall remain the holder of any such Note for all purposes under this Agreement, and the Borrower shall continue to deal solely and directly with such Bank in connection with the Bank's rights and obligations under this Agreement. Except in the case of the sale of a participation to an Affiliate of the Bank, any participation permitted hereunder shall be in a minimum amount of at least $5,000,000, and the relevant participation agreement shall not permit the Participant to transfer, pledge, assign, sell participations in or otherwise encumber its portion of the Commitment or Loans. The Bank agrees that any agreement between the Bank and any such Participant in respect of such participating interest shall not restrict the Bank's right to agree to any amendment, supplement or modification to the Agreement or any of the Loan Documents except to extend the final maturity of any Note, reduce the rate or extend the time of payment of interest thereon or any fees owed to the Bank under this Agreement or any of the Loan Documents, reduce the principal amount of any Note or release any Guaranty. The Borrower hereby acknowledges and agrees that any such disposition described in this Section will give rise to a direct obligation of the Borrower to the Participant, and such Participant shall, for purposes of Sections 3.7, 3.8, 3.9, 4.4 and --------------------------- 4.5, be considered a Bank and may rely on, and possess all rights under, --- any opinions, certificates, or other Instruments delivered under or in connection with this Agreement or any other Loan Document; provided, -------- however, that, the Borrower shall only be required to deliver information ------- and data required pursuant to this Agreement to the Bank selling or granting a participation in (in whole or in part) its Credit Exposure; and provided, further, that no Participant shall be entitled to payment of any -------- ------- amount under Section 3.9 in excess of that which would have been at the ----------- date of such participation required to be paid to the selling Bank had no participation occurred. Concurrently with the 47 sale of any participation, the Participant shall execute and deliver to the Borrower and the Bank an instrument in writing specifying its Domestic Office and its LIBOR office and containing an Exemption Representation, and, if such Participant is a Non-United States Person, an Exemption Agreement. (b) The Bank (in such capacity the "Assigning Bank") may at any time -------------- assign to one or more banks or other entities (each a "Purchasing Bank") --------------- all or any part of its Credit Exposure, provided that (i) unless assigned to an Affiliate of such Assigning Bank or another Senior Revolving Lender, it assigns its Credit Exposure in an amount not less than $9,000,000 and, unless such assignment covers all of such Assigning Bank's Credit Exposure, such Assigning Bank must retain at least $9,000,000 and (ii) any Purchasing Bank must be acceptable to the Borrower, whose consent shall not be unreasonably withheld, and the Bank's and the Borrower's decisions respecting the same shall be made promptly. In the event of any assignment, the Assigning Bank shall give notice to the Borrower and shall deliver to the Borrower, for its acceptance and recording in its records, an Assignment and Acceptance, which shall include an Exemption Representation and, if such Purchasing Bank is a Non-United States Person, its Exemption Agreement. The Borrower and the Bank agree that to the extent of any assignment, the Purchasing Bank shall be deemed to have the same rights and benefits with respect to the Borrower under this Agreement and any Notes as it would have had if it were a Bank hereunder; provided -------- that the Borrower shall be entitled to continue to deal solely and directly with the Assigning Bank in connection with the interests so assigned to the Purchasing Bank until the Assignment and Acceptance shall have been delivered to the Borrower collectively by the Assigning Bank and the Purchasing Bank. Upon the assignment of Credit Exposure provided for hereby, the Assigning Bank shall be relieved of its obligations hereunder to the extent of such assignment. In the event of any assignment, the Borrower shall, at its sole cost and expense, prepare and deliver to the Assigning Bank and to the Purchasing Bank new Notes reflecting the effect of such assignment. (c) The Borrower authorizes the Bank to disclose to any Participant or Purchasing Bank (each, a "Transferee") and any prospective Transferee any ---------- and all financial information in the Bank's possession concerning the Borrower, either Guarantor and any Subsidiary which has been delivered to the Bank by the Borrower, either Guarantor or any Subsidiary pursuant to this Agreement or any other Loan Document or which has been delivered to the Bank by the Borrower, either Guarantor or any Subsidiary in connection with the Bank's credit evaluation of the Borrower, either Guarantor or any Subsidiary prior to entering into this Agreement; provided, that such -------- Transferee or prospective Transferee shall first have executed and delivered to the Borrower a Confidentiality Agreement. 48 (d) The Bank shall have the right to collaterally assign its rights hereunder or under any other Loan Document to any Federal Reserve Bank in accordance with applicable law. SECTION 10.12 Other Transactions. Nothing contained herein shall preclude ------------------ the Bank from engaging in any transaction, in addition to those contemplated by this Agreement or any other Loan Document, with the Borrower or any of its Affiliates in which the Borrower or such Affiliate is not restricted hereby from engaging with any other Person. SECTION 10.13 Waiver of Jury Trial. THE BANK, AND THE BORROWER HEREBY -------------------- KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OF THE BANK, OR THE BORROWER. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE BANK ENTERING INTO THIS AGREEMENT. SECTION 10.14 Consent to Jurisdiction and Service of Process. Any ---------------------------------------------- judicial proceedings brought against the Borrower with respect to this Agreement or any Note may be brought in any state or federal court of competent jurisdiction in the State of New York and by the execution and delivery of this Agreement the Borrower accepts the nonexclusive jurisdiction of the aforesaid courts. Service of process may be made by any means authorized by federal law or the law of New York. A copy of any such process so served shall be mailed by registered mail to the Borrower at its address set forth below its signature hereto or at such other address as may be designated by the Borrower in a notice to the Bank. Nothing herein shall limit the right of any Bank to bring proceedings against the Borrower in the courts of any other jurisdiction. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. CONSOLIDATION COAL COMPANY /s/ Michael F. Nemser By----------------------------- Name: Michael F. Nemser Title: Vice President-Treasury 49 MORGAN GUARANTY TRUST COMPANY OF NEW YORK /s/ Caroline Shapiro By----------------------------- Title: 50 SCHEDULE TO EXHIBIT 10.1 In addition, to Exhibit 10.1, Consolidation Coal Company entered into five additional Senior Revolving Loan Agreements of the same date with each of the following banks, all of which are substantially identical to Exhibit 10.1 in all material respects: PNC Bank The Bank of Nova Scotia Citibank N.A. Mellon Bank, N.A. EX-10.2 3 1ST AMEND. TO LOAN AGREEMENT 11/--/94 EXHIBIT 10.2 ------------ FIRST AMENDMENT TO SENIOR REVOLVING LOAN AGREEMENT THIS AMENDMENT, made and entered into this _______ day of November, 1994, by and between Consolidation Coal Company, a Delaware corporation ("Borrower") and Morgan Guaranty Trust Company of New York ("Bank"). WITNESSETH: WHEREAS, Borrower and Bank are parties to a Senior Revolving Loan Agreement dated as of December 23, 1993 (the "Loan Agreement"); and WHEREAS, Borrower and Bank desire to hereby amend the Loan Agreement in certain respects, effective December 18, 1994. NOW,, THEREFORE, in consideration of the foregoing premises, and intending to be legally bound hereby, Borrower and Bank hereby agree as follows: 1. The Loan Agreement is hereby amended in the following respects, effective December 18, 1994: A. The definition of "Applicable Margin" within SECTION 1.1 is amended in its ----------------- entirety to read as follows: "Applicable Margin" means, for any Interest Period, the amount ----------------- indicated below for each type of Loan based upon the Credit Rating for each day during such Interest Period: LIBO CD Base Rate Rate Rate Credit Rating Loans Loans Loans ------------- ----- ----- ----- Level I 0.25% 0.375% 0.0 Level II 0.40% 0.525% 0.0 Level III 1.00% 1.125% 1.0% B. The definition of "Credit Rating" within SECTION 1.1 is amended in its ------------- entirety to read as follows: "Credit Rating" means the credit rating of the Borrower's long-term ------------- unsecured debt securities without third-party credit enhancement by any two of S&P, Moody's, D&P, or Fitch, one of which must be S&P or Moody's. "Level I" Credit Rating means a Credit Rating of any two credit rating agencies, one of which must be by S&P or Moody's, of at least A- in the case of S&P, at least A3 in the case of Moody's, at least A- in the case of D&P and at least A- in the case of Fitch. "Level II" Credit Rating means a Credit Rating of any two credit rating agencies, one of which must be by S&P or Moody's, of less than A- but at least BBB- in the case of S&P, less than A3 but at least Baa3 in the case of Moody's, less than A- but at least BBB- in the case of D&P or less than A- but at least BBB- in the case of Fitch. "Level III" Credit Rating means a credit rating of any two credit rating agencies, one of which must be by S&P or Moody's, of less than BBB- in the case of S&P, less than Baa3 in the case of Moody's, less than BBB- in the case of D&P and less than BBB- in the case of Fitch, or there being neither a credit rating from S&P or Moody's, at the same time. C. Subparagraph (a) of the definition of "Business Day" within SECTION 1.1 is ------------ amended in its entirety to read as follows: (a) any day which is neither a Saturday or Sunday nor a legal holiday in the State of New York or Pennsylvania on which banks are authorized or required to be closed in New York City or Pittsburgh; and D. SECTION 2.3 is amended in its entirety to read as follows: SECTION 2.3 Fees. The Borrower agrees to pay the Bank, for the ---- period (including any portion thereof when its Commitment is suspended by reason of the Borrower's inability to satisfy any condition of Article V) ---------- commencing on the Effective Date and continuing through the Commitment Termination Date, a commitment fee at the rate of (i) 0.07% per annum for each day in such period when the Credit Rating is Level I and (ii) 0.10% per annum for each day in such period when the Credit Rating is Level II and (iii) 0.20% per annum for each day in such period when the Credit Rating is Level III, on the daily average of the excess of the Commitment Amount over the outstanding principal amount of the Bank's Loans. Such commitment fees shall be payable by the Borrower quarterly in arrears to the Bank for the period ending on each Quarterly Payment Date, commencing with the first such day following December 18, 1994 and on the Commitment Termination Date. E. SECTION 7.1.2 is amended by changing each of the two references therein to "Section 7.2.4" to read "Section 7.2.3". ------------- ------------- F. SECTION 7.1.9 is amended by changing the final two words therein, "Required Banks", to read "Bank". G. SECTION 7.2.3 is amended in its entirety to read as follows: SECTION 7.2.3 Consolidation, Merger, etc. The Borrower will not, and -------------------------- will not permit either Guarantor or any Subsidiary to, consolidate with or merge into or with any 2 other corporation, or sell, transfer, lease or sell and lease back or otherwise dispose of all or substantially all of its assets to any Person, without prior written consent of the Bank, except for the voluntary liquidation or dissolution of any wholly-owned subsidiary into another Subsidiary or into the Borrower, the merger of any Person with a Subsidiary, provided that after giving effect to such merger, such Subsidiary remains a "Subsidiary" as defined herein, or the merger of any Subsidiary into another Subsidiary or into the Borrower provided that in the case of any such merger into the Borrower, the Borrower is the surviving corporation. 2. All other terms and conditions of the Loan Agreement shall remain in full force and effect. IN WITNESS WHEREOF, Borrower and Bank have caused this First Amendment to Senior Revolving Loan Agreement to be executed by their respective, duly authorized officers or representatives as of the day and year first above written. CONSOLIDATION COAL COMPANY By /s/ Michael F. Nemser ------------------------------ Michael F. Nemser, Vice President and Treasurer of CONSOL Inc., Attorney-in-Fact MORGAN GUARANTY TRUST COMPANY OF NEW YORK By /s/ James S. Finch ------------------------------- Name: James S. Finch ---------------------------- Title: Vice President --------------------------- 3 SCHEDULE TO EXHIBIT 10.2 In addition, to Exhibit 10.2, Consolidation Coal Company entered into First Amendments to the Senior Revolving Loan Agreements of the same date with each of the following banks, all of which are substantially identical to Exhibit 10.2 in all material respects: PNC Bank The Bank of Nova Scotia Citibank N.A. Mellon Bank, N.A. EX-10.3 4 2ND AMEND TO LOAN AGREEMENT 9/1/95 EXHIBIT 10.3 ------------ SECOND AMENDMENT TO SENIOR REVOLVING LOAN AGREEMENT THIS AMENDMENT, made and entered into this lst day of October, 1995, by and between Consolidation Coal Company, a Delaware corporation ("Borrower") and Morgan Guaranty Trust Company of New York ("Bank"). WITNESSETH: WHEREAS, Borrower and Bank are parties to a Senior Revolving Loan Agreement dated as of December 23, 1993 (the "Loan Agreement"); and WHEREAS, Borrower and Bank desire to hereby amend the Loan Agreement in certain respects, effective December 13, 1995. NOW, THEREFORE, in consideration of the foregoing premises, and intending to be legally bound hereby, Borrower and Bank hereby agree as follows: 1. The Loan Agreement is hereby amended in the following respects, effective December 13, 1995: A. The definition of "Applicable Margin" within SECTION 1.1 is amended in its ----------------- entirety to read as follows: "Applicable Margin" means, for any Interest Period, the amount ----------------- indicated below for each type of Loan based upon the Credit Rating for each day during such Interest Period: LIBO CD Base Rate Rate Rate Credit Rating Loans Loans Loans --------------- ------ ------ ------ Level I 0.225% 0.350% 0.0 Level II 0.375% 0.500% 0.0 Level III 0.625% 0.750% 1.0% B. SECTION 2.3 is amended in its entirety to read as follows: SECTION 2.3 Fees. The Borrower agrees to pay the Bank, for the ---- period (including any portion thereof when its Commitment is suspended by reason of the Borrower's on the Effective Date and continuing through the Commitment Termination Date, a commitment fee at the rate of (i) 0.06% per annum for each day in such period when the Credit Rating is Level I and (ii) 0.09% per annum for each day in such period when the Credit Rating is Level II and (iii) 0.20% per annum for each day in such period when the Credit Rating is Level III, on the daily average of the excess of the Commitment Amount over the outstanding principal amount of the Bank's Loans. Such commitment fees shall be payable by the Borrower quarterly in arrears to the Bank for the period ending on each Quarterly Payment Date, commencing with the first such day following December 13, 1995 and on the Commitment Termination Date. 2. All other terms and conditions of the Loan Agreement shall remain in full force and effect. IN WITNESS WHEREOF, Borrower and Bank have caused this Second Amendment to Senior Revolving Loan Agreement to be executed by their respective, duly authorized officers or representatives as of the day and year first above written. CONSOLIDATION COAL COMPANY By /s/ Michael F. Nemser ------------------------------ Michael F. Nemser, Vice President and Treasurer of CONSOL Inc., Attorney-in-Fact MORGAN GUARANTY TRUST COMPANY OF NEW YORK By /s/ Robert Bottamedi ------------------------------- Name: Robert Bottamedi ---------------------------- Title: Vice President --------------------------- 2 SCHEDULE TO EXHIBIT 10.3 In addition, to Exhibit 10.3, Consolidation Coal Company entered into Second Amendments to the Senior Revolving Loan Agreements of the same date with each of the following banks, all of which are substantially identical to Exhibit 10.3 in all material respects: PNC Bank The Bank of Nova Scotia Citibank N.A. Mellon Bank, N.A. EX-10.4 5 3RD AMENDMENT TO LOAN AGREEMENT, 12/14/95 EXHIBIT 10.4 ------------ THIRD AMENDMENT TO SENIOR REVOLVING LOAN AGREEMENT THIS AMENDMENT, made and entered into this 14th day of December, 1995, by and between Consolidation Coal Company, a Delaware corporation ("Borrower") and Morgan Guaranty Trust Company of New York ("Bank"). WITNESSETH: WHEREAS, Borrower and Bank are parties to a Senior Revolving Loan Agreement dated as of December 23, 1993 (the "Loan Agreement"); and WHEREAS, Borrower and Bank desire to hereby amend the Loan Agreement in certain respects, effective December 1, 1995. NOW, THEREFORE, in consideration of the foregoing premises, and intending to be legally bound hereby, Borrower and Bank hereby agree as follows: 1. The Loan Agreement is hereby amended in the following respects, effective December 1, 1995: SECTION 7.2.3 is amended in its entire to read at follows: SECTION 7.2.3 Consolidation, Merger, etc. The Borrower will not, and -------------------------- will not permit either Guarantor or any Subsidiary to, consolidate with or merge into or with any other corporation, or sell, transfer, lease or sell and lease back or otherwise dispose of all or substantially all of its assets to any Person, without prior written consent of the Bank, except for (i) the voluntary liquidation or dissolution of any wholly-owned Subsidiary into another Subsidiary or into the Borrower, the merger of any Person with a Subsidiary, provided that after giving effect to such merger, such Subsidiary remains a "Subsidiary" as defined herein, or the merger of any Subsidiary into another Subsidiary or to the Borrower provided that in the case of any such merger into the Borrower, the Borrower is the surviving corporation and (ii) the sale, transfer, lease or sale and lease back or other disposition of all or substantially all of the assets of one or more Subsidiaries not to exceed in any calendar year an aggregate total of 10% of the consolidated assets of CEI and the Consolidated Subsidiaries. 2. All other terms and conditions of the Loan Agreement shall remain in full force and effect. IN WITNESS WHEREOF, Borrower and Bank have caused this Third Amendment to Senior Revolving Loan Agreement to be executed by their respective, duly authorized officers or representatives as of the day and year first above written. CONSOLIDATION COAL COMPANY By /s/ Michael F. Nemser --------------------------------- Michael F. Nemser, Vice President and Treasurer of CONSOL Inc., Attorney-in-Fact MORGAN GUARANTY TRUST COMPANY OF NEW YORK By /s/ James S. Finch -------------------------------- Name: James S. Finch ----------------------------- Title: Vice President ---------------------------- SCHEDULE TO EXHIBIT 10.4 In addition, to Exhibit 10.4, Consolidation Coal Company entered into Third Amendments to the Senior Revolving Loan Agreements of the same date with each of the following banks, all of which are substantially identical to Exhibit 10.4 in all material respects: PNC Bank The Bank of Nova Scotia Citibank N.A. Mellon Bank, N.A. EX-10.5 6 4TH AMEND TO LOAN AGREEMENT, 3/1/96 EXHIBIT 10.5 ------------ FOURTH AMENDMENT TO SENIOR REVOLVING LOAN AGREEMENT THIS AMENDMENT, made and entered into this first day of March, 1996, by and between CONSOLIDATION COAL COMPANY, a Delaware corporation ("Borrower") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK ("Bank"). WITNESSETH: WHEREAS, Borrower and Bank are parties to a Senior Revolving Loan Agreement dated as of December 23, 1993 (the "Loan Agreement"); and WHEREAS, Borrower and Bank desire to hereby amend the Loan Agreement in certain respects, effective April 1, 1996; and WHEREAS, Borrower desires to obtain a Commitment from Bank under the Loan Agreement pursuant to which Loans, in a maximum aggregate principal amount at any one time outstanding not to exceed $28,500,000, will be made to Borrower from time to time prior to the Commitment Termination Date. NOW, THEREFORE, in consideration of the foregoing premises, and intending to be legally bound hereby, Borrower and Bank hereby agree as follows: 1. The Loan Agreement is hereby amended in the following respects, effective April 1, 1996: A. SECTION 2.2 is amended in its entirety to read as follows: SECTION 2.2 Total Commitment Amount. The aggregate amount (the "Total ----------------------- ----- Commitment Amount") of the Bank's Commitment on any date on or prior to the ----------------- Commitment Termination Date shall be $28,500,000 less all voluntary reductions to such amount made by the Borrower; provided, however, that all -------- ------- such reductions shall require at least three Business Days' prior notice to the Bank and be permanent, and all partial reductions of such amount in the case of any voluntary reduction, shall be in minimum amounts of $500,000 and in integral multiples of $100,000 in excess thereof. 2. All other terms and conditions of the Loan Agreement shall remain in full force and effect. 3. This Fourth Amendment may be executed by the parties hereto in several counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. IN WITNESS WHEREOF, Borrower and Bank have caused this Fourth Amendment to the Senior Revolving Loan Agreement to be executed by their respective, duly authorized officers or representatives as of the day and year first above written. CONSOLIDATION COAL COMPANY By /s/ Karen L. Musial ----------------------------------- Karen L. Musial, Vice President and Treasurer of CONSOL Inc., Attorney-in-Fact MORGAN GUARANTY TRUST COMPANY OF NEW YORK By /s/ Robert Bottamedi ----------------------------------- Name Robert Bottamedi --------------------------------- Title Vice President -------------------------------- SCHEDULE TO EXHIBIT 10.5 In addition, to Exhibit 10.5, Consolidation Coal Company entered into Fourth Amendments to the Senior Revolving Loan Agreements of the same date with each of the following banks, all of which are substantially identical to Exhibit 10.5 in all material respects: PNC Bank The Bank of Nova Scotia Citibank N.A. Mellon Bank, N.A. EX-10.6 7 5TH AMEND TO LOAN AGREEMENT, 12/2/97 EXHIBIT 10.6 ------------ FIFTH AMENDMENT TO SENIOR REVOLVING LOAN AGREEMENT THIS AMENDMENT, made and entered into this second day of December, 1997, by and between CONSOLIDATION COAL COMPANY, a Delaware corporation ("Borrower") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK ("Bank"). WITNESSETH: WHEREAS, Borrower and Bank are parties to a Senior Revolving Loan Agreement dated as of December 23, 1993 (the "Loan Agreement"); and WHEREAS, Borrower and Bank desire to hereby amend the Loan Agreement in certain respects, effective December 2, 1997. NOW, THEREFORE, in consideration of the foregoing premises, and intending to be legally bound hereby, Borrower and Bank hereby agree as follows: 1. The Loan Agreement is hereby amended in the following respects, effective December 2, 1997: A. SECTION 2.3 is amended in its entirety to read as follows: SECTION 2.3 Fees. The Borrower agrees to pay the Bank, for the ---- period (including any portion thereof when its Commitment is suspended by reason of the Borrower's inability to satisfy any condition of Article V) --------- commencing on the Effective Date and continuing through the Commitment Termination Date, a commitment fee at the rate of (i) 0.05% per annum for each day in such period when the Credit Rating is Level I and (ii) 0.09% per annum for each day in such period when the Credit Rating is Level II and (iii) 0.20% per annum for each day in such period when the Credit Rating is Level III, on the daily average of the excess of the Commitment Amount over the outstanding principal amount of the Bank's Loans. Such commitment fees shall be payable by the Borrower quarterly in arrears to the Bank for the period ending on each Quarterly Payment Date, commencing with the first such day following December 2, 1997 and on the Commitment Termination Date. 2. All other terms and conditions of the Loan Agreement shall remain in full force and effect. 3. This Fifth Amendment may be executed by the parties hereto in several counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. IN WITNESS WHEREOF, Borrower and Bank have caused this Fifth Amendment to the Senior Revolving Loan Agreement to be executed by their respective, duly authorized officers or representatives as of the day and year first above written. CONSOLIDATION COAL COMPANY By /s/ Karen L. Zemba ---------------------------- Karen L. Zemba, Vice President and Treasurer of CONSOL Inc., Attorney-in-Fact MORGAN GUARANTY TRUST COMPANY OF NEW YORK By /s/ Kathryn Sayko-Yanes ---------------------------- Name Kathryn Sayko-Yanes ------------------------- Title Vice President ------------------------ SCHEDULE TO EXHIBIT 10.6 In addition, to Exhibit 10.6, Consolidation Coal Company entered into Fifth Amendments to the Senior Revolving Loan Agreements of the same date with each of the following banks, all of which are substantially identical to Exhibit 10.6 in all material respects: PNC Bank The Bank of Nova Scotia Citibank N.A. Mellon Bank, N.A. EX-10.7 8 6TH AMEND TO LOAN AGREEMENT 9/29/98 EXHIBIT 10.7 ------------ SIXTH AMENDMENT TO SENIOR REVOLVING LOAN AGREEMENT THIS AMENDMENT, made and entered into this 29th day of October, 1998, by and between CONSOLIDATION COAL COMPANY, a Delaware corporation ("Borrower") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK ("Bank"). WITNESSETH: WHEREAS, Borrower and Bank are parties to a Senior Revolving Loan Agreement dated as of December 23, 1993, as amended (the "Loan Agreement"); WHEREAS, Borrower desires to obtain a Commitment from Bank under the Loan Agreement pursuant to which Loans, in a maximum aggregate principal amount at any one time not to exceed $100,000,000, will be made from time to time prior to the Commitment Termination Date; and WHEREAS, Borrower and Bank desire to hereby amend the Loan Agreement in certain other respects, effective October 29, 1998. NOW, THEREFORE, in consideration of the foregoing premises, and intending to be legally bound hereby, Borrower and Bank hereby agree as follows: 1. The Loan Agreement is hereby amended in the following respects, effective October 29, 1998: A. The definition of "Applicable Margin" within SECTION 1.1 is amended in its ----------------- entirety to read as follows: "Applicable Margin" means, for any Interest Period, the amount ----------------- indicated below for each type of Loan based upon the Credit Rating for each day during such Interest Period: LIBO Base Rate Rate Credit Rating Loans Loans ------------- ----- ----- Level I 0.350% 0% Level II 0.500% 0% Level III 1.250% 1.00% B. The definitions of "Assessment Rate", "CD Rate", "CD Rate Loan", "CD Rate --------------- ------- ------- (Reserve Adjusted)", "CD Reserve Requirement", "Du Pont" and "Fixed Rate ------------------ ---------------------- ------- ---------- Loan" within SECTION 1.1 are deleted from SECTION 1.1 in their entirety. ---- C. The definition of "Change in Control" within SECTION 1.1 is amended in its ----------------- entirety to read as follows: "Change in Control" means ----------------- (a) with respect to the Borrower, the failure of CEI to own, directly or indirectly, free and clear of all Liens or other encumbrances, one hundred percent (100%) of the outstanding shares of capital stock of the Borrower on a fully diluted basis; and (b) with respect to CEI, the failure of Rheinbraun AG and RG to own, directly or indirectly, a cumulative total of at least fifty-one percent (51%) of the outstanding shares of capital stock of CEI, on a fully diluted basis, in each case, free and clear of all Liens and other encumbrances. D. The definition of "Commitment Termination Date" within Section 1.1 is --------------------------- amended in its entirety to read as follows: "Commitment Termination Date" means the earliest of --------------------------- (a) October 22, 1999 as such date may be extended pursuant to Section 2.4; ------------ (b) five Business Days after notice is given by the Borrower to the Bank for purposes of designating a Commitment Termination Date pursuant to this clause, provided that, on such designated Commitment -------- Termination Date, no Loans are outstanding; (c) immediately and without further action upon the occurrence of any Default described in Section 8.1.4 with respect to the ------------- Borrower; and (d) immediately when any other Event of Default shall have occurred and be continuing and the Loans shall be declared to be due and payable pursuant to Section 8.3. ----------- E. The definition of "Interest Period" within Section 1.1 is amended in its --------------- entirety to read as follows: "Interest Period" means, relative to any LIBO Rate Loan, the period --------------- which shall begin on (and include) the date on which such LIBO Rate Loan is made or continued as, or converted into, a LIBO Rate Loan pursuant to Section 4.1, and, unless the final maturity of such LIBO Rate Loan is ----------- accelerated, shall end on (but exclude) the day which numerically corresponds to such date one week or one, two, or three months thereafter, as the Borrower may select in its relevant notice pursuant to Section 4.1; ----------- provided, however, that: -2- (a) the Borrower shall not be permitted to select Interest Periods to be in effect at any one time which have expiration dates occurring on more than eight different dates; (b) absent such selection, the Borrower shall be deemed to have selected an Interest Period of one month provided, that if another duration -------- shall be required in order to comply with clause (a), such Loan shall be a ---------- Base Rate Loan for such duration; (c) if there exists no numerically corresponding day in such month, such Interest Period shall end on the last Business Day of such month; (d) if such Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end on the Business Day next following such numerically corresponding day (unless such next following Business Day is the first Business Day of a calendar month, in which case such Interest Period shall end on the preceding Business Day); and (e) no Interest Period shall end later than the date established pursuant to clause (a) or (b) of the definition of Commitment Termination ---------- --- Date. F. The definition of "Significant Subsidiary" within SECTION 1.1 is amended in ---------------------- its entirety to read as follows: "Significant Subsidiary" means McElroy Coal Company, a Delaware ---------------------- corporation; Consol Pennsylvania Coal Company, a Delaware corporation; Nineveh Coal Company, a Delaware corporation; Consolidation Coal Sales Company, a Delaware corporation; Island Creek Coal Company, a Delaware corporation; Laurel Run Mining Company, a Virginia corporation; New Century Holdings, Inc., a Delaware corporation; Keystone Coal Mining Corporation, a Pennsylvania corporation; Helvetia Coal Company, a Pennsylvania corporation; CONSOL Sales Company, a Delaware corporation; Eighty-Four Mining Company, a Pennsylvania corporation; Rochester & Pittsburgh Coal Company, a Pennsylvania corporation; Fairmont Supply Company, a Delaware corporation, and any other wholly-owned direct or indirect Subsidiary of CEI whose assets exceed 5% of the consolidated assets of CEI and the Consolidated Subsidiaries or whose revenues exceed 5% of the consolidated revenues of CEI and the Consolidated Subsidiaries or any other direct or indirect Subsidiary of CEI so designated by the Borrower after the Effective Date. G. The definition of "type" within Section 1.1 is amended in its entirety to ---- read as follows: -3- "type" means, relative to the outstanding principal amount of all or ---- any portion of a Loan, the portion thereof, if any, being maintained as a Base Rate Loan or a LIBO Rate Loan. H. SECTION 2.1 is amended in its entirety to read as follows: SECTION 2.1 Commitment. Subject to the terms and conditions of this ---------- Agreement (including Article V), the Bank agrees that it will, from time to --------- time on any Business Day occurring during the period commencing on October 29, 1998 and continuing to (but not including) the Commitment Termination Date, make loans ("Loans") to the Borrower equal to the amount of the ----- Borrowing requested on each such Business Day; provided, however, that all -------- ------- such Loans shall be made on a pro rata basis with loans from all other banks which have Senior Revolving Loan Agreements with the Borrower, and the Bank shall not be permitted or required to make any Loan if, after giving effect thereto, the sum of the aggregate amount of Commercial Paper Indebtedness and the aggregate principal amount of all Loans outstanding at any one time from the Bank plus the aggregate of all loans outstanding under Borrower's other Senior Revolving Loan Agreements would exceed $650,000,000. Subject to the terms hereof, the Borrower may from time to time prior to the Commitment Termination Date borrow, prepay, and reborrow amounts pursuant to the Commitment. I. SECTION 2.2 is amended in its entirety to read as follows: SECTION 2.2 Total Commitment Amount. The aggregate amount (the ----------------------- "Total Commitment Amount") of the Bank's Commitment on any date on or prior to the Commitment Termination Date shall be $100,000,000 less all voluntary reductions to such amount made by the Borrower; provided, however, that all -------- ------- such reductions shall be made on a pro rata basis with reductions of the total commitment amounts of all other banks which have Senior Revolving Loan Agreements with the Borrower, shall require at least three Business Days' prior notice to the Bank and be permanent, and all partial reductions of such amount, in the case of any voluntary reduction, shall be in minimum amounts of $500,000 and in integral multiples of $100,000 in excess thereof. J. SECTION 2.3 is amended in its entirety to read as follows: SECTION 2.3 Fees. The Borrower agrees to pay the Bank, for the ---- period (including any portion thereof when its Commitment is suspended by reason of the Borrower's inability to satisfy any condition of Article V) --------- commencing on October 29, 1998 and continuing through the Commitment Termination Date, the following fees: -4- (a) a start-up fee of $50,000 due and payable on October 29, 1998; (b) a revolving credit facility fee for each day which shall be equal to (i) the applicable percentage for such day, determined, based on the Credit Rating on such day, in accordance with the table set forth below, multiplied by (ii) 1/365, multiplied by (iii) the Total Commitment Amount on such day. Credit Rating Applicable Percentage ------------- --------------------- Level I 0.080% Level II 0.125% Level III 0.250% Such revolving credit facility fees shall be due and payable by the Borrower quarterly in arrears to the Bank for the period ending on each Quarterly Payment Date, commencing with the first such day following October 29, 1998 and on the Commitment Termination Date; and (c) a utilization fee for each day on which the aggregate principal amount of all outstanding Loans from the Bank exceeds fifty percent (50%) of the Total Commitment Amount on such day equal to (i) the applicable percentage for such day, determined, based on the Credit Rating on such day, in accordance with the table set forth below, multiplied by (ii) 1/365, multiplied by (iii) the aggregate principal amount of all outstanding Loans from the Bank on such day. Credit Rating Applicable Percentage ------------- --------------------- Level I 0.070% Level II 0.125% Level III 0.250% Such utilization fees shall be due and payable by the Borrower quarterly in arrears to the Bank for the period ending on each Quarterly Payment Date, commencing with the first such day following October 29, 1998 and on the Commitment Termination Date. K. SECTION 3.3 is amended in its entirety to read as follows: SECTION 3.3 Principal Payments and Prepayments. The Borrower will ---------------------------------- repay the outstanding principal amount of the Notes on the Commitment Termination Date. In addition, the Borrower: a. may make a voluntary prepayment in part in an aggregate principal amount of not less than $500,000 and an integral multiple of $100,000 in excess thereof, or in full of the outstanding principal amount of the Notes from time to -5- time at any time, in each case upon at least three Business Days' prior notice (or same day notice in the case of a Base Rate Loan) to the Bank; b. shall, on each date when any reduction in the Total Commitment Amount shall become effective pursuant to Section 2.2, make a mandatory ----------- prepayment of the Notes equal to the excess, if any, of the outstanding principal amount of all Loans over the Total Commitment Amount as so reduced; and c. shall, on each date when the sum of the aggregate principal amount of all Loans outstanding plus the Commercial Paper Indebtedness exceeds the Total Commitment Amount, make a mandatory prepayment of the then aggregate outstanding principal amount of all Loans in an aggregate amount equal to such excess. Each prepayment of a Note made pursuant to this Section shall be without premium or penalty, except as may be required by Section 4.5. All interest ----------- accrued on the principal amount of Notes prepaid shall be paid on the date of such prepayment. No prepayment of principal of the Notes pursuant to clause (a) or (c) above prior to the Commitment Termination Date shall ---------- --- cause a reduction in the Total Commitment Amount. Each prepayment of the Notes shall, except as the Borrower may otherwise have notified the Bank, be applied, to the extent of such prepayment: (a) first, to the principal amount thereof being maintained as a Base Rate Loan; and (b) second, to the principal amount thereof being maintained as a LIBO Rate Loan. L. SECTION 3.4 is amended in its entirety to read as follows: SECTION 3.4 Interest. The Borrower agrees to pay interest on the -------- principal amount of the Notes from time to time unpaid prior to and at Maturity at a rate per annum: (a) on that portion of the outstanding principal amount thereof maintained from time to time as a Base Rate Loan, equal to the sum of the Base Rate from time to time most recently announced plus the Applicable Margin per annum, and (b) on that portion of the outstanding principal amount thereof maintained from time to time as one or more LIBO Rate Loans during each applicable Interest Period, equal to the sum of the LIBO Rate (Reserve -6- Adjusted) for such Interest Period plus the Applicable Margin per annum. M. SECTION 3.5 is amended in its entirety to read as follows: SECTION 3.5 Post-Maturity Rates. After the Maturity of all or any ------------------- portion of the principal amount of the Loans or after any other monetary Liabilities shall have become due, the Borrower shall pay interest (after as well as before judgment) on the principal amount of all types of Loans so matured or on such other monetary Liabilities, as the case may be, at a rate per annum which is determined by increasing each of the Applicable Margins set forth in clauses (a) and (b) of Section 3.4 by 2% per annum for ----------- --- ----------- Loans so matured and, to the extent permitted by applicable law, at a rate per annum equal to the Base Rate plus 2% for such other monetary Liabilities. N. SECTION 3.6 is amended in its entirety to read as follows: SECTION 3.6 Payment Dates. Interest accrued on the Notes prior to ------------- Maturity (as aforesaid) shall be payable, without duplication: (a) on that portion of the outstanding principal amount of each Note maintained as a Base Rate Loan, on each Monthly Payment Date, commencing with the first such Monthly Payment Date following the date of such Notes; (b) on that portion of the outstanding principal amount of each Note maintained as one or more LIBO Rate Loans, on the last day of each applicable Interest Period; and (c) on that portion of the outstanding principal amount of each Note converted into a Base Rate Loan or a LIBO Rate Loan, as the case may be, on a day when interest would not otherwise have been payable pursuant to clause (a) or (b), on the date of such conversion. ---------- --- Interest on the Notes shall be payable at Maturity (as aforesaid) and, thereafter, on demand. The Bank shall give prompt notice to the Borrower of each computation of accrued interest before the due date thereof. O. ARTICLE IV is hereby amended in its entirety to read as follows: -7- ARTICLE IV BASE RATE AND LIBO RATE OPTIONS FOR THE LOANS SECTION 4.1 Elections. The Loans comprising any Borrowing may be made --------- as a "Base Rate Loan" or, at the Borrower's election made in accordance with -------------- this Section, as a loan having for each particular Interest Period a fixed rate of interest determined by reference to the LIBO Rate (Reserve Adjusted) (a "LIBO ---- Rate Loan"). The Borrower may request from time to time by delivering to the - --------- Bank a Continuation/Conversion Notice request, on not less than one (or not less than three if a Loan is to be continued as, or converted into, a LIBO Rate Loan) nor more than five Business Days' notice: (a) that all, or any portion in a minimum amount of $500,000 or an integral multiple of $100,000 in excess thereof, of the outstanding principal amount of any Borrowing be converted from Base Rate Loans into LIBO Rate Loans or, subject to Section 4.5, from LIBO Rate Loans ----------- into Base Rate Loans; and (b) on the expiration of the Interest Period applicable to any LIBO Rate Loans, that all, or any portion in a minimum amount of $500,000 or an integral multiple of $100,000 in excess thereof, of the outstanding principal amount of such LIBO Rate Loans be converted into Base Rate Loans; provided, however, that: (c) no portion of the outstanding principal amount of any Loans may be continued as, or be converted into, LIBO Rate Loans if, after giving effect to such action, the Interest Period applicable thereto shall extend beyond the date of any prepayment required by Section ------- 3.3, unless a sufficient principal amount of other Loans are being --- maintained as Base Rate Loans to permit such prepayment to be applied in full to such Base Rate Loans; and (d) no portion of the outstanding principal amount of any Loans may be continued as, or be converted into, a LIBO Rate Loan when any Default has occurred and is continuing. Each Continuation/Conversion Notice requesting that all, or any portion, of the principal amount of the Loans be continued as, or be converted into, LIBO Rate Loans shall specify the duration of the Interest Period commencing upon such continuation or conversion. -8- The Bank may, if it so elects, fulfill its commitment to make or continue any portion of the principal amount of a Loan as, or to convert any portion of the principal amount of a Loan into, one or more LIBO Rate Loans by causing a foreign branch or Affiliate of the Bank to make any such LIBO Rate Loan; provided, however, that in such event such LIBO Rate Loan shall be deemed to - ----------------- have been made by the Bank, and the obligation of the Borrower to repay such LIBO Rate Loan shall nevertheless be to the Bank and shall be deemed to be held by it, to the extent of such LIBO Rate Loan, for the account of such foreign branch or Affiliate; and provided, further, that the making of such LIBO Rate ----------------- Loans by a foreign branch or Affiliate of the Bank does not result in any additional Taxes assessable against the Bank in connection with any payments made by the Borrower hereunder. Whenever the Bank makes any notations pursuant to Section 3.2 on the grid ----------- attached to the Note (or on the continuation of such grid) and whenever the Bank converts a Loan into a Base Rate Loan or a LIBO Rate Loan, the Bank will make further notations on the grid attached to such Note (or on such continuation) reflecting the portions of the outstanding principal amounts thereof being maintained as a Base Rate Loan and LIBO Rate Loans. Failure to record any such amounts on the grid shall not limit or otherwise affect the obligations of the Borrower to make payments of principal and interest on each Note when due. The Borrower understands that, if it elects that any portion of the principal amount of a Borrowing be made, continued as, or converted into, a LIBO Rate Loan, the Bank may (while being entitled to fund all or any portion of such LIBO Rate Loan as it may see fit) wish to be able to fund such LIBO Rate Loan by purchasing Dollar deposits in its LIBOR Office's interbank eurodollar market. Accordingly, in connection with any determination to be made for purposes of Section 4.2, 4.3, 4.4 or 4.5, it shall be conclusively presumed that the Bank - ----------- --- --- --- has elected to fund all LIBO Rate Loans by purchasing Dollar deposits in such interbank eurodollar market. SECTION 4.2 LIBO Rate Lending Unlawful. If as the result of any -------------------------- Regulatory Change the Bank shall determine (which determination shall, in the absence of demonstrable error, be conclusive and binding on the Borrower) that it is unlawful for the Bank to make, continue or maintain a Loan as, or to convert a Loan into, one or more LIBO Rate Loans, the obligation of the Bank under Section 4.1 to make, continue or maintain any portion of the principal ----------- amount of a Loan as, or to convert such Loan into, one or more LIBO Rate Loans shall, upon such determination (and telephonic notice thereof confirmed in writing to the Borrower), forthwith terminate, and any portion of the principal amount of a Loan then maintained as one or more LIBO Rate Loans by the Bank shall automatically convert into a Base Rate Loan. If circumstances subsequently change so that the Bank shall determine that it is no -9- longer so affected, the obligation of the Bank under Section 4.1 to make or ----------- continue Loans as, or to convert Loans into, LIBO Rate Loans shall, upon such determination (and telephonic notice thereof confirmed in writing to the Borrower), forthwith be reinstated. SECTION 4.3 Deposits Unavailable. If prior to the date on which all or -------------------- any portion of the principal amount of any Loan is to be made, continued as, or converted into, a LIBO Rate Loan, the Bank shall determine for any reason whatsoever (which determination shall, in the absence of demonstrable error, be conclusive and binding on the Borrower) that dollar deposits in the relevant amount and for the relevant Interest Period are not available to the Bank in its relevant market, the Bank shall promptly give telephonic notice of such determination confirmed in writing to the Borrower, and the obligation under Section 4.1 of the Bank to make, continue any portion of the principal amount of - ----------- a Loan as, or to convert a Loan into, one or more LIBO Rate Loans shall, upon such notification, forthwith terminate; and the portion of all Loans then maintained as LIBO Rate Loans by the Bank shall on the expiration of the Interest Period applicable thereto automatically convert into Base Rate Loans. If circumstances subsequently change so that the Bank shall no longer be so affected, the Bank shall promptly give telephonic notice thereof confirmed in writing to the Borrower and the obligations of the Bank under Section 4.1 to ----------- make or continue Loans as, or convert Loans into, LIBO Rate Loans shall be reinstated. SECTION 4.4 Capital Adequacy; Increased Costs, etc. The Borrower -------------------------------------- further agrees to reimburse the Bank for any increase in the cost to the Bank of making, continuing, maintaining or converting (or of its obligation to make, continue, maintain or convert) any of its Loans hereunder (or any portion thereof) and for any reduction in the amount of any sum receivable by the Bank hereunder in respect of making, continuing, maintaining or converting (or of its obligation to make, continue, maintain or convert) any of its Loans hereunder (or any portion thereof) from time to time by reason of: (a) to the extent not included in the calculation of the LIBO Rate (Reserve Adjusted), the adoption or compliance with any capital adequacy, reserve, special deposit, or similar requirement against assets of, deposits with or for the account of, or credit extended by, the Bank, under or pursuant to any law, treaty, rule, regulation (including any F.R.S. Board regulation), or requirement in effect on the date hereof, or as the result of any Regulatory Change; or (b) any Regulatory Change which shall subject the Bank to any tax (other than taxes on net income or receipts), levy, impost, charge, fee, duty, deduction, or withholding of any kind whatsoever or change the taxation -10- of any Loan made or maintained as a LIBO Rate Loan and the interest thereon (other than any change which affects, and to the extent that it affects, the taxation of net income or receipts). In any such event, the Bank shall promptly notify the Borrower thereof stating the reasons therefor and the additional amount required fully to compensate the Bank for such increased cost or reduced amount. Such additional amounts shall be payable on demand after receipt of such notice. A statement as to any such increased cost or reduced amount or any change therein (including calculations thereof in reasonable detail) shall be submitted by the Bank to the Borrower and shall, in the absence of demonstrable error, be conclusive and binding on the Borrower. In the event that the Borrower is required to pay an additional amount pursuant to this Section 4.4 to the Bank, then the Borrower shall have ----------- the right to seek a substitute bank or banks to replace the Bank under this Agreement in accordance with the provisions of Section 10.11(b). ---------------- SECTION 4.5 Funding Losses. In the event the Bank shall incur any loss -------------- or expense (including any loss or expense incurred by reason of the liquidation, or reemployment of deposits or other funds acquired by the Bank to make, continue or maintain any portion of the principal amount of any Loan as, or to convert any portion of the principal amount of any Loan into, a LIBO Rate Loan) as a result of: (a) payment or prepayment of the principal amount of any LIBO Rate Loan on a date other than the scheduled last day of the Interest Period applicable thereto, whether pursuant to Section 3.3 or ----------- otherwise; (b) any conversion of all or any portion of the outstanding principal amount of any LIBO Rate Loan to a Base Rate Loan pursuant to Section 4.1 prior to the expiration of the Interest Period then ----------- applicable thereto (but excluding in each case any loss or expense resulting therefrom to the extent the Bank is reimbursed therefor by interest payable pursuant to clause (c) of Section 3.6); or ---------- ------------ (c) a Loan not being made, continued as, or converted into, a LIBO Rate Loan in accordance with a Loan Request or the Continuation/Conversion Notice given therefor (other than as the result of a default by the Bank in complying with such Loan Request or such Continuation/Conversion Notice); then, upon the request of the Bank, the Borrower shall pay directly to the Bank such amount as will (in the reasonable determination of the Bank) reimburse the Bank for such loss or -11- expense. A certificate as to any such loss or expense (including calculations thereof in reasonable detail) shall be submitted by the Bank to the Borrower and shall, in the absence of demonstrable error, be conclusive and binding on the Borrower. P. SECTION 6.18 is hereby added to the Loan Agreement, to read as follows: SECTION 6.18 Year 2000. The Borrower has reviewed the areas within --------- its business and operations which could be adversely affected by, and has developed or is developing a program to address, on a timely basis, the "Year 2000 Problem" (that is, the risk that computer applications used by the Borrower may be unable to recognize and perform properly date sensitive functions involving certain dates prior to and any date on or after December 31, 1999), and has made related appropriate inquiry of material suppliers and vendors. The Borrower believes that with modification and replacement of existing software and hardware, the Year 2000 Issue can be substantially mitigated. However, if such modifications and replacements are not made, or are not completed on a timely basis, which the Borrower currently does not anticipate, the Year 2000 Issue could have a material impact on the operations of the Borrower. The inability of a substantial number of third parties to complete their Year 2000 resolution process could materially impact the Borrower. Q. SECTION 6.19 is hereby added to the Loan Agreement, to read as follows: SECTION 6.19 Borrower's Solvency. Both prior to and after giving ------------------- effect to the Sixth Amendment to this Agreement dated October 29, 1998, and the increase in the Total Commitment effected thereby, the Borrower is and will be Solvent. As used in this Section, "Solvent" means the Borrower is able to pay its debts as they become due in the usual course of business. R. SECTION 7.2.6 is amended in its entirety to read as follows: SECTION 7.2.6 Dividends. Neither the Borrower nor either Guarantor --------- shall pay any dividends to its respective shareholders upon the occurrence, or during the continuance of, any Default. No dividend shall be paid by Borrower or either Guarantor other than in accordance with all applicable provisions of law including, without limitation, the Delaware General Corporation Law, as amended. S. SECTION 8.1.11 is amended in its entirety to read as follows: -12- SECTION 8.1.11 Credit Rating. Borrower having neither a Credit ------------- Rating from S&P nor Moody's at the same time, or having a Credit Rating from S&P of less than BB- or a Credit Rating from Moody's of less than Ba3. T. SECTION 8.1.12 is hereby added to the Loan Agreement, to read as follows: SECTION 8.1.12 Funded Debt Ratio. The ratio of Borrower's total ----------------- Indebtedness for Borrowed Money on any day to total earnings for the last four consecutive complete calendar quarters (before interest, taxes, depreciation and amortization and excluding any extraordinary gains or losses) exceeds 2.5:1, and Borrower's Credit Rating is at Level II or Level III. 1. All other terms and conditions of the Loan Agreement all remain in full force and effect and are hereby ratified. 2. This sixth Amendment may be executed by the parties hereto in several counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. 3. As of the date hereof, no Default or Event of Default has occurred and is continuing. 4. The representations and warranties set forth in Article VI Loan Agreement are true and correct on and as of the date of as if made on the date hereof. 5. This Sixth Amendment shall be governed by the internal laws of the State of New York. 6. Each Guarantor consents to the terms of this Sixth Amendment including, without limitation, the increase to the Total Commitment Amount, confirms the continuing validity and effectiveness of its guaranty and agrees that its guaranty shall be unaffected by the terms of this Sixth Amendment. -13- IN WITNESS WHEREOF, Borrower, Bank and the Guarantors have caused this Sixth Amendment to the Senior Revolving Loan Agreement to be executed by their respective, duly authorized officers or representatives as of the day and year first above written. CONSOLIDATION COAL COMPANY By /s/ Karen L. Zemba ---------------------------- Karen L. Zemba Vice President and Treasurer MORGAN GUARANTY TRUST COMPANY OF NEW YORK By /s/ Kathryn Sayko-Yanes ----------------------------- Name Kathryn Sayko-Yanes --------------------------- Title Vice President -------------------------- CONSOL Inc. By /s/ Karen L. Zemba ----------------------------- Its Vice President & President ---------------------------- CONSOL Energy Inc. By /s/ J. P. Garniewski ----------------------------- Its J. P. Garniewski Jr., Assistant Secretary ----------------------------------------- -14- SCHEDULE TO EXHIBIT 10.7 In addition, to Exhibit 10.7, Consolidation Coal Company entered into Sixth Amendments to the Senior Revolving Loan Agreements of the same date with each of the following banks, all of which are substantially identical to Exhibit 10.7 in all material respects: PNC Bank The Bank of Nova Scotia Citibank N.A. Mellon Bank, N.A. EX-10.8 9 7TH AMEND TO LOAN AGREEMENT, 1/19/99 EXHIBIT 10.8 ------------ SEVENTH AMENDMENT TO SENIOR REVOLVING LOAN AGREEMENT THIS AMENDMENT, made and entered into this 19th day of January, 1999, by and between CONSOLIDATION COAL COMPANY, a Delaware corporation ("Borrower") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK ("Bank"). WITNESSETH: WHEREAS, Borrower and Bank are parties to a Senior Revolving Loan Agreement dated as of December 23, 1993, as amended (the "Loan Agreement"); and WHEREAS, Borrower and Bank desire to hereby amend SECTION 2.1 of the Loan Agreement, effective January 19, 1999. NOW, THEREFORE, in consideration of the foregoing premises, and intending to be legally bound hereby, Borrower and Bank hereby agree as follows: 1. SECTION 2.1 of the Loan Agreement is hereby amended in its entirety to read as follows, effective January 19, 1999: SECTION 2.1 Commitment. Subject to the terms and conditions of this ---------- Agreement (including Article V), the Bank agrees that it will, from time to --------- time on any Business Day occurring during the period commencing January 19, 1999 and continuing to (but not including) the Commitment Termination Date, make loans ("Loans") to the Borrower equal to the amount of the Borrowing ----- requested on each such Business Day; provided, however, that all such Loans -------- ------- shall be made on a pro rata basis with loans from all other banks which have Senior Revolving Loan Agreements with the Borrower, and the Bank shall not be permitted or required to make any Loan if, after giving effect thereto, the sum of the aggregate amount of Commercial Paper Indebtedness and the aggregate principal amount of all Loans outstanding at any one time from the Bank plus the aggregate of all loans outstanding under Borrower's other Senior Revolving Loan Agreements would exceed $800,000,000. Subject to the terms hereof, the Borrower may from time to time prior to the Commitment Termination Date borrow, prepay, and reborrow amounts pursuant to this Commitment. 2. All other terms and conditions of the Loan Agreement shall remain in full force and effect and are hereby ratified. 3. This Seventh Amendment may be executed by the parties hereto in several counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. 4. This Seventh Amendment shall be governed by the internal laws of the State of New York. 5. Each Guarantor consents to the terms of this Seventh Amendment including, without limitation, the increase to the Total Commitment Amount, confirms the continuing validity and effectiveness of its guaranty and agrees that its guaranty shall be unaffected by the terms of this Seventh Amendment. IN WITNESS WHEREOF, Borrower, Bank and the Guarantors have caused this Seventh Amendment to the Senior Revolving Loan Agreement to be executed by their respective, duly authorized officers or representatives as of the day and year first above written. CONSOLIDATION COAL COMPANY /s/Karen L. Zemba By---------------------- Karen L. Zemba Vice President and Treasurer MORGAN GUARANTY TRUST COMPANY OF NEW YORK By_____________________ Name___________________ Title__________________ -2- CONSOL INC. /s/ Karen L. Zemba By------------------------------- Karen L. Zemba Vice President and Treasurer CONSOL ENERGY INC. /s/ J.P. Garniewski By------------------------------- J. P. Garniewski, Jr., Assistant Secretary -3- SCHEDULE TO EXHIBIT 10.8 In addition, to Exhibit 10.8, Consolidation Coal Company entered into Seventh Amendments to the Senior Revolving Loan Agreements of the same date with each of the following banks, all of which are substantially identical to Exhibit 10.8 in all material respects: PNC Bank The Bank of Nova Scotia Citibank N.A. Mellon Bank, N.A. EX-10.9 10 SENIOR LOAN AGREEMENT, 9/29/98, FIRST UNION EXHIBIT 10.9 ------------ U.S. $100,000,000 SENIOR REVOLVING LOAN AGREEMENT, dated as of November 13, 1998 among CONSOLIDATION COAL COMPANY as the Borrower and THE FIRST NATIONAL BANK OF CHICAGO as the Bank TABLE OF CONTENTS ARTICLE I DEFINITIONS SECTION 1.1 Defined Terms............................................. 1 SECTION 1.2 Use of Defined Terms...................................... 11 SECTION 1.3 Accounting and Financial Determinations................... 11 ARTICLE II COMMITMENTS SECTION 2.1 Commitments............................................... 11 SECTION 2.2 Total Commitment Amount................................... 12 SECTION 2.3 Fees...................................................... 12 SECTION 2.4 Commitment Termination Date............................... 12 ARTICLE III LOANS AND NOTES SECTION 3.1 Borrowing Procedure....................................... 13 SECTION 3.2 Note...................................................... 13 SECTION 3.3 Principal Payments and Prepayments........................ 13 SECTION 3.4 Interest.................................................. 14 SECTION 3.5 Post-Maturity Rates....................................... 14 SECTION 3.6 Payment Dates............................................. 14 SECTION 3.7 Payments, Computations, etc............................... 15 SECTION 3.8 Setoff.................................................... 15 SECTION 3.9 Taxes..................................................... 15 ARTICLE IV BASE RATE AND LIBO RATE OPTIONS FOR THE LOANS SECTION 4.1 Elections................................................. 17 SECTION 4.2 LIBO Rate Lending Unlawful................................ 18 SECTION 4.3 Deposits Unavailable...................................... 18 SECTION 4.4 Capital Adequacy; Increased Costs, etc.................... 19 SECTION 4.5 Funding Losses............................................ 19 ARTICLE V CONDITIONS PRECEDENT SECTION 5.1 Initial Borrowing....................................... 20 SECTION 5.1.1 Resolutions, etc........................................ 20 SECTION 5.1.2 Delivery of Notes....................................... 21 SECTION 5.1.3 Opinions of Counsel..................................... 21 SECTION 5.1.4 Parent Guaranty......................................... 21 SECTION 5.1.5 Significant Subsidiary Guaranty......................... 21 SECTION 5.1.6 Subordination Agreement................................. 21 SECTION 5.1.7 Credit Rating........................................... 21 SECTION 5.1.8 Satisfactory Legal Form................................. 21 SECTION 5.2 All Loans............................................... 21 SECTION 5.2.1 Compliance with Warranties, non-Default, etc............ 21 SECTION 5.2.2 Absence of Litigation, etc.............................. 22 SECTION 5.2.3 Loan Request............................................ 22 ARTICLE VI WARRANTIES, ETC. SECTION 6.1 Organization, Power, Authority, etc..................... 22 SECTION 6.2 Due Authorization....................................... 22
SECTION 6.3 Validity, etc............................................ 22 SECTION 6.4 Financial Information.................................... 22 SECTION 6.5 Absence of Certain Default............................... 23 SECTION 6.6 Litigation, etc.......................................... 23 SECTION 6.7 Regulation U............................................. 23 SECTION 6.8 Government Regulation.................................... 23 SECTION 6.9 Certain Contractual Obligations or Organic Documents..... 24 SECTION 6.10 Taxes.................................................... 24 SECTION 6.11 Pension and Welfare Plans................................ 24 SECTION 6.12 Labor Controversies...................................... 24 SECTION 6.13 Subsidiaries and Significant Subsidiaries................ 24 SECTION 6.14 Patents, Trademarks, Etc................................. 24 SECTION 6.15 Ownership of Properties; Liens........................... 24 SECTION 6.16 Accuracy of Information.................................. 24 SECTION 6.17 Environmental Warranties................................. 25 SECTION 6.18 Year 2000................................................ 26 SECTION 6.19 Borrower's Solvency...................................... 26 ARTICLE VII COVENANTS SECTION 7.1 Certain Affirmative Covenants........................... 26 SECTION 7.1.1 Financial Information, etc.............................. 27 SECTION 7.1.2 Maintenance of Corporate Existences, etc................ 27 SECTION 7.1.3 Foreign Qualification................................... 27 SECTION 7.1.4 Payment of Taxes, etc................................... 28 SECTION 7.1.5 Insurance............................................... 28 SECTION 7.1.6 Notice of Default, Litigation, etc...................... 28 SECTION 7.1.7 Performance of Loan Documents........................... 29 SECTION 7.1.8 Books and Records....................................... 29 SECTION 7.1.9 Significant Subsidiary Guaranty......................... 29 SECTION 7.1.10 Environmental Covenant.................................. 29 SECTION 7.2 Certain Negative Covenants.............................. 29 SECTION 7.2.1 Indebtedness for Borrowed Money......................... 30 SECTION 7.2.2 Liens................................................... 30 SECTION 7.2.3 Consolidation, Merger, etc.............................. 31 SECTION 7.2.4 Transactions with Affiliates............................ 31 SECTION 7.2.5 Sale or Discount of Receivables......................... 31 SECTION 7.2.6 Dividends............................................... 31 SECTION 7.2.7 Inconsistent Agreements................................. 31 SECTION 7.2.8 Loans, Advances and Investments......................... 31 SECTION 7.2.9 Guaranties.............................................. 32 SECTION 7.2.10 Securities.............................................. 32 SECTION 7.2.11 Business Activities..................................... 33 ARTICLE VIII EVENTS OF DEFAULT SECTION 8.1 Events of Default....................................... 33 SECTION 8.1.1 Non-Payment of Liabilities.............................. 33 SECTION 8.1.2 Non-Performance of Certain Covenants.................... 33 SECTION 8.1.3 Certain Defaults on Other Indebtedness for Borrowed Money................................................... 33 SECTION 8.1.4 Bankruptcy, Insolvency, etc............................. 33 SECTION 8.1.5 Control of the Borrower or CEI.......................... 34 SECTION 8.1.6 Non-Performance of Other Obligations.................... 34 SECTION 8.1.7 Breach of Representation or Warranty.................... 34 SECTION 8.1.8 Pension Plans........................................... 34 SECTION 8.1.9 Judgments............................................... 34 SECTION 8.1.10 Parent Guaranty, Significant Subsidiary Guaranty and Subordination Agreement............................. 34 SECTION 8.1.11 Credit Rating........................................... 34
SECTION 8.1.12 Funded Debt Ratio....................................... 34 SECTION 8.2 Action if Bankruptcy.................................... 35 SECTION 8.3 Action if Other Event of Default........................ 35 ARTICLE IX NO PREFERENTIAL PROVISIONS SECTION 9.1 No Preferential Provisions.............................. 35 SECTION 9.2 Pro Rata Borrowings and Payments........................ 35 ARTICLE X MISCELLANEOUS SECTION 10.1 Waivers, Amendments, etc. of Loans and Notes; Participation in Loans and Notes........................ 35 SECTION 10.2 Notices................................................. 36 SECTION 10.3 Costs and Expenses...................................... 36 SECTION 10.4 Indemnification......................................... 36 SECTION 10.5 Survival................................................ 36 SECTION 10.6 Severability............................................ 36 SECTION 10.7 Headings................................................ 36 SECTION 10.8 Counterparts, Effectiveness, etc........................ 37 SECTION 10.9 Governing Law; Entire Agreement......................... 37 SECTION 10.10 Successors and Assigns.................................. 37 SECTION 10.11 Sale and Transfers, etc., of Loans and Notes; Participations in Loans and Notes....................... 37 SECTION 10.12 Other Transactions...................................... 38 SECTION 10.13 Waiver of Jury Trial.................................... 39 SECTION 10.14 Consent to Jurisdiction and Service of Process.......... 39
EXHIBITS EXHIBIT A - Note EXHIBIT B - Loan Request EXHIBIT C - Continuation/Conversion Notice EXHIBIT D - Confidentiality Agreement EXHIBIT E - Disclosure Schedule EXHIBIT F - Opinion of Borrower's General Counsel EXHIBIT G - Parent Guaranty EXHIBIT H - Significant Subsidiary Guaranty EXHIBIT I - Assignment and Acceptance EXHIBIT J - Commitment Termination Date Extension Request EXHIBIT K - Not assigned EXHIBIT L - Subordination Agreement EXHIBIT M - Permitted Investments EXHIBIT N - LIBOR and Domestic Offices of Banks and Addresses for Notices SENIOR REVOLVING LOAN AGREEMENT THIS SENIOR REVOLVING LOAN AGREEMENT, dated as of October 29, 1998, between CONSOLIDATION COAL COMPANY, a Delaware corporation (the "Borrower"), and THE FIRST NATIONAL BANK OF CHICAGO (the "Bank"). W I T N E S S E T H: WHEREAS, the Borrower desires to obtain a Commitment from the Bank under this Agreement pursuant to which Loans, in a maximum aggregate principal amount at any one time outstanding not to exceed $100,000,000, will be made to the Borrower from time to time prior to the Commitment Termination Date; and WHEREAS, the Bank is willing, on the terms and conditions hereinafter set forth (including Article V), to extend such Commitment and make such Loans to the Borrower; and WHEREAS, the proceeds of such Loans will be used for general corporate purposes and working capital purposes of the Borrower and Subsidiaries of CEI; NOW, THEREFORE, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS SECTION 1.1 Defined Terms. The following terms (whether or not ------------- underscored) when used in this Agreement, including its preamble and recitals, shall, except where the context otherwise requires, have the following meanings (such definitions to be equally applicable to the singular and plural forms thereof): "Affiliate" of any Person means any other Person which, directly or ----------- indirectly, controls or is controlled by or under common control with such Person (excluding any trustee under, or any committee with responsibility for administering, any Pension Plan). A Person shall be deemed to be "controlled by" any other Person if such other Person possesses, directly or indirectly, power: (a) to vote 10% or more of the securities (on a fully diluted basis) having ordinary voting power for the election of directors or managing general partners of such Person; or (b) to direct or cause the direction of the management and policies of such Person whether by contract or otherwise. "Agreement" means, at any date, this loan agreement as originally in effect ----------- on the Effective Date, and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified and in effect on such date. "Applicable Margin" means, for any Interest Period, the amount indicated ----------------- below for each type of Loan based upon the Credit Rating for each day during such Interest Period: -1- LIBO Base Rate Rate Credit Rating Loans Loans - --------------- ------ ------ Level I 0.350% 0% Level II 0.500% 0% Level III 1.250% 1.00% "Approval" means each and every approval, consent, filing and registration -------- by or with any Federal, state or other regulatory authority necessary to authorize or permit the execution, delivery or performance of this Agreement, the Notes or any other Loan Document or for the validity or enforceability hereof or thereof. "Assignment and Acceptance" means any assignment and acceptance, ------------------------- substantially in the form of Exhibit I hereto. --------- "Authorized Officer" means, relative to any Loan Party, those of its ------------------ officers whose signatures and incumbency shall have been certified to the Bank. "Bank" is defined in the preamble. ---- -------- "Base Rate" means at any time and with respect to all Base Rate Loans, a --------- fluctuating rate of interest per annum equal to the higher of: (a) a rate of interest equal to the corporate base rate of interest announced by the Bank from time to time, changing when and as said corporate base rate changes; and (b) the Federal Funds Rate plus 1/2%. The Base Rate is not necessarily intended to be the lowest rate of interest charged by the Bank in connection with extensions of credit. Changes in the rate of interest on Loans maintained as Base Rate Loans shall take effect simultaneously with each change in the Base Rate. "Base Rate Loan" is defined in Section 4.1. -------------- ----------- "Borrower" is defined in the preamble. -------- -------- "Borrowing" means the Loans made by the Bank on any Business Day in --------- accordance with Section 3.1. ----------- "Business Day" means: ------------ (a) any day which is neither a Saturday or Sunday nor a legal holiday in the State of New York or North Carolina or Virginia on which Banks are authorized or required to be closed in New York City or Charlotte or Roanoke; and (b) relative to the date of (i) making or continuing any portion of any Loans as, or converting any portion of any Loans from or into LIBO Rate Loans, (ii) making any payment or prepayment of principal of or payment of interest on the portion of the principal amount of the Loans being maintained as LIBO Rate Loans, and (iii) the Borrower's giving any notice (or the number of Business Days to elapse prior to the effectiveness thereof) in -2- connection with any matter referred to in clause (b )(i) or (b) (ii), a -------------- -------- banking business day of the Bank at, and on which dealings in Dollars are carried on in the interbank eurodollar market of, the Bank's LIBOR Office. "CEI" means Consol Energy Inc., a Delaware corporation. --- "CERCLA" means the Comprehensive Environmental Response, Compensation and ------ Liability Act of 1980, as amended. "CERCLIS" means the Comprehensive Environmental Response Compensation ------- Liability Information System List. "Change in Control" means: ----------------- (a) with respect to the Borrower, the failure of CEI to own, directly or indirectly, free and clear of all Liens or other encumbrances, one hundred percent (100%) of the outstanding shares of capital stock of the Borrower on a fully diluted basis; and (b) with respect to CEI, the failure of Rheinbraun AG and RG to own, directly or indirectly, a cumulative total of at least fifty-one percent (51%) of the outstanding shares of capital stock of CEI, on a fully diluted basis, in each case, free and clear of all Liens and other encumbrances. "CI" means Consol Inc., a Delaware corporation. -- "Code" means the Internal Revenue Code of 1986, and the regulations ---- thereunder, as amended from time to time. "Commercial Paper Indebtedness" means commercial paper issued by the ----------------------------- Borrower with an original maturity of not more than 270 days from the date of issuance, incurrence or other creation thereof and, at the time any determination thereof is to be made, means the then aggregate outstanding face amount (if issued, incurred or created on a discount basis) or principal amount together with interest thereon to stated maturity (if issued, incurred or created on an interest-bearing basis) of such commercial paper. "Commitment" means the Bank's obligation to make Loans pursuant to Section ---------- ------- 2.1. - --- "Commitment Termination Date" means the earliest of --------------------------- (a) October 22, 1999 as such date may be extended pursuant to Section ------- 2.4; ---- (b) five Business Days after notice is given by the Borrower to the Bank for purposes of designating a Commitment Termination Date pursuant to this clause, provided that, on such designated Commitment Termination Date, -------- no Loans are outstanding; (c) immediately and without further action upon the occurrence of any Default described in Section 8.1.4 with respect to the Borrower; and ------------- (d) immediately when any other Event of Default shall have occurred and be continuing and the Loans shall be declared to be due and payable pursuant to Section 8.3. ----------- -3- "Commitment Termination Date Extension Request" means a request --------------------------------------------- substantially in the form of Exhibit J attached hereto duly executed by an --------- Authorized Officer of the Borrower. "Confidentiality Agreement" means a confidentiality agreement duly executed ------------------------- by an Authorized Officer of the Borrower and the Bank substantially in the form of Exhibit D attached hereto (as such may be amended, supplemented, restated or --------- otherwise modified and in effect from time to time with the consent of the Borrower and the Bank). "Consolidated Subsidiary" of any Person means, at any time, every ------------------------ Subsidiary which would be included as a consolidated subsidiary of such Person in its consolidated financial statements as of such time; unless otherwise specified, "Consolidated Subsidiary" means a Consolidated Subsidiary of CEI and shall include the Borrower. "Continuation/Conversion Notice" means a notice of continuation or ------------------------------ conversion and certificate duly executed by the chief executive or financial Authorized Officer of the Borrower substantially in the form of Exhibit C --------- attached hereto. "Contractual Obligation" means, relative to any Person, any provision of ---------------------- any security issued by such Person or of any Instrument or undertaking to which such Person is a party or by which it or any of its property is bound. "Controlled Group" means all members of a controlled group of corporations ---------------- and all members of a controlled group of trades or businesses (whether or not incorporated) under common control which, together with the Borrower or either Guarantor, are treated as a single employer under Section 414 of the Code or Section 4001 of ERISA. "Credit Rating" means the credit rating of the Borrower's long-term ------------- unsecured debt securities without third-party credit enhancement by any two of S&P, Moody's, D&P, or Fitch, one of which must be S&P or Moody's. "Level I" Credit Rating means a Credit Rating of any two credit rating agencies, one of which must be by S&P or Moody's, of at least A- in the case of S&P, at least A3 in the case of Moody's, at least A- in the case of D&P and at least A- in the case of Fitch. "Level II" Credit Rating means a Credit Rating of any two credit rating agencies, one of which must be by S&P or Moody's, of less than A- but at least BBB- in the case of S&P, less than A3 but at least Baa3 in the case of Moody's, less than A- but at least BBB- in the case of D&P or less than BBB- in the case of Fitch. ."Level III" Credit Rating means a Credit Rating of any two credit rating agencies, one of which must be by S&P or Moody's, of less than BBB- in the case of S&P, less than Baa3 in the case of Moody's, less than BBB- in the case of D&P and less than BBB- in the case of Fitch, or there being neither a Credit Rating from S&P nor Moody's, at the same time. "Default" means any Event of Default or any condition or event which, after ------- notice or lapse of time or both, would constitute an Event of Default. "Dollar" and the sign "$" all mean lawful money of the United States of ------ - America. "Domestic Office" means, relative to the Bank, the office of the Bank --------------- designated as such on Exhibit N hereto or such other office of the Bank (or any --------- successor or assign of the Bank) within the United States of America as may be designated from time to time by notice from the Bank to each other Person party hereto. -4- "D&P" means Duff & Phelps Credit Rating Co. --- "Effective Date" means the date this Agreement becomes effective pursuant -------------- to Section 10.8. ------------ "Environmental Laws" means all applicable federal, state or local statutes, ------------------ laws, ordinances, codes, rules, regulations and guidelines (including consent decrees and administrative orders) relating to public health and safety and protection of the environment, including CERCLA and SMCRA. "ERISA" means the Employee Retirement Income Security Act of 1974, as ----- amended. "Event of Default" is defined in Section 8.1. ---------------- ----------- "Exemption Agreement" is defined in Section 3.9(c). ------------------- -------------- "Exemption Representation" is defined in Section 3.9(d). ------------------------ -------------- "Extension Effective Date" means, with respect to any Commitment ------------------------ Termination Date, the date which is 60 days prior to such Commitment Termination Date. "Federal Funds Rate" means, for any day, a fluctuating interest rate per ------------------ annum equal to (a) the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York; or (b) if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Bank from three federal funds brokers of recognized standing selected by it. "Fiscal Quarter" means any quarter of a Fiscal Year. -------------- "Fiscal Year" means any period of twelve consecutive calendar months ending ----------- on December 31. "Fitch" means Fitch Investors Service, Inc. ----- "F.R.S. Board" means the Board of Governors of the Federal Reserve System ------------ (or any successor). "GAAP" means generally accepted United States accounting principles. ---- "Guarantors" means CEI and CI. ---------- "Guaranty" means any agreement, undertaking or arrangement by which any -------- Person guarantees, endorses or otherwise becomes or is contingently liable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to, or otherwise to invest in, a debtor, or otherwise to assure a creditor against loss) the debt, obligation or other liability of any other Person (other than by endorsements of instruments in the course of collection), or guarantees the payment of dividends or other distributions upon the shares of any other Person. The amount of the obligor's obligation under any guaranty shall (subject to any limitation set forth therein) be deemed to be the outstanding principal amount (or maximum -5- outstanding principal amount, if larger) of the debt, obligation or other liability thereby guaranteed. "Hazardous Material" means ------------------ (a) any "hazardous substance". as defined by CERCLA; (b) any "hazardous waste", as defined by RCRA; (c) any petroleum product; or (d) any pollutant or contaminant or hazardous, dangerous or toxic chemical, material or substance within the meaning of any other Environmental Law. "hereof", "hereto", "hereunder" and similar terms refer to this Agreement ------ ------ --------- and not to any particular Section or provision of this Agreement. "Impermissible Qualification" means, relative to the opinion by independent --------------------------- public accountants as to any financial statement of CEI, any qualification or exception to such opinion: (a) which is of a "going concern" or similar nature; or (b) which relates to the limited scope of examination of matters relevant to such financial information. "including" means including without limiting the generality of any --------- description preceding such term. "Indebtedness" of any Person means, without duplication: ------------ (a) Indebtedness for Borrowed Money; (b) all items other than as described in clause (a) ---------- which, in accordance with GAAP, would be included as liabilities on the liability side of a balance sheet of such Person as of the date at which Indebtedness is to be determined; and (c) whether or not so included as liabilities in accordance with GAAP (i) all indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements) whether or not such indebtedness shall have been assumed by such Person, (ii) all Guaranties issued by such Person "Indebtedness for Borrowed Money" of any Person means, without duplication, ------------------------------- all obligations of such Person, and all Guaranties issued by such Person, for borrowed money (including all notes payable and drafts accepted representing extensions of credit and all obligations evidenced by bonds, debentures, notes, unpaid reimbursement obligations under drawn letters of credit or other similar instruments) on which interest charges are customarily paid. "Indemnified Liabilities" is defined in Section 10.4. ----------------------- ------------ "Instrument" means any document or writing (whether by formal agreement, ---------- letter or otherwise) under which any obligation is evidenced, assumed or undertaken, or any right to any Lien is granted or perfected. -6- "Interest Period" means, relative to any LIBO Rate Loan, the period which --------------- shall begin on (and include) the date on which such LIBO Rate Loan is made or continued as, or converted into, a LIBO Rate Loan pursuant to Section 4.1, and, ----------- unless the final maturity of such LIBO Rate Loan is accelerated, shall end on (but exclude) the day which numerically corresponds to such date one week or one, two, or three months thereafter, as the Borrower may select in its relevant notice pursuant to Section 4.1; provided, however, that: ----------- (a) the Borrower shall not be permitted to select Interest Periods to be in effect at any one time which have expiration dates occurring on more than eight different dates; (b) absent such selection, the Borrower shall be deemed to have selected an Interest Period of one month provided, that if another duration -------- shall be required in order to comply with clause (a), such Loan shall be a ---------- Base Rate Loan for such duration; (c) if there exists no numerically corresponding day in such month, such Interest Period shall end on the last Business Day of such month; (d) if such Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end on the Business Day next following such numerically corresponding day (unless such next following Business Day is the first Business Day of a calendar month, in which case such Interest Period shall end on the preceding Business Day); and (e) no Interest Period shall end later than the date established pursuant to clause (a) or (b) of the definition of Commitment Termination ---------- --- Date. "Liabilities" means all obligations (monetary or otherwise) of the Borrower ----------- under this Agreement, the Notes and each other Loan Document. "LIBO Rate" means, relative to each Interest Period applicable to any LIBO --------- Rate Loans comprising all or any part of any Borrowing, conversion or continuation, the rate per annum which appears on Telerate page 3750 or Telerate page 4833 as of 11:00 a.m., London time, two Business Days prior to the beginning of such Interest Period, provided that (i) if more than one such offered rate appears on the Telerate page, the LIBO Rate will be the arithmetic average (rounded, if necessary, to the nearest 1/100th of 1%) of such offered rates; and (ii) if no such offered rates appear on such page, the LIBO Rate for such Interest Period will be the arithmetic average (rounded, if necessary, to the nearest 1/100th of 1%) of rates quoted by not less than two major banks in New York City, selected by the Borrower, at approximately 11:00 a.m., New York City time, two Business Days prior to the beginning of such Interest Period, for delivery on the first day of such Interest Period, for the number of days comprised therein and in an amount equal to the amount of the LIBO Rate Loan of the Bank to be outstanding during such Interest Period. "LIBO Rate Loan" is defined in Section 4.1. -------------- ----------- "LIBO Rate (Reserve Adjusted)" means, relative to any portion of a Loan to ---------------------------- be made, continued or maintained as, or converted into, a LIBO Rate Loan for any Interest Period, a rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) determined pursuant to the following formula: LIBO Rate = LIBO Rate ---------------------------- (Reserve Adjusted) 1 - LIBOR Reserve Percentage -7- The Bank shall determine the LIBO Rate (Reserve Adjusted) for each Interest Period, applicable to LIBO Rate Loans comprising all or part of any Borrowing, conversion or continuation and promptly notify the Borrower thereof (which determination shall, in the absence of demonstrable error, be conclusive and binding on the Borrower) and, if requested by the Borrower, deliver a statement showing the computation used by the Bank in making such determination. "LIBOR Office" means the office of the Bank designated as such on Exhibit N ------------ --------- hereto or such other domestic or foreign office or offices of the Bank (as designated from time to time by notice from the Bank to the Borrower). "LIBOR Reserve Percentage" means, relative to each Interest Period, a ------------------------ percentage (expressed as a decimal) equal to the daily average during such Interest Period of the percentages in effect on each day of such Interest Period, as prescribed by the F.R.S. Board, for determining reserve requirements applicable to "Eurocurrency Liabilities" pursuant to Regulation D or any other applicable regulation of the F.R.S. Board which prescribes reserve requirements applicable to "Eurocurrency Liabilities" as presently defined in Regulation D as applicable to the Bank or any Participant of the Bank with respect to such participation. "Lien" means any mortgage, pledge, hypothecation, charge, assignment, ---- deposit arrangement, encumbrance, lien (statutory or other), or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever securing Indebtedness (including any conditional sale or other title retention agreement, any financing lease involving substantially the same economic effect as any of the foregoing, accompanied by the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction). "Loans" is defined in Section 2.1. ----- ----------- "Loan Document" means this Agreement and each Instrument and any other ------------- document from time to time executed and delivered to the Bank pursuant hereto, whether or not mentioned herein, including the Notes, the Parent Guaranty, the Significant Subsidiary Guaranty and the Subordination Agreement. "Loan Party" means the Borrower, each Guarantor, each Significant ---------- Subsidiary and any other party (other than the Bank) that executes and delivers a Loan Document. "Loan Request" means a loan request and certificate duly executed by the ------------ chief executive or financial Authorized Officer of the Borrower substantially in the form of Exhibit B attached hereto. --------- "Materially Adverse Effect" means any occurrence of whatever nature ------------------------- (including any adverse determination in any litigation, arbitration or governmental investigation or proceeding) which would reasonably be expected, on a consolidated basis for CEI and its Subsidiaries (including the Borrower) in accordance with GAAP, to have a materially adverse effect on (a) the consolidated financial condition, business, operations or properties of CEI and its Subsidiaries (including the Borrower) taken as a whole or (b) the ability of the Borrower or any other Loan Party to perform any of its payment or other material obligations under this Agreement or any other Loan Document. "Maturity" means, relative to any Loan, the date on which such Loan is -------- stated to be due and payable, in whole or in part (in accordance with the Note evidencing such Loan, this Agreement, or otherwise), or such earlier date when such Loan (or any portion thereof) shall be or become due and payable, in -8- whole or in part, in accordance with the terms of this Agreement, whether by required prepayment, declaration, or otherwise. "Monthly Payment Date" means the last day of each calendar month, or if -------------------- such day is not a Business Day, the next succeeding Business Day. "Moody's" means Moody's Investors Service, Inc. ------- "Non-United States Person" means a Person who is not (i) a citizen, ------------------------ national or resident of the United States, (ii) a corporation, partnership or other entity created or organized in or under the laws of the United States or any political subdivision thereof, or (iii) an estate or trust, in each case the income of which is subject to United States Federal income taxation regardless of the source of its income. "Note" means any promissory note of the Borrower, dated the date hereof, ---- substantially in the form of Exhibit A attached hereto (as such promissory note --------- may be amended, endorsed, or otherwise modified from time to time) and all other promissory notes accepted from time to time in substitution, replacement, or renewal therefor. "Ongoing Indebtedness" means the Indebtedness described in Item 7.2.1(iii) -------------------- --------------- of Exhibit E hereto. --------- "Organic Document" means, relative to any corporation, its certificate of ---------------- incorporation, its by-laws and all shareholder agreements, voting trusts and similar arrangements applicable to any of its authorized shares of capital stock. "Parent Guaranty" that certain guaranty, executed by each Guarantor, --------------- substantially in the form of Exhibit G attached hereto (as such may be amended, --------- supplemented, restated or otherwise modified and in effect from time to time). "Participant" is defined in Section 10.11. ----------- ------------- "PBGC" means the Pension Benefit Guaranty Corporation, a United States ---- corporation and any entity succeeding to all or any of its functions under ERISA. "Pension Plan" means a "pension plan", as such term is defined in section ------------ 3(2) of ERISA, which is subject to Title IV of ERISA (other than a multiemployer plan as defined in section 4001(a)(3) of ERISA), and to which the Borrower or any corporation, trade or business that is, along with the Borrower, a member of a Controlled Group, may have any liability, including any liability by reason of having been a substantial employer within the meaning of section 4063 of ERISA at any time during the five years preceding this Agreement, or by reason of being deemed to be a contributing sponsor under section 4069 of ERISA. "Permitted Investment" means, at any time, each of the investments listed -------------------- on Exhibit M hereto. --------- "Person" means any natural person, corporation, firm, association, ------ government, governmental agency or any other entity, whether acting in an individual, fiduciary or other capacity. "Purchasing Bank" is defined in Section 10.11(b). --------------- ---------------- "Quarterly Payment Date" means the last day of any Fiscal Quarter or, if ---------------------- such day is not a Business Day, the next succeeding Business Day. -9- "RCRA" means the Resource Conservation and Recovery Act, 42 U.S.C. Section ---- 6901, et seq., as in effect from time to time. "Regulatory Change" means, relative to any Bank, any change after the date ----------------- hereof in any (or the adoption after the date hereof of any new): (a) United States Federal or state law or foreign law applicable to such Bank; or (b) rule, regulation, interpretation, directive or request (whether or not having the force of law) applying to such Bank of any court or governmental authority charged with the interpretation or administration of any law referred to in clause (a) or of any fiscal, monetary or other ---------- authority having jurisdiction over such Bank. "Release" means a "release", as such term is defined in CERCLA. ------- "Reportable Event" means a "reportable event" described in Section 4043(b) ---------------- of ERISA for which the 30-day notice requirement contained in 29 C.F.R. (S)2613.8(a) has not been waived. "RG" means Rheinbraun US Gmbh, a corporation existing under the laws of The -- Federal Republic of Germany. "Rheinbraun AG" means, Rheinbraun AG, a corporation existing under the laws ------------- of The Federal Republic of Germany. "SEC" means the Securities and Exchange Commission (or any government body --- or agency succeeding to the functions of such Commission). "Significant Subsidiary" means McElroy Coal Company, a Delaware ---------------------- corporation; Consol Pennsylvania Coal Company, a Delaware corporation; Nineveh Coal Company, a Delaware corporation; Consolidation Coal Sales Company, a Delaware corporation; Island Creek Coal Company, a Delaware corporation; Laurel Run Mining Company, a Virginia corporation; New Century Holdings, Inc., a Delaware corporation; Keystone Coal Mining Corporation, a Pennsylvania corporation; Helvetia Coal Company, a Pennsylvania corporation; CONSOL Sales Company, a Delaware corporation; Eighty-Four Mining Company, a Pennsylvania corporation; Rochester & Pittsburgh Coal Company, a Pennsylvania corporation; Fairmont Supply Company, a Delaware corporation, and any other wholly-owned direct or indirect Subsidiary of CEI whose assets exceed 5% of the consolidated assets of CEI and the Consolidated Subsidiaries or whose revenues exceed 5% of the consolidated revenues of CEI and the Consolidated Subsidiaries or any other direct or indirect Subsidiary of CEI so designated by the Borrower after the Effective Date. "Significant Subsidiary Guaranty" means that certain guaranty, executed by ------------------------------- each Significant Subsidiary, substantially in the form of Exhibit H attached --------- hereto (as such may be amended, supplemented, restated or otherwise modified and in effect from time to time). "SMCRA" means the Federal Surface Mining Control and Reclamation Act of ----- 1977, as in effect from time to time. "S&P" means Standard & Poor's Corporation. --- "Subordination Agreement" means that certain subordination agreement, ----------------------- substantially in the form of Exhibit L attached hereto (as such may be amended, --------- supplemented, restated or otherwise modified with the written consent of the Bank and in effect from time to time). -10- "Subsidiary" of any corporation means any other corporation more than 50% ---------- of the outstanding shares of capital stock of which having ordinary voting power for the election of directors is owned directly or indirectly by such corporation, and, except as otherwise indicated herein, references to Subsidiaries shall refer to Subsidiaries of CEI (other than the Borrower). "Taxes" is defined in Section 3.09. ----- ------------ "Total Commitment Amount" is defined in Section 2.2. ----------------------- ----------- "Transferee" is defined in Section 10.11(c). ---------- ---------------- "type" means, relative to the outstanding principal amount of all or any ---- portion of a Loan, the portion thereof, if any, being maintained as a Base Rate Loan or a LIBO Rate Loan. "United States" or "U.S." means the United States of America, its 50 States -------------- ---- and the District of Columbia. "Welfare Plan" means a "welfare plan", as such term is defined in section ------------ 3(l) of ERISA (other than a multiemployer plan as defined in section 3(37) of ERISA), under which the Borrower, either Guarantor or any Subsidiary may have any liability, including any obligation to contribute. SECTION 1.2 Use of Defined Terms. Terms for which meanings are provided -------------------- in this Agreement shall, unless otherwise defined or the context otherwise requires, have such meanings when used in the Exhibits attached hereto, each Loan Request, Continuation/Conversion Notice, notice and other communication delivered from time to time in connection with this Agreement or any Loan Document and the definitions of such terms are applicable to the singular as well as the plural form of such terms, as the context requires. SECTION 1.3 Accounting and Financial Determinations. Where the character --------------------------------------- or amount of any asset or liability or item of income or expense is required to be determined, or any accounting computation is required to be made, for the purpose of this Agreement, such determination or calculation shall, to the extent applicable and except as otherwise specified in this Agreement, be made in accordance with GAAP used in, and consistently applied with, the financial statements referred to in Section 6.4. ----------- ARTICLE II COMMITMENTS SECTION 2.1 Commitments. Subject to the terms and conditions of this ----------- Agreement (including Article V), the Bank agrees that it will, from time to time ---------- on any Business Day occurring during the period commencing on October 29, 1998 and continuing to (but not including) the Commitment Termination Date, make loans ("Loans") to the Borrower equal to the amount of the Borrowing requested ----- on each such Business Day; provided, however, that all such Loans shall be made -------- ------- on a pro rata basis with loans from all other banks which have Senior Revolving Loan Agreements with the Borrower, and the Bank shall not be permitted or required to make any Loan if, after giving effect thereto, the sum of the aggregate amount of Commercial Paper Indebtedness and the aggregate principal amount of all Loans outstanding at any one time from the Bank plus the aggregate of all loans outstanding under Borrower's other Senior Revolving Loan Agreements would exceed $650,000,000. Subject to the terms hereof, the Borrower may from time to time prior to the Commitment Termination Date borrow, prepay, and reborrow amounts pursuant to the Commitment. -11- SECTION 2.2 Total Commitment Amount. The aggregate amount (the "Total ----------------------- Commitment Amount") of the Bank's Commitment on any date on or prior to the Commitment Termination Date shall be $100,000,000 less all voluntary reductions to such amount made by the Borrower; provided, however, that all such reductions ----------------- shall be made on a pro rata basis with reductions of the total commitment amounts of all other banks which have Senior Revolving Loan Agreements with the Borrower, shall require at least three Business Days' prior notice to the Bank and be permanent, and all partial reductions of such amount, in the case of any voluntary reduction, shall be in minimum amounts of $500,000 and in integral multiples of $100,000 in excess thereof. SECTION 2.3 Fees. The Borrower agrees to pay the Bank, for the period ---- (including any portion thereof when its Commitment is suspended by reason of the Borrower's inability to satisfy any condition of Article V) commencing on ---------- October 29, 1998 and continuing through the Commitment Termination Date, the following fees: (a) a start-up fee of $50,000 due and payable on or before November 13, 1998; (b) a revolving credit facility fee for each day which shall be equal to (i) the applicable percentage for such day, determined, based on the Credit Rating on such day, in accordance with the table set forth below, multiplied by (ii) 1/365, multiplied by (iii) the Total Commitment Amount on such day. Credit Rating Applicable Percentage ------------- --------------------- Level I 0.0800% Level II 0.1250% Level III 0.250% Such revolving credit facility fees shall be due and payable by the Borrower quarterly in arrears to the Bank for the period ending on each Quarterly Payment Date, commencing with the first such day following October 29, 1998 and on the Commitment Termination Date; and (c) a utilization fee for each day on which the aggregate principal amount of all outstanding Loans from the Bank exceeds fifty percent (50%) of the Total Commitment Amount on such day equal to (i) the applicable percentage for such day, determined, based on the Credit Rating on such day, in accordance with the table set forth below, multiplied by (ii) 1/365, multiplied by (iii) the aggregate principal amount of all outstanding Loans from the Bank on such day. Credit Rating Applicable Percentage ------------- --------------------- Level I 0.070% Level II 0.125% Level III 0.250% Such utilization fees shall be due and payable by the Borrower quarterly in arrears to the Bank for the period ending on each Quarterly Payment Date, commencing with the first such day following October 29, 1998 and on the Commitment Termination Date. SECTION 2.4 Commitment Termination Date. The Commitment shall terminate --------------------------- and the Bank shall be relieved of its obligation to make any Loan on the Commitment Termination Date. The Borrower may from time to time request an extension of the Commitment Termination Date for an additional 360 days by executing and delivering to the Bank a Commitment Termination Date Extension Request at least thirty (30) but not more than forty-five (45) days prior to the then current Extension Effective Date. The Commitment Termination Date shall be so extended if the Bank on or prior to the then current Extension -12- Effective Date duly executes a counterpart of such Commitment Termination Date Extension Request; provided, that any such extension shall not be effective -------- before the then current Extension Effective Date. The Bank may in its sole and absolute discretion withhold its consent to any such Commitment Termination Date Extension Request. ARTICLE III LOANS AND NOTES SECTION 3.1 Borrowing Procedure. By giving notice to the Bank on or ------------------- before 12:00 noon, New York time, the Borrower may from time to time irrevocably request, on not less than three (or same-day in the case of a Base Rate Loan) nor more than five Business Days' notice, that a Borrowing be made by the Bank in an aggregate amount equal to the lesser of (i) a minimum amount of $500,000 and an integral multiple of $100,000 in excess thereof, or (ii) the unused amount of the Commitment then available pursuant to Section 2.1. Such notice may ----------- be oral and shall be confirmed in writing on or before the first Business Day following such request by delivering a Loan Request to the Bank. Subject to the terms and conditions of this Agreement, each Borrowing shall be made on the Business Day specified in the Loan Request therefor. On such Business Day and subject to such terms and conditions, the Bank shall provide the Borrower with funds, on or before 11:00 a.m., New York time (or 3:00 p.m., New York time, in the case of a Base Rate Loan), in an amount equal to such Loan Request by transferring same day or immediately available funds to such account as the Borrower shall specify from time to time by notice to the Bank. SECTION 3.2 Note. All Loans made by the Bank shall be evidenced by a Note ---- payable to the order of the Bank in a maximum principal amount equal to the Bank's original Total Commitment Amount. The Borrower hereby irrevocably authorizes the Bank to make (or cause to be made) appropriate notations on the grid attached to the Bank's Note (or on a continuation of such grid attached to any such Note and made a part thereof), which notations, if made, shall evidence, inter alia, the date of, the outstanding principal of, and the ---------- interest rate (including any conversions thereof pursuant to Section 4.2) and ----------- Interest Period applicable to, the Loans evidenced thereby. Any such notations on any such grid (and on any such continuation) indicating the outstanding principal amount of the Bank's Loans shall be rebuttable presumptive evidence of the principal amount thereof owing and unpaid, but the failure to record any such amount on such grid (or on such continuation) shall not limit or otherwise affect the obligations of the Borrower hereunder or under such Note to make payments of principal of or interest on such Loans when due. SECTION 3.3 Principal Payments and Prepayments. The Borrower will repay ---------------------------------- the outstanding principal amount of the Note on the Commitment Termination Date. In addition, the Borrower: a. may make a voluntary prepayment in part in an aggregate principal amount of not less than $500,000 and an integral multiple of $100,000 in excess thereof, or in full of the outstanding principal amount of the Note from time to time at any time, in each case upon at least three Business Days, prior notice (or same day notice in the case of a Base Rate Loan) to the Bank; b. shall, on each date when any reduction in the Total Commitment Amount shall become effective pursuant to Section 2.2, make a mandatory ----------- prepayment of the Note equal to the excess, if any, of the outstanding principal amount of all Loans over the Total Commitment Amount as so reduced; and -13- c. shall, on each date when the sum of the aggregate principal amount of all Loans outstanding plus the Commercial Paper Indebtedness exceeds the Total Commitment Amount, make a mandatory prepayment of the then aggregate outstanding principal amount of all Loans in an aggregate amount equal to such excess. Each prepayment of a Note made pursuant to this Section shall be without premium or penalty, except as may be required by Section 4.5. All interest ----------- accrued on the principal amount of a Note prepaid shall be paid on the date of such prepayment. No prepayment of principal of the Note pursuant to clause (a) or (c) above prior to the Commitment Termination Date shall ---------- --- cause a reduction in the Total Commitment Amount. Each prepayment of the Note shall, except as the Borrower may otherwise have notified the Bank, be applied, to the extent of such prepayment: (a) first, to the principal amount thereof being maintained as a Base Rate Loan; and (b) second, to the principal amount thereof being maintained as a LIBO Rate Loan. SECTION 3.4 Interest. The Borrower agrees to pay interest on the -------- principal amount of the Note from time to time unpaid prior to and at Maturity at a rate per annum: (a) on that portion of the outstanding principal amount thereof maintained from time to time as a Base Rate Loan, equal to the sum of the Base Rate from time to time most recently announced plus the Applicable Margin per annum, and (b) on that portion of the outstanding principal amount thereof maintained from time to time as one or more LIBO Rate Loans during each applicable Interest Period, equal to the sum of the LIBO Rate (Reserve Adjusted) for such Interest Period plus the Applicable margin per annum. SECTION 3.5 Post-Maturity Rates. After the Maturity of all or any portion ------------------- of the principal amount of the Loans or after any other monetary Liabilities shall have become due, the Borrower shall pay interest (after as well as before judgment) on the principal amount of all types of Loans so matured or on such other monetary Liabilities, as the case may be, at a rate per annum which is determined by increasing each of the Applicable Margins set forth in clauses (a) ----------- and (b) of Section 3.4 by 2% per annum for Loans so matured and, to the extent --- ----------- permitted by applicable law, at a rate per annum equal to the Base Rate plus 2% for such other monetary Liabilities. SECTION 3.6 Payment Dates. Interest accrued on the Note prior to Maturity ------------- (as aforesaid) shall be payable, without duplication: (a) on that portion of the outstanding principal amount of each Note maintained as a Base Rate Loan, on each Monthly Payment Date, commencing with the first such Monthly Payment Date following the date of such Notes; (b) on that portion of the outstanding principal amount of each Note maintained as one or more LIBO Rate Loans, on the last day of each applicable Interest Period; and (c) on that portion of the outstanding principal amount of each Note converted into a Base Rate Loan or a LIBO Rate Loan, as -14- the case may be, on a day when interest would not otherwise have been payable pursuant to clause (a) or (b), on the date of such conversion. ---------- --- Interest on the Note shall be payable at Maturity (as aforesaid) and, thereafter, on demand. The Bank shall give prompt notice to the Borrower of each computation of accrued interest before the due date thereof. SECTION 3.7 Payments, Computations, etc. Unless otherwise expressly ---------------------------- provided in this Agreement, all payments by the Borrower pursuant to this Agreement, the Note, or any other Loan Document, whether in respect of principal or interest, shall be made by the Borrower to the Bank without set-off, deduction, or counterclaim, not later than 2:00 pm, New York time, on the date due, in same day or immediately available funds, to such account as the Bank shall specify from time to time by notice to the Borrower. Funds received after that time shall be deemed to have been received by the Bank on the next following Business Day. All interest and fees shall be computed on the basis of the actual number of days (including the first day but excluding the last day) occurring during the period for which fee is payable over a year comprised of 360 days. Whenever any payment to be made shall otherwise be due on a day which is not a Business Day, such payment shall (except as otherwise required by clause (d) of the definition of the term "Interest Period" with respect to - ---------- --------------- payments then due of principal of or interest on any Note being maintained as LIBO Rate Loans) be made on the next succeeding Business Day and such extension of time shall be included in computing interest, if any, in connection with such payment. SECTION 3.8 Setoff. In addition to and not in limitation of any rights of ------ the Bank or other holder of any Note under applicable law, the Bank shall, upon the occurrence of any Default described in Section 8.1.4 or upon the occurrence ------------- of any other Event of Default, have the right to set off, appropriate and apply to the payment of the Liabilities owing to it any and all balances, credits, deposits, accounts, or moneys of the Borrower then maintained with the Bank and (as security for such Liabilities) the Borrower hereby grants to the Bank a continuing security interest in any and all balances, credits, deposits, accounts or moneys of the Borrower then or thereafter maintained with such Bank. The Bank agrees promptly to notify the Borrower after any such setoff and application made by the Bank; provided, however, that the failure to give such -------- ------- notice shall not affect the validity of such setoff and application. The rights of the Bank under this Section are in addition to other rights and remedies (including other rights of setoff under applicable law or otherwise) which the Bank may have. SECTION 3.9 Taxes. (a) All payments by the Borrower of principal of, and ----- interest on, the Loans and all other amounts payable hereunder to any recipient (including any Purchasing Bank) shall be made free and clear of and without deduction or withholding for any present or future income, stamp, or other taxes, fees, duties or other charges of any nature whatsoever imposed by any taxing authority, other than taxes imposed on or measured by such recipient's net income or receipts (such non-excluded items being hereinafter referred to as "Taxes"), except to the extent that such deduction or withholding is required ----- pursuant to any applicable law, rule, or regulation. In the event that any deduction or withholding from any payment to be made by the Borrower hereunder is required in respect of any Taxes pursuant to any applicable law, rule, or regulation, then the Borrower will: (i) pay to the relevant authority the full amount required to be so withheld or deducted; -15- (ii) promptly forward to the Bank an official receipt or other documentation satisfactory to the Bank evidencing such payment to such authority; and (iii) (except to the extent that such deduction or withholding results from the breach, by a recipient of a payment, of its Exemption Agreement, or would not be required if such recipients Exemption Representation were true) pay to the Bank or holder of a Note such additional amount or amounts as is necessary to ensure that the net amount actually received by the Bank or such holder, after giving effect to any credit against Taxes received by the Bank or such holder as a result of such deduction or withholding, will equal the full amount the Bank or such holder would have received had no such deduction or withholding been required. The Bank and holder shall determine such additional amount or amounts payable to it (which determination shall, in the absence of demonstrable error, be conclusive and binding on the Borrower). Moreover, if any Taxes are directly imposed on the Bank, as a result of any change in law or any applicable double taxation treaty of the United States, the jurisdiction of the Bank's incorporation or the jurisdiction in which the Bank's Domestic Office or LIBOR Office is located, with respect to any payment received by the Bank hereunder, the Bank may pay such Taxes and the Borrower will promptly pay such additional amounts (including any penalties, interest or out- of-pocket expenses) as are necessary in order that the net amount received by the Bank after the payment of such Taxes (including any Taxes on such additional amount) shall equal the amount such Person would have received had such Taxes not been imposed (except to the extent that such Taxes result from the breach, by such payee, of its Exemption Agreement, or would not be required if such payee's Exemption Representation were true). (b) If the Borrower fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to the Bank the required receipts or other required documentary evidence, the Borrower shall indemnify the Bank for any incremental Taxes, interest or penalties that may become payable by the Bank as a result of any such failure. (c) The Bank and each subsequent holder of any Note that is a Non-United States Person agrees (the Bank's "Exemption Agreement" (to the extent it is ------------------- permitted to do so under the laws and any applicable double taxation treaties of the United States, the jurisdiction of the Bank's incorporation, and the jurisdictions in which the Bank's Domestic Office and the Bank's LIBOR Office are located) to execute and deliver to the Borrower prior to the first scheduled payment date in each Fiscal Year, a United States Internal Revenue Service Form 1001 or Form 4224 (or any successor form), appropriately completed and claiming complete (or, in the case it becomes appropriate due to any change in law or such applicable double taxation treaties, partial) exemption from withholding and deduction of United States Federal Taxes. (d) The Bank and each Purchasing Bank hereby represents and warrants (such Bank's "Exemption Representation" to the Borrower that on the date hereof ------------------------ (or, in the case of a Purchasing Bank, on the date on which such Purchasing Bank becomes a Bank hereunder) (i) its Domestic Office and its LIBOR Office are entitled to receive payments of principal of, and interest on, Loans made hereunder without deduction or withholding for or on account of any Taxes imposed by the United States or any political subdivision thereof, (ii) it is permitted to take the actions described in clause (c) above (with respect to ---------- complete exemption from withholding and deduction of United States Federal Taxes) under the laws and any applicable double taxation treaties of the jurisdictions specified in such clause (c) and (iii) any payment received by ---------- such Bank hereunder is not subject to any Taxes, whether or not such Taxes are required to be deducted or withheld by the Borrower. -16- (d) The Bank agrees to use reasonable efforts to change its Domestic Office or LIBOR Office or prepare, execute and file any additional forms or other documents which may be necessary or advisable to avoid or to minimize any amounts otherwise payable under this Section 3.9, in each case solely if such ----------- change or such preparation, execution and filing can be made or done in a manner so that the Bank, in its reasonable determination, suffers no legal, economic or regulatory disadvantage. (e) In the event that the Borrower becomes required to pay an additional amount pursuant to this Section 3.10 to the Bank, then the Borrower shall have ------------ the right to seek a substitute bank or banks to promptly replace the Bank under this Agreement in .accordance with the provisions of Section 10.11(b). ---------------- (g) The parties agree to cooperate with each other in connection with any Taxes matters pertaining to this Agreement and the Bank shall promptly notify the Borrower of any Taxes imposed on it with respect to any payment received by the Bank hereunder, stating the reasons therefor and the amount, if any, payable by the Borrower hereunder in respect of such Taxes. ARTICLE IV BASE RATE AND LIBO RATE OPTIONS FOR THE LOANS SECTION 4.1 Elections. The Loans comprising any Borrowing may be made as --------- a "Base Rate Loan" or, at the Borrower's election made in accordance with this -------------- Section, as a loan having for each particular Interest Period a fixed rate of interest determined by reference to the LIBO Rate (Reserve Adjusted) (a "LIBO ---- Rate Loan)". The Borrower may request from time to time by delivering to the - ---------- Bank a Continuation/ Conversion Notice request, on not less than one (or not less than three if a Loan is to be continued as, or converted into, a LIBO Rate Loan) nor more than five Business Days, notice: (a) that all, or any portion in a minimum amount of $500,000 or an integral multiple of $100,000 in excess thereof, of the outstanding principal amount of any Borrowing be converted from Base Rate Loans into LIBO Rate Loans or, subject to Section 4.5, from LIBO Rate Loans into Base ----------- Rate Loans; and (b) on the expiration of the Interest Period applicable to any LIBO Rate Loans, that all, or any portion in a minimum amount of $500,000 or an integral multiple of $100,000 in excess thereof, of the outstanding principal amount of such LIBO Rate Loans be converted into Base Rate Loans; provided, however, that: (c) no portion of the outstanding principal amount of any Loans may be continued as, or be converted into, LIBO Rate Loans if, after giving effect to such action, the Interest Period applicable thereto shall extend beyond the date of any prepayment required by Section 3.3, unless a ----------- sufficient principal amount of other Loans are being maintained as Base Rate Loans to permit such prepayment to be applied in full to such Base Rate Loans; and (d) no portion of the outstanding principal amount of any Loans may be continued as, or be converted into, a LIBO Rate Loan when any Default has occurred and is continuing. -17- Each Continuation/Conversion Notice requesting that all, or any portion, of the principal amount of the Loans be continued as, or be converted into, LIBO Rate Loans shall specify the duration of the Interest Period commencing upon such continuation or conversion. The Bank may, if it so elects, fulfill its commitment to make or continue any portion of the principal amount of a Loan as, or to convert any portion of the principal amount of a Loan into, one or more LIBO Rate Loans by causing a foreign branch or Affiliate of the Bank to make any such LIBO Rate Loan; provided, however, that in such event such LIBO Rate Loan -------- ------- shall be deemed to have been made by the Bank, and the obligation of the Borrower to repay such LIBO Rate Loan shall nevertheless be to the Bank and shall be deemed to be held by it, to the extent of such LIBO Rate Loan, for the account of such foreign branch or Affiliate; and provided further that -------- ------- the making of such LIBO Rate Loans by a foreign branch or Affiliate of the Bank does not result in any additional Taxes assessable against the Bank in connection with any payments made by the Borrower hereunder- Whenever the Bank makes any notations pursuant to Section 3.2 on the ----------- grid attached to the Note (or on the continuation of such grid) and whenever the Bank converts a Loan into a Base Rate Loan or a LIBO Rate Loan, the Bank will make further notations on the grid attached to such Note (or on such continuation) reflecting the portions of the outstanding principal amounts thereof being maintained as a Base Rate Loan and LIBO Rate Loans. Failure to record any such amounts on the grid shall not limit or otherwise affect the obligations of the Borrower to make payments of principal and interest on each Note when due. The Borrower understands that, if it elects that any portion of the principal amount of a Borrowing be made, continued as, or converted into, a LIBO Rate Loan, the Bank may (while being entitled to fund all or any portion of such LIBO Rate Loan as it may see fit) wish to be able to fund such LIBO Rate Loan by purchasing Dollar deposits in its LIBOR Office's interbank eurodollar market. Accordingly, in connection with any determination to be made for purposes of Section 4.2, 4.3, 4.4 or 4.5, it ----------- --- --- --- shall be conclusively presumed that the Bank has elected to fund all LIBO Rate Loans by purchasing Dollar deposits in such interbank eurodollar market. SECTION 4.2 LIBO Rate Lending Unlawful. If as the result of any -------------------------- Regulatory Change the Bank shall determine (which determination shall, in the absence of demonstrable error, be conclusive and binding on the Borrower) that it is unlawful for the Bank to make, continue or maintain a Loan as, or to convert a Loan into, one or more LIBO Rate Loans, the obligation of the Bank under Section 4.1 to make, continue or maintain any portion of the principal ----------- amount of a Loan as, or to convert such Loan into, one or more LIBO Rate Loans shall, upon such determination (and telephonic notice thereof confirmed in writing to the Borrower), forthwith terminate, and any portion of the principal amount of a Loan then maintained as one or more LIBO Rate Loans by the Bank shall automatically convert into a Base Rate Loan. If circumstances subsequently change so that the Bank shall determine that it is no longer so affected, the obligation of the Bank under Section 4.1 to make or continue Loans ----------- as, or to convert Loans into, LIBO Rate Loans shall, upon such determination (and telephonic notice thereof confirmed in writing to the Borrower), forthwith be reinstated. SECTION 4.3 Deposits Unavailable. If prior to the date on which all or -------------------- any portion of the principal amount of any Loan is to be made, continued as, or converted into, a LIBO Rate Loan, the Bank shall determine for any reason whatsoever (which determination shall, in the absence of demonstrable error, -18- be conclusive and binding on the Borrower) that dollar deposits in the relevant amount and for the relevant Interest Period are not available to the Bank in its relevant market, the Bank shall promptly give telephonic notice of such determination confirmed in writing to the Borrower, and the obligation under Section 4.1 of the Bank to make, continue any portion of the principal amount of - ----------- a Loan as, or to convert a Loan into, one or more LIBO Rate Loans shall, upon such notification, forthwith terminate; and the portion of all Loans then maintained as LIBO Rate Loans by the Bank shall on the expiration of the Interest Period applicable thereto automatically convert into Base Rate Loans. If circumstances subsequently change so that the Bank shall no longer be so affected, the Bank shall promptly give telephonic notice thereof confirmed in writing to the Borrower and the obligations of the Bank under Section 4.1 to ----------- make or continue Loans as, or convert Loans into, LIBO Rate Loans shall be reinstated. SECTION 4.4 Capital Adequacy; Increased Costs, etc. The Borrower further --------------------------------------- agrees to reimburse the Bank for any increase in the cost to the Bank of making, continuing, maintaining or converting (or of its obligation to make, continue, maintain or convert) any of its Loans hereunder (or any portion thereof) and for any reduction in the amount of any sum receivable by the Bank hereunder in respect of making, continuing, maintaining or converting (or of its obligation to make, continue, maintain or convert) any of its Loans hereunder (or any portion thereof) from time to time by reason of: (a) to the extent not included in the calculation of the LIBO Rate (Reserve Adjusted), the adoption or compliance with any capital adequacy, reserve, special deposit, or similar requirement against assets of, deposits with or for the account of, or credit extended by, the Bank, under or pursuant to any law, treaty, rule, regulation (including any F.R.S. Board regulation), or requirement in effect on the date hereof, or as the result of any Regulatory Change; or (b) any Regulatory Change which shall subject the Bank to any tax (other than taxes on net income or receipts), levy, impost, charge, fee, duty, deduction, or withholding of any kind whatsoever or change the taxation of any Loan made or maintained as a LIBO Rate Loan and the interest thereon (other than any change which affects, and to the extent that it affects, the taxation of net income or receipts). In any such event, the Bank shall promptly notify the Borrower thereof stating the reasons therefor and the additional amount required fully to compensate the Bank for such increased cost or reduced amount. Such additional amounts shall be payable on demand after receipt of such notice. A statement as to any such increased cost or reduced amount or any change therein (including calculations thereof in reasonable detail) shall be submitted by the Bank to the Borrower and shall, in the absence of demonstrable error, be conclusive and binding on the Borrower. In the event that the Borrower is required to pay an additional amount pursuant to this Section 4.4 to the Bank, then the Borrower shall have the right to ----------- seek a substitute bank or banks to replace the Bank under this Agreement in accordance with the provisions of Section 10.11(b). ---------------- SECTION 4.5 Funding Losses. In the event the Bank shall incur any loss or -------------- expense (including any loss or expense incurred by reason of the liquidation, or reemployment of deposits or other funds acquired by the Bank to make, continue or maintain any portion of the principal amount of any Loan as, or to convert any portion of the principal amount of any Loan into, a LIBO Rate Loan) as a result of: (a) payment or prepayment of the principal amount of any LIBO Rate Loan on a date other than the scheduled last day of the Interest Period applicable thereto, whether pursuant to Section 3.3 or otherwise; ----------- -19- (b) any conversion of all or any portion of the outstanding principal amount of any LIBO Rate Loan to a Base Rate Loan pursuant to Section 4.1 prior to the expiration of the Interest Period then applicable thereto (but excluding in each case any loss or expense resulting therefrom to the extent the Bank is reimbursed therefor by interest payable pursuant to clause (c) of Section 3.6); or ---------- ----------- (c) a Loan not being made, continued as, or converted into, a LIBO Rate Loan in accordance with a Loan Request or the Continuation/Conversion Notice given therefor (other than as the result of a default by the Bank in complying with such Loan Request or such Continuation/Conversion Notice); then, upon the request of the Bank, the Borrower shall pay directly to the Bank such amount as will (in the reasonable determination of the Bank) reimburse the Bank for such loss or expense. A certificate as to any such loss or expense (including calculations thereof in reasonable detail) shall be submitted by the Bank to the Borrower and shall, in the absence of demonstrable error, be conclusive and binding on the Borrower. ARTICLE V CONDITIONS PRECEDENT SECTION 5.1 Initial Borrowing. The obligations of the Banks to fund the ----------------- initial Borrowing (which does not include the first Borrowing following any extension of the Commitment Termination Date) shall be subject to the prior or concurrent satisfaction of each of the following conditions precedent. SECTION 5.1.1 Resolutions, etc. The Bank shall have received: ----------------- (a) a certificate, dated the date of the initial Borrowing, of the Secretary or an Assistant Secretary of the Borrower as to (i) resolutions of its Board of Directors then in full force and effect authorizing the execution, delivery and performance of the Loan Documents to be executed by it hereunder; (ii) the incumbency and signatures of those of its officers authorized to act with respect to this Agreement and each Loan Document executed by it, upon which certificate the Bank may conclusively rely until it shall have received a further certificate of the Secretary or an Assistant Secretary of the Borrower cancelling or amending such prior certificate; and (iii) a true and correct copy of the By-laws as then in effect; (b) a certificate of the Secretary or any Assistant Secretary of each Guarantor, each Significant Subsidiary and each Subsidiary party to the Subordination Agreement as to (iii) resolutions of its Board of Directors then in full force and effect authorizing the execution, delivery and performance by such Loan Party of the Loan Documents to be executed and delivered by it hereunder; (iv) the incumbency and signatures of those of its officers authorized to act with respect to such Loan Documents upon which -20- certificate the Bank may conclusively rely until it shall have received a further certificate of such Loan Party cancelling or amending such prior certificate; and (iii) a true and correct copy of the By-laws as then in effect. SECTION 5.1.2 Delivery of Notes. Borrower shall have delivered to the ----------------- Bank a Note, duly executed and delivered and conforming to the requirements of Section 3.2. - ----------- SECTION 5.1.3 Opinions of Counsel. The Bank shall have received opinions ------------------- from the general counsel of the Borrower, the Guarantors, each Significant Subsidiary and each Subsidiary party to the Subordination Agreement, substantially in the form of Exhibit F attached hereto. --------- SECTION 5.1.4 Parent Guaranty. The Bank shall have received the Parent --------------- Guaranty duly executed by each Guarantor. SECTION 5.1.5 Significant Subsidiary Guaranty. The Bank shall have ------------------------------- received the Significant Subsidiary Guaranty duly executed by each Person that is a Significant Subsidiary as of the Effective Date. SECTION 5.1.6 Subordination Agreement. The Bank shall have received the ----------------------- Subordination Agreement duly executed by each Subsidiary, the Borrower and each Guarantor which, as of the Effective Date, is expected to make any loans to any Significant Subsidiary, the Borrower or either Guarantor. SECTION 5.1.7 Credit Rating. The Borrower shall have delivered to the ------------- Bank a letter from each of S&P and Moody's stating its intention to confirm the Borrower a Level I Credit Rating upon review of all documents in support of the Borrower's commercial paper program and medium term note issuance. SECTION 5.1.8 Satisfactory Legal Form. All documents executed or ----------------------- submitted pursuant hereto by or on behalf of the Borrower, each Guarantor, any Significant Subsidiary or any Subsidiary party to the Subordination Agreement shall be satisfactory in form and substance to the Bank and its counsel; the Bank and its counsel shall have received all information, and such counterpart originals or such certified or other copies of such materials, as the Bank or its counsel may request; and all legal matters incident to the transactions contemplated by this Agreement and each other Loan Document shall be satisfactory to counsel to the Bank. SECTION 5.2 All Loans. The obligation of the Bank to make any Loan shall --------- be subject to the satisfaction of each of the conditions precedent set forth in Sections 5.2.1 through 5.2.3, and each request that a Borrowing be made - ---------------------------- hereunder shall constitute a certification by the Borrower that each of such conditions precedent will be satisfied on the date of such requested Borrowing (and after giving effect to such Borrowing). SECTION 5.2.1 Compliance with Warranties, non-Default, etc. The --------------------------------------------- representations and warranties set forth in Article VI shall have been true and ---------- correct in all material respects as of the date initially made, and on the date (and after giving effect to the incurrence) of such Loan: (f) such representations and warranties shall be true and correct in all material respects with the same effect as if then made; (g) no Default shall have then occurred and be continuing; and (c) since the Effective Date, there shall have been no -21- occurrence which, individually or in the aggregate, as of the date on which such Loan is to be made, would reasonably be expected to have a Materially Adverse Effect. SECTION 5.2.2 Absence of Litigation, etc. No litigation, arbitration or -------------------------- governmental investigation or proceeding shall be pending or, to the knowledge of the Borrower, threatened against the Borrower, either Guarantor or any Subsidiary or shall affect the business, operations or prospects of any thereof which was not disclosed by the Borrower to the Bank pursuant to Section 6.6 (or ----------- prior to the date of the Loans most recently made hereunder, if any, pursuant to Section 7.1.6), and no development not so disclosed shall have occurred in any - -------------- litigation, arbitration or governmental investigation or proceeding so disclosed, which, in either event, as of the date on which such Loan is to be made, would reasonably be expected to have a Materially Adverse Effect. SECTION 5.2.3 Loan Request. The Bank shall have received a Loan Request ------------ for such Borrowing. ARTICLE VI WARRANTIES, ETC. In order to induce the Bank to enter into this Agreement and to make Loans hereunder, the Borrower represents and warrants to the Bank as follows: SECTION 6.1 Organization, Power, Authority, etc. Each Loan Party is a ----------------------------------- corporation validly organized and existing and in good standing under the laws of the state of its incorporation, is duly qualified to do business and in good standing as a foreign corporation in each jurisdiction where the nature of its business makes such qualification necessary and where the failure to so qualify would reasonably be expected to have a Materially Adverse Effect and has full power and authority to own and hold under lease its property and conduct its business substantially as presently conducted by it. Each Loan Party has full power and authority to enter into and to perform its obligations under this Agreement and each Loan Document to which each is a party and to obtain the Loans hereunder, in the case of the Borrower. SECTION 6.2 Due Authorization. The execution and delivery by each Loan ----------------- Party of this Agreement and each Loan Document executed by it and the performance by each of its respective obligations hereunder and thereunder and the borrowings hereunder by the Borrower have been duly authorized by all necessary corporate action, do not require any Approval, do not and will not conflict with, result in any violation of, or constitute any default under, any provision of any Organic Document or material Contractual Obligation of such Loan Party (or any other material Contractual Obligation) or any present law or governmental regulation or court decree or order applicable to any Loan Party and will not result in or require the creation or imposition of any Lien in any of their respective properties pursuant to the provisions of any Contractual Obligation. SECTION 6.3 Validity, etc. This Agreement is, and each Loan Document ------------- executed by any Loan Party will on the due execution and delivery thereof be, the legal, valid and binding obligation of such Loan Party enforceable in accordance with its terms, subject, as to enforcement, only to bankruptcy, insolvency, reorganization, moratorium or other similar laws at the time in effect affecting the enforceability of the rights of creditors generally, and by general equitable principles. SECTION 6.4 Financial Information. All balance sheets, statements of --------------------- operations, of total owners' equity and of changes in cash flows and other -22- financial information of CEI and the Consolidated Subsidiaries (or, in the case of any such balance sheets or statements prepared prior to the date hereof, of the Borrower and its Consolidated Subsidiaries) which have been or shall hereafter be furnished by or on behalf of the Borrower to the Bank for the purposes of or in connection with this Agreement or any transaction contemplated hereby pursuant to Section 7.1.1(a) or Section 7.1.1(b) (except Section ---------------- ---------------- ------- 7.1.1(a)(iii)) have been or will be prepared in accordance with GAAP - -------------- consistently applied throughout the periods involved (except as disclosed therein), and, in the case of information relating to coal reserves, have been or will be prepared in accordance with all relevant rules and regulations promulgated by the SEC, as in effect on the Effective Date, and do or will present fairly the consolidated financial condition of the corporations covered thereby as at the dates thereof and the results of their operations for the periods then ended and the consolidated statements of earnings, of operations and of total owners' equity, for each of the fiscal periods then ended, of CEI and the Consolidated Subsidiaries (or, in the case of any such balance sheets or statements prepared prior to the date hereof, of the Borrower and its Consolidated Subsidiaries). Since December 31, 1997, there has been no occurrence which, individually or in the aggregate, would reasonably be expected to have a Materially Adverse Effect. Except as disclosed in Item 6.6 -------- ("Litigation") of the Disclosure Schedule, none of the Guarantors, the Borrower or the Consolidated Subsidiaries have any material contingent liabilities (including any liability pursuant to the Federal Black Lung Benefits Act of 1972, as in effect from time to time) not provided for or disclosed in the financial statements of CEI and the Consolidated Subsidiaries most recently delivered by or on behalf of the Borrower to the Banks. SECTION 6.5 Absence of Certain Default. Neither the Borrower, either -------------------------- Guarantor nor any Subsidiary is in default, (h) in the payment of (or in the performance of any material obligation applicable to) any Indebtedness outstanding in a principal amount exceeding $10,000,000 in the aggregate; or (i) under any law or governmental regulation or court decree or order which would reasonably be expected to have a Materially Adverse Effect. SECTION 6.6 Litigation, etc. Except as described in Item 6.6 --------------- -------- ("Litigation") of the Disclosure Schedule, no litigation, arbitration or governmental investigation or proceeding against the Borrower, either Guarantor or any Subsidiary or to which any of the properties of any thereof is subject is pending or, to the knowledge of the Borrower, threatened which would reasonably be expected to result in a liability in excess of $10,000,000. SECTION 6.7 Regulation U. None of the Borrower, either Guarantor or any ------------ Subsidiary is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock, and less than 25% of the assets of each consists of margin stock. Terms for which meanings are provided in Regulation U of the F.R.S. Board or any regulations substituted therefor, as from time to time in effect, are used in this Section with such meanings. SECTION 6.8 Government Regulation. None of the Borrower, either Guarantor --------------------- or any Subsidiary is an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. -23- SECTION 6.9 Certain Contractual Obligations or Organic Documents. None ---------------------------------------------------- of the Borrower, either Guarantor or any Subsidiary is a party or subject to any Contractual Obligation or Organic Document which would reasonably be expected to have a Materially Adverse Effect. SECTION 6.10 Taxes. The Borrower, each Guarantor and all Subsidiaries ----- have filed all tax returns and reports required by law to have been filed by them and have paid all taxes and governmental charges thereby shown to be owing, except any such taxes or charges which are being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on their books. SECTION 6.11 Pension and Welfare Plans. During the twelve-consecutive- ------------------------- month period prior to the Effective Date and prior to the date of any Borrowing hereunder, (a) no steps have been taken to terminate any Pension Plan the assets of which are insufficient to satisfy all benefit liabilities thereunder (as defined in section 4001(a)(16) of ERISA) for which the Borrower, either Guarantor or any Subsidiary could be held liable, and (b) no contribution failure has occurred with respect to any Pension Plan sufficient to give rise to a Lien under section 302(f) of ERISA. No condition exists or event or transaction has occurred with respect to any Pension Plan which might result in the incurrence by the Borrower, either Guarantor or any Subsidiary of any material liability, fine or penalty. None of the Borrower, either Guarantor or any Subsidiary has any contingent liability with respect to any post-retirement benefit under a Welfare Plan, other than liability for continuation coverage described in Part 6 of Subtitle B of Title I of ERISA. SECTION 6.12 Labor Controversies. There are no labor controversies ------------------- pending or, to the best of the Borrower's knowledge, threatened against the Borrower, either Guarantor or any Subsidiary, which would reasonably be expected to have a Materially Adverse Effect. SECTION 6.13 Subsidiaries and Significant Subsidiaries. Neither the ----------------------------------------- Borrower nor any Guarantor has any Subsidiaries or Significant Subsidiaries except those identified in Item 6.13 ("Existing Subsidiaries and Significant --------- Subsidiaries") of the Disclosure Schedule or those acquired or created subsequent to the date hereof. SECTION 6.14 Patents, Trademarks, Etc. Each of the Borrower, each ------------------------ Guarantor and each Subsidiary owns and possesses all such patents, patent rights, trademarks, trademark rights, trade names, trade name rights, service marks, service mark rights and copyrights as the Borrower considers necessary for the conduct of the businesses of the Borrower, such Guarantor or such Subsidiary as now conducted without any infringement upon rights of others which would reasonably be expected to have a Materially Adverse Effect. There is no individual patent or patent license used by the Borrower or either Guarantor or any Subsidiary in the conduct of its business the loss of which would reasonably be expected to have a Materially Adverse Effect. SECTION 6.15 Ownership of Properties; Liens. Each of the Borrower, each ------------------------------ Guarantor and each Subsidiary has good and marketable title to or good leasehold interests in all of its material properties and assets, real and personal, of any nature whatsoever, free and clear of all Liens except as permitted pursuant to Section 7.2.2. ------------- SECTION 6.16 Accuracy of Information. All factual information heretofore ----------------------- or contemporaneously furnished by the Borrower to the Bank in connection with execution and delivery of this Agreement and the various transactions contemplated hereby, as supplemented from time to time and when taken as a whole, to the best of the Borrower's knowledge, has been, and all other such factual information hereafter furnished by the Borrower, either Guarantor or any Subsidiary, to the Bank, as supplemented from time to time -24- and when taken as a whole, will be, true and accurate in every material respect on the date as of which such information is dated or certified and as of the Effective Date and not incomplete by omitting to state any material fact necessary to make such information not misleading. All projections and pro forma financial information contained in any materials furnished by the Borrower or either Guarantor or any Subsidiary to the Bank are based on good faith estimates and assumptions by the management of the Borrower, the applicable Guarantor or the applicable Subsidiary, it being recognized by the Bank, however, that projections and statements as to future events are not to be viewed as fact and that actual results during the period or periods covered by any such projections or statements may differ from the projected results and that the differences may be material. SECTION 6.17 Environmental Warranties. ------------------------ (a) no facility or property (including underlying groundwater) owned or leased by either Guarantor, the Borrower or any Significant Subsidiary have been, and continue to be, owned or leased by the Borrower, the Guarantor or such Significant Subsidiary is out of compliance with any Environmental Law to the extent that such noncompliance, either singly or in the aggregate, has or could reasonably be expected to have a Materially Adverse Effect; (b) there are no pending or threatened (i) claims, complaints, notices or requests for information received by either Guarantor, the Borrower or any Significant Subsidiary with respect to any alleged violation of any Environmental Law, or (ii) complaints, notices or inquiries to either Guarantor, the Borrower or any Significant Subsidiary regarding potential liability under any Environmental Law, in each case, which singly, or in the aggregate, have or could reasonably be expected to have a Materially Adverse Effect; (c) there have been no Releases of Hazardous Materials at, on or under any property now or previously owned or leased by either Guarantor, the Borrower or any Significant Subsidiary that, singly or in the aggregate, have, or could reasonably be expected to have, a Materially Adverse Effect; (d) each Guarantor, the Borrower and the Significant Subsidiaries have been issued and are in material compliance with all material permits, certificates, approvals, licenses and other authorizations relating to environmental matters and necessary or desirable for their businesses; (e) no property now or previously owned or leased by either Guarantor, the Borrower or any Significant Subsidiary is listed or proposed for listing (with respect to owned property only) (i) on the CERCLIS or on any similar state list of sites requiring investigation or clean-up to the extent that such listing relates to liabilities, individually or in the aggregate, that could reasonably be expected to have a Materially Adverse Effect, or (ii) on the National Priorities List pursuant to CERCLA; (f) there are no underground storage tanks, active or abandoned, including petroleum storage tanks, on or under any property now or previously owned or leased by either Guarantor, the Borrower or any -25- Significant Subsidiary that, singly or in the aggregate, have, or could reasonably be expected to have, a Materially Adverse Effect; (g) none of either Guarantor, the Borrower or any Significant Subsidiary has directly transported or directly arranged for the transportation of any Hazardous Material to any location which is listed or proposed for listing on the National Priorities List pursuant to CERCLA, on the CERCLIS or on any similar state list or which is the subject of federal, state or local enforcement actions or other investigations which may lead to material claims against such Guarantor, the Borrower or such Significant Subsidiary for any remedial work, damage to natural resources or personal injury, including claims under CERCLA that, either singly or in the aggregate, have, or could reasonably be expected to have, a Materially Adverse Effect; (h) there are no polychlorinated biphenyls or friable asbestos present at any property now or previously owned or leased by either Guarantor, the Borrower or any Significant Subsidiary that, singly or in the aggregate, have, or could reasonably be expected to have, a Materially Adverse Effect; (i) no conditions exist at, on or under any property now or previously owned or leased by either Guarantor, the Borrower or any Significant Subsidiary which, with the passage of time, or the giving of notice or both, would give rise to liability under any Environmental Law that, either singly or in the aggregate, have, or could reasonably be expected to have, a Materially Adverse Effect; and (j) none of either Guarantor, the Borrower or any Subsidiary owns or leases any "industrial establishment" (as such term is defined in the New Jersey Environmental Cleanup Responsibility Act, N.J.S.A. 13:1K-6, et seq.) -- --- in the State of New Jersey. SECTION 6.18 Year 2000. The Borrower has reviewed the areas within its --------- business and operations which could be adversely affected by, and has developed or is developing a program to address, on a timely basis, the "Year 2000 Problem" (that is, the risk that computer applications used by the Borrower may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and any date on or after December 31, 1999), and has made related appropriate inquiry of material suppliers and vendors. The Borrower believes that with modification and replacement of existing software and hardware, the Year 2000 Issue can be substantially mitigated. However, if such modifications and replacements are not made, or are not completed on a timely basis, which the Borrower currently does not anticipate, the Year 2000 Issue could have a material impact on the operations of the Borrower. The inability of a substantial number of third parties to complete their Year 2000 resolution process could materially impact the Borrower. SECTION 6.19 Borrower's Solvency. As of the date of this Agreement, the ------------------- Borrower is and will be Solvent. As used in this Section, "Solvent" means the Borrower is able to pay its debts as they become due in the usual course of business. ARTICLE VII COVENANTS SECTION 7.1 Certain Affirmative Covenants. The Borrower agrees with the ----------------------------- Bank that, until the Commitment shall have terminated and all of the -26- Liabilities have been paid and performed in full, the Borrower will perform the obligations set forth in this Section 7.1. ----------- SECTION 7.1.1 Financial Information, etc. The Borrower will furnish, or -------------------------- will cause to be furnished, to the Bank copies of the following financial statements, reports and information: (a) promptly when available and in any event within 90 days after the close of each Fiscal Year (i) a balance sheet at the close of such Fiscal Year, and statements of operations, of Total Owners' Equity and of cash flows for such Fiscal Year, of CEI and the Consolidated Subsidiaries certified without Impermissible Qualification by independent public accountants of recognized standing selected by the Borrower or CEI and reasonably acceptable to the Bank, (ii) a letter report of such accountants at the close of such Fiscal Year to the effect that they have reviewed the provisions of this Agreement and are not aware of any Default hereunder (insofar as any Default may relate to accounting matters) continuing at the end of such Fiscal Year, except such Default, if any, as may be disclosed in such statement, and (iii) a certificate of an Authorized Officer of the Borrower that no Default has occurred and is continuing, or specifying any such Default and the actions, if any, being taken by the Borrower with respect thereto, (b) promptly when available and in any event within 45 days after the close of each of the first three Fiscal Quarters of each Fiscal Year (i) a balance sheet at the close of such Fiscal Quarter and statements of operations, of total owners' equity and of changes in cash flows for the period commencing at the close of the previous Fiscal Year and ending with the close of such Fiscal Quarter, of CEI and the Consolidated Subsidiaries; (c) promptly upon the incorporation or acquisition thereof, information regarding the creation or acquisition of any new Significant Subsidiary; (d) such other information with respect to the financial condition, business, property, assets, revenues, and operations of the Borrower, either Guarantor and the Subsidiaries as the Bank may from time to time reasonably request. SECTION 7.1.2 Maintenance of Corporate Existences, etc. Except as ---------------------------------------- permitted by Section 7.2.4, the Borrower will cause to be done at all times all ------------- things necessary to maintain and preserve the corporate existences of the Borrower, each Guarantor and each Significant Subsidiary, and to comply in all material respects with all applicable laws, rules, regulations and orders. Except as permitted by Section 7.2.4, the Borrower or the Guarantors will ------------- continue to own and hold directly or indirectly, free and clear of all Liens (except as permitted by Section 7.2.2), all of the outstanding shares of capital ------------- stock of each Subsidiary now owned or hereafter acquired. SECTION 7.1.3 Foreign Qualification. The Borrower will, and will cause --------------------- each Guarantor and each Subsidiary to, cause to be done at all times all things necessary to be duly qualified to do business and in good standing as a foreign corporation in each jurisdiction where the nature of its business -27- makes such qualification necessary and where the failure to so qualify would reasonably be expected to have a Materially Adverse Effect, and to comply in all material respects with all applicable laws, rules, regulations and orders. SECTION 7.1.4 Payment of Taxes, etc. The Borrower will, and will cause --------------------- each Guarantor and each Subsidiary to, pay and discharge, prior to becoming delinquent, all federal, state and local taxes, assessments and other governmental charges or levies against or on any of its property, as well as claims of any kind which, if unpaid, might become a Lien in a material amount upon any of its properties; provided, however, that the foregoing shall not -------- ------- require the Borrower, either Guarantor or any Subsidiary to pay or discharge any such tax, assessment, charge, levy or other Lien so long as it shall contest the validity thereof in good faith by appropriate proceedings and shall set aside on its books adequate reserves in accordance with GAAP with respect thereto. SECTION 7.1.5 Insurance. The Borrower will, and will cause each Guarantor --------- and each Subsidiary to, maintain or cause to be maintained through self- insurance and with responsible insurance companies insurance with respect to its properties and business against such casualties and contingencies and of such types and in such amounts as has been historically maintained by the Borrower, the Guarantors and the Subsidiaries, or which is consistent with sound business practice in the reasonable opinion of the Borrower, and will, upon request of the Bank, furnish to the Bank at reasonable intervals a certificate of an Authorized Officer setting forth the nature and extent of all insurance maintained by the Borrower, the Guarantors and the Subsidiaries in accordance with this Section. SECTION 7.1.6 Notice of Default, Litigation, etc. The Borrower will give ---------------------------------- prompt notice (with a description in reasonable detail) to the Bank of: (a) the occurrence of any Default or any Event of Default; (b) the occurrence of any litigation, arbitration or governmental investigation or proceeding not previously disclosed by the Borrower to the Bank which has been instituted or, to the knowledge of the Borrowers is threatened against the Borrower, either Guarantor or any Subsidiary or to which any of their respective properties is subject which would reasonably be expected to result in a liability to the Borrower, either Guarantor or any Subsidiary not covered by the Borrower's, such Guarantor's or such Subsidiary's insurers, as applicable, in excess of $10,000,000; (c) any material development which shall occur in any litigation, arbitration or governmental investigation or proceeding previously disclosed by the Borrower to the Banks; (d) the occurrence of any event which would reasonably be expected to have a Materially Adverse Effect; (e) the occurrence of (iv) a Reportable Event with respect to any Pension Plan; (v) the institution of steps by the Borrower, either Guarantor or any Subsidiary to Terminate, any Pension Plan where the unfunded liability is in excess of $10,000,000; or (vi) a partial or complete withdrawal (as described in ERISA section 4203 or 4205) by the Borrower, either Guarantor or any Subsidiary from a multiemployer plan (as defined in Section 4001(a)(3) of ERISA) where the unfunded liability is in excess of $10,000,000; and (f) the occurrence of (vii) the institution of any steps by the PBGC to terminate any Pension Plan; (viii) the failure to make a required contribution to any Pension Plan if such failure is sufficient -28- to give rise to a Lien under section 304(f) of ERISA; (ix) the adoption of an amendment or the application for a funding waiver that could result in a requirement that the Borrower, either Guarantor or any Subsidiary furnish a bond or other security to the PBGC or to a Pension Plan pursuant to sections 306 or 307 of ERISA; (x) the assertion of any claim with respect to any Pension Plan which could, if determined adversely, result in the incurrence by the Borrower, either Guarantor or any Subsidiary of any material liability, fine or penalty; or (xi) any material increase in the contingent liability of the Borrower, either Guarantor or any Subsidiary with respect to post-retirement benefits under any Welfare Plan, as determined under Financial Accounting Standards Board No. 106. SECTION 7.1.7 Performance of Loan Documents. The Borrower will, and will ----------------------------- cause each Loan Party to, perform promptly and faithfully all of its obligations under each Loan Document executed by it. SECTION 7.1.8 Books and Records. The Borrower will, and will cause each ----------------- Guarantor and each Subsidiary to, keep books and records reflecting all of its business affairs and transactions in accordance with GAAP and permit the Bank or any of its representatives, at reasonable times and intervals and as arranged through the Treasurer or chief legal officer of the Borrower, to visit all of its offices, discuss its financial matters with its officers and independent accountants, examine and photocopy extracts from (a) any of its financial books and records and (b) any of its other corporate records other than such corporate records that are reasonably determined by the Borrower to be proprietary. SECTION 7.1.9 Significant Subsidiary Guaranty. The Borrower agrees to ------------------------------- promptly notify the Bank each time a Subsidiary becomes a Significant Subsidiary and to cause such Significant Subsidiary to deliver to the Bank a duly executed Significant Subsidiary Guaranty along with an opinion of counsel and a certificate of the type required by Section 5.1.1(b) both in form and substance ---------------- acceptable to the Bank. SECTION 7.1.10 Environmental Covenant. The Borrower will, and will cause ---------------------- each Guarantor and each Significant Subsidiary to, (a) use and operate all of its facilities and properties in material compliance with all Environmental Laws, keep all necessary permits, approvals, certificates, licenses and other authorizations relating to environmental matters in effect and remain in material compliance therewith, and handle all Hazardous Materials in material compliance with all applicable Environmental Laws; (b) immediately notify the Bank and provide copies upon receipt of all material written claims, complaints, notices or inquiries relating to the condition of its facilities and properties or compliance with Environmental Laws, in each case which involve or could reasonably be expected to involve obligations of the Borrower, either Guarantor or any Significant Subsidiary, as the case may be, in excess of $10,000,000; and (c) provide such information and certifications which the Bank may reasonably request from time to time to evidence compliance with this Section 7.1.10. -------------- SECTION 7.2 Certain Negative Covenants. The Borrower agrees with the Bank -------------------------- that, until the Commitment shall have terminated and all of the Liabilities have been paid and performed in full: -29- SECTION 7.2.1 Indebtedness for Borrowed Money. The Borrower will not ------------------------------- permit any Subsidiary to incur or permit to exist any Indebtedness for Borrowed Money, except (i) Indebtedness for Borrowed Money of any Significant Subsidiary to the Borrower, either Guarantor or any Subsidiary which is subordinated to such Significant Subsidiary's obligations under the Significant Subsidiary Guaranty pursuant to a Subordination Agreement; (ii) Indebtedness for Borrowed Money of any Subsidiary (other than a Significant Subsidiary) to any other Subsidiary or to the Borrower or either Guarantor; (iii) Indebtedness for Borrowed Money outstanding on the date hereof and listed in Item 7.2.1(iii) of --------------- the Disclosure Schedule and refinancings thereof; provided that such -------- Indebtedness for Borrowed Money is not increased as the result of such refinancing; (iv) additional unsecured Indebtedness for Borrowed Money of all Subsidiaries (other than Significant Subsidiaries) not to exceed $25,000,000 in the aggregate at any one time outstanding; and (v) additional unsecured Indebtedness for Borrowed Money of any Subsidiary acquired with such indebtedness existing at the time of acquisition/merger of such Subsidiary. SECTION 7.2.2 Liens. The Borrower will not, and will not permit either ----- Guarantor or any Subsidiary to, create, incur, assume or suffer to exist any Lien upon any of its property or assets, whether now owned or hereafter acquired, except: (a) Liens in favor of the Bank or the other Senior Revolving Lenders to secure the Liabilities or liabilities under Senior Revolving Loan Agreements up to a maximum of $650,000,000; (b) Liens which were granted prior to the date hereof in (and only in) assets identified in Item 7.2.1(iii) ("Ongoing Indebtedness") and Item --------------- ---- 7.2.2(b) ("Liens") of the Disclosure Schedule; -------- (c) Liens in (and only in) stock or assets permitted to be acquired under the terms of this Agreement granted to secure Indebtedness incurred at the time of such acquisition (or within one year thereof) to finance the acquisition of such stock or assets; provided, that the amount of -------- Indebtedness secured thereby is not increased; (d) statutory and common law banker's Liens and rights of setoff on bank deposits; (e) Liens for taxes, assessments or other governmental charges or levies not at the time delinquent or thereafter payable without penalty or being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books; (f) Liens of carriers, warehousemen, mechanics, materialmen and landlords incurred in the ordinary course of business for sums not overdue or being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books; (g) Liens incurred or existing in the ordinary course of business, consistent with past practice and not to secure Indebtedness for Borrowed Money, such as in connection with workers' compensation, unemployment insurance or other forms of governmental insurance or benefits, or to secure performance of tenders, statutory obligations, leases and contracts entered into in the ordinary bourse of business or to secure obligations on surety or appeal bonds; -30- (h) judgment Liens in existence less than 30 days after the entry thereof or with respect to which execution has been stayed or the payment of which is covered in full (subject to a customary deductible) by insurance; (i) Liens existing on any assets at the date of acquisition of such assets permitted to be acquired under the terms of this Agreement acquired after the date of this Agreement; (j) Liens granted to secure Indebtedness incurred to refinance any Indebtedness secured by Liens permitted by clauses (b), (c) and (i) of this Section 7.2.2; provided, that such Indebtedness is not increased as the ------------- -------- result of such refinancing and that such Liens attach only to the same assets subject to Lien prior to the refinancing. SECTION 7.2.3 Consolidation, Merger, etc. The Borrower will not, and will -------------------------- not permit either Guarantor or any Subsidiary to, consolidate with or merge into or with any other corporation, or sell, transfer, lease or sell and lease back or otherwise dispose of all or substantially all of its assets to any Person, without prior written consent of the Bank, except for the voluntary liquidation or dissolution of any wholly-owned Subsidiary into the Borrower, the merger of any Person with a Subsidiary, provided that after giving effect to such merger, such Subsidiary remains a "Subsidiary" as defined herein, or the merger of any Subsidiary into the Borrower provided that the Borrower is the surviving corporation; SECTION 7.2.4 Transactions with Affiliates. The Borrower will not, and ---------------------------- will not permit either Guarantor or any Significant Subsidiary to, enter into, or cause, suffer or permit to exist any transaction, arrangement or contract with any of its Affiliates (except for Significant Subsidiaries) which would not be entered into by a prudent Person in the position of the Borrower, such Guarantor or such Subsidiary, or which is on terms which are not on an arms- length basis. SECTION 7.2.5 Sale or Discount of Receivables. The Borrower will not, and ------------------------------- will not permit either Guarantor or any Subsidiary to, directly or indirectly, sell with recourse any of its notes or accounts receivable in excess of $100,000,000 in the aggregate at any one time, other than those arising from the export outside of the United States of goods or services. SECTION 7.2.6 Dividends. Neither the Borrower nor either Guarantor shall --------- pay any dividends to its respective shareholders upon the occurrence, or during the continuance of, any Default. No dividend shall be paid by Borrower or either Guarantor other than in accordance with all applicable provisions of law including, without limitation, the Delaware General Corporation Law, as amended. SECTION 7.2.7 Inconsistent Agreements. The Borrower will not, and will ----------------------- not permit either Guarantor or any Subsidiary to, enter into any agreement containing any provision which would be violated or breached by any borrowing by the Borrower made hereunder or by the performance by the Borrower or any other Loan Party of their respective obligations hereunder or under any Loan Document. SECTION 7.2.8 Loans, Advances and Investments. The Borrower will not, and ------------------------------- will not permit either Guarantor or any Subsidiary to, make or permit to remain outstanding any loan or advance to, or own, purchase or acquire any stock, obligations or securities of, or any other interest in, or make any capital contribution to, any Person, except: -31- (i) advances or extensions of credit on terms customary in the industry involved in the form of accounts or other receivables incurred, and investments, loans and advances made in settlement of such accounts receivable, all in the ordinary course of business; (ii) Permitted Investments; (iii) investments, loans or advances to or in the Borrower or in any Subsidiary or in either Guarantor; (iv) loans or advances to employees of the Borrower, either Guarantor or any Subsidiary in the ordinary course of their respective businesses, consistent with past practices, not to exceed $1,000,000 in aggregate amount at any time outstanding; and (v) other investments, loans or advances not exceeding $100,000,000 in the aggregate at any time outstanding. SECTION 7.2.9 Guaranties. Except as described in Item 7.2.9 ---------- ---------- ("Guaranties") of the Disclosure Schedule, neither the Borrower, either of the Guarantors nor any Subsidiary will enter into any Guaranty prior to the Commitment Termination Date, except for (a) Guaranties relating to operating and capital leases on which the Borrower, such Guarantor or such Subsidiary is lessee; (b) the Parent Guaranty and any Significant Subsidiary Guaranty; (c) Guaranties (other than Guaranties described in clause (b) of this ---------- Section 7.2.9 and Guaranties described in Item 7.2.9 of the Disclosure ------------- ---------- Schedule) not to exceed $25,000,000 in aggregate amount at any time outstanding of Indebtedness for Borrowed Money; (d) contingent obligations arising or existing as the result of the sale or other disposition of assets; (e) Guaranties by the Borrower or either Guarantor of any Indebtedness for Borrowed Money of any Subsidiary permitted under Section ------- 7.2.1; ----- (f) Guaranties by the Borrower or either Guarantor not to exceed $75,000,000 in aggregate amount at any time outstanding of any obligations of any Person other than any Subsidiary or any of its Affiliates; and (g) Guarantees by the Borrower, any Subsidiary or either Guarantor of any obligation of the Borrower, any Subsidiary or other Guarantor incurred or existing in the ordinary course of business, consistent with past practice and not to secure indebtedness for Borrowed Money, such as in connection with workers' compensation, unemployment insurance or other forms of governmental insurance or benefits, or to secure performance of tenders, statutory obligations, leases and contracts entered into in the ordinary course of business or to secure obligations on surety or appeal bonds. SECTION 7.2.10 Securities. The Borrower will not, and will not permit ---------- either Guarantor or any Subsidiary to, make any distributions, redemptions, prepayments, defeasances or repurchases of its securities upon the occurrence or during the continuance of any Default. The Borrower will not, and will not permit any Significant Subsidiary to, issue any capital stock to any Person other than either Guarantor, any other Significant Subsidiary or the Borrower. -32- SECTION 7.2.11 Business Activities. The Borrower will not, and will not ------------------- permit the Guarantors or any Significant Subsidiary to: (a) operate its business other than in the ordinary and usual course; and (b) engage in any type of business except the businesses of the type or substantially related to the type so operated by the Borrower, such Guarantor or such Significant Subsidiary on the Effective Date. ARTICLE VIII EVENTS OF DEFAULT SECTION 8.1 Events of Default. The term "Event of Default" shall mean ----------------- ---------------- each of the following events: SECTION 8.1.1 Non-Payment of Liabilities. The Borrower shall default in -------------------------- the payment or prepayment when due, whether at stated maturity, by acceleration, or otherwise, of any principal of any Note, or the Borrower shall default (and such default shall continue unremedied for a period of three days) in the payment when due, whether at stated maturity, by acceleration, or otherwise, of interest on any Note, of any commitment fee or of any other Liability. SECTION 8.1.2 Non-Performance of Certain Covenants. The Borrower shall ------------------------------------ default in the due performance and observance of any of its obligations under Section 7-2 of this Agreement and such default shall continue unremedied for 10 - ----------- days after notice thereof shall have been given to the Borrower by the Bank. SECTION 8.1.3 Certain Defaults on Other Indebtedness for Borrowed Money. --------------------------------------------------------- Any default shall occur under the terms applicable to any Indebtedness for Borrowed Money outstanding in a principal amount exceeding individually or in the aggregate $25,000,000 of the Borrower, the Guarantors or any Significant Subsidiary representing any borrowing or financing or arising under any other lease or material agreement, and such default shall: (a) consist of the failure to pay Indebtedness for Borrowed Money at the maturity thereof; or (b) continue without being cured or waived (so long as such cure or waiver did not involve any payment of principal of such Indebtedness for Borrowed Money) for a period of time sufficient to permit acceleration of Indebtedness for Borrowed Money. SECTION 8.1.4 Bankruptcy, Insolvency, etc. The Borrower, either Guarantor --------------------------- or any Significant Subsidiary shall become insolvent or generally fail to pay, or admit in writing its inability to pay, debts as they become due; or the Borrower, either Guarantor or any Significant Subsidiary shall apply for, consent to, or acquiesce in, the appointment of a trustee, receiver, sequestrator or other custodian for the Borrower, such Guarantor or such Significant Subsidiary or any property of any thereof, or make a general assignment for the benefit of creditors; or, in the absence of such application, consent or acquiescence, a trustee, receiver, sequestrator or other custodian shall be appointed for the Borrower, either Guarantor or any Significant Subsidiary or for a substantial part of the property of any thereof and not be discharged within 60 days; or any bankruptcy, reorganization, debt arrangement, or other case or proceeding under any bankruptcy or insolvency law, or any dissolution, winding up or liquidation proceeding, shall be commenced in respect of the Borrower, either Guarantor or -33- any Significant Subsidiary, and, if such case or proceeding is not commenced by the Borrower, such Guarantor or such Significant Subsidiary, such case or proceeding shall be consented to or acquiesced in by the Borrower, such Guarantor or such Significant Subsidiary or shall result in the entry of an order for relief or shall remain for 60 days undismissed; or the Borrower, either Guarantor or any Significant Subsidiary shall take any corporate action to authorize, or in furtherance of, any of the foregoing. SECTION 8.1.5 Control of the Borrower or CEI. Any Change in Control shall ------------------------------ occur on or after January 1, 1992. SECTION 8.1.6 Non-Performance of Other Obligations. Any Loan Party shall ------------------------------------ default in the due performance and observance of any other agreement, applicable to it, contained in this Agreement or in any other Loan Document, and such default shall continue unremedied for a period of 30 days after notice thereof shall have been given to the Borrower by the Bank. SECTION 8.1.7 Breach of Representation or Warranty. Any representation or ------------------------------------ warranty of any Loan Party in any Loan Document or in any writing furnished after the date of this Agreement by or on behalf of any Loan Party to the Bank for the purposes of or in connection with this Agreement is or shall be incorrect in any material respect when made. SECTION 8.1.8 Pension Plans. Any of the following events shall occur with ------------- respect to any Pension Plan (a) the institution of any steps by the Borrower, any member of its Controlled Group or any other Person to terminate a Pension Plan if, as a result of such termination, the Borrower or any such member could be required to make a contribution to such Pension Plan, or could reasonably expect to incur a liability or obligation to such Pension Plan, in excess of $25,000,000; or (b) a contribution failure occurs with respect to any Pension Plan sufficient to give rise to a Lien under Section 302(f) of ERISA. SECTION 8.1.9 Judgments. A final judgment to the extent not covered by --------- insurance that, with other such outstanding final judgments against the Borrower, either Guarantor and the Subsidiaries exceeds an aggregate of $10,000,000 shall be rendered against the Borrower, either Guarantor or any Subsidiary and if, within 60 days after entry thereof, such judgment shall not have been discharged or otherwise satisfied or execution thereof stayed pending appeal, or if, within 60 days after the expiration of any such stay, such judgment shall not have been discharged or otherwise satisfied. SECTION 8.1.10 Parent Guaranty, Significant Subsidiary Guaranty and ---------------------------------------------------- Subordination Agreement. The Parent Guaranty or any Significant Subsidiary - ----------------------- Guaranty or any Subordination Agreement shall cease to be in full force and effect or any Loan Party or any Person by, through or on behalf of any Loan Party shall contest in any manner in writing the validity, binding nature or enforceability of either the Parent Guaranty, any Significant Subsidiary Guaranty or any Subordination Agreement. SECTION 8.1.11 Credit Rating. Borrower having neither a Credit Rating ------------- from S&P nor Moody's at the same time, or having a Credit Rating from S&P of less than BB- or a Credit Rating from Moody's of less than Ba3. SECTION 8.1.12 Funded Debt Ratio. The ratio of Borrower's total ----------------- Indebtedness for Borrowed Money on any day to total earnings for the last four consecutive complete calendar quarters (before interest, taxes, depreciation and amortization and excluding any extraordinary gains or losses) exceeds 2.5:1, and Borrower's Credit Rating is at Level II or Level III. -34- SECTION 8.2 Action if Bankruptcy. If any Event of Default described in -------------------- Section 8.1.4 shall occur with respect to the Borrower, the outstanding - ------------- principal amount of all outstanding Notes and all other Liabilities shall be and become immediately due and payable, without notice or demand. SECTION 8.3 Action if Other Event of Default. If any Event of Default -------------------------------- (other than an Event of Default described in Section 8.1.4 with respect to the ------------- Borrower) shall occur for any reason, whether voluntary or involuntary, and be continuing, the Bank may, without notice or demand, declare all or any portion of the outstanding principal amount of the Loans to be due and payable and any or all other Liabilities to be due and payable, whereupon the full unpaid amount of such Loans and any and all other Liabilities which shall be so declared due and payable shall be and become immediately due and payable, without further notice, demand, or presentment. ARTICLE IX NO PREFERENTIAL PROVISIONS SECTION 9.1 No Preferential Provisions. The Borrower is a party to -------------------------- separate senior revolving loan agreements having terms substantially similar to the terms of this Agreement and may from time to time enter into additional or replacement senior revolving loan agreements with one or more financial institutions having terms substantially similar to the terms of this Agreement (any such agreement [including this Agreement] a "Senior Revolving Loan Agreement", and each lender under a Senior Revolving Loan Agreement [including the Bank], a "Senior Revolving Lender"). The Borrower shall not consent to or otherwise effect any amendment to a Senior Revolving Loan Agreement any document or instrument delivered pursuant thereto, or enter into any additional agreement or deliver any additional instrument in respect of a Senior Revolving Loan Agreement, that places another Senior Revolving Lender in a position that is materially superior to that of the Bank, unless prior to taking any such action, the Borrower shall have offered to the Bank the opportunity to incorporate the terms of such proposed amendment into the terms of this Agreement or the documents or instruments delivered pursuant hereto or to become party to or otherwise benefit from the terms of such additional document or instrument or a similar document or instrument. SECTION 9.2 Pro Rata Borrowings and Payments. All Borrowings, all -------------------------------- interest payments and all principal payments and prepayments under all Senior Revolving Loan Agreements shall be made based on each Senior Revolving Lender's pro rata share of the aggregate total of the Commitments of all Senior Revolving - --- ---- Loan Agreements. ARTICLE X MISCELLANEOUS SECTION 10.1 Waivers, Amendments, etc. of Loans and Notes; Participation ----------------------------------------------------------- in Loans and Notes. The provisions of this Agreement and of each Loan Document - ------------------ may from time to time be amended, modified, or waived, if such amendment modification or waiver is in writing and consented to by the Borrower and the Bank. No failure or delay on the part of the Bank or the holder of any Note in exercising any power or right under this Agreement or any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such power or right preclude any other or further exercise thereof or the exercise of any other power or right. No notice to or demand on the Borrower in any case shall entitle it to any notice or demand in similar or other -35- circumstances. No waiver or approval by the Bank, or the holder of any Note under this Agreement or any other Loan Document shall, except as may be otherwise stated in such waiver or approval, be applicable to subsequent transactions. No waiver or approval hereunder shall require any similar or dissimilar waiver or approval thereafter to be granted hereunder. SECTION 10.2 Notices. All notices and other communications provided to ------- any party hereto under this Agreement or any other Loan Document shall be in writing or by telex or by facsimile and addressed or delivered to it at its address set forth in Exhibit N hereto or at such other address as may be --------- designated by such party in a notice to the other parties. Any notice, if mailed and properly addressed with postage prepaid or sent by nationally recognized courier, shall be deemed given when received; any notice, if transmitted by telex or facsimile, shall be deemed given when transmitted (answerback confirmed in the case of telexes and electronically confirmed in the case of any facsimile). SECTION 10.3 Costs and Expenses. The Borrower agrees to reimburse the ------------------ Bank upon demand for all reasonable out-of-pocket expenses (including attorneys' fees and legal expenses and the allocated costs of in-house counsel and legal staff) incurred by the Bank in enforcing the obligations of the Borrower, either Guarantor or any Significant Subsidiary under this Agreement or any other Loan Document. SECTION 10.4 Indemnification. In consideration of the execution and --------------- delivery of this Agreement by the Bank and the extension of the Commitment, the Borrower hereby indemnities, exonerates and holds the Bank and each of its officers, directors, employees, and agents (the "Bank Parties") free and ------------ harmless from and against any and all actions, causes of action, suits, losses, costs, liabilities and damages, and expenses actually incurred in connection therewith (irrespective of whether such Bank Party is a party to the action for which indemnification hereunder is sought), including reasonable attorneys' fees and disbursements (the "Indemnified Liabilities"), incurred by the Bank Parties ----------------------- or any of them as a result of, or arising out of, or relating to the entering into and performance of this Agreement and any other Loan Document by any of the Bank Parties; except for any such Indemnified Liabilities arising for the account of a particular Bank Party by reason of the relevant Bank Party's breach of this Agreement or of any Loan Document or gross negligence or wilful misconduct, and if and to the extent that the foregoing undertaking may be unenforceable for any reason, the Borrower hereby agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. SECTION 10.5 Survival. The obligations of the Borrower under Section 4.4, -------- ----------- 4.5, 10.3, and 10.4 shall in each case survive any termination of this - --- ---- ---- Agreement. The representations and warranties made by each Loan Party in this Agreement and in each other Loan Document shall survive the execution and delivery of this Agreement and each such other Loan Document. SECTION 10.6 Severability. Any provision of this Agreement or any other ------------ Loan Document which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or such Loan Document or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 10.7 Headings. The various headings of this Agreement and of each -------- other Loan Document are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or such Loan Document or any provisions hereof or thereof. -36- SECTION 10.8 Counterparts, Effectiveness, etc. This Agreement may be --------------------------------- executed by the parties hereto in several counterparts, each of which shall be executed by the Borrower and the Bank and be deemed to be an original and all of which shall constitute together but one and the same agreement. This Agreement shall become effective when counterparts hereof are executed on behalf of the Borrower and the Bank. SECTION 10.9 Governing Law; Entire Agreement. THIS AGREEMENT, THE NOTE, ------------------------------- AND EACH OTHER LOAN DOCUMENT SHALL EACH BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK. THIS AGREEMENT, THE NOTE, AND THE OTHER LOAN DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ANY PRIOR AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT THERETO. SECTION 10.10 Successors and Assigns. This Agreement shall be binding ---------------------- upon and shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that: -------- ------- (a) the Borrower may not assign or transfer its rights or obligations hereunder without the prior written consent of the Bank; and (b) the rights of sale, assignment, participation and transfer by the Bank are subject to Section 10.11. ------------- SECTION 10.11 Sale and Transfers, etc., of Loans and Notes; Participations ------------------------------------------------------------ in Loans and Notes. - ------------------ (a) The Bank may at any time sell to one or more banks or other entities ("Participants") participating interests in all or any portion of ------------ its Commitment and Loans or any other rights or interest of the Bank hereunder (its "Credit Exposure"). In the event of any such sale by a Bank --------------- of participating interests to a Participant, the Bank shall notify the Borrower of the identity of such Participant, the Bank's obligations under this Agreement shall remain unchanged, the Bank shall remain solely responsible for the performance thereof, the Bank shall remain the holder of any such Note for all purposes under this Agreement, and the Borrower shall continue to deal solely and directly with such Bank in connection with the Bank's rights and obligations under this Agreement. Except in the case of the sale of a participation to an Affiliate of the Bank, any participation permitted hereunder shall be in a minimum amount of at least $5,000,000, and the relevant participation agreement shall not permit the Participant to transfer, pledge, assign, sell participations in or otherwise encumber its portion of the Commitment or Loans. The Bank agrees that any agreement between the Bank and any such Participant in respect of such participating interest shall not restrict the Bank's right to agree to any amendment, supplement or modification to the Agreement or any of the Loan Documents except to extend the final maturity of any Note, reduce the rate or extend the time of payment of interest thereon or any fees owed to the Bank under this Agreement or any of the Loan Documents, reduce the principal amount of any Note or release any Guaranty. The Borrower hereby acknowledges and agrees that any such disposition described in this Section will give rise to a direct obligation of the Borrower to the Participant, and such Participant shall, for purposes of Sections 3.7, 3.8, 3.9, 4.4 and ------------ --- --- --- 4.5, be considered a Bank and may rely on, and possess all rights under, --- any opinions, certificates, or other Instruments delivered under or in connection with this Agreement or any other Loan Document; provided, -------- however, that, the Borrower shall only be required to deliver information ------- and data required pursuant to this Agreement to the Bank selling or granting a participation in (in whole or in part) its Credit Exposure; and provided, further, that no -------- ------- -37- Participant shall be entitled to payment of any amount under Section 3.9 in ----------- excess of that which would have been at the date of such participation required to be paid to the selling Bank had no participation occurred. Concurrently with the sale of any participation, the Participant shall execute and deliver to the Borrower and the Bank an instrument in writing specifying its Domestic Office and its LIBOR Office and containing an Exemption Representation, and, if such Participant is a Non-United States Person, an Exemption Agreement. (b) The Bank (in such capacity the "Assigning Bank") may at any time -------------- assign to one or more banks or other entities (each a "Purchasing Bank") --------------- all or any part of its Credit Exposure, provided that (i) unless assigned to an Affiliate of such Assigning Bank or another Senior Revolving Lender, it assigns its Credit Exposure in an amount not less than $9,000,000 and, unless such assignment covers all of such Assigning Bank's Credit Exposure, such Assigning Bank must retain at least $9,000,000 and (ii) any Purchasing Bank must be acceptable to the Borrower, whose consent shall not be unreasonably withheld, and the Bank's and the Borrower's decisions respecting the same shall be made promptly. In the event of any assignment, the Assigning Bank shall give notice to the Borrower and shall deliver to the Borrower, for its acceptance and recording in its records, an Assignment and Acceptance, which shall include an Exemption Representation and, if such Purchasing Bank is a Non-United States Person, its Exemption Agreement. The Borrower and the Bank agree that to the extent of any assignment, the Purchasing Bank shall be deemed to have the same rights and benefits with respect to the Borrower under this Agreement and any Notes as it would have had if it were a Bank hereunder; provided -------- that the Borrower shall be entitled to continue to deal solely and directly with the Assigning Bank in connection with the interests so assigned to the Purchasing Bank until the Assignment and Acceptance shall have been delivered to the Borrower collectively by the Assigning Bank and the Purchasing Bank. Upon the assignment of Credit Exposure provided for hereby, the Assigning Bank shall be relieved of its obligations hereunder to the extent of such assignment. In the event of any assignment, the Borrower shall, at its sole cost and expense, prepare and deliver to the Assigning Bank and to the Purchasing Bank new Notes reflecting the effect of such assignment. (c) The Borrower authorizes the Bank to disclose to any Participant or Purchasing Bank (each, a "Transferee") and any prospective Transferee ---------- any and all financial information in the Bank's possession concerning the Borrower, either Guarantor and any Subsidiary which has been delivered to the Bank by the Borrower, either Guarantor or any Subsidiary pursuant to this Agreement or any other Loan Document or which has been delivered to the Bank by the Borrower, either Guarantor or any Subsidiary in connection with the Bank's credit evaluation of the Borrower, either Guarantor or any Subsidiary prior to entering into this Agreement; provided, that such -------- Transferee or prospective Transferee shall first have executed and delivered to the Borrower a Confidentiality Agreement. (d) The Bank shall have the right to collaterally assign its rights hereunder or under any other Loan Document to any Federal Reserve Bank in accordance with applicable law. SECTION 10.12 Other Transactions. Nothing contained herein shall preclude ------------------ the Bank from engaging in any transaction, in addition to those contemplated by this Agreement or any other Loan Document, with the Borrower or any of its Affiliates in which the Borrower or such Affiliate is not restricted hereby from engaging with any other Person. -38- SECTION 10.13 Waiver of Jury Trial. THE BANK, AND THE BORROWER HEREBY -------------------- KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OF THE BANK, OR THE BORROWER. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE BANK ENTERING INTO THIS AGREEMENT. SECTION 10.14 Consent to Jurisdiction and Service of Process. Any ---------------------------------------------- judicial proceedings brought against the Borrower with respect to this Agreement or any Note may be brought in any state or federal court of competent jurisdiction in the State of New York and by the execution and delivery of this Agreement the Borrower accepts the nonexclusive jurisdiction of the aforesaid courts. Service of process may be made by any means authorized by federal law or the law of New York. A copy of any such process so served shall be mailed by registered mail to the Borrower at its address set forth below its signature hereto or at such other address as may be designated by the Borrower in a notice to the Bank. Nothing herein shall limit the right of any Bank to bring proceedings against the Borrower in the courts of any other jurisdiction. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. CONSOLIDATION COAL COMPANY By /s/ Karen L. Zemba ----------------------------------------------- Karen L. Zemba Vice President & Treasurer THE FIRST NATIONAL BANK OF CHICAGO By /s/ D. Andrew Bateman ----------------------------------------------- Title: D. Andrew Bateman Senior Vice President -39- SCHEDULE TO EXHIBIT 10.9 In addition, to Exhibit 10.9, Consolidation Coal Company entered into two additional Senior Revolving Loan Agreements with the following banks, all of which are substantially identical to Exhibit 10.9 in all material respects: The First Union National Bank Bank of America National Trust and Savings Association EX-10.10 11 NOTE ISSUED BY CONSOLIDATED COAL, $100,000,000 EXHIBIT 10.10 NOTE $100,000,000 November 13, 1998 FOR VALUE RECEIVED, the undersigned, CONSOLIDATION COAL COMPANY, a Delaware corporation (the "Borrower"), promises to pay to the order of THE FIRST NATIONAL -------- BANK OF CHICAGO (the "Bank") on the Commitment Termination Date the principal ---- sum of ONE HUNDRED MILLION DOLLARS ($100,000,000) or, if less, the outstanding principal amount of all Loans made by the Bank to the Borrower outstanding from time to time pursuant to that certain Senior Revolving Loan Agreement, dated as of November 13, 1998, (together with all amendments, if any, hereafter from time to time made thereto, the "Loan Agreement"), among the Borrower and The Bank as -------------- such Loans are entered by the holder hereof in its records or in the appropriate column of the grid (the "Grid") attached to this Note. All payments on account ---- of the principal hereof shall also be endorsed by the holder hereof on the Grid or otherwise entered on the records of the Bank. Failure to record any such amounts on the Grid shall not limit or otherwise affect the obligations of the Borrower to make payments of principal or interest on this Note when due. The unpaid principal amount of this Note from time to time outstanding shall bear interest as provided in Section 3.4 and Section 3.5 of the Loan ----------- ----------- Agreement. All payments of principal of and interest on this Note shall be payable in lawful currency of the United States of America at the offices of the Bank in immediately available funds. This Note is the Note referred to in, and evidences indebtedness incurred under, the Loan Agreement, to which reference is made for a statement of the terms and conditions on which the Borrower is permitted and required to make prepayments of principal of this Note and on which the indebtedness evidenced hereby may be declared to be immediately due and payable. Unless the contract requires otherwise, a capitalized item in this Note shall have the meaning given in the Loan Agreement. CONSOLIDATION COAL COMPANY By: /s/ Karen L. Zemba ---------------------------- Karen L. Zemba Vice President & Treasurer GRID Loans made by the Bank to Consolidation Coal Company described in that certain Senior Revolving Loan Agreement, dated as of November 13, 1998, and payments of principal of such Loans.
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2 SCHEDULE TO EXHIBIT 10.10 In addition, to Exhibit 10.10, Consolidation Coal Company issued Note for the benefit of each of the following banks, all of which are substantially identical to Exhibit 10.10 in all material respects: The First Union National Bank Bank of America National Trust and Savings Association EX-10.11 12 PARENT GUARANTY, 11/13/98 EXHIBIT 10.11 ================================================================================ PARENT GUARANTY From CONSOL ENERGY INC. AND CONSOL INC. To THE FIRST NATIONAL BANK OF CHICAGO ================================================================================ PARENT GUARANTY --------------- 1. Guaranty of Payment. FOR VALUE RECEIVED, and in consideration of any ------------------- loan or other financial accommodation heretofore or hereafter at any time made or granted to CONSOLIDATION COAL COMPANY, a Delaware corporation (herein called the "Debtor") by THE FIRST NATIONAL BANK OF CHICAGO(herein, in such capacity, ------ together with its successors and assigns, called "Bank"), each of the ---- undersigned, hereby unconditionally guarantees the full and prompt payment when due, whether by acceleration or otherwise, and at all times thereafter, of all obligations of the Debtor to the Bank, howsoever created, arising or evidenced, whether direct or indirect, primary or secondary, absolute or contingent, joint or several, or now or hereafter existing, or due or to become due (all such obligations, together with any extensions or renewals thereof, being hereinafter collectively called the "Liabilities"), under and in connection with that ----------- certain Senior Revolving Loan Agreement, dated as of November 13, 1998 (herein, as the same may be amended from time to time, called the "Loan Agreement"), -------------- among the Debtor and the Bank, and each of the undersigned further agrees to pay all reasonable expenses (including attorneys' fees and legal expenses) paid or incurred by the Bank in endeavoring to collect the Liabilities, or any part thereof, and in enforcing this guaranty. 2. Acceleration of the Time of Payment of Amount Payable Under Guaranty. -------------------------------------------------------------------- Each of undersigned agrees that, in the event of the dissolution or insolvency of the Debtor or such undersigned, or the inability or failure of the Debtor or such undersigned to pay debts as they become due, or an assignment by the Debtor or such undersigned for the benefit of creditor, or the commencement of any case or proceeding in respect of the Debtor or such undersigned under any bankruptcy, insolvency or similar laws, and, if such case or proceeding is not commenced by the Debtor or such undersigned such case or proceeding shall be consented to or acquiesced in by the Debtor or such undersigned, or shall result in the entry of an order for relief or shall remain for 60 days undismissed, and if such event shall occur at a time when any of the Liabilities may not then be due and payable, such undersigned will pay to the Agent forthwith the full amount which would be payable hereunder by such undersigned if all Liabilities were then due and payable. 3. Right of Setoff in Deposits and other Property. The Bank shall have a ---------------------------------------------- right of set off against (and may, without demand or notice of any kind, at any time and from time to time when any amount shall be due and payable by such undersigned hereunder, appropriate and apply toward the payment of such amount, in such order of application as the Bank may elect) any and all balances, credits, deposits (general or special, time or demand, provisional or final), accounts or moneys of or in the name of such undersigned now or hereafter with the Agent or such Bank. 4. Continuing Guaranty. This guaranty shall in all respects be a ------------------- continuing, absolute and unconditional guaranty, and shall remain in full force and effect (notwithstanding, without limitation, the dissolution of any of the undersigned or that at any time or from time to time all Liabilities may have been paid in full), until all Liabilities (including any extensions or renewals of any thereof) and all interest thereon and all expenses (including attorneys' fees and legal expenses) reasonably paid or incurred by the Bank in endeavoring to collect the Liabilities and in enforcing this guaranty shall have been finally paid in full and all other obligations of each of the undersigned under this guaranty shall have been satisfied. 5. Rescission or Return of Payment on Liabilities. Each of the ---------------------------------------------- undersigned further agrees that, if at any time all or any part of any payment theretofore applied by the Bank to any of the Liabilities is or must be rescinded or returned by the Bank for any reason whatsoever (including, without limitation, the insolvency, bankruptcy or reorganization of the 2 Debtor), such Liabilities shall, for the purposes of this guaranty, to the extent that such payment is or must be rescinded or returned, be deemed to have continued in existence, notwithstanding such application by the Bank, and this guaranty shall continue to be effective or be reinstated, as the case may be, as to such Liabilities, all as though such application by the Bank had not been made. 6. Bank Permitted to Take Certain Actions. The Bank may, from time to -------------------------------------- time, at its sole discretion and without notice to the undersigned (or any of them) take any or all of the following actions without impairing the obligation of the undersigned under this guaranty: (a) retain or obtain a lien upon or a security interest in any property to secure any of the Liabilities or any obligation hereunder, (b) retain or obtain the primary or secondary obligation of any obligor or obligors, in addition to the undersigned, with respect to any of the Liabilities (c) extend or renew for one or more periods (whether or not longer than the original period), alter or exchange any of the Liabilities, or release or compromise any obligation of any of the undersigned hereunder or any obligation of any nature of any other obligor with respect to any of the Liabilities, (d) release or fail to perfect its lien upon or security interest in, or impair, surrender, release or permit any substitution or exchange for, all or any part of any property securing any of the Liabilities or any obligation hereunder, or extend or renew for one or more periods (whether or not longer than the original period) or release, compromise, alter or exchange any obligations of any nature of any obligor with respect to any such property, and (e) resort to the undersigned (or any of them) for payment of any of the Liabilities, whether or not the Bank (i) shall have resorted to any property securing any of the Liabilities or any obligation hereunder or (ii) shall have proceeded against any other of the undersigned or any other obligor primarily or secondarily obligated with respect to any of the Liabilities (all of the actions referred to in preceding clauses (i) and (ii) being hereby expressly waived by the undersigned). 7. Application of Payments. Any amounts received by the Bank from ----------------------- whatsoever source on account of the Liabilities may be applied by the Bank, toward the payment of such of the Liabilities, and in such order of application, as the Bank may from time to time elect. 8. Waiver of Subrogation. Each of the undersigned hereby waives any --------------------- claim or other right which such of the undersigned may now have or hereafter acquire against the Debtor or any other obligor primarily or secondarily obligated with respect to any of the Liabilities that arises from the existence or performance of the obligations of such of the undersigned under this guaranty, including, without limitation, any right of indemnification or any right of subrogation or other right to participate in any claim or remedy of the Bank against the Debtor or any property securing any of the Liabilities, which the Bank now has or hereafter acquires, whether or not such claim, right or remedy arises in equity or under contract, statute Or common law. The provisions of this paragraph are for the express benefit of the Debtor and each other obligor primarily or secondarily obligated with respect to any of the Liabilities as well as the Bank and may be enforced independently by the Debtor and each such other obligor. 9. Waiver of Notice and Other Matters. Each of the undersigned hereby ---------------------------------- expressly waives: (a) notice of the acceptance by the Bank of this guaranty, (b) notice of the existence or creation or non-payment of all or any of the Liabilities, (c) presentment, demand, notice of dishonor, protest, and all other notices whatsoever, and (d) all diligence in collection or protection of or realization upon the Liabilities or any thereof, any obligation hereunder, or any security for or guaranty of any of the foregoing. 10. Additional Liabilities of the Debtor Authorized. The creation or ----------------------------------------------- existence, with or without notice to the undersigned, from time to time of 3 Liabilities in excess of the amount to which the right of recovery under this guaranty is limited shall not in any way affect or impair the rights of the Bank and the obligations of the undersigned under this guaranty. 11. Assignment of Liabilities. The Bank may, from time to time to the ------------------------- extent permitted under the Loan Agreement, without notice to the undersigned (or any of them) assign or transfer any or all of the Liabilities or any interest therein; and, notwithstanding any such assignment or transfer or any subsequent assignment or transfer thereof, such Liabilities shall be and remain Liabilities for the purposes of this guaranty, and each and every immediate and successive assignee or transferee of any of the Liabilities or any interest therein shall, to the extent of the interest of such assignee or transferee in the Liabilities, be entitled to the benefits of this guaranty to the same extent as if such assignee or transferee were the Bank. 12. Waiver and Modifications. No delay on the part of the Bank in the ------------------------ exercise of any right or remedy shall operate as a waiver thereof, and no single or partial exercise by the Bank of any right or remedy shall preclude other or further exercise thereof or the exercise of any other right or remedy; nor shall any modification or waiver of any of the provisions of this guaranty be binding upon the Bank except as expressly set forth in a writing duly signed and delivered on behalf of the Bank. 13. Obligations Under Guaranty. No action of the Bank permitted hereunder -------------------------- shall in any way affect or impair the rights of the Bank and the obligations of the undersigned under this guaranty. For the purposes of this guaranty, Liabilities shall include all obligations of the Debtor to the Bank under and in connection with the Loan Agreement, notwithstanding any right or power of the Debtor or anyone else to assert any claim or defense as to the invalidity or unenforceability of any such obligation, and no such claim or defense shall affect or impair the obligations of the undersigned hereunder. The obligations of the undersigned under this guaranty shall be absolute and unconditional irrespective of any circumstance whatsoever which might constitute a legal or equitable discharge or defense of the undersigned (or any of them). Each of the undersigned hereby acknowledges that there are no conditions to the effectiveness of this guaranty. 14. Information Concerning Debtor. Each of the undersigned hereby ----------------------------- warrants and represents to the Bank that such undersigned now has and will continue to have independent means of obtaining information concerning the affairs, financial condition and business of the Debtor. The Bank shall have no duty or responsibility to provide the undersigned (or any of them) with any credit or other information concerning the affairs, financial condition or business of the Debtor which may come into the Bank's possession. 15. Senior Indebtedness. Each of the undersigned hereby further warrants ------------------- and represents that the obligations of each undersigned under this guaranty and under each other Loan Document constitutes indebtedness senior to any subordinated indebtedness of such undersigned. 16. Certain Representations. Each of the undersigned hereby further ----------------------- warrants and represents to the Bank that (a) the execution and delivery of this guaranty, and the performance by each of the undersigned of its obligations hereunder, are within the corporate right, power, authority and capacity of such undersigned and have been duly authorized by all necessary corporate action on the part of such undersigned, and (b) this guaranty has been duly executed and delivered on behalf of each of the undersigned and is the legal, valid and binding obligation of such undersigned, enforceable in accordance with its terms, the making and performance of which do not and will not contravene or conflict with the charter or by-laws of such undersigned or violate or constitute a default under any law, any presently existing requirement or restriction imposed by judicial, arbitral or any governmental 4 instrumentality or any agreement, instrument or indenture by which such undersigned is bound. 17. No Liens. Each of the undersigned hereby covenants that it will not -------- permit any Liens upon any of the capital stock of the Debtor owned by such undersigned except as permitted by the Loan Agreement. 18. Successors. This guaranty shall be binding upon the undersigned, and ---------- upon the successors and assigns of the undersigned; and all references herein to the Debtor and to such undersigned, respectively, shall be deemed to include any successor or successors, whether immediate or remote, to such of the Debtor or such undersigned. The term "undersigned" as used herein shall mean all parties executing this guaranty and each of them, and all such parties shall be jointly and severally obligated hereunder. 19. Law; Severability. THIS GUARANTY SHALL BE CONSTRUED IN ACCORDANCE ----------------- WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. Wherever possible each provision of this guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this guaranty shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this guaranty. 20. Captions. Section captions used in this guaranty are for convenience -------- only, and shall not affect the construction of this guaranty. 21. Waiver of Jury Trial. THE UNDERSIGNED HEREBY EXPRESSLY -------------------- WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS GUARANTY OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT NOT BEFORE A JURY. 22. Consent to Jurisdiction and Service of Process. Each of the ---------------------------------------------- undersigned agrees that any judicial proceedings brought against such undersigned with respect to this guaranty may be brought in any state or federal court of competent jurisdiction in the State of New York and by the execution and delivery of this guaranty, each of the undersigned accepts the nonexclusive jurisdiction of the aforesaid courts. Service of process may be made by any means authorized by federal law or the law of New York, as the case may be. A copy of any such process so served shall be mailed by registered mail to such undersigned at its address set forth opposite its name on the signature page hereto or at such other address as may be designated by such undersigned in a notice to the Agent. Nothing herein shall limit the right of the Agent or any Bank to bring proceedings against any of the undersigned in the courts of any other jurisdiction. 23. Liabilities Limited. Anything else in this guaranty notwithstanding, ------------------- each of the undersigned shall be liable under this guaranty only for the maximum amount of such liability that can be hereby incurred without rendering this guaranty, as it relates to such undersigned, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer, and not for any greater amount. 5 SIGNED AND DELIVERED as of this 13th day of November, 1998. CONSOL ENERGY INC. By:/s/ J. P. Garniewski, Jr. -------------------------- J.P. Garniewski, Jr. Assistant Secretary 1800 Washington Road Pittsburgh, PA 15241 Facsimile: (412) 831-4994 CONSOL INC. By:/s/ Karen L. Zemba -------------------------- Karen L. Zemba Vice President & Treasurer 1800 Washington Road Pittsburgh, PA 15241 Facsimile: (412) 831-4151 6 SCHEDULE TO EXHIBIT 10.11 In addition, to Exhibit 10.11, Consolidation Coal Company executed a Parent Guaranty with each of the following banks, all of which are substantially identical to Exhibit 10.11 in all material respects: The First Union National Bank Bank of America National Trust and Savings Association EX-10.12 13 SIGNIFICANT SUBSIDIARY GUARANTY 11/13/98 EXHIBIT 10.12 ================================================================================ Significant Subsidiary GUARANTY From CONSOLIDATION COAL SALES COMPANY, CONSOL PENNSYLVANIA COAL COMPANY, CONSOL SALES COMPANY, EIGHTY-FOUR MINING COMPANY, FAIRMONT SUPPLY COMPANY, HELVETIA COAL COMPANY, ISLAND CREEK COAL COMPANY, KEYSTONE COAL MINING CORPORATION, LAUREL RUN MINING COMPANY, McELROY COAL COMPANY, NEW CENTURY HOLDINGS, INC., NINEVEH COAL COMPANY, ROCHESTER & PITTSBURGH COAL COMPANY To THE FIRST NATIONAL BANK OF CHICAGO ================================================================================ 1 SIGNIFICANT SUBSIDIARY GUARANTY ------------------------------- 1. Guaranty of Payment. FOR VALUE RECEIVED, and in consideration of any ------------------- loan or other financial accommodation heretofore or hereafter at any time made or granted to CONSOLIDATION COAL COMPANY, a Delaware corporation (herein called the "Debtor") by THE FIRST NATIONAL BANK OF CHICAGO, individually (herein, in ------ such capacity, together with its successors and assigns, called "Bank"), each of ---- the undersigned, hereby unconditionally guarantees the full and prompt payment when due, whether by acceleration or otherwise, and at all times thereafter, of all obligations of the Debtor to the Bank, howsoever created, arising or evidenced, whether direct or indirect, primary or secondary, absolute or contingent, joint or several, or now or hereafter existing, or due or to become due (all such obligations, together with any extensions or renewals thereof, being hereinafter collectively called the "Liabilities"), under and in ----------- connection with that certain Senior Revolving Loan Agreement, dated as of December 23, 1993 (herein, as the same may be amended from time to time, called the "Loan Agreement"), between the Debtor and the Bank and each of the -------------- undersigned further agrees to pay all reasonable expenses (including attorneys' fees and legal expenses) paid or incurred by the Bank in endeavoring to collect the Liabilities, or any part thereof, and in enforcing this guaranty. 2. Acceleration of the Time of Payment of Amount Payable Under Guaranty. -------------------------------------------------------------------- Each of the undersigned agrees that, in the event of the dissolution or insolvency of the Debtor or such undersigned, or the inability or failure of the Debtor or such undersigned to pay debts as they become due, or an assignment by the Debtor or such undersigned for the benefit of creditors, or the commencement of any case or proceeding in respect of the Debtor or such undersigned under any bankruptcy, insolvency or similar laws, and, if such case or proceeding is not commenced by the Debtor or such undersigned, such case or proceeding shall be consented to or acquiesced in by the Debtor or such undersigned, or shall result in the entry of an order for relief or shall remain for 60 days undismissed, and if such event shall occur at a time when any of the Liabilities may not then be due and payable, such undersigned will pay to the Bank forthwith the full amount which would be payable hereunder by such undersigned if all Liabilities were then due and payable. 3. Right of Setoff in Deposits and Other Property. The Bank shall have a ---------------------------------------------- right of set off against (and may, without demand or notice of any kind, at any time and from time to time when any amount shall be due and payable by such undersigned hereunder, set off, appropriate and apply toward the payment of such amount, in such order of application as the Bank may elect) any and all balances, credits, deposits (general or special, time or demand, provisional or final), accounts or moneys of or in the name of such undersigned now or hereafter with the Bank. 4. Continuing Guaranty. This guaranty shall in all respects be a ------------------- continuing, absolute and unconditional guaranty, and shall remain in full force and effect (notwithstanding, without limitation, the dissolution of any of the undersigned or that at any time or from time to time all Liabilities may have been paid in full), until all Liabilities (including any extensions or renewals of any thereof) and all interest thereon and all expenses (including attorneys' fees and legal expenses) reasonably paid or incurred by the Bank in endeavoring to collect the Liabilities and in enforcing this guaranty shall have been finally paid in full and all other obligations of each of the undersigned under this guaranty shall have been satisfied. 5. Rescission or Return of Payment on Liabilities. Each of the ---------------------------------------------- undersigned further agrees that, if at any time all or any part of any payment theretofore applied by the Bank to any of the Liabilities is or must be rescinded or returned by the Bank for any reason whatsoever (including, 2 without limitation, the insolvency, bankruptcy or reorganization of the Debtor), such Liabilities shall, for the purposes of this guaranty, to the extent that such payment is or must be rescinded or returned, be deemed to have continued in existence, notwithstanding such application by the Bank, and this guaranty shall continue to be effective or be reinstated, as the case may be, as to such Liabilities, all as though such application by the Bank had not been made. 6. Bank Permitted to Take Certain Actions. The Bank may, from time to -------------------------------------- time, at its sole discretion and without notice to the undersigned (or any of them), take any or all of the following actions without impairing the obligation of the undersigned under this guaranty: (a) retain or obtain a lien upon or a security interest in any property to secure any of the Liabilities or any obligation hereunder, (b) retain or obtain the primary or secondary obligation of any obligor or obligors, in addition to the undersigned, with respect to any of the Liabilities, (c) extend or renew for one or more periods (whether or not longer than the original period), alter or exchange any OF the Liabilities, or release or compromise any obligation of any of the undersigned hereunder or any obligation of any nature of any other obligor with respect to any of the Liabilities, (d) release or fail to perfect its lien upon or security interest in, or impair, surrender, release or permit any substitution or exchange for, all or any part of any property securing any of the Liabilities or any obligation hereunder, or extend or renew for one or more periods (whether or not longer than the original period) or release, compromise, alter or exchange any obligations of any nature of any obligor with respect to any such property, and (e) resort to the undersigned (or any of them) for payment of any of the Liabilities, whether or not the Bank (i) shall have resorted to any property securing any of the Liabilities or any obligation hereunder or (ii) shall have proceeded against any other of the undersigned or any other obligor primarily or secondarily obligated with respect to any of the Liabilities (all of the actions referred to in preceding clauses (i) and (ii) being hereby expressly waived by the undersigned). 7. Application of Payments. Any amounts received by the Bank from ----------------------- whatsoever source on account of the Liabilities may be applied by the Bank, toward the payment of such of the Liabilities, and in such order of application, as the Bank may from time to time elect. 8. Waiver of Subrogation. Each of the undersigned hereby waives any --------------------- claim or other right which such of the undersigned may now have or hereafter acquire against the Debtor or any other obligor primarily or secondarily obligated with respect to any of the Liabilities that arises from the existence or performance of the obligations of such of the undersigned under this guaranty, including, without limitation, any right of indemnification or any right of subrogation or other right to participate in any claim or remedy of the Bank against the Debtor or any property securing any of the Liabilities, which the Bank now has or hereafter acquires, whether or not such claim, right or remedy arises in equity or under contract, statute or common law. The provisions of this paragraph are for the express benefit of the Debtor and each other obligor primarily or secondarily obligated with respect to any of the Liabilities as well as the Bank and may be enforced independently by the Debtor and each such other obligor. 9. Waiver of Notice and Other Matters. Each of the undersigned hereby ---------------------------------- expressly waives: (a) notice of the acceptance by the Bank of this guaranty, (b) notice of the existence or creation or non-payment of all or any of the Liabilities, (c) presentment, demand, notice of dishonor, protest, and all other notices whatsoever, and (d) all diligence in collection or protection of or realization upon the Liabilities or any thereof, any obligation hereunder, or any security for or guaranty of any of the foregoing. 3 10. Additional Liabilities of the Debtor Authorized. The creation or ----------------------------------------------- existence, with or without notice to the undersigned, from time to time of Liabilities in excess of the amount to which the right of recovery under this guaranty is limited shall not in any way affect or impair the rights of the Bank and the obligations of the undersigned under this guaranty. 11. Assignment of Liabilities. The Bank may, from time to time to the ------------------------- extent permitted under the Loan Agreement, without notice to the undersigned (or any of them), assign or transfer any or all of the Liabilities or any interest therein; and, notwithstanding any such assignment or transfer or any subsequent assignment or transfer thereof, such Liabilities shall be and remain Liabilities for the purposes of this guaranty, and each and every immediate and successive assignee or transferee of any of the Liabilities or of any interest therein shall, to the extent of the interest of such assignee or transferee in the Liabilities, be entitled to the benefits of this guaranty to the same extent as if such assignee or transferee were the Bank. 12. Waiver and Modifications. No delay on the part of the Bank in the ------------------------ exercise of any right or remedy shall operate as a waiver thereof, and no single or partial exercise by the Bank of any right or remedy shall preclude other or further exercise thereof or the exercise of any other right or remedy; nor shall any modification or waiver of any of the provisions of this guaranty be binding upon the Bank except as expressly set forth in a writing duly signed and delivered on behalf of the Bank. 13. Obligations Under Guaranty. No action of the Bank permitted hereunder -------------------------- shall in any way affect or impair the rights of the Bank and the obligations of the undersigned under this guaranty. For the purposes of this guaranty, Liabilities shall include all obligations of the Debtor to the Bank under and in connection with the Loan Agreement, notwithstanding any right or power of the Debtor or anyone else to assert any claim or defense as to the invalidity or unenforceability of any such obligation, and no such claim or defense shall affect or impair the obligations of the undersigned hereunder. The obligations of the undersigned under this guaranty shall be absolute and unconditional irrespective of any circumstance whatsoever which might constitute a legal or equitable discharge or defense of the undersigned (or any of them). Each of the undersigned hereby acknowledges that there are no conditions to the effectiveness of this guaranty. 14. Information Concerning Debtor. Each of the undersigned hereby ----------------------------- warrants and represents to the Bank that such undersigned now has and will continue to have independent means of obtaining information concerning the affairs, financial condition and business of the Debtor. The Bank shall have no duty or responsibility to provide the undersigned (or any of them) with any credit or other information concerning the affairs, financial condition or business of the Debtor which may come into the Bank's possession. 15. Senior Indebtedness. Each of the undersigned hereby further warrants ------------------- and represents that the obligations of such undersigned under this Guaranty and under each other Loan Document constitutes indebtedness senior to any subordinated indebtedness of such undersigned. 16. Certain Representations. The undersigned hereby further warrant and ----------------------- represent to the Bank that (a) the execution and delivery of this guaranty, and the performance by each of the undersigned of its obligations hereunder, are within the corporate right, power, authority and capacity of such undersigned and have been duly authorized by all necessary corporate action on the part of such undersigned, and (b) this guaranty has been duly executed and delivered on behalf of each of the undersigned and is the legal, valid and binding obligation of such undersigned, enforceable in accordance with its terms, the making and performance of which do not and will not contravene or conflict with the charter or by-laws of such undersigned or 4 violate or constitute a default under any law, any presently existing requirement or restriction imposed by judicial, arbitral or any governmental instrumentality or any agreement, instrument or indenture by which such undersigned is bound. 17. Liabilities Limited. Anything else in this guaranty notwithstanding, ------------------- each of the undersigned shall be liable under this guaranty only for the maximum amount of such liability that can be hereby incurred without rendering this guaranty, as it relates to such undersigned, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer, and not for any greater amount. 18. Successors. This guaranty shall be binding upon the undersigned, and ---------- upon the successors and assigns of the undersigned; and all references herein to the Debtor and to such of the undersigned, respectively, shall be deemed to include any successor or successors, whether immediate or remote, to the Debtor or such undersigned. The term "undersigned" as used herein shall mean all parties executing this guaranty and each of them, and all such parties shall be jointly and severally obligated hereunder. 19. Law; Severability. THIS GUARANTY SHALL BE CONSTRUED IN ACCORDANCE ----------------- WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. Wherever possible each provision of this guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this guaranty shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this guaranty. 20. Captions. Section captions used in this guaranty are for convenience -------- only, and shall not affect the construction of this guaranty. 21. Waiver of Jury Trial. THE UNDERSIGNED HEREBY EXPRESSLY WAIVE ANY -------------------- RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS GUARANTY OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH, AND AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. 22. Consent to Jurisdiction and Service of Process. Each of the ---------------------------------------------- undersigned agrees that any judicial proceedings brought against such undersigned with respect to this guaranty may be brought in any state or federal court of competent jurisdiction in the State of New York and by the execution and delivery of this guaranty, each of the undersigned accepts the nonexclusive jurisdiction of the aforesaid courts. Service of process may be made by any means authorized by federal law or the law of New York, as the case may be. A copy of any such process so served shall be mailed by registered mail to such undersigned at its address set forth opposite its name on the signature page hereto or at such other address as may be designated by such undersigned in a notice to the Bank. Nothing herein shall limit the right of the Bank to bring proceedings against any of the undersigned in the courts of any other jurisdiction. 5 SIGNED AND DELIVERED as of this 13th day of November, 1998. CONSOLIDATION COAL SALES COMPANY /s/ Karen L. Zemba By:-------------------------------- Karen L. Zemba, Vice President & Treasurer of CONSOL Inc, Attorney-in-Fact CONSOL PENNSYLVANIA COAL COMPANY /s/ Karen L. Zemba By:-------------------------------- Karen L. Zemba, Vice President & Treasurer of CONSOL Inc, Attorney-in-Fact CONSOL SALES COMPANY /s/ Karen L. Zemba By:-------------------------------- Karen L. Zemba, Vice President & Treasurer of CONSOL Inc, Attorney-in-Fact EIGHTY-FOUR MINING COMPANY /s/ Karen L. Zemba By:-------------------------------- Karen L. Zemba, Vice President & Treasurer of CONSOL Inc, Attorney-in-Fact FAIRMONT SUPPLY COMPANY /s/ Karen L. Zemba By:-------------------------------- Karen L. Zemba, Vice President & Treasurer of CONSOL Inc, Attorney-in-Fact HELVETIA COAL COMPANY /s/ Karen L. Zemba By:-------------------------------- Karen L. Zemba, Vice President & Treasurer of CONSOL Inc, Attorney-in-Fact 6 ISLAND CREEK COAL COMPANY /s/ Karen L. Zemba By:-------------------------------- Karen L. Zemba, Vice President & Treasurer of CONSOL Inc, Attorney-in-Fact KEYSTONE COAL MINING CORPORATION /s/ Karen L. Zemba By:-------------------------------- Karen L. Zemba, Vice President & Treasurer of CONSOL Inc, Attorney-in-Fact LAUREL RUN MINING COMPANY /s/ Karen L. Zemba By:-------------------------------- Karen L. Zemba, Vice President & Treasurer of CONSOL Inc, Attorney-in-Fact McELROY COAL COMPANY /s/ Karen L. Zemba By:-------------------------------- Karen L. Zemba, Vice President & Treasurer of CONSOL Inc, Attorney-in-Fact NEW CENTURY HOLDINGS, INC. /s/ Karen L. Zemba By:-------------------------------- Karen L. Zemba, Vice President & Treasurer of CONSOL Inc, Attorney-in-Fact NINEVEH COAL COMPANY /s/ Karen L. Zemba By:-------------------------------- Karen L. Zemba, Vice President & Treasurer of CONSOL Inc, Attorney-in-Fact 7 ROCHESTER & PITTSBURGH COAL COMPANY /s/ Karen L. Zemba By:-------------------------------- Karen L. Zemba, Vice President & Treasurer of CONSOL Inc, Attorney-in-Fact 8 SCHEDULE TO EXHIBIT 10.12 In addition, to Exhibit 10.12, Consolidation Coal Company executed a Significant Subsidiary Guaranty with each of the following banks, all of which are substantially identical to Exhibit 10.12 in all material respects: The First Union National Bank Bank of America National Trust and Savings Association EX-10.13 14 SUBORDINATION AGREEMENT EXHIBIT 10.13 SUBORDINATION AGREEMENT This Agreement, dated as of November 13, 1998, is entered into by and between each of CONSOLIDATION COAL COMPANY (the "Borrower"), CONSOL ENERGY INC. -------- ("CEI"), CONSOL INC. ("CI"), CONSOLIDATION COAL SALES COMPANY ("CCSC"), CONSOL --- -- ---- OF CANADA INC., ("CAN") CONSOL PENNSYLVANIA COAL COMPANY ("CPCC"), CONSOL SALES --- ---- COMPANY ("CSC"), EIGHTY-FOUR MINING COMPANY ("EFMC"), FAIRMONT SUPPLY COMPANY --- ---- ("FSC"), HELVETIA COAL COMPANY ("HCC"), ISLAND CREEK COAL COMPANY ("ICC"), --- --- --- KEYSTONE COAL MINING CORPORATION ("KCMC"), LAUREL RUN MINING COMPANY ("LRMC"), ---- ---- McELROY COAL COMPANY, ("MCC"), NEW CENTURY HOLDINGS, INC., ("NCH"), NINEVEH COAL --- --- COMPANY ("NCC") and ROCHESTER & PITTSBURGH COAL COMPANY ("R&P"); the Borrower, --- --- CEI, CI, CCSC, CAN, CPCC, CSC, EFMC, FSC, HCC, ICC, KCMC, LRMC, MCC, NCH, NCC and R&P are collectively referred to herein as the "Subordinated Lenders") for -------------------- the benefit of THE FIRST NATIONAL BANK OF CHICAGO under the Loan Agreement referred to below, (together with its respective successors and assigns, the "Bank"); ---- W I T N E S S E T H - - - - - - - - - - WHEREAS, the Borrower and the Bank have entered into a Senior Revolving Loan Agreement, dated as of November 13, 1998, (as the same may at any time be amended or modified and in effect, the "Loan Agreement"), pursuant to which, -------------- among other things, the Bank has agreed to extend credit to the Borrower; WHEREAS, each of the Subordinated Lenders acknowledges that the loans and other extensions of financial accommodations or credit to the Borrower and the Bank pursuant to the Loan Agreement is of value to the Subordinated Lenders; WHEREAS, capitalized terms used but not otherwise defined herein shall have the meanings assigned thereto in the Loan Agreement; NOW, THEREFORE, to induce the Bank to enter into the Loan Agreement, and for other valuable consideration, receipt whereof is hereby acknowledged, each of the Subordinated Lenders hereby agrees as follows: SECTION 1. Definitions. All claims by or belonging to any Person against ----------- the Borrower, either Guarantor, CCSC, CPCC, CSC, EFMC, FSC, HCC, NCC, ICC, KCMC, LRMC, MCC, NCH, NCC AND R&P and any other Person that from time to time is a Significant Subsidiary (individually, a "Debtor" and collectively, the ------ "Debtors"), howsoever created, arising or evidenced, whether direct or indirect, ------- absolute or contingent or now or hereafter existing, are hereinafter called the "Claims". All Claims of the Bank under the Loan Agreement, the Notes and each other Loan Document are hereinafter called the "Senior Claims", and all Claims of each of the Subordinated Lenders are hereinafter called the "Junior Claims"; it being expressly understood and agreed that the term "Senior Claims", as used herein, shall include, without limitation, any and all interest accruing on any of the Senior Claims after the commencement of any suits or proceedings referred to in Section 5, notwithstanding any provision or rule of law which might --------- restrict the rights of the Bank, as against any of the Debtors or anyone else, to collect such interest. SECTION 2. Notice of Junior Liabilities, etc. any time when a Default ---------------------------------- shall be existing, each of the Subordinated Lenders will promptly notify the Bank of the creation of any Junior Claims and of the issuance of any promissory note or other instrument of any of the Debtors to evidence any Junior Claims. SECTION 3. Subordination. Except as expressly provided in Section 4 of ------------- this Agreement, the payment of all Junior Claims shall be postponed and subordinated to the payment in full of all Senior Claims, and each Subordinated Lender agrees not to seek to collect any amounts owing to it by any of the Debtors under or in connection with any settlement of any Junior Claim or any judgment entered in favor of any or all Claimants with respect to a Junior Claim, or to seek to obtain any other distributions in money or property or of any other kind whatsoever in respect of any Junior Claims, nor shall any property or assets of any of the Debtors be applied to the purchase or other acquisition or retirement of any Junior Claims. SECTION 4. Permitted Payments. Provided that both before and after giving ------------------ effect to any such payment, no Default shall have occurred and be continuing, notwithstanding Section 3 above, any of the Debtors may pay to the Subordinated Lenders, and the Subordinated Lenders may accept from such Debtors, any payments of principal and interest on all Junior Claims. In the event that a Default shall be existing, none of the Subordinated Lenders shall ask, demand, take or receive from any Debtor by setoff or in any other manner any payment in respect of any Junior Claims until such Default ceases to exist or all Senior Claims shall have been fully paid in cash and performed and all of the Commitments shall have been terminated. SECTION 5. Bankruptcy, Insolvency, etc. In the event of any dissolution, --------------------------- winding up, liquidation, readjustment, reorganization or other similar proceedings relating to (a) any Debtor or (b) the respective assets or properties of any Debtor, whether such proceeding or proceedings are voluntary or involuntary, partial or complete, and whether in bankruptcy, insolvency or receivership, or upon an assignment for the benefit of creditors, or any other marshalling of the assets and liabilities of any Debtor or any sale of all or substantially all of the assets of any Debtor, or otherwise, the Subordinated Lenders hereby acknowledge and agree that the Senior Claims shall first be paid in full before any Subordinated Lender shall be entitled to receive and/or to retain any payment or distribution in respect of any of the Junior Claims. In order to implement the foregoing, (i) all payments and distributions of any kind or character in respect of any of the Junior Claims to which any Subordinated Lender would be entitled if the Junior Claims were not subordinated pursuant to this Agreement shall be made directly to the Bank, (ii) each Subordinated Lender shall promptly file a claim or claims, in the form required in such proceedings, for the full outstanding amount of the Junior Claims, if any, by or belonging to such Subordinated Lender, and shall cause said claim or claims to be approved and all payments and other distributions in respect thereof to be made directly to the Bank, and (iii) each Subordinated Lender hereby irrevocably agrees that, if such Subordinated Lender shall fail to file any such claim referred to in the preceding clause (ii), the Bank may, at its sole discretion, in the name of each Subordinated Lender or otherwise, demand, sue for, collect, receive and accept receipt for any and all such payments or distributions, and file, prove, and vote or consent in any such proceedings with respect to, any and all claims of each Subordinated Lender relating to the Junior Claims. SECTION 6. Payments Held in Trust. In the event that any Subordinated ---------------------- Lender receives any payment or other distribution of any kind or character from any source whatsoever in respect of any of the Junior Claims, other than as expressly permitted by the terms of this Agreement, such payment or other distribution shall be received in trust for the Bank, and each Subordinated Lender shall promptly turn over any such payment or distribution to the Bank. Each of the Subordinated Lenders will keep, and cause each Debtor to keep, this Agreement with and as part of its respective books and records, and will cause to be clearly inserted in any promissory note or other instrument which at any time evidences any of the Junior Claims a statement to the effect that the payment thereof is subordinated in accordance with the terms of this Agreement. Each of the Subordinated Lenders will execute such further 2 documents or instruments and take such further action as the Bank may from time to time reasonably request to carry out the intent of this Agreement. SECTION 7. Application of Payments, No Subrogation. All payments and --------------------------------------- distributions received by the Bank in respect of the Junior Claims, to the extent received in or converted into cash, may be applied by the Bank first to the payment of any and all expenses (including attorneys' fees and legal expenses) paid or incurred by the Bank in enforcing this Agreement or in endeavoring to collect or realize upon any of the Senior Claims or the Junior Claims or any security therefor, and any balance thereof may, solely as between each of the Subordinated Lenders and the Bank, be applied by the Bank in such order of application as the Bank, in its sole discretion, may elect from time to time, toward the payment of the Senior Claims remaining unpaid; provided, --------- however, as among the Debtors on the one hand and each of the Subordinated - ------- Lenders on the other hand, and their respective creditors, no such payments or distributions of any kind or character shall be deemed to be payments or distributions in respect of the Senior Claims. Notwithstanding any such payments or distributions received by the Bank in respect of the Senior Claims or the Junior Claims, which payments or distributions are applied by the Bank toward the payment of the Senior Claims, each of the Subordinated Lenders shall be subrogated to the then existing rights of the Bank, if any, in respect of the Senior Claims only at such time as this Agreement shall have been discontinued and the Bank shall have received payment of the full amount of the Senior Claims. SECTION 8. Waivers by the Subordinated Lenders. Each of the Subordinated ----------------------------------- Lenders hereby waives: (a) notice of acceptance by the Bank of this Agreement; (b) notice of the existence or creation or non-payment of all or any of the Claims; and (c) all diligence in collection or protection of or realization upon the Claims or any thereof or any security therefor. SECTION 9. Obligations of the Subordinated Lenders. None of the --------------------------------------- Subordinated Lenders will, without the Bank's prior written consent: (a) after the occurrence of and during the continuation of a Default, cancel, waive, forgive, transfer or assign, or attempt to enforce or collect, any Junior Claims or any rights in respect thereof; (b) take any collateral security for any Junior Claims or subordinate any Junior Claims or any rights in respect thereof to any Claims other than Senior Claims; or (c) after the occurrence of and during the continuation of a Default, convert any Junior Claims into stock of any Debtor. SECTION 10. Continuing Subordination. This Agreement shall in all ------------------------ respects be a continuing agreement and shall remain in full force and effect, notwithstanding, without limitation, the dissolution or insolvency of the Borrower, any Debtor or any of the Subordinated Lenders. All of the agreements and obligations of each of the Subordinated Lenders under this Agreement shall remain in effect in full until all such Senior Claims (including without limitation any extensions, renewals or refinancings of any thereof and all interest and expenses relating to such Senior Claims) shall have been finally paid in cash in full and all of the Commitments shall have been terminated (subject to reinstatement if any such Senior Claims shall thereafter cease to have been paid in full in cash). SECTION 11. Representations and Warranties. Each of the Subordinated ------------------------------ Lenders represents and warrants unto the Bank as set forth below. a. Each of the Subordinated Lenders is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation. b. The execution, delivery and performance by each of the Subordinated Lenders of this Agreement are within their respective corporate 3 powers, have been duly authorized by all necessary corporate action of each such Subordinated Lender (including, without limitation, stockholder approval), have received all necessary governmental approvals (if any shall be required) and other consents or approvals and do not and will not contravene or conflict with, or create a lien under, (i) any provision of law, (ii) the constituent documents of such Subordinated Lender, (iii), any court or administrative decree applicable to such Subordinated Lender or (iv) any contractual restriction binding upon such Subordinated Lender. c. This Agreement has been duly executed and delivered by each of the Subordinated Lenders, and is the legal, valid and binding obligation of each of the Subordinated Lenders enforceable against such Subordinated Lender in accordance with its terms, subject, as to enforcement, only to bankruptcy, insolvency, reorganization, moratorium or other similar laws at the time in effect affecting the enforceability of the rights of creditors generally, and by general equitable principles. SECTION 12. Rights of the Bank. The Bank may, from time to time, at its ------------------ sole discretion and without notice to any or all of the Subordinated Lenders, take any or all of the following actions: (a) retain or obtain a security interest in any property to secure any of the Senior Claims, (b) retain or obtain the primary or secondary obligation of any other obligor or obligors with respect to any of the Senior Claims, (c) extend or renew for one or more periods (whether or not longer than the original period), alter or exchange any of the Senior Claims, or release or compromise any obligation of any nature of any obligor with respect to any of the Senior Claims, and (d) release its security interest in, or surrender, release or permit any substitution or exchange for, all or any part of any property securing any of the Senior Claims, or extend or renew for one or more periods (whether or not longer than the original period) or release, compromise, alter or exchange any obligations of any nature of any obligor with respect to any such property. SECTION 13. Transfer of Senior Liabilities. The Bank may, from time to ------------------------------ time, without notice to any or all of the Subordinated Lenders, assign or transfer any or all of the Senior Claims or any interest therein. Notwithstanding any such assignment or transfer or any subsequent assignment or transfer of any Senior Claims, such Senior Claims shall be and remain Senior Claims for the purpose of this Agreement, and every immediate and successive assignee or transferee of any of the Senior Claims or of any interest therein shall, to the extent of the interest of such assignee or transferee in the Senior Claims, 5 be entitled to the benefits of this Agreement to the same extent as if such assignee or transferee were the Bank. SECTION 14. Miscellaneous. The Bank shall not be prejudiced in its rights ------------- under this Agreement by any act or failure to act of any or all of the Subordinated Lenders or by any noncompliance of any or all of the Subordinated Lenders with any agreement or obligation, regardless of any knowledge thereof which the Bank may have or with which the Bank may be charged. No action of the Lender permitted hereunder shall in any way affect or impair the rights of the Bank and the obligations of each of the Subordinated Lenders under this Agreement. No delay on the part of the Bank in the exercise of any right or remedy shall operate as a waiver thereof, and no single or partial exercise by the Bank of any right or remedy shall preclude other or further exercise thereof or the exercise of any other right or remedy; nor shall any modification or waiver of any of the provisions of this Agreement be binding upon the Bank unless such modification or waiver is expressly set forth in a writing duly signed and delivered on behalf of the Bank. For purposes of this Agreement, the Senior Claims shall include all obligations of each Debtor to the Bank, notwithstanding any right or power of any Debtor or anyone else to assert any claim or defense as to the invalidity or unenforceability of any such obligation, and no such claim or defense shall affect or impair the agreements and obligations of the Subordinated Lenders hereunder. 4 SECTION 15. Successors and Assigns. This Agreement shall be binding ---------------------- upon each of the Subordinated Lenders and upon the legal representatives, successors and assigns of each of the Subordinated Lenders, whether immediate or remote. The term "Subordinated Lenders" as used herein shall mean all of the Subordinated Lenders and each of them obligated hereunder. SECTION 16. Governing Law. This Agreement shall be construed in ------------- accordance with and governed by the internal laws of the State of New York, without regard to principles of conflicts of law. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. SECTION 17. Waiver of Jury Trial; Submission to Jurisdiction. waives any ------------------------------------------------ right to a trial by jury in any action or proceeding to enforce or defend any rights under or relating to this Agreement or arising from or relating to any banking relationship existing in connection with this Agreement or otherwise between each of the Subordinated Lenders, and agrees that any such action or proceeding shall be tried before a court and not before a jury. Each of the Subordinated Lenders hereby agrees that any judicial proceedings brought against such Subordinated Lender with respect to this Agreement may be brought in any state or federal court of competent jurisdiction in the State of New York and by the execution and delivery of this Agreement, each Subordinated Lender accepts the nonexclusive jurisdiction of the aforesaid courts. Service of process may be made by any means authorized by federal law or the law of New York. A copy of such process so served shall be mailed by registered mail to such Subordinated Lender at its address set forth opposite its nature or the signature page hereto or at such other address as may be designated by such Subordinated Lender in a notice to the Bank. Nothing in this paragraph 17 shall affect the right of the Bank to serve legal process in any other manner permitted by law or affect the right of the Bank to bring any action or proceeding against any of the Subordinated Lenders or their respective property in the courts of any other jurisdictions. SECTION 18. Severability. Wherever possible, each provision of this ------------ Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions to this Agreement. SECTION 19. Section Titles. The section tiles contained in this Agreement -------------- are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. IN WITNESS WHEREOF, this Agreement has been made and delivered at as of the date and year first written above. CONSOLIDATION COAL SALES COMPANY By: /s/ Karen L. Zemba ---------------------------- Karen L. Zemba, Vice President & Treasurer of CONSOL Inc, Attorney-in-Fact 5 CONSOL PENNSYLVANIA COAL COMPANY By: /s/ Karen L. Zemba ---------------------------- Karen L. Zemba, Vice President & Treasurer of CONSOL Inc, Attorney-in-Fact CONSOL SALES COMPANY By: /s/ Karen L. Zemba ---------------------------- Karen L. Zemba, Vice President & Treasurer of CONSOL Inc, Attorney-in-Fact EIGHTY-FOUR MINING COMPANY By: /s/ Karen L. Zemba ---------------------------- Karen L. Zemba, Vice President & Treasurer of CONSOL Inc, Attorney-in-Fact FAIRMONT SUPPLY COMPANY By: /s/ Karen L. Zemba ---------------------------- Karen L. Zemba, Vice President & Treasurer of CONSOL Inc, Attorney-in-Fact HELVETICA COAL COMPANY By: /s/ Karen L. Zemba ---------------------------- Karen L. Zemba, Vice President & Treasurer of CONSOL Inc, Attorney-in-Fact ISLAND CREEK COAL COMPANY By: /s/ Karen L. Zemba ---------------------------- Karen L. Zemba, Vice President & Treasurer of CONSOL Inc, Attorney-in-Fact 6 KEYSTONE COAL MINING CORPORATION By: /s/ Karen L. Zemba ---------------------------- Karen L. Zemba, Vice President & Treasurer of CONSOL Inc, Attorney-in-Fact LAUREL RUN MINING COMPANY By: /s/ Karen L. Zemba ---------------------------- Karen L. Zemba, Vice President & Treasurer of CONSOL Inc, Attorney-in-Fact McELROY COAL COMPANY By: /s/ Karen L. Zemba ---------------------------- Karen L. Zemba, Vice President & Treasurer of CONSOL Inc, Attorney-in-Fact NEW CENTURY HOLDINGS, INC. By: /s/ Karen L. Zemba ---------------------------- Karen L. Zemba, Vice President & Treasurer of CONSOL Inc, Attorney-in-Fact NINEVEH COAL COMPANY By: /s/ Karen L. Zemba ---------------------------- Karen L. Zemba, Vice President & Treasurer of CONSOL Inc, Attorney-in-Fact 7 ACKNOWLEDGEMENT AND AGREEMENT Each of the undersigned acknowledges receipt of a copy of the foregoing Subordination Agreement, waives notice of acceptance thereof by THE FIRST NATIONAL BANK OF CHICAGO ("Bank") or any holder of any of the Senior Claims, and agrees to be bound by the terms and provisions thereof, to make no payments or distributions contrary to the terms and provisions thereof, and to do every other act and thing necessary or appropriate to carry out such terms and provisions. Each of the undersigned acknowledges that (i) such Subordination Agreement is solely for the benefit of the Bank and the other holders of the Senior Claims from time to time, and that none of the undersigned requires any rights by virtue thereof, and the terms of the Subordination Agreement may be amended from time Lo time to alter the relative rights or obligations of the Bank and the other holders of the Senior Claims and the holders of the Junior Claims without the consent of any of the undersigned. IN WITNESS WHEREOF, this Acknowledgment and Agreement has been made and delivered as of the 13th day of November, 1996. CONSOLIDATION COAL SALES COMPANY /s/ Karen L. Zemba By:------------------------------ Karen L. Zemba, Vice President & Treasurer of CONSOL Inc, Attorney-in-Fact CONSOL PENNSYLVANIA COAL COMPANY /s/ Karen L. Zemba By:------------------------------ Karen L. Zemba, Vice President & Treasurer of CONSOL Inc, Attorney-in-Fact CONSOL SALES COMPANY /s/ Karen L. Zemba By:---------------------------- Karen L. Zemba, Vice President & Treasurer of CONSOL Inc, Attorney-in-Fact EIGHTY-FOUR MINING COMPANY /s/ Karen L. Zemba By:----------------------------- Karen L. Zemba, Vice President & Treasurer of CONSOL Inc, Attorney-in-Fact 8 FAIRMONT SUPPLY COMPANY /s/ Karen L. Zemba By:----------------------------- Karen L. Zemba, Vice President & Treasurer of CONSOL Inc, Attorney-in-Fact HELVETICA COAL COMPANY /s/ Karen L. Zemba By:----------------------------- Karen L. Zemba, Vice President & Treasurer of CONSOL Inc, Attorney-in-Fact ISLAND CREEK COAL COMPANY /s/ Karen L. Zemba By:----------------------------- Karen L. Zemba, Vice President & Treasurer of CONSOL Inc, Attorney-in-Fact KEYSTONE COAL MINING CORPORATION /s/ Karen L. Zemba By:----------------------------- Karen L. Zemba, Vice President & Treasurer of CONSOL Inc, Attorney-in-Fact LAUREL RUN MINING COMPANY /s/ Karen L. Zemba By:----------------------------- Karen L. Zemba, Vice President & Treasurer of CONSOL Inc, Attorney-in-Fact McELROY COAL COMPANY /s/ Karen L. Zemba By:----------------------------- Karen L. Zemba, Vice President & Treasurer of CONSOL Inc, Attorney-in-Fact 9 NEW CENTURY HOLDINGS, INC. /s/ Karen L. Zemba By:----------------------------- Karen L. Zemba, Vice President & Treasurer of CONSOL Inc, Attorney-in-Fact NINEVEH COAL COMPANY /s/ Karen L. Zemba By:----------------------------- Karen L. Zemba, Vice President & Treasurer of CONSOL Inc, Attorney-in-Fact 10 SCHEDULE TO EXHIBIT 10.13 In addition, to Exhibit 10.13, Consolidation Coal Company executed a Subordination Agreement with each of the following banks, all of which are substantially identical to Exhibit 10.13 in all material respects: The First Union National Bank Bank of America National Trust and Savings Association EX-10.14 15 SHARE PURCHASE AGREEMENT EXHIBIT 10.14 ------------- SHARE PURCHASE AGREEMENT among E.I. DU PONT DE NEMOURS AND COMPANY, DU PONT ENERGY COMPANY, RHEINBRAUN A.G., and CONSOL ENERGY INC. Dated September 17, 1998 SHARE PURCHASE AGREEMENT dated as of September 14, 1998, among E.I. DU PONT DE NEMOURS AND COMPANY ("Du Pont"), a Delaware corporation, DU PONT ENERGY COMPANY ("DEC"), a Delaware corporation, RHEINBRAUN A.G. ("Rheinbraun"), a corporation organized under the laws of the Federal Republic of Germany, and CONSOL ENERGY INC. ("CEI"), a Delaware corporation. WHEREAS, DEC is a wholly-owned subsidiary of Du Pont and owns 50,000 Class A shares of Consol Energy Inc., a Delaware Corporation ("CEI"), constituting 50% of the issued and outstanding shares of common stock of CEI (the "Class A Shares"); WHEREAS, Rheinbraun (and an affiliate of Rheinbraun) owns 50,000 Class B shares of CEI, constituting 50% of the issued and outstanding shares of common stock of CEI; and WHEREAS, DEC desires to sell, and Du Pont intends to cause DEC to sell, 47,000 of the Class A Shares to CEI, which CEI has elected to purchase pursuant to the Option Agreement (as hereinafter defined); NOW, THEREFORE, in consideration of the premises and the representations, warranties, and agreements herein contained, the parties hereto agree as follows:
TABLE OF CONTENTS PAGE ARTICLE I - DEFINITIONS............................................................. 2 ARTICLE II - PURCHASE OF SHARES; CONTROL OF CEI...................................... 5 2.1 Shares to be Purchased.................................................... 5 ---------------------- 2.2 Method of Payment......................................................... 5 ----------------- 2.4. Effective Date............................................................ 5 -------------- ARTICLE III - THE CLOSING............................................................ 6 ARTICLE IV - REPRESENTATIONS OF DU PONT.............................................. 6 4.1 Organization, Standing and Power.......................................... 6 -------------------------------- 4.2 Ownership of Class A Shares............................................... 6 --------------------------- 4.3 Authority; Non-contravention.............................................. 7 ---------------------------- 4.4 Brokers................................................................... 9 ------- ARTICLE V - REPRESENTATIONS OF CEI................................................... 9 5.1 Organization and Corporate Power.......................................... 9 -------------------------------- 5.2 Authority; Non-contravention.............................................. 9 ---------------------------- 5.3 Securities Laws........................................................... 11 --------------- 5.4 Brokers................................................................... 11 ------- ARTICLE VI - GOVERNMENT FILINGS...................................................... 11 ARTICLE VII - CONDITIONS TO OBLIGATIONS OF RHEINBRAUN................................ 12 7.1 Obligations Performed..................................................... 12 --------------------- 7.2 Representations True...................................................... 13 -------------------- 7.3 Opinions of Counsel....................................................... 13 ------------------- 7.4 Authorization............................................................. 13 ------------- 7.5 All Proceedings Satisfactory.............................................. 14 ---------------------------- 7.6 Injunctions............................................................... 14 ----------- 7.7 No Governmental Prohibitions.............................................. 14 ---------------------------- 7.8 Governmental Approvals.................................................... 15 ---------------------- 7.9 Casualty and Changes...................................................... 17 -------------------- ARTICLE VIII - CONDITIONS TO OBLIGATIONS OF DU PONT.................................. 18 8.1 Obligations Performed..................................................... 18 --------------------- 8.2 Representations True...................................................... 18 -------------------- 8.3 Opinions of Counsel....................................................... 18 ------------------- 8.4 Authorization............................................................. 19 ------------- 8.5 All Proceedings Satisfactory.............................................. 19 ----------------------------
8.6 Injunctions............................................................... 19 ----------- 8.7 No Governmental Prohibitions.............................................. 19 ---------------------------- 8.8 Governmental Approvals.................................................... 20 ---------------------- 8.9 Rheinbraun Counter-Guaranty............................................... 21 --------------------------- ARTICLE IX - INDEMNIFICATION......................................................... 22 9.1 Indemnification by Du Pont................................................ 22 -------------------------- 9.2 Rules of Construction..................................................... 25 --------------------- 9.3 Notice of Claim for Indemnification....................................... 25 ----------------------------------- 9.4 Indemnity Notice Periods.................................................. 26 ------------------------ 9.5 Exclusive Remedies........................................................ 28 ------------------ 9.6 Coexistence of SEA Agreement.............................................. 28 ---------------------------- 9.7 Knowledge of Claims....................................................... 29 ------------------- 9.8 Notice to Du Pont of Common Loss Settlements.............................. 29 -------------------------------------------- ARTICLE X - TERMINATION.............................................................. 30 ARTICLE XI - EXPENSES................................................................ 30 ARTICLE XII - ASSIGNMENT............................................................. 31 ARTICLE XIII- SURVIVAL OF CONDITIONS, WARRANTIES, ETC................................ 31 ARTICLE XIV - NOTICES................................................................ 31 ARTICLE XV - MISCELLANEOUS........................................................... 33 15.1 Entire Agreement.......................................................... 33 ---------------- 15.2 Counterparts.............................................................. 33 ------------ 15.3 Partial Invalidity........................................................ 33 ------------------ 15.4 Interpretation............................................................ 33 -------------- 15.5 Amendments, Waivers and Consents.......................................... 34 -------------------------------- 15.6 Publicity................................................................. 34 --------- 15.7 Further Assurances........................................................ 35 ------------------ ARTICLE XVI - GOVERNING LAW; ARBITRATION............................................. 35 16.1 Governing Law............................................................. 35 ------------- 16.2 Arbitration............................................................... 35 -----------
-ii- ARTICLE I DEFINITIONS As used in this Agreement, the following terms have the meanings indicated: "CLASS A SHARES" means all of the authorized, issued, and outstanding shares of Class A Common stock of CEI, $1.00 par value each. "CLOSING" means the closing specified in Article III of this Agreement. "CLOSING DATE" means the date of the Closing specified in Article III of this Agreement. "COAL GROUP" means CEI and its Subsidiaries, and a "member of the Coal Group" shall be any one of CEI or such Subsidiaries. "DU PONT LIABILITY" shall mean any Loss incurred by Du Pont or DEC other than a reduction in the value of the Coal Group by reason of a Loss incurred by the Coal Group. "ENVIRONMENTAL LAWS" shall mean all applicable federal, state, regional and local laws, statutes, ordinances, judgments, rulings, and regulations relating to any matters of pollution, protection of the environment (including, without limitation, any matters relating to land subsidence or reclamation) or environmental regulation or control. "HAZARDOUS ITEMS" shall mean anything included within the definition of "hazardous waste" under the Resource Conservation and Recovery Act, 42 U.S.C. (S) 6901 et seq. and the -2- regulations promulgated thereunder, and each of the following: polychlorinated biphenyls, petroleum and petroleum products or derivatives, asbestos and radioactive materials. "LOSS" shall mean any and all liability, loss, damage or deficiency and any costs or expenses incident thereto (including accounting and legal fees and expenses). "OPTION AGREEMENT" shall mean the Option (Class A Shares) Agreement dated as of September __, 1998, among Du Pont, DEC, Rheinbraun, and CEI. "PRE-CLOSING COAL GROUP LITIGATION" means (i) all judicial, administrative or arbitral actions, claims, suits, proceedings or investigations pending as of the Closing Date against any member of the Coal Group (other than any such actions, claims, suits, proceedings or investigations under statutorily mandated state worker's compensation laws or state and federal occupational disease laws), and (ii) to the knowledge of Du Pont, all such actions, claims, suits, proceedings or investigations threatened against any member of the Coal Group in which there has been asserted a claim for more than One Million Dollars ($1,000,000) or a claim for monetary damages in an unspecified amount in which, although no claim for monetary damages has yet been made, such claim would reasonably be expected to be for more than One Million Dollars ($1,000,000). The term "to the knowledge of Du Pont" means matters known to any officer or director of Du Pont, DEC, and any member of the Coal Group (excluding those directors of a member of the Coal Group nominated exclusively by -3- Rheinbraun) or that should have been known to such officers and directors in the ordinary course of fulfilling their duties. "RHEINBRAUN LIABILITY" shall mean any Loss incurred by Rheinbraun, other than a reduction in the value of the Coal Group by reason of a Loss incurred by the Coal Group, to which Rheinbraun succeeds or which Rheinbraun incurs as a result of the sale by DEC of 47,000 Class A Shares pursuant to this Agreement. "SEA AGREEMENT" means the Share Exchange and Acquisition Agreement among Du Pont, DEC, Rheinbraun, and others dated December 6, 1991, as amended. "SHAREHOLDERS' AGREEMENT" means the Shareholders' Agreement among Du Pont, DEC, Rheinbraun, and others dated December 6, 1991, as amended. "SHAREHOLDERS AMENDATORY AGREEMENT" means Amendatory Agreement No. 3 dated as of October 1, 1997, as amended, among Du Pont, DEC, Rheinbraun, an affiliate of Rheinbraun, and CEI, amending the Shareholders' Agreement. "SUBSIDIARY" means, with respect to another person, a corporation, partnership, trust, or other legal entity controlled by such other person, directly or indirectly. An entity shall be deemed subject to the control of another person when such person, directly or indirectly, has the power to direct or cause the direction of the management and policies of such entity. "TAXES" means the taxes specified in section 9.1(d). -4- ARTICLE II PURCHASE OF SHARES; CONTROL OF CEI 2.1 Shares to be Purchased. Subject to the terms and conditions of ---------------------- this Agreement, CEI shall at the Closing pay to DEC $500 Million (Five Hundred Million Dollars) for 47,000 Class A Shares, and, in consideration of such payment, Du Pont shall cause DEC at the Closing to sell and transfer to CEI (or nominee of CEI), and DEC shall sell and transfer to CEI (or nominee of CEI), all of DEC's right, title, and interest in 47,000 Class A Shares. Certificates representing all such Class A Shares shall be duly endorsed for transfer or accompanied by duly executed transfer forms. CEI shall deliver to DEC at the Closing a new share certificate representing the remaining 3,000 Class A Shares owned by DEC. 2.2 Method of Payment. Subject to the terms and conditions of this ----------------- Agreement, the payment to be made to DEC pursuant to section 2.1 shall be effected by the transfer (by wire transfer or intrabank transfer) of immediately available funds to such bank account as DEC shall designate by written notice to CEI not less than ten (10) days prior to the date when due. 2.3. Effective Date. This Agreement shall come into force when CEI -------------- shall give written notice of exercise of the option granted by the Option Agreement in accordance with its terms. -5- ARTICLE III THE CLOSING Subject to the terms and conditions of this Agreement, the Closing of the transaction described in section 2.1 shall take place at 10:00 a.m. on the tenth business day following the fulfillment or waiver of the conditions stated in Articles VII and VIII of this Agreement, which shall be the "Closing Date," at the offices of BT Wolfensohn, a Division of BT Securities Corporation, 130 Liberty Street, New York, New York, or at such other date or place as may be mutually agreed upon in writing by the parties. ARTICLE IV REPRESENTATIONS OF DU PONT Du Pont represents and warrants to CEI as follows: 4.1 Organization, Standing and Power. Each of Du Pont and DEC is a -------------------------------- corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated and has the requisite corporate power and authority to carry on its business as currently conducted. 4.2 Ownership of Class A Shares. DEC is the record and beneficial --------------------------- owner of all of the Class A Shares, free and clear of any lien, claim, charge or encumbrance of any kind (other than such restrictions as may be imposed by the Shareholders Agreement and the Option Agreement). All the Class A Shares have been duly authorized and validly issued, and are fully paid and nonassessable. Except as provided in this Agreement, or by -6- federal or state securities laws, or as may be provided by the Shareholders Agreement or the Option Agreement, the Class A Shares are not subject to any restrictions, contractual or otherwise, relating to their disposition, nor to any right or obligation of CEI or any other person to purchase them. Upon delivery of, and payment for, the Class A Shares at the Closing as provided in this Agreement, CEI will acquire good and valid title to 47,000 Class A Shares, free and clear of any lien, claim, charge or encumbrance of any kind. 4.3 Authority; Non-contravention. ---------------------------- (a) Du Pont has all requisite corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder. The execution and delivery of, and the performance of its obligations under, this Agreement have been duly authorized by all necessary corporate action of Du Pont. Du Pont has duly executed and delivered this Agreement, and this Agreement is the legal, valid, and binding obligation of Du Pont, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and other laws generally applicable to creditors' rights and remedies and to the exercise of judicial discretion in accordance with general principles of equity. (b) DEC has all requisite corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder. DEC has taken all necessary corporate action duly to authorize the execution and delivery of, and the -7- performance of its obligations under, this Agreement. The sale of Class A Shares by DEC as provided herein has been duly authorized by all necessary corporate action of DEC, DEC has duly executed and delivered this Agreement, and this Agreement are its legal, valid and binding obligations, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and other laws generally applicable to creditors' rights and remedies and the exercise of judicial discretion in accordance with general principles of equity. (c) The execution and delivery by Du Pont and DEC of this Agreement do not, and the performance by each of Du Pont and DEC of their respective obligations under this Agreement and the consummation of the transactions contemplated hereunder will not, violate, conflict with, or result (with or without the giving of notice or the lapse of time or both) in the breach or termination of, or default under, or result in the creation of any material lien, security interest, charge or encumbrance under, any provision of (i) the certificate of incorporation or by-laws of Du Pont or DEC or of any law, rule or regulation of any governmental body or any order, judgment or decree applicable to either of them or any of their respective assets, or (ii) any material loan or credit agreement, note, bond, lease, license, franchise, mortgage, indenture or other agreement, obligation or instrument to which Du Pont or DEC is a party or by which either of them may be bound or under which either of them enjoys any rights or privileges. No consent, approval, order or authorization of, or registration, -8- declaration or filing with, any court, administrative agency or commission or other governmental authority or agency, domestic or foreign, is required by or with respect to Du Pont or DEC in connection with the execution and delivery of this Agreement by Du Pont or DEC or the consummation of the transactions contemplated hereunder, except for such approvals, filings and the like as are referred to in Article VI. 4.4 Brokers. Du Pont is not liable for any fee, commission or other ------- compensation to any agent, broker, investment banker or other person acting on behalf or under the authority of Du Pont or any of its affiliates in connection with the making, execution, delivery or performance of this Agreement other than to BT Wolfensohn, a Division of BT Securities Corporation, for which Du Pont alone is liable. ARTICLE V CEI represents and warrants to Du Pont as follows: 5.1 Organization and Corporate Power. CEI is a corporation duly -------------------------------- organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated and has the requisite corporate power and authority to carry on its business as currently conducted. 5.2 Authority; Non-contravention. CEI has all requisite corporate ---------------------------- power and authority to execute and deliver this Agreement and to perform its obligations hereunder. The -9- execution and delivery of this Agreement and the performance of its obligations hereunder have been duly authorized by all necessary corporate action. CEI has duly executed and delivered this Agreement and this Agreement is its legal, valid and binding obligation, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, and other laws generally applicable to creditors' rights and remedies and to the exercise of judicial discretion in accordance with general principles of equity. The execution and delivery of this Agreement by CEI does not, and the performance of its obligations and the consummation of the transactions contemplated hereunder will not, violate, conflict with, or result (with or without the giving of notice or the lapse of time or both) in the breach or termination of, or default under, or result in the creation of any material lien, security interest, charge or encumbrance under, any provision of (i) the Certificate of Incorporation or By-Laws of CEI or of any law, rule or regulation of any governmental body or any order, judgment or decree applicable to it or to any of its assets, or (ii) any material loan or credit agreement, note, bond, lease, license, franchise, mortgage, indenture or other agreement, obligation or instrument to which it is a party or by which it may be bound or under which it enjoys any rights or privileges. No consent, approval, order or authorization of, or registration, declaration or filing with, any court, administrative agency or commission or other governmental authority or agency, domestic or foreign, is required by or with respect to CEI in connection with -10- the execution and delivery of this Agreement or the consummation of the transactions contemplated hereunder, except for such approvals, filings and the like as are referred to in Article VIII. 5.3 Securities Laws. CEI understands that the Class A Shares have not --------------- been registered under the Securities Act of 1933, as amended, or any applicable state securities laws, and that CEI cannot dispose of any or all of the Class A Shares unless such Class A Shares are subsequently registered under said Act or applicable state securities laws, or unless an exemption from such registration requirements is available. CEI understands that each certificate representing any Class A Shares bears a legend reflecting the foregoing. 5.4 Brokers. CEI is not liable for any fee, commission or other ------- compensation to any agent, broker, investment banker or other person acting on behalf or under its authority or any of its affiliates in connection with the making, execution, delivery or performance of this Agreement other than to Brown Brothers Harriman & Co., for which Rheinbraun alone is liable. ARTICLE VI GOVERNMENT FILINGS The parties agree to prepare and file as soon as practicable all such applications or notifications to governmental authorities in the United States, Canada, and the European Community as may be required by law in order to permit the -11- consummation of the transactions contemplated by this Agreement. Such applications and notifications shall include (i) application of the parties to the Commission of the European Communities, (ii) if required, joint notice to the Committee on Foreign Investment in the United States ("CFIUS") pursuant to (S)721 of the Defense Production Act of 1950 (the "Exon-Florio Amendment"), and (iii) if required, notice by CEI to Investment Canada under the Investment Canada Act of the acquisition by Rheinbraun, which owns 50% of the outstanding shares of CEI, of an additional indirect interest in CEI and Canadian subsidiaries of CEI. Du Pont, Rheinbraun and CEI agree to cooperate in preparing and filing such applications and notifications. ARTICLE VII CONDITIONS TO OBLIGATIONS OF CEI The obligations of CEI under Article II of this Agreement are subject to the fulfillment at or before the Closing (or at or before such other date as may be specified in this Article) of each of the following conditions unless such condition is waived in writing: 7.1 Obligations Performed. Du Pont and DEC shall have timely --------------------- performed all of their respective obligations under this Agreement required to be performed at or before the Closing, and there shall have been delivered to CEI a certificate of an executive officer of Du Pont and DEC, respectively, dated the Closing Date to such effect. -12- 7.2 Representations True. The representations and warranties of Du -------------------- Pont and DEC contained in Article IV of this Agreement shall be true, as of the Closing Date, with the same force and effect as though such representations and warranties had been made as of the Closing Date (except to the extent that such representations and warranties shall not be true because of transactions provided for in this Agreement), and there shall have been delivered to CEI a certificate of an executive officer of Du Pont and DEC, respectively, dated the Closing Date to such effect. 7.3 Opinions of Counsel. There shall have been delivered to CEI the ------------------- opinion of the General Counsel of Du Pont and the ancillary opinions of special foreign counsel, which counsel shall be acceptable to CEI, each dated the Closing Date, with respect to such matters relating to this Agreement as CEI may reasonably request, in form substantially similar to opinions of counsel delivered pursuant to section 9.3 of the SEA Agreement. 7.4 Authorization. The Board of Directors (or any authorized ------------- committee thereof) of Du Pont, and the Board of Directors and stockholders of DEC, shall have duly adopted resolutions in form and substance reasonably satisfactory to CEI authorizing each of them to consummate the Closing and the other transactions contemplated hereby in accordance with the terms and conditions hereof, and there shall have been delivered to CEI copies of all such resolutions, in each case certified by the Secretary or an Assistant Secretary of Du Pont or DEC, as the case may be. -13- 7.5 All Proceedings Satisfactory. Du Pont shall have furnished to CEI ---------------------------- at the Closing all such other certificates and other documents as CEI may reasonably request in order to evidence the performance by Du Pont of its obligations under this Agreement or as may be necessary to carry out the purposes of this Agreement. 7.6 Injunctions. No injunction or restraining order against any ----------- transaction contemplated by this Agreement shall be in effect, and no judicial or administrative action or proceeding to enjoin any such transaction shall have been instituted or threatened which, in the opinion of counsel to CEI, could result in the issuance of such an injunction. 7.7 No Governmental Prohibitions. There shall not be any statute, ---------------------------- rule, decree, order or injunction of the United States, the European Community or the Federal Republic of Germany (or any of their respective states or other jurisdictions, or the respective courts of such countries, states or other jurisdictions), interpreted, promulgated, enacted, entered into or enforced by the United States, the European Community or the Federal Republic of Germany (or any of their respective states or other jurisdictions) or by any governmental agency, authority or court thereof, that (i) restrains or prohibits the making or consummation of this Agreement or restrains or prohibits the performance of this Agreement and the transactions contemplated hereby, (ii) in connection with the transactions contemplated by this Agreement, prohibits or materially limits the ownership or -14- operation by Rheinbraun or CEI of all or any material portion of the business or assets of CEI or any of its Subsidiaries or compels any of them to dispose of or hold separate all or any material portion of such business or assets, or imposes any material limitation on the ability of CEI or any of its Subsidiaries to conduct such business or own such assets, or (iii) imposes material limitations on the ability of CEI to pay for, to acquire or hold or to exercise ownership of Class A Shares. 7.8 Governmental Approvals. ---------------------- (a) Neither the Antitrust Division of the Department of Justice nor the Federal Trade Commission shall have filed suit, which suit remains pending, to prevent any transaction provided for in this Agreement. (b) CEI (i) shall have received an opinion of counsel satisfactory to it stating that the acquisition by Rheinbraun of an additional indirect interest in CEI and the Canadian Subsidiaries of CEI pursuant to this Agreement is not subject to notification or review under the Investment Canada Act or (ii) shall have filed notification under Section 12 of the Investment Canada Act and shall have received a receipt under Section 13(1) of such Act (A) certifying the date on which the complete notice or the information required to complete the notice required under such Act was received by Investment Canada and (B) advising CEI that (X) the investment is not reviewable under such Act or (Y) unless Investment Canada sends CEI a notice for review within 21 days after such certified date, the investment is not -15- reviewable, and, if such receipt contains the language set forth in this clause, 21 days shall have elapsed and no notice for review shall have been sent to CEI; provided, that if a notice for review is sent to CEI within such 21 day period, - -------- then CEI also shall have received notice under Section 21 or 23 of such Act that the Minister (as defined in said Act) is satisfied, or is deemed to be satisfied, that the acquisition by Rheinbraun of further indirect control of such Canadian Subsidiaries pursuant to this Agreement is likely to be of net benefit to Canada, or CEI shall have received from Investment Canada official advice in writing that such a notice will be sent by the Minister in due course on the basis of the undertakings theretofore made or proposed by CEI. (c) The CFIUS (as defined in Article VI) shall have determined not to investigate the transactions contemplated by this Agreement under the Exon-Florio Amendment. (d) CEI or Rheinbraun and Du Pont shall have received notice from the Commission of the European Communities stating that such Commission (i) does not object to, or does not propose to take any action in respect of, the transactions contemplated by this Agreement, or (ii) proposes to impose conditions or restrictions on such transactions that CEI, Rheinbraun, and Du Pont, each in its absolute discretion, find acceptable; provided, that, if any -------- party finds such conditions or restrictions unacceptable it shall notify the other parties of the fact and, at the request of either such party hereto, the parties shall enter into negotiations with a view to amending this -16- Agreement in a mutually satisfactory manner (in the absolute discretion of each of them) that complies with such conditions or restrictions; provided, further, -------- that CEI undertakes to Rheinbraun that, if Rheinbraun finds such conditions or restrictions unacceptable, CEI shall comply with instructions of Rheinbraun in respect thereof. (e) There shall have been obtained all approvals or authorizations by any government agency in the United States or elsewhere (other than the authorizations contemplated by this section 7.8(b)-(d), inclusive) which are required to be obtained before the Closing in order to permit CEI to acquire all of the Class A Shares. 7.9 Casualty and Changes. Since the date of this Agreement, there -------------------- shall not have occurred any event or condition (whether or not covered by insurance) which has had, or which is likely to have, either individually or in the aggregate with other such events or conditions, a materially adverse effect on the assets, business, or financial condition of the Coal Group taken as a whole, including (without limitation) any fire, accident or other casualty, labor disturbance or act of God or the public enemy affecting in a material way the Coal Group and the properties used therein taken as a whole. -17- ARTICLE VIII CONDITIONS TO OBLIGATIONS OF DU PONT The obligations of Du Pont under Article II of this Agreement are subject to the fulfillment at or before the Closing (or at or before such other date as may be specified in this Article) of each of the following conditions unless such condition is waived in writing: 8.1 Obligations Performed. CEI shall have timely performed all of its --------------------- obligations under this Agreement required to be performed at or before the Closing, and there shall have been delivered to Du Pont a certificate of an executive officer of CEI, dated the Closing Date, to such effect. 8.2 Representations True. The representations and warranties of CEI -------------------- contained in Article V of this Agreement shall be true, as of the Closing Date, with the same force and effect as though such representations and warranties had been made as of the Closing Date (except to the extent that such representations and warranties shall not be true because of transactions provided for in this Agreement), and there shall have been delivered to Du Pont a certificate of an executive officer of CEI, dated the Closing Date, to such effect. 8.3 Opinions of Counsel. There shall have been delivered to Du Pont ------------------- the opinion of Messrs. Becker, Glynn, Melamed & Muffly LLP and the ancillary opinions of special foreign counsel, which foreign counsel shall be acceptable to Du Pont, each dated the Closing Date, with respect to such matters relating -18- to this Agreement as Du Pont may reasonably request, in form substantially similar to opinions of counsel delivered pursuant to section 10.3 of the SEA Agreement. 8.4 Authorization. The Board of Directors of CEI shall have duly ------------- adopted resolutions in form and substance reasonably satisfactory to Du Pont authorizing CEI to consummate the Closing and the other transactions contemplated hereby in accordance with the terms hereof, and there shall have been delivered to Du Pont copies of all such resolutions, certified by the general counsel of CEI. 8.5 All Proceedings Satisfactory. CEI shall have furnished to Du Pont ---------------------------- at the Closing all such other certificates and other documents as Du Pont may reasonably request in order to evidence the performance by CEI of its obligations under this Agreement or as may be necessary to carry out the purposes of this Agreement. 8.6 Injunctions. No injunction or restraining order against any ----------- transaction contemplated by this Agreement shall be in effect and no judicial or administrative action or proceeding to enjoin any such transaction shall have been instituted or threatened which, in the opinion of counsel to Du Pont, could result in the issuance of such an injunction. 8.7 No Governmental Prohibitions. There shall not be any statute, rule, decree, order or injunction of the United States, the European Community or the Federal Republic of Germany (or any of their respective states or other jurisdictions or the -19- respective courts of such countries, states or other jurisdictions), interpreted, promulgated, enacted, entered into or enforced by the United States, the European Community or the Federal Republic of Germany (or any of their respective states or other jurisdictions) or any governmental agency or authority or court thereof, that restrains or prohibits the performance of this Agreement and the transactions contemplated hereby. 8.8 Governmental Approvals. ---------------------- (a) Neither the Antitrust Division of the Department of Justice nor the Federal Trade Commission shall have filed suit, which suit remains pending, to prevent any transaction provided for in this Agreement. (b) Du Pont and CEI or Rheinbraun shall have received notice from the Commission of the European Communities stating that such Commission (i) does not object to, or does not propose to take any action in respect of, the transactions contemplated by this Agreement, or (ii) proposes to impose conditions or restrictions on such transactions that Du Pont, CEI, and Rheinbraun, each in its absolute discretion, find acceptable; provided, that, if -------- any party finds such conditions or restrictions unacceptable it shall notify the other parties of the fact and, at the request of either such party hereto, the parties shall enter into negotiations with a view to amending this Agreement in a mutually satisfactory manner (in the absolute discretion of each of them) that complies with such conditions or restrictions; provided, further, that CEI -------- undertakes to Rheinbraun that, if -20- Rheinbraun finds such conditions or restrictions unacceptable, CEI shall comply with instructions of Rheinbraun in respect thereof. (c) There shall have been obtained all approvals or authorizations by any government agency in the United States or elsewhere (other than the authorizations contemplated by Sections 8.8 (b)) which are required to be obtained before the Closing in order to permit DEC to sell the Class A Shares pursuant to Article II. 8.9 Rheinbraun Counter-Guaranty. Rheinbraun shall have executed and --------------------------- delivered to Du Pont a counter-guaranty in favor of Du Pont in the form of Exhibit A in respect of any liability Du Pont may incur as a result of guarantees and indemnities heretofore given by Du Pont and its Affiliates not within the Coal Group of those obligations of members of the Coal Group set forth in a list that CEI shall promptly furnish to Du Pont and Rheinbraun after the date hereof. Such list shall set forth all guarantees and indemnities theretofore given by Du Pont and its Affiliates not within the Coal Group of relevant obligations of the members of the Coal Group, and shall be prepared in the same manner and in accordance with the same principles used in preparing Schedule 10.12 of the SEA Agreement. Such list, when confirmed by Du Pont and Rheinbraun, which confirmation shall not be unreasonably withheld by either party, shall then be deemed Exhibit B to this Agreement. -21- ARTICLE IX INDEMNIFICATION 9.1 Indemnification by Du Pont. Subject to Section 9.2, if the -------------------------- Closing shall take place, Du Pont will defend, indemnify and hold harmless each of Rheinbraun and CEI, severally, against and in respect of: (a) General: Any Rheinbraun Liability, any Loss incurred by CEI as an ------- entity separate and apart from the Coal Group and 47% of any and all Loss which any member of the Coal Group incurs resulting from any misrepresentation, breach of warranty or nonfulfillment of any agreement of Du Pont, or from any misrepresentation in or omission from any certificate or other instrument furnished or to be furnished to CEI in connection with the transactions contemplated hereby; (b) Environmental Matters: Any Rheinbraun Liability and forty-seven --------------------- (47%) of any and all Loss which any member of the Coal Group incurs, arising or resulting from or relating to (i) the failure of any member of the Coal Group (A) to have received as of the Closing Date all permits and authorizations of any kind, and to have filed all notifications of any kind on or prior to the Closing Date, required for the generation, handling, storage, transportation, disposal or remediation of Hazardous Items, or (B) to have complied at any time prior to the Closing Date with all laws and regulations governing the generation, handling, storage, transportation, disposal or remediation of Hazardous Items; and -22- (ii) the presence, at any time prior to the Closing Date, of Hazardous Items on, at or under any property of any member of the Coal Group or any other property, or the migration, at any time prior to the Closing Date, of any Hazardous Items from any properties of any member of the Coal Group to any other property, or the release, discharge, transportation, or disposal, at any time prior to the Closing Date, of any Hazardous Items by or on behalf of any member of the Coal Group (the foregoing being hereinafter referred to as "Environmental Matters"), excluding the first fifty million dollars ($50,000,000) in the aggregate of Loss (calculated on a pre-tax basis) incurred by any of Rheinbraun and any member of the Coal Group arising or resulting from or relating to any Environmental Matters; (c) Pre-Closing Coal Group Litigation: Any Rheinbraun Liability and --------------------------------- forty-seven percent (47%) of any and all Loss which any member of the Coal Group incurs, arising from or relating to Pre-Closing Coal Group Litigation, excluding the first forty million dollars ($40,000,000) in the aggregate of Loss (calculated on a pre-tax basis) incurred by any of Rheinbraun and any member of the Coal Group arising from or relating to Pre-Closing Coal Group Litigation; (d) Taxes. Any Rheinbraun Liability and forty-seven percent (47%) of ----- any and all Loss which any member of the Coal Group incurs that may result if the liabilities accrued for any Taxes in the accounts of the Coal Group, as at the date of the Option Agreement or as at the Closing Date, shall be inadequate -23- to cover all material liability of the Coal Group for Taxes (excluding, for purposes of determining such adequacy, interest and penalties) for any taxable year or tax period ending, respectively, on or before the date of the Option Agreement or the Closing Date. As used herein, the term "Taxes" means all federal, state, local, and foreign income, profits, franchise, sales, use, occupation, property, severance, production, excise payroll, and other taxes (including interest and penalties thereon). (e) Conoco Minerals: Any Rheinbraun Liability and forty-seven percent --------------- (47%) of any and all Loss which any member of the Coal Group incurs, arising from or relating to the properties of Conoco Inc. or its Minerals Divisions, including but not limited to those properties constituting or known as the Conquista Project; (f) Limitation: Notwithstanding the foregoing, Du Pont shall not be ---------- required so to indemnify Rheinbraun or CEI in respect of any of the matters referred to in paragraphs (a), (b), (c), and (d) (except the matter described in section 4.4, above) until the aggregate amount of all such Rheinbraun Liability and Loss incurred by members of the Coal Group (calculated on a pre-tax basis) exceeds twenty million dollars ($20,000,000), in which case Du Pont shall so indemnify Rheinbraun or CEI, as the case may be, from and against all such Rheinbraun Liability and Loss, including the first twenty million dollars ($20,000,000) thereof (but such amount of Loss shall be calculated on an after- tax basis and -24- subject to the provisions of Section 9.2.(b)), but in no event shall the obligations of Du Pont under this Article in the aggregate exceed Five Hundred Million United States Dollars ($500,000,000). 9.2 Rules of Construction. --------------------- (a) If a claim for indemnification shall appear to fall under paragraph (a) of section 9.1 and any other paragraph thereof, the paragraph other than paragraph (a) of the greatest particularity in relation to such claim shall govern exclusively. If a claim for indemnification shall appear to fall under both paragraph (b) of Section 9.1 and paragraph (c) thereof, the former paragraph shall govern exclusively. (b) Any amount indemnifiable under Section 9.1 shall be reduced by the amount by which the income tax liability of the Coal Group or Rheinbraun, as the case may be, is reduced as a result of the relevant Loss; provided, that the prompt payment when due of the entire indemnifiable amount (as adjusted to reflect any good faith estimate of such reduction in income tax liability) shall not be affected or delayed unless such actual reduction in income tax liability shall have been finally determined prior to such due date. When such actual reduction in income tax liability shall be finally determined after payment of the entirety of such adjusted indemnifiable amount, there shall be an appropriate reconciling payment. 9.3 Notice of Claim for Indemnification. Upon receipt by Rheinbraun ----------------------------------- or CEI of notice or the obtaining by Rheinbraun or -25- CEI of evidence of any claim upon which indemnification may be sought hereunder, it shall give written notice of the same to Du Pont. Such notice shall describe the nature of the claim and, wherever possible, contain an estimate of the amount of such claim. If any such claim relates to claims asserted by a third party against Rheinbraun or against any member of the Coal Group (the "defendant"), and if Du Pont desires to contest the same, Du Pont shall within ten days after the receipt of a notice pursuant to Section 9.4(a) so notify the defendant, failing which the defendant shall have the right to undertake the defense, compromise or settlement of the same (acting in good faith) on behalf of and for the account and risk of Du Pont. If Du Pont so notifies the defendant that Du Pont elects to contest the claim, then Du Pont shall be entitled to control the defense thereof by counsel of its own selection (the identity of which counsel shall be subject to the consent of the other party, which consent shall not be unreasonably withheld) and at its own expense. Du Pont and the defendant shall give each other all information and assistance which each may reasonably request in defending any matter hereunder. 9.4 Indemnity Notice Periods. ------------------------ (a) Save as otherwise provided in this section 9.4, any claim for indemnification under section 9.1(a) shall be sufficiently and timely asserted by Rheinbraun or CEI, as the case may be, if asserted by written notice pursuant to Section 9.3 to Du Pont not later than August 31, 2000. -26- (b) Any claim for indemnification under section 9.1(b) shall be sufficiently and timely asserted by Rheinbraun or CEI, as the case may be, if asserted by written notice pursuant to section 9.3 at any time not later than the fourth anniversary of the Closing. (c) Any claim for indemnification under section 9.1(c) shall be sufficiently and timely asserted by Rheinbraun or CEI, as the case may be, if asserted by written notice pursuant to section 9.3 within ninety (90) days after all administrative and judicial proceedings in respect of all matters the subject of such section shall have been settled or shall have concluded by the entry of a final judgment, issuance of an arbitral award or otherwise. (d) Any claim for indemnification with respect to a liability for Taxes (as defined in section 9.1(d)) shall be sufficiently and timely asserted by Rheinbraun or CEI, as the case may be, if asserted by written notice pursuant to section 9.3 within ninety (90) days after all administrative and any judicial proceedings have concluded and there has been a final determination of the Taxes due which are the subject of such claim, and shall be barred unless so asserted. (e) Any claim for indemnification under section 9.1(e) may be asserted at any time. (f) Notwithstanding any other provision of this Article, any claim for indemnification by a party based upon a willful and fraudulent misrepresentation by the other party may be -27- asserted by the party seeking indemnification by written notice pursuant to section 9.3 within one hundred and eighty (180) days after such party receives or obtains actual knowledge of such misrepresentation. 9.5 Exclusive Remedies. Following the Closing, except in the case of ------------------ fraud, the indemnities set forth in this Article shall be the only remedies available to a party entitled to indemnification with respect to the matters giving rise to such indemnification. 9.6 Coexistence of SEA Agreement. Neither this Article nor any --------------------------- indemnification made under this Article shall affect or lessen the obligations of any party as indemnitor under the SEA Agreement, and neither the SEA Agreement nor any indemnification made under the SEA Agreement shall affect or lessen the obligations of any party as indemnitor under this Article; provided, -------- that, for purposes of administering claims under the SEA Agreement and this - ---- Agreement, the following rules shall apply: (a) a Loss any portion of which may be indemnifiable under both Agreements (a "Common Loss") shall first be charged only against any applicable exclusion in the SEA Agreement (set forth in Section 11.1 (d), (e) or (f) of the SEA Agreement, as the case may be) and thereafter shall be indemnified by Du Pont to the extent required by the SEA Agreement, subject to the $20,000,000 threshold set forth in the last paragraph of Section 11.1 of the SEA Agreement if not yet satisfied; -28- (b) once any applicable exclusion or threshold under the SEA Agreement has been satisfied, any Common Loss incurred thereafter shall, to the extent not charged against any exclusion or threshold or indemnified by Du Pont under the SEA Agreement, be treated as a Loss indemnifiable under this Agreement, subject to any applicable exclusions or threshold under this Agreement; and (c) a Loss indemnifiable under only one of the SEA Agreement and this Agreement shall be indemnified only under, and to the extent required by, the applicable Agreement, subject to the exclusions and threshold of such Agreement; it is understood that no Loss which might have been indemnifiable under the SEA Agreement but is not because of a failure to give timely notice thereof in accordance with the provisions of the SEA Agreement shall be treated as a Common Loss. 9.7 Knowledge of Claims. Each representation and warranty made by a ------------------- party to this Agreement is made with the intention that the recipient thereof may rely upon the accuracy thereof, and the effect of each such representation and warranty shall not be lessened by any investigation independently conducted by such recipient. 9.8 Notice to Du Pont of Common Loss Settlements. Prior to settling -------------------------------------------- any proceeding or claim (including without limitation any tax dispute, arbitration or claim) for an amount in excess of $1,000,000 (in respect of any tax claim) or in excess of $5,000,000 (in respect of any other claim) that is -29- subject to the indemnification provisions hereof (without regard to the exclusion and threshold amounts specified herein) and that would give rise to a Common Loss, CEI shall give Du Pont as much notice of such settlement as is reasonably practicable in the circumstances and opportunity to comment thereon. ARTICLE X TERMINATION If the Closing shall not have taken place on or before the 120th day following the effective date of this Agreement, then this Agreement may be terminated at any time thereafter by any party upon written notice delivered to all other parties hereto; provided, that, this Article does not confer on any -------- party the right to terminate this Agreement if all conditions to the performance by such party of its obligations under this Agreement have been fulfilled or waived on or before such 120th day, and a party may not terminate this Agreement on the ground of non-fulfillment of a condition if such non-fulfillment was itself caused by such party. Termination of this Agreement shall not affect rights or obligations of any party accruing before the effective date of termination. ARTICLE XI EXPENSES Each of the parties to this Agreement shall bear all costs and expenses incurred by it in connection with this -30- Agreement and the transactions contemplated hereby, including fees and expenses of counsel. ARTICLE XII ASSIGNMENT 12.1 Du Pont and DEC may assign rights under this Agreement only with the prior written consent of CEI. Any purported assignment without such consent shall be void. CEI may freely assign this Agreement, in whole or in part. 12.2 The terms and conditions of this Agreement shall be binding on the parties and their respective successors and permitted assigns. ARTICLE XIII SURVIVAL OF CONDITIONS, WARRANTIES, ETC. All the terms, conditions, warranties, representations, and guarantees set forth in this Agreement shall survive the Closing of the transactions provided for in this Agreement. ARTICLE XIV NOTICES All notices, consents, requests, instructions, approvals, and other communications provided for herein (other than legal process) shall be validly given if in writing and delivered personally or by confirmed telefax or express mail (requiring a return receipt) to the address set forth below or to -31- such other address as any party may from time to time designate in a written notice given in like manner. Notices and such other communications shall be deemed delivered upon actual receipt: (i) if to Du Pont or DEC, to each at: E.I. Du Pont de Nemours and Company 1007 Market Street Wilmington, Delaware 19898 U.S.A. Attention: Vice President - Treasury Telefax: (302) 774-1829 (ii) if to Rheinbraun, at: Rheinbraun AG Stuttgenweg 2 D-50935 Koln Federal Republic of Germany Attention: Vorstand Telefax: 011-49-221-480-1354 (iii) if to CEI, at: Consol Energy Inc. 3513 Concord Pike P.O. Box 7108 Wilmington, Delaware 19803 Attention: President Telefax: 412-831-4635 with a copy, in respect of notices to Rheinbraun or CEI, to: Becker, Glynn, Melamed & Muffly LLP 299 Park Avenue New York, New York 10171 U.S.A. Telefax: (212) 888-0255 Attention: Robert C. Muffly -32- ARTICLE XV MISCELLANEOUS 15.1 Entire Agreement. ---------------- (a) This Agreement constitutes the entire agreement between the parties on the subject matter hereof, and supersedes any and all prior agreements and undertakings between the parties hereto with respect to the subject matter hereof. (b) Nothing in this Agreement shall affect or lessen the rights and obligations of the parties (including indemnification obligations) under the SEA Agreement. 15.2 Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which shall be deemed to constitute an original of the same Agreement, and all counterparts together shall constitute one single agreement, which shall be effective upon the execution hereof by all the parties hereto. A complete set of counterparts shall be made available to each party hereto. 15.3 Partial Invalidity. In the event that one or more of the ------------------ provisions of this Agreement shall for any reason be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision of this Agreement, and this Agreement shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein. 15.4 Interpretation. The Table of Contents and the headings of the -------------- Articles and Sections of this Agreement are -33- included for convenience of reference only and shall not affect the interpretation of any provision of this Agreement. The assumption of responsibility for the drafting of this Agreement or any portion hereof by a party hereto shall not result in any inference or presumption that this Agreement shall be construed against such party. 15.5 Amendments, Waivers and Consents. For the purposes of this -------------------------------- Agreement, except as otherwise specifically set forth herein, no course of dealing between any of the parties and no delay on the part of any party hereto in exercising any rights hereunder shall operate as a waiver of the rights hereof. No covenant or other provision hereof may be waived otherwise than by a written instrument signed by the party so waiving such covenant or other provision; provided, that, except as otherwise stated herein, changes in or -------- additions to, and any consents required by, this Agreement may be made, and compliance with any term, covenant, condition or provision set forth herein may be omitted or waived (either generally or in a particular instance and either retroactively or prospectively), by a consent or consents in writing by the party charged with the omission or waiver thereof. 15.6 Publicity. Subject to applicable securities laws and --------- regulations (including regulations of a securities exchange) of the United States, any state thereof or the Federal Republic of Germany, no public release or announcement concerning the transactions contemplated hereby shall be issued by any party hereto without the prior written consent of the other parties. If -34- such release or announcement shall be required by any such laws or regulations, the party required to make the release or announcement shall allow the other parties reasonable time to comment on such release or announcement in advance of its issuance. 15.7 Further Assurances. Each party will execute and deliver such ------------------ further instruments, shall obtain all necessary consents, and shall take such further actions as may be reasonably requested by the other parties to confirm and carry out the transactions contemplated by this Agreement. ARTICLE XVI GOVERNING LAW; ARBITRATION 16.1 Governing Law. The validity, performance, interpretation and ------------- other incidents of this Agreement shall be governed by the internal law of the State of New York. 16.2 Arbitration ----------- (a) Any dispute, controversy or claim arising out of or relating to this Agreement, or the interpretation, breach, termination or invalidity thereof, shall be finally settled by arbitration in London, England, in accordance with the Rules of the London Court of International Arbitration ("LCIA") as in force on the date hereof by three arbitrators as hereinafter provided. The language of any arbitral proceeding shall be English. For the purposes of this section 16.2, Du Pont and DEC shall be deemed a single party, Rheinbraun and CEI shall be deemed a single party, -35- and all procedural rights and obligations of such party shall be exercised and discharged, respectively, by Du Pont and Rheinbraun. (b) The arbitral tribunal shall be composed of three arbitrators appointed as follows: (i) Each party shall nominate an arbitrator, and the two arbitrators so nominated shall appoint a third arbitrator who shall act as president of the tribunal; (ii) if either party shall fail to nominate an arbitrator within thirty (30) days after receiving notice of the nomination of an arbitrator by the other party, such arbitrator shall, at the written request of such other party, be appointed by the LCIA; (iii) if the two arbitrators so nominated shall fail to agree upon a third arbitrator within thirty (30) days after the appointment of the second arbitrator, the third arbitrator shall, at the written request of either party, be appointed by the LCIA; (iv) should a vacancy arise because any arbitrator dies, resigns, refuses to act, or becomes incapable of performing his functions, the vacancy shall be filled by the method by which that arbitrator was originally appointed. -36- (c) Any arbitration proceeding hereunder may include claims or counterclaims, if any, arising under and chargeable against a party to this Agreement who is also a party to the Shareholders Agreement, the Shareholders Amendatory Agreement, the SEA Agreement, or all said agreements. If more than one arbitration proceeding shall be pending hereunder concurrently, then, upon the written agreement of all parties engaged in such proceedings, the several proceedings may be consolidated by the LCIA into one proceeding upon the terms of such agreement and the Rules of the LCIA. (d) The parties agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with its specific terms or were otherwise breached, and that the arbitral tribunal shall consequently have power to grant injunctions (preliminary and permanent) and specific performance in addition to other relief. The arbitral tribunal shall also grant to any party, upon its request, broad discovery of relevant, unprivileged documents controlled by the other party. Nothing herein shall limit the right of any party, before and during any such arbitration proceeding, to have recourse to such provisional judicial remedies, including preliminary injunction and attachment, as would be available in the absence of this Section; provided, that any legal action seeking such provisional judicial remedies shall be brought in state or federal courts in Wilmington, Delaware, if brought against a domiciliary of the United States, or in the courts of Cologne, Germany, if brought -37- against a domiciliary of Germany, or in the courts of England (irrespective of the domiciles of the parties). Judgment upon any arbitral award may be entered in any court having jurisdiction. The parties agree to exclude the right of appeal to any court in England from any award of the arbitral tribunal, and to exclude the right to apply to any court in England for the determination of any question of law arising in the arbitration. (e) During the pendency of an arbitration proceeding hereunder, any party to the proceeding may continue to perform its obligations hereunder without prejudice to its claims, defenses, counterclaims, or any resulting award, and such party shall continue to perform such obligations unless its claims, defenses, or counterclaims assert in such proceeding that, in consequence of a material breach of this Agreement by another party to such proceeding or the failure of a condition of such obligations, it is excused from continued performance of this Agreement. (f) Each party agrees that any request for arbitration, answer thereto or other paper for such arbitration, or complaint, answer thereto or other paper for such judicial proceeding, shall be sufficiently served on a party if delivered personally or by express mail (return receipt requested) to the address specified for such party in this Agreement, such delivery to be effective only upon actual receipt. -38- IN WITNESS WHEREOF, DU PONT, DEC, RHEINBRAUN AND CEI have caused this Agreement to be duly executed all as of the day and year first above written. E.I. DU PONT DE NEMOURS AND COMPANY By: /s/ S. M. Stalnecker ATTEST: ----------------------------------- Name: S. M. Stalnecker Title: Vice president and Treasurer /s/ ^[SIGNATURE ILLEGIBLE]^ ----------------------------- Assistant Secretary DU PONT ENERGY COMPANY By: /s/ S. M. Stalnecker ATTEST: ----------------------------------- Name: S. M. Stalnecker Title: President /s/ ^SIGNATURE ILLEGIBLE^ ----------------------------- Assistant Secretary RHEINBRAUN AG By: /s/ Bernd J. Breloer By: /s/ Berthold Bonokamp ----------------------------------- -------------------------- Name: Bernd J. Breloer Name: Berthold Bonokamp Title: Mitglied des Vorstandes Title: Mitglied des Vorstandes CONSOL ENERGY INC. By:/s/ J. Brett Harvey ATTEST: ------------------------------------ Name: J. Brett Harvey Title: President /s/ D. L. Fassio ------------------------------ Secretary -39- Exhibit A to Share Purchase Agreement Form of Counter-Guaranty ------------------------ COUNTER-GUARANTY made as of __________________ by RHEINBRAUN AG, a corporation duly organized and existing under the laws of Germany (hereinafter the "Guarantor"). WITNESSETH: WHEREAS, Consol Energy Inc. and E.I. du Pont de Nemours and Company ("Du Pont") and an Affiliate, have entered into a Share Purchase Agreement dated ________________ (the "Agreement"); and WHEREAS, Section 8.9 of the Agreement contemplates that the Guarantor shall execute and deliver in favor of Du Pont a counter-guaranty in respect of any liability Du Pont may incur as a result of guaranties or indemnities heretofore given by Du Pont or certain of its Affiliates not within the Coal Group (as defined in the Agreement) of certain obligations of members of the Coal Group, as set forth in Exhibit B of the Agreement; NOW, THEREFORE, the Guarantor, for and in consideration of Du Pont's entering into the Agreement and for U.S. $1.00 and other good and valuable consideration, agrees as follows: 1. As used in this Counter-Guaranty, (i) the term "Reimbursable Payment" shall mean a payment made by Du Pont (or such Affiliate) to the beneficiary of a guaranty or indemnity set forth in Exhibit B of the Agreement ("Beneficiary"), up to the maximum amount of such guaranty or indemnity shown on said Exhibit, that is made in discharge of (a) a final judgment or order of a court of competent jurisdiction in favor of such Beneficiary respecting the claims of such Beneficiary under such guaranty or indemnity, or (b) a written agreement between Du Pont (or such Affiliate) and such Beneficiary settling with finality, and releasing Du Pont (or such Affiliate) from further obligations respecting such claims of such Beneficiary under such guaranty or indemnity to which agreement Rheinbraun shall have consented in writing prior to the execution thereof (which consent shall not be unreasonably withheld), and (ii) the term "Expenditures" shall mean all reasonable expenses of Du Pont (or such Affiliate) paid to any third party that are incidental to a claim referred to in (i) above, provided however that Du Pont (or such Affiliate) shall have consulted with Rheinbraun prior to incurring such expenses. Any other term not defined herein shall have the same meaning given it in the Agreement. 2. Within 30 days after Du Pont (or such Affiliate) shall have received written notice of a claim, or threatened claim, by a Beneficiary, Du Pont (or such Affiliate) shall give written 2 notice thereof to Rheinbraun together with a photocopy of such notice. Within 30 days after Du Pont (or such Affiliate) shall have made a Reimbursable Payment to such Beneficiary and/or shall have incurred Expenditures, it shall give written notice to Rheinbraun stating the amount paid or incurred and shall furnish to Rheinbraun documentary evidence of the making of such Reimbursable Payment and/or the incurring of such Expenditures, or if no such documentary evidence exists, a certificate signed by an officer of Du Pont (or of such Affiliate) attesting to the making of such Reimbursable Payment or the incurring of such Expenditures. In the case of a payment of the character described in subparagraph 1(i)(a), above, Du Pont (or such Affiliate) shall also furnish to Rheinbraun a photocopy of the relevant judgment or order, and, in the case of a payment of the character described in subparagraph 1(i)(b), above, Du Pont (or such Affiliate) shall also furnish to Rheinbraun a photocopy of the relevant written agreement as executed by Du Pont (or such Affiliate) and such Beneficiary. 3. Within 30 days after the receipt by Rheinbraun of documents specified in and conforming to paragraph (2), above, Rheinbraun shall pay to Du Pont (or such Affiliate) the amount of the Reimbursable Payment and/or Expenditures made or incurred by Du Pont (or such Affiliate), and Du Pont (or such Affiliate) shall, within 10 days of receipt of such payment from Rheinbraun, 3 assign to Rheinbraun, absolutely, by written instrument satisfactory to Rheinbraun, all rights, by way of subrogation or otherwise, that Du Pont (or such Affiliate) shall acquire against the principal debtor by reason of such Reimbursable Payment or Expenditures. 4. No Beneficiary shall, by reason of this Counter-Guaranty, acquire rights against Rheinbraun as a third-party beneficiary hereof or otherwise. 5. Subject to Section 7 hereof, Du Pont (for itself and all such Affiliates) and Rheinbraun each hereby agree that, in respect of any rights either of them may acquire by subrogation or otherwise, it shall not, without the consent of the other, proceed against any member of the Coal Group by reason of any Reimbursable Payment or Expenditures made or incurred by Du Pont (or such Affiliate) or by reason of any payment made by Rheinbraun to Du Pont (or such Affiliate) pursuant to paragraph 3 hereof. 6. The following provisions of the Agreement are incorporated by reference as if fully set forth herein: Article XIV (Notices) and Sections 16.1 (Governing Law) and 16.2 (Arbitration). 4 7. Rheinbraun understands and agrees that Du Pont (or such Affiliate) will continue to follow its standard practice of billing back to the Coal Group 100% of all Reimbursable Payments, Expenditures and insurance, surety or other premiums or expenses paid to maintain in effect the guaranties and indemnities set forth in Exhibit B of the Agreement. To the extent such billings are paid by the Coal Group, Du Pont (and each such Affiliate) shall not be entitled to make a claim for the amount of such billings against Rheinbraun hereunder, and if any such billings are paid by the Coal Group after payment of the same by Rheinbraun to Du Pont hereunder, Du Pont shall promptly refund to Rheinbraun the amount of such payment. 8. This Counter-Guaranty is made and given in replacement of that certain Counter-Guaranty dated as of December 31, 1991 (the "Prior Counter-Guaranty") made by the Guarantor in favor of Du Pont. The parties agree that the prior Counter-Guaranty is hereby terminated and declared to be void as of the date thereof. 5 IN WITNESS WHEREOF, the Guarantor has executed this Counter-Guaranty as of the day and year first above written. RHEINBRAUN AG By:_______________________________ __________________________________ E.I. DU PONT NEMOURS AND COMPANY By:_______________________________ 6 EX-10.15 16 AMENDATORY AMENDMENT NO. 3 EXHIBIT 10.15 ------------- AMENDATORY AGREEMENT NO. 3 dated as of October 1, 1997, to the Shareholders' Agreement dated as of December 6, 1991, as amended (the "Shareholders' Agreement"), among E.I. DU PONT DE NEMOURS AND CO., a Delaware corporation ("Du Pont"), DU PONT ENERGY COMPANY, a Delaware corporation ("DEC"), CONSOL ENERGY INC., a Delaware corporation ("CEI"), RHEINBRAUN AG, a German corporation ("Rheinbraun"), and RHEINBRAUN US GMBH, a German corporation ("RG"). WHEREAS, Du Pont, DEC, CEI, and Rheinbraun have entered into an Option (Class A Shares) Agreement, dated as of this date (the "Option Agreement"), granting to Rheinbraun the option (the "Option") to purchase 50,000 Class A Shares (the "Class A Shares") of CEI owned by DEC; WHEREAS, the Option Agreement provides that, upon exercise by Rheinbraun of the Option, the purchase of Class A Shares thereunder is to be made pursuant to a Share Purchase Agreement in form attached as Exhibit A to the Option Agreement (the "SPA"); WHEREAS, the parties hereto intend that the exercise of the Option will vest in Rheinbraun control over CEI, while expiry of the Option will entitle Du Pont to dispose of Class A Shares in a public offering (without prejudice to its right to dispose of Class A Shares under the Shareholders' Agreement); WHEREAS, in consequence of the foregoing, the parties hereto are entering into this Amendatory Agreement to provide that, upon exercise or expiry of the Option the Shareholders' Agreement shall be further amended as herein provided; NOW, THEREFORE, the parties hereto agree as follows: ARTICLE I --------- Definitions ----------- Terms used herein without definition that are defined in the Shareholders' Agreement shall have the meanings, respectively, specified in the Shareholders' Agreement, and the following terms shall have the meanings assigned to them below: "Closing" shall mean the closing specified in Article III of the SPA. "Closing Date" shall mean the date of the Closing specified in Article III of the SPA. "Coal Group" shall mean CEI and its Subsidiaries, and a "member of the Coal Group" shall be any one of CEI or such Subsidiaries. "Subsidiary" shall mean, with respect to another person, a corporation, partnership, trust, or other legal entity controlled by such other person, directly or indirectly. An entity shall be deemed subject to the control of another person 2 when such person, directly or indirectly, has the power to direct or cause the direction of the management and policies of such entity. "Underwriting Agreement" shall mean an agreement between CEI and underwriters to effect an underwritten, registered public offering of Class A Shares. ARTICLE II ---------- Exercise of Option ------------------ 1. Rheinbraun Control; Suspension of Shareholders' Agreement. If --------------------------------------------------------- Rheinbraun shall exercise the Option, then, effective immediately upon the exercise of the Option, the following provisions shall apply: (a) Rheinbraun shall assume exclusive managerial control over the Coal Group and, to that end, (i) Du Pont shall cause each of the directors of CEI nominated by Du Pont to deliver to CEI, with a copy to Rheinbraun, written resignations from all directorships in the Coal Group held by him, and (ii) Du Pont shall cause DEC to execute and deliver to Rheinbraun its irrevocable proxy, in substantially the form of Exhibit A hereto, authorizing officers of Rheinbraun identified therein to act in the place of DEC with respect to the Class A Shares in all respects, as such officers may determine; and, (b) All provisions of the Shareholders' Agreement shall be suspended and without contractual force except the following: sections 4.2 (subject, however, to section 2(b) of the 3 Option Agreement), 6.4, and Article VII; provided, that, nothing in this section -------- ---- 1 shall entitle Rheinbraun to amend the Certificate of Incorporation or By-laws of CEI, to amend further the Shareholders' Agreement, or to cause any member of the Coal Group to do any act prior to the Closing Date of the type referred to in item 4 (Certain Capital Expenditures), item 6 (New Lines of Business) or item 13 (New Business with Stockholders) of Annex G of the Shareholders' Agreement without the prior written consent of Du Pont. 2. Closing; Termination of Shareholders' Agreement. Upon the ----------------------------------------------- acquisition by Rheinbraun of title to 50,000 Class A Shares at the consummation of the Closing, then, automatically and without the necessity of further action by the parties, (a) the Shareholders' Agreement shall terminate and be of no further force or effect as of the Closing Date, and (b) each of the parties hereto shall be deemed to have released and forever discharged every other party to the Shareholders' Agreement from every liability and obligation that any of them may have to the releasing party arising from the making and performance of the Shareholders' Agreement. 3. Termination Without Closing. If the SPA shall be terminated as --------------------------- provided therein, or otherwise cancelled or discharged, without consummation of the Closing, then, as of the date of such termination, cancellation or discharge, (a) the resignations and proxy delivered pursuant to section 1 of this Article II shall be void, and said directors (or their respective 4 successors appointed by Du Pont) shall reassume the directorships from which they resigned and (b) the Shareholders' Agreement shall be reinstated and continue in full force and effect and, to the extent practicable, the rights and obligations of the parties to the Shareholders' Agreement, and the status of the boards of directors of the Coal Group and the voting rights of DEC as holder of the Class A Shares, shall be restored to their status as of the date and prior to the execution hereof. ARTICLE III ----------- Public Offering --------------- 1. Right to Make Offering. If the Option shall expire unexercised, ---------------------- Du Pont shall be entitled to dispose of all or part of the Class A Shares in the manner, and upon the conditions, specified in this Article and in Exhibit B (Registration Rights), annexed hereto. For the purposes of this Amendatory Agreement, Du Pont shall include DEC. 2. (a) Procedures. Until December 31, 2001, Du Pont may distribute ---------- Class A Shares to the public by means of (i) a spin-off stock dividend to shareholders of Du Pont or (ii) a registered public offering pursuant to an Underwriting Agreement as provided in Exhibit B. Not more than 60 days after expiry of the Option, Du Pont shall give written notice to Rheinbraun and CEI (the "2(a) Notice") of the method that it has elected to employ to make such distribution and shall thereafter proceed according to such method; provided, -------- that, Du Pont may amend the - ---- 5 2(a) Notice once, not more than 180 days after expiry of the Option. The 2(a) Notice shall include any proposal of Du Pont to change the capitalization of CEI, by stock-split or otherwise, for the purposes of such distribution, and, if Rheinbraun and CEI shall consent to such proposal (which consent shall not be unreasonably withheld), corresponding changes shall be made in the Certificate Incorporation and By-laws of CEI to give effect thereto. Any shares issued by CEI in exchange for or in lieu of Class A Shares shall be deemed Class A Shares for the purpose hereof. (b) Breadth of Distribution. In any public offering made pursuant to ----------------------- this Article and Exhibit B, Du Pont shall cause its underwriters to (i) effect as wide a distribution of the Class A Shares as is practicable; (ii) prevent the sale of Class A Shares to any person that would, following such sale, beneficially own more than 4.9% of the outstanding shares of CEI after completion of such offering; and (iii) treat Rheinbraun equally with institutional investors and other offerees to whom Class A Shares are offered for sale in the first such offering. (c) Rheinbraun Cooperation. In connection with any public offering ---------------------- made pursuant to this Article and Exhibit B, Rheinbraun will use its reasonable best efforts to (i) cause CEI to perform its obligations under this Article and Exhibit B, and (ii) take such other actions as are reasonably requested by Du Pont, or required by law, to expedite or facilitate the registration, qualification or distribution of the number of 6 Class A Shares included in such offering in accordance with this Article and Exhibit B. ARTICLE IV ---------- Effects on Shareholders' Agreement ---------------------------------- 1. Complete Disposition. If Du Pont and DEC shall dispose of all -------------------- Class A Shares in conformity with Article III hereof, then, as of the date of the final such disposition, (a) the Shareholders' Agreement shall terminate and be of no further force or effect, and (b) each of the parties hereto shall be deemed to have released and forever discharged every other party to the Shareholders' Agreement from every liability and obligation that any of them may have to the releasing party arising from the making and performance of the Shareholders' Agreement. 2. Partial Disposition. So long as Du Pont shall own any of the ------------------- Class A Shares, the Shareholders' Agreement (including section 4.2 thereof) shall be binding on Du Pont, and shall apply to such Shares, in accordance with its terms as amended heretofore and hereby; provided, that, if part of the Class -------- ---- A Shares shall have been distributed in a public offering in conformity with Article III hereof, only the following provisions of the Shareholders' Agreement shall continue so to bind Du Pont: sections 4.2 as amended by section 3 of this Article (for the purpose of which Du Pont and Rheinbraun shall be deemed the sole 7 shareholders of CEI), 6.4, 7.1 (in relation to Class A Shares held by Du Pont), 7.2, 7.3, and 7.5 through 7.12 (inclusive). 3. Amendment of Section 4.2.1. If the Option shall expire -------------------------- unexercised, section 4.2.1 of the Shareholders' Agreement shall be deemed amended as of October 1, 1998, to read as set forth in Exhibit C (Amended Section 4.2.1) annexed hereto. ARTICLE V --------- Miscellaneous ------------- 1. Assignment. By written notice to Rheinbraun and CEI, Du Pont may ---------- nominate a Subsidiary of Du Pont to exercise the rights granted by Article III hereof. Any other purported assignment of any right or privilege by one party hereto without the prior written consent of all other parties hereto shall be void. 2. Incorporation by Reference. Sections 7.4 through 7.12 (inclusive) -------------------------- of the Shareholders' Agreement are incorporated by reference as if fully set forth herein and shall apply to this Amendatory Agreement irrespective of the termination of the Shareholders' Agreement. 8 IN WITNESS WHEREOF, DU PONT, DEC, CEI, RHEINBRAUN, and RG have caused this Agreement to be duly executed, all as of the day and year first above written. E.I. DU PONT DE NEMOURS AND COMPANY By:/s/ John C. Sargent ATTEST: ----------------------------------- Name: John C. Sargent Title: Vice President and Treasurer /s/ L. B. Lancaster ------------------------- Secretary DU PONT ENERGY COMPANY By:/s/ John C. Sargent ATTEST: ----------------------------------- Name: Title: President /s/ SIGNATURE ILLEGIBLE^^ ------------------------- Secretary CONSOL ENERGY INC. By:/s/ B. R. Brown ATTEST: ----------------------------------- Name: Title: President /s/ D. L. Fassio ------------------------- Secretary RHEINBRAUN AG By: /s/ Dr. Dieter Henning By: /s/ Bernd J. Breloer ----------------------------------- ------------------------- Name: Dr. Dieter Henning Name: Bernd J. Breloer Title: Vorsitzender d. Vorstandes Title: Mitglied d. Vorstandes RHEINBRAUN US GMBH By: /s/ Dr. Peter Kausch By: /s/ Dr. Rolf Zimmermann ----------------------------------- ------------------------- Name: Dr. Peter Kausch Name: Dr. Rolf Zimmermann Title: Geschaftsfuhrer Title: Geschaftsfuhrer 9 EXHIBIT A to Amendatory Agreement --------------------------------- IRREVOCABLE PROXY The undersigned, DUPONT ENERGY COMPANY, a Delaware corporation ("DEC"), is a holder of 50,000 shares of class A Common Stock of Consol Energy Inc., a Delaware corporation, represented by Certificate No. ______ (the "Shares"). DEC hereby irrevocably appoints Dr. Dieter Henning or Dr. Peter Kausch or Dr. Rolf Zimmermann, or any of them, with full power of substitution, as its attorney and proxy to attend meetings, vote, give consents and in all other ways act in the place of DEC with respect to all the shares (and any and all shares or other securities issued in respect of the Shares). This proxy is made pursuant to section 212 of the Delaware General Corporation Law and an Amendatory Agreement dated as of _______, 1997, among DEC, Rheinbraun A.G., and others relating to the sale of the Shares by DEC to Rheinbraun A.G. and is therefore coupled with the interest provided thereby. DATED: ____________ DUPONT ENERGY COMPANY By: __________________________ ATTEST: ___________________________ Secretary 10 EXHIBIT B to Amendatory Agreement --------------------------------- REGISTRATION RIGHTS 1.1. Agreement to Register. CEI agrees to register the Class A --------------------- Shares, any other securities issued in exchange therefor (including by way of stock split or in connection with a combination of shares, recapitalization, or otherwise) and any other securities issued as a dividend thereon (the "Registrable Securities") upon the terms and subject to the conditions set forth in this Exhibit B and in the Amendatory Agreement to which this Exhibit is annexed. (a) Demand Registration. On not more than two occasions prior to ------------------- December 31, 2001, if Du Pont (i) requests in writing (a "Registration Request") that CEI register the sale or other distribution under the Securities Act of 1933, as amended (the "Securities Act") of any of the Registrable Securities (which request shall specify the number of Registrable Securities intended to be offered and sold), (ii) expresses Du Pont's present intent to offer such Registrable Securities for distribution, (iii) describes the nature or method of the proposed offer and sale thereof, and (iv) undertakes to provide all such information and materials relating to Du Pont and to take all such action as may be required of Du Pont in order to permit CEI to comply with all applicable requirements of the Securities and Exchange Commission (the "Commission") and to obtain acceleration of the effective date of the registration statement therefor, CEI shall use all reasonable efforts to cause the offering of the Registrable Securities so specified in such request to be registered as soon as reasonably practicable so as to permit the sale or other distribution by Du Pont of the Registrable Securities specified in the Registration Request, and shall in connection therewith prepare and file on an appropriate form, as CEI shall reasonably determine, a registration statement under the Securities Act to effect such registration. Notwithstanding any provision to the contrary contained herein, CEI shall not be required to file any registration statement pursuant to this section 1.1(a) in the following circumstances: (i) if, in the reasonable judgment of Rheinbraun or CEI, a registration at the time and on the terms requested would materially adversely affect any financing by CEI that had been contemplated by Rheinbraun or CEI prior to the notice by Du Pont requesting registration, CEI shall not be required to commence using its best efforts to effect a registration pursuant to this section until the earliest of (1) 90 days after the completion of such financing, (2) the termination of any "black out" period required by the underwriters, initial purchasers or placement agents, if any, in connection with such financing or (3) promptly after abandonment of such financing; (ii) if, while a Registration Request is pending pursuant to this section, Rheinbraun or CEI determines in good faith, based on the advice of counsel, that proceeding with the registration would require the disclosure of material information that Rheinbraun or CEI has a bona fide business purpose for preserving as confidential, or CEI is unable to comply with Commission requirements, CEI shall not be required to effect such pending registration statement until the earlier of (1) the date upon which such material information is disclosed to the public or ceases to be material or (2) 120 days after the date CEI makes such determination; and (iii) if Rheinbraun and CEI shall not have received undertakings reasonably satisfactory to them from any underwriter or underwriters to indemnify and hold them harmless, each of their directors and officers, and every other controlling person of them, from and against any and all loss, damage, liability, cost or expense to which they, any director or officer of them, or every other controlling person of them may become subject under the Securities Act or otherwise, insofar as such losses, damages, liabilities, costs or expenses (A) are caused by any untrue or alleged untrue statement of any material fact contained in the registration statement or prospectus included therein, as amended or supplemented, or (B) arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, in each case to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was so made in conformity with written information furnished by such underwriter or underwriters. (iv) The right of Du Pont to exercise registration rights pursuant to section 1.1(a) shall be subject to the condition that the first Registration Request of Du Pont shall be for not less than 20,000 Class A Shares (or equivalent). (b) Registration Expenses. Du Pont shall bear the costs and --------------------- expenses incurred in connection with the registration of the sale or other distribution of the Registrable Securities pursuant to the terms of this section 1.1 (or, if securities are included in any such registration for the account of CEI or any other security holders, Du Pont shall bear its proportionate share of such costs and expenses, except Du Pont shall pay any 2 underwriting fees, discounts or commissions attributable to sales of Registrable Securities by Du Pont and any "out-of-pocket" expenses of Du Pont, including Du Pont's counsel's fees and expenses) including, without limitation, (i) all filing fees with the Commission; (ii) fees and expenses of compliance with securities or blue sky laws (including fees and disbursements of counsel in connection with blue sky qualifications of the Registrable Securities, (iii) printing expenses, (iv) the fees and expenses incurred in connection with the listing of the Registrable Securities, (v) fees and expenses of counsel and independent certified public accountants for the Company (including the expenses of any comfort letters). (c) Other Registration Provisions and Procedures. Any registration -------------------------------------------- under this section 1.1 shall be subject to the following procedures: 1. As to any proposed offer or sale of Registrable Securities, such securities shall cease to be Registrable Securities where (a) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, or (b) such securities have been transferred or sold to any individual or entity other than Du Pont or any affiliate of Du Pont. 2. Upon any registration under section 1.1 of this Exhibit becoming effective, CEI will use its best efforts to keep such registration statement current for a period of 90 days or such shorter period which will terminate when all Registrable Securities covered by such registration statement have been sold. 3. A Registration Request shall not be deemed to have been made for purposes of the first sentence of section 1.1(a) hereof: (a) if, after a registration statement has become effective, such registration statement is interfered with by any stop order, injunction or other order or requirement of the Commission or other governmental authority for any reason other than an act or omission of Du Pont; 3 (b) if the conditions to closing specified in any purchase agreement or underwriting agreement entered into in connection with such registration are not satisfied other than by reason of some act or omission by Du Pont; or (c) if CEI voluntarily takes any action that would result in Du Pont not being able to sell such Registrable Securities covered thereby; or (d) if Du Pont notifies CEI in writing of Du Pont's intention not to proceed with a registration prior to execution of an underwriting agreement relating to that Registration Request. 4. In connection with any offering of Registrable Securities pursuant to this Exhibit, CEI (a) will furnish to Du Pont and the underwriters such number of copies of any prospectus (including any preliminary prospectus) and prospectus supplement as Du Pont or such underwriters may reasonably request in order to effect the offering and sale of the Registrable Securities to be offered and sold, but only while CEI shall be required under the provisions hereof to cause the registration statement to remain current, and (b) take such action as shall be necessary to qualify the Registrable Securities covered by such registration under blue sky or other state securities laws for offer and sale as Du Pont or the underwriters shall request; provided, however, -------- ------- that CEI shall not be obligated to qualify as a foreign corporation to do business under the laws of any jurisdiction in which it shall not be then qualified or to file any general consent to service of process or to subject itself to taxation in any jurisdiction wherein it would not otherwise be subject to taxation but for the requirement of this paragraph. 5. The underwriters acting hereunder shall be selected by Du Pont with the prior written approval of Rheinbraun and CEI (which approval shall not be unreasonably withheld). Any underwriting agreement made hereunder shall be subject to the prior written approval of Du Pont 4 and Rheinbraun (which approval shall not be unreasonably withheld). 6. In connection with any offering of Registrable Securities registered pursuant to this Agreement, CEI shall (a) furnish Du Pont, at CEI's expense, with certificates not containing legends affecting resales under the securities laws of the United States or any State representing ownership of the Registrable Securities, in such denominations as Du Pont shall request, which are sold pursuant to the prospectus contained in the registration statement. 7. In connection with CEI's obligations under section 1.1(a) hereof, CEI will: (a) prepare and file with the SEC within 90 days after receipt of a Registration Request with respect to such Registrable Securities (except as otherwise permitted by section 1.1(a) of the Agreement), a registration statement on any form for which CEI then qualifies and which shall be appropriate to effect the intended method of distribution and which form shall be available for the sale of the Registrable Securities in accordance with the intended method of distribution thereof; provided, however, that the -------- registration statement, if other than on Form S-1, will contain such additional information in compliance with securities laws as the underwriters deem necessary or appropriate for marketing purposes and which shall be reasonable and customary, and use its best efforts to cause such registration statement to become and remain effective; and before filing a registration statement or prospectus or any amendments or supplements thereto relating to a registration pursuant to section 1.1(a) hereof, CEI will furnish to Du Pont and counsel selected by Du Pont (and the underwriters) copies of all such documents proposed to be filed, and CEI will not file any registration statement to which Rheinbraun or Du Pont or their respective counsel (or the underwriters) shall reasonably object; 5 (b) cooperate and assist in any filings required to be made with a securities exchange or the National Association of Securities Dealers, Inc.; (c) cause the prospectus to be supplemented by any required prospectus supplement, and as so supplemented to be filed pursuant to the Securities Act; (d) notify Du Pont promptly: (i) when the prospectus or any prospectus supplement or post-effective amendment has been filed, and, with respect to the registration statement or any post-effective amendment, when the same has become effective; (ii) of any request by the Commission for any amendments or supplements to the registration statement or the prospectus or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the registration statement or the initiation of any proceedings for that purpose; (iv) if, at any time prior to the closing contemplated by an underwriting agreement entered into in connection with such registration statement, that the representations and warranties of CEI contained therein cease to be true and correct; (v) of the receipt by CEI of any notification with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and (vi) of the happening of any event which makes any statement in the prospectus or any document incorporated therein by reference untrue and which requires the making of any changes in the registration statement, the prospectus or any document incorporated therein by reference in order to make the statements therein not misleading; (e) make reasonable efforts to obtain the withdrawal of any order suspending the effectiveness of the registration statement; 6 (f) furnish to Du Pont, without charge, one copy of the registration statement as declared effective by the Commission and any post-effective amendment thereto, including financial statements and schedules, all documents incorporated therein by reference and all exhibits (including those incorporated by reference); (g) upon the occurrence of any event referred to in paragraph 7(d)(vi) of this section, prepare a supplement or post- effective amendment to the registration statement, the related prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to purchasers of the Registrable Securities, the prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading; (h) use reasonable efforts to cause all Registrable Securities covered by the registration statement to be listed on a securities exchange if requested by Du Pont or the underwriters; (i) use reasonable efforts to obtain (i) for delivery at each closing of the sale of Registrable Securities, opinions of counsel to CEI and updates thereof addressed to the underwriters, if any, of such sale covering the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by the underwriters, if any, and (ii) "cold comfort" letters and updates thereof from the Company's independent certified public accountants addressed to the underwriters, if any, of such sale, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters by accountants in connection with underwritten offerings, which shall be delivered at the time of effectiveness of the 7 registration statement and at each closing of the sale of Registrable Securities; (j) participate and cause such members of its management as the underwriters shall reasonably request (and which shall be customary) to participate in "road shows" and similar promotional meetings to the extent reasonably requested by the underwriters; and (k) otherwise use its reasonable efforts to comply with all applicable law and rules and regulations of the Commission. 1.2. Public Offering Indemnities. In the event of any registered --------------------------- offering of Registrable Securities pursuant to section 1.1 hereof: (a) CEI will indemnify and hold harmless, to the fullest extent permitted by law, Du Pont, Rheinbraun, and any underwriter, as defined in the Securities Act, and each person, if any, who controls Du Pont, Rheinbraun, or such underwriter within the meaning of the Securities Act, from and against any and all losses, damages, claims, liabilities, joint or several, reasonable costs and expenses (including any amounts paid in any settlement effected with CEI's consent) to which Du Pont, Rheinbraun, or any such underwriter or controlling person may become subject under the Securities Act, state securities or blue sky laws, common law or otherwise, insofar as such losses, damages, claims, liabilities (or actions or proceedings in respect thereof), costs or expenses arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in the registration statement or the prospectus included therein, as amended or supplemented, or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they are made, not misleading, and CEI will reimburse Du Pont, Rheinbraun, any underwriter, and each such controlling person, promptly upon demand, for any legal or any other expenses incurred by them in connection with investigating, preparing to defend or defending against such loss, damage, claim, liability, action or proceeding; provided, however, that CEI will not be liable in any such -------- ------- case to the extent that any such loss, damage, liability, cost or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished by Du Pont, Rheinbraun, such underwriter or such controlling persons, 8 as the case may be, in writing specifically for use in the preparation thereof, provided, further, that CEI will not be liable under the indemnity agreement of - -------- ------- this section to Du Pont, Rheinbraun, or any underwriter (or controlling person of any of them) with respect to any preliminary prospectus to the extent that any such loss, damage, liability, cost or expense results from the fact that Registrable Securities were sold by any such indemnitee to a person to whom there was not sent or given, at or prior to the written confirmation of such sale, a copy of the final prospectus as then amended or supplemented if CEI has previously furnished copies thereof to Du Pont, Rheinbraun, such underwriter or such controlling person as the case may be. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of Du Pont, Rheinbraun, any underwriter and shall survive the transfer of such Registrable Securities by Du Pont. (b) Du Pont shall indemnify and hold harmless Rheinbraun and CEI, each director of Rheinbraun and CEI, each officer of CEI who signs such registration statement, any underwriter, and each person, if any, who controls CEI or Rheinbraun or such underwriter from and against any and all loss, damage, liability, cost or expense to which Rheinbraun or CEI or any such controlling person or any underwriter may become subject under the Securities Act or otherwise, insofar as such losses, damages, liabilities, costs or expenses (i) are caused by any untrue or alleged untrue statement of any material fact contained in the registration statement or included prospectus, as amended or supplemented, or (ii) arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was so made in conformity with written information furnished by Du Pont to CEI for use therein. (c) Rheinbraun shall indemnify and hold harmless Du Pont and CEI, each director of Du Pont and CEI, each officer of CEI who signs such registration statement, any underwriter, and each person, if any, who controls CEI or Du Pont or such underwriter from and against any and all loss, damage, liability, cost or expense to which Du Pont or CEI or any such controlling person or any underwriter may become subject under the Securities Act or otherwise, insofar as such losses, damages, liabilities, costs or expenses (i) are caused by any untrue or alleged untrue statement of any material fact contained in the registration statement or included prospectus, as amended or supplemented, or 9 (ii) arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was so made in conformity with written information furnished by Rheinbraun to CEI for use therein. (d) Promptly after receipt by an indemnified party pursuant to the provisions of subsection (a), (b), or (c) of this section of written notice of the commencement of any action with respect to which a claim for indemnity may be made pursuant to this section, such indemnified party will, if a claim thereof is to be made against the indemnifying party pursuant to the provisions of said subsection (a), (b), or (c) promptly notify in writing the indemnifying party of the commencement thereof; but the omission to notify the indemnifying party will not relieve it from any liability which it may have otherwise to any indemnified party. In case such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party shall have the right to participate in, and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof; provided, that, if the defendants in any action -------- ---- include both the indemnified party and the indemnifying party and there is a conflict of interest that would prevent counsel for the indemnifying party from also representing the indemnified party, the indemnified parties shall have the right to select one separate counsel to participate in the defense of such action on behalf of all such indemnified parties. After notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party pursuant to the provisions of said subsection (a), (b), or (c) for any legal or other expense subsequently incurred by such indemnified party in connection with the defense thereof, other than reasonable costs of investigation, unless (i) the indemnified party shall have employed counsel in accordance with the provision of the immediately preceding sentence or (ii) the indemnifying party has authorized the employment of counsel for the indemnified party at the expense of the indemnifying party. No indemnifying party will consent to entry of any judgment, or enter into any settlement with respect to a claim, without the written consent of the indemnified party (which consent shall not be unreasonably withheld) or unless such judgment or settlement includes as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all 10 liability in respect to such claim or litigation. No indemnified party shall consent to entry of any judgment or enter into any settlement of any action the defense of which has been assumed by an indemnifying party without the consent of such indemnifying party, which consent shall not be unreasonably withheld. (e) If recovery is not available under the foregoing indemnification provisions or is insufficient to hold harmless an indemnified party in respect of any losses, claims, liabilities, costs or expenses specifically covered by the indemnification provisions set forth above for any reason other than as specified in section 1.2(a), (b), or (c), the parties entitled to indemnification by the terms thereof shall be entitled to contribution to losses, claims, liabilities, costs and expenses as may be more fully set forth in an underwriting agreement to be executed in connection with such registration, except to the extent that contribution is not permitted under section 11(f) of the Securities Act. In determining the amount of contribution to which the respective parties are entitled, there shall be considered the relative benefits and faults and any other equitable considerations appropriate under the circumstances provided in section 11(f) of the Securities Act. No person guilty of fraudulent misrepresentation (within the meaning of section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The contribution provided for in this section shall survive, with respect to a holder of Registrable Securities, the transfer of Registrable Securities by such holder, and, with respect to a holder of Registrable Securities or CEI, shall remain in full force and effect regardless of any investigation made by or on behalf of any indemnified party. 1.3. Holdback Provision. Rheinbraun and CEI agree not to effect any ------------------ public sale of equity securities of CEI (or securities convertible into or exchangeable for such equity securities) during the seven days prior to and the 90 days after any underwritten registration pursuant to this Exhibit B has become effective, or such longer period (not to exceed 180 days) as the underwriter may reasonably request consistent with customary practice. 11 Exhibit C to Amendatory Agreement --------------------------------- Amended Section 4.2.1 as of October 1, 1998 --------------------- 4.2.1 During any period that members of the Du Pont Group and the Rheinbraun Group shall be the sole shareholders of CEI, the provisions of this paragraph 4.2.1 shall apply to any purported disposition of Shares by any such shareholder. Du Pont and Rheinbraun each guarantee that the obligations imposed by this paragraph shall be duly performed by any shareholder that is a member, respectively, of the Du Pont Group or the Rheinbraun Group. (a) The Seller shall give written notice to the Offeree (the "Option Notice") of the terms and conditions upon which the Seller may desire to sell the Offered Shares to a third party or parties. (b) The Offeree shall, within 30 days after receipt of the Option Notice, give written notice to the Seller whether it elects to purchase not less than all the Offered Shares on the terms and conditions set forth in the Option Notice. (c) If the Offeree shall elect to purchase the Offered Shares, the Offeree's notice of election shall specify a date, not later than 30 days after the receipt by the parties of all necessary governmental or other regulatory approvals for such purchase, or, if no such approvals are required, not later than 60 days after the Offeree's receipt of the Option Notice, for the closing of such purchase. The giving of a notice in such form shall bind the Offeree to purchase, and the Seller to sell and transfer, on the date of the closing so specified, the Offered Shares on the terms and conditions stated in the Option Notice, and shall also bind the Seller and Offeree to pursue diligently the obtaining of all such governmental and regulatory approvals. In any such sale the Seller shall be deemed to have warranted to the Offeree that the Seller has good and unencumbered title to the Offered Shares. (d) If the Offeree, by notice to the Seller, shall elect not to exercise its right to purchase the Offered Shares, or if 30 days shall have elapsed from the date of receipt of the Option Notice by the Offeree without such election having been notified to the Seller, then the Seller may sell and transfer the Offered Shares to any third party or parties in a single transaction if such sale shall be on terms and conditions no less favorable to Seller than the terms and conditions stated in the Option Notice; provided, -------- that the following condition shall have been satisfied: the Seller shall have given written notice (the "Identification Notice") to the Offeree of the identity of such third party or parties together with a copy of (i) a letter of intent executed by all parties (but only if such letter of intent has been publicly disclosed), or, alternatively, (ii) a definitive, integrated agreement of sale executed by all parties (which agreement or letter of intent, as the case may be, shall include provision for a closing to be consummated not sooner than the 40th day following the date of delivery to the Offeree of the Identification Notice subject to the terms of this subparagraph), and the Offeree shall have the option, exercisable by written notice delivered to the Seller prior to the 30th day following the date of delivery to the Offeree of the Identification Notice, to purchase the Offered Shares on the terms and conditions specified in such letter of intent or agreement of sale, as the case may be, except that the amount payable by the Offeree shall be 104% of the economic value of the cash, stock and any other property specified in such letter of intent or agreement of sale as the price of the Offered Shares. If the Offeree shall exercise such option, the Offeree shall be bound to purchase, and the Seller to sell and transfer to the Offeree, the Offered Shares on a closing date not later than the 30th day following the receipt of all necessary governmental and regulatory approvals, but if no such approvals are required, not later than the 60th day following the date of delivery of the Identification Notice. The exercise of such option by the Offeree shall bind the Seller and Offeree to pursue diligently the obtaining of all such necessary governmental and regulatory approvals. In any such sale the Seller shall be deemed to have warranted to the Offeree that the Seller has good and unencumbered title to the Offered Shares. (e) If the Seller shall not have completed the transfer of all of the Shares referred to in the Option Notice to a third party or parties in a single transaction on or before the first anniversary of the date of the Option Notice, the restrictions on transfer imposed by this Article shall again apply to any proposed transfer of such Shares. EX-10.16 17 AMENDATORY AMENDMENT NO. 4 EXHIBIT 10.16 ------------- AMENDATORY AGREEMENT NO. 4 dated as of September 14, 1998, to the Shareholders' Agreement dated as of December 6, 1991, as amended (the "Shareholders' Agreement"), among E.I. DU PONT DE NEMOURS AND CO., a Delaware corporation ("Du Pont"), DU PONT ENERGY COMPANY, a Delaware corporation ("DEC"), CONSOL ENERGY INC., a Delaware corporation ("CEI"), RHEINBRAUN AG, a German corporation ("Rheinbraun"), and RHEINBRAUN US GMBH, a German corporation ("RG"). WHEREAS, Du Pont, DEC, CEI, and Rheinbraun have this date entered into an Option (Class A Shares) Agreement (the "Option"), granting to CEI the right to purchase 47,000 Class A Shares (the "Class A Shares") of CEI owned by DEC pursuant to a Share Purchase Agreement ("SPA") in form annexed as Exhibit A to the Option; WHEREAS, the parties hereto intend that upon the exercise of the Option by CEI and the purchase by CEI of 47,000 Class A Shares pursuant to the SPA, Du Pont will be entitled, after a specified period, to dispose of 3,000 Class A Shares in a registered public offering or by other means conforming to the Securities Act of 1933, as amended; WHEREAS, in consequence of the Option, the parties hereto intend to amend and supplement Amendatory Agreement No. 3 dated as of October 1, 1997, among the parties hereto ("Amendatory Agreement No. 3") and the Shareholders' Agreement as herein provided; NOW, THEREFORE, the parties hereto agree as follows: ARTICLE I --------- Definitions ----------- Terms used herein without definition that are defined in the Shareholders' Agreement and in Article I of Amendatory Agreement No. 3 shall have the meanings, respectively, specified in said Agreements. ARTICLE II ---------- Amendments of Amendatory Agreement No. 3 ---------------------------------------- Amendatory Agreement No. 3 is hereby amended as follows: 1. In Article II, section 1, (a) the introductory clause reading, "If Rheinbraun shall exercise the Option" is amended to read, "If CEI shall exercise the Option"; (b) the Irrevocable Proxy annexed as Exhibit A shall be amended to substitute the number "47,000" for "50,000", to delete the words "Dr. Peter Kausch" and to substitute therefor the words, "Berthold Bonekamp", and to refer in the last paragraph thereof to a sale of 2 Shares to "CEI" and not to "Rheinbraun"; and (c) at the end of subsection (b), the following sentence shall be added: "Nothing herein or in the Shareholders' Agreement shall affect the right of CEI to borrow funds for purposes of purchasing the Class A Shares pursuant to the SPA or any other purpose if so authorized by the Board of Directors of CEI as then constituted." 2. In Article II, section 2, the introductory clause, "Upon the acquisition by Rheinbraun of title to 50,000 Class A Shares" is amended to read, "Upon the acquisition by CEI of title to 47,000 Class A Shares"; 3. References in Amendatory Agreement No. 3 to the "Option" shall be taken to refer to the Option granted to CEI pursuant to the Option (Class A Shares) Agreement dated the date hereof among Du Pont, CEI, DEC and Rheinbraun. 4. In Article IV, section 2, the introductory clause reading, "So long as Du Pont shall own any of the Class A Shares" shall be amended to read, "If the Option shall expire unexercised then, so long as Du Pont shall own any of the Class A Shares,"; ARTICLE III ----------- Provisions Supplementary to Amendatory Agreement No. 3 -------------------------- Amendatory Agreement No. 3 is hereby supplemented with the following provisions: 1. If CEI shall acquire 47,000 Class A Shares at the Closing under the SPA, then DEC shall not, and Du Pont shall 3 cause DEC not to, dispose of any of the remaining 3,000 Class A Shares held by DEC (including securities issued in exchange therefor, in lieu thereof or as a dividend thereon) (the "Registrable Securities") during the 180 days after the Closing Date under the SPA (the "Waiting Period"). 2. DEC shall be entitled to dispose of all the Registrable Securities after the Waiting Period, (a) pursuant to registration rights granted by Exhibit B to Amendatory Agreement No. 3 (which is incorporated herein by reference, as if fully set forth herein) as amended by section 3, below; (b) if CEI shall not complete a registered underwritten initial public offering of common stock (an "IPO") during the Waiting Period and shall later undertake an IPO, DEC may elect to include (i.e., "piggy-back") all the Registrable Securities in such later IPO upon reasonable notice to CEI and upon such terms, customary for "piggy-back" offerings, as CEI may reasonably require; and (c) in a private sale or sales conforming to the Securities Act of 1933, as amended. 3. For purposes of this Agreement only, said Exhibit B shall be deemed amended as follows: (a) in Section 1.1, the introductory clause reading, "CEI agrees to register the Class A Shares" is amended to read, "CEI agrees to register 3,000 Class A Shares", and the definition 4 of "Registrable Securities" shall be as stated in section 1, above; (b) in subsection 1.1(a), that part of clause (i) of the first sentence reading, "any of the Registrable Securities (which request shall specify the number of Registrable Securities intended to be offered and sold)," is amended to read, "all of the Registrable Securities,"; (c) Subsection 1.1(a)(iv) is deleted. 4. DEC shall not, and Du Pont shall cause DEC not to, effect or allow any public sale of the Registrable Securities during the seven days prior to and the 90 days after any underwritten registered financing by CEI has become effective, or such longer period (not to exceed 180 days) as the underwriter may reasonably request consistent with customary practice. ARTICLE IV ---------- Miscellaneous ------------- 1. Assignment. By written notice to Rheinbraun and CEI, Du Pont may ---------- nominate a Subsidiary of Du Pont to exercise the registration rights granted by Article III hereof respecting the 3,000 Class A Shares specified therein, and, in connection with a lawful private sale of said 3,000 Class A Shares, Du Pont may assign such rights to the purchaser. Any other purported assignment of any right or privilege by one party hereto without 5 the prior written consent of all other parties hereto shall be void. 2. Incorporation by Reference. Sections 7.4 through 7.12 (inclusive) -------------------------- of the Shareholders' Agreement are incorporated by reference as if fully set forth herein and shall apply to this Amendatory Agreement irrespective of the termination of the Shareholders' Agreement. The agreements of the parties set forth in Article III of this Amendatory Agreement No. 4 shall survive any termination of the Shareholders' Agreement pursuant to Article II, section 2, of Amendatory Agreement No. 3. 3. Effect. Except as expressly amended and supplemented by this ------ Amendatory Agreement, Amendatory Agreement No. 3 and the Shareholders' Agreement as previously amended shall continue in full force and effect. 6 IN WITNESS WHEREOF, DU PONT, DEC, CEI, RHEINBRAUN, and RG have caused this Agreement to be duly executed, all as of the day and year first above written. E.I. DU PONT DE NEMOURS AND COMPANY By: /s/ S. M. Stalnecker ATTEST: ------------------------------ Name: S. M. Stalnecker Title: Vice President-Treasury /s/ [SIGNATURE ILLEGIBLE]^^ ---------------------------------- Asst. Secretary DU PONT ENERGY COMPANY By: /s/ S. M. Stalnecker ATTEST: ------------------------------ Name: S. M. Stalnecker Title: President /s/ [SIGNATURE ILLEGIBLE]^^ ---------------------------------- Assistant Secretary CONSOL ENERGY INC. By: /s/ J. Brett Harvey ATTEST: ------------------------------ Name: J. Brett Harvey Title: President /s/ D. L. Fassio ---------------------------------- Secretary RHEINBRAUN AG By: /s/ Bernd J. Breloer By: /s/ Berthold Bonekamp ------------------------------ ------------------------------ Name: Bernd J. Breloer Name: Berthold Bonekamp Title: Mitglied des Vorstandes Title: Mitglied des Vorstandes RHEINBRAUN US GMBH By: /s/ Dr. Peter Kausch By: /s/ Dr. Rolf Zimmermann ------------------------------ ------------------------------- Name: Dr. Peter Kausch Name: Dr. Rolf Zimmermann Title: Geschuftsfuhrer Title: Geschuftsfuhrer 7 EX-10.17 18 CONSULTING AGREEMENT DATED AS OF FEB 1 EXHIBIT 10.17 ------------- CONSULTING AGREEMENT dated as of February 1, 1999, between CONSOL INC., a Delaware corporation (hereinafter the "Corporation") and B. R. Brown (hereinafter "Mr. Brown"). Mr. Brown is Chairman of the Board of Directors of the Corporation. He has been employed by the Corporation under an agreement dated December 9, 1996, as extended until June 30, 1998 (by a written agreement dated February 26, 1998), and as extended until January 31, 1999 (by informal agreement). He will retire as Chairman of the Board effective January 31, 1999. In view of his long experience with the Corporation and his knowledge of its affairs, the Corporation desires to have him available to act as a consultant to the President of the Corporation during the period February 1, 1999, to January 31, 2000, on the terms and conditions hereinafter set forth. Accordingly, the parties hereto hereby agree as follows: 1. Period of Consultancy. During the period February 1, 1999, to January --------------------- 31, 2000, Mr. Brown shall serve the Corporation in the capacity of general consultant. To that end he shall be available for consultation and advice as and when the President of the Corporation may reasonably require. Mr. Brown shall not, however, be required to attend regularly at any business office of the Corporation or to live at any specified place for any stated period or periods of time. Insofar as it shall be practicable from a business point of view, the Corporation shall consider the reasonable convenience of Mr. Brown in timing its requests, and the failure or inability of Mr. Brown by reason of illness or cause beyond his control to respond to such requests shall not be deemed to constitute a default on his part in the performance of his obligations under this Agreement. Mr. Brown agrees to render his services in such manner and under such circumstances as shall be in the best interests of the Corporation and consistent with its general policies. The services which Mr. Brown shall render to the Corporation under this Agreement shall be rendered in the capacity of an independent contractor. 2. Compensation. As compensation for his services under this ------------ Agreement, the Corporation will pay to Mr. Brown $360,000 per year, payable in equal monthly installments, in the period February 1, 1999, to January 31, 2000; provided, that, if in any month Mr. Brown shall actually be engaged in work for - -------- the Corporation for more than six days (whether or not consecutive), the Corporation will pay to him a consultation fee of $5,000 for each such additional day (or substantial part thereof) in such month that Mr. Brown shall actually be engaged in work for the Corporation. In said period the Corporation will reimburse Mr. Brown for any out-of-pocket disbursements which he shall 2 reasonably incur in connection with the performance of his services under this Agreement. 3. No Competition: Confidentiality. Mr. Brown (a) until January 31, ------------------------------- 2001, will not, without the consent of the Corporation, in any way engage as principal, agent or employee in any business competitive with that of the Corporation and (b) will endeavor in all respects to act in accordance with the interests of the Corporation. Mr. Brown will not at any time, reveal, divulge or make known, either directly or through another, to any person, firm or corporation, any confidential information received by him at any time touching the operations or the financial, business or other affairs of the Corporation or any of its affiliates or any customer or supplier of any of them; provided, that -------- confidential information shall not include any information which (i) is known generally to the public other than as a result of unauthorized disclosure by Mr. Brown, (ii) becomes available to Mr. Brown on a non-confidential basis from a source other than the Corporation or any of its affiliates, or (iii) was available to Mr. Brown on a non-confidential basis prior to its disclosure to Mr. Brown or any of its affiliates. 4. Other Post-Retirement Rights. This Agreement shall not be deemed ---------------------------- to affect in any respect (a) the rights which Mr. Brown shall have under any Employment Retirement Plan of the Corporation after January 31, 1999, or (b) any other post-retirement rights that may have been expressly granted to him by 3 written contract with the Corporation or by reason of his participation in any plan of the Corporation for the benefit of its employees. It is understood that for all purposes (including all purposes of any plan of the Corporation for the benefit of its employees) Mr. Brown shall not be deemed to be an employee of the Corporation for any period after January 31, 1999. 5. No Assignment. Any purported assignment of this Agreement by Mr. ------------- Brown or the Corporation, in whole or in part, without the prior written consent of the other party shall be void; provided, that upon the sale of all or -------- substantially all the assets, business and goodwill of the Corporation to another corporation, or upon the merger or a consolidation of the Corporation with another corporation, this Agreement shall inure to the benefit of and be binding upon both Mr. Brown and the Corporation purchasing the assets, business and goodwill, or surviving or arising out of such merger or consolidation, as the case may be. 6. Governing Law. This Agreement shall be governed by and ------------- interpreted under the laws of the Commonwealth of Pennsylvania. IN WITNESS WHEREOF, the Corporation has caused this Agreement to be signed in its corporate name by its President. 4 and Mr. Brown has hereunto set his hand, all as of the day and year first above written. CONSOL INC. By: /s/ J. Brett Harvey ---------------------------- President /s/ B. R. Brown ------------------------------- B. R. Brown 5 [LETTERHEAD OF RHEINBRAUN APPEARS HERE] February 1, 1999 Mr. B. R. Brown CONSOL Inc. 1800 Washington Road Pittsburgh, PA 15241 USA Re: BOARD OF DIRECTORS OF CEI AND CI -------------------------------- Dear Mr. Brown: We refer to the Consulting Agreement dated this date between you and Consol Inc. ("CI"), a subsidiary of Consol Energy Inc. ("CEI"). The period of consultancy under that agreement expires on January 31, 2000. You are also a member of the boards of directors of CEI and CI. This will confirm the intention of Rheinbraun AG, as the majority stockholder of CEI, to continue your service as a director of CEI and CI until January 31, 2000, and of your agreement so to serve CEI and CI, subject to the respective by-laws of CEI and CI. Unless extended to a later date by mutual written agreement, you shall be deemed to have resigned from both said directorships as of January 31, 2000. Very truly yours, Rheinbraun Aktiengesellschaft ACCEPTED: /s/ B. R. Brown ------------------ B. R. Brown EX-10.18 19 EMPLOYMENT AGREEMENT DATED DEC 11 1997 EXHIBIT 10.18 ------------- Consol Inc. Consol Plaza 1800 Washington Road Pittsburgh, PA 15241 (412) 831-4000 December 11, 1997 Mr. J. Brett Harvey Interwest Mining Company One Utah Center - Suite 2300 201 South Main Street Salt Lake City, Utah 84140-0023 Dear Brett: This Letter Agreement (the "Agreement") sets forth the terms and conditions under which you will be employed as President and Chief Executive Officer of both Consol Energy Inc., a Delaware corporation ("CEI"), and its wholly-owned subsidiary, Consol Inc., a Delaware corporation ("CI"). 1. Definitions. ----------- As used in this Agreement, the following terms shall have the meanings given below, respectively: "Affiliate" shall mean CEI, CI, and any corporation controlled by CEI or CI, or both of them, directly or indirectly. "Term" shall mean the period commencing January 1, 1998, and ending on December 31, 2002, subject to earlier termination as provided in Section 3 hereof. "Shareholders Agreement" shall mean that shareholders agreement, dated December 6, 1991, as amended, among the shareholders of CEI. 2. Term and Responsibilities. ------------------------- (a) During the Term, you will be an employee of CI, and serve as its President and Chief Executive Officer. During the Term, the shareholders of CEI undertake Mr. J. Brett Harvey December 11, 1997 Page 2 to elect you as a director of CEI, to cause your election as a director of CI, and to cause the Boards of CEI and CI to elect you as Chief Executive Officer and President of both Corporations. You hereby agree to accept such employment and such positions. (b) During the Term you will hold identical offices and directorships in both CEI and CI, and you will serve those corporations accordingly. You hereby confirm that you have been provided with a copy of the By-laws of each of CEI and CI and, with respect to each of the offices and directorships specified above, you will have the rights and duties stated in said By-laws for said offices, respectively. You also confirm that you have been provided with a copy of the Shareholders Agreement, including Annex G thereto, and, to the extent that instrument affects the conduct of any of the offices or directorships of CEI or CI you may hold hereunder, you agree to be bound thereby. (c) During the Term, you will devote the necessary business time and attention, and use your best efforts consistent with your current skills, exclusively to furthering the business and affairs of CEI, CI and their Affiliates. Without the prior written consent of the Boards of each of CEI and CI, you will not serve on any other board of directors, or devote time to or make, directly or indirectly, personal investments in any other entity that would lessen your ability to perform your obligations hereunder or violate conflict-of-interest rules of CEI, CI or their Affiliates. (d) In your capacities as President and Chief Executive Officer of CEI and CI, you will have charge and supervision of the business and affairs of CEI, CI and their Affiliates, subject at all times to the direction and control of the respective CEI and CI Boards. You will keep both Boards informed concerning the business affairs of CEI, CI, and their Affiliates, you shall report directly to the respective Boards of CEI and CI, and you shall operate within the policies, strategic plans and financial goals approved by such Boards. 3. Termination. ----------- (a) Your engagement hereunder will terminate in every capacity (a) --- upon your death, or your sustaining a disability that would make you eligible for disability pension under the CI Employee Retirement Plan (the "ERP"), (b) --- effective at any time, by at least ninety (90) days' advance written notice given by either party to the other; provided, that, the Board of CI shall have -------- ---- the right to terminate your employment for "cause" (as defined in paragraph (c) below) at any time by written notice specifying the reason for such termination. (b) In the event of termination of your employment hereunder during the Term for any reason other than (i) termination by CI for cause (as defined in paragraph (c) Mr. J. Brett Harvey December 11, 1997 Page 3 below) or (ii) your resignation, your then current base salary shall continue to be paid to you (or your estate, in event of your death) until the end of the Term, plus a one-time payment in an amount equal to any incentive compensation received in the preceding twelve months. In such event, you (or your estate, in the event of your death) shall also he entitled for purposes of the ERP to receive service credit for the remainder of the Term. (c) For purposes of this Agreement, "cause" shall mean (i) gross negligence detrimental to CEI, CI or their Affiliates, or willful misconduct; (ii) the commission of a felony or other crime involving moral turpitude; or (iii) such personal misconduct by you as shall bring CEI, CI or their Affiliates into disrepute. In the event of termination for cause, your compensation and benefits shall cease and terminate at the end of the month in which the notice of termination was given. 4. Compensation. ------------ (a) Base Salary. ----------- As compensation for your services during the Term, CI shall pay to you in equal monthly installments, a base salary at an annual rate of $390,000, with such additional amounts as may be determined from time to time by the Board of CI in its sole discretion. Any increase in base salary approved by the Board of CI will not be subsequently reduced or eliminated without your consent. (b) Incentive Compensation. ---------------------- For services rendered during the Term, you will be eligible to participate in all incentive compensation programs for senior management of CI, including the short-term and long-term incentive pay programs, subject to their respective terms and conditions. (c) Benefit Plans. ------------- For services rendered during the Term, you will be eligible for all employee benefit plans and policies applicable to salaried employees of CI. For purposes of the ERP, you will be allotted eleven (11) years of additional service credit, representing your years of employment at PacifiCorp and its affiliated companies ("PacifiCorp"). It is agreed, however, that there shall be deducted from the amount of any benefit payable to you under the ERP, an amount equal to the aggregate amount of any benefits payable to you pursuant to the any retirement or similar plans of PacifiCorp. Mr. J. Brett Harvey December 11, 1997 Page 4 5. Confidentiality and Non-Competition. ----------------------------------- (a) Except as required in furtherance of the business of CEI and CI and their Affiliates, you agree that so long as you are entitled to receive compensation under Section 4 hereof you will not at any time, reveal, divulge or make known, either directly or through another, to any person, firm or corporation, any confidential information received by you at any time touching the operations or the financial, business or other affairs of CEI, CI or any of their Affiliates or any customer or supplier of any of them; provided, that -------- confidential information shall not include any information which (i) is known --- generally to the public other than as a result of unauthorized disclosure by you, (ii) becomes available to you on a non-confidential basis from a source ---- other than CEI, CI or any of their Affiliates, or (iii) was available to you on ----- an non-confidential basis prior to its disclosure to you by CEI, CI or any of their Affiliates. (b) You agree that, for a period of twelve (12) months after the termination of your engagement hereunder, you will not directly or indirectly participate in any attempt to hire or solicit the employment of any person who was at such termination, an employee, officer or director of CEI, CI or any of their Affiliates. (c) You agree that so long as you are entitled to receive compensation under Section 4 hereof, you will not be a consultant, director, officer or employee or have any interest either directly or indirectly in any individual, partnership, corporation or other entity which is engaged in a business competitive with the business of CEI, CI or any of their Affiliates in the United States or Canada; provided, that the foregoing shall not prohibit the -------- ownership by you of less than 5% of any class of outstanding voting securities (or any options, warrants or rights to acquire such securities or any securities convertible into such securities) of any corporation. 6. Binding Agreement. ----------------- The provisions of this Agreement shall be binding on you and CEI, CI and their successors and assigns. You hereby acknowledge that the undertakings hereunder are unique to you, and any purported assignment by you without CEI's and CI's prior written consent shall be void. 7. Miscellaneous. ------------- This Agreement shall be governed by and construed in accordance with the laws of Pennsylvania. If any provision hereof shall for any reason be held to be invalid, Mr. J. Brett Harvey December 11, 1997 Page 5 illegal or unenforceable in any respect, it shall not affect any other provision hereof, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. If any provision hereof shall for any reason be held to be excessively broad as to duration, geographical scope, activity or subject, it shall be construed by limiting or reducing it to the extent necessary to render it enforceable under then current law. This Agreement shall supersede all prior understanding between you and CEI and CI as to the terms of your employment. No waiver by any party of the breach by the other of any provision hereof shall be deemed a waiver of any later or other breach hereof, or a waiver of any other provision hereof. This Agreement sets forth all the terms and understandings between the parties with respect to the subject matter hereof and may not be waived, amended, discharged or terminated orally or by any course of dealing by the parties, but only by an instrument in writing signed by the party against whom any waiver, change, discharge or termination is sought to be enforced. Mr. J. Brett Harvey December 11, 1997 Page 6 If the foregoing meets with your approval, please so indicate by signing both copies of this Agreement and returning one to the attention of the undersigned, whereupon it shall become a legally binding agreement among you, CEI and CI. Very truly yours, CONSOL ENERGY INC. By: /s/ B. R. Brown ------------------------ Chairman CONSOL INC. By: /s/ B. R. Brown ------------------------ Chairman AGREED to as of the date first above written. By: /s/ J. Brett Harvey ----------------------- J. Brett Harvey Mr. J. Brett Harvey December 11, 1997 Page 7 The undersigned constitute all of the Shareholders of CEI, and agree to cause the election of J. Brett Harvey to the offices and directorships specified in the foregoing letter agreement, dated December 11, 1997, subject to the terms and conditions thereof. DUPONT ENERGY COMPANY By: /s/ ILLEGIBLE SIGNATURE ----------------------------- Title: DEC's Senior CEI Director --------------------------- RHEINBRAUN AG By: /s/ Dr. Dieter Henning ----------------------------- Title: Vorsitzendes des Vorstandes ---------------------------- By: /s/ Bernd J. Breloer ----------------------------- Title: Mitglied des Vorstandes --------------------------- RHEINBRAUN US GMBH By: /s/ Dr. Peter Kausch ----------------------------- Title: Geschaftsfuhrer --------------------------- By: /s/ Dr. Rolf Zimmerman ----------------------------- Title: Geschaftsfuhrer --------------------------- EX-23.1 20 CONSENT OF ERNST AND YOUNG EXHIBIT 23.1 Consent of Ernst & Young LLP We consent to the reference of our firm under the captions "Prospectus Summary", "Selected Consolidated Financial and Operating Data" and "Experts" and to the use of our report dated February 15, 1998 (except Note 22, as to which the date is ____), with respect to the financial statements of Consol Energy, Inc. included in the Registration Statement on Form S-1 and the related Prospectus for the registration of shares of its common stock. Ernst & Young LLP Pittsburgh, Pennsylvania The foregoing consent is in the form that will be signed upon the completion of the restatement of capital accounts described in Note 22 to the financial statements. /s/ Ernst & Young LLP Pittsburgh, Pennsylvania February 5, 1999 -----END PRIVACY-ENHANCED MESSAGE-----