As filed with the Securities and Exchange Commission on October 6, 2017
File No. 001-38147
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 3
To
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
CONSOL MINING CORPORATION*
(Exact name of registrant as specified in its charter)
Delaware | 82-1954058 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
1000 CONSOL Energy Drive
Canonsburg, PA 15317-6506
(724) 485-4000
(Address, including zip code, and telephone number, including area code, of registrants principal executive offices)
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class |
Name of exchange on which registered |
|
Common Stock ($.01 par value) | New York Stock Exchange |
Securities to be registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☒ (Do not check if a smaller reporting company) | Smaller reporting company | ☐ | |||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
* | The registrant is currently named CONSOL Mining Corporation. The registrant plans to change its name to CONSOL Energy Inc. at or prior to the effective date of the distribution described in this registration statement. |
CONSOL MINING CORPORATION
INFORMATION REQUIRED IN REGISTRATION
STATEMENT CROSS-REFERENCE SHEET BETWEEN
INFORMATION STATEMENT AND ITEMS OF FORM 10
This Registration Statement on Form 10 incorporates by reference certain information contained in the information statement filed herewith as Exhibit 99.1. The cross-reference sheet below identifies where the items required by Form 10 can be found in the information statement. None of the information contained in the information statement shall be incorporated by reference herein or deemed to be a part hereof unless such information is specifically incorporated by reference.
Item 1. | Business. |
The information required by this item is contained under the sections of the information statement entitled Information Statement Summary, Risk Factors, Cautionary Statement Concerning Forward-Looking Statements, The Separation and Distribution, Unaudited Pro Forma Combined Financial Statements, Managements Discussion and Analysis of Financial Condition and Results of Operations, Business, Certain Relationships and Related Party Transactions and Where You Can Find More Information. Those sections are incorporated herein by reference.
Item 1A. | Risk Factors. |
The information required by this item is contained under the section of the information statement entitled Risk Factors. That section is incorporated herein by reference.
Item 2. | Financial Information . |
The information required by this item is contained under the sections of the information statement entitled Unaudited Pro Forma Condensed Combined Financial Statements, Selected Historical Combined Financial Data and Managements Discussion and Analysis of Financial Condition and Results of Operations. Those sections are incorporated herein by reference.
Item 3. | Properties . |
The information required by this item is contained under the section of the information statement entitled BusinessNon-Core Coal Assets and Surface Properties. That section is incorporated herein by reference.
Item 4. | Security Ownership of Certain Beneficial Owners and Management. |
The information required by this item is contained under the section of the information statement entitled Security Ownership of Certain Beneficial Owners and Management. That section is incorporated herein by reference.
Item 5. | Directors and Executive Officers. |
The information required by this item is contained under the sections of the information statement entitled Management and Board of Directors Following the Separation. Those sections are incorporated herein by reference.
Item 6. | Executive Compensation . |
The information required by this item is contained under the sections of the information statement entitled Executive Compensation, Board of Directors Following the SeparationCompensation Committee Interlocks and Insider Participation and Director Compensation. Those sections are incorporated herein by reference.
Item 7. | Certain Relationships and Related Transactions, and Director Independence. |
The information required by this item is contained under the sections of the information statement entitled Management, Certain Relationships and Related Party TransactionsAgreements with GasCo and Board of Directors Following the SeparationDirector Independence. Those sections are incorporated herein by reference.
Item 8. | Legal Proceedings . |
The information required by this item is contained under the section of the information statement entitled BusinessLegal and Environmental Proceedings. That section is incorporated herein by reference.
Item 9. | Market Price of, and Dividends on, the Registrants Common Equity and Related Stockholder Matters . |
The information required by this item is contained under the sections of the information statement entitled Dividend Policy, Capitalization, The Separation and Distribution and Description of CoalCo Capital Stock. Those sections are incorporated herein by reference.
Item 10. | Recent Sales of Unregistered Securities . |
The information required by this item is contained under the sections of the information statement entitled Description of Material Indebtedness and Description of CoalCo Capital StockSale of Unregistered Securities. Those sections are incorporated herein by reference.
Item 11. | Description of Registrants Securities to Be Registered . |
The information required by this item is contained under the sections of the information statement entitled Dividend Policy, The Separation and Distribution and Description of CoalCo Capital Stock. Those sections are incorporated herein by reference.
Item 12. | Indemnification of Directors and Officers . |
The information required by this item is contained under the section of the information statement entitled Description of CoalCo Capital StockLimitation on Liability of Directors; Indemnification; Insurance. That section is incorporated herein by reference.
Item 13. | Financial Statements and Supplementary Data . |
The information required by this item is contained under the section of the information statement entitled Index to Financial Statements and the financial statements referenced therein. That section is incorporated herein by reference.
Item 14. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. |
None.
Item 15. | Financial Statements and Exhibits. |
(a) Financial Statements
The information required by this item is contained under the section of the information statement entitled Index to Financial Statements and the financial statements referenced therein. That section is incorporated herein by reference.
(b) Exhibits
The following documents are filed as exhibits hereto:
* | Filed herewith. |
** | To be filed by amendment |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, as of the 6th day of October, 2017.
CONSOL MINING CORPORATION | ||
By: |
/s/ James Brock |
|
James Brock | ||
Chief Executive Officer | ||
(Duly Authorized Officer and Principal Executive Officer) |
Exhibit 2.2
FORM OF
TAX MATTERS AGREEMENT
BY AND BETWEEN
CONSOL ENERGY INC.
AND
CONSOL MINING CORPORATION
DATED AS OF , 2017
TABLE OF CONTENTS
Section 1. |
Definition of Terms. |
2 | ||||
Section 2. |
Allocation of Tax Liabilities. |
12 | ||||
Section 2.01 General Rule |
12 | |||||
Section 2.02 Allocation of United States Federal Income Tax |
13 | |||||
Section 2.03 Allocation of State Income and State Other Taxes |
13 | |||||
Section 2.04 Allocation of Foreign Taxes |
14 | |||||
Section 2.05 Certain Transaction and Other Taxes |
15 | |||||
Section 3. |
Proration of Taxes for Straddle Periods and Certain Other Periods. |
16 | ||||
Section 4. |
Preparation and Filing of Tax Returns. |
18 | ||||
Section 4.01 General |
18 | |||||
Section 4.02 Parents Responsibility |
18 | |||||
Section 4.03 CoalCos Responsibility |
18 | |||||
Section 4.04 Tax Accounting Practices |
19 | |||||
Section 4.05 Consolidated or Combined Tax Returns |
19 | |||||
Section 4.06 Right to Review Tax Returns |
20 | |||||
Section 4.07 CoalCo Carryback Items and Claims for Refund |
20 | |||||
Section 4.08 Apportionment of Earnings and Profits and Tax Attributes |
21 | |||||
Section 5. |
Tax Payments. |
21 | ||||
Section 5.01 Payment of Taxes with Respect to Parent Federal Consolidated Income Tax Returns and Parent State Combined Income Tax Returns |
21 | |||||
Section 5.02 Payment of Taxes with Respect to Joint Returns (Other Than a Parent Federal Consolidated Income Tax Return or Parent State Combined Income Tax Return) and Certain Returns of Other Taxes |
22 | |||||
Section 5.03 Payment of Separate Company Taxes |
23 | |||||
Section 5.04 Indemnification Payments |
23 | |||||
Section 6. |
Tax Benefits. |
24 | ||||
Section 6.01 Tax Benefits |
24 | |||||
Section 6.02 Parent and CoalCo Income Tax Deductions in Respect of Certain Equity Awards and Incentive Compensation |
24 | |||||
Section 7. |
Tax-Free Status. |
24 | ||||
Section 7.01 Representations |
24 |
i
Section 7.02 Restrictions on CoalCo |
25 | |||||
Section 7.03 Restrictions on Parent |
27 | |||||
Section 7.04 Procedures Regarding Opinions and Post-Distribution Rulings |
27 | |||||
Section 7.05 Liability for Tax-Related Losses |
28 | |||||
Section 7.06 Section 336(e) Election |
30 | |||||
Section 8. |
Assistance and Cooperation. |
30 | ||||
Section 8.01 Assistance and Cooperation |
30 | |||||
Section 8.02 Income Tax Return Information |
31 | |||||
Section 8.03 Reliance by Parent |
31 | |||||
Section 8.04 Reliance by CoalCo |
32 | |||||
Section 9. |
Tax Records. |
32 | ||||
Section 9.01 Retention of Tax Records |
32 | |||||
Section 9.02 Access to Tax Records |
32 | |||||
Section 9.03 Preservation of Privilege |
33 | |||||
Section 10. |
Tax Contests. |
33 | ||||
Section 10.01 Notice |
33 | |||||
Section 10.02 Control of Tax Contests |
34 | |||||
Section 11. |
Effective Date; Termination of Prior Intercompany Tax Allocation Agreements. |
36 | ||||
Section 12. |
Survival of Obligations. |
36 | ||||
Section 13. |
Treatment of Payments; Tax Gross Up. |
36 | ||||
Section 13.01 Treatment of Tax Indemnity and Tax Benefit Payments |
36 | |||||
Section 13.02 Tax Gross Up |
37 | |||||
Section 13.03 Interest |
37 | |||||
Section 14. |
Disagreements. |
37 | ||||
Section 14.01 Interaction with Article VII of the Separation and Distribution Agreement |
37 | |||||
Section 14.02 Dispute Resolution |
37 | |||||
Section 15. |
Late Payments. |
38 | ||||
Section 16. |
Expenses. |
38 | ||||
Section 17. |
General Provisions. |
38 | ||||
Section 17.01 Addresses and Notices |
38 | |||||
Section 17.02 Assignability |
39 |
ii
Section 17.03 Waiver |
39 | |||||
Section 17.04 Severability |
39 | |||||
Section 17.05 Authority |
39 | |||||
Section 17.06 Further Action |
39 | |||||
Section 17.07 Integration |
40 | |||||
Section 17.08 Construction |
40 | |||||
Section 17.09 No Double Recovery |
40 | |||||
Section 17.10 Counterparts |
40 | |||||
Section 17.11 Governing Law |
40 | |||||
Section 17.12 Jurisdiction |
41 | |||||
Section 17.13 Amendment |
41 | |||||
Section 17.14 CoalCo Subsidiaries |
41 | |||||
Section 17.15 Successors |
41 | |||||
Section 17.16 Injunctions |
41 |
iii
TAX MATTERS AGREEMENT
This TAX MATTERS AGREEMENT (this Agreement ) is entered into as of , by and between CONSOL Energy Inc., a Delaware corporation ( Parent ), and CONSOL Mining Corporation, a Delaware corporation and a wholly owned subsidiary of Parent ( CoalCo ) (collectively, the Companies and each a Company ).
RECITALS
WHEREAS, Parent and CoalCo have entered into a Separation and Distribution Agreement, dated as of (the Separation and Distribution Agreement ), providing for the separation of the Parent Group from the CoalCo Group;
WHEREAS, pursuant to the terms of the Separation and Distribution Agreement, Parent will, among other things, (i) transfer the Coal Assets to CoalCo and its Subsidiaries, in actual or constructive exchange for (a) the issuance by CoalCo to Parent of CoalCo Common Stock, (b) the assumption by CoalCo and its Subsidiaries of the CoalCo Liabilities, and (c) the transfer by CoalCo to Parent of cash in an amount equal to approximately $ (the Cash Payment ), (ii) transfer the Cash Payment to third-party creditors or stockholders of Parent in connection with the reorganization and as contemplated by the Ruling Request (the Creditor Repayment ), and (iii) effect the Distribution;
WHEREAS, for U.S. Federal Income Tax purposes, it is intended that the Contribution and Distribution shall qualify as transactions that are generally tax free pursuant to Sections 355(a) and 368(a)(1)(D) of the Code;
WHEREAS, as of the date hereof, Parent is the common parent of an affiliated group (as defined in Section 1504 of the Code) of corporations, including CoalCo, which has elected to file consolidated Federal Income Tax Returns;
WHEREAS, as a result of the Distribution, CoalCo and its subsidiaries will cease to be members of the affiliated group of which Parent is the common parent (the Deconsolidation );
WHEREAS, the parties desire to provide for and agree upon the allocation between the parties of liabilities for Taxes arising prior to, as a result of, and subsequent to the Distribution, and to provide for and agree upon other matters relating to Taxes;
NOW THEREFORE, in consideration of the mutual agreements contained herein, the parties hereby agree as follows:
Section 1. Definition of Terms . For purposes of this agreement (including the recitals hereof), the following terms have the following meanings, and capitalized terms used but not otherwise defined herein shall have the meaning ascribed to them in the Separation and Distribution Agreement:
Accounting Cutoff Date shall mean, with respect to CoalCo, any date as of the end of which there is a closing of the financial accounting records for such entity.
Adjustment Request shall mean any formal or informal claim or request filed with any Tax Authority, or with any administrative agency or court, for the adjustment, Refund, or credit of Taxes, including (a) any amended Tax Return claiming adjustment to the Taxes as reported on the Tax Return or, if applicable, as previously adjusted, (b) any claim for equitable recoupment or other offset, and (c) any claim for Refund or credit of Taxes previously paid.
Affiliate shall mean, when used with respect to a specified Person, a Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with such specified Person. The status of an Affiliate shall be determined immediately after the Distribution. For the purpose of this definition, control (including, with correlative meanings, controlled by and under common control with ), when used with respect to any specified Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or other interests, by contract, agreement, obligation, indenture, instrument, lease, promise, arrangement, release, warranty, commitment, undertaking or otherwise. It is expressly agreed that, prior to, at and after the Effective Time, for purposes of this Agreement, (a) no member of the CoalCo Group shall be deemed to be an Affiliate of any member of the Parent Group and (b) no member of the Parent Group shall be deemed to be an Affiliate of any member of the CoalCo Group.
Agreement shall mean this Tax Matters Agreement.
Ancillary Agreements shall have the meaning set forth in the Separation and Distribution Agreement.
Approvals or Notifications shall have the meaning set forth in the Separation and Distribution Agreement.
business day shall have the meaning set forth in the Separation and Distribution Agreement.
CFO Certificate shall have the meaning set forth in Section 7.02(e) of this Agreement.
Coal Asset shall have the meaning set forth in the Separation and Distribution Agreement.
CoalCo shall have the meaning set forth in the first sentence of this Agreement, and references herein to CoalCo shall include any entity treated as a successor to CoalCo.
CoalCo Active Trade or Business shall mean the active conduct (as defined in Section 355(b)(2) of the Code and the regulations thereunder) of the Coal Active Business by
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CoalCos separate affiliated group (as defined in Section 355(b)(3)(B) of the Code) and (in respect of the portion of the Coal Active Business comprising the MLP Business) through CNX Coal Resources (Coal Active Business and MLP Business each having the meaning set forth with respect to such term in the Representation Letters supporting the opinion of Parents Tax Advisors issued in connection with the closing of the Distribution).
CoalCo Capital Stock shall mean all classes or series of capital stock of CoalCo, including (i) the CoalCo Common Stock, (ii) all options, warrants and other rights to acquire such capital stock and (iii) all instruments properly treated as stock in CoalCo for U.S. Federal Income Tax purposes.
CoalCo Carryback Item shall mean any net operating loss, net capital loss, excess tax credit, or other similar Tax item of any member of the CoalCo Group which may or must be carried from one Tax Period to another prior Tax Period under the Code or other applicable Tax Law.
CoalCo Common Stock shall have the meaning ascribed to the term CoalCo Shares in the Separation and Distribution Agreement.
CoalCo Federal Consolidated Income Tax Return shall mean any Federal Income Tax Return for the affiliated group (as that term is defined in Section 1504 of the Code) of which CoalCo is the common parent.
CoalCo Group shall mean (a) prior to the Effective Time, CoalCo and each Person that will be an Affiliate of CoalCo as of immediately after the Effective Time, including the Transferred Entities, even if, prior to the Effective Time, such Person is not an Affiliate of CoalCo; and (b) on and after the Effective Time, CoalCo and each Person that is an Affiliate of CoalCo.
CoalCo Retained Other Taxes shall mean Other Taxes incurred in the ordinary course of business that have been accrued on the financial statements of any member of the CoalCo Group as of the Distribution Date, excluding, for the avoidance of doubt, Other Taxes imposed with respect to the Transactions.
CoalCo Separate Return shall mean any Separate Return of CoalCo or any member of the CoalCo Group.
Code shall mean the U.S. Internal Revenue Code of 1986, as amended.
Combined Tax Ticket shall have the meaning set forth in Section 3(c)(i) of this Agreement.
Companies and Company shall have the meaning set forth in the first sentence of this Agreement.
Compensatory Equity Interests shall have the meaning set forth in Section 6.02(a) of this Agreement.
Contribution shall mean the transfer of Coal Assets by Parent to CoalCo and its Subsidiaries pursuant to the Separation and Distribution Agreement in actual or constructive
3
exchange for (i) the issuance by CoalCo to Parent of shares of CoalCo Common Stock, (ii) the assumption by CoalCo and its Subsidiaries of the CoalCo Liabilities and (iii) the transfer by CoalCo to Parent of the Cash Payment.
Deconsolidation shall have the meaning set forth in the recitals to this Agreement.
Deconsolidation Date shall mean the last date on which CoalCo qualifies as a member of the affiliated group (as defined in Section 1504 of the Code) of which Parent is the common parent.
DGCL shall mean the Delaware General Corporation Law.
Distribution shall mean the distribution by Parent of all the common stock of CoalCo pro rata to holders of Parent common stock as more fully described in the Separation and Distribution Agreement.
Distribution Date shall have the meaning set forth in the Separation and Distribution Agreement.
Distribution-Related Tax Contest shall mean any Tax Contest in which the IRS, another Tax Authority or any other party asserts a position that could reasonably be expected to (i) adversely affect the Tax-Free Status of the Contribution and Distribution or (ii) jeopardize or prevent a Separation Transaction having the tax treatment described in the Tax Opinions/Rulings.
Due Date means with respect to a Tax Return, the date (taking into account all valid extensions) on which such Tax Return is required to be filed under applicable Law.
Effective Time shall mean 11:59 p.m., New York City time, on the Distribution Date.
Employee Matters Agreement shall mean the Employee Matters Agreement, dated as of , by and between Parent and CoalCo.
Federal Income Tax shall mean any Tax imposed by Subtitle A of the Code, and any interest, penalties, additions to tax, or additional amounts in respect of the foregoing.
Federal Income Tax Return shall mean any Tax Return of (i) any member of the CoalCo Group (including any consolidated, combined or unitary return), or (ii) any member of the Parent Group (including any consolidated, combined or unitary return), in each case, with respect to Federal Income Taxes, including any Parent Federal Consolidated Income Tax Return and any CoalCo Federal Consolidated Income Tax Return.
Federal Other Tax shall mean any Tax imposed by the federal government of the United States of America other than any Federal Income Taxes, and any interest, penalties, additions to tax, or additional amounts in respect of the foregoing.
Federal Tax shall mean any Federal Income Tax or Federal Other Tax.
4
Federal Tax Return shall mean any Tax Return of (i) any member of the CoalCo Group (including any consolidated, combined or unitary return), or (ii) any member of the Parent Group (including any consolidated, combined or unitary return), in each case, with respect to Federal Taxes.
Fifty-Percent or Greater Interest shall have the meaning ascribed to such term for purposes of Sections 355(d) and (e) of the Code.
Filing Date shall have the meaning set forth in Section 7.05(d) of this Agreement.
Final Determination shall mean the final resolution of liability for any Tax, which resolution may be for a specific issue or adjustment or for a Tax Period, (a) by IRS Form 870 or 870-AD (or any successor forms thereto), on the date of acceptance by or on behalf of the taxpayer, or by a comparable form under the laws of a State, local, or foreign taxing jurisdiction, except that a Form 870 or 870-AD or comparable form shall not constitute a Final Determination to the extent that it reserves (whether by its terms or by operation of law) the right of the taxpayer to file a claim for Refund or the right of the Tax Authority to assert a further deficiency in respect of such issue or adjustment or for such Tax Period (as the case may be); (b) by a decision, judgment, decree, or other order by a court of competent jurisdiction, which has become final and unappealable; (c) by a closing agreement or accepted offer in compromise under Section 7121 or 7122 of the Code, or a comparable agreement under the laws of a State, local, or foreign taxing jurisdiction; (d) by any allowance of a Refund or credit in respect of an overpayment of Income Tax or Other Tax, but only after the expiration of all periods during which such Refund may be recovered (including by way of offset) by the jurisdiction imposing such Income Tax or Other Tax; or (e) by any other final disposition, including by reason of the expiration of the applicable statute of limitations or by mutual agreement of the parties.
Foreign Income Tax shall mean any Tax imposed by any foreign country or any possession of the United States, or by any political subdivision of any foreign country or United States possession, which is an income tax as defined in Treasury Regulations Section 1.901-2, and any interest, penalties, additions to tax, or additional amounts in respect of the foregoing.
Foreign Other Tax shall mean any Tax imposed by any foreign country or any possession of the United States, or by any political subdivision of any foreign country or United States possession, other than any Foreign Income Taxes, and any interest, penalties, additions to tax, or additional amounts in respect of the foregoing.
Foreign Tax shall mean any Foreign Income Taxes or Foreign Other Taxes.
Foreign Tax Return shall mean any Tax Return of (i) any member of the CoalCo Group (including any consolidated, combined or unitary return), or (ii) any member of the Parent Group (including any consolidated, combined or unitary return), in each case, with respect to Foreign Taxes.
Governmental Authority shall have the meaning set forth in the Separation and Distribution Agreement.
5
Group shall mean the Parent Group or the CoalCo Group, or both, as the context requires.
Income Tax shall mean any Federal Income Tax, State Income Tax or Foreign Income Tax.
Indemnitee shall have the meaning set forth in Section 13.03 of this Agreement.
Indemnitor shall have the meaning set forth in Section 13.03 of this Agreement.
IRS shall mean the United States Internal Revenue Service.
Joint Return shall mean any Tax Return of a member of the Parent Group or the CoalCo Group that is not a Separate Return.
Notified Action shall have the meaning set forth in Section 7.04(a) of this Agreement.
Other Tax shall mean any Federal Other Tax, State Other Tax, or Foreign Other Tax.
Parent shall have the meaning set forth in the first sentence of this Agreement.
Parent Adjustment shall mean any proposed adjustment by a Tax Authority or claim for Refund asserted in a Tax Contest to the extent Parent would be exclusively liable for any resulting Tax under this Agreement or exclusively entitled to receive any resulting Tax Benefit under this Agreement.
Parent Affiliated Group shall have the meaning set forth in the definition of Parent Federal Consolidated Income Tax Return.
Parent Asset shall have the meaning set forth in the Separation and Distribution Agreement.
Parent Federal Consolidated Income Tax Return shall mean any Federal Income Tax Return for the affiliated group (as that term is defined in Section 1504 of the Code and the regulations thereunder) of which Parent is the common parent (the Parent Affiliated Group ).
Parent Foreign Combined Income Tax Return shall mean a consolidated, combined or unitary or other similar Foreign Income Tax Return or any Foreign Income Tax Return with respect to any profit and/or loss sharing group, group payment or similar group or fiscal unity that actually includes, by election or otherwise, one or more members of the Parent Group together with one or more members of the CoalCo Group.
Parent Group shall mean Parent and each Person that is an Affiliate of Parent (other than CoalCo and any other member of the CoalCo Group).
Parent Separate Return shall mean any Separate Return of Parent or any member of the Parent Group.
6
Parent State Combined Income Tax Return shall mean a consolidated, combined or unitary or other similar State Income Tax Return that actually includes, by election or otherwise, one or more members of the Parent Group together with one or more members of the CoalCo Group.
Party shall mean any party to this Agreement as the context requires.
Past Practices shall have the meaning set forth in Section 4.02(a) of this Agreement.
Payment Date shall mean (i) with respect to any Parent Federal Consolidated Income Tax Return, the Due Date for any required installment of estimated taxes determined under Section 6655 of the Code, the Due Date (determined without regard to extensions) for filing the return determined under Section 6072 of the Code, and the date the return is filed, and (ii) with respect to any other Tax Return, the corresponding dates determined under the applicable Tax Law.
Payor shall have the meaning set forth in Section 5.04(a) of this Agreement.
Person shall mean any individual, partnership, corporation, limited liability company, association, joint stock company, trust, joint venture, unincorporated organization or a governmental entity or any department, agency or political subdivision thereof, without regard to whether any entity is treated as disregarded for U.S. Federal Income Tax purposes.
Post-Deconsolidation Period shall mean any Tax Period beginning after the Deconsolidation Date, and, in the case of any Straddle Period, the portion of such Straddle Period beginning the day after the Deconsolidation Date.
Post-Distribution Ruling shall have the meaning set forth in Section 7.02(d) of this Agreement.
Pre-Deconsolidation Period shall mean any Tax Period ending on or before the Deconsolidation Date, and, in the case of any Straddle Period, the portion of such Straddle Period ending on the Deconsolidation Date.
Prime Rate shall have the meaning set forth in the Separation and Distribution Agreement.
Privilege shall mean any privilege that may be asserted under applicable law, including, any privilege arising under or relating to the attorney-client relationship (including the attorney-client and work product privileges), the accountant-client privilege and any privilege relating to internal evaluation processes.
Proposed Acquisition Transaction shall mean a transaction or series of transactions (or any agreement, understanding or arrangement, within the meaning of Section 355(e) of the Code and Treasury Regulations Section 1.355-7, or any other regulations promulgated thereunder, to enter into a transaction or series of transactions), whether such transaction is supported by CoalCo management or shareholders, is a hostile acquisition, or otherwise, as a
7
result of which CoalCo would merge or consolidate with any other Person or as a result of which any Person or Persons would (directly or indirectly) acquire, or have the right to acquire, from CoalCo and/or one or more holders of outstanding shares of CoalCo Capital Stock, a number of shares of CoalCo Capital Stock that would, when combined with any other changes in ownership of CoalCo Capital Stock pertinent for purposes of Section 355(e) of the Code, comprise 40% or more of (A) the value of all outstanding shares of stock of CoalCo as of the date of such transaction, or in the case of a series of transactions, the date of the last transaction of such series, or (B) the total combined voting power of all outstanding shares of voting stock of CoalCo as of the date of such transaction, or in the case of a series of transactions, the date of the last transaction of such series. Notwithstanding the foregoing, a Proposed Acquisition Transaction shall not include (A) the adoption by CoalCo of a shareholder rights plan or (B) issuances by CoalCo that satisfy Safe Harbor VIII (relating to acquisitions in connection with a persons performance of services) or Safe Harbor IX (relating to acquisitions by a retirement plan of an employer) of Treasury Regulations Section 1.355-7(d). For purposes of determining whether a transaction constitutes an indirect acquisition, any recapitalization resulting in a shift of voting power or any redemption of shares of stock shall be treated as an indirect acquisition of shares of stock by the non-exchanging shareholders. This definition and the application thereof is intended to monitor compliance with Section 355(e) of the Code and shall be interpreted accordingly. Any clarification of, or change in, the statute or regulations promulgated under Section 355(e) of the Code shall be incorporated into this definition and its interpretation.
Recipient shall mean, with respect to the transfers occurring pursuant to the Transactions, the Party receiving assets and/or liabilities.
Refund shall mean any refund of Taxes, including any refund or reduction in Tax Liabilities by means of a credit or offset.
Representation Letters shall mean the statements of facts and representations, officers certificates, representation letters and any other materials (including, without limitation, a Ruling Request and any related supplemental submissions to the IRS or other Tax Authority) delivered by, or on behalf of, Parent, CoalCo or others to a Tax Advisor or Tax Authority in connection with the issuance by such Tax Advisor and/or the issuance by the IRS or other Tax Authority of the Tax Opinions/Rulings.
Required Party shall have the meaning set forth in Section 5.04(a) of this Agreement.
Responsible Company shall mean, with respect to any Tax Return, the Company having responsibility for preparing and filing such Tax Return under this Agreement.
Restriction Period shall mean the period beginning on the date hereof and ending on the day after the two-year anniversary of the Distribution Date.
Retained PAMC Business shall have the meaning set forth with respect to such term in the Representation Letters supporting the opinion of Parents Tax Advisors issued in connection with the closing of the Distribution.
Retention Date shall have the meaning set forth in Section 9.01 of this Agreement.
8
Ruling Request shall mean any letter filed by Parent with the IRS or other Tax Authority requesting a ruling regarding certain tax consequences of any of the Separation Transactions (including all attachments, exhibits, and other materials submitted with such ruling request letter) and any amendments or supplements to such ruling request letter.
Section 336(e) Election shall have the meaning set forth in Section 7.06 of this Agreement.
Section 7.02(e) Acquisition Transaction shall mean any transaction or series of transactions that is not a Proposed Acquisition Transaction but would be a Proposed Acquisition Transaction if the percentage reflected in the definition of Proposed Acquisition Transaction were 25% instead of 40%.
Separate Return shall mean (a) in the case of any Tax Return of any member of the CoalCo Group (including any consolidated, combined or unitary return), any such Tax Return that does not include any member of the Parent Group and (b) in the case of any Tax Return of any member of the Parent Group (including any consolidated, combined or unitary return), any such Tax Return that does not include any member of the CoalCo Group.
Separate Tax Ticket shall have the meaning set forth in Section 3(c)(i) of this Agreement.
Separation and Distribution Agreement shall have the meaning set forth in the recitals to this Agreement.
Separation Transactions shall mean the Contribution, the Distribution and the other transactions contemplated by the Separation and Distribution Agreement.
State Income Tax shall mean any Tax imposed by any State of the United States (or by any political subdivision of any such State) or the District of Columbia, or any city or municipality located therein, which is imposed on or measured by net income, including state and local franchise or similar Taxes measured by net income, and any interest, penalties, additions to tax, or additional amounts in respect of the foregoing.
State Income Tax Return shall mean any Tax Return with respect to State Income Taxes.
State Other Tax shall mean any Tax imposed by any State of the United States (or by any political subdivision of any such State) or the District of Columbia, or by any city or municipality located therein, other than any State Income Taxes, and any interest, penalties, additions to tax, or additional amounts in respect of the foregoing.
State Tax shall mean any State Income Taxes or State Other Taxes.
State Tax Return shall mean any Tax Return of (i) any member of the CoalCo Group (including any consolidated, combined or unitary return), or (ii) any member of the Parent Group (including any consolidated, combined or unitary return), in each case, with respect to State Taxes.
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Straddle Period shall mean any Tax Period that begins on or before and ends after the Deconsolidation Date.
Subsidiary shall have the meaning set forth in the Separation and Distribution Agreement.
Tax or Taxes shall mean any income, gross income, gross receipts, profits, capital stock, franchise, withholding, property, ad valorem , stamp, excise, severance, occupation, service, sales, use, license, lease, transfer, import, export, value added, alternative minimum, estimated or other tax (including any fee, assessment, or other charge in the nature of or in lieu of any tax) imposed by any governmental entity or political subdivision thereof, and any interest, penalties, additions to tax, or additional amounts in respect of the foregoing.
Tax Advisor shall mean a United States tax counsel or accountant of recognized national standing.
Tax Advisor Dispute shall have the meaning set forth in Section 14 of this Agreement.
Tax Attribute or Attribute shall mean a net operating loss, net capital loss, unused investment credit, unused foreign tax credit, excess charitable contribution, general business credit or any other Tax Item that could reduce a Tax.
Tax Authority shall mean, with respect to any Tax, the governmental entity or political subdivision thereof that imposes such Tax, and the agency (if any) charged with the collection of such Tax for such entity or subdivision.
Tax Benefit shall mean any loss, deduction, Refund, credit, or other item reducing Taxes otherwise payable.
Tax Contest shall mean an audit, review, examination, or any other administrative or judicial proceeding with the purpose or effect of redetermining Taxes (including any administrative or judicial review of any claim for Refund).
Tax-Free Status shall mean the qualification of the Contribution and Distribution, taken together, (a) as a transaction described in Sections 355 and 368(a)(1)(D) of the Code, (b) as a transaction in which the stock distributed thereby is qualified property for purposes of Sections 355(c)(2) and 361(c)(2) of the Code, and (c) as a transaction in which Parent, CoalCo and the members of their respective Groups recognize no income or gain for U.S. Federal Income Tax purposes pursuant to Sections 355, 361 and 1032 of the Code, other than (x) gain recognized pursuant to Section 361(b) with respect to any portion of the Cash Payment that is not transferred to shareholders or creditors of Parent in connection with the Contribution and Distribution or (y) intercompany items or excess loss accounts taken into account pursuant to the Treasury Regulations promulgated pursuant to Section 1502 of the Code.
Tax Item shall mean, with respect to any Income Tax, any item of income, gain, loss, deduction, or credit.
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Tax Law shall mean the law of any governmental entity or political subdivision thereof relating to any Tax.
Tax Opinions/Rulings shall mean each opinion of a Tax Advisor and/or the rulings by the IRS or other Tax Authorities delivered to Parent in connection with and regarding the Federal Income Tax treatment of the Contribution and the Distribution, or otherwise with respect to the Separation Transactions.
Tax Period shall mean, with respect to any Tax, the period for which the Tax is reported as provided under the Code or other applicable Tax Law.
Tax Records shall mean any Tax Returns, Tax Return workpapers, documentation relating to any Tax Contests, and any other books of account or records (whether or not in written, electronic or other tangible or intangible forms and whether or not stored on electronic or any other medium) required to be maintained under the Code or other applicable Tax Laws or under any record retention agreement with any Tax Authority.
Tax-Related Losses shall mean (i) all federal, state, local and foreign Taxes (including interest and penalties thereon) imposed pursuant to any settlement, Final Determination, judgment or otherwise; (ii) all reasonable accounting, legal and other professional fees, and court costs incurred in connection with such Taxes; and (iii) all reasonable costs and expenses and any damages associated with stockholder litigation or controversies and any amount required to be paid by Parent (or any Parent Affiliate) or CoalCo (or any CoalCo Affiliate) in respect of the liability of shareholders, whether paid to shareholders or to the IRS or any other Tax Authority, in each case, resulting from (x) the failure of the Contribution and the Distribution to have Tax-Free Status or (y) the failure of any Separation Transaction to have the tax treatment described in the Tax Opinions/Rulings; provided , that amounts shall be treated as having been required to be paid for purposes of clause (iii) of this definition to the extent they are paid in a good faith compromise of an asserted claim.
Tax Return or Return shall mean any report of Taxes due, any claim for Refund of Taxes paid, any information return with respect to Taxes, or any other similar report, statement, declaration, or document filed or required to be filed under the Code or other Tax Law, including any attachments, exhibits, or other materials submitted with any of the foregoing, and including any amendments or supplements to any of the foregoing. A Tax Return shall not be construed to include a Separate Tax Ticket, a Combined Tax Ticket or any other tax ticket described in Section 3(c) of this Agreement.
Transactions shall mean the Contribution, the Distribution, the Creditor Repayment, and the other transactions contemplated by the Separation and Distribution Agreement.
Transferee Party shall mean (i) CoalCo or the applicable member(s) of the CoalCo Group to which Coal Assets are contributed, assigned, transferred, conveyed or delivered by Parent or applicable members of the Parent Group, pursuant to the Plan of Reorganization set forth in Section 2.1(a) of the Separation and Distribution Agreement, and (ii) Parent or the applicable member(s) of the Parent Group to which Parent Assets are contributed, assigned,
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transferred, conveyed or delivered by CoalCo or applicable members of the CoalCo Group, pursuant to such Plan of Reorganization; in each case, as applicable.
Transferor shall mean, with respect to the transfers occurring pursuant to the Transactions, the Party transferring assets and/or liabilities.
Transferred Assets shall mean (i) the Coal Assets that are contributed, assigned, transferred, conveyed or delivered to CoalCo, or the applicable member(s) of the CoalCo Group, by Parent or applicable members of the Parent Group, pursuant to the Plan of Reorganization set forth in Section 2.1(a) of the Separation and Distribution Agreement, and (ii) the Parent Assets that are contributed, assigned, transferred, conveyed or delivered to Parent, or member(s) of the Parent Group designated by Parent, by CoalCo or the applicable members of the CoalCo Group, pursuant to such Plan of Reorganization; in each case, as applicable. Transferred Asset shall be accordingly construed to mean each of the Transferred Assets, individually. For the absence of doubt, any entity (and the equity interests in any entity) shall not be construed to be a Transferred Asset.
Transferred Entities shall have the meaning in the Separation and Distribution Agreement.
Transferring Party shall mean (i) the Parent or applicable member(s) of the Parent Group that contribute, assign, transfer, convey or deliver one or more Coal Assets to CoalCo or applicable members of the CoalCo Group, pursuant to the Plan of Reorganization set forth in Section 2.1(a) of the Separation and Distribution Agreement, and (ii) CoalCo or applicable member(s) of the CoalCo Group that contribute, assign, transfer, convey or deliver one or more Parent Assets to Parent or the applicable member(s) of the Parent Group, pursuant to such Plan of Reorganization; in each case, as applicable.
Treasury Regulations shall mean the regulations promulgated from time to time under the Code as in effect for the relevant Tax Period.
Unqualified Tax Opinion shall mean an unqualified opinion of a Tax Advisor on which Parent may rely to the effect that a transaction (i) will not affect the Tax-Free Status of the Contribution and the Distribution, and (ii) will not adversely affect any of the conclusions set forth in the Tax Opinions/Rulings; provided, that any tax opinion obtained in connection with a proposed acquisition of CoalCo Capital Stock entered into during the Restriction Period shall not qualify as an Unqualified Tax Opinion unless such tax opinion concludes that such proposed acquisition will not be treated as part of a plan (or series of related transactions), within the meaning of Section 355(e) of the Code and the Treasury Regulations promulgated thereunder, that includes the Distribution. Any such opinion must assume that the Contribution and Distribution would have qualified for Tax-Free Status if the transaction in question did not occur.
Section 2. Allocation of Tax Liabilities.
Section 2.01 General Rule .
(a) Parent Liability . Parent shall be liable for, and shall indemnify and hold harmless the CoalCo Group from and against any liability for, Taxes that are allocated to Parent, or for which Parent is responsible, under this Section 2 .
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(b) CoalCo Liability . CoalCo shall be liable for, and shall indemnify and hold harmless the Parent Group from and against any liability for, Taxes that are allocated to CoalCo, or for which CoalCo is responsible, under this Section 2 .
(c) Costs and Expenses . The amounts for which Parent or CoalCo, as applicable, is liable pursuant to Sections 2.01(a) and (b) , respectively, or for which either Company or a member of its Group is liable pursuant to Section 2.05 , shall include all accounting, legal and other professional fees, and court costs incurred in connection with the relevant Taxes.
(d) Final Determination Taxes . For the avoidance of doubt, any reference to any Taxes due with respect to, attributable to or required to be reported on any Tax Return contained in Section 2.02 , Section 2.03 or Section 2.04 , and any reference to any Taxes in Section 2.05 , shall include, unless specifically excluded, a reference to any such Taxes imposed or payable as a result of a Final Determination.
Section 2.02 Allocation of United States Federal Income Tax and Federal Other Tax . Except as otherwise provided in Section 2.05 , Federal Income Tax and Federal Other Tax shall be allocated as follows:
(a) Allocation of Tax Relating to Parent Federal Consolidated Income Tax Returns . With respect to any Parent Federal Consolidated Income Tax Return, Parent shall be responsible for any and all Federal Income Taxes due with respect to or required to be reported on any such Income Tax Return (including any increase in such Tax as a result of a Final Determination).
(b) Allocation of Tax Relating to Federal Separate Income Tax Returns . (i) Parent shall be responsible for any and all Federal Income Taxes due with respect to or required to be reported on any Parent Separate Return (and any and all Federal Income Tax of Parent or any member of the Parent Group imposed by way of withholding by a member of the CoalCo Group), including any increase in such Tax as a result of a Final Determination; (ii) CoalCo shall be responsible for any and all Federal Income Taxes due with respect to or required to be reported on any CoalCo Separate Return (and any and all Federal Income Tax of CoalCo or any member of the CoalCo Group imposed by way of withholding by a member of the Parent Group), including any increase in such Tax as a result of a Final Determination.
(c) Allocation of Federal Other Tax . Parent shall be responsible for any and all Federal Other Taxes due with respect to or required to be reported on any Parent Separate Return (including any increase in such Tax as a result of a Final Determination) or otherwise imposed on any member of the Parent Group; (ii) CoalCo shall be responsible for any and all Federal Other Taxes due with respect to or required to be reported on any CoalCo Separate Return (including any increase in such Tax as a result of a Final Determination) or otherwise imposed on any member of the CoalCo Group.
Section 2.03 Allocation of State Income and State Other Taxes . Except as otherwise provided in Section 2.05 , State Income Tax and State Other Tax shall be allocated as follows:
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(a) Allocation of Tax Relating to Parent State Combined Income Tax Returns . Parent shall be responsible for any and all State Income Taxes due with respect to or required to be reported on any Parent State Combined Income Tax Return (including any increase in such Tax as a result of a Final Determination).
(b) Allocation of State Income Tax Relating to Separate Returns . (i) Parent shall be responsible for any and all State Income Taxes due with respect to or required to be reported on any Parent Separate Return (and any and all State Income Tax of Parent or any member of the Parent Group imposed by way of withholding by a member of the CoalCo Group), including any increase in such Tax as a result of a Final Determination; (ii) CoalCo shall be responsible for any and all State Income Taxes due with respect to or required to be reported on any CoalCo Separate Return (and any and all State Income Tax of CoalCo or any member of the CoalCo Group imposed by way of withholding by a member of the Parent Group), including any increase in such Tax as a result of a Final Determination.
(c) Allocation of State Other Tax . Parent shall be responsible for any and all State Other Taxes due with respect to or required to be reported on any Parent Separate Return (including any increase in such Tax as a result of a Final Determination) or otherwise imposed on any member of the Parent Group and CoalCo shall be responsible for any and all State Other Taxes due with respect to or required to be reported on any CoalCo Separate Return (including any increase in such Tax as a result of a Final Determination) or otherwise imposed on any member of the CoalCo Group; provided, however , that (i) any sales, use or severance Taxes imposed for any Pre-Deconsolidation Period with respect to any Transferred Assets with respect to which Leatherwood Inc. is the Transferring Party shall be the responsibility of the relevant Transferee Party; (ii) any ad valorem and other property Taxes imposed with respect to a Transferred Asset for a taxable period that includes but does not end on the date of any transfer of such Transferred Asset from the Parent Group to the CoalCo Group (or from the CoalCo Group to the Parent Group, as applicable) in connection with the Separation Transactions (the Asset Transfer Date) shall be allocated between the Parent Group and the CoalCo Group pursuant to Section 3(c) below and (iii) any ad valorem and other property Taxes imposed for any taxable period ending on or prior to the relevant Asset Transfer Date with respect to any well property that is a Transferred Asset with respect to which Leatherwood Inc. is the Transferring Party and that have not been paid on or prior to such Asset Transfer Date shall be the responsibility of the relevant Transferee Party with respect to such well property.
Section 2.04 Allocation of Foreign Taxes . Except as otherwise provided in Section 2.05 , Foreign Income Tax and Foreign Other Tax shall be allocated as follows:
(a) Allocation of Tax Relating to Parent Foreign Combined Income Tax Returns . Parent shall be responsible for any and all Foreign Income Taxes due with respect to or required to be reported on any Parent Foreign Combined Income Tax Return (including any increase in such Tax as a result of a Final Determination).
(b) Allocation of Foreign Income Tax Relating to Separate Returns . (i) Parent shall be responsible for any and all Foreign Income Taxes due with respect to or required to be reported on any Parent Separate Return (and any and all Foreign Income Tax of Parent or any member of the Parent Group imposed by way of withholding by a member of the CoalCo
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Group), including any increase in such Foreign Income Tax as a result of a Final Determination; (ii) CoalCo shall be responsible for any and all Foreign Income Taxes due with respect to or required to be reported on any CoalCo Separate Return (and any and all Foreign Income Tax of CoalCo or any member of the CoalCo Group imposed by way of withholding by a member of the Parent Group), including any increase in such Foreign Income Tax as a result of a Final Determination.
(c) Allocation of Foreign Other Tax . Parent shall be responsible for any and all Foreign Other Taxes due with respect to or required to be reported on any Parent Separate Return (including any increase in such Tax as a result of a Final Determination) or otherwise imposed on any member of the Parent Group; (ii) CoalCo shall be responsible for any and all Foreign Other Taxes due with respect to or required to be reported on any CoalCo Separate Return (including any increase in such Tax as a result of a Final Determination) or otherwise imposed on any member of the CoalCo Group.
Section 2.05 Certain Transaction and Other Taxes .
(a) CoalCo Liability . CoalCo shall be liable for, and shall indemnify and hold harmless the Parent Group from and against any liability for:
(i) any stamp, sales and use, gross receipts, value-added or other transfer Taxes imposed by any Tax Authority on any member of the CoalCo Group (if such member is primarily liable for such Tax) on the transfers occurring pursuant to the Transactions; provided, however, in the case of any applicable state, county, or other local real estate transfer Tax, grantor Tax, or documentary transfer Tax imposed on the transfer of Transferred Assets, the relevant Transferee Party shall be liable for any such Tax notwithstanding which Party may be primarily liable under the applicable Tax Law;
(ii) any Tax resulting from a breach by CoalCo of any representation or covenant in this Agreement, the Separation and Distribution Agreement, any Ancillary Agreement, any Representation Letters or any Tax Opinions/Rulings; and
(iii) any Tax-Related Losses for which CoalCo is responsible pursuant to Section 7.05 of this Agreement.
(b) Parent Liability . Parent shall be liable for, and shall indemnify and hold harmless the CoalCo Group from and against any liability for:
(i) any stamp, sales and use, gross receipts, value-added or other transfer Taxes imposed by any Tax Authority on any member of the Parent Group (if such member is primarily liable for such Tax) on the transfers occurring pursuant to the Transactions; provided, however , in the case of any applicable state, county, or other local real estate transfer Tax, grantor Tax, or documentary transfer Tax imposed on the transfer of Transferred Assets, the relevant Transferee Party shall be liable for any such Tax notwithstanding which Party may be primarily liable under the applicable Tax Law;
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(ii) any Tax resulting from a breach by Parent of any representation or covenant in this Agreement, the Separation and Distribution Agreement, any Ancillary Agreement, any Representation Letters or any Tax Opinions/Rulings; and
(iii) any Tax-Related Losses for which Parent is responsible pursuant to Section 7.05 of this Agreement.
Section 3. Proration of Taxes for Straddle Periods and Certain Other Periods.
(a) General Method of Proration . Except as provided in Section 3(c) below, in the case of any Straddle Period, Tax Items shall be apportioned between Pre-Deconsolidation Periods and Post-Deconsolidation Periods in accordance with the principles of Treasury Regulations Section 1.1502-76(b) as reasonably interpreted and applied by Parent. With respect to the Parent Federal Consolidated Income Tax Return for the taxable year that includes the Distribution, Parent shall determine in its sole discretion whether to make an election under Treasury Regulations Section 1.1502-76(b)(2)(ii). If the Deconsolidation Date is not an Accounting Cutoff Date, the provisions of Treasury Regulations Section 1.1502-76(b)(2)(iii) will be applied to ratably allocate the items (other than extraordinary items) for the month which includes the Deconsolidation Date.
(b) Transactions Treated as Extraordinary Item . In determining the apportionment of Tax Items between Pre-Deconsolidation Periods and Post-Deconsolidation Periods, any Tax Items relating to the Transactions shall be treated as extraordinary items described in Treasury Regulations Section 1.1502-76(b)(2)(ii)(C) and shall (to the extent occurring on or prior to the Deconsolidation Date) be allocated to Pre-Deconsolidation Periods, and any Taxes related to such items shall be treated under Treasury Regulations Section 1.1502-76(b)(2)(iv) as relating to such extraordinary item and shall (to the extent occurring on or prior to the Deconsolidation Date) be allocated to Pre-Deconsolidation Periods.
(c) Ad Valorem and Other Property Taxes . Ad valorem and other property taxes imposed or assessed with respect to a Transferred Asset with respect to the taxable period during which the transfer of such Transferred Asset occurs (the Current Property Taxes ) shall be prorated between the Transferring Party and the Transferee Party with respect to such Transferred Asset based on (x) in the case of a Transferred Asset that, prior to the Asset Transfer Date, (I) was not reflected on a tax bill or (II) formed a part of a Combined Tax Ticket (as defined below) that was subsequently separated into a Transferred Asset and a Parent Asset or a Coal Asset, as applicable, (A) the relative taxable values as of the Asset Transfer Date, of the Transferred Asset, on the one hand, and the Parent Asset or Coal Asset, as applicable, into which such asset was separated as a result of the transfer, on the other hand, and (B) the number of days during such taxable period that such Transferred Asset was owned, respectively, by the Transferring Party and by the Transferee Party, and (y) in the case of a Transferred Asset that, prior to the Asset Transfer Date, had a Separate Tax Ticket (as defined below), the number of days during such taxable period that such Transferred Asset was owned by the Transferring Party and the Transferee Party, respectively. The Transferring Party shall be responsible for the Current Property Taxes to the extent that they are attributable to such Transferred Asset for periods prior to the Asset Transfer Date and the Transferee Party shall be responsible for the
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Current Property Taxes to the extent that they are attributable to such Transferred Asset for periods on and after the Asset Transfer Date.
(i) Itemization. Within ninety (90) days following the Asset Transfer Date, or at least thirty (30) days prior to the date that the relevant Current Property Taxes become due and payable, whichever is earlier, the Transferring Party shall furnish the Transferee Party with a written list setting out, for each Transferred Asset that such Transferring Party contributed, assigned, transferred, conveyed or delivered unto such Transferee Party, the Transferring Partys determination regarding whether there is or is not a separate tax ticket or bill that covers such Transferred Asset (each, a Separate Tax Ticket ), a tax ticket or bill that covers both the Transferred Asset and a real property interest being retained by the Transferring Party (each, a Combined Tax Ticket that will need to be split), or any tax ticket or bill whatsoever that covers the Transferred Asset, and stating for each such Transferred Asset whether the Current Property Taxes have been paid in full as well as, if not paid in full, the amount of such Current Property Taxes that are, at the time, outstanding. The following payment obligations shall apply based upon such determination:
(A) If Separate Tax Ticket Exists . If at the Asset Transfer Date a Separate Tax Ticket exists for the Transferred Asset, the Transferee Party with respect to such Transferred Asset shall timely pay any outstanding, unpaid Current Property Taxes assessed against such Transferred Asset in full, so as to avoid any delinquency, penalty or forfeiture;
(B) If No Tax Ticket Exists . If at the Asset Transfer Date there is no tax ticket or bill that covers the Transferred Asset, the Transferee Party with respect to such Transferred Asset shall (x) cause the Transferred Asset to be entered for assessment of ad valorem or other applicable property taxes, and (y) pay any back ad valorem or other applicable property taxes, fees, penalties or interest relating thereto or necessary in order to preserve the rights of the Transferee Party relative to the Transferred Asset; and
(C) If a Combined Tax Ticket Exists . If at the Asset Transfer Date a Combined Tax Ticket exists with respect to the Transferred Asset, the Transferring Party with respect to such Transferred Asset shall timely pay any outstanding, unpaid Current Property Taxes shown on such Combined Tax Ticket in full, so as to avoid any delinquency, penalty or forfeiture.
(ii) Cooperation . The Transferring Party shall cooperate in good faith with the Transferee Party, including without limitation by furnishing copies of tax tickets, tax account numbers and other relevant tax information requested by the Transferee Party, in order to ensure that the Transferee Party has the information needed to timely pay the Current Property Taxes that the Transferee Party is required to pay pursuant to this Section 3(c) . The Transferring Party and the Transferee Party shall cooperate in good faith with each other (each at its own cost and expense), including without limitation by (1) upon request executing, filing, submitting or delivering to the other Party such Approvals or Notifications, information or applications as are necessary or reasonably required, and (2) participating in and taking such actions as are necessary or reasonably requested, in each case, in order to obtain from any pertinent Tax Authority such Separate Tax Tickets or accounts as are needed for purposes of having any Transferred Asset for which there was no such Separate Tax Ticket at the Asset Transfer Date
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separately assessed in the name of the Transferee Party for the next taxable period beginning after such Asset Transfer Date or in order to have the Transferred Asset entered for assessment.
(iii) Reimbursement . Indemnity payments required for the payment of Current Property Taxes shall be invoiced and paid in accordance with Section 5.04 . The Transferring Party shall reimburse the Transferee Party for (1) the Transferring Partys pro rata share of any Current Property Taxes that the Transferee Party is obligated to timely pay pursuant to Section 3(c)(i)(A) hereof, and (2) all amounts paid to any Tax Authority by the Transferee Party pursuant to Section 3(c)(i)(B)(y) hereof, in each case, that are shown on such invoice. The Transferee Party shall reimburse the Transferring Party for (1) the Transferee Partys pro rata share of any Current Property Taxes that the Transferring Party is obligated to timely pay pursuant to Section 3(c)(i)(C) hereof, and (2) the Transferee Partys share as determined pursuant to this Section 3(c) of any Current Property Taxes that were paid by Transferring Party prior to the Asset Transfer Date but are attributable to periods on and after that date, in each case, that are shown on such invoice.
Section 4. Preparation and Filing of Tax Returns.
Section 4.01 General . Except as otherwise provided in this Section 4 , Tax Returns shall be prepared and filed when due (taking into account extensions) by the Person obligated to file such Tax Returns under the Code or applicable Tax Law. The Companies shall provide, and shall cause their Affiliates to provide, assistance and cooperation to one another in accordance with Section 8 with respect to the preparation and filing of Tax Returns, including by providing information required to be provided pursuant to Section 8 .
Section 4.02 Parents Responsibility . Parent has the exclusive obligation and right to prepare and file, or to cause to be prepared and filed:
(a) Parent Federal Consolidated Income Tax Returns for any Tax Periods ending on, before or after the Deconsolidation Date;
(b) Parent State Combined Income Tax Returns, Parent Foreign Combined Income Tax Returns and any other Joint Returns which Parent reasonably determines are required to be filed (or which Parent chooses to be filed) by the Companies or any of their Affiliates for Tax Periods ending on, before or after the Deconsolidation Date; provided, however , that Parent shall provide advance written notice of such determination to file such Parent State Combined Income Tax Returns, Parent Foreign Combined Income Tax Returns or other Joint Returns to CoalCo if the Tax Returns in such jurisdiction for such type of Tax for the immediately preceding taxable year were not filed on a consolidated, combined, unitary or other joint basis; and
(c) Parent Separate Returns and CoalCo Separate Returns which Parent reasonably determines are required to be filed by the Companies or any of their Affiliates for Tax Periods ending on, before or after the Deconsolidation Date (limited, in the case of CoalCo Separate Returns, to such Returns for which the Due Date is on or before the Deconsolidation Date).
Section 4.03 CoalCos Responsibility . CoalCo shall prepare and file, or shall cause to
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be prepared and filed, all Tax Returns required to be filed by or with respect to members of the CoalCo Group other than those Tax Returns which Parent is required or entitled to prepare and file under Section 4.02 . The Tax Returns required to be prepared and filed by CoalCo under this Section 4.03 shall include (a) any CoalCo Federal Consolidated Income Tax Return for Tax Periods ending after the Deconsolidation Date and (b) CoalCo Separate Returns for which the Due Date is after the Deconsolidation Date.
Section 4.04 Tax Accounting Practices .
(a) General Rule . Except as otherwise provided in Section 4.02(b) , with respect to any Tax Return that CoalCo has the obligation and right to prepare and file, or cause to be prepared and filed, for any Pre-Deconsolidation Period or Straddle Period (or any Tax Period beginning after the Deconsolidation Date to the extent items reported on such Tax Return could reasonably be expected to affect items reported on any Tax Return that Parent has the obligation or right to prepare and file for any Pre-Deconsolidation Period or any Straddle Period), such Tax Return shall be prepared in accordance with past practices, accounting methods, elections or conventions ( Past Practices ) used with respect to the Tax Returns in question except to the extent otherwise required by applicable law. Except as otherwise provided in Section 4.02(b) , Parent shall prepare any Tax Return which it has the obligation and right to prepare and file, or cause to be prepared and filed, under Section 4.02 , in accordance with reasonable Tax accounting practices selected by Parent.
(b) Reporting of Transactions . Except to the extent otherwise required by a change in applicable law or as a result of a Final Determination, (A) neither Parent nor CoalCo shall, and shall not permit or cause any member of its respective Group to, take any position that is inconsistent with either (x) the treatment of the Contribution and Distribution, taken together, as having Tax-Free Status (or analogous status under state or local law) or (y) the tax treatment of any of the Separation Transactions as having the treatment described in the Tax Opinions/Rulings and, (B) CoalCo shall not, and shall not permit or cause any member of the CoalCo Group to, take any position with respect to an item of income, deduction, gain, loss, or credit on a Tax Return, or otherwise treat such item in a manner which is inconsistent with the manner such item is reported on a Tax Return required to be prepared or filed by Parent pursuant to Section 4.02 hereof (including, without limitation, the claiming of a deduction previously claimed on any such Tax Return).
Section 4.05 Consolidated or Combined Tax Returns . CoalCo will elect and join, and will cause its respective Affiliates to elect and join, in filing any Parent State Combined Income Tax Returns, Parent Foreign Combined Income Tax Returns and any other Joint Returns that Parent reasonably determines are required to be filed (or that Parent chooses to file) by the Companies or any of their Affiliates for Tax Periods ending on or before the Deconsolidation Date. With respect to any CoalCo Separate Returns relating to any Tax Period (or portion thereof) ending on or prior to the Distribution Date, CoalCo will elect and join, and will cause its respective Affiliates to elect and join, in filing consolidated, unitary, combined, or other similar Joint Returns, to the extent each entity is eligible to join in such Tax Returns, if Parent reasonably determines that the filing of such Tax Returns is consistent with past reporting practices, or, in the absence of applicable past practices, will result in the minimization of the net present value of the aggregate Tax to the entities eligible to join in such Tax Returns.
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Section 4.06 Right to Review Tax Returns .
(a) General . The Responsible Company with respect to any material Tax Return shall make such Tax Return (or the relevant portions thereof), related workpapers and other supporting documents available for review by the other Company, to the extent (i) such Tax Return relates to Taxes for which such other Company is or would reasonably be expected to be liable, (ii) such other Company is or would reasonably be expected to be liable in whole or in part for any additional Taxes owing as a result of adjustments to the amount of Taxes reported on such Tax Return, (iii) such Tax Return relates to Taxes for which the other Company would reasonably be expected to have a claim for Tax Benefits under this Agreement, or (iv) reasonably necessary for the other Company to confirm compliance with the terms of this Agreement. The Responsible Company shall use reasonable efforts to make such Tax Return, workpapers and other supporting documents available for review as required under this paragraph promptly once such Tax Return is materially complete, but in any event no later than three (3) weeks in advance of the Due Date for filing of such Tax Return, such that the other Party has a meaningful opportunity to review and comment on such Tax Return, and shall use reasonable efforts to have such Tax Return modified before filing, taking into account the person responsible for payment of the Tax (if any) reported on such Tax Return. The Companies shall attempt in good faith to resolve any disagreement arising out of the review of such Tax Return and, failing such resolution, any disagreement shall be resolved in accordance with the disagreement resolution provisions of Section 14 as promptly as practicable.
(b) Execution of Tax Returns Prepared by Other Party . In the case of any Tax Return which is required to be prepared and filed by one Company under this Agreement and which is required by law to be signed by the other Company (or by its authorized representative), the Company which is legally required to sign such Tax Return shall not be required to sign such Tax Return under this Agreement unless there is at least a greater than 50% likelihood of prevailing on the merits for the Tax treatment of each item reported on the Tax Return.
Section 4.07 CoalCo Carryback Items and Claims for Refund . CoalCo hereby agrees that, unless Parent consents in writing (which consent shall not be unreasonably withheld), (i) no Adjustment Request with respect to any Tax Return with respect to which Parent is the Responsible Company (including any Joint Return) or any other Tax Return reflecting Taxes for which Parent is responsible under Section 2 or 3 hereof shall be filed, and (ii) any available elections to waive the right to claim in any Pre-Deconsolidation Period with respect to any Tax Return with respect to which Parent is the Responsible Company (including any Joint Return) or any Tax Return reflecting both Taxes for which Parent is responsible under Section 2 or 3 hereof and Taxes for which CoalCo is responsible under Section 2 or 3 hereof any CoalCo Carryback Item arising in a Post-Deconsolidation Period shall be made by CoalCo and any of its Affiliates, and no affirmative election shall be made by CoalCo or any of its Affiliates to claim any such CoalCo Carryback Item; provided, however, that the parties agree that any such Adjustment Request shall be made with respect to any CoalCo Carryback Item related to U.S. federal or State Income Taxes, upon the reasonable request of CoalCo, if (x) such CoalCo Carryback Item is necessary to prevent the loss of the federal and/or state income Tax Benefit of such CoalCo Carryback Item (including, but not limited to, an Adjustment Request with respect to a CoalCo Carryback Item of a federal or State capital loss arising in a Post-Deconsolidation Period to a Pre-Deconsolidation Period) and (y) such Adjustment Request, based on Parents sole,
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reasonable determination, will cause no Tax detriment to Parent, the Parent Group or any member of the Parent Group. Any Adjustment Request which Parent consents to make under this Section 4.07 shall be prepared and filed by the Responsible Company for the Tax Return to be adjusted; provided , however , that, prior to the filing of any such Adjustment Request, Parent shall have the right to review such Adjustment Request together with any related workpapers and other supporting documentation.
Section 4.08 Apportionment of Earnings and Profits and Tax Attributes .
(a) If the Parent Affiliated Group has a Tax Attribute, the portion, if any, of such Tax Attribute apportioned to CoalCo or the members of the CoalCo Group and treated as a carryover to the first Post-Deconsolidation Period of CoalCo (or such member) shall be determined by Parent in accordance with Treasury Regulations Sections 1.1502-21, 1.1502-21T, 1.1502-22, 1.1502-79 and, if applicable, 1.1502-79A.
(b) No Tax Attribute with respect to consolidated Federal Income Tax of the Parent Affiliated Group, other than those described in Section 4.08(a) , and no Tax Attribute with respect to consolidated, combined or unitary state, local, or foreign Income Tax, in each case, arising in respect of a Joint Return shall be apportioned to CoalCo or any member of the CoalCo Group, except as Parent (or such member of the Parent Group as Parent shall designate) determines is otherwise required under applicable law.
(c) Parent (or its designee) shall determine the portion, if any, of any Tax Attribute which must (absent a Final Determination to the contrary) be apportioned to CoalCo or any member of the CoalCo Group in accordance with this Section 4.08 and applicable law and the amount of tax basis, earnings and profits, and tax pools to be apportioned to CoalCo or any member of the CoalCo Group in accordance with this Section 4.08 and applicable law, and shall provide written supporting documentation of the calculation thereof to CoalCo as soon as reasonably practicable after the information necessary to make such calculation becomes available to Parent. For the avoidance of doubt, Parent shall not be liable to CoalCo or any member of the CoalCo Group for any failure of any determination under this Section 4.08 to be accurate under applicable law.
(d) The written documentation delivered by Parent pursuant to Section 4.08(c) shall be binding on CoalCo and each member of the CoalCo Group and shall not be subject to dispute resolution. Except to the extent otherwise required by applicable law or pursuant to a Final Determination, CoalCo shall not take any position (whether on a Tax Return or otherwise) that is inconsistent with the information contained in such written documentation.
Section 5. Tax Payments.
Section 5.01 Payment of Taxes with Respect to Parent Federal Consolidated Income Tax Returns, Parent State Combined Income Tax Returns and Parent Foreign Combined Income Tax Returns. Parent shall pay (a) to the IRS any Tax due with respect to any Parent Federal Consolidated Income Tax Return (including any Federal Income Tax due from the Parent Affiliated Group that is required to be paid as a result of an adjustment to a Parent Federal Consolidated Income Tax Return) and (b) to the applicable Tax Authority any Tax due with
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respect to any Parent State Combined Income Tax Return or Parent Foreign Combined Income Tax Returns (including any State Income Tax due that is required to be paid as a result of an adjustment to a Parent State Combined Income Tax Return or Foreign Income Tax due that is required to be paid as a result of an adjustment to a Parent Foreign Combined Income Tax Returns).
Section 5.02 Payment of Taxes with Respect to Joint Returns (Other Than a Parent Federal Consolidated Income Tax Return, Parent State Combined Income Tax Return or Parent Foreign Combined Income Tax Return) and Certain Returns of Other Taxes . In the case of (I) any Joint Return (other than a Parent Federal Consolidated Income Tax Return, Parent State Combined Income Tax Return, or Parent Foreign Combined Income Tax Return) and (II) any Tax Return of Other Taxes reflecting Taxes for which both Parent and CoalCo are responsible under Section 2 (other than Tax Returns described in Section 2.03(c)(ii), which shall be governed by Section 3(c)):
(a) Payment of Tax Due. The Responsible Company shall compute the amount of Tax required to be paid to the applicable Tax Authority (taking into account the requirements of Section 4.04 relating to consistent accounting and reporting practices, as applicable) with respect to any Tax Return on the Payment Date for such Tax Return. The Responsible Company shall pay such amount to such Tax Authority on or before such Payment Date. The Responsible Company shall provide notice to the other Company setting forth such other Companys responsibility for the amount of Taxes paid to the Tax Authority and provide proof of payment of such Taxes.
(b) Computation and Payment of Liability With Respect To Tax Due. Within 30 days following the earlier of (i) the Due Date for filing any such Tax Return (excluding any Tax Return with respect to payment of estimated Taxes or Taxes due with a request for extension of time to file) or (ii) the date on which such Tax Return is filed, if Parent is the Responsible Company, then CoalCo shall pay to Parent the amount, if any, allocable to the CoalCo Group under the provisions of this Agreement, and if CoalCo is the Responsible Company, then Parent shall pay to CoalCo the amount, if any, allocable to the Parent Group under the provisions of this Agreement, in each case, plus interest computed at the Prime Rate on the amount of the payment based on the number of days from the earlier of (i) the Due Date of the Tax Return or (ii) the date on which such Tax Return is filed, to the date of payment. For the avoidance of doubt, however, (x) the 30-day period described herein shall not commence unless and until the Responsible Company notifies the other Company pursuant to Section 5.02(a) hereof, and (y) interest shall not accrue during any time period where such notification has not been received, unless such notification is received within the 30-day period described herein, in which case interest shall accrue beginning on the earlier of (i) the Due Date of the Tax Return or (ii) the date on which such Tax Return is filed.
(c) Adjustments Resulting in Underpayments. In the case of any adjustment pursuant to a Final Determination with respect to any such Tax Return, the Responsible Company shall pay to the applicable Tax Authority when due any additional Tax due with respect to such Tax Return required to be paid as a result of such adjustment pursuant to such Final Determination. The Responsible Company shall compute the amount attributable to the CoalCo Group or the Parent Group (as the case may be) in accordance with this Agreement and
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CoalCo shall pay to Parent any amount due Parent (or Parent shall pay CoalCo any amount due CoalCo) under this Agreement within 30 days from the later of (i) the date the additional Tax was paid by the Responsible Company or, in an instance where no cash payment is due to a Tax Authority, the date of such Final Determination, or (ii) the date of receipt of a written notice and demand from the Responsible Company for payment of the amount due, accompanied by evidence of payment and a statement detailing the Taxes paid and describing in reasonable detail the particulars relating thereto. Any payments required under this Section 5.02(c) shall include interest computed at the Prime Rate based on the number of days from the date the additional Tax was paid by the Responsible Company (or, in an instance where no cash payment is due to a Tax Authority, the date of such Final Determination) to the date of the payment under this Section 5.02(c) .
(d) Notwithstanding anything to the contrary herein, if the amount to be paid pursuant to Section 5.02(b) or (c) (in each case, excluding interest) is in excess of $1 million, then, no later than the later of (i) 5 business days after the date of receipt of a written notice and demand from the Responsible Company for payment of the amount due, accompanied by a statement detailing the Taxes required to be paid and (ii) 3 business days prior to the Due Date for the payment of such Tax, CoalCo shall pay to Parent any amount due Parent (or Parent shall pay CoalCo any amount due CoalCo) under Section 2 hereof.
Section 5.03 Payment of Separate Company Taxes. Each Company shall pay, or shall cause to be paid, to the applicable Tax Authority when due all Taxes owed by such Company or a member of such Companys Group with respect to a Separate Return of Income Taxes and with respect to a Separate Return of Other Taxes (provided that Separate Returns of Other Taxes described in clause (II) of Section 5.02 shall be governed by Section 5.02 ).
Section 5.04 Indemnification Payments.
(a) If any Company (the Payor ) is required under applicable Tax Law to pay to a Tax Authority a Tax that another Company (the Required Party ) is liable for under this Agreement, the Required Party shall reimburse the Payor within 90 days of delivery by the Payor to the Required Party of an invoice for the amount due, accompanied by evidence of payment and a statement detailing the Taxes paid and describing in reasonable detail the particulars relating thereto. The reimbursement shall include interest on the Tax payment computed at the Prime Rate based on the number of days from the date of the payment to the Tax Authority to the date of reimbursement under this Section 5.04 . Notwithstanding anything to the contrary herein, if the amount to be paid pursuant to this Section 5.04 excluding interest is in excess of $10 million, then, no later than the later of (i) five business days after delivery by the Payor to the Required Party of an invoice for the amount due, sent by Federal Express or the equivalent with tracking receipt, accompanied by a statement detailing the Taxes required to be paid and describing in reasonable detail the particulars relating thereto, and (ii) three business days prior to the Due Date for the payment of such Tax, the Required Party shall pay the Payor.
(b) All indemnification payments under this Agreement shall be made by Parent directly to CoalCo and by CoalCo directly to Parent; provided, however, that if the Companies mutually agree with respect to any such indemnification payment, any member of the
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Parent Group, on the one hand, may make such indemnification payment to any member of the CoalCo Group, on the other hand, and vice versa.
Section 6. Tax Benefits.
Section 6.01 Tax Benefits.
(a) Except as set forth below, Parent shall be entitled to any Refund (and any interest thereon received from the applicable Tax Authority) of Income Taxes and Other Taxes for which Parent is liable hereunder, CoalCo shall be entitled to any Refund (and any interest thereon received from the applicable Tax Authority) of Income Taxes and Other Taxes for which CoalCo is liable hereunder and a Company receiving a Refund to which another Company is entitled hereunder in whole or in part shall pay over such Refund (or portion thereof) to such other Company within 90 days after such Refund is received (together with interest computed at the Prime Rate based on the number of days from the date the Refund was received to the date the Refund was paid over).
(b) CoalCo shall be entitled to any Refund that is attributable to, and would not have arisen but for, a CoalCo Carryback Item pursuant to the proviso set forth in Section 4.07 ; provided, however , CoalCo shall indemnify and hold the members of the Parent Group harmless from and against any and all collateral Tax consequences resulting from or caused by any such Carryback, including (but not limited to) the loss or postponement of any benefit from the use of Tax Attributes generated by a member of the Parent Group or an Affiliate thereof if (x) such Tax Attributes expire unutilized, but would have been utilized but for such Carryback, or (y) the use of such Tax Attributes is postponed to a later Tax Period than the Tax Period in which such Tax Attributes would have been utilized but for such Carryback. Any such payment of such Refund made by Parent to CoalCo pursuant to this Section 6.01(b) shall be recalculated in light of any Final Determination (or any other facts that may arise or come to light after such payment is made, such as a carryback of a Parent Group Tax Attribute to a Tax Period in respect of which such Refund is received) that would affect the amount to which CoalCo is entitled, and an appropriate adjusting payment shall be made by CoalCo to Parent such that the aggregate amount paid pursuant to this Section 6.01(b) equals such recalculated amount (with interest computed at the Prime Rate).
Section 6.02 Parent and CoalCo Income Tax Deductions in Respect of Certain Equity Awards and Incentive Compensation. The allocation of Tax deductions and obligations related to Tax reporting and withholding, in each case, with respect to options to purchase Parent or CoalCo stock or settlement of restricted stock awards, restricted stock units or performance stock unit awards, in each case, following the Distribution, with respect to Parent stock or SpinCo stock shall be governed by the Employee Matters Agreement.
Section 7. Tax-Free Status.
Section 7.01 Representations.
(a) Each of Parent and CoalCo hereby represents and warrants that (A) it has reviewed the Ruling Request, the Representation Letters, and the Tax Opinions/Rulings, and (B) subject to any qualifications therein, all information, representations and covenants contained
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in such Representation Letters that relate to such Company or any member of its Group are true, correct and complete.
(b) Each of Parent and CoalCo hereby represents and warrants that it has no plan or intention of taking any action, or failing to take any action (or causing or permitting any member of its Group to take or fail to take any action), in each case, from and after the Distribution Date that could reasonably be expected to cause any representation or factual statement made in this Agreement, the Separation and Distribution Agreement, the Ruling Request, the Representation Letters or any of the other Ancillary Agreements to be untrue.
(c) CoalCo hereby represents and warrants that, during the two-year period ending on the Distribution Date, there was no agreement, understanding, arrangement, substantial negotiations or discussions (as such terms are used or defined in Treasury Regulations Section 1.355-7(h)) by any one or more officers or directors of any member of the CoalCo Group or by any other person or persons with the implicit or explicit permission of one or more of such officers or directors regarding an acquisition of all or a significant portion of the CoalCo Capital Stock (or any predecessor); provided , however , that no representation is made regarding any such agreement, understanding, arrangement, substantial negotiations or discussions (as such terms are used or defined in Treasury Regulations Section 1.355-7(h)) by any one or more officers or directors of Parent.
Section 7.02 Restrictions on CoalCo.
(a) CoalCo agrees that it will not take or fail to take, or cause or permit any member of the CoalCo Group to take or fail to take, any action where such action or failure to act would be inconsistent with or cause to be untrue any material information, covenant or representation in this Agreement, the Separation and Distribution Agreement, any of the other Ancillary Agreements, the Ruling Request, any Representation Letter, or the Tax Opinions/Rulings. CoalCo agrees that it will not take or fail to take, or permit any member of the CoalCo Group to take or fail to take, any action which prevents or could reasonably be expected to prevent (i) Tax-Free Status or (ii) any Separation Transaction from having the tax treatment described in the Tax Opinions/Rulings.
(b) Reserved.
(c) CoalCo agrees that, from the date hereof until the first day after the Restriction Period, it will (i) maintain its status as a company engaged in the CoalCo Active Trade or Business for purposes of Section 355(b)(2) of the Code and (ii) not engage in any transaction that would result in it ceasing to be a company engaged in the CoalCo Active Trade or Business for purposes of Section 355(b)(2) of the Code.
(d) CoalCo agrees that, from the date hereof until the first day after the Restriction Period, it will not (i) enter into any Proposed Acquisition Transaction or, to the extent CoalCo has the right to prohibit any Proposed Acquisition Transaction, permit any Proposed Acquisition Transaction to occur (whether by (a) redeeming rights under a shareholder rights plan, (b) finding a tender offer to be a permitted offer under any such plan or otherwise causing any such plan to be inapplicable or neutralized with respect to any Proposed Acquisition
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Transaction, or (c) approving any Proposed Acquisition Transaction, whether for purposes of Section 203 of the DGCL or any similar corporate statute, any fair price or other provision of CoalCos charter or bylaws or otherwise), (ii) merge or consolidate with any other Person or liquidate or partially liquidate, (iii) in a single transaction or series of transactions (A) sell or transfer (other than sales or transfers of inventory in the ordinary course of business) all or substantially all of the assets that were transferred to CoalCo pursuant to the Contribution, (B) sell or transfer, or cause or permit to be sold or transferred, 30% or more of the gross assets of the CoalCo Active Trade or Business, (C) sell or transfer 30% or more of the gross assets of the Retained PAMC Business, or (D) sell or transfer 30% or more of the consolidated gross assets of CoalCo and its Affiliates (in each case, such percentages to be measured based on fair market value as of the Distribution Date), (iv) redeem or otherwise repurchase (directly or through a CoalCo Affiliate) any CoalCo stock, or rights to acquire stock, except to the extent such repurchases satisfy Section 4.05(1)(b) of Revenue Procedure 96-30 (as in effect prior to the amendment by Revenue Procedure 2003-48), (v) amend its certificate of incorporation (or other organizational documents), or take any other action, whether through a stockholder vote or otherwise, affecting the voting rights of CoalCo Capital Stock (including, without limitation, through the conversion of one class of CoalCo Capital Stock into another class of CoalCo Capital Stock), or (vi) take any other action or actions (including any action or transaction that would be reasonably likely to be inconsistent with any representation or covenant made in the Ruling Request, the Representation Letters, or the Tax Opinions/Rulings) which in the aggregate (and taking into account any other transactions described in this subparagraph (d)) would be reasonably likely to have the effect of causing or permitting one or more persons to acquire, directly or indirectly, stock representing a Fifty-Percent or Greater Interest in CoalCo or otherwise jeopardize the Tax-Free Status of the Contribution or the Distribution unless, in each case, prior to taking any such action set forth in the foregoing clauses (i) through (vi), (A) CoalCo shall have requested that Parent obtain a private letter ruling (or, if applicable, a supplemental private letter ruling) from the IRS and/or any other applicable Tax Authority (a Post-Distribution Ruling ) in accordance with Section 7.04(b) and (d) of this Agreement to the effect that such transaction will not affect the Tax-Free Status and Parent shall have received such a Post-Distribution Ruling in form and substance satisfactory to Parent in its sole and absolute discretion (and in determining whether a Post-Distribution Ruling is satisfactory, Parent may consider, among other factors, the appropriateness of any underlying assumptions and managements representations made in connection with such Post-Distribution Ruling), or (B) CoalCo shall provide Parent with an Unqualified Tax Opinion in form and substance satisfactory to Parent in its sole and absolute discretion (and in determining whether an opinion is satisfactory, Parent may consider, among other factors, the appropriateness of any underlying assumptions and managements representations if used as a basis for the opinion and Parent may determine that no opinion would be acceptable to Parent) or (C) Parent shall have waived the requirement to obtain such Post-Distribution Ruling or Unqualified Tax Opinion.
(e) Certain Issuances of CoalCo Capital Stock . If CoalCo proposes to enter into any Section 7.02(e) Acquisition Transaction or, to the extent CoalCo has the right to prohibit any Section 7.02(e) Acquisition Transaction, proposes to permit any Section 7.02(e) Acquisition Transaction to occur, in each case, during the period from the date hereof until the first day after the Restriction Period, CoalCo shall provide Parent, no later than ten days following the signing of any written agreement with respect to the Section 7.02(e) Acquisition Transaction, with a written description of such transaction (including the type and amount of CoalCo Capital Stock
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to be issued in such transaction) and a certificate of the Chief Financial Officer of CoalCo to the effect that the Section 7.02(e) Acquisition Transaction is not a Proposed Acquisition Transaction or any other transaction to which the requirements of Section 7.02(d) apply (a CFO Certificate ).
Section 7.03 Restrictions on Parent . Parent agrees that it will not take or fail to take, or cause or permit any member of the Parent Group to take or fail to take, any action where such action or failure to act would be inconsistent with or cause to be untrue any material information, covenant or representation in this Agreement, the Separation and Distribution Agreement, any of the other Ancillary Agreements, the Ruling Request, any Representation Letters, or the Tax Opinions/Rulings. Parent agrees that it will not take or fail to take, or cause or permit any member of the Parent Group to take or fail to take, any action which prevents or could reasonably be expected to prevent (i) Tax-Free Status or (ii) any Separation Transaction from having the tax treatment described in the Tax Opinions/Rulings.
Section 7.04 Procedures Regarding Opinions and Post-Distribution Rulings .
(a) If CoalCo notifies Parent that it desires to take one of the actions described in clauses (i) through (vi) of Section 7.02(d) (a Notified Action ), Parent and CoalCo shall reasonably cooperate to attempt to obtain the Post-Distribution Ruling or Unqualified Tax Opinion referred to in Section 7.02(d) , unless Parent shall have waived the requirement to obtain such Post-Distribution Ruling or Unqualified Tax Opinion.
(b) Post-Distribution Rulings or Unqualified Tax Opinions at CoalCos Request . At the reasonable request of CoalCo pursuant to Section 7.02(d) , Parent shall cooperate with CoalCo and use its reasonable best efforts to seek to obtain, as expeditiously as possible, a Post-Distribution Ruling from the IRS (and/or any other applicable Tax Authority, or if applicable, a supplemental private letter ruling) or cooperate with CoalCo to enable CoalCo to obtain an Unqualified Tax Opinion for the purpose of permitting CoalCo to take the Notified Action. Further, in no event shall Parent be required to file any request for a Post-Distribution Ruling under this Section 7.04(b) unless CoalCo represents that (A) it has reviewed the request for such Post-Distribution Ruling, and (B) all information and representations, if any, relating to any member of the CoalCo Group, contained in the related Post-Distribution Ruling documents are (subject to any qualifications therein) true, correct and complete. CoalCo shall reimburse Parent for all reasonable costs and expenses incurred by the Parent Group in obtaining a Post-Distribution Ruling or Unqualified Tax Opinion requested by CoalCo within ten business days after receiving an invoice from Parent therefor.
(c) Post-Distribution Rulings or Unqualified Tax Opinions at Parents Request . Parent shall have the right to obtain a Post-Distribution Ruling (or, if applicable, a supplemental private letter ruling) from the IRS and/or any other applicable Tax Authority or an Unqualified Tax Opinion at any time in its sole and absolute discretion. If Parent determines to obtain a Post-Distribution Ruling or an Unqualified Tax Opinion, CoalCo shall (and shall cause each Affiliate of CoalCo to) cooperate with Parent and take any and all actions reasonably requested by Parent in connection with obtaining the Post-Distribution Ruling or Unqualified Tax Opinion (including, without limitation, by making any representation or covenant or providing any materials or information requested by the IRS, or other applicable Tax Authority,
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or Tax Advisor; provided that CoalCo shall not be required to make (or cause any Affiliate of CoalCo to make) any representation or covenant that is inconsistent with historical facts or as to future matters or events over which it has no control). Parent shall reimburse CoalCo for all reasonable costs and expenses incurred by the CoalCo Group in obtaining a Post-Distribution Ruling or Unqualified Tax Opinion requested by Parent within ten business days after receiving an invoice from CoalCo therefor.
(d) CoalCo hereby agrees that Parent shall have sole and exclusive control over the process of obtaining any Post-Distribution Ruling pursuant to Section 7.04(b) or (c) , and that only Parent shall apply for such a Post-Distribution Ruling. In connection with obtaining a Post-Distribution Ruling pursuant to Section 7.04(b) , (A) Parent shall keep CoalCo informed in a timely manner of all material actions taken or proposed to be taken by Parent in connection therewith; (B) Parent shall (1) reasonably in advance of the submission of any related Post-Distribution Ruling documents provide CoalCo with a draft copy thereof, (2) reasonably consider CoalCos comments on such draft copy, and (3) provide CoalCo with a final copy; and (C) Parent shall provide CoalCo with notice reasonably in advance of, and CoalCo shall have the right to attend, any formally scheduled meetings with the IRS or other applicable Tax Authority (subject to the approval of the IRS or other applicable Tax Authority) that relate to such Post-Distribution Ruling. Neither CoalCo nor any CoalCo Affiliate directly or indirectly controlled by CoalCo shall seek any guidance from the IRS or any other Tax Authority (whether written, verbal or otherwise) at any time concerning the Contribution or the Distribution (including the impact of any transaction on the Contribution or Distribution, as applicable).
Section 7.05 Liability for Tax-Related Losses .
(a) Notwithstanding anything in this Agreement or the Separation and Distribution Agreement to the contrary, subject to Section 7.05(c) , CoalCo shall be responsible for, and shall indemnify and hold harmless Parent and its Affiliates and each of their respective officers, directors and employees from and against, one hundred percent (100%) of any Tax-Related Losses that are attributable to or result from any one or more of the following: (A) the acquisition (other than pursuant to the Contribution or the Distribution) of all or a portion of CoalCos Capital Stock and/or its or its subsidiaries assets by any means whatsoever by any Person, (B) any agreement, understanding, arrangement, substantial negotiations or discussions (as such terms are used or defined in Treasury Regulations Section 1.355-7(h)) by any one or more officers or directors of any member of the CoalCo Group or by any other person or persons with the implicit or explicit permission of one or more of such officers or directors regarding transactions or events that cause the Distribution to be treated as part of a plan pursuant to which one or more Persons acquire, directly or indirectly, stock of CoalCo representing a Fifty-Percent or Greater Interest therein, (C) any action or failure to act by CoalCo after the Distribution (including, without limitation, any amendment to CoalCos certificate of incorporation (or other organizational documents), whether through a stockholder vote or otherwise) affecting the voting rights of CoalCo stock (including, without limitation, through the conversion of one class of CoalCo Capital Stock into another class of CoalCo Capital Stock), (D) any act or failure to act by CoalCo or any CoalCo Affiliate described in Section 7.02 (regardless whether such act or failure to act is covered by a Post-Distribution Ruling, Unqualified Tax Opinion or waiver described in clause (A) , (B) or (C) of Section 7.02(d) or a
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CFO Certificate described in Section 7.02(e) ) or (E) any breach by CoalCo of its agreements and representations set forth in Section 7.01 .
(b) Notwithstanding anything in this Agreement or the Separation and Distribution Agreement to the contrary, subject to Section 7.05(c) , Parent shall be responsible for, and shall indemnify and hold harmless CoalCo and its Affiliates and each of their respective officers, directors and employees from and against, one hundred percent (100%) of any Tax-Related Losses that are attributable to, or result from any one or more of the following: (A) the acquisition (other than pursuant to the Contribution or the Distribution) of all or a portion of Parents stock and/or its or its subsidiaries assets by any means whatsoever by any Person, (B) any agreement, understanding, arrangement, substantial negotiations or discussions (as such terms are defined in Treasury Regulations Section 1.355-7(h)) by any one or more officers or directors of any member of the Parent Group or by any other person or persons with the implicit or explicit permission of one or more of such officers or directors regarding transactions or events that cause the Distribution to be treated as part of a plan pursuant to which one or more Persons acquire, directly or indirectly, stock of Parent representing a Fifty-Percent or Greater Interest therein, (C) any act or failure to act by Parent or a member of the Parent Group described in Section 7.03 or (D) any breach by Parent of its agreements and representations set forth in Section 7.01(a) .
(c) Miscellaneous .
(i) To the extent that any Tax-Related Loss is subject to indemnity under both Sections 7.05(a) and (b) , responsibility for such Tax-Related Loss shall be shared by Parent and CoalCo according to relative fault.
(ii) Notwithstanding anything in Section 7.05(b) or (c)(i) or any other provision of this Agreement or the Separation and Distribution Agreement to the contrary:
(A) with respect to (I) any Tax-Related Loss resulting from the application of Section 355(e) or Section 355(f) of the Code (other than as a result of an acquisition of a Fifty-Percent or Greater Interest in Parent) and (II) any other Tax-Related Loss resulting, in whole or in part, from an acquisition after the Distribution of any stock or assets of CoalCo (or any CoalCo Affiliate) by any means whatsoever by any Person or any action or failure to act by CoalCo affecting the voting rights of CoalCo (or the application of Section 355(h) by reason of any action or fact relating to CoalCo), CoalCo shall be responsible for, and shall indemnify and hold harmless Parent and its Affiliates and each of their respective officers, directors and employees from and against, one hundred percent (100%) of such Tax-Related Loss;
(B) for purposes of calculating the amount and timing of any Tax-Related Loss for which CoalCo is responsible under this Section 7.05 , Tax-Related Losses shall be calculated by assuming that Parent, the Parent Affiliated Group and each member of the Parent Group (I) pay Tax at the highest marginal corporate Tax rates in effect in each relevant taxable year and (II) have no Tax Attributes in any relevant taxable year; and
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(C) for purposes of calculating the amount and timing of any Tax-Related Loss for which Parent is responsible under this Section 7.05 , Tax-Related Losses shall be calculated by assuming that CoalCo, the CoalCo Group and each member of the CoalCo Group (I) pay Tax at the highest marginal corporate Tax rates in effect in each relevant taxable year and (II) have no Tax Attributes in any relevant taxable year.
(d) CoalCo shall pay Parent the amount of any Tax-Related Losses for which CoalCo is responsible under this Section 7.05 : (A) in the case of Tax-Related Losses described in clause (i) of the definition of Tax-Related Losses no later than two business days prior to the date Parent files, or causes to be filed, the applicable Tax Return for the year of the Contribution or Distribution, as applicable (the Filing Date ) ( provided that if such Tax-Related Losses arise pursuant to a Final Determination described in clause (a), (b) or (c) of the definition of Final Determination, then CoalCo shall pay Parent no later than two business days prior to the Due Date for making payment with respect to such Final Determination) and (B) in the case of Tax-Related Losses described in clause (ii) or (iii) of the definition of Tax-Related Losses, no later than two business days after the date Parent pays such Tax-Related Losses. Parent shall pay CoalCo the amount of any Tax-Related Losses (described in clause (ii) or (iii) of the definition of Tax-Related Loss) for which Parent is responsible under this Section 7.05 no later than two business days after the date CoalCo pays such Tax-Related Losses. Each Party shall have the right to review the calculation of any Tax-Related Losses prepared by the other Party, including any related workpapers and other supporting documentation.
Section 7.06 Section 336(e) Election . If Parent determines, in its sole discretion, that a protective election under Section 336(e) of the Code (a Section 336(e) Election ) shall be made with respect to the Distribution, CoalCo shall (and shall cause the relevant member of the CoalCo Group to) join with Parent or the relevant member of the Parent Group in the making of such election and shall take any action reasonably requested by Parent or that is otherwise necessary to give effect to such election (including making any other related election). If a Section 336(e) Election is made with respect to the Distribution, then this Agreement shall be amended in such a manner as is determined by Parent in good faith to take into account such Section 336(e) Election (including by requiring that, in the event the Contribution and Distribution fail to have Tax-Free Status and Parent is not entitled to indemnification for the Tax-Related Losses arising from such failure, CoalCo shall pay over to Parent any Tax Benefits actually realized in cash by the CoalCo Group or any member of the CoalCo Group arising from the step-up in Tax basis resulting from the Section 336(e) Election); provided , such amounts payable shall be reduced by all reasonable costs incurred by CoalCo to amend any Tax Returns or other governmental filings related to such Section 336(e) Election.
Section 8. Assistance and Cooperation.
Section 8.01 Assistance and Cooperation .
(a) Each of the Companies shall provide (and cause its Affiliates to provide) the other and its agents, including accounting firms and legal counsel, with such cooperation or information as such other Company reasonably requests in connection with Tax matters relating to the Companies and their Affiliates, including (i) preparation and filing of Tax Returns, (ii) determining the liability for and amount of any Taxes due (including estimated Taxes) or the
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right to and amount of any Refund of Taxes, (iii) examinations of Tax Returns, and (iv) any administrative or judicial proceeding in respect of Taxes assessed or proposed to be assessed. Such cooperation shall include making available, upon reasonable notice, all information and documents in their possession relating to the other Company and its Affiliates as provided in Section 9 . Each of the Companies shall also make available to the other, as reasonably requested and available, personnel (including officers, directors, employees and agents of the Companies or their respective Affiliates) responsible for preparing, maintaining, and interpreting information and documents relevant to Taxes, and personnel reasonably required as witnesses for purposes of providing information or documents in connection with any administrative or judicial proceedings relating to Taxes.
(b) Any information or documents provided under this Section 8 or Section 9 shall be kept confidential by the Company receiving the information or documents, except as may otherwise be necessary in connection with the filing of Tax Returns or in connection with any administrative or judicial proceedings relating to Taxes. Notwithstanding any other provision of this Agreement or any other agreement, (i) neither Parent nor any Parent Affiliate shall be required to provide CoalCo or any CoalCo Affiliate or any other Person access to or copies of any information (including the proceedings of any Tax Contest) other than information that relates solely to CoalCo, the business or assets of CoalCo, or any CoalCo Affiliate and (ii) in no event shall either of the Companies or any of its respective Affiliates be required to provide the other Company or any of its respective Affiliates or any other Person access to or copies of any information if such action could reasonably be expected to result in the waiver of any Privilege. In addition, in the event that either Company determines that the provision of any information to the other Company or its Affiliates could be commercially detrimental, violate any law or agreement or waive any Privilege, the parties shall use reasonable best efforts to permit compliance with its obligations under this Section 8 or Section 9 in a manner that avoids any such harm or consequence.
Section 8.02 Income Tax Return Information . CoalCo and Parent acknowledge that time is of the essence in relation to any request for information, assistance or cooperation made by Parent or CoalCo pursuant to Section 8.01 or this Section 8.02 . CoalCo and Parent acknowledge that failure to conform to the deadlines set forth herein or reasonable deadlines otherwise set by Parent or CoalCo could cause irreparable harm. Each Company shall provide to the other Company information and documents relating to its Group required by the other Company to prepare Tax Returns. Any information or documents the Responsible Company requires to prepare such Tax Returns shall be provided in such form as the Responsible Company reasonably requests and in sufficient time for the Responsible Company to file such Tax Returns on a timely basis.
Section 8.03 Reliance by Parent . If any member of the CoalCo Group supplies information to a member of the Parent Group in connection with a Tax liability and an officer of a member of the Parent Group signs a statement or other document under penalties of perjury in reliance upon the accuracy of such information, then upon the written request of such member of the Parent Group identifying the information being so relied upon, the chief financial officer of CoalCo (or any officer of CoalCo as designated by the chief financial officer of CoalCo) shall certify in writing that to his or her knowledge (based upon consultation with appropriate employees) the information so supplied is accurate and complete. CoalCo agrees to indemnify
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and hold harmless each member of the Parent Group and its directors, officers and employees from and against any fine, penalty, or other cost or expense of any kind attributable to a member of the CoalCo Group having supplied, pursuant to this Section 8 , a member of the Parent Group with inaccurate or incomplete information in connection with a Tax liability.
Section 8.04 Reliance by CoalCo . If any member of the Parent Group supplies information to a member of the CoalCo Group in connection with a Tax liability and an officer of a member of the CoalCo Group signs a statement or other document under penalties of perjury in reliance upon the accuracy of such information, then upon the written request of such member of the CoalCo Group identifying the information being so relied upon, the chief financial officer of Parent (or any officer of Parent as designated by the chief financial officer of Parent) shall certify in writing that to his or her knowledge (based upon consultation with appropriate employees) the information so supplied is accurate and complete. Parent agrees to indemnify and hold harmless each member of the CoalCo Group and its directors, officers and employees from and against any fine, penalty, or other cost or expense of any kind attributable to a member of the Parent Group having supplied, pursuant to this Section 8 , a member of the CoalCo Group with inaccurate or incomplete information in connection with a Tax liability.
Section 9. Tax Records.
Section 9.01 Retention of Tax Records . Each Company shall preserve and keep all Tax Records (including emails and other digitally stored materials) exclusively relating to the assets and activities of its Group for Pre-Deconsolidation Periods, and Parent shall preserve and keep all other Tax Records relating to Taxes of the Groups for Pre-Deconsolidation Periods, for so long as the contents thereof may become material in the administration of any matter under the Code or other applicable Tax Law, but in any event until the later of (i) the expiration of any applicable statutes of limitations, or (ii) seven years after the Deconsolidation Date (such later date, the Retention Date ). After the Retention Date, each Company may dispose of such Tax Records upon 90 days prior written notice to the other Company. If, prior to the Retention Date, a Company reasonably determines that any Tax Records which it would otherwise be required to preserve and keep under this Section 9 are no longer material in the administration of any matter under the Code or other applicable Tax Law and the other Company agrees, then such first Company may dispose of such Tax Records upon 90 days prior notice to the other Company. Any notice of an intent to dispose given pursuant to this Section 9.01 shall include a list of the Tax Records to be disposed of describing in reasonable detail the files, books, or other records being disposed. The notified Company shall have the opportunity, at its cost and expense, to copy or remove, within such 90-day period, all or any part of such Tax Records, and the other Company will then dispose of the same Tax Records. If, at any time prior to the Retention Date, a Company determines to decommission or otherwise discontinue any computer program or information technology system used to access or store any Tax Records, then such Company may decommission or discontinue such program or system upon 90 days prior notice to the other Company, and the other Company shall have the opportunity, at its cost and expense, to copy, within such 90-day period, all or any part of the underlying data relating to the Tax Records accessed by or stored on such program or system.
Section 9.02 Access to Tax Records . The Companies and their respective Affiliates shall make available to each other for inspection and copying during normal business hours upon
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reasonable notice all Tax Records (and, for the avoidance of doubt, any pertinent underlying data accessed or stored on any computer program or information technology system) in their possession and shall permit the other Company and its Affiliates, authorized agents and representatives and any representative of a Tax Authority or other Tax auditor direct access during normal business hours upon reasonable notice to any computer program or information technology system used to access or store any Tax Records, in each case, to the extent reasonably required by the other Company in connection with the preparation of Tax Returns or financial accounting statements, audits, litigation, or the resolution of items under this Agreement. To the extent any Tax Records are required to be or are otherwise transferred by the Companies or their respective Affiliates to any Person other than an Affiliate, the Company or its respective Affiliates shall transfer such records to the other Company at such time.
Section 9.03 Preservation of Privilege . The parties hereto agree to (and to cause the applicable members of their respective Groups to) cooperate and use commercially reasonable efforts to maintain Privilege with respect to any documentation relating to Taxes existing prior to the Distribution Date or Tax-Related Losses to which Privilege may reasonably be asserted (any such documentation, Privileged Documentation ), including by executing joint defense and/or common interest agreements where necessary or useful for this purpose. No member of the CoalCo Group shall provide access to or copies of, or otherwise disclose to any Person, any Privileged Documentation without the prior written consent of Parent, such consent not to be unreasonably withheld, conditioned or delayed. No member of the Parent Group shall provide access to or copies of or otherwise disclose to any Person any Privileged Documentation without the prior written consent of CoalCo, such consent not to be unreasonably withheld, conditioned or delayed. Notwithstanding any of the foregoing, in the event that (x) any Governmental Authority requests, outside of normal working hours, that either Company (or any of its Affiliates) provide to such Governmental Authority access to or copies of or otherwise disclose any Privileged Documentation, (y) immediate compliance with such request is required under applicable Law, and (z) such Company attempts in good faith to obtain the prior written consent of the other Company but is not able to do so, then such Company shall be permitted to comply with such request by such Governmental Authority without obtaining the prior written consent of the other Company and shall as promptly as practicable inform the other Company of such request and the access and/or disclosure provided pursuant thereto.
Section 10. Tax Contests.
Section 10.01 Notice . Each of the Companies shall provide prompt notice, within five business days, by Federal Express or the equivalent with tracking receipt, to the other Company of any written communication from a Tax Authority regarding any pending or threatened Tax audit, assessment or proceeding or other Tax Contest of which it becomes aware related to Taxes for which it may be entitled to indemnification by the other Company hereunder. Such notice shall include copies of the pertinent portion of any written communication from a Tax Authority and contain factual information (to the extent known) describing any asserted Tax liability in reasonable detail and shall be accompanied by copies of any notice and other documents received from any Tax Authority in respect of any such matters. The failure of one Company to notify the other of such communication in accordance with the immediately preceding sentences shall not relieve such other Company of any liability or obligation to pay such Tax or make indemnification payments under this Agreement, except to the extent that the failure timely to
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provide such notification actually prejudices the ability of such other Company to contest such Tax liability or increases the amount of such Tax liability.
Section 10.02 Control of Tax Contests.
(a) Separate Company Tax Returns .
(i) Pre-Deconsolidation Date and Straddle Period Separate Returns . In the case of any Tax Contest with respect to any Separate Return (including any Separate Return with respect to Other Taxes) for any Tax Period ending on or prior to the Distribution Date or any Straddle Period, Parent (in the case of any such Separate Return filed with respect to any Person that, following the Distribution, is a member of the Parent Group) or CoalCo (in the case of any such Separate Return filed with respect to any Person that, following the Distribution, is a member of the CoalCo group), as applicable, shall have exclusive control over the Tax Contest, including exclusive authority with respect to any settlement of such Tax liability, subject to Sections 10.02(d) , 10.02(e) , and 10.02(f) below. Notwithstanding the foregoing, however, in the case of any Tax Contest with respect to any Separate Return described in the proviso in Section 2.03(c) , if as a result of such Tax Contest, the Party who is not responsible for filing such Separate Return pursuant to Section 4.02(c) or Section 4.03 , as applicable, could reasonably be expected to become liable for an amount of Tax pursuant to Section 2.03(c) or Section 3(c) , then the Party expected to bear the greater Tax liability as a result of the Tax Contest shall have exclusive control over the Tax Contest, including exclusive authority with respect to any settlement of such Tax liability, subject to Sections 10.02(d) and 10.02(e) below.
(ii) Post-Deconsolidation Date Separate Returns . In the case of any Tax Contest with respect to any Separate Return (including any Separate Return with respect to Other Taxes) for any Tax Period beginning after the Distribution Date, the Responsible Company shall have exclusive control over the Tax Contest, including exclusive authority with respect to any settlement of such Tax liability, subject to Section 10.02(e) below.
(b) Parent Federal Consolidated Income Tax Returns. In the case of any Tax Contest with respect to any Parent Federal Consolidated Income Tax Return, Parent shall have exclusive control over the Tax Contest, including exclusive authority with respect to any settlement of such Tax liability, subject to Sections 10.02(d) and 10.02(f)(i) below.
(c) Parent State Combined Income Tax Returns, Parent Foreign Combined Income Tax Returns, and Other Joint Returns. In the case of any Tax Contest with respect to any Parent State Combined Income Tax Return, any Parent Foreign Combined Income Tax Return or any Joint Return with respect to Other Taxes, Parent shall have exclusive control over the Tax Contest, including exclusive authority with respect to any settlement of such Tax liability, subject to Section 10.02(d) and 10.02(f)(i) below.
(d) CoalCo Rights. In the case of any Tax Contest with respect to any Tax Return described in Section 10.02(a) , (b) , or (c) (other than any Separate Return described in Section 10.02(a)(ii) ), if (x) as a result of such Tax Contest, CoalCo could reasonably be expected to become liable for an amount of Tax in excess of $1 million and (y) Parent has control of such Tax Contest pursuant to Section 10.02(a) , (b) , or (c) , as applicable, then (i) Parent shall consult with CoalCo reasonably in advance of taking any significant action in connection with such Tax Contest, (ii) Parent shall consult with CoalCo and offer CoalCo a reasonable opportunity to
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comment before submitting any written materials prepared or furnished in connection with such Tax Contest, (iii) Parent shall defend such Tax Contest diligently and in good faith as if it were the only party in interest in connection with such Tax Contest, and (iv) CoalCo shall be entitled to participate in such Tax Contest and receive copies of any written materials relating to such Tax Contest received from the relevant Tax Authority.
(e) Parent Rights . In the case of any Tax Contest with respect to any Tax Return described in Section 10.02(a) , if (x) as a result of such Tax Contest, Parent could reasonably be expected to become liable for an amount of Tax in excess of $1 million and (y) CoalCo has the right to control such Tax Contest pursuant to Section 10.02(a) , then (i) CoalCo shall consult with Parent reasonably in advance of taking any significant action in connection with such Tax Contest, (ii) CoalCo shall consult with Parent and offer Parent a reasonable opportunity to comment before submitting any written materials prepared or furnished in connection with such Tax Contest, (iii) CoalCo shall defend such Tax Contest diligently and in good faith as if it were the only party in interest in connection with such Tax Contest, (iv) Parent shall be entitled to participate in such Tax Contest and receive copies of any written materials relating to such Tax Contest received from the relevant Tax Authority, and (v) CoalCo shall not settle, compromise or abandon any such Tax Contest without obtaining the prior written consent of Parent, which consent shall not be unreasonably withheld.
(f) Distribution-Related Tax Contests.
(i) In the event of any Distribution-Related Tax Contest as a result of which CoalCo could reasonably be expected to become liable for any Tax or Tax-Related Losses and which Parent has the right to administer and control pursuant to Section 10.02(a) , (b) , or (c) above, (A) Parent shall consult with CoalCo reasonably in advance of taking any significant action in connection with such Tax Contest, (B) Parent shall offer CoalCo a reasonable opportunity to comment before submitting any written materials prepared or furnished in connection with such Tax Contest, (C) Parent shall defend such Tax Contest diligently and in good faith as if it were the only party in interest in connection with such Tax Contest, and (D) Parent shall provide CoalCo copies of any written materials relating to such Tax Contest received from the relevant Tax Authority. Notwithstanding anything in the preceding sentence to the contrary, the final determination of the positions taken, including with respect to settlement or other disposition, in any Distribution-Related Tax Contest shall be made in the sole discretion of Parent and shall be final and not subject to the dispute resolution provisions of Article VII of the Separation and Distribution Agreement or Section 14 hereof.
(ii) In the event of any Distribution-Related Tax Contest with respect to any CoalCo Separate Return, (A) CoalCo shall consult with Parent reasonably in advance of taking any significant action in connection with such Tax Contest, (B) CoalCo shall consult with Parent and offer Parent a reasonable opportunity to comment before submitting any written materials prepared or furnished in connection with such Tax Contest, (C) CoalCo shall defend such Tax Contest diligently and in good faith as if it were the only party in interest in connection with such Tax Contest, (D) Parent shall be entitled to participate in such Tax Contest and receive copies of any written materials relating to such Tax Contest received from the relevant Tax Authority, and (E) CoalCo shall not settle, compromise or abandon any such Tax Contest
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without obtaining the prior written consent of Parent, which consent shall not be unreasonably withheld.
(g) Power of Attorney .
(i) Each member of the CoalCo Group shall execute and deliver to Parent (or such member of the Parent Group as Parent shall designate) any power of attorney or other similar document reasonably requested by Parent (or such designee) in connection with any Tax Contest (as to which Parent is the Controlling Party) described in this Section 10 .
(ii) Each member of the Parent Group shall execute and deliver to CoalCo (or such member of the CoalCo Group as CoalCo shall designate) any power of attorney or other similar document reasonably requested by CoalCo (or such designee) in connection with any Tax Contest (as to which CoalCo is the Controlling Party) described in this Section 10 .
Section 11. Effective Date; Termination of Prior Intercompany Tax Allocation Agreements . This Agreement shall be effective as of the Effective Time. As of the Effective Time, (i) all prior intercompany Tax allocation agreements or arrangements solely between or among one or more members of the Parent Group, on the one hand, and one or more members of the CoalCo Group, on the other hand, shall be terminated, and (ii) amounts due under such agreements as of the date on which the Effective Time occurs shall be settled as of the Effective Time. Upon such termination and settlement, no further payments by or to any member of the Parent Group or by or to any member of the CoalCo Group, with respect to such agreements shall be made, and all other rights and obligations resulting from such agreements between the Companies and their Affiliates shall cease at such time. Any payments pursuant to such agreements shall be disregarded for purposes of computing amounts due under this Agreement; provided that to the extent appropriate, as determined by Parent, payments made pursuant to such agreements shall be credited to CoalCo or Parent, respectively, in computing their respective obligations pursuant to this Agreement, in the event that such payments relate to a Tax liability that is the subject matter of this Agreement for a Tax Period that is the subject matter of this Agreement.
Section 12. Survival of Obligations. The representations, warranties, covenants and agreements set forth in this Agreement shall be unconditional and absolute and shall remain in effect without limitation as to time.
Section 13. Treatment of Payments; Tax Gross Up.
Section 13.01 Treatment of Tax Indemnity and Tax Benefit Payments. In the absence of any change in Tax treatment under the Code or other applicable Tax Law, for all Income Tax purposes, the Companies agree to treat, and to cause their respective Affiliates to treat, (i) any indemnity payment required by this Agreement or by the Separation and Distribution Agreement as either a contribution by Parent to CoalCo or a distribution by CoalCo to Parent, as the case may be, occurring immediately prior to the Distribution; and (ii) any payment of interest or State Income Taxes by or to a Tax Authority, as taxable or deductible, as the case may be, to the Company entitled under this Agreement to retain such payment or required under this Agreement to make such payment.
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Section 13.02 Tax Gross Up. If notwithstanding the manner in which Tax indemnity payments and Tax Benefit payments were reported, there is an adjustment to the Tax liability of a Company as a result of its receipt of a payment pursuant to this Agreement or the Separation and Distribution Agreement, such payment shall be appropriately adjusted so that the amount of such payment, reduced by the amount of all Income Taxes payable with respect to the receipt thereof (but taking into account all correlative Tax Benefits resulting from the payment of such Income Taxes), shall equal the amount of the payment which the Company receiving such payment would otherwise be entitled to receive.
Section 13.03 Interest. Anything herein to the contrary notwithstanding, to the extent one Company ( Indemnitor ) makes a payment of interest to another Company ( Indemnitee ) under this Agreement with respect to the period from the date that the Indemnitee made a payment of Tax to a Tax Authority to the date that the Indemnitor reimbursed the Indemnitee for such Tax payment, the interest payment shall be treated as interest expense to the Indemnitor (deductible to the extent provided by law) and as interest income by the Indemnitee (includible in income to the extent provided by law). The amount of the payment shall not be adjusted to take into account any associated Tax Benefit to the Indemnitor or increase in Tax to the Indemnitee.
Section 14. Disagreements.
Section 14.01 Interaction with Article VII of the Separation and Distribution Agreement. In the event of any dispute between any member of the Parent Group and any member of the CoalCo Group as to any matter covered by this Agreement, the Companies shall agree as to whether such dispute shall be governed by the procedures set forth in Section 14.02 of this Agreement or in Article VII of the Separation and Distribution Agreement. If the Parties cannot agree within thirty (30) days from the time such dispute arises as to which procedure will govern such dispute, such disagreement shall be resolved pursuant to Article VII of the Separation and Distribution Agreement.
Section 14.02 Dispute Resolution. With respect to any dispute governed by this Section 14.02 , the Companies shall appoint a nationally recognized Big Four independent public accounting firm (other than the current auditing firm of Parent or CoalCo) (the Accounting Firm) to resolve such dispute. The Companies shall cooperate in good faith in jointly selecting the Accounting Firm. In this regard, the Accounting Firm shall make determinations with respect to the disputed items based solely on representations made by Parent and CoalCo and their respective Representatives, and not by independent review, shall function only as an expert and not as an arbitrator and shall be required to make a determination in favor of one Company only. The Companies shall require the Accounting Firm to resolve all disputes no later than fifteen (15) days after the submission of such dispute to the Accounting Firm, but in no event later than the relevant Payment Date, and agree that all decisions by the Accounting Firm with respect thereto shall be final and conclusive and binding on the Companies. The Accounting Firm shall resolve all disputes in a manner consistent with this Agreement. To the extent not inconsistent with this Agreement, the Accounting Firm shall resolve all disputes in a manner consistent with the Past Practices of Parent and the members of the Parent Group, except as otherwise required by applicable Law. The Companies shall require the Accounting Firm to render all determinations in writing and to set forth, in reasonable detail, the basis for such determination.
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The fees and expenses of the Accounting Firm shall be paid by the non-prevailing Company. Notwithstanding the foregoing provisions of this Section 14 , a Party may seek preliminary provisional or injunctive judicial relief with respect to any dispute under this Agreement without first complying with the procedures set forth in this Section 14 (or Article VII of the Separation and Distribution Agreement) if such action is reasonably necessary to avoid irreparable damage.
Section 15. Late Payments. Any amount owed by one Party to another Party under this Agreement which is not paid when due shall bear interest at the Prime Rate plus two percent, compounded semiannually, from the due date of the payment to the date paid. To the extent interest required to be paid under this Section 15 duplicates interest required to be paid under any other provision of this Agreement, interest shall be computed at the higher of the interest rate provided under this Section 15 or the interest rate provided under such other provision.
Section 16. Expenses. Except as otherwise provided in this Agreement, each Party and its Affiliates shall bear their own expenses incurred in connection with preparation of Tax Returns, Tax Contests, and other matters related to Taxes under the provisions of this Agreement.
Section 17. General Provisions.
Section 17.01 Addresses and Notices. All notices, requests, claims, demands or other communications under this Agreement shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by overnight courier service, by facsimile or electronic transmission with receipt confirmed (followed by delivery of an original via overnight courier service or by registered or certified mail postage prepaid, return receipt requested) to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 17.01 ):
If to Parent, to:
CONSOL Energy Inc.
Attention: Chief Legal Officer
Facsimile: [ ]
If to CoalCo, to:
CONSOL Mining Corporation
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Attn: Chief Legal Officer
Facsimile: [ ]
A Party may, by notice to the other Party, change the address to which such notices are to be given.
Section 17.02 Assignability. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their successors and permitted assigns; provided , that neither Party nor any such Party thereto may assign its rights or delegate its obligations under this Agreement without the express prior written consent of the other Party hereto. Notwithstanding the foregoing, no such consent shall be required for the assignment of a Partys rights and obligations under this Agreement in whole ( i.e. , the assignment of a Partys rights and obligations under this Agreement all at the same time) in connection with a change of control of a Party so long as the resulting, surviving or transferee Person assumes all the obligations of the relevant Party thereto by operation of Law or pursuant to an agreement in form and substance reasonably satisfactory to the other Party.
Section 17.03 Waiver. Waiver by a Party of any default by the other Party of any provision of this Agreement shall not be deemed a waiver by the waiving Party of any subsequent or other default, nor shall it prejudice the rights of the other Party. No failure or delay by a Party in exercising any right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall a single or partial exercise thereof prejudice any other or further exercise thereof or the exercise of any other right, power or privilege.
Section 17.04 Severability. If any provision of this Agreement or the application thereof to any Person or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof, or the application of such provision to Persons or circumstances or in jurisdictions other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby. Upon such determination, the Parties shall negotiate in good faith in an effort to agree upon such a suitable and equitable provision to effect the original intent of the Parties.
Section 17.05 Authority. Parent represents on behalf of itself and each other member of the Parent Group, and CoalCo represents on behalf of itself and each other member of the CoalCo Group, as follows: (i) each such Person has the requisite corporate or other power and authority and has taken all corporate or other action necessary in order to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby; and (ii) this Agreement has been duly executed and delivered by it and constitutes a valid and binding agreement of it enforceable in accordance with the terms thereof.
Section 17.06 Further Action. The parties shall execute and deliver all documents, provide all information, and take or refrain from taking action as may be necessary or appropriate to achieve the purposes of this Agreement, including the execution and delivery to the other parties and their Affiliates and representatives of such powers of attorney or other
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authorizing documentation as is reasonably necessary or appropriate in connection with Tax Contests (or portions thereof) under the control of such other parties in accordance with Section 10 .
Section 17.07 Integration. This Agreement, the other Ancillary Agreements and the Exhibits, Schedules and appendices hereto and thereto contain the entire agreement between the Parties with respect to the subject matter hereof, supersede all previous agreements, negotiations, discussions, writings, understandings, commitments and conversations with respect to such subject matter, and there are no agreements or understandings between the Parties other than those set forth or referred to herein or therein. In the event of any inconsistency between this Agreement, the Separation and Distribution Agreement, or any other agreements relating to the transactions contemplated by the Separation and Distribution Agreement, with respect to matters addressed herein, the provisions of this Agreement shall control.
Section 17.08 Construction. The language in all parts of this Agreement shall in all cases be construed according to its fair meaning and shall not be strictly construed for or against any Party. The captions, titles and headings included in this Agreement are for convenience only, and do not affect this Agreements construction or interpretation. Unless otherwise indicated, all Section references in this Agreement are to sections of this Agreement.
Section 17.09 No Double Recovery. No provision of this Agreement shall be construed to provide an indemnity or other recovery for any costs, damages, or other amounts for which the damaged Party has been fully compensated under any other provision of this Agreement or under any other agreement or action at law or equity. Unless expressly required in this Agreement, a Party shall not be required to exhaust all remedies available under other agreements or at law or equity before recovering under the remedies provided in this Agreement.
Section 17.10 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Party. Each Party acknowledges that it and each other Party may be executing this Agreement by facsimile, stamp or mechanical signature, and that delivery of an executed counterpart of a signature page to this Agreement (whether executed by manual, stamp or mechanical signature) by facsimile or by email in portable document format (PDF) shall be effective as delivery of such executed counterpart of this Agreement. Each Party expressly adopts and confirms each such facsimile, stamp or mechanical signature (regardless of whether delivered in person, by mail, by courier, by facsimile or by email in portable document format (PDF)) made in its respective name as if it were a manual signature delivered in person, agrees that it will not assert that any such signature or delivery is not adequate to bind such Party to the same extent as if it were signed manually and delivered in person and agrees that, at the reasonable request of the other Party at any time, it will as promptly as reasonably practicable cause this Agreement to be manually executed (such execution to be as of the date of the initial date thereof) and delivered in person, by mail or by courier.
Section 17.11 Governing Law. This Agreement (and any claims or disputes arising out of or related hereto or to the transactions contemplated hereby or to the inducement of any Party to enter herein, whether for breach of contract, tortious conduct or otherwise and whether
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predicated on common law, statute or otherwise) shall be governed by and construed and interpreted in accordance with the Laws of the State of Delaware irrespective of the choice of laws principles of the State of Delaware including all matters of validity, construction, effect, enforceability, performance and remedies.
Section 17.12 Jurisdiction. If any dispute arises out of or in connection with this Agreement, except as expressly contemplated by another provision of this Agreement, the parties irrevocably (and the parties will cause each other member of their respective Group to irrevocably) (a) consent and submit to the exclusive jurisdiction of federal and state courts located in Delaware, (b) waive any objection to that choice of forum based on venue or to the effect that the forum is not convenient, and (c) WAIVE TO THE FULLEST EXTENT PERMITTED BY LAW ANY RIGHT TO TRIAL OR ADJUDICATION BY JURY.
Section 17.13 Amendment. No provisions of this Agreement shall be deemed waived, amended, supplemented or modified by a Party, unless such waiver, amendment, supplement or modification is in writing and signed by the authorized representative of the Party against whom it is sought to enforce such waiver, amendment, supplement or modification.
Section 17.14 CoalCo Subsidiaries. If, at any time, CoalCo acquires or creates one or more subsidiaries that are includable in the CoalCo Group, they shall be subject to this Agreement and all references to the CoalCo Group herein shall thereafter include a reference to such subsidiaries.
Section 17.15 Successors. This Agreement shall be binding on and inure to the benefit of any successor by merger, acquisition of assets, or otherwise, to any of the parties hereto (including but not limited to any successor of Parent, or CoalCo succeeding to the Tax attributes of either under Section 381 of the Code), to the same extent as if such successor had been an original Party to this Agreement.
Section 17.16 Injunctions. The parties acknowledge that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with its specific terms or were otherwise breached. The parties hereto shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof in any court having jurisdiction, such remedy being in addition to any other remedy to which they may be entitled at law or in equity.
[Remainder of this Page Intentionally Left Blank]
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IN WITNESS WHEREOF, each Party has caused this Agreement to be executed on its behalf by a duly authorized officer on the date first set forth above.
CONSOL ENERGY INC. |
By: |
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Name: | ||
Title: |
CONSOL MINING CORPORATION |
By: |
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Name: | ||
Title: |
[Signature Page to Tax Matters Agreement]
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Exhibit 2.3
FORM OF
EMPLOYEE MATTERS AGREEMENT
BY AND BETWEEN
CONSOL ENERGY INC.
AND
CONSOL MINING CORPORATION
DATED AS OF , 2017
TABLE OF CONTENTS
Page | ||||||
Article I DEFINITIONS |
1 | |||||
Section 1.01 |
Definitions | 1 | ||||
Section 1.02 |
Interpretation | 7 | ||||
Article II GENERAL PRINCIPLES FOR ALLOCATION OF LIABILITIES |
7 | |||||
Section 2.01 |
General Principles | 7 | ||||
Section 2.02 |
Transition Services | 8 | ||||
Section 2.03 |
Service Credit | 8 | ||||
Section 2.04 |
Benefit Plans | 9 | ||||
Section 2.05 |
Individual Agreements | 9 | ||||
Section 2.06 |
Collective Bargaining | 10 | ||||
Article III ASSIGNMENT OF EMPLOYEES |
10 | |||||
Section 3.01 |
Active Employees | 10 | ||||
Section 3.02 |
Nonsolicitation | 11 | ||||
Article IV EQUITY, INCENTIVE AND EXECUTIVE COMPENSATION |
12 | |||||
Section 4.01 |
Generally | 12 | ||||
Section 4.02 |
Equity Incentive Awards | 12 | ||||
Section 4.03 |
Nonequity Incentive Plans | 16 | ||||
Section 4.04 |
Severance Benefits | 16 | ||||
Section 4.05 |
Director Compensation | 16 | ||||
Article V QUALIFIED RETIREMENT PLANS |
17 | |||||
Section 5.01 |
Parent Pension Plan | 17 | ||||
Section 5.02 |
CoalCo Investment Plan | 17 | ||||
Article VI NONQUALIFIED DEFERRED COMPENSATION PLANS |
18 | |||||
Section 6.01 |
CoalCo Nonqualified Plans | 18 | ||||
Section 6.02 |
Participation; Distributions | 19 | ||||
Article VII WELFARE BENEFIT PLANS |
19 | |||||
Section 7.01 |
Welfare Plans | 19 | ||||
Section 7.02 |
COBRA | 20 | ||||
Section 7.03 |
Vacation, Holidays and Leaves of Absence | 21 | ||||
Section 7.04 |
Severance and Unemployment Compensation | 21 | ||||
Section 7.05 |
Workers Compensation; Black Lung | 21 |
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Section 7.06 |
Insurance Contracts | 21 | ||||
Section 7.07 |
Third-Party Vendors | 21 | ||||
Section 7.08 |
Nondivided Welfare Plans | 21 | ||||
Article VIII MISCELLANEOUS |
22 | |||||
Section 8.01 |
Employee Records | 22 | ||||
Section 8.02 |
Preservation of Rights to Amend | 23 | ||||
Section 8.03 |
Fiduciary Matters | 23 | ||||
Section 8.04 |
Further Assurances | 23 | ||||
Section 8.05 |
Counterparts; Entire Agreement; Corporate Power | 23 | ||||
Section 8.06 |
Governing Law | 23 | ||||
Section 8.07 |
Assignability | 23 | ||||
Section 8.08 |
Third-Party Beneficiaries | 24 | ||||
Section 8.09 |
Notices | 24 | ||||
Section 8.10 |
Severability | 24 | ||||
Section 8.11 |
Force Majeure | 24 | ||||
Section 8.12 |
Headings | 24 | ||||
Section 8.13 |
Survival of Covenants | 24 | ||||
Section 8.14 |
Waivers of Default | 24 | ||||
Section 8.15 |
Dispute Resolution | 24 | ||||
Section 8.16 |
Specific Performance | 24 | ||||
Section 8.17 |
Amendments | 25 | ||||
Section 8.18 |
Interpretation | 25 | ||||
Section 8.19 |
Mutual Drafting | 25 | ||||
Section 8.20 |
Provisions Incorporated by Reference | 25 |
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EMPLOYEE MATTERS AGREEMENT
This EMPLOYEE MATTERS AGREEMENT, dated as of , 2017 (this Agreement ), is by and between CONSOL Energy Inc., a Delaware corporation ( Parent ), and CONSOL Mining Corporation, a Delaware corporation ( CoalCo ). Capitalized terms used herein and not otherwise defined shall have the respective meanings assigned to them in Article I.
R E C I T A L S:
WHEREAS, the board of directors of Parent (the Parent Board ) has determined that it is in the best interests of Parent and its stockholders to create a new publicly traded company that will operate the Coal Business;
WHEREAS, in furtherance of the foregoing, the Parent Board has determined that it is appropriate and desirable to separate the Coal Business from the Parent Business (the Separation ) and, following the Separation, make a distribution, on a pro rata basis, to holders of Parent Shares on the Record Date of 100% of the outstanding shares of common stock of CoalCo owned by Parent (the Distribution );
WHEREAS, CoalCo has been incorporated solely for these purposes and has not engaged in activities except in preparation for the Separation and the Distribution;
WHEREAS, to effectuate the Separation and Distribution, Parent and CoalCo have entered into a Separation and Distribution Agreement, dated as of , 2017 (the Separation and Distribution Agreement ); and
WHEREAS, in addition to the matters addressed by the Separation and Distribution Agreement, the Parties desire to enter into this Agreement to set forth the terms and conditions of certain employment, compensation and benefit matters.
NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 Definitions . For purposes of this Agreement, the following terms shall have the meanings set forth below. Capitalized terms used in this Agreement but not otherwise defined herein shall have the meanings ascribed to them in the Separation and Distribution Agreement.
Action shall have the meaning set forth in the Separation and Distribution Agreement.
Affiliate shall have the meaning set forth in the Separation and Distribution Agreement.
Agreement shall have the meaning set forth in the preamble to this Agreement and shall include all Schedules hereto and all amendments, modifications, and changes hereto entered into pursuant to Section 8.17 .
Ancillary Agreements shall have the meaning set forth in the Separation and Distribution Agreement.
Assets shall mean Coal Assets and Parent Assets.
Benefit Plan shall mean any contract, agreement, policy, practice, program, plan, trust, commitment or arrangement providing for benefits, perquisites or compensation of any nature from an employer to any Employee, or to any family member, dependent, or beneficiary of any such Employee, including pension plans, thrift plans,
supplemental pension plans and welfare plans, and contracts, agreements, policies, practices, programs, plans, trusts, commitments and arrangements providing for terms of employment, fringe benefits, severance benefits, change in control protections or benefits, travel and accident, life, accidental death and dismemberment, disability and accident insurance, tuition reimbursement, travel reimbursement, vacation, sick, personal or bereavement days, leaves of absences, shutdown, layoff and holidays; provided , however , that the term Benefit Plan does not include any government-sponsored benefits, such as workers compensation, unemployment or any similar plans, programs or policies.
Coal Assets shall have the meaning set forth in the Separation and Distribution Agreement.
Coal Business shall have the meaning set forth in the Separation and Distribution Agreement.
Coal Liability shall have the meaning set forth in the Separation and Distribution Agreement, or any of the Liabilities described in Section 2.01(a) .
CoalCo shall have the meaning set forth in the preamble to this Agreement.
CoalCo Annual Bonus Plans shall have the meaning set forth in Section 4.03(a).
CoalCo Awards shall mean GasCo Options, CoalCo RSU Awards, CoalCo PSU Awards and CoalCo DSU Awards, collectively.
CoalCo Benefit Plan shall mean any Benefit Plan established, sponsored, maintained or contributed to by a member of the CoalCo Group as of or after the Distribution Date.
CoalCo Board shall mean the Board of Directors of CoalCo.
CoalCo DSU Award shall mean a deferred stock unit award granted by CoalCo pursuant to the CoalCo Equity Plan in accordance with Section 4.02(g) .
CoalCo Equity Plan shall mean the CONSOL Mining Corporation Omnibus Performance Incentive Plan.
CoalCo Group shall have the meaning set forth in the Separation and Distribution Agreement.
CoalCo Group Employees shall have the meaning set forth in Section 3.01(a) .
CoalCo HSA shall have the meaning set forth in Section 7.01(c) .
CoalCo Investment Plan shall mean the CONSOL Pennsylvania Coal Company Investment Plan.
CoalCo Nonemployee Director means each member of the CoalCo Board as of immediately prior to the Effective Time who is not a CoalCo Group Employee.
CoalCo Nonqualified Plans shall mean the plans established by the CoalCo Group pursuant to Section 6.01(a) that correspond to the Parent Divided Nonqualified Plans.
CoalCo PSU Award shall mean a performance share unit award granted pursuant to the CoalCo Equity Plan in accordance with Section 4.02(e) .
CoalCo Ratio shall mean the quotient obtained by dividing the Parent Stock Value by the CoalCo Stock Value.
CoalCo RSU Award shall mean a restricted stock unit award granted pursuant to the CoalCo Equity Plan in accordance with Section 4.02(c) .
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CoalCo Shares shall have the meaning set forth in the Separation and Distribution Agreement.
CoalCo Stock Value shall mean the simple average of the volume weighted average per share price of CoalCo Shares, trading on the New York Stock Exchange during Regular Trading Hours on the first three Trading Days following the Distribution Date.
CoalCo Welfare Plans shall mean the Welfare Plans established, sponsored, maintained or contributed to by any member of the CoalCo Group for the benefit of CoalCo Group Employees and Former CoalCo Group Employees, including each such Welfare Plan that corresponds to a Parent Welfare Plan.
COBRA shall mean the U.S. Consolidated Omnibus Budget Reconciliation Act of 1985, as codified in Section 601 et seq . of ERISA and in Section 4980B of the Code.
Code shall have the meaning set forth in the Separation and Distribution Agreement.
Dispute shall have the meaning set forth in the Separation and Distribution Agreement.
Distribution shall have the meaning set forth in the recitals to this Agreement.
Distribution Date shall have the meaning set forth in the Separation and Distribution Agreement.
Distribution Ratio shall have the meaning set forth in the Separation and Distribution Agreement.
Effective Time shall have the meaning set forth in the Separation and Distribution Agreement.
Employee shall mean any GasCo Group Employee or CoalCo Group Employee.
ERISA shall mean the U.S. Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder.
FICA shall have the meaning set forth in Section 3.01(e) .
Force Majeure shall have the meaning set forth in the Separation and Distribution Agreement.
Former CoalCo Group Employee shall mean (i) any individual who is a former employee of Parent or any of its Subsidiaries or former Subsidiaries as of the Distribution Date, in each case, whose most recent employment with Parent was with a member of the CoalCo Group or the Coal Business, and (ii) any individual who is a former employee of Parent or its Subsidiaries or former Subsidiaries whose most recent employment was at a work location that has been sold or otherwise closed prior to the Distribution Date and who is identified as a Former CoalCo Group Employee on the master list prepared by Parent prior to the Distribution Date. Notwithstanding the foregoing or anything else herein to the contrary, any individual who has received a written communication from the Parent Group prior to the Distribution Date indicating that such individual will be classified as a former employee of the CoalCo Group for purposes of compensation and benefits will be treated as a Former CoalCo Group Employee for purposes of this Agreement.
Former Employees shall mean Former GasCo Group Employees and Former CoalCo Group Employees.
Former Nonemployee Director shall mean each former member of the Parent Board whose service on the Parent Board ended prior to the Effective Time, other than the Transferred Directors.
Former Parent Group Employee shall mean any individual who is a former employee of Parent or any of its Subsidiaries or former Subsidiaries as of the Distribution Date and who is not a Former CoalCo Group Employee, including any individual whose most recent employment was at a location that was sold or otherwise closed prior to
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the Distribution Date and who is identified as a Former Parent Group Employee on the master list prepared by Parent prior to the Distribution Date. Notwithstanding the foregoing or anything else herein to the contrary, any individual who has received a written communication from the Parent Group prior to the Distribution Date indicating that such individual will be classified as a former employee of the Parent Group for purposes of compensation and benefits will be treated as a Former Parent Group Employee for purposes of this Agreement.
FUTA shall have the meaning set forth in Section 3.01(e) .
GasCo shall have the meaning set forth in Section 2.01(b) .
GasCo Awards shall mean GasCo Options, GasCo RSU Awards, GasCo PSU Awards, and GasCo DSU Awards, collectively.
GasCo DSU Award shall mean a Parent DSU Award adjusted as of the Effective Time in accordance with Section 4.02(f) .
GasCo Group Employees shall have the meaning set forth in Section 3.01(a) .
GasCo Option shall mean a Parent Option adjusted as of the Effective Time in accordance with Section 4.02(a) .
GasCo Nonemployee Director shall mean each member of the Parent Board as of immediately after the Effective Time who is not a GasCo Group Employee.
GasCo PSU Award shall mean a Parent PSU Award adjusted as of the Effective Time in accordance with Section 4.02(d) .
GasCo Ratio shall mean the quotient obtained by dividing the Parent Stock Value by the GasCo Stock Value.
GasCo RSU Award shall mean a Parent RSU Award adjusted as of the Effective Time in accordance with Section 4.02(b) .
GasCo Shares shall mean the shares of common stock, par value $0.01 per share, of CONSOL Energy Inc. (to be renamed CNX Resources Corporation) following the Distribution.
GasCo Stock Value shall mean the simple average of the volume weighted average per share price of GasCo Shares, trading on the New York Stock Exchange during Regular Trading Hours on the first three Trading Days following the Distribution Date.
Governmental Authority shall have the meaning set forth in the Separation and Distribution Agreement.
HIPAA shall mean the U.S. Health Insurance Portability and Accountability Act of 1996, as amended, and the regulations promulgated thereunder.
Individual Agreement shall mean any individual (i) employment contract, (ii) retention, severance or change of control agreement, or (iii) other agreement containing restrictive covenants (including confidentiality, noncompetition and nonsolicitation provisions) between a member of the Parent Group and a CoalCo Group Employee or GasCo Group Employee, as in effect immediately prior to the Distribution Date.
IRS shall mean the Internal Revenue Service.
Law shall have the meaning set forth in the Separation and Distribution Agreement.
Liabilities shall have the meaning set forth in the Separation and Distribution Agreement.
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NYSE shall have the meaning set forth in the Separation and Distribution Agreement.
Parent shall have the meaning set forth in the preamble to this Agreement.
Parent Assets shall have the meaning set forth in the Separation and Distribution Agreement.
Parent Awards shall mean Parent Options, Parent RSU Awards, Parent PSU Awards and Parent DSU Awards, collectively.
Parent Benefit Plan shall mean any Benefit Plan established, sponsored or maintained by Parent or any of its Subsidiaries immediately prior to the Distribution Date, excluding any CoalCo Benefit Plan.
Parent Board shall have the meaning set forth in the recitals to this Agreement.
Parent Business shall have the meaning set forth in the Separation and Distribution Agreement.
Parent Compensation Committee shall mean the Compensation Committee of the Parent Board.
Parent Divided Nonqualified Plans shall mean the Retirement Restoration Plan of CONSOL Energy Inc., the CONSOL Energy Inc. Supplemental Retirement Plan, and the CONSOL Energy Inc. Defined Contribution Restoration Plan.
Parent DSU shall mean a deferred stock unit award granted pursuant to the Parent Equity Plan that is outstanding as of immediately prior to the Effective Time.
Parent Equity Plan shall mean the CONSOL Energy Inc. Equity Incentive Plan, as amended and restated.
Parent Group shall have the meaning set forth in the Separation and Distribution Agreement.
Parent HSA shall have the meaning set forth in Section 7.01(c) .
Parent Investment Plan shall mean the CONSOL Energy Inc. Investment Plan for Salaried Employees, as amended.
Parent Liability shall mean any Parent Liability, as such term is defined in the Separation and Distribution Agreement, or any of the Liabilities described in Section 2.01(b).
Parent Option shall mean an option to purchase Parent Shares granted pursuant to the Parent Equity Plan that is outstanding as of immediately prior to the Effective Time.
Parent Pension Plan shall mean the CONSOL Energy Inc. Employee Retirement Plan, as amended.
Parent Pension Trust shall mean the CONSOL Energy Inc. Employee Retirement Plan Trust, as amended.
Parent PSU Award shall mean a performance share unit award granted pursuant to the Parent Equity Plan that is outstanding as of immediately prior to the Effective Time.
Parent RSU Award shall mean a restricted stock unit award granted pursuant to the Parent Equity Plan that is outstanding as of immediately prior to the Effective Time.
Parent Share Fund shall have the meaning set forth in Section 5.02(b) .
Parent Shares shall have the meaning set forth in the Separation and Distribution Agreement.
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Parent STIC shall have the meaning set forth in Section 4.03(a) .
Parent Stock Value shall mean the simple average of the volume weighted average per share price of Parent Shares, trading on the New York Stock Exchange on a regular way basis during Regular Trading Hours for the three Trading Days ending on the last Trading Day prior to the Distribution Date.
Parent Welfare Plan shall mean any Welfare Plan established, sponsored, maintained or contributed to by Parent or any of its Subsidiaries for the benefit of Employees or Former Employees, including the CONSOL Energy Inc. Health and Welfare Plan, but excluding each Welfare Plan identified in Section 7.08 and any CoalCo Welfare Plan.
Party shall mean a party to this Agreement.
Person shall have the meaning set forth in the Separation and Distribution Agreement.
Providing Party shall have the meaning set forth in Section 2.03(b) .
Record Date shall have the meaning set forth in the Separation and Distribution Agreement.
Regular Trading Hours means the period beginning at 9:30 A.M. New York City time and ending at 4:00 P.M. New York City Time.
Requesting Party shall have the meaning set forth in Section 2.03(b) .
Securities Act shall mean the U.S. Securities Act of 1933, as amended, together with the rules and regulations promulgated thereunder.
Separation shall have the meaning set forth in the recitals to this Agreement.
Separation and Distribution Agreement shall have the meaning set forth in the recitals to this Agreement.
Severance Benefits shall have the meaning set forth in Section 4.04 .
Subsidiary shall have the meaning set forth in the Separation and Distribution Agreement.
Third Party shall have the meaning set forth in the Separation and Distribution Agreement.
Trading Day shall mean any day on which the New York Stock Exchange is open for the buying and selling of securities.
Transferred Account Balances shall have the meaning set forth in Section 7.01(d) .
Transferred Director shall mean a Parent Nonemployee Director who becomes a CoalCo Nonemployee Director immediately prior to the Effective Time.
Transition Services Agreement shall have the meaning set forth in the Separation and Distribution Agreement.
U.S. shall mean the United States of America.
Welfare Plan shall mean any welfare plan (as defined in Section 3(1) of ERISA) or a cafeteria plan under Section 125 of the Code, and any benefits offered thereunder, and any other plan offering health benefits (including medical, prescription drug, dental, vision, mental health, substance abuse and retiree health), disability benefits, or life, accidental death and dismemberment, and business travel insurance, pre-tax premium conversion benefits,
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dependent care assistance programs, employee assistance programs, paid time-off programs, contribution funding toward a health savings account, flexible spending accounts or cashable credits.
Section 1.02 Interpretation . Section 10.16 of the Separation and Distribution Agreement is hereby incorporated by reference.
ARTICLE II
GENERAL PRINCIPLES FOR ALLOCATION OF LIABILITIES
Section 2.01 General Principles .
(a) Acceptance and Assumption of Coal Liabilities . Except as otherwise noted herein, effective as of the Distribution Date, CoalCo and the applicable members of the CoalCo Group shall accept, assume or retain, as applicable, and agree to faithfully perform, discharge and fulfill all of the following Liabilities in accordance with their respective terms (each of which shall be considered a Coal Liability for purposes of this Agreement):
(i) any and all wages, salaries, incentive compensation (as the same may be modified by this Agreement), equity compensation (as the same may be modified by this Agreement), commissions, bonuses and any other employee compensation or benefits payable to or on behalf of any CoalCo Group Employees and Former CoalCo Group Employees as of and after the Distribution Date, including as it relates to any payment obligations pursuant to any Individual Agreements that are in place as of the Effective Time with respect to any CoalCo Employee or Former CoalCo Employee, without regard to when such wages, salaries, incentive compensation, equity compensation, commissions, bonuses or other employee compensation, benefits or payments are or may have been awarded or earned;
(ii) except as expressly provided in the Separation and Distribution Agreement, any and all Liabilities whatsoever with respect to claims made by or with respect to any CoalCo Group Employees or Former CoalCo Group Employees in connection with or otherwise in relation to (A) any Individual Agreements that are in place as of the Effective Time with respect to any CoalCo Employee or Former CoalCo Employee, or (B) Benefit Plan not retained or assumed by any member of the Parent Group pursuant to this Agreement, the Separation and Distribution Agreement or any Ancillary Agreement, including any such Liabilities relating to actions or omissions of or by any member of the CoalCo Group or any officer, director, employee or agent thereof prior to, on or after the Distribution Date; and
(iii) any and all Liabilities expressly assumed or retained by any member of the CoalCo Group pursuant to this Agreement.
(b) Acceptance and Assumption of Parent Liabilities . Except as otherwise noted herein, effective as of the Distribution Date, Parent, which shall be renamed CNX Resources Corporation following the Effective Time ( GasCo ), and certain members of the Parent Group designated by Parent shall assume or retain, as applicable, and agree to faithfully perform, discharge and fulfill all of the following Liabilities in accordance with their respective terms (each of which shall be considered a Parent Liability for purposes of this Agreement):
(i) any and all wages, salaries, incentive compensation (as the same may be modified by this Agreement), equity compensation (as the same may be modified by this Agreement), commissions, bonuses and any other employee compensation or benefits payable to or on behalf of any GasCo Group Employees and Former Parent Group Employees as of and after the Distribution Date, including as it relates to any payment obligations pursuant to any Individual Agreements that are in place as of the Effective Date with respect to any GasCo Group Employee or Former Parent Group
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Employee, without regard to when such wages, salaries, incentive compensation, equity compensation, commissions, bonuses or other employee compensation or benefits are or may have been awarded or earned;
(ii) any and all Liabilities whatsoever with respect to claims made by or with respect to any GasCo Group Employees or Former Parent Group Employees in connection with or otherwise in relation to any (A) any Individual Agreements that are in place as of the Effective Time with respect to any GasCo Group Employee or Former Parent Group Employee, or (B) Benefit Plan not retained or assumed by any member of the CoalCo Group pursuant to this Agreement, the Separation and Distribution Agreement or any Ancillary Agreement, including any such Liabilities relating to actions or omissions of or by any member of the Parent Group or any officer, director, employee or agent thereof prior to, on or after the Distribution Date; and
(iii) any and all Liabilities expressly assumed or retained by any member of the Parent Group pursuant to this Agreement.
(c) Unaddressed Liabilities. To the extent that this Agreement does not address particular Liabilities under any Benefit Plan and the Parties later determine that they should be allocated in connection with the Distribution, the Parties shall agree in good faith on the allocation, taking into account the handling of comparable Liabilities under this Agreement.
Section 2.02 Transition Services.
The Parties acknowledge that the Parent Group and/or the CoalCo Group may provide administrative services for certain of the other Partys compensation and benefit programs for a transitional period under the terms of the Transition Services Agreement. The Parties agree to cooperate in good faith to negotiate a business associate agreement (if required by HIPAA or other applicable health information privacy Laws) in connection with such Transition Services Agreement.
Section 2.03 Service Credit .
(a) Service for Eligibility, Vesting and Benefit Purposes . The CoalCo Benefit Plans shall, and CoalCo shall cause each member of the CoalCo Group to, recognize each CoalCo Group Employees and each Former CoalCo Group Employees full service with Parent or any of its Subsidiaries or predecessor entities at or before the Distribution Date, to the same extent that such service was credited by Parent or its Subsidiary for similar purposes prior to the Distribution Date as if such full service had been performed for a member of the CoalCo Group, for purposes of eligibility, vesting and determination of level of benefits under any such CoalCo Benefit Plan. The Parent Benefit Plans shall, and GasCo shall cause each member of the Parent Group to, recognize each GasCo Group Employees and each Former Parent Group Employees full service with CoalCo or any of its Subsidiaries or predecessor entities at or before the Distribution Date, to the same extent that such service was credited by CoalCo or its Subsidiary for similar purposes prior to the Distribution Date as if such full service had been performed for a member of the Parent Group, for purposes of eligibility, vesting and determination of level of benefits under any such Parent Benefit Plan.
(b) Evidence of Prior Service . Notwithstanding anything to the contrary in this Agreement, but subject to Section 3.02 and applicable Law, upon reasonable request by either Party (the Requesting Party ), the other Party (the Providing Party ) will provide to the Requesting Party copies of any records available to the Providing Party to document the service, plan participation and membership of former Employees of the Providing Party who are then Employees of the Requesting Party, and will cooperate with the Requesting Party to resolve any discrepancies or obtain any missing data for purposes of determining benefit eligibility, participation, vesting and calculation of benefits with respect to any such Employee.
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Section 2.04 Benefit Plans .
(a) Establishment of Plans . As of or prior to the Distribution Date, CoalCo shall, or shall cause an applicable member of the CoalCo Group to, adopt Benefit Plans (and related trusts, if applicable), with terms comparable (or such other standard as is specified in this Agreement with respect to any particular Benefit Plan) to those of the corresponding Parent Benefit Plans; provided , however , that CoalCo may limit participation in any such CoalCo Benefit Plan to CoalCo Group Employees and Former CoalCo Group Employees who participated in the corresponding Parent Benefit Plan immediately prior to the Distribution Date.
(b) Information and Operation . GasCo shall provide CoalCo with information describing each Parent Benefit Plan election made by a CoalCo Group Employee or a Former CoalCo Group Employee that may have application to CoalCo Benefit Plans from and after the Distribution Date, and CoalCo shall use its commercially reasonable efforts to administer the CoalCo Benefit Plans using those elections. Each Party shall, upon reasonable request, provide the other Party and the other Partys respective Affiliates, agents, and vendors all information reasonably necessary to the other Partys operation or administration of its Benefit Plans.
(c) No Duplication or Acceleration of Benefits. Notwithstanding anything to the contrary in this Agreement, the Separation and Distribution Agreement or any Ancillary Agreement, no participant in any CoalCo Benefit Plan shall receive service credit or benefits to the extent that receipt of such service credit or benefits would result in duplication of benefits provided to such participant by the corresponding Parent Benefit Plan or any other plan, program or arrangement sponsored or maintained by a member of the Parent Group. Furthermore, unless expressly provided for in this Agreement, the Separation and Distribution Agreement or in any Ancillary Agreement or required by applicable Law, no provision in this Agreement shall be construed to create any right to accelerate vesting or entitlements under any compensation or Benefit Plan, program or arrangement sponsored or maintained by a member of the Parent Group or member of the CoalCo Group on the part of any Employee or Former Employee.
(d) No Expansion of Participation . Unless otherwise expressly provided in this Agreement, determined or agreed to by GasCo and CoalCo, required by applicable Law, or explicitly set forth in a CoalCo Benefit Plan, a CoalCo Group Employee or a Former CoalCo Group Employee shall be entitled to participate in the CoalCo Benefit Plans on or after the Distribution Date only to the extent that such CoalCo Group Employee or a Former CoalCo Group Employee was entitled to participate in the corresponding Parent Benefit Plan as in effect immediately prior to the Distribution Date (to the extent that such CoalCo Group Employee or a Former CoalCo Group Employee does not participate in the respective CoalCo Benefit Plan immediately prior to the Distribution Date), it being understood that this Agreement does not expand (i) the number of CoalCo Group Employees or Former CoalCo Group Employees entitled to participate in any CoalCo Benefit Plan, or (ii) the participation rights of CoalCo Group Employees or Former CoalCo Group Employees in any CoalCo Benefit Plans beyond the rights of such CoalCo Group Employees or Former CoalCo Group Employees under the corresponding Parent Benefit Plans, in each case, after the Distribution Date.
(e) Beneficiaries . As it relates to Benefit Plans, references herein to GasCo Group Employees, Former Parent Group Employees, CoalCo Group Employees, Former CoalCo Group Employees, and nonemployee directors of either Parent, GasCo or CoalCo (including Transferred Directors), shall be deemed to refer to their beneficiaries, dependents, survivors and alternate payees, as applicable.
Section 2.05 Individual Agreements .
(a) Assignment by Parent . To the extent necessary, Parent shall assign, or cause an applicable member of the Parent Group to assign, to CoalCo or another member of the CoalCo Group, as designated by CoalCo, all Individual Agreements pertaining to CoalCo Group Employees in effect immediately prior to
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the Effective Date, with such assignment to be effective as of the Distribution Date; provided , however , that to the extent that assignment of any such Individual Agreement is not permitted by the terms of such agreement or by applicable Law, effective as of the Distribution Date, each member of the CoalCo Group shall be considered to be a successor to each member of the Parent Group for purposes of, and a third-party beneficiary with respect to, such Individual Agreement, such that each member of the CoalCo Group shall enjoy all of the rights and benefits under such agreement (including rights and benefits as a third-party beneficiary), with respect to the business operations of the CoalCo Group; provided , further , that in no event shall (i) GasCo be permitted to enforce any Individual Agreement after the Distribution Date (including any agreement containing noncompetition or nonsolicitation covenants) against a CoalCo Group Employee or a Former CoalCo Group Employee for action taken after the Distribution Date in such individuals capacity as a CoalCo Group Employee or a Former CoalCo Group Employee and (ii) CoalCo be permitted to enforce any Individual Agreement after the Distribution Date (including any agreement containing noncompetition or nonsolicitation covenants) against a GasCo Group Employee or a Former Parent Group Employee for action taken after the Distribution Date in such individuals capacity as a GasCo Group Employee or a Former Parent Group Employee.
(b) Assumption by CoalCo. Effective as of the Distribution Date, CoalCo will assume, honor and undertake responsibility for all payment obligations with respect to, or will cause a member of the CoalCo Group to assume, honor and undertake responsibility for all payment obligations with respect to, any Individual Agreement to which any CoalCo Group Employee or Former CoalCo Group Employee is a Party with any member of the Parent Group, including any Individual Agreement which has not otherwise been terminated by the parties prior to the Distribution Date.
Section 2.06 Collective Bargaining . Effective as of the Distribution Date, to the extent necessary, CoalCo shall cause the appropriate member of the CoalCo Group to (a) assume or retain all collective bargaining agreements (including any national, sector or local collective bargaining agreement) that cover CoalCo Group Employees or Former CoalCo Group Employees, including any such agreements negotiated in connection with the Separation or which are otherwise in the process of being negotiated and the Liabilities arising under any such collective bargaining agreements, and (b) join any industrial, employer or similar association or federation if membership is required for the relevant collective bargaining agreement to continue to apply. In the event of any conflict between a provision of this Agreement and the requirements of a collective bargaining agreement applicable to either Party, the requirements of the collective bargaining agreement shall control and the Parties shall cooperate in good faith to modify the applicable provision of this Agreement to the minimum extent necessary to permit compliance with the applicable collective bargaining agreement requirements while preserving to the maximum extent possible the originally intended result of such modified provision.
ARTICLE III
ASSIGNMENT OF EMPLOYEES
Section 3.01 Active Employees .
(a) Assignment and Transfer of Employees. Effective not later than immediately prior to the Distribution Date and except as otherwise required by applicable Law or agreed to by the Parties in writing, (i) each applicable member of the Parent Group shall have taken such actions as are necessary to ensure that each individual who is intended to be an employee of the CoalCo Group as of the Distribution Date (including any such individual who is not actively working as of the Distribution Date as a result of an illness, injury or approved leave of absence (or leave of absence otherwise taken in accordance with applicable Law) (collectively, the CoalCo Group Employees ) is, as of the Distribution Date, employed by a member of the CoalCo Group and (ii) each applicable member of the Parent Group shall have taken such actions as are necessary to ensure that each individual who is intended to be an employee of the Parent Group as of the Distribution Date (including any such individual who is not actively working as of the Distribution Date as a result of an illness, injury or approved leave of absence (or leave of absence otherwise taken in accordance with applicable Law) and any other individual employed by the Parent
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Group as of the Distribution Date who is not a CoalCo Group Employee (collectively, the GasCo Group Employees ) is, as of the Distribution Date, employed by a member of the Parent Group. Each of the Parties agrees to execute, and to seek to have the applicable Employees execute, such documentation, if any, as may be necessary to reflect such assignment and/or transfer.
(b) At-Will Status. Nothing in this Agreement shall create any obligation on the part of any member of the Parent Group or any member of the CoalCo Group to (i) continue the employment of any Employee or permit the return from a leave of absence for any period after the date of this Agreement (except as required by applicable Law), or (ii) change the employment status of any Employee from at-will, to the extent that such Employee is an at-will employee under applicable Law.
(c) Severance. The Parties acknowledge and agree that the Distribution and the assignment, transfer or continuation of the employment of Employees as contemplated by this Section 3.01 shall not be deemed an involuntary termination of employment that entitles any CoalCo Group Employee or GasCo Group Employee to severance payments or benefits.
(d) Not a Change of Control/Change in Control. The Parties acknowledge and agree that, except as otherwise specifically contemplated by and expressed in an Individual Agreement set forth on Schedule 3.01(d) , neither the consummation of the Distribution nor any transaction contemplated by this Agreement, the Separation and Distribution Agreement or any other Ancillary Agreement shall be deemed a change of control, change in control, or term of similar import for purposes of any Benefit Plan sponsored or maintained by any member of the Parent Group or member of the CoalCo Group.
(e) Payroll and Related Taxes. With respect to any CoalCo Group Employee or group of CoalCo Group Employees, the Parties shall, or shall cause their respective Subsidiaries to, (i) treat CoalCo (or the applicable member of the CoalCo Group) as a successor employer and Parent (or the applicable member of the Parent Group) as a predecessor, within the meaning of Sections 3121(a)(1) and 3306(b)(1) of the Code, for purposes of taxes imposed under the United States Federal Insurance Contributions Act, as amended ( FICA ), or the United States Federal Unemployment Tax Act, as amended ( FUTA ), (ii) cooperate with each other to avoid, to the extent possible, the restart of FICA and FUTA upon or following the Distribution Date, with respect to each such CoalCo Group Employee for the tax year during which the Distribution Date occurs, and (iii) use commercially reasonable efforts to implement the alternate procedure described in Section 5 of Revenue Procedure 2004-53; provided , however , that to the extent that CoalCo (or the applicable member of the CoalCo Group) cannot be treated as a successor employer to Parent (or the applicable member of the Parent Group) within the meaning of Sections 3121(a)(1) and 3306(b)(1) of the Code with respect to any CoalCo Group Employee or group of CoalCo Group Employees, (x) with respect to the portion of the tax year commencing on January 1, 2017 and ending on the Distribution Date GasCo will (A) be responsible for all payroll obligations, tax withholding and reporting obligations for such CoalCo Group Employees, and (B) furnish a Form W-2 or similar earnings statement to all such CoalCo Group Employees for such period, and (y) with respect to the remaining portion of such tax year, CoalCo will (A) be responsible for all payroll obligations, tax withholding and reporting obligations regarding such CoalCo Group Employees, and (B) furnish a Form W-2 or similar earnings statement to all such CoalCo Group Employees.
Section 3.02 Nonsolicitation . Each Party agrees that, for a period of five (5) years from the Distribution Date, such Party shall not solicit for employment or otherwise hire any individual who is a GasCo Group Employee, in the case of a CoalCo, or a CoalCo Group Employee, in the case of GasCo; provided , however , that without limiting the generality of the foregoing prohibition on solicitation of Employees of the other Party, this Section 3.02 shall not prohibit (a) generalized solicitations that are not directed to specific Persons or Employees of the other Party, (b) the solicitation of a Person whose employment was involuntarily terminated by the other Party, or (c) the solicitation of a Person after receipt by the soliciting Party (in advance of any solicitation or, in the case of a response to a general solicitation as permitted under the foregoing clause (a), in advance of any subsequent solicitation in connection with the recruiting process) of the express written consent of the Party that employs the Person who is to be solicited.
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ARTICLE IV
EQUITY, INCENTIVE AND EXECUTIVE COMPENSATION
Section 4.01 Generally . Parent Awards that are outstanding as of immediately prior to the Effective Time shall be adjusted or converted as described below; provided, however, that effective immediately prior to the Effective Time, the Parent Compensation Committee may provide for different adjustments with respect to some or all Parent Awards to the extent that the Parent Compensation Committee deems such adjustments necessary and appropriate, consistent with the terms of the Parent Equity Plan. Any adjustments made by the Parent Compensation Committee pursuant to the foregoing sentence shall be deemed incorporated by reference herein as if fully set forth below and shall be binding on the Parties and their respective Affiliates. Before the Effective Time, the CoalCo Equity Plan shall be established, with such terms as are necessary to permit the implementation of the provisions of Section 4.02 .
Section 4.02 Equity Incentive Awards .
(a) Outstanding Parent Options Each Parent Option that is outstanding and unexercised as of immediately prior to the Effective Time shall become a GasCo Option (as defined below) and be subject to the same terms and conditions after the Effective Time as the terms and conditions applicable to the corresponding Parent Option immediately prior to the Effective Time; provided, however, that certain restrictions may be imposed on such GasCo Option after the Effective Time if necessary and appropriate to comply with applicable Law or existing policies or determinations of Parent, including with respect to any blackout period applicable to the exercise of such Parent Option that may be instituted immediately prior to, and for a designated period following, the Effective Time; and further provided, however, that from and after the Effective Time:
(i) the number of GasCo Shares subject to such GasCo Option (as defined below), rounded down to the nearest whole number of shares, shall be equal to the product obtained by multiplying (A) the number of Parent Shares subject to such Parent Option immediately prior to the Effective Time by (B) the GasCo Ratio; and
(ii) the per share exercise price of such GasCo Option, rounded up to the nearest whole cent, shall be equal to the quotient obtained by dividing (A) the per share exercise price of such Parent Option immediately prior to the Effective Time by (B) the GasCo Ratio (each such option, a GasCo Option );
provided, however, that with respect to any GasCo Option held by a CoalCo Employee or Transferred Director, continued employment by, or service with, the CoalCo Group shall be treated as continued employment by, or service with, the Parent Group for purposes of vesting and exercisability.
(b) Outstanding Parent RSU Awards Held by GasCo Group Employees, GasCo Nonemployee Directors, Former Nonemployee Directors and Former Employees .
(i) Except as may be otherwise provided in Section 4.02(a)(ii), each Parent RSU Award held by a GasCo Group Employee, GasCo Nonemployee Director, Former Nonemployee Director or a Former Employee that is outstanding as of immediately prior to the Effective Time shall become a GasCo RSU (as defined below) and be subject to the same terms and conditions after the Effective Time as the terms and conditions applicable to the corresponding Parent RSU Award immediately prior to the Effective Time, including any deferral election applicable to the delivery of vested shares; provided, however, that certain restrictions may be imposed on the GasCo RSU Award after the Effective Time if necessary and appropriate to comply with applicable Law; and further provided, however, that from and after the Effective Time, the number of GasCo Shares to which such GasCo RSU Award relates shall be equal to the product obtained by multiplying (i) the number of Parent Shares to which such Parent RSU Award related immediately prior to the
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Effective Time by (ii) the GasCo Ratio (with any resulting fractional share rounded up to the nearest whole number of shares) (each such restricted stock unit, a GasCo RSU Award ).
(ii) Any outstanding Parent RSU Awards held by GasCo Group Employees and Former Employees that contain early vesting provisions upon Parents common stock equaling or exceeding $55 over a designated period shall be equitably adjusted such that such stock price shall be equal to the quotient obtained by dividing (A) $55 by (B) the GasCo Ratio.
(c) Outstanding Parent RSU Awards Held by CoalCo Group Employees and Transferred Directors.
(i) Except as may be otherwise provided in Section 4.02(c)(ii), each Parent RSU Award held by a CoalCo Group Employee or Transferred Director that is outstanding as of immediately prior to the Effective Time shall be converted into a CoalCo RSU Award, and, except as provided in Section 4.02(k), shall otherwise be subject to the same terms and conditions after the Effective Time as the terms and conditions applicable to the corresponding Parent RSU Award immediately prior to the Effective Time, including any deferral election applicable to the delivery of vested shares (except that references to Parent in the applicable plan and award agreement shall be deemed to refer to CoalCo, unless clearly dictated otherwise by context); provided, however, that certain restrictions may be imposed on the CoalCo RSU Award after the Effective Time if necessary and appropriate to comply with applicable Law; and further provided, however, that from and after the Effective Time, the number of CoalCo Shares to which such CoalCo RSU Award relates shall be equal to the product obtained by multiplying (A) the number of Parent Shares to which the corresponding Parent RSU Award related immediately prior to the Effective Time by (B) the CoalCo Ratio (with any resulting fractional share rounded up to the nearest whole share).
(ii) With respect to outstanding Parent RSU Awards granted in 2015 and held by CoalCo Group Employees classified as Grade 14 or lower immediately prior to the Record Date, each such Parent RSU Award granted in 2015 shall vest three days prior to the Record Date, such that the holder of the Parent RSU Award shall be a holder of Parent Shares (with respect to those shares underlying the relevant Parent RSU Award) as of the Record Date, with payment in settlement of such Parent RSU Award granted in 2015 to be made on or as soon as practicable following the Effective Time; provided that no such payment acceleration shall be made for any such CoalCo Group Employee classified as Grade 14 or lower who made a prior deferral election with respect to the delivery of vested shares.
(iii) Any outstanding Parent RSU Awards Held by CoalCo Group Employees that contain early vesting provisions upon Parents common stock equaling or exceeding $55 over a designated period shall be equitably adjusted such that the applicable stock price will be based on CoalCos rather than Parents stock price and that such stock price shall be equal to the quotient obtained by dividing (A) $55 by (B) the CoalCo Ratio.
(d) Outstanding Parent PSU Awards Held by GasCo Group Employees and Former Employees . Each Parent PSU Award held by a Parent Group Employee or a Former Employee that is outstanding as of immediately prior to the Effective Time, shall become a GasCo PSU Award (as defined below) and be subject to the same terms and conditions after the Effective Time as the terms and conditions applicable to the corresponding Parent PSU Award immediately prior to the Effective Time; provided, however, that certain restrictions may be imposed on the GasCo PSU Award after the Effective Time if necessary and appropriate to comply with applicable Law; and further provided, however, that from and after the Effective Time:
(i) the number of GasCo Shares to which such GasCo PSU Award relates shall be equal to the product obtained by multiplying (A) the number of Parent Shares to which such Parent PSU Award
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(at target) related immediately prior to the Effective Time by (B) the GasCo Ratio (with any resulting fractional share rounded up to the nearest whole number of shares); and
(ii) the performance conditions applicable to each such GasCo PSU Award shall be (A) for any performance period ending in 2017 (including any separate annual performance period ending on December 31, 2017 under a GasCo PSU Award with separate annual performance periods) with respect to any such GasCo PSU Award, the conditions previously established by the Parent Compensation Committee with such adjustments as approved by the Parent Compensation Committee and (B) for any performance period ending after 2017, as adjusted to the conditions previously established by the Parent Compensation Committee following the Effective Time (each such performance share unit, a GasCo PSU Award ).
(e) Outstanding Parent PSU Awards Held by CoalCo Group Employees . Each Parent PSU Award held by a CoalCo Group Employee that is outstanding as of immediately prior to the Effective Time shall be converted into a CoalCo PSU Award and, except as provided in Section 4.02(k), shall otherwise be subject to the same terms and conditions after the Effective Time as the terms and conditions applicable to the corresponding Parent PSU Award immediately prior to the Effective Time (except that references to Parent in the applicable plan and award agreement shall be deemed to refer to CoalCo, unless clearly dictated otherwise by context); provided, however, that certain restrictions may be imposed on the CoalCo PSU Award after the Effective Time if necessary and appropriate to comply with applicable Law; and further provided, however, that from and after the Effective Time:
(i) the number of CoalCo Shares to which such CoalCo PSU Award relates shall be equal to the product obtained by multiplying (A) the number of Parent Shares to which the corresponding Parent PSU Award (at target) related immediately prior to the Effective Time by (B) the CoalCo Ratio (with any resulting fractional share rounded up to the nearest whole number of shares); and
(ii) the performance conditions applicable to each such CoalCo PSU Award shall be (A) for the performance period ending in 2017 (including any separate annual performance period ending on December 31, 2017 under a CoalCo PSU Award with separate annual performance periods), those conditions previously established by the Parent Compensation Committee (and approved by the CoalCo Compensation Committee) with such adjustments as approved by such committees and (B) for any performance period ending after 2017, as adjusted by the CoalCo Compensation Committee following the Effective Time to those conditions previously established by the Parent Compensation Committee (and approved by the CoalCo Compensation Committee).
(f) Outstanding Deferred Stock Unit Awards Held by GasCo Nonemployee Directors and Former Nonemployee Directors . Each Parent DSU Award held by a GasCo Nonemployee Director or a Former Nonemployee Director that is outstanding as of immediately prior to the Effective Time shall become a GasCo DSU Award (as defined below) and be subject to the same terms and conditions after the Effective Time as the terms and conditions applicable to such Parent DSU Award immediately prior to the Effective Time, including any deferral election applicable to the delivery of vested shares; provided, however, that certain restrictions may be imposed on the GasCo DSU Award after the Effective Time if necessary and appropriate to comply with applicable Law; and further provided, however, that from and after the Effective Time, the number of Parent Shares to which such GasCo DSU Award relates shall be equal to the product obtained by multiplying (i) the number of Parent Shares to which such Parent DSU Award related immediately prior to the Effective Time by (ii) the GasCo Ratio (with any resulting fractional share rounded up to the nearest whole number of shares) (each such deferred stock unit, a GasCo DSU Award ).
(g) Outstanding Deferred Stock Unit Awards Held by Transferred Directors . Each Parent DSU Award held by a Transferred Director that is outstanding as of immediately prior to the Effective Time shall be converted into a CoalCo DSU Award (as defined below), and shall otherwise be subject to the same terms and conditions after the Effective Time as the terms and conditions applicable to the corresponding Parent
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DSU Award immediately prior to the Effective Time, including any deferral election applicable to the delivery of vested shares (except that references to Parent in the applicable plan and award agreement shall be deemed to refer to CoalCo, unless clearly dictated otherwise by context); provided, however, that certain restrictions may be imposed on the CoalCo DSU Award after the Effective Time if necessary and appropriate to comply with applicable Law; and further provided, however, that from and after the Effective Time, the number of CoalCo Shares to which such CoalCo DSU Award relates shall be equal to the product obtained by multiplying (i) the number of Parent Shares to which the corresponding Parent DSU Award related immediately prior to the Effective Time by (ii) the CoalCo Ratio (with any resulting fractional share rounded up to the nearest whole number of shares) (each such deferred stock unit, a CoalCo DSU Award ).
(h) Miscellaneous Award Terms . None of the Separation, the Distribution or any employment transfer described in Section 3.01(a) shall constitute a termination of employment or separation from service for any Employee or nonemployee directors of either Parent (including GasCo) or CoalCo, or their respective Groups (including Transferred Directors) for purposes of any GasCo Award or any CoalCo Award. After the Effective Time, for any award adjusted under this Section 4.02 , any reference to a change in control, change of control or similar definition in an award agreement, employment agreement or Parent Equity Plan applicable to such award (A) with respect to GasCo Awards, shall be deemed to refer to a change in control, change of control or similar definition as set forth in the applicable award agreement, employment agreement or Parent Equity Plan, and (B) with respect to CoalCo Awards, shall be deemed to refer to a Change in Control as defined in the CoalCo Equity Plan.
(i) Tax Reporting and Withholding. Unless prohibited by applicable Law or as otherwise expressly contemplated herein, following the Effective Time, (i) GasCo shall be solely responsible for all Liabilities, including all income, payroll and other tax remittance and reporting, and entitled to all tax deductions, associated with GasCo Awards, including all GasCo Option Awards, regardless of whether the same are held by GasCo Group Employees or CoalCo Group Employees, and (ii) CoalCo shall be solely responsible for all Liabilities, including all income, payroll and other tax remittance and reporting, and entitled to all tax deductions associated with, CoalCo Awards, other than GasCo Option Awards. Notwithstanding anything to the contrary herein, as it relates to unvested GasCo Options held by CoalCo Employees, the parties hereby acknowledge and agree that CoalCo shall provide reimbursement to GasCo, upon such terms and utilizing such concepts as are set forth in the Separation and Distribution Agreement, with respect to costs and expenses (including any finance expense) incurred by GasCo following the Effective Time in connection with such GasCo Options held by CoalCo Employees. GasCo shall provide periodic invoices to CoalCo that reflect all such costs and expenses that are to be reimbursed and GasCo and CoalCo further agree to enter into any necessary agreements regarding the subject matter of this Section 4.02(i) to enable GasCo and CoalCo to fulfill their respective obligations hereunder, including but not limited to compliance with all applicable Laws regarding the reporting, withholding or remitting of income and/or taxes.
(j) Registration and Other Regulatory Requirements . CoalCo agrees to file Forms S-1, S-3 and/or S-8 registration statements with respect to, and to cause to be registered pursuant to the Securities Act, the CoalCo Shares authorized for issuance under the CoalCo Equity Plan, as required pursuant to the Securities Act, before the date of issuance of any CoalCo Shares pursuant to the CoalCo Equity Plan. The Parties shall take such additional actions as are deemed necessary or advisable to effectuate the foregoing provisions of this Section 4.02(j) . Parent agrees to facilitate the adoption and approval of the CoalCo Equity Plan consistent with the requirements of Treasury Regulations Section 1.162-27(f)(4)(iii).
(k) Vesting of Equity Rights Pursuant to an Individual Agreements . Notwithstanding the foregoing, if and to the extent that any CoalCo Group Employee is a party to an Individual Agreement with Parent (and/or other parties) that provides for any conflicting vesting terms than those set forth in this Section 4.02 upon a change in control (as defined in such agreement) that is triggered by the Separation or upon a certain date, then the vesting and other terms approved by the Parent Compensation Committee or provided for under such agreement shall control.
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Section 4.03 Nonequity Incentive Plans .
(a) Annual STIC . Immediately prior to the Effective Time, CoalCo Group Employees shall cease participating in each Parent annual bonus plan or policy, including without limitation the Amended and Restated CONSOL Energy Inc. Executive Annual Incentive Plan (the Parent STIC ) and, as of the Effective Time, CoalCo Group Employees who were eligible to participate in the Parent STIC shall thereafter be eligible to participate (to the extent they are not already participating therein) in any CoalCo annual bonus plans or policies existing as of, or implemented by CoalCo following, the Effective Time (the CoalCo Annual Bonus Plans ). All GasCo Group Employees shall continue participation in each Parent annual bonus plan or policy to which they were entitled to participate prior to the Effective Time, including without limitation the Parent STIC.
(b) Payment under Annual Nonequity Incentive Plans . Payment to CoalCo Group Employees with respect to participation in the 2017 Parent STIC shall be measured based on relevant performance metrics of Parent with respect to the first nine months of the year, and CoalCo (and all members of the CoalCo Group) with respect to the last three months of 2017 (such proration to be eight months and four months in the case of David Khani and Katharine Fredriksen, respectively). The obligation and responsibility for funding, paying and discharging all obligations under the Parent STIC, any CoalCo Annual Bonus Plans or other nonequity incentive plans that may be in place in respect of the calendar year in which the Effective Time occurs shall be undertaken and borne by the respective employer (GasCo or CoalCo) that employs the Employee following the Effective Time (whether GasCo Group Employee or CoalCo Group Employee) that is entitled to receipt of such payment amount, regardless of which entity was the sponsor or creator of said nonequity incentive plan, or whose metrics were utilized in determining the relative performance level and payment entitlement.
(c) Incentive Plans. As of the Effective Time, (i) the Parent Group shall retain (or assume to the extent necessary) sponsorship of any commission bonus and sales incentive plans covering GasCo Group Employees, and, from and after the Effective Time, all Liabilities thereunder shall be Liabilities of the Parent Group, and (ii) the CoalCo Group shall retain (or assume to the extent necessary) sponsorship of any commission bonus and sales incentive plans covering CoalCo Group Employees, and, from and after the Effective Time, all Liabilities thereunder shall be Liabilities of the CoalCo Group.
Section 4.04 Severance Benefits . CoalCo shall be solely responsible for all Liabilities in respect of all of the costs of providing benefits under any applicable severance, separation, redundancy, termination or similar plan, program, practice, contract, agreement, law or regulation (such benefits to include, if applicable, any medical or other welfare benefits, outplacement benefits, accrued vacation, and taxes) (collectively, Severance Benefits ) relating to the termination or alleged termination of employment of any Former CoalCo Group Employee and of any CoalCo Group Employee that occurs on or after the Distribution Date. Parent (or GasCo, as applicable) shall be solely responsible for all Liabilities in respect of all the costs of providing the Severance Benefits relating to the termination or alleged termination of employment of any (i) CoalCo Group Employee or Former CoalCo Group Employee that occurred prior to the Distribution Date and (ii) Former Parent Group Employee and of any GasCo Group Employee that occurs prior to, on or after the Distribution Date.
Section 4.05 Director Compensation .
(a) Parent Director Deferred Fee Plan . Parent (and GasCo, as applicable) shall continue to be responsible for Liabilities in respect of the GasCo Nonemployee Directors, Former Nonemployee Directors and each applicable Transferred Director under the Parent Director Deferred Fee Plan. For avoidance of any doubt, the Parent Director Deferred Fee Plan shall continue to implement any outstanding irrevocable deferral election of a Transferred Director in effect immediately prior to the Effective Time until the end of applicable board year covered by such election, and CoalCo shall be responsible for the remittance of any deferred amounts pursuant to such election to the trust agreement established in connection with the Parent Director Deferred Fee Plan.
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(b) Director Compensation. Parent (or GasCo, as applicable) shall be responsible for the payment of any fees for service on the Parent Board or GasCo Board, as applicable, that are earned at, before, or after the Effective Time, and CoalCo shall not have any responsibility for any such payments. With respect to any CoalCo Nonemployee Director, including any Transferred Director, CoalCo shall be responsible for the payment of any fees for service on the CoalCo Board that are earned at any time after the Effective Time and GasCo shall not have any responsibility for any such payments. Notwithstanding the foregoing, CoalCo shall commence paying quarterly cash retainers to CoalCo Nonemployee Directors in respect of all payments due and owing as of November 1, 2017; provided that, in no event shall any compensation be paid that would be in excess of that to which said Nonemployee Director would otherwise be entitled.
(c) Tax Reporting and Withholding. Unless prohibited by applicable Law, following the Effective Time, (i) GasCo shall be solely responsible for all Liabilities, including all income, payroll and other tax remittance and reporting, associated with compensation and benefits for GasCo Nonemployee Directors and Former Nonemployee Directors (other than Transferred Directors), and (ii) CoalCo shall be solely responsible for all Liabilities, including all income, payroll and other tax remittance and reporting, associated with compensation and benefits for the CoalCo Nonemployee Directors (including the Transferred Directors). Parent (and GasCo, as applicable) and CoalCo agree to enter into any necessary agreements regarding the subject matter of this Section 4.05(a) to enable Parent (and GasCo, as applicable) and CoalCo to fulfill their respective obligations hereunder, including but not limited to compliance with all applicable Laws regarding the reporting, withholding or remitting of income and/or taxes.
ARTICLE V
QUALIFIED RETIREMENT PLANS
Section 5.01 Parent Pension Plan .
(a) Transfer of Parent Pension Plan . As of the Distribution Date, Parent shall transfer, and CoalCo shall accept sponsorship of, the Parent Pension Plan. Upon completion of such transfer, GasCo shall be relieved of the Liabilities for the Parent Pension Plan. Said transfer shall be evidenced by resolutions of the Parent Board and the CoalCo Board. Parent (or GasCo, as applicable) and/or Coal Co shall file any notice required under Section 4043 of ERISA, unless waived.
(b) Amendment to Trust; Retitling of Assets . On, or as soon as practicable after, the Distribution Date and after receipt by GasCo of a copy of certified resolutions of the CoalCo Board (or its authorized committee or other delegate) evidencing adoption of the Parent Pension Plan and the Parent Pension Plan Trust, GasCo and CoalCo shall amend the Parent Pension Trust to transfer sponsorship of the Parent Pension Plan. GasCo and CoalCo will provide the trustee of the Parent Pension Plan Trust with appropriate documentation necessary to retitle the trust assets.
(c) Parent Pension Plan Provisions . The Parent Pension Plan shall be amended, effective as of or prior to the Effective Date, to provide for the change in sponsorship. The Plan Administrator shall distribute a Summary of Material Modifications in accordance with law.
(d) Plan Fiduciaries . For all periods after the Distribution Date, the Parties agree that the applicable fiduciaries of the Parent Pension Plan shall have the authority with respect to the Parent Pension Plan to determine the plan investments and such other matters as are within the scope of their duties under ERISA and the terms of the applicable plan documents. CoalCo will appoint members to the Retirement Board under the Parent Pension Plan as of the Distribution Date.
Section 5.02 CoalCo Investment Plan .
(a) Establishment of Plans. CoalCo has established the CoalCo Investment Plan effective September 1, 2017, which initially has substantially the same terms as those of the corresponding Parent Investment
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Plan as in effect immediately prior to the Distribution Date. CoalCo ceased participation in the Parent Investment Plan as of September 1, 2017.
(b) Transfer of Account Balances . No balances will be transferred directly from the Parent Investment Plan to the CoalCo Investment Plan through a trustee transfer or otherwise. Distributions will be made to participants from the Parent Investment Plan in accordance with the terms of the Parent Investment Plan and to the extent such participant has met the eligibility requirements for distribution under and in accordance with the terms of the Parent Investment Plan.
(c) CoalCo Share Fund in Parent Investment Plan. CoalCo Shares distributed in connection with the Distribution in respect of Parent Shares held in Parent Investment Plan accounts of GasCo Group Employees or Former Parent Group Employees who participate in the Parent Investment Plan shall be deposited in a CoalCo Share Fund under the Parent Investment Plan. Such participants in the Parent Investment Plan will be prohibited from increasing their holdings in such CoalCo Share Fund under the Parent Investment Plan After the Effective Time, all outstanding investments in the CoalCo Share Fund under the Parent Investment Plan may be liquidated and reinvested in other investment funds offered under the Parent Investment Plan, on such dates and in accordance with such procedures as are determined by the administrator and the named fiduciary of the Parent Investment Plan.
(d) Determination Letter Request . CoalCo shall submit an application to the IRS as soon as practicable after the Plans effective date (but no later than the last day of the applicable remedial amendment period as defined in applicable Code provisions) requesting a determination letter regarding the qualified status of the CoalCo Savings Plans under Sections 401(a) and 401(k) of the Code and the tax-exempt status of their related trust under Section 501(a) of the Code and shall make any amendments reasonably requested by the IRS to receive such a favorable determination letter.
(e) Parent Investment Plan after Distribution Date . From and after the Distribution Date, (i) the Parent Investment Plan shall continue to be responsible for Liabilities in respect of GasCo Group Employees and Former Parent Group Employees under the Plan, and (ii) no CoalCo Group Employees or Former CoalCo Group Employees shall accrue any benefits under the Parent Investment Plan.
(f) Plan Fiduciaries . For all periods after September 1, 2017, the Parties agree that the applicable fiduciaries of each of the Parent Investment Plan and the CoalCo Investment Plan, respectively, shall have the authority with respect to the Parent Investment Plan and the CoalCo Investment Plan, respectively, to determine the investment alternatives, the terms and conditions with respect to those investment alternatives and such other matters as are within the scope of their duties under ERISA and the terms of the applicable plan documents.
(g) No Distributions . The transfer of any CoalCo Group Employees employment to the CoalCo Group will not entitle any CoalCo Group Employee to a distribution of his or her benefit under the Parent Investment Plan or CoalCo Investment Plan as a result of such transfer of employment.
ARTICLE VI
NONQUALIFIED DEFERRED COMPENSATION PLANS
Section 6.01 CoalCo Nonqualified Plans.
(a) Establishment of CoalCo Nonqualified Plans . Effective as of the Distribution Date, CoalCo shall establish the CoalCo Nonqualified Plans. Each of the CoalCo Nonqualified Plans shall initially have substantially the same terms as those of the corresponding Parent Divided Nonqualified Plan as in effect immediately prior to the Distribution Date.
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(b) Assumption of Liabilities from Parent . As of the Distribution Date, CoalCo shall, and shall cause each CoalCo Nonqualified Plan to, assume all Liabilities under the corresponding Parent Divided Nonqualified Plan for the account balances and accrued benefits of CoalCo Group Employees and Former CoalCo Group Employees and their respective beneficiaries and/or alternate payees determined as of immediately prior to the Distribution Date, and the Parent Group and the Parent Divided Nonqualified Plans shall be relieved of all such Liabilities.
(c) Parent Divided Nonqualified Plans. GasCo shall retain all Liabilities under the Parent Divided Nonqualified Plans for the benefits for GasCo Group Employees and Former Parent Group Employees and their respective beneficiaries and/or alternate payees. As of and after the Effective Time, CoalCo Group Employees and Former CoalCo Group Employees shall cease to be participants in the Parent Divided Nonqualified Plans.
Section 6.02 Participation; Distributions . The Parties acknowledge that none of the transactions contemplated by this Agreement, the Separation and Distribution Agreement or any Ancillary Agreement will trigger a payment or distribution of compensation under any of the Parent Divided Nonqualified Plans or CoalCo Nonqualified Plans for any participant and, consequently, that the payment or distribution of any compensation to which such participant is entitled under any of the Parent Divided Nonqualified Plans or CoalCo Nonqualified Plans will occur upon such participants separation from service from the CoalCo Group or at such other time as provided in the applicable CoalCo Nonqualified Plan or participants deferral election (if any).
ARTICLE VII
WELFARE BENEFIT PLANS
Section 7.01 Welfare Plans .
(a) Establishment of CoalCo Welfare Plans . As of or prior to the Distribution Date, CoalCo shall, or shall cause the applicable member of the CoalCo Group to, establish the CoalCo Welfare Plans, which shall initially have terms substantially similar in the aggregate those of the corresponding Parent Welfare Plans as in effect immediately prior to the Distribution Date. To the extent CoalCo is unable to cause one or more Welfare Plans to be established and for all CoalCo Group Employees (and Former CoalCo Group Employees as applicable) to be enrolled with respect thereto as of the Distribution Date, the parties agree to enter into such arrangements and agreements pursuant to Section 2.02 as may be necessary or desirable to ensure an equitable reimbursement of costs and obligations incurred by GasCo during that period following the Distribution Date for which CoalCo Group Employees and Former CoalCo Group Employees have benefits provided through Parent Welfare Plans
(b) Waiver of Conditions; Benefit Maximums . CoalCo shall use commercially reasonable efforts to cause the CoalCo Welfare Plans to:
(i) with respect to initial enrollment as of the Distribution Date, waive or request a carrier waive (A) all limitations as to preexisting conditions, exclusions, and service conditions with respect to participation and coverage requirements applicable to any CoalCo Group Employee or a Former CoalCo Group Employee, other than limitations that were in effect with respect to the CoalCo Group Employee or a Former CoalCo Group Employee under the applicable Parent Welfare Plan as of immediately prior to the Distribution Date, and (B) any waiting period limitation or evidence of insurability requirement applicable to a CoalCo Group Employee or Former CoalCo Group Employee other than limitations or requirements that were in effect with respect to such CoalCo Group Employee or Former CoalCo Group Employee under the applicable Parent Welfare Plans as of immediately prior to the Distribution Date; and
(ii) take into account (A) with respect to aggregate annual, lifetime, or similar maximum benefits available under the CoalCo Welfare Plans, a CoalCo Group Employees or Former CoalCo
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Group Employees prior claim experience under the Parent Welfare Plans and any Benefit Plan that provides leave benefits; and (B) any eligible expenses incurred by a CoalCo Group Employee or a Former CoalCo Group Employee and his or her covered dependents during the portion of the plan year of the applicable Parent Welfare Plan ending as of the Distribution Date to be taken into account under such CoalCo Welfare Plan for purposes of satisfying all deductible, coinsurance, and maximum out-of-pocket requirements applicable to such CoalCo Group Employee or Former CoalCo Group Employee and his or her covered dependents for the applicable plan year to the same extent as such expenses were taken into account by Parent for similar purposes prior to the Distribution Date as if such amounts had been paid in accordance with such CoalCo Welfare Plan.
(c) Health Savings Accounts . As of the Distribution Date, CoalCo shall, or shall cause a member of the CoalCo Group to, establish a CoalCo Welfare Plan that will provide health savings account benefits to CoalCo Group Employees on and after the Distribution Date (an CoalCo HSA ). It is the intention of the Parties that all activity under a CoalCo Group Employees health savings account under a Parent Welfare Plan (a Parent HSA ) for the year in which the Distribution Date occurs be treated instead as activity under the corresponding account under the CoalCo HSA, such that (i) any period of participation by a CoalCo Group Employee in a Parent HSA during the year in which the Distribution Date occurs will be deemed a period when such CoalCo Group Employee participated in the corresponding CoalCo HSA; (ii) all expenses incurred during such period will be deemed incurred while such CoalCo Group Employees coverage was in effect under the corresponding CoalCo HSA; and (iii) all elections and reimbursements made with respect to such period under the Parent HSA will be deemed to have been made with respect to the corresponding CoalCo HSA.
(d) Flexible Spending Accounts . The Parties shall use commercially reasonable efforts to ensure that as of the Distribution Date any health or dependent care flexible spending accounts of CoalCo Group Employees (whether positive or negative) (the Transferred Account Balances ) under Parent Welfare Plans that are health or dependent care flexible spending account plans are transferred, as soon as practicable after the Distribution Date, from the Parent Welfare Plans to the corresponding CoalCo Welfare Plans. Such CoalCo Welfare Plans shall assume responsibility as of the Distribution Date for all outstanding health or dependent care claims under the corresponding Parent Welfare Plans of each CoalCo Group Employee for the year in which the Distribution Date occurs and shall assume and agree to perform the obligations of the corresponding Parent Welfare Plans from and after the Distribution Date. As soon as practicable after the Distribution Date, and in any event within 30 days after the amount of the Transferred Account Balances is determined or such later date as mutually agreed upon by the Parties, CoalCo shall pay GasCo the net aggregate amount of the Transferred Account Balances, if such amount is positive, and GasCo shall pay CoalCo the net aggregate amount of the Transferred Account Balances, if such amount is negative.
(e) Allocation of Welfare Assets and Liabilities . Effective as of the Distribution Date, the CoalCo Group shall assume all Liabilities relating to, arising out of or resulting from health and welfare coverage or claims incurred by or on behalf of CoalCo Group Employees or Former CoalCo Group Employees or their covered dependents under the Parent Welfare Plans or CoalCo Welfare Plans before, at, or after the Distribution Date. Except as may be expressly set forth on Schedule 7.01 hereto, no Parent Welfare Plan shall provide coverage to any CoalCo Group Employee or Former CoalCo Group Employee after the Distribution Date
Section 7.02 COBRA . The Parent Group shall continue to be responsible for complying with, and providing coverage pursuant to, the health care continuation requirements of COBRA, and the corresponding provisions of the Parent Welfare Plans with respect to any GasCo Group Employees and any Former Parent Group Employees (and their covered dependents) who incur a qualifying event under COBRA before, as of, or after the Distribution Date. Effective as of the Distribution Date, except as may be specifically set forth on Schedule 7.02 hereto, the CoalCo Group shall assume responsibility for complying with, and providing coverage pursuant to, the health care continuation requirements of COBRA, and the corresponding provisions of the CoalCo Welfare Plans with respect
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to any CoalCo Group Employees or Former CoalCo Group Employees (and their covered dependents) who incur a qualifying event or loss of coverage under the Parent Welfare Plans and/or the CoalCo Welfare Plans before, as of, or after the Distribution Date. The Parties agree that the consummation of the transactions contemplated by the Separation and Distribution Agreement shall not constitute a COBRA qualifying event for any purpose of COBRA.
Section 7.03 Vacation, Holidays and Leaves of Absence . Effective as of the Distribution Date, the CoalCo Group shall assume all Liabilities of the Parent Group with respect to vacation, holiday, annual leave or other leave of absence, and required payments related thereto, for each CoalCo Group Employee. The Parent Group shall retain all Liabilities with respect to vacation, holiday, annual leave or other leave of absence, and required payments related thereto, for each GasCo Group Employee.
Section 7.04 Severance and Unemployment Compensation . Without limiting the generality of Section 4.04 , effective as of the Distribution Date, the CoalCo Group shall assume any and all Liabilities to, or relating to, CoalCo Group Employees and Former CoalCo Group Employees in respect of severance and unemployment compensation, regardless of whether the event giving rise to the Liability occurred before, at or after the Distribution Date. The Parent Group shall be responsible for any and all Liabilities to, or relating to, GasCo Group Employees and Former Parent Group Employees in respect of severance and unemployment compensation, regardless of whether the event giving rise to the Liability occurred before, at or after the Distribution Date.
Section 7.05 Workers Compensation; Black Lung . With respect to claims for workers compensation, black lung or other similar benefits in the United States, (a) the CoalCo Group shall be responsible for claims in respect of CoalCo Group Employees and Former CoalCo Group Employees, whether occurring before, at or after the Distribution Date, and (b) the Parent Group shall be responsible for all claims in respect of GasCo Group Employees and Former Parent Group Employees, whether occurring before, at or after the Distribution Date. The treatment of workers compensation claims by CoalCo with respect to Parent (and GasCo, as applicable) insurance policies shall be governed by Section 5.1 and Section 5.2 of the Separation and Distribution Agreement.
Section 7.06 Insurance Contracts . To the extent that any Parent Welfare Plan is funded through the purchase of an insurance contract or is subject to any stop loss contract, the Parties will cooperate and use their commercially reasonable efforts to replicate such insurance contracts for CoalCo (except to the extent that changes are required under applicable state insurance Laws or filings by the respective insurers) and to maintain any pricing discounts or other preferential terms for both Parent and CoalCo for a reasonable term. Neither Party shall be liable for failure to obtain such insurance contracts, pricing discounts, or other preferential terms for the other Party. Each Party shall be responsible for any additional premiums, charges, or administrative fees that such Party may incur pursuant to this Section 7.06 .
Section 7.07 Third-Party Vendors . Except as provided below, to the extent that any Parent Welfare Plan is administered by a third-party vendor, the Parties will cooperate and use their commercially reasonable efforts to replicate any contract with such third-party vendor for CoalCo and to maintain any pricing discounts or other preferential terms for both GasCo and CoalCo for a reasonable term. Neither Party shall be liable for failure to obtain such pricing discounts or other preferential terms for the other Party. Each Party shall be responsible for any additional premiums, charges, or administrative fees that such Party may incur pursuant to this Section 7.07 .
Section 7.08 Nondivided Welfare Plans . As of the Distribution Date, (a) the CoalCo Group shall retain (or assume to the extent necessary) sponsorship of the CONSOL Energy Inc. Retiree Health and Welfare Plan (which includes as component parts the Coal Act Benefit Plan for Eligible Pensioners and Dependents of CONSOL Energy Inc. and its subsidiaries and the 2017 Benefit Plan for Retirees Formerly Represented by the United Mine Workers of America) and, from and after the Distribution Date, all Assets and Liabilities thereunder shall be Assets and Liabilities of the CoalCo Group, and the Parent Group shall no responsibility for any costs or expenses incurred from and after the Distribution Date that is in any way related to such plans.
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ARTICLE VIII
MISCELLANEOUS
Section 8.01 Employee Records .
(a) Sharing of Information. Subject to any limitations imposed by applicable Law, Parent (and GasCo, as applicable) and CoalCo (acting directly or through members of the Parent Group or the CoalCo Group, respectively) shall provide to the other and their respective authorized agents and vendors all information necessary for the Parties to perform their respective duties under this Agreement. The provision of any information pursuant to Section 8.01 shall not affect the ownership of such information (which shall be determined solely in accordance with the terms of this Agreement and the Separation and Distribution Agreement), or constitute a grant of rights in or to any such information.
(b) Transfer of Personnel Records and Authorization . Subject to any limitation imposed by applicable Law and to the extent that it has not done so before the Distribution Date, (i) Parent (and GasCo, as applicable) shall transfer to CoalCo any and all employment records (including any Form I-9, Form W-2 or other IRS forms) with respect to CoalCo Group Employees and Former CoalCo Group Employees and other records reasonably required by CoalCo to enable CoalCo properly to carry out its obligations under this Agreement, and (ii) CoalCo shall transfer to Parent (and GasCo, as applicable) any and all employment records (including any Form I-9, Form W-2 or other IRS forms) with respect to GasCo Group Employees and Former Parent Group Employees and other records reasonably required by Parent (and GasCo, as applicable) to enable Parent (and GasCo, as applicable) properly to carry out its obligations under this Agreement. Such transfer of records generally shall occur as soon as administratively practicable at or after the Distribution Date, provided that the Parties shall cooperate, subject to applicable Law, to effectuate such transfer at such later date as may be necessary or appropriate with respect to any Delayed Transfer Employee. Each Party will permit the other Party reasonable access to Employee records, to the extent reasonably necessary for such accessing Party to carry out its obligations hereunder.
(c) Access to Records. To the extent not inconsistent with this Agreement, the Separation and Distribution Agreement or any applicable privacy protection Laws or regulations, reasonable access to Employee-related records after the Separation will be provided to members of the Parent Group and members of the CoalCo Group pursuant to the terms and conditions of Article VI of the Separation and Distribution Agreement.
(d) Maintenance of Records. With respect to retaining, destroying, transferring, sharing, copying and permitting access to all Employee-related information, Parent (and GasCo, as applicable) and CoalCo shall comply with all applicable Laws, regulations and internal policies, and shall indemnify and hold harmless each other from and against any and all Liability, claims, actions, and damages that arise from a failure (by the indemnifying Party or its Subsidiaries or their respective agents) to so comply with all applicable Laws, regulations and internal policies applicable to such information.
(e) Cooperation. After the Effective Time, except in the case of an adversarial Action or Dispute between GasCo and CoalCo, or any members of their respective Groups, each Party shall use commercially reasonable efforts to cooperate and work together to unify, consolidate and share (to the extent permissible under applicable privacy/data protection laws) all relevant documents, resolutions, government filings, data, payroll, employment and benefit plan information on regular timetables and cooperate as needed with respect to (i) any litigation with respect to any employee benefit plan, policy or arrangement contemplated by this Agreement, (ii) efforts to seek a determination letter, private letter ruling or advisory opinion from the IRS or U.S. Department of Labor on behalf of any employee benefit plan, policy or arrangement contemplated by this Agreement, and (iii) any submissions, filings, responses or communications that are required to be made or supplemented to the IRS, U.S. Pension Benefit Guaranty Corporation, U.S. Department of Labor or any other Governmental Authority; provided , however , that requests for cooperation must be reasonable and not interfere with daily business operations.
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(f) Confidentiality. Notwithstanding anything to the contrary in this Agreement, all confidential records and data relating to Employees to be shared or transferred pursuant to this Agreement shall be subject to Section 6.9 of the Separation and Distribution Agreement and the requirements of applicable Law.
Section 8.02 Preservation of Rights to Amend . The rights of each member of the Parent Group and each member of the CoalCo Group to amend, waive, or terminate any plan, arrangement, agreement, program, or policy referred to herein shall not be limited in any way by this Agreement.
Section 8.03 Fiduciary Matters . Each of the Parties acknowledges that actions required to be taken pursuant to this Agreement may be subject to fiduciary duties or standards of conduct under ERISA or other applicable Law, and no Party shall be deemed to be in violation of this Agreement if it fails to comply with any provisions hereof based upon its good-faith determination (as supported by advice from counsel experienced in such matters) that to do so would violate such a fiduciary duty or standard. Each Party shall be responsible for taking such actions as are deemed necessary and appropriate to comply with its own fiduciary responsibilities and shall fully release and indemnify the other Party for any Liabilities caused by the failure to satisfy any such responsibility.
Section 8.04 Further Assurances . Each Party hereto shall take, or cause to be taken, any and all reasonable actions, including the execution, acknowledgment, filing and delivery of any and all documents and instruments that any other Party hereto may reasonably request in order to effect the intent and purpose of this Agreement and the transactions contemplated hereby.
Section 8.05 Counterparts; Entire Agreement; Corporate Power .
(a) This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Party.
(b) This Agreement, the Separation and Distribution Agreement and the Ancillary Agreements and the Exhibits, Schedules and appendices hereto and thereto contain the entire agreement between the Parties with respect to the subject matter hereof, supersede all previous agreements, negotiations, discussions, writings, understandings, commitments and conversations with respect to such subject matter, and there are no agreements or understandings between the Parties other than those set forth or referred to herein or therein.
Section 8.06 Governing Law . Section 10.2 (Governing Law) of the Separation and Distribution Agreement is hereby incorporated herein by reference and shall apply as if fully set forth herein mutatis mutandis.
Section 8.07 Assignability . This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns. Neither Party may assign its rights or delegate its obligations under this Agreement without the express prior written consent of the other Party hereto; provided, however, that each Party may assign all of its rights and obligations under this Agreement to any of its Subsidiaries; and provided, further, that no such assignment shall release the assigning Party from any of its liabilities or obligations under this Agreement. Notwithstanding the foregoing, no consent for assignment shall be required for the assignment of a Partys rights and obligations under this Agreement, the Separation and Distribution Agreement and all other Ancillary Agreements in whole ( i.e ., the assignment of a partys rights and obligations under this Agreement and all Ancillary Agreements all at the same time) in connection with a change of control of a Party so long as the resulting, surviving or transferee Person assumes all the obligations of the relevant Party by operation of Law or pursuant to an agreement in form and substance reasonably satisfactory to the other Party. Nothing herein is intended to, or shall be construed to, prohibit either Party or any of its Subsidiaries from being party to or undertaking a transaction that would result in a change of control.
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Section 8.08 Third-Party Beneficiaries . The provisions of this Agreement are solely for the benefit of the Parties and are not intended to confer upon any other Person except the Parties any rights or remedies hereunder. There are no other third-party beneficiaries of this Agreement and this Agreement shall not provide any other Third Party with any remedy, claim, Liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement. Nothing in this Agreement is intended to amend any employee benefit plan or affect the applicable plan sponsors right to amend or terminate any employee benefit plan pursuant to the terms of such plan. The provisions of this Agreement are solely for the benefit of the Parties, and no current or former Employee, officer, director, or independent contractor or any other individual associated therewith shall be regarded for any purpose as a third-party beneficiary of this Agreement.
Section 8.09 Notices . All notices, requests, claims, demands or other communications under this Agreement shall be delivered in accordance with Section 10.5 of the Separation and Distribution Agreement.
Section 8.10 Severability . If any provision of this Agreement or the application thereof to any Person or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof, or the application of any such provision to Persons or circumstances or in jurisdictions other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby. Upon such determination, the Parties shall negotiate in good faith in an effort to agree upon such a suitable and equitable provision to effect the original intent of the Parties.
Section 8.11 Force Majeure . No Party shall be deemed to be in default of this Agreement or, unless otherwise expressly provided therein, any Ancillary Agreement for any delay or failure to fulfill any obligation hereunder or thereunder so long as and to the extent to which any delay or failure in the fulfillment of such obligations is prevented, frustrated, hindered or delayed as a consequence of circumstances of Force Majeure. In the event of any such excused delay, the time for performance shall be extended for a period equal to the time lost by reason of the delay. A Party claiming the benefit of this provision shall, as soon as reasonably practicable after the occurrence of any such event, (a) provide written notice to the other Party of the nature and extent of any such Force Majeure condition; and (b) use commercially reasonable efforts to remove any such causes and resume performance under this Agreement and the Ancillary Agreements, as applicable, as soon as reasonably practicable.
Section 8.12 Headings . The Article, Section and Paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
Section 8.13 Survival of Covenants . Except as expressly set forth in this Agreement, the covenants, representations and warranties and other agreements contained in this Agreement, and Liability for the breach of any obligations contained herein, shall survive the Effective Time and shall remain in full force and effect thereafter.
Section 8.14 Waivers of Default . Waiver by any Party of any default by the other Party of any provision of this Agreement shall not be deemed a waiver by the waiving Party of any subsequent or other default, nor shall it prejudice the rights of the waiving Party. No failure or delay by any Party in exercising any right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall a single or partial exercise thereof prejudice any other or further exercise thereof or the exercise of any other right, power or privilege.
Section 8.15 Dispute Resolution . The dispute resolution procedures set forth in Article VII of the Separation and Distribution Agreement shall apply to any dispute, controversy or claim arising out of or relating to this Agreement.
Section 8.16 Specific Performance . Subject to Article VII of the Separation and Distribution Agreement, in the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of this Agreement, the Party or Parties who are, or are to be, thereby aggrieved shall have the right to specific performance and injunctive or other equitable relief (on an interim or permanent basis) in respect of its rights or their rights under this Agreement, in addition to any and all other rights and remedies at Law or in equity, and all such rights and
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remedies shall be cumulative. The Parties agree that the remedies at Law for any breach or threatened breach, including monetary damages, may be inadequate compensation for any loss and that any defense in any Action for specific performance that a remedy at Law would be adequate is waived. Any requirements for the securing or posting of any bond with such remedy are hereby waived by each of the Parties.
Section 8.17 Amendments . No provisions of this Agreement shall be deemed waived, amended, supplemented or modified by a Party, unless such waiver, amendment, supplement or modification is in writing and signed by the authorized representative of the Party against whom it is sought to enforce such waiver, amendment, supplement or modification.
Section 8.18 Interpretation . Section 10.16 (Interpretation) of the Separation and Distribution Agreement is hereby incorporated herein by reference and shall apply as if fully set forth herein mutatis mutandis.
Section 8.19 Mutual Drafting . This Agreement shall be deemed to be the joint work product of the Parties and any rule of construction that a document shall be interpreted or construed against a drafter of such document shall not be applicable to this Agreement.
Section 8.20 Provisions Incorporated by Reference . The following provisions of the Separation and Distribution Agreement are hereby incorporated herein by reference and shall apply as if fully set forth herein mutatis mutandis: (a) Section 6.3 (Compensation for Providing Information), (b) Section 6.5 (Limitations of Liability); and (c) Section 6.9 (Confidentiality).
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IN WITNESS WHEREOF, the Parties have caused this Employee Matters Agreement to be executed by their duly authorized representatives.
CONSOL ENERGY INC. |
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By: |
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Name: |
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Title: |
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CONSOL MINING CORPORATION |
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By: |
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Name: |
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Title: |
Exhibit 2.4
FORM OF
INTELLECTUAL PROPERTY MATTERS AGREEMENT
BY AND BETWEEN
CONSOL ENERGY INC.
AND
CONSOL MINING CORPORATION.
DATED AS OF , 2017
Table of Contents
ARTICLE I DEFINITIONS |
1 | |||||
1.01 |
Definitions | 1 | ||||
ARTICLE II TRANSFERRED INTELLECTUAL PROPERTY RIGHTS AND TECHNOLOGY AND ASSUMPTION OF LIABILITIES | 6 | |||||
2.01 |
Assignment of Intellectual Property Rights | 6 | ||||
2.02 |
Common Infrastructure Copyrights | 6 | ||||
2.03 |
Common Infrastructure Trade Secrets | 7 | ||||
2.04 |
Acceptance and Assumption of Transferred Intellectual Property Liabilities | 7 | ||||
2.05 |
Acceptance and Assumption by Parent of Common Infrastructure Liabilities | 8 | ||||
2.06 |
Delayed Transfers; Wrong Pockets | 8 | ||||
2.07 |
Trademarks To Be Surrendered | 10 | ||||
2.08 |
Description of Services in Retained Trademarks | 10 | ||||
2.09 |
Description of Services in Transferred Trademarks | 10 | ||||
ARTICLE III LICENSES FROM PARENT TO COALCO |
10 | |||||
3.01 |
License Grants | 10 | ||||
3.02 |
Change of Corporate Name | 10 | ||||
ARTICLE IV LICENSES FROM COALCO TO PARENT |
10 | |||||
4.01 |
License Grants | 10 | ||||
4.02 |
Change of Corporate Name | 10 | ||||
ARTICLE V ADDITIONAL INTELLECTUAL PROPERTY RELATED MATTERS |
10 | |||||
5.01 |
Assignments and Licenses | 10 | ||||
5.02 |
Assistance By Employees | 11 | ||||
5.03 |
Inventor Compensation | 11 | ||||
5.04 |
No Implied Licenses | 11 | ||||
5.05 |
No Obligation To Prosecute or Maintain Patents | 11 | ||||
5.06 |
Technical Assistance | 11 | ||||
5.07 |
Third-Party Infringement | 11 | ||||
5.08 |
No Challenge to Title | 12 | ||||
ARTICLE VI LIMITATION OF LIABILITY AND WARRANTY DISCLAIMER |
12 | |||||
6.01 |
Limitation of Liability | 12 | ||||
6.02 |
Disclaimer of Representations and Warranties | 12 | ||||
ARTICLE VII TRANSFERABILITY AND ASSIGNMENT |
13 |
i
7.01 |
No Assignment or Transfer Without Consent | 13 | ||||
7.02 |
Divested Businesses | 13 | ||||
ARTICLE VIII REVOCATION AND TERMINATION OF LICENSE RIGHTS; TERMINATION |
13 | |||||
8.01 |
Termination by Both Parties | 14 | ||||
8.02 |
Termination Prior to the Distribution | 14 | ||||
8.03 |
Effect of Termination; Survival | 14 | ||||
ARTICLE IX FURTHER ASSURANCES |
14 | |||||
9.01 |
Further Assurances | 14 | ||||
ARTICLE X MISCELLANEOUS |
14 | |||||
10.01 |
Counterparts; Entire Agreement; Corporate Power | 14 | ||||
10.02 |
Governing Law; Jurisdiction | 15 | ||||
10.03 |
Third-Party Beneficiaries | 15 | ||||
10.04 |
Notices | 15 | ||||
10.05 |
Export Control | 16 | ||||
10.06 |
Bankruptcy | 16 | ||||
10.07 |
Severability | 16 | ||||
10.08 |
Expenses | 16 | ||||
10.09 |
Headings | 16 | ||||
10.10 |
Survival of Covenants | 16 | ||||
10.11 |
Waivers of Default | 16 | ||||
10.12 |
Specific Performance | 16 | ||||
10.13 |
Amendments | 17 | ||||
10.14 |
Interpretation | 17 |
ii
INTELLECTUAL PROPERTY MATTERS AGREEMENT
THIS INTELLECTUAL PROPERTY MATTERS AGREEMENT ( Agreement ) is dated as of , 2017 (the Effective Date ), by and between CONSOL Energy Inc., a Delaware corporation ( Parent ), and CONSOL Mining Corporation, a Delaware corporation ( CoalCo ).
R E C I T A L S
WHEREAS, in connection with the contemplated Separation of CoalCo from Parent, Parent and CoalCo are entering into a Separation and Distribution Agreement (the Separation and Distribution Agreement );
WHEREAS, following the Separation and Distribution CoalCo, which will be renamed CONSOL Energy Inc., will be a separate, independent, publicly traded company, and Parent will be renamed CNX Resources Corporation;
WHEREAS it is the intent of the Parties that as part of the Separation, Parent assign certain intellectual property rights and certain technology to CoalCo pertinent to the Coal Business; and
WHEREAS it is the intent of the Parties that following the Separation, Parent license certain other intellectual property rights to CoalCo and that following the Separation, CoalCo license certain other intellectual property rights to Parent.
NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement, the Parties, intending to be legally bound, hereby agree as follows:
ARTICLE I
DEFINITIONS
1.01 Definitions . As used in this Agreement, the following terms have the following meanings:
3POCM shall have the meaning set forth in Section 2.02(b) .
Administrative IP Proceedings shall have the meaning set forth in Section 5.02 .
Affiliate shall have the meaning set forth in the Separation and Distribution Agreement.
Ancillary Agreements shall have the meaning set forth in the Separation and Distribution Agreement.
Coal Business shall have the meaning set forth in the Separation and Distribution Agreement.
Coal Business Technology shall mean all Technology used in designing, developing, manufacturing, selling, providing or supporting products, services and offerings of the Coal Business as they exist as of immediately prior to the Distribution.
CoalCo Commercial Software shall mean software that, as of immediately prior to the Distribution, the Coal Business had (a) released to one or more third parties for commercial sale,
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licensing, distribution or (if applicable) beta testing, or (b) used to offer or provide a commercial service to one or more third parties, including software as a service and hosted solutions.
CoalCo Common Infrastructure Liability Percentage shall mean 50%.
CoalCo Group shall have the meaning set forth in the Separation and Distribution Agreement.
Common Infrastructure Copyrights shall mean copyrightable subject matter embodied in works that relate to the common internal business operations of the Parent Business and the Coal Business as of or prior to the Distribution Date, including software, corporate policies, operating procedures, manager toolkits and employee training materials. Common Infrastructure Copyrights do not include (a) Copyrights in Parent Commercial Software or CoalCo Commercial Software; (b) Copyrights in works that are used exclusively in or relate exclusively to Parent Business; or (c) Copyrights in works that are used exclusively in or relate exclusively to the Coal Business.
Common Infrastructure Liabilities shall mean any Liabilities of either Party (a) to the extent relating to, arising out of or resulting from (1) any Common Infrastructure Copyrights or (2) any Common Infrastructure Trade Secrets, and (b) arising or accrued at or prior to the Distribution.
Common Infrastructure Rights shall mean Common Infrastructure Copyrights and Common Infrastructure Trade Secrets.
Common Infrastructure Trade Secrets shall mean Trade Secrets that relate to the common internal business operations of the Parent Business and the Coal Business as of or prior to the Distribution Date. Common Infrastructure Trade Secrets do not include (a) trade secrets that are used in or relate to Parent Commercial Software or CoalCo Commercial Software (including source code); (b) Trade Secrets that are used exclusively in or relate exclusively to Parent Business; or (c) Trade Secrets that are used exclusively in or relate exclusively to the Coal Business.
Copyrights shall mean copyrights, copyright registrations and applications therefor, moral rights and all other rights corresponding to the foregoing.
Database Rights shall mean statutory and common law rights in databases and data collections (including knowledge databases, customer lists and customer databases) arising under the laws of any jurisdiction, whether registered or unregistered, and any applications for registration therefor.
Distribution shall have the meaning set forth in the Separation and Distribution Agreement.
Distribution Date shall have the meaning set forth in the Separation and Distribution Agreement.
Docket Files shall mean electronic and paper copies (including originals) of the following items to the extent they are in possession or control of Parent as of the Distribution with respect to each Transferred Patent: (a) assignment agreements from inventors to Parent, (b) declarations and powers of attorney relating to the prosecution of the Transferred Patents, (c) invention submissions, (d) correspondence with all patent offices together with a list, including contact information, of each counsel and agent responsible for the prosecution or maintenance of the Transferred Patents known to be in possession of Docket Files, and the original ribbon copy issued by the United States Patent and Trademark Office, or, for foreign Patents, the original ribbon copy or certificate issued by the applicable Governmental Authority.
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Excluded Intellectual Property Rights shall mean the Intellectual Property Rights to be retained by Parent set forth on Schedule C .
Governmental Approvals shall have the meaning set forth in the Separation and Distribution Agreement.
Governmental Authority shall have the meaning set forth in the Separation and Distribution Agreement.
Improvemen t to any Intellectual Property Right or Technology shall mean (a) with respect to Copyrights, any modifications, derivative works and translations of works of authorship in any medium, (b) with respect to Database Rights, any database that is created by extraction or use of another database and (c) with respect to Technology, any improvement or modification to the Trade Secrets that cover or are otherwise incorporated into such Technology.
Indemnitee shall have the meaning set forth in the Separation and Distribution Agreement.
Intellectual Property Liabilities shall mean all Liabilities relating to, arising out of or resulting from Intellectual Property Rights.
Intellectual Property Rights shall mean the rights associated with the following anywhere in the world: (a) Trademarks; (b) Patents; (c) Trade Secrets; (d) Copyrights; (e) Internet Properties; (f) Database Rights; and (g) any similar, corresponding or equivalent rights to any of the foregoing. Intellectual Property Rights specifically excludes contractual rights (including license grants from third parties) and also excludes the tangible embodiment of any of the foregoing in subsections (a) (g).
Internet Properties shall mean uniform resource locators and registered internet domain names (including social media handles and Internet user names).
Law shall have the meaning set forth in the Separation and Distribution Agreement.
Liabilities shall have the meaning set forth in the Separation and Distribution Agreement.
Licensor shall have the meaning set forth in Section 5.07 .
Notifying Party shall have the meaning set forth in Section 5.07 .
Parent Business shall have the meaning set forth in the Separation and Distribution Agreement.
Parent Commercial Software shall mean software that, as of immediately prior to the Distribution, the Parent Business had (a) released to one or more third parties for commercial sale, licensing, distribution or (if applicable) beta testing, or (b) used to offer or provide a commercial service to one or more third parties, including software as a service and hosted solutions as set forth on Schedule E .
Parent Common Infrastructure Liability Percentage shall mean 50%.
Parent Group shall have the meaning set forth in the Separation and Distribution Agreement.
Party shall mean either party hereto, and Parties shall mean both parties hereto.
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Patents shall mean patents, designs and utility models, and applications therefor (including any continuations, continuations-in-part, divisionals, reissues, renewals, extensions or modifications for any of the foregoing).
Person shall have the meaning set forth in the Separation and Distribution Agreement.
Security Interes t shall mean any mortgage, security interest, pledge, lien, charge, claim, option, right to acquire, voting or other restriction, right-of-way, covenant, condition, easement, encroachment, restriction on transfer or other encumbrance of any nature whatsoever.
Separation shall have the meaning set forth in the Separation and Distribution Agreement.
Software Derivatives shall mean a revision, reparation, adaptation, enhancement, modification, translation, localization, abridgment, condensation, expansion and any other form into which software may be transformed or ported.
Subsidiary shall have the meaning set forth in the Separation and Distribution Agreement.
Technology shall mean tangible embodiments, whether in electronic, written or other media, of copyrightable works, technology (including designs, design and manufacturing documentation, engineering drawings, such as bill of materials, build instructions and test reports), sales documentation (such as marketing materials, installation manuals, service manuals, user manuals) schematics, algorithms, routines, software, databases, laboratory notebooks, development and lab equipment, processes, prototypes and devices. Technology does not include Intellectual Property Rights, including any Intellectual Property Rights in any of the foregoing.
TLA1 shall mean the Trademark License Agreement dated as of the date of this Agreement between CoalCo (the licensor) and Parent (the licensee).
TLA2 shall mean the Trademark License Agreement dated as of the date of this Agreement among Parent (the licensor) and CoalCo (the licensee).
Trade Secrets shall mean information, including a formula, pattern, compilation, program, device, method, technique or process, that (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy, and all other rights in or to confidential business or technical information.
Trademarks shall mean trademarks and service marks, including common law marks, trade names, business names, designs, logos and trade dress, whether registered or unregistered, and the goodwill appurtenant to each of the foregoing.
Transferred Copyrights shall mean Copyrights in and to the Coal Business Technology, whether registered or unregistered, that are owned by Parent as of immediately prior to the Distribution and that are primarily used in the Coal Business, including the Copyrights (if any) listed on Schedule B . For the avoidance of doubt, Transferred Copyrights do not include (a) Copyrights in Parent Commercial Software; (b) Copyrights in works that are used exclusively in or relate exclusively to Parent Business; or (c) the Common Infrastructure Copyrights. Notwithstanding the foregoing, the Transferred Copyrights shall not include any Excluded Intellectual Property Rights.
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Transferred Database Rights shall mean Database Rights in and to the Coal Business Technology that are owned by Parent as of immediately prior to the Distribution and that are primarily used in the Coal Business, including the Database Rights (if any) listed on Schedule B . Notwithstanding the foregoing, the Transferred Database Rights shall not include any Excluded Intellectual Property Rights.
Transferred Intellectual Property Liabilities shall mean (a) all Liabilities relating to, arising out of or resulting from the Transferred Intellectual Property Rights and (b) the CoalCo Common Infrastructure Liability Percentage of any Common Infrastructure Liabilities.
Transferred Intellectual Property Rights shall mean (a) the Transferred Trademarks, (b) the Transferred Patents, (c) the Transferred Copyrights, (d) the Transferred Internet Properties, (e) the Transferred Database Rights, and (f) the Transferred Trade Secrets.
Transferred Internet Properties shall mean Internet Properties (a) listed on Schedule B or (b) primarily used by the Coal Business. Notwithstanding the foregoing, the Transferred Internet Properties shall not include any Excluded Intellectual Property Rights.
Transferred Patents shall mean the Patents identified on Schedule B hereto.
Transferred Trade Secrets shall mean the Trade Secrets known to the Parties that are owned by Parent as of immediately prior to the Distribution and that are primarily used by the Coal Business, including the Trade Secrets listed on Schedule B . For the avoidance of doubt, Transferred Trade Secrets do not include: (a) any Trade Secrets that are used exclusively in or relate exclusively to Parent Business or (b) Common Infrastructure Trade Secrets. Notwithstanding the foregoing, the Transferred Trade Secrets shall not include any Excluded Intellectual Property Rights.
Transferred Trademarks shall mean all Trademarks which prior to the Distribution Date were used solely with regard to products, services and offerings of the Coal Business, including those trademarks identified on Schedule B . Notwithstanding the foregoing, the Transferred Trademarks shall not include any Excluded Intellectual Property Rights.
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ARTICLE II
TRANSFERRED INTELLECTUAL PROPERTY
RIGHTS AND TECHNOLOGY AND ASSUMPTION OF LIABILITIES
2.01 Assignment of Intellectual Property Rights . (a) Subject to the terms and conditions of this Agreement, effective as of the Separation, Parent hereby assigns, transfers and conveys to CoalCo all of the right, title and interest of the Parent and any member of the Parent Group, in, to and under all Transferred Intellectual Property Rights, subject to the licenses granted to Parent in Article IV below and all other licenses granted under any such Intellectual Property Rights existing and in full force and effect as of immediately prior to the Distribution (subject to the terms and conditions contained in each such license). The Transferred Intellectual Property Rights include all of Parents right, title and interest in and to any and all proceeds, causes of action and rights of recovery against third parties for past and future infringement, misappropriation or other violation or impairment of any of the Transferred Intellectual Property Rights. The Parties shall execute intellectual property assignments in a form substantially similar to that attached as Schedule A1 (the Patent Assignment Agreement), Schedule A2 (the Trademark Assignment Agreement), and Schedule A3 (the Copyright Assignment), as well as such additional case specific assignments as deemed appropriate to carry out the intent of the Parties, as applicable (collectively, the Intellectual Property Assignment Agreements), for recordation with the appropriate Governmental Authority.
(b) Recording Change of Ownership of the Transferred Intellectual Property Rights . CoalCo, or such member of the CoalCo Group designated by CoalCo, shall have the sole responsibility, at its sole cost and expense, to file the Intellectual Property Assignment Agreements and any other forms or documents as required to record the assignment of the Transferred Intellectual Property Rights from Parent to CoalCo; provided, however, that, upon written request, Parent shall provide reasonable assistance to CoalCo to record the assignment, at CoalCos sole cost and expense.
(c) Responsibility for Transferred Patents . Parent shall pay all fees incurred and respond to all office actions due with respect to the Transferred Patents up to and including the Distribution Date. CoalCo shall, in its sole discretion, pay or cause to be paid, all fees incurred and respond to all office actions due with respect to the Transferred Patents after the Distribution Date. At or prior to the Distribution, Parent shall provide CoalCo with a listing, in a form to be agreed upon by the Parties, of: (i) all known responses to office actions and fees due with respect to the Transferred Patents in all relevant jurisdictions with due dates within 120 days of the Distribution Date; and (ii) a copy of all hard-copy or digitally stored Docket Files relating to the Transferred Patents, unless such files are in the possession of Parents outside counsel or agents, in which case Parent shall send written instructions to its counsel and agents directing them to act in accordance with CoalCos instructions with respect to such files.
2.02 Common Infrastructure Copyrights . (a) Common Infrastructure Copyrights shall be co-owned by Parent and CoalCo. Accordingly, each Party transfers and assigns (as assignor) to the other Party (as assignee), effective as of date of Distribution, an undivided one-half part of the whole right, title, and interest in Common Infrastructure Copyrights owned by the assignor as of the Distribution Date, such undivided one-half part to be held and enjoyed by the assignee, as fully and entirely as the same would have been held and enjoyed by the assignor if this transfer had not been made. Upon a Partys written request, the other Party shall execute documents confirming the assignment of such co-ownership interest to the requesting Party. Subject to Article VI, each co-owner shall be free to exploit the Common Infrastructure Copyrights without further consent and without accounting to the other co-owner. Each Party shall indemnify, defend and hold harmless the other Party and each of their respective former and current directors, officers and employees, and each of the heirs, executors, successors and assigns of any
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of the foregoing from and against any and all Liabilities arising out of or resulting from such indemnifying Partys exploitation of the Common Infrastructure Copyrights following the Distribution.
(b) The Parties acknowledge that some of the materials associated with Common Infrastructure Copyrights (e.g., documents, PowerPoint slides, photo libraries, etc.) may also contain third party-owned copyrighted material ( 3POCM ) such as fonts, images and graphics, which are licensed to a Party. This Section 2.02 therefore does not extend to such 3POCM, and each Party is solely responsible for obtaining its own licenses to the 3POCM. Each Party shall indemnify, defend and hold harmless the other Party and each of their respective former and current directors, officers and employees, and each of the heirs, executors, successors and assigns of any of the foregoing from and against any and all claims by third parties arising out of or relating to such indemnifying Partys use or exploitation of 3POCM following the Distribution.
(c) Notwithstanding the foregoing, and except as expressly permitted by either TLA1 or TLA2, the use of any Common Infrastructure Copyrights by or for one Party, and any works related to, or based upon, any of the Common Infrastructure Copyrights, may not contain any references to the other Party (or any of its marks, names, trade dress, logos or other source or business identifiers), the other Partys publications, personnel (including senior management) or management structures, or any other indication (other than the verbatim or paraphrased reproduction of the content) that such works are based upon any Common Infrastructure Copyrights that originated with the other Party.
(d) Neither Parent nor CoalCo, nor any member of their respective Groups, shall have any obligation to the other to (i) notify of any changes or proposed changes to any of the Common Infrastructure Copyrights, (ii) include the other in any consideration of proposed changes to any of the Common Infrastructure Copyrights, (iii) provide draft changes of any of the Common Infrastructure Copyrights to the other for review or comment or (iv) provide the other with any updated materials relating to any of the Common Infrastructure Copyrights.
2.03 Common Infrastructure Trade Secrets . Common Infrastructure Trade Secrets shall be co-owned by Parent and CoalCo. Accordingly, each Party transfers and assigns (as assignor) to the other Party (as assignee), effective as of the date of Distribution, an undivided one-half part of the whole right, title, and interest in Common Infrastructure Trade Secrets owned by the assignor as of the date of Distribution, such undivided one-half part to be held and enjoyed by the assignee, as fully and entirely as the same would have been held and enjoyed by the assignor if this transfer had not been made. Upon a Partys written request, (including a member of such Partys respective Group), the other Party shall or if applicable shall cause the relevant member of their Group, execute documents confirming the assignment of such co-ownership interest to the requesting Party. Subject to Article VI, below, each co-owner shall be free to exploit the Common Infrastructure Trade Secrets without further consent and without accounting to the other co-owner. Notwithstanding the foregoing, neither of the joint owners (CoalCo, Parent) shall make a Common Infrastructure Trade Secret public or otherwise destroy or impair the Trade Secret status of a Common Infrastructure Trade Secret without the prior, written consent of the other joint owner. Each Party shall indemnify, defend and hold harmless the other Party and each of their respective former and current directors, officers and employees, and each of the heirs, executors, successors and assigns of any of the foregoing from and against any and all Liabilities arising out of or resulting from such indemnifying Partys exploitation or disclosure of the Common Infrastructure Trade Secrets following the Distribution.
2.04 Acceptance and Assumption of Transferred Intellectual Property Liabilities . Subject to the terms and conditions of this Agreement, effective as of the Distribution, CoalCo shall accept, assume and agree faithfully to perform, discharge and fulfill the Transferred Intellectual Property Liabilities in accordance with their respective terms. CoalCo shall be responsible for all Transferred Intellectual
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Property Liabilities, regardless of when or where such Transferred Intellectual Property Liabilities arose or arise, or whether the facts on which they are based occurred prior to, at or subsequent to the Distribution, regardless of where or against whom such Transferred Intellectual Property Liabilities are asserted or determined or whether asserted or determined prior to the date of this Agreement. Notwithstanding the foregoing, for the avoidance of doubt, the scope of CoalCos obligations with respect to any Common Infrastructure Liabilities shall be co-extensive with, and not greater than, the scope of Parents obligations with respect to Common Infrastructure Liabilities.
2.05 Acceptance and Assumption by Parent of Common Infrastructure Liabilities . Subject to the terms and conditions of this Agreement, effective as of the Distribution, Parent shall accept, assume and agree faithfully to perform, discharge and fulfill the Parent Common Infrastructure Liability Percentage of any Common Infrastructure Liabilities in accordance with their respective terms. Parent shall be responsible for the Parent Common Infrastructure Liability Percentage of any Common Infrastructure Liabilities, regardless of where such Common Infrastructure Liabilities arose, or whether such Common Infrastructure Liabilities are asserted or determined prior to or after the date of this Agreement.
2.06 Delayed Transfers; Wrong Pockets . (a) In the event that it is discovered after the Distribution that there was an omission of (i) the transfer or conveyance by Parent or the acceptance or assumption by CoalCo of any Transferred Intellectual Property Right, Transferred Intellectual Property Liability, Common Infrastructure Right or Common Infrastructure Liability, as the case may be, or (ii) the transfer or conveyance by one Party to, or the acceptance or assumption by, the other Party of any Intellectual Property Right, Intellectual Property Liability, Common Infrastructure Right or Common Infrastructure Liability, as the case may be, that, had the Parties given specific consideration to such Intellectual Property Right, Intellectual Property Liability, Common Infrastructure Right or Common Infrastructure Liability prior to the Distribution, would have otherwise been so transferred, conveyed, accepted or assumed, as the case may be, pursuant to this Agreement, the Parties shall use reasonable best efforts to promptly effect such transfer, conveyance, acceptance or assumption of such Intellectual Property Right, Intellectual Property Liability, Common Infrastructure Right or Common Infrastructure Liability. Any transfer, conveyance, acceptance or assumption made pursuant to this Section 2.06(a) shall be treated by the Parties for all purposes as if it had occurred as of the Distribution, except as otherwise required by applicable Law.
(b) In the event that it is discovered after the Distribution that there was a transfer or conveyance by Parent to, or the acceptance or assumption by, CoalCo of any Transferred Intellectual Property Right, Transferred Intellectual Property Liability, Common Infrastructure Right or Common Infrastructure Liability, as the case may be, that should not have been transferred, the Parties shall use reasonable best efforts to promptly transfer or convey such Transferred Intellectual Property Right, Transferred Intellectual Property Liability, Common Infrastructure Right or Common Infrastructure Liability back to the transferring or conveying Party or to rescind any acceptance or assumption of such Transferred Intellectual Property Right, Transferred Intellectual Property Liability, Common Infrastructure Right or Common Infrastructure Liability, as the case may be. Any transfer or conveyance made or acceptance or assumption rescinded pursuant to this Section 2.06(b) shall be treated by the Parties for all purposes as if such Transferred Intellectual Property Right, Transferred Intellectual Property Liability, Common Infrastructure Right or Common Infrastructure Liability had never been originally transferred, conveyed, accepted or assumed, as the case may be, except as otherwise required by applicable Law.
(c) To the extent that any transfer or conveyance of any Intellectual Property Right or Common Infrastructure Right acceptance or assumption of any Intellectual Property Liability or Common Infrastructure Liability required by this Agreement to be so transferred, conveyed, accepted or
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assumed shall not have been effected as of the Distribution Date, the Parties shall use reasonable best efforts to effect such transfer, conveyance, acceptance or assumption as promptly following the Distribution Date as shall be practicable. Nothing in this Agreement shall be deemed to require the transfer or conveyance of any Intellectual Property Rights or Common Infrastructure Rights or the acceptance or assumption of any Intellectual Property Liabilities or Common Infrastructure Liabilities which by their terms or operation of Law cannot be so transferred, conveyed, accepted or assumed; provided, however, that the Parties shall use reasonable best efforts to obtain any necessary consents for the transfer, conveyance, acceptance or assumption (as applicable) of all Transferred Intellectual Property Rights, Transferred Intellectual Property Liabilities, Common Infrastructure Rights and Common Infrastructure Liabilities required by this Agreement to be so transferred, conveyed, accepted or assumed; provided further that neither Party shall be required to contribute capital, pay or grant any consideration or concession in any form (including providing any letter of credit, guaranty or other financial accommodation) to any Person in order to obtain or make any such consent. In the event that any such transfer, conveyance, acceptance or assumption (as applicable) has not been completed effective as of and after the Distribution Date, the Party retaining such Transferred Intellectual Property Right, Transferred Intellectual Property Liability, Common Infrastructure Right or Common Infrastructure Liability shall thereafter hold such Intellectual Property Right or Common Infrastructure Right for the use and benefit of the Party entitled thereto (at the expense of the Party entitled thereto) and retain such Intellectual Property Liability or Common Infrastructure Liability for the account, and at the expense, of the Party by whom such Intellectual Property Liability or Common Infrastructure Liability should have been assumed or accepted pursuant to this Agreement, and take such other actions as may be reasonably requested by the Party to which such Intellectual Property Right or Common Infrastructure Right should have been transferred or conveyed, or by whom such Intellectual Property Liability or Common Infrastructure Liability should have been assumed or accepted, as the case may be, in order to place such Party, insofar as reasonably possible, in the same position as would have existed had such Transferred Intellectual Property Right, Transferred Intellectual Property Liability, Common Infrastructure Right or Common Infrastructure Liability been transferred, conveyed, accepted or assumed (as applicable) as contemplated by this Agreement, including possession, use, risk of loss, potential for gain/loss and control over such Transferred Intellectual Property Right, Transferred Intellectual Property Liability, Common Infrastructure Right or Common Infrastructure Liability. As and when any such Transferred Intellectual Property Right, Transferred Intellectual Property Liability, Common Infrastructure Right or Common Infrastructure Liability becomes transferable, the Parties shall use reasonable best efforts to promptly effect such transfer, conveyance, acceptance or assumption (as applicable). Any transfer, conveyance, acceptance or assumption made pursuant to this Section 2.06(c) shall be treated by the Parties for all purposes as if it had occurred as of the Distribution Date, except as otherwise required by applicable Law.
(d) The Party retaining any Transferred Intellectual Property Right, Transferred Intellectual Property Liability, Common Infrastructure Right or Common Infrastructure Liability due to the deferral of the transfer and conveyance of such Intellectual Property Right or Common Infrastructure Right or the deferral of the acceptance and assumption of such Intellectual Property Liability or Common Infrastructure Liability pursuant to this Section 2.06 or otherwise shall not be obligated by this Agreement, in connection with this Section 2.06 , to expend any money or take any action that would require the expenditure of money (other than reasonable out-of-pocket expenses, attorneys fees and recording or similar fees, all of which shall be promptly reimbursed by the Party entitled to such Intellectual Property Right or Common Infrastructure Right or intended to assume such Intellectual Property Liability or Common Infrastructure Liability, as applicable) unless and to the extent the Party entitled to such Intellectual Property Right or Common Infrastructure Right or intended to assume such Intellectual Property Liability or Common Infrastructure Liability, as applicable, advances or agrees to reimburse it for the applicable expenditures.
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2.07 Trademarks To Be Surrendered . Within thirty (30) days of the termination of TLA2, CoalCo shall surrender the trademark registrations listed in Schedule D .
2.08 Description of Services in Retained Trademarks . For each of the Excluded Trademarks, at the time of the next maintenance filing if the Excluded Trademark is registered, or within 30 days after Separation if the Excluded Trademark is the subject of a pending application, Parent shall amend the description of goods and services to delete references to coal and any goods or services associated with the Coal Business.
2.09 Description of Services in Transferred Trademarks . For each of the Transferred Trademarks, at the time of the next maintenance filing if the Transferred Trademark is registered, or within 30 days after Separation if the Transferred Trademark is the subject of a pending application, CoalCo shall amend the description of goods and services to delete references to gas and any goods or services associated with the Parent Business.
ARTICLE III
LICENSES FROM PARENT TO COALCO
3.01 License Grants . Parent hereby grants to CoalCo and the Affiliates of CoalCo a prospective license to certain Trademarks and Internet Properties as set forth in TLA1. To the extent there is a conflict between the terms of this Agreement and TLA1, the terms of TLA1 shall control with respect to the Trademarks and Internet Properties set forth in TLA1.
3.02 Change of Corporate Name . Within days of the of the date of Distribution, CoalCo shall cause the applicable members of the CoalCo Group to change their corporate names so that the CoalCo Group no longer uses the term CNX. The interim use of any CNX-based corporate name by any member of the CoalCo Group will be subject to the terms of TLA1 with respect to the Trademarks and Internet Properties set forth in TLA2.
ARTICLE IV
LICENSES FROM COALCO TO PARENT
4.01 License Grants . CoalCo hereby grants to Parent and the Affiliates of Parent a prospective license to certain Trademarks as set forth in TLA2. To the extent there is a conflict between the terms of this Agreement and TLA2, the terms of TLA2 shall control.
4.02 Change of Corporate Name . Within days of the of the date of Distribution, Parent shall cause the applicable members of the Parent Group to change their corporate names so that the Parent Group no longer uses the term CONSOL. The interim use of any CONSOL-based corporate name by any member of the Parent Group will be subject to the terms of TLA2 with respect to the Trademarks set forth in TLA1.
ARTICLE V
ADDITIONAL INTELLECTUAL PROPERTY RELATED MATTERS
5.01 Assignments and Licenses . No Party may directly or indirectly assign or grant a license in or to any of its Intellectual Property Rights licensed to the other Party pursuant to Article III or Article IV, unless such assignment or grant is made subject to the licenses granted herein. For the avoidance of doubt, a non-exclusive license grant shall be deemed to be made subject to the licenses granted herein.
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5.02 Assistance By Employees . Each of Parent and CoalCo agree to use and to cause each member of their respective groups to use, reasonable best efforts to make available, upon written request, the former, current and future directors, officers, employees, and any books, records or other documents within its control or that it otherwise has the ability to make available, to the extent that such Person (giving consideration to business demands of such directors, officers, employees, other personnel and agents) or books, records or other documents may reasonably be required in connection with any Administrative IP Proceeding or threatened or contemplated Administrative IP Proceeding (including preparation for any such Administrative IP Proceeding) in which either Parent or CoalCo, as applicable, may from time to time be involved. Any actual and reasonable out-of-pocket expenses associated with such assistance shall be borne by the Party involved in the Administrative IP Proceeding. For the purposes of this Section 5.02 , Administrative IP Proceedings shall mean the prosecution of, and other patent or trademark office proceedings (e.g., reissue, reexamination, interference, inter partes review, opposition or cancellation proceeding, post-grant review, etc.) regarding, the other Partys Patent applications, Patents, Trademarks and other Intellectual Property Rights.
5.03 Inventor Compensation . Each Party will be responsible for providing inventor incentive compensation, if any, to its employees or the employees of any member of their respective Groups, in accordance with its own internal policies and any applicable laws and regulations. To the extent that a Party bases an inventors incentive compensation on a Patent or a Patent application of the other Party, the Parties will reasonably cooperate by providing to each other relevant information about their Patents for which one or more inventors are employees of the other Party. To the extent that inventor compensation is specified by local law, the Parties will reasonably cooperate in providing information to each other in order to enable each Party to calculate inventor compensation. No Party shall have any obligation to provide any inventor incentive compensation to an employee of the other Party except as required by law. Any information provided under this Section 5.03 shall be subject to the confidentiality provisions Section 6.09 of the Separation and Distribution Agreement.
5.04 No Implied Licenses . Nothing contained in this Agreement shall be construed as conferring any rights (including the right to sublicense) by implication, estoppel or otherwise, under any Intellectual Property Rights, other than as expressly granted in this Agreement, and all other rights under any Intellectual Property Rights licensed to a Party hereunder are expressly reserved by the Party granting the license. The Party receiving the license hereunder acknowledges and agrees that the Party granting the license is the sole and exclusive owner of the Intellectual Property Rights so licensed.
5.05 No Obligation To Prosecute or Maintain Patents . Except as expressly set forth in this Agreement, no Party shall have any obligation to seek, perfect or maintain any protection for any of its Intellectual Property Rights. Without limiting the generality of the foregoing, except as expressly set forth in this Agreement, no Party shall have any obligation to file any Patent application, to prosecute any Patent, or secure any Patent rights or to maintain any Patent in force.
5.06 Technical Assistance . Except as expressly set forth in this Agreement, in the Separation and Distribution Agreement or any other mutually executed agreement between the Parties, no Party shall be required to provide the other Party with any technical assistance or to furnish any other Party with, or obtain on their behalf, any documents, materials or other information or Technology.
5.07 Third-Party Infringement . No Party shall have any obligation hereunder to institute or maintain any action or suit against third parties for infringement or misappropriation of any Intellectual Property Rights in or to any Technology licensed to the other Party hereunder, or to defend any action or suit brought by a third party which challenges or concerns the validity of any of such Intellectual Property Rights or which claims that any Technology licensed to the other Party hereunder infringes or constitutes a misappropriation of any Intellectual Property Rights of any third party. Except as set forth in Section 2
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of TLA1 and TLA2, each Party (the Notifying Party ) may, but shall not be required to, notify the other Party (the Licensor ) in writing upon learning that a third party may be infringing, misappropriating or otherwise violating or impairing any Intellectual Property Rights of the Licensor that are licensed to the Notifying Party under this Agreement. Such notification shall set forth in reasonable specificity the identity of the suspected infringing third party and the nature of the suspected infringement. The Notifying Party shall not take any steps to contact any such third party without the Licensors prior written permission, and the Licensor shall have the sole discretion to determine whether and in what manner to address any actual or suspected unauthorized third-party use and shall be exclusively entitled to any remedies, including monetary damages, related thereto or resulting therefrom. In the event that the Licensor decides to initiate any claim against any third party, the Notifying Party shall reasonably cooperate with the Licensor, subject to Section 5.05 . Any actual and reasonable out-of-pocket expenses associated with such cooperation shall be borne by the Licensor, expressly excluding the value of the time of the Notifying Partys personnel (regarding which the Parties shall agree on a case by case basis with respect to reasonable compensation).
5.08 No Challenge to Title . Each Party agrees that it shall not, for any reason, during the term of the licenses granted in Article III and Article IV, either itself do or authorize any third party to do any of the following anywhere in the world with respect to any Intellectual Property Rights licensed to it hereunder: (a) represent to any third party in any manner that it owns or has any ownership rights in such Intellectual Property Rights (other than to the extent of the license granted hereunder); (b) apply for any registration of such Intellectual Property Rights (including federal, state and national registrations); or (c) impair, dispute or contest the validity or enforceability of the other Partys right, title and interest in and to such Intellectual Property Rights.
ARTICLE VI
LIMITATION OF LIABILITY AND WARRANTY DISCLAIMER
6.01 Limitation of Liability . Except as may expressly be set forth in this Agreement, neither Parent nor CoalCo shall in any event have any Liability to the other, or to any Affiliate of the other, as applicable, under this Agreement as a result of any information exchanged or provided pursuant to this Agreement is found to be inaccurate in the absence of gross negligence, bad faith or willful misconduct by the party providing such information; provided , however , that the provisions of this Section 6.01 shall not limit (a) a Partys indemnification obligations with respect to any Liability any Indemnitee may have to any third party for any indirect, special, punitive or consequential damages, or (b) the damages available to a Party for infringement or misappropriation of its Intellectual Property Rights by the other Party.
6.02 Disclaimer of Representations and Warranties . EACH OF PARENT (ON BEHALF OF ITSELF AND EACH MEMBER OF THE PARENT GROUP) AND COALCO (ON BEHALF OF ITSELF AND EACH MEMBER OF THE COALCO GROUP) UNDERSTANDS AND AGREES THAT, EXCEPT AS EXPRESSLY SET FORTH HEREIN OR IN ANY ANCILLARY AGREEMENT, NO PARTY TO THIS AGREEMENT, ANY ANCILLARY AGREEMENT OR ANY OTHER AGREEMENT OR DOCUMENT CONTEMPLATED BY THIS AGREEMENT, ANY ANCILLARY AGREEMENT OR OTHERWISE, IS REPRESENTING OR WARRANTING IN ANY WAY AS TO ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE, REGISTRABILITY, ALLOWABILITY, ENFORCEABILITY OR NON-INFRINGEMENT, AS TO ANY INTELLECTUAL PROPERTY RIGHTS OR INTELLECTUAL PROPERTY LIABILITIES TRANSFERRED OR ASSUMED AS CONTEMPLATED HEREBY, AS TO THE SUFFICIENCY OF THE INTELLECTUAL PROPERTY RIGHTS OR INTELLECTUAL PROPERTY LIABILITIES TRANSFERRED OR ASSUMED HEREBY FOR THE CONDUCT AND OPERATIONS OF THE COAL BUSINESS OR THE PARENT BUSINESS, AS APPLICABLE, AS TO
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ANY GOVERNMENTAL APPROVALS OR OTHER CONSENTS REQUIRED IN CONNECTION THEREWITH OR IN CONNECTION WITH ANY PAST TRANSFERS OF THE INTELLECTUAL PROPERTY RIGHTS OR ASSUMPTIONS OF THE INTELLECTUAL PROPERTY LIABILITIES, AS TO THE VALUE OR FREEDOM FROM ANY SECURITY INTERESTS OF, OR ANY OTHER MATTER CONCERNING, ANY INTELLECTUAL PROPERTY RIGHTS OR INTELLECTUAL PROPERTY LIABILITIES OF SUCH PARTY, OR AS TO THE ABSENCE OF ANY DEFENSES OR RIGHTS OF SET-OFF OR FREEDOM FROM COUNTERCLAIM WITH RESPECT TO ANY CLAIM OR OTHER INTELLECTUAL PROPERTY RIGHTS, OF ANY SUCH PARTY, OR AS TO THE LEGAL SUFFICIENCY OF ANY ASSIGNMENT, DOCUMENT OR INSTRUMENT DELIVERED HEREUNDER TO CONVEY TITLE TO ANY INTELLECTUAL PROPERTY RIGHTS OR THING OF VALUE UPON THE EXECUTION, DELIVERY AND FILING HEREOF OR THEREOF. EXCEPT AS MAY EXPRESSLY BE SET FORTH HEREIN OR IN ANY ANCILLARY AGREEMENT, ANY SUCH INTELLECTUAL PROPERTY RIGHTS ARE BEING TRANSFERRED ON AN AS IS, WHERE IS BASIS AND THE RESPECTIVE TRANSFEREES SHALL BEAR THE ECONOMIC AND LEGAL RISKS THAT (A) ANY CONVEYANCE WILL PROVE TO BE INSUFFICIENT TO VEST IN THE TRANSFEREE GOOD AND MARKETABLE TITLE, FREE AND CLEAR OF ANY SECURITY INTEREST, AND (B) ANY NECESSARY APPROVALS OR NOTIFICATIONS ARE NOT OBTAINED OR MADE OR THAT ANY REQUIREMENTS OF LAWS OR JUDGMENTS ARE NOT COMPLIED WITH.
ARTICLE VII
TRANSFERABILITY AND ASSIGNMENT
7.01 No Assignment or Transfer Without Consent . Except as expressly set forth in this Agreement, neither this Agreement nor any of the rights, interests or obligations under this Agreement, including the Intellectual Property Rights licenses granted pursuant to this Agreement, shall be assigned, in whole or in part, by operation of Law or otherwise by either Party without the prior written consent of the other Party. Any purported assignment without such consent shall be void. Subject to the preceding sentences, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the Parties and their respective successors and assigns.
Notwithstanding the foregoing, no consent for assignment shall be required for the assignment of a Partys rights and obligations under this Agreement in connection with a change of control of a Party so long as the resulting, surviving or transferee Person assumes all the obligations of the relevant Party by operation of Law or pursuant to an agreement in form and substance reasonably satisfactory to the other Party. Nothing herein is intended to, or shall be construed to, prohibit either Party or any of its Subsidiaries from being party to or undertaking a transaction that would result in a change of control. For the avoidance of doubt, in no event will the licenses granted in this Agreement extend to products, product lines, services, apparatus, devices, systems, components, hardware, software, processes, solutions, any combination of the foregoing, or other offerings of the assignee existing on or before the date of the transaction described in clauses (a) or (b) of the preceding sentence, except to the extent that they were licensed under the terms of this Agreement prior to such transaction.
7.02 Divested Businesses . In the event a Party divests a business by selling or otherwise transferring a line of business to a third party, the licenses granted to the divested entity/line of business shall terminate as of the date the divested entity/line of business is divested.
ARTICLE VIII
REVOCATION AND TERMINATION OF LICENSE RIGHTS; TERMINATION
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8.01 Termination by Both Parties . Subject to Section 8.02 , this Agreement may not be terminated except by an agreement in writing signed by a duly authorized officer of each of the Parties.
8.02 Termination Prior to the Distribution . This Agreement may be terminated by Parent at any time, in its sole discretion, prior to the time of the Distribution. In the event of any termination of this Agreement prior to the time of the Distribution, neither Party (nor any of its directors or officers) shall have any Liability or further obligation to the other Party under this Agreement.
8.03 Effect of Termination; Survival . Except with respect to termination of the Agreement under Section 8.02 , notwithstanding anything in this Agreement to the contrary, Article VI , this Section 8.03 and Article X shall survive any termination of this Agreement.
ARTICLE IX
FURTHER ASSURANCES
9.01 Further Assurances . (a) In addition to the actions specifically provided for elsewhere in this Agreement, each of the Parties shall use reasonable best efforts, prior to, on and after the Distribution Date, to take, or cause to be taken, all actions, and to do, or cause to be done, all things, reasonably necessary, proper or advisable under applicable Laws and agreements to consummate and make effective the transactions contemplated by this Agreement.
(b) Without limiting the foregoing, prior to, on and after the Distribution Date, each Party shall cooperate with the other Party, without any further consideration, but at the expense of the requesting Party, (i) to execute and deliver, or use reasonable best efforts to execute and deliver, or cause to be executed and delivered, all instruments, including any instruments of conveyance, assignment and transfer as such Party may reasonably be requested to execute and deliver by the other Party, (ii) to make, or cause to be made, all filings with, and to obtain, or cause to be obtained, all consents of any Governmental Authority or any other Person under any permit, license, agreement, indenture or other instrument, and (iii) to take, or cause to be taken, all such other actions as such Party may reasonably be requested to take by the other Party from time to time, consistent with the terms of this Agreement, in order to effectuate the provisions and purposes of this Agreement and any transfers of Intellectual Property Rights or assignments and assumptions of Transferred Intellectual Property Liabilities and Common Infrastructure Liabilities hereunder.
(c) On or prior to the time of the Distribution, Parent and CoalCo, in their respective capacities as direct and indirect owners of their respective Subsidiaries, shall each ratify any actions that are reasonably necessary or desirable to be taken by Parent or CoalCo, as the case may be, to effectuate the transactions contemplated by this Agreement.
ARTICLE X
MISCELLANEOUS
10.01 Counterparts; Entire Agreement; Corporate Power . (a) This Agreement may be executed in one or more counterparts, all of which counterparts shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each Party and delivered to the other Party. This Agreement may be executed by facsimile or PDF signature and scanned and exchanged by electronic mail, and such facsimile or PDF signature or scanned and exchanged copies shall constitute an original for all purposes.
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(b) This Agreement and the Appendices, Exhibits and Schedules hereto contain the entire agreement between the Parties with respect to the subject matter hereof and supersede all previous agreements, negotiations, discussions, writings, understandings, commitments and conversations with respect to such subject matter, and there are no agreements or understandings between the Parties with respect to the subject matter hereof other than those set forth or referred to herein or therein.
(c) Parent represents on behalf of itself, and CoalCo represents on behalf of itself, as follows:
(i) each such Person has the requisite corporate or other power and authority and has taken all corporate or other action necessary in order to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby; and
(ii) this Agreement has been duly executed and delivered by it and constitutes, or will constitute, a valid and binding agreement of it enforceable in accordance with the terms thereof.
10.02 Governing Law; Jurisdiction . This Agreement shall be governed by and construed and interpreted in accordance with the Laws of the State of Delaware irrespective of the choice of laws, principles of the State of Delaware including all matters of validity, construction, effect, enforceability, performance and remedies. Each of the Parties hereto hereby irrevocably and unconditionally submits, for itself and of the Parties hereto herby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction Court of Chancery of the State of Delaware, or if (on only if) such court finds it lacks subject matter jurisdiction, the Federal court of the United States of America sitting in Delaware, and appellate courts thereof, in any action or proceeding arising out of or relating to this Agreement for recognition or enforcement of any judgment relating hereto.
EACH PARTY UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN CONNECTION WITH ANY DISPUTE ARISING UNDER THIS AGREEMENT.
10.03 Third-Party Beneficiaries . Except as otherwise expressly set forth herein, the provisions of this Agreement are solely for the benefit of the Parties hereto and are not intended to confer upon any Person except the Parties hereto any rights or remedies hereunder, and there are no third-party beneficiaries of this Agreement and this Agreement shall not provide any third person with any remedy, claim, liability, reimbursement, cause of action or other right in excess of those existing without reference to this Agreement.
10.04 Notices . All notices or other communications under this Agreement shall be in writing and shall be deemed to be duly given when (a) delivered in person, (b) on the date received, if sent by a nationally recognized delivery or courier service or (c) upon the earlier of confirmed receipt or the fifth business day following the date of mailing if sent by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
If to Parent: |
If to CoalCo |
|
Name |
Name |
|
Address |
Address |
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Attn: General Counsel |
Attn: General Counsel |
|
Fax No.: |
Fax No.: |
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Either Party may, by notice to the other Party, change the address to which such notices are to be given.
10.05 Export Control . Each Party agrees that it shall comply with all applicable national and international laws and regulations relating to export control in its country(ies), if any, involving any commodities, software, services or technology within the scope of this Agreement.
10.06 Bankruptcy . The Parties acknowledge and agree that all rights and licenses granted by the other under or pursuant to this Agreement are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the United States Bankruptcy Code, as amended (the Bankruptcy Code ), licenses of rights to intellectual property as defined under Section 101 of the Bankruptcy Code. The Parties agree that, notwithstanding anything else in this Agreement, Parent and CoalCo, as licensees of such intellectual property rights under this Agreement, shall retain and may fully exercise all of its rights and elections under the Bankruptcy Code (including Parents and CoalCos right to the continued enjoyment of the rights and licenses respectively granted under this Agreement).
10.07 Severability . If any provision of this Agreement or the application thereof to any Person or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof, or the application of such provision to Persons or circumstances or in jurisdictions other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby. Upon any such determination, the Parties shall negotiate in good faith in an effort to agree upon such a suitable and equitable provision to effect the original intent of the Parties.
10.08 Expenses . Except as expressly set forth in this Agreement, all third-party fees, costs and expenses paid or incurred in connection with the provisions of this Agreement will be paid by the Party incurring such fees or expenses, whether or not the Distribution is consummated, or as otherwise agreed by the Parties.
10.09 Headings . The article, section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
10.10 Survival of Covenants . Except as expressly set forth in this Agreement, the covenants in this Agreement and the Liabilities for the breach of any obligations in this Agreement shall survive the Separation and shall remain in full force and effect.
10.11 Waivers of Default . No failure or delay of any Party in exercising any right or remedy under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such right or power, or any course of conduct, preclude any other or further exercise thereof or the exercise of any other right or power. Waiver by any Party of any default by the other Party of any provision of this Agreement shall not be deemed a waiver by the waiving Party of any subsequent or other default.
10.12 Specific Performance . Notwithstanding the procedures set forth in Article IX, in the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of this Agreement, the affected Party shall have the right to specific performance and injunctive or other equitable relief of its rights under this Agreement, in addition to any and all other rights and remedies at Law or in equity, and all such rights and remedies shall be cumulative. The other Party shall not oppose the granting of such relief on the basis that money damages are an adequate remedy. The Parties agree that the remedies at Law for any breach or threatened breach hereof, including monetary damages, are
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inadequate compensation for any loss and that any defense in any action for specific performance that a remedy at Law would be adequate is waived. Any requirements for the securing or posting of any bond with such remedy are waived.
10.13 Amendments . No provisions of this Agreement shall be deemed waived, amended, supplemented or modified by any Party, unless such waiver, amendment, supplement or modification is in writing and signed by the authorized representative of each Party.
10.14 Interpretation . Words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other gender as the context requires. The terms hereof, herein, herewith and words of similar import, unless otherwise stated, shall be construed to refer to this Agreement as a whole (including all of the schedules hereto) and not to any particular provision of this Agreement. Article, Section or Schedule references are to the articles, sections and schedules of or to this Agreement unless otherwise specified. Any capitalized terms used in any Schedule to this Agreement but not otherwise defined therein shall have the meaning as defined in this Agreement. Any definition of or reference to any agreement, instrument or other document herein (including any reference herein to this Agreement) shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified from time to time (subject to any restrictions on such amendments, supplements or modifications set forth herein). The word including and words of similar import when used in this Agreement shall mean including, without limitation, unless the context otherwise requires or unless otherwise specified. The word or shall not be exclusive.
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IN WITNESS WHEREOF , the parties have caused this Agreement to be executed by their duly authorized representatives as of the date first written above.
CONSOL ENERGY INC. |
By: |
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Name: | ||
Title: |
CONSOL MINING CORPORATION |
By: |
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Name: | ||
Title: |
[Signature Page to IP Matters Agreement]
Exhibit 3.1
FORM OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
CONSOL MINING CORPORATION
CONSOL Mining Corporation, a corporation organized and existing under the General Corporation Law of the State of Delaware (as it may be amended from time to time, the DGCL ), hereby certifies as follows:
1. The name of this corporation is CONSOL Mining Corporation. The original Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on June 21, 2017.
2. This Amended and Restated Certificate of Incorporation, which restates and amends the original Certificate of Incorporation, was duly adopted in accordance with the provisions of Sections 242 and 245 of the DGCL by the written consent of the Corporations sole stockholder in accordance with Section 228 of the DGCL.
3. The text of the original Certificate of Incorporation is hereby amended and restated to read herein as set forth in full.
4. This Amended and Restated Certificate of Incorporation shall be effective at [●] [p.m.], Eastern time, on [●].
Article I Name of the Corporation
The name of the corporation is CONSOL Mining Corporation (the Corporation).
Article II Registered Office; Registered Agent
The address of the registered office of the Corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801, County of New Castle. The name of the registered agent of the Corporation at such address is The Corporation Trust Company.
Article III Purpose
The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the DGCL.
Article IV Capital Stock
4.1. Authorized Capital Stock . (a) The total number of shares of capital stock which the Corporation shall have authority to issue is ( ), which shall be divided into two classes, consisting of ( ) shares of Common Stock, par value of $0.01 per share (the Common Stock ), and ( ) shares of Preferred Stock, par value of $0.01 per share (the Preferred Stock ).
(b) Subject to the rights of the holders of any then outstanding class or series of Preferred Stock provided by this Amended and Restated Certificate of Incorporation (as it may be amended and/or restated from time to time, this Certificate of Incorporation ), the number of authorized shares of any of the Common Stock or the Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority in voting power of the outstanding shares of stock of the Corporation entitled to vote thereon irrespective of the provisions of Section 242(b)(2) of the DGCL or any corresponding provision hereinafter enacted, and no vote of the holders of any of the Common Stock or Preferred Stock voting separately as a class shall be required therefor.
4.2 Terms of the Common Stock . All shares of Common Stock will be identical in all respects and will entitle the holder(s) thereof to the same rights, privileges and preferences, except as otherwise provided in this Certificate of Incorporation or by the DGCL.
(a) Except as otherwise provided in this Certificate of Incorporation or by the DGCL, each holder of shares of Common Stock shall be entitled, with respect to each share of Common Stock held by such holder, to one vote in person or by proxy on all matters submitted to a vote of the holders of Common Stock, whether voting separately as a class or otherwise.
(b) Except as may be provided under the Certificate of Designation with respect to any then outstanding series of Preferred Stock, the holders of shares of Common Stock shall be entitled to receive such dividends and other distributions in cash, property, stock or otherwise, as may be declared thereon by the Board of Directors at any time and from time to time out of assets or funds of the Corporation legally available therefor, and shall share equally on a per share basis in such dividends and distributions.
(c) In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the affairs of the Corporation, after payment or provision for payment of the debts and other liabilities of the Corporation, and except as may be provided under the Certificate of Designation with respect to any then outstanding series of Preferred Stock, the holders of shares of Common Stock shall be entitled to receive all of the remaining assets of the Corporation available for distribution to its stockholders, ratably in proportion to the number of shares of Common Stock held by them.
(d) The holders of shares of Common Stock shall not have cumulative voting rights.
4.3 Designation of Classes, Series and Terms of Preferred Stock . (a) Shares of Preferred Stock may be issued at any time and from time to time in one or more series as determined by the Board of Directors. The Board of Directors is hereby authorized to provide, out of the unissued shares of Preferred Stock, for the issuance of all or any of the shares of Preferred Stock in one or more series and, by filing a certificate of designation pursuant to the applicable provisions of the DGCL (hereinafter referred to as a Preferred Stock Certificate of Designation ), to establish from time to time the number of shares to be included in each such series, and to fix the designations, , preferences and the relative participating, optional or other special rights, and the qualifications, limitations and restrictions thereof, of each such series, including, without limitation, dividend rights, dividend rates, conversion rights, exchange rights, voting rights (whether full, limited or no voting rights), terms of redemption and liquidation preferences.
(b) The Common Stock shall be subject to the express terms of any then outstanding series of Preferred Stock.
(c) Except as otherwise required by law, holders of Common Stock, as such, shall not be entitled to vote on any amendment to this Certificate of Incorporation that alters or changes the powers, preferences, rights or other terms of one or more then outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other then outstanding series of Preferred Stock, to vote thereon pursuant to a Preferred Stock Certificate of Designation or pursuant to the DGCL as currently in effect or as the same may hereafter be amended.
4.4 References to Certificate of Incorporation . For purposes hereof and the bylaws of the Corporation (as they may be amended and/or restated from time to time, the Bylaws ), the term Certificate of Incorporation includes this Certificate of Incorporation as it may be amended by any Preferred Stock Certificate of Designation from time to time.
Article V Term
The term of existence of the Corporation shall be perpetual.
Article VI Board of Directors
6.1 Number of Directors . Subject to any rights of the holders of any class or series of Preferred Stock to elect additional directors under specified circumstances, the number of directors which shall constitute the Board of Directors shall be fixed from time to time exclusively pursuant to a resolution adopted by the affirmative vote of a majority of the total number of directors that the Corporation would have if there were no vacancies (the Whole Board ).
6.2 Classes of Directors .
(a) Subject to the rights of holders of any class or series of Preferred Stock to elect directors, the Board of Directors shall initially be and is divided into classes, as nearly equal in number as is reasonably possible, with directors in each class having the terms of office specified in Section 6.2(b) of this Article VI. Commencing with the election of directors at the annual meeting to be held in 2020, and, subject to the rights of any holders of any class or series of Preferred Stock to elect directors, all directors up for election shall thereupon be elected for a term expiring at the next annual meeting of stockholders as provided in Section 6.2(b) of this Article VI.
(b) Subject to the rights of holders of any then outstanding class or series of Preferred Stock to elect directors, each director shall serve for a term ending at the election of directors at the third annual meeting of stockholders following the annual meeting of stockholders at which such director was elected; provided that each director assigned to Class I shall serve for an initial term expiring at the Corporations first annual meeting of stockholders held after the effectiveness of this Certificate of Incorporation; each director assigned to Class II shall serve for an initial term expiring at the Corporations second annual meeting of stockholders held after the effectiveness of this Certificate of Incorporation; and each director assigned to Class III shall serve for an initial term expiring at the Corporations third annual meeting of stockholders held after the effectiveness of this Certificate of Incorporation. Notwithstanding the foregoing, commencing with the election of directors at the annual meeting to be held in 2020, each director whose term expires at such meeting and any director who is newly up for election at such meeting shall be elected for a term expiring at the next annual meeting of stockholders; and for the election of directors at the annual meeting of stockholders to be held in 2021, each director whose term expires at such meeting and any director who is newly up for election at such meeting shall be elected for a term expiring at the next annual meeting of stockholders, and for the election of directors at each annual meeting thereafter, each director shall be elected for a term expiring at the next succeeding annual meeting. The term of each director shall continue until the election and qualification of his or her successor and be subject to his or her earlier death, resignation or removal.
(c) Subject to any rights granted to the holders of shares of any series of Preferred Stock then outstanding, (x) for so long as the directors are divided into classes, any director may be removed from office only for cause and only upon the affirmative vote of the holders of at least two-thirds (66 2/3%) in voting power of the outstanding shares of capital stock entitled to vote in an election of such director and (y) from and after the time at which the directors are no longer divided into classes, any director may be removed at any time, either with or without cause, upon the affirmative vote of the holders of at least two-thirds (66 2/3%) of the outstanding shares of capital stock of the Corporation then entitled to vote in an election of such director.
(d) Unless and except to the extent that the Bylaws shall so require, the election of directors of the Corporation need not be by written ballot.
6.3 Newly Created Directorships and Vacancies . Subject to any rights granted to the holders of shares of any series of Preferred Stock then outstanding and unless the Board of Directors otherwise determines, vacancies resulting from death, resignation, retirement, disqualification, removal from office or other cause, and newly created directorships resulting from any increase in the authorized number of directors, may be filled only by the affirmative vote of a majority of the remaining directors, though less than a quorum of the Board of Directors, or by a sole remaining director, and directors so chosen shall hold office for the unexpired term of his or her predecessor in office and until such directors successor shall have been duly elected and qualified. No decrease in the number of authorized directors constituting the Whole Board shall shorten the term of any incumbent director.
6.5 Rights of Holders of Preferred Stock . Notwithstanding the provisions of this Article VI, whenever the holders of one or more series of Preferred Stock issued by the Corporation shall have the right, voting separately or together by series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorship shall be governed by the rights of such Preferred Stock as set forth in the Preferred Stock Certificate of Designation governing such series.
Article VII Stockholder Action
7.1 Stockholder Action by Written Consent . Subject to the rights of the holders of any then outstanding series of Preferred Stock with respect to such series of Preferred Stock, any action required or permitted to be taken by the stockholders of the Corporation at an annual or special meeting of stockholders of the Corporation, may be taken without a meeting, without prior notice, and without a vote, only if a consent or consents in writing, setting forth the action so taken, shall be signed by all of the stockholders entitled to vote with respect to the action that is the subject of the consent.
7.2 Special Meetings of Stockholders . Subject to the rights of the holders of any then outstanding series of Preferred Stock with respect to such series of Preferred Stock, special meetings of the stockholders may be called only by or at the direction of the Chairman of the Board of Directors, the Chief Executive Officer, or the Board of Directors pursuant to a resolution adopted by a majority of the Whole Board, and any power of stockholders to call a special meeting is specifically denied.
Article VIII Indemnification; Advancement of Expenses; Director Liability
8.1 Indemnification and Advancement of Expenses . The Corporation, to the fullest extent permitted by law, shall indemnify and advance expenses to any person made or threatened to be made a party to an action, suit or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he or she is or was a director of the Corporation, or, while serving as a director of the Corporation, serves or served at any other enterprise as a director or officer at the request of the Corporation; provided, however, that, except to the extent otherwise provided in the Bylaws, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized in advance by the Board of Directors. Such rights to indemnification and advancement of expenses shall continue as to a person who has ceased to be a director of the Corporation and shall inure to the benefit of the heirs, executors and administrators of such person. The rights to indemnification and advancement of expenses provided for herein shall not be deemed exclusive of any other rights to which those seeking indemnification or an advancement of expenses hereunder may be entitled under the Bylaws, any agreement between the Corporation and such person, vote of stockholders or disinterested directors or otherwise.
8.2 Limitation of Liability of Directors . To the fullest extent permitted by the DGCL, as the same exists or may hereafter be amended, a director of the Corporation shall not be personally liable either to the Corporation or to any of its stockholders for monetary damages for breach of fiduciary duty as a director. Any amendment, modification or repeal of the foregoing sentence shall not adversely affect any right or protection of a director of the Corporation existing immediately prior to the time of such amendment, modification or repeal. If the DGCL hereafter is amended to further eliminate or limit the liability of a director, then the liability of a director of the Corporation shall be further limited or eliminated to the full extent permitted by the DGCL as so amended.
Article IX Amendments to Bylaws
The Board of Directors shall have the power, without the assent or vote of the stockholders, to adopt, amend, alter or repeal the Bylaws.
Article X Forum and Venue
Unless the Corporation consents in writing to the selection of an alternative forum (an Alternative Forum Consent ), the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim for or based on a breach of a fiduciary duty owed by any current or former director, officer, employee, or agent of the Corporation to the Corporation or to its stockholders, including any claim alleging the aiding and abetting of such a breach of fiduciary duty, (iii) any action asserting a claim against the Corporation or any current or former director or officer or other employee of the Corporation arising pursuant to any provision of the DGCL or this Certificate of Incorporation or the Bylaws, (iv) any action asserting a claim related to or involving the Corporation that is governed by the internal affairs doctrine, or (v) any action asserting an internal corporate claim as that term is defined in Section 115 of the DGCL shall be a state court located within the State of Delaware (or, if no state court located within the State of Delaware has jurisdiction, the federal court for the District of Delaware). The existence of an Alternative Forum Consent as to one action or claim shall not act as a waiver of the Corporations ongoing consent right as set forth above in this Article X with respect to any other action or claim. Any person or entity that acquires any interest in any security of the Corporation will be deemed to have notice of and consented to the provisions of this Article.
Article XI Amendments
The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by this Certificate of Incorporation and the DGCL, and all rights, preferences and privileges herein conferred upon stockholders by and pursuant to this Certificate of Incorporation in its current form or as hereafter amended are granted subject to the right reserved in this Article XI. Notwithstanding the foregoing or any other provisions of this Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of the capital stock of the Corporation required by law or by this Certificate of Incorporation, the affirmative vote of the holders of at least three quarters (75%) of the voting power of all of the outstanding shares of capital stock of the Corporation entitled to vote thereon, voting together as a single class, shall be required to alter, amend or repeal, or to adopt any provision inconsistent with Section 6.2.
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IN WITNESS WHEREOF, the undersigned has duly executed this Amended and Restated Certificate of Incorporation, this day of , 2017.
CONSOL Mining Corporation | ||
By: | ||
Name: | ||
Title: |
Exhibit 3.2
FORM OF AMENDED AND RESTATED
BYLAWS
OF
CONSOL MINING CORPORATION
Incorporated under the Laws of the State of Delaware
(effective , 2017)
ARTICLE I
OFFICES AND RECORDS
SECTION 1.1. Delaware Office . The registered office of CONSOL Mining Corporation (the Corporation ) in the State of Delaware shall be located in the City of Wilmington, County of New Castle, and the name and address of its registered agent is The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801.
SECTION 1.2. Other Offices . The Corporation may have such other offices, either inside or outside the State of Delaware, as the Board of Directors of the Corporation (the Board of Directors ) may from time to time designate or as the business of the Corporation may require.
SECTION 1.3. Books and Records . The books and records of the Corporation may be kept inside or outside the State of Delaware at such place or places as may from time to time be designated by the Board of Directors.
ARTICLE II
STOCKHOLDERS
SECTION 2.1. Annual Meeting . An annual meeting of the stockholders of the Corporation for the purpose of electing directors and conducting such other proper business as may come before the meeting shall be held at such date, time and place (if any) as may be fixed by resolution of the Board of Directors.
SECTION 2.2. Special Meetings . Subject to the rights of the holders of any then outstanding series of stock having a preference over the Common Stock of the Corporation as to dividends, voting or upon liquidation ( Preferred Stock ) with respect to such series of Preferred Stock, special meetings of the stockholders may be called only by or at the direction of (i) the Chairman of the Board of Directors, the Chief Executive Officer or the Board of Directors pursuant to a resolution adopted by a majority of the total number of directors which the Corporation would have if there were no vacancies (the Whole Board ), and any power of stockholders to call a special meeting is specifically denied. The record date for, and the date and time of, any special meeting, shall be fixed by the Board of Directors.
SECTION 2.3. Place of Meeting . The Board of Directors or the Chairman of the Board of Directors, as the case may be, may designate the place of meeting for any annual or special meeting of the stockholders. If no designation is so made, the place of meeting shall be the principal office of the Corporation. The Board of Directors may also, in its sole discretion, determine that any meeting of stockholders shall not be held at any place, but may instead be held solely by means of remote communication in accordance with the General Corporation Law of the State of Delaware (the DGCL ). If authorized by the Board of Directors in its sole discretion, and subject to such guidelines and procedures as the Board of Directors may adopt and in accordance with the DGCL, stockholders and proxy holders not
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physically present at a meeting of stockholders may, by means of remote communication (a) participate in a meeting of stockholders; and (b) be deemed present in person and vote at a meeting of stockholders whether such meeting is to be held at a designated place or solely by means of remote communication.
SECTION 2.4. Notice of Meeting . Whenever stockholders are required or permitted to take action at a meeting, written or printed notice stating the place (if any), date, time, the means of remote communications (if any) by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, and, in the case of special meetings, the purpose or purposes, of such meeting, shall be given to each stockholder of record entitled to vote at such meeting as of the record date for determining stockholders entitled to notice of the meeting not less than ten (10) nor more than sixty (60) days before the date of the meeting. All such notices shall be delivered, either personally or by mail, or by electronic transmission in the manner provided in Section 232 of the DGCL (except to the extent prohibited by Section 232(e) of the DGCL) by or at the direction of the Board of Directors, the Chairman of the Board of Directors, the Chief Executive Officer or the Corporate Secretary, and if mailed, such notice shall be deemed to be delivered when deposited in the United States mail, postage prepaid, addressed to the stockholder at his, her or its address as the same appears on the records of the Corporation. In the case of notice given by commercial delivery service, such notice shall be deemed to be given when delivered into the control of the persons charged with effecting such delivery, the delivery charge to be paid by the Corporation or the person sending such notice and not by the addressee. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the stockholder attends for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. A stockholder may also waive notice of a meeting as provided in Section 7.4 of these Bylaws. Any previously scheduled meeting of the stockholders may be postponed, and (unless the Certificate of Incorporation otherwise provides) any special meeting of the stockholders may be cancelled, by resolution of the Board of Directors upon public notice given prior to the date previously scheduled for such meeting of stockholders.
SECTION 2.5. Quorum; Adjournment and Postponement . Except as otherwise provided by law or by the Amended and Restated Certificate of Incorporation of the Corporation (the Certificate of Incorporation ), the holders of a majority in voting power of the outstanding shares of capital stock entitled to vote at the meeting, present in person or by proxy, shall constitute a quorum at all meetings of stockholders. Except as otherwise provided by applicable law or the Certificate of Incorporation or these Bylaws, when a specified item of business requires a separate vote by a class or series or classes or series of stock, the holders of a majority of the outstanding shares of such class or series or classes or series entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum for the transaction of such business. The Chairman of the Board of Directors, the Chief Executive Officer or chairman of a meeting may adjourn or postpone the meeting from time to time, whether or not there is a quorum. No notice of the time, date and place, if any, of adjourned meetings need be given except as required by applicable law. The stockholders present at a duly called meeting at which a quorum is present may continue to transact business until adjournment or postponement, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.
SECTION 2.6. Conduct of Meetings . Meetings of stockholders shall be presided over by such person as the Board of Directors may designate as chairman of the meeting, or in the absence of such a person, the Chairman of the Board of Directors, or if none or in the Chairman of the Board of Directors absence or inability to act, the Chief Executive Officer, or if none or in the Chief Executive Officers absence or inability to act, the President, or if none or in the Presidents absence or inability to act, a Vice President, or, if none of the foregoing is present or able to act, by a chairman to be chosen by the holders of a majority of the shares entitled to vote who are present in person or by proxy at the meeting. The Secretary, or in the Secretarys absence, an Assistant Secretary, shall act as secretary of every meeting, but if neither the Secretary nor an Assistant Secretary is present, the chairman of the meeting shall appoint any person
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present to act as secretary of the meeting. The Board of Directors shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in the meeting to stockholders of record of the Corporation, their duly authorized and constituted proxies and such other persons as the chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting and matters which are to be voted on by ballot. Unless and to the extent determined by the Board of Directors or the person presiding over the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.
SECTION 2.7. Proxies . At all meetings of stockholders, a stockholder may vote by proxy executed in writing (or in such manner prescribed by the DGCL) by the stockholder, or by such stockholders duly authorized attorney in fact.
SECTION 2.8. Notice of Nominations and Stockholder Business .
(A) Annual Meetings of Stockholders . At any annual meeting of the stockholders, only such nominations of individuals for election to the Board of Directors shall be made, and only such other business shall be conducted or considered, as shall have been properly brought before the meeting. For nominations to be properly made at an annual meeting, and for proposals of other business to be properly brought before an annual meeting, such nominations and proposals of other business must be: (a) specified in the Corporations notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly made at the annual meeting by or at the direction of the Board of Directors or (c) otherwise properly requested to be brought before the annual meeting by a stockholder of the Corporation in accordance with these Bylaws. For nominations of individuals for election to the Board of Directors or proposals of other business to be properly requested by a stockholder to be made at an annual meeting, a stockholder must (i) be a stockholder of record at the time of giving of notice of such annual meeting by or at the direction of the Board of Directors and at the time of the annual meeting, (ii) be entitled to vote at such annual meeting and (iii) comply with the procedures set forth in these Bylaws as to such business or nomination. The immediately preceding sentence shall be the exclusive means for a stockholder to make nominations or bring other business proposals (other than matters properly brought under Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the Exchange Act ) and included in the Corporations notice of meeting) before an annual meeting of stockholders.
(B) Special Meetings of Stockholders . At any special meeting of the stockholders, only such business shall be conducted or considered as shall have been properly brought before the meeting. To be properly brought before a special meeting, proposals of business must be (i) specified in the Corporations notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors or (ii) otherwise properly brought before the special meeting by or at the direction of the Board of Directors; provided , however , that nothing herein shall prohibit the Board of Directors from submitting additional matters to stockholders at any such special meeting.
Nominations of individuals for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporations notice of meeting (a) by or at the direction of the Board of Directors or (b) provided that the Board of Directors has determined that directors shall be elected at such meeting, by any stockholder of the Corporation who (1) is a stockholder of
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record at the time of giving of notice of such special meeting and at the time of the special meeting, (2) is entitled to vote at the meeting, and (3) complies with the procedures set forth in these Bylaws as to such nomination. This Section 2.8(B) shall be the exclusive means for a stockholder to make nominations or bring other business proposals (other than matters properly brought under Rule 14a-8 under the Exchange Act and included in the Corporations notice of meeting) before a special meeting of stockholders.
(C) General . Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, the chairman of any annual or special meeting shall have the power to determine whether a nomination or any other business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with these Bylaws and, if any proposed nomination or other business is not in compliance with these Bylaws, to declare that no action shall be taken on such nomination or other proposal and such nomination or other proposal shall be disregarded. Unless otherwise required by law, if the stockholder (or a qualified representative of the stockholder) does not appear at the annual or special meeting of stockholders of the Corporation to present a nomination or proposed business, such nomination shall be disregarded and such proposed business shall not be transacted, notwithstanding that proxies in respect of such vote may have been received by the Corporation. For purposes of this paragraph, to be considered a qualified representative of the stockholder, a person must be a duly authorized officer, manager or partner of such stockholder or must be authorized by a writing executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the meeting of stockholders and such person must produce such writing or electronic transmission, or a reliable reproduction of the writing or electronic transmission, at the meeting of stockholders.
SECTION 2.9. Advance Notice of Stockholder Business and Nominations .
(A) Annual Meeting of Stockholders . Without qualification or limitation, subject to Section 2.9(C)(4) of these Bylaws, for any nominations or any other business to be properly brought before an annual meeting by a stockholder pursuant to Section 2.8(A) of these Bylaws, the stockholder must have given timely notice thereof (including, in the case of nominations, the completed and signed questionnaire, representation and agreement required by Section 2.10 of these Bylaws), and timely updates and supplements thereof, in each case in proper form, in writing to the Secretary, and such other business must otherwise be a proper matter for stockholder action.
To be timely, a stockholders notice shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the one hundred and twentieth (120 th ) day and not later than the close of business on the ninetieth (90 th ) day prior to the first anniversary of the preceding years annual meeting. Notwithstanding the foregoing, (a) in the case of the first annual meeting held after the effectiveness of these Bylaws or (b) if the date of the annual meeting is more than thirty (30) days before or more than sixty (60) days after the first anniversary of the preceding years annual meeting, then, to be timely, notice by the stockholder must be so delivered not earlier than the close of business on the one hundred and twentieth (120 th ) day prior to the date of such annual meeting and not later than the close of business on the later of the ninetieth (90 th ) day prior to the date of such annual meeting or, if the first public announcement of the date of such annual meeting is less than one hundred (100) days prior to the date of such annual meeting, the tenth (10 th ) day following the day on which public announcement of the date of such meeting is first made by the Corporation. In no event shall any adjournment or postponement of an annual meeting, or the public announcement thereof, commence a new time period for the giving of a stockholders notice as described above.
Notwithstanding anything in the immediately preceding paragraph to the contrary, in the event that the number of directors to be elected to the Board of Directors is increased by the Board of Directors, and there is no public announcement by the Corporation naming all of the nominees for director or specifying the size of the increased Board of Directors at least one hundred (100) days prior to the first anniversary of
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the preceding years annual meeting, a stockholders notice required by this Section 2.9(A) shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the tenth (10 th ) day following the day on which such public announcement is first made by the Corporation.
In addition, to be considered timely, a stockholders notice shall further be updated and supplemented, if necessary, so that the information provided or required to be provided in such notice shall be true and correct as of the record date for the meeting and as of the date that is ten (10) business days prior to the meeting or any adjournment or postponement thereof, and such update and supplement shall be delivered to the Secretary at the principal executive offices of the Corporation not later than five (5) business days after the record date for the meeting in the case of the update and supplement required to be made as of the record date, and not later than eight (8) business days prior to the date for the meeting or any adjournment or postponement thereof in the case of the update and supplement required to be made as of ten (10) business days prior to the meeting or any adjournment or postponement thereof. For the avoidance of doubt, the obligation to update and supplement as set forth in this paragraph or any other Section of these Bylaws shall not limit the Corporations rights with respect to any deficiencies in any notice provided by a stockholder, extend any applicable deadlines hereunder or under any other provision of the Bylaws or enable or be deemed to permit a stockholder who has previously submitted notice hereunder or under any other provision of the Bylaws to amend or update any proposal or to submit any new proposal, including by changing or adding nominees, matters, business and or resolutions proposed to be brought before a meeting of the stockholders.
(B) Special Meetings of Stockholders . Only such business shall be conducted at a special meeting of stockholders as shall have been properly brought before the meeting pursuant to Section 2.8(B) of these Bylaws.
Subject to Section 2.9(C)(4) of these Bylaws, in the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any stockholder may nominate an individual or individuals (as the case may be) for election to such position(s) as specified in the Corporations notice of meeting, provided that the stockholder gives timely notice thereof (including the completed and signed questionnaire, representation and agreement required by Section 2.10 of these Bylaws), and timely updates and supplements thereof in each case in proper form, in writing, to the Secretary. To be timely, a stockholders notice pursuant to the preceding sentence shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the 120th day prior to the date of such special meeting and not later than the close of business on the later of the 90th day prior to the date of such special meeting or, if the first public announcement of the date of such special meeting is less than one hundred (100) days prior to the date of such special meeting, the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall any adjournment or postponement of a special meeting of stockholders, or the public announcement thereof, commence a new time period for the giving of a stockholders notice as described above. In addition, to be considered timely, a stockholders notice pursuant to the first sentence of this paragraph shall further be updated and supplemented, if necessary, so that the information provided or required to be provided in such notice shall be true and correct as of the record date for the meeting and as of the date that is ten (10) business days prior to the meeting or any adjournment or postponement thereof, and such update and supplement shall be delivered to the Secretary at the principal executive offices of the Corporation not later than five (5) business days after the record date for the meeting in the case of the update and supplement required to be made as of the record date, and not later than eight (8) business days prior to the date for the meeting or any adjournment or postponement thereof in the case of the update and supplement required to be made as of ten (10) business days prior to the meeting or any adjournment or postponement thereof.
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(C) Disclosure Requirements .
(1) To be in proper form, a stockholders notice given pursuant to this Section 2.9 to the Secretary must include the following, as applicable:
(a) As to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made: (i) the name and address of such stockholder, as they appear on the Corporations books, of such beneficial owner, if any, and of their respective affiliates or associates or others acting in concert therewith, (ii) (A) the class or series and number of shares of the Corporation which are, directly or indirectly, owned beneficially and of record by such stockholder, such beneficial owner and/or their respective affiliates or associates or others acting in concert therewith, (B) any option, warrant, convertible security, stock appreciation right, or similar right with an exercise or conversion privilege or a settlement payment or mechanism at a price related to any class or series of shares of the Corporation or with a value derived in whole or in part from the value of any class or series of shares of the Corporation, any derivative or synthetic arrangement having the characteristics of a long position in any class or series of shares of the Corporation, or any contract, derivative, swap or other transaction or series of transactions designed to produce economic benefits and risks that correspond substantially to the ownership of any class or series of shares of the Corporation, including due to the fact that the value of such contract, derivative, swap or other transaction or series of transactions is determined by reference to the price, value or volatility of any class or series of shares of the Corporation, whether or not such instrument, contract or right shall be subject to settlement in the underlying class or series of shares of the Corporation, through the delivery of cash or other property, or otherwise, and without regard to whether the stockholder of record, the beneficial owner, if any, or any affiliates or associates or others acting in concert therewith, may have entered into transactions that hedge or mitigate the economic effect of such instrument, contract or right, or any other direct or indirect opportunity to profit or share in any profit derived from any increase or decrease in the value of shares of the Corporation (any of the foregoing, a Derivative Instrument ) directly or indirectly owned beneficially by such stockholder, the beneficial owner, if any, and/or any affiliates or associates or others acting in concert therewith, (C) any proxy, contract, arrangement, understanding, or relationship pursuant to which such stockholder, such beneficial owner and/or any of their respective affiliates or associates or others acting in concert therewith has any right to vote any class or series of shares of the Corporation, (D) any agreement, arrangement, understanding, relationship or otherwise, including any repurchase or similar so-called stock borrowing agreement or arrangement (regardless of the purpose or effect of such repurchase or stock borrowing agreement or arrangement), involving such stockholder, such beneficial owner and/or any of their respective affiliates or associates or others acting in concert therewith, directly or indirectly, the purpose or effect of which is to mitigate loss to, reduce the economic risk (of ownership or otherwise) of any class or series of the shares of the Corporation by, manage the risk of share price changes for, or increase or decrease the voting power of, such stockholder, such beneficial owner and/or any of their respective affiliates or associates or others acting in concert therewith with respect to any class or series of the shares of the Corporation, or which provides, directly or indirectly, the opportunity to profit or share in any profit derived from any decrease in the price or value of any class or series of the shares of the Corporation (any of the foregoing, a Short Interest ), (E) any rights to dividends on the shares of the Corporation owned beneficially by such stockholder, such beneficial owner and/or any of their respective affiliates or associates or others acting in concert therewith that are separated or separable from the underlying shares of the Corporation, (F) any proportionate interest in shares of the Corporation or Derivative Instruments held, directly or indirectly, by a general or limited partnership in which such stockholder, such beneficial owner and/or any of their respective affiliates or associates or others acting in concert therewith is a general partner or, directly or indirectly, beneficially owns an interest in a general partner of such general or limited partnership, (G) any performance-related fees (other than an asset-based fee) to which such stockholder, such beneficial owner and/or any of their respective affiliates or associates or others acting in concert therewith is entitled based on any increase or decrease in the value of shares of the Corporation or Derivative Instruments, if any, including without
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limitation any such interests held by members of the immediate family sharing the same household of such stockholder, such beneficial owner and/or any of their respective affiliates or associates or others acting in concert therewith, (H) any significant equity interests or any Derivative Instruments or Short Interests in any principal competitor of the Corporation held by such stockholder, such beneficial owner and/or any of their respective affiliates or associates or others acting in concert therewith and (I) any direct or indirect interest of such stockholder, such beneficial owner and/or any of their respective affiliates or associates or others acting in concert therewith in any contract with the Corporation, any affiliate of the Corporation or any principal competitor of the Corporation (including, in any such case, any employment agreement, collective bargaining agreement or consulting agreement), (iii) all information that would be required to be set forth in a Schedule 13D filed pursuant to Rule 13d-1(a) or an amendment pursuant to Rule 13d-2(a) if such a statement were required to be filed under the Exchange Act and the rules and regulations promulgated thereunder by such stockholder, such beneficial owner and/or any of their respective affiliates or associates or others acting in concert therewith, if any, and (iv) any other information relating to such stockholder, such beneficial owner and/or any of their respective affiliates or associates or others acting in concert therewith, if any, that would be required to be disclosed in a proxy statement and form of proxy or other filings required to be made in connection with solicitations of proxies for, as applicable, the proposal and/or for the election of directors in a contested election pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder;
(b) If the notice relates to any business other than a nomination of a director or directors that the stockholder proposes to bring before the meeting, a stockholders notice must, in addition to the matters set forth in paragraph (a) above, also set forth: (i) a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest of such stockholder, such beneficial owner and each of their respective affiliates or associates or others acting in concert therewith, if any, in such business, (ii) the text of the proposal or business (including the text of any resolutions proposed for consideration and, in the event that such proposal or business includes a proposal to amend the Bylaws of the Corporation, the text of the proposed amendment), and (iii) a description of all agreements, arrangements and understandings between or among any of such stockholder, such beneficial owner and each of their respective affiliates or associates or others acting in concert therewith, if any, and any other person or persons (including their names) in connection with the proposal of such business by such stockholder;
(c) As to each individual, if any, whom the stockholder proposes to nominate for election or reelection to the Board of Directors, a stockholders notice must, in addition to the matters set forth in paragraph (a) above, also set forth: (i) all information relating to such individual that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors in a contested election pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder (including such individuals written consent to being named in the proxy statement as a nominee and to serving as a director if elected) and (ii) a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three (3) years, and any other material relationships, between or among such stockholder and beneficial owner, if any, and their respective affiliates and associates, or others acting in concert therewith, on the one hand, and each proposed nominee, and his or her respective affiliates and associates, or others acting in concert therewith, on the other hand, including, without limitation all information that would be required to be disclosed pursuant to Rule 404 of Regulation S-K or any successor provision promulgated under the Exchange Act if the stockholder making the nomination and any beneficial owner on whose behalf the nomination is made, if any, or any affiliate or associate thereof or person acting in concert therewith, were the registrant for purposes of such rule and the nominee were a director or executive officer of such registrant; and
(d) With respect to each individual, if any, whom the stockholder proposes to
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nominate for election or reelection to the Board of Directors, a stockholders notice must, in addition to the matters set forth in paragraphs (a) and (c) above, also include a completed and signed questionnaire, representation and agreement as required by Section 2.10 of these Bylaws. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as an independent director of the Corporation or that could be material to a reasonable stockholders understanding of the independence, or lack thereof, of such nominee. Notwithstanding anything to the contrary, only persons who are nominated in accordance with the procedures set forth in these Bylaws, including without limitation Sections 2.9 , 2.10 and 2.11 hereof, shall be eligible for election as directors.
(2) For purposes of these Bylaws, public announcement shall mean disclosure in a press release reported by a national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of these Bylaws, affiliate and associate shall have the meanings ascribed thereto in Rule 405 under the Exchange Act; provided, however, that the term partner as used in the definition of associate shall not include any limited partner that is not involved in the management of the relevant partnership.
(3) Notwithstanding the provisions of these Bylaws, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Bylaw; provided , however , that any references in these Bylaws to the Exchange Act or the rules promulgated thereunder are not intended to and shall not limit the separate and additional requirements set forth in these Bylaws with respect to nominations or proposals as to any other business to be considered.
(4) Nothing in this Section 2.9 shall be deemed to affect any rights (i) of stockholders to request inclusion of proposals in the Corporations proxy statement pursuant to Rule 14a-8 under the Exchange Act or (ii) of the holders of any series of Preferred Stock if and to the extent provided for under law, the Certificate of Incorporation or these Bylaws. Subject to Rule 14a-8 under the Exchange Act, nothing in this Section 2.9 shall be construed to permit any stockholder, or give any stockholder the right, to include or have disseminated or described in the Corporations proxy statement any nomination of director or directors or any other business proposal.
SECTION 2.10. Submission of Questionnaire, Representation and Agreement . To be eligible to be a nominee for election or reelection as a director of the Corporation, a person nominated by a stockholder for election or reelection to the Board of Directors must deliver (in accordance with the time periods prescribed for delivery of notice under Section 2.9 of these Bylaws) to the Secretary at the principal executive offices of the Corporation a written questionnaire with respect to the background and qualification of such individual and the background of any other person or entity on whose behalf, directly or indirectly, the nomination is being made (which questionnaire shall be provided by the Secretary upon written request), and a written representation and agreement (in the form provided by the Secretary upon written request) that such individual (A) is not and will not become a party to (1) any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any person or entity as to how such person, if elected as a director of the Corporation, will act or vote on any issue or question (a Voting Commitment ) that has not been disclosed to the Corporation, or (2) any Voting Commitment that could limit or interfere with such individuals ability to comply, if elected as a director of the Corporation, with such individuals fiduciary duties under applicable law, (B) is not and will not become a party to any agreement, arrangement or understanding with any person or entity other than the Corporation with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a director that has not been disclosed therein, (C) will comply with the Corporations corporate governance guidelines and other policies applicable to its directors, and has disclosed therein whether all or
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any portion of securities of the Corporation were purchased with any financial assistance provided by any other person and whether any other person has any interest in such securities, (D) in such individuals personal capacity and on behalf of any person or entity on whose behalf, directly or indirectly, the nomination is being made, would be in compliance, if elected as a director of the Corporation, and will comply, with all applicable corporate governance, conflict of interest, confidentiality and stock ownership and trading policies and guidelines of the Corporation publicly disclosed from time to time, (E) consents to being named as a nominee in the Corporations proxy statement pursuant to Rule 14a-4(d) under the Exchange Act and any associated proxy card of the Corporation and agrees to serve if elected as a director and (F) will abide by the requirements of Section 2.11 of these Bylaws.
SECTION 2.11. Procedure for Election of Directors; Required Vote .
(A) Subject to the rights of the holders of any series of Preferred Stock to elect directors under specified circumstances, a plurality of the votes cast at any meeting for the election of directors at which a quorum is present shall elect directors. The Board of Directors or chairman of the meeting may, in their or his or her sole discretion, require that any votes cast for the election of directors at such meeting be cast by written ballot.
(B) If a nominee for director who is an incumbent director receives a greater number of votes withheld from his or her election than votes for such director nominees election shall promptly tender his or her resignation to the Board of Directors following certification of the election results. The Nominating and Corporate Governance Committee shall make a recommendation to the Board of Directors as to whether to accept or reject the tendered resignation, or whether other action should be taken. The Board of Directors shall act on the tendered resignation, taking into account the Nominating and Corporate Governance Committees recommendation, and publicly disclose (by a press release, a filing with the Securities and Exchange Commission or other broadly disseminated means of communication) its decision regarding the tendered resignation and the rationale behind the decision within ninety (90) days from the date of the certification of the election results. The Nominating and Corporate Governance Committee in making its recommendation, and the Board of Directors in making its decision, may each consider any factors or other information that it considers appropriate and relevant. The director who tenders his or her resignation shall not participate in the recommendation of the Nominating and Corporate Governance Committee or the decision of the Board of Directors with respect to his or her resignation. If such incumbent directors resignation is not accepted by the Board of Directors, such director shall continue to serve until the next annual meeting and until his or her successor is duly elected, or his or her earlier resignation or removal. If a directors resignation is accepted by the Board of Directors pursuant to these Bylaws, or if a nominee for director is not elected and the nominee is not an incumbent director, then the Board of Directors, in its sole discretion, may fill any resulting vacancy pursuant to the provisions of Section 3.10 .
(C) Except as otherwise provided by law, the Certificate of Incorporation, or these Bylaws, in all matters other than the election of directors, the affirmative vote of a majority of the shares present in person or represented by proxy at a meeting at which is quorum is present and entitled to vote on the matter shall be the act of the stockholders. The Board of Directors or chairman of a meeting may, in their or his or her sole discretion, require that any votes cast at such meeting shall be cast by written ballot.
(D) Any individual who is nominated for election to the Board of Directors at an annual meeting shall, if requested by the Corporation, tender an irrevocable resignation in advance of the annual meeting. Such resignation shall become effective upon a determination by the Board of Directors or any committee thereof that (1) the information provided to the Corporation by such individual or, if applicable, by any stockholder who nominated such individual, was untrue in any material respect or omitted to state a material fact necessary in order to make the statements made, in light of the circumstances under which they
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were made, not misleading or (2) such individual or, if applicable, any stockholder who nominated such individual, shall have breached any representations or obligations owed to the Corporation under these Bylaws.
SECTION 2.12. Inspectors of Elections; Opening and Closing the Polls . The Board of Directors by resolution shall appoint one or more inspectors, which inspector or inspectors may, but does not need to, include individuals who serve the Corporation in other capacities, including, without limitation, as officers, employees, agents or representatives, to act at the meetings of stockholders and make a written report thereof. One or more persons may be designated as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate has been appointed to act or is able to act at a meeting of stockholders, the chairman of the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before discharging his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors shall have the duties prescribed by law. The chairman of the meeting shall be appointed by the inspector or inspectors to fix and announce at the meeting the date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting.
SECTION 2.13. No Stockholder Action by Written Consent . Subject to the rights of the holders of any then outstanding series of Preferred Stock with respect to such series of Preferred Stock, any action required or permitted to be taken by the stockholders of the Corporation at an annual or special meeting of stockholders of the Corporation may be taken without a meeting, without prior notice, and without a vote, only if a consent or consents in writing, setting forth the action so taken, shall be signed by all of the stockholders entitled to vote with respect to the action that is the subject of the consent.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.1. General Powers . The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. In addition to the powers and authorities by these Bylaws expressly conferred upon it, the Board of Directors shall have and may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these Bylaws required to be exercised or done by the stockholders.
SECTION 3.2. Number, Tenure and Classes of Directors .
(A) Subject to the rights of the holders of any series of Preferred Stock to elect directors, the number of directors shall be fixed from time to time exclusively pursuant to a resolution adopted by the affirmative vote of a majority of the total number of directors that the Corporation would have if there were no vacancies (the Whole Board ). No decrease in the number of authorized directors constituting the Whole Board shall shorten the term of any incumbent director.
(B) Subject to the rights of holders of any series of Preferred Stock to elect directors, the Board of Directors shall initially be and is divided into classes, with directors in each class having the terms of office specified in Section 6.2(b) of the Corporations Amended and Restated Certificate of Incorporation, as amended and restated. Commencing with the election of directors at the annual meeting to be held in 2020, and, subject to the rights of any holders of any class or series of Preferred Stock to elect directors, all directors up for election shall be elected for a term expiring at the next annual meeting of stockholders.
SECTION 3.3. Election of Directors . The directors shall be elected at the annual meetings of
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stockholders as specified in the Certificate of Incorporation, except as otherwise provided in the Certificate of Incorporation or in these Bylaws, and each director of the Corporation shall hold office until such directors successor is elected and qualified or until such directors earlier death, resignation or removal.
SECTION 3.4. Regular Meetings . A regular meeting of the Board of Directors shall be held immediately after, and at the same place, if any, as, the annual meeting of stockholders, or such other date, time and place as the Board of Directors may provide by resolution without other notice than this Bylaw, or such resolution, as applicable. The Board of Directors may, by resolution, provide the date, time and place, if any, for the holding of additional regular meetings without other notice than such resolution.
SECTION 3.5. Special Meetings . Special meetings of the Board of Directors shall be called at the request of the Chairman of the Board of Directors, the Chief Executive Officer or a majority of the Board of Directors then in office. The person or persons authorized to call special meetings of the Board of Directors may fix the place, if any, date and time of the meetings.
SECTION 3.6. Notice of Meeting . Notice of any special meeting of directors shall be given to each director at such persons business or residence in writing by hand delivery, first-class or overnight mail or courier service, email or facsimile transmission, or orally by telephone. If mailed by first-class mail, such notice shall be deemed adequately delivered when deposited in the United States mails so addressed, with postage thereon prepaid, at least five (5) days before such meeting. If by overnight mail or courier service, such notice shall be deemed adequately delivered when the notice is delivered to the overnight mail or courier service company at least twenty-four (24) hours before such meeting. If by email, facsimile transmission, telephone or by hand, such notice shall be deemed adequately delivered when the notice is transmitted at least twelve (12) hours before such meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice of such meeting. A meeting may be held at any time without notice if all the directors are present or if those not present waive notice of the meeting in accordance with Section 7.4 of these Bylaws.
SECTION 3.7. Action by Consent of Board of Directors . Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board of Directors or committee, as the case may be, consent thereto in writing, or by electronic transmission and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board of Directors or applicable committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.
SECTION 3.8. Conference Telephone Meetings . Members of the Board of Directors, or any committee thereof, may participate in a meeting of the Board of Directors or such committee by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at such meeting.
SECTION 3.9. Quorum . Subject to Section 3.10 of these Bylaws, a whole number of directors equal to at least a majority of the directors then in office shall constitute a quorum for the transaction of business, provided that such directors represent at least one-third of the Whole Board. If at any meeting of the Board of Directors there shall be less than a quorum present, a majority of the directors present may adjourn the meeting from time to time without further notice. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors, unless otherwise provided by the Certificate of Incorporation, these Bylaws or the DGCL. The directors present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough directors to leave less than a quorum.
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SECTION 3.10. Vacancies . Subject to applicable law and the rights of the holders of any series of Preferred Stock with respect to such series of Preferred Stock, and unless the Board of Directors otherwise determines, vacancies resulting from death, resignation, retirement, disqualification, removal from office or other cause, and newly created directorships resulting from any increase in the authorized number of directors, may be filled only by the affirmative vote of a majority of the remaining directors, though less than a quorum of the Board of Directors, or by a sole remaining director, and each director so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which they have been appointed expires and until such directors successor shall have been duly elected and qualified. No decrease in the number of authorized directors constituting the Whole Board shall shorten the term of any incumbent director.
SECTION 3.11. Chairman of the Board . The Board of Directors may appoint, by the affirmative vote of the majority of the directors then in office, a Chairman of the Board of Directors from among the directors. The Chairman of the Board of Directors shall preside over all meetings of the Board of Directors and stockholders at which he or she is present. The Chairman of the Board of Directors may also be the Chief Executive Officer.
SECTION 3.12. Committees . The Board of Directors may designate any such committee as the Board of Directors considers appropriate, which shall consist of one or more directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee may to the extent permitted by law exercise such powers and shall have such responsibilities as shall be specified in the designating resolution. Each committee shall keep written minutes of its proceedings and shall report such proceedings to the Board of Directors as appropriate.
A majority of any committee may determine its action and fix the time and place of its meetings, unless the Board of Directors shall otherwise provide. Notice of such meetings shall be given to each member of the committee in the manner provided for in Section 3.6 of these Bylaws. The Board of Directors shall have power at any time to fill vacancies in, to change the membership of, or to dissolve, any such committee. Nothing herein shall be deemed to prevent the Board of Directors from appointing one or more committees consisting in whole or in part of persons who are not directors of the Corporation; provided , however , that no such committee shall have or may exercise any authority of the Board of Directors.
SECTION 3.13. Removal . Subject to any rights granted to the holders of shares of any series of Preferred Stock then outstanding, (x) for so long as the directors are divided into classes, any director may be removed from office only for cause and only upon the affirmative vote of the holders of at least two-thirds (66 2/3%) in voting power of the outstanding shares of capital stock entitled to vote in an election of such director and (y) from and after the time at which the directors are no longer divided into classes, any director may be removed at any time, either with or without cause, upon the affirmative vote of the holders of at least two-thirds (66 2/3%) of the outstanding shares of capital stock of the Corporation then entitled to vote in an election of such director.
SECTION 3.14. Records . The Board of Directors shall cause to be kept a record containing the minutes of the proceedings of the meetings of the Board and of the stockholders, appropriate stock books and registers and such books of records and accounts as may be necessary for the proper conduct of the business of the Corporation.
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ARTICLE IV
OFFICERS
SECTION 4.1. Elected Officers . The officers of the Corporation shall be appointed by the Board of Directors and shall include a Chief Executive Officer, a President, a Chief Financial Officer, one or more Vice Presidents (including, without limitation, Senior Vice Presidents), a Secretary, a Treasurer, and such other officers as the Board of Directors from time to time may deem proper. Any number of offices may be held by the same person. All officers appointed by the Board of Directors shall each have such powers and duties as generally pertain to their respective offices, subject to the specific provisions of this Article IV . Such officers shall also have such powers and duties as from time to time may be conferred by the Board of Directors or by any committee thereof. The Board or any committee thereof may from time to time elect, or the Chief Executive Officer may appoint, such other officers (including one or more Assistant Vice Presidents, Assistant Secretaries, and Assistant Treasurers) and such agents, as may be necessary or desirable for the conduct of the business of the Corporation. Such other officers and agents shall have such duties and shall hold their offices for such terms as shall be provided in these Bylaws or as may be prescribed by the Board of Directors or such committee or by the Chief Executive Officer, as the case may be. For the avoidance of doubt, such other officers and agents shall have the powers and perform the duties as are customarily incident to the position they hold.
SECTION 4.2. Term of Office . Each officer shall hold office until such officers successor shall have been duly appointed and shall have qualified or until such officers earlier death, resignation or removal.
SECTION 4.3. Chief Executive Officer . The Chief Executive Officer shall have the powers and perform the duties incident to that position. Subject to the powers of the Board of Directors, he or she shall be in the general and active charge of the entire business and affairs of the Corporation, and shall be its chief policy-making officer. The Chief Executive Officer is authorized to execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly and exclusively delegated by the Board of Directors to some other officer or agent of the Corporation. The Chief Executive Officer shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or as may be provided in these Bylaws. The Chief Executive Officer of the Corporation may also serve as President, if so appointed by the Board of Directors.
SECTION 4.5. President . The President of the Corporation shall have general charge of the business, affairs and property of the Corporation, and control over its officers, agents and employees; and shall see that all orders and resolutions of the Board of Directors and the Chief Executive Officer are carried into effect. The President shall, in the absence or disability of the Chief Executive Officer, act with all of the powers and be subject to all the restrictions of the Chief Executive Officer. The President is authorized to execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly and exclusively delegated by the Board of Directors to some other officer or agent of the Corporation. The President shall have such other powers and perform such other duties as may be prescribed by the Chief Executive Officer or the Board of Directors or as may be provided in these Bylaws.
SECTION 4.6. Vice Presidents . Each Vice President shall have such powers and shall perform such duties as shall be assigned to such Vice President by the Board of Directors, the Chief Executive Officer or the President.
SECTION 4.7. Chief Financial Officer . The Chief Financial Officer shall act in an executive financial capacity. The Chief Financial Officer shall assist the Chief Executive Officer and the President in
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the general supervision of the Corporations financial policies and affairs.
SECTION 4.8. Treasurer . The Treasurer shall exercise general supervision over the receipt, custody and disbursement of corporate funds. The Treasurer shall cause the funds of the Corporation to be deposited in such banks as may be authorized by the Board of Directors, or in such banks as may be designated as depositaries in the manner provided by resolution of the Board of Directors. The Treasurer shall have such further powers and duties as shall be prescribed from time to time by the Board of Directors, the Chief Executive Officer or the President.
SECTION 4.9. Secretary . The Secretary shall keep or cause to be kept in one or more books provided for that purpose, the minutes of all meetings of the Board of Directors, the committees of the Board of Directors and the stockholders; the Secretary shall see that all notices are duly given in accordance with the provisions of these Bylaws and as required by applicable law; the Secretary shall be custodian of the records and the seal of the Corporation and affix and attest the seal to all stock certificates of the Corporation (unless the seal of the Corporation on such certificates shall be a facsimile, as hereinafter provided) and affix and attest the seal to all other documents to be executed on behalf of the Corporation under its seal; and the Secretary shall see that the books, reports, statements, certificates and other documents and records required by applicable law to be kept and filed are properly kept and filed; and in general, the Secretary shall perform all the duties incident to the office of Secretary and such other duties as from time to time may be assigned to such Secretary by the Board of Directors, the Chief Executive Officer or the President.
SECTION 4.10. Removal . Any officer or agent appointed by the Board of Directors may be removed from office at any time with or without cause by the affirmative vote of a majority of the Board of Directors then in office. Any officer or agent appointed by the Chief Executive Officer may be removed by the Chief Executive Officer at any time with or without cause. No elected officer shall have any contractual rights against the Corporation for compensation by virtue of such election beyond the date of the election of his or her successor, his or her death, or his or her resignation or removal, whichever event shall first occur, except as otherwise provided in an employment contract or under an employee deferred compensation plan.
SECTION 4.11. Vacancies . A newly created elected office and a vacancy in any elected office because of death, resignation, or removal may be filled by the Board of Directors. Any vacancy in an office appointed by the Chief Executive Officer because of death, resignation, or removal may be filled by the Chief Executive Officer.
ARTICLE V
STOCK CERTIFICATES AND TRANSFERS
SECTION 5.1. Form . Shares of stock of the Corporation shall be represented by certificates, provided that the Board of Directors may provide by resolution that some or all of any or all classes or series of stock shall be uncertificated. Any such resolution shall not apply to shares represented by a certificate until such certificate is presented to the Corporation. If any shares of stock of the Corporation are represented by a certificate, every holder of stock in the Corporation represented by a certificate shall be entitled to have the certificate signed by, or in the name of, the Corporation by any two authorized officers of the Corporation representing the number of shares registered in certificate form. If the Board of Directors shall direct that any shares of stock of the Corporation shall be represented by certificates, the Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Treasurer, any Assistant Treasurer, the Corporate Secretary, any Assistant Corporate Secretary and any other officer designated by the Board of Directors shall be deemed to be authorized for purposes of this Section 5.1 to sign certificates representing shares of the Corporations capital stock. Any or all of the signatures on any certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed, or whose facsimile signature or
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signatures have been placed on, any such certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, such certificate may nevertheless be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue.
SECTION 5.2. Transfers . Stock of the Corporation shall be transferable in the manner prescribed by law and in these Bylaws. In the case of any shares represented by certificates, transfers of stock shall be made on the books of the Corporation only by the person named in the certificate or by his, her or its attorney lawfully constituted in writing and upon the surrender of the certificate therefor, which shall be canceled before a new certificate shall be issued. Upon the receipt of proper transfer instructions from the registered owner of uncertificated shares, such uncertificated shares shall be cancelled, issuance of new equivalent uncertificated shares shall be made to the stockholder entitled thereto and the transaction shall be recorded upon the books of the Corporation. If the Corporation has a transfer agent or registrar acting on its behalf, the signature of any officer or representative thereof may be in facsimile. The Board of Directors or the Chief Executive Officer may appoint a transfer agent and one or more co-transfer agents and registrar and one or more co-registrars and may make or authorize such agent to make all such rules and regulations deemed expedient concerning the issue, transfer and registration of shares of the Corporations capital stock.
SECTION 5.3. Lost, Stolen or Destroyed Certificates . The Corporation may issue a new certificate or certificates or uncertificated shares in place of any certificate or certificates previously issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate to be lost, stolen, or destroyed. When authorizing such issue of a new certificate or certificates or uncertificated shares, the Corporation may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen, or destroyed certificate or certificates, or his or her legal representative, to give the Corporation a bond sufficient to indemnify the Corporation against any claim that may be made against the Corporation on account of the loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.
SECTION 5.4. Fixing a Record Date for Stockholder Meetings . In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty (60) days nor less than ten (10) days before the date of such meeting. If the Board of Directors so fixes a date, such date shall also be the record date for determining the stockholders entitled to vote at such meeting unless the Board of Directors determines, at the time it fixes such record date, that a later date on or before the date of the meeting shall be the date for making such determination. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be the close of business on the next day preceding the day on which notice is first given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting; and in such case shall also fix as the record date for stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote in accordance herewith at the adjourned meeting.
SECTION 5.5. Fixing a Record Date for Other Purposes . In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment or any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of capital stock, or for the purposes of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is
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adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
SECTION 5.6. Registered Stockholders . The Corporation may treat the registered owner of any shares of its stock as the person entitled to receive dividends, to vote, to receive notifications, and otherwise to exercise all the rights and powers of an owner. The Corporation shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof.
ARTICLE VI
INDEMNIFICATION
SECTION 6.1. Indemnification .
(A) Each person who was or is a party to, or is otherwise threatened to be made a party to or is otherwise involved (including involvement as a witness) in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a Proceeding ), by reason of the fact that he or she or a person of whom he or she is the legal representative is or was, at any time during which this Bylaw is in effect (whether or not such person continues to serve in such capacity at the time any indemnification or advancement of expenses pursuant hereto is sought or at the time any Proceeding relating thereto exists or is brought), a director or officer of the Corporation or, while serving as a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, trustee, employee or agent of another corporation, or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans maintained or sponsored by the Corporation (each such director or officer, a Covered Person ), whether the basis of such Proceeding is alleged action in an official capacity as a director, officer, trustee, employee or agent or in any other capacity while serving as a director, officer, trustee, employee or agent, shall be (and shall be deemed to have a contractual right to be) indemnified and held harmless by the Corporation (and any successor of the Corporation by merger or otherwise) to the fullest extent permitted by the DGCL as the same exists or may hereafter be amended or modified from time to time (but, in the case of any such amendment or modification, only to the extent that such amendment or modification permits the Corporation to provide greater indemnification rights than the DGCL permitted the Corporation to provide prior to such amendment or modification), against all expenses, liability and loss (including attorneys fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) actually and reasonably incurred or suffered by such person in connection with such Proceeding if the person acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful; provided , however , that, except as provided in Section 6.3 , the Corporation shall indemnify any such Covered Person seeking indemnification in connection with a Proceeding (or part thereof) initiated by such Covered Person only if such Proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The termination of any Proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which the person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that the persons conduct was unlawful.
(B) To obtain indemnification under this Article VI, a Covered Person shall submit to the Corporation a written request, including therein or therewith such documentation and information as is reasonably available to the Covered Person and as is reasonably necessary to determine whether and to what extent the Covered Person is entitled to indemnification. Upon written request by a Covered Person
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for indemnification pursuant to the first sentence of this Section 6.1(B), a determination, if required by applicable law, with respect to the Covered Persons entitlement thereto shall be made in the specific case (i) if a Change of Control (as defined in the Corporations current equity compensation plan) shall have occurred, by Independent Counsel in a written opinion to the Board of Directors, a copy of which shall be delivered to the Covered Person, or (ii) if a Change in Control shall not have occurred, (A) by a majority vote of the Disinterested Directors, even though less than a quorum of the Board of Directors, (B) by a committee of Disinterested Directors designated by a majority vote of the Disinterested Directors, even though less than a quorum of the Board of Directors, (C) if there are no such Disinterested Directors or, if such Disinterested Directors so direct, by Independent Counsel in a written opinion to the Board of Directors, a copy of which shall be delivered to the Covered Person, or (D) if so directed by the Board of Directors, by the stockholders of the Corporation. In the event the determination of entitlement to indemnification is to be made by Independent Counsel, the Independent Counsel shall be selected by (i) the Board of Directors if a Change of Control shall not have occurred or (ii) by the Covered Person if a Change of Control shall have occurred, unless the Covered Person shall request that such selection be made by the Board of Directors. If it is so determined that the Covered Person is entitled to indemnification, payment to the Covered Person shall be made within 10 days after such determination.
(C) To the extent that a Covered Person is a party to or a participant in and is successful (on the merits or otherwise) in defense of any action, suit or proceeding, the Corporation shall indemnify the Covered Person against all expenses actually and reasonably incurred by the Covered Person or on the Covered Persons behalf in connection therewith. To the extent permitted by applicable law, if the Covered Person is not wholly successful in such action, suit or proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such action, suit or proceeding, the Corporation shall indemnify the Covered Person to the fullest extent permitted by applicable law against all expenses actually and reasonably incurred by the Covered Person or on the Covered Persons behalf in connection with or related to each successfully resolved claim, issue or matter.
SECTION 6.2. Advance of Expenses . To the fullest extent permitted by the DGCL as the same exists or may hereafter be amended or modified from time to time (but, in the case of any such amendment or modification, only to the extent that such amendment or modification permits the Corporation to provide greater rights to advancement of expenses than the DGCL permitted the Corporation to provide prior to such amendment or modification), each Covered Person shall have (and shall be deemed to have a contractual right to have) the right, without the need for any action by the Board of Directors, to be paid by the Corporation (and any successor of the Corporation by merger or otherwise) the expenses incurred in connection with any Proceeding in advance of its final disposition, such advances to be paid by the Corporation within twenty (20) days after the receipt by the Corporation of a statement or statements from the claimant requesting such advance or advances from time to time; provided , that if the DGCL requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not, except to the extent specifically required by applicable law, in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking (hereinafter, the Undertaking ) by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right of appeal (a final disposition ) that such director or officer is not entitled to be indemnified for such expenses under this Bylaw or otherwise.
SECTION 6.3. Claims . If a determination by the Corporation that the Covered Person is entitled to indemnification pursuant to this Article VI is required, and the Corporation fails to respond within sixty (60) days to a written request for indemnification, the Corporation shall be deemed to have approved the request. If the Corporation denies a written request for indemnification or advance of expenses to a Covered Person, in whole or in part, or if payment in full pursuant to such request is not made within forty-five
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(45) days after a written claim submitted pursuant to Section 6.1(b) of these Bylaws (or, in the case of an advance of expenses, twenty (20) days after provision of a statement pursuant to Section 6.2 of these Bylaws and any required Undertaking), the right to indemnification or advances as granted by this Article VI shall be enforceable by such Covered Person in any court of competent jurisdiction. Such Covered Persons costs and expenses incurred in connection with successfully establishing his or her right to indemnification, in whole or in part, in any such action shall also be indemnified by the Corporation. It shall be a defense to any such action (other than an action brought to enforce a claim for the advance of expenses where the Undertaking, if required by the DGCL, has been tendered to the Corporation) that the Covered Person has not met the standards of conduct which make it permissible under the DGCL for the Corporation to indemnify the Covered Person for the amount claimed, but the burden of such defense shall be on the Corporation. Neither the failure of the Corporation (including by its Board of Directors, Independent Counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the Covered Person is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the DGCL, nor an actual determination by the Corporation (including by its Board of Directors, Independent Counsel or its stockholders) that the Covered Person has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the Covered Person has not met the applicable standard of conduct.
SECTION 6.4. Non-Exclusivity of Rights . The rights conferred on any person in this Article VI , shall not be exclusive of any other right that such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote or consent of stockholders or the Board of Directors. In addition, nothing in this Article VI shall limit the ability of the Corporation, in its discretion, to indemnify or advance expenses to persons whom the Corporation is not obligated to indemnify or advance expenses pursuant to this Article VI . The Board of Directors shall have the power to delegate to such officer or other person as the Board of Directors shall specify the determination of whether indemnification shall be given to any person pursuant to this Section 6.4 .
SECTION 6.5. Insurance . The Corporation may purchase and maintain insurance on its own behalf and on behalf of any person who is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss asserted against him or her and incurred by him or her in any such capacity, whether or not the Corporation would have the power to indemnify such person against such expenses, liability or loss under the DGCL.
SECTION 6.6. Indemnification Contracts . The Board of Directors is authorized to cause the Corporation to enter into indemnification contracts with any director, officer, employee or agent of the Corporation, or any person serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including employee benefit plans, providing indemnification rights to such person. Such rights may be greater than those provided in this Article VI .
SECTION 6.7. Continuation of Indemnification . The rights to indemnification and to advancement of expenses provided by, or granted pursuant to, this Article VI shall continue notwithstanding that the person has ceased to be a Covered Person and shall inure to the benefit of his or her estate, heirs, executors, administrators, legatees and distributees; provided , however , that, except as set forth in Section 6.3 , the Corporation shall indemnify any such person seeking indemnity in connection with a Proceeding (or part thereof) initiated by such person only if such Proceeding (or part thereof) was authorized by the Board of Directors.
SECTION 6.8. Effect of Amendment or Repeal . The provisions of this Article VI shall constitute a contract between the Corporation, on the one hand, and, on the other hand, each individual who serves or
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has served as a Covered Person (whether before or after the adoption of these Bylaws), in consideration of such persons performance of such services, and pursuant to this Article VI , the Corporation intends to be legally bound to each such current or former Covered Person. With respect to current and former Covered Persons, the rights conferred under this Article VI are present contractual rights and such rights are fully vested, and shall be deemed to have vested fully, immediately upon adoption of these Bylaws. With respect to any Covered Persons who commence service following adoption of these Bylaws, the rights conferred under this Article VI shall be present contractual rights, and such rights shall fully vest, and be deemed to have vested fully, immediately upon such Covered Persons service in the capacity which is subject to the benefits of this Article VI .
SECTION 6.9. Notice . Any notice, request or other communication required or permitted to be given to the Corporation under this Article VI shall be in writing and either delivered in person or sent by telecopy, overnight mail or courier service, or certified or registered mail, postage prepaid, return receipt requested, to the Secretary of the Corporation and shall be effective only upon receipt by the Secretary.
SECTION 6.10. Severability . If any provision or provisions of this Article VI shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (1) the validity, legality and enforceability of the remaining provisions of this Article VI (including, without limitation, each portion of any paragraph of this Article VI containing any such provision held to be invalid, illegal or unenforceable, that is not itself held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (2) to the fullest extent possible, the provisions of this Article VI (including, without limitation, each such portion of any paragraph of this Article VI containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.
SECTION 6.11 Definitions . For purposes of this Article VI :
(A) Disinterested Director means a director of the Corporation who is not and was not a party to the matter in respect of which indemnification is sought by the Covered Person;
(B) Independent Counsel means a law firm, a member of a law firm, or an independent practitioner, that is experienced in matters of corporation law and shall include any person who, under the applicable standards of professional conduct then prevailing, would not have a conflict of interest in representing either the Corporation or the Covered Person in an action to determine the Covered Persons rights under this Article VI .
ARTICLE VII
MISCELLANEOUS PROVISIONS
SECTION 7.1. Fiscal Year . The fiscal year of the Corporation shall begin on the first day of January and end on the thirty-first day of December of each year. The Board of Directors shall have the power, from time to time, to fix the fiscal year of the Corporation by a duly adopted resolution.
SECTION 7.2. Dividends . The Board of Directors may from time to time declare, and the Corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by law and the Certificate of Incorporation.
SECTION 7.3. Seal . The corporate seal, if the Corporation shall have a corporate seal, shall have inscribed thereon the words Corporate Seal, Delaware, the name of the Corporation and the year of its organization. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.
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SECTION 7.4. Waiver of Notice . Whenever any notice is required to be given to any stockholder or director of the Corporation under the provisions of the DGCL, the Certificate of Incorporation or these Bylaws, a waiver thereof in writing, signed by the person or persons entitled to such notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at, nor the purpose of, any annual or special meeting of the stockholders or the Board of Directors or committee thereof need be specified in any waiver of notice of such meeting.
SECTION 7.5. Resignations . Any director or any officer, whether elected or appointed, may resign at any time by giving written notice of such resignation to the Chairman of the Board of Directors, the Chief Executive Officer, or the Secretary, and such resignation shall be deemed to be effective as of the close of business on the date said notice is received by the Chairman of the Board of Directors, the Chief Executive Officer, or the Secretary, or at such later time as is specified therein. Except to the extent specified in such notice, no formal action shall be required of the Board of Directors or the stockholders to make any such resignation effective.
ARTICLE VIII
CONTRACTS, PROXIES, ETC.
SECTION 8.1. Contracts . In addition to the powers otherwise granted to officers pursuant to Article IV hereof, the Board of Directors or Chief Executive Officer may authorize any officer or officers, or any agent or agents, of the Corporation to enter into any contract or to execute and deliver any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances. Without limiting the foregoing, unless otherwise provided by resolution adopted by the Board of Directors, the Chief Executive Officer, the President, the Secretary and the Treasurer may enter into any contract or execute and deliver any instrument in the name and on behalf of the Corporation.
SECTION 8.2. Proxies . Unless otherwise provided by resolution adopted by the Board of Directors, the Chief Executive Officer, the President or any other officer delegated such power by the Board of Directors may from time to time appoint an attorney or attorneys or agent or agents of the Corporation, in the name and on behalf of the Corporation, to cast the votes which the Corporation may be entitled to cast as the holder of stock or other securities in any other corporation, any of whose stock or other securities may be held by the Corporation, at meetings of the holders of the stock or other securities of such other corporation, or to consent in writing, in the name of the Corporation as such holder, to any action by such other corporation, and may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent, and may execute or cause to be executed in the name and on behalf of the Corporation and under its corporate seal or otherwise, all such written proxies or other instruments as he or she may deem necessary or proper in the premises.
ARTICLE IX
AMENDMENTS
Unless otherwise provided by the Certificate of Incorporation, the Board of Directors shall have the power without the assent or vote of the stockholders to adopt, amend, alter or repeal these Bylaws. Unless otherwise provided by the Certificate of Incorporation, the stockholders shall have the power to adopt, amend, alter or repeal these Bylaws by an affirmative vote of shares representing a majority of the voting power of all the outstanding shares of capital stock of the Corporation entitled to vote thereon, voting together as a single class; provided , however , that in addition to any affirmative vote of the holders of any
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particular class or series of the capital stock of the Corporation required by law, the Certificate of Incorporation or these Bylaws, the affirmative vote of shares representing at least three quarters (75%) of the voting power of all of the outstanding shares of capital stock of the Corporation entitled to vote thereon, voting together as a single class, shall be required to alter, amend or repeal, or to adopt any provision inconsistent with, Section 3.2 and Section 3.13 of these Bylaws.
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Exhibit 10.4
AMENDMENT AND RESTATEMENT OF
MASTER COOPERATION AND SAFETY AGREEMENT
by and among
CONSOL MINING CORPORATION AND COALCO AFFILIATES (OTHER THAN
GAS PARTY AND THE GAS PARTY AFFILIATES)
(COLLECTIVELY, COAL PARTY)
and
CNX GAS COMPANY LLC AND
CNX RESOURCE HOLDINGS LLC
(COLLECTIVELY, GAS PARTY)
and
THE CEI PARTIES
dated as of
7:00 p.m. Eastern Time on October 6, 2017
i
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APPENDIX : | ||||||
Appendix I | Definitions | |||||
EXHIBITS : | ||||||
Exhibit A | Insurance Requirements | |||||
Exhibit B | Shared Information | |||||
Exhibit C | Leasehold Release Provisions | |||||
Exhibit D | Existing Permits/Agreements | |||||
Exhibit E | Sources | |||||
SCHEDULES : | ||||||
Schedule 2.1 | Mason Dixon Reserve/Wadestown Prospect | |||||
Schedule 3.3(a) | Valuation Formula | |||||
Schedule 3.3(c) | Stranded Coal Formula |
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Schedule 3.7 | Drilling Procedures | |||||
Schedule 8.17 | Noble SUA Parties | |||||
Schedule I | AAI Area | |||||
Schedule II | Gas Party Affiliates |
iv
AMENDMENT AND RESTATEMENT OF
MASTER COOPERATION AND SAFETY AGREEMENT
THIS AMENDMENT AND RESTATEMENT OF MASTER COOPERATION AND SAFETY AGREEMENT (as may be amended, revised, supplemented, or otherwise modified from time to time, this Agreement ), dated and effective as of 7:00 p.m. Eastern Time on the 6 th day of October, 2017 (the Effective Time ), is by and between CONSOL MINING CORPORATION , a Delaware corporation ( CoalCo , and together with all Affiliates of CoalCo as of the Execution Date designated as a Coal Party on the signature pages hereto and any additional Affiliates of CoalCo joined to this Agreement at any time hereafter pursuant to Section 8.1(a)(i)(A), except for and other than Gas Party and the Gas Party Affiliates, collectively, Coal Party ), CNX GAS COMPANY LLC , a Virginia limited liability company, and CNX RESOURCE HOLDINGS LLC , a Delaware limited liability company (collectively, Gas Party ), and CONSOL Energy Inc. ( CEI ) and each party designated as a CEI Party on the signature pages hereto (CEI and such parties, collectively, the CEI Parties ) for the limited purpose expressly set forth in Section 8.16 . All of the foregoing Persons other than the CEI Parties are referred to herein separately as a Party and collectively as the Parties .
RECITALS
WHEREAS, Coal Party, as of the Effective Time, owns or controls certain coal reserves throughout North America (North America, except for and excluding the Pennsylvania Mine Area as defined in the Thermal A&R MCSA, is referred to hereinafter as the Cooperation Area ), and may thereafter acquire ownership or control of additional coal reserves in the Ohio, Pennsylvania and West Virginia Counties identified on Schedule I (the AAI Area ), such coal reserves owned or controlled as of the Effective Time in the Cooperation Area, together with such coal reserves thereafter acquired in the AAI Area, collectively, the Coal Interests ;
WHEREAS, Coal Party, after the Effective Time, may open or acquire mines to develop its Coal Interests in Ohio, Pennsylvania, Virginia, and/or West Virginia (such States, except for and excluding the Pennsylvania Mine Area, collectively the Four State Area ) for which mining permits will be, or have been, issued by Governmental Authorities pursuant to applicable Law (collectively, such mines that may in the future be opened or acquired and permitted in the Four State Area are referred to hereinafter as the Mines and individually as a/the Mine );
WHEREAS, Gas Party, as of the Effective Time, owns, controls or operates certain Gas interests located in the Cooperation Area, and may thereafter acquire ownership or control of or operate Gas interests located in the AAI Area, including leased as well as fee-owned interests (the Gas Interests );
WHEREAS, Coal Party and Gas Party each acknowledge and agree that they will have, in relation to such Mines, overlapping interests with respect to the others operations in the Life of Mine Plan, as hereinafter defined, area in and around each Mine (such Life of Mine Plan area for each Mine, the Mine Area ) and desire to cooperate with each other, as further provided herein, with respect to coal and gas production from each Mine Area; and
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WHEREAS, Coal Party and Gas Party, as of the Effective Time, each own, control or operate various surface lands, rights of way, easements, roadways, and other surface rights within the Cooperation Area, and may thereafter acquire ownership or control of or operate various surface lands, rights of way, easements, roadways, and other surface rights in the AAI Area (for each Party, respectively, its Surface Rights );
WHEREAS, Coal Party desires to make their Surface Rights available for use by Gas Party in connection with Gas Partys exploration, production, and development of the Gas Interests (including without limitation for use in transporting and marketing of production therefrom or from adjacent lands) and Gas Party desires to make certain of its Surface Rights available for use by Coal Party, in each case, as set forth below; and
WHEREAS, the safety of each Partys operations within each Mine Area is a paramount objective of the Parties in entering into this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants, agreements, conditions, and obligations set forth herein, the Parties hereby agree as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
1.1 Defined Terms . For purposes hereof, the capitalized terms used herein and not otherwise defined have the meanings set forth in Appendix I .
1.2 References and Rules of Construction . All references in this Agreement to Exhibits, Schedules, Appendices, Articles, Sections, subsections, and other subdivisions refer to the corresponding Exhibits, Schedules, Appendices, Articles, Sections, subsections, and other subdivisions of or to this Agreement unless expressly provided otherwise. Titles appearing at the beginning of any Exhibit, Schedule, Appendix, Article, Section, subsection, and other subdivision of this Agreement are for convenience only, do not constitute any part of this Agreement, and shall be disregarded in construing the language hereof. The words this Agreement, herein, hereby, hereunder, and hereof, and words of similar import, refer to this Agreement as a whole and not to any particular Exhibit, Schedule, Appendix, Article, Section, subsection, or other subdivision unless expressly so limited. The phrase which include and the word including (in its various forms) mean including without limitation. All references to $ or dollars shall be deemed references to United States dollars. Each accounting term not defined herein will have the meaning given to it under generally accepted accounting principles in the United States. Pronouns in masculine, feminine, or neuter genders shall be construed to state and include any other gender, and words, terms, and titles (including terms defined herein) in the singular form shall be construed to include the plural and vice versa, unless the context otherwise requires. References to any Law means such Law as it may be amended from time to time. If a date specified herein for providing any notice or taking any action is not a Business Day, then the date for giving such notice or taking such action shall be the next day which is a Business Day.
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ARTICLE II
SAFETY AND COOPERATION; STANDARD OF CARE
2.1 Safety and Cooperation . In accordance with the terms and provisions of this Agreement, in each Mine Area, each Party shall comply with its own and, while on any other Partys property, such other Partys safety and access policies and shall cause all personnel engaged or directed by such Party and all contractors and subcontractors engaged in activities on behalf of such Party to similarly comply with such safety and access policies as required of the Parties themselves. The Parties shall cooperate in good faith with respect to their respective coal or gas operations in each Mine Area. The Parties further agree to comply with the insurance requirements set forth on Exhibit A hereto in each Mine Area, which requirements may be amended from time to time as agreed to by the Parties. The Parties shall endeavor to cooperate and work together in the area commonly known and referred to as Coal Partys Mason Dixon Reserve and Gas Partys Wadestown Prospect, which areas overlap and are generally depicted on the map attached hereto as Schedule 2.1 , to attempt to (i) identify locations and development timing for proposed Wells in Pillar Permit Areas, mains, longwall gate pillars, barriers, and/or other locations acceptable to both Coal Party and Gas Party and reasonably likely to minimize the significance of any conflicts with Coal Partys anticipated mining operations, and (ii) identify locations and construction timing for Gas Partys proposed Non-Well Facilities acceptable to both Coal Party and Gas Party and reasonably likely to minimize the likelihood of any required relocation thereof, in each case of clauses (i) and (ii) , as determined by both Coal Party and Gas Party in accordance with prudent coal mining and oil and gas development practices; provided, however, that for the avoidance of doubt, any failure to cooperate or work together under this provision shall not be applied to the prejudice of, or as a limitation on, the rights and obligations of the Parties under any other provision of this Agreement and shall not impose any additional liability on any Party, other than as expressly set forth herein.
2.2 Standard of Care . Each Party shall conduct its operations in a Mine Area in a good and workmanlike manner, in accordance with good and safe practices and standards for the type of work being conducted as a reasonably prudent operator operating under similar circumstances and in a manner that does not constitute gross negligence or willful misconduct.
2.3 Damage to Property; Liens and Encumbrances . Subject to ARTICLE III , Gas Party and Coal Party, as applicable, shall timely repair any damage to the real or personal property of any other Party that is caused by such Gas Partys or Coal Partys access, use and/or operations. Neither Gas Party nor Coal Party shall take any action to encumber or permit any lien on any other Partys real or personal property.
2.4 Relationship of the Parties . This Agreement is not intended to create an association, partnership, joint venture, or principal and agency relationship between the Parties. No Party is now, nor will any Party be, an employee, contractor, partner, joint venturer, agent, or representative of any other Party for any purpose under this Agreement.
2.5 Access to Certain Data in a Mine Area . In connection with Gas Partys and Coal Partys cooperation and safety efforts in a Mine Area, upon reasonable prior notice by either Gas Party or Coal Party (the Data Requesting Party ), the other Party shall give the Data Requesting Party access to (a) the results of any core hole samples and desorption tests relating to the Coal Gas or coal, as applicable, relating to any Third Party leasehold or fee-owned property in which both Gas Party has a Gas Interest and Coal Party has a Coal Interest, (b) any title studies, opinions, or reports relating to any Third Party leasehold or fee-owned property in which both Gas Party has a Gas Interest and Coal Party has a Coal Interest, provided, however, that the scope of Data Requesting Partys access to the foregoing shall be limited to information that is relevant to the Data Requesting Partys Coal Interests or Gas Interests, as applicable, and (c) any information reasonably requested by the Data Requesting Party in connection with and reasonably necessary with respect to the drilling of any Protected Well or Non-Protected Well through a coal seam owned or controlled by Coal Party, in each case, to the extent permitted by Existing Permits/Agreements or confidentiality or other restrictions of any agreement with a Third Party; provided , however , Gas Party shall not be required to provide any information with respect to any other coal seams, formations or zones, or any other property interests whatsoever, other than the coal seams owned or controlled by Coal Party in the pertinent Mine Area at the time the request is made. Gas Party and Coal Party shall each use its commercially reasonable
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efforts to share, without formal request from the other, the information set forth on Exhibit B with respect to the drilling of any Protected Well or Non-Protected Well in a Mine Area. Coal Party and Gas Party agree that all information furnished by the other Party hereunder is proprietary and confidential and will be protected as provided in Section 8.15 hereof, and each shall attempt to protect any attorney client privilege of any title studies, opinions, or reports that are made available to it by the other.
2.6 Pooling and Unitization . Notwithstanding anything herein to the contrary, Gas Party shall have the right to pool or unitize any Gas Assets as may be (i) established or prescribed by field rules or other regulatory order or (ii) as determined by Gas Party in its sole discretion.
2.7 Preservation of Certain Leasehold Interests . If (i) Coal Party wishes to release, surrender, terminate, or permit the termination or expiration of any Third Party leasehold in which Gas Party has a Gas Interest or (ii) Gas Party wishes to release, surrender, terminate, or permit the termination or expiration of any Third Party leasehold in which Coal Party has a Coal Interest, in each case, Coal Party and Gas Party agree that the terms and conditions set forth in Exhibit C shall apply.
ARTICLE III
OPERATIONS IN THE COOPERATION AREA
3.1 Operations in the Coal Area . With respect to the land in a Mine Area that is, during the relevant calendar year, (i) currently being actively mined by Coal Party for the production of coal from Coal Partys Coal Interests, or (ii) identified in good faith by Coal Party as land to be mined for the production of such coal during the following ten (10) calendar years of the then-current Life of Mine Plan as shown on the Annual Coal Development Plan finalized for that Mine pursuant to Section 4.2(b)(iii) and located either (A) at a Mine where there is currently active mining for the production of such coal, or (B) at a Mine for which a mining permit has been issued and at which Coal Party has (1) secured its necessary financial commitment to proceed with such Mine and (2) commenced and is diligently pursuing material construction activities directly related to the installation of a slope or shaft for purposes of accessing such coal and is actively pursuing commencement of mining to produce such coal (such area, the Coal Area ):
(a) If Coal Party determines, in its sole discretion, that venting of Coal Gas is necessary for mine safety considerations, Coal Party shall have the right to: (i) drill, vent, and/or flare holes to vent such Coal Gas; (ii) install any necessary equipment on the surface or subsurface, including pipelines and facilities, to remove but not Capture such Coal Gas; and/or (iii) cause Gas Party to vent, flare, or Capture for processing and sale such Coal Gas from any existing Gas Party Well that is then Capturing Coal Gas from the Coal Gas seam or gob area in the mine at issue. Gas Party shall have the exclusive right to Capture any and all Coal Gas; provided, however , that in the event that Gas Party determines it shall not Capture sealed gob Gas in a Mine Area, or portion thereof, and notifies Coal Party in writing of such determination, then Coal Party may Capture such sealed gob Gas in that Mine Area, or portion thereof, at its discretion and sole risk and expense. In the event that Coal Party vents or flares Coal Gas within one hundred fifty feet (150 ft.) of any Gas Party well or other surface facility, then Coal Party shall maintain methane concentrations at less than 0.5%.
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(b) Coal Party shall have the absolute right to Stimulate any coal seam for production or to degas a Mine Area; provided , however , that Gas Party may elect to Stimulate any coal seam in which Coal Party has a Coal Interest, at its sole cost and expense, upon prior written notice to Coal Party. In the event Gas Party so elects, Gas Party shall employ customary Stimulation best practices consistent with industry practices as determined by Gas Party for Stimulating such coal seams and shall keep Coal Party reasonably informed of any such Stimulation activities. Notwithstanding the foregoing, Gas Party may employ experimental Stimulation techniques with respect to any coal seam in which Coal Party has a Coal Interest only with the prior written consent of Coal Party, which such consent shall not be unreasonably withheld, conditioned, or delayed (or shall not impose any financial or economic burdens or requirements on Gas Party other than, or in addition to, those set forth in this Agreement).
(c) Gas Party shall, subject to Coal Partys plugging, relocation, and shut-in rights pursuant to Section 3.3 , have the right to locate and drill Wells, and construct pipelines and facilities, in the Coal Area that are attributable to the Gas Interests and the right to exercise its Surface Use Rights set forth in Section 5.1 below in the Coal Area, including the right to transport Third Party Gas from lands in the Coal Area or other lands and the right to support operations of Gas Party, its partners, joint venturers, co-working interest owners, and/or any of its joint ventures on lands in the Coal Area or other lands; provided , however , that, prior to drilling any Well which will have all or part of its vertical wellbore in the Coal Area at the time that Governmental Authorities issue the drilling permit for such Well, Gas Party shall request the prior written consent of Coal Party with respect to the casing design and location of such Well at the vertical depth at which such Well penetrates the coal seam(s) owned or controlled by Coal Party as part of its Coal Interests, which such consent shall not be unreasonably withheld, conditioned, or delayed (or shall not impose any financial or economic burdens or requirements on Gas Party other than, or in addition to, those set forth in this Agreement). Upon receiving a request from Gas Party to drill such Well, Coal Party may, within fifteen (15) days, (i) consent to the casing design of such Well at the foregoing depth and its proposed location; (ii) consent to the casing design of such Well at the foregoing depth but not consent to its proposed location; or (iii) not consent to the casing design of such Well at the foregoing depth and its proposed location. In the case of (i), such Well shall be deemed a Protected Well . In the case of (ii) or (iii), Coal Party and Gas Party shall meet to attempt a mutually agreeable solution within the next subsequent fifteen (15) days, and if they are unable to agree, Gas Party may nevertheless drill such Well without obtaining Coal Partys consent, and such Well shall be deemed a Non-Protected Well .
(d) Notwithstanding anything herein to the contrary and regardless of whether a Well to be drilled in a Coal Area is deemed a Protected Well or a Non-Protected Well (i) Gas Party shall, upon fifteen (15) days advance written notice to Coal Party followed by twenty four (24) hours advance written notice to Coal Party (via email or facsimile), in each case prior to commencement of drilling, have the right to drill Wells through Coal Partys Coal Interests, and (ii) Coal Party shall, after being notified of such drill plan by Gas Party, provide such window as is necessary or required for Gas Party to safely drill such Well, or Wells (by way of example, but not of limitation, to drill such Wells from a multi-well pad), through Coal Partys Coal Interests, either (A) during a Coal Party scheduled idle mine shift, in which event Gas Party shall not be responsible for any costs or expenses incurred by Coal Party as a result of Gas Partys drilling of such Well, or Wells, including without limitation those associated with idling of the Mine or
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evacuation required by applicable Law, or (B) at Gas Partys option, during a Coal Party scheduled active mine shift, in which event Gas Party shall be responsible for the actual costs and expenses reasonably incurred by Coal Party as a result of Gas Partys drilling of such Well, or Wells, including without limitation those associated with idling of the Mine or evacuation required by applicable Law; provided, however, that (x) Coal Party shall, within three (3) Business Days after Coal Partys receipt of Gas Partys fifteen (15) day advance written notice, notify Gas Party in writing of all Coal Partys scheduled idle mine shifts that fall within the next two (2) week period, and (y) such drilling window shall, unless otherwise agreed in writing by Coal Party and Gas Party, start not less than six (6) hours, nor more than twenty four (24) hours, after Gas Partys twenty four (24) hour advance written notice to Coal Party.
3.2 Operations in the Non-Coal Area . With respect to the land in any Mine Area that is not, during the relevant calendar year, shown by Coal Party (such showing by Coal Party to be in good faith) as a Coal Area on the Annual Coal Development Plan finalized for any Mine (the Non-Coal Area ):
(a) Gas Party shall, subject to Coal Partys plugging, relocation, and shut-in rights pursuant to Section 3.3 , have the right to locate and drill Wells, and construct pipelines and facilities, in the Non-Coal Area that are attributable to the Gas Interests and the right to exercise its Surface Use Rights set forth in Section 5.1 below in the Non-Coal Area, including the right to transport Third Party Gas from lands in the Coal Area or other lands and the right to support operations of Gas Party, its partners, joint venturers, co-working interest owners, and/or any of its joint ventures on lands in the Coal Area or other lands. Coal Party shall have the absolute right to Stimulate any coal seam for production, but not Capture, in the Non-Coal Area or to degas the Non-Coal Area.
(b) Any Well drilled by Gas Party such that the vertical wellbore of the Well was located within the Non-Coal Area at the time that Governmental Authorities issue the original drilling permit for such Well shall be deemed a Protected Well.
(c) Each Well in the Non-Coal Area that exists or for which a drilling permit has been issued by Governmental Authorities as of the Effective Time shall be deemed a Protected Well hereunder. Further, in the event that, after the Effective Time, Coal Party acquires ownership or control of any Mine for which a mining permit or permits have been issued by Governmental Authorities prior to Coal Partys acquisition thereof (i) each Well in the Mine Area of such Mine that exists or for which a drilling permit has been issued by Governmental Authorities as of the date such Mine is acquired by Coal Party shall be deemed a Protected Well hereunder, and (ii) each Well in the Mine Area of such Mine for which a drilling permit is issued by Governmental Authorities after the date such Mine is acquired by Coal Party shall be subject to this Agreement, including ARTICLE III hereof.
(d) To the extent Gas Party desires to drill the vertical wellbore of a Well, or Wells, in the Non-Coal Area within a Mine Area, Gas Party and Coal Party shall use commercially reasonable efforts to cooperate with each other with respect to the location of such Gas Party Wells and operations; provided, however , that if Coal Party and Gas Party do not agree on the location of such Well in the Non-Coal Area portion of a Mine Area within thirty (30) days after written notification from Gas Party to Coal Party of such Wells planned location, Gas
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Party shall have the right to determine the location of any such Well in the Non-Coal Area portion of such Mine Area in its sole discretion and such Well shall be deemed a Protected Well; provided, further , that Gas Party shall have no obligation to notify Coal Party prior to drilling any Well that is not located in a Mine Area at the time such Well is permitted, or to coordinate with Coal Party concerning the location of any such Well.
3.3 Plugging, Relocation, and Shut-In Rights and Expenses in a Mine Area .
(a) Protected Wells : In the event Coal Party reasonably anticipates needing to mine-through, or shut-in (including temporarily plugging) to allow Mine-By of, a Protected Well in connection with mining Coal Partys Coal Interests in a Mine Area, Coal Party may upon reasonable advance notice to Gas Party, but in no event upon less than thirty (30) months advance notice, require that any such Protected Well, to the extent not prohibited by any applicable Existing Permits/Agreements binding on Gas Party, be (i) plugged and abandoned consistent with mine-through Laws and relocated, in which event such notice shall specify the Mining P&A Date and Coal Party shall reimburse Gas Party for 100% of the costs associated with the plugging and abandoning of such Protected Well and compensate Gas Party pursuant to Schedule 3.3(a) , taking into account the Gas Reserves (including proved developed producing, proved developed non-producing, proved undeveloped, possible undeveloped, and probable undeveloped reserves) and the underlying leases, if applicable, that are lost due to such plugging, abandonment and relocation; provided, however , that (A) at Coal Partys request, Gas Party shall, to the extent not prohibited by any applicable Existing Permits/Agreements, promptly transfer the applicable wellbore to Coal Party or its designee for such plugging and abandoning consistent with mine-through Laws, and prior to such transfer, Coal Party shall compensate Gas Party for the then-current fair market value of such Protected Well, which, taking into account the Gas Reserves and the underlying leases if applicable, shall be determined pursuant to Schedule 3.3(a) , or (B) Gas Party may request to pursue a Mine-By or Long-Wall Move-Around of such Well pursuant to Section 3.3(c), in lieu of plugging and abandonment; or (ii) shut-in (including temporarily plugging) for a period of time, in which event Coal Party shall reimburse Gas Party for any costs and damages reasonably incurred by Gas Party in connection with such shut-in, including any losses (including interest on such amounts) resulting from the delay in Gas Party receiving net revenues from production from such Protected Well caused by such shut-in. In addition, Coal Party shall compensate Gas Party for losses incurred by Gas Party due to any lessors claims for damages arising or resulting from actions taken pursuant to this Section 3.3(a) that have been finally determined.
(b) Non-Protected Wells : In the event Coal Party reasonably anticipates needing to mine-through, or shut-in (including temporarily plugging) to allow Mine-By of, a Non-Protected Well in connection with mining Coal Partys Coal Interests in a Mine Area, Coal Party may upon reasonable advance notice to Gas Party, but in no event upon less than thirty (30) months advance notice, require that any such Non-Protected Well, to the extent not prohibited by any applicable Existing Permits/Agreements binding on Gas Party, be (i) plugged and abandoned consistent with mine-through Laws and relocated, in which event such notice shall specify the Mining P&A Date and Gas Party shall bear 100% of the costs associated with plugging and abandoning such Non-Protected Well and 100% of the loss of value of such Well; provided, however , that (A) at Coal Partys request, Gas Party shall, to the extent not prohibited by any applicable Existing Permits/Agreements, promptly transfer the wellbore of such Well to
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Coal Party or its designee for such plugging and abandoning consistent with mine-through Laws, and Gas Party shall reimburse Coal Party for all reasonable and actual costs associated with such plugging, abandonment and relocation, or (B) Gas Party may request to pursue a Mine-By or Long-Wall Move-Around of such Well pursuant to Section 3.3(c), in lieu of plugging and abandonment; or (ii) shut-in (including temporarily plugging), and Gas Party shall bear 100% of any costs and damages incurred by Gas Party in connection with such shut-in (including temporarily plugging) of such Non-Protected Well, and if such Well can be reopened, in connection with the reopening of such Well. Coal Party shall not be liable to any other Party for any lost Gas Reserves or lost leases in the exercise of its rights under this Section 3.3(b) , unless and except in the event that a Non-Protected Well is plugged and abandoned for mine through pursuant hereto and Coal Party fails to mine through such Well within the next forty eight (48) calendar months after such plugging and abandonment, in which event Coal Party shall reimburse Gas Party for 50% of the costs associated with the plugging and abandoning of such Non-Protected Well and compensate Gas Party for 50% of the lost value of such Non-Protected Well, taking into account the Gas Reserves and underlying leases, if applicable, that are lost.
(c) Long-Wall Move-Around Wells and Mine-By Wells . In the event that Gas Party is required to plug and abandon any Protected or Non-Protected Well in a Mine Area as a result of Coal Partys exercise of its rights under this ARTICLE III and Gas Party desires to drill or retain such Protected or Non-Protected Well, Gas Party may, to the extent permitted under this Section 3.3(c) , request to have a Long-Wall Move-Around or a Mine-By with respect to such Well in lieu of such plugging and abandonment, in each case, as follows:
(i) Long-Wall Move-Around Wells . In the event Gas Party desires in a Mine Area that Coal Party conduct a Long-Wall Move-Around of any Protected or Non-Protected Well that is required to be plugged and abandoned for mine-through pursuant to this ARTICLE III:
(1) Gas Party may request in writing, not later than twenty-four (24) months prior to the anticipated Mining P&A Date of such Well, as identified by Coal Party, that Coal Party conduct a Long-Wall Move-Around of such Protected or Non-Protected Well, which request when delivered by Gas Party to Coal Party shall include evidence of Gas Partys compliance with the insurance requirements set forth on Exhibit A attached hereto, and any amendments thereof then in effect;
(2) Not more than thirty (30) calendar days after receipt of Gas Partys written request for Coal Party to conduct a Long-Wall Move-Around with respect to any applicable Protected or Non-Protected Well, Coal Party shall provide to Gas Party in writing:
(A) Either its consent to such proposed Long-Wall Move-Around (subject to Gas Party paying the value of the stranded coal reserves and associated operational costs, as determined pursuant hereto) or its non-consent to such proposed Long-Wall Move-Around, such consent not to be unreasonably withheld, conditioned or delayed (or not to impose any financial or economic burdens or requirements on Gas Party other than, or in addition to, those set forth in this Agreement); provided, however , in no event shall Coal Party be obligated
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to grant such consent to the extent such Long-Wall Move-Around would be reasonably likely to adversely affect or endanger the health or safety of any personnel working within the applicable Mine or above or below such Mine, would violate any applicable Laws, would be prohibited by any Existing Permits/Agreements binding on Coal Party, would cause Coal Party to be unable to meet or perform its contractual obligations in any material respect or would materially interfere with or adversely affect Coal Partys ability to operate its Mine in an efficient manner that maintains coal quality and allows continued timely implementation of its then-current Annual Coal Development Plan; and, further, provided that it will not be deemed unreasonable for Coal Party to condition its consent upon Gas Party furnishing assurance of Gas Partys financial ability to pay Coal Party for the value of the stranded coal reserves and operational costs that Coal Party reasonably estimates will be associated with the requested Long-Wall Move-Around, including but not limited to requiring Gas Party to post a surety bond in favor of Coal Party for the amount of such value and costs; and
(B) If Coal Party elects to consent to such request, a good-faith estimate of the value of the stranded coal reserves and operational costs that Coal Party reasonably estimates will be associated with the requested Long-Wall Move-Around, as determined using the formulas set forth on Schedule 3.3(c) ;
(3) If Coal Party elects not to consent to such request pursuant to subsection (2) above for a Long-Wall Move-Around with respect to such Protected or Non-Protected Well, then there shall be no Long-Wall Move-Around with respect to such Well, and such Well shall be plugged and abandoned as set forth in Section 3.3(a) or Section 3.3(b) , as applicable, and the cost and expense associated with such plugging and abandonment shall be allocated as set forth in Section 3.3(a) or Section 3.3(b), as applicable; and
(4) If Coal Party consents to such request pursuant to subsection (2) above for a Long-Wall Move-Around with respect to such Protected or Non-Protected Well, then, not more than thirty (30) days after receipt of Coal Partys good-faith estimate of the value of the stranded coal reserves and operational costs associated with such request, Gas Party shall provide to Coal Party in writing either:
(A) Confirmation to proceed with the requested Long-Wall Move-Around, together with Gas Partys reasonable good faith estimate of the compensation and reimbursement to which Gas Party would have been entitled under Section 3.3(a) if the pertinent Well is a Protected Well and had been plugged for mine-through (the Protected Well Mining P&A Estimate ), and (a) Coal Party shall conduct the Long-Wall Move-Around with respect to such Protected or Non-Protected Well, (b) Gas Party shall pay to Coal Party an amount equal to the value of any stranded coal reserves and operational costs associated with the Long-Wall Move-Around for such Well, as determined utilizing the formulas set forth on Schedule 3.3(c) attached hereto, minus the Protected Well Mining P&A Estimate, if applicable, (c) Coal Party shall invoice Gas Party for the
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value of the stranded reserves and operational costs associated with the Long-Wall Move-Around for such Well, minus the Protected Well Mining P&A Estimate (if applicable), after Coal Party completes such Long-Wall Move-Around as to such Well, and (d) Gas Party shall pay such invoice within thirty (30) days after receipt thereof; or
(B) Notice that Gas Party withdraws its request for such Long-Wall Move-Around, and then there shall be no Long-Wall Move-Around with respect to such Protected or Non-Protected Well, and such Well shall be plugged and abandoned as set forth in Section 3.3(a) or Section 3.3(b) , as applicable, and the cost and expense associated with such plugging and abandonment shall be allocated as set forth in Section 3.3(a) or Section 3.3(b), as applicable.
(ii) Mine-By Wells . In the event Gas Party desires in a Mine Area that Coal Party conduct a Mine-By of any Protected or Non-Protected Well that is required to be plugged and abandoned for mine-through pursuant to this ARTICLE III :
(1) Gas Party may request in writing, not later than twenty-four (24) months prior to the anticipated Mining P&A Date of such Protected or Non-Protected Well, as identified by Coal Party, that Coal Party conduct a Mine-By of such Well, which request when delivered by Gas Party to Coal Party shall include evidence of Gas Partys compliance with the insurance requirements set forth on Exhibit A attached hereto, and any amendments thereof then in effect;
(2) Not more than thirty (30) calendar days after receipt of Gas Partys written request for Coal Party to conduct a Mine-By with respect to any such Protected or Non-Protected Well, Coal Party shall provide to Gas Party in writing:
(A) Either its consent to such proposed Mine-By or its non-consent to such proposed Mine-By, such consent not to be unreasonably withheld, conditioned or delayed (or not to impose any financial or economic burdens or requirements on Gas Party other than, or in addition to, those set forth in this Agreement); provided, however , in no event shall Coal Party be obligated to grant such consent to the extent such Mine-By would be reasonably likely to adversely affect or endanger the health or safety of any personnel working within the applicable Mine or above or below such Mine, would violate any applicable Laws, would be prohibited by any Existing Permits/Agreements binding on Coal Party, would cause Coal Party to be unable to meet or perform its contractual obligations in any material respect or would materially interfere with or adversely affect Coal Partys ability to operate its mine in an efficient manner that maintains coal quality and allows continued timely implementation of its then-current Annual Coal Development Plan; and
(B) If Coal Party elects to consent to such request, a good-faith estimate of the value of any stranded coal reserves and incremental operational costs that Coal Party reasonably estimates will be associated with the requested Mine-By, as determined using the formulas set forth on Schedule 3.3(c) ;
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(3) If Coal Party elects not to consent to such request for a Mine-By pursuant to subsection (2) above with respect to such Protected or Non-Protected Well, then there shall be no Mine-By with respect to such Well, and such Well shall be plugged and abandoned as set forth in Section 3.3(a) or Section 3.3(b) , as applicable, and the cost and expense associated with such plugging and abandonment shall be allocated as set forth in Section 3.3(a) or Section 3.3(b), as applicable;
(4) If Coal Party consents to such request for a Mine-By pursuant to subsection (2) above with respect to such Protected or Non-Protected Well, then, not more than thirty (30) days after receipt of Coal Partys good-faith estimate of the value of the stranded coal reserves and incremental operational costs associated with such request, Gas Party shall provide to Coal Party in writing either:
(A) Confirmation that Gas Party desires to proceed with the requested Mine-By, together with a Protected Well Mining P&A Estimate (if applicable), and, upon receipt of such confirmation (a) Gas Party and Coal Party shall proceed to file all necessary documentation and applications with the appropriate regulatory agencies to Mine-By such Protected or Non-Protected Well, (b) Coal Party and Gas Party shall diligently work together in obtaining all of the necessary regulatory paperwork, and (c) Coal Party and Gas Party shall each continue to update the other Party every sixty (60) calendar days thereafter with respect to the status of the pending approvals and shall provide copies of any documentation filed with, or received from, such regulatory agencies ; provided, however, that, notwithstanding anything in this Agreement to the contrary, in the event Coal Party and Gas Party fail to obtain all applicable regulatory approvals from the appropriate regulatory agencies to Mine-By as to such Well at least sixty (60) days prior to the time that the anticipated Mine-By is to occur, then Gas Party shall be deemed not to have requested such Mine-By and Coal Party shall be deemed not to have consented thereto; and, further, provided that, if there are more than six (6) Wells on the pertinent Well pad, such sixty (60) day period shall be increased by an additional ten (10) days for each Well above six (6) Wells on that Well pad; or
(B) Notice that Gas Party withdraws its request for such Mine-By, and then there shall be no Mine-By with respect to such Protected or Non-Protected Well, and such Well shall be plugged and abandoned as set forth in Section 3.3(a) or Section 3.3(b) , as applicable, and the cost and expense associated with such plugging and abandonment shall be allocated as set forth in Section 3.3(a) or Section 3.3(b), as applicable
(5) If Coal Party and Gas Party receive all necessary regulatory approvals for the Mine-By of such Protected or Non-Protected Well, then (A) Coal Party and Gas Party shall commence and diligently pursue the completion of such Mine-By in accordance with applicable Laws and within the time period outlined in such regulatory approvals, (B) Gas Party shall pay to Coal Party an amount equal to the value of any stranded coal reserves and incremental operational costs, including without limitation any out-of-pocket costs and expenses incurred by Coal Party for idling its mine due to delays
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in implementing the associated Mine-By Temporary P&A, associated with the Mine-By for such Well, as determined utilizing the formulas set forth on Schedule 3.3(c) attached hereto, minus the Protected Well Mining P&A Estimate (if applicable), (C) Coal Party shall invoice Gas Party for the value of the stranded reserves and operational costs associated with the Mine-By for such Well, minus the Protected Well Mining P&A Estimate (if applicable), after Coal Party completes its work associated with such Mine-By, and (D) Gas Party shall pay such invoice within thirty (30) days after receipt thereof;
(6) If Gas Party elects to reopen any Protected or Non-Protected Well that has been Mine-By Temporary P&A following Mine-By by Coal Party, then (A) before such reopening, Gas Party shall first obtain all necessary regulatory approvals and then attempt to reopen such Well only after the first longwall panel has been mined to a minimum distance past the affected Well as required by applicable Law, and (B) Gas Party shall furnish to Coal Party all reports and data reasonably requested by Coal Party with respect to the affected Well for health and safety purposes, including well integrity data required to be reported under any applicable Law or needed to acquire any regulatory approval; and
(7) With respect to any Protected Wells to be Mine-By Temporary P&A, Coal Party shall pay Gas Party the costs of the first Mine-By Temporary P&A and subsequent reopening of such Well(s), and Gas Party shall bear the costs of any subsequent Mine-By Temporary P&A and reopening of such Well(s), unless a subsequent Mine-By Temporary P&A is required for mining-related regulatory compliance, in which case Coal Party shall pay Gas Party the costs of such Mine-By Temporary P&A and subsequent reopening of such Well(s).
(d) Non-Well Operations : In a Mine Area, Coal Party may require at any time that Gas Party relocate (within a reasonable time, but in no event later than twenty-four (24) months following receipt of such notice from Coal Party) an easement (including Surface Easements), pipeline, facility, or other related equipment located in a Mine Area (other than a Well and associated Well equipment) (each, a Non-Well Facility ) if any such Non-Well Facility is reasonably expected by Coal Party to interfere with Coal Partys present or planned operations or uses in, on, or under any of its Coal Interests, and the following shall apply:
(i) All costs and expenses of Gas Party associated with the initial relocation of any Non-Well Facility constructed after the Effective Time shall be (1) borne 100% by Gas Party, if at the time of construction such Non-Well Facility was within a Coal Area and its location was not approved in writing by Coal Party, and (2) otherwise, borne 50% by Gas Party and 50% by Coal Party.
(ii) With respect to any Non-Well Facility existing in the Cooperation Area as of the Effective Time, this Agreement shall govern and supersedes the Original MCSA, and if such Non-Well Facility was located in the (1) Coal Area of a Mine Area at the time it was constructed, all costs and expenses associated with the initial relocation shall be borne 100% by Gas Party, and (2) Non-Coal Area of a Mine Area or outside a Mine Area at the time it was constructed, all costs and expenses associated with the initial relocation shall be borne 50% by Gas Party and 50% by Coal Party.
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(iii) Coal Party may require a second or further relocation with respect to any Non-Well Facility that has been previously relocated pursuant hereto; provided, however , that (X) the costs and expenses of any such second or further relocation shall be borne solely by Coal Party, (Y) Coal Party shall compensate Gas Party for lost profits due to the Non-Well Facility being out of service, and (Z) Coal Party shall indemnify and hold Gas Party harmless from any Claim made by a Third Party arising from such Non-Well Facility being out of service during the relocation. For the avoidance of doubt, the costs and expenses of any relocation performed pursuant to this Section 3.3(d) shall, in each instance, include the cost and expense incurred to acquire any new easements or rights-of-way from Third Parties that are reasonably necessary or required in connection with such relocation and lost profits due to the Non-Well Facility being out of service. For the further avoidance of doubt, any new easements that are necessary or required in connection with such relocation shall, to the extent practicable, be granted free of charge pursuant to the Surface Use Rights herein granted.
(e) For the avoidance of doubt, where this Section 3.3 has been qualified by language such as to the extent not prohibited by any Existing Permits/Agreements or phrases of similar import, the Parties agree that such provisions herein and the relevant Existing Permits/Agreements shall be construed and applied in a manner consistent with the objectives contained in this Agreement.
3.4 Operations in the Cooperation Area Outside a Mine Area . For the avoidance of doubt, with respect to any land, including Coal Interests, Gas Interests and/or Surface Rights, in the Cooperation Area that is, at any given time, outside a Mine Area:
(a) Gas Party shall have (i) the absolute right to freely operate and develop its Gas Interests and to utilize its Surface Use Rights and License Use Rights, including, without limitation, the absolute right to drill Wells, to determine the location of its Wells in its sole discretion, and to construct Non-Well Facilities, and including, without limitation, the right to transport Third Party Gas from lands in the Coal Area or other lands and to support operations of Gas Party, its partners, joint venturers, co-working interest owners, any of its joint ventures, and/or any of its Affiliates on lands in the Coal Area or other lands and to otherwise exercise all rights granted to Gas Party in ARTICLE V , and (ii) no obligation to notify Coal Party prior to drilling any such Well or to coordinate with Coal Party concerning the location of any such Wells or Non-Well Facilities.
(b) Notwithstanding its obligations to cooperate with Gas Party and to allow Gas Party to utilize all rights granted to Gas Party pursuant to this Agreement, Coal Party shall, except as otherwise provided in Section 3.4(c) or Section 6.5 , have no rights under this Agreement, including, without limitation, the right to subside or to cause Gas Party to plug, abandon and/or relocate, with respect to (i) any Well of Gas Party, or its partners, joint venturers, co-working interest owners, and/or any of its joint ventures, which had its vertical wellbore outside the Mine Area at the time the initial drilling permit for such Well was issued, or (ii) any Non-Well Facility of Gas Party, or its partners, joint venturers, co-working interest owners, and/or any of its joint ventures, which was located outside the Mine Area at the time originally constructed.
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(c) The terms of this Section 3.4 shall apply with respect to each existing Well and Non-Well Facility of Gas Party that is outside a Mine Area but within the Cooperation Area as of the Effective Time and any Well and Non-Well Facility of Gas Party drilled or constructed after the Effective Time and that, when constructed, is outside a Mine Area but within the Cooperation Area; provided, however , if a Mine Area is thereafter established or purchased by Coal Party that encompasses any such Well or Non-Well Facility (i) all such Wells existing within such area as of the date such Mine Area is established or purchased, and all Wells in such Mine Area for which drilling permits have been issued by Governmental Authorities as of the date of such establishment or purchase, shall be deemed Protected Wells and subject to such provisions of this Agreement covering Protected Wells, and (ii) all such Non-Well Facilities constructed within such area prior to the date such Mine Area is established or purchased shall be deemed installed outside the Coal Area and subject to the provisions of this Agreement covering Non-Well Facilities.
3.5 Permits in the Cooperation Area . Coal Party and Gas Party are each responsible for obtaining all permits, title reports, licenses, and bonds related to its operations. Provided that such other Party has complied with its obligations under this Agreement and to the extent not prohibited by Existing Permits/Agreements: (a) Coal Party, including for the avoidance of doubt Coal Partys Affiliates, shall support Gas Partys permitting and regulatory activities in the Cooperation Area and agrees it will not object, protest, appeal, or interfere with any applications submitted by Gas Party for permits, approvals, or authorizations required by any Governmental Authority in the Cooperation Area and will timely execute or submit applicable waivers, consents (including consents to Stimulate), or other documents as requested by Gas Party in accordance with the aforementioned; and (b) Gas Party shall support Coal Partys permitting and regulatory activities in each Mine Area, including with respect to initial start-up of a Mine, and agree they will not object, protest, appeal, or interfere with any applications submitted by Coal Party for permits, approvals, or authorizations required by any Governmental Authority in such Mine Area and will timely execute or submit applicable waivers, consents, or other documents as requested by Coal Party in accordance with the aforementioned. Applications covered include not only initial applications for a mine permit in a Mine Area or Well permit or Non-Well Facilities permit anywhere in the Cooperation Area but also amendments or revisions to existing applications, renewals, six (6) month map filings, or similar submissions after an original application; provided, however , that the Party which is supporting the other Partys permitting and/or regulatory activities shall not be required to incur any out-of-pocket costs in connection therewith other than as set forth herein. Coal Party and Gas Party each agree to comply in all material respects with all applicable Existing Permits/Agreements burdening the Coal Interests and Gas Interests, as applicable; provided, however , that for the avoidance of doubt the Parties agree that the relevant Existing Permits/Agreements shall be construed and applied in a manner consistent with the objectives contained in this Agreement.
3.6 As-Built Drawings . In the event any new surface facilities are constructed or surface real property improvements are made by Coal Party or Gas Party within a Mine Area, the constructing Party shall promptly provide the other Party with As-Built Construction Drawings showing the nature and location of such new construction or improvement as are available to the constructing Party, or alternatively notify the other Party and make such As-Built Construction Drawings available to the other Party for copying.
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3.7 Drilling Procedures . The procedures set forth in Schedule 3.7 will be followed when drilling Wells in a Mine Area after the Effective Time.
3.8 Allowances and Credits . The Coal Party and Gas Party agree that any baseline or additional Allowances or Energy Credits (whether the Allowances are allocated on a pre- or post- Coal Gas Capture basis or whether due to Coal Gas Capture or any other Coal Gas or mining activities) directly attributable (i) to Gas Partys Capture of Coal Gas or Coal Gas activities, in each case, associated with the Coal Interests existing as of the Effective Time within the Cooperation Area and (ii) to mining activities by Coal Party or its Coal Affiliates with respect to Coal Interests existing as of the Effective Time within the Cooperation Area, in each case, to which each Party is or may become entitled to claim, own or benefit from prior to, on or after the Effective Time (such Allowances and Energy Credits, as limited by items (i) and (ii) above, the Subject Coal Allowances and Subject Coal Energy Credits , respectively), whether allocated by any government or regulatory agency, purchased or otherwise acquired by a Party, shall be held, controlled and owned fifty percent (50%) by Gas Party and fifty percent (50%) by Coal Party. The Parties agree to cooperate to the extent reasonably necessary as to their agreement in respect of the ownership and control of all such Subject Coal Allowances and Subject Coal Energy Credits consistent with the foregoing.
(a) For the avoidance of doubt, Gas Party and Coal Party shall each hold all rights, title and interest in and to its fifty percent (50%) share of all Subject Coal Energy Credits and its fifty percent (50%) share of all Subject Coal Allowances, whether Verified, as defined below, or not Verified, severally and not jointly or as tenants in common, so that Gas Party and Coal Party each may (i) hold, control, or own, or (ii) sell, lease, assign, transfer, trade and/or convey, in each case, its percentage share in whole or in part of its Subject Coal Energy Credits and/or Subject Coal Allowances without the consent of the other Party, free and clear of all liens, claims or encumbrances, and to the extent all such percentage share of a Party is sold, leased, assigned, transferred, traded and/or conveyed, the remaining percentage share of that type and vintage of Subject Coal Energy Credits and Subject Coal Allowances shall be held, owned, controlled, or sold, leased, assigned, transferred, traded and/or conveyed, solely by the other Party.
(b) To the extent that any lien, claim or encumbrance may arise by or through any Party upon the Subject Coal Energy Credits or the Subject Coal Allowances of the other Party, then the Party by or through whom the lien, claim or encumbrance arose agrees (at its own cost and expense) to take any and all actions necessary to promptly remove any such lien, claim or encumbrance that encumbers the other Partys Subject Coal Energy Credits or Subject Coal Allowances.
(c) Gas Party and Coal Party will cooperate in the selection of the firm to verify or certify all or any portion of the Subject Coal Energy Credits and Subject Coal Allowances ( Verify or Verification ). In the event the Parties cannot agree on the Verification firm, each Party shall each have the exclusive right to determine which firms such Party will retain to Verify all or any portion of the Subject Coal Energy Credits and Subject Coal Allowances. Any Party Verifying the Subject Coal Energy Credits and Subject Coal Allowances must give reasonable written notice of such Verification and the type of Subject Coal Energy Credits or Subject Coal Allowances being so Verified to the other Party and will provide to the
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other Party a copy of any reports related to any such Verification. If the Parties select different Verification firms or obtain separate Verification reports from the same firm, each Party will be entitled to its percentage share of the average of the total Verified Subject Coal Energy Credits and Verified Subject Coal Allowances determined by the Verification firms or reports, as the case may be.
(d) Each Party shall each have the exclusive right, as to its percentage of the Subject Coal Energy Credits and Subject Coal Allowances, to determine under which Programs and system(s), and using whatever means, such Party will (i) sell, lease, assign, transfer, trade and/or convey or (ii) register, record, or otherwise perfect ( Register ), in each case, its share of the Subject Coal Energy Credits or Subject Coal Allowances, and to sell, lease, assign, transfer, trade and/or convey the same to any Third Party such Party so chooses. Each Party Registering Subject Coal Energy Credits or Subject Coal Allowances must give reasonable written notice of registration ( Registration ) to the other Party and will provide to the other Party a copy of any reports related to any such Registration. If, in the course of a Party Registering or selling, leasing, assigning, transferring, trading and/or conveying its percentage share of the Subject Coal Energy Credits or Subject Coal Allowances, the quantity of the share of Subject Coal Energy Credits or Subject Coal Allowances actually Registered or transferred is less or greater than the percentage of the Subject Coal Energy Credits or Subject Coal Allowances divided, neither the Party Registering or transferring the Subject Coal Energy Credits or the Subject Coal Allowances, nor the other Party, will be entitled to any adjustment in its share or other compensation for the greater or lesser quantity.
(e) Each Party acknowledges that the other Party has the right to fifty percent (50%) of any and all consideration derived from the sale, lease, assignment, transfer, trade and/or conveyance of all Subject Coal Energy Credits and/or all Subject Coal Allowances contemplated herein. Further, the Parties shall proceed as follows with respect to Credit Producers:
(i) The Party engaging a Credit Producer, whether the Coal Party or the Gas Party, shall promptly notify the other Party in writing of the proposed project (each, a Project Notice ), including (1) the name and contact address, telephone no. and facsimile no. for the Credit Producer, (2) the proposed terms of the project, (3) the name of the pertinent Mine Area, (4) the proposed payment or consideration scheme, and (5) any other relevant information concerning the project;
(ii) The Party receiving the Project Notice shall have the right to either (1) agree to receive its fifty percent (50%) share of the consideration as proposed in the Project Notice, or (2) enter into separate negotiations with the Credit Producer, limited to the manner or scheme in which the Credit Producer will pay such Party for its fifty percent (50%) share of the consideration for the Subject Coal Energy Credits or Subject Coal Allowances, which negotiations shall be allowed for a period of up to thirty (30) days from the date of such Partys receipt of the Project Notice;
(iii) In the event that the Party receiving the Project Notice does not initially agree to the payment scheme as proposed in the Project Notice, but fails to reach its own agreement with the Credit Producer regarding the manner or scheme for payments within thirty (30) days after such Partys receipt of the Project Notice, then any consideration for the Subject
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Coal Energy Credits or Subject Coal Allowances shall be paid according to the project agreement between the Credit Producer and the Party that engaged the Credit Producer, and the Party that executed the project agreement with the Credit Producer shall promptly and fully pay to the other Party its fifty percent (50%) share of the consideration, and shall include with such payment all necessary documentation to enable verification of the consideration received by such executing Party;
(iv) The Project Notice and the right of the non-engaging Party to seek to negotiate a separate agreement with the Credit Producer regarding the consideration scheme for its fifty percent (50%) share, as described above, shall not be construed as a requirement that the consent of the non-engaging Party is needed for a project agreement proposed hereunder to proceed between the engaging Party and the Credit Producer;
(v) Throughout the process set forth above, the Party that engaged the Credit Producer shall endeavor to keep the other Party reasonably apprised of applicable information related to the quantity of Subject Coal Energy Credits and/or Subject Coal Allowances generated, registration activities and market activities, and shall permit the other Party to perform an annual audit during reasonable business hours to verify the consideration paid for the Subject Coal Energy Credits and/or Subject Coal Allowances that are generated by the project; and
(vi) The Party that engaged the Credit Producer shall direct the Credit Producer to take all necessary steps to Verify, Register, market and sell any Subject Coal Energy Credits and/or Subject Coal Allowances derived from the Coal Gas activities for which such Credit Producer was engaged.
(f) Each Party agrees to provide the other Party with reasonable cooperation in attaining any Verification, certification, documentation or other needed approvals, or in negotiating or finalizing any sale, Registration, transfer or other use of the Subject Coal Energy Credits or Subject Coal Allowances of the other Party or otherwise carrying out the provisions of this Section 3.8 .
(g) Each Party agrees to meet upon the reasonable request of the other Party, but at least annually, to determine the nature, type, vintage and number of Subject Coal Energy Credits available as each Partys percentage share of the Subject Coal Energy Credits and to discuss any proposed Subject Coal Allowances adjustments.
(h) The Parties acknowledge that Coal Party is the Party which owns or controls the Coal Interests and that neither this Section 3.8 nor any agreement between the Parties related to the Subject Coal Energy Credits and Subject Coal Allowances shall create in Gas Party any rights or obligations related to Coal Partys control and operation of any Coal Interests subject to a project agreement for the Subject Coal Energy Credits and/or Subject Coal Allowances.
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ARTICLE IV
COORDINATION COMMITTEE; DEVELOPMENT PLANS IN MINE AREAS
4.1 Coordination Committee .
(a) To facilitate cooperation and coordination of operations between Coal Party and Gas Party in each Mine Area, Coal Party and Gas Party agree to establish a Coordination Committee for each Mine. The Coal Party or Coal Parties that own and operate a Mine shall, collectively as applicable, be entitled to appoint one operational representative to the Coordination Committee for such Mine (the Coal Party Representative ), and Gas Party shall be entitled to appoint one operational representative to such Coordination Committee (the Gas Party Representative ). For each Mine, (i) within thirty (30) days after the acquisition or permitting thereof, Coal Party (or the Coal Parties, as applicable) shall notify Gas Party in writing of such Mine and identify the one Coal Party Representative for such Mine, (ii) within thirty (30) days after receipt of such notification from Coal Party, Gas Party shall notify Coal Party (or Coal Parties, as applicable) of its Gas Party Representative for such Mine, and (iii) a Coordination Committee for such Mine shall thereby be established and act hereunder. Each of Coal Party and Gas Party shall have the right to change its representative serving on a Coordination Committee at any time by giving notice of such change to the other relevant Party.
(b) A Coordination Committee shall have only the powers and duties expressly ascribed to it in this Agreement for the applicable Mine for which it was established.
(c) The representative of a Party on a Coordination Committee shall be authorized to represent and bind such Party (including, for the avoidance of doubt, in instances where the Coal Party Representative represents more than one Coal Party) with respect to any matter that is within the powers of such Coordination Committee hereunder and is properly brought before such Coordination Committee. On all matters coming before a Coordination Committee, the Coal Party Representative and the Gas Party Representative shall each have an equal vote.
(d) Unless otherwise agreed by the members of a Coordination Committee, each Coordination Committee shall meet at least once per calendar quarter to review and discuss (i) the relevant then-current Gas Development Plan, then-current Life of Mine Plan, Annual Gas Development Plan, and Annual Coal Development Plan, (ii) any updates to such plans provided by Coal Party or Gas Party, as applicable, since the previous Coordination Committee meeting, and (iii) such other matters as may be reasonably proposed by Coal Party or Gas Party. Such quarterly meetings shall not be required, if at the relevant time there are no active mining operations in the Mine Area for the pertinent Mine. All meetings shall be held during normal business hours, with the time and place of each meeting to be mutually agreed upon by Coal Party and Gas Party, or if not mutually agreed to, then the selection of the time and place of each such meeting shall alternate between the location of each Partys Section 4.1(a) Representative. Members of a Coordination Committee shall be allowed to participate telephonically (or, to the extent available, by video conference) in any such meeting. Each of Coal Party and Gas Party may call a special meeting of a Coordination Committee on reasonable prior written notice.
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(e) To the fullest extent permitted by Law and notwithstanding any provision of this Agreement to the contrary, no member of a Coordination Committee, in his or her capacity as a member of that Coordination Committee, shall have any duty, fiduciary or otherwise, to the Parties that did not appoint such member with respect to any act or omission by such member under this Agreement. Each of Coal Party and Gas Party agrees and acknowledges that each member of a Coordination Committee shall be entitled to determine whether or not to take any action under this Agreement by only considering the interests of the Party that designated such member to that Coordination Committee and not the interests of any other Party.
4.2 Development Plans .
(a) Coal Party and Gas Party acknowledge and agree that for the period from the Effective Time until the date Gas Party receives Coal Partys Life of Mine Plan for a Mine, all operations of Gas Party throughout the Cooperation Area shall be deemed outside of any Mine Area. Coal Party shall, within sixty (60) days following the acquisition or permitting of any Mine, provide the pertinent Gas Party Representative with a Life of Mine Plan for such Mine; and Gas Party shall, within sixty (60) days following receipt of such Life of Mine Plan, provide the pertinent Coal Party Representative with a three (3) year plan generally describing the anticipated drilling and development activities of Gas Party (the Gas Development Plan ) within the Mine Area of such Mine.
(b) Other than with respect to calendar year 2017, each calendar year, with respect to each Mine in which Coal Party holds Coal Interests and in which Gas Party holds Gas Interests:
(i) On or before October 1 st of each calendar year, Coal Party will submit to the Coordination Committee (A) an update to the Life of Mine Plan for such Mine to extend such plan for an additional calendar year and to include any updates with respect to the calendar years already included in the Life of Mine Plan and (B) a plan for the anticipated mining activities of Coal Party during the following calendar year in such Mine Area, which shall include, with respect to each Mine, an accurate map of its current and completed mining areas, all then-permitted or planned Pillar Permit Areas for Gas Partys well locations, line projections to designate its planned and proposed mining development headings and full extraction mining areas, and the proposed timing of such mining activities within such Mine Area, together with the location of Gas Partys then-existing or planned Wells or facilities as set forth in the most recent Annual Gas Development Plan that would reasonably be expected to be impacted by Coal Partys mining operations in the Mine Area within the next six (6) years (the Annual Coal Development Plan );
(ii) On or before October 1 st of each calendar year, Gas Party will submit to the Coordination Committee (A) an update to the Gas Development Plan for such Mine to extend such plan for an additional calendar year and to include any updates with respect to the calendar years already included in the Gas Development Plan and (B) a plan generally describing the anticipated drilling and development activities of Gas Party in such Mine Area during the following calendar year, which shall include an accurate map of its current active and inactive Wells and its proposed pad locations for proposed Wells that it plans to drill within such Mine Area (the Annual Gas Development Plan ); and
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(iii) Each member of a Coordination Committee shall review and provide suggestions with respect to the coordination of the proposed drilling and development plans and the updates to the Life of Mine Plan and Gas Development Plan for such Coordination Committees pertinent Mine. No later than December 1st of each calendar year immediately preceding the relevant calendar year, each Coordination Committee shall meet to finalize an Annual Coal Development Plan and an Annual Gas Development Plan for the pertinent Mine; provided, however , that the final Annual Coal Development Plan and the final Annual Gas Development Plan, respectively, for each successive calendar year shall be determined in the sole discretion of Coal Party and Gas Party, respectively, and finalized and circulated to the other Party and the Coordination Committee, on or before December 15 th of the preceding calendar year, and shall in the title block thereof state the name of the pertinent Mine, the nature of the plan as a final Annual Coal Development Plan or a final Annual Gas Development Plan (as applicable), and the relevant calendar year for which the plan applies.
4.3 Notices and Updates .
(a) Coal Party and Gas Party shall each provide periodic updates, including at Coordination Committee meetings, to the information, reports, and forecasts used in preparing the updates to the Life of Mine Plan and Gas Development Plan, as applicable, and shall prepare and submit to each Coordination Committee additional updates to the Life of Mine Plan and Gas Development Plan promptly upon (i) a material change that impacts the operations related to the relevant Life of Mine Plan and the relevant Gas Development Plan and/or (ii) upon reasonable request of such Coordination Committee.
(b) Coal Party and Gas Party shall each provide periodic notice to the other with respect to its anticipated development activities in the Coal Area and in the portion of the Non-Coal Area within a Mine Area, and, in the event such activities are anticipated to differ materially from the activities contemplated under the relevant Annual Gas Development Plan or Annual Coal Development Plan, as applicable, a detailed explanation of such change in its activities. Further, in the event that Gas Party or Coal Party modifies or supplements any Annual Gas Development Plan or Annual Coal Development Plan delivered hereunder, as applicable, in a manner that would reasonably be expected to impact the other Partys operations in the Coal Area, then Gas Party or Coal Party, as applicable, shall promptly provide the other Party with an updated Annual Gas Development Plan or Annual Coal Development Plan, as applicable.
(c) Coal Party and Gas Party shall each provide notices, as promptly as possible with respect to any written Claim or communication from a Governmental Authority that may impact the others operations. In addition, each of Coal Party and Gas Party shall promptly, upon becoming aware of any potential conflict between its operations in a Mine Area and those of any other Party which is reasonably expected to impact such other Partys operations, provide notice to such other Party of such potential conflict in accordance with Section 8.2 of this Agreement.
ARTICLE V
SURFACE USE; WATER USE; LICENSE USE
5.1 Surface Use Rights .
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(a) (i) Gas Party shall have the right on a non-exclusive basis and, except as provided below in Section 5.3 , free of charge to use and access any Surface Rights of any Coal Party in the Cooperation Area to the extent reasonably necessary in connection with Gas Partys operations to develop the Gas Interests owned or controlled by Gas Party within the Cooperation Area, including for purposes of using or constructing roads, constructing pad sites, drilling locations, impoundments, tank stations and other surface facilities, and laying pipelines for the transportation of Gas and water, and, further, including the right to transport Third Party Gas from lands in the Coal Area or other lands and the right to support operations of Gas Party, its partners, joint venturers, co-working interest owners, any of its joint ventures, and/or Affiliates on lands in the Coal Area or other lands, and (ii) Coal Party shall have the right, on a non-exclusive basis and, except as provided below in Section 5.3 , free of charge to use and access any Surface Rights of Gas Party in the Four State Area to the extent reasonably necessary in connection with Coal Partys operations to develop the Coal Interests owned or controlled by Coal Party in the Four State Area, including for purposes of using or constructing roads and constructing other facilities related to such coal operations (such use and access rights as described in and limited by clauses (i) and (ii) above, respectively as to Gas Party and Coal Party, the Surface Use Rights ), which Surface Use Rights shall, in each case, be exercised by making a Surface Easement Request as provided in Section 5.2(a) herein below and obtaining an easement as provided in Section 5.2(b) and 5.2(c) herein below. Gas Party and Coal Party shall comply with reasonable requirements of the other such Party, as applicable, with respect to operations or activities that utilize Surface Use Rights involving the other Partys Surface Rights and with applicable regulatory requirements.
(b) Subject to complying with this Section 5.1(b) and with Section 8.1 , any Party may Assign any of its Surface Rights; provided, however , that the Party intending to Assign any of its Surface Rights that are subject to the Surface Use Rights of another Party under Section 5.1(a) shall first provide all the Parties entitled to exercise Surface Use Rights with respect thereto with written notice of such intention on or before forty five (45) days prior to the date such Assignment is to be consummated (a Surface Assignment Notice ). Each Surface Assignment Notice shall include a description of those portions of the Surface Rights that will be Assigned pursuant to such proposed Assignment. Within thirty (30) days of Gas Partys and/or Coal Partys receipt of a Surface Assignment Notice, Gas Party and/or Coal Party, as applicable, shall have the right to deliver a Surface Easement Request to the Section 4.1(a) Representative of the Party proposing such Assignment with respect to the Surface Rights that are subject to such Surface Assignment Notice in order to exercise such Partys Surface Use Rights described above. Following its receipt of a Surface Easement Request pursuant to this Section 5.1(b) , the Party proposing such Assignment shall use its reasonable discretion (exercised in good faith) to determine (prior to the date such Surface Rights are to be Assigned) if any such Surface Easement Request (i) is sufficiently specific in nature, including a description of the Surface Easement being requested, its purpose, and a plat showing the approximate location, scope, and length of such Surface Easement, (ii) is within the scope of the requesting Partys Surface Use Rights, and (iii) would not materially impair the value of the Surface Rights which are subject to such proposed Assignment. Should such Assigning Party be satisfied that each of clause (i) , clause (ii) , and clause (iii) of this Section 5.1(b) are satisfied by such requested Surface Easement, and subject to (A) any restrictions under an applicable Existing Permit/Agreement and (B) the other terms of this Agreement, then such selling Party shall prepare and deliver, without costs or fees, such Surface Easement to the requesting Party prior to the date such Surface Right
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is Assigned. For the avoidance of doubt, each Party shall have the right to Assign its Surface Rights, subject to complying with this Section 5.1(b) and Section 8.1 herein below; and whether such Surface Rights remain subject to this Agreement after such Assignment shall be determined as set forth in Section 8.1 .
5.2 Surface Easement Requests .
(a) Gas Party may submit written requests to Coal Party and Coal Party may submit written requests to Gas Party for specific easements and rights of way across the Surface Rights that are subject to such requesting Partys Surface Use Rights under Section 5.1(a) and which are held by such other Party as reasonably necessary for Gas Party or Coal Party, as applicable, to exercise its Surface Use Rights described in Section 5.1 and/or to exercise its Water Use Rights described in Section 5.5 (each such easement or right of way, a Surface Easement ). Each such request (a Surface Easement Request ) shall include (i) a description of the Surface Easement being requested, including its specific purpose along with a full disclosure of the scope of the related activities that are reasonably anticipated to be undertaken by the requesting Party in connection with such requested easement, (ii) a plat or construction drawing showing the approximate location, scope, and length of such Surface Easement, and (iii) a description of the Surface Rights that would be affected by such Surface Easement.
(b) Following its receipt of a Surface Easement Request, not later than forty-five (45) calendar days after receipt thereof, the Party receiving such Surface Easement Request shall use reasonable discretion (exercised in good faith) to determine if such Surface Easement Request (i) is sufficiently specific in nature, (ii), is within the scope of the requesting Partys Surface Use Rights and/or Water Use Rights, and (iii) would not materially impair the value of the Surface Right which is subject to such Surface Easement Request for its intended use by the receiving Party; provided, however , the receiving Party shall, when evaluating the criteria in this clause (iii) , take into consideration the reasonably anticipated timing of its operations on such Surface Right in relation to the anticipated duration and effect of the requesting Partys proposed surface use, and shall not unreasonably withhold, condition, or delay its approval if such duration and effect would not render the affected Surface Right substantially unfit for such receiving Partys intended use, based on such timing. Should the Party receiving such Surface Easement Request be satisfied that each of clause (i) , clause (ii) , and clause (iii) of this Section 5.2(b) be satisfied by such Surface Easement Request, and subject to any restrictions under applicable Existing Permits/Agreements and the other terms of this Agreement, such Party shall prepare and deliver, without costs or fees, such Surface Easement to the requesting Party, which Surface Easement shall be granted on a non-exclusive basis. In the event that the Party receiving such Surface Easement Request finds that the criteria in clause (iii) is not satisfied, such Party shall cooperate with the requesting Party, in order to identify a mutually acceptable location on the affected Surface Right that will satisfy that criteria, including by meeting on-site with the requesting Party within fifteen (15) days of being requested to do so in writing; provided, further , that if such Surface Easement Request is by a Gas Party for a location outside a Coal Area and the Parties are unable to agree on a mutually acceptable location within thirty (30) days following Coal Partys receipt of the request, then Coal Party shall grant the Surface Easement as requested by Gas Party.
(c) Any Surface Easement delivered pursuant to a Surface Easement Request under this Section 5.2 or Section 5.1(b) shall be in recordable form and in form and substance reasonably satisfactory to the Party to whom the easement is granted. Any Surface Easement granted pursuant to a Surface Easement Request under this Section 5.2 or Section 5.1(b) shall survive the expiration or termination of this Agreement and shall be binding upon the Parties respective successors and assigns in accordance with its terms, which easement shall contain language that it is non-exclusive and subject to (i) any applicable restrictions under any Existing Permits/Agreements, (ii) any applicable terms and conditions of this Agreement, including a granting Partys right to require relocation in accordance with this Agreement, and (iii) any applicable Laws.
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(d) With respect to Surface Easements granted by Coal Party pursuant to this Agreement, Coal Party shall have the right to relocate such Surface Easements as set forth in Section 3.3(d) . With respect to Surface Easements granted by Gas Party pursuant to this Agreement, Gas Party may require at any time that the Coal Party relocate (within a reasonable time, but in no event later than twenty-four (24) months following receipt of such notice from Gas Party) any such Surface Easement if such Surface Easement is reasonably expected by Gas Party to interfere with Gas Partys present or planned operations or uses in, on, or under any of its Gas Interests or surface interests, and all costs and expenses of Coal Party (i) associated with the initial relocation requested by Gas Party shall be borne 100% by Coal Party and (ii) associated with a second or further relocation requested by Gas Party with respect to any Surface Easement that has been previously relocated pursuant hereto shall be split equally between Coal Party and Gas Party.
5.3 Reimbursement of Certain Costs . If Gas Party or Coal Party exercises its Surface Use Rights described in Section 5.1 , then such Party shall (a) reimburse the Party whose Surface Rights are impacted by such use for certain maintenance costs attributable to such Partys exercise of such Surface Use Rights, including, Third Party consultants fees, experts fees, bonding costs and fees, permit fees, demolition and disposal expenses and fees, and governmental and regulatory taxes and fees and (b) pay for any costs incurred with respect to such Partys usage of services arising out of such Partys exercise of such Surface Use Rights. For the avoidance of doubt, all Surface Easements granted pursuant to a Surface Easement Request under Section 5.1(b) or Section 5.2(b) shall be granted free of charge, but shall be subject to the reimbursement and payment obligations set forth in the first sentence of this Section 5.3 .
5.4 Other Surface Facilities . The Parties shall cooperate to reach a mutually agreeable arrangement regarding the use of all other surface facilities with respect to their respective Surface Use Rights set forth in Section 5.1 .
5.5 Water Use; Withdrawals . Coal Party shall make available, on a non-exclusive basis, to Gas Party water at the Sources to the extent reasonably necessary in connection with or relating to Gas Partys operations with respect to its Gas Interests within the Cooperation Area, including the right to support operations of Gas Party, its partners, joint venturers, co-working interest owners, any of its joint ventures, and/or Affiliates on lands in the Coal Area or other lands ( Water Use Rights ) and the exercise of such Water Use Rights will be subject to (i) the terms of this Agreement and all applicable Laws, (ii) any applicable terms of any Existing Permits/Agreements, and (iii) the following terms, conditions, and limitations:
(a) Transportation Costs . Gas Party shall be responsible for transporting water withdrawn pursuant to an Approved Withdrawal Plan from the Sources by truck or by water pipelines constructed and operated by Gas Party at Gas Partys sole cost and expense.
(b) Withdrawals; Approved Withdrawal Plans .
(i) Gas Party shall coordinate and plan all of its water withdrawals from the Sources for purposes of operations (each, a Withdrawal ) by providing Coal Party with a written plan for such withdrawals (a Withdrawal Plan ). Any proposed Withdrawal
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Plan shall contain all relevant information regarding the planned Withdrawals, including the following: (1) the Source covered by such Withdrawal Plan, (2) the estimated amounts of Withdrawals to be made from such Source, (3) the timing of such Withdrawals, which for the avoidance of doubt, may cover a multi-year period, and (4) an estimate of the expected Third Party costs and expenses, including consultants fees, experts fees, bonding costs and fees, permit fees, demolition and disposal expenses and fees, applicable governmental and regulatory taxes and fees, and other reasonable expenses likely to be incurred by Coal Party in connection with items (1), (2), and (3) above.
(ii) Each proposed Withdrawal Plan shall be subject to (1) the provisions of Section 5.5(b)(ii) , (2) the prior written approval of Coal Party (such approval not to be unreasonably withheld, delayed, or conditioned, or to impose any financial or economic burdens on Gas Party other than those set forth in this Agreement), (3) all applicable terms of any Existing Permits/Agreements, and (4) all applicable Laws, including environmental Laws, in each case, before Gas Party can commence or make any Withdrawals. Coal Party shall respond (through its Coal Party Representative) to the proposed Withdrawal Plan within thirty (30) calendar days following its receipt of such plan. Any Withdrawal Plan that is approved by the Coal Party is referred to herein as an Approved Withdrawal Plan . Gas Party shall notify Coal Party of any material changes to any prior Approved Withdrawal Plans, including, but not limited to, Gas Partys abandonment of any water pipelines constructed by Gas Party.
(iii) For the avoidance of doubt, it is acknowledged by Gas Party that Coal Party shall have priority over Gas Party with respect to Coal Partys then-current or planned use (at the time of the submission of such Withdrawal Plan) of any water from a Source covered by a proposed Withdrawal Plan.
(c) Priority . Withdrawals pursuant to an existing Approved Withdrawal Plan shall have priority over any other use of the water at the Sources by Coal Party or Persons granted rights to such water after the date of the approval of the relevant Approved Withdrawal Plan; provided, however , that (i) in the event that during the period of time covered by an Approved Withdrawal Plan, the availability of water is reduced because of drought or other unexpected event, the water available for an Approved Withdrawal Plan may be reduced ratably with the then-existing use of such water by Coal Party, and (ii) at any time, Coal Party shall have the right to limit Withdrawals in order to maintain reasonable water levels, pass-by flow and/or flow limitations in Sources that are ponds and reservoirs.
(d) Closure of Sources . Coal Party reserves the right to close any Source at any time in its sole discretion without any liability to Gas Party, subject to the provisions of this Section 5.5(d) . Unless required by applicable Law to close a Source at an earlier time, Coal Party will not close any Source without having given Gas Party six (6) calendar months advance written notice. If (i) Coal Party desires to close a Source, (ii) the reason for closing the Source is not because the closing is required under applicable Law or because a change in Law would require that Coal Party make material capital improvements or otherwise expend any material cost to modify or improve such Source, and (iii) Gas Party has an Approved Withdrawal Plan with respect to such Source and has built a pipeline across the Coal Party Lands in order to receive its Withdrawals from such Source, then Coal Party shall reimburse Gas Party only for the actual costs incurred by Gas Party to build such pipeline across the Coal Party Lands prior to
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such closure. For clarification, such reimbursement shall only be made by Coal Party to Gas Party to the extent such pipeline has not been abandoned by Gas Party.
(e) Gas Party Discretion . Whether Gas Party utilizes the Sources for its water requirements for its applicable operations or obtains water from other sources will be subject to Gas Partys discretion as a prudent Gas operator.
5.6 Reimbursement of Certain Costs . Coal Party shall make available to Gas Party water at the Sources pursuant to an Approved Withdrawal Plan at no charge to Gas Party, except that Coal Party reserves the right to charge Gas Party (i) the cost of any new facilities (including driveways, stand pipes, taps, pumps, and treatment costs (but only to the extent such treatment costs are incurred as a result of Gas Party requiring additional water treatment above and beyond any water treatment performed by Coal Party pursuant to applicable permits), (ii) the cost of any improvements to any new or existing facilities, (iii) maintenance and operating costs related to any new or existing facilities, in each case, that are required to accommodate the Withdrawals included in such Approved Withdrawal Plan, and (iv) any Third Party consultants fees, experts fees, bonding costs and fees, permit fees, demolition and disposal expenses and fees, and all other applicable taxes, fees, and other reasonable Third Party expenses paid by Coal Party in connection with items (i), (ii), and (iii) above. Gas Partys share of such costs shall be based on Gas Partys proportionate use of such new or existing facilities through its Withdrawals.
5.7 License Use Rights . The following non-exclusive licenses are granted, as set forth in Sections 5.7(a) and 5.7(b) below (collectively, such licenses, the License Use Rights ), to the extent such License Use Rights are reasonably necessary in connection with Gas Partys operations with respect to its Gas Interests within the Cooperation Area, or with respect to Section 5.7(b) to the extent such License Use Rights are reasonably necessary in connection with Coal Partys operations with respect to its Coal Interests in a Mine Area, and the exercise of such License Use Rights will be subject to and limited by (i) the terms of this Agreement and all applicable Laws and (ii) the terms of all Existing Permits/Agreements.
(a) Disposal or Storage of Fluids . Subject to ARTICLE III herein and only to the extent such disposal or storage is not prohibited by applicable Laws, the terms of the instruments creating the Coal Interests, and the terms of all Existing Permits/Agreements, Coal Party hereby grants to Gas Party a license for the purpose of disposing of (i) any fluid or liquid from any Well or System within the Cooperation Area, or (ii) any fluid or liquid from any other Gas Well or System outside of the Cooperation Area in which such Well or System Gas Party has an interest or control, in each case, into any void owned or controlled by any Coal Party that is located in any Mine where the underground areas thereof have been permanently closed and where such disposal or storage will not, in Coal Partys sole, reasonable discretion, determined in good faith in accordance with prudent mining activities, adversely affect ongoing mining operations and/or Coal Partys mine water treatment obligations in any way (unless the adverse effect on the mine water treatment obligations is an incremental increase in water treatment costs attributable to such fluid or liquid disposal and Gas Party is willing to reimburse Coal Party for such incremental increase in costs). Coal Party agrees not to object to any permit or other regulatory filing or application of Gas Party with respect to the use of any such void, including cooperation on the resolution of all regulatory proceedings and litigation. Coal Party further agrees not to object to any permit or other regulatory filing or application of Gas Party with respect to the use of a void and to timely execute any waiver or consent with respect to such permit, regulatory filing, or application upon the written request of Gas Party; and in any event, to execute such waiver or consent not less
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than three (3) Business Days from Coal Partys receipt of such written request for a written waiver or consent.
(b) Power Lines and Substations . Gas Party or Coal Party may access and draw electrical power from any power line or substation of the other Party when necessary or convenient for operations related to its rights hereunder, but only if and to the extent such power line or substation is owned or controlled by the other Party as of the Effective Time in the Cooperation Area and is currently being used by Gas Party with respect its operations in the Cooperation Area as of the Effective Time or is currently being used by Coal Party with respect to its operations in a Mine Area as of the Effective Time, as applicable, has surplus power or has the capacity to provide surplus power, and to the extent permitted by all applicable Laws and the terms of all Existing Permits/Agreements; provided, however , that, upon demand, the accessing Party shall reimburse the other Party at cost for any usage of power in connection with the foregoing. To the extent not already accomplished in other documents, Coal Party and Gas Party each hereby grant to the other Party a license to access and draw electrical power from the other Partys power lines and substations consistent with the foregoing for the Term of this Agreement. Gas Party and Coal Party shall, upon demand, pay to the other Party its ratable share of all operating expenses and, with respect to any power line or substation owned or controlled by the other Party that is accessed and used pursuant to the License Use Rights herein granted.
5.8 License Requests . In order for Gas Party or Coal Party to exercise its License Use Rights, it shall request from the other Party specific licenses (each such license, a License ). Each such request (a License Request ) made pursuant to this Section 5.8 shall be made in writing and shall include (i) a description of the License being requested, including its specific purpose, and (ii) a description of the Surface Rights or other assets, as applicable, that would be affected by such License. Following the receipt of a License Request pursuant to this Section 5.8, the Party receiving such License Request shall use reasonable discretion (exercised in good faith) to determine if such License Request (x) is sufficiently specific in nature and (y) would not materially impair the value of the Surface Right or other asset which is subject to such License Request. Should the Party receiving such License Request be satisfied that both clause (x) and clause (y) of this Section 5.8 are satisfied by such requested License, and subject to any restrictions under applicable Existing Permits/Agreements and the other terms of this Agreement, such receiving Party shall prepare and deliver, without cost or fees to the other Party, such License; provided, however, such License shall contain language that it is non-exclusive and subject to (A) any applicable restrictions under any Existing Permits/Agreements, (B) the other terms of this Agreement, and (C) any applicable Laws.
5.9 Reimbursement of License Costs . With respect to any License Use Rights, Gas Party and Coal Party will reimburse the other Party for any costs (i) associated with the maintenance of that portion of the other Partys Surface Rights or other assets pertaining to such License Use Rights (on the basis of usage or other allocation methodology reasonably calculated to reflect Gas Partys or Coal Partys use, as applicable, of such portion thereof in proportion to the total use of such Surface Rights or other assets), (ii) any direct or Third Party out-of-pocket costs payable under permits and/or any Third Party agreement burdening such portion of the other Partys Surface Rights or other assets, to the extent pertaining and directly attributable to the exercise of such License Use Rights, including, in the case of Gas Partys License Use Rights to dispose of fluids or liquids into Coal Partys mine voids, any reasonable incremental increase in water treatment costs actually incurred as a result of the exercise of such License by Gas Party, and (iii) any Third Party consultants fees, experts fees, bonding costs and fees, permit fees, demolition and disposal expenses and fees, governmental
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and regulatory taxes and fees, and other reasonable Third Party expenses paid by the other Party, to the extent directly attributable to Gas Partys or Coal Partys, as applicable, use of the other Partys Surface Rights or other assets.
5.10 Form of Licenses . Any License delivered to Gas Party or Coal Party pursuant to Section 5.8 shall be in recordable form and otherwise in form and substance reasonably satisfactory to the Party to which it was delivered. For the avoidance of doubt, any License granted pursuant to Section 5.8 shall be non-exclusive as set forth herein and shall survive the expiration or termination of this Agreement and shall be binding upon the granting Partys respective successors and assigns in accordance with its terms.
ARTICLE VI
LIABILITY OF THE PARTIES; INDEMNIFICATION
6.1 Release. EXCEPT AS EXPRESSLY PROVIDED HEREIN (A) NO PARTY SHALL BE LIABLE TO THE OTHER PARTIES FOR ANY SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES OR LOSS OF PROFITS OR DAMAGES FOR BUSINESS INTERRUPTION ARISING FROM OR CAUSED BY THE ACTION OR INACTION OR COMPARATIVE OR SOLE NEGLIGENCE OF SUCH PARTY UNDER THIS AGREEMENT; AND (B) EACH PARTY RELEASES THE OTHER PARTIES AND SUCH PARTIES OFFICERS, DIRECTORS, EMPLOYEES, AGENTS AND AFFILIATES FROM, AND COVENANTS NOT TO SUE ANY OF THEM FOR, ANY SUCH SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES, LOSS OF PROFITS OR DAMAGES FOR BUSINESS INTERRUPTION.
6.2 Indemnities .
(a) Gas Party Indemnity . Gas Party shall be responsible for, shall pay on a current basis, and hereby releases, defends, indemnifies and holds harmless each Coal Party, and their respective stockholders, partners, members, directors, officers, managers, employees, attorneys, agents and representatives from and against any and all Claims arising out of or related to (i) Gas Partys operations or activities on the Surface Rights of such Coal Party, including without limitation Third Party Claims, liabilities incurred in connection with the investigation or defense of any Claim, Claims based upon or for bodily injury, illness or death or damage to property, and/or Claims arising out of or related to the Gas Partys use of any Surface Easement or License granted pursuant hereto, and (ii) Gas Partys negligence in the conduct of its operations in the Mine Area of a Mine or at any Well or Non-Well Facility; in each case, except to the extent that such Claim is subject to, or limited by, the terms of Section 3.3, Section 3.4, Section 5.3, Section 5.6, Section 5.9, Section 6.1, Section 6.3 or Section 6.5 of this Agreement.
(b) Coal Party Indemnity . Coal Party shall be responsible for, shall pay on a current basis, and hereby releases, defends, indemnifies and holds harmless each Gas Party, and each of their respective stockholders, partners, members, directors, officers, managers, employees, attorneys, agents and representatives from and against any and all Claims arising out of or related to (i) Coal Partys operations or activities on the Surface Rights of Gas Party, including without limitation Third Party Claims, liabilities incurred in connection with the investigation or defense of any Claim, Claims based upon or for bodily injury, illness, or death or
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damage to property, and/or Claims arising out of or related to the Coal Partys use of any Surface Easement or License granted pursuant hereto, whether arising before or after the Effective Time, and (ii) Coal Partys negligence in the conduct of its operations in the Mine Area of a Mine or at any Well or Non-Well Facility; in each case, except to the extent that such Claim is subject to, or limited by, the terms of Section 3.3, Section 3.4, Section 5.3, Section 5.6, Section 5.9, Section 6.1, Section 6.3 or Section 6.5 of this Agreement.
6.3 Disclaimer . NOTWITHSTANDING ANY OTHER TERM OR PROVISION OF THIS AGREEMENT TO THE CONTRARY, NO PARTY MAKES ANY, AND EACH PARTY DISCLAIMS ANY, REPRESENTATIONS AND WARRANTIES, EXPRESS, IMPLIED, OR STATUTORY, WITH RESPECT TO THE PERFORMANCE OR RESULTS OF ITS OPERATIONS OR ANY DATA OR INFORMATION PROVIDED BY SUCH PARTY HEREUNDER.
6.4 Conspicuous . THE PARTIES AGREE THAT, TO THE EXTENT REQUIRED BY APPLICABLE LAW TO BE EFFECTIVE OR ENFORCEABLE, THE PROVISIONS IN THIS AGREEMENT IN ALL-CAPS FONT ARE CONSPICUOUS FOR THE PURPOSE OF ANY APPLICABLE LAW.
6.5 Subsidence . Coal Party shall not be liable to Gas Party for any damages, costs, fees, expenses, royalties, or other amounts resulting from damage to Gas Partys operations where such damage is caused by mine subsidence in a Mine; except that Coal Party shall be liable to Gas Party for all damages, costs, fees, expenses, royalties, or other amounts resulting from mine subsidence damage to (a) any Protected Well, including compensation to Gas Party as determined pursuant to the provisions of Section 3.3(a), provided, however, that, if the Protected Well is at or past its Protected Well Life Date, then Coal Party and Gas Party shall each be responsible for 50% of such damages, costs, fees, expenses, royalties or other amounts; (b) any surface easements (including Surface Easements), Non-Well Facilities or Systems located outside of a Coal Area of a Mine Area at the time of initial construction, unless at the time of initial construction such Non-Well Facility or System was located in an area of the Mine that was previously mined; (c) any surface easements (including Surface Easements), Non-Well Facilities or Systems for which Gas Party has paid for relocation as set forth in Section 3.3(d) ; and (d) any Well or any Non-Well Facilities or Systems that are subject to Section 3.4 ; provided, however, that, in each case (i) Coal Party shall not be entitled to the benefit of this Section 6.5 , unless Coal Party has requested plugging and abandonment of the pertinent Well or relocation of the pertinent Non-Well Facility pursuant to Section 3.3 , and (ii) for the avoidance of doubt, that in the event of a conflict between the terms of any Existing Permits/Agreements and the terms of this Section 6.5 , the terms of this Section 6.5 shall govern and control as between Coal Party, on the one hand, and Gas Party, on the other hand.
ARTICLE VII
TERM; TERMINATION
7.1 Term . Unless terminated earlier as provided herein or by express written agreement of the Parties, the term of this Agreement shall commence at the Effective Time and continue in full force and effect for as long as Coal Party and Gas Party each own or control any Coal Interests or Gas Interests, respectively, within the Cooperation Area (the Term ), except
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for those provisions of this Agreement that expressly survive expiration or termination hereof and except for the rights and obligations under any Surface Easements and/or Licenses granted prior to any termination pursuant to this ARTICLE VII . For the avoidance of doubt, it is the intent of the Parties that all rights and obligations under this Agreement, including those with respect to ARTICLE V [Surface Use; Water Use; License Use] , shall not be interpreted as non-vested future interests in land subject to possible invalidation under the rule against perpetuities, as it may be applicable in the various jurisdictions in the Cooperation Area. In the event that such rights and obligations are determined to be subject to the rule against perpetuities in any jurisdiction, such rights and obligations shall be deemed to survive only until the last of the descendants of Queen Victoria of England now living dies, plus 21 years, or any such other longer period of time as may be allowable by Law, as may be amended from time to time.
7.2 Termination . Gas Party may terminate this Agreement, in whole or in part (including with respect to any Mine Area, State or County or any Gas Interests or Surface Rights that are Assigned by Gas Party), upon written notice to Coal Party following the occurrence of any one or more of the following: (a) a Change of Control of a Coal Party owning the pertinent Mine Area; (b) a sale of all or substantially all of the assets of any Coal Party within a Mine Area; (c) a Change of Control of Gas Party; or (d) a sale of all or substantially all of the assets of Gas Party within (i) any Mine Area, (ii) any of the States in the Four State Area, or any County thereof, and/or (iii) the Cooperation Area. Furthermore, either Gas Party or Coal Party may terminate this Agreement if, within the Cooperation Area, there are (i) no Coal Interests or Surface Rights owned or controlled by Coal Party and (ii) no Gas Interests owned or controlled by Gas Party.
7.3 Effect of Termination . If this Agreement is terminated pursuant to this ARTICLE VII , this Agreement shall be of no further force or effect, except for the provisions of Sections 6.1 , 6.2(a) , 6.2(b) , 6.5 and 7.2 , which, in each case, shall continue in full force and effect. The termination of this Agreement shall not relieve any Party from its obligations or liabilities arising hereunder prior to the date of such termination, including for the avoidance of doubt its obligations with respect to reimbursement, compensation and/or payment arising under or called for in Section 3.3 and Section 6.5 relative to Wells and Non-Well Facilities that exist as of the date of such termination. For the avoidance of doubt, any and all easements or licenses granted pursuant hereto shall survive such termination, and remain in full force in accordance with the terms and conditions thereof.
ARTICLE VIII
MISCELLANEOUS
8.1 Assignment .
(a) Assignment of this Agreement . In the event that any Coal Party or the Gas Party (as used herein, the Assigning Party ) desires to Assign any of its Coal Interests, Gas Interests, Surface Rights, or assets that are subject to Gas Partys License Use Rights (such assets collectively, the License Use Assets and each individually, a License Use Asset ) to any Person that is not an Affiliate of the Assigning Party, such Assigning Party shall, at least forty five (45) days prior to making the Assignment, notify the other Party (as used herein, the Non-Assigning Party ) of the prospective Assignment by giving written notice to the Coal Party
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Notice Rep or to Gas Party, as applicable, and request in writing Non-Assigning Partys consent for the Assigning Party to Assign this Agreement in connection with such Assignment, including in such request a description of the Coal Interests, Gas Interests, Surface Rights and/or License Use Assets, as applicable, that will be Assigned, the name of the Assignee, and the address of the Assignee (each, a Consent Request ). This Agreement may not be Assigned without first making a Consent Request. For the avoidance of doubt, in the event that the Assigning Party fails to make a Consent Request, the Assigning Party shall not Assign this Agreement, and the Assigning Party, and its Assignee, shall not be relieved from its obligations and liabilities arising hereunder prior to the Assignment of the Assigning Partys property rights and interests, including those arising under Section 3.3 and Section 6.5 . After the Assigning Party makes a Consent Request, the following shall apply:
(i) Within thirty (30) calendar days after its receipt of the Consent Request, the Non-Assigning Party shall notify the Assigning Party in writing that it either (A) consents to the Assignment of this Agreement as it relates to all, or only certain specified, interests, rights and/or assets being Assigned, in which case the Assigning Party shall, to the extent that Gas Party gives its consent, cause the Assignment of the relevant Coal Interests, Gas Interests, Surface Rights, and/or License Use Assets to be made subject to this Agreement and shall cause its Assignee to expressly agree to be bound by this Agreement as though it was an original Party hereto, including in the case of an Assignment made by Coal Party as the Assigning Party, at Gas Partys option, with respect to any existing Mines and/or coal reserves owned or controlled by such Assignee in the Four State Area; or (B) does not consent to the Assignment of this Agreement as it relates to all, or only certain specified, interest, rights and or assets being Assigned, in which case the Assigning Party may Assign the relevant Coal Interests, Gas Interests, Surface Rights, and/or License Use Assets to the intended Assignee but may not Assign this Agreement to such Assignee to the extent that such consent has been denied, and the Assignee shall not, except as provided in this Section 8.1(a) and as to easements and Licenses previously granted hereunder, be bound by or have any rights under this Agreement to the extent that such consent has been denied and this Agreement shall, on the effective date of the Assignment, terminate with respect to the Coal Interests, Gas Interests, Surface Rights and/or License Use Assets that are Assigned to such Assignee to the extent that such consent has been denied; provided , however , that:
(1) In the event of clause (A) above, the Non-Assigning Partys consent shall not be deemed to be consent to any subsequent, or further, Assignment beyond that which was the subject of the Consent Request;
(2) In the event of clause (B) above, this Agreement shall, to the extent that the Non-Assigning Party denies consent, be of no further force or effect with respect to the Assigned Coal Interests, Assigned Gas Interests, Assigned Surface Rights, and/or Assigned License Use Assets, except for the provisions of Sections 6.1 , 6.2(a) , 6.3 , 6.5 and 7.2 , which, in each case, shall survive such termination and continue in full force and effect (and the Assignment shall expressly be made subject to the foregoing Sections and the rights and obligations set forth therein), and such termination shall not relieve any Party from its obligations or liabilities arising hereunder prior to the date of such termination, including for the avoidance of doubt its obligations and liabilities with respect to reimbursement, compensation and/or payment arising under or
30
called for in Section 3.3 and Section 6.5 relative to plugging and abandonment, Long-Wall Move Around and Mine-By of existing Wells and relocation of existing Non-Well Facilities, in each case, that exist as of the date of such termination, and the Assignee shall take subject thereto; and
(3) In the event the Non-Assigning Party does not respond to the Assigning Party with its election under this Section 8.1(a)(i) within the thirty (30) day period, the Non-Assigning Party shall be deemed to have elected to give consent under clause (A) above for Assigning Party to Assign this Agreement as it relates to all of the Coal Interests, Gas Interests, Surface Rights and/or License Use Assets described in the Consent Request.
(ii) If the Assigning Party does not complete the Assignment that was the subject of any Consent Request within six (6) months after the Non-Assigning Partys receipt of such Consent Request, then such Consent Request, and any consent or non-consent given in response thereto, shall be deemed to have expired, and the Assigning Party shall be required to send another Consent Request as set forth in the first sentence of this Section 8.1(a) .
(b) Assignments to Affiliates. In the event that an Assigning Party desires to Assign any of its Coal Interests, Gas Interests, Surface Rights and/or License Use Assets to an Affiliate of the Assigning Party (i) the Assigning Party shall not be required to give a Surface Assignment Notice under Section 5.1(b) or direct a Consent Request to the Non-Assigning Party under this Section 8.1(a) , however (ii) each and every Coal Interest, Gas Interest, Surface Right and/or License Use Asset that is Assigned to such Affiliate shall remain subject to, and burdened by, all of the terms and conditions of this Agreement, and the Affiliate that is the Assignee shall be bound by all of the provisions of this Agreement with respect to the Assigned Coal Interests, Assigned Gas Interests, Assigned Surface Rights and/or Assigned License Use Assets, as the case may be, and (iii) the Assigning Party shall, at least forty five (45) days prior to making the Assignment, notify the Non-Assigning Party in writing of the prospective Assignment, including in such notice a description of the Coal Interests, Gas Interests, Surface Rights and/or License Use Assets, as applicable, that will be Assigned, the name of the Assignee, and the address of the Assignee. For the avoidance of doubt, Assigning Party shall, in such event, cause the Assignment of the relevant Coal Interests, Gas Interests, Surface Rights, and/or License Use Assets to be made subject to this Agreement and cause its Affiliate that is the Assignee to expressly agree to be bound by this Agreement as though it was an original Party hereto with respect to the Assigned Coal Interests, Assigned Gas Interests, Assigned Surface Rights and/or Assigned License Use Assets.
(c) Assignment of Property Rights and Interests . This Section 8.1 shall not be construed as limiting any Partys right to freely Assign any of the Coal Interests, Gas Interests, Surface Rights and/or License Use Assets held by such Party in the Cooperation Area, subject, however, to compliance with the Surface Assignment Notice requirements of Section 5.1(b) , and the Consent Request requirements of this Section 8.1 .
(d) Any Assignment of this Agreement made in contravention of this Section 8.1 shall be void. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the Parties and their respective permitted successors and assigns.
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8.2 Notices . For purposes of this Section 8.2 , each Coal Party hereby collectively appoints CONSOL Mining Corporation (the Coal Party Notice Rep ) as representative for Coal Party and to act in the name and on behalf of Coal Party, in each case, with respect to the receipt and delivery of any notice or communication hereunder. All notices and communications required or permitted to be given under this Agreement shall be sufficient in all respects if given in writing and delivered personally, or sent by bonded overnight courier, or mailed by U.S. Express Mail or by certified or registered U.S. Mail with all postage fully prepaid or by electronic mail with a PDF of the notice or other communication attached (provided that any such electronic mail is confirmed either by written confirmation or U.S. Express Mail), in each case, addressed to the appropriate Person at the address for such Person as follows:
If to Coal Party, in all instances except those set forth below:
CONSOL Mining Corporation
1000 CONSOL Energy Drive
Canonsburg PA, 15317
Attention: Anthony Drezewski, Director Land Resources
Email: anthonydrezewski@cnxlp.com
With a copy to:
Attention: General Counsel
Email: marthawiegand@consolenergy.com
If to Gas Party, in all instances except those set forth below:
CNX Gas Company LLC
1000 CONSOL Energy Drive
Canonsburg PA, 15317
Attention: Alexander J. Reyes, Vice President Land Operations
Email: alexanderreyes@consolenergy.com
With a copy to:
Attention: Stephanie Gill
Email: stephaniegill@consolenergy.com
If to Coal Party pursuant to Section 3.1(c) or Section 3.1(d) :
CONSOL Mining Corporation
1000 CONSOL Energy Drive
Canonsburg PA, 15317
Attention: Casey Saunders, Senior Project Engineer
Email: caseysaunders@cnxlp.com
If to Gas Party pursuant to Section 3.1(c) or Section 3.1(d) :
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CNX Gas Company LLC
1000 CONSOL Energy Drive
Canonsburg PA, 15317
Attention: Luke Beebe, Manager Drilling
Email: LukeBeebe@consolenergy.com
If to Coal Party pursuant to Section 3.6 :
CONSOL Mining Corporation
1000 CONSOL Energy Drive
Canonsburg PA, 15317
Attention: Matt Petrovich, Senior Project Engineer
Email: matthewpetrovich@cnxlp.com
If to Gas Party pursuant to Section 3.6 :
CNX Gas Company LLC
1000 CONSOL Energy Drive
Canonsburg PA, 15317
Attention: Rodney Pratt, Director Land Resources
Email: RodneyPratt@consolenergy.com
If to Coal Party pursuant to Section 5.2 or Section 5.8 :
CONSOL Mining Corporation
1000 CONSOL Energy Drive
Canonsburg PA, 15317
Attention: Anthony Drezewski, Director Land Resources
Email: anthonydrezewski@cnxlp.com
If to Gas Party pursuant to Section 5.2 or Section 5.8 :
CNX Gas Company LLC
1000 CONSOL Energy Drive
Canonsburg PA, 15317
Attention: Eric Large, Manager Land Corporate and Holdings
Email: EricLarge@consolenergy.com
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Any notice given in accordance herewith shall be deemed to have been given when (a) delivered to the addressee in person or by courier, (b) transmitted by electronic communications during normal business hours, or if transmitted after normal business hours, on the next Business Day, or (c) upon actual receipt by the addressee after such notice has either been delivered to an overnight courier or deposited in the U.S. Mail if received during normal business hours, or if not received during normal business hours, then on the next Business Day, as the case may be. Any Party may change their contact information for notice by giving notice to the other Parties in the manner provided in this Section 8.2 .
8.3 Further Assurances . In connection with this Agreement and the transactions contemplated hereby, each Party shall execute and deliver, or cause to be executed and delivered, any additional documents and instruments and perform any additional acts that may be reasonably necessary or appropriate to effectuate and perform the provisions of this Agreement and the transactions contemplated herein.
8.4 Expenses . Except as otherwise specifically provided, all fees, costs, and expenses incurred by the Parties in negotiating this Agreement shall be paid by the Party incurring the same, including legal and accounting fees, costs, and expenses.
8.5 Waiver; Rights Cumulative . Any of the terms, covenants, or conditions hereof may be waived only by a written instrument executed by or on behalf of the Party waiving compliance. No course of dealing on the part of any Party, or its respective officers, employees, agents, or representatives, nor any failure by any Party to exercise any of its rights under this Agreement shall operate as a waiver thereof or affect in any way the right of such Party at a later time to enforce the performance of such provision. No waiver by any Party of any condition, or any breach of any term or covenant contained in this Agreement, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such condition or breach or a waiver of any other condition or of any breach of any other term or covenant. The rights of the Parties under this Agreement shall be cumulative, and the exercise or partial exercise of any such right shall not preclude the exercise of any other right.
8.6 Entire Agreement; Conflicts . This Agreement, and the documents to be executed hereunder, constitutes the entire agreement of the Parties and their Affiliates relating to the transactions contemplated hereby and supersede all provisions and concepts contained in all prior letters of intent, memoranda, agreements, or communications between the Parties or their Affiliates relating to the transactions contemplated hereby. In the event of a conflict between the terms and provisions in the body of this Agreement and the terms and provisions of Appendix I hereto, the terms and provisions of this Agreement shall govern and control.
8.7 Amendment . This Agreement may be amended only by an instrument in writing executed by the Parties and expressly identified as an amendment or modification; provided, however, that this Agreement may be amended as to any Mine Area by an instrument in writing executed by Gas Party and only those other Parties that, at the time of such amendment, own or control Coal Interests or Surface Rights in such Mine Area, without the necessity of having the remainder of the Parties join in such amendment, so long as such amendment does not impact any other Mine Area.
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8.8 Governing Law; Jurisdiction . This Agreement shall be subject to and governed by the laws of the Commonwealth of Pennsylvania, excluding any conflicts-of-law rule or principle that might refer the construction or interpretation of this Agreement to the laws of another state or commonwealth.
8.9 Parties in Interest . Except as expressly set forth in this Agreement, nothing in this Agreement shall entitle any Person other than the Parties to any Claim, cause of action, remedy, or right of any kind. For the avoidance of doubt, Gas Party shall not exercise its rights under the following, or similar, language found in Sections 3.1(c) , 3.2(a) , 3.4(a) , 3.4(b) , 5.1(a) , and 5.5 for the benefit of CONE Gathering LLC: to support operations of Gas Party, its partners, joint venturers, co-working interest owners, and/or any of its joint ventures .
8.10 Preparation of Agreement . All of the Parties and their respective counsels participated in the preparation of this Agreement. In the event of any ambiguity in this Agreement, it is the intent of the Parties that no presumption shall arise based on the identity of the draftsman of this Agreement.
8.11 Severability . If any term or other provision of this Agreement is determined to be invalid, illegal, or incapable of being enforced under any governing rule of Law or public policy by a final decision of a court of competent jurisdiction that is not subject to appeal, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby, taken as a whole, is not affected in a manner that is materially adverse to the interests of any Party. Upon such determination that any term or other provision is invalid, illegal, or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled and the Parties achieve substantially the same economic and/or legal results as originally intended to the extent possible.
8.12 Counterparts . This Agreement may be executed in any number of counterparts, and each such counterpart hereof shall be deemed to be an original instrument, but all of such counterparts shall constitute for all purposes one agreement. Any signature hereto delivered by a Party by electronic mail shall be deemed an original signature hereto.
8.13 Memorandum . Upon request, the Parties shall execute and deliver a memorandum with respect to this Agreement which shall be filed in the real property records of any County in the Cooperation Area in which any Party owns or controls, at the time of such request, a real property interest subject to this Agreement. From and after such filing, upon request from any Party, each other Party shall execute and deliver any additions, deletions, modifications, or supplements to such memorandum that a proposing Party may reasonably request from time to time to cover any additions, deletions, modifications, or supplements to this Agreement or the assets covered by this Agreement.
8.14 General PrinciplesLitigation . Coal Party and Gas Party anticipate that legal issues and litigation hearings, proceedings, and appeals may arise involving Coal Interests and Coal Gas that is claimed from the same chain of title, including ownership issues, lease interpretation issues, title issues, and regulatory issues related thereto, all of which are contemplated by this Section 8.14 . Therefore, the basic principles set forth below shall be followed to the extent, and only to the extent, that Coal Party and Gas Party have a joint and not
35
adverse interest with respect to any such Coal Interests and Coal Gas that is claimed from the same chain of title.
(a) Notice . Coal Party shall promptly notify Gas Party, and Gas Party shall notify Coal Party, of any challenge or threat to the title of its lessor(s), or claim of ownership to any Coal Gas, regardless of whether such challenge or claim is oral or written.
(b) No Compromise . Gas Party shall not release, terminate, exchange, assign, or in any manner compromise Coal Partys claims to title to such Coal Interests without the prior written approval of Coal Party. Coal Party shall not release, terminate, exchange, assign, or in any manner compromise Gas Partys claims to title to Coal Gas without the prior written approval of Gas Party.
8.15 Confidentiality . Each Party shall keep confidential all information obtained from any other Party which is nonpublic and confidential or proprietary in nature (including any information any Party specifically designates as confidential), except as provided below, and use such information only in connection with their respective capacities under this Agreement and for the purposes contemplated hereby. Each Party shall be permitted to disclose such information (i) to any Affiliates, outside legal counsel, accountants, and other professional advisors who need to know such information in connection with the administration and enforcement of this Agreement, or to any Person who is a prospective purchaser of an interest that may be subject to this Agreement, including any Coal Interest or Gas Interest, subject to agreement of such Persons to maintain the confidentiality thereof, (ii) to the extent required by applicable Law or by any subpoena or similar legal process, or in connection with any investigation or proceeding arising out of the transactions contemplated by this Agreement, (iii) if it becomes publicly available other than as a result of a breach of this Agreement or becomes available from a source not known to be subject to confidentiality restrictions, (iv) in connection with the exercise, preservation, or protection of any right or remedy hereunder, applicable Law, or equity, or (v) if such other Party shall have consented to such disclosure, such consent not to be unreasonably withheld, delayed, or conditioned. For the avoidance of doubt, Coal Partys ten year plans, life of mine plans, timing maps, reserve control maps, and coal quality maps shall be deemed nonpublic and confidential or proprietary in nature, and Gas Partys exploration and production plans and maps (including drilling and pipeline plans and maps), reserve estimates, production estimates, and similar operational and production-related information shall be deemed nonpublic and confidential or proprietary in nature, and each Party agrees that the aforesaid information is subject to the terms of this Section 8.15 with disclosure permitted only as set forth in clauses (i) through (v) herein.
8.16 Amendment and Restatement of Original MCSA Agreement . The Parties and the CEI Parties all hereby acknowledge and agree that the Original MCSA is hereby amended and restated in its entirety. The CEI Parties hereby terminate and release all of their rights in and to the Original MCSA and this Agreement. The CEI Parties hereby acknowledge and agree that, from and after the Effective Time, (i) the CEI Parties are not parties to this Agreement, (ii) the CEI Parties have no interest or rights under this Agreement, and (iii) this Agreement, and any amendments or restatements thereof, may be further amended, revised, or terminated without the consent or signature of any of the CEI Parties.
8.17 Status of Noble SUA. The Parties hereto that were also parties to the Noble SUA, or that are successor-entities thereto or are bound by the Noble SUA by virtue of an Affiliated Transfer thereunder (such Parties, as set forth on Schedule 8.17 attached hereto, collectively, the Noble SUA Parties ) hereby acknowledge and agree that the Noble SUA was formerly applicable with respect to certain operations of said Noble SUA Parties in the fifty-one (51) Pennsylvania and West Virginia Counties that comprised the Development Area thereunder, and that, effective as of December 1, 2016, the Noble SUA terminated by its own terms, except as to
36
certain provisions thereof that expressly survived termination. To avoid confusion regarding the applicability of the surviving provisions of the Noble SUA and the terms and conditions of this Agreement, the Noble SUA Parties hereby agree that, after the Effective Time, as between such Noble SUA Parties:
(a) This Agreement shall replace and supersede the Noble SUA in all respects, including as to any and all surviving rights and obligations of such Noble SUA Parties thereunder;
(b) Each existing Well in the Cooperation Area that was, as of the Effective Time, classified as a Protected Well under the Noble SUA shall be deemed and treated as Protected Well hereunder;
(c) Each existing Well that was, as of the Effective Time, classified as a Non-Protected Well under the Noble SUA shall (i) if such Well was drilled in a location that was outside the Coal Area (as defined herein) but within a Mine Area at the time the drilling permit was issued for such Well, be deemed and treated as a Protected Well hereunder, (ii) if such Well was drilled in a location that was inside the Coal Area (as defined herein) at the time the drilling permit was issued for such Well, be deemed and treated as a Non-Protected Well hereunder (for the avoidance of doubt, the Parties acknowledge that none of the existing Wells located in the Four State Area fall within this category), and (iii) if such Well was drilled in a location that was outside a Mine Area (as defined herein) but within the Cooperation Area at the time the drilling permit was issued for such Well, be deemed and treated as those wells in Section 3.4 , along with its associated Non-Well Facilities;
(d) Each existing easement (and the surface facilities and/or operations permitted thereunder) that was made, or granted, subject the Noble SUA shall be deemed to have been made, or granted, pursuant to this Agreement, such that the terms and conditions of this Agreement shall apply thereto, in lieu of the terms and conditions of the Noble SUA (including, for the avoidance of doubt, the pertinent terms and conditions of Section 3.3 hereof shall be applicable with respect thereto, as opposed to the relocation provisions found in Section 5(g) of the Noble SUA);
(e) For the avoidance of doubt, this Agreement shall govern and control, as between the Noble SUA Parties, to the extent that there are any conflicts between the surviving terms and conditions of the Noble SUA and the terms and conditions of this Agreement;
Provided, however , that this Agreement does not, and shall not be deemed or construed to, amend, modify, terminate, or waive any provision of the Noble SUA with respect to any rights or obligations of any Third Party who, as of the Effective Time of this Agreement, is bound by the Noble SUA, but is not a signatory hereto, or any rights or obligations of any Noble SUA Party to any such Third Party.
8.18 Choice of Law; Mediation; Submission to Jurisdiction .
(a) To resolve disputes other than those disputes governed by Schedule 3.3(a) , the Parties shall, with respect to disputes between Gas Party, on the one hand, and Coal Party, on
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the other hand, comply with the dispute resolution procedures in this Section 8.18 . This Agreement shall be subject to and governed by the laws of the Commonwealth of Pennsylvania, excluding any conflicts-of-law rule or principle that might refer the construction or interpretation of this Agreement to the laws of another state. The Parties shall inform one another promptly following the occurrence or discovery of any item or event that shall reasonably be expected to result in a dispute in connection with this Agreement. The Parties will attempt to resolve any such matters prior to submitting them to Senior Officers as contemplated by Section 8.18(b) .
(b) Should a dispute arise that the Parties cannot resolve pursuant to Section 8.18(a) within ten (10) days after being informed thereof, a Party may deliver to the other Party written notice of the dispute with supporting documentation as to the circumstances leading to the dispute ( Notice of Dispute ). The Notice of Dispute shall include a schedule of the availability of a senior officer of the notifying Party that is duly authorized to settle the dispute, subject to any necessary company approvals that may be needed (the Senior Officer ), during the 30-day period following the delivery of the Notice of Dispute. Within seven (7) days after delivery of the Notice of Dispute, the other Party or Parties, as applicable, shall provide a schedule of the availability of such other Partys Senior Officer during the remainder of the 30-day period following the delivery of the Notice of Dispute. Following delivery of each applicable Senior Officers schedule of availability, the Senior Officers shall meet and confer as often as they deem reasonably necessary during the remainder of the 30-day period in good faith negotiations to resolve the dispute amicably. The Parties in their sole discretion may also agree to utilize the service of a mediator pursuant to a joint engagement.
(c) If the Parties cannot resolve any dispute or claim arising under this Agreement within thirty (30) days following the receipt of the Notice of Dispute, then no earlier than ten (10) days, nor more than sixty (60) days following written notice to the other Parties, any Party may initiate mandatory, non-binding mediation hereunder by giving a notice of mediation (a Mediation Notice ) to the other Parties to the dispute or claim. In connection with any mediation pursuant to this Section 8.18(c) , the mediator shall be jointly appointed by the Parties to the dispute or claim and the mediation shall be conducted in Canonsburg, Pennsylvania, unless otherwise agreed by the Parties to the dispute or claim. All costs and expenses of the mediator appointed pursuant to this Section 8.18(c) shall be shared equally by the Parties to the dispute or claim. The then-current Model ADR Procedures for Mediation of Business Disputes of the Center for Public Resources, Inc., either as written or as modified by mutual agreement of the Parties to the dispute or claim, shall govern any mediation pursuant to this Section 8.18(c) . In the mediation, each Party to the dispute or claim shall be represented by a Senior Officer. If a dispute or claim has not been resolved within thirty (30) days after the receipt of the Mediation Notice by a Party, then any Party to the dispute or claim may refer the resolution of the dispute or claim to litigation. The Parties agree that, provided the subject matter of a pending dispute or claim arising under this Agreement is not of such a nature that it would be a material consideration or factor with regard to any pending permit application or regulatory activity of the Parties, the Parties shall, during the pendency of such dispute or claim continue to cooperate with respect to each others permitting and regulatory activities, as provided herein.
(d) Subject to Section 8.18(c) , to the fullest extent permitted by law, each Party agrees that it shall bring any action or proceeding in respect of any claim arising out of or related to this Agreement, whether in tort or contract or at law or in equity, exclusively in any
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federal or state courts located in Pittsburgh, Pennsylvania, and (i) irrevocably submits to the exclusive jurisdiction of such courts, (ii) waives any objection to laying venue in any such action or proceeding in such courts, (iii) waives any objection that such courts are an inconvenient forum or do not have jurisdiction over it, and (iv) agrees that, to the fullest extent permitted by Law, service of process upon it may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to it at its address specified in Section 8.2 . The foregoing consents to jurisdiction and service of process shall not, to the fullest extent permitted by applicable Law, constitute general consents to service of process in the Commonwealth of Pennsylvania for any purpose except as provided herein and shall not be deemed to confer rights on any Person other than the Parties.
8.19 Coal Severance Notice (52 P.S. 1551) . NOTICE This Agreement may not sell, convey, transfer, include, or insure the title to the coal and right of support underneath the surface land described or referred to herein, and the owner or owners of such coal may have the complete legal right to remove all of such coal and, in that connection, damage may result to the surface of the land and any house, building, or other structure on or in such land. The inclusion of this notice does not enlarge, restrict, or modify any legal rights or estates otherwise created, transferred, excepted, or reserved by this Agreement. THIS NOTICE IS INSERTED HEREIN TO COMPLY WITH THE ACT of July 17, 1957, P.L. 984, § 1 as Amended 1965, Sept. 10, P.L. 505, No. 255, § 1.
8.20 Red Coal Notice (52 P.S. 1406.1451).
NOTICE
EACH GAS PARTY KNOWS THAT IT MAY NOT BE OBTAINING THE RIGHT OF PROTECTION AGAINST SUBSIDENCE RESULTING FROM COAL MINING OPERATIONS AND THAT THE SURFACE USE RIGHTS AND LICENSE USE RIGHTS, AND SURFACE EASEMENTS AND LICENSES MAY BE PROTECTED FROM DAMAGE DUE TO MINE SUBSIDENCE BY A PRIVATE CONTRACT WITH THE OWNERS OF THE ECONOMIC INTERESTS IN THE COAL. THIS NOTICE IS INSERTED HEREIN TO COMPLY WITH THE BITUMINOUS MINE SUBSIDENCE AND LAND CONSERVATION ACT OF 1966, AS AMENDED 1980, OCT. 10, P.L. 874, NO. 156 § 1.
[THE NEXT SUCCEEDING PAGE IS THE EXECUTION PAGE]
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IN WITNESS WHEREOF , this Agreement has been signed by each of the Parties on the Effective Time.
GAS PARTY: | ||
CNX GAS COMPANY LLC | ||
/s/ William D. Gillenwater |
||
Name: | William D. Gillenwater | |
Title: | Attorney-in-Fact | |
CNX RESOURCE HOLDINGS LLC | ||
/s/ William D. Gillenwater |
||
Name: | William D. Gillenwater | |
Title: | Vice President | |
COAL PARTY: | ||
CONSOL MINING CORPORATION | ||
/s/ William D. Gillenwater |
||
Name: | William D. Gillenwater | |
Title: | Attorney-in-Fact | |
BRAXTON-CLAY LAND & MINERAL, LLC | ||
/s/ William D. Gillenwater |
||
Name: | William D. Gillenwater | |
Title: | Vice President |
[ Signature Page to Cooperation and Safety Agreement ] P AGE 1
CNX RCPC LLC | ||
/s/ William D. Gillenwater |
||
Name: | William D. Gillenwater | |
Title: | Vice President | |
CONRHEIN COAL COMPANY | ||
By: | MTB LLC, | |
its general partner | ||
/s/ William D. Gillenwater |
||
Name: | William D. Gillenwater | |
Title: | Vice President, MTB LLC | |
By: | CONSOL Mining Holding Company LLC, | |
its general partner | ||
/s/ William D. Gillenwater |
||
Name: | William D. Gillenwater | |
Title: | Vice President, CONSOL Mining Holding | |
Company LLC |
[ Signature Page to Cooperation and Safety Agreement ] P AGE 2
CONSOL AMONATE FACILITY LLC | ||
/s/ William D. Gillenwater |
||
Name: | William D. Gillenwater | |
Title: | Vice President | |
CONSOL AMONATE MINING COMPANY LLC | ||
/s/ William D. Gillenwater |
||
Name: | William D. Gillenwater | |
Title: | Vice President | |
CONSOL ENERGY CANADA LTD | ||
/s/ William D. Gillenwater |
||
Name: | William D. Gillenwater | |
Title: | Attorney-in-Fact | |
CONSOL ENERGY SALES COMPANY LLC | ||
/s/ William D. Gillenwater |
||
Name: | William D. Gillenwater | |
Title: | Attorney-in-Fact |
[ Signature Page to Cooperation and Safety Agreement ] P AGE 3
CONSOL FINANCIAL INC. | ||
/s/ William D. Gillenwater |
||
Name: | William D. Gillenwater | |
Title: | Attorney-in-Fact | |
CONSOL MINING COMPANY LLC | ||
/s/ William D. Gillenwater |
||
Name: | William D. Gillenwater | |
Title: | Vice President | |
CONSOL MINING HOLDING COMPANY LLC | ||
/s/ William D. Gillenwater |
||
Name: | William D. Gillenwater | |
Title: | Vice President | |
CONSOL OF CANADA LLC | ||
/s/ William D. Gillenwater |
||
Name: | William D. Gillenwater | |
Title: | Attorney-in-Fact | |
CONSOL OF KENTUCKY LLC | ||
/s/ William D. Gillenwater |
||
Name: | William D. Gillenwater | |
Title: | Vice President |
[ Signature Page to Cooperation and Safety Agreement ] P AGE 4
CONSOL PENNSYLVANIA COAL COMPANY LLC | ||
/s/ William D. Gillenwater |
||
Name: | William D. Gillenwater | |
Title: | Vice President | |
HELVETIA COAL COMPANY LLC | ||
/s/ William D. Gillenwater |
||
Name: | William D. Gillenwater | |
Title: | Vice President | |
ISLAND CREEK COAL COMPANY LLC | ||
/s/ William D. Gillenwater |
||
Name: | William D. Gillenwater | |
Title: | Vice President | |
LAUREL RUN MINING COMPANY LLC | ||
/s/ William D. Gillenwater |
||
Name: | William D. Gillenwater | |
Title: | Vice President | |
MTB LLC | ||
/s/ William D. Gillenwater |
||
Name: | William D. Gillenwater | |
Title: | Vice President |
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NICHOLAS-CLAY LAND & MINERAL, LLC | ||
/s/ William D. Gillenwater |
||
Name: | William D. Gillenwater | |
Title: | Vice President | |
R&PCC LLC | ||
/s/ William D. Gillenwater |
||
Name: | William D. Gillenwater | |
Title: | Vice President | |
TERRY EAGLE LIMITED PARTNERSHIP | ||
By: | AMVEST LLC, | |
its general partner | ||
/s/ William D. Gillenwater |
||
Name: | William D. Gillenwater | |
Title: | Attorney-in-Fact, AMVEST LLC | |
By: | TECPART LLC, | |
its general partner | ||
/s/ William D. Gillenwater |
||
Name: | William D. Gillenwater | |
Title: | Attorney-in-Fact, TECPART LLC |
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WINDSOR COAL COMPANY LLC | ||
/s/ William D. Gillenwater |
||
Name: | William D. Gillenwater | |
Title: | Vice President | |
WOLFPEN KNOB DEVELOPMENT COMPANY LLC | ||
/s/ William D. Gillenwater |
||
Name: | William D. Gillenwater | |
Title: | Vice President | |
VAUGHAN RAILROAD COMPANY LLC | ||
/s/ William D. Gillenwater |
||
Name: | William D. Gillenwater | |
Title: | Vice President | |
LEATHERWOOD, LLC | ||
/s/ William D. Gillenwater |
||
Name: | William D. Gillenwater | |
Title: | Vice President |
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AMVEST LLC | ||
/s/ William D. Gillenwater |
||
Name: | William D. Gillenwater | |
Title: | Attorney-in-Fact | |
TECPART LLC | ||
/s/ William D. Gillenwater |
||
Name: | William D. Gillenwater | |
Title: | Attorney-in-Fact | |
AMVEST GAS RESOURCES, LLC | ||
/s/ William D. Gillenwater |
||
Name: | William D. Gillenwater | |
Title: | Attorney-in-Fact | |
AMVEST WEST VIRGINIA COAL, L.L.C. | ||
/s/ William D. Gillenwater |
||
Name: | William D. Gillenwater | |
Title: | Attorney-in-Fact | |
FOLA COAL COMPANY, L.L.C. | ||
/s/ William D. Gillenwater |
||
Name: | William D. Gillenwater | |
Title: | Attorney-in-Fact |
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TERRY EAGLE COAL COMPANY, L.L.C. | ||
/s/ William D. Gillenwater |
||
Name: | William D. Gillenwater | |
Title: | Vice President | |
LITTLE EAGLE COAL COMPANY, L.L.C. | ||
/s/ William D. Gillenwater |
||
Name: | William D. Gillenwater | |
Title: | Vice President |
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CEI PARTIES:
The parties set forth below hereby execute this Agreement as of the Effective Time solely with respect to their acknowledgement and agreement with the provisions of Section 8.16 .
CONSOL ENERGY INC. | ||
/s/ William D. Gillenwater |
||
Name: | William D. Gillenwater | |
Title: | Attorney-in-Fact | |
CNX GAS CORPORATION | ||
/s/ William D. Gillenwater |
||
Name: | William D. Gillenwater | |
Title: | Attorney-in-Fact | |
CARDINAL STATES GATHERING COMPANY | ||
/s/ William D. Gillenwater |
||
By: | CNX GAS COMPANY LLC, | |
its general partner | ||
/s/ William D. Gillenwater |
||
Name: | William D. Gillenwater | |
Title: | Attorney-in-Fact, CNX GAS COMPANY LLC | |
By: | CNX GAS CORPORATION, | |
its general partner | ||
/s/ William D. Gillenwater |
||
Name: | William D. Gillenwater | |
Title: | Attorney-in-Fact, CNX GAS CORPORATION |
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CNX WATER ASSETS LLC | ||
/s/ William D. Gillenwater |
||
Name: | William D. Gillenwater | |
Title: | Attorney-in-Fact | |
TERRA FIRMA COMPANY | ||
/s/ William D. Gillenwater |
||
Name: | William D. Gillenwater | |
Title: | Vice President |
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APPENDIX I
Definitions
AAI Area has the meaning set forth in the recitals to this Agreement.
Affiliate means any entity (i) which directly or indirectly controls, is controlled by, or is under common control with such Party, (ii) which beneficially owns or holds ten percent (10%) or more of any class of the voting or other equity interests of Party, or (iii) in which ten percent (10%) or more of any class of the voting or other equity interests is beneficially owned or held, directly or indirectly, by such Party; provided, however, that Affiliate (a), as to Gas Party, shall not include, and shall exclude, Coal Party, CONE Gathering LLC, CONE Midstream GP LLC, CONE Midstream Partners LP, CONE Midstream Finance Corporation, CONE Midstream Operating Company LLC, CONE Midstream DevCo I GP LLC, Midstream DevCo II GP LLC, Midstream DevCo III GP LLC, CONE Midstream DevCo I LP, CONE Midstream DevCo II LP, and CONE Midstream DevCo III LP, and (b), as to Coal Party, shall not include, and shall exclude, Gas Party and those Gas Party Affiliates listed on Schedule II . For purposes of this definition, control means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise. The term Affiliates shall be construed accordingly, as appropriate to the context in which it is used and at the time at which it is used.
Agreement has the meaning set forth in the preamble.
Allowances means any and all authorizations or rights granted, authorized or sold under any domestic, international or foreign program, scheme or organization or law, statute, regulation or order, adopted by a Governmental Authority or otherwise, or other similar program, public or private, whether existing now or in the future, whether mandatory or voluntary, that authorized, limits, restricts or permits the emission of a specified quantity of greenhouse gases (including, without limitation, carbon dioxide, methane, nitrous oxide, perfluoro-carbons, hydro fluorocarbons, sulphur hexafluoride or other gas, matter or substance that is otherwise classified as a greenhouse gas) during, for or with respect to a given compliance period, including under a mandatory cap and trade program. Allowances do not include Energy Credits.
Annual Coal Development Plan has the meaning set forth in Section 4.2(b)(i) .
Annual Gas Development Plan has the meaning set forth in Section 4.2(b)(ii) .
Approved Withdrawal Plan has the meaning set forth in Section 5.5(b)(ii) .
As-Built Construction Drawings means drawings prepared at the end of a construction project depicting the structures, facilities, or improvements as actually built and/or installed.
Assigning Party has the meaning set forth in Section 8.1(a) .
Assignment means any sale, conveyance, transfer, assignment, lease, sublease, mortgage, encumbrance, or other disposition of interest, whether voluntarily or indirectly by
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operation of Law or otherwise (including by merger or sale of equity interests); provided, however , Assignment shall not include an encumbrance created pursuant to any borrowing arrangement entered into by a Party with an unaffiliated Third Party. The terms Assign , Assigned and Assignee shall be construed accordingly.
Business Day means a day (other than a Saturday or Sunday) on which commercial banks in the State of Pennsylvania are generally open for business.
Capture means to collect, use, produce, treat (if necessary), process (if necessary), transport, store (if necessary), market, and sell Gas that is available from any Well.
CEI has the meaning set forth in the preamble.
CEI Subsidiaries has the meaning set forth in the preamble.
Change of Control means CEI ceases to control, directly or indirectly, as to the Person at issue, or in the case of a permitted successor or assign, means that the parent corporation or Person owning the controlling interest in such Person at the time it becomes the successor or assign ceases to control, directly or indirectly, the Person at issue. For purposes of this definition, control means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of the general partner of the Person at issue, whether through ownership of voting securities, by contract or otherwise.
Claim or Claims means any and all claims, demands, liabilities, damages, taxes, penalties, interest, judgments, losses, costs, charges, and expenses (including reasonable out-of-pocket fees and attorneys fees), whether direct or indirect, arising out of or as a consequence of a given transaction or occurrence.
CoalCo has the meaning set forth in the Preamble.
Coal Area has the meaning set forth in Section 3.1 .
Coal Gas means occluded methane gas and all associated natural gas and other hydrocarbons of whatever quality or quantity produced or emitted from coalbeds or coal formations and seams and any related, associated, or adjacent rock material or strata. For the avoidance of doubt, the term Coal Gas shall expressly include all substances commonly known as coalbed methane, coal mine methane, and gob gas.
Coal Interests has the meaning set forth in the recitals to this Agreement and, for the avoidance of doubt, means all interests in coal seams and coal rights that are owned or controlled by a Coal Party within the Cooperation Area as of the Effective Time, together with all such interests that are acquired by a Coal Party after the Effective Time within the AAI Area; and, collectively, all such interests owned or controlled by every Coal Party. The term Coal Interest shall be construed accordingly, as appropriate to the context in which it is used.
Coal Party has the meaning set forth in the preamble to this Agreement.
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Coal Party Notice Rep has the meaning set forth in Section 8.2 .
Coal Party Representative has the meaning set forth in Section 4.1(a) .
Communications Facilities means any equipment, including but not limited to co-axial cable, microwave dishes, antennae and any and all other facilities, which enhances or enables wireless communications.
Communications Tower means any tower and associated building upon which such Party has located its Communications Facilities.
Consent Request has the meaning set forth in Section 8.1(a) .
Cooperation Area has the meaning set forth in the recitals to this Agreement.
Coordination Committee means, for each Mine, a two-person committee composed of representatives of the Parties that own or control Coal Interests or Gas Interests at such Mine.
Credit Producers means the Flaring Parties and the Producing Parties, or either of the foregoing, and Credit Producer shall be construed accordingly to mean one of the foregoing.
Data Requesting Party has the meaning set forth in Section 2.5 .
Effective Time has the meaning set forth in the preamble to this Agreement.
Energy Credits means any and all ERCs and RECs.
ERC Program has the meaning given such term in the definition of ERCs.
ERCs (an acronym for emission reduction credits) means any and all credits, attributes, benefits, offsets, reductions, rights (including registration, trading and recording rights), or indicia, however entitled, for or relating to the reduction, mitigation or control of greenhouse gas emissions, including, without limitation, carbon dioxide, methane, nitrous oxide, perfluoro-carbons, hydro fluorocarbons, sulphur hexafluoride or other gas, matter or substance; provided, however, the foregoing must directly or indirectly arise out of or be related to the Capture, or the flaring, burning, destruction or sequestration, of Coal Gas (including, without limitation, ventilation air methane) in respect of Coal Gas that now or hereafter qualifies for recognition by or under any domestic, international or foreign emissions reduction or emissions quantification, certification or reporting program, scheme or organization or law, statute, regulation or order, adopted by a Governmental Authority or otherwise, or other similar program, public or private, whether existing now or in the future, whether mandatory or voluntary, including without limitation any program under which any direct or indirect benefit is given for reduction in greenhouse gas emissions with respect to such Coal Gas (each, an ERC Program ) (an ERC Program or REC Program, a Program ). ERCs do not include Allowances.
Existing Permits/Agreements means those existing (i) permits issued by any Governmental Authority and/or agreements that create and/or burden any of the Coal Interests,
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Gas Interests, and/or Wells, including any listed on or described in Exhibit D attached hereto and including any applicable joint operating agreements, joint development agreements or other similar agreements or arrangements affecting any of the Coal Interests, Gas Interests, and/or Wells; (ii) surface use agreements, cooperation agreements, development agreements, or other similar instruments including those referenced on or described in Exhibit D attached hereto and as such agreement may be amended from time to time in the sole discretion of the parties to such agreements; (iii) instruments of record or referred to in instruments of record, including any coal, mining, gas, midstream, and surface use rights or easements granted pursuant to any of the agreements referenced on or described in Exhibit D attached hereto; (iv) coal, mining, gas, midstream and surface use rights or easements granted to or exercised by any Person pursuant to any of the agreements referenced on or described in Exhibit D attached hereto, whether or not such rights or easements are recorded; and (v) other coal, mining, gas, midstream, and surface use rights granted, excepted, or leased that are apparent on an inspection of the property overlying the Cooperation Area or recited in prior agreements, plans, or instruments, whether or not recorded; provided, however, that as used in this definition, the word existing shall (X) as relates to Surface Easements granted pursuant hereto mean such of the foregoing as are in existence at the time the Surface Easement Request is received by the non-requesting Party, and (Y) as relates to all other matters, mean such of the foregoing as are in existence as of the Effective Time of this Agreement.
Flaring Parties means any Third Parties engaged by Coal Party to flare Coal Gas from the sealed gob areas of any properties associated with the Coal Interests.
Four State Area has the meaning set forth in the recitals to this Agreement.
Gas means any natural gas and constituents thereof that can be extracted and produced from a well by conventional or unconventional means and includes Coal Gas. For purposes of this Agreement, Gas shall include oil and any other liquid or liquefiable hydrocarbons produced from a well, as well as condensate and natural gas liquids.
Gas Assets means the Gas Units, Wells, Well sites, and all associated facilities, including Gas Reserves and Systems within the Cooperation Area.
Gas Interests has the meaning set forth in the recitals to this Agreement.
Gas Party has the meaning set forth in the preamble to this Agreement.
Gas Party Representative has the meaning set forth in Section 4.1(a) .
Gas Reserves means and include proved developed producing, proved developed non-producing, proved undeveloped, possible undeveloped, and probable undeveloped oil and Gas reserves, in each case as applicable, as defined by SEC Regulation S-X, Rule 4-10(a), or any replacement or modification thereof.
Gas Unit means a drilling unit, as that term is commonly used in the Gas business, within the Cooperation Area (i) established or prescribed by field rules or other regulatory order or (ii) otherwise designated by Gas Party.
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Governmental Authority or Governmental Authorities means (i) any federal, state, local, municipal, tribal, or other government having jurisdiction under applicable Law, (ii) any governmental, regulatory, or administrative agency, commission, body, or other authority exercising or entitled to exercise any administrative, executive, judicial, legislative, regulatory, or taxing authority or power, and (iii) any court or governmental tribunal, including any tribal authority, having or asserting jurisdiction under applicable Law.
Independent Engineer means (i) for purposes of Schedule 3.3(a) , any independent petroleum reservoir engineering consulting firm with a minimum of ten (10) years of experience that is selected by Gas Party and agreed upon by Coal Party, and (ii) for purposes of Schedule 3.3(c) , any independent coal mining engineering firm with a minimum of ten (10) years of experience that is selected by Coal Party and agreed upon by Gas Party.
Law means any applicable statute, law, rule, regulation, ordinance, order, code, ruling, writ, injunction, decree or other official act of or by any Governmental Authority.
Lease Compensation Amount has the meaning set forth in Schedule 3.3(a) .
Lease Compensation Conditions has the meaning set forth in Schedule 3.3(a) .
License has the meaning set forth in Section 5.8 .
License Request has the meaning set forth in Section 5.8 .
License Use Assets has the meaning set forth in Section 8.1(a) .
License Use Rights has the meaning set forth in Section 5.7 .
Life of Mine Plan means, with respect to any Mine, as updated from time to time, a plan setting forth the mining operations reasonably anticipated by Coal Party in good faith to be conducted by Coal Party during the life of the Mine based upon the Coal Interests of such Coal Party, the anticipated timing thereof, and the current Coal Area of such Mine.
Long-Wall Move-Around means to conduct an in-panel move of the longwall mining machinery, with the intent of leaving a Pillar Permit Area that will preserve the associated wellbores of the applicable Well(s).
Mediation Notice has the meaning set forth in Section 8.18(c) .
Mine or Mines has the meaning set forth in the recitals to this Agreement.
Mine Area has the meaning set forth in the recitals to this Agreement.
Mine-By means, to the extent permitted by applicable Governmental Authorities in instances where a Well is drilled through a coal pillar of adequate size and stability, for the Coal Party to mine and remove coal pursuant to its Coal Interests from the adjoining coal seam in the area of such pillar up to such close proximity thereto as is allowed under applicable Law.
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Mine-By Temporary P&A means to temporarily abandon a Well in a manner that permits the Coal Party to Mine-By such Well, subject to the approval of all applicable regulatory agencies and in compliance with and pursuant to all applicable Law.
Mining P&A Date means the date reasonably determined by Coal Party to be the date upon which a particular Well must be plugged and abandoned for mine-through consistent with mine-through Laws.
Noble SUA means that certain that certain Surface Use Agreement, dated effective as of September 30, 2011, by and between CNX Gas Company LLC, the twenty three (23) Coal Parties identified on Schedule A attached thereto, and Noble Energy, Inc., as modified and amended, including as released and otherwise affected by that certain Termination and Release Agreement dated December 1, 2016, by and among CNX Gas Company LLC, CONSOL Energy Inc., Noble Energy, Inc., the eight (8) Water Parties listed on Schedule 1(a) attached thereto and the seventeen (17) Surface Parties listed on Schedule 1(b) attached thereto.
Noble SUA Parties has the meaning set forth in Section 8.17 .
Non-Assigning Party has the meaning set forth in Section 8.1(a) .
Non-Coal Area has the meaning set forth in Section 3.2 .
Non-Protected Well has the meaning set forth in Section 3.1(c) and Section 8.17(c).
Non-Well Facility has the meaning set forth in Section 3.3(d) .
Notice of Dispute has the meaning set forth in Section 8.18(b) .
Original MCSA means that certain Master Cooperation and Safety Agreement, by and between CEI and CNX Gas Corporation, dated August 1, 2005, as amended, including by Amendment No. 1 to the Master Cooperation and Safety Agreement dated May 30, 2008.
P&A Period has the meaning set forth in Schedule 3.3(a) .
Party or Parties has the meaning set forth in the preamble to this Agreement.
Person means any individual, corporation, company, partnership, limited partnership, limited liability company, trust, estate, Governmental Authority, or any other entity.
Pillar Permit Area means an existing or planned abutment mine pillar where no mining is projected within fifty feet (50) of a wellbore in the pillar, as specified by Coal Party and approved by a coal mining regulatory agency ; provided, however, if the deviation survey required under Schedule 3.7 determines that a Well approved to be drilled hereunder by Coal Party in a Pillar Permit Area within the Coal Area was actually drilled outside the Pillar Permit Area then such Well shall no longer be deemed or defined as a Protected Well but shall be
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deemed and redefined as a location that is not approved by Coal Party if such Well location was within the Coal Area at the time of its initial approval by Coal Party.
Post-Plugging Well Valuation has the meaning set forth in Schedule 3.3(a) .
Producing Parties means any Third Parties engaged by Gas Party to produce, abate, and/or destroy Coal Gas from areas associated with Coal Interests.
Producing Well Valuation Amount has the meaning set forth in Schedule 3.3(a) .
Program has the meaning given such term in the definition of ERC.
Project Notice has the meaning given such term in Section 3.8(e)(i) .
Protected Well has the meanings set forth in Sections 3.1(c) , 3.2(b) , 3.2(c) , 3.2(d) , 3.4(c) , 8.17(b) , and 8.17(c) .
Protected Well Life Date means, with respect to any Protected Well, the date that is the fifteenth (15 th ) anniversary of such Protected Wells spud date.
Protected Well Mining P&A Estimate has the meaning set forth in Section 3.3(c)(i)(4)(A) .
Receiving Party has the meaning set forth in Exhibit C .
REC Program has the meaning given such term in the definition of RECs.
RECs (an acronym for renewable energy certificates) means any and all credits, attributes, benefits, offsets, green tags, white tags, reductions, rights (including registration, trading and recording rights), or indicia, however entitled, for or relating to the generation or creation of energy from sources which are renewable or are recognized as renewable under any REC Program (defined below) or are generated from otherwise wasted resources, directly or indirectly arising out of or related to the Capture of Coal Gas (including ventilation air methane), including any improvement in energy efficiency resulting therefrom, that qualifies for recognition by or under any domestic, international or foreign alternative energy, energy efficiency, renewable energy or renewable portfolio standard, quantification, certification or reporting program, scheme or organization or law, statute, regulation or order, adopted by a Governmental Authority or otherwise, or other similar program, public or private, whether existing now or in the future, whether mandatory or voluntary, including without limitation any program under which any direct or indirect benefit is given for the production or use of renewable energy or waste energy (each, a REC Program ). RECs do not include Allowances.
Register has the meaning set forth in Section 3.8(d).
Registration has the meaning set forth in Section 3.8(d) .
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Senior Officer has the meaning set forth in Section 8.18(b) .
Source means those sources of water set forth on Exhibit E , together with any and all reservoirs, water pipelines, water wells, ponds, and acid mine discharge treatment plants now or hereafter owned or controlled by Coal Party.
Stimulate or Stimulation means the artificial fracture or stimulation of geological zones or strata to enhance Gas production. The term Stimulating shall be construed accordingly.
Subject Coal Allowances has the meaning set forth in Section 3.8 .
Subject Coal Energy Credits has the meaning set forth in Section 3.8 .
Subsidiary means, with respect to any Person, (a) a corporation of which more than 50% of the voting power of shares entitled (without regard to the occurrence of any contingency) to vote in the election of directors or other governing body of such corporation is owned, directly or indirectly, at the date of determination, by such Person, by one or more Subsidiaries of such Person or a combination thereof, (b) a partnership (whether general or limited) in which such Person or a Subsidiary of such Person is, at the date of determination, a general or limited partner of such partnership, but only if more than 50% of the general partner interests of such partnership is owned, directly or indirectly, at the date of determination, by such Person, by one or more Subsidiaries of such Person or a combination thereof or (c) any other Person (other than a corporation or a partnership) in which such Person, one or more Subsidiaries of such Person, or a combination thereof, directly or indirectly, at the date of determination, has (i) at least a majority ownership interest or (ii) the power to elect or direct the election of a majority of the directors or other governing body of such Person.
Surface Assignment Notice has the meaning set forth in Section 5.1(b) .
Surface Easement has the meaning set forth in Section 5.2(a) .
Surface Easement Request has the meaning set forth in Section 5.2(a) .
Surface Rights has the meaning set forth in the recitals to this Agreement.
Surface Use Rights has the meaning set forth in Section 5.1(a) .
System means all equipment within the Cooperation Area that is necessary to Capture Gas produced from any Well, including compressors, treating facilities, storage facilities, processing plants, and gathering or transportation lines, but excluding equipment needed merely to vent Gas.
Term has the meaning set forth in Section 7.1 .
Thermal A&R MCSA means that certain Amendment and Restatement of Master Cooperation Agreement dated July 7, 2015, by and among CNX Thermal Holdings LLC, Consol
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Pennsylvania Coal Company LLC, Conrhein Coal Company, CNX Gas Company LLC, and the thirty one (31) CEI Subsidiaries designated on Schedule 1 attached thereto, a Memorandum of which appears of record in Greene County, Pennsylvania, in OR Book 486, Page 124, in Washington County, Pennsylvania, as Instrument No. 201610949, and in Marshall County, West Virginia, in Book 874, Page 233, as now or hereafter modified and amended.
Third Party means any Person which is not an Affiliate of a Party.
Third Party Gas means any Gas that is owned, in whole or in part, by a Third Party, regardless of whether such Gas was produced from the Gas Interests.
Underlying Lease or Underlying Leases has the meaning set forth in Schedule 3.3(a) .
Underlying Lease Valuation Amount has the meaning set forth in Schedule 3.3(a) .
Valuation Amount has the meaning set forth in Schedule 3.3(a) .
Verify or Verification has the meaning set forth in Section 3.8(c).
Water Use Rights has the meaning set forth in Section 5.5 .
Well means a Gas Party well that was, is, or will be, drilled and permitted, or later permitted, at Gas Partys discretion for the commercial production of Gas by conventional or unconventional means.
Withdrawal has the meaning set forth in Section 5.5(b)(i) .
Withdrawal Plan has the meaning set forth in Section 5.5(b)(i) .
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Exhibit A
Insurance Requirements
G
ENERAL
L
IABILITY
(Comprehensive or
Commercial Insurance) |
For bodily injury and property damage, including, without limitation, Products/Completed Operations, Independent Contractors, Contractual Liability, and Property Operations:
$1,000,000 combined single limit per occurrence. |
|
W
ORKERS
C OMPENSATION |
Workers Compensation insurance for statutory limits or evidence that a party is a qualified self-insurer in accordance with the applicable jurisdiction, and employers liability insurance with limits of:
$1,000,000 Bodily Injury by Accident each Accident
$1,000,000 Policy Limit for Bodily Injury by Disease
$1,000,000 Bodily Injury by Disease each Employee |
|
C OMMERCIAL A UTOMOBILE |
For bodily injury and property damage covering owned, non-owned and hired automobiles with at least:
$1,000,000 combined single limit per occurrence. |
|
U MBRELLA /E XCESS L IABILITY |
For (bodily injury and property damage) with contractual liability insurance to cover liability assumed under this Agreement, with at least
$9,000,000 combined single limit per occurrence,
Which must extend over and above the required Comprehensive or Commercial General Liability, Employers Liability, and Automobile Bodily Injury and Property Damage Liability limits |
ADDITIONAL INSURED(S)
Gas Party shall be named as additional insureds on all liability insurance specified above required of Coal Party, and Coal Party shall be named as additional insured on all liability insurance specified above required of the Gas Party.
POLICY REQUIREMENTS
All insurance policies shall be (i) primary and non-contributory, with the exception of the Umbrella/Excess Liability coverage; (ii) include a waiver of subrogation against any other Party where permitted by Law; (iii) maintained without interruption from the Effective Time until the end of the Term; and (iv) issued by insurance companies having an A.M. Best rating of at least A-VII or better, or equivalent rating from other financial rating organizations, and authorized to do business in the state
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where the property is located. All policies of insurance shall include a written undertaking from the insurer to notify all insureds and additional insureds in accordance with policy provisions prior to cancellation of coverage.
CERTIFICATE OF INSURANCE
Upon request, the Gas Party shall issue to Coal Party and Coal Party shall issue to Gas Party certificates of insurance or evidence of self-insurance (only to the extent permitted above) satisfying the foregoing insurance requirements and any self-insurance. The certificates of insurance, both current and renewals, shall be provided to the respective Parties from time to time upon request.
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Exhibit B
Shared Information
Gas Party will make well related data from drilling and completion operations for both Protected and Non-Protected Wells available to Coal Party. Gas Party may acquire any of the following data that is provided through commercially available Gas services:
| Deviation surveys. |
| Cement bond logs |
| Commercially available logs that may or may not include gamma ray, neutron density, induction, image, sonic, latter, spontaneous potential, and specialty logs. |
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Exhibit C
Leasehold Release Provisions
If Coal Party or Gas Party wishes to release, surrender, terminate, or permit the termination or expiration of any Third Party leasehold in which the other has an interest, such Party shall provide forty-five (45) days prior written notice to the other Party prior to such release, surrender, or termination of such Third Party leasehold or prior to permitting the termination or expiration of such Third Party leasehold. The Party receiving such notice (the Receiving Party ) shall have forty-five (45) days from its receipt thereof in which to elect to have the other Party (i) assign its interest in such Third Party leasehold to the Receiving Party, or its designee (if such Third Party leasehold is assignable) or (ii) take such action as is required to maintain, extend, renew or otherwise preserve such interest as permitted under the applicable instruments, and if the Receiving Party elects either (i) or (ii), such Receiving Party shall assume in writing all obligations with respect to such interest at its sole risk, cost and expense. If the Receiving Party fails to respond within such forty-five (45) day period following its receipt of such notice, the Receiving Party shall have waived its right to, and shall be deemed to have elected not to, have such Third Party leasehold interest assigned or maintained, extended, renewed or otherwise preserved.
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Exhibit D
Existing Permits/Agreements
A. | Existing Agreements |
The following agreements, plus any additional contracts (e.g., JOAs, joint venture agreements, well permit agreements, subsidence agreements, and surface use agreements) that are found to be applicable to the Cooperation Area:
1. | Surface Use Agreement, dated September 30, 2011, by and among CNX Gas Company LLC, Braxton-Clay Land and Minerals, Inc., CNX Land LLC (successor-by-merger to CNX Land Resources Inc.), CNX Marine Terminals Inc., Conrhein Coal Company, Consol Pennsylvania Coal Company LLC, CONSOL Mining Company LLC (successor in interest to Consolidation Coal Company, Eighty-Four Mining Company, Keystone Coal Mining Company, McElroy Coal Company, Mon River Towing, Inc., and Southern Ohio Coal Company), Fairmont Supply Company, Helvetia Coal Company, Island Creek Coal Company, Laurel Run Mining Company, Leatherwood, Inc., Nicholas-Clay Land & Mineral, Inc., CNX RCPC LLC (successor-by-merger to Reserve Coal Properties Company), R&PCC LLC (successor-by-merger to Rochester & Pittsburgh Coal Company), Terra Firma Company, Terry Eagle Limited Partnership, Windsor Coal Company, Wolfpen Knob Development Company, and CONE Gathering LLC. |
a. | First Amendment to Surface Use Agreement, dated effective October 26, 2013. |
b. | Second Amendment to Surface Use Agreement, dated effective November 15, 2013. |
c. | Corrective Addendum to Second Amendment to Surface Use Agreement, dated effective November 15, 2013. |
2. | Agreement, dated December 1, 1993, between Columbia Gas Transmission Corporation and CONSOL Pennsylvania Coal Company LLC (successor in interest to Consol Pennsylvania Coal Company, as a signatory and successor-by-merger to Nineveh Coal Company and Greenon Coal Company). |
a. | Majorsville-Heard Storage Complex Letter Agreement, dated December 1, 1993, between Consolidation Coal Company, Enlow Fork Mining Company, and Conrhein Coal Company, and Columbia Gas Transmission Corporation. |
b. | Amendment to the Agreement, dated July 27, 2009, between CONSOL Pennsylvania Coal Company, Columbia Gas Transmission Corporation, CNX Gas Company LLC, and NiSource Energy Venture, LLC. |
c. |
Storage Complex Agreement, dated December 19, 2014, between CONSOL Pennsylvania Coal Company LLC (f/n/a Consol Pennsylvania Coal Company), |
E XHIBIT D P AGE 1
CNX Gas Company LLC, Conrhein Coal Company, CONSOL Energy Inc., and Murray Energy Corporation. |
d. | Reference to this Agreement includes any additional agreement(s) between any or all of the parties hereto on or prior to the date of this Amended and Restated Master Cooperation and Safety Agreement. |
3. | Surface Use Agreement, dated and effective December 5, 2013, between CNX Land LLC, Conrhein Coal Company, Consol Pennsylvania Coal Company LLC, Laurel Run Mining Company, CNX RCPC LLC, R&PCC LLC, Wolfpen Knob Development Company, CONSOL Mining Company LLC, Ohio Valley Resources, Inc., Consolidation Coal Company, McElroy Coal Company, Eighty-Four Mining Company, Keystone Coal Mining Corporation, Mon River Towing, Inc., Twin Rivers Towing Company, CCC RCPC LLC and CCC Land Resources LLC. |
4. | Agreement with Respect to Mine through of Existing and New CBM Wells, dated January 16, 2009, between CONSOL Energy Inc. and CNX Gas Company LLC. |
5. | Subordination Agreement (CONE), dated February 18, 2015, between CNX Gas Company LLC, Consol Pennsylvania Coal Company LLC, CONE Gathering LLC, CONE Midstream DevCo I LP, and First Pennsylvania Resource, L.L.C. |
6. | Subordination Agreement (NOBLE), dated February 12, 2015, between (a) CNX Gas Company LLC, Braxton-Clay Land and Minerals, Inc., CNX Land LLC (successor-by-merger to CNX Land Resources Inc.), CNX Marine Terminals Inc., CNX Water Assets LLC, CONE Gathering LLC, Conrhein Coal Company, CONSOL Pennsylvania Coal Company LLC, Helvetia Coal Company, Island Creek Coal Company, Laurel Run Mining Company, Leatherwood, Inc., Nicholas-Clay Land & Mineral, Inc., CNX RCPC LLC (successor-by-merger to Reserve Coal Properties Company), R&PCC LLC (successor-by-merger to Rochester & Pittsburgh Coal Company), Terra Firma Company, Terry Eagle Limited Partnership, Windsor Coal Company, Wolfpen Knob Development Company, CONSOL Mining Company LLC (successor-in-interest to Former CONSOL Entities), (b) Noble Energy, Inc., and (c) First Pennsylvania Resource, L.L.C. |
7. | Master Subsidence Agreement, dated effective July 1, 2011, between Range Resources-Appalachia, LLC, CONSOL Mining Company LLC (successor in interest to Consolidation Coal Company), and CNX RCPC LLC (successor-by-merger to Reserve Coal Properties Company). |
8. | Rail Crossing and Pipeline Right-of-Way Agreement, dated July 1, 2011, between CONSOL Mining Company LLC (successor in interest to Consolidation Coal Company), CNX RCPC LLC (successor-by-merger to Reserve Coal Properties Company), and Range Resources-Appalachia, LLC. |
E XHIBIT D P AGE 2
9. | Master Agreement, dated January 16, 2009, among CONSOL Mining Company LLC (successor in interest to Consolidation Coal Company), CNX RCPC LLC (successor-by-merger to Reserve Coal Properties Company), CONSOL Pennsylvania Coal Company LLC, Conrhein Coal Company, and Foundation Coal Resources Corporation, Pennsylvania Land Holdings Corporation, River Processing Corporation, and CNX Gas Company LLC. |
10. | Closing Land Letter Agreement (MEC), dated December 5, 2013, between CONSOL Energy Inc., Ohio Valley Resources, Inc., Consolidation Coal Company and Murray Energy Corporation. |
11. | Mining and Oil and Gas Rights Cooperation Agreement, dated January 16, 2009, by and among CONSOL Mining Company LLC (successor in interest to Consolidation Coal Company), CNX RCPC LLC (successor-by-merger to Reserve Coal Properties Company), Consol Pennsylvania Coal Company LLC, Conrhein Coal Company, Leatherwood, Inc., and Foundation Coal Resources Corporation and Pennsylvania Land Holdings Corporation. |
12. | Adverse Coal Tracts Agreement, dated January 16, 2009, between CONSOL Mining Company LLC (successor in interest to Consolidation Coal Company), CNX RCPC LLC (successor-by-merger to Reserve Coal Properties Company), Consol Pennsylvania Coal Company LLC, Conrhein Coal Company, and Foundation Coal Resources Corporation and Pennsylvania Land Holdings Corporation, and CNX Gas Company LLC. |
13. | Memorandum of Understanding (Pennsylvania), dated May 22, 2009, between Consol Energy Inc. and Columbia Gas Transmission. |
14. | Memorandum of Understanding (West Virginia), dated November 29, 2010, between CONSOL Energy Inc. and Columbia Gas Transmission. |
15. | Surface Use Agreement, dated October 21, 2011, between CNX Gas Company LLC, Central Ohio Coal Company, Consolidation Coal Company, Southern Ohio Coal Company, CNX Marine Terminals Inc., Reserve Coal Properties Company, Hess Ohio Developments, LLC, and Hess Ohio Resources, LLC. |
16. | Cooperation and Safety Agreement, dated December 5, 2013, between Ohio Valley Resources, Inc., Consolidation Coal Company, Eighty-Four Mining Company, Keystone Coal Mining Company, McElroy Coal Company, Mon River Towing, Inc., Twin Rivers Towing Company, CCC Land Resources LLC and CCC RCPC LLC, and CNX Gas Company LLC. |
E XHIBIT D P AGE 3
17. | Surface Use Agreement, dated September 30, 2015, between CNX Gas Company LLC, CNX Land LLC, CONSOL Mining Company LLC, Leatherwood, Inc., CNX RCPC LLC, Helvetia Coal Company, R&PCC LLC, and Rosebud Mining Company. |
18. | Surface Use Agreement [Pangburn Shaner Fallowfield], dated March 31, 2016, between CNX Gas Company LLC and Coronado IV LLC. |
19. | Amendment and Restatement of Master Cooperation and Safety Agreement, dated March 31, 2016, between CONSOL Buchanan Mining Company LLC, Coronado IV LLC, CNX Gas Company LLC, and solely for the limited purposes set forth therein, CONSOL Energy Inc. and certain subsidiaries of CONSOL Energy Inc. signatories thereto. |
20. | All well permits to the extent covering drilled or permitted Wells within the Cooperation Area. |
21. | Any orders of any oil and gas regulatory body involving the establishment of drilling units and/or pooling of interests within the Cooperation Area. |
B. | Existing Permits |
The permits shall include those permits to be specifically set forth on this Exhibit D , as well as any other active, submitted, pending, and proposed or amended oil and gas Well permits or other permits for other activities or operations within the Cooperation Area, including those of Third Parties, as of the Effective Time.
E XHIBIT D P AGE 4
Exhibit E
Sources
Name of Source |
Latitude /
Longitude |
Type of Source |
Associated
Tax ID No(s). |
|||
Source 19: Enlow Fork Richhill Township, Greene Co., PA |
39º 58 21.2 /
80º 25 24.1 |
SW | 22-09-0122 | |||
Source 20: SW PA Water Authority Bailey Mine Municipal Tap Greene Co., PA |
39º 56 35.6 /
80º 22 28.95 |
PWS | 10-01-0137 | |||
Source 23: (2) Arden AMD Washington Co., PA |
40º 13 9.5 /
80º 15 56.8 |
Mine Water | 170-018-00-00-0016-08 | |||
Source 24: (2) Jane-Emilie AMD Armstrong Co., PA |
40º 40 59.3 /
79º 21 28.7 |
Mine Water | 204.00-06-19.001 | |||
Source 25: (2) Bailey Mine Mine Water Greene Co., PA |
Collection Point 1
39º 57 49.44 / 80º 23 29.01
Collection Point 2 39º 57 30.38 / 80º 22 43.52 |
Mine Water |
22-09-0159
22-09-0168 |
|||
Source 36: Robinson Fork (INTC w/Noble Energy Source 20) Washington Co., PA |
39º 58 45.2 /
80º 29 14.9 |
SW | 680-007-00-00-0004-00 |
E XHIBIT E P AGE 1
Name of Source |
Latitude /
Longitude |
Type of Source |
Associated
Tax ID No(s). |
|||
Source 43: Shoemaker Groundwater Well #3 Marshall Co., WV |
40º 1 19.92 /
80º 44 2 |
GW | 1-4A-1 | |||
Source 44: Shoemaker Groundwater Well #4 Marshall Co., WV |
40º 1 20.25 /
80º 44 0.91 |
GW | 1-4A-1 | |||
Source 45: Shoemaker Groundwater Well #5 Marshall Co., WV |
40º 1 16.52 /
80º 44 4.4 |
GW | 1-4A-1.1 | |||
Source 46: Shoemaker Groundwater Well #6 Marshall Co., WV |
40º 1 14.73 /
80º 44 2.3 |
GW | 1-4A-2 | |||
Source 47: Bailey Freshwater Pond Greene Co., PA |
39º 57 52.52 /
80º 24 45.45 |
SW | 22-09-0136 | |||
Source 27: Neely Hollow AMD Marion Co., WV |
39º 29 07 /
80º 24 39 |
Mine
Water |
12-63-9 | |||
Source 17: Margaret #7 Mine Discharge Armstrong Co., PA |
40º 44 22.00 /
79º 23 05.30 |
SW | 169.00-01-09 |
E XHIBIT E P AGE 2
Schedule 2.1
Mason Dixon Reserve/Wadestown Prospect Map
[see attached]
Schedule 3.3(a)
Valuation Formula
Part I - Lost Reserves Producing Well:
Gas Party shall calculate the value of each well that is to be plugged and abandoned for mine-through, and its associated Gas Reserves, as follows:
1) | Wells that are classified as a Protected Well will utilize a Valuation Amount based on the present value, discounted at eight percent (8%) (on a before tax basis) from the most recent Reserves Database prior to the Protected Well being taken out of production (the Producing Well Valuation Amount ). This will be based on the current forecast along with current future pricing at current operating costs with a three percent (3%) escalation and will have a valuation date equal to the first calendar day of the first month after the month in which such Protected Well is taken off production. If Coal Party is successful at receiving regulatory approval, a portion of a lateral is plugged from either inside the mine or from the surface, and the production is reduced from prior volumes, then the Valuation Amount will be equal to the Valuation Amount as described above, less the Post Plugging Valuation Amount. The Post-Plugging Valuation Amount will include the same assumptions as above, except for the production forecast being adjusted to post-plugging volumes. Coal Party is responsible for all costs associated with the plugging and mine through. |
2) | The commodity pricing to be used in determining the Producing Well Valuation Amount shall be the most current NYMEX Strip for gas and oil. The price for condensate liquids and natural gas liquids will be eighty percent (80%) and fifty percent (50%), respectively of the NYMEX Strip Oil Pricing. The NYMEX Strip Pricing is used for five (5) years and escalated at three percent (3%) thereafter, and adjusted for basis and hydrocarbon quality (gas BTU/Mcf). |
3) | Any dispute with respect to the Valuation Amount shall be resolved by an Independent Engineer. |
4) | The Valuation Amount for any Protected Well that is at or past its Protected Well Life Date shall be reduced to fifty percent (50%) of the amount calculated pursuant to the foregoing Paragraphs in this Part I. |
5) | In the event that any tools are lost down-hole and the presence of such tool(s) in the well increases the costs incurred to plug and abandon the well for mine-through, the Valuation Amount for such Protected Well shall be reduced by the incremental increase in plugging and abandonment costs actually and reasonably incurred due to the presence of such tool(s) in the wellbore; provided, however, that (a) this Paragraph 5 shall not apply to any wells in existence as of the Effective Time, and (b) before incurring such additional incremental costs in an amount in excess of $100,000.00, the Party performing the plugging and abandonment shall consult with the other Party and obtain the consent of the other Party to incur such cost (such consent not to be unreasonably withheld, conditioned, or delayed). |
S CHEDULE 3.3( A ) P AGE 1
Part II Underlying Lease / Undeveloped Well :
a) The Parties agree that the Gas Party shall be entitled to compensation for all individual potential formations in which development is prohibitive due to the Coal Party mining the coal above or below the lease that the Gas Party controls. If the lease is considered a Protected Lease the Coal Party that mined coal Underlying the Protected Lease shall compensate Gas Party for such Underlying Lease through the payment to such Gas Party of the mutually agreed fair market value of such Underlying Lease (the Lease Compensation Amount ), as determined pursuant to this Part II.
b) Coal Party and Gas Party agree that Gas Party shall be entitled to compensation at the positive net present value at an eight percent (8%) discount rate for all stacked-pay formations and Gas Reserves with respect to a lease or leases underlying a Protected Well which is required to be plugged and abandoned pursuant to Section 3.3 if, and only if, the following conditions are met (the Lease Compensation Conditions ):
1) | The lease(s) underlying such Protected Well which is to be plugged and abandoned pursuant to Section 3.3(a) , will, even after making any available delay rentals or shut-in payments, be lost due to such plugging and abandonment (such lease(s), the Underlying Lease(s) ); |
2) | Gas Party is not able to drill another Well, paid for by the Coal Party, on the Underlying Lease which would hold such Underlying Lease while Coal Partys operations are preventing Gas Party from conducting operations on such Underlying Lease (such period of time, the P&A Period ); |
3) | Gas Party is not able to pool all or any portion of such Underlying Lease with any adjacent lands and/or an adjacent unit in order to hold the Underlying Lease by production during the P&A Period; and |
4) | The Underlying Lease is actually lost as a result of the plugging and abandonment of the related Protected Well pursuant to Section 3.3(a). |
If the Lease Compensation Conditions are met with respect to an Underlying Lease, Coal Party which requested the relocation of the Protected Well located on such Underlying Lease shall compensate Gas Party for such Underlying Lease through the payment to such Gas Party of the mutually agreed fair market value of such Underlying Lease (the Lease Compensation Amount ).
The Gas Party will calculate the Lease Compensation Amount as outlined below.
1) |
Leases lost as a result of a Protected Well being plugged and abandoned will utilize a valuation amount based on the present value, discounted at ten percent (10%) for proved reserves (proved developed non-producing and proved undeveloped) and twelve percent (12%) for other underlying leases from the most recent type curves, including possible undeveloped, probable undeveloped and contingent value of the underlying lease, if applicable (the Underlying Lease Valuation Amount ). The |
S CHEDULE 3.3( A ) P AGE 2
type curves will be utilized for all potential formations at a seven thousand foot lateral length unless a longer / shorter lateral has already been drilled. The Underlying Lease Valuation Amount will be based on current future pricing at current operating costs with a three percent (3%) escalation. |
2) | Valuation date equal to the first calendar day of the first month after the month in which such Protected Well is taken off production. Production and cashflows will begin assuming the well is turned-in-line 2 years after the valuation date for values associated with underlying leases but for proved developed non-producing and proved undeveloped it should be the lesser of 2 years or the expected Turned-In-Line date from the most recent Plan update. |
3) | Capital estimates will be based upon the most recent budget update associated with the seven thousand foot type curve for the area and formations for proved undeveloped and other undeveloped underlying leases. For proved developed non-producing and developed non-producing underlying leases, the as-drilled or as-planned lateral length will be used to estimate capital less actual costs already incurred. |
4) | The commodity pricing to be used in determining the Underlying Lease Valuation Amount shall be the most current NYMEX Strip for gas and oil. The price for condensate liquids and natural gas liquids will be eighty percent (80%) and fifty percent (50%), respectively of the NYMEX Strip Oil Pricing. The NYMEX Strip Pricing is used for five (5) years and escalated at three percent (3%) thereafter, and adjusted for basis and hydrocarbon quality (gas BTU/Mcf). |
5) | The Underlying Lease Valuation Amount as calculated from the above steps will be divided by the appropriate drainage area as defined by the type curves. This allows a determination of the per acre Lease Compensation Amount. The net acres for the lost lease is then multiplied by the per acre Lease Compensation Amount to determine a total Lease Compensation Amount. The net acreage remaining for Underlying Leases beneath a Protected Well should be calculated for each individual formation and should consider the total net acreage less any acreage associated with proved developed producing. This net acreage value can then be subdivided into either proved developed non-producing, proved undeveloped or underlying lease acreage, including possible undeveloped, probable undeveloped and contingent value of the underlying lease, if applicable. |
6) | If the total underlying lease valuation amount is negative for any formation, the average per acre market lease rate for the area shall be used for that formations value. |
Any dispute with respect to the Lease Compensation Amount shall be resolved by an Independent Engineer.
S CHEDULE 3.3( A ) P AGE 3
Schedule 3.3(c)
Stranded and Operational Valuation Formula for Coal
(1) Gas Party shall pay to Coal Party an amount equal to the lost revenue associated with bypassing the Well, which shall be calculated based on the following formula:
(selling price per ton - longwall mining costs per ton) x average daily longwall production x number of calendar days required to move the longwall around the Well pad
(2) Gas Party shall pay to Coal Party an amount equal to the costs and expenses incurred for the continuous miner development of recovery and setup rooms required to bypass the Well, which shall be calculated based on the following formula:
feet of entry and crosscut length required x average cost per foot of recovery and setup area development
(3) If bypassing of the Well leaves stranded a block of coal greater than (the average daily advance rate of longwall x Long-Wall Move-Around calendar days), Gas Party shall additionally pay to Coal Party an amount to be calculated based on the following formula:
length of longwall coal left for the Well pad - (average daily advance rate of longwall x Long-Wall Move-Around calendar days) x tons per foot of longwall block x (selling price per ton - longwall mining costs per ton)
(4) If the longwall move-around required to bypass the Well reduces lead time in the next consecutive panel to less than twenty (20) calendar days and additional overtime shifts are required to gain lead time, Gas Party shall additionally pay to Coal Party an amount to be calculated based on the following formula:
(average cost per foot of continuous miner development x continuous miner footage required to recover lead time to 20 calendar days) x 2 1
(5) If the 20-calendar days lead time cannot be regained, and the next panel is not ready for the longwall to be set up, and the longwall production is impacted more than the average fifteen (15) calendar days move, Gas Party shall additionally pay to Coal Party an amount to be calculated based on the following formula:
(calendar days longwall is not available for mining due to the in-panel move in the previous panel - 15 calendar days) x (selling
1 |
Multiplication by 2 is compensation for running Sunday overtime production. |
S CHEDULE 3.3( C ) P AGE 1
price per ton - longwall mining costs per ton) x (average daily longwall production)
(6) If Gas Party does not timely and properly complete any required Mine-By Temporary P&A work which results in necessary idling of the longwall, then Gas Party shall also pay to Coal Party an amount to be calculated based on the following formula:
(selling price per ton - longwall mining costs per ton) x average daily longwall production x number of calendar days longwall idled
General Provisions: All amounts payable to Coal Party under this Schedule 3.3(c) shall, as applicable, be calculated based upon:
| For lost revenue and stranded coal, the average net sales price of coal from the pertinent Mine for the eighteen (18) months immediately preceding the date that the revenue is lost or the coal is stranded (or if such coal is blended with other coal, before being sold, the average value that is added to such blended coal product, before sale, by the addition of such coal taken from the pertinent Mine to the blended mix, whether based on Btus, sulfur content, ash content or other value point contributed by such coal, over the same eighteen (18) month period, and calculated on a reasonable basis using sound engineering principles), discounted at eight percent (8%) on a before tax basis. |
| For costs and expenses, the reasonable costs and expense calculated in accordance with the formulas set forth above, using averages determined based upon actual rates and costs incurred to mine at the pertinent Mine during the eighteen (18) months immediately preceding the date that the costs and expenses are deemed to have been incurred |
Dispute Resolution: Any dispute with respect to amounts payable to Coal Party under, or pursuant to, this Schedule 3.3(c) shall be resolved by an Independent Engineer.
S CHEDULE 3.3( C ) P AGE 2
Schedule 3.7
Drilling Procedures
The following procedures will be followed when drilling Wells in the Coal Area:
(a) Gas Party will plan and execute drilling operations in accordance with applicable Laws.
(b) Gas Party will immediately notify Coal Party should drilling operations lose circulation, have significant loss of pressure, have a casing failure, or suffer any other catastrophic event that occurs during drilling operations or during the life of the Well or until the coal permit is released.
(c) Gas Party will provide Coal Party with written notification at least 5 Business Days prior to the commencement of Well drilling activities to provide sufficient time for Coal Party to verify that the surveyed location of the proposed Well is the same as the permitted location.
(d) Gas Party and Coal Party shall establish and maintain a base survey control to assure that Well drilling activities are conducted at the proper location in accordance with the terms of this Agreement. Gas Party will notify Coal Party of the Well location prior to commencement of the Well drilling activities. Gas Party and Coal Party will each be responsible for the associated costs of their respective surveying work.
(e) For Well drilling operations in the Coal Area, Gas Party will use water, water sprays, drilling soap, or other drilling fluids approved by Coal Party while drilling from the surface casing, if surface casing is installed in the Well, until the coal protection casing is effectively installed and cemented.
(f) In the part of the Coal Area that is being actively mined, upon completion of drilling at 30 feet above the top of the coal seam, Gas Party will perform a deviation survey that includes gyroscopic reading within 100 feet of the top of the coal formation by an independent, qualified well service provider, which will determine the approximate location of the bottom of the wellbore. Gas Party will notify Coal Party of the deviation survey results before continuation of drilling.
(g) In the part of the Coal Area that is being actively mined, should the well deviation survey determine that the wellbore of the well is less than forty feet (40 ft.) from the edge of the coal pillar, Coal Party will, unless the deviation will not adversely impact mining operations (for example, is in an external coal barrier and is deviating away from any open room or shaft), notify Gas Party that all personnel have exited the mine area before drilling resumes. After notification is received that all personnel have exited the mine, Gas Party may continue drilling down to and through the active coal seam to a minimum of 10 feet below the bottom of the coal formation.
S CHEDULE 3.7P AGE 1
(h) In the part of the Coal Area that is being actively mined, Gas Party will cease drilling operations should drilling lose circulation within the range of 30 feet above to 10 feet below the coal formation, and plug the Well with cement to surface. Gas Party will provide all records and certified results of the deviation survey to the Coal Party.
(i) In the part of the Coal Area that is being actively mined, Gas Party will execute operations within the Well to correct deviation of the wellbore closer than forty feet (40 ft.) to the edge of the coal pillar, as determined by the deviation survey, to assure the Well penetrates through the coal formation within the required deviation limit of no closer than forty feet (40 ft.) from the edge of the coal pillar. If Gas Party is unable to drill the Well through the coal formation within the such deviation limit, Gas Party will plug the Well with cement to surface.
(j) In the part of the Coal Area that is being actively mined, Gas Party will perform methane testing every 20 minutes while drilling within the range of 30 feet above to 10 feet below the coal formation. Drilling operations will cease should methane levels exceed 1% and procedures to reduce methane levels below 1% will commence.
S CHEDULE 3.7P AGE 2
Schedule 8.17
Noble SUA Parties
1. | CNX Gas Company LLC |
2. | Braxton-Clay Land & Mineral, LLC |
3. | CNX Land LLC |
4. | CNX Marine Terminals LLC |
5. | CNX RCPC LLC |
6. | Conrhein Coal Company |
7. | CONSOL Mining Company LLC |
8. | Consol Pennsylvania Coal Company LLC |
9. | Helvetia Coal Company LLC |
10. | Island Creek Coal Company LLC |
11. | Laurel Run Mining Company LLC |
12. | Leatherwood, LLC |
13. | Nicholas-Clay Land & Mineral, LLC |
14. | R&PCC LLC |
15. | Terra Firma Company |
16. | Terry Eagle Limited Partnership |
17. | Windsor Coal Company LLC |
18. | Wolfpen Knob Development Company LLC |
S CHEDULE 8.17 P AGE 1
Schedule I
AAI Area
No. |
Ohio | Pennsylvania | West Virginia | |||
1 | Belmont | Greene | Brooke | |||
2 | Guernsey | Washington | Doddridge | |||
3 | Harrison | Harrison | ||||
4 | Jefferson | Marion | ||||
5 | Monroe | Marshall | ||||
6 | Noble | Monongalia | ||||
7 | Ohio | |||||
8 | Tyler |
S CHEDULE I P AGE 1
Schedule II
Gas Party Affiliates
1. | CONSOL Energy Inc. |
2. | CNX Land LLC |
3. | Terra Firma Company |
4. | CNX Gas Corporation |
5. | CNX Water Assets LLC |
6. | Mon-View, LLC |
7. | Buchanan Generation LLC |
8. | Cardinal States Gathering Co. Partnership |
9. | MOB Corporation |
S CHEDULE II P AGE 1
Exhibit 10.6
FORM OF SECOND AMENDMENT TO AGREEMENT
THIS SECOND AMENDMENT TO AGREEMENT (this Amendment ), dated as of , 2017 (the Execution Date ), but effective for all purposes as of July 7, 2015 (the Effective Date ), is by and between CNX THERMAL HOLDINGS LLC , a Delaware limited liability company ( CTH ), CONSOL PENNSYLVANIA COAL COMPANY LLC , a Delaware limited liability company ( CPCC ), CONRHEIN COAL COMPANY , a Pennsylvania general partnership ( Conrhein , and together with CTH and CPCC, Coal Party ), CNX GAS COMPANY LLC , a Virginia limited liability company ( Gas Party ), and each party designated as a subsidiary of CONSOL Energy Inc. ( CEI ) on Schedule 1 attached hereto (collectively, the CEI Subsidiaries ). All of the foregoing persons, excluding CEI, are referred to herein separately as a Party and collectively as the Parties .
RECITALS
WHEREAS, the Parties and CEI entered into that certain Amendment and Restatement of Master Cooperation Agreement on July 7, 2015 concerning the Pennsylvania Mine Complex, Gas Interests, and Subsidiary Surface Rights, as defined in the Agreement, which was amended by that certain First Amendment to Amendment and Restatement of Master Cooperation and Safety Agreement dated January 7, 2016, and effective July 31, 2015 (the Agreement );
WHEREAS, following execution of the Agreement, it has been determined that certain provisions and definitions contained therein and certain Exhibits attached thereto require amendment and modification;
WHEREAS, the Parties are entering into this Amendment for the purpose of making such necessary amendments and modification.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants, agreements, conditions, and obligations set forth herein, the Parties hereby agree as follows:
1. Defined Terms . For purposes hereof, the capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Agreement.
2. Recitals . The Parties acknowledge and agree the accuracy of the foregoing recitals, which are hereby incorporated herein by reference.
3. Amendment . Effective as of the Effective Date, the Agreement shall be amended as follows:
(i) Replacement of Exhibits E and F . Exhibits E and F to the Agreement are hereby deleted in their entirety and replaced with the Exhibits E and F attached hereto and incorporated herein; provided, however , the Parties agree that the intent of Exhibit E ( i.e. , Non-Protected Wells) is to list, as of the Effective Date of the Agreement, any existing Well on a location that was in the Coal Area at the time such Well was permitted, the intent of Exhibit F ( i.e. , Protected Wells) is to list as of the Effective Date of the Agreement any existing Well on a location that was in the Non-Coal Area at the time such Well was permitted, and no presumption of accuracy
Page 1 of 3
shall be given to Exhibits E and F. The Parties further agree that to the extent any such existing Well is incorrectly included on, or omitted from, Exhibit E or Exhibit F, the intent of the Parties and the facts as they existed as of the Effective Date of the Agreement (including the location of such Well and the Coal Area) shall be controlling in determining whether any such Well is Protected or Non-Protected, with no obligation to further amend Exhibits E and F unless otherwise agreed in writing by the Parties.
(ii) New Definitions . The following new definitions are hereby added to Appendix I, Definitions:
CNX/NBL Termination Agreement shall mean that certain Termination and Release Agreement dated December 1, 2016, by and among CNX Gas Company LLC, CONSOL Energy Inc., Noble Energy, Inc., the eight (8) Water Parties listed on Schedule 1(a) thereof , and the seventeen (17) Surface Parties listed on Schedule 1(b) thereof.
Post-Plugging Well Valuation has the meaning set forth in Schedule 3.3(a) .
Valuation Amount has the meaning set forth in Schedule 3.3(a) .
(iii) Replacement of Schedule 3.3(a), Part I, paragraph 1) . Part I, paragraph 1), of Schedule 3.3(a), is hereby deleted in its entirety and replaced with the following:
1) | Wells that are classified as a Protected Well will utilize a Valuation Amount based on the present value, discounted at eight percent (8%) from the most recent Reserves Database prior to the Protected Well being taken out of production (the Producing Well Valuation Amount ). This will be based on the current forecast along with the current future pricing at current operating costs with a three percent (3%) escalation and will have a valuation date equal to the first calendar day of the first month after the month in which such Protected Well is taken off production. If Coal Party is successful at receiving regulatory approval, a portion of a lateral is plugged from either inside the mine or from the surface, and the production is reduced from prior volumes, then the Valuation Amount will be equal to the Valuation Amount as described above, less the Post Plugging Valuation Amount. The Post Plugging Valuation Amount will include the same assumptions as above, except for the production forecast being adjusted to post-plugging volumes. Coal Party is responsible for all costs associated with the plugging and mine through. |
4. Status of CNX/NBL SUA . The Parties hereby acknowledge and agree (i) that, effective as of December 1, 2016, the CNX/NBL SUA terminated by its own terms, except as to certain provisions thereof that expressly survived such termination, (ii) that the surviving provisions of the CNX/NBL SUA, and not the Agreement (as amended), shall apply to and govern the rights and obligations of the Coal Party and the Gas Party with respect to (A) any Marcellus Formation wells in the Pennsylvania Mine Area that existed as of December 1, 2016, that were either drilled pursuant to the CNX/NBL SUA (and are, thus, subject thereto) or drilled prior to the effective date of the CNX/NBL SUA (i.e., September 30, 2011) and became subject to the JDA (as
Page 2 of 3
defined in the CNX/NBL SUA), and (B) any Easements in the Pennsylvania Mine Area granted pursuant to the CNX/NBL SUA prior to December 1, 2016, or within the six-month (6-mo.) period thereafter provided for in Section 4 of the CNX/NBL Termination Agreement (or the surface facilities or operations permitted under any such easement Easement), and (iii) the Agreement (as amended) shall apply to and govern the rights and obligations of the Coal Party and the Gas Party with respect to all other Wells and Non-Well Facilities of Gas Party in the Pennsylvania Mine Area, pursuant to the terms and conditions thereof.
5. Ratification . Except as set forth herein, all other terms and conditions of the Agreement remain unchanged and said Agreement as amended by this Amendment is hereby ratified and confirmed by the Parties and, to the extent necessary, CEI.
6. Counterparts . This Amendment may be executed in any number of counterparts and by any or each Party hereto on a separate counterpart, each of which, when so executed and delivered, shall be deemed to be an original and all of which, when taken together, shall constitute but one and the same instrument.
[Remainder of page intentionally left blank; signature page follows]
Page 3 of 3
IN WITNESS WHEREOF , this Amendment has been signed by each of the Parties on the Execution Date.
GAS PARTY : |
CNX GAS COMPANY LLC |
|
Name: William D. Gillenwater |
Title: Attorney-in-Fact |
COAL PARTY : |
CNX THERMAL HOLDINGS LLC |
|
Name: William D. Gillenwater |
Title: Vice President |
[ Signature Page to Second Amendment to Agreement ] Page 1
[ Signature Page to Second Amendment to Agreement ] Page 2
CONSOL AMONATE FACILITY LLC |
|
Name: William D. Gillenwater |
Title: Vice President |
CONSOL AMONATE MINING COMPANY LLC |
|
Name: William D. Gillenwater |
Title: Vice President |
CONSOL MINING COMPANY LLC |
|
Name: William D. Gillenwater |
Title: Vice President |
CONSOL MINING HOLDING COMPANY LLC |
|
Name: William D. Gillenwater |
Title: Vice President |
R&PCC LLC |
|
Name: William D. Gillenwater |
Title: Vice President |
[ Signature Page to Second Amendment to Agreement ] Page 3
CNX LAND LLC |
|
Name: William D. Gillenwater |
Title: Vice President |
CNX RCPC LLC |
|
Name: William D. Gillenwater |
Title: Vice President |
CNX MARINE TERMINALS LLC |
|
Name: William D. Gillenwater |
Title: Attorney-in-Fact |
CONSOL ENERGY SALES COMPANY LLC |
|
Name: William D. Gillenwater |
Title: Attorney-in-Fact |
CNX WATER ASSETS LLC |
|
Name: William D. Gillenwater |
Title: Attorney-in-Fact |
[ Signature Page to Second Amendment to Agreement ] Page 4
CONSOL OF KENTUCKY LLC |
|
Name: William D. Gillenwater |
Title: Vice President |
HELVETIA COAL COMPANY LLC |
|
Name: William D. Gillenwater |
Title: Vice President |
ISLAND CREEK COAL COMPANY LLC |
|
Name: William D. Gillenwater |
Title: Vice President |
LAUREL RUN MINING COMPANY LLC |
|
Name: William D. Gillenwater |
Title: Vice President |
LEATHERWOOD, LLC |
|
Name: William D. Gillenwater |
Title: Vice President |
[ Signature Page to Second Amendment to Agreement ] Page 5
MTB LLC |
|
Name: William D. Gillenwater |
Title: Vice President |
TERRA FIRMA COMPANY |
|
Name: William D. Gillenwater |
Title: Vice President |
WINDSOR COAL COMPANY LLC |
|
Name: William D. Gillenwater |
Title: Vice President |
WOLFPEN KNOB DEVELOPMENT COMPANY LLC |
|
Name: William D. Gillenwater |
Title: Vice President |
CONSOL FINANCIAL INC. |
|
Name: William D. Gillenwater |
Title: Attorney-in-Fact |
[ Signature Page to Second Amendment to Agreement ] Page 6
[ Signature Page to Second Amendment to Agreement ] Page 7
CNX COAL RESOURCES LP | ||
By: | CNX COAL RESOURCES GP LLC , | |
its general partner | ||
|
||
Name: | William D. Gillenwater | |
Title: | Attorney-in-Fact, CNX Coal Resources GP LLC | |
CNX COAL RESOURCES GP LLC | ||
|
||
Name: | William D. Gillenwater | |
Title: | Attorney-in-Fact | |
CNX OPERATING LLC | ||
|
||
Name: | William D. Gillenwater | |
Title: | Attorney-in-Fact | |
CONSOL MINING CORPORATION | ||
|
||
Name: | William D. Gillenwater | |
Title: | Attorney-in-Fact |
[ Signature Page to Second Amendment to Agreement ] Page 8
The Person set forth below hereby executes this Amendment as of the Execution Date solely with respect to its acknowledgment, ratification, and agreement with the provisions of Section 8.16 of the Agreement.
CONSOL ENERGY INC. | ||
|
||
Name: | William D. Gillenwater | |
Title: | Attorney-in-Fact |
[ Signature Page to Second Amendment to Agreement ] Page 9
Exhibit E
Non-Protected Wells
API |
FARM NAME |
STATE |
||
3705901741 |
B.H. MCNAY n94 | PA | ||
3705901744 |
J.V. CHESS | PA | ||
3705924112 |
GH-80 | PA | ||
3705924214 |
GH-90 | PA | ||
3705924215 |
GH-75 | PA | ||
3705924260 |
GH-94 | PA | ||
3705924329 |
GH-93 | PA | ||
3705924380 |
GH-100 | PA | ||
3705924726 |
NV-87 | PA | ||
3705924754 |
GH-63 | PA | ||
3705924871 |
NV-79 | PA | ||
3705925033 |
NV-89 | PA | ||
3705925055 |
NV-86 | PA | ||
3705925064 |
NV-85 | PA | ||
3705925413 |
GHBD-1 | PA | ||
3712523259 |
NV-38 | PA | ||
3712523616 |
CONSOL | PA | ||
3712523755 |
NV-80 | PA | ||
4705101057 |
MC-50 | WV | ||
4705101059 |
MC-51 | WV | ||
4705101114 |
MC-68 | WV | ||
4705101124 |
MC-53 | WV |
E XHIBIT E P AGE 1
Exhibit F
Protected Wells
API |
FARM NAME |
STATE |
||
3705901230 |
WILLIAM BLAIR | PA | ||
3705901731 |
PETER ASHBY | PA | ||
3705901732 |
O.E.BURNS | PA | ||
3705901733 |
H.T. STOUT | PA | ||
3705901734 |
J.P. MCKERRIHAN | PA | ||
3705901735 |
M.B. DURBIN 2 | PA | ||
3705901736 |
M.B. DURBIN 3 | PA | ||
3705901737 |
F.P. ROSS 1 | PA | ||
3705901738 |
F.P. ROSS 2 | PA | ||
3705901740 |
J.F. GRAHAM | PA | ||
3705901742 |
J.B. MCNAY | PA | ||
3705901745 |
S.C CHESS | PA | ||
3705923724 |
GH-1 | PA | ||
3705923725 |
GH-2 | PA | ||
3705923936 |
GREENE HILL/GREENON | PA | ||
3705923938 |
GH-3 | PA | ||
3705923939 |
GH-4 | PA | ||
3705923940 |
GH-5 | PA | ||
3705924052 |
GH-6 | PA | ||
3705924098 |
GH-15 | PA | ||
3705924099 |
GH-16 | PA | ||
3705924105 |
GH-29 | PA | ||
3705924106 |
GH-18 | PA | ||
3705924107 |
GH-42 | PA | ||
3705924115 |
GH-39 | PA | ||
3705924145 |
CONSOL PA COAL | PA | ||
3705924146 |
CONSOL PA COAL CO | PA | ||
3705924147 |
CONSOL PA COAL CO | PA | ||
3705924175 |
GH-65 | PA | ||
3705924182 |
GH-38 | PA | ||
3705924224 |
GH-20 | PA | ||
3705924226 |
GH-91 | PA | ||
3705924227 |
GH-41 | PA | ||
3705924273 |
GH-40 | PA | ||
3705924292 |
GH-81 | PA | ||
3705924293 |
GH-89 | PA | ||
3705924316 |
GH-43 | PA | ||
3705924358 |
GH-74 | PA | ||
3705924361 |
GH-48 | PA | ||
3705924362 |
CONSOL PA COAL | PA | ||
3705924366 |
GH-49 | PA | ||
3705924367 |
GH-19 | PA | ||
3705924378 |
GH-67 | PA |
E XHIBIT F P AGE 1
API |
FARM NAME |
STATE |
||
3705924379 |
GH-68 | PA | ||
3705924392 |
GH-54 | PA | ||
3705924403 |
GH-56 | PA | ||
3705924404 |
GH-17 | PA | ||
3705924405 |
GH-51 | PA | ||
3705924411 |
GH-10 | PA | ||
3705924477 |
GH-12 | PA | ||
3705924478 |
GH-13 | PA | ||
3705924487 |
GH-88 | PA | ||
3705924501 |
GH-32 | PA | ||
3705924505 |
GH-66 | PA | ||
3705924506 |
GH-9 | PA | ||
3705924529 |
GH-31 | PA | ||
3705924534 |
GH-82 | PA | ||
3705924536 |
GH-83 | PA | ||
3705924537 |
GH-36 | PA | ||
3705924547 |
GH-21 | PA | ||
3705924573 |
CNX1 | PA | ||
3705924586 |
GH-26 | PA | ||
3705924587 |
GH-87 | PA | ||
3705924588 |
GH-27 | PA | ||
3705924596 |
GH-72 | PA | ||
3705924601 |
GH-25 | PA | ||
3705924628 |
GH-50 | PA | ||
3705924629 |
GH-8 | PA | ||
3705924633 |
GH-73 | PA | ||
3705924637 |
GH-104 | PA | ||
3705924657 |
GH-34 | PA | ||
3705924658 |
GH-33 | PA | ||
3705924664 |
GH-23 | PA | ||
3705924689 |
GH-30 | PA | ||
3705924710 |
GH-24 | PA | ||
3705924713 |
GH-28 | PA | ||
3705924760 |
GH-35 | PA | ||
3705924768 |
GH-37 | PA | ||
3705924772 |
GH-22 | PA | ||
3705924811 |
GH-109 | PA | ||
3705924812 |
GH-109 | PA | ||
3705924813 |
GH-110 | PA | ||
3705924814 |
GH-110 | PA | ||
3705924832 |
CONSOL | PA | ||
3705924857 |
GH-45 | PA | ||
3705924867 |
GH-18 | PA | ||
3705924920 |
GH12CV | PA | ||
3705924923 |
GH-5 | PA | ||
3705924945 |
GH-3 | PA | ||
3705924946 |
GH-7 | PA |
E XHIBIT F P AGE 2
API |
FARM NAME |
STATE |
||
3705924970 |
GH-15 | PA | ||
3705924975 |
GH-44 | PA | ||
3705925008 |
GH-69 | PA | ||
3705925016 |
GH-84 | PA | ||
3705925017 |
GH-122 | PA | ||
3705925025 |
GH-85 | PA | ||
3705925026 |
GH-71 | PA | ||
3712523142 |
NV-61 | PA | ||
3712523163 |
NV-65 | PA | ||
3712523207 |
NV-35 | PA | ||
3712523228 |
NV-70 | PA | ||
3712523229 |
NV-71 | PA | ||
3712523235 |
NV-42 | PA | ||
3712523236 |
NV-36 | PA | ||
3712523237 |
NV-43 | PA | ||
3712523238 |
NV-72 | PA | ||
3712523250 |
NV-58 | PA | ||
3712523251 |
NV-57 | PA | ||
3712523324 |
NV-33 | PA | ||
3712523340 |
NV-99 | PA | ||
3712523354 |
NV-51 | PA | ||
3712523365 |
NV-73 | PA | ||
3712523441 |
NV-60 | PA | ||
4705101126 |
MC-46 | WV | ||
4705101130 |
MC-122 | WV | ||
4705101132 |
MC-102 | WV | ||
4705101135 |
MC-47 | WV | ||
4705101146 |
MC-52 | WV |
E XHIBIT F P AGE 3
Schedule 1
CEI Subsidiaries
1. | CNX Gas Corporation |
2. | CONSOL Amonate Facility LLC |
3. | CONSOL Amonate Mining Company LLC |
4. | CONSOL Mining Company LLC |
5. | CONSOL Mining Holding Company LLC |
6. | R&PCC LLC |
7. | CNX Land LLC |
8. | CNX RCPC LLC |
9. | CNX Marine Terminals LLC (successor to CNX Marine Terminals Inc.) |
10. | CONSOL Energy Sales Company LLC (successor to CONSOL Energy Sales Company) |
11. | CNX Water Assets LLC |
12. | CONSOL of Kentucky LLC (successor to CONSOL of Kentucky Inc.) |
13. | Helvetia Coal Company LLC (successor to Helvetia Coal Company) |
14. | Island Creek Coal Company LLC (successor to Island Creek Coal Company) |
15. | Laurel Run Mining Company LLC (successor to Laurel Run Mining Company) |
16. | Leatherwood, LLC (successor to Leatherwood Inc.) |
17. | MTB LLC |
18. | Terra Firma Company |
19. | Windsor Coal Company LLC (successor to Windsor Coal Company) |
20. | Wolfpen Knob Development Company LLC |
(successor to Wolfpen Knob Development Company)
21. | CONSOL Financial Inc. |
22. | CONSOL of Canada LLC (successor to CONSOL of Canada Inc.) |
23. | CONSOL Energy Canada Ltd. |
24. | Cardinal States Gathering Company |
25. | CNX Coal Resources LP |
26. | CNX Coal Resources GP LLC |
27. | CNX Operating LLC |
28. | CONSOL Mining Corporation |
NOTE: CONSOL Buchanan Mining Company LLC is no longer a CEI Subsidiary.
NOTE: The following former CEI Subsidiaries were merged into other CEI Subsidiaries:
| CONSOL of Central Pennsylvania LLC merged into MTB LLC, the survivor |
| CONSOL of Ohio LLC merged into CNX Land LLC, the survivor |
| CNX Funding Corporation merged into CONSOL Financial Inc., the survivor |
S CHEDULE 1 P AGE 1 OF 1
Exhibit 10.10
FORM OF CONSOL Mining Corporation
Omnibus Performance Incentive Plan
Capitalized terms shall have the meaning set forth in Section 17 of the Plan.
1. | PURPOSE. |
The purposes of the CONSOL Mining Corporation Omnibus Performance Incentive Plan are to promote the interests of the Company and its stockholders by (i) attracting and retaining Eligible Directors, executive officers, and other key employees of the Company and its Affiliates; (ii) motivating such individuals by means of cash and equity performance-related incentives to achieve annual and long-range performance goals; (iii) enabling such individuals to acquire Shares of the Company; (iv) assuming and governing the awards originally granted under the Parent Equity Plan (as defined in the Employee Matters Agreement) in accordance with the terms of the Employee Matters Agreement; and (v) enabling such individuals to participate in the long-term growth and financial success of the Company.
2. | RESPONSIBILITY FOR ADMINISTRATION. |
(a) Authority of Board . Subject to the terms of the Plan and applicable law, and in addition to other express powers and authorizations conferred on the Board by the Plan, the Board shall have full power and discretionary authority to decide all matters relating to the administration and interpretation of the Plan; provided, however, that ministerial responsibilities of the Plan (e.g., management of day-to-day matters) may be delegated to the Companys officers, as set forth in Section 2(d) below. The Boards powers include the authority to: (i) designate Participants; (ii) determine the type or types of Awards to be granted to an eligible Employee; (iii) determine the number of Shares to be covered by, or with respect to which payments, rights, or other matters are to be calculated in connection with, Awards; (iv) determine the terms and conditions of any Award, including the discretion to determine the extent to which Awards will be structured to conform to the requirements applicable to performance-based compensation described in Section 162(m) of the Code; (v) determine whether, to what extent, and under what circumstances Awards may be settled or exercised in cash, Shares, other securities, other Awards, or other property, or canceled, forfeited, or suspended, and the method or methods by which Awards may be settled, exercised, canceled, forfeited, or suspended; (vi) determine whether, to what extent, and under what circumstances cash, Shares, other securities, other Awards, other property, and other amounts payable with respect to an Award shall be deferred either automatically or at the election of the holder thereof or of the Board; (vii) interpret and administer the Plan and any instrument or agreement relating to, or Award made under, the Plan; (viii) establish, amend, suspend, or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; (ix) advance the lapse of any waiting period, accelerate any exercise date, waive, or modify any restriction applicable to Awards (except those restrictions imposed by law); (x) correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any Award Agreement in the manner and to the extent it shall deem expedient to carry the Plan into effect; (xi) determine whether, and the extent to which, adjustments are required pursuant to Section 3(c) hereof and authorize the termination, conversion, substitution, or succession of Awards upon the occurrence of a transaction or an event of the type described in Section 3(c) below; and (xii) make any other determination and take any other action that the Board deems necessary or desirable for the administration of the Plan. All decisions and determinations of the Board shall be final, conclusive, and binding on the Company, the Participant, and any and all interested parties.
(b) Board Discretion Binding . Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations, and other decisions under or with respect to the Plan or any Award shall be within the sole discretion of the Board, may be made at any time, and shall be final, conclusive, and
binding upon all Persons, including the Company, any Affiliate, any Participant, any holder or beneficiary of any Award, any stockholder, and any Employee. All Awards shall be made conditional upon the Participants acknowledgement, in writing or by acceptance of the Award, that all decisions and determinations of the Board shall be final and binding on the Participant, his or her beneficiaries, and any other person having or claiming an interest under such Award.
(c) Delegation to Committee . The Board may delegate to the Committee any or all of its authority for the administration of the Plan and may revoke such delegation at any time; provided, however, that the Board shall approve (i) any Awards to the Companys Eligible Directors and (ii) amendments to the Plan. If authority is delegated to the Committee, all references to the Board in the Plan shall mean and relate to the Committee except as otherwise provided by the Board.
(d) Delegation to Officers . Except to the extent prohibited by applicable law or regulation, the Board or the Committee may delegate all or any portion of its responsibilities and powers to any person or persons selected by it, and may revoke such delegation at any time. The ministerial responsibilities of the Plan (e.g., management of day-to-day matters) are a function that has been delegated to the Companys officers as permitted by the terms of the Plan and in compliance with applicable law and regulation. No officer to whom administrative authority has been delegated pursuant to this provision may waive or modify any restriction applicable to an award to such officer under the Plan.
(e) No Liability . No member of the Board or the Committee, or any person to whom the Board or Committee delegates responsibilities and/or duties, shall be liable for any action taken or determination made in good faith with respect to the Plan or any Award granted hereunder.
3. | SHARES AVAILABLE FOR AWARDS; LIMITATIONS. |
(a) Shares Available . Subject to adjustment as set forth in Section 3(c) below, the aggregate number of Shares with respect to which Awards may be granted under the Plan shall be , which includes any number of Shares that are subject to Converted Awards. The aggregate number of Shares available with respect to Awards under the Plan shall be reduced by one (1) Share for each Share to which an Award, including a Converted Award, relates; provided, however, that any Award (or any portion thereof) settled in cash will not be counted against, or have any effect upon, the number of Shares available for issuance under this Plan. If, after the Effective Date, any Shares covered by an Award granted under the Plan, or to which such an Award relates, are forfeited, or the Award (or portion thereof) otherwise terminates or is canceled without the delivery of Shares, then the Shares covered by such Award, or to which such Award relates, to the extent of any such forfeiture, termination, or cancellation, shall again become Shares with respect to which Awards may be granted; provided, however, that Shares (i) delivered in payment of the exercise price of an Option or Stock Appreciation Right, (ii) not issued upon the settlement of Stock Appreciation Rights, (iii) repurchased by the Company using proceeds from Option exercises, or (iv) delivered to or withheld by the Company to pay federal, state or local withholding taxes, shall not become available again for issuance under this Plan.
(b) Limitations on Awards . No Participant may be granted under this Plan: (i) Stock Options or Stock Appreciation Rights for more than Shares in any one calendar year of the Company; (ii) Performance Awards (payable in Shares) and that are intended to be performance-based compensation under Section 162(m) of the Code for more than Shares (based on a maximum Award level on the Grant Date) in any one calendar year of the Company, and (iii) Performance Awards (payable in cash) and that are intended to be performance-based compensation under Section 162(m) of the Code for more than $ (based on a maximum Award level on the Grant Date) in any one calendar year of the Company. The foregoing limitations shall be subject to adjustment as provided in Section 3(c).
2
Notwithstanding anything in this Plan to the contrary and subject to adjustment pursuant to Section 3(c) hereof, no Eligible Director may be granted, in any one fiscal year of the Company, Awards specifically awarded under this Plan with an aggregate maximum value, calculated as of their respective Grant Dates, of more than $ .
The number of Shares subject to Awards that are converted or substituted in the event of a corporation transaction or event involving the Company of the type described in Section 3(c), shall be disregarded for purposes of the limitations set forth in this Section 3(b).
(c) Adjustments . In the event a dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company, or other similar corporate transaction or event affects the Shares such that an adjustment is determined by the Board to be necessary in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Board shall, in an equitable manner, adjust any or all of (A) the number of Shares or other securities of the Company (or number and kind of other securities or property) with respect to which Awards may be granted, (B) the maximum number of Shares subject to an Award granted to a Participant pursuant to Section 3(b) of the Plan, (C) the number of Shares or other securities of the Company (or number and kind of other securities or property) subject to outstanding Awards, (D) the grant or exercise price with respect to any Award, and (E) any applicable performance goals with respect to Awards; provided, in each case, that (A) with respect to Awards of Incentive Stock Options, no such adjustment shall be authorized to the extent that such authority would cause the Plan to violate Section 422(b)(1) of the Code, as from time to time amended, unless the Board determines otherwise, (B) with respect to any Award, no such adjustment shall be authorized to the extent that such authority would be inconsistent with the ability of the Plan to meet the requirements of Section 162(m) of the Code, unless otherwise determined by the Board, (C) with respect to any Award subject to Section 409A of the Code, no such adjustment shall be authorized to the extent that such authority would cause the Plan to fail to comply with, or qualify for, an exception to Section 409A of the Code, and (D) any fractional shares resulting from such adjustment shall be eliminated.
In the event of a corporate transaction or event involving the Company of the type described in this Section 3(c), the Board may, in its sole discretion, provide that outstanding Awards will be assumed by another entity or otherwise equitably converted or substituted into the securities of such entity in connection with such transaction or event.
Notwithstanding the foregoing, in the event of a transaction in which the Company is not the surviving entity, or any other transaction in which the stockholders of the Company exchange their Shares in the Company for stock or equity securities of another company or entity, or in the event of complete liquidation or dissolution of the Company, or in the case of a tender offer accepted by the Board, all outstanding Awards shall thereupon terminate, provided that the Board may, prior to the effective date of any such transaction, either (i) make all outstanding Awards immediately exercisable or vested or (ii) arrange to have the surviving entity grant to the Participants replacement awards (including cash) on terms which the Board shall determine to be fair and reasonable. The Board, in its sole discretion and to the extent not inconsistent with Section 14(r) hereof, may determine that, in the event of a transaction in which the Company is not the surviving entity, each outstanding Award shall terminate within a specified number of days after notice to the Participant, and such Participant shall receive, with respect to each such Award, cash or other property, including securities of any entity acquiring the Company, in an amount equal to the fair market value of such Award (if any) as determined by the Board in its sole discretion. In addition, for each Option or Stock Appreciation Right with an exercise price or base price, as the case may be, greater than the consideration offered in connection with any such transaction or event or Change
3
in Control, the Board may, in its sole discretion, elect to cancel such Option or Stock Appreciation Right without any payment to the person holding such Option or Stock Appreciation Right.
(d) Substitute Awards . Any Shares underlying Substitute Awards shall not, unless required by law, be counted against the Shares available for Awards under the Plan.
(e) Sources of Shares Deliverable under Awards . Shares to be issued under the Plan may be made available from authorized and unissued Shares or of treasury Shares. During the term of the Plan, the Company will, at all times, reserve and keep available the number of Shares of Stock that shall be sufficient to satisfy the requirements of the Plan.
4. | ELIGIBILITY. |
Any Employee, including any officer or employee-director of the Company, or any Affiliate, who is not a member of the Committee, shall be eligible to be designated a Participant. Eligible Directors shall be eligible for Awards as described in Section 10.
5. | STOCK OPTIONS. |
(a) Grant . Subject to the provisions of the Plan, the Board shall have sole and complete authority to determine the Participants to whom Options shall be granted (provided that Incentive Stock Options may only be granted to employees of the Company or a parent or subsidiary of the Company within the meaning of Code Sections 424 (e) and (f), respectively), the number of Shares to be covered by each Option, the Option price, and the conditions and limitations applicable to the exercise of the Option. The Board shall have the authority to grant Incentive Stock Options, or to grant Non-Qualified Stock Options, or to grant both types of Options. In the case of Incentive Stock Options, the terms and conditions of such grants shall be subject to such rules as may be prescribed by Section 422 of the Code, as from time to time amended, and any regulations implementing such statute. If an Option that is intended to be an Incentive Stock Option fails to meet the requirements thereof, the Option shall automatically be treated as a Non-Qualified Stock Option to the extent of such failure.
(b) Exercise Price . The Board in its sole discretion shall establish the exercise price at the time each Option is granted. The exercise price of an Option may not be less than the Fair Market Value on the Grant Date (or 110% of the Fair Market Value in the case of an Incentive Stock Option granted to a 10% Stockholder), except in the case of Converted Awards and Substitute Awards.
(c) Exercise . Each Option shall be exercisable at such times and subject to such terms and conditions as the Board may, in its sole discretion, specify in the applicable Award Agreement or thereafter. The Board may impose such conditions with respect to the exercise of Options, including without limitation, any relating to the application of federal or state securities laws, as it may deem necessary or advisable. Notwithstanding the foregoing, an Option shall not be exercisable after the expiration of ten years from the Grant Date (or five years in the case of an Incentive Stock Option granted to a 10% Stockholder).
(d) Payment . No Shares shall be delivered pursuant to any exercise of an Option until payment in full of the Option price is received by the Company. Such payment may be made in cash or its equivalent, by exchanging, actually or constructively, Shares owned by the Participant (for any minimum period set forth in the Award Agreement or as may otherwise be required by the Board and which are not the subject of any pledge or other security interest), by another means approved by the Board, or by a combination of the foregoing, provided that the combined value of all cash and cash equivalents and the Fair Market Value of any such Shares so tendered to the Company as of the date of such tender is at least equal to such Option price. A Participant may elect to pay all or any portion of the aggregate exercise price by
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having Shares with a Fair Market Value on the date of exercise equal to the aggregate exercise price withheld by the Company or sold by a broker-dealer.
(e) Extension of Exercise Period . If the exercise of an Option is prevented by Section 14(d), the Option shall remain exercisable until thirty days after the date that such exercise first would no longer be prevented by such provision, but in any event no later than the expiration date of such Option.
6. | STOCK APPRECIATION RIGHTS. |
(a) Grant . Subject to the provisions of the Plan, the Board shall have sole and complete authority to determine the Participants to whom Stock Appreciation Rights shall be granted, the number of Shares to be covered by each Stock Appreciation Right Award, the grant price thereof, and the conditions and limitations applicable to the exercise thereof. Stock Appreciation Rights may be granted in tandem with another Award, in addition to another Award, or freestanding and unrelated to another Award. Stock Appreciation Rights granted in tandem with or in addition to an Award may be granted either at the same time as the Award or, except in the case of Incentive Stock Options, at a later time. Stock Appreciation Rights shall be exercisable at such times and subject to such terms and conditions as the Board may, in its sole discretion, specify in the applicable Award Agreement or thereafter, and shall have a grant price no less that the Fair Market Value of Shares covered by the right on the Grant Date (except with respect to a Converted Award or Substitute Award).
(b) Exercise and Payment . A Stock Appreciation Right shall entitle the Participant to receive an amount equal to the excess of the Fair Market Value of a Share on the date of exercise of such Stock Appreciation Right over the grant price thereof. The Board shall determine whether a Stock Appreciation Right shall be settled in cash, Shares, or a combination of cash and Shares.
(c) Other Terms and Conditions . Subject to the terms of the Plan and any applicable Award Agreement, the Board shall determine, at or after the grant of a Stock Appreciation Right, the term (up to a maximum of ten years from the Grant Date), methods of exercise, methods and form of settlement, and any other terms and conditions of any Stock Appreciation Right. Any such determination by the Board may be changed by the Board from time to time and may govern the exercise of Stock Appreciation Rights granted or exercised prior to such determination, as well as Stock Appreciation Rights granted or exercised thereafter. The Board may impose such conditions or restrictions on the exercise of any Stock Appreciation Right as it shall deem appropriate.
(d) Extension of Exercise Period . If the exercise of a Stock Appreciation Right is prevented by Section 14(d), the Stock Appreciation Right shall remain exercisable until thirty days after the date that such exercise first would no longer be prevented by such provision, but in any event no later than the expiration date of such Stock Appreciation Right.
7. | RESTRICTED STOCK AND RESTRICTED STOCK UNITS. |
(a) Grant . Subject to the provisions of the Plan, the Board shall have sole and complete authority to determine the Participants to whom Shares of Restricted Stock and Restricted Stock Units shall be granted, the number of Shares of Restricted Stock and/or the number of Restricted Stock Units to be granted to each Participant, the duration of the period during which, and the conditions under which, the Restricted Stock and Restricted Stock Units may be forfeited to the Company, and the other terms and conditions of such Awards.
(b) Transfer Restrictions . Shares of Restricted Stock and Restricted Stock Units may not be sold, assigned, transferred, pledged, or otherwise encumbered, except, in the case of Shares of Restricted Stock,
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as provided in the Plan or the applicable Award Agreements. Certificates issued in respect of Shares of Restricted Stock shall be registered in the name of the Participant and deposited by such Participant, together with a stock power endorsed in blank, with the Company. Upon the lapse of the restrictions applicable to such Shares of Restricted Stock, the Company shall deliver such certificates to the Participant or the Participants legal representative.
(c) Payment . Each Restricted Stock Unit shall have a value equal to the Fair Market Value of a Share on the settlement or payment date of such Award. Restricted Stock Units shall be paid in cash, Shares, other securities, or other property, as determined in the sole discretion of the Board, upon the lapse of the restrictions applicable thereto, or otherwise in accordance with the applicable Award Agreement.
(d) Dividends and Distributions . Dividends and other distributions paid on or in respect of any Shares of Restricted Stock or Restricted Stock Units may be paid directly to the Participant, or may be reinvested in additional Shares of Restricted Stock or in additional Restricted Stock Units, as determined by the Board in its sole discretion; provided, however, that no such dividends or distributions shall be paid with respect to unvested Restricted Stock or unvested Restricted Stock Units, including any unvested Awards subject to performance measures.
(e) Section 83(b) Election . If a Participant makes an election pursuant to Section 83(b) of the Code with respect to a Restricted Stock Award, the Participant shall file, within 30 days following the date of grant, a copy of such election with the Company and the Internal Revenue Service in accordance with the regulations under Section 83 of the Code. The Committee may provide in the applicable Award Agreement that the Restricted Stock Award is conditioned upon the Participants making or refraining from making an election with respect to the Award under Section 83(b) of the Code.
8. | PERFORMANCE AWARDS. |
(a) Grant . Subject to the limitations set forth in Section 3, the Board shall have sole and complete authority to determine the eligible individuals who shall receive a Performance Award, which shall consist of a right that is (i) denominated and/or payable in cash, Shares, or any other form of Award issuable under this Plan (or any combination thereof), (ii) valued, as determined by the Board, in accordance with the achievement of such performance goals during such performance periods as the Board shall establish, and (iii) payable at such time and in such form as the Board shall determine. Unless otherwise determined by the Board, any such Performance Award shall be evidenced by an Award Agreement containing the terms of such Award, including, but not limited to, the performance criteria and such terms and conditions as may be determined from time to time by the Board, in each case, not inconsistent with this Plan. In relation to any Performance Award, the performance period may consist of one or more calendar years or other period for which performance is being measured.
(b) Terms and Conditions . For Awards intended to be performance-based compensation under Section 162(m) of the Code, Performance Awards shall be conditioned upon the achievement of pre-established, objective goals relating to one or more of the following performance measures, as determined in writing by the Board and subject to such modifications as specified by the Board in advance in writing in the Board or Committee minutes or applicable Award Agreement: cash flow; cash flow from operations; earnings (including earnings before interest, taxes, depreciation, and amortization or some variation thereof); earnings per share, diluted or basic; earnings per share from continuing operations; internal rate of return; net asset turnover; inventory turnover; capital expenditures; debt; debt reduction; working capital; return on investment; return on sales; net or gross sales; market share; share price; equity ratios; economic value added; cost of capital; assets or change in assets; expenses; expense reduction levels; productivity; delivery performance; safety record and/or performance; environmental record and/or performance; mine closures; stock price; interest-sensitivity gap levels; return on equity or capital
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employed; total or relative increases to stockholder return; return on capital; return on assets or net assets; revenue; income or net income; operating income or net operating income; operating profit or net operating profit; gross margin, operating margin, or profit margin; finding and development costs; volumes metrics (including volumes sold, volumes produced, volumes transported, and similar measures); operating efficiency metrics; charge-offs; non-performing assets; asset sale targets; asset quality levels; value of assets; employee retention/attrition rates; investments; regulatory compliance; satisfactory internal or external audits; improvement of financial ratings; value creation; achievement of balance sheet or income statement objectives; and completion of acquisitions, business expansion, product diversification and other non-financial operating and management performance objectives. To the extent consistent with Section 162(m) of the Code, the Board may determine that certain adjustments shall apply, in whole or in part, in such manner as determined by the Board, to include or exclude the effect of any of the following events that occur during a performance period including the following: the impairment of tangible or intangible assets; asset write-downs; litigation or claim judgments or settlements; acquisitions or divestitures; gains/losses on the sale of assets; foreign exchange gains and/or losses; expenses related to stock offerings and stock repurchases; the effect of changes in tax law, accounting principles, or other such laws or provisions affecting reported results; business combinations, reorganizations, and/or restructuring programs, including, but not limited to, reductions in force and early retirement incentives; currency fluctuations; and any unusual, infrequent or non-recurring items, including, but not limited to, such items described in managements discussion and analysis of financial condition and results of operations or the financial statements and notes thereto appearing in the Companys annual report to stockholders for the applicable year. Performance measures may be determined either individually, alternatively or in any combination, applied to either the Company as a whole or to a business unit or subsidiary entity thereof (except in the case of the Converted Awards), either individually, alternatively, or in any combination, and measured over a period of time including any portion of a year, annually or cumulatively over a period of years, on an absolute basis or relative to a pre-established target, to previous years results or to a designated comparison group, in each case as specified by the Board.
(c) Preestablished Performance Goals . For Awards intended to be performance-based compensation under Section 162(m) of the Code, performance goals relating to the performance measures set forth above shall be preestablished in writing by the Board and achievement thereof certified in writing prior to payment of the Award, as required by Section 162(m) and regulations promulgated thereunder. All such performance goals shall be established in writing by the Board no later than ninety (90) days after the beginning of the applicable performance period or within such other timeframe as may be required or permitted by Section 162(m) and the regulations promulgated thereunder. In addition to establishing minimum performance goals below which no compensation shall be payable pursuant to a Performance Award, the Board, in its discretion, may create a performance schedule under which an amount less than or more than the target award may be paid so long as the performance goals have been achieved.
(d) Additional Restrictions/Negative Discretion . The Board, in its sole discretion, may also establish such additional restrictions or conditions that must be satisfied as conditions precedent to the payment of all or a portion of any Performance Awards. Such additional restrictions or conditions need not be performance-based and may include, among other things, the receipt by a Participant of a specified annual performance rating, the continued employment by the Participant, and/or the achievement of specified performance goals by the Company, business unit, or Participant. Furthermore, and notwithstanding any provision of this Plan to the contrary, the Board, in its sole discretion, may retain the discretion to reduce the amount of any Performance Award to a Participant if it concludes that such reduction is necessary or appropriate based upon: (i) an evaluation of such Participants performance; (ii) comparisons with compensation received by other similarly situated individuals working within the Companys industry or peer group; (iii) the Companys financial results and conditions; or (iv) such other factors or conditions that the Board deems relevant; provided, however, the Board shall not use its discretionary authority to
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increase any Award that is intended to be performance-based compensation under Section 162(m) of the Code.
(e) Payment of Performance Awards . Performance Awards may be paid in a lump sum or in installments following the close of the performance period or, in accordance with procedures established by the Board, on a deferred basis.
9. | OTHER STOCK-BASED AWARDS AND CASH AWARDS. |
(a) Other Stock-Based Awards . The Board shall have authority to grant to Participants Other Stock-Based Awards, which shall consist of any right that is (i) not an Award described in Sections 5 through 8 above and (ii) an Award of Shares or an Award denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, Shares (including, without limitation, securities convertible into Shares), as deemed by the Board to be consistent with the purposes of the Plan. Subject to the terms of the Plan and any applicable Award Agreement, the Board shall determine the terms and conditions of any such Other Stock-Based Award.
(b) Cash Awards . An Award may also be in the form of a Cash Award, with such vesting or other restrictions, if any, as determined by the Board.
10. | ELIGIBLE DIRECTORS. |
Except as otherwise determined by the Board in its sole discretion, Eligible Directors shall receive Awards in accordance with this Section. Except as otherwise provided in this Section, Awards to Eligible Directors shall be subject to the remaining provisions of the Plan.
(a) Terms of Grants . The exercise price per Share of each Option granted to an Eligible Director shall be the Fair Market Value of a Share on the Grant Date. Options shall vest ratably and become exercisable in one-third increments on each anniversary of the Grant Date. Except as otherwise provided in this paragraph, Options shall expire ten (10) years from the Grant Date. Unvested Options shall immediately vest and become exercisable if an individual ceases to be a director on account of death, Disability, or retirement at normal retirement age for directors, and shall remain exercisable until the normal expiration of the Option. Upon termination as a director for any other reason other than Cause, unvested Options shall be forfeited and vested Options shall remain exercisable for three months following the termination date. Upon termination as a Director for Cause, all Options (whether or not vested) shall be forfeited as of the termination date.
(b) Deferred Stock Unit Grants . The Board may grant Deferred Stock Units to Eligible Directors in lieu of all or any portion of the annual retainer or meeting fees otherwise payable to the Eligible Directors. Each Deferred Stock Unit shall entitle the Eligible Director to receive one Share or an amount of cash equal to the Fair Market Value of a Share on the payment date, on terms and conditions established by the Board. The Board may also permit Eligible Directors to elect to receive Deferred Stock Units in lieu of all or any portion of the annual retainer or meeting fees otherwise payable to the Eligible Director in cash, or to defer receipt of Shares or cash to be paid pursuant to Deferred Stock Units, in accordance with a deferred compensation policies established by the Company.
(c) Other Awards . The Board in its sole discretion may grant other types of Awards to Eligible Directors other than those specifically described in this Section 10.
11. | TERMINATION OF EMPLOYMENT/SERVICE. |
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The Board shall have the full power and authority to determine the terms and conditions that shall apply to any Award upon a termination of employment/service, including a termination by the Company or an Affiliate of the Company without Cause, by a Participant voluntarily, or by reason of death, Disability, or Retirement.
12. | CHANGE IN CONTROL. |
To the extent not inconsistent with Section 14(r) hereof, in the event that the Company engages in a transaction constituting a Change in Control, the Board shall have complete authority and discretion, but not the obligation, to accelerate the vesting of outstanding Awards and the termination of restrictions on Shares. In addition, the Board may, if deemed appropriate, in its discretion, in connection with a Change in Control, (i) provide for an equivalent award or Substitute Award in respect of securities of the surviving entity of such transaction; (ii) upon advance notice to the affected Participants, cancel any outstanding Options or Stock Appreciation Rights and pay to the holders thereof, in cash, stock, or other property (including the property, if any, payable in such a transaction) (or any combination thereof), an amount equal to the excess of the fair market value of the Shares covered by the Award, based on the price per Share received or to be received by other stockholders of the Company in such a transaction or such other value as determined by the Board (the Transaction Fair Market Value), over the exercise price of the Award, or (iii) make provision for a cash payment or payment of other property (including the property, if any, payable in such transaction) to the holder of any other outstanding Award in settlement of such Award; provided that, in the case of an Option or Stock Appreciation Right with an exercise price that equals or exceeds the Transaction Fair Market Value, the Board may cancel such Options or Stock Appreciation Right without payment or consideration therefor. Any such action taken shall be performed in accordance with the applicable provisions of the Code and treasury regulations issued thereunder so as not to affect the status of (A) any Award intended to qualify as an Incentive Stock Option under Section 422 of the Code, unless the Board determines otherwise, (B) any Award intended to comply as performance-based compensation under Section 162(m) of the Code, unless the Board determines otherwise, or (C) any Award intended to comply with, or qualify for an exception to, Section 409A of the Code. Any such action taken by the Board will be final, conclusive, and binding for all purposes of this Plan.
13. | AMENDMENT AND TERMINATION. |
(a) Amendments to the Plan and Award Agreements . Except to the extent prohibited by applicable law and unless otherwise expressly provided in an Award Agreement or in the Plan, the Board may amend, alter, suspend, discontinue, cancel, or terminate the Plan or an Award Agreement or any portion thereof at any time; provided, however, that no such amendment, alteration, suspension, discontinuation, cancellation, or termination shall: (i) be made without stockholder approval if such approval is necessary to comply with any applicable law, tax, or regulatory requirement, or listing requirement of the New York Stock Exchange or any other national exchange on which the Shares are listed, for which or with which the Board deems it necessary or desirable to qualify or comply; or (ii) be made without the consent of the affected Participant, if such action would adversely affect any material rights of such Participant under any outstanding Award. Notwithstanding the foregoing or any provision of the Plan or an Award Agreement to the contrary, the Board may at any time (without the consent of any Participant) modify, amend, or terminate any or all of the provisions of this Plan or an Award Agreement to the extent necessary to: (i) conform the provisions of the Plan and/or Award with Section 162(m), Section 409A, or any other provision of the Code or other applicable law, the regulations issued thereunder or an exception thereto, regardless of whether such modification, amendment, or termination of the Plan and/or Award shall adversely affect the rights of a Participant; and (ii) to enable the Plan to achieve its stated purposes in any jurisdiction outside the United States in a tax-efficient manner and in compliance with local rules and regulations.
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(b) Adjustment of Awards upon the Occurrence of Certain Unusual or Nonrecurring Events . The Board is authorized to make adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events (including, without limitation, the events described in Section 3(c) hereof) affecting the Company, any Affiliate, or the financial statements of the Company or any Affiliate, or of changes in applicable laws, regulations, or accounting principles, whenever the Board determines that such adjustments are appropriate; provided that no such adjustment shall be authorized to the extent that such authority would be inconsistent with the Plans meeting the requirements of Section 162(m) or Section 409A.
(c) Cancellation . Any provision of this Plan or any Award Agreement to the contrary notwithstanding, the Board may cause any Award granted hereunder to be canceled in consideration of a cash payment or alternative Award made to the holder of such canceled Award equal in value to the Fair Market Value of such canceled Award except to the extent that such payment would violate the requirements of Section 409A of the Code. Notwithstanding the foregoing and any other provision of this Plan, except for adjustment provided in Section 3(c) or in connection with a corporate transaction involving the Company (including, without limitation, any stock dividend, distribution (whether in the form of cash, other Company securities, or other property), stock split, extraordinary cash dividend, recapitalization, Change in Control, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of Shares or other Company securities, or similar transaction(s)), the terms of outstanding Options or Stock Appreciation Rights may not be (i) amended to reduce the exercise price of such outstanding Options or Stock Appreciation Rights or (ii) cancelled in exchange for cash, other Awards, or Options or Stock Appreciation Rights with an exercise price that is less than the exercise price of the original Options or Stock Appreciation Rights without obtaining stockholder approval.
14. | GENERAL PROVISIONS. |
(a) Dividend Equivalents . In the sole and complete discretion of the Board, an Award may provide the Participant with dividends or dividend equivalents, payable in cash, Shares, other securities, or other property on a current or deferred basis; provided, however, that no such dividend or dividend equivalent shall be paid with respect to unvested Awards, including any unvested Awards subject to performance measures.
(b) Nontransferability . Except to the extent provided in an Award Agreement, no Award shall be assigned, alienated, pledged, attached, sold, or otherwise transferred or encumbered by a Participant, except by will or the laws of descent and distribution.
(c) No Rights to Awards . No Employee, Participant, or other Person shall have any claim to be granted any Award, and there is no obligation for uniformity of treatment of Employees, Eligible Directors, consultants, Participants, or holders or beneficiaries of Awards under the Plan. The terms and conditions of Awards need not be the same with respect to each recipient.
(d) Share Certificates and Legal Restrictions . All certificates for Shares or other securities of the Company or any Affiliate delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Board may deem advisable under the Plan or the rules, regulations, and other requirements of the SEC, the listing standards of the New York Stock Exchange or any stock exchange upon which such Shares or other securities are then listed, and any applicable federal or state laws, and the Board may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.
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(e) Withholding . A Participant may be required to pay to the Company or any Affiliate and the Company or any Affiliate shall have the right and is hereby authorized to withhold from any Award, from any payment due or transfer made under any Award or under the Plan or from any compensation or other amount owing to a Participant an amount (in cash, Shares, other securities, other Awards, or other property) sufficient to cover any federal, state, local, or foreign income taxes or such other applicable taxes required by law in respect of an Award, its exercise, or any payment or transfer under an Award or under the Plan and to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for the payment of such taxes. The Company may, in its discretion, permit a Participant (or any beneficiary or other Person entitled to act) to elect to pay a portion or all of the amount such taxes in such manner as the Committee shall deem to be appropriate, including, but not limited to, authorizing the Company to withhold, or agreeing to surrender to the Company, Shares owned by such Participant or a portion of such forms of payment that would otherwise be distributed pursuant to an Award. Notwithstanding the foregoing or any provisions of the Plan to the contrary, any broker-assisted cashless exercise shall comply with the requirements of Financial Accounting Standards Board, Accounting Standards Codification, Topic 718 and any withholding satisfied through a net-settlement shall be limited to the minimum statutory withholding requirements or as otherwise determined in the discretion of the Board.
(f) Award Agreements . Unless otherwise determined by the Board, each Award hereunder shall be evidenced by an Award Agreement that shall be delivered to the Participant and shall specify the terms and conditions of the Award and any rules applicable thereto.
(g) No Limit on Other Compensation Arrangements . Nothing contained in the Plan shall prevent the Company or any Affiliate from adopting or continuing in effect other compensation arrangements, which may, but need not, provide for the grant of Options, Restricted Stock, Shares, and other types of Awards provided for hereunder (subject to stockholder approval if such approval is required), and such arrangements may be either generally applicable or applicable only in specific cases.
(h) No Right to Employment . The grant of an Award shall not be construed as giving a Participant the right to be retained in the employ of the Company or any Affiliate. Further, the Company or an Affiliate may at any time dismiss a Participant from employment, free from any liability or any claim under the Plan, unless otherwise expressly provided in the Plan or in any Award Agreement.
(i) No Rights as Stockholder . Subject to the provisions of the applicable Award, no Participant or holder or beneficiary of any Award shall have any rights as a stockholder with respect to any Shares to be distributed under the Plan until he or she has become the holder of such Shares. Notwithstanding the foregoing, in connection with each grant of Restricted Stock hereunder, the applicable Award shall specify if and to what extent the Participant shall not be entitled to the rights of a stockholder in respect of such Restricted Stock.
(j) Governing Law . The validity, construction, and effect of the Plan and any rules and regulations relating to the Plan and any Award Agreement shall be determined in accordance with the laws of the State of Delaware without giving effect to the conflict of law principles thereof.
(k) Severability . If any provision of the Plan or any Award is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any Person or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Board, such provision shall be construed or deemed amended to conform to the applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Board, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, Person, or Award and the remainder of the Plan and any such Award shall remain in full force and effect.
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(l) Other Laws . The Board may refuse to issue or transfer any Shares or other consideration under an Award if, acting in its sole discretion, it determines that the issuance or transfer of such Shares or such other consideration might violate any applicable law or regulation or entitle the Company to recover the same under Section 14(t), and any payment tendered to the Company by a Participant, other holder, or beneficiary in connection with the exercise of such Award shall be promptly refunded to the relevant Participant, holder, or beneficiary. Without limiting the generality of the foregoing, no Award granted hereunder shall be construed as an offer to sell securities of the Company, and no such offer shall be outstanding, unless and until the Board in its sole discretion has determined that any such offer, if made, would be in compliance with all applicable requirements of the U.S. federal securities laws and any other laws to which such offer, if made, would be subject.
(m) No Trust or Fund Created . Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate and a Participant or any other Person. To the extent that any Person acquires a right to receive payments from the Company or any Affiliate pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company or any Affiliate.
(n) No Fractional Shares . No fractional Shares shall be issued or delivered pursuant to the Plan or any Award, and the Board shall determine whether cash, other securities, or other property shall be paid or transferred in lieu of any fractional Shares or whether such fractional Shares or any rights thereto shall be canceled, terminated, or otherwise eliminated.
(o) Headings . Headings are given to the Sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof.
(p) Parachute Payments . The Board may provide in an Award Agreement that no amounts shall be paid or considered paid to the extent that any such payments would be nondeductible by the Company under Code Section 280G.
(q) Section 162(m) . Notwithstanding any provision of the Plan or Award Agreement to the contrary if an Award under this Plan is intended to qualify as performance-based compensation under Section 162(m) of the Code and the regulations issued thereunder and a provision of this Plan or an Award Agreement would prevent such Award from so qualifying, such provision shall be administered, interpreted, and construed to carry out such intention (or disregarded to the extent such provision cannot be so administered, interpreted, or construed). In no event shall any member of the Board, the Committee, or the Company (or its employees, officers, or directors) have any liability to any Participant (or any other Person) due to the failure of an Award to satisfy the requirements of Section 162(m) of the Code.
(r) Section 409A . Notwithstanding any provision of the Plan or an Award Agreement to the contrary, if any Award or benefit provided under this Plan is subject to the provisions of Section 409A, the provisions of the Plan and any applicable Award Agreement shall be administered, interpreted, and construed in a manner necessary to comply with Section 409A or an exception thereto (or disregarded to the extent such provision cannot be so administered, interpreted, or construed). The following provisions shall apply, as applicable:
(i) If a Participant is a Specified Employee and a payment subject to Section 409A (and not excepted therefrom) to the Participant is due upon Separation from Service, such payment shall be delayed for a period of six (6) months after the date the Participant Separates from Service (or, if earlier, the death of the Participant). Any payment that would otherwise have been due or owing during such six-month
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period will be paid immediately following the end of the six-month period in the month following the month containing the six-month anniversary of the date of termination unless another compliant date is specified in the applicable agreement.
(ii) For purposes of Section 409A, and to the extent applicable to any Award or benefit under the Plan, it is intended that distribution events qualify as permissible distribution events for purposes of Section 409A and shall be interpreted and construed accordingly. With respect to payments subject to Section 409A, the Company reserves the right to accelerate and/or defer any payment to the extent permitted and consistent with Section 409A. Whether a Participant has Separated from Service or employment will be determined based on all of the facts and circumstances and, to the extent applicable to any Award or benefit, in accordance with the guidance issued under Section 409A. For this purpose, a Participant will be presumed to have experienced a Separation from Service when the level of bona fide services performed permanently decreases to a level less than twenty percent (20%) of the average level of bona fide services performed during the immediately preceding thirty-six (36) month period or such other applicable period as provided by Section 409A.
(iii) The Board, in its discretion, may specify the conditions under which the payment of all or any portion of any Award may be deferred until a later date. Deferrals shall be for such periods or until the occurrence of such events, and upon such terms and conditions, as the Board shall determine in its discretion, in accordance with the provisions of Section 409A, the regulations, and other binding guidance promulgated thereunder; provided, however, that no deferral shall be permitted with respect to Options, Stock Appreciation Rights, and other stock rights subject to Section 409A. An election shall be made by filing an election with the Company (on a form provided by the Company) on or prior to December 31st of the calendar year immediately preceding the beginning of the calendar year (or other applicable service period) to which such election relates (or at such other date as may be specified by the Board to the extent consistent with Section 409A) and shall be irrevocable for such applicable calendar year (or other applicable service period). To the extent authorized, a Participant who first becomes eligible to participate in the Plan may file an election (Initial Election) at any time prior to the 30-day period following the date on which the Participant initially becomes eligible to participate in the Plan (or at such other date as may be specified by the Board to the extent consistent with Section 409A). Any such Initial Election shall only apply to compensation earned and payable for services rendered after the effective date of the Election.
(iv) The grant of Non-Qualified Stock Options, Stock Appreciation Rights, and other stock rights subject to Section 409A shall be granted under terms and conditions consistent with Treas. Reg. § 1.409A-1(b)(5) such that any such Award does not constitute a deferral of compensation under Section 409A. Accordingly, any such Award may be granted to Employees and Eligible Directors of the Company and its subsidiaries and affiliates in which the Company has a controlling interest. In determining whether the Company has a controlling interest, the rules of Treas. Reg. § 1.414(c)-2(b)(2)(i) shall apply; provided that the language at least 50 percent shall be used instead of at least 80 percent in each place it appears; provided, further, where legitimate business reasons exist (within the meaning of Treas. Reg. § 1.409A-1(b)(5)(iii)(E)(i)), the language at least 20 percent shall be used instead of at least 80 percent in each place it appears. The rules of Treas. Reg. §§ 1.414(c)-3 and 1.414(c)-4 shall apply for purposes of determining ownership interests.
(s) Disclaimer . Although it is the intent of the Company that this Plan and Awards hereunder, to the extent the Committee deems appropriate and to the extent applicable, comply with Rule 16b-3 and Sections 162(m), 409A and 422 of the Code: (a) none of the Company, the Board, or the Committee warrants that any Award under the Plan will qualify for favorable tax treatment under any provision of the federal, state, local, or non-United States law; and (b) in no event shall any member of the Board or the Committee or the Company (or its employees, officers, or directors) have any liability to any Participant
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(or any other Person) due to the failure of an Award to satisfy the requirements of Rule 16b-3 or Section 162(m), 409A, or 422 of the Code or for any tax, interest, or penalties the Participant might owe as a result of the grant, holding, vesting, exercise, or payment of any Award under the Plan.
(t) Clawback . Notwithstanding any other provisions in this Plan, any Award which is subject to recovery under any law, government regulation, stock exchange listing requirement, or Company policy, shall be subject to such deductions, recoupment, and clawback as may be required to be made pursuant to such law, government regulation, stock exchange listing requirement, or Company policy, as may be in effect from time to time, and which may operate to create additional rights for the Company with respect to Awards and recovery of amounts relating thereto. By accepting Awards under the Plan, Participants agree and acknowledge that they are obligated to cooperate with, and provide any and all assistance necessary to, the Company to recover or recoup any Award or amounts paid under the Plan subject to clawback pursuant to such law, government regulation, stock exchange listing requirement, or Company policy. Such cooperation and assistance shall include, but is not limited to, executing, completing, and submitting any documentation necessary to recover or recoup any Award or amounts paid under the Plan from a Participants accounts, or pending or future compensation or Awards.
15. | TERM OF THE PLAN . |
(a) Effective Date . This Plan shall be effective as of the Companys separation from CONSOL Energy Inc. on , 2017 (the Effective Date).
(b) Expiration Date . No Awards may be granted under the Plan after the day immediately preceding the tenth anniversary of the Effective Date. Unless otherwise expressly provided in the Plan or in an applicable Award Agreement, any Award granted hereunder may, and the authority of the Board or the Committee to amend, alter, adjust, suspend, discontinue, or terminate any such Award or to waive any conditions or rights under any such Award shall, continue after the authority for grant of new Awards hereunder has been exhausted.
16. | EMPLOYEE MATTERS AGREEMENT. |
Notwithstanding anything in the Plan to the contrary, to the extent that the terms of this Plan are inconsistent with the terms of a Converted Award, the terms of the Converted Award shall be governed by the Employee Matters Agreement and related award agreement granted thereunder.
17. | DEFINITIONS. |
As used in the Plan, the following terms shall have the meanings set forth below:
10% Stockholder shall mean an Employee who, as of the date on which an Incentive Stock Option is granted to such Employee, owns more than ten percent (10%) of the total combined voting power of all classes of Shares then issued by the Company or any of its subsidiaries.
Affiliate shall mean (i) any entity that, directly or indirectly, is controlled by the Company, (ii) any entity in which the Company has a significant equity interest, and (iii) an Affiliate of the Company as defined in Rule 12b-2 promulgated under Section 12 of the Exchange Act, in either case as determined by the Committee.
Award shall mean any Option, Stock Appreciation Right, Restricted Stock Award, Restricted Stock Unit, Performance Award, Other Stock-Based Award, Converted Award, or other Award permitted under the Plan.
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Award Agreement shall mean any written agreement, contract, or other instrument or document evidencing the terms and conditions associated with any Award, which shall not become effective until executed, acknowledged, or accepted by a Participant.
Board shall mean the Board of Directors of the Company.
Cash Award means an Award denominated and/or paid in cash.
Cause shall mean, unless otherwise defined in the applicable Award Agreement, a determination by the Committee that a Participant has: (1) committed an act of embezzlement, fraud, dishonesty or breach of fiduciary duty to the Company; (2) deliberately and repeatedly violated the rules of the Company or the valid instructions of the Board or an authorized officer of the Company; (3) made any unauthorized disclosure of any of the material secrets or confidential information of the Company; or (4) violation of any restrictive covenant in an Award Agreement or other agreement between the Participant and the Company; or (5) engaged in any conduct that could reasonably be expected to result in material loss, damage or injury to the Company.
Change in Control shall mean, unless otherwise defined in the applicable Award Agreement, the earliest to occur of: (1) any one person as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than (A) the Company, (B) any trustee or other fiduciary holding securities under an employee benefit plan of the Company, and (C) any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of Shares), or more than one person acting as a group, is or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Shares that, together with the Shares held by such person or group, possess more than 50% of the total fair market value or total voting power of the Shares and other stock of the Company; (2) a majority of members of the Board is replaced during any 12 month period by directors whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of the appointment or election; or (3) the sale of all or substantially all of the Companys assets (which shall be determined in the sole discretion of the Committee); provided, however, that, in addition to the foregoing, such event must also qualify as a Change in Control event within the meaning of Treas. Reg. Section 1.409A-3(i)(5)(i) with respect to the Company. For the avoidance of doubt, references within this definition of Change in Control to the Company are solely to CONSOL Mining Corporation, such that a sale of a subsidiary of CONSOL Mining Corporation shall not constitute a Change in Control under the Plan unless otherwise determined in the sole discretion of the Committee.
Code shall mean the Internal Revenue Code of 1986, as amended from time to time.
Committee shall mean a committee of the Board designated by the Board to be responsible for the administration of the Plan (though excluding day-to-day administration). To the extent deemed appropriate by the Board, the Committee shall be composed of not less than two individuals who are outside directors within the meaning of Code Section 162(m), non-employee directors within the meaning of Section 16, and independent directors within the meaning of Section 303A of the New York Stock Exchange Listed Company Manual.
Company shall mean CONSOL Mining Corporation.
Converted Award shall mean an Award that is issued to satisfy the automatic adjustment and conversion of awards for CONSOL Energy Inc. common stock contemplated under the Employee Matters Agreement. For the avoidance of doubt, any Converted Award shall be governed by the provisions of the original Award Agreement applicable to such Converted Award.
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Deferred Stock Unit shall mean a right, granted to Eligible Directors in accordance with Section 10, to acquire a Share for no consideration or some other amount determined by the Board.
Disability shall mean, unless otherwise defined in the applicable Award Agreement, a Participants inability, because of physical or mental incapacity or injury (that has continued for a period of at least 12 consecutive calendar months), to perform for the Company or an Affiliate substantially the same services as he or she performed prior to incurring such incapacity or injury. Notwithstanding the foregoing, with respect to any Award that is subject to Section 409A (and not excepted therefrom) and payable upon Disability, such term shall mean the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to last for a continuous period of not less than 12 months.
Effective Date shall have the meaning set forth in Section 15(a) hereof.
Eligible Director shall mean a director who is not an employee of the Company or any of its Affiliates.
Employee shall mean an employee or consultant of the Company or of any Affiliate, including any individual who enters into an employment agreement with the Company or an Affiliate which provides for commencement of employment within three months of the date of the agreement.
Employee Matters Agreement shall mean that certain Employee Matters Agreement dated , 2017 by and between CONSOL Energy Inc. and the Company relating to the transfer of employees in connection with the separation of the Companys business from the business of CONSOL Energy Inc.
Exchange Act shall mean the Securities Exchange Act of 1934, as amended.
Fair Market Value shall mean the fair market value of the property or other items being valued, as determined by the Board in its sole discretion. Fair Market Value with respect to the Shares, as of any date, shall mean (i) if the Shares are listed on a securities exchange, the closing sales price of the Shares on such exchange or over such system on such date, or in the absence of reported sales on such date, the closing sales price on the immediately preceding date on which sales were reported, (ii) if the Shares are not so listed or traded, the mean between the bid and offered prices of the Shares for such date, or (iii) in the event there is no public market for the Shares, the fair market value as determined by the Board in its sole discretion.
Grant Date shall mean, with respect to an Award, date on which the Board makes the determination to grant such Award, or such other date as is determined by the Board. Within a reasonable time thereafter, the Company will deliver an Award Agreement to the Participant.
Incentive Stock Option shall mean a right to purchase Shares from the Company that is granted under Section 5 of the Plan and that is intended to meet the requirements of Section 422 of the Code or any successor provision thereto.
Non-Qualified Stock Option shall mean a right to purchase Shares from the Company that is granted under Section 5 of the Plan and that is not intended to be an Incentive Stock Option.
Option shall mean an Incentive Stock Option or a Non-Qualified Stock Option.
Other Stock-Based Award shall mean any right granted under Section 9 of the Plan.
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Participant shall mean any Employee or Eligible Director who receives an Award under the Plan.
Performance Award shall mean any right granted under Section 8 of the Plan.
Person shall mean any individual, corporation, partnership, association, joint-stock company, trust, unincorporated organization, government, or political subdivision thereof or other entity.
Plan shall mean this CONSOL Mining Corporation Omnibus Performance Incentive Plan, as may be amended from time to time.
Restricted Stock shall mean any Share granted under Section 7 of the Plan.
Restricted Stock Unit shall mean any unit granted under Section 7 of the Plan.
Retirement shall mean with respect to a Participant other than an Eligible Director retirement of a Participant from the employ or service of the Company or any of its Affiliates in accordance with the terms of the applicable Company retirement plan or, if a Participant is not covered by any such plan, retirement or termination on or after such Participants 65th birthday, unless otherwise defined or provided in the applicable Award Agreement.
SEC shall mean the Securities and Exchange Commission or any successor agency thereto, and shall include the staff thereof.
Section 16 shall mean Section 16 of the Exchange Act and the rules promulgated thereunder and any successor provision thereto as in effect from time to time.
Section 162(m) shall mean Section 162(m) of the Code and the rules promulgated thereunder or any successor provision thereto as in effect from time to time.
Section 409A shall mean Section 409A of the Code, the regulations and other binding guidance promulgated thereunder.
Separation from Service and Separate from Service shall mean the Participants death, retirement, or other termination of employment or service with the Company (including all persons treated as a single employer under Section 414(b) and 414(c) of the Code) that constitutes a separation from service (within the meaning of Section 409A). For purposes hereof, the determination of controlled group members shall be made pursuant to the provisions of Section 414(b) and 414(c) of the Code; provided that the language at least 50 percent shall be used instead of at least 80 percent in each place it appears in Section 1563(a)(1),(2) and (3) of the Code and Treas. Reg. § 1.414(c)-2; provided, further, where legitimate business reasons exist (within the meaning of Treas. Reg. § 1.409A-1(h)(3)), the language at least 20 percent shall be used instead of at least 80 percent in each place it appears. Whether a Participant has Separated from Service will be determined based on all of the facts and circumstances and, to the extent applicable to any Award or benefit, in accordance with the guidance issued under Section 409A. A Participant will be presumed to have experienced a Separation from Service when the level of bona fide services performed permanently decreases to a level less than twenty percent (20%) of the average level of bona fide services performed during the immediately preceding thirty-six (36) month period or such other applicable period as provided by Section 409A.
Shares shall mean shares of the common stock, $0.01 par value, of the Company, or such other securities of the Company as may be designated by the Board from time to time.
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Specified Employee shall mean a key employee (as defined in Section 416(i) of the Code without regard to paragraph (5) thereof) of the Company as determined in accordance with the regulations issued under Code Section 409A and the procedures established by the Company.
Stock Appreciation Right shall mean any right granted under Section 6 of the Plan.
Substitute Awards shall mean Awards granted in assumption of, or in substitution for, outstanding awards previously granted by a company acquired by the Company or with which the Company combines.
Transaction Fair Market Value shall have the meaning set forth in Section 12.
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Exhibit 10.11
FORM OF CONSOL MINING CORPORATION
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (this Agreement ) is made as of , 20 (the Effective Date ), by and between CONSOL Mining Corporation, a Delaware corporation (the Company ), and (the Indemnitee ). Except as provided herein, this Agreement supersedes and replaces any and all previous Agreements between the Company and Indemnitee covering the subject matter of this Agreement.
RECITALS:
A. It is essential that the Company retain and attract as directors and officers the most capable persons available.
B. The Indemnitee will serve (or currently serves) as a director and/or officer of the Company and in that capacity will perform (or is performing) valuable services for the Company.
C. The Companys Bylaws, as amended and restated (the Bylaws ), contain a provision which provides for indemnification of and advancement of expenses to the directors and officers of the Company for liabilities and expenses they incur in their capacities as such, and the Bylaws and section 145 of the General Corporation Law of the State of Delaware ( DGCL ) provide that they are not exclusive of any other rights to indemnification and advancement of expenses.
D. In recognition of Indemnitees need for protection against personal liability in order to enhance Indemnitees service and continued service to the Company in an effective manner, the potential difficulty in obtaining satisfactory Directors and Officers Liability Insurance ( D&O Insurance ) coverage, and Indemnitees reliance on the Bylaws, and in part to provide Indemnitee with specific contractual assurance that the protection promised by the Bylaws will be available to Indemnitee (regardless of, among other things, any amendment to or revocation of the Bylaws or any change in the composition of the Companys Board of Directors or acquisition transaction relating to the Company), the Company desires to provide in this Agreement for the indemnification of and the advancing of expenses to Indemnitee to the fullest extent permitted by law and as set forth in this Agreement, and, to the extent insurance is maintained, for the continued coverage of Indemnitee under the Companys D&O Insurance policies.
E. The Indemnitee is willing to serve and/or to continue to serve, the Company, only on the condition that the Company furnish the indemnity provided for herein.
NOW, THEREFORE, in consideration of Indemnitees service and/or continuing to serve the Company directly, or, at its request, another enterprise and intending to be legally bound hereby, the parties hereto agree as follows:
1. | Definitions. |
(a) A Change in Control shall be deemed to occur upon the earliest to occur after the Effective Date of this Agreement of any of the following events:
(i) the acquisition after the date hereof by any individual, entity or group (within the meaning of section 13(d)(3) or 14(d)(2) of the Exchange Act) (a Person ) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than 25% of the combined voting power of the then outstanding securities of the Company entitled to vote generally in the election of its directors ( Voting Stock ); provided, however, that for purposes of this Section 1(a)(i), the following acquisitions will not constitute a Change in Control: (A) any issuance of Voting Stock of the Company directly from the Company that is approved by the Incumbent Board (as defined in Section 1(a)(ii), below), (B) any acquisition by the Company of Voting Stock of the Company, (C) any acquisition of Voting Stock of the Company by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary, (D) any acquisition of Voting Stock of the Company by an underwriter holding securities of the Company in connection with a public offering thereof, (E) any acquisition of Voting Stock of the Company by any Person pursuant to a Business Combination that complies with clauses (A), (B) and (C) of Section 1(a)(iii) below; or
(ii) individuals who constitute the Board as of the Effective Date (the Incumbent Board , as modified by this Section 1(a)(ii)), cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a Director subsequent to such date whose election, or nomination for election by the Companys stockholders, was approved by a vote of at least two-thirds of the Directors then comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) will be deemed to have then been a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of Directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or
(iii) consummation of a reorganization, merger or consolidation of the Company or a direct or indirect wholly owned subsidiary thereof, a sale or other disposition (whether by sale, taxable or nontaxable exchange, formation of a joint venture or otherwise) of all or substantially all of the assets of the Company, or other transaction involving the Company (each, a Business Combination ), unless, in each case, immediately following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners of Voting Stock of the Company immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the combined voting power of the then outstanding shares of Voting Stock of the entity resulting from such Business Combination or any direct or indirect parent corporation thereof (including, without limitation, an entity which as a result of such transaction owns the Company or all or substantially all of the Companys assets either directly or through one or more subsidiaries), (B) no Person other than the Company beneficially owns 25% or more of the combined voting power of the then outstanding shares of Voting Stock of the entity resulting from such Business Combination or any direct or indirect
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parent corporation thereof (disregarding all acquisitions described in subsections (A)(C) of Section 1(a)(i)), and (C) at least a majority of the members of the Board of Directors of the entity resulting from such Business Combination or any direct or indirect parent corporation thereof were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination; or
(iv) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company, except pursuant to a Business Combination that complies with clauses (A), (B) and (C) of Section 1(a)(iii).
(v) Other Events. Any other event of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act of 1934, as amended, whether or not the Company is then subject to such reporting requirement.
(b) Corporate Status describes the status of a person who is or was a director, trustee, general partner, managing member, officer, employee, agent or fiduciary of the Company or any other corporation, limited liability company, partnership or joint venture, trust, employee benefit plan or other enterprise which such person is or was serving at the request of the Company.
(c) Disinterested Director means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.
(d) Expenses include all reasonable attorneys fees, retainers, court costs, transcript costs, fees and costs of experts and other professionals, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, any federal, state, local or foreign taxes imposed on Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement, ERISA excise taxes and penalties, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise participating in, a Proceeding. Expenses also include (i) Expenses incurred in connection with any appeal resulting from any Proceeding, including without limitation the premium, security for, and other costs relating to any cost bond, supersede as bond or other appeal bond or their equivalent, and (ii) for purposes of Section 12(d), Expenses incurred by Indemnitee in connection with the interpretation, enforcement or defense of Indemnitees rights under this Agreement or under any D&O Insurance policies maintained by the Company. Expenses, however, shall not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee.
(e) Independent Counsel means a law firm, or a partner or member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent (i) the Company or Indemnitee in any matter material to either such party (other than as Independent Counsel with respect to matters concerning Indemnitee under this Agreement or as Independent Counsel with respect to matters concerning other indemnitees under other indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing,
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the term Independent Counsel shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitees rights under this Agreement.
(f) Interested Shareholder means any person (other than the Company or any subsidiary of the Company and other than any profit sharing, employee stock ownership, or other employee benefit plan of the Company or any subsidiary of the Company or any trustee of or fiduciary with respect to any such plan when acting in such capacity) who or which:
(i) is at such time the beneficial owner, directly or indirectly, of more than fifteen percent (15%) of the voting power of the outstanding common stock of the Company;
(ii) was at any time within the two-year period immediately prior to such time the beneficial owner, directly or indirectly, of more than fifteen percent (15%) of the voting power of the then outstanding common stock of the Company; or
(iii) is at such time an assignee of or has otherwise succeeded to the beneficial ownership of any shares of common stock of the Company which were at any time within the two-year period immediately prior to such time beneficially owned by any Interested Shareholder, if such assignment or succession has occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933, as amended.
(g) A Potential Change of Control shall occur if:
(i) the Company enters into an agreement or arrangement the consummation of which would result in the occurrence of a Change of Control;
(ii) any Person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a Change in Control; or
(iii) the Board of Directors of the Company adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change of Control has occurred.
(h) Proceeding means any threatened, pending or completed action, suit, claim, counterclaim, cross claim, arbitration, mediation, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or proceeding or any other actual, threatened, pending or completed proceeding, whether brought in the right of the Company or otherwise and whether of a civil, criminal, legislative, administrative or investigative (formal or informal) nature, including any appeal therefrom and including without limitation any such Proceeding pending as of the date of this Agreement, in which Indemnitee was, is or will be involved as a party, a potential party, a non-party witness or otherwise by reason of (i) the fact that Indemnitee is or was a director or officer of the Company, (ii) any action taken by Indemnitee or any action or inaction on Indemnitees part while acting as a director or officer of the Company, or (iii) the fact that he or she is or was serving at the request of the Company as a director, trustee, general partner, managing member, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust, limited liability company or other enterprise, in each case
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whether or not serving in such capacity at the time any liability or Expense is incurred for which indemnification or advancement of expenses can be provided under this Agreement.
(i) Unaffiliated Director means any member of the Board of Directors of the Company who is unaffiliated with, and not a representative of, an Interested Shareholder and who was a member of the Board of Directors prior to the time that the Interested Shareholder became an Interested Shareholder or became a member subsequently to fill a vacancy created by an increase in the size of the Board of Directors and did receive the favorable vote of two-thirds (2/3) of the Unaffiliated Directors in connection with being nominated for election by the shareholders to fill such vacancy or in being elected by the Board of Directors to fill such vacancy, and any successor of a Unaffiliated Director who is unaffiliated with, and not a representative of, the Interested Shareholder and is recommended or elected to succeed a Unaffiliated Director by a majority of the Unaffiliated Directors then on the Board of Directors.
Reference to other enterprises shall include employee benefit plans and administrative committees thereof; references to fines shall include any excise taxes assessed on a person with respect to any employee benefit plan; references to serving at the request of the Company shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; a person who acted in good faith and in a manner he or she reasonably believed to be in the best interests of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner not opposed to the best interests of the Company as referred to in this Agreement; references to to the fullest extent permitted by applicable law shall include, but not be limited to: (i) the fullest extent permitted by the provision of the DGCL that authorizes or contemplates additional indemnification by agreement, or the corresponding provision of any amendment to or replacement of the DGCL and (ii) the fullest extent authorized or permitted by any amendments to or replacements of the DGCL adopted after the date of this Agreement that increase the extent to which a corporation may indemnify its officers and directors.
2. Indemnity in Third-Party Proceedings . The Company shall indemnify Indemnitee in accordance with the provisions of this Section 2 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding, other than a Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 2, Indemnitee shall be indemnified to the fullest extent permitted by applicable law against all Expenses, judgments, fines and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, fines and amounts paid in settlement) actually and reasonably incurred by Indemnitee or on Indemnitees behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company and, with respect to any criminal Proceeding, had no reasonable cause to believe that his or her conduct was unlawful. The parties hereto intend that this Agreement shall provide to the fullest extent permitted by law for indemnification in excess of that expressly granted or required by statute, including without limitation, any indemnification provided by the Companys Amended and Restated Certificate of Incorporation (the Certificate ), Bylaws, vote of the stockholders of the Company or disinterested directors or applicable law.
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3. Indemnity in Proceedings by or in the Right of the Company . The Company shall indemnify Indemnitee in accordance with the provisions of this Section 3 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 3, Indemnitee shall be indemnified to the fullest extent permitted by applicable law against all Expenses actually and reasonably incurred by Indemnitee or on Indemnitees behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company. No indemnification for Expenses shall be made under this Section 3 in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudged by a court of competent jurisdiction to be liable to the Company, unless and only to the extent that the Delaware Court of Chancery or any court in which the Proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnification for such expenses as the Delaware Court of Chancery or such other court shall deem proper.
4. Indemnification for Expenses of a Party Who is Wholly or Partly Successful . To the extent that Indemnitee is a party to or a participant in and is successful (on the merits or otherwise) in any Proceeding or in defense of any claim, issue or matter therein, in whole or in part, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by Indemnitee or on Indemnitees behalf in connection therewith. To the extent permitted by applicable law, if Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee to the fullest extent permitted by applicable law against all Expenses actually and reasonably incurred by Indemnitee or on Indemnitees behalf in connection with or related to each successfully resolved claim, issue or matter. For purposes of this Section, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.
5. Indemnification for Expenses of a Witness . Notwithstanding any other provision of this Agreement, to the extent that Indemnitee, by reason of his or her Corporate Status, is to be a witness or to be interviewed in any Proceeding to which Indemnitee is not a party, Indemnitee shall be indemnified to the fullest extent permitted by applicable law against all Expenses actually and reasonably incurred by Indemnitee or on Indemnitees behalf in connection therewith.
6. Additional Indemnification . Notwithstanding any limitation in Sections 2, 3 and 4, the Company shall indemnify Indemnitee to the fullest extent permitted by applicable law if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding (including a Proceeding by or in the right of the Company to procure a judgment in its favor) against all Expenses, judgments, fines and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, fines and amounts paid in settlement) actually and reasonably incurred by Indemnitee or on his or her behalf in connection with the Proceeding or any claim, issue or matter therein. To the extent that a change in Delaware law, whether by statute or judicial decision, permits greater indemnification or advancement of Expenses than would be afforded currently under the
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Certificate and Bylaws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change, subject to the restrictions expressly set forth herein or therein. If the Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of Expenses, but not, however, for the total amount thereof, the Company shall nevertheless indemnify the Indemnitee for the portion of such Expenses to which the Indemnitee is entitled.
7. Contribution . To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee, then in respect of any Proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such Proceeding) the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for Expenses, judgments, fines or amounts paid or to be paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, fines and amounts paid in settlement), in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and transaction(s) giving rise to such Proceeding; and (ii) the relative fault of Indemnitee and the Company (and its other directors, officers, employees and agents) in connection with such event(s) and transaction(s).
8. | Notification and Defense of Claim . |
(a) Indemnitee shall notify the Company in writing of any matter with respect to which Indemnitee intends to seek indemnification or advancement of Expenses as soon as reasonably practicable following the receipt by Indemnitee of written notice thereof. The written notification to the Company shall include a description of the nature of the Proceeding and the facts underlying the Proceeding. The failure by Indemnitee to notify the Company will not relieve the Company from any liability which it may have to Indemnitee hereunder or otherwise than under this Agreement, and any delay in so notifying the Company shall not constitute a waiver by Indemnitee of any rights. With respect to any Proceeding as to which the Indemnitee has so notified the Company:
(i) The Company will be entitled to participate therein at its own expense; and
(ii) Except as otherwise provided below, the Company may assume the defense thereof, with counsel reasonably satisfactory to the Indemnitee. After the Company notifies the Indemnitee of its election to so assume the defense, the Company will not be liable to the Indemnitee under this Agreement for any legal Expenses subsequently incurred by the Indemnitee in connection with the defense, other than legal Expenses relating to the reasonable costs of investigation, including an investigation in connection with determining whether there exists a conflict of interest of the type described in clause (B) of this paragraph, or as otherwise provided in this paragraph. The Indemnitee shall have the right to employ his or her counsel in such Proceeding but the fees and expenses of such counsel incurred after the Company notifies the Indemnitee of its assumption of the defense shall be at the expense of the Indemnitee unless (A) the Company authorizes the Indemnitees employment of counsel, provided, that following a
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Change of Control, the Indemnitee shall be entitled to employ his or her own counsel at the Companys expense after giving not less than 20 days notice to the Company unless the Company has Disinterested Directors and a majority of the Disinterested Directors determine that the Indemnitees interests are adequately represented by the counsel employed by the Company; (B) the Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and the Indemnitee in the conduct of the defense or (C) the Company shall not have employed counsel to assume the defense of such action, in each of which cases the Expenses of counsel shall be at the expense of the Company. The Company shall not be entitled to assume the defense of any action, suit or proceeding brought by or on behalf of the Company or as to which the Indemnitee shall have made the conclusion described in clause (B) of this paragraph.
(b) The Company shall not be obligated to indemnify the Indemnitee under this Agreement for any amounts paid in settlement of any action or claim effected without its written consent. The Company shall not settle any action or claim in any manner which would impose any penalty or limitation on the Indemnitee without the Indemnitees written consent. Neither the Company nor the Indemnitee shall unreasonably withhold their consent to any proposed settlement.
9. | Procedure for Indemnification . |
(a) To obtain indemnification, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and as is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification following the final disposition of such Proceeding. The Secretary of the Company shall, as soon as reasonably practicable after receipt of such a request for indemnification, advise the board of directors in writing that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification pursuant to Section 9(a), a determination, if required by applicable law, with respect to Indemnitees entitlement thereto shall be made in the specific case (i) if a Change in Control shall have occurred, by Independent Counsel in a written opinion to the Companys board of directors, a copy of which shall be delivered to Indemnitee or (ii) if a Change in Control shall not have occurred, (A) by a majority vote of the Disinterested Directors, even though less than a quorum of the Companys board of directors, (B) by a committee of Disinterested Directors designated by a majority vote of the Disinterested Directors, even though less than a quorum of the Companys board of directors, (C) if there are no such Disinterested Directors or, if such Disinterested Directors so direct, by Independent Counsel in a written opinion to the Companys board of directors, a copy of which shall be delivered to Indemnitee or (D) if so directed by the Companys board of directors, by the stockholders of the Company. If it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within ten (10) days after such determination. Indemnitee shall cooperate with the person, persons or entity making such determination with respect to Indemnitees entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any costs
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or Expenses (including attorneys fees and disbursements) reasonably incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitees entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom. The Company will promptly advise the Indemnitee in writing with respect to any determination that Indemnitee is or is not entitled to indemnification, including a description of any reason or basis for which indemnification has been denied.
(c) In the event the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 9(b), the Independent Counsel shall be selected as provided in this Section 9(c). If a Change in Control shall not have occurred, the Independent Counsel shall be selected by the Companys board of directors, and the Company shall give written notice to Indemnitee advising him or her of the identity of the Independent Counsel so selected. If a Change in Control shall have occurred, the Independent Counsel shall be selected by Indemnitee (unless Indemnitee shall request that such selection be made by the Companys board of directors, in which event the preceding sentence shall apply), and Indemnitee shall give written notice to the Company advising it of the identity of the Independent Counsel so selected. In either event, Indemnitee or the Company, as the case may be, may, within ten (10) days after such written notice of selection shall have been given, deliver to the Company or to Indemnitee, as the case may be, a written objection to such selection; provided , however , that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of Independent Counsel as defined in Section 1 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. If such written objection is so made and substantiated, the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court has determined that such objection is without merit. If, within twenty (20) days after the later of (i) submission by Indemnitee of a written request for indemnification pursuant to Section 9(a) hereof and (ii) the final disposition of the Proceeding, the parties have not agreed upon an Independent Counsel, either the Company or Indemnitee may petition a court of competent jurisdiction for resolution of any objection which shall have been made by the Company or Indemnitee to the others selection of Independent Counsel and for the appointment as Independent Counsel of a person selected by the court or by such other person as the court shall designate, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 9(b) hereof. Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 12(a) of this Agreement, the Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).
(d) The Company agrees to pay the reasonable fees and expenses of any Independent Counsel and to fully indemnify such counsel against any and all Expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.
10. Advancement of Expenses; Procedure for Advances . The Company shall advance, to the extent not prohibited by law, the Expenses incurred by Indemnitee in connection with any Proceeding. Advances shall be unsecured and interest free and made without regard to Indemnitees ability to repay such advances. Indemnitee hereby undertakes to repay any advance
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to the extent that it is ultimately determined that Indemnitee is not entitled to be indemnified by the Company. To obtain advances of Expenses, Indemnitee shall submit from time to time to the Company a written request requesting such advances and shall provide copies of invoices received by Indemnitee in connection with such Expenses but, in the case of invoices in connection with legal services, any references to legal work performed or to expenditure made that Indemnitees lawyers believe would likely cause Indemnitee to waive any privilege accorded by applicable law may be redacted from the copy of the invoice submitted to the Company (in which case, Indemnitee shall also submit a letter addressed to the Company from such lawyers to the effect that they believe submission of the redacted information would likely cause Indemnitee to waive a privilege accorded by applicable law). Upon receipt of a such a request for an advance of Expenses along with copies of the related invoices (and, if applicable, a letter from Indemnitees lawyers with respect to redactions on the legal invoice(s)), Company shall advance the Expenses to Indemnitee as soon as reasonably practicable, but in any event no later than thirty (30) days, after such receipt by the Company. This Section 10 shall not apply to any claim made by Indemnitee for which indemnity is excluded pursuant to Section 16 of this Agreement.
11. | Maintenance of Insurance; Funding . |
(a) The Company represents that a summary of the terms of the D&O Insurance in effect as of the date of this Agreement is attached hereto as Exhibit A (the Insurance Policies ). Subject only to the provisions of Section 11(b) hereof, the Company agrees that, so long as Indemnitee shall continue to serve as an officer or director of the Company (or shall continue at the request of the Company to serve as a director, officer, employee, trustee or representative of another corporation, partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan) and thereafter so long as Indemnitee shall be subject to any possible Proceeding, by reason of Indemnitees Corporate Status, the Company shall purchase and maintain in effect for the benefit of Indemnitee one or more valid, binding and enforceable policy or policies of D&O Insurance providing coverage at least comparable to that provided pursuant to the Insurance Policies.
(b) The Company shall not be required to maintain said policy or policies of D&O Insurance in effect if, in the reasonable, good faith business judgment of the then Board of Directors of the Company (i) the premium cost for such insurance is substantially disproportionate to the amount of coverage, (ii) the coverage provided by such insurance is so limited by exclusions that there is insufficient benefit from such insurance or (iii) said insurance is not otherwise reasonably available; provided, however, that in the event the then Board of Directors makes such a judgment, the Company shall purchase and maintain in force a policy or policies of D&O Insurance in the amount and with such coverage as the then Board of Directors determines to be reasonably available. Notwithstanding the general provisions of this Section 11(b), following a Change of Control, any decision not to maintain any policy or policies of D&O Insurance or to reduce the amount or coverage under any such policy or policies shall be effective only if there are Unaffiliated Directors (as defined in Section 1(i) hereof) and shall require the concurrence of a majority of the Unaffiliated Directors.
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(c) If and to the extent the Company, acting under Section 11(b), does not purchase and maintain in effect the policy or policies of D&O Insurance described in Section 11(a), the Company shall indemnify and hold harmless the Indemnitee to the full extent of the coverage which would otherwise have been provided by such policies. The rights of the Indemnitee hereunder shall be in addition to all other rights of Indemnitee under the remaining provisions of this Agreement.
(d) In the event of a Potential Change of Control and if and to the extent the Company is not required to maintain in effect the policy or policies of D&O Insurance described in Section 11(a) pursuant to the provisions of Section 11(b), the Company shall, upon written request of Indemnitee, create a Trust for the benefit of Indemnitee, and from time to time, upon written request by Indemnitee, shall fund such Trust in an amount sufficient to pay any and all Expenses and any and all liability and loss, including judgments, fines, and amounts paid or to be paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, fines and amounts paid in settlement) actually and reasonably incurred by him or on his behalf for which the Indemnitee is entitled to indemnification or with respect to which indemnification is claimed, reasonably anticipated or proposed to be paid in accordance with the terms of this Agreement or otherwise; provided that in no event shall more than $100,000 be required to be deposited in any Trust created hereunder in excess of the amounts deposited in respect of reasonably anticipated Expenses. The amounts to be deposited in the Trust pursuant to the foregoing funding obligation shall be determined by a majority of the Unaffiliated Directors whose determination shall be final and conclusive. At all times the Trust shall remain as an asset of the Company and subject to the claims of the Companys creditors.
The terms of the Trust shall provide that upon a Change of Control (i) the Trust shall not be revoked or the principal thereof invaded, without the written consent of the Indemnitee except as set forth in the preceding paragraph, (ii) the procedures set forth in Section 10 regarding advancement of expenses with respect to the Company shall apply to the Trust, (iii) the Trust shall continue to be funded by the Company in accordance with the funding obligation set forth above (and in the event that there are no Unaffiliated Directors, the decision regarding the amount to fund shall be made by Independent Counsel selected as provided in Section 9(c)), (iv) the Trustee shall promptly pay to the Indemnitee all amounts for which the Indemnitee shall be entitled to indemnification pursuant to this Agreement or otherwise, and (v) all unexpended funds in such Trust shall revert to the Company upon a final determination by a majority of the Unaffiliated Directors or by Independent Counsel or a court of competent jurisdiction, as the case may be, that the Indemnitee has been fully indemnified under the terms of this Agreement. The Trustee shall be a bank or trust company or other individual or entity chosen by the Indemnitee and reasonably acceptable and approved of by the Company.
12. | Remedies of Indemnitee . |
(a) Subject to Section 12(d), in the event that (i) a determination is made pursuant to Section 9 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 10 or 12(d) of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 9 of this Agreement within ninety (90) days after receipt by the Company of
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the request for indemnification, (iv) payment of indemnification pursuant to this Agreement is not made (A) within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification or (B) with respect to indemnification pursuant to Sections 4, 5 or 12(d) of this Agreement, within thirty (30) days after receipt by the Company of a written request therefor, or (v) the Company or any other person or entity takes or threatens to take any action to declare this Agreement void or unenforceable, or institutes any litigation or other Proceeding designed to deny, or to recover from, Indemnitee the benefits provided or intended to be provided to Indemnitee hereunder, Indemnitee shall be entitled to an adjudication by the Delaware Court of Chancery of Indemnitees right to such indemnification or advancement of Expenses. Alternatively, Indemnitee, at his or her option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. The Company shall not oppose Indemnitees right to seek any such adjudication or award in arbitration in accordance with this Agreement.
(b) The failure of the Company, its board of directors, any committee or subgroup of the board of directors, Independent Counsel or stockholders to have made a determination that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct shall not be a defense to the action or create a presumption that Indemnitee has or has not met the applicable standard of conduct. In the event that a determination shall have been made pursuant to Section 9 of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 12 shall be conducted in all respects as a de novo trial, or arbitration, on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination. In any judicial proceeding or arbitration commenced pursuant to this Section 12, the Company shall, to the fullest extent not prohibited by law, have the burden of proving Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be.
(c) To the fullest extent not prohibited by law, the Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 12 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement. If a determination shall have been made pursuant to Section 9 of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 12, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitees statements not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law.
(d) It is the intent of the Company that, to the fullest extent permitted by law, the Indemnitee shall not be required to incur legal fees or other Expenses associated with the interpretation, enforcement, or defense of Indemnitees rights under this Agreement by litigation or otherwise because the cost and expense thereof would substantially detract from the benefits intended to be extended to the Indemnity hereunder. The Company shall indemnify Indemnitee against any and all Expenses and, if requested by Indemnitee, shall (as soon as reasonably practicable, but in any event no later than thirty (30) days, after receipt by the Company of a written request therefor) advance such Expenses to Indemnitee, that are incurred by Indemnitee
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in connection with any action for indemnification or advancement of Expenses from the Company under this Agreement or under any directors and officers liability insurance policies maintained by the Company, to the extent Indemnitee is successful in such action and to the extent not prohibited by law.
(e) Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement to indemnification shall be required to be made prior to the final disposition of the Proceeding.
13. | Presumptions and Effect of Certain Proceedings . |
(a) In making a determination with respect to entitlement to indemnification hereunder, the person, persons or entity making such determination shall, to the fullest extent not prohibited by law, presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 9 of this Agreement, and the Company shall, to the fullest extent not prohibited by law, have the burden of proof to overcome that presumption in connection with the making by such person, persons or entity of any determination contrary to that presumption.
(b) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his or her conduct was unlawful.
(c) For purposes of any determination of good faith, Indemnitee shall be deemed to have acted in good faith to the extent Indemnitee relied in good faith on (i) the records or books of account of the Company, including financial statements, (ii) information supplied to Indemnitee by the officers of the Company in the course of their duties, (iii) the advice of legal counsel for the Company or its board of directors or counsel selected by any committee of the board of directors or (iv) information or records given or reports made to the Company by an independent certified public accountant, an appraiser, investment banker or other expert selected with reasonable care by the Company or its board of directors or any committee of the board of directors. The provisions of this Section 13(c) shall not be deemed to be exclusive or to limit in any way the other circumstances in which Indemnitee may be deemed to have met the applicable standard of conduct set forth in this Agreement.
(d) Neither the knowledge, actions nor failure to act of any other director, officer, agent or employee of the Company shall be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement.
14. Subrogation; No Duplication of Payments . In the event that the Company pays any Expenses under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of
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such documents necessary to enable the Company effectively to bring suit to enforce such rights. The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder (or for which advancement is provided hereunder) if and to the extent that Indemnitee has otherwise actually received payment from a third party for such amounts under any insurance policy, contract, agreement or otherwise; provided, however, that if the Indemnitee repays any of these payments to such third party (whether due to a reservation of rights or otherwise), the Company shall again be obligated to Indemnitee under this Agreement with respect to such payments.
15. Services to Company . Indemnitee agrees to serve as a director or officer of the Company for so long as Indemnitee is duly elected or appointed or until Indemnitee tenders his or her resignation. This Agreement shall not be deemed an employment contract between the Company (or any of its subsidiaries) and Indemnitee. Indemnitee specifically acknowledges that any employment with the Company (or any of its subsidiaries) is at will, and Indemnitee may be discharged at any time for any reason, with or without cause, with or without notice, except as may be otherwise expressly provided in any executed, written employment contract between Indemnitee and the Company (or any of its subsidiaries), any existing formal severance policies adopted by the Companys board of directors or, with respect to service as a director or officer of the Company, the Companys Certificate or Bylaws or the DGCL.
16. Exclusions . Notwithstanding the foregoing, the Company shall not be liable under this Agreement to pay any Expenses in connection with any Proceeding:
(a) for any reimbursement of the Company by Indemnitee of any bonus or other incentive-based or equity-based compensation or of any profits realized by Indemnitee from the sale of securities of the Company, as required in each case under the Securities Exchange Act of 1934, as amended (including any such reimbursements that arise from an accounting restatement of the Company pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act ), or the payment to the Company of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 306 of the Sarbanes-Oxley Act), if Indemnitee is held liable therefor (including pursuant to any settlement arrangements);
(b) for a disgorgement of profits made from the purchase and sale by the Indemnitee of securities pursuant to Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any state statutory law or common law;
(c) initiated by Indemnitee, including any Proceeding (or any part of any Proceeding) initiated by Indemnitee against the Company or its directors, officers, employees, agents or other indemnitees, unless (i) the Companys board of directors authorized the Proceeding (or the relevant part of the Proceeding) prior to its initiation, (ii) otherwise authorized in Section 12(d) or (iii) otherwise required by applicable law; or
(d) if prohibited by applicable law.
17. Amendments . The entitlement to payment hereunder of an Indemnitee shall not be affected or diminished by any amendment, termination or repeal of the General Corporation Law of the State of Delaware or the Bylaws of the Company with respect to any Proceeding
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arising out of or relating to any actions, transactions or facts occurring prior to the final adoption of any such amendment, termination or repeal. This Agreement may not be modified or altered except by a formal writing signed by both parties that specifically refers to this Agreement.
18. Counterparts . This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one instrument.
19. Indemnification Hereunder Not Exclusive . Nothing herein shall be deemed to diminish or otherwise restrict the Indemnitees right to indemnification under any provision of the Certificate or the Bylaws of the Company and amendments thereto or under law. Except as expressly set forth herein, no right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy. It is the intention of the parties in entering into this Agreement that the insurers under any D&O Insurance policy shall be obligated ultimately to pay any claims by Indemnitee which are covered by such policy and not to give such insurers any rights against the Company under or with respect to this Agreement, including, without limitation, any right to be subrogated to any of Indemnitees rights hereunder, unless otherwise expressly agreed to by the Company in writing, and the obligation of such insurers to the Company or Indemnitee shall not be deemed reduced or impaired in any respect by virtue of the provisions of this Agreement.
20. Governing Law . This Agreement shall be governed by and construed in accordance with Delaware law.
21. Saving Clause . Wherever there is conflict between any provision of this Agreement and any applicable present or future statute, law or regulation contrary to which the Company and the Indemnitee have no legal right to contract, the latter shall prevail but (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (b) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby but in such event the affected provisions of this Agreement shall be curtailed and restricted only to the extent necessary to bring them within applicable legal requirements.
22. Coverage; Continuation of Indemnity . The provisions of this Agreement shall apply with respect to all periods of the Indemnitees service as a Director or officer of the Company, whether occurring prior to or after the Effective Date of this Agreement, and even though the Indemnitee may have ceased to be a Director or officer of the Company, and shall inure to the benefit of the heirs, executors and administrators of Indemnitee. All agreements and
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obligations of the Company contained in this Agreement shall continue during the period the Indemnitee is a director or officer of the Company (or is or was serving at the request of the Company as a director, trustee, general partner, managing member, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust, limited liability company or other enterprise) and shall continue thereafter so long as the Indemnitee shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal or investigative, by reason of the fact that the Indemnitee was a director or officer of the Company or serving in any other capacity referred to herein.
23. Successors . This Agreement shall be binding upon the Company and its successors and assigns, including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company, and shall inure to the benefit of Indemnitee and Indemnitees heirs, executors and administrators. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, by written agreement, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.
24. | Miscellaneous . |
(a) No amendment, modification, termination or cancellation of this Agreement shall be effective unless in writing signed by both of the parties hereto; provided, however, that the Company may amend this Agreement from time to time without Indemnitees consent to the extent deemed necessary or appropriate, in its sole discretion, to effect compliance with Section 409A of the Code, including regulations and interpretations thereunder, which amendments may result in a reduction of benefits provided hereunder and/or other unfavorable changes to Indemnitee.
(b) This Agreement is intended to provide for the indemnification of, and/or purchase of insurance policies providing for payments of, expenses and damages incurred with respect to bona fide claims against the Indemnitee, as a service provider, or the Company, as the service recipient, in accordance with Treas. Reg. Section 1.409A-1(b)(10), pursuant to which the Agreement shall not provide for the deferral of compensation. The Agreement shall be construed consistently, and limited in accordance with, the provisions of such regulation.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, signed and effective as of the day and year first above written.
CONSOL MINING CORPORATION | ||
By: | ||
Name: | ||
Title: | ||
INDEMNITEE | ||
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[ Signature page to CONSOL Mining Corporation Indemnification Agreement ]
EXHIBIT A
D&O INSURANCE
[ ]
Exhibit 99.1
CONSOL Energy Inc. 1000 CONSOL Energy Drive, Canonsburg, PA 15317-6506 T (724) 485-4000 www.consolenergy.com |
Dear CONSOL Stockholders:
In December 2016, we announced our intention to separate CONSOL Energy Inc. (ParentCo) into two independent, publicly traded companies: a coal company and a natural gas exploration and production (E&P) company. This separation provides current stockholders ownership in two leading and focused companies, each positioned to capitalize on distinct opportunities for growth and profitability, and has been approved by our Board of Directors. The coal company will include our Pennsylvania Mining Complex (PAMC), our ownership interest in CNX Coal Resources LP (CNXC), our marine terminal at the Baltimore Port, our undeveloped coal reserves located in the Northern Appalachian, Central Appalachian and Illinois basins and certain related coal assets and liabilities (collectively, the Coal Business). The Coal Business is held by CONSOL Mining Corporation (CoalCo), which is currently a wholly owned subsidiary of ParentCo. The E&P company will include developed and undeveloped oil and gas properties, both leased and owned in fee, located primarily in Appalachia (Pennsylvania, West Virginia, Ohio and Virginia), with a primary focus in the continued development of Marcellus Shale acreage and the delineation and development of Utica Shale acreage, along with certain water services and land resource management services (collectively, the Gas Business). The Gas Business is held through subsidiaries of ParentCo separate from CoalCo.
Management believes that the separation and spin-off of the Coal Business will:
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improve business and operational decision-making and strategic and management focus for each respective business; |
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improve each companys ability to attract, retain and incentivize employees; |
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improve the Gas Businesss access to capital, while eliminating competition for capital among the two businesses; and |
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by creating an independent equity structure for each business, improve the understanding of each business in the capital and investor markets, lead to a stronger, more focused investor base for each business, allow each company to use its stock as consideration for acquisitions and enhance the value of its equity-based compensation programs, thereby enabling each business to more fully realize its value. |
To implement the separation, ParentCo currently plans to distribute all of the outstanding shares of CoalCo common stock on a pro rata basis to ParentCo stockholders. Each ParentCo stockholder will receive share(s) of CoalCo common stock for every share(s) of ParentCo common stock held by such stockholder of record as of the close of business on , 2017, the record date, in a distribution that is intended to qualify as generally tax-free to the ParentCo stockholders for U.S. federal income tax purposes, except with respect to any cash received in lieu of fractional shares. No fractional shares of CoalCo common stock will be issued. If you would otherwise have been entitled to receive a fractional share of common stock in the distribution, you will receive the net cash proceeds of the sale of such fractional share instead.
In conjunction with the separation, CoalCo will apply for authorization to list its common stock on the New York Stock Exchange under the symbol . Upon completion of the separation, each ParentCo stockholder as of the record date will continue to own shares of ParentCo and will own a pro rata share of the outstanding shares of common stock of CoalCo. The CoalCo common stock will be issued in book-entry form only, which means that no physical share certificates will be issued. No vote of ParentCo stockholders is required for the distribution.
You do not need to take any action to receive shares of CoalCo common stock to which you are entitled as a ParentCo stockholder, and you do not need to pay any consideration or surrender or exchange your ParentCo common stock. I invite you to read the enclosed information statement, which describes the spin-off in detail and provides other important business and financial information about CoalCo.
We believe the separation provides tremendous opportunities for our businesses and our stockholders, as we work to continue to build long-term shareholder value. Thank you for your continued support of CONSOL Energy and your future support of CoalCo.
Very truly yours,
Nicholas J. DeIuliis
President and Chief Executive Officer
CONSOL Mining Corporation 1000 CONSOL Energy Drive, Canonsburg, PA 15317-6506 T (724) 485-4000 |
Dear Future CONSOL Mining Corporation Stockholder:
I am excited to welcome you as a future stockholder of CONSOL Mining Corporation (CoalCo), a U.S.-based coal company focused on safely and compliantly producing and selling high-quality bituminous coal from the Northern Appalachian Basin. Our company and its predecessors have been successfully mining coal, primarily in Northern Appalachia, since 1864. We have established ourselves as a leading coal producer in the eastern United States due to our demonstrated ability to efficiently produce and deliver large volumes of high-quality coal with a low cost structure, the strategic location of our mines, our unique marketing strategy, and the industry experience of our management team.
CoalCo will own and operate the Pennsylvania Mining Complex (PAMC), which consists of three underground mines - Bailey, Enlow Fork, and Harvey - and related infrastructure. The PAMC has an annual production capacity of 28.5 million tons, and it controls approximately 767 million tons of proven and probable reserves (as of December 31, 2016). Coal from the PAMC can be sold domestically or abroad, as either high-Btu thermal coal or high-volatile crossover metallurgical coal. The complex includes five longwalls and 15-17 continuous miner sections, which allow us to mine large quantities of coal while maintaining a very competitive cost structure. In addition, CoalCo will own and operate the CNX Marine Terminal, which is located on 200 acres in the Port of Baltimore and gives us access to the seaborne markets for exporting thermal and metallurgical coal. The terminal has a throughput capacity of 15 million tons per year, and it is the only coal marine terminal on the East Coast to be served by two rail lines Norfolk Southern and CSX Transportation. Our management team has decades of experience in developing, operating, and expanding large-scale coal mining operations using the latest technology. Over the last several years, we have created a diversified portfolio of top-performing, environmentally-controlled, rail-served power plant customers in our core market areas in the eastern United States, while also opportunistically participating in the export and crossover metallurgical markets and employing a flexible operating strategy focused on delivering strong cash flows.
The assets of CoalCo, and the team that operates them, have consistently generated significant amounts of free cash flow and have withstood the recent volatility in the coal markets. The separation of CoalCo from ParentCo provides a new opportunity in that CoalCo will now be able to capitalize on its own free cash flow generation and strategic vision to build value for the CoalCo shareholders. Management intends to accomplish this by judiciously selecting from several options, including capitalizing on organic growth opportunities that exist within PAMC and the 1.6 billion tons of additional greenfield reserves that we control, pursuing acquisitions or other business arrangements that complement our operations and expertise, returning capital to our shareholders through dividends or share repurchases, or repaying any outstanding indebtedness. The separation from the combined E&P and coal entity will enable the CoalCo management team to foster its strategic goals and enhance value per share.
In connection with the separation, CoalCo will be renamed CONSOL Energy Inc., and we intend to list CoalCos common stock on the New York Stock Exchange under the symbol .
As we prepare to become a standalone company, we look to build upon our rich heritage, ready to seize the future and excel.
Sincerely,
James Brock
Chief Executive Officer
Information contained herein is subject to completion or amendment. A Registration Statement on Form 10 relating to these securities has been filed with the U.S. Securities and Exchange Commission under the U.S. Securities Exchange Act of 1934, as amended, but has not yet become effective.
Preliminary and Subject to Completion, dated October 6, 2017
INFORMATION STATEMENT
CONSOL Mining Corporation
This information statement is being furnished to the holders of common stock of CONSOL Energy Inc. (ParentCo) in connection with the distribution by ParentCo to its stockholders of all of the outstanding shares of common stock of CONSOL Mining Corporation (CoalCo or We). CoalCo is a wholly owned subsidiary of ParentCo that was formed to hold and operate ParentCos Pennsylvania Mining Operations (PAMC) and certain related coal assets, including ParentCos ownership interest in CNX Coal Resources LP (CNXC), which owns a 25% stake in PAMC, ParentCos terminal operations at the Port of Baltimore (the CNX Marine Terminal), undeveloped coal reserves and certain related coal assets and liabilities (collectively, the Coal Business). The Coal Business focuses primarily on the extraction, preparation and sale of coal in the Appalachian Basin. To implement the separation, ParentCo currently plans to distribute all of the outstanding shares of CoalCo common stock on a pro rata basis to ParentCo stockholders in a distribution that is intended to qualify as generally tax-free to the ParentCo stockholders for United States (U.S.) federal income tax purposes, except with respect to any cash received in lieu of fractional shares. We refer to the pro rata distribution of our common stock as the distribution.
The distribution is subject to certain conditions, as described in this information statement. You should consult your own tax advisor as to the particular consequences of the distribution to you, including the applicability and effect of any U.S. federal, state and local and non-U.S. tax laws.
For every share(s) of common stock of ParentCo held of record by you as of the close of business on , 2017, the record date for the distribution, you will receive share(s) of CoalCo common stock. You will receive cash in lieu of any fractional shares of CoalCo common stock that you would have received after application of the above ratio. We expect the shares of CoalCo common stock to be distributed by ParentCo to you on , 2017. We refer to the date of the distribution of CoalCo common stock as the distribution date. Until the separation occurs, CoalCo will be a wholly owned subsidiary of ParentCo and consequently, ParentCo will have the sole and absolute discretion to determine and change the terms of the separation, including the establishment of the record date for the distribution and the distribution date.
No vote of ParentCo stockholders is required to effect the distribution. Therefore, you are not being asked for a proxy, and you are requested not to send ParentCo a proxy, in connection with the distribution. You do not need to pay any consideration, exchange or surrender your existing shares of ParentCo common stock or take any other action to receive your shares of CoalCo common stock.
CoalCo was organized as a Delaware corporation on June 21, 2017. ParentCo currently owns all of the outstanding equity of CoalCo. Accordingly, there is no current trading market for CoalCo common stock, although we expect that a limited market, commonly known as a when-issued trading market, will develop on or shortly before the record date for the distribution. We expect regular-way trading of CoalCo common stock to begin on the first trading day following the distribution date. As discussed under The Separation and DistributionTrading Between the Record Date and the Distribution Date, if you sell your ParentCo common stock in the regular-way market after the record date and before the distribution date, you also will be selling your right to receive shares of CoalCo common stock in connection with the separation and distribution. CoalCo will change its name to CONSOL Energy Inc., and intends to have its common stock authorized for listing on the New York Stock Exchange (the NYSE) under the symbol . ParentCo will be renamed CNX Resources Corporation and will retain its current stock symbol CNX in connection with the separation.
In reviewing this information statement, you should carefully consider the matters described under the caption Risk Factors beginning on page 1.
Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this information statement is truthful or complete. Any representation to the contrary is a criminal offense.
This information statement does not constitute an offer to sell or the solicitation of an offer to buy any securities.
References in this information statement to specific codes, legislation or other statutory enactments are to be deemed as references to those codes, legislation or other statutory enactments, as amended from time to time.
The date of this information statement is , 2017.
This information statement was first made available to ParentCo stockholders on or about , 2017.
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SUMMARY HISTORICAL AND UNAUDITED PRO FORMA COMBINED FINANCIAL DATA |
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT |
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Presentation of Information
Unless the context otherwise requires:
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The information included in this information statement about CoalCo, including the Combined Financial Statements of CoalCo, which primarily comprise the assets and liabilities of ParentCos Pennsylvania Mining Complex (PAMC) and certain related coal assets, including ParentCos ownership interest in CNX Coal Resources LP (CNXC), which owns a 25% stake in PAMC, ParentCos terminal operations at the Port of Baltimore (the CNX Marine Terminal), undeveloped coal reserves and certain other coal-related assets and liabilities (collectively, the Coal Business), assumes the completion of all of the transactions referred to in this information statement in connection with the separation and distribution. |
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References in this information statement to the Pennsylvania Mining Complex or PAMC refers to coal mines, coal reserves and related assets and operations, located primarily in southwestern Pennsylvania and owned 75% by ParentCo and 25% by CNXC. |
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References in this information statement to CoalCo, we, our, us, our company and the company refer to CONSOL Mining Corporation, a Delaware corporation and its subsidiaries, after giving effect to the separation and distribution. |
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References in this information statement to ParentCo refer to CONSOL Energy Inc., a Delaware corporation, and its consolidated subsidiaries, including CoalCo and the Coal Business prior to completion of the separation. |
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References in this information statement to GasCo refer to ParentCo after the completion of the separation and the distribution, in connection with which ParentCo will change its name to CNX Resources Corporation, and at which time its business will comprise the oil and natural gas exploration and production (E&P) business, focused on Appalachian area natural gas and liquids activity, including production, gathering, processing and acquisition of natural gas properties in the Appalachian Basin (collectively the Gas Business). |
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References in this information statement to the separation refer to the separation of the Coal Business from ParentCos other businesses and the creation, as a result of the distribution, of an independent, publicly traded company, CoalCo, to hold the assets and liabilities associated with the Coal Business after the distribution. |
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References in this information statement to the distribution refer to the distribution of CoalCos issued and outstanding shares of common stock to ParentCo stockholders as of the close of business on the record date for the distribution. |
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References in this information statement to CoalCos per share data assume a distribution ratio of share(s) of CoalCo common stock for every share(s) of ParentCo common stock. |
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References in this information statement to CoalCos historical assets, liabilities, products, businesses or activities generally refer to the historical assets, liabilities, products, businesses or activities of the Coal Business as the business was conducted as part of ParentCo prior to the completion of the separation. |
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Industry Information
Unless indicated otherwise, the information concerning our industry contained in this information statement is based on CoalCos general knowledge of and expectations concerning the industry. CoalCos market position, market share and industry market size are based on estimates using CoalCos internal data and estimates, based on data from various industry analyses, our internal research and adjustments and assumptions. Industry publications and surveys generally state that the information contained therein has been obtained from sources that are believed to be reliable. While we have not been able to independently verify data from industry analyses, we believe based on managements knowledge that such information is sufficient and reliable for purposes of its inclusion within this information statement. Further, CoalCos estimates and assumptions involve risks and uncertainties and are subject to change based on various factors, including those discussed in the Risk Factors section. These and other factors could cause results to differ materially from those expressed in the estimates and assumptions.
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QUESTIONS AND ANSWERS ABOUT THE SEPARATION AND DISTRIBUTION
What is CoalCo and why is ParentCo separating CoalCos business and distributing CoalCo stock? |
CoalCo, currently a wholly owned subsidiary of ParentCo, was formed on June 21, 2017 to own and operate ParentCos Coal Business. The separation of CoalCo from ParentCo and the distribution of CoalCo common stock are intended, among other things, to (1) result in improved business and operational decision-making and greater strategic and management focus for each respective business; (2) improve each companys ability to attract, retain and incentivize employees; (3) improve access to capital for each business while eliminating competition for capital; and (4) create an independent equity structure for each business, resulting in an improved understanding of each business in the capital and investor markets, and a stronger, more focused investor base for each business. We believe that the separation will allow each business to more fully realize its value, and each company to use its stock as consideration for acquisitions and enhance the value of its equity-based compensation programs. ParentCo expects that the separation will result in enhanced long-term performance of each business for the reasons discussed in the sections entitled The Separation and DistributionReasons for the Separation. |
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Why am I receiving this document? |
ParentCo is delivering this document to you because you hold shares of ParentCo common stock. If you are a holder of shares of ParentCo common stock as of the close of business on , 2017, the record date of the distribution, you will be entitled to receive share(s) of CoalCo common stock for every share(s) of ParentCo common stock that you hold at the close of business on such date, resulting in a distribution of all of the outstanding shares of CoalCo common stock (without accounting for cash to be issued in lieu of fractional shares). This document will help you understand how the separation and distribution will affect your post-separation ownership in GasCo and CoalCo. |
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How will the separation of CoalCo from ParentCo work? |
As part of the separation, and prior to the distribution, ParentCo and its subsidiaries expect to complete an internal restructuring in order to transfer to CoalCo the assets and liabilities associated with the Coal Business that CoalCo will own following the separation. To accomplish the separation, ParentCo will, following the internal restructuring, distribute to its stockholders all of our common stock. Following the separation, the number of shares of ParentCo common stock you own will not change as a result of the separation. |
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What is the record date for the distribution? |
The record date for the distribution will be , 2017. |
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When will the distribution occur? |
We expect that the shares of CoalCo common stock will be distributed by ParentCo at , Eastern Time, on , 2017, to holders of record of shares of ParentCo common stock at the close of business on , 2017, the record date for the distribution. |
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What do stockholders need to do to participate in the distribution? |
Stockholders of ParentCo as of the record date for the distribution will not be required to take any action to receive CoalCo common stock in the distribution, but you are urged to read this entire information statement carefully. No stockholder approval of the distribution is required. You are not being asked for a proxy. You do not need to pay any consideration, exchange or surrender your existing shares of ParentCo common stock, or take any other action to receive your shares of CoalCo common stock. Please do not send in your ParentCo stock certificates. The distribution will not affect the number of outstanding shares of ParentCo common stock or any rights of ParentCo stockholders, although it will affect the market value of each outstanding share of ParentCo common stock. |
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How will shares of CoalCo common stock be issued? |
You will receive shares of CoalCo common stock through the same channels that you currently use to hold or trade shares of ParentCo common stock, whether through a brokerage account, 401(k) plan or other channel. Receipt of CoalCo shares will be documented for you in the same manner that you typically receive stockholder updates, such as monthly broker statements and 401(k) statements. |
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If you own shares of ParentCo common stock as of the close of business on the record date for the distribution, including shares owned in certificate form, ParentCo, with the assistance of Computershare Trust Company, N.A. (Computershare), the distribution agent, will electronically distribute shares of CoalCo common stock to you or to your brokerage firm on your behalf in book-entry form. Computershare will mail you a book-entry account statement that reflects your shares of CoalCo common stock, or your bank or brokerage firm will credit your account for the shares. |
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How many shares of CoalCo common stock will I receive in the distribution? |
ParentCo will distribute to you share(s) of CoalCo common stock for every share(s) of ParentCo common stock held by you as of close of business on the record date for the distribution. Based on approximately share(s) of ParentCo common stock outstanding as of , 2017, and applying the distribution ratio (without accounting for cash to be issued in lieu of fractional shares), a total of approximately shares of CoalCo common stock will be distributed to ParentCos stockholders. For additional information on the distribution, see The Separation and Distribution. |
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Will CoalCo issue fractional shares of its common stock in the distribution? |
No. CoalCo will not issue fractional shares of its common stock in the distribution. Fractional shares that ParentCo stockholders would otherwise have been entitled to receive will be aggregated and sold in the public market by Computershare. The net cash proceeds of these sales will be distributed pro rata (based on the fractional share such holder would otherwise be entitled to receive) to those stockholders who would otherwise have been entitled to receive fractional shares. Recipients of cash in lieu of fractional shares will not be entitled to any interest on the amounts of payment made in lieu of fractional shares. |
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What are the conditions to the distribution? |
The distribution is subject to the satisfaction (or waiver by ParentCo in its sole discretion) of the following conditions, among others:
the U.S. Securities and Exchange Commission (the SEC) declaring effective the registration statement of which this information statement forms a part; there being no order suspending the effectiveness of the registration statement in effect; and no proceedings for such purposes having been instituted or threatened by the SEC;
the mailing of this information statement or a notice of Internet availability of this information statement to ParentCo stockholders;
the receipt by ParentCo of a private letter ruling from the Internal Revenue Service (the IRS) and one or more opinions of its tax advisors, in each case satisfactory to the ParentCo Board of Directors, regarding certain U.S. federal income tax matters relating to the separation and distribution, including, with respect to the opinion of Wachtell, Lipton, Rosen & Katz, to the effect that the distribution will be a transaction described in Section 355(a) of the Internal Revenue Code (the Code);;
the internal reorganization having been completed and the transfer of assets and liabilities of the Coal Business from ParentCo to CoalCo, and the transfer of certain assets and liabilities of the Gas Business from CoalCo to ParentCo, having been completed in accordance with the separation and distribution agreement;
the receipt of one or more opinions from an independent appraisal firm to the ParentCo Board of Directors as to the solvency of ParentCo and CoalCo after the completion of the distribution, in each case in a form and substance acceptable to the ParentCo Board of Directors in its sole and absolute discretion; |
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all actions necessary or appropriate under applicable U.S. federal, state or other securities or blue sky laws and the rule and regulations thereunder having been taken or made and, where applicable, having become effective or been accepted;
the execution of certain agreements contemplated by the separation and distribution agreement;
no order, injunction or decree issued by any government authority of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the separation, the distribution or any of the related transactions being in effect;
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What is regular-way and ex-distribution trading of ParentCo common stock? |
Beginning on or shortly before the record date for the distribution and continuing up to and through the distribution date, we expect that there will be two markets in ParentCo common stock: a regular-way market and an ex-distribution market. ParentCo common stock that trades in the regular-way market will trade with an entitlement to shares of CoalCo common stock distributed pursuant to the distribution. Shares that trade in the ex-distribution market will trade without an entitlement to CoalCo common stock distributed pursuant to the distribution. If you decide to sell any shares of ParentCo common stock before the distribution date, you should make sure your stockbroker, bank or other nominee understands whether you want to sell your ParentCo common stock with or without your entitlement to CoalCo common stock pursuant to the distribution. |
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Where will I be able to trade shares of CoalCo common stock? |
CoalCo intends to apply for authorization to list its common stock on the NYSE under the symbol . CoalCo anticipates that trading in shares of its common stock will begin on a when-issued basis on or shortly before the record date for the distribution and will continue up to and through the distribution date, and that regular-way trading in CoalCo common stock will begin on the first trading day following the completion of the distribution. If trading begins on a when-issued basis, you may purchase or sell CoalCo common stock up to and through the distribution date, but your transaction will not settle until after the distribution date. CoalCo cannot predict the trading prices for its common stock before, on or after the distribution date. |
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What will happen to the listing of ParentCo common stock? |
ParentCo common stock will continue to trade on the NYSE after the distribution under its current stock symbol CNX. ParentCo will be renamed CNX Resources Corporation upon completion of the separation and distribution. |
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Will the number of shares of ParentCo common stock that I own change as a result of the distribution? |
No. The number of shares of ParentCo common stock that you own will not change as a result of the distribution. |
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Will the distribution affect the market price of my ParentCo common stock? |
Yes. As a result of the distribution, ParentCo expects the trading price of shares of GasCo common stock immediately following the distribution to be different from the regular-way trading price of ParentCo shares immediately prior to the distribution because the trading price will no longer reflect the value of the Coal Business. There can be no assurance whether the aggregate market value of the GasCo common stock and the CoalCo common stock following the separation will be higher or lower than the market value of ParentCo common stock if the separation did not occur. This means, for example, that the combined trading prices of a share of GasCo common stock and share(s) of CoalCo common stock after the distribution may be equal to, greater than or less than the trading price of a share of ParentCo common stock before the distribution. |
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What are the material U.S. federal income tax consequences of the separation and the distribution? |
It is a condition to the distribution that ParentCo receive a private letter ruling from the IRS and one or more opinions of its tax advisors, in each case satisfactory to the ParentCo Board of |
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Directors, regarding certain U.S. federal income tax matters relating to the separation and distribution, including, with respect to the opinion of Wachtell, Lipton, Rosen & Katz, to the effect that the distribution will be a transaction described in Section 355(a) of the Code. Accordingly, it is expected that you generally will not recognize any gain or loss, and no amount will be included in your income, upon your receipt of CoalCo common stock pursuant to the distribution. You will, however, recognize gain or loss for U.S. federal income tax purposes with respect to cash received in lieu of a fractional share of CoalCo common stock. |
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You should consult your own tax advisor as to the particular consequences of the distribution to you, including the applicability and effect of any U.S. federal, state and local tax laws, as well as any foreign tax laws. For more information regarding the material U.S. federal income tax consequences of the distribution, see the section entitled Material U.S. Federal Income Tax Consequences. |
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What will CoalCos relationship be with GasCo following the separation? |
Following the distribution, ParentCo stockholders will own all of the outstanding shares of CoalCo common stock, and CoalCo will be a separate company from ParentCo. CoalCo will enter into a separation and distribution agreement with ParentCo to effect the separation and to provide a framework for CoalCos relationship with GasCo after the separation, and will enter into certain other agreements, including but not limited to a transition services agreement, a tax matters agreement, an employee matters agreement, an intellectual property matters agreement and other agreements related to operations of CoalCo post-separation. We intend to include more information on these agreements in one or more amendments to this information statement. These agreements will provide for the allocation between CoalCo and GasCo of the assets, employees, liabilities and obligations (including investments, property and employee benefits and tax-related assets and liabilities) of ParentCo and its subsidiaries attributable to periods prior to, at and after CoalCos separation from ParentCo and will govern the relationship between CoalCo and GasCo subsequent to the completion of the separation. For additional information regarding the separation and distribution agreement and other transaction agreements, see the sections entitled Risk FactorsRisks Related to the Separation and Certain Relationships and Related Party Transactions. |
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Who will manage CoalCo after the separation? |
Led by James Brock, CoalCos management team will possess deep knowledge of, and extensive experience in, the coal industry generally. For more information regarding CoalCos directors and management, see Management and Board of Directors Following the Separation. |
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Are there risks associated with owning CoalCo common stock? |
Yes. Ownership of CoalCo common stock is subject to both general and specific risks relating to CoalCos business, the coal industry in which it operates, its ongoing contractual relationships with GasCo |
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and its status as a separate, publicly traded company. Ownership of CoalCo common stock is also subject to risks relating to the separation. Certain of these risks are described in the Risk Factors section of this information statement, beginning on page 1. We encourage you to read that section carefully. |
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Does CoalCo plan to pay dividends? |
The declaration and payment of any dividends in the future by CoalCo with respect to the common stock will be subject to the sole discretion of our Board of Directors and will depend upon many factors. See Dividend Policy. |
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How will equity-based and other long-term incentive compensation awards held by ParentCo employees be affected as a result of the separation? |
The currently anticipated treatment of equity-based and other long-term incentive compensation awards that may be held by our named executives as of the time of separation is discussed under the section entitled, The Separation and Distribution Treatment of Equity-Based Compensation. Additional information regarding the treatment of such awards is included in the Employee Matters Agreement, the form of which is filed as Exhibit 2.3 hereto. |
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Will CoalCo incur any indebtedness prior to or at the time of the distribution? |
Subject to market conditions and other factors, prior to or concurrent with the separation, CoalCo intends to secure new borrowings from third-party financing sources, a portion of which is anticipated to be distributed to GasCo. See Description of Material Indebtedness and Risk FactorsRisks Related to Our Business. |
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Who will be the distribution agent for the distribution and transfer agent and registrar for CoalCo common stock? |
The distribution agent, transfer agent and registrar for the CoalCo common stock will be Computershare Trust Company, N.A. For questions relating to the transfer or mechanics of the stock distribution, you should contact toll free at or non-toll free at . |
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Where can I find more information about ParentCo and CoalCo? |
Before the distribution, if you have any questions relating to ParentCos business performance, you should contact:
CONSOL Energy Inc. 1000 CONSOL Energy Drive Canonsburg, PA 15317-6506 Attention: Investor Relations
After the distribution, CoalCo stockholders who have any questions relating to CoalCos business performance should contact CoalCo at:
CoalCo [Address] Attention: Investor Relations
The CoalCo investor website ( www. .com ) will be operational on or around , 2017. The CoalCo website and the information contained therein or connected thereto are not incorporated into this information statement or the registration statement of which this information statement forms a part, or in any other filings with, or any information furnished or submitted to, the SEC. |
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The following is a summary of material information discussed in this information statement. This summary may not contain all the details concerning the separation or other information that may be important to you. To better understand the separation and distribution and CoalCos business and financial position, you should carefully review this entire information statement. Unless the context otherwise requires, the information included in this information statement about CoalCo, including the Combined Financial Statements of CoalCo, assumes the completion of all of the transactions referred to in this information statement in connection with the separation and distribution. Unless the context otherwise requires, references in this information statement to CoalCo, we, us, our, our company and the company refer to CONSOL Mining Corporation, a Delaware corporation, and its subsidiaries. Unless the context otherwise requires, references in this information statement to ParentCo refer to CONSOL Energy Inc., a Delaware corporation, and its consolidated subsidiaries, including the Coal Business prior to completion of the separation and GasCo refers to the ParentCo entity and operations following the separation.
Unless the context otherwise requires, references in this information statement to our historical assets, liabilities, products, businesses or activities of our businesses are generally intended to refer to the historical assets, liabilities, products, businesses or activities of ParentCos Pennsylvania Mining Operations (PAMC), ParentCos ownership interest in CNX Coal Resources LP (CNXC) which owns a 25% stake in PAMC, the CNX Marine Terminal, and the undeveloped coal reserves located in the Northern Appalachian, Central Appalachian and Illinois basins (the Greenfield Reserves), as such operations were conducted as part of ParentCo prior to completion of the separation.
Our Company
We are a leading, low-cost producer of high-quality bituminous coal from the Northern Appalachian Basin (NAPP) with excellent access to major U.S. and international coal markets and a highly experienced management team. Our company and its predecessors have been mining coal, primarily in NAPP, since 1864. We have the capacity to produce up to 28.5 million tons per year of thermal and crossover metallurgical coal from our PAMC, which consists of three highly productive, well-capitalized underground mines in the Pittsburgh No. 8 coal seam and the largest coal preparation plant in the United States. Coal from the PAMC is valued because of its high energy content (as measured in British thermal units, or Btu, per pound), relatively low levels of sulfur and other impurities, and strong thermoplastic properties that enable it to be used in metallurgical as well as thermal applications. We take advantage of these desirable quality characteristics and our extensive logistical network, which is directly served by both the Norfolk Southern and CSX railroads, to aggressively market our product to a broad base of strategically-selected, top-performing power plant customers in the eastern United States. We also capitalize on the operational synergies afforded by our wholly-owned CNX Marine Terminal in the Port of Baltimore to export our coal to thermal and metallurgical end-users in Europe, Asia, South America, and Canada. Our operations, including the PAMC and the CNX Marine Terminal, have consistently generated strong free cash flows. The PAMC controls 766.7 million tons of high-quality Pittsburgh seam reserves (as of December 31, 2016), enough to allow for approximately 27 years of full-capacity production. In addition, we own or control approximately 1.6 billion tons of Greenfield Reserves in the eastern United States that could provide us with a solid growth platform in the future. Our vision is to maximize cash flow generation through the safe, compliant, and efficient operation of this world-class core asset base, while strategically reducing debt, returning capital through share buybacks or dividends, and when prudent, allocating capital toward compelling growth opportunities.
Our corporate structure and ownership interests are shown in the figure below. Our major assets include:
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~90% economic ownership and full operational control of the PAMC, consisting of: |
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75% undivided interest in the PAMC; |
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~60% limited partner interest, a 1.7% general partner interest (reflecting 100% of the general partner units) and incentive distribution rights in CNX Coal Resources LP (referred to herein as CNXC), a growth-oriented master limited partnership formed in 2015 to manage and further develop our active coal operations in Pennsylvania, and which owns the remaining 25% stake in PAMC; |
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the CNX Marine Terminal; and |
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1.6 billion tons of Greenfield Reserves in NAPP, the Central Appalachian Basin (CAPP), and the Illinois Basin (ILB). |
These assets and the diverse markets they serve provide robust flexibility for generating cash across a wide variety of demand and pricing scenarios. This flexibility begins with the low-cost structure and optionality afforded by our PAMC. The three mines at the PAMC, which include the Bailey, Enlow Fork, and Harvey mines, produce coal from the Pittsburgh No. 8 Coal Seam using longwall mining, a highly automated underground mining technique that produces large volumes of coal at lower costs compared to alternative mining methods. These three mines collectively operate five longwalls, and the production from all three mines is processed at a single, centralized preparation plant, which is connected via conveyor belts to each mine. The Bailey Central Preparation Plant, which can clean and process up to 8,200 raw tons of coal per hour, provides economies of scale while also maintaining the ability to segregate and blend coals based on quality. This infrastructure enables us to tailor our production levels and quality specifications to meet market demands. It also results in a highly productive, low-cost operation as compared to other NAPP coal mines. The PAMC was the most productive longwall operation in NAPP during 2015-2016, producing 6.77 tons of coal per employee hour, compared with an average of 4.94 tons per employee hour for all other currently-operating NAPP longwalls. Our high productivity helps drive a low cost structure, which according to Wood Mackenzie was in the first quartile
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among NAPP coal mines in 2016. Our efficiency strengthens our margins throughout the commodity cycle, and has allowed us to continue to generate positive margins even in challenging pricing environments.
Coal from the PAMC is versatile in that it can be sold either domestically or abroad, in the thermal coal market or as a crossover product in the high-volatile metallurgical coal market. Domestically, we have a well-established and diverse blue chip customer base, the majority of which is comprised of domestic utility companies located across the eastern United States. In 2016, we shipped coal to 38 plants located in 18 eastern U.S. states. As of June 30, 2017, the PAMCs committed and contracted portfolio, on a 100% basis (i.e., total production of PAMC), represented approximately 95% and 68% of projected sales for the years ending December 31, 2017 and 2018, respectively. These committed and contracted sales positions represent the volumes that we currently expect our customers will take under our existing contracts in each of 2017 and 2018, given current market conditions. Certain of our sales contracts include provisions that allow our customers to nominate additional volumes at their option, to carry a portion of their committed tonnage over from one calendar year into a future year, or to
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increase or decrease their volume commitment for a given time period (e.g., year or quarter) within a specified tonnage range. Each of these provisions could have an impact within each contract, either positively or negatively, on the volume of coal that we are required to deliver under said contracts.
We also sell coal under both short-term and multi-year contracts (as well as in the spot market) that may contain base prices that are subject to pre-established price adjustments that reflect (i) variances in the quality characteristics of coal delivered to the customer beyond threshold quality characteristics specified in the applicable sales contract, (ii) the actual calorific value of coal delivered to the customer, and/or (iii) changes in electric power prices in the markets in which CoalCos customers operate, as adjusted for any factors set forth in the applicable contract. Such price adjustments, as well as price reopener or similar provisions in our multi-year coal sales contracts discussed above, may reduce the protection from coal price volatility traditionally provided by coal supply contracts. We believe our committed and contracted position is well-balanced in hedging against market downside risk while allowing us to continue to build out the customer portfolio strategically and opportunistically as the market evolves.
Going forward, we plan to continue to execute our sales strategy of targeting top-performing, environmentally-controlled, rail-served power plants in our core market areas in the eastern United States. Our top 15 domestic power plant customers in 2016, which accounted for 82% of our domestic power plant shipments that year, operated at a 15 percentage point higher capacity factor than other NAPP rail-served plants in 2016, and have consistently consumed more than 50 million tons of coal per year over the past five years. We have grown our share at these plants from 12% in 2011 to 32% in 2016, and we believe that we can continue to grow this share. Our customer plants consume coal from all four primary coal producing basins in the United States. However, we believe that we are favorably positioned to compete with producers from these basins primarily because of: (i) our significant transportation cost advantage compared to producers in the ILB and the Powder River Basin (PRB), which incur higher rail transportation rates to deliver coal to many of our core market areas in the eastern United States, (ii) our favorable operating environment compared to producers in CAPP, where production has been declining and is expected to continue to decline primarily due to the basins high cost production profile, reserve degradation and difficult permitting environment, and (iii) the attractive quality characteristics of our coal, which enable us to compete for demand from a broader range of coal-fired power plants as compared to (x) mining operations in basins that typically produce coal with a comparatively lower heat content, such as the ILB and PRB, (y) mining operations in basins that typically produce coal with a comparatively higher sulfur content, such as the ILB and most areas in NAPP, and (z) mining operations in basins that typically produce coal with a comparatively higher chlorine content, such as certain areas in the ILB.
The PAMC and our 100%-owned CNX Marine Terminal allow us to participate in the international thermal and metallurgical coal markets. The CNX Marine Terminal provides coal transshipments directly from rail cars to ocean-going vessels for both PAMC and third-party shippers, and is the only coal marine terminal on the East Coast served by two rail lines (Norfolk Southern and CSX). Located on 200 acres, the terminal has a throughput capacity of 15 million tons per year, as well as extensive blending capabilities and significant ground storage capacity of 1.1 million tons. In 2016, approximately 8.1 million tons of coal were shipped through the CNX Marine Terminal, with approximately 61% of that amount having been produced at our PAMC. The ability to serve both domestic and international markets with premium thermal and crossover metallurgical coal provides us with significant diversification and optionality, allowing us to pursue upside while helping to minimize both pricing and volume risk. Since 2014, our domestic thermal shipments from the PAMC have ranged from 17.3 to 22.8 million tons per year, our export thermal shipments have ranged from 2.1 to 4.4 million tons per year, and our export metallurgical shipments have ranged from 1.2 to 2.0 million tons per year. After accounting for PAMC tons, the CNX Marine Terminal still has significant surplus capacity that may be used to generate additional revenue by providing services to third parties.
Finally, the 1.6 billion tons of Greenfield Reserves that we control in NAPP, CAPP, and ILB, which are in addition to the substantial reserve base associated with PAMC, feature both thermal and metallurgical reserves.
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Included among these are approximately 970 million tons of contiguous greenfield reserves associated with the River Mine and Mason Dixon projects, which are among the last remaining greenfield Pittsburgh No. 8 coal seam projects in the Northern Appalachian region, as well as both low-volatile and high-volatile metallurgical coal reserves. Our Greenfield Reserves provide additional optionality for organic growth or monetization as market conditions allow.
Industry Overview and Market Outlook
Coal is an abundant and relatively inexpensive natural resource that continues to play a critical role in the electric power generation and steelmaking industries, both in the United States and globally. Coal quality largely depends upon rank (which correlates with heat content, with anthracite, bituminous, sub-bituminous and lignite coal representing the highest to lowest ranking, respectively), level of impurities (such as ash, sulfur, chlorine, and other non-hydrocarbon constituents), and the presence or absence of coking properties. Thermal coal, which is sometimes referred to as steam coal, is primarily used by electric utilities and independent power producers to generate electricity, while metallurgical coal, which is sometimes referred to as coking coal, is primarily used by steel companies to produce metallurgical coke for use in the steel making process. Coal is also used in certain other industrial processes, such as cement kilns, blast furnaces, and electric arc furnaces, as a source of energy or carbon.
Thermal coal consumption patterns are influenced by many factors, including the demand for electricity, power generation infrastructure, transportation costs, governmental and environmental regulations, and technological developments, as well as the location, availability and cost of other sources of energy such as natural gas, nuclear power, and renewable sources of electricity generation such as hydroelectric, wind, and solar power. Demand for metallurgical coal, on the other hand, is influenced primarily by the worldwide demand for steel. Thermal coal produced in NAPP, where the PAMC is located, is marketed primarily to electric utilities in the eastern United States, as they tend to prefer to source coal with higher heat content at the lowest all-in cost.
Coal accounts for approximately 89% of U.S. fossil energy reserves on a Btu basis, according to the National Mining Association. According to the 2017 BP Statistical Review published in June 2017 (the BP Statistical Review), worldwide proven coal reserves totaled approximately 1,139 billion metric tons at 2016 year end. The United States has the largest proven reserve base in the world with approximately 252 billion metric tons, or 22.1% of total world proven coal reserves. According to the BP Statistical Review, U.S. coal reserves represent over 380 years of domestic supply based on 2016 production rates.
Coal is a major contributor to the worlds energy supply. According to the BP Statistical Review, coal represented approximately 28% of the worlds primary energy consumption in 2016, including approximately 16% and 49% of the regional energy consumption of the United States and the Asia Pacific Region, respectively.
In the United States, in particular, thermal coal continues to be an abundant, low-cost resource. A substantial portion of the power generation infrastructure in the United States remains coal-fired. Although recent environmental regulations together with low-cost natural gas and the subsidized buildout of renewable energy sources have eroded coals predominant market share, thermal coal is expected to remain a core fuel for electricity generation. Coals share of the U.S. electric power generation mix fell from 39% in 2014 to 30% in 2016, largely as a result of the aforementioned factors and abnormally mild winter weather in 2015-2016, which put additional downward pressure on gas and power prices. However, the U.S. Energy Information Administration (EIA) projects in its 2017 Annual Energy Outlook that coals share of the generation mix will rebound from 30% to 32% in 2021, while gass share declines from 35% to 28%, driven largely by rising gas prices and the prospects of a more favorable policy stance under the current U.S. presidential administration. The expectation of rising gas prices is supported by EIAs prediction that annual U.S. net exports of natural gas will grow by 4.6 Tcf from 2016-2021, and industrial demand for natural gas will grow by 0.8 Tcf, while production grows by just 4.4 Tcf.
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Globally, thermal coal demand from new generating capacity is expected to remain robust, particularly in the seaborne market. According to AMEs Q2 2017 Export Thermal Coal Strategic Market Study (AME Q2 2017 Thermal Coal Study), global seaborne thermal coal demand is forecast to grow at a CAGR of 2.6% between 2016 and 2030, slowing from the 4.4% CAGR witnessed between 2007 and 2016. Although Chinas government has communicated an intention to reduce its economys carbon intensity through greater energy efficiency and a more diversified energy mix, this is offset by Indias seaborne thermal coal demand, which is forecasted to grow at a CAGR of 4.5% between 2016 and 2030 due to robust infrastructure development and industrialization. AME expects India to be the largest source of demand for seaborne thermal coal by 2030 at approximately 20% of total global demand, as compared to approximately 15% in 2016. Moreover, electrification in other rapidly growing Southeast Asian countries is expected to serve as an additional strong source of future thermal coal demand due to coals cost-competitiveness relative to other fuels. As a result, according to the AME Q2 2017 Thermal Coal Study, thermal coals share of total primary energy demand globally is expected to remain relatively constant through 2030 at approximately 29%. As the long-term global demand for thermal coal in the Asia Pacific region continues to rise, however, use of low-quality thermal coal in those markets is expected to become increasingly less desirable as consumers continue to push for higher efficiencies and lower emissions. This interplay is expected to benefit U.S. coal exports, and we believe that it will especially benefit exports of coal from NAPP because of its high Btu content and its favorable access to export infrastructure.
In the seaborne metallurgical coal markets, on the other hand, persistent oversupply in recent years began to subside in 2016 due to a number of international developments impacting both demand and supply. Most importantly, in China, the combination of a stimulus package released by the Chinese government in early 2016 and supply side reforms restricting domestic coal mines to 276 days of operations (down from 330 days) resulted in a sharp increase in Chinese imports of metallurgical coal. According to AMEs Q2 2017 Export Metallurgical Coal Strategic Market Study (AME Q2 2017 Met Coal Study), Chinese imports of metallurgical coal increased 25% in 2016 compared to 2015 to reach 60.0 million metric tons. Coupled with weather-related production issues in Australia, hard coking coal prices reached the highest levels since 2011.
Coking coal prices have receded somewhat since their recent spike as supply has begun to return to the market from China and Australia. Nevertheless, the market is expected to remain well supported on the back of an expected growth in global demand for seaborne metallurgical coal from 2016 to 2030 at a CAGR of approximately 3.2%, according to AMEs Q2 2017 Met Coal Study. This trend is underpinned by the robust growth expected out of India, at a CAGR of approximately 7.8% from 2016-2030 according to AME, making the country the largest importer of metallurgical coal by 2023. Due to the strategic location and quality of its coal reserves, we believe NAPP coal is among the best-suited in the U.S. to take advantage of this expected uptick in global seaborne metallurgical coal demand.
Our Core Strengths
We believe we are well-positioned to successfully execute our business strategies because of the following competitive strengths:
Focus on free cash flow generation supported by industry-leading margins and optimized production levels
We intend to continue our focus on maintaining high margins by optimizing production from our high-quality reserves and leveraging our extensive logistics infrastructure and broad market reach. The PAMCs low-cost structure, high-quality product, favorable access to rail and port infrastructure, and diverse base of end-use customers allow it to move large volumes of coal at positive cash margins throughout a variety of market conditions. For example, despite challenging domestic market conditions in 2016, which caused total U.S. coal production to fall by 19% year-on-year, PAMC managed to grow production by 8%. For the year ended December 31, 2016, the PAMC generated an average cash margin per ton of $15.22 compared to the median cash margin per ton of $9.97 generated by other coal companies for domestic bituminous thermal coal operations,
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based on management review of publicly available data for the year ended December 31, 2016. Through our recent capital investment program, we have optimized our mining operations and logistics infrastructure to sustainably drive down our cash operating costs. Furthermore, our significant portfolio of multi-year, committed and priced contracts with our longstanding customer base will enhance our ability to sustain high margins in varied commodity price environments. We believe that these factors will help enable us to maintain higher margins per ton on average than our competitors and better position us to maintain profitability throughout commodity price cycles.
Extensive, High-Quality Reserve Base
The PAMC has extensive high-quality reserves of bituminous coal. We mine our reserves from the Pittsburgh No. 8 Coal Seam, which is a large contiguous formation of uniform, high-Btu coal that is ideal for high productivity, low-cost longwall operations. As of December 31, 2016, the PAMC included 766.7 million tons of proven and probable coal reserves that are sufficient to support at least 27 years of full-capacity production. The advantageous qualities of our coal enable us to compete for demand from a broader range of coal-fired power plants compared to mining operations in basins that typically produce coal with a comparatively lower heat content (ILB and PRB), higher sulfur content (ILB and most areas in NAPP) and higher chlorine content (certain areas of ILB). Our remaining reserves have an average as-received gross heat content of 12,970 Btu/lb (on an as-received basis), while production from the PRB, ILB, CAPP, and the rest of NAPP averages approximately 8,700 Btu/lb, 11,400 Btu/lb, 12,200 Btu/lb, and 12,000 Btu/lb, respectively (based on the average quality reported by EIA for U.S. power plant deliveries for the three years ended October 31, 2016). Moreover, our remaining reserves have an average sulfur content of 2.38% (on an as-received basis), while production from the Illinois Basin averages ~2.9% sulfur and production from the rest of NAPP averages ~3.1% sulfur (again based on EIA power plant delivery data for the three years ended October 31, 2016). With our high Btu content and low-cost structure, our 2016 total costs averaged $1.32 per mmBtu, which is lower than any monthly average Louisiana Henry Hub natural gas spot price during the past 20+ years, and provides a strong foundation for competing against natural gas even after accounting for differences in delivered costs and power plant efficiencies. In addition to the substantial reserve base associated with the PAMC, our 1.6 billion tons of Greenfield Reserves in NAPP, CAPP, and ILB feature both thermal and metallurgical reserves and provide additional optionality for organic growth or monetization as market conditions allow.
World-Class, Well-Capitalized, Low-Cost Longwall Mining Complex
Since 2006, we have invested over $2.0 billion at the PAMC to develop technologically advanced, large-scale longwall mining operations and related production and logistics infrastructure. We also have permanently sealed off 80 square miles of already-mined area, reducing the active areas of the mine to just 24.4 square miles and significantly limiting the area that we must ventilate and maintain. As a result, the PAMC is the most productive and efficient coal mining complex in NAPP, averaging 6.77 tons of coal production per employee hour in 2015-2016, compared to 4.94 tons of coal production per employee hour for other currently-operating NAPP longwall mines. We believe our substantial capital investment in the PAMC will enable us to maintain high production volumes, low operating costs and a strong safety and environmental compliance record, which we believe are key to supporting stable financial performance and cash flows throughout business and commodity price cycles. As a result, we expect to be able to mine the remaining 27+ years of reserves at the PAMC with only maintenance-of-production levels of capital expenditure.
Strategically Located Mining Operations with Advanced Distribution Capabilities and Excellent Access to Key Logistics Infrastructure
Our logistics infrastructure and proximity to coal-fired power plants in the eastern United States provide us with operational and marketing flexibility, reduce the cost to deliver coal to our core markets, and allow us to realize higher netback prices. We believe that we have a significant transportation cost advantage compared to many of
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our competitors, particularly producers in the ILB and PRB, for deliveries to customers in our core markets and to East Coast ports for international shipping. For example, based on publicly available data and internal estimates, we believe that the transportation cost advantage from our mines compared to ILB mines (not accounting for Btu differences) is approximately $3 to $8 per ton for coal delivered to foreign consumers in Europe and India, $4 to $8 per ton for coal delivered to domestic customers in the Carolinas, and an even more pronounced cost advantage for coal delivered to domestic customers in the mid-Atlantic states. Our ability to accommodate multiple unit trains at the Bailey Central Preparation Plant, which includes a dual-batch loadout facility capable of loading up to 9,000 tons of clean coal per hour and 19.3 miles of track with three sidings, allows for the seamless transition of locomotives from empty inbound trains to fully loaded outbound trains at our facility. Furthermore, the PAMC has among the best access to export infrastructure in the United States. Through our 100%-owned CNX Marine Terminal, served by both the Norfolk Southern and CSX railroads, we are able to participate in the worlds seaborne coal markets with premium thermal and crossover metallurgical coal, providing tremendous optionality.
Strong, Well-Established Customer Base Supporting Contractual Volumes
We have a well-established and diverse blue chip customer base, comprised primarily of domestic electric-power-producing companies located in the eastern United States. We have had success entering into multi-year coal sales agreements with our customers due to our longstanding relationships, reliability of production and delivery, competitive pricing and high coal quality. About 90% of our sales in 2016 were to customers that were in our 2015 portfolio, and each of our top 15 domestic power plant customers in 2016 have been in our portfolio for at least three consecutive years. In addition, to mitigate our exposure with respect to coal-fired power plant retirements, we have strategically developed our customer base to include power plants that are economically positioned to continue operating for the foreseeable future and that are equipped with state-of-the-art environmental controls. In 2016, approximately 5% of our total sales were to domestic power plant customers that have announced plans to retire between 2017 and 2023. Moreover, none of our top 15 customer plants, which accounted for 82% of our domestic power plant shipments in 2016, have announced plans to retire. These top 15 plants operated at a 15 percentage point higher capacity factor than other NAPP rail-served plants in 2016, highlighting their economic competitiveness even in a challenging power market. In addition to our robust domestic customer base, we also have favorable access to seaborne coal markets through a long-standing commercial and contractual relationship with a leading coal trading and brokering company, Xcoal Energy & Resources, that maintains a broad market presence with foreign coal consumers. We have consistently exported 3.4 to 5.6 million tons of PAMC coal to the seaborne thermal and crossover metallurgical markets in each of the past 5+ years.
Highly Experienced Management Team and Operating Team
Our management and operating teams have (i) significant expertise owning, developing and managing complex thermal and metallurgical coal mining operations, (ii) valuable relationships with customers, railroads and other participants across the coal industry, (iii) technical wherewithal and demonstrated success in developing new applications and customers for our coal products, in both the thermal and metallurgical markets, and (iv) a proven track record of successfully building, enhancing and managing coal assets in a reliable and cost-effective manner throughout all parts of the commodity cycle. We intend to leverage these qualities to continue to successfully develop our coal mining assets while efficiently and flexibly managing our operations to maximize operating cash flow.
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Our Strategy
Our strategy is to safely and compliantly operate our assets to increase shareholder value through the execution of our strategic objectives:
Selectively pursue growth opportunities that maximize shareholder value by capitalizing on synergies with our assets and expertise
We plan to judiciously direct the cash generated by our operations toward those opportunities that present the greatest potential for value creation to our shareholders, particularly those that take advantage of synergies with our asset base and/or with the expertise of our management team. To effectuate this, we plan to regularly and rigorously evaluate opportunities both for organic growth and for acquisitions, joint ventures, and other business arrangements in the coal industry and related industries that complement our core operations. In addition, our ownership interest in CNXC provides us with a unique vehicle for generating cash and raising capital, through the potential future drop down of assets into CNXC, which if utilized will allow us to generate cash to assist in the execution of our growth strategy. Both the PAMC and our Greenfield Reserves present the potential for organic growth projects if long-term market conditions are favorable. For example, we are currently evaluating a project to improve the recovery and processing of fine coal from the Bailey Central Preparation Plant, which has the potential to add up to 1.5 million tons per year of additional clean coal production without additional mining of raw tons. Moreover, the Harvey Mines existing infrastructure, including its bottom development, slope belt, and material handling system, is able to support an additional permanent longwall mining system with moderate additional capital investment in mining equipment. Such an investment would further increase the annual production capacity of the PAMC by 5 million tons. Our Greenfield Reserves associated with the Mason Dixon and River Mine projects present additional organic growth opportunities in NAPP, and our Greenfield Reserves associated with the Itmann Mine, Martinka Mine, and Birch Mine provide actionable organic growth opportunities in the metallurgical coal space, should market conditions warrant. Our management team is well-qualified to evaluate organic and external growth opportunities. We intend to prudently use our interest in CNXC to benefit our growth strategy, and plan to carefully weigh any capital investment decisions against alternate uses of the cash to help ensure we are delivering the most value to our shareholders.
Continue to grow our share at top-performing rail-served power plants in our core market areas, while opportunistically pursuing export and crossover metallurgical opportunities
We plan to seek to minimize our market risk and maximize realizations by continuing to focus on selling coal to strategically-selected, top-performing, rail-served power plants located in our core market areas in the eastern United States. Our top 15 power plant customers in 2016 have consistently consumed more than 50 million tons of coal per year in each of the past five years, have operated at a greater capacity factor than other NAPP rail-served plants, and have not announced plans to retire. We have grown our share at these plants from 12% in 2011 to 32% in 2016, and we believe we can continue to grow this share by displacing less competitive supply from NAPP, CAPP, and other basins. We also plan to continue to work on identifying and penetrating new customer plants that we believe are aligned with our strategic objectives and would be a good fit for our coal. To this end, we tested PAMC coal at five new customer plants in 2016. While the majority of our production is directed toward our established base of domestic power plant customers, many of which are secured through annual or multi-year contracts, we also plan to continue to flexibly and opportunistically place a smaller portion of our production in shorter-term opportunities in the export and crossover metallurgical markets. These markets provide us with pricing upside when markets are strong and with volume stability when markets are weak. As of June 30, 2017, the PAMCs committed and contracted portfolio, on a 100% basis, represented approximately 95% and 68% of projected sales for calendar years 2017 and 2018, respectively. We believe our committed and contracted position is well-balanced in hedging against market downside risk while allowing us to continue to build out our portfolio strategically and opportunistically as the market evolves.
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Drive operational excellence through safety, compliance, and continuous improvement
We intend to continue focusing on our core values of safety, compliance and continuous improvement. We operate some of the most productive, lowest-cost underground mines in the coal industry, while simultaneously setting some of the industrys highest standards for safety and compliance. From 2013 through 2016, our Mine Safety and Health Administration (MSHA) reportable incident rate was approximately 42% lower than the national average underground bituminous coal mine incident rate. Furthermore, our MSHA significant and substantial (S&S) citation rate per 100 inspection hours was approximately 23.5% lower than the industrys average MSHA S&S citation rate over the twelve-month period ended June 30, 2017. We believe that our focus on safety and compliance promotes greater reliability in our operations, which fosters long-term customer relationships and lower operating costs that support higher margins. Consistent with our core value of continuous improvement, we have improved our productivity from 5.69 tons per employee hour in 2014 to 7.31 tons per employee hour in 2016, and have reduced our cash costs of coal sold per ton by 22.6% over this same period. We intend to continue to grow the economic competiveness of our operations by proactively identifying, pursuing, and implementing efficiency improvements and new technologies that can drive down unit costs without compromising safety or compliance.
Ability to Grow Cash Flow through Drop-Downs into CNXC
Our controlling ownership interest in CNX Coal Resources LP provides us with a unique vehicle for generating cash and raising capital to pursue our growth strategy. Over time we may drop down assets into CNXC. We believe that such drop-downs, if utilized, would allow us to grow CNXCs ability to make distributions and potentially increase the value of the common units, preferred units and incentive distribution rights of CNXC that we hold. Furthermore, the cash generated from these drop-downs could help us to accelerate the execution of our growth strategy. Finally, we believe that our different classes of securities (C-Corp and MLP) provide us with multiple options for accessing capital markets and taking advantage of the best available cost of capital at any given point in time. We believe this is a unique advantage for us compared to other companies in the coal industry.
Risks Associated with Our Business
An investment in our company is subject to a number of risks, including risks relating to our business, risks related to the separation and risks related to our common stock. Set forth below is a high-level summary of some, but not all, of these risks. Please read the information in the section captioned Risk Factors, beginning on page 1 of this information statement, for a more thorough description of these and other risks.
Risks Related to Our Business
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Deterioration in the global economic conditions in any of the industries in which our customers operate, foreign currency fluctuations, a worldwide financial downturn, or negative credit market conditions may have a materially adverse effect on our liquidity, results of operations, business and financial condition that we cannot predict. |
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Volatility of coal prices, which can fluctuate widely based upon a number of factors beyond our control including oversupply, weather and the price and availability of alternative fuels. |
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Risks related to our customer contracts, including failure to extend, renew or obtain new contracts, the terms of such contracts, and our ability to collect payments under the contracts, all of which could adversely affect CoalCo profitability. |
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The multiple sources of competition that our business faces, both within the coal industry itself, and also as it relates to alternative fuel sources, can negatively impact our financial results and results of operations. |
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Our required compliance and adherence to various environmental, safety and other governmental regulations and requirements impacts our business, and failure to obtain, maintain and renew governmental permits and approvals and effectuate other required governmental compliance may adversely affect our operations and our profitability. |
Risks Related to the Separation
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Our historical and pro forma financial information is not necessarily representative of the results that we would have achieved as a separate, publicly traded company and may not be a reliable indicator of our future results. |
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We may not achieve some or all of the expected benefits of the separation, and the separation may materially adversely affect our business. |
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Our plan to separate into two independent publicly traded companies is subject to various risks and uncertainties and may not be completed in accordance with the expected plans or anticipated timeline, or at all, and will involve significant time and expense, which could disrupt or adversely affect our business. |
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The combined post-separation value of share(s) of GasCo common stock and share(s) of CoalCo common stock may not equal or exceed the pre-distribution value of share(s) of ParentCo common stock. |
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In connection with our separation from ParentCo, ParentCo will indemnify us for certain liabilities and we will indemnify ParentCo for certain liabilities. If we are required to pay under these indemnities to ParentCo, our financial results could be negatively impacted. The ParentCo indemnity may not be sufficient to hold us harmless from the full amount of liabilities for which ParentCo will be allocated responsibility, and ParentCo may not be able to satisfy its indemnification obligations in the future. |
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If the distribution, together with certain related transactions, does not qualify as a transaction that is generally tax-free for U.S. federal income tax purposes, ParentCo, CoalCo and ParentCo stockholders could be subject to significant tax liabilities and, in certain circumstances, CoalCo could be required to indemnify ParentCo for material taxes and other related amounts pursuant to indemnification obligations under the tax matters agreement. |
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We may not be able to engage in certain corporate transactions after the separation. |
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The transfer to us of certain contracts and other assets may require the consents of, or provide other rights to, third parties. If such consents are not obtained, we may not be entitled to the benefit of such contracts and other assets, which could increase our expenses or otherwise harm our business and financial performance. |
Risks Related to Our Common Stock
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We cannot be certain that an active trading market for our common stock will develop or be sustained after the separation and, following the separation, our stock price may fluctuate significantly. |
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A significant number of shares of our common stock may be sold following the distribution which may cause our stock price to decline. |
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We cannot guarantee the timing, amount or payment of dividends on our common stock. |
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Provisions contained in our amended and restated certificate of incorporation and amended and restated bylaws could discourage a takeover attempt, which may reduce or eliminate the likelihood of a change of control transaction and, therefore, the ability of our stockholders to sell their shares for a premium. |
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Our amended and restated certificate of incorporation will designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which will limit our stockholders ability to obtain an alternative judicial forum for disputes with us or our directors, officers, employees or agents. |
The Separation and Distribution
In December 2016, ParentCo announced its intention to separate its Coal Business from its Gas Business. The separation will occur by means of a pro rata distribution to the ParentCo stockholders of all of the common stock of CoalCo.
CoalCo was formed on June 21, 2017 to hold ParentCos PAMC operations, CNX Marine Terminal, ParentCos ownership interest in CNXC, the Greenfield Reserves and certain other coal related assets and liabilities. Following the separation, CoalCo will hold the assets and liabilities of ParentCo relating to those businesses and assets and the direct and indirect subsidiary entities that currently operate the Coal Business, subject to certain exceptions. After the separation, GasCo will hold ParentCos E&P division and related businesses, including those assets and liabilities of ParentCo and its direct and indirect subsidiary entities that currently operate the Gas Business, subject to certain exceptions.
Following the distribution, CoalCo will be a separate company from GasCo.
On , 2017, the ParentCo Board of Directors approved the distribution of CoalCos common stock on the basis of share(s) of CoalCo common stock for every share(s) of ParentCo common stock held as of the close of business on , 2017, the record date for the distribution.
Internal Reorganization
We are currently a wholly owned subsidiary of ParentCo. In connection with the separation, ParentCo will transfer to us employees, operations, assets and liabilities associated with ParentCos Coal Business and certain other current and former businesses and activities of ParentCo.
ParentCo has taken and, prior to the distribution, will continue to implement a series of internal reorganization transactions to facilitate the transfers of entities and the related assets and liabilities described above from ParentCo and its subsidiaries to CoalCo. To the extent that any transfer of entities, employees, operations or assets or assumption of liabilities contemplated in connection with the separation and distribution has not been consummated on or prior to the distribution date, the parties will cooperate with each other to effect such transfers or assumptions in the manner set forth below under Certain Relationships and Related Party TransactionsAgreements with GasCoSeparation Agreement.
References in this information statement to the contribution refer to the transfer to CoalCo of the entities and related employees, operations, assets and liabilities of ParentCos Coal Business and certain other current and former businesses and activities of ParentCo.
CoalCos Post-Separation Relationship with GasCo
CoalCo will enter into a separation and distribution agreement with ParentCo (the separation agreement). In connection with the separation, we will enter into various agreements to effect the separation, and enter into other agreements, or amend or continue under existing agreements that may be in place, to provide a framework for our relationship with GasCo after the separation, including a transition services agreement, a tax matters agreement, an employee matters agreement, an intellectual property matters agreement, licensing agreements and other agreements related to operations of CoalCo post-separation. These agreements will provide for the allocation between CoalCo and GasCo of ParentCos assets, employees, liabilities and obligations (including investments, property and employee benefits and tax-related assets and liabilities) attributable to periods prior to, at and after our separation from ParentCo and will govern certain relationships between us and GasCo after the separation.
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For additional information regarding the separation agreement and other transaction agreements, see the sections entitled Risk FactorsRisks Related to the Separation and Certain Relationships and Related Party Transactions. For additional information regarding the internal reorganization, see the section entitled, The Separation and DistributionInternal Reorganization.
Reasons for the Separation
The ParentCo Board of Directors believes that separating its Coal Business from its Gas Business is in the best interests of ParentCo and its stockholders for a number of reasons, including:
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Management Focus and Strategic Decision Making . The separation will position each company to pursue a more focused, industry-specific strategy, will create additional operational flexibility for each company and will enable the management teams of each company to focus on strengthening its core business, operations and other needs, and pursue distinct and targeted opportunities for long-term growth and profitability. |
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Allocation of Financial Resources and Access to Capital . The separation will permit each company to efficiently allocate its capital to meet the unique needs of its own business, which will allow each company to intensify its focus on its distinct business priorities. The separation will also facilitate each business having a more appropriate capital structure aligned with its target capital levels and those of its peers, and is expected to increase access to capital by each company. |
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Employee Retention and Incentivizing . The separation will result in each business being better positioned to recruit and retain executives and other employees with expertise that is more directly applicable to the needs of its business. Similarly, the Company believes that its efforts to drive financial and operational goals by aligning incentive programs with specific goals applicable to each business are frustrated by its continued operation of two distinct lines of business. As a result of the separation, each business will be able to articulate more defined talent requirements for potential employees, and both recruiters and applicants are expected to have a clearer understanding of the prerequisites and opportunities associated with each business. Additionally, each business will be able to communicate specifically and clearly the goals of incentive programs and how such programs are specifically tailored to and aligned with the financial and operational strategic objectives of each business in connection with recruiting and retaining employees. |
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Enhanced Investor Understanding , Corporate Acquisition Currencies and Equity-Based Compensation. The separation brought about by the distribution will improve understanding of each business in the capital markets and allow for a stronger, more focused investor base for each business. Moreover, the separation will create two independent equity structures, enabling each business to use its own business-focused stock as consideration in acquisitions and equity compensation programs and creating a more efficient and valuable transaction currency and compensation tool. |
The ParentCo Board of Directors also considered a number of potentially negative factors in evaluating the separation, including:
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Risk of Failure to Achieve Anticipated Benefits of the Separation . We may not achieve the anticipated benefits of the separation for a variety of reasons, including, among others: the separation will require significant amounts of managements time and effort, which may divert managements attention from operating our business; and following the separation, we may be more susceptible to market fluctuations, including fluctuations in coal prices, and other adverse events than if we were still a part of ParentCo because our business will be less diversified than ParentCos business prior to the completion of the separation. |
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Increased Administrative Costs . We will incur substantial costs in connection with the separation and the transition to being a standalone public company, which may include accounting, tax, legal and other professional services costs, recruiting and relocation costs associated with hiring key senior management personnel who are new to CoalCo, tax costs and costs to separate information systems. Due to our smaller scale as a standalone company, our cost of performing such functions could be higher than the amounts reflected in our historical financial statements, which would cause our profitability to decrease. |
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Limitations on Strategic Transactions . Under the terms of the tax matters agreement that we will enter into with ParentCo, we will be restricted from taking certain actions that could cause the distribution or certain related transactions to fail to qualify as tax-free transactions under applicable law. These restrictions may limit for a period of time our ability to pursue certain strategic transactions and equity issuances or engage in other transactions that might increase the value of our business. |
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Uncertainty Regarding Stock Prices . We cannot predict the effect of the separation on the trading prices of CoalCo or GasCo common stock or know with certainty whether the combined market value of share(s) of our common stock and one share of GasCo common stock will be less than, equal to or greater than the market value of one share of ParentCo common stock prior to the distribution. |
In determining to pursue the separation, the ParentCo Board of Directors concluded the potential benefits of the separation outweighed the foregoing factors. See the sections entitled The Separation and DistributionReasons for the Separation and Risk Factors included elsewhere in this information statement.
Description of Indebtedness
We intend to incur new borrowings from third-party financing sources, a portion of which we anticipate will be distributed to ParentCo. In addition, CoalCo intends to retain those 5.75% Maryland Economic Development Corporation Port Facilities Refunding Revenue Bonds (MEDCO) due September 2025, for which the principal amount as of June 30, 2017 was $103 million, and for which GasCo will remain as a guarantor with CoalCo providing indemnification with respect to such guarantee. For more information, see Description of Material Indebtedness.
Corporate Information
CoalCo was incorporated in Delaware on June 21, 2017 for the purpose of holding ParentCos Coal Business in connection with the separation and distribution described herein. Prior to the transfer of these businesses to us by ParentCo, which will occur prior to the distribution, CoalCo will have no operations. The address of our principal executive offices will be 1000 CONSOL Energy Drive, Canonsburg, PA 15317-6506. Our telephone number after the distribution will be . We will maintain an Internet site at www. .com . Our website and the information contained therein or connected thereto are not incorporated into this information statement or the registration statement of which this information statement forms a part, or in any other filings with, or any information furnished or submitted to, the SEC.
Reason for Furnishing this Information Statement
This information statement is being furnished solely to provide information to ParentCo stockholders who will receive shares of CoalCo common stock in the distribution. It is not and is not to be construed as an inducement or encouragement to buy or sell any of CoalCos securities. The information contained in this information statement is believed by CoalCo to be accurate as of the date set forth on its cover. Changes may occur after that date and neither ParentCo nor CoalCo will update the information except as may be required in the normal course of their respective disclosure obligations and practices.
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SUMMARY HISTORICAL AND UNAUDITED PRO FORMA
COMBINED FINANCIAL DATA
The following summary financial data reflects the combined operations of CoalCo. We derived the summary combined income statement data for the years ended December 31, 2016, 2015 and 2014, and summary combined balance sheet data as of December 31, 2016 and 2015, as set forth below, from our audited Combined Financial Statements, which are included in the Index to Financial Statements section of this information statement. We derived the summary combined income statement data for the six months ended June 30, 2017 and 2016, and summary combined balance sheet data as of June 30, 2017, as set forth below, from our unaudited Combined Financial Statements, included elsewhere in this information statement. The historical results do not necessarily indicate the results expected for any future period.
The summary unaudited pro forma condensed combined financial data for the year ended December 31, 2016 and for the six months ended June 30, 2017 has been prepared to reflect the separation, including the incurrence of indebtedness of approximately $ million. The Unaudited Pro Forma Condensed Combined Statements of Income presented for the year ended December 31, 2016 and the six months ended June 30, 2017, assumes the separation occurred on January 1, 2016. The Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 2017 assumes the separation occurred on June 30, 2017. The assumptions used and pro forma adjustments derived from such assumptions are based on currently available information and we believe such assumptions are reasonable under the circumstances.
The Unaudited Pro Forma Condensed Combined Financial Statements are not necessarily indicative of our results of operations or financial condition had the distribution and its anticipated post-separation capital structure been completed on the dates assumed. They may not reflect the results of operations or financial condition that would have resulted had we been operating as an independent, publicly traded company during such periods. In addition, they are not necessarily indicative of our future results of operations or financial condition.
You should read this summary financial data together with Unaudited Pro Forma Condensed Combined Financial Statements, Capitalization, Selected Historical Combined Financial Data, Managements Discussion and Analysis of Financial Condition and Results of Operations and the Combined Financial Statements and accompanying notes included elsewhere in this information statement.
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As of and for the Six months
ended June 30 |
As of and for the year ended December 31, | |||||||||||||||||||||||||||
Pro
forma 2017 |
2017 | 2016 |
Pro
forma 2016 |
2016 | 2015 | 2014 | ||||||||||||||||||||||
Revenue and Other Income: |
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Coal Sales |
$ | 620,155 | $ | 620,155 | $ | 476,726 | $ | 1,065,582 | $ | 1,065,582 | $ | 1,289,036 | $ | 1,616,874 | ||||||||||||||
Other Outside Sales |
27,742 | 27,742 | 15,767 | 31,464 | 31,464 | 30,967 | 41,255 | |||||||||||||||||||||
Freight Revenue |
30,045 | 30,045 | 24,557 | 46,468 | 46,468 | 20,499 | 23,133 | |||||||||||||||||||||
Miscellaneous Other Income |
26,356 | 32,794 | 36,133 | 72,814 | 82,120 | 68,193 | 123,604 | |||||||||||||||||||||
Gain on Sale of Assets |
13,536 | 13,536 | 3,904 | 5,228 | 5,228 | 13,025 | 26,312 | |||||||||||||||||||||
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Total Revenue and Other Income |
717,834 | 724,272 | 557,087 | 1,221,556 | 1,230,862 | 1,421,720 | 1,831,178 | |||||||||||||||||||||
Costs and Expenses: |
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Operating and Other Costs |
452,120 | 452,876 | 407,446 | 876,013 | 877,177 | 699,594 | 1,110,332 | |||||||||||||||||||||
Depreciation, Depletion and Amortization | 78,503 | 78,261 | 77,976 | 178,561 | 178,122 | 195,337 | 206,684 | |||||||||||||||||||||
Freight Expense |
30,045 | 30,045 | 24,557 | 46,468 | 46,468 | 20,499 | 23,133 | |||||||||||||||||||||
Selling, General, and Administrative Costs | 37,417 | 37,417 | 18,020 | 50,044 | 50,027 | 55,720 | 78,724 | |||||||||||||||||||||
Interest Expense |
7,966 | 7,966 | 6,496 | 14,053 | 14,053 | 7,544 | | |||||||||||||||||||||
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Total Costs and Expenses |
606,051 | 606,565 | 534,495 | 1,165,139 | 1,165,847 | 978,694 | 1,418,873 | |||||||||||||||||||||
Earnings Before Income Tax |
111,783 | 117,707 | 22,592 | 56,417 | 65,015 | 443,026 | 412,305 | |||||||||||||||||||||
Income Tax Expense (Benefit) |
16,943 | 19,017 | (193) | 11,557 | 14,565 | 125,605 | 121,353 | |||||||||||||||||||||
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Net Income |
94,840 | 98,690 | 22,785 | 44,860 | 50,450 | 317,421 | 290,952 | |||||||||||||||||||||
Less: Net Income Attributable to Noncontrolling Interest | 9,777 | 9,777 | 2,293 | 8,954 | 8,954 | 10,410 | | |||||||||||||||||||||
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Net Income Attributable to CONSOL Mining Corporation Shareholder | $ | 85,063 | $ | 88,913 | $ | 20,492 | $ | 35,906 | $ | 41,496 | $ | 307,011 | $ | 290,952 | ||||||||||||||
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Balance Sheet Data (at period end): | ||||||||||||||||||||||||||||
Property, plant and equipment, net | $ | 2,102,833 | $ | 2,118,394 | $ | 2,253,662 | $ | 2,180,270 | $ | 2,325,181 | $ | 2,529,657 | ||||||||||||||||
Total assets | $ | 2,613,961 | $ | 2,626,610 | $ | 2,758,170 | $ | 2,687,434 | $ | 2,867,733 | $ | 3,029,374 | ||||||||||||||||
Total equity | $ | 805,043 | $ | 826,297 | $ | 854,981 | $ | 800,124 | $ | 1,061,839 | $ | 1,246,192 | ||||||||||||||||
Cash Flow Statement Data: | ||||||||||||||||||||||||||||
Net cash provided by operating activities | $ | 104,027 | $ | 95,070 | $ | 329,107 | $ | 291,693 | $ | 543,519 | ||||||||||||||||||
Net cash used in investing activities | $ | (6,244) | $ | (22,621) | $ | (45,758) | $ | (130,274) | $ | (127,810) | ||||||||||||||||||
Net cash used in financing activities | $ | (104,355) | $ | (70,038) | $ | (276,677) | $ | (154,917) | $ | (415,839) | ||||||||||||||||||
Coal Reserves, Production and Sales Data: | ||||||||||||||||||||||||||||
Recoverable reserves (at period end)(1) | 2,347,445,054 | 2,579,430,075 | 2,361,166,000 | 2,590,819,000 | | |||||||||||||||||||||||
Coal tons produced | 13,720,946 | 11,388,925 | 24,665,589 | 22,790,165 | 26,065,985 | |||||||||||||||||||||||
Coal tons sold | 13,548,745 | 11,431,269 | 24,603,559 | 22,873,470 | 26,132,593 | |||||||||||||||||||||||
Average sales price per ton | $ | 45.77 | $ | 41.70 | $ | 43.31 | $ | 56.36 | $ | 61.88 | ||||||||||||||||||
Average costs per ton sold | $ | 34.64 | $ | 33.86 | $ | 34.35 | $ | 41.78 | $ | 43.63 | ||||||||||||||||||
Other Data: |
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Capital Expenditures |
$ | 23,229 | $ | 27,206 | $ | 53,600 | $ | 143,053 | $ | 348,846 |
(1) |
Includes third-party recoverable assigned coal reserves of 34.6 million tons for the six months ended June 30, 2017 and for the year ended December 31, 2016. Includes third-party recoverable assigned coal reserves of 88.8 million tons for the six months ended June 30, 2016 and for the year ended December 31, 2015. Recoverable reserves have not been disclosed as of December 31, 2014 due to the impact of prior discontinued operations in that period. |
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You should carefully consider the following risks and other information in this information statement in evaluating us and our common stock. The risk factors generally have been separated into three groups: risks related to our business, risks related to the separation and risks related to our common stock and the securities market.
Any of the following risks could materially and adversely affect our financial condition, results of operations or cash flows. Our operations could be affected by various risks, many of which are beyond our control. Based on current information, we believe that the following list identifies the most significant risk factors that could affect our financial condition, results of operations or cash flows. There may be additional risks and uncertainties that adversely affect our financial condition, results of operations or cash flows in the future that are not presently known, are not currently believed to be material, or are not identified below because they are common to all businesses. Past financial performance may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods. For more information, see Cautionary Statement Concerning Forward-Looking Statements.
Risks Related to Our Business
Deterioration in the global economic conditions in any of the industries in which our customers operate, or a worldwide financial downturn, or negative credit market conditions may have a materially adverse effect on our liquidity, results of operations, business and financial condition that we cannot predict.
Economic conditions in a number of industries in which our customers operate, such as electric power generation and steel-making, substantially deteriorated in recent years and reduced the demand for coal. The general economic challenges for some of our customers continued in 2016 and the outlook is uncertain. In addition, liquidity is essential to our business and developing our assets. Renewed or continued weakness in the economic conditions of any of the industries we serve or are served by our customers could adversely affect our business, financial condition, results of operation and liquidity in a number of ways. For example:
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demand for electricity in the United States is impacted by industrial production, which if weakened would negatively impact the revenues, margins and profitability of our coal business; |
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the tightening of credit or lack of credit availability to our customers could adversely affect our ability to collect our trade receivables; |
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our ability to access the capital markets may be restricted at a time when we would like, or need, to raise capital for our business including for exploration and/or development of our coal reserves; and |
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a decline in our creditworthiness, which may require us to post letters of credit, cash collateral, or surety bonds to secure certain obligations, all of which would have an adverse effect on our liquidity. |
Prices for coal are volatile and can fluctuate widely based upon a number of factors beyond our control including oversupply relative to the demand available for our products, weather and the price and availability of alternative fuels. An extended decline in the prices we receive for our coal will adversely affect our business, operating results, financial condition and cash flows.
Our financial results are significantly affected by the prices we receive for our coal. In addition, demand can fluctuate widely due to a number of matters beyond our control, including:
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changes in the consumption pattern of industrial consumers, electricity generators and residential users of electricity; |
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weather conditions in our markets which affect the demand for thermal coal (for example, the unusually warm 2015 - 2016 winter left utilities with large coal stockpiles and depressed the demand for thermal coal); |
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with respect to thermal coal, the price and availability of natural gas and the price and supply of imported liquefied natural gas; |
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technological advances affecting energy consumption; |
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the costs, availability and capacity of transportation infrastructure; |
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international developments impacting supply of metallurgical coal, including supply side reforms promulgated in China, and continued expected growth in demand for seaborne metallurgical coal in India; and |
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the impact of domestic and foreign governmental laws and regulations, including environmental and climate change regulations and regulations affecting the coal mining industry and coal-fired power plants, and delays in the receipt of, failure to receive, failure to maintain or revocation of necessary governmental permits. |
The coal industry also faces concerns with respect to oversupply from time to time. For example, U.S. coal exports decreased by 32% during the first half of 2016 compared with the first half of 2015, as global supply exceeded demand for both thermal and metallurgical coal. Our average sales price per ton sold in 2016 declined 23% from 2015 due to imbalanced supply and demand, and a substantial or extended decline in the prices we receive for our coal could adversely affect our business, results of operations, financial condition, cash flows and liquidity.
Foreign currency fluctuations could adversely affect the competitiveness of our coal abroad.
We compete in international markets against coal produced in other countries. Coal is sold internationally in U.S. dollars and, as a result, general economic conditions in foreign markets and changes in foreign currency exchange rates may provide our foreign competitors with a competitive advantage. As a result, mining costs in competing producing countries may be reduced in U.S. dollar terms based on currency exchange rates, providing an advantage to foreign coal producers. If our competitors currencies decline against the U.S. dollar or against our foreign customers local currencies, those competitors may be able to continue to offer lower prices for coal to our customers. Furthermore, if the currencies of our overseas customers were to significantly decline in value in comparison to the U.S. dollar, those customers may seek decreased prices for the coal we sell to them. Consequently, currency fluctuations could adversely affect the competitiveness of our products in international markets, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
If our coal customers do not extend existing contracts or do not enter into new multi-year coal sales contracts on favorable terms, profitability of CoalCos operations could be adversely affected.
During the year ended December 31, 2016, approximately 65% of the coal CoalCo produced was sold under multi-year sales contracts. If a substantial portion of our multi-year sales contracts are modified or terminated, if force majeure is exercised, or if we are unable to replace or extend the contracts or new contracts are priced at lower levels, our profitability would be adversely affected. The profitability of our multi-year sales coal supply contracts depends on a variety of factors, which vary from contract to contract and fluctuate during the contract term, including our production costs and other factors. Price changes, if any, provided in long-term supply contracts may not reflect our cost increases, and therefore, increases in our costs may reduce our profit margins. In addition, during periods of declining market prices, provisions in our long-term coal contracts for adjustment or renegotiation of prices and other provisions may increase our exposure to short-term coal price and electric power price volatility. As a result, we may not be able to obtain long-term agreements at favorable prices compared to either market conditions, as they may change from time to time, or our cost structure, which may reduce our profitability.
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The loss of, or significant reduction in, purchases by our largest coal customers or the failure of any of our customers to buy and pay for coal they committed to purchase could adversely affect our business, financial condition, results of operation and cash flows.
For the year ended December 31, 2016, we derived over 10% of our coal sales revenue from two coal customers individually and approximately 40% of our total sales revenue were derived from our four largest coal customers. At December 31, 2016, we had approximately nine coal supply agreements with these top two customers that expire at various times from 2017 to 2018. There are inherent risks whenever a significant percentage of total revenues are concentrated with a limited number of customers. Revenues from our largest customers may fluctuate from time to time based on numerous factors, including market conditions, which may be outside of our control. If any of our largest customers experience declining revenues due to market, economic or competitive conditions, we could be pressured to reduce the prices that we charge for our coal, which could have an adverse effect on our margins, profitability, cash flows and financial position. In addition, if any customers were to significantly reduce their purchases of coal from us, including by failing to buy and pay for coal they committed to purchase in sales contracts, our business, financial condition, results of operations and cash flows could be adversely affected.
Our ability to collect payments from our customers could be impaired if their creditworthiness declines or if they fail to honor their contracts with us.
Our ability to receive payment for coal sold and delivered depends on the continued creditworthiness of our customers. Many utilities have sold their power plants to non-regulated affiliates or third parties that may be less creditworthy, thereby increasing the risk we bear with respect to payment default. These new power plant owners may have credit ratings that are below investment grade. In addition, some of our customers have been adversely affected by the current economic downturn, which may impact their ability to fulfill their contractual obligations. Competition with other coal suppliers could force us to extend credit to customers and on terms that could increase the risk we bear with respect to payment default. We also have a contract to supply coal to an energy trading and brokering customer under which that customer sells coal to end users. If the creditworthiness of our energy trading and brokering customer declines, we may not be able to collect payment for all coal sold and delivered to this customer. If the creditworthiness of our customers declines significantly, our business could be adversely affected. In addition, if customers refuse to accept shipments of our coal for which they have an existing contractual obligation, our revenues will decrease and we may have to reduce production at our mines until our customers contractual obligations are honored. Our inability to collect payment from counterparties to our sales contracts may have a materially adverse effect on our business, financial condition, results of operations and cash flows.
Our inability to acquire additional coal reserves that are economically recoverable may have a material adverse effect on our future profitability.
Our profitability depends substantially on our ability to mine, in a cost-effective manner, coal reserves that possess the quality characteristics that our customers desire. Because our reserves decline as we mine our coal, our future profitability depends upon our ability to acquire additional coal reserves that are economically recoverable to replace the reserves we produce. If we fail to acquire or develop sufficient additional reserves over the long term to replace the reserves depleted by our production, our existing reserves will eventually be depleted, which may have a material adverse effect on our business, financial condition, results of operations and cash flows.
Decreases in demand for electricity and changes in coal consumption patterns of U.S. electric power generators could adversely affect our business.
Our business is closely linked to domestic demand for electricity, and any changes in coal consumption by U.S. electric power generators would likely impact our business over the long term. According to the EIA, in
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2016, the domestic electric power sector accounted for approximately 92% of total U.S. coal consumption. In 2016, the PAMC sold approximately 76% of its coal to U.S. electric power generators, and we have multi-year contracts in place with these electric power generators for a significant portion of our future production. The amount of coal consumed by the electric power generation industry is affected by, among other things:
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general economic conditions, particularly those affecting industrial electric power demand, such as a downturn in the U.S. economy and financial markets; |
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overall demand for electricity; |
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indirect competition from alternative fuel sources for power generation, such as natural gas, fuel oil, nuclear, hydroelectric, wind and solar power, and the location, availability, quality and price of those alternative fuel sources; |
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environmental and other governmental regulations, including those impacting coal-fired power plants; and |
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energy conservation efforts and related governmental policies. |
For example, the relatively recent low price of natural gas has resulted, in some instances, in domestic electric power generators increasing natural gas consumption while decreasing coal consumption. Federal and state mandates for increased use of electricity derived from renewable energy sources could affect demand for our coal. Such mandates, combined with other incentives to use renewable energy sources, such as tax credits, could make alternative fuel sources more competitive with coal. A decrease in coal consumption by the electric power generation industry could adversely affect the price of coal, which could have a material adverse effect on our business, financial condition, results of operations, cash flows and ability to make cash distributions.
According to the EIA, although electricity demand fell in only three years between 1950 and 2007, it declined in five of the eight years between 2008 and 2015. The largest drop in electricity demand occurred in 2009, primarily as the result of the steep economic downturn from late 2007 through 2009, which led to a large drop in electricity sales in the industrial sector. Other factors, such as efficiency improvements associated with new appliance standards in the buildings sectors and overall improvement in the efficiency of technologies powered by electricity, have slowed electricity demand growth and may contribute to slower growth in the future, even as the U.S. economy continues its recovery. Further decreases in the demand for electricity, such as decreases that could be caused by a worsening of current economic conditions, a prolonged economic recession or other similar events, could have a material adverse effect on the demand for coal and on our business over the long term.
Changes in the coal industry that affect our customers, such as those caused by decreased electricity demand and increased competition, could also adversely affect our business. Indirect competition from natural gas-fired plants that are relatively less expensive to construct and less difficult to permit has the most potential to displace a significant amount of coal-fired electric power generation in the near term, particularly from older, less efficient coal-fired powered generators. For example, according to the EIA, installed U.S. natural gas-fired net summer generating capacity increased by about 7 gigawatt from 2014-2015, while installed coal-fired net summer generating capacity decreased by about 19 gigawatt over the same period. In addition, uncertainty caused by federal and state regulations could cause coal customers to be uncertain of their coal requirements in future years, which could adversely affect our ability to sell coal to our customers under multi-year sales contracts.
The availability and reliability of transportation facilities and fluctuations in transportation costs could affect the demand for our coal, and any significant damage to our CNX Marine Terminal facility that impacts its use could impair our ability to supply coal to our customers.
Transportation logistics play an important role in allowing us to supply coal to our customers. Any significant delays, interruptions or other limitations on the ability to transport our coal could negatively affect our operations. Our coal is transported from our mining complex by rail, truck or a combination of these methods. To
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reach markets and end customers, our coal may also be transported by barge or by ocean vessels loaded at terminals, including our CNX Marine Terminal. Disruption of transportation services because of weather-related problems, strikes, lock-outs, terrorism, governmental regulation, third-party action or other events could temporarily impair our ability to supply coal to customers and adversely affect our profitability. In addition, transportation costs represent a significant portion of the delivered cost of coal and, as a result, the cost of delivery is a critical factor in a customers purchasing decision. Increases in transportation costs, including increases resulting from emission control requirements and fluctuation in the price of diesel fuel and demurrage, could make our coal less competitive. Any disruption of the transportation services we use or increase in transportation costs could have a materially adverse effect on our business, financial condition, results of operations and cash flows. Disruption in shipment levels over longer periods of time at the CNX Marine Terminal could cause our customers to look to other sources for their coal needs, negatively affecting our revenues and results of operations.
Competition within the coal industry may adversely affect our ability to sell our products. Increased competition or a loss of our competitive position could adversely affect our sales of, or our prices for, our coal products, which could impair our profitability.
We compete with other coal producers primarily on the basis of price, coal quality, transportation costs and reliability. We compete with coal producers in various regions of the United States and with some foreign coal producers for domestic sales primarily to electric power generators. Demand for our thermal coal by our principal electric power generator customers is affected by the delivered price of competing coals, other fuel supplies and alternative generating sources, including nuclear, natural gas, oil and renewable energy sources, such as hydroelectric and wind power. The domestic coal industry has experienced consolidation in recent years, including consolidation among some of our major competitors. In addition, substantial overcapacity exists in the coal industry and most large coal companies have filed bankruptcy proceedings which could enable them to lower their production costs and thereby reduce the price for their coal. We cannot assure you that the result of current or further consolidation in the coal industry or current or future bankruptcy proceedings of our coal competitors will not adversely affect our competitive position. We also compete with both domestic and foreign coal producers for sales in international markets. We sell coal to foreign electricity generators, which sales are significantly affected by international demand and competition. Potential changes to international trade agreements, trade concessions or other political and economic arrangements may benefit coal producers operating in countries other than the United States. We cannot assure you that we will be able to compete on the basis of price or other factors with companies that in the future may benefit from favorable foreign trade policies or other arrangements.
Any reduction in our ability to compete in coal markets could have a material adverse effect on our business, financial condition, results of operations and cash flows.
The characteristics of coal may make it costly for electric power generators and other coal users to comply with various environmental standards regarding the emissions of impurities released when coal is burned which could cause utilities to replace coal-fired power plants with alternative fuels. In addition, various incentives have been proposed to encourage the generation of electricity from renewable energy sources. A reduction in the use of coal for electric power generation could decrease the volume of our domestic coal sales and adversely affect our results of operations.
Coal contains impurities, including sulfur, mercury, chlorine and other elements or compounds, many of which are released into the air along with fine particulate matter and carbon dioxide when it is burned. Complying with regulations on these emissions can be costly for electric power generators. For example, in order to meet the federal Clean Air Act limits for sulfur dioxide emissions from electric power plants, coal users will need to install scrubbers, use sulfur dioxide emission allowances (some of which they may purchase) or switch to other fuels. Each option has limitations. Lower sulfur coal may be more costly to purchase on an energy basis than higher sulfur coal depending on mining and transportation costs. The cost of installing scrubbers is significant and emission allowances may become more expensive as their availability declines. Switching to
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other fuels may require expensive modification of existing plants. Because higher sulfur coal currently accounts for a significant portion of our sales, the extent to which electric power generators switch to alternative fuel could materially affect us. Recent Environmental Protection Agency (EPA) rulemaking proceedings requiring additional reductions in permissible emission levels of impurities by coal-fired plants will likely make it more costly to operate coal-fired electric power plants and may make coal a less attractive fuel alternative for electric power generation in the future. Examples are (i) implementation of the Cross-State Air Pollution Rule (CSAPR) to require reductions of seasonal nitrogen oxides (NOX) emissions from power plants in the eastern United States to address ozone pollution; and (ii) the Utility Maximum Achievable Control Technology (Utility MACT) rule, better known as the Mercury and Air Toxics Standard (MATS) rule, which included more stringent new source performance standards (NSPS) for particulate matter (PM), mercury, sulfur dioxide (SO2) and nitrogen oxides (NOX), for new and existing coal-fired power plants. The rule was rejected by the U.S. Supreme Court on June 29, 2015 and sent back to the D.C. Circuit Court to determine whether to remand and allow the EPA to address the rules deficiencies or to vacate and nullify the rule; nevertheless most coal-fired electric power generators have already taken steps to comply with the rule. On April 18, 2017 the EPA asked the Court to delay arguments over MATs to allow the Trump Administration time to fully review the findings.
Apart from actual and potential regulation of emissions, water use, waste water discharge, and solid waste management from coal-fired plants, state and federal mandates for increased use of electricity from renewable energy sources could have an impact on the market for our coal. Several states have enacted legislative mandates requiring electricity suppliers to use renewable energy sources to generate a certain percentage of power. There have been numerous proposals to establish a similar uniform, national standard although none of these proposals have been enacted to date. Possible advances in technologies and incentives, such as tax credits, to enhance the economics of renewable energy sources could make these sources more competitive with coal. Any reductions in the amount of coal consumed by domestic electric power generators as a result of current or new standards for the emission of impurities or incentives to switch to alternative fuels or renewable energy sources could reduce the demand for our coal, thereby reducing our revenues and adversely affecting our business and results of operations.
Regulation of greenhouse gas emissions may increase our operating costs and reduce the value of our coal assets and such regulation, as well as uncertainty concerning such regulation could adversely impact the market for coal, as well as for our securities.
While climate change legislation in the U.S. is unlikely in the next several years, the issue of global climate change continues to attract considerable public and scientific attention with widespread concern about the impacts of human activity, especially the emissions of greenhouse gases (GHGs) such as carbon dioxide and methane. Combustion of fossil fuels, such as the coal we produce, results in the creation of carbon dioxide emissions into the atmosphere by coal end-users, such as coal-fired electric power generation plants. Numerous proposals have been made and are likely to continue to be made at the international, national, regional and state levels of government that are intended to limit emissions of GHGs. Several states have already adopted measures requiring reduction of GHGs within state boundaries. Other states have elected to participate in voluntary regional cap-and-trade programs like the Regional Greenhouse Gas Initiative (RGGI) in the northeastern U.S.
The Obama Administration laid out the Climate Action Plan to limit emissions of carbon dioxide (CO2) from coal-fired and natural gas-fired power plants. The EPA proposed numerous regulatory actions to address CO2, including New Source Performance Standards (NSPS) for CO2 from both new power plants and existing and modified/reconstructed power plants. The agencys Clean Power Plan Rule, which went into effect on December 22, 2015, set state-specific rate-based goals for CO2 emissions from existing fossil fuel-fired electric generating units, and created emission guidelines for states to follow in developing plans to address greenhouse gas emissions from existing fossil fuel-fired electric generating units. Numerous petitions challenging the Clean Power Plan Rule were consolidated into one case, West Virginia v. EPA . While the litigation is still ongoing at the circuit court level, a mid-litigation application to the Supreme Court resulted in a stay of the Clean Power Plan Rule. On September 27, 2016, an en banc panel of the U.S. Court of Appeals for the
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D.C. Circuit heard oral arguments in the case. The decision, originally expected in early 2017, has been stayed as a result of a March 28, 2017 executive order directing the EPA to begin the process of reviewing and possibly rescinding the Clean Power Plan Rule. The EPA filed a motion and the motion was granted by the U.S. Court of Appeals for the D.C. Circuit requesting the stay while the EPA conducts their review of the Clean Power Plan Rule. If the review does not result in any rule changes, the U.S. Court of Appeals for the D.C. Circuit will rule on the legality of the Clean Power Plan Rule.
The current Administrations executive order promoting energy independence and economic growth issued on March 28, 2017 requires the review of existing regulations that potentially burden the development or use of domestically produced energy resources. The review of existing regulations may not result in any changes and any changes made to existing regulations may not produce the intended favorable results desired by the new Administration. The executive order also directed the Council on Environmental Quality to rescind its final guidance entitled, Final Guidance for Federal Departments and Agencies on Consideration of Greenhouse Gas Emissions and the Effects of Climate Change in National Environmental Policy Act Reviews. The guidance previously directed agencies to consider proposed actions and their effects on climate change (GHG emissions would have been a key indicator being assessed under any NEPA review). Such review considerations may have created additional delays or costs in any NEPA review processes for energy producers and generators and may have prevented the acquisition of any necessary federal approvals for energy producers and generators.
Internationally, the Kyoto Protocol, which set binding emission targets for developed countries (which was not ratified by the United States) was nominally extended past its expiration date of December 2012 with a requirement for a new legal construct to be put into place by 2015. In December 2015, the United Nations Climate Change Conference was held and an agreement was reached between the countries participating in the conference, including the United States, to limit global warming to less than 2 degrees Celsius (3.6° Fahrenheit) compared to pre-industrial levels. This agreement, known as the Paris Agreement, calls for zero net anthropogenic greenhouse gas emission to be reached during the second half of the 21st century. Each party is to prepare a plan on its contributions to reach this goal; each plan is to be filed in a publicly available registry. The Paris Agreement does not create any binding obligations for nations to limit their GHG emissions but rather includes pledges to voluntarily limit or reduce future emissions. Although the United States became a party to the Paris Agreement in April 2016, the current Administration subsequently terminated its participation in June 2017. However, the Paris Agreement stipulates that participating countries must wait four years before withdrawing from the agreement.
Additionally, coalbed methane must be expelled from our underground coal mines for mining safety reasons and is vented into the atmosphere when the coal is mined. Coalbed methane has a greater GHG effect than carbon dioxide. If regulation of GHG emissions does not exempt the release of coalbed methane, we may have to further reduce our methane emissions, pay higher taxes, incur costs to purchase credits that permit us to continue operations as they now exist at our underground coal mines or perhaps curtail coal production. In 2010 the EPA declined a petition to regulate methane emissions from coal mines, and on May 13, 2014 the U.S. Court of Appeals upheld the EPAs denial of the petition. The current Administrations stated stance of unburdening domestic energy production will make it more unlikely that coalbed methane will be regulated in a manner that adds higher costs to producers in the short- term.
Apart from governmental regulation, investment banks based both domestically and internationally have announced that they have adopted climate change guidelines for lenders. The guidelines require the evaluation of carbon risks in the financing of electric power generation plants which may make it more difficult for utilities to obtain financing for coal-fired plants.
Adoption of comprehensive legislation or regulation focusing on GHG emission reductions for the United States or other countries where we sell coal, or the inability of utilities to obtain financing in connection with coal-fired plants, may make it more costly to operate fossil fuel fired (especially coal-fired) electric power generation plants and make fossil fuels less attractive for electric utility power plants in the future. Depending on
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the nature of the regulation or legislation, natural gas-fueled power generation could become more economically attractive than coal-fueled power generation. Apart from actual regulation, uncertainty over the extent of regulation of GHG emissions may inhibit utilities from investing in the building of new coal-fired plants to replace older plants or investing in the upgrading of existing coal-fired plants. Any reduction or substantial delay in the amount of coal consumed by domestic electric power generators as a result of actual or potential regulation of greenhouse gas emissions could decrease demand for our fossil fuels, thereby reducing our revenues and materially and adversely affecting our business and results of operations. Our customers may also have to invest in carbon dioxide capture and storage technologies in order to burn coal and comply with future GHG emission standards.
In addition, there have also been efforts in recent years affecting the investment community, including investment advisers, sovereign wealth funds, public pension funds, universities and other groups, promoting the divestment of fossil fuel equities and also pressuring lenders to limit funding to companies engaged in the extraction of fossil fuel reserves. The impact of such efforts may adversely affect the demand for and price of securities issued by us, and impact our access to the capital and financial markets.
Environmental regulations introduce uncertainty that could adversely impact the market for coal with potential short and long-term liabilities.
The Federal Endangered Species Act (ESA) and similar state laws protect species endangered or threatened with extinction. Protection of endangered and threatened species may cause us to modify mining plans, or develop and implement species-specific protection and enhancement plans to avoid or minimize impacts to endangered species or their habitats. A number of species indigenous to the areas where we operate are protected under the ESA.
CoalCo utilizes certain pipelines in connection with its coal businesses. Mitigation permits from the Army Corps of Engineers (ACOE) are typically required for certain impacts these pipelines cause to streams and wetlands. On June 29, 2015, the EPA promulgated a proposed rule called Definition of Waters of the United States (WoUS) Under the Clean Water Act. The rule expanded the scope of the CWA to include previously non-jurisdictional streams, wetlands, and waters, making these areas jurisdictional inter-coastal waters of the U.S. On August 27, 2015, the District Court of North Dakota blocked implementation of the rule in 13 states prior to the rules effective date of August 28, 2015. On October 9, 2015, the Court of Appeals for the Sixth Circuit blocked implementation of the rule nationwide. The U.S. Supreme Court will now decide which court has jurisdiction - federal appeals court or district courts. A decision is expected sometime in mid-2017. Meanwhile, the current Administration is working to rescind and replace the rulemaking that would re-establish the 1986 rule and implement the 2008 guidance, which is less onerous than the currently litigated rule.
Management and regulation of point source discharges covered under the National Pollutant Discharge Eliminations System (NPDES) of the CWA have undergone recent changes and proposed changes at both the state and federal level that have the potential to affect the long-term treatment and discharge of water from coal mines. CWA section 304(b) requires EPA to annually review and, if appropriate, revise Effluent Guidelines. States are required by the CWA to conduct a comprehensive review of the state water quality standards every three years (the Triennial Review). On December 23, 2016 EPA published a draft Field-Based Methods for Developing Aquatic Life Criteria for Specific Conductivity, which could impact NPDES permits with conductivity limits. However, this draft document is also under review pursuant to Executive Order 13783.
Our coal mining operations are subject to operating risks, which could increase our operating expenses and decrease our production levels which could adversely affect our results of operations. Our coal operations are also subject to hazards and any losses or liabilities we suffer from hazards which occur in our operations may not be fully covered by our insurance policies.
Our coal mining operations are underground mines. Underground mining and related processing activities present inherent risks of injury to persons and damage to property and equipment. Our mines are
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subject to a number of operating risks that could disrupt operations, decrease production and increase the cost of mining at particular mines for varying lengths of time thereby adversely affecting our operating results. In addition, if an operating risk occurs in our mining operations, we may not be able to produce sufficient amounts of coal to deliver under our multi-year coal contracts. Our inability to satisfy contractual obligations could result in our customers initiating claims against us or canceling their contracts. The operating risks that may have a significant impact on our coal operations include:
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variations in thickness of the layer, or seam, of coal; |
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adverse geological conditions, including amounts of rock and other natural materials intruding into the coal that could affect the stability of the roof and the side walls of the mine - for example, unit costs were negatively impacted in 2016 due to adverse geological conditions at Enlow Fork Mine, primarily related to sandstone intrusions, which resulted in reduced coal production at that mine; |
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environmental hazards; |
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equipment failures or unexpected maintenance problems; |
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fires or explosions, including as a result of methane, coal, coal dust or other explosive materials and/or other accidents; |
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inclement or hazardous weather conditions and natural disasters or other force majeure events; |
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seismic activities, ground failures, rock bursts or structural cave-ins or slides; |
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delays in moving our longwall equipment; |
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railroad derailments; |
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security breaches or terroristic acts; and |
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other hazards that could also result in personal injury and loss of life, pollution and suspension of operations. |
The occurrence of any of these risks at our coal mining operations could adversely affect our ability to conduct coal mining operations or result in substantial loss to us as a result of claims for:
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personal injury or loss of life; |
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damage to and destruction of property, natural resources and equipment, including our coal properties and our coal production or transportation facilities; |
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pollution and other environmental damage to our properties or the properties of others; |
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potential legal liability and monetary losses; |
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regulatory investigations and penalties; |
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suspension of our operations; and |
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repair and remediation costs. |
In addition, the occurrence of any of these events in our coal mining operations which prevents our delivery of coal to a customer and which is not excusable as a force majeure event under our coal sales agreement, could result in economic penalties, suspension or cancellation of shipments or ultimately termination of the coal sales agreement.
Although we maintain insurance for a number of risks and hazards, we may not be insured or fully insured against the losses or liabilities that could arise from a significant accident in our coal operations. We may
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elect not to obtain insurance for any or all of these risks if we believe that the cost of available insurance is excessive relative to the risks presented. In addition, pollution and environmental risks generally are not fully insurable. Moreover, a significant mine accident could potentially cause a mine shutdown. The occurrence of an event that is not fully covered by insurance could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We may not be able to obtain equipment, parts and raw materials in a timely manner, in sufficient quantities or at reasonable costs to support our coal mining operations.
Coal mining consumes large quantities of commodities including steel, copper, rubber products and liquid fuels and requires the use of capital equipment. Some commodities, such as steel, are needed to comply with roof control plans required by regulation. The prices we pay for commodities and capital equipment are strongly impacted by the global market. A rapid or significant increase in the costs of commodities or capital equipment we use in our operations could impact our mining operations costs because we may have a limited ability to negotiate lower prices, and, in some cases, may not have a ready substitute.
We use equipment in our coal mining and transportation operations such as continuous mining units, conveyors, shuttle cars, rail cars, locomotives, roof bolters, shearers and shields. We procure this equipment from a concentrated group of suppliers, and obtaining this equipment often involves long lead times. Occasionally, demand for such equipment by mining companies can be high and some types of equipment may be in short supply. Delays in receiving or shortages of this equipment, as well as the raw materials used in the manufacturing of supplies and mining equipment, which, in some cases, do not have ready substitutes, or the cancellation of our supply contracts under which we obtain equipment and other consumables, could limit our ability to obtain these supplies or equipment. In addition, if any of our suppliers experiences an adverse event, or decides to no longer do business with us, we may be unable to obtain sufficient equipment and raw materials in a timely manner or at a reasonable price to allow us to meet our production goals and our revenues may be adversely impacted. We use considerable quantities of steel in the mining process. If the price of steel or other materials increases substantially or if the value of the U.S. dollar declines relative to foreign currencies with respect to certain imported supplies or other products, our operating expenses could increase. Any of the foregoing events could materially and adversely impact our business, financial condition, results of operations or cash flows.
For mining operations, CoalCo must obtain, maintain, and renew governmental permits and approvals which if we cannot obtain in a timely manner would reduce our production, cash flow and results of operations.
The pace with which the government issues permits needed for new operations and for on-going operations to continue coal mining has negatively impacted expected production. Any such delays, as well as any denial of a coal mining permit, could reduce our production, cash flows and results of operations. See Business- Legal and Environmental Proceedings- Environmental Proceedings for disclosure regarding the factual determinations underlying the decision by the Pennsylvania Department of Environmental Protection in September of 2017 to withhold a prior permit submission for continued longwall mining in the 4L panel at the Bailey Mine, and the impact that the determination has had on our operations to date, and may have on our operations in the future.
Existing and future government laws, regulations and other legal requirements relating to protection of the environment, and others that govern our business may increase our costs of doing business for coal and may restrict our coal operations.
We are subject to laws, regulations and other legal requirements enacted or adopted by federal, state and local authorities, as well as foreign authorities relating to protection of the environment. These include those legal requirements that govern discharges of substances into the air and water, the management and disposal of hazardous substances and wastes, the cleanup of contaminated sites, groundwater quality and availability, threatened and endangered plant and wildlife protection, reclamation and restoration of mining properties after
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mining is completed, the installation of various safety equipment in our mines, remediation of impacts of surface subsidence from underground mining, and work practices related to employee health and safety. Complying with these requirements, including the terms of our permits, has had, and will continue to have, a significant effect on our costs of operations and competitive position.
In addition, there is the possibility that we could incur substantial costs as a result of violations under environmental laws. Any additional laws, regulations and other legal requirements enacted or adopted by federal, state and local authorities, as well as foreign authorities or new interpretations of existing legal requirements by regulatory bodies relating to the protection of the environment could further affect our costs of operations and competitive position. The Clean Water Act is being used by opponents of mountain top removal mining as a means to challenge permits and bring citizen suits to make coal mining more expensive. At CoalCos subsidiary Fola Coal Company, LLC, six citizen suits have been filed challenging water discharge permits. Two of those suits were settled in 2014, and a federal court has issued liability rulings in three of the other matters.
Our mines are subject to stringent federal and state safety regulations that increase our cost of doing business at active operations and may place restrictions on our methods of operation. In addition, government inspectors under certain circumstances, have the ability to order our operations to be shutdown based on safety considerations.
The Federal Coal Mine Safety and Health Act (MSHA) and Mine Improvement and New Emergency Response (MINER) Act impose stringent health and safety standards on mining operations. Regulations that have been adopted are comprehensive and affect numerous aspects of mining operations, including training of mine personnel, mining procedures, the equipment used in mine emergency procedures and other matters. Most states in which we operate have programs for mine safety and health regulation and enforcement. The various requirements mandated by law or regulation can place restrictions on our methods of operations, and potentially lead to fees and civil penalties for the violation of such requirements, creating a significant effect on operating costs and productivity. In addition, government inspectors under certain circumstances, have the ability to order our operation to be shutdown based on safety considerations. If an incident were to occur at one of our coal mines, it could be shut down for an extended period of time and our reputation with our customers could be materially damaged.
Our operations may impact the environment or cause exposure to hazardous substances, and our properties may have environmental contamination, which could result in liabilities to us.
Our operations currently use hazardous materials and generate limited quantities of hazardous wastes from time to time. Drainage flowing from or caused by mining activities can be acidic with elevated levels of dissolved metals, a condition referred to as acid mine drainage. We could become subject to claims for toxic torts, natural resource damages and other damages, as well as for the investigation and clean-up of soil, surface water, groundwater, and other media. Such claims may arise, for example, out of conditions at sites that we currently own or operate, as well as at sites that we previously owned or operated, or may acquire. Our liability for such claims may be joint and several, so that we may be held responsible for more than our share of the contamination or other damages, or for the entire share.
We maintain coal refuse areas and slurry impoundments at a number of our coal mining complexes. Such areas and impoundments are subject to extensive regulation. Structural failure of a slurry impoundment or coal refuse area could result in extensive damage to the environment and natural resources, such as bodies of water that the coal slurry reaches, as well as liability for related personal injuries and property damages, and injuries to wildlife. Some of our impoundments overlie mined out areas, which can pose a heightened risk of failure and of damages arising out of failure. If one of our impoundments were to fail, we could be subject to claims for the resulting environmental contamination and associated liability, as well as for fines and penalties. Our coal refuse areas and slurry impoundments are designed, constructed, and inspected by our company and by regulatory authorities according to stringent environmental and safety standards.
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We have reclamation, mine closing obligations and gas well plugging obligations. If the assumptions underlying our accruals are inaccurate, we could be required to expend greater amounts than anticipated.
The Surface Mining Control and Reclamation Act as well as various state laws establish operational, reclamation and closure standards for all our coal mining operations and require us, under certain circumstances, to plug natural gas wells. We accrue for the costs of current mine disturbance, gas well plugging and of final mine closure, including the cost of treating mine water discharge where necessary. Estimates of our total reclamation, mine-closing and degasification and well plugging liabilities, which are based upon permit requirements and our experience, were approximately $257 million at June 30, 2017. The amounts recorded are dependent upon a number of variables, including the estimated future closure costs, estimated proved reserves, assumptions involving profit margins, inflation rates, and the assumed credit-adjusted risk-free interest rates. If these accruals are insufficient or our liability in a particular year is greater than currently anticipated, our future operating results could be adversely affected.
Most states where we operate require us to post bonds for the full cost of coal mine reclamation (full cost bonding). West Virginia is not a full cost bonding state. West Virginia has an alternative bond system (ABS) for coal mine reclamation which consists of (i) individual site bonds posted by the permittee that are less than the full estimated reclamation cost plus (ii) a bond pool (Special Reclamation Fund) funded by a per ton fee on coal mined in the State which is used to supplement the site specific bonds if needed in the event of bond forfeiture.
Pennsylvania is expanding its full cost bonding program to cover all coal mine bonding, further increasing the amount of surety bonds we must seek in order to permit its mining activities. We have been able to post surety bonds with the states to secure our reclamation obligations. If our creditworthiness declines, states may seek to require us to post letters of credit or cash collateral to secure those obligations, or we may be unable to obtain surety bonds, in which case we would be required to post letters of credit. Additionally, the sureties that post bonds on our behalf may require us to post security in order to secure the obligations underlying these bonds. Posting letters of credit in place of surety bonds or posting security to support these surety bonds would have an adverse effect on our liquidity.
We face uncertainties in estimating our economically recoverable coal reserves, and inaccuracies in our estimates could result in lower than expected revenues, higher than expected costs and decreased profitability.
Coal reserves are economically recoverable when the price at which they are expected to be sold exceeds their expected cost of production and selling. We base our coal reserve information on geologic data, coal ownership information and current and proposed mine plans. These estimates are periodically updated to reflect past coal production, new drilling information and other geologic or mining data. Similar to natural gas reserves, there are uncertainties inherent in estimating quantities and values of economically recoverable coal reserves, including many factors beyond our control. As a result, estimates of economically recoverable coal reserves are by their nature uncertain. Information about our reserves consists of estimates based on engineering, economic and geological data assembled and analyzed by our staff. Some of the factors and assumptions which impact economically recoverable coal reserve estimates include:
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geologic conditions; |
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historical production from the area compared with production from other producing areas; |
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the assumed effects of regulations and taxes by governmental agencies; |
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our ability to obtain, maintain and renew all required permits; |
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future improvements in mining technology; |
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assumptions governing future prices; and |
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future operating costs, including the cost of materials and capital expenditures. |
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In addition, we hold substantial coal reserves in areas containing Marcellus Shale and other shales. These areas are currently the subject of substantial exploration for oil and natural gas, particularly by horizontal drilling. If a natural gas well is in the path of our mining for coal, we may not be able to mine through the well unless we purchase it. Although in the past we have purchased vertical wells, the cost of purchasing a producing horizontal well could be substantially greater. Horizontal wells with multiple laterals extending from the well pad may access larger natural gas reserves than a vertical well which could result in higher costs. In future years, the cost associated with purchasing natural gas wells which are in the path of our coal mining may make mining through those wells uneconomical thereby effectively causing a loss of significant portions of our coal reserves.
Each of the factors which impacts reserve estimation may in fact vary considerably from the assumptions used in estimating the reserves. For these reasons, estimates of coal reserves may vary substantially. Actual production, revenues and expenditures with respect to our coal reserves will likely vary from estimates, and these variances may be material. As a result, our estimates may not accurately reflect our actual coal reserves.
Defects may exist in our chain of title for our undeveloped coal reserves where we have not done a thorough chain of title examination of our undeveloped coal reserves. We may incur additional costs and delays to mine coal because we have to acquire additional property rights to perfect our title to coal rights. If we fail to acquire additional property rights to perfect our title to coal rights, we may have to reduce our estimated reserves.
Title to most of our owned or leased properties and mineral rights is not usually verified until we make a commitment to mine a property, which may not occur until after we have obtained necessary permits and completed exploration of the property. In some cases, we rely on title information or representations and warranties provided by our lessors or grantors. Our right to mine certain of our reserves has in the past been, and may again in the future be, adversely affected if defects in title, boundaries or other rights necessary for mining exist or if a lease expires. Any challenge to our title or leasehold interests could delay the mining of the property and could ultimately result in the loss of some or all of our interest in the property. From time to time we also may be in default with respect to leases for properties on which we have mining operations. In such events, we may have to close down or significantly alter the sequence of such mining operations which may adversely affect our future coal production and future revenues. If we mine on property that we do not own or lease, we could incur liability for such mining and be subject to regulatory sanction and penalties.
In order to obtain, maintain or renew leases or mining contracts to conduct our mining operations on property where these defects exist, we may in the future have to incur unanticipated costs. In addition, we may not be able to successfully negotiate new leases or mining contracts for properties containing additional reserves, or maintain our leasehold interests in properties where we have not commenced mining operations during the term of the lease. As a result, our results of operations, business and financial condition may be materially adversely affected.
CoalCo and its subsidiaries are subject to various legal proceedings, which may have an adverse effect on our business.
We are party to a number of legal proceedings in the normal course of business activities. Defending these actions, especially purported class actions, can be costly, and can distract management. There is the potential that the costs of defending litigation in an individual matter or the aggregation of many matters could have an adverse effect on our cash flows, results of operations or financial position. See BusinessLegal and Environmental Proceedings for further discussion of pending legal proceedings.
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We have obligations for long-term employee benefits for which we accrue based upon assumptions which, if inaccurate, could result in our being required to expense greater amounts than anticipated.
We provide various long-term employee benefits to inactive and retired employees. We accrue amounts for these obligations. At December 31, 2016, the current and non-current portions of these obligations included:
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postretirement medical and life insurance ($700 million); |
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coal workers pneumoconiosis benefits ($119 million); |
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pension benefits ($103 million); and |
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workers compensation ($78 million). |
However, if our assumptions are inaccurate, we could be required to expend greater amounts than anticipated. Salary retirement benefits are funded in accordance with Employer Retirement Income Security Act of 1974 (ERISA) regulations. The other obligations are unfunded. In addition, the federal government and several states in which we operate consider changes in workers compensation and black lung laws from time to time. Such changes, if enacted, could increase our benefit expense and our collateral requirements. We post letters of credit and surety bonds as collateral for some of these liabilities that reduce our profitability and liquidity.
A failure by Murray Energy to satisfy the liabilities it assumed from ParentCo, perform its obligations under various agreements, the performance of which by Murray Energy ParentCo guaranteed, or under various agreements with ParentCo, could require us to indemnify GasCo, which could materially adversely affect our results of operations, financial position and cash flows.
In 2013, Murray Energy and its subsidiaries (Murray Energy) acquired approximately $2.4 billion of liabilities which had been reflected on ParentCo books. The consolidated balance sheet liabilities at the time of sale were comprised of approximately $2.1 billion of other postemployment benefits (OPEB) and other liabilities. In addition to these assumed liabilities, Murray Energy acquired or assumed certain ParentCo payment obligations, performance guarantees, equipment leases or subleases. The current maximum estimated exposure under the Murray Energy guarantees as of June 30, 2017 was believed to be approximately $39 million. The leases and subleases entered into with Murray Energy relate to approximately $39 million of equipment. Murray Energy is primarily liable for the acquired retiree medical liabilities under the Coal Industry Retiree Health Benefits Act of 1992, referred to herein as the Coal Act, but ParentCo remains secondarily liable. At the time of the sale, the Coal Act liabilities Murray Energy acquired were approximately $307 million and it was estimated that the servicing cost for these liabilities would be approximately $26 million for 2017, and would decline thereafter since the beneficiaries consist principally of miners who retired prior to 1994. Any failure by Murray Energy to satisfy these assumed liabilities or perform under these agreements could result in substantial claims against ParentCo by third-parties. On November 12, 2013, in connection with the transaction with ParentCo, Moodys assigned Murray Energy a family credit rating of B3 (speculative and subject to high credit risk) and its secured second lien notes due 2021 a rating of Caa1 (poor standing and subject to very high credit risk). Since the 2013 transaction, Murray Energys credit ratings have been downgraded by Moodys. In June 2017, Moodys upgraded Murray Energy to a family credit rating of B3 and the rating on its secured second lien notes to Caa2 with a stable outlook. As part of the separation and distribution CoalCo has agreed to indemnify GasCo as it relates to certain of these obligations. If Murray Energy fails to satisfy these assumed liabilities, payment obligations or Coal Act liabilities and we are called upon to perform our indemnity obligation to GasCo, our results of operations, financial position and cash flows could be materially adversely affected.
Terrorist attacks or a cyber incident could result in information theft, data corruption, operational disruption and/or financial loss.
We have become increasingly dependent upon digital technologies, including information systems, infrastructure and cloud applications and services, to operate our businesses, to process and record financial and
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operating data, communicate with our employees and business partners, as well as other activities related to our businesses. Strategic targets, such as energy-related assets, may be at greater risk of future physical attacks by terrorists or cyber attacks than other targets in the United States. Deliberate attacks on our assets, or security breaches in our systems or infrastructure, or the systems or infrastructure of third-parties, or the cloud could lead to corruption or loss of our proprietary data and potentially sensitive data, delays in production or delivery, difficulty in completing and settling transactions, challenges in maintaining our books and records, environmental damage, communication interruptions, other operational disruptions and third-party liability. Our insurance may not protect us against such occurrences. Consequently, it is possible that any of these occurrences, or a combination of them, could have a material adverse effect on our business, financial condition and results of operations. Further, as cyber incidents continue to evolve, we may be required to expend additional resources to continue to modify or enhance our protective measures or to investigate and remediate any vulnerability to cyber incidents.
Our sales of thermal coal are from three mines at one location in Pennsylvania, making us vulnerable to risks associated with operating in a single geographic area.
Our sales of thermal coal, as well as our thermal coal reserves, are from our Bailey Mine, Enlow Fork Mine and Harvey Mine located in Greene County, Pennsylvania. In addition, we also rely upon one coal processing plant and rail load facility, located in Enon, Pennsylvania for shipping coal from all of these mines. Any disruption in the functioning of this coal processing plant and rail load-out facility such as the structural failure at our above ground conveyor system or in transportation in this area could significantly reduce our sales of thermal coal and adversely affect our results of operation and financial condition.
Certain provisions in our multi-year coal sales contracts may provide limited protection during adverse economic conditions, may result in economic penalties to us or permit the customer to terminate the contract.
Price adjustment, price reopener and other similar provisions in our multi-year coal sales contracts may reduce the protection from coal price volatility traditionally provided by coal supply contracts. Price reopener provisions are present in several of our multi-year coal sales contracts. These price reopener provisions may automatically set a new price based on prevailing market price or, in some instances, require the parties to agree on a new price, sometimes within a specified range of prices. In a limited number of agreements, failure of the parties to agree on a price under a price reopener provision can lead to termination of the contract. Any adjustment or renegotiations leading to a significantly lower contract price could adversely affect our profitability.
Most of our coal sales agreements contain provisions requiring us to deliver coal within certain ranges for specific coal quality characteristics such as heat content, sulfur, ash, moisture, volatile matter, grindability, ash fusion temperature and size consist. Failure to meet these conditions could result in penalties or rejection of the coal at the election of the customer. Our coal sales contracts also typically contain force majeure provisions allowing for the suspension of performance by either party for the duration of specified events. Force majeure events include, but are not limited to, floods, earthquakes, storms, fire, faults in the coal seam or other geologic conditions, other natural catastrophes, wars, terrorist acts, civil disturbances or disobedience, strikes, railroad transportation delays caused by a force majeure event and actions or restraints by court order and governmental authority or arbitration award. Depending on the language of the contract, some contracts may terminate upon continuance of an event of force majeure that extends for a period greater than three to twelve months and some contracts may obligate us to perform notwithstanding what would typically be a force majeur event.
Our ability to operate our business effectively could be impaired if we fail to attract and retain skilled personnel, or if a meaningful segment of our employees become unionized.
Our ability to operate our business and implement our strategies depends, in part, on our continued ability to attract and retain the skilled personnel necessary to conduct our business. Efficient coal mining using
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modern techniques and equipment requires skilled laborers in multiple disciplines such as electricians, equipment operators, mechanics, engineers and welders, among others. Although we have not historically encountered shortages for these types of skilled labor, competition in the future may increase for such positions, especially as it relates to needs of other industries with respect to these positions, including oil and gas. If we experience shortages of skilled labor in the future, our labor and overall productivity or costs could be materially adversely affected. In the future, we may utilize a greater number of external contractors for portions of our operations. The costs of these contractors have historically been higher than that of our employed laborers. If our labor and contractor prices increase, or if we experience materially increased health and benefit costs with respect to our employees, our results of operations could be materially adversely affected.
None of our employees who conduct mining operations at the PAMC are currently represented by a labor union or covered under a collective bargaining agreement, although many employers in our industry have employees who belong to a union. It is possible that our employees who conduct mining operations at the PAMC may join or seek recognition to form a labor union, or we may be required to become a labor agreement signatory. If some or all of the employees who conduct mining operations at the PAMC were to become unionized, it could adversely affect productivity, increase labor costs and increase the risk of work stoppages at our mines. If a work stoppage were to occur, it could interfere with operations at the PAMC and have a material adverse effect on our business, financial condition, results of operations, cash flows and ability to make cash distributions. In addition, the mere fact that a portion of our labor force could be unionized may harm our reputation in the eyes of some investors and thereby negatively affect our share price.
The majority of our common units in CNX Coal Resources LP are subordinated to other common units and we may not receive distributions from CNX Coal Resources LP.
As of June 30, 2017, we held 11.6 million subordinated units (representing a 41.8 percent limited partnership interest) in CNXC. The balance of our CNXC limited partnership interests are held in the form of preferred and common units. On October 2, 2017, ParentCo provided a conversion notice to CNXC with respect to all Class A Units owned by it, and thereafter caused all such Class A Units to convert, on a 1-to-1 ratio, into common units representing limited partner interests in CNXC. Subordinated units are not entitled to any distribution from CNXC unless CNXC makes a minimum quarterly distribution of at least $0.4678 per Class A Preferred Unit and $0.5125 per common unit. CNXC made minimum distributions per subordinated unit equal to the distribution per common unit for five of the six quarters since CNXCs IPO. CNXC did not meet the requirement for a subordinated unit distribution with respect to fiscal quarter ended June 30, 2016 and we did not receive a distribution per subordinated unit, however, CNXC was able to make minimum distributions per subordinated unit equal to the distribution per common unit with respect to the fiscal quarter ended September 30, 2016 and declared minimum distributions per subordinated unit equal to the distribution per common unit with respect to the fiscal quarter ended December 31, 2016. We cannot assure you that CNXC will continue to be able to make or will make the required minimum quarterly distribution on its preferred and common units or that we will receive any future distributions on our subordinated units. Failure by CNXC to make distributions to us on our subordinated units could adversely affect our liquidity.
Risks Related to the Separation
We may be unable to achieve some or all of the benefits that we expect to achieve from our separation from ParentCo.
We believe that, as an independent, publicly traded company, we will continue to, among other things, focus our financial and operational resources on our specific business, growth profile and strategic priorities, design and implement corporate strategies and policies targeted to our operational focus and strategic priorities, guide our processes and infrastructure to focus on our core strengths, implement and maintain a capital structure designed to meet our specific needs and more effectively respond to industry dynamics. However, we may be unable to achieve some or all of these benefits. For example, in order to position ourselves for the separation, we
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are undertaking a series of strategic, structural and process realignment and restructuring actions within our operations. These actions may not provide the benefits we currently expect, and could lead to disruption of our operations, loss of, or inability to recruit, key personnel needed to operate and grow our business following the separation, weakening of our internal standards, controls or procedures and impairment of our key customer and supplier relationships. In addition, completion of the proposed separation will require significant amounts of managements time and effort, which may divert managements attention from operating and growing our business. If we fail to achieve some or all of the benefits that we expect to achieve as an independent company, or do not achieve them in the time we expect, our financial condition, results of operations and cash flows could be materially and adversely affected.
The combined market value of GasCo and our shares after the spin-off may not equal or exceed the market value of ParentCo shares prior to the spin-off.
We cannot assure you that the combined trading prices of GasCo common stock and our common stock after the spin-off, as adjusted for any changes in the combined capitalization of these companies, will be equal to or greater than the market price of ParentCo common stock prior to the spin-off. Until the market has fully evaluated the Gas Business of GasCo without the Coal Business, the price at which GasCo common stock trades may fluctuate significantly. Similarly, until the market has fully evaluated our company, the price at which our common stock trades may fluctuate significantly.
We may be unable to complete, on a timely or cost-effective basis, the changes necessary to operate as an independent company.
Although many components of operation as an independent company are well established as a result of CNXCs historic existence, there remains a number of business and organization changes that will be required to complete our transition to a new standalone public company. We expect these changes, which may include staffing adjustments, new hires and reassignment of responsibilities, adoption of new processes, systems and controls, and transitioning services provided by ParentCo to internally provided services, to continue for the foreseeable future.
Following the separation and distribution, ParentCo will have no obligation to provide us with assistance other than the transition services outlined in the transition services agreement, along with such other arrangements as have otherwise been contractually agreed to as outlined in the other agreements described under Certain Relationships and Related Party TransactionsAgreements with GasCo. These services do not include every service we have received from ParentCo in the past, and ParentCo is only obligated to provide these services for limited periods from the distribution date. Accordingly, following the separation and distribution, we will need to provide internally or obtain from unaffiliated third parties the services we currently receive from ParentCo. These services include information technology, tax, legal, insurance and other administrative activities, the effective and appropriate performance of which is critical to our operations. We may be unable to replace these services in a timely manner or on terms and conditions as favorable as those we receive from ParentCo. In particular, ParentCos information technology networks and systems are complex, and duplicating these networks and systems will be challenging. Because our business previously operated in part as a component of the wider ParentCo organization, we may be unable to successfully establish the infrastructure or implement the changes necessary to operate independently, or we may incur additional costs that could adversely affect our business. Additionally, while we have developed certain internal controls and procedures, such internal controls and procedures have not yet been fully implemented in connection with our operations as a standalone company. The process of implementing our internal controls could require significant attention from management and we cannot be certain that we will successfully implement and maintain adequate controls over our financial processes and reporting in the future. Difficulties encountered in their implementation could harm our results of operations or cause us to fail to meet our reporting obligations. If we fail to obtain the quality of administrative services necessary to operate effectively or incur greater costs in obtaining these services, our financial condition, results of operations and cash flow may be materially and adversely affected.
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Our historical combined and pro forma condensed combined financial data are not necessarily representative of the results we would have achieved as an independent, publicly traded company and may not be a reliable indicator of our future results.
The historical and pro forma financial data we have included in this information statement may not reflect what our financial condition, results of operations and cash flows would have been had we been an independent, publicly traded company during the periods presented or what our financial condition, results of operations and cash flows will be in the future when we are an independent company. This is primarily because:
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Prior to our separation, our business was operated by ParentCo as part of its broader corporate organization, rather than as an independent, publicly traded company. |
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Our working capital requirements and capital for our general corporate purposes, including acquisitions and capital expenditures, historically have been satisfied as part of the company-wide cash management practices of ParentCo. While our business historically has generated sufficient cash to finance our working capital and other cash requirements, following the separation and distribution, we will no longer have access to ParentCos cash pool. Without the opportunity to obtain financing from ParentCo, we may need to obtain additional financing from banks, through public offerings or private placements of debt or equity securities or other arrangements. |
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We will enter into transactions with ParentCo that did not exist prior to the separation, and modify certain existing arrangements between CNXC and ParentCo. For more information, see Certain Relationships and Related Party TransactionsAgreements with GasCo. |
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Other significant changes may occur in our cost structure, management, financing, tax profile and business operations as a result of our operating as a company separate from ParentCo. |
The pro forma financial data included in this information statement is based on the best information available, which in part includes a number of estimates and assumptions. These estimates and assumptions may prove not to be accurate, and accordingly, our pro forma financial data should not be assumed to be indicative of what our financial condition, results of operations or cash flows actually would have been as a stand-alone company or to be a reliable indicator of what our financial condition or results of operations actually may be in the future.
For more information about our past financial performance and the basis of presentation of our financial statements, see Selected Historical Condensed Combined Financial Data, Managements Discussion and Analysis of Financial Condition and Results of Operations, Unaudited Pro Forma Condensed Combined Financial Statements and our Annual Combined Financial Statements and the notes thereto.
As an independent, publicly traded company, we may not enjoy the same benefits that we did as part of ParentCo.
There is a risk that, by separating from ParentCo, we may become more susceptible to market fluctuations and other adverse events than we would have been if we were still a part of the current ParentCo organizational structure. As part of ParentCo, we have been able to enjoy certain benefits from ParentCos operating diversity, purchasing power and opportunities to pursue integrated strategies with ParentCos other businesses. As an independent, publicly traded company, we will not have similar diversity or integration opportunities and may not have similar purchasing power or access to capital markets. Additionally, as part of ParentCo, we have been able to leverage the ParentCo historical market reputation and performance and brand identity to recruit and retain key personnel to run our business. As an independent, publicly traded company, we will not have the same historical market reputation and performance or brand identity as ParentCo and it may be more difficult for us to recruit or retain such key personnel.
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We will incur significant costs in connection with the separation and distribution, as well as costs associated with operating as an independent, publicly traded company, which may adversely affect our financial condition, results of operations and cash flows.
Prior to the distribution, we will make a cash distribution of approximately $ to ParentCo, funded primarily by third-party indebtedness incurred by us prior to the separation and distribution. We will be subject to ongoing interest and principal payments during the term of this indebtedness. Following the separation, we expect to incur and pay non-recurring transition, financing and other expenses. These transaction-related expenses are currently expected to total approximately $ . We also expect to incur certain ongoing costs associated with operating as an independent, publicly traded company and extra costs related to the creation of an IT function and reporting systems. We expect to spend an appropriate amount of capital to relocate and/or augment some of our infrastructure and creating our new IT systems. The ongoing costs of the separation may adversely impact our financial condition, results of operations and cash flows. For more information regarding the separation and our anticipated costs to operate as an independent, publicly traded company, see The Separation and Distribution.
The terms of our separation from ParentCo, the related agreements and other transactions with ParentCo were determined by ParentCo and thus may be less favorable to us than the terms we could have obtained from an unaffiliated third party.
Prior to the completion of the distribution, we will enter into various agreements or amend certain of the existing agreements in place between ParentCo and CNXC to complete the separation of our business from ParentCo and govern our ongoing relationships, including, among others, a transition services agreement, a tax matters agreement, an employee matters agreement, an intellectual property matters agreement and other agreements related to operations of CoalCo post-separation.
Under a transition services agreements, ParentCo will continue to provide various interim corporate support services to us and we will provide various interim support services to ParentCo. Under the transition services agreement for operations, we will be providing support services for ParentCos continuing operations through the term of the existing contracts. The separation agreement will provide for, among other things, our responsibility for liabilities relating to our business and the responsibility of ParentCo for liabilities unrelated to our business. Among other things, the separation agreement will contain indemnification obligations and ongoing commitments of us and ParentCo designed to make our company financially responsible for substantially all liabilities that may exist relating to our business activities, whether incurred prior to or after the separation. If we are required to indemnify ParentCo under the circumstances set forth in the separation agreement, we may be subject to substantial liabilities.
For a description of these agreements and the other agreements that we will enter into with ParentCo, please read Certain Relationships and Related Party Transactions.
If we fail to develop or maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud. As a result, current and potential stockholders could lose confidence in our financial reporting, which would harm our business and the trading price of our shares.
Effective internal controls are necessary for us to provide reliable financial reports, prevent fraud and operate successfully as a public company. If we cannot provide reliable financial reports or prevent fraud, our reputation and operating results would be harmed. We cannot be certain that our efforts to develop and maintain our internal controls will be successful, that we will be able to maintain adequate controls over our financial processes and reporting in the future or that we will be able to comply with our obligations under Section 404 of the Sarbanes-Oxley Act of 2002. Any failure to develop or maintain effective internal controls, or difficulties encountered in implementing or improving our internal controls, could harm our operating results or cause us to fail to meet our reporting obligations. Ineffective internal controls could also cause investors to lose confidence
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in our reported financial information, which would likely have a negative effect on the trading price of our shares.
Some contracts and other assets which will need to be transferred or assigned from ParentCo or its affiliates to CoalCo in connection with CoalCos separation from ParentCo may require the consent or involvement of a third party. If such consent is not given, CoalCo may not be entitled to the benefit of such contracts and other assets in the future, which could negatively impact CoalCos financial condition, results of operations and cash flows.
The separation agreement provides that in connection with CoalCos separation from ParentCo, a number of contracts with third-parties and other assets are to be transferred or assigned from ParentCo or its affiliates to CoalCo. However, the transfer or assignment of certain of these contracts or assets require providing guarantees or the consent of a third party to such a transfer or assignment. Similarly, in some circumstances, CoalCo and another business unit of ParentCo are joint beneficiaries of contracts, and CoalCo will need to enter into a new agreement with the third-party to replicate the existing contract or assign the portion of the existing contract related to CoalCos business. It is possible that some parties may use the requirement of a guarantee or consent or the fact that the separation is occurring to seek more favorable contractual terms from CoalCo or to seek to terminate the contract. If CoalCo is unable to provide a guarantee or obtain such consents on commercially reasonable and satisfactory terms or if the contracts are terminated, CoalCo may be unable to obtain some of the benefits, assets and contractual commitments which are intended to be allocated to CoalCo as part of CoalCos separation from ParentCo. The failure to timely complete the assignment of existing contracts or assets, or the negotiation of new arrangements, or a termination of any of those arrangements, could negatively impact CoalCos financial condition, results of operations and cash flows. In addition, where CoalCo does not intend to provide a guarantee or obtain consent from third party counterparties based on CoalCos belief that no guarantee or consent is required, the third party counterparties may challenge a transfer of assets on the basis that the terms of the applicable commercial arrangements require that a guarantee be provided or the third party counterpartys consent. CoalCo may incur substantial litigation and other costs in connection with any such claims and, if CoalCo does not prevail, CoalCos ability to use these assets could be adversely impacted.
Our customers, prospective customers, suppliers or other companies with whom we conduct business may need assurances that our financial stability on a stand-alone basis is sufficient to satisfy their requirements for doing or continuing to do business with them.
Some of our customers, prospective customers, suppliers or other companies with whom we conduct business may need assurances that our financial stability on a stand-alone basis is sufficient to satisfy their requirements for doing or continuing to do business with them, and may require us to provide additional credit support, such as letters of credit or other financial guarantees. Any failure of parties to be satisfied with our financial stability could have a material adverse effect on our financial condition, results of operations, liquidity and cash flows.
In connection with our separation we will assume, and indemnify ParentCo for, certain liabilities. If we are required to make payments pursuant to these indemnities to ParentCo, we may need to divert cash to meet those obligations and our financial condition, results of operations and cash flows could be negatively impacted. In addition, ParentCo may indemnify us for certain liabilities. ParentCos indemnity may not be sufficient to insure us against the full amount of liabilities for which it will be allocated responsibility, and ParentCo may not be able to satisfy its indemnification obligations in the future.
Pursuant to the terms of the separation agreement and certain other agreements to be entered into as part of the separation, we will agree to assume, and indemnify ParentCo for, certain liabilities for uncapped amounts, which may include, among other items, associated defense costs, settlement amounts and judgments. For additional detail regarding these indemnification obligations, please see the section of this information statement entitled Certain Relationships and Related Party TransactionsAgreements with GasCo. Although
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such obligations are not currently quantifiable, such potential payments pursuant to these indemnities could be significant, and could negatively impact our financial condition, results of operations and cash flows, particularly indemnities relating to our actions that could impact the tax-free nature of the contribution, the distribution and certain related transactions, which are set forth in detail in the tax matters agreement and separation agreement, as well as the risk factor below entitled If the distribution, together with certain related transactions, does not qualify as a transaction that is generally tax-free for U.S. federal income tax purposes, ParentCo, CoalCo and ParentCo stockholders could be subject to significant tax liabilities and, in certain circumstances, CoalCo could be required to indemnify ParentCo for material taxes and other related amounts pursuant to indemnification obligations under the tax matters agreement . Third parties could also seek to hold us responsible for liabilities of ParentCos business. GasCo will agree to indemnify us for such liabilities, but such indemnity from GasCo may not be sufficient to protect us against the full amount of such liabilities, and GasCo may not be able to fully satisfy its indemnification obligations. Moreover, even if we ultimately succeed in recovering from GasCo any amounts for which we are held liable, we may be temporarily required to bear these losses ourselves. Each of these risks could negatively affect our financial condition, results of operations and cash flows.
If the distribution, together with certain related transactions, does not qualify as a transaction that is generally tax-free for U.S. federal income tax purposes, ParentCo, CoalCo and ParentCo stockholders could be subject to significant tax liabilities and, in certain circumstances, CoalCo could be required to indemnify ParentCo for material taxes and other related amounts pursuant to indemnification obligations under the tax matters agreement.
It is a condition to the distribution that ParentCo receives a private letter ruling from the IRS and one or more opinions of its tax advisors, in each case satisfactory to the ParentCo Board of Directors, regarding certain U.S. federal income tax matters relating to the separation and the distribution, including, with respect to the opinion of Wachtell, Lipton, Rosen & Katz, to the effect that the distribution will be a transaction described in Section 355(a) of the Code. The IRS private letter ruling and the opinion(s) of tax advisors will be based upon and rely on, among other things, various facts and assumptions, as well as certain representations, statements and undertakings of ParentCo and CoalCo, including those relating to the past and future conduct of ParentCo and CoalCo. If any of these representations, statements or undertakings is, or becomes, inaccurate or incomplete, or if ParentCo or CoalCo breaches any of its representations or covenants contained in any of the separation-related agreements and documents or in any documents relating to the IRS private letter ruling and/or the opinion(s) of tax advisors, the IRS private letter ruling and/or opinion(s) of tax advisors may be invalid and the conclusions reached therein could be jeopardized.
Notwithstanding receipt of the IRS private letter ruling and the opinion(s) of tax advisors, the IRS could determine that the distribution and/or certain related transactions should be treated as taxable transactions for U.S. federal income tax purposes if it determines that any of the representations, assumptions, or undertakings upon which the IRS private letter ruling or the opinion(s) of tax advisors were based are false or have been violated. In addition, neither the IRS private letter ruling nor the opinion(s) of tax advisors will address all of the issues that are relevant to determining whether the distribution, together with certain related transactions, qualifies as a transaction that is generally tax-free for U.S. federal income tax purposes, and the opinion(s) of tax advisors represent the judgment of such tax advisors and are not binding on the IRS or any court, and the IRS or a court may disagree with the conclusions in the opinion(s) of tax advisors. Accordingly, notwithstanding receipt by ParentCo of the IRS private letter and the opinion(s) of tax advisors, there can be no assurance that the IRS will not assert that the distribution and/or certain related transactions do not qualify for tax-free treatment for U.S. federal income tax purposes or that a court would not sustain such a challenge. In the event the IRS were to prevail with such challenge, ParentCo, CoalCo and ParentCo stockholders could be subject to significant U.S. federal income tax liability.
If the distribution, together with related transactions, fails to qualify as a transaction that is generally tax-free for U.S. federal income tax purposes, under Sections 355 and 368(a)(1)(D) of the Code, in general, for U.S. federal income tax purposes, ParentCo would recognize taxable gain as if it had sold the CoalCo common
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stock in a taxable sale for its fair market value (unless ParentCo and CoalCo jointly make an election under Section 336(e) of the Code with respect to the distribution, in which case, in general, (i) the ParentCo group would recognize taxable gain as if CoalCo had sold all of its assets in a taxable sale in exchange for an amount equal to the fair market value of the CoalCo common stock and the assumption of all CoalCos liabilities and (ii) CoalCo would obtain a related step up in the basis of its assets) and, if the distribution fails to qualify as a transaction that is generally tax-free for U.S. federal income tax purposes under Section 355, in general, for U.S. federal income tax purposes, ParentCo stockholders who receive CoalCo shares in the distribution would be subject to tax as if they had received a taxable distribution equal to the fair market value of such shares. For more information, see Material U.S. Federal Income Tax Consequences.
Under the tax matters agreement that ParentCo will enter into with CoalCo, CoalCo may be required to indemnify ParentCo against any additional taxes and related amounts resulting from (i) an acquisition of all or a portion of the equity securities or assets of CoalCo, whether by merger or otherwise (and regardless of whether CoalCo participated in or otherwise facilitated the acquisition), (ii) other actions or failures to act by CoalCo or (iii) any of CoalCos representations, covenants or undertakings contained in any of the separation-related agreements and documents or in any documents relating to the IRS private letter ruling and/or the opinion(s) of tax advisors being incorrect or violated. Any such indemnity obligations could be material. For a more detailed discussion, see Certain Relationships and Related Party TransactionsAgreements with GasCoTax Matters Agreement.
We may not be able to engage in desirable strategic or capital-raising transactions after the separation.
Under current law, a spin-off can be rendered taxable as a result of certain post-spin-off acquisitions of shares or assets of the spun-off corporation. For example, a spin-off may result in taxable gain to the parent corporation under Section 355(e) of the Code if the spin-off were later deemed to be part of a plan (or series of related transactions) pursuant to which one or more persons acquire, directly or indirectly, shares representing a 50% or greater interest (by vote or value) in the spun-off corporation. To preserve the tax-free treatment of the separation and the distribution for U.S. federal income tax purposes, and in addition to CoalCos indemnity obligation described above, the tax matters agreement will restrict CoalCo, for the two-year period following the separation, except in specific circumstances, from:
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entering into any transaction pursuant to which all or a portion of the shares of CoalCo common stock would be acquired, whether by merger or otherwise; |
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issuing equity securities beyond certain thresholds; |
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repurchasing shares of CoalCo capital stock other than in certain open-market transactions; and |
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ceasing to actively conduct certain of its businesses. |
The tax matters agreement will also prohibit CoalCo from taking or failing to take any other action that would prevent the distribution and certain related transactions from qualifying as a transaction that is generally tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code. These restrictions may limit our ability to pursue certain strategic transactions, equity issuances or repurchases or other transactions that we may believe to be in the best interests of our stockholders or that might increase the value of our business. For more information, see Certain Relationships and Related Party TransactionsAgreements with GasCoTax Matters Agreement.
After the distribution, certain of our directors and officers may have actual or potential conflicts of interest because of their equity ownership in GasCo.
Although no CoalCo directors or officers will serve at both companies following the separation and distribution, certain of our directors and executive officers may own shares of GasCo common stock, and the individual holdings may be significant for some of these individuals compared to their total assets. This
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ownership in both companies may create, or may create the appearance of, conflicts of interest when these directors and officers are faced with decisions that could have different implications for GasCo and us. For example, potential conflicts of interest could arise in connection with the resolution of any dispute that may arise between GasCo and us regarding the terms of the agreements governing the internal reorganization, the distribution and the relationship thereafter between the companies, including with respect to the indemnification of certain matters. For more information on certain procedures we will institute with regard to such matters, see Certain Relationships and Related Party TransactionsProcedures for Approval of Related Person Transactions.
Until the distribution occurs, ParentCo has the sole discretion to change the terms of the distribution in ways which may be unfavorable to CoalCo.
Until the distribution occurs, ParentCo will have the sole and absolute discretion to determine and change the terms of the distribution, including the establishment of the record date and distribution date. These changes could be unfavorable to CoalCo. In addition, ParentCo may decide at any time not to proceed with the separation.
No vote of ParentCo stockholders is required in connection with the distribution. As a result, if the distribution occurs and you do not want to receive CoalCo common stock in the distribution, your sole recourse will be to divest yourself of your ParentCo common stock prior to the record date.
No vote of ParentCo stockholders is required in connection with the distribution. Accordingly, if the distribution occurs and you do not want to receive CoalCo common stock in the distribution, your only recourse will be to divest yourself of your ParentCo common stock prior to the record date for the distribution.
As a public company, we will be required to publish more detailed information about our business, operations and financial performance which will be available for our customers, competitors and other third parties.
Historically, information about our business and operations was presented as part of the broader ParentCo corporate organization. As an independent, publicly traded company, we will be required to publicly provide more detailed information about our business and operations, including financial information, as a stand-alone company. This information will be accessible to our customers, suppliers and competitors, each of which may factor the new information into their commercial dealings with us or in the markets in which we operate. The use of such information by third parties in the marketplace could have an adverse effect on us and our results of operations, including our relative level of profitability.
The separation and distribution and related internal reorganization transactions may expose CoalCo to potential liabilities arising out of state and federal fraudulent conveyance laws and legal dividend requirements.
If CoalCo files for bankruptcy or is otherwise determined or deemed to be insolvent under federal bankruptcy laws, a court could deem the separation and distribution or certain internal reorganization transactions undertaken by ParentCo in connection with the separation to be a fraudulent conveyance or transfer. Fraudulent conveyances or transfers are defined to include transfers made or obligations incurred with the actual intent to hinder, delay or defraud current or future creditors or transfers made or obligations incurred for less than reasonably equivalent value when the debtor was insolvent, or that rendered the debtor insolvent, inadequately capitalized or unable to pay its debts as they become due. A court could void the transactions or impose substantial liabilities upon CoalCo, which could adversely affect CoalCos financial condition and its results of operations. Among other things, the court could require CoalCo stockholders to return to ParentCo some or all of the shares of CoalCo common stock issued in the separation and distribution, or require CoalCo to fund liabilities of other companies involved in the reorganization transactions for the benefit of creditors.
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The distribution of CoalCo common stock is also subject to review under state corporate distribution statutes. Under the Delaware General Corporation Law (the DGCL), a corporation may only pay dividends to its stockholders either (i) out of its surplus (net assets minus capital) or (ii) if there is no such surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. Although ParentCo intends to make the distribution of CoalCo common stock entirely out of surplus, CoalCo cannot assure you that a court will not later determine that some or all of the distribution to ParentCo stockholders was unlawful.
Risks Related to Our Common Stock and the Securities Market
We cannot be certain that an active trading market for our common stock will develop or be sustained after the distribution, and following the distribution, our stock price may fluctuate significantly.
A public market for our common stock does not currently exist. We anticipate that on or prior to the record date for the distribution, trading of shares of our common stock will begin on a when-issued basis and will continue through the last trading day prior to the distribution date. However, we cannot guarantee that an active trading market will develop or be sustained for our common stock after the distribution. If an active trading market does not develop for our stock, you may have difficulty selling your shares at an attractive price, or at all. In addition, we cannot predict the price at which shares of our common stock may trade after the distribution.
Similarly, ParentCo cannot predict the effect of the distribution on the trading prices of its common stock. After the distribution, ParentCo common stock will continue to be listed and traded on the NYSE. Subject to the consummation of the distribution, we expect our common stock to be listed and traded on the NYSE under the symbol . The combined trading prices of ParentCo common stock and our common stock after the distribution, as adjusted for any changes in the combined capitalization of these companies, may not be equal to or greater than the trading price of ParentCo common stock prior to the distribution. Until the market has fully evaluated the remaining business of ParentCo without our business, and fully evaluated us, the price at which ParentCos or our common stock trade may fluctuate significantly.
The market price of our common stock may fluctuate significantly due to a number of factors, some of which may be beyond our control, including:
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our business profile and market capitalization may not fit the investment objectives of ParentCos current stockholders, causing a shift in our initial investor base, and our common stock may not be included in some indices in which ParentCo common stock is included, causing certain holders to be mandated to sell their shares of our common stock; |
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our quarterly or annual earnings, or those of other companies in our industry; |
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the failure of securities analysts to cover our common stock after the distribution; |
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actual or anticipated fluctuations in our operating results; |
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changes in earnings estimates by securities analysts or our ability to meet those estimates or our earnings guidance; |
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the operating and stock price performance of other comparable companies; |
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overall market fluctuations and domestic and worldwide economic conditions; and |
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other factors described in these Risk Factors and elsewhere in this information statement. |
Stock markets in general have experienced volatility that has often been unrelated to the operating performance of a particular company. These broad market fluctuations may adversely affect the trading price of either or both classes of our common stock. As a result of these factors, holders of our common stock may not be able to resell their shares at or above the initial market price following the separation or may not be able to resell them at all. In addition, price volatility with our common stock may be greater if trading volume is low.
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If securities analysts do not publish research or reports about our company, or issue unfavorable commentary about us or downgrade our shares, the price of our shares could decline.
The trading market for our shares will depend in part on the research and reports that third-party securities analysts publish about our company and our industry. Because our ordinary shares will initially be distributed to the public through the spin-off, there will not be a marketing effort relating to the initial distribution of our shares of the type that would typically be part of an initial public offering of shares. We may be unable or slow to attract research coverage and if one or more analysts cease coverage of our company, we could lose visibility in the market. In addition, one or more of these analysts could use estimation or valuation methods that we do not agree with, downgrade our shares or issue other negative commentary about our company or our industry. As a result of one or more of these factors, the trading price of our shares could decline.
A future sale of a substantial number of shares of our common stock may cause our stock price to decline.
Any sales of substantial amounts of shares of our common stock in the public market or the perception that such sales might occur, in connection with the distribution or otherwise, may cause the market price of our common stock to decline. Upon completion of the distribution, we expect that we will have an aggregate of approximately shares of our common stock issued and outstanding. These shares will be freely tradable without restriction or further registration under the U.S. Securities Act of 1933, as amended (the Securities Act), unless the shares are owned by one of our affiliates, as that term is defined in Rule 405 under the Securities Act.
We are unable to predict whether large amounts of our common stock will be sold in the open market following the distribution. We are also unable to predict whether a sufficient number of buyers would be in the market at that time.
We cannot guarantee the timing, amount, or payment of dividends on our common stock in the future.
The payment and amount of any future dividend will be subject to the sole discretion of our post-distribution, independent board of directors and will depend upon many factors, including our financial condition and prospects, our capital requirements and access to capital markets, covenants associated with certain of our debt obligations, legal requirements and other factors that our board of directors may deem relevant, and there can be no assurance that we will continue to pay a dividend in the future.
There may be substantial changes in CoalCos stockholder base.
Many investors holding ParentCo common stock may hold that stock because of a decision to invest in a company with Parents profile. Following the distribution, the shares of CoalCo common stock held by those investors will represent an investment in a company with a different profile. This may not be aligned with a holders investment strategy and may cause the holder to sell the shares. As a result, CoalCos stock price may decline or experience volatility as CoalCos stockholder base changes.
Your percentage of ownership in us may be diluted in the future.
Your percentage ownership in us may be diluted because of equity issuances for acquisitions, capital market transactions or otherwise, including, without limitation, equity awards that we may be granting to our directors, officers and employees. Such issuances may have a dilutive effect on our earnings per share, which could adversely affect the market price of our common stock.
Certain CoalCo employees will have rights to purchase or receive shares of CoalCo common stock after the separation as a result of the conversion of their ParentCo stock options, restricted stock units and performance share units to CoalCo stock options, restricted stock units and performance share units. The
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conversion of these ParentCo awards into CoalCo awards is described in further detail in the section entitled The Separation and DistributionTreatment of Equity-Based Compensation. As of the date of this information statement, the exact number of share units of CoalCo common stock that will be subject to the converted CoalCo stock options, restricted stock units and performance share units is not determinable; and therefore it is not possible to determine the extent to which your percentage ownership in CoalCo could be diluted as a result of the conversion. It is anticipated that the compensation committee of the board of directors of CoalCo will grant additional equity awards to CoalCo employees and directors after the distribution, from time to time, under CoalCos compensation and employee benefit plans. These additional awards will have a dilutive effect on CoalCos earnings per share, which could adversely affect the market price of CoalCos common stock.
In addition, our amended and restated certificate of incorporation will authorize us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such designation, powers, preferences and relative, participating, optional and other special rights, including preferences over our common stock with respect to dividends and distributions, as our board of directors generally may determine. The terms of one or more classes or series of preferred stock could dilute the voting power or reduce the value of our common stock. For example, we could grant the holders of preferred stock the right to elect some number of our directors in all events or on the happening of specified events or to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we could assign to holders of preferred stock could affect the residual value of our common stock. For more information, see Description of CoalCo Capital Stock.
Certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws, and of Delaware law, may prevent or delay an acquisition of us, which could decrease the trading price of our common stock.
CoalCos amended and restated certificate of incorporation and amended and restated by-laws will contain, and Delaware law contains, provisions that are intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably expensive to the bidder and to encourage prospective acquirers to negotiate with CoalCos board of directors rather than to attempt a hostile takeover. These provisions include, among others:
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the inability of our stockholders to act by written consent unless such written consent is unanimous; |
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the inability of our stockholders to call special meetings; |
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rules regarding how stockholders may present proposals or nominate directors for election at stockholder meetings; |
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the right of our board of directors to issue preferred stock without stockholder approval; |
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the fact that our board of directors will initially be divided into three classes; and |
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the ability of our directors, and not stockholders, to fill vacancies (including those resulting from an enlargement of our board of directors) on our board of directors. |
In addition, following the distribution, we will be subject to Section 203 of the DGCL. Section 203 provides that, subject to limited exceptions, persons that (without prior board approval) acquire, or are affiliated with a person that acquires, more than 15% of the outstanding voting stock of a Delaware corporation shall not engage in any business combination with that corporation, including by merger, consolidation or acquisitions of additional shares, for a three-year period following the date on which that person or its affiliate becomes the holder of more than 15% of the corporations outstanding voting stock.
We believe these provisions will protect our stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirers to negotiate with our board of directors and by providing our board of directors with more time to assess any acquisition proposal. These provisions are not intended to make us
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immune from takeovers. However, these provisions could have the effect of delaying, deferring or preventing a change in control or the removal of existing management, of deterring potential acquirers from making an offer to our stockholders and of limiting any opportunity to realize premiums over prevailing market prices for our common stock in connection therewith. This could be the case notwithstanding that a majority of our stockholders might benefit from such a change in control or offer.
In addition, an acquisition or further issuance of CoalCos stock could trigger the application of Section 355(e) of the Code, causing the distribution to be taxable to ParentCo. For a discussion of Section 355(e) of the Code, see Material U.S. Federal Income Tax Consequences. Under the tax matters agreement, CoalCo would be required to indemnify ParentCo for the resulting tax, and this indemnity obligation might discourage, delay or prevent a change of control that you may consider favorable.
Our certificate of incorporation will designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders ability to obtain an alternative judicial forum for disputes with us or our directors, officers, employees or agents.
Our certificate of incorporation will provide that unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will, to the fullest extent permitted by applicable law, be the sole and exclusive forum for:
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any derivative action or proceeding brought on our behalf; |
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any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, employees or agents to us or our stockholders; |
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any action asserting a claim arising pursuant to any provision of the DGCL, our amended and restated certificate of incorporation or our bylaws; |
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any action asserting a claim that is governed by the internal affairs doctrine, in each such case subject to such Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein; or |
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any action asserting an internal corporate claim as defined in Section 115 of the DGCL. |
Any person or entity purchasing or otherwise holding any interest in shares of our capital stock will be deemed to have notice of, and consented to, the provisions of our certificate of incorporation described in the preceding sentence. This choice of forum provision may limit a stockholders ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, employees or agents, which may discourage such lawsuits against us and such persons. Alternatively, if a court were to find these provisions of our amended and restated certificate of incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions.
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This information statement and other materials ParentCo and CoalCo have filed or will file with the SEC contain or incorporate by reference forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward-looking statements include those containing such words as anticipates, believes, could, estimates, expects, forecasts, intends, may, outlook, plans, projects, seeks, sees, should, targets, will, or other words of similar meaning. All statements that reflect CoalCos expectations, assumptions, or projections about the future other than statements of historical fact are forward-looking statements, including, without limitation, statements regarding the separation and distribution, including the timing and expected benefits thereof; forecasts concerning global demand for coal, changes in coal prices and our ability to develop our existing coal reserves and successfully execute our mining plans, competition and growth opportunities for coal, and other applications; targeted financial results or operating performance; and statements about CoalCos strategies, outlook, and business and financial prospects. These statements reflect beliefs and assumptions that are based on CoalCos perception of historical trends, current conditions and expected future developments, as well as other factors management believes are appropriate in the circumstances. Forward-looking statements are subject to a number of known and unknown risks, uncertainties, and other factors and are not guarantees of future performance. Actual results, performance, or outcomes may differ materially from those expressed in or implied by those forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, among others:
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whether the separation is completed, as expected or at all, and the timing of the separation and the distribution; |
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whether the conditions to the distribution are satisfied; |
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whether the operational, strategic and other benefits of the separation can be achieved; |
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whether the costs and expenses of the separation can be controlled within expectations; |
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deterioration in economic conditions in any of the industries in which our customers operate may decrease demand for our products, impair our ability to collect customer receivables and impair our ability to access capital; |
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volatility and wide fluctuation in coal prices based upon a number of factors beyond our control including oversupply relative to the demand available for our products, weather and the price and availability of alternative fuels; |
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an extended decline in the prices we receive for our coal affecting our operating results and cash flows; |
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foreign currency fluctuations that could adversely affect the competitiveness of our coal abroad; |
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our customers extending existing contracts or entering into new long-term contracts for coal on favorable terms; |
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our reliance on major customers; |
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our inability to collect payments from customers if their creditworthiness declines or if they fail to honor their contracts; |
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the disruption of rail, barge, gathering, processing and transportation facilities and other systems that deliver our coal to market; |
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a loss of our competitive position because of the competitive nature of coal industries, or a loss of our competitive position because of overcapacity in these industries impairing our profitability; |
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coal users switching to other fuels in order to comply with various environmental standards related to coal combustion emissions; |
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the impact of potential, as well as any adopted environmental regulations including any relating to greenhouse gas emissions on our operating costs as well as on the market for natural coal and for our securities; |
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the risks inherent in coal operations, including our reliance upon third party contractors, being subject to unexpected disruptions, including geological conditions, equipment failure, timing of completion of significant construction or repair of equipment, fires, explosions, accidents and weather conditions which could impact financial results; |
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decreases in the availability of, or increases in, the price of commodities or capital equipment used in our coal mining operations; |
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obtaining, maintaining and renewing governmental permits and approvals for our coal operations; |
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the effects of government regulation on the discharge into the water or air, and the disposal and clean-up of, hazardous substances and wastes generated during our coal operations; |
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the effects of stringent federal and state employee health and safety regulations, including the ability of regulators to shut down our operations; |
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the potential for liabilities arising from environmental contamination or alleged environmental contamination in connection with our past or current coal operations; |
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the effects of mine closing, reclamation and certain other liabilities; |
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uncertainties in estimating our economically recoverable coal reserves; |
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the outcomes of various legal proceedings, including those which are more fully described herein; |
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exposure to employee-related long-term liabilities; |
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failure by Murray Energy to satisfy liabilities it acquired from ParentCo, or failure to perform its obligations under various arrangements, which ParentCo guaranteed and for which we have indemnification obligations to ParentCo; |
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information theft, data corruption, operational disruption and/or financial loss resulting from a terrorist attack or cyber incident; |
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operating in a single geographic area; |
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certain provisions in our multi-year coal sales contracts may provide limited protection during adverse economic conditions, and may result in economic penalties or permit the customer to terminate the contract; |
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the majority of our common units in CNX Coal Resources LP are subordinated, and we may not receive distributions from CNX Coal Resources LP; and |
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the potential failure to retain and attract skilled personnel of CoalCo. |
The above list of factors is not exhaustive or necessarily in order of importance. Additional information concerning factors that could cause actual results to differ materially from those in forward-looking statements include those discussed under Risk Factors in this information statement and in our publicly filed documents referred to in Where You Can Find More Information. CoalCo disclaims any intention or obligation to update publicly any forward-looking statements, whether in response to new information, future events, or otherwise, except as required by applicable law.
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THE SEPARATION AND DISTRIBUTION
Overview
In December 2016, ParentCo announced its intention to separate its Coal Business from its Gas Business. The separation will occur by means of a pro rata distribution to ParentCo stockholders of all of the common stock of CoalCo, which was formed to hold ParentCos Pennsylvania Mining Operations (PAMC) and certain related coal assets, including ParentCos ownership interest in CNXC, which owns a 25% stake in PAMC, the CNX Marine Terminal, the Greenfield Reserves and certain other related coal assets and liabilities (collectively, the Coal Business). The number of shares of ParentCo common stock you own will not change as a result of the separation.
In connection with such distribution, we expect that:
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ParentCo will complete an internal reorganization, which we refer to as the internal reorganization, as a result of which CoalCo will become the parent company of the ParentCo operations comprising, and the entities that will conduct, the Coal Business; |
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CoalCo will change its name to CONSOL Energy Inc. and ParentCo will change its name to CNX Resources Corporation; and |
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CoalCo will incur $ of indebtedness from third-party financing sources, which will be described in an amendment to this information statement, a portion of which we anticipate will be distributed by CoalCo to GasCo. In addition, CoalCo intends to retain those MEDCO 5.75% revenue bonds due September 2025, for which the principal amount as of June 30, 2017 was $103 million, and for which GasCo will remain as a guarantor with CoalCo providing indemnification with respect to such guarantee. |
On , 2017, the ParentCo Board of Directors approved the distribution of all of CoalCos common stock to holders of ParentCo common stock as of the close of business on , 2017, the record date for the distribution. At , Eastern Time, on , 2017, the distribution date, each ParentCo stockholder will receive share(s) of CoalCo common stock for every share(s) of ParentCo common stock held at the close of business on the record date for the distribution, as described below. ParentCo stockholders will receive cash in lieu of any fractional shares of CoalCo common stock that they would have received after application of this ratio.
Upon completion of the separation, each ParentCo stockholder as of the record date will continue to own shares of ParentCo and will own a proportionate share of the outstanding shares of common stock of CoalCo. You will not be required to make any payment, surrender or exchange your ParentCo common stock or take any other action to receive your shares of CoalCo common stock in the distribution. The distribution of CoalCo common stock as described in this information statement is subject to the satisfaction or waiver of certain conditions. For a more detailed description of these conditions, see Conditions to the Distribution below.
Reasons for the Separation
The ParentCo Board of Directors believes that separating its Coal Business from its Gas Business is in the best interests of ParentCo and its stockholders for a number of reasons, including:
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Management Focus and Strategic Decision Making . The separation will position each company to pursue a more focused, industry-specific strategy, will create additional operational flexibility and will enable the management teams of each company to focus on strengthening its core business, operations and other needs, and pursue distinct and targeted opportunities for long-term growth and profitability. |
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Allocation of Financial Resources and Access to Capital . The separation will permit each company to efficiently allocate its capital to meet the unique needs of its own business, which will allow each |
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company to intensify its focus on its distinct business priorities. The separation will also facilitate each business having a more appropriate capital structure aligned with its target capital levels and those of its peers, and is expected to increase access to capital. |
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Employee Retention and Incentivizing . The separation will result in each business being better positioned to recruit and retain executives and other employees with expertise that is more directly applicable to the needs of its business. Similarly, the Company believes that its efforts to drive financial and operational goals by aligning incentive programs with specific goals applicable to each business are frustrated by its continued operation of two distinct lines of business. As a result of the separation, each business will be able to articulate more defined talent requirements for potential employees, and both recruiters and applicants are expected to have a clearer understanding of the prerequisites and opportunities associated with each business. Additionally, each business will be able to communicate specifically and clearly the goals of incentive programs and how such programs are specifically tailored to and aligned with the financial and operational strategic objectives of each business in connection with recruiting and retaining employees. |
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Enhanced Investor Understanding, Corporate Acquisition Currencies and Equity-Based Compensation. The separation brought about by the distribution will improve understanding of each business in the capital markets and allow for a stronger, more focused investor base for each business. Moreover, the separation will create two independent equity structures, enabling each business to use its own business-focused stock as consideration in acquisitions and equity compensation programs and creating a more efficient and valuable transaction currency and compensation tool. |
The ParentCo Board of Directors also considered a number of potentially negative factors in evaluating the separation, including:
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Risk of Failure to Achieve Anticipated Benefits of the Separation . We may not achieve the anticipated benefits of the separation for a variety of reasons, including, among others: the separation will require significant amounts of managements time and effort, which may divert managements attention from operating our business; and following the separation, we may be more susceptible to market fluctuations, including fluctuations in coal prices, and other adverse events than if we were still a part of ParentCo because our business will be less diversified than ParentCos business prior to the completion of the separation. |
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Increased Administrative Costs . We will incur substantial costs in connection with the separation and the transition to being a standalone public company, which may include accounting, tax, legal and other professional services costs, recruiting and relocation costs associated with hiring key senior management personnel who are new to CoalCo, tax costs and costs to separate information systems. Due to our smaller scale as a standalone company, our cost of performing such functions could be higher than the amounts reflected in our historical financial statements, which would cause our profitability to decrease. |
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Limitations on Strategic Transactions . Under the terms of the tax matters agreement that we will enter into with ParentCo, we will be restricted from taking certain actions that could cause the distribution or certain related transactions to fail to qualify as tax-free transactions under applicable law. These restrictions may limit for a period of time our ability to pursue certain strategic transactions and equity issuances or engage in other transactions that might increase the value of our business. |
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Uncertainty Regarding Stock Prices . We cannot predict the effect of the separation on the trading prices of CoalCo or GasCo common stock or know with certainty whether the combined market value of share(s) of our common stock and share(s) of GasCo common stock will be less than, equal to or greater than the market value of share(s) of ParentCo common stock prior to the distribution. |
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In determining to pursue the separation, the ParentCo Board of Directors concluded the potential benefits of the separation outweighed the foregoing factors. See the sections entitled The Separation and DistributionReasons for the Separation and Risk Factors included elsewhere in this information statement.
Formation of CoalCo
CoalCo was formed in Delaware on June 21, 2017 for the purpose of holding ParentCos Coal Business. As part of the plan to separate the Coal Business from the remainder of its businesses, in connection with the internal reorganization, ParentCo plans to transfer, or otherwise ensure the transfer of, the equity interests of certain entities, including CNXC, that are expected to operate the Coal Business and the assets and liabilities of the Coal Business to CoalCo prior to the distribution.
When and How You Will Receive the Distribution
With the assistance of Computershare Trust Company, N.A., the distribution agent for the distribution (the distribution agent or Computershare), ParentCo expects to distribute CoalCo common stock at , Eastern Time, on , 2017, the distribution date, to all holders of outstanding ParentCo common stock as of the close of business on , 2017, the record date for the distribution. Computershare, which currently serves as the transfer agent and registrar for ParentCo common stock, will serve as the settlement and distribution agent in connection with the distribution and the transfer agent and registrar for CoalCo common stock.
If you own ParentCo common stock as of the close of business on the record date for the distribution, CoalCo common stock that you are entitled to receive in the distribution will be issued electronically, as of the distribution date, to you in direct registration form or to your bank or brokerage firm on your behalf. If you are a registered holder, Computershare will then mail you a direct registration account statement that reflects your shares of CoalCo common stock. If you hold your ParentCo shares through a bank or brokerage firm, your bank or brokerage firm will credit your account for the CoalCo shares. Direct registration form refers to a method of recording share ownership when no physical share certificates are issued to stockholders, as is the case in this distribution. If you sell ParentCo common stock in the regular-way market up to and including the distribution date, you will be selling your right to receive shares of CoalCo common stock in the distribution.
Commencing on or shortly after the distribution date, if you hold physical share certificates that represent your ParentCo common stock and you are the registered holder of the shares represented by those certificates, the distribution agent will mail to you an account statement that indicates the number of shares of CoalCo common stock that have been registered in book-entry form in your name.
Most ParentCo stockholders hold their common stock through a bank or brokerage firm. In such cases, the bank or brokerage firm is said to hold the shares in street name and ownership would be recorded on the bank or brokerage firms books. If you hold your ParentCo common stock through a bank or brokerage firm, your bank or brokerage firm will credit your account for the CoalCo common stock that you are entitled to receive in the distribution. If you have any questions concerning the mechanics of having shares held in street name, please contact your bank or brokerage firm.
Transferability of Shares You Receive
Shares of CoalCo common stock distributed to holders in connection with the distribution will be transferable without registration under the Securities Act, except for shares of common stock received by persons who may be deemed to be our affiliates. Persons who may be deemed to be our affiliates after the distribution generally include individuals or entities that control, are controlled by or are under common control with us, which may include certain of our executive officers, directors or principal stockholders. Securities held by our affiliates will be subject to resale restrictions under the Securities Act. Our affiliates will be permitted to sell shares of our common stock only pursuant to an effective registration statement or an exemption from the registration requirements of the Securities Act, such as the exemption afforded by Rule 144 under the Securities Act.
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Number of Shares of CoalCo Common Stock You Will Receive
For every share(s) of ParentCo common stock that you own at the close of business on , 2017, the record date for the distribution, you will receive share(s) of CoalCo common stock on the distribution date. ParentCo will not distribute any fractional shares of CoalCo common stock to its stockholders. Instead, if you are a registered holder, Computershare will aggregate fractional shares of common stock into whole shares, sell the whole shares in the open market at prevailing market prices and distribute the aggregate cash proceeds (net of discounts and commissions) of the sales pro rata (based on the fractional share such holder would otherwise be entitled to receive) to each holder who otherwise would have been entitled to receive a fractional share in the distribution. The distribution agent, in its sole discretion, without any influence by ParentCo or CoalCo, will determine when, how, and through which broker-dealer and at what price to sell the whole shares of common stock. Any broker-dealer used by the distribution agent will not be an affiliate of either ParentCo or CoalCo and the distribution agent is not an affiliate of either ParentCo or CoalCo. Neither CoalCo nor ParentCo will be able to guarantee any minimum sale price in connection with the sale of these shares. Recipients of cash in lieu of fractional shares will not be entitled to any interest on the amounts of payment made in lieu of fractional shares.
The net cash proceeds of these sales of fractional shares will be taxable for U.S. federal income tax purposes. See Material U.S. Federal Income Tax Consequences for an explanation of the material U.S. federal income tax consequences of the distribution. If you hold physical certificates for shares of ParentCo common stock and are the registered holder, you will receive a check from the distribution agent in an amount equal to your pro rata share of the net cash proceeds of the sales. We estimate that it will take approximately two weeks from the distribution date for the distribution agent to complete the distributions of the net cash proceeds. If you hold your shares of ParentCo common stock through a bank or brokerage firm, your bank or brokerage firm will receive, on your behalf, your pro rata share of the net cash proceeds of the sales and will electronically credit your account for your share of such proceeds.
Treatment of Equity-Based Compensation
In connection with the separation, equity-based awards granted by ParentCo prior to the separation are expected to be treated as described below, except as otherwise set forth in Compensation Discussion and Analysis Subsequent Events with respect to certain unvested equity awards of Messrs. Brock and Salvatori and certain other employees of CoalCo. As of the separation, these awards will be held by (i) current employees of CoalCo and its subsidiaries (CoalCo Employees), (ii) current employees of GasCo and its subsidiaries (GasCo Employees), (iii) certain former employees classified as former employees of either CoalCo or GasCo for purposes of post-separation compensation and benefits matters (Former Employees), and (iv) nonemployee directors of GasCo (GasCo Nonemployee Directors) and nonemployee directors of CoalCo (CoalCo Nonemployee Directors).
Stock Options
Stock Options Held by GasCo Employees, CoalCo Employees, GasCo Nonemployee Directors, CoalCo Nonemployee Directors and Former Employees. Each outstanding award of ParentCo stock options will continue to relate to GasCo common stock following the separation, provided that the exercise price of, and number of shares subject to, each such award will be adjusted in a manner intended to preserve the aggregate intrinsic value of the original ParentCo stock option award, subject to rounding. The adjusted GasCo stock option award will otherwise continue to have the same terms and conditions that applied to the original ParentCo award prior to the separation.
Restricted Share Units (RSUs)
RSUs Held by CoalCo Employees and CoalCo Nonemployee Directors . Outstanding RSU awards originally granted in 2015 and held by CoalCo employees who have been designated as Grades 14 and lower will
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automatically vest three days prior to the record date, assuming approval from the compensation committee of ParentCo (the ParentCo Compensation Committee). All other outstanding RSU awards originally granted in 2015 and held by CoalCo Employees or CoalCo Nonemployee Directors will be converted into RSU awards with respect to CoalCo common stock. The number of shares subject to each such award will be adjusted in a manner intended to preserve the aggregate intrinsic value of the original ParentCo award, subject to rounding. Such adjusted award will otherwise continue to have the same terms and conditions that applied to the original ParentCo award prior to the separation. Any outstanding ParentCo RSU awards that contain early vesting provisions originally based on ParentCo common stock reaching a predetermined price will be equitably adjusted based on CoalCos stock price following the separation.
RSUs Held by GasCo Employees, GasCo Nonemployee Directors and Former Employees (CoalCo and GasCo). Each outstanding RSU award held by a GasCo Employee, GasCo Nonemployee Director, CoalCo Nonemployee Director and/or Former Employee will continue to relate to GasCo common stock following the separation, provided that the number of shares subject to each such award will be adjusted in a manner intended to preserve the aggregate intrinsic value of the original ParentCo award, subject to rounding. Such adjusted award will otherwise continue to have the same terms and conditions that applied to the original ParentCo award prior to the separation. Any outstanding ParentCo RSU awards that contain early vesting provisions originally based on ParentCo common stock reaching a predetermined price will be equitably adjusted based on GasCos stock price following the separation.
Performance Share Units (PSUs)
PSUs Held by CoalCo Employees. Each outstanding ParentCo PSU Award held by a CoalCo Employee will be converted into a PSU Award with respect to CoalCo common stock following the separation. The number of shares subject to each such award will be adjusted in a manner intended to preserve the aggregate intrinsic value of the original ParentCo award, subject to rounding. Further, the relevant performance conditions applicable for the vesting of any such PSU Award (i) will be equitably adjusted following the separation to address the impact of the separation on said conditions for 2017 and (ii) for annual periods after 2017 will be adjusted to reflect CoalCo performance measurements. Such adjusted award will otherwise continue to have the same terms and conditions that applied to the original ParentCo award prior to the separation.
PSUs Held by GasCo Employees and Former Employees . Each outstanding PSU award held by a GasCo Employee or Former Employee will relate to GasCo common stock following the separation, provided that the number of shares subject to each such award will be adjusted in a manner intended to preserve the aggregate intrinsic value of the original ParentCo award, subject to rounding. Further, the relevant performance conditions applicable for the vesting of any such PSU Award (i) may be equitably adjusted to address the impact of the separation on said conditions and (ii) for annual periods after 2017, may be adjusted to reflect GasCo performance metrics. Such adjusted award will otherwise continue to have the same terms and conditions that applied to the original ParentCo award prior to the separation.
Internal Reorganization
As part of the separation, and prior to the distribution, ParentCo and its subsidiaries expect to complete an internal reorganization in order to transfer to CoalCo the Coal Business that it will hold following the separation. Among other things and subject to limited exceptions, the internal reorganization is expected to result in CoalCo owning, directly or indirectly, the operations comprising, and the entities that conduct, the Coal Business.
The internal reorganization is expected to include various restructuring transactions pursuant to which (i) the operations, assets and liabilities of ParentCo and its subsidiaries used to conduct the Coal Business will be separated from the operations, assets and liabilities of ParentCo and its subsidiaries used to conduct the Gas Business and (ii) such Coal Business operations, assets and liabilities and investments will be contributed, transferred, or otherwise allocated to CoalCo or one of its direct or indirect subsidiaries. Such restructuring
34
transactions may take the form of asset transfers, mergers, demergers, divisions, conversions, dividends, contributions and similar transactions, and may involve the formation of new domestic subsidiaries to own and operate the Coal Business or the Gas Business.
As part of this internal reorganization, ParentCo will contribute to CoalCo certain assets, including equity interests in entities that are expected to conduct the Coal Business.
Following the completion of the internal reorganization and immediately prior to the distribution, CoalCo will be the parent company of the entities that will conduct the Coal Business, and ParentCo (through subsidiaries other than CoalCo and its subsidiaries) will remain the parent company of the entities that are expected to conduct the Gas Business.
Results of the Distribution
After the distribution, CoalCo will be an independent, publicly traded company. The actual number of shares to be distributed will be determined at the close of business on , 2017, the record date for the distribution, and will reflect any exercise of ParentCo options or vesting of other equity-based awards between the date the ParentCo Board of Directors declares the distribution and the record date for the distribution. The distribution will not affect the number of outstanding shares of ParentCo common stock or any rights of ParentCo stockholders. ParentCo will not distribute any fractional shares of CoalCo common stock.
We will enter into a separation agreement and other related agreements with ParentCo, and amend or modify, or otherwise retain unchanged, currently existing agreements between ParentCo and CNXC, before the distribution to effect the separation and provide a framework for our relationship with GasCo after the separation. These agreements will provide for the allocation between GasCo and CoalCo of ParentCos assets, liabilities and obligations (including employee benefits, intellectual property, and tax-related assets and liabilities) attributable to periods prior to CoalCos separation from ParentCo and will govern the relationship between GasCo and CoalCo after the separation. For a more detailed description of these agreements, see Certain Relationships and Related Party Transactions.
Market for CoalCo Common Stock
There is currently no public trading market for CoalCo common stock. CoalCo intends to apply to list its common stock on the NYSE under the symbol . CoalCo has not and will not set the initial price of its common stock. The initial price will be established by the public markets.
We cannot predict the price at which CoalCo common stock will trade after the distribution. In fact, the combined trading prices, after the distribution, of the shares of CoalCo common stock that each ParentCo stockholder will receive in the distribution and the ParentCo common stock held at the record date for the distribution may not equal the regular-way trading price of the ParentCo common stock immediately prior to the distribution. The price at which CoalCo common stock trades may fluctuate significantly, particularly until an orderly public market develops. Trading prices for CoalCo common stock will be determined in the public markets and may be influenced by many factors. See Risk FactorsRisks Related to Our Common Stock and the Securities Market.
Incurrence of Debt
CoalCo intends to incur certain indebtedness prior to or concurrent with the separation. Subject to market conditions and other factors, prior to or concurrent with the separation, CoalCo intends to secure new borrowings from third-party financing sources, a portion of which we anticipate will be distributed to GasCo. In addition, CoalCo intends to retain those MEDCO 5.75% revenue bonds due September 2025, for which the principal amount as of June 30, 2017 was $103 million, and for which GasCo will remain as a guarantor with CoalCo
35
providing indemnification with respect to such guarantee. ParentCos existing senior unsecured notes are expected to remain an obligation of GasCo after the separation, except to the extent that GasCo uses funds received by it from CoalCo to repay existing indebtedness. For more information, see Description of Material Indebtedness.
Trading Between the Record Date and Distribution Date
Beginning on or shortly before the record date for the distribution and continuing up to and including through the distribution date, ParentCo expects that there will be two markets in ParentCo common stock: a regular-way market and an ex-distribution market. ParentCo common stock that trades on the regular-way market will trade with an entitlement to CoalCo common stock distributed in the distribution. ParentCo common stock that trades on the ex-distribution market will trade without an entitlement to CoalCo common stock distributed in the distribution. Therefore, if you sell shares of ParentCo common stock in the regular-way market up to and including through the distribution date, you will be selling your right to receive shares of CoalCo common stock in the distribution. If you own ParentCo common stock at the close of business on the record date and sell those shares on the ex-distribution market up to and including through the distribution date, you will receive the shares of CoalCo common stock that you are entitled to receive pursuant to your ownership of shares of ParentCo common stock as of the record date.
Furthermore, beginning on or shortly before the record date for the distribution and continuing up to and including the distribution date, CoalCo expects that there will be a when-issued market in its common stock. When-issued trading refers to a sale or purchase made conditionally because the security has been authorized but not yet issued. The when-issued trading market will be a market for CoalCo common stock that will be distributed to holders of ParentCo common stock on the distribution date. If you owned ParentCo common stock at the close of business on the record date for the distribution, you would be entitled to CoalCo common stock distributed pursuant to the distribution. You may trade this entitlement to shares of CoalCo common stock, without trading the ParentCo common stock you own, on the when-issued market. On the first trading day following the distribution date, when-issued trading with respect to CoalCo common stock will end, and regular-way trading will begin.
Conditions to the Distribution
The distribution will be effective at , Eastern Time, on , 2017, which is the distribution date, provided that the conditions set forth in the separation agreement have been satisfied (or waived by ParentCo in its sole and absolute discretion), including, among others:
|
the SEC declaring effective the registration statement of which this information statement forms a part; there being no order suspending the effectiveness of the registration statement in effect; and no proceedings for such purposes having been instituted or threatened by the SEC; |
|
the mailing of a notice of Internet availability of this information statement or this information statement to ParentCo stockholders; |
|
the receipt by ParentCo of a private letter ruling from the IRS and one or more opinions of its tax advisors, in each case satisfactory to the ParentCo Board of Directors, regarding certain U.S. federal income tax matters relating to the separation and distribution, including, with respect to the opinion of Wachtell, Lipton, Rosen & Katz, to the effect that the distribution will be a transaction described in Section 355(a) of the Code; |
|
the internal reorganization having been completed and the transfer of assets and liabilities of the Coal Business from ParentCo to CoalCo, and the transfer of assets and liabilities of the Gas Business from CoalCo to ParentCo, having been completed in accordance with the separation and distribution agreement; |
36
|
the receipt of one or more opinions from an independent appraisal firm to the ParentCo Board of Directors as to the solvency of ParentCo and CoalCo after the completion of the distribution, in each case in a form and substance acceptable to the ParentCo Board of Directors in its sole and absolute discretion; |
|
all actions necessary or appropriate under applicable U.S. federal, state or other securities or blue sky laws and the rule and regulations thereunder having been taken or made and, where applicable, having become effective or been accepted; |
|
the execution of certain agreements contemplated by the separation and distribution agreement; |
|
no order, injunction or decree issued by any government authority of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the separation, the distribution or any of the related transactions being in effect; |
|
the shares of CoalCo common stock to be distributed each having been accepted for listing on the NYSE, subject to official notice of distribution; |
|
CoalCo having entered into the financing arrangements described under Description of Material Indebtedness and ParentCo being satisfied in its sole and absolute discretion that, as of the effective time of the distribution, it will have no further liability under such arrangements; |
|
ParentCo having received approximately $ in cash from CoalCo; and |
|
no other event or development existing or having occurred that, in the judgment of ParentCos Board of Directors, in its sole and absolute discretion, makes it inadvisable to effect the separation, the distribution and the other related transactions. |
ParentCo will have the sole and absolute discretion to determine (and change) the terms of, and whether to proceed with, the distribution and, to the extent it determines to so proceed, to determine the record date for the distribution and the distribution date, and the distribution ratio for CoalCo common stock. ParentCo will also have sole and absolute discretion to waive any of the conditions to the distribution. ParentCo does not intend to notify its stockholders of any modifications to the terms of the separation or distribution that, in the judgment of its Board of Directors, are not material. For example, the ParentCo Board of Directors might consider material such matters as significant changes to the distribution ratio and the assets to be contributed or the liabilities to be assumed in the separation. To the extent that the ParentCo Board of Directors determines that any modifications by ParentCo materially change the material terms of the distribution, ParentCo will notify ParentCo stockholders in a manner reasonably calculated to inform them about the modification as may be required by law, by, for example, publishing a press release, filing a current report on Form 8-K or circulating a supplement to this information statement.
37
The payment of any dividends in the future, and the timing and amount thereof, is within the discretion of CoalCos Board of Directors. The Board of Directors decision regarding the payment of dividends will depend on many factors, such as our financial condition, earnings, capital requirements, debt service obligations, restrictive covenants in any existing debt facilities, industry practice, legal requirements, regulatory constraints and other factors that our Board of Directors deems relevant. Our ability to pay dividends will depend on our ongoing ability to generate cash from operations and on our access to the capital markets. We cannot guarantee that we will pay a dividend in the future or continue to pay any dividends if and when we commence paying dividends.
The following table sets forth our capitalization as of , 2017 on a historical basis and on a pro forma basis to give effect to the pro forma adjustments included in our unaudited pro forma financial information. The information below is not necessarily indicative of what our capitalization would have been had the separation, distribution and related financing transactions been completed as of , 2017. In addition, it is not indicative of our future capitalization. This table should be read in conjunction with Unaudited Pro Forma Condensed Combined Financial Statements, Selected Historical Combined Financial Data, Managements Discussion and Analysis of Financial Condition and Results of Operations, and our combined financial statements and notes included in the Index to Financial Statements section of this information statement.
As of June 30, 2017 | ||||||||
Actual | Pro Forma | |||||||
(Unaudited) | ||||||||
(in Thousands) | ||||||||
Cash |
||||||||
Cash and cash equivalents |
$ | 6,739 | $ | |||||
|
|
|
|
|
||||
Capitalization: |
||||||||
Debt Outstanding |
||||||||
Long-term debt, including amount due within one year |
$ | 305,191 | $ | |||||
|
|
|
|
|
||||
Equity |
||||||||
Common stock, par value $0.01 per share |
$ | -- | $ | |||||
Additional paid-in capital |
||||||||
Net parent investment |
1,077,558 | |||||||
Accumulated other comprehensive loss |
(393,471 | ) | ||||||
|
|
|
|
|
||||
Total net parent investment and other comprehensive loss |
684,087 | |||||||
|
|
|
|
|
||||
Noncontrolling interest |
142,210 | |||||||
|
|
|
|
|
||||
Total equity |
826,297 | |||||||
|
|
|
|
|
||||
Total capitalization |
$ | 1,131,488 | $ | |||||
|
|
|
|
|
CoalCo has not yet finalized its post-distribution capitalization. Pro forma financial information reflecting CoalCos post-distribution capitalization will be included in an amendment to this information statement.
38
SELECTED HISTORICAL COMBINED FINANCIAL DATA
The following table presents the selected historical combined financial data for CoalCo, which we derived from our unaudited Combined Financial Statements and our audited Combined Financial Statements, which are included in the Index to Financial Statements section of this information statement.
The historical results do not necessarily indicate the results expected for any future period. To ensure a full understanding, you should read the selected historical combined financial data presented below in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations and the combined financial statements and accompanying notes included elsewhere in this information statement.
Six Months
Ended June 30, |
Year Ended December 31, | |||||||||||||||||||||||||||
2017 | 2016 | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||||||
Statement of Income Information: Coal Sales |
$ | 620,155 | $ | 476,726 | $ | 1,065,582 | $ | 1,289,036 | $ | 1,616,874 | $ | 1,357,319 | $ | 1,323,679 | ||||||||||||||
Other Outside Sales: |
27,742 | 15,767 | 31,464 | 30,967 | 41,255 | 43,364 | 57,345 | |||||||||||||||||||||
Freight Revenue |
30,045 | 24,557 | 46,468 | 20,499 | 23,133 | 17,778 | 50,901 | |||||||||||||||||||||
Miscellaneous Other Income |
32,794 | 36,133 | 82,120 | 68,193 | 123,604 | 61,034 | 62,533 | |||||||||||||||||||||
Gain on Sale of Assets |
13,536 | 3,904 | 5,228 | 13,025 | 26,312 | 46,404 | 29,655 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total Revenue and Other Income |
724,272 | 557,087 | 1,230,862 | 1,421,720 | 1,831,178 | 1,525,899 | 1,524,113 | |||||||||||||||||||||
Net Income: |
98,690 | 22,785 | 50,450 | 317,421 | 290,952 | 313,773 | 367,959 | |||||||||||||||||||||
Net Income Attributable to CONSOL Mining Corporation Shareholder |
88,913 | 20,492 | 41,496 | 307,011 | 290,952 | 313,773 | 367,959 | |||||||||||||||||||||
Balance Sheet Data (at period end): |
||||||||||||||||||||||||||||
Total assets |
$ | 2,626,610 | $ | 2,758,170 | $ | 2,687,434 | $ | 2,867,733 | $ | 3,092,374 | $ | 3,156,312 | $ | 3,104,767 | ||||||||||||||
Total long-term debt |
$ | 301,548 | $ | 299,629 | $ | 313,639 | $ | 286,526 | $ | 110,199 | $ | 108,332 | $ | 109,272 |
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The Unaudited Pro Forma Condensed Combined Financial Statements presented below have been derived from CoalCos historical combined financial statements included in this information statement. While the historical combined financial statements reflect the past financial results of the Coal Business, these pro forma statements give effect to the separation of that business into an independent, publicly traded company, as described under SummaryThe Separation and Distribution.
The Unaudited Pro Forma Statements of Income for the year ended December 31, 2016 and the six months ended June 30, 2017 have been prepared as though the spin-off occurred on January 1, 2016. The Unaudited Pro Forma Condensed Combined Balance Sheet at June 30, 2017 has been prepared as though the spin-off occurred on June 30, 2017. The Unaudited Pro Forma Condensed Combined Financial Statements are for illustrative purposes only, and do not reflect what our financial position and results of operations would have been had the separation occurred on the dates indicated and are not necessarily indicative of our future financial position and future results of operations.
The unaudited pro forma adjustments are based on available information and assumptions our management believes are reasonable; however, such adjustments are estimates and may not prove to be accurate. The
39
Unaudited Pro Forma Condensed Combined Financial Statements have been derived from our historical combined financial statements included in this information statement and include certain adjustments to give effect to events that are (i) directly attributable to the spin-off and related transaction agreements, (ii) factually supportable, and (iii) with respect to the statements of income, expected to have a continuing impact on CoalCo.
The pro forma adjustments to reflect the separation include:
|
The tax-free distribution, for U.S. federal income tax purposes, of shares of our common stock to ParentCo stockholders, based on the distribution of share(s) of our common stock for every ParentCo common shares outstanding as of the record date for the distribution, and the resulting elimination of CoalCos historical parent net investment; |
|
the effect of our anticipated post-separation capital structure, which includes the issuance of approximately $ additional indebtedness as described in this information statement; |
|
the distribution of $ million to ParentCo; |
|
the transfers of certain corporate and other assets and liabilities between us and ParentCo; and |
|
the impact of, and transactions contemplated by, the separation and distribution agreement, including the transition services agreement, tax matters agreement, employee matters agreement, intellectual property matters agreement and other agreements between us and ParentCo and the provisions contained therein. |
Historically, ParentCo has charged its operating subsidiaries for various corporate costs incurred in the operation of the business. These costs may not be representative, either positively or negatively, of the future costs we will incur as an independent, public company. Effective with the separation, we will assume responsibility for all corporate functions and related costs. Certain of these activities will continue to be performed by ParentCo under a transition service agreement for a limited period of time. We will incur incremental costs as an independent public company, including costs to replace services previously provided by ParentCo, as well as other stand-alone costs. Due to the scope and complexity of these activities, the amount and timing of these incremental costs could vary and, therefore, are not included as adjustments within the Unaudited Pro Forma Condensed Combined Financial Statements.
As part of our transition to being a stand-alone public company we will incur separation costs related to the following:
|
finance, tax and other professional costs pertaining to the spin-off and establishing us as a stand-alone public company; |
|
costs to separate our information systems from ParentCo; and |
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other separation costs. |
We have not adjusted the accompanying unaudited pro forma condensed combined statements of income for these estimated separation costs as the costs are not expected to have an ongoing effect on our operating results.
Due to the scope and complexity of these activities, the amount of these costs could increase or decrease materially and the timing of incurrence could change.
As a result of the spin-off, we will become subject to the reporting requirements of the Exchange Act and the Sarbanes-Oxley Act. We will be required to establish procedures and practices as a standalone public company in order to comply with our obligations under those laws and the related rules and regulations. Any change in costs or expenses associated with operating as a standalone company would constitute projected amounts based on estimates and, therefore, are not factually supportable; as such, the Unaudited Pro Forma Condensed Combined Financial Statements have not been adjusted for any such estimated changes.
40
The Unaudited Pro Forma Condensed Combined Financial Statements should be read in conjunction with our historical combined financial statements, Capitalization and Managements Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this information statement. The Unaudited Pro Forma Condensed Combined Financial Statements constitute forward-looking information and are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated. See Cautionary Statement Concerning Forward-Looking Statements included elsewhere in this information statement.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 2017
(Dollars in Thousands)
Historical
Predecessor |
Pro Forma Adjustments |
Total
Pro Forma |
||||||||||||||||||||||||||
Financing
Adjustments |
Spin-Off
Adjustments |
|||||||||||||||||||||||||||
Revenue and Other Income: |
||||||||||||||||||||||||||||
Coal Sales |
$ | 620,155 | $ | | $ | | $ | 620,155 | ||||||||||||||||||||
Other Outside Sales |
27,742 | | | 27,742 | ||||||||||||||||||||||||
Freight Revenue |
30,045 | | | 30,045 | ||||||||||||||||||||||||
Miscellaneous Other Income |
32,794 | | (6,438 | ) | (b) | 26,356 | ||||||||||||||||||||||
Gain on Sale of Assets |
13,536 | | | 13,536 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total Revenue and Other Income |
724,272 | | (6,438 | ) | 717,834 | |||||||||||||||||||||||
Costs and Expenses: |
||||||||||||||||||||||||||||
Operating and Other Costs |
452,876 | | (756 | ) | (b) | 452,120 | ||||||||||||||||||||||
Depreciation, Depletion and Amortization |
78,261 | | 242 | (b) | 78,503 | |||||||||||||||||||||||
Freight Expense |
30,045 | | | 30,045 | ||||||||||||||||||||||||
Selling, General, and Administrative Costs |
37,417 | | | 37,417 | ||||||||||||||||||||||||
Interest Expense |
7,966 | | (g) | | 7,966 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total Costs And Expenses |
606,565 | | (514 | ) | 606,051 | |||||||||||||||||||||||
Earnings Before Income Tax |
117,707 | | (5,924 | ) | 111,783 | |||||||||||||||||||||||
Income Tax |
19,017 | | (h) | (2,074 | ) | (h) | 16,943 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Net Income |
98,690 | | (3,850 | ) | 94,840 | |||||||||||||||||||||||
Less: Net Income Attributable to Noncontrolling Interest |
9,777 | | | 9,777 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Net Income Attributable to CONSOL Mining Corporation Shareholder | $ | 88,913 | $ | | $ | (3,850 | ) | $ | 85,063 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Net Income per Share: |
||||||||||||||||||||||||||||
Basic |
(i | ) | ||||||||||||||||||||||||||
Diluted |
(i | ) | ||||||||||||||||||||||||||
Weighted Average Shares Outstanding: |
||||||||||||||||||||||||||||
Basic |
(i | ) | ||||||||||||||||||||||||||
Diluted |
(i | ) |
41
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 2016
(Dollars in Thousands)
Pro Forma Adjustments | ||||||||||||||||||||||||
Historical
Predecessor |
Financing
Adjustments |
Spin-Off
Adjustments |
Total
Pro Forma |
|||||||||||||||||||||
Revenue and Other Income: |
||||||||||||||||||||||||
Coal Sales |
$ | 1,065,582 | $ | | $ | | $ | 1,065,582 | ||||||||||||||||
Other Outside Sales |
31,464 | | | 31,464 | ||||||||||||||||||||
Freight Revenue |
46,468 | | | 46,468 | ||||||||||||||||||||
Miscellaneous Other Income |
82,120 | | (9,306 | ) | (b) | 72,814 | ||||||||||||||||||
Gain on Sale of Assets |
5,228 | | | 5,228 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total Revenue and Other Income |
1,230,862 | | (9,306 | ) | 1,221,556 | |||||||||||||||||||
Costs and Expenses: |
||||||||||||||||||||||||
Operating and Other Costs |
877,177 | | (1,164 | ) | (b) | 876,013 | ||||||||||||||||||
Depreciation, Depletion and Amortization |
178,122 | | 439 | (b) | 178,561 | |||||||||||||||||||
Freight Expense |
46,468 | | | 46,468 | ||||||||||||||||||||
Selling, General, and Administrative Costs |
50,027 | | 17 | (b) | 50,044 | |||||||||||||||||||
Interest Expense |
14,053 | | (g) | | 14,053 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total Costs And Expenses |
1,165,847 | | (708 | ) | 1,165,139 | |||||||||||||||||||
Earnings Before Income Tax |
65,015 | | (8,598 | ) | 56,417 | |||||||||||||||||||
Income Tax |
14,565 | | (h) | (3,008 | ) | (h) | 11,557 | |||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Net Income |
50,450 | | (5,590 | ) | 44,860 | |||||||||||||||||||
Less: Net Income Attributable to Noncontrolling Interest |
8,954 | | | 8,954 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Net Income Attributable to CONSOL Mining Corporation Shareholder |
$ | 41,496 | $ | | $ | (5,590 | ) | $ | 35,906 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Net Income per Share: |
||||||||||||||||||||||||
Basic |
(i) | |||||||||||||||||||||||
Diluted |
(i) | |||||||||||||||||||||||
Weighted Average Shares Outstanding: |
||||||||||||||||||||||||
Basic |
(i) | |||||||||||||||||||||||
Diluted |
(i) |
42
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 2017
(Dollars in Thousands)
Historical
Predecessor |
Pro Forma Adjustments |
Total
Pro Forma |
||||||||||||||||||
Financing
Adjustments |
Spin-Off
Adjustments |
|||||||||||||||||||
ASSETS |
||||||||||||||||||||
Current Assets: |
||||||||||||||||||||
Cash and Cash Equivalents |
$ | 6,739 | $ | | (a) | $ | 1 | (b) | $ | 6,740 | ||||||||||
| (d) | | ||||||||||||||||||
Trade Accounts Receivable |
107,028 | | | 107,028 | ||||||||||||||||
Other Receivables |
17,445 | | (1,095 | ) | (b) | 16,350 | ||||||||||||||
Other Receivables - Related Party |
32 | | | 32 | ||||||||||||||||
Inventories |
60,286 | | | 60,286 | ||||||||||||||||
Prepaid Expenses |
12,364 | | (44 | ) | (b) | 12,320 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total Current Assets |
203,894 | | (1,138 | ) | 202,756 | |||||||||||||||
Property, Plant and Equipment: |
||||||||||||||||||||
Property, Plant and Equipment |
4,613,940 | | (11,626 | ) | (b) | 4,602,314 | ||||||||||||||
LessAccumulated Depreciation, Depletion and Amortization |
2,495,546 | | 3,935 | (b) | 2,499,481 | |||||||||||||||
|
|
|
|
|
|
|||||||||||||||
Total Property, Plant and EquipmentNet |
2,118,394 | | (15,561 | ) | 2,102,833 | |||||||||||||||
Other Assets: |
||||||||||||||||||||
Other Assets |
111,759 | | (a) | 4,050 | (b) | 115,809 | ||||||||||||||
Deferred Tax Asset |
192,563 | | | (f) | 192,563 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total Other Assets |
304,322 | | 4,050 | 308,372 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
TOTAL ASSETS |
$ | 2,626,610 | $ | | $ | (12,649 | ) | $ | 2,613,961 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
LIABILITIES AND EQUITY |
||||||||||||||||||||
Current Liabilities: |
||||||||||||||||||||
Accounts Payable |
$ | 72,263 | $ | | $ | 327 | (b) | $ | 72,590 | |||||||||||
Current Portion of Long-Term Debt |
3,643 | | (a) | 54 | (b) | 3,697 | ||||||||||||||
Other Accrued Liabilities |
283,393 | | 2,349 | (b) | 285,742 | |||||||||||||||
5,688 | (c) | 5,688 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total Current Liabilities |
359,299 | | 8,418 | 367,717 | ||||||||||||||||
Long-Term Debt: |
||||||||||||||||||||
Long-Term Debt |
291,344 | | (a) | | 291,344 | |||||||||||||||
Capital Lease Obligations |
10,204 | | 48 | (b) | 10,252 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total Long-Term Debt |
301,548 | | 48 | 301,596 | ||||||||||||||||
Deferred Credits and Other Liabilities: |
||||||||||||||||||||
Postretirement Benefits Other Than Pensions |
652,206 | | | 652,206 | ||||||||||||||||
Pneumoconiosis Benefits |
107,321 | | | 107,321 | ||||||||||||||||
Asset Retirement Obligations |
228,576 | | 139 | (b) | 228,715 | |||||||||||||||
Workers Compensation |
64,689 | | | 64,689 | ||||||||||||||||
Salary Retirement |
72,529 | | | 72,529 | ||||||||||||||||
Other |
14,145 | | | 14,145 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total Deferred Credits and Other Liabilities |
1,139,466 | | 139 | 1,139,605 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
TOTAL LIABILITIES |
1,800,313 | | 8,605 | 1,808,918 | ||||||||||||||||
Equity: |
||||||||||||||||||||
Common stock, par value $0.01 per share |
| | | (e) | | |||||||||||||||
Additional paid-in capital |
| | | (e) | | |||||||||||||||
Parent Net Investment |
1,077,558 | | (a) | (15,566 | ) | (b) | 1,061,992 | |||||||||||||
(5,688 | ) | (c) | (5,688 | ) | ||||||||||||||||
| (d) | | ||||||||||||||||||
| (e) | | ||||||||||||||||||
| (f) | | ||||||||||||||||||
Accumulated Other Comprehensive Income |
(393,471 | ) | | | (393,471 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total Parent Net Investment and Other Comprehensive Income |
684,087 | | (21,254 | ) | 662,833 | |||||||||||||||
Noncontrolling Interest |
142,210 | | | 142,210 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
TOTAL EQUITY |
826,297 | | (21,254 | ) | 805,043 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
TOTAL LIABILITIES AND EQUITY |
$ | 2,626,610 | $ | | $ | (12,649 | ) | $ | 2,613,961 | |||||||||||
|
|
|
|
|
|
|
|
43
Note 1: Basis of Pro Forma Presentation
In December 2016, ParentCo announced its intention to separate into two independent, publicly traded companies: a coal company and a natural gas exploration and production (E&P) company. The coal company will include our PAMC, our ownership interest in CNXC, our marine terminal at the Port of Baltimore, our undeveloped coal reserves located in the Northern Appalachian, Central Appalachian and Illinois basins and certain related coal assets and liabilities (collectively, the Coal Business). CoalCo was formed in Delaware on June 21, 2017 for the purpose of holding ParentCos Coal Business. The spin-off transaction, which is expected to be tax-free to ParentCo stockholders, will be effected through a pro rata distribution of our stock to existing ParentCo stockholders. Immediately following the distribution, ParentCo stockholders will own 100 percent of the outstanding shares of our common stock. After the spin-off, we will operate as an independent, publicly traded company. Unless otherwise indicated or except where the context otherwise requires, references to we, us or our refer to CONSOL Mining Corporation, which will be renamed CONSOL Energy Inc., in connection with the separation. ParentCo will be renamed CNX Resources Corporation in connection with the separation.
In connection with the spin-off, among other things, we intend to consummate the financing transactions as described in more detail in Note 2: The Spin-Off Transactions, below.
The Unaudited Pro Forma Condensed Combined Financial Statements are based on our historical combined financial statements, which are included elsewhere in this information statement, and have been prepared to reflect the spin-off and related transactions. The unaudited pro forma adjustments are based on preliminary estimates, accounting judgments and currently available information and assumptions that management believes are reasonable. These adjustments are included only to the extent they are directly attributable to the spinoff and related transactions and the appropriate information is known and factually supportable.
Note 2: The Spin-Off Transactions
The Spin-Off
In connection with the spin-off, ParentCo will undergo an internal reorganization so as to facilitate, at the time of the separation, the transfer to us of certain employees, operations, assets and liabilities associated with ParentCos coal operations and certain other current and former businesses and activities of ParentCo. In addition, at the time of separation we will transfer certain assets and liabilities to ParentCo mainly related to certain royalties, receivables and promissory notes that will not be conveyed to CoalCo in connection with the separation.
Financing Transactions
In connection with the spin-off, we expect to complete certain financing transactions on or prior to the completion of the spin-off, including the repayment of certain existing indebtedness (Financing Transactions).
44
The following tables summarize the anticipated sources and expected uses of proceeds in connection with the Financing Transactions, as if they had occurred as of June 30, 2017. The actual amounts set forth in the table and in the accompanying footnotes are subject to adjustment and may differ at the time of the consummation of the Financing Transactions depending on several factors, including, among others, fluctuations in indebtedness between June 30, 2017 and the actual closing dates of the Financing Transactions, payments of accrued interest subsequent to June 30, 2017, and differences from our estimated fees and expenses.
Sources |
Amount
(in thousands) |
Uses |
Amount
(in thousands) |
|||||||
$ | $ | |||||||||
|
|
|
|
|||||||
Total Sources |
$ | | Total Uses | $ | | |||||
|
|
|
|
Note 3: Pro Forma Adjustments
(a) To reflect the entrance into the following debt agreements in connection with the spin-off:
(b) In connection with the spin-off, ParentCo will transfer certain corporate and other assets and liabilities to us, including certain property, plant and equipment, and certain guarantees of ParentCo. In addition, we will transfer certain assets and liabilities to ParentCo mainly related to certain surface acres, royalties, receivables, accrued property taxes and promissory notes that will not be conveyed to or retained by CoalCo in connection with the separation. The revenues and expenses associated with the transfer of these assets and liabilities between CoalCo and ParentCo have been adjusted on the Unaudited Pro Forma Condensed Combined Financial Statements.
The separation and distribution, tax matters, transition services, employee matters and indemnification agreements have not been finalized, and the pro forma statements will be revised in future amendments to reflect the impact of those agreements, to the extent they are deemed material.
(c) Reflects the accrual of $5.7 million of transaction costs attributable to the separation and distribution transaction that are not already included in accrued expenses as of June 30, 2017. These are factually supportable because such amounts are based on reliable, documented evidence such as invoices for costs incurred to date and estimates from third-parties for additional costs to be incurred in connection with the spin-off. Such costs are non-recurring in nature and directly related to the separation and, therefore, are reflected as a reduction to equity and not included in the unaudited pro forma condensed combined statements of income.
(d) To reflect the distribution of $ million to ParentCo with the proceeds from the debt agreements discussed in (a).
(e) Reflects the elimination of net parent investment as a result of the anticipated post-separation capital structure. Upon the separation and distribution date, net parent investment will be eliminated and the newly issued equity will be allocated between common stock and additional paid-in-capital based on the number of shares of CoalCo common stock outstanding at the distribution date.
(f) Represents the tax effect of temporary differences between the tax basis of assets and liabilities of various corporate and other assets and liabilities to be transferred to / from CoalCo and their reported amounts in the combined financial statements.
45
(g) To reflect the adjustment to interest expense, including the amortization of deferred financing fees associated with the new indebtedness to be entered into in connection with the closing of the spin-off and related transactions.
Six Months Ended
June 30, 2017 |
Year Ended
December 31, 2016 |
|||||||
Elimination of historical interest expense |
$ | $ | ||||||
Commitment fees |
||||||||
Interest |
||||||||
Amortization of deferred financing fees |
||||||||
|
|
|
|
|||||
Total |
$ | $ |
(h) Reflects the associated income tax benefit (expense) for all of the adjustments noted above. The income tax provision was based on the estimated statutory tax rate of 35% for the six months ended June 30, 2017 and the year ended December 31, 2016, respectively. We expect our effective rate in future years, however, to vary from these estimated statutory rates.
(i) The calculation of pro forma basic and diluted earnings per share and pro forma weighted-average shares outstanding for the period presented are based on the weighted-average number of shares of CoalCo outstanding for the six months ended June 30, 2017 and the year ended December 31, 2016, adjusted for the assumed distribution ratio of share(s) of CoalCo common stock for every share(s) of ParentCo common stock outstanding. This calculation may not be indicative of the dilutive effect that will actually result from CoalCo stock-based awards issued in connection with the adjustment of outstanding ParentCo stock-based awards or the grant of new stock-based awards. The number of dilutive shares of CoalCo common stock underlying CoalCo stock-based awards issued in connection with the adjustment of outstanding ParentCo stock-based awards will not be determined until after the distribution date.
46
All dollar amounts discussed in this section are in millions of U.S. dollars, except for per unit amounts, and unless otherwise indicated. This section discusses CoalCos business assuming the completion of all of the transactions described in this information statement, including the separation.
Our Company
CoalCo (CoalCo or the company) is a coal company, focused on the extraction and preparation of coal in the Appalachian Basin. Our predecessors have been mining coal, primarily in the Appalachian Basin, since 1864. We are a leading producer of high-Btu thermal coal in the Northern Appalachian Basin and the eastern United States due to our ability to efficiently produce and deliver large volumes of high-quality coal at competitive prices, the strategic location of our mines, and the industry experience of our management team. Our core businesses consist of our:
|
Pennsylvania (PA) Mining Operations (PAMC): The PAMC, which includes the Bailey Mine, the Enlow Fork Mine and the Harvey Mine, has extensive high-quality coal reserves. We mine our reserves from the Pittsburgh No. 8 Coal Seam, which is a large contiguous formation of uniform, high-Btu thermal coal that is ideal for high productivity, low-cost longwall operations. The design of the PAMC is optimized to produce large quantities of coal on a cost-efficient basis. We are able to sustain high production volumes at comparatively low operating costs due to, among other things, the technologically advanced longwall mining systems, logistics infrastructure and safety. All of our mines utilize longwall mining, which is a highly automated underground mining technique that produces large volumes of coal at lower costs compared to other underground mining methods. We own a 75% undivided interest in PAMC, with the remaining 25% being owned by CNXC, as discussed below. |
|
CNXC Ownership: Approximately 60% LP ownership and 100% GP ownership interest in CNX Coal Resources LP (CNXC), a growth-oriented master limited partnership formed by ParentCo to manage and further develop its active coal operations in Pennsylvania. At December 31, 2016, CNXCs assets included a 25% undivided interest in, and full operational control over, PAMC. |
|
CNX Marine Terminal: Through our subsidiary CNX Marine Terminal Inc. we provide coal export terminal services through the Port of Baltimore. The terminal can either store coal or load 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 Corporation and CSX Transportation Inc. |
|
Undeveloped Reserves: Ownership of approximately 1.6 billion tons of high-quality, undeveloped coal reserves located in the Northern Appalachian (NAPP), Central Appalachian (CAPP) and Illinois basins. |
47
A map showing the location of CoalCos significant properties is below:
CoalCo defines itself through its core values which are:
|
Safety, |
|
Compliance, and |
|
Continuous Improvement. |
These values are the foundation of CoalCos identity and are the basis for how management defines continued success. We believe CoalCos rich resource base, coupled with these core values, allows management to create value for the long-term. The U.S. Energy Information Administration (EIA) projects in its 2017 annual Energy Outlook that coals share of the U.S. electric power generation mix will rebound from 30% in 2016 to 32% in 2021, driven largely by rising gas prices and the prospects of a more favorable policy stance under the current U.S. presidential administration. We believe that the use of coal will continue for many years as a principal fuel sources for electricity in the United States. Additionally, we believe that as worldwide economies grow, the demand for electricity from fossil fuels will grow as well, resulting in expansion of worldwide demand for our coal.
CoalCos strategy is to increase stockholder value through the development and growth of its existing natural coal assets and participation in global coal markets.
CoalCos coal assets align with our long-term strategic objectives. Our current production, which includes the Bailey, Enlow Fork, and Harvey mines, can be sold domestically or abroad, as either thermal coal or high volatile
48
metallurgical coal. These low-cost mines, with five longwalls, produce a high-Btu Pittsburgh-seam coal that is lower in sulfur than many Northern Appalachian coals. Our onsite logistics infrastructure at the preparation plant includes a dual-batch train loadout facility capable of loading up to 9,000 tons of coal per hour and 19.3 miles of track linked to separate Class I rail lines owned by Norfolk Southern and CSX, which enables us to simultaneously accommodate multiple unit trains and significantly increases our efficiency in meeting our customers transportation needs. Our ability to accommodate multiple unit trains allows for the seamless transition of locomotives from empty inbound trains to fully loaded outbound trains at our facility. These mines and their logistics infrastructure, along with our 100%-owned CNX Marine Terminal, which is served by both Norfolk Southern and CSX, will allow CoalCo to participate in the worlds thermal and metallurgical coal markets. The ability to serve both domestic and international markets with premium thermal and crossover metallurgical coal provides tremendous optionality.
Our Competitive Strengths
We believe we are well-positioned to successfully execute our business strategies because of the following competitive strengths:
Focus on free cash flow generation supported by industry-leading margins and optimized production levels
We intend to continue our focus on maintaining high margins by optimizing production from our high-quality reserves and leveraging our extensive logistics infrastructure and broad market reach. The PAMCs low-cost structure, high-quality product, favorable access to rail and port infrastructure, and diverse base of end-use customers allow it to move large volumes of coal at positive cash margins throughout a variety of market conditions. For example, despite challenging domestic market conditions in 2016, which caused total U.S. coal production to fall by 19% year-on-year, PAMC managed to grow production by 41%. For the year ended December 31, 2016, the PAMC generated an average cash margin per ton of $15.22 compared to the median cash margin per ton of $9.97 generated by other coal companies for domestic bituminous thermal coal operations, based on management review of publicly available data for the year ended December 31, 2016. Through our recent capital investment program, we have optimized our mining operations and logistics infrastructure to sustainably drive down our cash operating costs. Furthermore, our significant portfolio of multi-year, committed and priced contracts with our longstanding customer base will enhance our ability to sustain high margins in varied commodity price environments. We believe that these factors will help enable us to maintain higher margins per ton on average than our competitors and better position us to maintain profitability throughout commodity price cycles.
Extensive, High-Quality Reserve Base
The PAMC has extensive high-quality reserves of bituminous coal. We mine our reserves from the Pittsburgh No. 8 Coal Seam, which is a large contiguous formation of uniform, high-Btu coal that is ideal for high productivity, low-cost longwall operations. As of December 31, 2016, the PAMC included 766.7 million tons of proven and probable coal reserves that are sufficient to support at least 27 years of full-capacity production. The advantageous qualities of our coal enable us to compete for demand from a broader range of coal-fired power plants compared to mining operations in basins that typically produce coal with a comparatively lower heat content (ILB and PRB), higher sulfur content (ILB and most areas in NAPP) and higher chlorine content (certain areas of ILB). Our remaining reserves have an average as-received gross heat content of 12,970 Btu/lb (on an as-received basis), while production from the PRB, ILB, CAPP, and the rest of NAPP averages approximately 8,700 Btu/lb, 11,400 Btu/lb, 12,200 Btu/lb, and 12,000 Btu/lb, respectively (based on the average quality reported by EIA for U.S. power plant deliveries for the three years ended October 31, 2016). Moreover, our remaining reserves have an average sulfur content of 2.38% (on an as-received basis), while production from the Illinois Basin averages ~2.9% sulfur and production from the rest of NAPP averages ~3.1% sulfur (again based on EIA power plant delivery data for the three years ended October 31, 2016). With our high Btu content and low-cost structure, our 2016 total costs averaged $1.32 per mmBtu, which is lower than any monthly average Louisiana
49
Henry Hub natural gas spot price during the past 20+ years, and provides a strong foundation for competing against natural gas even after accounting for differences in delivered costs and power plant efficiencies. In addition to the substantial reserve base associated with the PAMC, our 1.6 billion tons of Greenfield Reserves in NAPP, CAPP, and ILB feature both thermal and metallurgical reserves and provide additional optionality for organic growth or monetization as market conditions allow.
World-Class, Well-Capitalized, Low-Cost Longwall Mining Complex
Since 2006, we have invested over $2.0 billion at the PAMC to develop technologically advanced, large-scale longwall mining operations and related production and logistics infrastructure. We also have permanently sealed off 80 square miles of already-mined area, reducing the active areas of the mine to just 24.4 square miles and significantly limiting the area that we must ventilate and maintain. As a result, the PAMC is the most productive and efficient coal mining complex in NAPP, averaging 6.77 tons of coal production per employee hour in 2015-2016, compared to 4.94 tons of coal production per employee hour for other currently-operating NAPP longwall mines. We believe our substantial capital investment in the PAMC will enable us to maintain high production volumes, low operating costs and a strong safety and environmental compliance record, which we believe are key to supporting stable financial performance and cash flows throughout business and commodity price cycles. As a result, we expect to be able to mine the remaining 27+ years of reserves at the PAMC with only maintenance-of-production levels of capital expenditure.
Strategically Located Mining Operations with Advanced Distribution Capabilities and Excellent Access to Key Logistics Infrastructure
Our logistics infrastructure and proximity to coal-fired power plants in the eastern United States provide us with operational and marketing flexibility, reduce the cost to deliver coal to our core markets, and allow us to realize higher netback prices. We believe that we have a significant transportation cost advantage compared to many of our competitors, particularly producers in the ILB and PRB, for deliveries to customers in our core markets and to East Coast ports for international shipping. For example, based on publicly available data and internal estimates, we believe that the transportation cost advantage from our mines compared to ILB mines (not accounting for Btu differences) is approximately $3 to $8 per ton for coal delivered to foreign consumers in Europe and India, $4 to $8 per ton for coal delivered to domestic customers in the Carolinas, and an even more pronounced cost advantage for coal delivered to domestic customers in the mid-Atlantic states. Our ability to accommodate multiple unit trains at the Bailey Central Preparation Plant, which includes a dual-batch loadout facility capable of loading up to 9,000 tons of clean coal per hour and 19.3 miles of track with three sidings, allows for the seamless transition of locomotives from empty inbound trains to fully loaded outbound trains at our facility. Furthermore, the PAMC has among the best access to export infrastructure in the United States. Through our 100%-owned CNX Marine Terminal, served by both the Norfolk Southern and CSX railroads, we are able to participate in the worlds seaborne coal markets with premium thermal and crossover metallurgical coal, providing tremendous optionality.
Strong, Well-Established Customer Base Supporting Contractual Volumes
We have a well-established and diverse blue chip customer base, comprised primarily of domestic electric-power-producing companies located in the eastern United States. We have had success entering into multi-year coal sales agreements with our customers due to our longstanding relationships, reliability of production and delivery, competitive pricing and high coal quality. About 90% of our sales in 2016 were to customers that were in our 2015 portfolio, and each of our top 15 domestic power plant customers in 2016 have been in our portfolio for at least three consecutive years. In addition, to mitigate our exposure with respect to coal-fired power plant retirements, we have strategically developed our customer base to include power plants that are economically positioned to continue operating for the foreseeable future and that are equipped with state-of-the-art environmental controls. In 2016, approximately 5% of our total sales were to domestic power plant customers that have announced plans to retire between 2017 and 2023. Moreover, none of our top 15 customer plants,
50
which accounted for 82% of our domestic power plant shipments in 2016, have announced plans to retire. These top 15 plants operated at a 15 percentage point higher capacity factor than other NAPP rail-served plants in 2016, highlighting their economic competitiveness even in a challenging power market. In addition to our robust domestic customer base, we also have favorable access to seaborne coal markets through our long-standing commercial relationship with a leading coal trading and brokering company that maintains a broad market presence with foreign coal consumers. We have consistently exported 3.4 to 5.6 million tons of PAMC coal to the seaborne thermal and crossover metallurgical markets in each of the past 5+ years.
Highly Experienced Management Team and Operating Team
Our management and operating teams have (i) significant expertise owning, developing and managing complex thermal and metallurgical coal mining operations, (ii) valuable relationships with customers, railroads and other participants across the coal industry, (iii) technical wherewithal and demonstrated success in developing new applications and customers for our coal products, in both the thermal and metallurgical markets, and (iv) a proven track record of successfully building, enhancing and managing coal assets in a reliable and cost-effective manner throughout all parts of the commodity cycle. We intend to leverage these qualities to continue to successfully develop our coal mining assets while efficiently and flexibly managing our operations to maximize operating cash flow.
Our Strategy
Our strategy is to safely and compliantly operate our assets to increase shareholder value through the execution of our strategic objectives:
Selectively pursue growth opportunities that maximize shareholder value by capitalizing on synergies with our assets and expertise
We plan to judiciously direct the cash generated by our operations toward those opportunities that present the greatest potential for value creation to our shareholders, particularly those that take advantage of synergies with our asset base and/or with the expertise of our management team. To effectuate this, we plan to regularly and rigorously evaluate opportunities both for organic growth and for acquisitions, joint ventures, and other business arrangements in the coal industry and related industries that complement our core operations. In addition, our ownership interest in CNXC provides us with a unique vehicle for generating cash and raising capital, through the potential future drop down of assets into CNXC, which if utilized will allow us to generate cash to assist in the execution of our growth strategy. Both the PAMC and our Greenfield Reserves present the potential for organic growth projects if long-term market conditions are favorable. For example, we are currently evaluating a project to improve the recovery and processing of fine coal from the Bailey Central Preparation Plant, which has the potential to add up to 1.5 million tons per year of additional clean coal production without additional mining of raw tons. Moreover, the Harvey Mines existing infrastructure, including its bottom development, slope belt, and material handling system, is able to support an additional permanent longwall mining system with moderate additional capital investment in mining equipment. Such an investment would further increase the annual production capacity of the PAMC by 5 million tons. Our Greenfield Reserves associated with the Mason Dixon and River Mine projects present additional organic growth opportunities in NAPP, and our Greenfield Reserves associated with the Itmann Mine, Martinka Mine, and Birch Mine provide actionable organic growth opportunities in the metallurgical coal space, should market conditions warrant. Our management team has extensive experience in developing, operating and marketing a wide variety of coal assets previously owned by ParentCo, and is well-qualified to evaluate organic and external growth opportunities. We intend to prudently use our interest in CNXC to benefit our growth strategy, and plan to carefully weigh any capital investment decisions against alternate uses of the cash to help ensure we are delivering the most value to our shareholders.
51
Continue to grow our share at top-performing rail-served power plants in our core market areas, while opportunistically pursuing export and crossover metallurgical opportunities
We plan to seek to minimize our market risk and maximize realizations by continuing to focus on selling coal to strategically-selected, top-performing, rail-served power plants located in our core market areas in the eastern United States. Our top 15 power plant customers in 2016 have consistently consumed more than 50 million tons of coal per year in each of the past five years, have operated at a greater capacity factor than other NAPP rail-served plants, and have not announced plans to retire. We have grown our share at these plants from 12% in 2011 to 32% in 2016, and we believe we can continue to grow this share by displacing less competitive supply from NAPP, CAPP, and other basins. We also plan to continue to work on identifying and penetrating new customer plants that we believe are aligned with our strategic objectives and would be a good fit for our coal. To this end, we tested PAMC coal at five new customer plants in 2016. While the majority of our production is directed toward our established base of domestic power plant customers, many of which are secured through annual or multi-year contracts, we also plan to continue to flexibly and opportunistically place a smaller portion of our production in shorter-term opportunities in the export and crossover metallurgical markets. These markets provide us with pricing upside when markets are strong and with volume stability when markets are weak. As of June 30, 2017, the PAMCs committed and contracted portfolio, on a 100% basis, represented approximately 95% and 68% of projected sales for calendar years 2017 and 2018, respectively. We believe our committed and contracted position is well-balanced in hedging against market downside risk while allowing us to continue to build out our portfolio strategically and opportunistically as the market evolves.
Drive operational excellence through safety, compliance, and continuous improvement
We intend to continue focusing on our core values of safety, compliance and continuous improvement. We operate some of the most productive, lowest-cost underground mines in the coal industry, while simultaneously setting some of the industrys highest standards for safety and compliance. From 2013 through 2016, our Mine Safety and Health Administration (MSHA) reportable incident rate was approximately 42% lower than the national average underground bituminous coal mine incident rate. Furthermore, our MSHA significant and substantial (S&S) citation rate per 100 inspection hours was approximately 23.5% lower than the industrys average MSHA S&S citation rate over the twelve-month period ended June 30, 2017. We believe that our focus on safety and compliance promotes greater reliability in our operations, which fosters long-term customer relationships and lower operating costs that support higher margins. Consistent with our core value of continuous improvement, we have improved our productivity from 5.69 tons per employee hour in 2014 to 7.31 tons per employee hour in 2016, and have reduced our cash costs of coal sold per ton by 22.6% over this same period. We intend to continue to grow the economic competiveness of our operations by proactively identifying, pursuing, and implementing efficiency improvements and new technologies that can drive down unit costs without compromising safety or compliance.
Ability to Grow Cash Flow through Drop-Downs into CNXC
Our controlling ownership interest in CNX Coal Resources LP provides us with a unique vehicle for generating cash and raising capital to pursue our growth strategy. Over time we may drop down assets into CNXC. We believe that such drop-downs, if utilized, would allow us to grow CNXCs ability to make distributions and potentially increase the value of the units and incentive distribution rights of CNXC that we hold. Furthermore, the cash generated from these drop-downs could help us to accelerate the execution of our growth strategy. Finally, we believe that our different classes of securities (C-Corp and MLP) provide us with multiple options for accessing capital markets and taking advantage of the best available cost of capital at any given point in time. We believe this is a unique advantage for us compared to other companies in the coal industry.
52
Detail Coal Operations.
Coal Reserves.
At December 31, 2016, CoalCo had an estimated 2.4 billion tons of proven and probable coal reserves. As of December 31, 2016, the PAMC included 766.7 million tons of proven and probable coal reserves that are sufficient to support at least 27 years of full-capacity production. Reserves are the portion of the proven and probable tonnage that meet CoalCos economic criteria regarding mining height, preparation plant recovery, depth of overburden and stripping ratio. Generally, these reserves would be commercially mineable at year-end price and cost levels. Spacing of points of observation for confidence levels in reserve calculations is based on guidelines in U.S. Geological Survey Circular 891 (Coal Resource Classification System of the U.S. Geological Survey). Our estimates for proved reserves have the highest degree of geologic assurance. Estimates for proved reserves are based on points of observation that are equal to or less than 0.5 miles apart. Estimates for probable reserves have a moderate degree of geologic assurance and are computed from points of observation that are between 0.5 to 1.5 miles apart. An exception is made concerning spacing of observation points with respect to our Pittsburgh coal seam reserves. Because of the well-known continuity of this seam, spacing requirements are 3,000 feet or less for proved reserves and between 3,000 and 8,000 feet for probable reserves.
CoalCos estimates of proven and probable coal reserves do not rely on isolated points of observation. Small pods of reserves based on a single observation point are not considered; continuity between observation points over a large area is necessary for proved or probable reserves. Estimates of the Companys coal reserves have historically been calculated both by internal geologists and engineers employed by ParentCo, and independent third parties. Reserve estimates and evaluation processes are periodically audited by independent third parties to ensure accuracy. CoalCos proven and probable coal reserves fall within the range of commercially marketed coals in the United States. The marketability of coal depends on its value-in-use for a particular application, and this is affected by coal quality, such as sulfur content, ash and heating value. Modern power plant boiler design aspects can compensate for coal quality differences that occur. Therefore, any of CoalCos coals can be marketed for the electric power generation industry.
CoalCos proven and probable coal reserves include 87.0 million tons of undeveloped reserves that are classified as high-vol, mid-vol, or low-vol metallurgical coal. Additionally, the growth in worldwide demand for metallurgical coal allows some of our proven and probable coal reserves, currently classified as thermal coals but that possess certain qualities, to be sold as metallurgical coal. The extent to which we can sell thermal coals as crossover metallurgical coals depends upon a number of factors, including the quality characteristics of the reserve, the specific quality requirements and constraints of the end-use customer, and market conditions (which affect whether customers are compelled to substitute lower-quality crossover coals for higher-quality metallurgical coals in their blends to realize economic benefits). The addition of this cross-over market adds additional assurance to CoalCo that all of its proven and probable coal reserves are commercially marketable.
CoalCo assigns coal reserves to our mining complex. The amount of coal we assign to the mining complex generally is sufficient to support mining through the duration of our current mining permit. Under federal law, we must renew our mining permits every five years. All assigned reserves have their required permits or governmental approvals, or there is a high probability that these approvals will be secured. In addition, our mining complex may have access to additional reserves that have not yet been assigned. We refer to these reserves as accessible. Accessible reserves are proven and probable coal reserves that can be accessed by an existing mining complex, utilizing the existing infrastructure of the complex to mine and to process the coal in this area. Mining an accessible reserve does not require additional capital spending beyond that required to extend or to continue the normal progression of the mine, such as the sinking of airshafts or the construction of portal facilities.
Some reserves may be accessible by more than one mine because of the proximity of many of our mines to one another. In the table below, the accessible reserves indicated for a mine are based on our review of current mining plans and reflect our best judgment as to which mine is most likely to utilize the reserve. Assigned and
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unassigned coal reserves are proven and probable coal reserves which are either owned or leased. 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. Under current mining plans, assigned reserves reported will be mined out within the period of existing leases or within the time period of probable lease renewal periods.
Mining Complexes
Bailey Mine. The Bailey mine is the first mine that CONSOL Energy developed at the Pennsylvania mining complex. As of December 31, 2016, the Bailey mines assigned and accessible reserve base contained an aggregate of 259.7 million tons of clean recoverable proven and probable coal with an average as-received gross heat content of approximately 12,900 Btus per pound and an approximate average pounds of SO 2 per million British thermal units (mmBtu) of 4.1. While operating two longwalls, the production capacity of the Bailey mine is 11.5 million tons of coal per year. Construction of the slope and initial air shaft began in 1982. The slope development reached the coal seam at a depth of approximately 600 feet and, following development of the slope bottom, commercial coal production began in 1984. Longwall mining production commenced in 1985, and the second longwall was placed into operation in 1987. In 2010, a new slope and overland belt system was commissioned, which allowed a large percentage of the Bailey mine to be sealed off. For the years ended December 31, 2016, 2015 and 2014, the Bailey mine produced 12.1, 10.2 and 12.3 million tons of coal, respectively. The Bailey mine uses approximately seven continuous mining units to develop the mains and gate roads for its longwall panels. The longwalls have a panel width (or face length) of approximately 1,500 feet, a panel length of approximately 12,000 feet and a seam height of approximately 7.5 feet.
Enlow Fork Mine. The Enlow Fork mine is located directly north of the Bailey mine. As of December 31, 2016, the Enlow Fork mines assigned and accessible reserve base contained an aggregate of 306.5 million tons of clean recoverable proven and probable coal with an average as-received gross heat content of approximately 13,000 Btus per pound and an approximate average lb SO2/mmBtu of 3.5. While operating two longwalls, the production capacity of the Enlow Fork mine is 11.5 million tons of coal per year. Initial underground development was started from the Bailey mine while the Enlow Fork slope was being constructed. Once the slope bottom was developed and the slope belt became operational, seals were constructed to separate the two mines. Following development of the slope bottom, commercial coal production began in 1989. Longwall mining production commenced in 1991 with the second longwall coming online in 1992. In 2014, a new slope and overland belt system was commissioned and a substantial portion of the Enlow Fork mine was sealed. For the years ended December 31, 2016, 2015 and 2014, the Enlow Fork mine produced 9.6, 9.0 and 10.6 million tons of coal, respectively. The Enlow Fork mine uses approximately seven continuous mining units to develop the mains and gate roads for its longwall panels. The longwalls have a panel width (or face length) of approximately 1,500 feet, a panel length of approximately 12,000 feet and a seam height of approximately 7.8 feet.
Harvey Mine. The Harvey mine is located directly east of the Bailey and Enlow Fork mines. As of December 31, 2016, the Harvey mines assigned and accessible reserve base contained an aggregate of 200.5 million tons of clean recoverable proven and probable coal with an average as-received gross heat content of approximately 12,900 Btus per pound and an approximate average lb SO2/mmBtu of 3.4. While operating one longwall, the production capacity of the Harvey mine is 5.5 million tons of coal per year. Similar to the Enlow Fork mine, the Harvey mine was developed off of the Bailey mines slope bottom. Once the slope for the Harvey mine was placed into operation, seals were built to separate the two mines, and the original slope was dedicated solely to the Harvey mine, which eliminated the need to make significant capital expenditures to develop, among other things, a new slope, air shaft and portal facility. Development of the Harvey mine began in 2009, and construction of the supporting surface facilities commenced in 2011. Longwall mining production commenced in March 2014. For the years ended December 31, 2016, 2015 and 2014, the Harvey mine produced 3.0, 3.6 and 3.2 million tons of coal, respectively. The Harvey mine uses approximately four continuous mining units to develop the mains and gate roads for its longwall panels. The longwall has a panel width (or face length) of approximately 1,500 feet, a panel length of approximately 15,000 feet and a seam height of approximately 6.3
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feet. The Harvey mines existing infrastructure, including its bottom development, slope belt and material handling system, has the capacity to add one incremental permanent longwall mining system with additional mine development and capital investment.
The following table provides the location of CoalCos active mining complexes and the coal reserves associated with each operation.
(1) |
The heat values shown for Assigned Operating reserves are based on the 2016 actual quality and five-year forecasted quality for each mine/reserve, assuming that the coal is washed to an extent consistent with normal full-capacity operation of the complexs preparation plant. Actual quality is based on laboratory analysis of samples collected from coal shipments delivered in 2016. Forecasted quality is derived from exploration sample analysis results, which have been adjusted to account for anticipated moisture and for the effects of mining and coal preparation. The heat values shown for Accessible Reserves are based on as received, dry values obtained from drill hole analyses, adjusted for moisture, and prorated by the associated Assigned Operating product values to account for similar mining and processing methods. |
(2) |
Recoverable reserves are calculated based on the area in which mineable coal exists, coal seam thickness, and average density determined by laboratory testing of drill core samples. This calculation is adjusted to account for coal that will not be recovered during mining and for losses that occur if the coal is processed after mining. Reserves tons are reported on an as-received basis, based on the anticipated product moisture. Reserves are reported only for those coal seams that are controlled by ownership or leases. |
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The following table sets forth our unassigned proven and probable coal reserves by region:
CoalCo Unassigned Recoverable Coal Reserves as of December 31, 2016 and 2015 | ||||||||||||||||||||
Recoverable Reserves(2) |
Recoverable
Reserves (Tons in Millions) 12/31/2015 |
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Coal Producing Region |
As Received Heat
Value(1) (Btu/lb) |
Owned
(%) |
Leased
(%) |
Tons in
Millions 12/31/2016 |
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Northern Appalachia (Pennsylvania, Ohio, Northern West Virginia) (3) |
11,400 13,400 | 85% | 15% | 1,054.0 | 1,054.4 | |||||||||||||||
Central Appalachia (Virginia, Southern West Virginia) |
12,400 14,100 | 77% | 23% | 157.2 | 260.0 | |||||||||||||||
Illinois Basin (Illinois, Western Kentucky, Indiana) |
11,600 12,000 | 79% | 21% | 348.7 | 396.1 | |||||||||||||||
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Total |
83% | 17% | 1,559.9 | 1,710.5 | ||||||||||||||||
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(1) |
The heat value (gross calorific values) estimates for Northern Appalachian and Central Appalachian Unassigned coal reserves include adjustments for moisture that may be added during mining or processing as well as for dilution by rock lying above or below the coal seam. The heat value estimates for the Illinois Basin Unassigned reserves are based primarily on exploration drill core data that may not include adjustments for moisture added during mining or processing, or for dilution by rock lying above or below the coal seam. |
(2) |
Recoverable reserves are calculated based on the area in which mineable coal exists, coal seam thickness, and average density determined by laboratory testing of drill core samples. This calculation is adjusted to account for coal that will not be recovered during mining and for losses that occur if the coal is processed after mining. Reserve calculations do not include adjustment for moisture that may be added during mining or processing, nor do the calculations include adjustments for dilution from rock lying above or below the coal seam. Reserves are reported only for those coal seams that are controlled by ownership or leases. |
(3) |
140.8 Million tons of the Northern Appalachia leased tons are controlled by Consolidation Coal Company, a former subsidiary of ParentCo that was sold in December 2013. As of filing these tons are still controlled by Consolidation Coal Company but are shown in CoalCos reserves due to a binding agreement that these tons will be released to CoalCo following consent of the lessor. |
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The following table classifies CoalCo coals by rank, projected sulfur dioxide emissions and heating value (Btu per pound). The table also classifies bituminous coals as high, medium and low volatile which is based on fixed carbon and volatile matter.
CoalCo Proven and Probable Recoverable Coal Reserves By Product (In Millions of Tons) as of December 31, 2016 |
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£ 1.20 lbs. | > 1.20 £ 2.50 lbs. | > 2.50 lbs. | ||||||||||||||||||||||||||||||||||||||||||
S02/MMBtu | S02/MMBtu | S02/MMBtu | ||||||||||||||||||||||||||||||||||||||||||
Low | Med | High | Low | Med | High | Low | Med | High |
Percent
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By Region |
Btu | Btu | Btu | Btu | Btu | Btu | Btu | Btu | Btu | Total | Product | |||||||||||||||||||||||||||||||||
Metallurgical(1): |
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High Vol A Bituminous |
| | | | | 39.6 | | | | 39.6 | 1.7% | |||||||||||||||||||||||||||||||||
Med Vol Bituminous |
| 5.1 | | | | | | | | 5.1 | 0.2% | |||||||||||||||||||||||||||||||||
Low Vol Bituminous |
| | 16.0 | | | 26.3 | | | | 42.3 | 1.8% | |||||||||||||||||||||||||||||||||
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Total Metallurgical |
| 5.1 | 16.0 | | | 65.9 | | | | 87.0 | 3.7% | |||||||||||||||||||||||||||||||||
Thermal(1): |
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High Vol A Bituminous |
| 46.0 | | 6.1 | 65.4 | 12.9 | 44.5 | 1,134.4 | 611.7 | 1,921.0 | 81.4% | |||||||||||||||||||||||||||||||||
High Vol B Bituminous |
| | | | 101.1 | | | 139.3 | | 240.4 | 10.3% | |||||||||||||||||||||||||||||||||
High Vol C Bituminous |
| | | | | | 108.3 | | | 108.3 | 4.6% | |||||||||||||||||||||||||||||||||
Low Vol Bituminous |
| | | | | | | | 4.5 | 4.5 | 0.2% | |||||||||||||||||||||||||||||||||
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Total Thermal |
| 46.0 | | 6.1 | 166.5 | 12.9 | 152.8 | 1,273.7 | 616.2 | 2,274.2 | 96.3% | |||||||||||||||||||||||||||||||||
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Total |
| 51.1 | 16.0 | 6.1 | 166.5 | 78.8 | 152.8 | 1,273.7 | 616.2 | 2,361.2 | 100.0% | |||||||||||||||||||||||||||||||||
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Percent of Total |
| % | 2.2 | % | 0.7 | % | 0.3 | % | 7.1 | % | 3.2 | % | 6.5 | % | 53.9 | % | 26.1 | % | 100.0 | % | ||||||||||||||||||||||||
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(1) |
143.3 Million tons for the Mason Dixon Project are controlled by Consolidation Coal Company, a former subsidiary of ParentCo that was sold in December 2013. As of this filing, these tons are still controlled by Consolidation Coal Company but are shown in CoalCos reserves due to a binding agreement that these tons will be released upon consent of the lessor. |
Title to coal properties that we lease or purchase and the boundaries of these properties are verified by law firms retained by us at the time we lease or acquire the properties. Consistent with industry practice, abstracts and title reports are reviewed and updated approximately five years prior to planned development or mining of the property. If defects in title or boundaries of undeveloped reserves are discovered in the future, control of and the right to mine reserves could be adversely affected.
The following table sets forth, with respect to properties that we lease to other coal operators, the total royalty tonnage, acreage leased and the amount of income (net of related expenses) we received from royalty payments for the years ended December 31, 2016, 2015 and 2014.
Year |
Total
Royalty Tonnage (in thousands) |
Total
Coal Acreage Leased |
Total
Royalty Income (in thousands) |
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2016 | 3,530 | 213,371 | $9,684 | |||
2015 | 7,459 | 235,066 | $14,914 | |||
2014 | 10,230 | 281,894 | $18,460 |
Royalty tonnage leased to third parties is not included in the amounts of produced tons that we report. Proven and probable reserves do not include reserves attributable to properties that we lease to third parties.
Production
In the year ended December 31, 2016, 100% of CoalCos production came from underground mines equipped with longwall mining systems. CoalCo employs longwall mining systems in our underground mines where the geology is favorable and reserves are sufficient. Underground longwall systems are highly mechanized, capital
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intensive operations. Mines using longwall systems have a low variable cost structure compared with other types of mines and can achieve high productivity levels compared with those of other underground mining methods. Because CoalCo has substantial reserves readily suitable to these operations, CoalCo believes that these longwall mines can increase capacity at a low incremental cost.
The following table shows the production, in millions of tons, for CoalCos mines for the years ended December 31, 2016, 2015 and 2014, the location of each mine, the type of mine, the type of equipment used at each mine, method of transportation and the year each mine was established or acquired by us.
Preparation | Tons Produced | Year | ||||||||||||||||||||||||||||||||||
Facility | Mine | Mining | (in millions) | Established | ||||||||||||||||||||||||||||||||
Mine |
Location | Type | Equipment | Transportation | 2016 | 2015 | 2014 | or Acquired | ||||||||||||||||||||||||||||
PA Mining Operations |
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Bailey |
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Enon, PA | U | LW/CM | R R/B | 12.1 | 10.2 | 12.3 | 1984 | |||||||||||||||||||||||||||
Enlow Fork |
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Enon, PA | U | LW/CM | R R/B | 9.6 | 9.0 | 10.6 | 1990 | |||||||||||||||||||||||||||
Harvey(1) |
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Enon, PA | U | LW/CM | R R/B | 3.0 | 3.6 | 3.2 | 2014 | |||||||||||||||||||||||||||
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Total |
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24.7 | 22.8 | 26.1 | ||||||||||||||||||||||||||||||||
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S |
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U |
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Underground |
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LW |
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Longwall |
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CM |
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Continuous Miner |
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S/L |
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Stripping Shovel and Front End Loaders |
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R |
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Rail |
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T |
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Truck |
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(1) |
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Completed development work and was placed in service in March 2014. |
Coal Marketing and Sales
The following table sets forth the Company produced tons sold and average sales price for the period indicated:
Years Ended December 31, | ||||||||||||
2016 | 2015 | 2014 | ||||||||||
Company Produced Tons Sold (in millions) |
24.6 | 22.9 | 26.1 | |||||||||
Average Sales Price Per Ton Sold |
$ | 43.31 | $ | 56.36 | $ | 61.88 |
We sell coal produced by our mines and additional coal that is purchased by us for resale from other producers. We maintain United States sales offices in Philadelphia and Pittsburgh. In addition, we sell coal through agents and to brokers and unaffiliated trading companies. Approximately 75% of our 2016 coal sales were made to U.S. electric generators, 22% of our 2016 coal sales were priced on export markets and 3% of our coal sales were made to other domestic customers. We had sales to over 35 customers from our 2016 coal operations. During 2016, two customers each comprised over 10% of our coal sales, and the top four coal customers accounted for over 40% of our coal sales. Annual metallurgical coal revenues for the past three years ranged from $58.3 million to $74.7 million.
Coal Contracts and Pricing
We sell coal to an established customer base through opportunities as a result of strong business relationships, or through a formalized bidding process. Contract volumes range from a single shipment to multi-year agreements for millions of tons of coal. The average contract term is between one to three years. As a normal course of
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business, efforts are made to renew or extend contracts scheduled to expire. Although there are no guarantees, we generally have been successful in renewing or extending contracts in the past. For the year ended December 31, 2016, over 65% of all the coal we produced was sold under contracts with terms of one year or more.
CoalCo expects total Consolidated PA Mining Operations annual sales to be approximately 28.3 million tons for both 2017 and 2018. Coal pricing for contracts with terms of one year or less are generally fixed. Coal pricing for multiple-year agreements generally provide the opportunity to periodically adjust the contract prices through pricing mechanisms consisting of one or more of the following:
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Fixed price contracts with pre-established prices; |
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Periodically negotiated prices that reflect market conditions at the time; |
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Price restricted to an agreed-upon percentage increase or decrease; |
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Base-price-plus-escalation methods which allow for periodic price adjustments based on inflation indices, or other negotiated indices; or |
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Netback pricing. |
The volume of coal to be delivered is specified in each of our coal contracts. Although the volume to be delivered under the coal contracts is stipulated, the parties may vary the timing of the deliveries within specified limits. Coal contracts typically contain force majeure provisions allowing for the suspension of performance by either party for the duration of specified events. Force majeure events include, but are not limited to, unexpected significant geological conditions or natural disasters. Depending on the language of the contract, some contracts may terminate upon continuance of an event of force majeure that extends for a period greater than three to twelve months.
Of our 2016 sales tons, approximately 75% were sold to U.S. electric generators, 14% were priced on export thermal markets, 8% were priced on export metallurgical markets and 3% were sold to other domestic customers. In 2016 we derived greater than 10% of our total coal sales revenue from two customers: Duke Energy Corporation and GenOn Energy, Inc. As of December 31, 2016, we had approximately nine sales agreements with these customers that expire at various times between 2017 and 2018.
During the past three years, our average realization (sales price per ton sold) for coal produced from the PAMC decreased from $61.88/ton in 2014 to $56.36/ton in 2015 to $43.31/ton in 2016. However, our average realization has since rebounded from a low of $40.61/ton during the second quarter of 2016 to $46.80 during the first quarter of 2017. Pricing for our product depends strongly on conditions in the domestic thermal coal market, which accounted for at least 75% of our total sales volumes in each of 2014, 2015, and 2016.
The prices we are able to achieve in the domestic thermal market depend on a number of factors, including: (i) the supply-demand balance for Northern Appalachian coal, (ii) prices for other competing sources of energy used for electricity generation, such as natural gas, (iii) power prices in the regions we serve, (iv) prices for coals from other basins (including the Central Appalachian Basin, Illinois Basin, and Powder River Basin) that compete in these same regions, and (v) pricing under our longer-term contracts, which may have been entered into under different market conditions. For example, the 30% decrease in our average realization from 2014 to 2016 occurred during a period when Henry Hub spot natural gas prices decreased by 42%, from an average of $4.37/mmBtu in 2014 to an average of $2.52/mmBtu in 2016, putting pressure on power prices and on the demand for coal-fired electric power generation.
Moreover, abnormally mild weather during the winter of 2015-2016 disrupted the coal supply-demand balance and caused U.S. power plant coal inventories to swell, further pressuring domestic thermal pricing and demand. At the same time, imbalances in global supply and demand for coal caused substantial declines in pricing in the two other primary markets we serve the export thermal market and the export metallurgical market during the
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2014-2016 period. For example, prompt month API 2 index prices (the benchmark price reference for coal imported into northwest Europe) averaged about 32% lower during the first nine months of 2016 than they did during calendar year 2014, and quarterly global coking coal benchmark prices also averaged about 32% lower during the first nine months of 2016 than they did in calendar year 2014. Pricing in all three of our primary markets began to recover during the latter part of 2016, and by Q1 2017, both the API 2 and the global coking coal benchmark were above 2014 levels, and Henry Hub spot natural gas prices were up by just over $1/mmBtu vs. the year-ago quarter. This helped to drive the rebound in pricing for our coal noted above.
Distribution
Coal is transported from CoalCos mining operations to customers by railroad cars, trucks, vessels or a combination of these means of transportation. Most customers negotiate their own transportation rates and we employ transportation specialists who negotiate freight and equipment agreements with various transportation suppliers, including railroads, barge lines, terminal operators, ocean vessel brokers and trucking companies for certain customers.
Coal Competition
Both the domestic and international coal industries are highly competitive, with numerous producers selling into all markets that use coal. CoalCo competes against several other large producers and numerous small producers in the United States and overseas. Demand for our coal by our principal customers is affected by many factors including:
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the price of competing coal and alternative fuel supplies, including nuclear, natural gas, oil and renewable energy sources, such as hydroelectric power, wind or solar; |
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environmental and government regulation; |
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coal quality; |
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transportation costs from the mine to the customer; |
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the reliability of fuel supply; |
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worldwide demand for steel; |
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natural disasters/weather; and |
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political changes in international governments. |
Continued demand for CoalCos coal and the prices that CoalCo obtains are affected by demand for electricity, technological developments, environmental and governmental regulation, and the availability and price of competing coal and alternative fuel supplies. We sell coal to foreign electricity generators which are significantly affected by international demand and competition.
CNX Coal Resources LP
In July 2015, CNX Coal Resources LP (CNXC) closed its initial public offering of 5,000,000 common units representing limited partnership interests at a price to the public of $15.00 per unit. The underwriters of the IPO filing exercised an over-allotment option of 561,067 common units to the public at $15.00 per unit. CNXCs general partner is CNX Coal Resources GP LLC (the CNXC GP), which upon separation and distribution will be a wholly owned subsidiary of CoalCo.
In September 2016, CNXC and its wholly owned subsidiary, CNX Thermal Holdings LLC (CNX Thermal), entered into a Contribution Agreement with CONSOL Energy, Consol Pennsylvania Coal Company LLC and
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Conrhein Coal Company (the Contributing Parties) under which CNX Thermal acquired an additional 5% undivided interest in and to the Pennsylvania Mine Complex, in exchange for (i) cash consideration in the amount of $21.5 and (ii) CNXCs issuance of 3,956,496 Class A Preferred Units representing limited partner interests in CNXC at an issue price of $17.01 per Class A preferred Unit, or an aggregate $67.3 in equity consideration.
On October 2, 2017, ParentCo provided a conversion notice to CNXC with respect to all Class A Units owned by it, and thereafter caused all such Class A Units to convert, on a 1-to-1 ratio, into common units representing limited partner interests in CNXC.
Upon completion of the separation and distribution, CoalCo, or its subsidiaries, will hold all of ParentCos current ownership interest in CNXC, which consists of (i) 5,006,496 common units and 11,611,067 subordinated units (representing a 60.1 percent limited partnership interest), and (ii) 1.7% general partner interest and all incentive distribution rights (IDRs). Subordinated units are not entitled to any distribution from CNXC unless CNXC makes a minimum quarterly distribution of $0.4678 per Class A Preferred Unit and $0.5125 per common unit. CNXC made minimum distributions per subordinated unit equal to the distribution per common unit for five of the six quarters since CNXCs IPO. CNXC did not meet the requirement for a subordinated unit distribution with respect to fiscal quarter ended June 30, 2016. IDRs entitle the holder to receive increasing percentages, up to a maximum of 48%, of the available cash CNXC distributes from operating surplus in excess of $0.5894 per unit per quarter. The maximum distribution of 48% does not include any distributions that the CNXC GP or its affiliates may receive on common units, subordinated units, preferred units or the CNXC GP interest that they own. CNXC has entered into various agreements with ParentCo and certain of its affiliates, which generally will be assumed by CoalCo as part of the separation and distribution.
Terminal Services
In 2016, approximately 8.1 million tons of coal were shipped through CoalCos subsidiary, CNX Marine Terminals Inc.s, exporting terminal in the Port of Baltimore. Approximately 61% of the tonnage shipped was produced by CoalCos PA Mining Operations. The terminal can either store coal or load 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 Corporation and CSX Transportation Inc. CNX Marine Terminal has significant storage capacity of 1.1 million tons with more than thirty acres of capacity for stockpiles. The facility possesses extensive blending capabilities, and has handled over 10 million tons of coal per year on average since 2010, with a potential maximum throughput capacity of 15 million tons annually. Since mid-2016 CNX Marine Terminal has been operated as a standalone business, rather than a captive entity of ParentCo.
Non-Core Coal Assets and Surface Properties
CoalCo owns significant coal assets that are not in our short or medium term development plans. We continually explore the monetization of these non-core assets by means of sale, lease, contribution to joint ventures, or a combination of the foregoing in order to bring the value of these assets forward for the benefit of our stockholders.
Employee and Labor Relations
At December 31, 2016, CoalCo would have had 1,661 employees.
Laws and Regulations
Overview
Our coal mining operations are subject to various types of federal, state and local laws and regulations. Regulations relating to our operations include permitting and other licensing requirements; reclamation and restoration of properties after coal mining operations are completed; storage, transportation and disposal of
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materials used or generated by mining operations; the calculation, reporting and disbursement of taxes; surface subsidence from underground mining; discharge of water from coal mining operations; air quality standards; protection of wetlands; endangered plant and wildlife protection; and employee health and safety. Numerous governmental permits and approvals under these laws and regulations are required for mining operations. Lastly, the electric power generation industry is subject to extensive regulation regarding the environmental impact of its power generation activities, which could affect demand for our coal products.
Compliance with these laws has substantially increased the cost of mining of coal for all coal producers. We post surety performance bonds or letters of credit pursuant to federal and state mining laws and regulations for the estimated costs of reclamation and mine closing, often including the cost of treating mine water discharge. We endeavor to conduct our mining operations in compliance with all applicable federal, state and local laws and regulations. However, because of extensive and comprehensive regulatory requirements against a backdrop of variable geologic and seasonal conditions, permit exceedances and violations during mining operations can and do occur. The possibility exists that new legislation or regulations may be adopted which would have a significant impact on our coal mining operations or our customers ability to use our coal and may require us or our customers to change their operations significantly or incur substantial costs.
CoalCo is committed to complying with all laws and regulations. This commitment is evident in CoalCos demonstrated cost and effort to abate and control pollution and/or contamination at its facilities. CoalCo made capital expenditures for environmental control facilities of approximately $0.6 million, $18.4 million, and $19.0 million in the years ended December 31, 2016, 2015 and 2014, respectively. CoalCo does not expect to have any capital expenditures in 2017 for environmental control facilities.
Environmental Laws
Clean Air Act and Related Regulations. The federal Clean Air Act (CAA) and corresponding state laws and regulations regulate air emissions primarily through permitting and/or emissions control requirements, which affects coal mining, coal handling, and processing. We are required to obtain pre-approval for construction or modification of certain facilities, to meet stringent air permit requirements, or to use specific equipment, technologies or best management practices to control emissions. The CAA indirectly and significantly affects the U.S. coal industry by extensively regulating the air emissions of coal-fired electric power generating plants operated by our customers. Coal contains impurities, such as sulfur, mercury and other constituents, many of which are released into the air when coal is burned. Carbon dioxide (CO 2 ), a regulated GHG, is also emitted when coal is burned. Environmental regulations governing emissions from coal-fired electric generating plants increase the costs to operate and could affect demand for coal as a fuel source and affect the volume of our sales. Moreover, additional environmental regulations increase the likelihood that existing coal-fired electric generating plants will be decommissioned, including plants to which CoalCo sells coal to, and reduce the likelihood that new coal-fired plants will be built in the future.
In early 2012, the EPA promulgated or finalized several rules for New Source Performance Standards (NSPS) for coal- and oil- fired power plants which also have a negative effect on coal-generating facilities. The Utility Maximum Control Technology (UMACT) rule requires more stringent NSPS for particulate matter (PM), SO 2 and nitrogen oxides (NOX) and the Mercury and Air Toxics Standards (MATS) rule requires new mercury and air toxic standards. In November 2012, the EPA published a notice of reconsideration of certain aspects of the UMACT and MATS rules. Following reconsideration in April 2013 and again in April 2014, the EPA promulgated final UMACT and MATS rules in November 2014 at which point the standards become applicable to new power plants. The final rules have higher emission limits, but the standards are still stringent and compliance with the rules is expensive.
The CAA requires the EPA to set National Ambient Air Quality Standards (NAAQS) for certain pollutants and the CAA identifies two types of NAAQS. Primary standards provide public health protection, including protecting the health of sensitive populations such as asthmatics, children, and the elderly. Secondary standards
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provide public welfare protection, including protection against decreased visibility and damage to animals, crops, vegetation, and buildings. On October 1, 2015, the EPA finalized the NAAQS for ozone pollution and reduced the limit to 70 parts per billion (ppb) from the previous 75 ppb standard. The final rule could have a large impact on the coal mining industry as states would be required to update their permitting standards to meet these potentially unachievable limits. Six states have now filed a petition for review in the Court of Appeals for the D.C. Circuit.
On July 6, 2011, the EPA finalized a rule known as the Cross-State Air Pollution Rule (CSAPR). CSAPR regulates cross-border emissions of criteria air pollutants such as SO 2 and NOX, as well as byproducts, fine particulate matter (PM2.5) and ozone by requiring states to limit emissions from sources that contribute significantly to noncompliance with air quality standards for the criteria air pollutants. If the ambient levels of criteria air pollutants are above the thresholds set by the EPA, a region is considered to be in nonattainment for that pollutant and the EPA applies more stringent control standards for sources of air emissions located in the region. In April 2014, the Supreme Court reversed a decision of the D.C. Circuit Court of Appeals that vacated the rule. Following remand and briefing the D.C. Circuit Court of appeals, in October 2014, granted a motion to lift a stay of the rule and allow the EPA to modify the CSAPR compliance deadline by three-years, setting the stage for issuance of the proposed rule. Implementation of CSAPR Phase 1 began in 2015, with Phase 2 scheduled to begin in 2017. On September 7, 2016, the EPA finalized an update to the CSAPR for the 2008 ozone NAAQS by issuing the final CSAPR Update. Starting in May 2017, this rule will reduce summertime (May - September) NOX emissions from power plants in 22 states in the eastern United States.
On March 27, 2012, the EPA published its proposed NSPS for CO 2 emissions from new coal-powered electric generating units. The proposed rule would have applied to new power plants and to existing plants that make major modifications. If the rule had been adopted as proposed, only new coal-fired power plants with CO 2 capture and storage (CCS) could have met the proposed emission limits. Commercial scale CCS is not likely to be available in the near future, and if available, it may make coal-fired electric generation units uneconomical compared to new gas-fired electric generation units. On January 8, 2014, the EPA re-proposed NSPS for CO 2 for new fossil fuel fired power plants and rescinded the rules that were proposed on April 12, 2012.
On September 20, 2013, the EPA issued a new proposal to control carbon emissions from new power plants. Under the Clean Power Plan (CPP) proposal, the EPA would establish separate NSPS for CO 2 emissions for natural gas-fired turbines and coal-fired units. The proposed Carbon Pollution Standard for New Power Plants replaces the earlier proposal released by the EPA in 2012. On August 3, 2015, the EPA finalized the Carbon Pollution Standards to cut carbon emissions from new, modified and reconstructed power plants, which would have become effective on October 23, 2015.
On June 2, 2014, the EPA proposed additional CPP legislation to cut carbon emissions from existing power plants. Under this proposed rule, the EPA would create emission guidelines for states to follow in developing plans to address GHG emissions from existing fossil fuel-fired electric generating units. Specifically, the EPA is proposing state-specific rate-based goals for CO 2 emissions from the power sector, as well as guidelines for states to follow in developing plans to achieve the state-specific goals.
On August 3, 2015, the EPA finalized the CPP Rule to cut carbon pollution from existing power plants, which would have become effective on December 22, 2015. Numerous petitions challenging the CPP Rule have been consolidated into one case, West Virginia v. EPA. While the litigation is still ongoing at the circuit court level, a mid-litigation application to the Supreme Court resulted in a stay of the Clean Power Plan Rule. On September 27, 2016, an en banc panel of the U.S. Court of Appeals for the D.C. Circuit heard oral arguments in the case. The decision, originally expected in early 2017, has been stayed as a result of a March 28, 2017 executive order directing the EPA to begin the process of reviewing and possibly rescinding the Clean Power Plan Rule. The EPA filed a motion and the motion was granted by the U.S. Court of Appeals for the D.C. Circuit requesting the stay while the EPA conducts their review of the Clean Power Plan Rule. If the review does not result in any rule changes, the U.S. Court of Appeals for the D.C. Circuit will rule on the legality of the Clean Power Plan Rule.
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The current Administrations executive order promoting energy independence and economic growth issued on March 28, 2017 requires the review of existing regulations that potentially burden the development or use of domestically produced energy resources. The review of existing regulations may not result in any changes and any changes made to existing regulations may not produce the intended favorable results desired by the new Administration. The executive order also directed the Council on Environmental Quality to rescind its final guidance entitled, Final Guidance for Federal Departments and Agencies on Consideration of Greenhouse Gas Emissions and the Effects of Climate Change in National Environmental Policy Act Reviews. The guidance previously directed agencies to consider proposed actions and their effects on climate change (GHG emissions would have been a key indicator being assessed under any NEPA review). Such review considerations may have created additional delays or costs in any NEPA review processes for energy producers and generators and may have prevented the acquisition of any necessary federal approvals for energy producers and generators.
Clean Water Act. The federal Clean Water Act (CWA) and corresponding state laws affect our coal operations by regulating discharges into surface waters. Permits requiring regular monitoring and compliance with effluent limitations and reporting requirements govern the discharge of pollutants into regulated waters. The CWA and corresponding state laws include requirements for: improvement of designated impaired waters (i.e., not meeting state water quality standards) through the use of effluent limitations; anti-degradation regulations which protect state designated high quality/exceptional use streams by restricting or prohibiting discharges; requirements to treat discharges from coal mining properties for non-traditional pollutants, such as chlorides, selenium and dissolved solids; requirements to minimize impacts and compensate for unavoidable impacts resulting from discharges of fill materials to regulated streams and wetlands; and requirements to dispose of produced wastes and other oil and gas wastes at approved disposal facilities. In addition, the Spill Prevention, Control and Countermeasure (SPCC) requirements of the CWA apply to all CoalCo operations that use or produce fluids and require the implementation of plans to address any spills and the installation of secondary containment around all storage tanks. These requirements may cause CoalCo to incur significant additional costs that could adversely affect our operating results, financial condition and cash flows.
CoalCo requires certain surface structures for its processing of coal, placement of refuse, and transportation of materials through pipelines and above-ground conveyance systems. On April 21, 2014 the EPA published a proposed rule called Definition of Waters of the United States (WoUS) Under the Clean Water Act. The proposal would expand the scope of the CWA to include previously non-jurisdictional streams, wetlands, and waters, making these areas jurisdictional inter-coastal waters of the U.S. In February 2015 the EPA and ACOE issued a memorandum of understanding to withdraw the WoUS Interpretive Rule. The EPA published the latest version of the WoUS rule (the Clean Water Rule) on June 29, 2015, which was to become effective on August 28, 2015. However, on August 27, 2015, the District Court of North Dakota blocked implementation of the rule in 13 states. On October 9, 2015, the Court of Appeals for the Sixth Circuit blocked implementation of the rule nationwide. The U.S. Supreme Court will now decide which court has jurisdictionfederal appeals court or district courts. Oral arguments on the case have been scheduled for October 11, 2017.
Resource Conservation and Recovery Act. The federal Resource Conservation and Recovery Act (RCRA) and corresponding state laws and regulations affect coal mining by imposing requirements for the treatment, storage and disposal of hazardous wastes. Facilities at which hazardous wastes have been treated, stored or disposed of are subject to corrective action orders issued by the EPA that could adversely affect our financial results, financial condition and cash flows.
In 2010, the EPA proposed options for the regulation of Coal Combustion Residuals (CCRs) from the electric power sector as either hazardous waste or non-hazardous waste. On December 19, 2014, the EPA announced the first national regulations for the disposal of CCRs from electric utilities and independent power producers under RCRA. On April 17, 2015, the EPA finalized these regulations under the solid waste provisions (Subtitle D) of RCRA and not the hazardous waste provisions (Subtitle C) which became effective on October 19, 2015. The EPA affirms in the preamble to the final rule that this rule does not apply to CCR placed in active or abandoned underground or surface mines. Instead, the U.S. Department of Interior (DOI) and the EPA will address the
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management of CCR in mine fills in a separate regulatory action(s). On November 3, 2015, the EPA published the final rule Effluent Limitations Guidelines and Standards (ELG), revising the regulations for the Steam Electric Power Generating category which became effective on January 4, 2016. The rule sets the first federal limits on the levels of toxic metals in wastewater that can be discharged from power plants, based on technology improvements in the steam electric power industry over the last three decades. The combined effect of the CCR and ELG regulations has forced power generating companies to close existing ash ponds and will likely force the closure of certain older existing coal burning power plants that cant comply with the new standards.
Surface Mining Control and Reclamation Act . The federal Surface Mining Control and Reclamation Act (SMCRA) establishes minimum national operational and reclamation standards for all surface mines, as well as most aspects of underground mines. SMCRA requires that comprehensive environmental protection and reclamation standards be met during the course of and following completion of mining activities. Permits for all mining operations must be obtained from the U.S. Office of Surface Mining (OSM) or, where state regulatory agencies have adopted federally approved state programs under SMCRA, the appropriate state regulatory authority. States that operate federally approved state programs may impose standards which are more stringent than the requirements of SMCRA and OSMs regulations and in many instances have done so. Our active mining complexes are located in Pennsylvania which has primary jurisdiction for enforcement of SMCRA through its approved state program. In addition, SMCRA imposes a reclamation fee on all current mining operations, the proceeds of which are deposited in the Abandoned Mine Reclamation Fund (AML Fund), which is used to restore unreclaimed and abandoned mine lands mined before 1977. The current per ton fee is $0.28 per ton for surface mined coal and $0.12 per ton for underground mined coal. These fees are currently scheduled to be in effect until September 30, 2021.
Federal and state laws require bonds to secure our obligations to reclaim lands used for mining and to satisfy other miscellaneous obligations. These bonds are typically renewable on a yearly basis. Surety bond costs have increased while the market terms of surety bonds have generally become less favorable. It is possible that surety-bond issuers may refuse to renew bonds or may demand additional collateral. Any failure to maintain, or inability to acquire, surety bonds that are required by state and federal laws would have a material adverse effect on our ability to produce coal, which could adversely affect our business, financial condition, results of operations, liquidity and cash flows.
Excess Spoil, Coal Mine Waste, Diversions, and Buffer Zones for Perennial and Intermittent Streams. The OSM has issued final amendments to regulations concerning stream buffer zones, stream channel diversions, excess spoil, and coal mine waste to comply with an order issued by the U.S. District Court for the District of Columbia on February 20, 2014, which vacated the stream buffer zone rule that was published December 12, 2008. On July 27, 2015, the OSM published the proposed Stream Protection Rule (SPR). After much debate and thousands of comments, the final SPR was published by the OSM in the Federal Register on December 20, 2016. The final SPR requires the restoration of the physical form, hydrologic function, and ecological function of the segment of a perennial or intermittent stream that a permittee mines through. Additionally, it requires that the post-mining surface configuration of the reclaimed mine site include a drainage pattern, including ephemeral streams, similar to the pre-mining drainage pattern, with exceptions for stability, topographical changes, fish and wildlife habitat, etc. The rule also requires the establishment of a 100-foot-wide streamside vegetative corridor of native species (including riparian species, when appropriate) along each bank of any restored or permanently-diverted perennial, intermittent, or ephemeral stream. This rulemaking is highly anticipated to be subject to Legislative and Executive branch actions to overturn or significantly modify the rule.
Health and Safety Laws
Mine Safety. Legislative and regulatory changes have required us to purchase additional safety equipment, construct stronger seals to isolate mined out areas, and engage in additional training. We have also experienced
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more aggressive inspection protocols and with new regulations the amount of civil penalties has increased. The actions taken thus far by federal and state governments include requiring:
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the caching of additional supplies of self-contained self-rescuer (SCSR) devices underground; |
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the purchase and installation of electronic communication and personal tracking devices underground; |
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the purchase and installation of proximity detection services on continuous miner machines; |
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the placement of refuge chambers, which are structures designed to provide refuge for groups of miners during a mine emergency when evacuation from the mine is not possible, which will provide breathable air for 96 hours; |
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the replacement of existing seals in worked-out areas of mines with stronger seals; |
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the purchase of new fire resistant conveyor belting underground; |
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additional training and testing that creates the need to hire additional employees; |
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more stringent rock dusting requirements; and |
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the purchase of personal dust monitors for collecting respirable dust samples from certain miners. |
On October 2, 2015, the Mine Safety and Health Administration (MSHA) published proposed rules for underground coal mining operations concerning proximity detection systems for coal hauling machines and scoops. On January 15, 2015, MSHA published a final rule requiring underground coal mine operations to equip continuous mining machines, except full-face continuous mining machines, with proximity detection systems. The proximity detection system strengthens protection for miners by reducing the potential of pinning, crushing and striking hazards that result in accidents involving life-threatening injuries and death. The final rule became effective March 15, 2015 and included a phased in schedule for newly manufactured and in-service equipment. In 2010 MSHA rolled out the End Black Lung, Act Now initiative. As a result, MSHA implemented a new final rule on August 1, 2014 to lower miners exposure to respirable coal mine dust including using the new Personal Dust Monitor (PDM) technology. This final rule was implemented in three phases. The first phase began August 1, 2014 and utilizes the current gravimetric sampling device to take full shift dust samples from the current designated occupations and areas. It also requires additional record keeping and immediate corrective action in the event of overexposure. The second phase began February 1, 2016 and requires additional sampling for designated and other occupations using the new continuous personal dust monitor (CPDM) technology, which provides real time dust exposure information to the miner. The necessary CPDM equipment required to meet compliance with the new rule was ordered at a cost of $2 million. Dust Coordinators and Dust Technicians were also hired to meet the staffing demand to manage compliance with the new rule. The final phase of the rule was effective on August 1, 2016. when the current respirable dust standard was reduced from 2.0 to 1.5mg/m3 for designated occupations and from 1.0 to 0.5mg/m3 for Part 90 Miners.
Black Lung Legislation. Under federal black lung benefits legislation, each coal mine operator is required to make payments of black lung benefits or contributions to:
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current and former coal miners totally disabled from black lung disease; |
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certain survivors of a coal miner who dies from black lung disease or pneumoconiosis; and |
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a trust fund for the payment of benefits and medical expenses to claimants whose last mine employment was before January 1, 1970, where no responsible coal mine operator has been identified |
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for claims (where a coal miners last coal employment was after December 31, 1969), or where the responsible coal mine operator has defaulted on the payment of such benefits. The trust fund is funded by an excise tax on U.S. production of up to $1.10 per ton for deep mined coal and up to $0.55 per ton for surface-mined coal, neither amount to exceed 4.4% of the gross sales price. |
The Patient Protection and Affordable Care Act (PPACA) made two changes to the Federal Black Lung Benefits Act. First, it provided changes to the legal criteria used to assess and award claims by creating a legal presumption that miners are entitled to benefits if they have worked at least 15 years in underground coal mines, or in similar conditions, and suffer from a totally disabling lung disease. To rebut this presumption, a coal company would have to prove that a miner did not have black lung or that the disease was not caused by the miners work. Second, it changed the law so black lung benefits will continue to be paid to dependent survivors when the miner passes away, regardless of the cause of the miners death. The changes will result in increased cost to CoalCo of complying with the Federal Black Lung Benefits Act. In addition to the federal legislation, we are also liable under various state statutes for black lung claims.
Other State and Local Laws
Ownership of Coal Rights . CoalCo acquires ownership or leasehold rights to coal properties prior to conducting operations on those properties. As is customary in the coal industry, we have generally conducted only a summary review of the title to coal rights that are not in our development plans, but which we believe we control. This summary review is conducted at the time of acquisition or as part of a review of our land records to determine control of coal rights. Given ParentCos long history as a coal producer, we believe we have a well-developed ownership position relating to our coal control. Prior to the commencement of development operations on coal properties, we conduct a thorough title examination and perform curative work with respect to significant defects. We generally will not commence operations on a property until we have cured any material title defects on such property. We are typically responsible for the cost of curing any title defects. We have completed title work on substantially all of our coal producing properties and believe that we have satisfactory title to our producing properties in accordance with standards generally accepted in the industry.
Available Information
CoalCo maintains a website at www. .com. CoalCo will makes available, free of charge, on this website our future annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the 1934 Act), as soon as reasonably practicable after such reports are available, electronically filed with, or furnished to the SEC, and are also available at the SECs website www.sec.gov. Apart from SEC filings, we also use our website to publish information which may be important to investors, such as presentations to analysts.
Legal and Environmental Proceedings
In the normal course of business, CoalCo and its subsidiaries are subject to various lawsuits and claims with respect to such matters as personal injury, wrongful death, damage to property, exposure to hazardous substances, governmental regulations including environmental remediation, employment and contract disputes and other claims and actions arising out of the normal course of business. CoalCo accrues the estimated loss for these lawsuits and claims when the loss is probable and can be estimated. CoalCos current estimated accruals related to these pending claims, individually and in the aggregate, are immaterial to the financial position, results of operations or cash flows of CoalCo. It is possible that the aggregate loss in the future with respect to these lawsuits and claims could ultimately be material to the financial position, results of operations or cash flows of CoalCo; however, such amounts cannot be reasonably estimated. The amount claimed against CoalCo is disclosed below when an amount is expressly stated in the lawsuit or claim, which is not often the case.
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The following royalty, land rights and other lawsuits and claims include those for which a loss is reasonably possible, but not probable, and accordingly, an accrual may not have been recognized. These claims are influenced by many factors which prevent the estimation of a range of potential loss. These factors include, but are not limited to, generalized allegations of unspecified damages (such as improper deductions), discovery having not commenced or not having been completed, unavailability of expert reports on damages and non-monetary issues being tried.
Fitzwater Litigation . Three nonunion retired coal miners filed an amended complaint on April 24, 2017 against ParentCo, Fola Coal Company, LLC, CONSOL of Kentucky and Consolidation Coal Company in West Virginia Federal Court alleging ERISA violations in the termination of retiree health care benefits. The Plaintiffs contend they relied to their detriment on oral statements and promises of lifetime health benefits allegedly made by various members of management during Plaintiffs employment and that they were allegedly denied access to Summary Plan Documents that clearly reserved to the Company the right to modify or terminate the CONSOL Energy Inc. Retiree Health and Welfare Plan. Plaintiffs request that retiree health benefits be reinstated and seek to represent a class of all nonunion retirees of Fola Coal Company, LLC and CONSOL of Kentucky. The Company believes it has meritorious defense and intends to vigorously defend this suit.
Casey Litigation . The Company has become aware of (but not served with) a Complaint filed on August 23, 2017, on behalf of two nonunion retired coal miners against ParentCo, CONSOL Buchanan Mining Co., Inc. and Consolidation Coal Company in West Virginia Federal Court alleging ERISA violations in the termination of retiree health care benefits. Filed by the same lawyers who filed the Fitzwater litigation , and raising nearly identical claims, the plaintiffs contend they relied to their detriment on oral promises of lifetime health benefits allegedly made by various members of management during plaintiffs employment and that they were not provided with copies of Summary Plan Documents clearly reserving to the Company the right to modify or terminate the existing Retiree Health and Welfare Plan. Plaintiffs request that retiree health benefits be reinstated for them and their dependents and seek to represent a class of all nonunion retirees of any ParentCo subsidiary that operated or employed individuals in McDowell or Mercer Counties, West Virginia, or Buchanan or Tazewell Counties, Virginia whose retiree welfare benefits were terminated.
Virginia Mine Void Litigation . Four lawsuits naming Consolidation Coal Company, Island Creek Coal Company, CNX Gas Company, and/or ParentCo have recently concluded in favor of the companies. After the trial court granted summary judgment in favor of the defendants in two of the actions upon its finding that plaintiffs claims are barred by the applicable statutes of limitation, plaintiffs appealed both cases to the U.S. Court of Appeals for the Fourth Circuit. On March 9, 2017, the Fourth Circuit affirmed and entered judgment in favor of the defendants. Plaintiffs did not seek review by the U.S. Supreme Court and those judgments are now final. As a direct result of the Fourth Circuit action, Motions for Voluntary Dismissal were filed and granted by the court in both of the two remaining cases. On January 26, 2016, six mine void lawsuits that had twice before been filed and voluntarily dismissed were refiled for a third time in state court but have not been served. Because each had twice before been filed and voluntarily dismissed, and because the most recent refilings were not served within a one-year period, under these procedural circumstances these actions should no longer be viable under federal or Virginia state law. The complaints sought damages and injunctive relief in connection with the transfer of water from mining activities at Buchanan Mine into void spaces in inactive ICCC mines adjacent to the Buchanan operations, voids ostensibly underlying plaintiffs properties. While some of the plaintiffs claimed an ownership interest in the coal, others had some interest in one or more of the fee, surface, oil/gas or other mineral estates. The suits alleged the water storage precluded access to and damaged coal, impeded coalbed methane gas production and was made without compensation to the property owners. Plaintiffs sought recovery in tort, contract and trespass assumpsit (quasi-contract). The suits each sought damages between $50,000 and in excess of $100,000 plus punitive damages.
Environmental Proceedings . On September 4, 2017, the Pennsylvania Department of Environmental Protection (DEP) provided notice that it required additional time to review the technical merits of a prior permit submission for continued longwall mining in the 4L panel at the Bailey Mine (the 4L Pending Permit), in light of a recent
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Environmental Hearing Board (EHB) decision, which is discussed further below. As a result, the longwall was idled at that time and workforce adjustments were made, pending further developments with the DEP and permit submission. This was the first time in the 35-year history of the Bailey Mine that a needed mining permit had not been received in a timely fashion.
As noted above, the DEPs determination with respect to the 4L Pending Permit related to part of an August 2017 EHB decision that impacts the application of DEP-required stream mitigation techniques, specifically the installation of synthetic stream-channel liner systems. The EHB is the quasi-judicial agency that hears appeals of DEP permitting decisions. The EHB decision held, in part, that the requirement to install a stream-channel liner system constituted impermissible pollution under applicable environmental laws. That determination had direct and specific implications for the 4L Pending Permit with respect to undermining one particular stream, Polen Run, for which the DEP was proposing to require the installation of the stream-channel liner system as a mitigation measure. The DEP requested alternative mitigation measures for consideration, which ParentCo supplied. Due to the narrowly focused EHB decision, the DEP is carefully reviewing alternative approaches and continues to evaluate the requested data submitted in support of the 4L Pending Permit. Given the potential for a protracted review, ParentCo felt it prudent to temporarily idle the longwall and dismantle and relocate it to another panel where it held an operating permit.
To that end, on September 18, 2017, ParentCo issued a press release stating that the DEP was requiring additional time to evaluate the approval of the 4L Pending Permit and that, as a result of this ongoing evaluation, ParentCo determined to move the longwall to another permitted panel in order to resume operations. ParentCo expects the longwall move to last approximately four weeks, with completion estimated for the first week of October, and has implemented several measures to mitigate the production impact from this delay. These measures include working additional unscheduled shifts at the remaining four longwalls in the PAMC, compared to the previous five and a half day schedule. This operating schedule change is intended to allow ParentCo to meet customer needs.
ParentCo continues to work closely with the necessary agencies to obtain operating permits to allow for continuity of longwall mining operations. The PAMC operates five total longwalls, with many of the approved permits as far out as ten years in advance.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
You should read the following Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) in conjunction with the audited Combined Financial Statements and corresponding notes and the Unaudited Pro Forma Condensed Combined Financial Statements and corresponding notes included elsewhere in this information statement. This MD&A contains forward-looking statements. The matters discussed in these forward-looking statements are subject to risk, uncertainties, and other factors that could cause actual results to differ materially from those projected or implied in the forward-looking statements. Please see Risk Factors and Cautionary Statement Concerning Forward-Looking Statements for a discussion of the uncertainties, risks and assumptions associated with these statements.
All amounts discussed are in millions of U.S. dollars, unless otherwise indicated.
The Separation
In December 2016, ParentCo announced its intent to separate into two independent, publicly-traded companies (the separation): CoalCo, which will hold ParentCos PAMC and certain related coal assets, including ParentCos ownership interest in CNXC, which owns a 25% stake in PAMC, the CNX Marine Terminal, and Greenfield Reserves (collectively, the Coal Business), and an oil and natural gas exploration and production (E&P) company focused on Appalachian area natural gas and liquids activities, including production, gathering, processing and acquisition of natural gas properties in the Appalachian Basin (the Gas Business) of ParentCo.
The separation will occur by means of a pro rata distribution by ParentCo of all of the outstanding common stock of CoalCo. ParentCo, the existing publicly traded company, will continue to own the Gas Business. In connection with the separation, CoalCo will change its name to CONSOL Energy Inc. and ParentCo, the existing publicly traded company, will continue to own the Gas Business and will change its name to CNX Resources Corporation.
The separation transaction, which is expected to be completed in the second half of 2017, is subject to a number of conditions, including, but not limited to: final approval by ParentCos Board of Directors; receipt of a private letter ruling from the Internal Revenue Service and one or more opinions of its tax advisors, in each case, regarding certain U.S. federal income tax matters relating to the transaction; and the SEC declaring effective the registration statement of which this information statement forms a part.
CoalCo and GasCo will enter into a separation agreement that will identify the assets to be transferred, the liabilities to be assumed and the contracts to be transferred to each of CoalCo and GasCo as part of the separation of ParentCo into two companies, and will provide for when and how these transfers and assumptions will occur. ParentCo may, at any time and for any reason until the proposed transaction is complete, abandon the separation plan or modify its terms.
For purposes of the following sections of the MD&A, we use the terms CoalCo, the Company, we, us, and our, when referring to periods prior to the distribution, to refer to the Coal Business of ParentCo.
Our Business
We are a leading, low-cost producer of high-quality bituminous coal from the Northern Appalachian Basin (NAPP) with excellent access to major U.S. and international coal markets and a highly experienced management team. Our company and its predecessors have been mining coal, primarily in NAPP, since 1864. We have the capacity to produce up to 28.5 million tons per year of thermal and crossover metallurgical coal from our PAMC, which consists of three highly productive, well-capitalized underground mines in the Pittsburgh No. 8 coal seam and the largest coal preparation plant in the United States. Coal from the PAMC is valued because of its high energy content (as measured in British thermal units, or Btu, per pound), relatively low levels of sulfur and other
70
impurities, and strong thermoplastic properties that enable it to be used in metallurgical as well as thermal applications. We take advantage of these desirable quality characteristics and our extensive logistical network, which is directly served by both the Norfolk Southern and CSX railroads, to aggressively market our product to a broad base of strategically-selected, top-performing power plant customers in the eastern United States. We also capitalize on the operational synergies afforded by our wholly-owned CNX Marine Terminal in the Port of Baltimore to export our coal to thermal and metallurgical end-users in Europe, Asia, South America, and Canada. Our operations, including the PAMC and the CNX Marine Terminal, have consistently generated strong cash flows. The PAMC controls 766.7 million tons of high-quality Pittsburgh seam reserves (as of December 31, 2016), enough to allow for approximately 27 years of full-capacity production. In addition, we own or control approximately 1.6 billion tons of Greenfield Reserves in the eastern United States that could provide us with a solid growth platform in the future. Our vision is to maximize cash flow generation through the safe, compliant, and efficient operation of this world-class core asset base, while strategically reducing debt, returning capital through share buybacks or dividends, and when prudent, allocating capital toward compelling growth opportunities.
Our corporate structure and ownership interests are shown in the figure below. Our major assets include:
|
~90% economic ownership and full operational control of the PAMC, consisting of: |
o |
75% undivided interest in the PAMC; |
o |
~60% limited partner interest, a 1.7% general partner interest (reflecting 100% of the general partner units) and incentive distribution rights (IDRs) in CNX Coal Resources LP, which is a growth-oriented master limited partnership formed by us in 2015 to manage and further develop our active coal operations in Pennsylvania, and which owns the remaining 25% stake in PAMC; |
|
the CNX Marine Terminal; and |
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1.6 billion tons of Greenfield Reserves in NAPP, the Central Appalachian Basin CAPP, and the Illinois Basin (ILB). |
These assets and the diverse markets they serve provide robust flexibility for generating cash across a wide variety of demand and pricing scenarios. This flexibility begins with the low-cost structure and optionality afforded by our PAMC. The three mines at the PAMC, which include the Bailey, Enlow Fork, and Harvey mines, produce coal from the Pittsburgh No. 8 Coal Seam using longwall mining, a highly automated underground mining technique that produces large volumes of coal at lower costs compared to alternative mining methods. These three mines collectively operate five longwalls, and the production from all three mines is processed at a single, centralized preparation plant, which is connected via conveyor belts to each mine. The Bailey Central Preparation Plant, which can clean and process up to 8,200 raw tons of coal per hour, provides economies of scale while also maintaining the ability to segregate and blend coals based on quality. This infrastructure enables us to tailor our production levels and quality specifications to meet market demands. It also results in a highly productive, low-cost operation as compared to other NAPP coal mines. The PAMC was the most productive longwall operation in NAPP during 2015-2016, producing 6.77 tons of coal per employee hour, compared with an average of 4.94 tons per employee hour for all other currently-operating NAPP longwalls. Our high productivity helps drive a low cost structure, which according to Wood Mackenzie was in the first quartile among NAPP coal mines in 2016. Our efficiency strengthens our margins throughout the commodity cycle, and has allowed us to continue to generate positive margins even in challenging pricing environments.
Coal from the PAMC is versatile in that it can be sold either domestically or abroad, in the thermal coal market or as a crossover product in the high-volatile metallurgical coal market. Domestically, we have a well-established and diverse blue chip customer base, the majority of which is comprised of domestic utility companies located across the eastern United States. In 2016, we shipped coal to 38 plants located in 18 eastern U.S. states. As of June 30, 2017, the PAMCs committed and contracted portfolio, on a 100% basis (i.e., total production of PAMC), represented approximately 95% and 68% of projected sales for the years ending December 31, 2017 and December 31, 2018, respectively. We believe our committed and contracted position is well-balanced in hedging
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against market downside risk while allowing us to continue to build out the customer portfolio strategically and opportunistically as the market evolves.
Going forward, we plan to continue to execute our sales strategy of targeting top-performing, environmentally-controlled, rail-served power plants in our core market areas in the eastern United States. Our top 15 domestic power plant customers in 2016, which accounted for 82% of our domestic power plant shipments that year, operated at a 15 percentage point higher capacity factor than other NAPP rail-served plants in 2016, and have consistently consumed more than 50 million tons of coal per year over the past five years. We have grown our share at these plants from 12% in 2011 to 32% in 2016, and we believe that we can continue to grow this share. Our customer plants consume coal from all four primary coal producing basins in the United States. However, we believe that we are favorably positioned to compete with producers from these basins primarily because of: (i) our significant transportation cost advantage compared to producers in the ILB and the Powder River Basin (PRB), which incur higher rail transportation rates to deliver coal to many of our core market areas in the eastern United States, (ii) our favorable operating environment compared to producers in CAPP, where production has been declining and is expected to continue to decline primarily due to the basins high cost production profile, reserve degradation and difficult permitting environment, and (iii) the attractive quality characteristics of our coal, which enable us to compete for demand from a broader range of coal-fired power plants as compared to (x) mining operations in basins that typically produce coal with a comparatively lower heat content, such as the ILB and PRB, (y) mining operations in basins that typically produce coal with a comparatively higher sulfur content, such as the ILB and most areas in NAPP, and (z) mining operations in basins that typically produce coal with a comparatively higher chlorine content, such as certain areas in the ILB.
The PAMC and our 100%-owned CNX Marine Terminal allow us to participate in the international thermal and metallurgical coal markets. The CNX Marine Terminal provides coal transshipments directly from rail cars to ocean-going vessels for both PAMC and third-party shippers, and is the only coal marine terminal on the East Coast served by two rail lines (Norfolk Southern and CSX). Located on 200 acres, the terminal has a throughput capacity of 15 million tons per year, as well as extensive blending capabilities and significant ground storage capacity of 1.1 million tons. In 2016, approximately 8.1 million tons of coal were shipped through the CNX Marine Terminal, with approximately 61% of that amount having been produced at our PAMC. The ability to serve both domestic and international markets with premium thermal and crossover metallurgical coal provides us with significant diversification and optionality, allowing us to pursue upside while helping to minimize both pricing and volume risk. Since 2014, our domestic thermal shipments from the PAMC have ranged from 17.3 to 22.8 million tons per year, our export thermal shipments have ranged from 2.1 to 4.4 million tons per year, and our export metallurgical shipments have ranged from 1.2 to 2.0 million tons per year. After accounting for PAMC tons, the CNX Marine Terminal still has significant surplus capacity that may be used to generate additional revenue by providing services to third parties.
Finally, the 1.6 billion tons of Greenfield Reserves that we control in NAPP, CAPP, and ILB, which are in addition to the substantial reserve base associated with PAMC, feature both thermal and metallurgical reserves. Included among these are approximately 970 million tons of contiguous greenfield reserves associated with the River Mine and Mason Dixon projects, which are among the last remaining greenfield Pittsburgh No. 8 coal seam projects in the Northern Appalachian region, as well as both low-volatile and high-volatile metallurgical coal reserves. Our Greenfield Reserves provide additional optionality for organic growth or monetization as market conditions allow.
Results of Operations
2017 Outlook:
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Our 2017 coal sales is expected to be approximately 25.6-27.6 million tons. |
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Due to a reduction in coal price realizations resulting from a cooler than normal summer, modest delivery impacts related to the railroads, and the permit delay relating to Bailey Mine discussed under Legal and |
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Environmental Proceedings, which may negatively impact anticipated 2017 revenue amounts, we have decreased our expected 2017 coal capital investment to be between $112-$120 million, down from the previously stated amounts of $120-$136 million. These amounts intend to be utilized primarily for refuse storage area and maintenance capital expenditures related to equipment, buildings and other infrastructure. None of the anticipated expenditures are material in amount or represent a material project for our business. |
Six Months Ended June 30, 2017 Compared with the Six Months Ended June 30, 2016
Net Income Attributable to CONSOL Mining Corporation Shareholder
CONSOL Mining Corporation had net income attributable to CONSOL Mining Corporation shareholder of $89 million for the six months ended June 30, 2017, compared to net income attributable to CONSOL Mining Corporation shareholder of $20 million for the six months ended June 30, 2016.
CONSOL Mining Corporation primarily consists of the Pennsylvania Mining Operations Complex (PAMC), as well as various corporate and other business activities that are not allocated to PAMC. The other business activities include CNX Marine Terminal operations, closed and idle mine activities, selling, general and administrative activities, income taxes, as well as various other non-operated activities.
PAMC ANALYSIS
The principal activities of the PAMC division are mining, preparation and marketing of thermal coal, sold primarily to power generators. It also includes selling, general and administrative activities, as well as various other activities assigned to the PAMC division.
PAMC had earnings before income tax of $111 million for the six months ended June 30, 2017, compared to earnings before income tax of $46 million for the six months ended June 30, 2016. Variances are discussed below.
For the Six Months Ended June 30, | ||||||||||||
(in millions) | 2017 | 2016 | Difference | |||||||||
Coal Sales |
$ | 620 | $ | 477 | $ | 143 | ||||||
Freight Revenue |
30 | 25 | 5 | |||||||||
Miscellaneous Other Income |
6 | 7 | (1) | |||||||||
Gain on Sales of Assets |
6 | | 6 | |||||||||
|
|
|
|
|
|
|||||||
Total Revenue and Other Income |
|
662
|
|
|
509
|
|
|
153
|
|
|||
Operating Costs and Expenses: |
||||||||||||
Operating Costs |
390 | 313 | 77 | |||||||||
Depreciation, Depletion and Amortization |
79 | 74 | 5 | |||||||||
|
|
|
|
|
|
|||||||
Total Operating Costs and Expenses |
|
469
|
|
|
387
|
|
|
82
|
|
|||
Other Costs and Expenses: |
||||||||||||
Other Costs |
11 | 25 | (14) | |||||||||
Selling, General, and Administrative Costs |
32 | 13 | 19 | |||||||||
Depreciation, Depletion and Amortization |
5 | 9 | (4) | |||||||||
Freight Expense |
30 | 25 | 5 | |||||||||
Interest Expense |
|
4
|
|
|
4
|
|
|
|
|
|||
|
|
|
|
|
|
|||||||
Total Other Costs and Expenses |
|
82
|
|
|
76
|
|
|
6
|
|
|||
|
|
|
|
|
|
|||||||
Earnings Before Income Taxes |
$ | 111 | $ | 46 | $ | 65 | ||||||
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|
|
|
|
|
Coal Sales . PAMC coal sales were $620 million for the six months ended June 30, 2017, compared to $477 million for the six months ended June 30, 2016. The $143 million increase was attributable to a 2.1 million
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increase in tons sold and a $4.07 per ton higher average sales price. The increase in tons sold was primarily due to increased demand, in part due to higher natural gas prices. The higher average sales price per ton sold in the 2017 period was primarily the result of a tighter supply-demand balance in the international thermal and crossover metallurgical coal markets that the PAMC complex serves. The API2 index (the benchmark price reference for coal imported into northwest Europe) was up more than 60% versus the year-ago period, and global coking coal prices were up by an even greater percentage in the period-to-period comparison.
Freight Revenue and Freight Expense . Freight revenue is the amount billed to customers for transportation costs incurred. This revenue is based on the weight of coal shipped, negotiated freight rates and method of transportation, primarily rail, used by the customers to which the Company contractually provides transportation services. Freight revenue is completely offset in freight expense. Freight revenue and freight expense were both $30 million for the six months ended June 30, 2017, compared to $25 million for the six months ended June 30, 2016. The $5 million increase was due to increased shipments where transportation services were contractually provided.
Gain on Sales of Assets . Gain on sale of assets increased $6 million in the period-to-period comparison, primarily due to the sale of certain coal rights during the six months ended June 30, 2017.
Operating Costs and Expenses . Operating costs and expenses are comprised of costs related to produced tons sold, along with changes in both the volumes and carrying values of coal inventory. Operating costs and expenses include items such as direct operating costs, royalty and production taxes, employee-related expenses and depreciation, depletion, and amortization costs. Total operating costs and expenses for the PAMC division were $469 million for the six months ended June 30, 2017, or $82 million higher than the $387 million for the six months ended June 30, 2016. Total costs per PAMC ton sold were $34.65 per ton for the six months ended June 30, 2017, compared to $33.86 per ton for the six months ended June 30, 2016. The increase in the cost of coal sold was driven by an increase in production-related costs as more coal was mined to meet market demand, as well as an increase in mine development activity. Productivity for the six months ended June 30, 2017, as measured by tons per employee-hour, improved by 6% compared to the year earlier period.
Other Costs . Other costs, which include costs such as coal reserve holding costs and purchased coal costs, decreased $14 million in the six months ended June 30, 2017 compared to the six months ended June 30, 2016. The decrease was primarily attributable to prior year costs related to: the temporary idling of one longwall at the PAMC complex to optimize the production schedule and discretionary 401(k) contributions; offset by a reduction in litigation expense. This period-over-period decrease was partially offset by a current period increase in costs related to externally purchased coal for blending purposes only.
Selling, General and Administrative Costs . CNXC entered into a service agreement with CONSOL Energy that required CONSOL Energy, and now CONSOL Mining Corporation, to provide certain selling, general and administrative services. These services are paid monthly based on an agreed upon fixed fee that is reset at least annually. There is also an additional portion of CONSOL Energys selling, general and administrative costs that is allocated to the PAMC division, outside of the service agreement, based on a percentage of total revenue and a percentage of total projected capital expenditures. The amount of selling, general and administrative costs related to the PAMC division was $32 million for the six months ended June 30, 2017, compared to $13 million for the six months ended June 30, 2016. The $19 million increase in the period-to-period comparison is primarily due to an increase in incentive compensation, stock based compensation and other allocated and non-allocated charges, none of which were individually material.
Interest Expense . Interest expense, net of amounts capitalized, of $4 million for the six months ended June 30, 2017 and 2016, is primarily comprised of interest on the CNXC revolving credit facility.
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PAMC coal revenue and cost components on a per unit basis for these periods were as follows:
For the Six Months Ended June 30, | ||||||||||||||||
2017 | 2016 | Variance |
Percent
Change |
|||||||||||||
Tons Sold (in millions) |
13.5 | 11.4 | 2.1 | 18.4% | ||||||||||||
Average Sales Price Per Ton Sold |
$ | 45.77 | $ | 41.70 | $ | 4.07 | 9.8% | |||||||||
Total Operating Costs Per Ton Sold |
$ | 28.91 | $ | 27.39 | $ | 1.52 | 5.5% | |||||||||
Total Depreciation, Depletion and Amortization Costs Per Ton Sold |
5.74 | 6.47 | (0.73 | ) | (11.3)% | |||||||||||
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|
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|
|
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Total Costs Per Ton Sold |
$ | 34.65 | $ | 33.86 | $ | 0.79 | 2.3% | |||||||||
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|
|
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Average Margin Per Ton Sold |
$ | 11.12 | $ | 7.84 | $ | 3.28 | 41.8% | |||||||||
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|
|
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The increase in overall tons sold was primarily due to increased demand, in part due to higher natural gas prices. The higher average sales price per ton sold in the 2017 period was primarily the result of a tighter supply-demand balance in the international thermal and crossover metallurgical coal markets that the PAMC complex serves. The PAMC division priced 3.9 million tons on the export market for the six months ended June 30, 2017, compared to 3.6 million tons for the six months ended June 30, 2016. All other tons were sold on the domestic market. Changes in the total costs per ton sold were primarily driven by an increase in production-related costs as more coal was mined to meet market demand, as well as an increase in mine development activity.
OTHER ANALYSIS
Other includes expenses from various corporate and diversified business activities that are not allocated to the PAMC division. The diversified business activities include coal terminal operations, closed and idle mine activities, selling, general and administrative activities, as well as various other non-operated activities, none of which are individually significant to the Company.
Other business activities had earnings before income tax of $7 million for the six months ended June 30, 2017, compared to a loss before income tax of $23 million for the six months ended June 30, 2016. Variances are discussed below.
For the Six Months Ended June 30, | ||||||||||||||||
(in millions) | 2017 | 2016 | Variance |
Percent Change |
||||||||||||
|
||||||||||||||||
Other Outside Sales |
$ | 28 | $ | 16 | $ | 12 | 75.0% | |||||||||
Miscellaneous Other Income |
27 | 28 | (1) | (3.6)% | ||||||||||||
Gain on Sale of Assets |
7 | 4 | 3 | 75.0% | ||||||||||||
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|
|
|
|||||||||||
Total Revenue |
62 | 48 | 14 | 29.2% | ||||||||||||
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|
|||||||||||
Operating and Other Costs |
52 | 69 | (17) | (24.6)% | ||||||||||||
Selling, General, and Administrative Costs |
5 | 5 | | % | ||||||||||||
Depreciation, Depletion and Amortization |
(6) | (5) | (1) | 20.0% | ||||||||||||
Interest Expense |
4 | 2 | 2 | 100.0% | ||||||||||||
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|
|
|
|
|
|||||||||||
Total Costs and Expenses |
55 | 71 | (16) | (22.5)% | ||||||||||||
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|
|
|
|
|
|||||||||||
Earnings/(Loss) Before Income Tax |
7 | (23) | 30 | (130.4)% | ||||||||||||
Income Tax Expense |
19 | | 19 | % | ||||||||||||
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|
|
|
|
|
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Net Loss |
$ | (12) | $ | (23) | $ | 11 | (47.8)% | |||||||||
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|
|
|
|
|
Other Outside Sales. Other outside sales consists of sales from CNX Marine Terminal which is located on 200 acres in the port of Baltimore, Maryland and provides access to international coal markets. CNX Marine
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Terminal sales were $28 million for the six months ended June 30, 2017, compared to $16 million for the six months ended June 30, 2016. The $12 million increase in the period-to-period comparison was primarily due to an increase in both the tons processed at the terminal and the rates charged to process those tons.
Miscellaneous Other Income . Miscellaneous other income decreased $1 million in the period-to-period comparison due to the following items:
For the Six Months Ended June 30, | ||||||||||||
(in millions) | 2017 | 2016 | Variance | |||||||||
Royalty Income |
$ | 12 | $ | 4 | $ | 8 | ||||||
Rental Income |
11 | 18 | (7) | |||||||||
Right of Way |
1 | 6 | (5) | |||||||||
Other Income |
3 | | 3 | |||||||||
|
|
|
|
|
|
|||||||
Total Miscellaneous Other Income |
$ | 27 | $ | 28 | $ | (1) | ||||||
|
|
|
|
|
|
Operating and Other Costs . Operating and Other Costs were $52 million for the six months ended June 30, 2017, compared to $69 million for the six months ended June 30, 2016. Operating and Other Costs decreased in the period-to-period comparison due to the following items:
For the Six Months Ended June 30, | ||||||||||||
(in millions) | 2017 | 2016 | Variance | |||||||||
CNX Marine Terminal |
$ | 9 | $ | 8 | $ | 1 | ||||||
Lease Rental Expense |
11 | 15 | (4) | |||||||||
Workers Compensation |
2 | 3 | (1) | |||||||||
UMWA Expenses |
4 | 4 | | |||||||||
UMWA OPEB Expense |
22 | 22 | | |||||||||
Coal Reserve Holding Costs |
3 | 4 | (1) | |||||||||
Closed and Idle Mines |
4 | 5 | (1) | |||||||||
Pension |
(4) | 7 | (11) | |||||||||
Other |
1 | 1 | | |||||||||
|
|
|
|
|
|
|||||||
Operating and Other Cost |
$ | 52 | $ | 69 | $ | (17) | ||||||
|
|
|
|
|
|
Selling, General and Administrative Costs . Selling General and Administrative costs are costs allocated to CONSOL Mining Corporation from CONSOL Energy Inc. for shared services and remained consistent in the period-to-period comparison.
Depreciation, Depletion, and Amortization. Depreciation, Depletion, and Amortization benefit of $6 million for each of the six months ended June 30, 2017 and 2016 was primarily due to reductions of $19 million and $21 million, respectively, related to changes in CONSOL Mining Corporations Asset Retirement Obligation at several closed mine locations.
Interest Expense . Interest expense, net of amounts capitalized, of $4 million for the six months ended June 30, 2017 and $2 million for the six months ended June 30, 2016, is primarily comprised of interest on the MEDCO Revenue Bonds.
Income Taxes . The effective income tax rate when excluding noncontrolling interest was 17.6% for the six months ended June 30, 2017, compared to (1.0)% for the six months ended June 30, 2016. The effective rates for the years ended June 30, 2017 and 2016 were calculated using the annual effective rate projections on recurring
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earnings and include tax liabilities related to certain discrete transactions. The fluctuation in the effective rate is primarily attributable to the impact of percentage of depletion on the respective periods pre-tax income.
For the Six Months Ended June 30, | ||||||||||||||||
(in millions) | 2017 | 2016 | Variance |
Percent
Change |
||||||||||||
Total Company Earnings Before Income Tax Excluding Noncontrolling Interest |
$ | 108 | $ | 20 | $ | 88 | 440.0% | |||||||||
Income Tax Expense |
$ | 19 | $ | | $ | 19 | 100.0% | |||||||||
Effective Income Tax Rate |
17.6% | (1.0)% | 18.6% |
Year ended December 31, 2016 compared to the year ended December 31, 2015 :
Net Income Attributable to CoalCo Shareholder
CoalCo had net income attributable to CoalCo shareholder of $41 million for the year ended December 31, 2016, compared to net income attributable to CoalCo shareholder of $307 million for the year ended December 31, 2015.
CoalCo primarily consists of the Pennsylvania Mining Operations Complex (PAMC), as well as various corporate and other business activities that are not allocated to PAMC. The other business activities include CNX Marine Terminal operations, closed and idle mine activities, selling, general and administrative activities, income taxes, as well as various other non-operated activities.
PAMC ANALYSIS
The principal activities of the PAMC division are mining, preparation and marketing of thermal coal, sold primarily to power generators. It also includes selling, general and administrative activities, as well as various other activities assigned to the PAMC division.
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PAMC had earnings before income tax of $131 million for the year ended December 31, 2016, compared to earnings before income tax of $405 million for the year ended December 31, 2015. Variances are discussed below.
For the Year Ended December 31, | ||||||||||||
2016 | 2015 | Difference | ||||||||||
Coal Sales |
$ | 1,066 | $ | 1,289 | $ | (223) | ||||||
Freight Revenue |
46 | 20 | 26 | |||||||||
Miscellaneous Other Income |
13 | 4 | 9 | |||||||||
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|
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|
|
|
|
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Total Revenue and Other Income |
1,125 | 1,313 | (188) | |||||||||
Operating Costs and Expenses: |
||||||||||||
Operating Costs |
691 | 789 | (98) | |||||||||
Depreciation, Depletion and Amortization |
154 | 167 | (13) | |||||||||
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|
|
|
|
|
|
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Total Operating Costs and Expenses |
845 | 956 | (111) | |||||||||
Other Costs and Expenses: |
||||||||||||
Other Costs |
42 | (122) | 164 | |||||||||
Selling, General, and Administrative Costs |
38 | 41 | (3) | |||||||||
Depreciation, Depletion and Amortization |
14 | 10 | 4 | |||||||||
Freight Expense |
46 | 20 | 26 | |||||||||
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|
|
|
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|
|
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Earnings Before Income Taxes |
140 | 408 | (268) | |||||||||
Interest Expense |
9 | 3 | 6 | |||||||||
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|
|
|
|
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Net Income |
$ | 131 | $ | 405 | $ | (274) | ||||||
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Coal Sales. PAMC coal sales were $1,066 million for the year ended December 31, 2016, compared to $1,289 million for the year ended December 31, 2015. The $223 million decrease was attributable to a $13.05 per ton lower average sales price, offset by a 1.7 million increase in tons sold. The lower average sales price per PAMC ton sold was primarily the result of the continued decline in both the domestic and global thermal coal markets, particularly in the first half of 2016. The decline was related to higher customer inventories and lower gas prices after persistently mild 2015 weather. The increase in overall tons sold reflects the improvement in both domestic and international coal demand throughout the second half of 2016.
Freight Revenue and Freight Expense . Freight revenue is the amount billed to customers for transportation costs incurred. This revenue is based on the weight of coal shipped, negotiated freight rates and method of transportation, primarily rail, used by the customers to which the Company contractually provides transportation services. Freight revenue is completely offset in freight expense. Freight revenue and freight expense were both $46 million for the year ended December 31, 2016, compared to $20 million for the year ended December 31, 2015. The $26 million increase was due to increased shipments where transportation services were contractually provided.
Miscellaneous Other Income . Miscellaneous other income was $13 million for the year ended December 31, 2016, compared to $4 million for the year ended December 31, 2015. Approximately $6 million of the increase was the result of a partial coal contract buyout in the current period. The remaining $3 million increase was the result of various transactions that occurred during both periods, none of which were individually material.
Operating Costs and Expenses . Operating costs and expenses are comprised of costs related to produced tons sold, along with changes in both the volumes and carrying values of coal inventory. Operating costs and expenses include items such as direct operating costs, royalty and production taxes, employee-related expenses and depreciation, depletion, and amortization costs. Total operating costs and expenses for the PAMC division were $845 million for the year ended December 31, 2016, or $111 million lower than the $956 million for the year
78
ended December 31, 2015. Total costs per PAMC ton sold were $34.35 per ton in the year ended December 31, 2016, compared to $41.78 per ton in the year ended December 31, 2015. The decrease in the cost of coal sold was driven by the idling of one longwall at the PAMC complex for approximately 90 days, a reduction of staffing levels, vendor concessions and a realignment of employee benefits. All of the above steps resulted in more consistent operating schedules, reduced labor costs and improved productivity. Productivity for the year ended December 31, 2016, as measured by tons per employee hour, improved by 17% compared to the year earlier period, despite the reduced number of longwalls in operation.
Other Costs . Other costs include items that are assigned to the PAMC division but are not included in unit costs. Other costs and expenses increased $164 million in the year ended December 31, 2016 compared to the year ended December 31, 2015. The increase was due to the following:
For the Years Ended December 31, | ||||||||||||
2016 | 2015 | Variance | ||||||||||
OPEB Plan Changes |
$ | | $ | (129) | $ | 129 | ||||||
Idle Mine Costs |
19 | | 19 | |||||||||
Purchased Coal Costs |
6 | | 6 | |||||||||
Litigation Expense |
4 | | 4 | |||||||||
Severance Expense |
1 | | 1 | |||||||||
Coal Reserve Holding Costs |
4 | 5 | (1) | |||||||||
Other |
8 | 2 | 6 | |||||||||
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|
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|
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|
||||
Other Costs |
$ | 42 | $ | (122 | ) | $ | 164 | |||||
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|
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Income of $129 million related to OPEB plan changes made in May 2015 for retired employees. No such transactions occurred during the year ended December 31, 2016. |
|
Idle Mine Costs increased $19 million, due to the temporary idling of one longwall at the PAMC complex for approximately 90 days in the first half of 2016 to optimize operating schedules. |
|
Purchased Coal Costs increased $6 million due to higher volumes of coal that needed to be purchased to fulfill various contracts. |
|
Litigation expense relates to approximately $3 million of costs which were incurred during the year ended December 31, 2016 related to the proposed consent decree with respect to the Bailey mine complex. See Note 11Commitments and Contingent Liabilities of the Notes to the Audited Consolidated Financial Statements for additional information. The remaining change was the result of various transactions that occurred, none of which were individually material. |
|
Severance Expense of $1 million was incurred during the year ended December 31, 2016 in connection with the Companys ongoing cost reduction efforts. No such transactions occurred in the prior period. |
|
Other increased $6 million in the period-to-period comparison primarily due to a 401(k) discretionary contribution in the current period. |
Selling, General and Administrative Costs . Upon execution of the CNXC IPO, CNXC entered into a service agreement with ParentCo that required ParentCo to provide certain selling, general and administrative services. These services are paid monthly based on an agreed-upon fixed fee that is reset at least annually. See Note 3Related Party Transactions of the Notes to the Audited Combined Financial Statements in this information statement for additional information. The amount of selling, general and administrative costs related to PAMC operations was $38 million for the year ended December 31, 2016, compared to $41 million for the year ended December 31, 2015.
Interest Expense . Interest expense, net of amounts capitalized, of $9 million and $3 million for the years ended December 31, 2016 and 2015, respectively, is primarily comprised of interest on the CNXC revolving credit facility that was drawn upon after the CNXC IPO on July 7, 2015.
79
PAMC coal revenue and cost components on a per unit basis for these periods were as follows:
For the Year Ended December 31, | ||||||||||||||||
2016 | 2015 | Variance |
Percent
Change |
|||||||||||||
Tons Sold (in millions) |
24.6 | 22.9 | 1.7 | 7.4% | ||||||||||||
Average Sales Price Per Ton Sold |
$ | 43.31 | $ | 56.36 | $ | (13.05) | (23.2%) | |||||||||
Total Operating Costs Per Ton Sold |
$ | 28.09 | $ | 34.47 | $ | (6.38) | (18.5%) | |||||||||
Total Depreciation, Depletion and Amortization Costs Per Ton Sold |
6.26 | 7.31 | (1.05) | (14.4%) | ||||||||||||
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|||||||||||
Total Costs Per Ton Sold |
$ | 34.35 | $ | 41.78 | $ | (7.43) | (17.8%) | |||||||||
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|
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Average Margin Per Ton Sold |
$ | 8.96 | $ | 14.58 | $ | (5.62) | (38.5%) | |||||||||
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The lower average sales price per ton sold in the 2016 period was primarily the result of the overall decline in the domestic and global thermal coal markets, particularly in the first half of 2016. This decline was primarily related to higher customer inventories and lower gas prices after persistently mild 2015 weather. This was off-set by an increase in overall tons sold reflecting the improvement in both domestic and international coal demand throughout the second half of 2016.
The PAMC operations priced 5.4 million tons on the export market for the year ended December 31, 2016, compared to 5.5 million tons for the year ended December 31, 2015. All other tons were sold on the domestic market. Changes in the average cost of goods sold per ton were primarily driven by the idling of one longwall at the PAMC complex for approximately 90 days, a reduction of staffing levels and a realignment of employee benefits in the current year. All of the above steps resulted in more consistent operating schedules, reduced labor costs, and improved productivity.
OTHER ANALYSIS
Other includes expenses from various corporate and diversified business activities that are not allocated to PAMC division. The diversified business activities include coal terminal operations, closed and idle mine activities, selling, general and administrative activities, as well as various other non-operated activities, none of which are individually significant to the Company.
80
Other business activities had a loss before income tax of $67 million for the year ended December 31, 2016, compared to earnings before income tax of $38 million for the year ended December 31, 2015. Variances are discussed below.
For the Year Ended December 31, | ||||||||||||||||
(in millions) | 2016 | 2015 | Variance |
Percent
Change |
||||||||||||
Other Outside Sales |
$ | 31 | $ | 31 | $ | | % | |||||||||
Miscellaneous Other Income |
69 | 65 | 4 | 6.2% | ||||||||||||
Gain on Sale of Assets |
5 | 13 | (8) | (61.5)% | ||||||||||||
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|
|
||||||||||
Total Revenue |
105 | 109 | (4) | (3.7)% | ||||||||||||
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|
|
||||||||||
Operating and Other Costs |
144 | 33 | 111 | 336.4% | ||||||||||||
Selling, General, and Administrative Costs |
13 | 15 | (2) | (13.3)% | ||||||||||||
Depreciation, Depletion and Amortization |
10 | 18 | (8) | (44.4)% | ||||||||||||
Interest Expense |
5 | 5 | | % | ||||||||||||
|
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|
|
|
|
|
||||||||||
Total Costs and Expenses |
172 | 71 | 101 | 142.3% | ||||||||||||
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|
|
|
||||||||||
Loss Before Income Tax |
(67) | 38 | (105) | (276.3)% | ||||||||||||
Income Tax Expense |
14 | 126 | (112) | (88.9)% | ||||||||||||
|
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|
|
|
||||||||||
Net Loss |
$ | (81) | $ | (88) | $ | 7 | (8.0)% | |||||||||
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|
|
Other Outside Sales. Other outside sales consists of sales from CNX Marine Terminal which is located on 200 acres in the Port of Baltimore and provides access to international coal markets. CNX Marine Terminal sales were $31 million for the years ended December 31, 2016 and 2015, respectively.
Miscellaneous Other Income. Miscellaneous other income was $69 million for the year ended December 31, 2016, compared to $65 million for the year ended December 31, 2015. The change is due to the following items:
For the Year Ended December 31, | ||||||||||||
(in millions) | 2016 | 2015 | Variance | |||||||||
Purchased Coal Sales |
$ | | $ | 2 | $ | (2) | ||||||
Rental Income |
35 | 37 | (2) | |||||||||
Royalty Income |
20 | 15 | 5 | |||||||||
Right of Way Sales |
11 | 8 | 3 | |||||||||
Other Income |
3 | 3 | -- | |||||||||
|
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|
||||
Total Miscellaneous Other Income |
$ | 69 | $ | 65 | $ | 4 | ||||||
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|
|
|
81
Operating and Other Costs . Operating and Other Costs increased $111 million in the year ended December 31, 2016 compared to the year ended December 31, 2015. The increase was due to the following:
For the Year Ended December 31, | ||||||||||||
(in millions) | 2016 | 2015 | Variance | |||||||||
OPEB Plan Changes |
$ | | $ | (125) | $ | 125 | ||||||
Coal Reserve Holding Costs |
19 | 8 | 11 | |||||||||
Pension Settlement |
22 | 19 | 3 | |||||||||
Closed and Idle Mines |
9 | 9 | | |||||||||
Purchased Coal |
| 1 | (1) | |||||||||
UMWA Expenses |
9 | 10 | (1) | |||||||||
Workers Compensation |
6 | 7 | (1) | |||||||||
Lease Rental Expense |
30 | 31 | (1) | |||||||||
CNX Marine Terminals |
18 | 20 |
|
(2)
|
|
|||||||
UMWA OPEB Expense |
43 | 47 | (4) | |||||||||
Pension Expense |
(14) | 6 | (20) | |||||||||
Other |
2 | | 2 | |||||||||
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|
|
|
|||||
Operating and Other Costs |
$ | 144 | $ | 33 | $ | 111 | ||||||
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|
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Income of $125 million was the result of modifications made to the OPEB plan in May 2015 for retired employees. No such transactions occurred in the current period. See Note 8Pension and Other Postretirement Benefits Plans in the Notes to Combined Financial Statements for additional information. |
|
Coal Reserve Holding Costs increased $11 million in the period-to-period comparison, primarily as a result of the surrender of various leases in the current period. |
|
Pension Settlement expense is required when lump sum distributions made for a given plan year exceed the total of the service and interest costs for that same plan year. Settlement accounting was triggered in both periods. |
|
Purchased Coal decreased $1 million due to lower volumes of coal that needed to be purchased to fulfill various contracts. |
|
Lease Rental Expense decreased $1 million primarily due to the buyout of certain leased equipment in the current period. |
|
CNX Marine Terminals decreased $2 million due to a reduction in labor costs. |
|
UMWA OPEB Expense decreased $4 million primarily due to a decrease in interest costs. |
|
Pension Expense decreased $20 million in the period-to-period comparison due to a decrease in actuarially-calculated amortization related to modifications made to the pension plan in May 2015. |
Selling, General and Administrative Costs . Selling General and Administrative costs are costs allocated to CoalCo from CONSOL Energy Inc. for shared services. The decrease in costs in the period-to-period comparison is due to a decrease in the amounts allocated by CONSOL Energy.
Interest Expense . Interest expense, net of amounts capitalized, of $5 million for the year ended December 31, 2016 and 2015, is primarily comprised of bond interest related to CNX Marine Terminals.
Income Taxes . The effective income tax rate when excluding noncontrolling interest was 26.0% for the year ended December 31, 2016, compared to 29.0% for the year ended December 31, 2015. The effective rates for the years ended December 31, 2016 and 2015 were calculated using the annual effective rate projections on recurring earnings and include tax liabilities related to certain discrete transactions. The fluctuation in the effective tax rates is primarily attributable to the impact of percentage depletion on the respective periods pre-tax income. Our effective tax rate for 2016 was also impacted by a settlement of prior IRS and state tax examinations. As part
82
of our IRS examination of the 2010-2013 tax years, the Company was able to claim bonus depreciation deduction, resulting in a net cash refund of $58 million. The bonus depreciation adversely impacted earnings by reducing the Companys percentage depletion adjustment on our mining operations and reducing our Section 199 manufacturing deductions in the years 2010-2013. This resulted in a net charge to earnings of $14 million.
For the Year Ended December 31, | ||||||||||||||||
(in millions) | 2016 | 2015 | Variance |
Percent
Change |
||||||||||||
Total Company Earnings Before Income Tax Excluding Noncontrolling Interest |
$ | 56 | $ | 433 | $ | (377) | (87.1)% | |||||||||
Income Tax Expense |
$ | 14 | $ | 126 | $ | (111) | (88.1)% | |||||||||
Effective Income Tax Rate |
26.0 | % | 29.0 | % | (3.0) | % |
Year ended December 31, 2015 compared to the year ended December 31, 2014:
Net Income Attributable to CoalCo Shareholder
CoalCo had net income attributable to CoalCo shareholder of $307 million, for the year ended December 31, 2015, compared to net income attributable to CoalCo shareholder of $291 million, for the year ended December 31, 2014.
CoalCo primarily consists of the PAMC, as well as various corporate and other business activities that are not allocated to PAMC. The other business activities include CNX Marine Terminal operations, closed and idle mine activities, selling, general and administrative activities, income taxes, as well as various other non-operated activities.
PAMC ANALYSIS
The principal activities of the PAMC division are mining, preparation and marketing of thermal coal, sold primarily to power generators. It also includes selling, general and administrative activities, as well as various other activities assigned to the PAMC division.
83
PAMC had earnings before income tax of $405 million for the year ended December 31, 2015, compared to earnings before income tax of $431 million for the year ended December 31, 2014. Variances are discussed below.
For the Year Ended December 31, | ||||||||||||
2015 | 2014 | Difference | ||||||||||
Coal Sales |
$ | 1,289 | $ | 1,617 | $ | (328 | ) | |||||
Freight Revenue |
20 | 23 | (3 | ) | ||||||||
Miscellaneous Other Income |
4 | 38 | (34 | ) | ||||||||
Gain (Loss) on Sale of Assets |
| 1 | (1 | ) | ||||||||
|
|
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|
|
|
|
|
|
||||
Total Revenue and Other Income |
1,313 | 1,679 | (366 | ) | ||||||||
Operating Costs and Expenses: |
||||||||||||
Operating Costs |
789 | 975 | (186 | ) | ||||||||
Depreciation, Depletion and Amortization |
167 | 165 | 2 | |||||||||
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|
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|
|
|
|
||||
Total Operating Costs and Expenses |
956 | 1,140 | (184 | ) | ||||||||
Other Costs and Expenses: |
||||||||||||
Other Costs |
(122 | ) | 8 | (130 | ) | |||||||
Selling, General, and Administrative Costs |
41 | 69 | (28 | ) | ||||||||
Depreciation, Depletion and Amortization |
10 | 8 | 2 | |||||||||
Freight Expense |
20 | 23 | (3 | ) | ||||||||
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||||
Earnings Before Income Taxes |
408 | 431 | (23 | ) | ||||||||
Interest Expense |
3 | | 3 | |||||||||
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|
||||
Net Income |
$ | 405 | $ | 431 | $ | (26 | ) | |||||
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|
|
Coal Sales . PAMC coal sales were $1,289 million for the year ended December 31, 2015, compared to $1,617 million for the year ended December 31, 2014. The $328 million decrease was attributable to a 3.2 million decrease in company produced tons sold and a $5.52 lower average sales price per ton sold. The lower tons sold and average sales price per PAMC operations ton sold were primarily the result of the continued decline in both the domestic and global thermal coal markets. Due to the weak domestic thermal spot market, 5.5 million tons were sold on the export market for the year ended December 31, 2015, compared to 3.3 million tons for the year ended December 31, 2014.
Freight Revenue and Freight Expense . Freight revenue is the amount billed to customers for transportation costs incurred. This revenue is based on the weight of coal shipped, negotiated freight rates and method of transportation, primarily rail, used by the customers to which the Company contractually provides transportation services. Freight revenue is completely offset in freight expense. Freight revenue and freight expense were both $20 million for the year ended December 31, 2015, compared to $23 million for the year ended December 31, 2014. The $3 million decrease was due to decreased shipments where transportation services were contractually provided.
Miscellaneous Other Income . Miscellaneous other income was $4 million for the year ended December 31, 2015, compared to $38 million for the year ended December 31, 2014. Approximately $30 million of the decrease related to a coal customer contract buyout in the prior period. The remaining $4 million decrease was the result of various transactions that occurred during both periods, none of which were individually material.
Operating Costs and Expenses . Operating costs and expenses are comprised of costs related to produced tons sold, along with changes in both the volumes and carrying values of coal inventory. Operating costs and expenses include items such as direct operating costs, royalty and production taxes, employee-related expenses and depreciation, depletion, and amortization costs. Total operating costs and expenses for the PAMC division were
84
$956 million for the year ended December 31, 2015, or $184 million lower than the $1,140 million for the year ended December 31, 2014. Total costs per PAMC operations ton sold were $41.78 per ton in the year ended December 31, 2015, compared to $43.63 per ton in the year ended December 31, 2014. The decrease in the cost of coal sold was driven by improved operational efficiencies, better geological conditions, a reduced workforce, a decrease in stream subsidence expense and other ongoing cost reduction efforts. In order to preserve margins, the PAMC moved to a four-day work week in May 2015, compared to a normal five-day per week schedule. The decrease in unit costs was primarily the result of a change in allocation methodology, whereby OPEB plan changes are no longer included in unit costs.
Other Costs. Other costs include items that are assigned to the PAMC division but are not included in unit costs, such as OPEB plan changes, coal reserve holding costs and purchased coal costs. Total other costs and expenses decreased $130 million in the year ended December 31, 2015 compared to the year ended December 31, 2014. The decrease was primarily due to income of $129 million related to OPEB plan changes made in May 2015 for retired employees. No such transactions occurred during the year ended December 31, 2014.
Selling, General and Administrative Costs . Upon execution of the CNXC IPO, CNXC entered into a service agreement with ParentCo that required ParentCo to provide certain selling, general and administrative services. These services are paid monthly based on an agreed-upon fixed fee that is reset at least annually.
Interest Expense . Interest expense, net of amounts capitalized, of $3 million for the year ended December 31, 2015 is primarily comprised of interest on the CNXC revolving credit facility that was drawn upon after the CNXC IPO on July 7, 2015.
Sales tons, average sales price and average cost of goods sold per ton for the PAMC operations were as follows:
For the Year Ended December 31, | ||||||||||||||||
2015 | 2014 | Variance |
Percent
Change |
|||||||||||||
Tons Sold (in millions) |
22.9 | 26.1 | (3.2 | ) | (12.3%) | |||||||||||
Average Sales Price Per Ton Sold |
$ | 56.36 | $ | 61.88 | $ | (5.52 | ) | (8.9%) | ||||||||
Total Operating Costs Per Ton Sold |
$ | 34.47 | $ | 37.29 | $ | (2.82 | ) | (7.6%) | ||||||||
Total Depreciation, Depletion and Amortization Costs Per Ton Sold |
7.31 | 6.34 | 0.97 | 15.3% | ||||||||||||
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|
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|
|
||||||||
Total Costs Per Ton Sold |
$ | 41.78 | $ | 43.63 | $ | (1.85 | ) | (4.2%) | ||||||||
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|
||||||||
Average Margin Per Ton Sold |
$ | 14.58 | $ | 18.25 | $ | (3.67 | ) | (20.1%) | ||||||||
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|
The lower average sales price per ton sold in the 2015 period was primarily the result of the continued decline in both the domestic and global thermal coal markets. Due to the weak domestic thermal spot market, the PAMC priced 5.5 million tons on the export market for the year ended December 31, 2015, compared to 3.3 million tons for the year ended December 31, 2014. All other tons were sold on the domestic market.
Changes in the average cost of goods sold per ton were primarily driven by improved operational efficiencies, better geological conditions, a reduced workforce, a decrease in stream subsidence expense and other ongoing cost reduction efforts. In order to preserve margins, PAMC operations moved to a four-day work week in May 2015, compared to a normal five-day per week schedule. The decrease in unit costs was primarily the result of Pension and OPEB plan modifications for active employees in September 2014.
OTHER ANALYSIS
Other includes expenses from various corporate and diversified business activities that are not allocated to PAMC division. The diversified business activities include coal terminal operations, closed and idle mine activities, selling, general and administrative activities, as well as various other non-operated activities, none of which are individually significant to the Company.
85
Other business activities had earnings before income tax of $38 million for the year ended December 31, 2015, compared to a loss before income tax of $19 million for the year ended December 31, 2014. Variances are discussed below.
For the Year Ended December 31, | ||||||||||||||||
(in millions) | 2015 | 2014 | Variance |
Percent Change |
||||||||||||
Other Outside Sales |
$ | 31 | $ | 41 | $ | (10 | ) | (24.4)% | ||||||||
Miscellaneous Other Income |
65 | 85 | (20 | ) | (23.5)% | |||||||||||
Gain on Sale of Assets |
13 | 26 | (13 | ) | (50.0)% | |||||||||||
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|||||||||
Total Revenue |
109 | 152 | (43 | ) | (28.3)% | |||||||||||
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|||||||||
Operating and Other Costs |
33 | 127 | (94 | ) | (74.0)% | |||||||||||
Selling, General, and Administrative Costs |
15 | 10 | 5 | 50.0% | ||||||||||||
Depreciation, Depletion and Amortization |
18 | 34 | (16 | ) | (47.1)% | |||||||||||
Interest Expense |
5 | | 5 | 100.0% | ||||||||||||
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|
|
|||||||||
Total Costs and Expenses |
71 | 171 | (100 | ) | (58.5)% | |||||||||||
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|
|||||||||
Earnings/(Loss) Before Income Tax |
38 | (19 | ) | 57 | (300.0)% | |||||||||||
Income Tax Expense |
126 | 121 | 5 | 4.1% | ||||||||||||
|
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|
|||||||||
Net Loss |
$ | (88 | ) | $ | (140 | ) | $ | 52 | (37.1)% | |||||||
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Other Outside Sales. Other outside sales consists of sales from CNX Marine Terminal which is located on 200 acres in the port of Baltimore and provides access to international coal markets. CNX Marine Terminal sales were $31 million for the year ended December 31, 2015, compared to $41 million for the year ended December 31, 2014. The $10 million decrease in the period-to-period comparison was primarily due to a decrease in through-put volumes and rates in the current period.
Miscellaneous Other Income. Miscellaneous other income was $65 million for the year ended December 31, 2015, compared to $85 million for the year ended December 31, 2014. The change is due to the following items:
For the Year Ended December 31, | ||||||||||||
(in millions) | 2015 | 2014 | Variance | |||||||||
Purchased Coal Sales |
$ | 2 | $ | 9 | $ | (7) | ||||||
Rental Income |
37 | 44 | (7) | |||||||||
Right of Way Sales |
8 | 7 | 1 | |||||||||
Royalty Income |
15 | 20 | (5) | |||||||||
Other Income |
3 | 5 | (2) | |||||||||
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|
|||||
Total Miscellaneous Other Income |
$ | 65 | $ | 85 | $ | (20) | ||||||
|
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86
Operating and Other Costs . Operating and other costs decreased $94 million in the year ended December 31, 2015 compared to the year ended December 31, 2014. The decrease was due to the following:
For the Year Ended December 31, | ||||||||||||
(in millions) | 2015 | 2014 | Variance | |||||||||
OPEB Plan Changes |
$ | (125) | $ | (36) | $ | (89) | ||||||
Purchased Coal |
1 | 14 | (13) | |||||||||
Closed and Idle Mines |
9 | 20 | (11) | |||||||||
Pension Settlement |
19 | 29 | (10) | |||||||||
CNX Marine Terminals |
20 | 26 | (6) | |||||||||
Coal Reserve Holding Costs |
8 | 11 | (3) | |||||||||
Lease Rental Expense |
31 | 33 | (2) | |||||||||
UMWA Expenses |
10 | 10 | | |||||||||
Workers Compensation |
7 | 4 | 3 | |||||||||
OPEB Expense |
47 | 15 | 32 | |||||||||
Pension Expense |
6 | 1 | 5 | |||||||||
|
|
|
|
|
|
|
||||||
Operating and Other Costs |
$ | 33 | $ | 127 | $ | (94) | ||||||
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|
Income of $125 million was the result of modifications made to the OPEB plan in May 2015 for retired employees. Income of $36 million was the result of changes made to the OPEB plan during the year ended December 31, 2014. See Note 8Pension and Other Postretirement Benefits Plans in the Notes to Combined Financial Statements for additional information. |
|
Purchased Coal costs decreased $13 million due to lower volumes of coal that needed to be purchased to fulfill various contracts. |
|
Closed and Idle Mines decreased $11 million, primarily due to a $7 million decrease in property taxes and a $5 million decrease in permitting and compliance costs. The remaining change was due to various transactions that occurred throughout both periods, none of which were individually material. |
|
Pension Settlement expense is required when lump sum distributions made for a given plan year exceed the total of the service and interest costs for that same plan year. Settlement accounting was triggered in both periods. |
|
CNX Marine Terminals decreased $6 million due to a reduction in labor costs. |
|
Lease Rental Expense decreased $2 million primarily due to the buyout of certain leased equipment in the current period. |
|
Workers Compensation increased $3 million primarily due to a change in the allocation methodology in the current period. |
|
OPEB Expense increased $32 million primarily due to a change in the allocation methodology in 2015. |
|
Pension Expense increased $5 million in the period-to-period comparison primarily due to a change in the allocation methodology in 2015, offset in part, by modifications made to the Pension plan in September 2014. |
Selling, General and Administrative Costs . Selling, General and Administrative costs are costs allocated to CoalCo from ParentCo for shared services. The increase in costs in the period-to-period comparison is due to an increase in the amounts allocated by ParentCo.
Interest Expense . Interest expense, net of amounts capitalized, of $5 million for the year ended December 31, 2015, is primarily comprised of bond interest related to CNX Marine Terminals.
87
Income Taxes . The effective income tax rate when excluding noncontrolling interest was 29.0% for the year ended December 31, 2015, compared to 29.6% for the year ended December 31, 2014. The effective rates for the years ended December 31, 2015 and 2014 were calculated using the annual effective rate projections on recurring earnings and include tax liabilities related to certain discrete transactions.
For the Year Ended December 31, | ||||||||||||||||
(in millions) | 2015 | 2014 | Variance |
Percent
Change |
||||||||||||
Total Company Earnings Before Income Tax Excluding Noncontrolling Interest | $ | 433 | $ | 412 | $ | 21 | 5.1% | |||||||||
Income Tax Expense |
$ | 126 | $ | 121 | $ | 5 | 4.1% | |||||||||
Effective Income Tax Rate |
29.0% | 29.6% | (0.6)% |
Critical Accounting Policies
The preparation of the Combined Financial Statements of CoalCo in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, estimates and assumptions that affect reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities in the Consolidated Financial Statements and at the date of the financial statements. See Note 2 - Significant Accounting Policies in the Notes to the Audited Combined Financial Statements in this information statement for further discussion. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making the judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates on an on-going basis. Actual results could differ from those estimates upon subsequent resolution of identified matters. Management believes that the estimates utilized are reasonable. The following critical accounting policies are materially impacted by judgments, assumptions and estimates used in the preparation of the Consolidated Financial Statements.
Other Post-Employment Benefits (OPEB), Salaried Pensions, Workers Compensation and Coal Workers Pneumoconiosis (CWP) . Liabilities and expenses for OPEB, pension, workers compensation and CWP are determined using actuarial methodologies and incorporate significant assumptions, including the interest rate used to discount the future estimated liability, the expected long-term rate of return on plan assets, and several assumptions relating to the employee workforce (salary increases, health care cost trend rates, retirement age, and mortality).
The interest rate used to discount future estimated liabilities is determined using a Company-specific yield curve model (above-mean) developed with the assistance of an external actuary. The Company-specific yield curve uses a subset of the expanded bond universe to determine the Company-specific discount rate. Bonds used in the yield curve are rated AA by Moodys or Standard & Poors as of the measurement date. The yield curve model parallels the plans projected cash flows.
The assumed rate of return on plan assets can also impact CoalCos pension liability. The market related asset value is derived by taking the cost value of assets as of December 31, 2016 and multiplying it by the average 36-month ratio of the market value of assets to the cost value of assets. CoalCos pension plan weighted average asset allocations at December 31, 2016 consisted of 50% equity securities and 50% debt securities.
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The estimated liabilities recognized at December 31, 2016 and the benefit payments made for the year end December 31, 2016 were as follows (Dollars in Thousands):
Plan |
Estimated Liability as of December 31,
|
Benefit Payments for the year ended
|
||
OPEB |
$700,085 | $45,387 | ||
Pension |
$102,743 | $2,726 | ||
Workers Compensation |
$78,099 | $16,687 | ||
CWP |
$118,836 | $11,409 |
Mine Closure Obligations . The Surface Mining Control and Reclamation Act established operational, reclamation and closure standards for all aspects of surface mining as well as most aspects of deep mining. CoalCo accrues for the costs of current coal mine disturbance and final coal mine and gas well closure, including the cost of treating mine water discharge where necessary. Estimates of our total mine-closing and gas well closing liabilities, which are based upon permit requirements and CoalCo engineering expertise related to these requirements, including the current portion, were approximately $273 million at December 31, 2016. This liability is reviewed annually, or when events and circumstances indicate an adjustment is necessary, by CoalCo management and engineers. The estimated liability can significantly change if actual costs vary from assumptions or if governmental regulations change significantly.
Accounting for Asset Retirement Obligations requires that the fair value of an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The present value of the estimated asset retirement costs is capitalized as part of the carrying amount of the long-lived asset. Asset retirement obligations primarily relate to the closure of mines and gas wells and the reclamation of land upon exhaustion of coal and gas reserves. Changes in the variables used to calculate the liabilities can have a significant effect on the mine closing and gas well closing liabilities. The amounts of assets and liabilities recorded are dependent upon a number of variables, including the estimated future retirement costs, estimated proved reserves, assumptions involving profit margins, inflation rates and the assumed credit-adjusted risk-free interest rate.
Accounting for Asset Retirement Obligations also requires depreciation of the capitalized asset retirement cost and accretion of the asset retirement obligation over time. The depreciation will generally be determined on a units-of-production basis, whereas the accretion to be recognized will escalate over the life of the producing assets, typically as production declines.
Income Taxes . CoalCos operations have historically been included in the income tax filings of CONSOL Energy. The provision for income taxes in the CoalCos combined statement of income is based on a separate return methodology using the asset and liability approach of accounting for income taxes. Deferred tax assets and liabilities are recognized using enacted tax rates for the estimated future tax effects of temporary differences between the book and tax basis of recorded assets and liabilities. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion of the deferred tax asset will not be realized. All available evidence, both positive and negative, must be considered in determining the need for a valuation allowance.
CoalCo evaluates all tax positions taken on the state and federal tax filings to determine if the position is more likely than not to be sustained upon examination. For positions that meet the more likely than not to be sustained criteria, an evaluation to determine the largest amount of benefit, determined on a cumulative probability basis that is more likely than not to be realized upon ultimate settlement is determined. A previously recognized tax position is reversed when it is subsequently determined that a tax position no longer meets the more likely than not threshold to be sustained. The evaluation of the sustainability of a tax position and the probable amount that is more likely than not is based on judgment, historical experience and on various other assumptions that we believe are reasonable under the circumstances. The results of these estimates, that are not readily apparent from
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other sources, form the basis for recognizing an uncertain tax liability. Actual results could differ from those estimates upon subsequent resolution of identified matters.
Stock-Based Compensation . As of December 31, 2016, ParentCo has issued four types of share-based payment awards in which CoalCo employees may participate: options, restricted stock units, performance stock options, and performance share units.
The fair value of each restricted stock unit awarded is equivalent to the closing market price of a share of the ParentCos stock on the date of the grant. The fair value of each performance share unit is determined by a Monte Carlo simulation method. The fair value of each option is determined using the Black-Scholes option pricing model. All outstanding performance stock options are fully vested.
Contingencies . CoalCo is currently involved in certain legal proceedings. We have accrued our estimate of the probable costs for the resolution of these claims. This estimate has been developed in consultation with legal counsel involved in the defense of these matters and is based upon the nature of the lawsuit, progress of the case in court, view of legal counsel, prior experience in similar matters, and managements intended response. Future results of operations for any particular quarter or annual period could be materially affected by changes in our assumptions or the outcome of these proceedings. Legal fees associated with defending these various lawsuits and claims are expensed when incurred. See Note 11Commitments and Contingencies in the Notes to the Audited Combined Financial Statements in this information statement for more information.
Coal Reserves . There are numerous uncertainties inherent in estimating quantities and values of economically recoverable coal reserves, including many factors beyond our control. As a result, estimates of economically recoverable coal reserves are by their nature uncertain. Information about our reserves consists of estimates based on engineering, economic and geological data assembled and analyzed by our staff. Our coal reserves are periodically reviewed by an independent third party consultant. Some of the factors and assumptions which impact economically recoverable reserve estimates include:
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geological conditions; |
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historical production from the area compared with production from other producing areas; |
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the assumed effects of regulations and taxes by governmental agencies; |
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assumptions governing future prices; and |
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future operating costs. |
Each of these factors may in fact vary considerably from the assumptions used in estimating reserves. For these reasons, estimates of the economically recoverable quantities of gas and coal attributable to a particular group of properties, and classifications of these reserves based on risk of recovery and estimates of future net cash flows, may vary substantially. Actual production, revenues and expenditures with respect to our reserves will likely vary from estimates, and these variances may be material. See Risk Factors for a discussion of the uncertainties in estimating our reserves.
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 is then reduced to its estimated fair value which is usually measured based on an estimate of future discounted cash flows. There were no impairment losses recognized during the years ended December 31, 2016, 2015 and 2014.
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Liquidity and Capital Resources
Historically, ParentCo has provided capital, cash management and other treasury services to CoalCo. ParentCo will continue to provide these services to CoalCo until the separation is consummated. Only cash amounts specifically attributable to CoalCo are reflected in the Combined Financial Statements of CoalCo. Transfers of cash, both to and from ParentCos centralized cash management system, are reflected as a component of Net Change in Parent Advancement in the Combined Financial Statements of CoalCo.
CoalCos primary future cash needs will be centered on operating activities, including working capital, as well as recurring and strategic capital expenditures. Following the separation, CoalCos capital structure and sources of liquidity will change significantly from its historical capital structure. CoalCo will no longer participate in capital management with ParentCo, rather CoalCos ability to fund its cash needs will depend on its ongoing ability to generate and raise cash in the future. Although we believe that our future cash from operations, together with our access to capital markets, will provide adequate resources to fund our operating and investing needs, our access to, and the availability of, financing on acceptable terms in the future will be affected by many factors, including: (i) our credit rating; (ii) the liquidity of the overall capital markets; and (iii) the current state of the economy and economic conditions in the coal industries, and other financial and business factors, some of which are beyond CoalCos control. There can be no assurances that we will continue to have access to capital markets on terms acceptable to us. See Risk Factors for a further discussion.
Cash Flows (in millions)
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For the Six Months Ended June 30, | ||||||||||||
2017 | 2016 | Change | ||||||||||
Cash Provided by Operating Activities |
$ | 104 | $ | 95 | $ | 9 | ||||||
Cash Used in Investing Activities |
$ | (6) | $ | (23) | $ | 17 | ||||||
Cash Used in Financing Activities |
$ | (104) | $ | (70) | $ | (34) |
Cash provided by operating activities increased $9 million in the six months ended June 30, 2017 compared to six months ended June 30, 2016 primarily due to a $76 million increase in net income, offset by changes in various operating assets and liabilities that occurred throughout both periods, none of which were individually material.
Cash used in investing activities decreased $17 million in the period-to-period comparison due to a $4 million decrease in capital expenditures primarily related to a decrease in building and infrastructure expenditures and equipment purchases and a $13 million increase in proceeds from asset sales related to the sale of surface rights.
Cash used in financing activities decreased $34 million, primarily due to a $24 million difference in the revolving credit facility activity in the period-to-period comparison, which was comprised of $13 million in borrowing during the six months ended June 30, 2016 versus $11 million of payments during the six months ended June 30, 2017. The remaining variance is primarily due to an $8 million change in Net Parent Distributions.
Cash Flows (in millions)
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For the Years Ended December 31, | ||||||||||||
2016 | 2015 | Change | ||||||||||
Cash Provided By Operating Activities |
$ | 329 | $ | 292 | $ | 37 | ||||||
Cash Used In Investing Activities |
$ | (46) | $ | (130) | $ | 84 | ||||||
Cash Used In Financing Activities |
$ | (277) | $ | (155) | $ | (122) |
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Cash provided by operating activities increased $37 million in the year ended December 31, 2016 compared to the year ended December 31, 2015 primarily due to a $49 million increase in other assets. The change in other assets primarily related to cash payments for stream mitigation credits in the year ended December 31, 2015. No such transaction occurred in the year ended December 31, 2016. The remaining decrease was due to changes in various operating assets and liabilities that occurred throughout both periods, none of which were individually material.
Cash used in investing activities decreased $84 million in the period-to-period comparison primarily due to a $37 million decrease in equipment purchases and rebuilds, a $25 million decrease in preparation plant expenditures and a $25 million decrease in land project expenditures. The remaining variance is due to various other items that occurred throughout both periods none of which were individually material.
Cash used in financing activities increased $122 million in the year ended December 31, 2016 compared to the year ended December 31, 2015, primarily due to the 2015 IPO, which resulted in net proceeds from the issuance of common units of $148 million plus $185 million of borrowings on the CNXC revolver, along with $16 million in debt issuance and financing fees. The decreases were offset by $16 million in borrowing in 2016 on the CNXC revolver. The remaining variance is primarily due to changes in Net Parent Distributions.
Contractual Obligations and Off-Balance Sheet Arrangements
Following the separation, CoalCos capital structure and sources of liquidity will differ from our condensed historical capital structure. Please refer to the The Separation and Distribution, Capitalization and Unaudited Pro Forma Combined Condensed Financial Statements sections included elsewhere in this information statement for additional information regarding the capital structure of CoalCo following the distribution. Following the separation, CoalCo will no longer participate in cash management and intercompany funding arrangements with ParentCo. Our ability to fund our operating and capital needs will depend on our ability to generate cash from operations and access capital markets. The following table and discussion summarize our contractual obligations as of December 31, 2016, that may have an impact on liquidity and cash flows in future periods.
Contractual Obligations. CoalCo is required to make future payments under various contracts. CoalCo also has commitments to fund its pension plans, provide payments for other postretirement benefit plans, and fund capital projects. The following is a summary of our significant contractual obligations at December 31, 2016 (in thousands):
Payments due by Year Ending December 31 | ||||||||||||||||||||
Less Than 1
Year |
1-3
Years |
3-5
Years |
More
Than 5 Years |
Total | ||||||||||||||||
Purchase Order Firm Commitments | $ | 1,719 | | | $ | 1,719 | ||||||||||||||
Long-Term Debt | 373 | 607 | 201,520 | 104,043 | 306,543 | |||||||||||||||
Interest on Long-term Debt | 13,975 | 28,021 | 16,014 | 24,838 | 82,848 | |||||||||||||||
Capital (Finance) Lease Obligations | 3,703 | 6,378 | 5,434 | | 15,515 | |||||||||||||||
Interest on Capital (Finance) Lease Obligations | 789 | 1,045 | 291 | | 2,125 | |||||||||||||||
Operating Lease Obligations |
93,818 | 86,214 | 41,332 | 20,696 | 242,060 | |||||||||||||||
Long-Term LiabilitiesEmployee Related (a) | 67,059 | 132,238 | 129,300 | 585,844 | 914,441 | |||||||||||||||
Other Long-Term Liabilities (b) |
188,237 | 53,146 | 45,743 | 165,295 | 452,421 | |||||||||||||||
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Total Contractual Obligations (c) |
$ | 369,673 | $ | 307,649 | $ | 439,634 | $ | 900,716 | $ | 2,017,672 | ||||||||||
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(a) |
Employee related long-term liabilities include other post-employment benefits, work-related injuries and illnesses. Estimated salaried retirement contributions required to meet minimum funding standards under ERISA are excluded from the pay-out table due to the uncertainty regarding amounts to be contributed. CoalCo does not expect to contribute to the pension in 2017. |
(b) |
Other long-term liabilities include mine reclamation and closure and other long-term liability costs. |
(c) |
The significant obligation table does not include obligations to taxing authorities due to the uncertainty surrounding the ultimate settlement of amounts and timing of these obligations. |
Debt. Subject to market conditions and other factors, prior to or concurrent with the separation, CoalCo intends to secure new borrowings from third-party financing sources, a portion of which is anticipated to be distributed to GasCo. In addition, CoalCo intends to retain those MEDCO 5.75% revenue bonds due September 2025, for which the principal amount as of June 30, 2017 was $103 million, and for which GasCo will remain as a guarantor with CoalCo providing indemnification with respect to such guarantee.
Total Equity. CoalCo had total equity of $826,297 thousand at June 30, 2017 compared to $800,124 thousand at December 31, 2016 and $1,061,839 thousand at December 31, 2015. See the Consolidated Statements of Stockholders Equity in this information for additional details.
On July 27, 2017, the Board of Directors of CNXC declared a cash distribution to the Partnerships unitholders for the second quarter of 2017 of $0.5125 per common and subordinated units and $0.4678 per Class A Preferred Unit. The cash distribution was paid on August 15, 2017 to the unitholders of record at the close of business on August 7, 2017.
Off-Balance Sheet Transactions. CoalCo does not maintain off-balance sheet transactions, arrangements, obligations or other relationships with unconsolidated entities or others that are reasonably likely to have a material current or future effect on CoalCos financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources which are not disclosed in the Notes to the Audited Combined Financial Statements. CoalCo participates in the UMWA Combined Benefit Fund and the UMWA 1992 Benefit Plan which generally accepted accounting principles recognize on a pay as you go basis. These benefit arrangements may result in additional liabilities that are not recognized on the balance sheet at December 31, 2016. The various multi-employer benefit plans are discussed in Note 10Other Benefit Plans in the Notes to the Audited Combined Financial Statements in this information statement. CoalCo also uses a combination of surety bonds, corporate guarantees and letters of credit to secure our financial obligations for employee-related, environmental, performance and various other items which are not reflected on the balance sheet at December 31, 2016. Management believes these items will expire without being funded. See Note 11 - Commitments and Contingencies in the Notes to the Audited Combined Financial Statements included in this information statement for additional details of the various financial guarantees that have been issued by CoalCo.
Recent Accounting Pronouncements
In January 2017, the FASB issued Update 2017-01 - Business Combinations (Topic 805). This update clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The adoption of this new guidance is not expected to have a material impact on CoalCos financial statements.
In December 2016, the FASB issued Update 2016-19 - Technical Corrections and Improvements, which covers a wide range of Topics in the Accounting Standards Codification (ASC). The amendments in this Update represent changes to clarify, correct errors, or make minor improvements to the ASC, making it easier to understand and
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apply by eliminating inconsistencies and providing clarifications. The amendments generally fall into one of the following categories: amendments related to differences between original guidance and the ASC, guidance clarification and reference corrections, simplification, or minor improvements. Most of the amendments in this Update do not require transition guidance and are effective upon issuance of this Update.
In October 2016, the FASB issued Update 2016-17 - Consolidation (Topic 810): Interests Held through Related Parties that are Under Common Control, which amends the consolidation guidance on how a reporting entity that is the single decision maker of a variable interest entity (VIE) should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE. The Update requires the reporting entity, in determining whether it satisfies the second characteristic of a primary beneficiary, to include its indirect variable interests in a VIE held through related parties that are under common control on a proportionate basis as opposed to in their entirety. The amendments in this Update will be applied retrospectively and are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The adoption of this new guidance did not have a material impact on CoalCos financial statements.
In August 2016, the FASB issued Update 2016-15 - Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The amendments relate to debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, distributions received from equity method investees, and beneficial interests in securitization transactions. The Update also states that, in the absence of specific guidance for cash receipts and payments that have aspects of more than one class of cash flows, an entity should classify each separately identifiable source or use within the cash receipts and payments on the basis of their nature in financing, investing, or operating activities. In situations in which cash receipts or payments cannot be separated by source or use, the appropriate classification should depend on the activity that is likely to be the predominant source or use of cash flows for the item. The amendments in the Update will be applied using a retrospective transition method to each period presented and, for public entities, are effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. Management is currently evaluating the impact this guidance may have on CoalCos financial statements.
In June 2016, the FASB issued Update 2016-13 - Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which provides financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this, the amendments in this Update replace the incurred loss impairment methodology in current Generally Accepted Accounting Principles (GAAP) with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The measurement of expected credit losses will be based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The amendments in this Update will be applied using a modified-retrospective approach and, for public entities, are effective for fiscal years beginning after December 15, 2019 and interim periods within those annual periods. Early adoption is permitted for fiscal years beginning after December 15, 2018 and interim periods within those annual periods. Management believes this guidance will not have a material impact on CoalCos financial statements.
In May 2014, the FASB issued Update 2014-09 - Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Topic 605 - Revenue Recognition and most industry-specific guidance throughout the Industry Topics of the Codification. The objective of the amendments in this Update is to improve financial reporting by creating common revenue recognition guidance for U.S. GAAP and
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International Financial Reporting Standards (IFRS). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and should disclose sufficient information, both qualitative and quantitative, to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The following updates to Topic 606 were made during 2016:
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In March 2016, the FASB issued Update 2016-08 - Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies how an entity determines whether it is a principal or an agent for goods or services promised to a customer as well as the nature of the goods or services promised to their customers. |
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In April 2016, the FASB issued Update 2016-10 - Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, which seeks to address implementation issues in the areas of identifying performance obligations and licensing. |
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In May 2016, the FASB issued Update 2016-12 - Revenue from Contracts with Customers: Narrow Scope Improvements and Practical Expedients, which seeks to address implementation issues in the areas of collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition. |
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In December 2016, the FASB issued Update 2016-20 - Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which includes amendments related to loan guarantee fees, contract costs, provisions for losses on construction and production-type contracts, scope, disclosures, contract modification, contract asset versus receivable, refund liability and advertising costs. |
The new standards are effective for annual reporting periods beginning after December 15, 2017, with the option to adopt as early as annual reporting periods beginning after December 15, 2016. Management continues to evaluate the impacts that these standards will have on CoalCos financial statements, specifically as it relates to contracts that contain positive electric power price related adjustments. CoalCo anticipates using the modified retrospective approach at adoption as it relates to ASU 2014-09.
In March 2016, the FASB issued Update 2016-09 - Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Specifically, this Update states that: all excess tax benefits and tax deficiencies should be recognized as income tax expense or benefit in the income statement; excess tax benefits should be classified along with other income tax cash flows as an operating activity; an entity can make an accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur; the threshold to qualify for equity classification permits withholding up to the maximum statutory tax rates in the applicable jurisdictions; and cash paid by an employer when directly withholding shares for tax-withholding purposes should be classified as a financing activity. For public entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2016 and interim periods within those annual periods. Early adoption is permitted. The adoption of this new guidance did not have a material impact on CoalCos financial statements.
In February 2016, the FASB issued Update 2016-02 - Leases (Topic 842), which increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Update 2016-02 does retain a distinction between finance leases and operating leases, which is substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous lease guidance.
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Retaining this distinction allows the recognition, measurement and presentation of expenses and cash flows arising from a lease to not significantly change from previous GAAP. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities, but to recognize lease expense on a straight-line basis over the lease term. For both financing and operating leases, the right-to-use asset and lease liability will be initially measured at the present value of the lease payments in the statement of financial position. The accounting applied by a lessor is largely unchanged from that applied under previous GAAP. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. Management is currently evaluating the impact this guidance may have on CoalCos financial statements.
Market Risks
In addition to the risks inherent in operations, CoalCo is exposed to financial, market, political and economic risks. The following discussion provides additional detail regarding CoalCos exposure to the risks of changing commodity prices and foreign exchange rates. CoalCo is exposed to market price risk in the normal course of selling coal. CoalCo sells coal in the spot market and under both short-term and multi-year contracts that may contain base prices subject to pre-established price adjustments that reflect (i) variances in the quality characteristics of coal delivered to the customer beyond threshold quality characteristics specified in the applicable sales contract, (ii) the actual calorific value of coal delivered to the customer, and/or (iii) changes in electric power prices in the markets in which CoalCos customers operate, as adjusted for any factors set forth in the applicable contract.
CoalCo has established risk management policies and procedures to strengthen the internal control environment of the marketing of commodities produced from its asset base. CoalCos market risk strategy incorporates fundamental risk management tools to assess market price risk and establish a framework in which management can maintain a portfolio of transactions within pre-defined risk parameters.
Almost all of CoalCos transactions are denominated in U.S. dollars, and, as a result, it does not have material exposure to currency exchange-rate risks. However, because coal is sold internationally in U.S. dollars, general economic conditions in foreign markets and changes in foreign currency exchange rates may provide CoalCos foreign competitors with a competitive advantage. If CoalCos competitors currencies decline against the U.S. dollar or against CoalCos foreign customers local currencies, those competitors may be able to offer lower prices for coal to CoalCos customers. Furthermore, if the currencies of CoalCos overseas customers were to significantly decline in value in comparison to the U.S. dollar, those customers may seek decreased prices for the coal CoalCo sells to them. Consequently, currency fluctuations could adversely affect the competitiveness of CoalCos coal in international markets.
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Executive Officers Following the Distribution
The following table sets forth information regarding individuals who are serving as our executive officers and are expected to continue to serve following the distribution and is followed by biographical information. All CoalCo executive officers are currently employees of ParentCo or its wholly-owned subsidiary Consol Pennsylvania Coal Company LLC (CPCC), and some also serve as executive officers of ParentCo or CNXC. After the separation and distribution, the individuals will no longer be employed by ParentCo, but will continue to serve in their roles with the CNXC GP to the extent applicable.
Name |
Age |
Position |
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James A. Brock |
61 |
Chief Executive Officer |
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David M. Khani |
53 |
Executive Vice President and Chief Financial Officer |
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Katharine Fredriksen |
52 |
President |
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Kurt Salvatori |
47 |
Chief Administrative Officer |
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James McCaffrey |
60 |
Senior Vice President- Coal Marketing |
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Martha A. Wiegand |
46 |
General Counsel and Secretary |
James A. Brock , Chief Executive Officer of CONSOL Mining. Mr. Brock has served as Chief Operating Officer-Coal of ParentCo since December 10, 2010, and as Chief Executive Officer and a director of the CNXC GP since March 16, 2015. He served as Senior Vice President-Northern Appalachia-West Virginia Operations of ParentCo from 2007 to 2010. From 2006 to 2007, Mr. Brock served as Vice President-Operations of ParentCo. Mr. Brock began his career with ParentCo in 1979 at the Matthews Mine and since then has served at various locations in many positions including Section Foreman, Mine Longwall Coordinator, General Mine Foreman and Superintendent. With a career in coal spanning five decades, we believe Mr. Brocks extensive knowledge of our industry and our operations gained during his years of service with ParentCo in positions of increasing responsibility in its coal operations will provide our board of directors with valuable experience.
David M. Khani , Executive Vice President and Chief Financial Officer of CONSOL Mining. Mr. Khani served the same role at ParentCo from March 1, 2013 to August 2, 2017. Mr. Khani joined ParentCo in 2011 as Vice President of Finance, where he played a key role in the growth of ParentCos E&P business, and has been deeply involved in the separation of the Coal Business. Prior to joining ParentCo, Mr. Khani was with FBR Capital Markets & Co., an investment banking and advisory firm, and held the following positions: Director of Research from February 2007 through October 2010, and then Co-Director of Research from November 2010 through August 2011. Mr. Khani also serves as Chief Financial Officer and a Board Member of CNXC and CONE Midstream Partners LP.
Katharine Fredriksen , President of CONSOL Mining. Ms. Fredriksen has served as Senior Vice President for Diversified Business Units and Environmental Affairs at ParentCo since June 20, 2016, where she is responsible for the management of ParentCos health, safety and environmental matters, including management of ParentCos environmental legacy coal liabilities. She is also responsible for overseeing operation of the Baltimore Marine Terminal. For a portion of 2016, she was responsible for Central Appalachia mining operations. Prior to that time, Ms. Fredriksen served as Senior Vice President of Health, Safety and Environmental from August 2015 to June 2016, and Senior Vice President of Environmental Strategy and Regulatory Affairs from January 2011 to August 2015. Previously, Ms. Fredriksen served in the George W. Bush administration as Assistant Secretary and Principal Deputy Assistant Secretary for the Office of Policy and International Affairs at the U.S. Department of Energy.
James McCaffrey , Senior Vice President- Coal Marketing of CONSOL Mining. Mr. McCaffrey has served as Senior Vice President- Sales of CPCC since June 2016. From January 2013 to current time, Mr. McCaffrey has served as Senior Vice President- Energy Marketing for CPCC, and from April 2002 to June 2016, Mr. McCaffrey
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served as Senior Vice President of Sales, Vice President of Materials & Supply Chain Management and Senior Vice President- CNX Land Resources for ParentCo. Mr. McCaffrey started his career as a coal miner with ParentCo in 1976, and joined ParentCos management team as Vice President and General Manager of Consolidation Coal Mining Operations in March 2002.
Kurt Salvatori , Chief Administrative Officer of CONSOL Mining. Mr. Salvatori has served as Vice President- Administration of CPCC since January 1, 2017. Previously Mr. Salvatori served as Vice President Shared Services for ParentCo from 2016 to January 2017, and prior to that as Vice President Human Resources from September 2011 to June 2016. Mr. Salvatori joined CONSOL Energy in April 1992 and held numerous positions at CONSOL Energy and CNX Gas Corporation, including Director of Human Resources from April 2006 to September 2011, Manager of Human Resources from January 2005 to April 2006, and Supervisor of Retirement and Investment Plans from April 2002 to January 2005.
Martha A. Wiegand , General Counsel and Secretary of CONSOL Mining. Ms. Wiegand has served as General Counsel and Secretary of the CNXC GP since March 16, 2015. Ms. Wiegand joined ParentCos Legal Department in December 2008 as Senior Counsel and was promoted to Associate General Counsel of ParentCo effective in 2012, where she was responsible for a variety of legal matters, including coal and natural gas marketing and transportation, labor and employment, financing arrangements and certain corporate transactions. Prior to joining ParentCo, Ms. Wiegand worked for approximately 10 years for several large Pittsburgh-based law firms, where she handled financing and corporate transactions for clients in the banking and energy industries, among others. She is licensed to practice law in Pennsylvania and New Jersey and a member of the American Bar Association, the Pennsylvania Bar Association and the Energy & Mineral Law Foundation.
BOARD OF DIRECTORS FOLLOWING THE SEPARATION
Our amended and restated certificate of incorporation and amended and restated bylaws will provide that, following the separation, our Board of Directors will initially be divided into three classes, with each director serving for a term ending at the election of directors at the third annual meeting of stockholders at which the director was elected, subject to the provisions described in the remainder of this paragraph. The two directors designated as Class I directors will have initial terms expiring at the first annual meeting of stockholders following the separation, expected to be held in 2018. Directors up for reelection at this annual meeting will be elected to a new three year term expiring in 2021. The two directors designated as Class II directors will have initial terms expiring at the second annual meeting of stockholders following the separation, expected to be held in 2019. Directors up for reelection at this annual meeting will be elected to a new three year term expiring in 2022. The two directors designated as Class III directors will have initial terms expiring at the third annual meeting of stockholders following the separation, expected to be held in 2020. Each director whose term expires at the 2020 annual meeting of stockholders or any annual meeting thereafter (and any other individual who is nominated for election at any such meeting) will be elected for a term expiring the next annual meeting of stockholders.
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The following table sets forth those individuals expected to serve on CoalCos Board of Directors following completion of the separation, and will be updated in a future amendment to reflect committee composition. Biographical information is provided for each director (other than Mr. Brock, whose biographical information is set forth above under Management). All of the individuals listed below, other than Mr. Brock, our Chief Executive Officer, currently serve as directors of ParentCo and are expected to continue to do so until the separation, at which time they will resign from the board of directors of ParentCo.
Age | Class |
Audit
Committee |
Compensation
Committee |
Nominating
and Corporate Governance Committee |
Health, Safety and
Environmental Committee |
|||||||||||||||||||
James A. Brock |
61 | |||||||||||||||||||||||
Alvin R. Carpenter |
75 | |||||||||||||||||||||||
John T. Mills |
69 | |||||||||||||||||||||||
Joseph P. Platt |
69 | |||||||||||||||||||||||
William P. Powell |
61 | |||||||||||||||||||||||
Edwin S. Roberson |
72 |
Alvin R. Carpenter . Mr. Carpenter has served as a member of the ParentCo Board of Directors since June 2013, and currently serves as a member Compensation Committee, Finance and Investment (F&I) Committee and the Health, Safety and Environmental (HS&E) Committee. He retired from CSX Corporation (CSX), a railroad company, in February 2001, where he had served as vice chairman from July 1999 until his retirement. From 1962 until February 2001, he held various positions with CSX, including President and Chief Executive Officer of CSX Transportation, Inc. from 1992 to 1999 and Executive Vice President-Sales and Marketing of CSX Transportation, Inc. from 1989 to 1992. Mr. Carpenter served as a director of Stein Mart, Inc., a retail company, from 1996 to 2015, where he served as chairman of its compensation committee and as a member of the corporate governance committee. Mr. Carpenter served as a director of Regency Centers Corporation, an owner and developer of dominant, grocery-anchored retail centers, from 1993 until 2016, where he served as a member of its audit, compensation and nominating and corporate governance committees. He served as a director of Lender Processing Services, Inc. from 2009 until it was sold to Fidelity National Financial, Inc. in January 2014, where he had served as its lead director, chairman of the corporate governance and nominating committee and as a member of the compensation committee. Additionally, he previously served on the boards of PSS World Medical, Inc., Barnett Bank, Inc., Nations Bank, American Heritage Life Insurance Company, Blue Cross & Blue Shield of Florida, One Valley Bancorp of West Virginia and Florida Rock Industries, Inc. He also chaired Governor Jeb Bushs Commission on Workers Compensation Reform and served on Governor Bushs Advisory Council on Base Realignment and Closure. Mr. Carpenter will bring over 50 years of business experience to our Board, including 40 years of experience in the railroad industry where he has served in a wide variety of operating, planning and sales and marketing positions. In addition to the business expertise he developed while employed in the railroad industry, Mr. Carpenter has developed significant expertise in the areas of corporate governance, compensation and audit matters through his service on various public company boards.
John T. Mills . Mr. Mills has served on the ParentCo Board of Directors since March 2006, and currently serves as Chair of its Audit Committee and as a member of its Compensation Committee and HS&E Committee. From December 2007 until August 2015, he served on the board of directors of Cal Dive International Inc., a marine contractor providing manned diving, derrick, pipelay and pipe burial services to the offshore oil and natural gas industry, where he served as lead independent director, and as a member of the audit, compensation, and corporate governance and nominating committees. From January 2008 through June 2010, Mr. Mills was a member of the board of directors and audit, conflicts and risk management committees of Regency GP, LLC, the general partner of Regency GP, LP, the general partner of Regency Energy Partners LP, a natural gas gathering, processing and transportation master limited partnership. Mr. Mills joined the board of directors of Horizon Offshore, Inc., a marine construction company, in June 2002 and served as the chairman of the board of directors from September 2004 until December 2007, when Horizon Offshore, Inc. was acquired by Cal Dive
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International, Inc. Mr. Mills was the Chief Financial Officer of Marathon Oil Corporation, an integrated energy company, from January 2002 until his retirement in December 2003. In 2011, Mr. Mills attended the Harvard Business School program Making Corporate Boards More Effective. As a licensed attorney with over 40 years of business experience, including 16 years as an officer of Marathon Oil Corporation and U.S. Steel Corporation, Mr. Mills will bring significant knowledge and experience to our Board. In particular, Mr. Mills brings an in-depth understanding of the evaluation of organic growth capital projects and acquisition and disposition opportunities, and the importance of maintaining a competitive capital structure and liquidity. In addition, having previously served as Senior Vice President, Finance and Administration, and later Chief Financial Officer of Marathon Oil Corporation, Mr. Mills has developed a wealth of financial knowledge with respect to the oversight of (i) the preparation of consolidated financial statements, (ii) internal audit functions, and (iii) public accountants, skills which are critical to our company and particularly our Audit Committee.
Joseph Platt . Mr. Platt has served on the ParentCo Board of Directors since May 2016, and currently serves as Chair of its Compensation Committee and as a member of its F&I Committee and HS&E Committee. He is the general partner at Thorn Partners, LP, a family limited partnership, a position he has held since 1998. Mr. Platts career at Johnson and Higgins, a global insurance broker and employee benefits consultant (J&H), spanned 27 years until 1997, when J&H was sold to Marsh & McLennan Companies. At the time of the sale, Mr. Platt was an owner, director and executive vice president of J&H. Mr. Platt has served on the board of directors of Greenlight Capital Re, Ltd., a property and casualty reinsurer, since 2004 and has been its lead independent director since 2007, and also serves as an independent director of BlackRocks Open End & Liquidity Funds and on the boards of various other nonpublic companies and not-for-profit institutions. Mr. Platt will bring significant financial, compensation and risk management expertise to our Board.
William P. Powell . Mr. Powell has served on the ParentCo Board of Directors since January 2004, and currently serves as Chair of its F&I Committee and as a member of its Nominating and Corporate Governance (N&CG) Committee and the HS&E Committee. Mr. Powell previously was a director of Cytec Industries, a global specialty chemicals and materials company, from 1993 until its merger with Solvay SA in December 2015, where he served as lead independent director, chair of the governance committee and as a member of the audit committee. Until May 2007, Mr. Powell was a Managing Director of William Street Advisors, a New York City-based merchant banking boutique. Mr. Powell resigned from William Street Advisors to establish a family office, 535 Partners LLC, where he serves as Managing Partner. Prior to his time at William Street Advisors, he served as a Managing Director of UBS Warburg LLC and its predecessor Dillon, Read & Co. Inc. since 1991. With an MBA degree and over 30 years of financial, management and investment experience, Mr. Powell will bring a wealth of knowledge to our Board. Having served on multiple public company boards for over 20 years, Mr. Powell also has significant expertise in corporate governance matters.
Edwin S. Roberson . Mr. Roberson has served on the ParentCo Board of Directors since May 2016, and currently serves as a member of its Audit Committee, N&CG Committee, and HS&E Committee. Most recently, he served as Chief Executive Officer of Christ Community Health Services, a health system of eight clinics providing high quality healthcare to the underserved in the Memphis, Tennessee community, a position he held since 2014. Prior to that, Mr. Roberson served as Chief Executive Officer of various cancer research and biotech firms, and as President of Beacon Consulting, LLC, a business consulting firm, from 2006 to 2011. From 1991 to 2006, he worked at Conwood LLC, the nations second-largest manufacturer of smokeless tobacco products and a major seller and distributor of tobacco products manufactured by third parties, where he served in several roles, including Chief Financial Officer and, ultimately, President. After serving in the Army from 1969 to 1971, where he was awarded two Bronze Stars in Vietnam, Mr. Roberson began his professional career at KPMG, an international accounting and consulting firm, where he was a tax partner until 1991. Mr. Roberson also served on the board of Paragon National Bank, where he was chairman of the audit committee. Mr. Roberson serves on the board of directors of Infocare, Inc. (US). Additionally, he also serves on the board of directors of several private corporations and currently serves or has served as a board member for a number of educational, religious, civic and charitable organizations, including Duke University Divinity School, the Boy Scouts of America, and
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Chairman of Methodist Le Bonheur Healthcare. Mr. Roberson will bring significant leadership skills and financial, accounting and strategy expertise to our Board. Further, Mr. Roberson is a certified public accountant.
Director Independence
Providing objective, independent judgment is at the core of a boards oversight function. CoalCos Corporate Governance Guidelines will provide that a director will be independent if such director meets the standards for independence set forth in the SEC rules and the NYSE Listed Company Manual. In order for a CoalCo director to be deemed independent in accordance with such standards (i) the CoalCo Board must affirmatively determine that the director has no material relationship with CoalCo or any subsidiary in its group and (ii) none of the following can be true with respect to such director:
(i) |
the director is, or has been within the previous three years, employed by CoalCo or its subsidiaries, or an immediate family member is, or has been within the previous three years, an executive officer of CoalCo; provided, that employment as an interim Chairman of the Board or CEO or other executive officer shall not disqualify a director from being considered independent following that employment; |
(ii) |
the director or an immediate family member has received, during any twelve-month period within the last three years, more than $120,000 in direct compensation from CoalCo or its subsidiaries, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service); provided, that compensation received by a director for former service as an interim Chairman of the Board or CEO or other executive officer need not be considered in determining independence under this paragraph (ii) and provided further, that compensation received by an immediate family member for service as an employee of CoalCo or its subsidiaries (other than an executive officer) need not be considered in determining independence under this paragraph (ii); |
(iii) |
(A) the director or an immediate family member is a current partner of the firm that is CoalCos internal auditor or external auditor (each an Audit Firm); (B) the director is a current employee of an Audit Firm; (C) the director has an immediate family member who is a current employee of an Audit Firm and who personally works on CoalCos audit or (D) the director or an immediate family member was, within the previous three years (but is no longer), a partner or employee of an Audit Firm and personally worked on CoalCos audit within that time; |
(iv) |
the director or an immediate family member is, or has been within the previous three years, employed as an executive officer of another company where any of CoalCos present executive officers at the same time serves or served on such companys compensation (or equivalent) committee of the board of directors; or |
(v) |
the director is a current employee, or an immediate family member is an executive officer, of a company that has made payments to, or received payments from, CoalCo or its subsidiaries for property or services in an amount which, in any of the previous three fiscal years, exceeds the greater of $1 million or 2% of such other companys consolidated gross revenues. For purposes of the foregoing, both the payments and the consolidated gross revenues to be measured shall be those reported in the last completed fiscal year; and |
(vi) |
for members of the audit committee only: other than in the capacity as a member of the audit committee, the Board or any other committee of the Board, the director (A) does not accept, directly or indirectly, any consulting, advisory or other compensatory fee from CoalCo or its subsidiaries; provided that compensatory fees do not include the receipt of fixed amounts of compensation under a retirement plan (including deferred compensation) for prior service with CoalCo or its subsidiaries (provided that such compensation is not contingent in any way on continued service) or (B) is not an affiliated person of CoalCo or its subsidiaries. |
Any relationship that falls below a threshold set forth in the Corporate Governance Guidelines to be adopted, or is not otherwise listed in the Corporate Governance Guidelines, or may not be required to be disclosed under
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Item 404(a) of SEC Regulation S-K, will be deemed to be an immaterial relationship. CoalCo also intends for members of its Audit and Compensation Committees to satisfy all applicable independence standards.
Committees of the Board of Directors
Effective upon the completion of the distribution, our Board of Directors will have the following four standing committees: Audit, Compensation, Nominating and Corporate Governance (N&CG), and Health, Safety & Environmental (HS&E). The Board of Directors is expected to adopt written charters for each standing committee, which will be made available on our website in connection with the separation.
Following our listing on the NYSE and in accordance with the relevant transition provisions applicable to companies listing in conjunction with a spin-off transaction, each of the Audit, Compensation, and N&CG Committees will consist solely of directors who have been determined by the Board of Directors to be independent in accordance with SEC regulations, NYSE listing standards and CoalCos governance guidelines (including the heightened independence standards for members of the Audit and Compensation Committees).
The following sets forth the expected primary responsibilities of the committees of the Board of Directors:
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Committee |
Responsibilities |
|
The Compensation Committee may form and delegate its authority to subcommittees when appropriate (including subcommittees of management). Executive officers will not determine the amount or form of executive or director compensation, although the Chief Executive Officer may provide recommendations to the Compensation Committee regarding compensation changes and incentive compensation for executive officers other than himself. See Executive Compensation and Compensation Discussion and Analysis. |
||
Nominating & Corporate Governance Committee |
Identify qualified individuals for nomination, election or appointment to the Board of Directors;
Ensure appropriate Board composition, and recommend appropriate Board structure and operations;
Oversee and assess CoalCos corporate governance system, including the responsibilities of Board members and committees, and related policies and procedures; Oversee annual evaluations of the Board, committees, and management, including the CEO; and
recommend each director nominee to our Board for nomination for election at the annual meeting, taking into account nomination candidates whose names are submitted by stockholders. |
CoalCo does not anticipate maintaining a separate policy regarding the diversity of its Board members. However, we expect that the N&CG Committee, and ultimately the Board, will seek director nominees with diverse personal and professional backgrounds, experience and perspectives that, when combined, provide a diverse portfolio of experience and knowledge that will well serve CoalCos governance and strategic needs.
Health, Safety & Environmental Committee |
Provide risk oversight of CoalCos policies and procedures with respect to health, safety, environmental and security matters; |
|
Review CoalCos strategy, including objectives and policies, relative to the protection of the safety and health of employees, contractors, customers and the public, and environmental protection; |
||
Review material compliance issues or pending or threatened proceedings regarding health, safety or environmental matters, and managements response to the same; and |
||
Review any significant health, safety and environmental public policy and legislative, political and social issues and trends. |
Compensation Committee Interlocks and Insider Participation
During our fiscal year ended December 31, 2016, CoalCo was not an independent company, and did not have a compensation committee or any other committee serving a similar function. Decisions as to the compensation of those who will serve as CoalCos executive officers prior to the separation were made by ParentCo and the board of directors of the CNXC GP as described in Executive Compensation and Compensation Discussion and Analysis.
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Corporate Governance
We are committed to conducting our businesses in accordance with the highest level of ethical and corporate governance standards. We expect the Board will periodically review its corporate governance practices and take other actions to address changes in regulatory requirements, developments in governance best practices and matters raised by stockholders. The following describes some of the actions we expect the Board to take to help ensure that our conduct earns the respect and trust of stockholders, customers, business partners, employees and the communities in which we live and work.
Corporate Governance Guidelines and Code of Business Conduct and Ethics
In connection with the separation and distribution, the Board will adopt corporate governance guidelines that set forth the responsibilities of the Board and the qualifications and independence of its members and the members of its standing committees. We expect that these practices will be reviewed annually by the N&CG Committee.
In addition, in connection with the separation and distribution, the Board is expected to adopt, among other codes and policies, a code of business conduct and ethics policy setting forth standards applicable to all of our employees, including our CEO and senior financial officers; once adopted, these documents will be available on our website at www. .com after the distribution. Only the Board or a committee thereof will be able to waive the code of conduct as it applies to our directors or executive officers. Any waiver of the code of conduct for our executive officers, service providers, contractors or directors will be promptly disclosed to our stockholders in any manner as may be required by law or NYSE regulation. Any additions or amendments to our ethics policy, and waivers thereof for our executive officers or directors, will be posted on the corporate governance page of our website, and similarly provided without charge upon written request.
Procedures for Treatment of Complaints Regarding Accounting, Internal Accounting Controls, and Auditing Matters
In accordance with the Sarbanes-Oxley Act of 2002, CoalCo expects that its Audit Committee will adopt procedures for the receipt, retention and treatment of complaints regarding accounting controls or auditing matters and to allow for the confidential, anonymous submission by employees and others of concerns regarding questionable accounting or auditing matters.
Qualification and Nominations of Directors
The N&CG Committee charter that is expected to be adopted in connection with the separation and distribution will provide that the N&CG Committee considers and recommends to the Board nominees for election to or for filling any vacancy on the Board in accordance with our by - laws, our governance guidelines, and the N&CG Committees charter. The N&CG Committee is expected to periodically review the requisite skills and characteristics of Board members as well as the size, composition, functioning and needs of the Board as a whole.
It is expected that, to be considered for Board membership, a nominee for director must be an individual of high personal and professional integrity, who has demonstrated exceptional ability and judgment, and who will be effective, in conjunction with the other nominees to our Board, in collectively serving the long - term interests of all of our stockholders. The N&CG Committee is also expected to consider Board members independence, the financial literacy of members of the Audit Committee, the qualification of Audit Committee members as financial experts, and the diversity, skills, background and experiences of members of the Board in the context of the needs of the Board. The N&CG Committee may also consider such other factors as it may deem to be in the best interests of CoalCo and our stockholders.
Whenever the Committee concludes, based on the reviews or considerations described above or due to a vacancy, that a new nominee to the Board is required or advisable, it will consider recommendations from directors,
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management, stockholders and, if it deems appropriate, consultants retained for that purpose. In such circumstances, it will evaluate individuals recommended by stockholders in the same manner as nominees recommended from other sources. Stockholders who wish to recommend an individual for nomination should send that persons name and supporting information to the Committee, in care of the companys Secretary. CoalCos amended and restated bylaws will contain provisions that address the process by which a stockholder may nominate an individual to stand for election to the Board. Stockholders who wish to directly nominate an individual for election as a director, without going through the Committee or using our proxy materials, will be required to comply with the procedures in our by - laws.
Communication with Non-Management Members of our Board of Directors
Information for stockholders and other parties interested in communicating with our Board or our independent directors, individually or as a group, will be available on our website at www. .com after the separation and distribution. CoalCos Secretary will forward communications relating to Board matters to the Chairman; and communications relating to matters within a Board committee s area of responsibility to the chair of the appropriate committee.
Risk Oversight
The Board of Directors will be actively engaged in overseeing and reviewing CoalCos strategic direction and objectives, taking into account (among other considerations) CoalCos risk profile and exposures. It will be managements responsibility to manage risk and bring to the Board of Directors attention the most material risks to the company. The Board of Directors will have oversight responsibility of the processes established to report and monitor systems for material risks applicable to the company. The Board of Directors will annually review the companys enterprise risk management and receive regular updates on risk exposures.
Various aspects of the board of directors risk oversight will be delegated to its committees, which will meet regularly and report back to the full board. The following committees are expected to play significant roles in carrying out the risk oversight function:
|
The Audit Committee will oversee risks related to the companys financial statements, the financial reporting and disclosure processes, the financial and other internal controls, accounting and legal matters. The Audit Committee will select and retain the companys independent auditor and will also oversee the internal audit function. The companys independent outside auditors and the vice president of the companys internal audit department will be expected to regularly identify and discuss with the Audit Committee risks and related mitigation measures that may arise during their regular reviews of the companys financial statements and audit work. The Audit Committee will meet separately on a regular basis with representatives of the independent auditing firm and the vice president of the companys internal audit department. The Audit Committee will also be expected to review managements annual capital expenditure plans and managements assessment of the companys capital structure, including dividend policies and stock repurchase programs. |
|
The Compensation Committee will be expected to evaluate the risks and rewards associated with the companys compensation philosophy and programs. The Compensation Committee will review and approve compensation programs with features designed to reward long-term achievement and discourage excessive short-term risk taking. It is expected that an independent executive compensation consulting firm hired by the Compensation Committee will advise the committee with respect to executive compensation practices and programs, including the risks associated with each of them. |
|
The N&CG Committee will monitor our corporate governance practices against applicable requirements, including those of the NYSE, and against evolving developments and will be responsible for our code of conduct and ethics, including the code of business conduct applicable to the companys |
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employees. The Nominating and Governance Committee will also consider issues associated with the independence of the companys board members. |
|
The HS&E Committee will monitor, evaluate and address various risks associated with health, safety, the environment and security (including cybersecurity), and will review material compliance issues with health, safety and environmental regulatory requirements, material pending or threatened administrative, and regulatory or judicial proceedings regarding such matters. |
Each committee will have the authority to engage such independent counsel as the committee deems necessary to carry out its duties and responsibilities. Annually, CoalCos chief executive officer and other senior executives, as deemed appropriate by management or the board members, will make a presentation to our Board of Directors about risks associated with our business and how CoalCo manages and mitigates those risks. Because overseeing risk is an ongoing process, the Board of Directors also will be expected to discuss risk throughout the year at other meetings in relation to proposed actions or discussions with respect to various aspects of CoalCos operations.
Our Board of Directors will determine compensation to be paid to the CoalCo Nonemployee Directors following the separation and distribution. Compensation for CoalCo Nonemployee Directors is anticipated to consist of a mix of cash and equity-based compensation. The Chairman and committee chairs of our Board of Directors are anticipated to receive additional payments for their services in that capacity. In late 2017 or early 2018, the CoalCo Compensation Committee expects to undertake a review of competitive data and best practices with the input of an independent expert compensation consultant to determine our Board of Directors compensation going forward. We have not yet paid any compensation to the CoalCo Nonemployee Directors. Mr. Brock, our Chief Executive Officer, will not receive any additional compensation in connection with his service on our Board of Directors.
The table below sets forth the expected components of compensation for CoalCo Nonemployee Directors following the separation (to be prorated based on actual service periods), which compensation remains subject to final approval by our Board of Directors.
Element of 2017 Annual Compensation |
Dollar Value of
Board Compensation (January 1, 2017 - December 31, 2017) |
|||
Chairman Retainer |
$ | 200,000 | ||
Board Retainer |
$ | 120,000 | ||
Committee Chair Retainer (excluding Audit Committee and Compensation Committee Chair Retainer) |
$ | 10,000 | ||
Audit Committee Chair Retainer |
$ | 30,000 | ||
Compensation Committee Chair Retainer |
$ | 20,000 | ||
Audit Committee Member Retainer (excluding Audit Committee Chair Retainer) |
$ | 7,500 | ||
Annual Equity Award (Stock Options) |
$ | 150,000 | ||
Chairman Equity Award (Stock Options) |
$ | 300,000 |
Following the separation, the Board of Directors may adopt stock ownership guidelines for directors.
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COMPENSATION DISCUSSION AND ANALYSIS
Introduction
As discussed above, CoalCo is currently a wholly-owned subsidiary of ParentCo and not an independent company, and its compensation committee has not yet been formed. For purposes of this Compensation Discussion and Analysis (CD&A) and executive compensation disclosures, the individuals listed below are collectively referred to as our named executives. These named executives include our Chief Executive Officer, Chief Financial Officer, and the three most highly compensated individuals designated as CoalCo executive officers, based on 2016 compensation from ParentCo, its wholly-owned subsidiary CPCC, and/or the CNXC GP, as applicable:
|
James A. Brock, CoalCo Chief Executive Officer . Prior to the separation, Mr. Brock served as the Chief Operating Officer Coal of ParentCo, and currently serves as Chief Executive Officer and director of the CNXC GP. |
|
David M. Khani, CoalCo Executive Vice President and Chief Financial Officer . Prior to the separation, Mr. Khani served as Executive Vice President and Chief Financial Officer of ParentCo until August 2, 2017, and thereafter assumed the position of Chief Financial Officer of CoalCo and the CNXC GP. |
|
Katharine Fredriksen, CoalCo President . Prior to the separation, Ms. Fredriksen served as Senior Vice President for Diversified Business Units and Environmental Affairs of ParentCo. |
|
James McCaffrey, CoalCo Senior Vice PresidentCoal Marketing . Prior to the separation, Mr. McCaffrey served as Senior Vice President for Energy Marketing for CPCC. |
|
Kurt Salvatori, CoalCo Chief Administrative Officer . Prior to the separation, Mr. Salvatori served as the Vice President Administration for CPCC. |
Determinations regarding the 2016 compensation of our named executives, which correlate to their respective positions held in 2016, may be summarized as follows:
|
As named executive officers of ParentCo, decisions regarding the 2016 compensation of Messrs. Brock and Khani were recommended by the Chief Executive Officer of ParentCo and approved by the ParentCo Compensation Committee, other than with respect to CNXC phantom unit awards granted to Mr. Brock in his capacity as Chief Executive Officer of the CNXC GP under the CNX Coal Resources LP 2015 Long-Term Incentive Plan (the CNXC LTIP), which phantom unit awards were determined by the Board of Directors of the CNXC GP (the CNXC GP Board). |
|
Decisions regarding the 2016 compensation of Messrs. McCaffrey, Salvatori and Ms. Fredriksen were made by ParentCo management in accordance with ParentCos plans and performance. |
As historical compensation decisions relating to our named executives primarily were based on the compensation philosophy, practices and objectives of ParentCo, this CD&A primarily focuses on ParentCos executive compensation program and does not necessarily reflect the compensation programs that will be adopted by CoalCo following the separation. We also discuss grants made under the CNXC LTIP and other compensation decisions made by the CNXC GP Board where warranted. The CoalCo Compensation Committee anticipates reviewing the compensation of its named executive officers at, on or around the Effective Time.
This CD&A, which relates to 2016 compensation determinations, contains references to one or more financial measures (indicated by *) utilized by ParentCo that have not been calculated in accordance with GAAP. A reconciliation of disclosed non-GAAP financial measure used by ParentCo in its 2016 compensation determinations to the most directly comparable GAAP financial measure is provided in Appendix A to this information statement.
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ParentCo 2016 Compensation Setting Process
ParentCo Compensation Philosophy and Objectives . ParentCos executive compensation program is designed to attract, motivate and retain key executives who drive success and industry leadership through compensation that:
|
links a significant portion of total compensation to performance to create long-term stockholder value; |
|
consists primarily of stock-based compensation, which encourages executives to act as owners and aligns their interests with those of ParentCos stockholders; |
|
is tied to ParentCos overall corporate performance, financial and operational goals (both annual and long-term); |
|
enhances retention in a highly competitive market by subjecting a significant portion of total compensation to multi-year vesting or performance conditions; |
|
discourages unnecessary and excessive risk taking; and |
|
provides a competitive total pay opportunity. |
Key factors that affected ParentCos 2016 compensation determinations include the nature and scope of an executives responsibilities, an executives performance (including contribution to financial results), and outside compensation consultant report(s) on survey and/or reported data for compensation paid to executives with similar responsibilities at similarly-situated companies.
Results of ParentCo 2017 Stockholder Vote on Named Executive Compensation . Approximately 94% of the shares voted at ParentCos 2017 Annual Meeting of Stockholders approved ParentCos 2016 executive compensation program. ParentCo believes that this vote outcome was positively impacted by ParentCos active historic stockholder engagement and continued efforts to structure executive compensation to better align the interests of its named executives and stockholders. Following the separation, CoalCo intends to engage with its stockholders on matters relating to executive compensation.
Use of Peer Group and Other Benchmarking Data . A primary factor considered by the ParentCo Compensation Committee in determining the total compensation opportunity available to each of its named executive officers is whether such total compensation opportunity is competitive with the total compensation opportunities offered to similarly-situated executives by ParentCos competitors. Due to ParentCos historically unique position of being both a natural gas and coal producer, for 2016 compensation purposes, the ParentCo Compensation Committee used a peer group of companies that included a mix of both natural gas and coal companies, against which the ParentCo Compensation Committee measured its overall compensation program. In selecting the peer group companies, the ParentCo Compensation Committee also considered ParentCos revenue and market capitalization relative to these peers and their business segment revenue.
In consideration of the above, the following peer companies were used by the ParentCo Compensation Committee to help establish 2016 compensation for Messrs. Brock and Khani, who were named executive officers of ParentCo in 2016:
Alpha Natural Resources, Inc. |
EOG Resources, Inc. |
Range Resources |
||
Antero Resources |
EQT Corporation |
Southwestern Energy Co |
||
Arch Coal Inc. |
Noble Energy, Inc. |
Teck Resources |
||
Cabot Oil and Gas |
Peabody Energy Corp |
Walter Energy |
||
Chesapeake Energy Corporation |
QEP Resources, Inc. |
WPX Energy, Inc. |
||
Devon Energy Corporation |
Role of ParentCo Compensation Consultant . In 2016, the ParentCo Compensation Committee engaged Willis Towers Watson to assist with the development of ParentCos 2016 executive compensation program. Willis Towers Watson provided no other services to ParentCo and its affiliates during 2016. The ParentCo Compensation Committee looked to its compensation consultant to review the elements of ParentCos
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compensation program, including the appropriate mix of short- and long-term incentives, and for any recommendations of modifications thereto, based on their review of the market practices of a peer group of companies and ParentCos compensation objectives. The consultant also provided ongoing input on the design of ParentCos incentive programs and the underlying performance metrics.
Process for Evaluating Compensation . In the first quarter of 2016, the ParentCo Compensation Committee met to establish the base salaries, incentive opportunities and related performance goals of ParentCos compensation programs, including its STIC and LTIC programs (both as defined below), for ParentCo named executive officers, including Messrs. Brock and Khani. To establish such compensation, ParentCos Human Resources personnel made initial assessments that were reviewed by the ParentCo Chief Executive Officer. This assessment included relevant industry salary practices, the complexity and level of responsibility associated with Messrs. Brocks and Khanis positions, their positions overall importance to ParentCo relative to other executive positions, and the competitiveness of their overall total compensation. A similar, but less formal process was undertaken by ParentCo management as it related to the establishment of base salaries, incentive opportunities and related performance goals, including its STIC and LTIC programs, for our other named executives. After considering these factors, and in consultation with the ParentCo Chief Executive Officer and Willis Towers Watson, the ParentCo Compensation Committee and the ParentCo Board of Directors approved the 2016 compensation packages for Messrs. Brock and Khani, and ParentCo management approved the 2016 compensation packages for Ms. Fredriksen and Messrs. McCaffrey and Salvatori. Long-term compensation granted to Mr. Brock in 2016 under the CNXC LTIP was determined and approved by the CNXC GP Board, as further described below.
After the separation, CoalCo anticipates that our Board of Directors (and its compensation committee, once formed) will determine the process for setting compensation with respect to our named executives. Our Board of Directors (or its compensation committee) will also select its own peer group of companies against whom it may choose to benchmark or compare its compensation programs.
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Elements of 2016 Compensation Program
The following chart shows the compensation elements applicable to our named executives in 2016:
2016 Base Salary . Base salary is designed to provide a competitive fixed rate of pay recognizing the named executives different levels of responsibility and performance. In setting base salary amounts for 2016, ParentCo considered factors including, but not limited to, external market data, the internal worth and value assigned to the
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named executives role and responsibilities, and the named executives skills and performance. The chart below shows named executives base salary amounts for 2016 (rounded up to the nearest dollar):
CoalCo Named Executive |
Base Salary for 2016 | |||
Chief Executive Officer |
$ | 410,000 | ||
Chief Financial Officer |
$ | 517,625 | ||
President |
$ | 250,118 | ||
SVP - Coal Marketing |
$ | 379,710 | ||
Chief Administrative Officer |
$ | 220,835 |
2016 STIC Program . The ParentCo 2016 STIC program was designed to deliver annual cash awards when ParentCo is successful in meeting or exceeding established performance targets and to pay less, or nothing at all, when ParentCo and/or its employees fall short of these targets. The STIC program provides incentive compensation (measured at target) that is comparable to compensation provided by companies with which ParentCo competes for executive talent.
The 2016 STIC (applicable to the January 1, 2016 December 31, 2016 performance period) was structured to align managements interests with the key goal of generating free cash flow* for ParentCo. The free cash flow* performance factor, which was based on ParentCos operating cash flow, was calculated as follows:
Operating Cash Flow(1) |
- |
Capital Expenditures |
+ |
Asset Sales |
+ |
MLP Distributions Received(2) |
= |
Target Free Cash Flow* |
(1) |
The calculation of this ParentCo metric is set forth on Appendix A. |
(2) |
Refers to distributions that ParentCo received from CNXC and CONE Midstream Partners LP. |
The free cash flow* performance factor had a score ranging from 0% 200%, with a target score of 100%. If the threshold, or minimum, score of 50% had not been achieved, a score of zero would have been assigned, with no payout. Payout of the 2016 STIC could potentially have been modified by safety, environmental and stock price modifiers. The target free cash flow* performance factor was derived from the annual board-approved profit objective for ParentCo for 2016. Accordingly, the 2016 STIC award payout formula was as follows:
Annual Base Salary |
X |
Target Opportunity Percentage (% of Base Salary) |
X |
(Free Cash Flow* Performance Factor +/- Modifiers) (up to 200%) |
= |
STIC Award Payout |
The free cash flow* performance factor metrics and percentage payout for the 2016 STIC, as well as ParentCos achievement of the same, were as follows:
Performance Factor Free Cash Flow* | ||||||||
(Metrics and % Payout) | ||||||||
Metrics |
Payout (%) | |||||||
Threshold |
$ | 166 M | 50 | % | ||||
Target |
$ | 585 M | 100 | % | ||||
Maximum |
$ | 866 M | 200 | % | ||||
Actual 2016 Results |
$ | 957 M | 200 | % |
As indicated in the chart above, in 2016, ParentCo achieved free cash flow* performance in excess of the maximum STIC payout, resulting in the named executives receiving annual STIC payouts as reflected below, based on their target payout (as a percentage of base salary) multiplied by the maximum payout percentage of
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200%. Due to the level of achievement for 2016, which exceeded the maximum STIC payout, the safety, environmental and stock price modifiers were not considered and therefore did not affect the 2016 STIC payout.
CoalCo Named Executive |
Target Opportunity
Percentages (% of Base Salary)(1) |
Target Payout
Opportunity |
STIC Payout Score
(% of Opportunity) |
Actual
Payout |
||||||||||||
Chief Executive Officer |
65 | % | $ | 266,500 | 200 | % | $ | 533,000 | (2) | |||||||
Chief Financial Officer |
70 | % | $ | 362,338 | 200 | % | $ | 725,000 | (2) | |||||||
President |
35 | % | $ | 87,541 | 200 | % | $ | 175,082 | ||||||||
SVP- Coal Marketing |
50 | % | $ | 189,855 | 200 | % | $ | 379,710 | ||||||||
Chief Administrative Officer |
30 | % | $ | 66,250 | 200 | % | $ | 132,501 |
(1) |
The ParentCo Compensation Committee (with respect to Messrs. Brock and Khani) and ParentCo management (with respect to Ms. Fredriksen and Messrs. McCaffrey and Salvatori) determined the 2016 target opportunity percentages, based on a review of competitive data and performance. |
(2) |
Rounded up to the nearest thousand. |
ParentCo LTIC . The ParentCo LTIC program is designed to create a strong incentive for our named executives to achieve the longer-term performance objectives in ParentCos strategic plan and to align managements interests with those of ParentCos stockholders. Awards granted under the LTIC are made pursuant to the ParentCo Equity Incentive Plan, as amended and restated (the ParentCo LTIP).
In January 2016, the ParentCo Compensation Committee restructured the LTIC program to encourage retention, more fully align managements interests with those of ParentCos stockholders and continue focus on stockholder return. The ParentCo Compensation Committee determined that Mr. Brock would receive his 2016 long-term incentive opportunity in the form of PSUs (55%) and CNXC phantom units (45%) (as further approved by the CNXC GP Board), while Mr. Khani would receive his 2016 long-term incentive opportunity in the form of PSUs (55%) and ParentCo stock options (45%). ParentCo management determined that Ms. Fredriksen and Messrs. McCaffrey and Salvatori would receive their 2016 long-term incentive opportunity in the form of PSUs (55%) and ParentCo stock options (45%).
2016 2020 PSU Grants and Payout. In January 2016, the named executives were granted PSUs that vest, if earned, ratably over a five-year period (January 1, 2016 through December 31, 2020) based on annual ParentCo performance measurements. The vesting of the 2016 2020 PSU awards will be calculated annually based on the following pre-established, equally-weighted ParentCo performance goals, with the aggregate payout capped at 200% of target:
(i) |
Total Stockholder Return (TSR) of ParentCo relative to the S&P 500 (measured at the end of each year during the five-year performance period using the 10-day average closing stock price of ParentCo ending December 31 for the applicable tranche); and |
(ii) |
absolute stock price appreciation of ParentCo (measured at the end of each year during the five-year performance period using the 10-day average closing stock price per share of ParentCo against the grant date of $6.87 (the GDSP) as the starting point). |
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(1) |
Straight-line interpolation between performance levels. |
(2) |
After reviewing ParentCos prior stock price performance and consideration of ParentCos business plan, the ParentCo Compensation Committee considered the stock price goals applicable to the remaining tranches of the 2016 2020 PSU awards to be challenging but attainable. |
In the event that a tranche fails to pay out at the end of any annual tranche period with respect to the absolute stock price measure (a Missed Year), the unvested PSUs attributable to the Missed Year may still become fully vested, at a target level, if ParentCo achieves target performance (or greater) as determined after the end of a future tranche. The opportunity to recoup any missed payouts may occur for any prior tranche, but only up to target performance for that prior period.
The named executives received the following target awards for the 2016 2020 PSUs in the dollar amounts shown below:
Named Executive |
PSUs (Target) ($) | |||
Chief Executive Officer |
550,000 | |||
Chief Financial Officer |
1,100,000 | |||
President |
52,250 | |||
SVP- Coal Marketing(1) |
137,500 | |||
Chief Administrative Officer |
41,250 |
(1) |
Pursuant to the terms of Mr. McCaffreys retention agreement described below, ParentCo agreed that, if ParentCo shipped 24,462 thousand tons of coal from January 1, 2016 through December 31, 2016 from the Bailey complex (the Coal Tonnage Goal) and he remained employed with ParentCo or its subsidiaries through December 31, 2016, he would vest in his 2016-2020 PSUs, subject to the attainment of the performance goals as determined by the ParentCo Compensation Committee after the end of the applicable performance period. The Coal Tonnage Goal was achieved and Mr. McCaffrey vested in his right to this award, subject to the attainment of the awards performance goals as determined by the ParentCo Compensation Committee. |
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In January 2017, the ParentCo Compensation Committee determined the payout, based on strict adherence to the above formula, of the first tranche of the 2016 2020 PSU awards, based on ParentCos relative TSR and absolute stock price performance during 2016. Based on the targets described above and the actual performance results for 2016 shown in the below chart, the ParentCo Compensation Committee determined that the first tranche of the 2016 2020 PSUs was earned at 200% of target, with (i) a relative TSR score of 200%, and (ii) an average stock price score of 200%.
Performance Metric |
Performance Results |
Units Earned
(%) |
Weighting
(%) |
Total Units Earned
(%) |
||||||||||||
Relative TSR(1) |
99.5 percentile | 200 | % | 50 | % | 200 | % | |||||||||
Absolute Stock Price Per Share (2) |
$ | 18.98 | 200 | % | 50 | % | 200 | % |
(1) |
Relative TSR for the 2016 tranche was measured by comparing ParentCos 10-day average closing stock price per share ending on December 31, 2016 against those of the companies in the S&P 500 as of the same date against their 10-day average closing stock price per share ending on December 31, 2015. Dividends were included on a cash basis. |
(2) |
The absolute stock price metric for the 2016 tranche was measured by comparing ParentCos GDSP of $6.87 per share against ParentCos 10-day average closing stock price per share ending December 31, 2016 of $18.98 per share. |
As a result of the achievement of the above performance factors, the named executives earned the following payouts with respect to the 2016 PSU tranche:
CoalCo Named Executive |
2016 PSU Tranche
(at target) |
Target Payout
(%) |
Payout Amounts
(# of shares) |
|||||||||
Chief Executive Officer |
13,854 | 200 | % | 27,708 | ||||||||
Chief Financial Officer |
27,708 | 200 | % | 55,416 | ||||||||
President |
1,316 | 200 | % | 2,632 | ||||||||
SVP- Coal Marketing |
3,462 | 200 | % | 6,924 | ||||||||
Chief Administrative Officer |
1,038 | 200 | % | 2,076 |
2016 2018 Option Grants. In order to provide competitive compensation, retain key executive talent, and align managements interests with ParentCos stockholders, in January 2016, Messrs. Khani, McCaffrey, Salvatori and Ms. Fredriksen received awards of time-based, three-year ratable vesting option awards. Mr. Brock did not receive an option award as part of his 2016 LTIC, and instead received an equity award pursuant to the CNXC LTIP due to his service as Chief Executive Officer and a director of the CNXC GP (please see below under 2016 CNXC Phantom Unit Award to Mr. Brock). The 2016 option awards granted to Messrs. Khani, McCaffrey, Salvatori and Ms. Fredriksen were as follows:
CoalCo Named Executive |
Aggregate Dollar Value of
3-Year Option Award |
|||
Chief Financial Officer |
$ | 900,000 | ||
President |
$ | 42,750 | ||
SVP- Coal Marketing(1) |
$ | 112,500 | ||
Chief Administrative Officer |
$ | 33,750 |
(1) |
Pursuant to the terms of Mr. McCaffreys retention agreement described below, ParentCo agreed that, if ParentCo achieved the Coal Tonnage Goal and he remained employed with ParentCo or its subsidiaries through December 31, 2016, he would vest in his 2016 option award with such award remaining exercisable until the expiration date of the option term. As described above, the Coal Tonnage Goal was achieved and Mr. McCaffrey vested in his 2016 option award. |
Payout of ParentCo PSUs Covering 2014 2016 Performance Period. In January 2014, the ParentCo Compensation Committee approved an award of PSUs to ParentCos named executive officers and other key
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employees of ParentCo at that time, including Messrs. Khani and McCaffrey, which awards had a performance period from January 1, 2014 through December 31, 2016. Additional information regarding the 2014 2016 PSUs is included in ParentCos Proxy Statement filed on March 25, 2015. In 2016, the ParentCo Compensation Committee determined the actual payout of the 2014 2016 PSU awards by strictly adhering to the following formula, with the two metrics of relative TSR and average Return on Capital Employed (ROCE*) being equally weighted.
Based on the above targets and the actual performance results shown in the below chart, the ParentCo Compensation Committee determined that, with respect to the three-year performance period of January 1, 2014 through December 31, 2016, the PSUs were earned at 100% of target, based on (i) a TSR score of 0% and (ii) a ROCE* score of 200%, as follows:
Performance Metric |
Performance Results |
Units Earned (%) | Weighting (%) | Total Units Earned (%) | ||||||||||
TSR(1) |
4.5% (Below Threshold) | 0 | % | 50 | % | 100 | % | |||||||
ROCE*(2) |
12.25% (Outstanding) | 200 | % | 50 | % |
(1) |
TSR was measured by comparing ParentCos 10-day average closing stock price per share ending on December 31, 2013 and the companies in the S&P 500 as of that same date against the 10-day average closing stock price per share of ParentCo ending December 31, 2016. |
(2) |
The calculation of the ROCE* result is set forth on Appendix A. |
As a result of the above performance determinations, Messrs. Khani and McCaffrey earned the following PSUs for the 2014 2016 performance period:
CoalCo Named Executive |
PSUs Granted in January 2014 (Target)
(including Dividend Equivalents) |
Shares of Common Stock
Issued (Earned PSUs) |
||||||
Chief Financial Officer |
13,561 | 13,561 | ||||||
SVP- Coal Marketing(1) |
3,476 | 3,476 |
(1) |
Pursuant to the terms of Mr. McCaffreys retention agreement described below, ParentCo agreed that, if ParentCo achieved the Coal Tonnage Goal and he remained employed with ParentCo or its subsidiaries through December 31, 2016, he would vest in his 2014-2016 PSUs, subject to the attainment of the performance goals as determined by the ParentCo Compensation Committee after the end of the performance period. The Coal Tonnage Goal was achieved and Mr. McCaffrey vested in his right to this award, subject to the attainment of the awards performance goals as determined by the ParentCo Compensation Committee. |
2016 CNXC Phantom Unit Award to Mr. Brock
CNXC Phantom Units . In 2016, the CNXC GP Board granted long-term incentive awards, consisting of phantom units, under the CNXC LTIP to certain of its executives and key employees. For 2016, the only named executive
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who received a long-term incentive award under the CNXC LTIP was Mr. Brock. Mr. Brock was awarded 56,963 CNXC phantom units in 2016, which vest one-third per year and are settled upon vesting in common units of CNXC (on a one-for-one basis) or, at the discretion of the CNXC GP Board, in cash.
Other Compensation Policies and Information in Effect During 2016
Retirement Benefit Plans . ParentCo maintains retirement benefit plans, including supplemental retirement plans, which are intended to attract and retain key talent. ParentCo also continues to move toward a defined contribution strategy to deliver retirement benefits to its employees. In 2014, ParentCo froze the retirement plan for its employees and eliminated retiree medical for all active employees, including our named executives.
Change in Control Agreements . Our named executives have entered into change in control severance agreements with ParentCo and/or its affiliates, which we refer to as the CIC Agreements. The CIC Agreements provide for a double trigger requirement before severance benefits may be paid, in that a named executive will only receive severance benefits if his or her employment is terminated or constructively terminated after, or in connection with, a change in control (as defined in the applicable CIC Agreements) and such named executive enters into a general release of claims as provided in the CIC Agreement. Under these circumstances, the named executives would be entitled to receive a lump-sum cash severance payment equal to a multiple of base pay, plus a multiple of incentive pay (as defined in the applicable CIC Agreement), as follows:
CoalCo Named Executive |
Multiple of Base Salary and Incentive Pay | |
Chief Executive Officer |
2.0 | |
Chief Financial Officer |
2.5 | |
President |
1.5 | |
SVP - Coal Marketing |
2.0 | |
Chief Administrative Officer |
2.0 |
Additionally, in connection with a change in control only, equity grants would accelerate and vest. To protect the business interests of CNXC and ParentCo, the CIC Agreements and applicable equity award agreements also contain confidentiality obligations, a one-year non-competition covenant and a two-year non-solicitation covenant. In connection with the separation and distribution, CoalCo will determine whether to enter into new change in control severance agreements with our named executives, which would supersede the CIC Agreements discussed here and elsewhere in this information statement. Certain of the CIC Agreements discussed herein have since been superseded by new agreements. See Subsequent Events below for additional detail.
McCaffrey Retention Agreement . On March 31, 2016, ParentCo entered into a retention agreement with Mr. McCaffrey which provided as follows:
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If the Coal Tonnage Goal was achieved and he remained employed with ParentCo or its subsidiaries through December 31, 2016, any equity incentive awards granted to him under the ParentCo LTIP, to the extent unvested, would vest on December 31, 2016 and, in the case of (i) option awards, remain exercisable until the expiration date of the option term and (ii) PSU awards, continue to be subject to the attainment of the applicable performance goals as determined by the ParentCo Compensation Committee after the end of the applicable performance period. |
|
If Mr. McCaffrey remains employed with ParentCo or its subsidiaries through December 31, 2017, any equity incentive awards granted to him under the ParentCo LTIP in 2017 will vest on December 31, 2017 and, in the case of (i) option awards, remain exercisable until the expiration date of the option term and (ii) PSU awards, continue to be subject to the attainment of the applicable performance goals as determined by the ParentCo Compensation Committee after the end of the applicable performance period. |
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Notwithstanding the forgoing, if ParentCo or its subsidiary terminated his employment for cause, the retention agreement would be immediately null and void.
Clawback Policy . ParentCo has in place a compensation clawback policy, which provides that ParentCo may seek to recover performance-based cash and equity incentive compensation paid to an executive officer in the three years prior to a restatement as a result of ParentCos material non-compliance with the financial reporting requirements of the securities laws if (i) such officer is responsible for such restatement and (ii) the amount paid to the officer would have been lower had it been calculated based on such restated financial statements. CoalCo will determine the type of clawback policy that is appropriate for it following the separation.
Stock Ownership Guidelines for Certain Named Executives . ParentCo has stock ownership guidelines applicable to its named executives, which requires that they own a minimum number of shares of ParentCo stock, based upon a multiple of base salary. The guidelines provide each officer with a five-year period from their appointment as an officer to achieve the applicable ownership level. The ownership requirements applicable to the named executives with respect to ParentCo stock are as follows:
Named Executive |
Ownership Requirement
(As Multiple of Base Salary) |
|||
Chief Executive Officer |
2.5 | |||
Chief Financial Officer |
3.5 | |||
President |
1.0 | |||
SVP - Coal Marketing |
1.5 | |||
Chief Administrative Officer |
1.5 |
ParentCos stock ownership guidelines were implemented to further align officers interests with those of ParentCos stockholders and to comply with what it believes are best practices. ParentCo reviews compliance with the stock ownership guidelines annually. CoalCo expects to make a determination regarding adoption of a stock ownership policy applicable to the named executives and their ownership of CoalCo shares following the separation.
No Hedging/Pledging Policy . ParentCos insider trading policy prohibits directors, officers and employees from engaging in any of the following activities with respect to securities of ParentCo and its subsidiaries (except as otherwise may be approved in writing by ParentCos General Counsel): (i) purchases on margin; (ii) short sales; (iii) buying or selling options (other than the grant and exercise of compensatory stock options by ParentCo to directors, officers and employees), including buying or selling puts or calls or other hedging transactions; or (iv) pledging ParentCo or subsidiary securities (provided, however, that brokerage account agreements may grant security interests in securities held at the broker to secure payment and performance obligations of the brokerage account holder in the ordinary course). CNXC has also adopted an insider hedging policy with similar prohibitions against hedging and pledging CNXC units. CoalCo expects to adopt a no hedging/pledging policy following the separation.
Perquisites . ParentCo provides limited perquisites that it believes are reasonable, competitive and consistent with its compensation program. ParentCos principal perquisite programs are more fully described in the footnotes to the Summary Compensation Table. ParentCo does not provide tax gross-ups on ParentCo-provided perquisite programs to its named executive officers. It is anticipated that a similar approach will be adopted by CoalCo after the separation.
Tax, Accounting, and Regulatory Considerations . ParentCo considers the effects of tax, accounting and other regulatory requirements in designing and implementing its compensation programs, and while these factors may impact plan designs, ultimately decisions reflect the pay strategy of ParentCo and program intent. With some exceptions, Section 162(m) of the Code limits ParentCos deduction for compensation in excess of $1 million paid to certain covered employees (generally ParentCos chief executive officer and the three next highest-paid
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executive officers, other than the chief financial officer). Compensation paid to covered employees is not subject to the deduction limitation if it is considered qualified performance-based compensation within the meaning of Section 162(m) of the Code. In order to serve the interests of ParentCos stockholders, performance-based awards are structured to comply with Section 162(m) of the Code to maximize ParentCos tax deductions.
Although ParentCo strives to provide the named executives with compensation packages that will preserve deductibility of significant components of those packages to the extent reasonably practicable or consistent with ParentCos compensation objectives, the ParentCo Compensation Committee believes that ParentCo stockholder interests are best served by not restricting flexibility in structuring, determining and ultimately approving payment with respect to these compensation programs (even if the programs or such decisions may result in certain nondeductible compensation).
In the case of CoalCo, Section 162(m) includes a special transition period for certain spin-offs of subsidiaries of publicly held companies that become separately held public companies. During this transition period, any compensation paid to covered employees under our equity and annual cash incentive plans will be exempt from the deduction limits under Section 162(m) for a limited period of time even without stockholder approval, so long as the other applicable requirements of Section 162(m) are met (i.e., requirements relating to the composition of the compensation committee, the performance goals and the certification of the performance goals). This transition period is applicable for compensation paid in connection with annual incentive bonuses, stock options, stock appreciation rights, restricted stock or restricted stock units prior to the first regularly scheduled meeting of our stockholders that occurs beginning 12 months after the date of the separation.
Compensation Policies and Practices as They Relate to ParentCos Risk Management . ParentCos 2016 compensation program was designed to motivate and reward ParentCos employees for their performance during the fiscal year and over the long term, and for taking appropriate business risks.
In January 2016, the ParentCo Compensation Committee reviewed an assessment of the risks, if any, to ParentCo associated with ParentCos compensation policies and practices. The ParentCo Compensation Committee, with management, reviewed and discussed the design features, characteristics, performance metrics and approval mechanisms for all of its various compensation components, to determine whether any of the compensation policies or programs could create risks that would be reasonably likely to have a material adverse effect on ParentCo. The assessment was also reviewed by ParentCos Internal Auditors and Human Resources Department. Based on this review, management, the ParentCo Compensation Committee and the ParentCo Board of Directors identified the following risk mitigating components, which they believed would likely reduce excessive risk-taking and mitigate incentives to maximize short-term results at the expense of long-term value:
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Balanced Pay Mix: The target compensation mix of executive officers, including our named executives, is heavily weighted toward long-term incentive compensation. |
|
Mix of Performance Metrics: ParentCo does not rely on a single performance metric to determine payouts for performance-based awards. Instead, performance targets are tied to a variety of metrics. Performance-based awards are also based, in part, on the achievement of strategic and operational objectives in addition to the foregoing metrics. |
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Calculation and Verification of Performance: Controls are in place to ensure accuracy of calculations as to actual performance against metrics. In cases where management determines performance scores, the ParentCo Compensation Committee and Board generally review and make judgments regarding these determinations. |
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Cap on Incentive Payouts: ParentCos incentive programs use financial measures with sliding scales, with amounts, if potentially earned, interpolated between threshold, target and maximum. Payouts are capped at a percentage of the target award to protect against excessive payouts. |
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Performance Period and Vesting Schedules: The performance period and vesting schedules for long-term incentives overlap and, therefore, reduce the motivation to maximize performance in any one period. |
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Stock Ownership and Retention Guidelines: These policies require named executives to own equity in ParentCo and retain shares of ParentCo acquired through equity grants for the long-term. |
Based on the review of ParentCos internal controls and the risk mitigating components of ParentCos compensation programs identified in the management teams risk assessment, together with the assistance of its outside compensation consultant, it was determined that ParentCos compensation policies and practices do not encourage executives or other non-executive employees to take excessive risks that are reasonably likely to have a material adverse effect on ParentCo. In the future, this risk assessment will be performed by the CoalCo Board of Directors or its compensation committee post separation.
Subsequent Events
Messrs. Brock and Salvatori each entered into an Amended and Restated Change in Control Severance Agreement with ParentCo, CNXC, the CNXC GP and CPCC on February 7, 2017. Notwithstanding the additional affiliates of ParentCo made party to the amended and restated agreements, the terms of these agreements are generally similar to the CIC Agreements that were in effect for each of Messrs. Brock and Salvatori as of December 31, 2016 discussed below. However, the amended and restated agreements differ in the following respects as to what each executive is entitled to receive upon an involuntary termination (including constructive termination) associated with a change in control:
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in Mr. Salvatoris case, a lump sum payment equal to 1.5 times his base pay plus 1.5 times his incentive pay (reduced from a multiple of 2.0 under Mr. Salvatoris prior CIC Agreement); |
|
continued medical and dental benefits for a period of 18 months following the date of termination, or monthly reimbursements in lieu thereof (reduced from a 24 month period under the prior CIC Agreements); |
|
a lump-sum cash payment equal to the total amount that the executive would have received under ParentCos, CPCCs or the CNXC GPs 401(k) plan as a company match if such executive was eligible to participate in such 401(k) plan for the 18 month period after the date of termination, assuming such executive had contributed the maximum amount to the 401(k) plan for the match (reduced from a 24 month period under the prior CIC Agreements); and |
|
a lump-sum cash payment equal to the difference between the present value of the executives accrued pension benefits at date of termination under ParentCos, CPCCs or the CNXC GPs qualified defined benefit pension plans and (if eligible) any plan or plans providing nonqualified retirement benefits and the present value of the accrued pension benefits to which such executive would have been entitled under the pension plans if he had continued participation in those plans for a period of 18 months after the date of termination (reduced from a 24 month period under Mr. Brocks prior CIC Agreement, and increased from a 12 month period under Mr. Salvatoris prior CIC Agreement). |
In addition, the definition of change of control was revised to include the occurrence of any of the following events: (i) a transfer of ownership of assets or interests comprising more than seventy-five percent (75%) of the book value of the PAMC segment on ParentCos books as of September 30, 2016 (other than to CNXC or its subsidiaries, or to ParentCo subsidiaries); (ii) ParentCo fails to control, directly or indirectly, the CNXC GP; or (iii) other than a time when ParentCo or its subsidiaries do not control the CNXC GP, a change in control of ParentCo. As a result of this change of control definition, Messrs. Brocks and Salvatoris equity awards, as well as the equity awards held by one other employee of CoalCo, to the extent unvested, will vest at the time of the separation and, in the case of PSU award payout, if any, continue to be contingent upon the achievement of the applicable performance goals.
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As discussed above, in 2016, Messrs. Brock and Khani were named executive officers of ParentCo, and Mr. Brock has also served, and will continue after the separation to serve, as an executive officer of the CNXC GP. Ms. Fredriksen served as an officer of ParentCo. Prior to the separation, Messrs. McCaffrey and Salvatori served, and will continue after the separation to serve, as officers of CPCC.
ParentCo and CNXC currently have in place an omnibus agreement under which CNXC agreed to reimburse ParentCo on a monthly basis for compensation-related expenses (including salary, bonus, incentive compensation and other amounts) attributable to the portion of a named executives compensation that is allocable to the CNXC GP, including the compensation of Mr. Brock. During 2015 and 2016, Mr. Brock devoted approximately 100% of his overall professional working time to the business and affairs of the PAMC. Messrs. McCaffrey and Salvatori devoted such time as was necessary based on their respective allocations of responsibilities. Net to CNXCs 25% undivided interest in the PAMC, CNXC reimburses ParentCo for approximately 25% of the total compensation related expenses (including salary, bonus, incentive compensation and other amounts) incurred by ParentCo and attributable to the compensation of Mr. Brock. Bonus and long-term incentive compensation were not included in the amounts for the period from July 7, 2015 to December 31, 2015 as they were not a direct reimbursement to ParentCo. Please see Certain Relationships and Related Party Transactions for additional information regarding the omnibus agreement.
Summary Compensation Table 2016, 2015 and 2014
The following table discloses the historical compensation earned by, or paid to, our named executives during the years indicated, including all compensation-related expenses disclosed above, which were paid by ParentCo (other than awards granted during 2016 under the CNXC LTIP, which were paid by CNXC). Titles refer to each named executives accepted position at CoalCo following the separation.
Name and
Principal
(a) |
Year
(b) |
Salary
(c) |
Stock
Awards(2) (e) |
Option
Awards(2) (f) |
Non-Equity
Incentive Compensation(3) (g) |
Changes in
Pension Value and Nonqualified Deferred Compensation Earnings(4) (h) |
All Other
Compensation (i) |
Total
(j) |
||||||||||||||||||||||||
James A. Brock, |
2016 | $ | 409,654 | $ | 2,368,779 | | $ | 533,000 | $ | 301,970 | $ | 45,606 | (5) | $ | 3,659,009 | |||||||||||||||||
Chief Executive Officer |
2015 | $ | 399,032 | $ | 766,181 | | $ | 212,000 | $ | 7,422 | $ | 21,873 | $ | 1,406,508 | ||||||||||||||||||
David M. Khani, |
2016 | $ | 517,188 | $ | 3,837,558 | $ | 1,855,103 | $ | 725,000 | $ | 87,749 | $ | 51,297 | (6) | $ | 7,073,895 | ||||||||||||||||
Chief Financial Officer |
2015 | $ | 504,539 | $ | 1,770,399 | | $ | 288,000 | $ | 30,412 | $ | 48,885 | $ | 2,642,235 | ||||||||||||||||||
2014 | $ | 489,000 | $ | 1,797,637 | | $ | 686,000 | $ | 89,804 | $ | 44,339 | $ | 3,106,780 | |||||||||||||||||||
Katharine Fredriksen, |
2016 | $ | 247,619 | $ | 71,667 | $ | 44,496 | $ | 175,082 | $ | 25,120 | $ | 42,829 | (7) | $ | 606,813 | ||||||||||||||||
President |
||||||||||||||||||||||||||||||||
James McCaffrey, Senior Vice President- Coal Marketing |
2016 | $ | 379,710 | $ | 362,657 | (8) | $ | 187,533 | (8) | $ | 379,710 | $ | 321,741 | $ | 66,534 | (9) | $ | 1,697,885 | ||||||||||||||
Kurt Salvatori, Chief Administrative Officer |
2016 | $ | 218,264 | $ | 56,584 | $ | 35,129 | $ | 132,501 | $ | 82,253 | $ | 39,294 | (10) | $ | 564,025 |
(1) |
We have excluded compensation for prior years to the extent permitted by applicable SEC rules. Mr. Khani was a named executive officer for purposes of ParentCos SEC disclosures in 2016, 2015 and 2014. Mr. Brock was a named executive officer for purposes of ParentCos SEC disclosure in 2016 and a named executive officer for purposes of CNXCs SEC disclosure in 2016 and 2015. None of Ms. Fredriksen, Mr. McCaffrey or Mr. Salvatori were named executive officers for purposes of either ParentCo or CNXC SEC disclosure in 2016, 2015 or 2014. |
(2) |
ParentCo Equity Awards: The values set forth in the columns reflect ParentCo awards of (i) PSUs granted to all named executives in 2016, (ii) options granted to Messrs. Khani, McCaffrey, Salvatori and Ms. Fredriksen in 2016, (iii) PSUs and RSUs |
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granted to Messrs. Brock and Khani in 2015, and (iv) PSUs and RSUs granted to Mr. Khani in 2014. These values are based on the aggregate grant date fair value of such awards computed in accordance with SEC rules and FASB ASC Topic 718. The amounts reported in these columns reflect the accounting cost for these awards, and do not correspond to the actual economic value that may be received by the named executives. |
Additionally, please note the following regarding the ParentCo 2016 PSU and option awards: |
|
2016 PSUs . For the 2016 PSUs for Messrs. Brock and Khani, the grant date fair value is computed based upon a Monte Carlo simulation for both the TSR component and the Absolute Stock Price (ASP) component, which results in a valuation of 182% of the ParentCo stock price on May 11, 2016 of $15.23 per share. The TSR fair value component was determined using four primary input assumptions for an asset projection: the risk- free rate (.80%), the dividend yield for ParentCo (0%), the volatility of returns (68.30%), and the assumed correlation in stock returns among the comparator group, the S&P 500. The grant date fair value of the TSR portion was $26.81. The ASP fair value component requires three primary input assumptions for an asset projection: the risk-free rate (1.14%), the dividend yield (0%) for ParentCo, and the volatility of returns (52.80%). The grant date fair value of the ASP portion was $28.57. The value of the 2016 PSU awards in the Stock Awards column for FASB ASC Topic 718 purposes assumes that the highest level of the conditions will be achieved (resulting in no additional expense in the future). |
|
2016 PSUs . For the 2016 PSUs for Ms. Fredriksen and Messrs. McCaffrey and Salvatori, the grant date fair value is computed based upon a Monte Carlo simulation for both the TSR component and the ASP component, which results in a valuation of 137% of the ParentCo stock price on January 29, 2016 of $7.94 per share. The TSR fair value component was determined using four primary input assumptions for an asset projection: the risk-free rate (.92%), the dividend yield for ParentCo (.50%), the volatility of returns (57.85%), and the assumed correlation in stock returns among the comparator group, the S&P 500. The grant date fair value of the TSR portion was $11.25. The ASP fair value component requires three primary input assumptions for an asset projection: the risk-free rate (1.31%), the dividend yield (.50%) for ParentCo, and the volatility of returns (48.86%). The grant date fair value of the ASP portion was $10.52. The value of the awards in the Stock Awards column on the January 29, 2016 grant date for FASB ASC Topic 718 purposes assumes that the highest level of the conditions will be achieved (resulting in no additional expense in the future). |
|
2016 Options . For the 2016 options for Mr. Khani, the grant date fair value is computed based upon a Black-Scholes Model. The fair value of the options was determined using various assumptions: expected volatility (61.11%), dividend yield (0%), and the risk-free rate (1.12%). The grant date fair value of the options was $8.08. |
|
2016 Options . For the 2016 options for Ms. Fredriksen and Messrs. McCaffrey and Salvatori, the grant date fair value is computed based upon a Black-Scholes Model. The fair value of the options was determined using various assumptions: expected volatility (61.42%), dividend yield (.50%), and the risk-free rate (1.21%). The grant date fair value of the options was $4.08. |
A discussion of the relevant assumptions made in the valuation of these PSU and option awards is provided in Note 17 of ParentCos 2016 Annual Report on Form 10-K for the year ended December 31, 2016. |
For the 2015 and 2014 RSUs, the grant date fair value is computed based upon the closing price per share of ParentCos stock on the actual grant date, which was $28.95 and $37.35, respectively. The 2015 and 2014 PSUs are made up of a performance component (ROCE*) and a TSR component. The performance component is computed based upon the closing price per share of ParentCos stock on the grant date, which was $28.95 and $37.35 in 2014 and 2015, respectively. The TSR component is computed using a Monte Carlo simulation with the same basic assumptions as described above: the risk-free rate (.74% in 2015 and .66% in 2014), the dividend yield for ParentCo (.86% in 2015 and .67% in 2014), the volatility of returns (32.30% in 2015 and 40.60% in 2014), and the assumed correlation in stock returns among the comparator group, the S&P 500. The fair value of the TSR component was $31.22 in 2015 and $48.50 in 2014. |
CNXC Equity Awards: For Mr. Brock, the 2016 value reflects an award of CNXC phantom units granted under the CNXC LTIP, and is based on the aggregate grant date fair value of the award computed in accordance with SEC rules and FASB ASC Topic 718 based upon the closing price of CNXC units on the date of grant. A discussion of the relevant assumptions made in the valuation of the grant is provided in Note 20 of the 2016 Annual Report of CNXC for the year ended December 31, 2016. |
(3) |
Includes cash incentives earned in the applicable year under the ParentCo STIC program. The relevant performance measures underlying the cash awards were satisfied in the applicable annual performance period. |
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(4) |
Amounts reflect the actuarial increase in the present value of the named executives benefits under ParentCos Employee Retirement Plan (qualified plan), ParentCos Retirement Restoration Plan, ParentCos Supplemental Retirement Plan (SERP) and ParentCos Defined Contribution Restoration Plan. These amounts were determined using the interest rate and mortality assumptions set forth in the financial statements of ParentCos applicable Annual Reports on Form 10-K (Notes 14, 16 and 16 in the ParentCo Annual Reports on Form 10-K for the fiscal years ended December 31, 2016, December 31, 2015 and December 31, 2014, respectively). Pension values may fluctuate significantly from year to year depending on a number of factors, including age, years of service, average annual earnings and the assumptions used to determine the present value, such as the discount rate. It should be noted that the pension values are calculated pursuant to SEC requirements that are based on assumptions used in preparing ParentCos audited financial statements for the applicable fiscal years and do not present actual value delivered to the named executives for those years. |
(5) |
For 2016, Mr. Brocks personal benefits include spousal travel and a company vehicle. The amount shown also includes $15,900 in matching contributions and $15,900 in discretionary contributions made by ParentCo under its 401(k) plan. |
(6) |
For 2016, Mr. Khanis personal benefits include an annual vehicle allowance, annual physical exam, and luncheon and city club dues. The amount shown also includes $15,900 in matching contributions and $15,900 in discretionary contributions made by ParentCo under its 401(k) plan. |
(7) |
For 2016, Ms. Fredriksens personal benefits include an annual vehicle allowance. The amount shown also includes $14,914 in matching contributions and $14,914 in discretionary contributions made by ParentCo under its 401(k) plan. |
(8) |
Amount includes $174,064 in column (e) and $70,441 in column (f) associated with the modification and acceleration of vesting of Mr. McCaffreys equity awards, as described under Understanding Our Change in Control and Employment Termination Tables and Information-Retention Agreement below, valued in accordance with FASB ASC Topic 718. |
(9) |
For 2016, Mr. McCaffreys personal benefits include an annual vehicle allowance, annual physical exam, and country club dues and associated tax gross up. The amount shown also includes $15,900 in matching contributions and $15,900 in discretionary contributions made by ParentCo under its 401(k) plan. |
(10) |
For 2016, Mr. Salvatoris personal benefits include an annual vehicle allowance. The amount shown also includes $13,147 in matching contributions and $13,147 in discretionary contributions made by ParentCo under its 401(k) plan. |
Grants of Plan-Based Awards 2016
The following table sets forth each grant made to our named executives in the 2016 fiscal year under plans established by ParentCo or under the CNXC LTIP.
Name |
Grant
Date |
Estimated Possible Payouts
Under Non-Equity Incentive Plan Awards (ParentCo STIC Awards)(1) |
Estimated Future Payouts
Under Equity Incentive Plan Awards (ParentCo PSUs)(2) |
All
Other Stock Awards: Number of Shares of Stock or Units (#) |
All
Other Option Awards: Number of Securities Underlying Options (#) |
Exercise
or Base Price of Option Awards ($/Sh) |
Grant
Date Fair Value of Stock and Option Awards (Target)(4) ($) |
|||||||||||||||||||||||||||||||||||||
Threshold
($) |
Target
($) |
Maximum
($) |
Threshold
(#) |
Target
(#) |
Maximum
(#) |
|||||||||||||||||||||||||||||||||||||||
James A. Brock |
| 106,600 | 266,500 | 533,000 | | | | | | | | |||||||||||||||||||||||||||||||||
1/29/16 | (3) | | | | 34,635 | 69,270 | 138,540 | | | | $ | 1,918,779 | ||||||||||||||||||||||||||||||||
1/29/16 | (5) | | | | | | | 56,963 | | | $ | 450,000 | ||||||||||||||||||||||||||||||||
David M. Khani |
| 144,935 | 362,338 | 724,676 | | | | | | | | |||||||||||||||||||||||||||||||||
1/29/16 | (3) | | | | 69,270 | 138,540 | 277,080 | | | | $ | 3,837,558 | ||||||||||||||||||||||||||||||||
1/29/16 | (3) | | | | | | | | 229,592 | $ | 7.94 | $ | 1,855,103 | |||||||||||||||||||||||||||||||
Katharine Fredriksen |
| 43,771 | 87,541 | 175,082 | | | | | | | | |||||||||||||||||||||||||||||||||
1/29/16 | (3) | | | | 3,291 | 6,581 | 13,162 | | | | $ | 71,667 | ||||||||||||||||||||||||||||||||
1/29/16 | (3) | | | | | | | | 10,906 | $ | 7.94 | $ | 44,496 | |||||||||||||||||||||||||||||||
James McCaffrey |
| 94,927 | 189,855 | 379,710 | | | | | | | | |||||||||||||||||||||||||||||||||
1/29/16 | (3) | | | | 8,659 | 17,318 | 34,636 | | | | $ | 362,657 | (6) | |||||||||||||||||||||||||||||||
1/29/16 | (3) | | | | | | | | 28,699 | $ | 7.94 | $ | 187,533 | (6) | ||||||||||||||||||||||||||||||
Kurt Salvatori |
| 33,125 | 66,250 | 132,501 | | | | | | | | |||||||||||||||||||||||||||||||||
1/29/16 | (3) | | | | 2,598 | 5,196 | 10,392 | | | | $ | 56,584 | ||||||||||||||||||||||||||||||||
1/29/16 | (3) | | | | | | | | 8,610 | $ | 7.94 | $ | 35,129 |
(1) |
Awards were made pursuant to the ParentCo STIC program under the ParentCo Executive Annual Incentive Plan. Actual incentive plan payments based on fiscal 2016 performance are set forth in column (g) of the Summary Compensation Table. |
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(2) |
These columns report the number of ParentCo PSUs that may be earned pursuant to awards granted under the ParentCo LTIP. The amounts reflect threshold (50%), target (100%), and maximum (200%) performance levels. |
(3) |
Grants were made under the ParentCo LTIP. |
(4) |
The values set forth in this column reflect awards of 2016-2020 ParentCo PSUs (at target), ParentCo options, and CNXC phantom units and are based on the aggregate grant date fair value of the awards computed in accordance with FASB ASC Topic 718. The values set forth in this table may not correspond to the actual values that will be realized by the named executives. |
(5) |
Grant was made under the CNXC LTIP. |
(6) |
Amount includes $174,064 and $70,441 associated with the modification and acceleration of vesting of Mr. McCaffreys PSU award and 2016 option award, respectively, as described under Understanding Our Change in Control and Employment Termination Tables and Information-Retention Agreement below, valued in accordance with FASB ASC Topic 718. |
Understanding Our Summary Compensation and Grants of Plan-Based Awards Tables
Historically, as further described in the CD&A, pursuant to various plans adopted by ParentCo and CNXC, our named executives were eligible to receive annual cash incentive awards based on the achievement of certain performance targets, and long-term equity awards generally in the form of options, RSUs, and PSUs under the ParentCo LTIP and/or phantom units under the CNXC LTIP. Each of these elements of compensation and the plans under which they are awarded are discussed below in greater detail.
ParentCo STIC Program . The ParentCo STIC program provides participants with an opportunity to earn performance based annual cash bonus awards. Target annual bonus levels are established at the beginning of each year and are based on a percentage of the executives base salary. To be eligible to receive an annual award under the ParentCo STIC program, a named executive must generally be an active, full-time employee on December 31 of the year in which the award was granted. For more information on the ParentCo STIC program, see Compensation and Discussion Analysis above.
ParentCo PSUs . The PSU awards represent a contingent right to receive shares of ParentCo common stock, to the extent such units are earned, and become payable pursuant to the terms of the ParentCo LTIP and related award documents.
ParentCo Options . Option grants to employees generally vest ratably over a three-year period from the grant date with each option, once vested, representing the right to receive a share of stock upon exercise of the option. The ParentCo Compensation Committee (or its designee) determines the number of options to be granted to each participant, the term of the option (generally ten years), and the other terms and conditions of their option awards.
ParentCo RSUs . RSUs were granted under the ParentCo LTIP. The ParentCo Compensation Committee determined the number of RSUs to be granted to each participant, the duration of such awards, the conditions under which the RSUs may be forfeited to ParentCo, and the other terms and conditions of such awards.
CNXC LTIP . In 2016, CNXC issued long-term incentive awards consisting of phantom units, which vest one-third per year under the CNXC LTIP to its executives and key employees. In 2016, CNXC issued phantom units to Mr. Brock as discussed above.
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Outstanding Equity Awards at Fiscal Year-End for ParentCo 2016
The following table sets forth all unexercised options and unvested RSU and PSU awards that have been awarded to our named executives under the ParentCo LTIP and were outstanding as of December 31, 2016.
Option
Awards |
Stock
Awards |
|||||||||||||||||||||||||||||||||||
Name (a) |
Number of
Securities Underlying Unexercised Options (#) Exercisable (b) |
Number of
Securities Underlying Unexercised Options (#) Unexercisable (c) |
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) (d) |
Option
Exercise Price ($) (e) |
Option
Expiration Date (f) |
Number
of Shares or Units of Stock That Have Not Vested (#) (g) |
Market
Value of Shares or Units of Stock That Have Not Vested(1) ($) (h) |
Equity
Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested(2) (#) (i) |
Equity
Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested(1) ($) (j) |
|||||||||||||||||||||||||||
James A. Brock |
6,432 | (3) | | | 34.850 | 2/20/2017 | | | | | ||||||||||||||||||||||||||
3,111 | (4) | | | 78.650 | 2/19/2018 | | | | | |||||||||||||||||||||||||||
6,347 | (5) | | | 27.900 | 2/17/2019 | | | | | |||||||||||||||||||||||||||
4,115 | (6) | | | 50.500 | 2/16/2020 | | | | | |||||||||||||||||||||||||||
6,329 | (7) | | | 48.610 | 2/23/2021 | | | | | |||||||||||||||||||||||||||
12,420 | (8) | | | 36.14 | 1/26/2022 | | | | | |||||||||||||||||||||||||||
| | | | | 10,983 | (9) | 200,220 | | | |||||||||||||||||||||||||||
| | | | | 10,896 | (10) | 198,634 | | | |||||||||||||||||||||||||||
| | | | | 27,708 | (11) | 505,117 | | | |||||||||||||||||||||||||||
| | | | | | | 125,179 | 2,282,013 | ||||||||||||||||||||||||||||
David M. Khani |
7,487 | (8) | | | 35.820 | 3/01/2022 | | | | | ||||||||||||||||||||||||||
| 229,592 | (12) | | 7.940 | 1/29/2026 | | | | | |||||||||||||||||||||||||||
| | | | | 22,510 | (9) | 410,357 | | | |||||||||||||||||||||||||||
| | | | | 19,885 | (13) | 362,504 | | | |||||||||||||||||||||||||||
| | | | | 13,561 | (14) | 247,217 | | | |||||||||||||||||||||||||||
| | | | | 55,416 | (11) | 1,010,234 | | | |||||||||||||||||||||||||||
| | | | | | | 254,821 | 4,645,387 | ||||||||||||||||||||||||||||
Katharine Fredriksen |
2,911 | (7) | | | 48.610 | 2/23/2021 | | | | | ||||||||||||||||||||||||||
3,371 | (8) | | | 36.140 | 3/01/2022 | | | | | |||||||||||||||||||||||||||
| 10,906 | (12) | | 7.940 | 1/29/2026 | | | | | |||||||||||||||||||||||||||
| | | | | 1,406 | (9) | 25,631 | | | |||||||||||||||||||||||||||
| | | | | 2,632 | (11) | 47,981 | | | |||||||||||||||||||||||||||
| | | | | | | 12,177 | 221,987 | ||||||||||||||||||||||||||||
James McCaffrey |
3,458 | (15) | | | 39.470 | 4/02/2017 | | | | | ||||||||||||||||||||||||||
3,566 | (3) | | | 34.850 | 2/20/2017 | | | | | |||||||||||||||||||||||||||
3,457 | (4) | | | 78.650 | 2/19/2018 | | | | | |||||||||||||||||||||||||||
8,815 | (5) | | | 27.900 | 2/17/2019 | | | | | |||||||||||||||||||||||||||
5,716 | (6) | | | 50.500 | 2/16/2020 | | | | | |||||||||||||||||||||||||||
6,329 | (7) | | | 48.610 | 2/23/2021 | | | | | |||||||||||||||||||||||||||
8,872 | (8) | | | 36.140 | 1/26/2022 | | | | | |||||||||||||||||||||||||||
28,699 | (12)(17) | | 7.940 | 1/29/2026 | ||||||||||||||||||||||||||||||||
| | | | | | | | | ||||||||||||||||||||||||||||
| | | | | 6,924 | (11) | 126,225 | | | |||||||||||||||||||||||||||
| | | | | | | 31,187 | 568,539 | ||||||||||||||||||||||||||||
Kurt Salvatori |
1,505 | (5) | | | 27.900 | 2/17/2019 | | | | | ||||||||||||||||||||||||||
1,372 | (6) | | | 50.500 | 2/16/2020 | | | | | |||||||||||||||||||||||||||
570 | (16) | | | 53.130 | 4/01/2021 | | | | | |||||||||||||||||||||||||||
1,506 | (7) | | | 48.610 | 2/23/2021 | | | | | |||||||||||||||||||||||||||
2,661 | (8) | | | 36.14 | 1/26/2022 | | | | | |||||||||||||||||||||||||||
8,610 | (12) | 7.940 | 1/29/2026 | |||||||||||||||||||||||||||||||||
| | | | | 1,893 | (9) | 34,509 | | | |||||||||||||||||||||||||||
| | | | | 2,076 | (11) | 37,845 | | | |||||||||||||||||||||||||||
| | | | | | | 10,050 | 183,212 |
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(1) |
The market value for ParentCo RSUs and PSUs was determined by multiplying the closing market price for ParentCo common stock on December 30, 2016 ($18.23) by the number of shares relating to the RSU and PSU awards. |
(2) |
This column shows the aggregate number of unvested ParentCo PSUs for which the performance period has not lapsed. The performance period for the ParentCo PSU awards granted in 2016 is January 1, 2016 through December 31, 2020, vesting 20% per year (with only the 2017 through 2020 tranches remaining outstanding). The performance period for the PSU awards granted in 2015 is January 1, 2015 through December 31, 2017. The ParentCo PSU amounts presented for the 2016 PSU awards are based on achieving performance goals at the maximum level and for the 2015 PSU awards are based on achieving performance goals at the target level. |
(3) |
ParentCo options granted on February 20, 2007 that vested and became exercisable in three equal annual installments (subject to rounding) beginning on the first anniversary of the grant date. |
(4) |
ParentCo options granted February 19, 2008 that vested and became exercisable in three equal annual installments (subject to rounding) beginning on the first anniversary of the grant date. |
(5) |
ParentCo options granted February 17, 2009 that vested and became exercisable in three equal annual installments (subject to rounding) beginning on the first anniversary of the grant date. |
(6) |
ParentCo options granted February 16, 2010 that vested and became exercisable in three equal annual installments (subject to rounding) beginning on the first anniversary of the grant date. |
(7) |
ParentCo options granted February 23, 2011 that vested and became exercisable in three equal annual installments (subject to rounding) beginning on the first anniversary of the grant date. |
(8) |
ParentCo options granted February 29, 2012 that vested and became exercisable in three equal annual installments (subject to rounding) beginning on the first anniversary of the grant date |
(9) |
ParentCo RSUs granted on January 31, 2014 and January 30, 2015 vest in three equal annual installments (subject to rounding) beginning on the first anniversary of the grant date. |
(10) |
ParentCo RSUs granted on September 24, 2014 which, subject to continued employment, vest in one lump sum on the fifth anniversary of the grant date. |
(11) |
The performance period for the 2016 tranche of the 2016 ParentCo PSU awards was January 1, 2016 through December 31, 2016. The amounts are based on actual performance results for the period. |
(12) |
ParentCo options granted on January 29, 2016 that vest and become exercisable in three equal annual installments (subject to rounding) beginning on the first anniversary of the grant date. |
(13) |
ParentCo RSUs granted on January 31, 2014, which, subject to continued employment, vest in one lump sum on the fifth anniversary of the grant date. |
(14) |
The performance period for the ParentCo PSU awards was January 1, 2014 through December 31, 2016. The amounts are based on actual performance results for the period. |
(15) |
ParentCo options granted on April 2, 2007 that vested and became exercisable in three equal annual installments (subject to rounding) beginning on the first anniversary of the grant date. |
(16) |
ParentCo options granted on April 1, 2011 that vested and became exercisable in three equal annual installments (subject to rounding) beginning on the first anniversary of the grant date. |
(17) |
Vesting of ParentCo options accelerated pursuant to terms of the Retention Agreement discussed in Understanding Our Change in Control and Employment Termination Tables and Information . |
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Outstanding Equity Awards at Fiscal Year-End for CNXC 2016
The following table sets forth the outstanding equity award that was granted to Mr. Brock under the CNXC LTIP and that was outstanding as of December 31, 2016.
Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||
Name
|
Number of
Securities Underlying Unexercised Options (#) (Exercisable) (b) |
Number of
Securities Underlying Unexercised Options (#) (Unexercisable) (c) |
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options(#) Options (d) |
Option
Exercise Price ($) (e) |
Option
Expiration Date (f) |
Number
of Shares or Units of Stock That Have Not Vested(1) (#) (g) |
Market
Value of Shares or Units of Stock That Have Not Vested(2) ($) (h) |
Equity
Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) (i) |
Equity
Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) (j) |
|||||||||||||||||||||||||||
James A. Brock |
| | | | | 56,963 | $ | 1,039,575 | | | ||||||||||||||||||||||||||
David M. Khani |
| | | | | | | | | |||||||||||||||||||||||||||
Katharine Fredriksen |
| | | | | | | | | |||||||||||||||||||||||||||
James McCaffrey |
| | | | | | | | | |||||||||||||||||||||||||||
Kurt Salvatori |
| | | | | | | | |
(1) |
These phantom units were granted on January 29, 2016 and vest in three equal installments (subject to rounding) beginning on the first anniversary of the grant date. |
(2) |
The market value for CNXC phantom units was determined by multiplying the closing market price for CNXC common units on December 30, 2016 ($18.25) by the number of units underlying the award. These phantom units were granted on January 29, 2016 and vest in three equal annual installments (subject to rounding) beginning on the first anniversary of the grant date. |
Option Exercises and Stock Vested Table 2016
The following table sets forth information concerning each exercise of ParentCo stock options and the vesting of RSUs and PSUs of ParentCo during the 2016 fiscal year.
Option Awards | Stock Awards (1) | |||||||||||||||||||
Name |
Number of
Shares Acquired on Exercise(#) |
Value
Realized on Exercise($) |
Number of
Shares Acquired on Vesting(#) |
Value
Realized on Vesting($) |
||||||||||||||||
James A. Brock |
| | 7,072 | 59,334 | ||||||||||||||||
David M. Khani |
| | 13,462 | 112,946 | ||||||||||||||||
Katharine Fredriksen |
| | 1,409 | 11,821 | ||||||||||||||||
James McCaffrey |
| | 7,990 | 105,945 | ||||||||||||||||
Kurt Salvatori |
| | 1,897 | 16,031 |
(1) |
Values include vesting of RSU awards granted in each of 2014 and 2015. |
Pension Benefits Table 2016
The following table provides information with respect to each plan offered by ParentCo that provides for specified retirement payments or benefits, or payments or benefits that will be provided primarily following
126
retirement, including tax-qualified defined benefit plans and non-qualified defined benefit plans (which we refer to as the Supplemental Retirement Plan and the New Restoration Plan), but excluding nonqualified defined contribution plans.
Name |
ParentCo Plan Name |
Number of
Years Credited Service (#) |
Present Value
of Accumulated Benefit(1) ($) |
Payments
During Last Fiscal Year ($) |
||||||||||
James A. Brock |
Employee Retirement Plan | 34 | $ | 1,249,683 | | |||||||||
Retirement Restoration Plan | 25 | $ | 167,902 | | ||||||||||
Supplemental Retirement Plan | 20 | $ | 1,493,346 | | ||||||||||
New Restoration Plan | 5 | $ | 187,503 | | ||||||||||
David M. Khani |
Employee Retirement Plan | 3 | $ | 33,841 | | |||||||||
Supplemental Retirement Plan | 0.25 | $ | 17,014 | | ||||||||||
New Restoration Plan | 5 | $ | 265,359 | | ||||||||||
Katharine Fredriksen |
Employee Retirement Plan | 4 | $ | 8,492 | | |||||||||
Supplemental Retirement Plan | 1 | $ | 38,912 | | ||||||||||
New Restoration Plan | 5 | $ | 67,245 | | ||||||||||
James McCaffrey |
Employee Retirement Plan | 38 | $ | 1,409,681 | | |||||||||
Retirement Restoration Plan | 29 | $ | 522,747 | | ||||||||||
Supplemental Retirement Plan | 20 | $ | 1,416,965 | | ||||||||||
New Restoration Plan | 5 | $ | 154,763 | | ||||||||||
Kurt Salvatori |
Employee Retirement Plan | 23 | $ | 340,977 | | |||||||||
Supplemental Retirement Plan | 20 | $ | 267,514 | | ||||||||||
New Restoration Plan | 5 | $ | 53,555 | |
(1) |
The accumulated benefits included in this column were computed through December 31, 2016 using the assumptions stated in the financial statements included in ParentCos 2016 Annual Report on Form 10-K (Note 14). |
Understanding Our Pension Benefits Table
This section provides information regarding ParentCos retirement programs, which include the following:
|
Employee Retirement Plan; |
|
Retirement Restoration Plan; |
|
Supplemental Retirement Plan; and |
|
New Restoration Plan. |
Employee Retirement Plan (the Pension Plan)
The Pension Plan is a defined benefit plan that pays retirement benefits based on years of service and compensation. It is a qualified plan, meaning that it is subject to a variety of IRS rules. These rules contain various requirements on coverage, funding, vesting and the amount of compensation that can be taken into account in calculating benefits. The Pension Plan has a fairly broad application across ParentCos employee population and formed a part of the general retirement benefit program available to employees through December 31, 2015. Effective January 1, 2016, the Pension Plan was frozen.
Eligibility. The Pension Plan covers employees of ParentCo and affiliated participating companies that are classified as regular, full-time employees or that complete 1,000 hours of service during a specified twelve-month period. The Pension Plan does not include other categories of individuals, such as leased employees,
127
independent contractors and employees covered by a collective bargaining agreement that does not provide for participation in the Pension Plan. On September 30, 2014, the Pension Plan was amended to reduce future accruals of pension benefits as of December 31, 2014. The plan amendment called for a hard freeze of the Pension Plan on December 31, 2014 for employees who were under age 40 or had less than 10 years of service as of September 30, 2014. In addition, employees hired or rehired on or after October 1, 2014 are not eligible to participate in the Pension Plan. Beginning January 1, 2015, ParentCo contributed an additional 3% Qualified Non-Elective Contribution (QNEC) of eligible compensation into the ParentCos qualified 401(k) plan (401(k) Plan) accounts for these affected employees. Employees who were age 40 or over and had at least 10 years of service as of September 30, 2014 continued in the Pension Plan unchanged and were not eligible for the QNEC. As a result of this amendment, Mr. Khani and Ms. Fredriksen received the additional 3% QNEC into their 401(k) plan accounts effective January 1, 2015 and did not accrue any additional benefits under the Pension Plan after December 31, 2014. Messrs. Brock, McCaffrey and Salvatori were not impacted by these changes and continued in the Pension Plan unchanged, with no eligibility for the QNEC, during 2015. On September 9, 2015, the Pension Plan was amended to cease future accruals of pension benefits as of December 31, 2015. The plan amendment implemented a hard freeze of the Pension Plan on December 31, 2015 for all remaining participants in the plan. In addition, the 401(k) plan was amended to end the additional 3% QNEC as of December 31, 2015. As a result of these amendments, Messrs. Brock, McCaffrey and Salvatori have not accrued any additional benefits under the Pension Plan after December 31, 2015 and Mr. Khani and Ms. Fredriksen have ceased to receive any further QNEC under the 401(k) plan after December 31, 2015.
Incapacity Retirement. Employees who have attained age 40 with at least ten years of service who are deemed disabled and consequently receive a Social Security disability award (proving the disability occurred while employed by ParentCo or a participating affiliated company) are eligible for an incapacity retirement resulting in an unreduced benefit under the Pension Plan, payable in the form of an annuity, commencing the month following termination. Messrs. Brock, McCaffrey and Salvatori have satisfied the age and service conditions necessary to be eligible for incapacity retirement under the Pension Plan as of December 31, 2016, if they had incurred a qualifying disability on that date.
Separation Retirement. Employees who terminate employment with five or more years of service prior to attaining age 50, or who have attained age 50 but have fewer than ten years of service upon termination, qualify for separation retirement. Payment of the accrued vested benefit is payable at an amount reduced for payments commencing prior to age 65, or the full benefit may be paid at age 65. As of December 31, 2016, Messrs. Khani, Salvatori and Ms. Fredriksen are eligible for separation retirement under the Pension Plan.
Early Retirement. Employees who have completed ten or more years of service and are age 50 or older upon termination are eligible for early retirement. Under early retirement, an employee may elect to defer payment to age 65 or elect to begin receiving payment the first of any month up to age 65, subject to a reduction for age. Payments commencing prior to age 65 are reduced based on various early reduction schedules depending upon age at the payment commencement date and years of service at the time of termination. As of December 31, 2016, Messrs. Brock and McCaffrey are eligible for early retirement under the Pension Plan.
Normal Retirement. Employees who terminate employment and have attained age 65 qualify for normal retirement. Payment of the full benefit commences the month following termination. None of the named executives qualify for normal retirement under the Pension Plan as of December 31, 2016.
Form of Payment. The portion of accrued pension benefits earned under the Pension Plan as of December 31, 2005 may be, upon the election of the participant, paid in the form of a lump-sum payment except in the case of an incapacity retirement as discussed above. Pension benefits earned after January 1, 2006 are payable in the form of a single life annuity, 50% joint and survivor annuity, 75% joint and survivor annuity or 100% joint and survivor annuity.
Calculation of Benefits. Pension benefits, which are now frozen, are based on an employees years of service and average monthly pay during the employees five highest-paid years while eligible for service under the Pension
128
Plan. Average monthly pay for this purpose excludes compensation in excess of limits imposed by the Code. Due to the Plan being frozen, average monthly pay is based on pay as of December 31, 2014 for Mr. Khani and Ms. Fredriksen and as of December 31, 2015 for Messrs. Brock, McCaffrey and Salvatori. Prior to January 1, 2006, pension benefits were calculated based on the average monthly pay during the employees three highest-paid years and included annual amounts payable under ParentCos STIC program, again excluding compensation in excess of limits imposed by the Code.
Retirement Restoration Plan (the Restoration Plan)
The Restoration Plan is an unfunded deferred compensation plan maintained by ParentCo for the benefit of employees whose eligible compensation under the Pension Plan exceeded limits imposed by the federal income tax laws. ParentCo established this plan in order to attract and retain persons that ParentCo considered to be important to its success by providing retirement benefits that are not restricted by the statutory limitations imposed by the Code.
In December 2006, ParentCos Board authorized amendments to the Restoration Plan which froze the plan effective December 31, 2006 for ParentCo employees. After the applicable date, no existing participant accrues benefits and no compensation or service is counted for purposes of the Restoration Plan. A participants benefit is calculated as of the applicable date with reference to the participants benefits under the Pension Plan as of that date.
To comply with Section 409A of the federal income tax laws, the Restoration Plan was further amended to provide that all distributions of benefits accrued and vested under the plan as of December 31, 2006 will be paid in a lump sum. Any such lump-sum distribution of benefits will be paid no later than 30 days following the later to occur of the end of the month following the month in which the participant turns age 50 or the end of the month following the month in which the participant incurs a separation of service. The benefits will be calculated and actuarially reduced, as necessary (using assumptions specified in the Pension Plan), based on a participants benefits being initially expressed as a single life annuity payable commencing on such participants normal retirement date.
Payment under the plan may not commence prior to age 50, except in the event of an incapacity retirement or under a termination due to a change in control. Payments commencing prior to age 65 are reduced based on various early reduction schedules depending upon age at the payment commencement date and years of service at the time of termination. Benefits under the Restoration Plan are paid in the form of a lump sum. As of December 31, 2016, Messrs. Brock and McCaffrey were eligible for early retirement under the Restoration Plan.
Supplemental Retirement Plan
On December 5, 2006, ParentCos Board approved and adopted the Supplemental Retirement Plan, effective January 1, 2007. Certain modifications were made to the Supplemental Retirement Plan which became effective December 4, 2007. ParentCos Supplemental Retirement Plan is designed primarily for the purpose of providing benefits for a select group of management and highly compensated employees of ParentCo and its subsidiaries and is intended to qualify as a top hat plan under the Employee Retirement Income Security Act of 1974, as amended. ParentCos Supplemental Retirement Plan is an unfunded, unsecured obligation of ParentCo, the benefits of which will be paid from its general assets.
All of the named executives are participants in the Supplemental Retirement Plan. In September 2011, ParentCos Board of Directors authorized amendments to the Supplemental Retirement Plan, which froze the plan effective December 31, 2011 for current and future ParentCo employees, except for certain officers referred to hereafter as the excepted employees. After the applicable date, no existing participant or future ParentCo employee, other than the excepted employees, accrues benefits and no compensation or service is counted for
129
purposes of calculating benefits under the Supplemental Retirement Plan. Frozen participants years of service will continue to accrue solely for vesting purposes. All of the named executives are frozen participants under the Supplemental Retirement Plan. ParentCo established the Supplemental Retirement Plan in order to attract and maintain persons that we considered to be important to our success by providing benefits that are not restricted by the statutory limitations imposed by the federal income tax laws.
The ParentCo Compensation Committee has reserved the right to terminate a participants participation in the Supplemental Retirement Plan at any time. Additionally, if a participants employment is terminated or if a participant no longer meets the Supplemental Retirement Plans basic eligibility standards, the participants participation in the Supplemental Retirement Plan (and such persons right to accrue any benefits thereunder) will terminate automatically with no further action required. Final average compensation and years of service will be determined at such time.
The amount of each participants benefits under the plan as of age 65 (expressed as an annual amount) will be equal to 50% of final average compensation multiplied by the service fraction as calculated on the participants date of employment termination with ParentCo. Final average compensation means the average of a participants five highest consecutive annual compensation amounts (annual base salary plus amounts received under the STIC program) while employed by ParentCo or its subsidiaries. The service fraction means a fraction with a numerator equal to a participants number of years of service and with a denominator of 20. The service fraction can never exceed one.
The benefits described above will be reduced by a participants age 65 vested benefits (including benefits which have been paid or are payable in the future (converted to an annual amount)) under: (i) the Pension Plan; (ii) the Restoration Plan; and (iii) any other plan or arrangement providing retirement-type benefits, including arrangements with prior employers, to the extent service with such other employer or under such arrangement is credited under the Supplemental Retirement Plan. No benefit will be vested under the Supplemental Retirement Plan until a participant has five years of service with ParentCo or its participating subsidiaries while the participant meets the eligibility standards in the plan.
Benefits under the Supplemental Retirement Plan will be paid in the form of a life annuity with a guaranteed term of 20 years (which will be the actuarial equivalent of a single life annuity) commencing in the month following the later to occur of: (a) the end of the month following the month in which the participant turns age 50, or (b) the end of the month following the month in which the employment termination of a participant occurs. In the event the benefits commence prior to the participants normal retirement age, the benefit will be actuarially reduced as necessary (using assumptions specified in the Pension Plan).
New Restoration Plan
In September 2011, ParentCos Board approved and adopted the New Restoration Plan, effective January 1, 2012. The New Restoration Plan is designed primarily for the purpose of providing benefits for a select group of management and highly compensated employees of ParentCo and its subsidiaries and is intended to qualify as a top hat plan under the Employee Retirement Income Security Act of 1974, as amended. The New Restoration Plan is an unfunded, unsecured obligation of ParentCo, the benefits of which will be paid from its general assets. ParentCo employees who are eligible to participate and accrue benefits in the Supplemental Retirement Plan are ineligible to participate in the New Restoration Plan.
ParentCos Board established the New Restoration Plan upon the freezing of the Supplemental Retirement Plan as to certain employees in order to attract and retain persons that we considered to be important to our success by providing benefits that are not restricted by the statutory limitations imposed by the federal income tax laws. All of the named executives are participants in the New Restoration Plan.
The ParentCo Compensation Committee has reserved the right to terminate a participants participation in the New Restoration Plan at any time. Additionally, if a participants employment is terminated or if a participant no
130
longer meets the New Restoration Plans basic eligibility standards, the participants participation in the New Restoration Plan (and such persons right to accrue any benefits thereunder) will terminate automatically with no further action required.
Eligibility for benefits under the New Restoration Plan is determined each calendar year (the Award Period). Participants whose sum of annual base pay as of December 31 and amounts received under the ParentCo STIC program or other annual incentive program earned for services rendered by the participant during the Award Period exceed the compensation limits imposed by section 401(a)(17) of the Code (up to $265,000 for 2016) are eligible for benefits under the New Restoration Plan for the Award Period. The amount of each eligible participants benefit under the plan is equal to 9% times annual base salary as of December 31 and amounts received under the ParentCo STIC program or other annual incentive program earned for services rendered by the participant during the Award Period less 6% times the lesser of annual base salary as of December 31 or the compensation limit imposed by the Code for the Award Period ($265,000 for 2016).
Benefits under the New Restoration Plan will be paid in the form of two hundred forty (240) equal monthly installments, with each installment equal to the value of the participants account at commencement divided by two hundred forty (240). Benefits shall commence in the month immediately following the later to occur of (i) the month in which the participant turns age 60, or (ii) the month containing the six-month anniversary date of the participants separation from service.
Potential Payments upon Termination or Change in Control Tables
Except as otherwise provided, the following narrative and tables set forth the potential payments and the value of other benefits that would vest or otherwise accelerate vesting at, following, or in connection with any termination, including without limitation resignation, incapacity retirement or a constructive termination of a named executive, or a change in control of ParentCo, or, if applicable to the named executive, a change in control of CNXC, or a change in the named executives responsibilities, as such scenarios are contemplated in the contracts, agreements, plans or arrangements described below.
The payments and benefits detailed in the table below are in addition to any payments and benefits under the plans and arrangements that are offered or provided generally to all salaried employees on a nondiscriminatory basis and any accumulated vested benefits for each named executive, including those set forth in the Pension Benefits Table 2016, and any stock options vested as of December 31, 2016 (which are set forth in the Outstanding Equity Awards at Fiscal Year-End Table for ParentCo 2016). The table assumes that employment termination and/or the change in control occurred on December 31, 2016 and a valuation of ParentCos common stock based on its closing market price per share on December 30, 2016 of $18.23 per share, and a valuation of CNXCs common units based on its closing market price per unit on December 30, 2016 of $18.25 per unit. The table also assumes that the named executive will take all action necessary or appropriate for such person to receive the maximum available benefit, such as execution of a release of claims and compliance with restrictive covenants described below.
131
JAMES A. BROCK*
Executive Benefits and Payments Upon
|
Incapacity
Retirement (with a social security disability) |
Termination
for Good Reason or Not for Cause (reduction in force) |
Termination
For Cause |
Death |
Disability
(without a social security disability) |
Change in
Control Termination(1) |
||||||||||||||||||
Compensation: |
||||||||||||||||||||||||
Base Salary |
| | | | | $ | 820,000 | |||||||||||||||||
Short-Term Incentive(2) |
| | | $ | 266,500 | | $ | 610,002 | ||||||||||||||||
Severance Pay Plan(3) |
| $ | 197,115 | | | | | |||||||||||||||||
Long-Term Incentive Compensation:(4) | ||||||||||||||||||||||||
Options: Unvested |
| | | | | | ||||||||||||||||||
RSUs: Unvested |
$ | 341,193 | $ | 341,193 | | $ | 341,193 | | $ | 341,193 | ||||||||||||||
PSUs: Unvested |
$ | 174,364 | $ | 261,545 | | $ | 766,663 | $ | 174,364 | $ | 766,663 | |||||||||||||
CNXC Phantom Units: Unvested | $ | 1,039,575 | | | $ | 1,039,575 | | $ | 1,039,575 | |||||||||||||||
Benefits and Perquisites: |
||||||||||||||||||||||||
Outplacement service |
| | | | | $ | 25,000 | |||||||||||||||||
Continuation of medical/ drug/ dental benefits(5) | | | | | | $ | 24,019 | |||||||||||||||||
401(k) payment |
| | | | | $ | 31,800 | |||||||||||||||||
Restoration Plan |
| | | | | $ | 9,189 | |||||||||||||||||
Supplemental Retirement Plan(6) | | | | | | $ | 1,166,120 | |||||||||||||||||
New Restoration Plan |
| | | | | $ | 66,678 | |||||||||||||||||
280G Tax Reduction(7) |
| | | | | $ | (1,086,351 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
TOTAL |
$ | 1,555,132 | $ | 799,853 | | $ | 2,413,931 | $ | 174,364 | $ | 3,813,888 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
* |
Applicable footnotes follow the last table in this section of the information statement. |
132
DAVID M. KHANI*
Executive Benefits and Payments Upon
|
Incapacity
Retirement (with a social security disability) |
Termination
for Good Reason or Not for Cause (reduction in force) |
Termination
For Cause |
Death |
Disability
(without a social security disability) |
Change in
Control Termination(1) |
||||||||||||||||||
Compensation: |
||||||||||||||||||||||||
Base Salary |
| | | | | $ | 1,294,063 | |||||||||||||||||
Short-Term Incentive(2) |
| | | $ | 362,338 | | $ | 1,165,833 | ||||||||||||||||
Severance Pay Plan(3) |
| $ | 79,635 | | | | | |||||||||||||||||
Long-Term Incentive
Compensation:(4) |
||||||||||||||||||||||||
Options: Unvested |
$ | 2,362,502 | | | $ | 2,362,502 | | $ | 2,362,502 | |||||||||||||||
RSUs: Unvested |
$ | 772,861 | $ | 772,861 | | $ | 772,861 | | $ | 772,861 | ||||||||||||||
PSUs: Unvested |
$ | 402,968 | $ | 604,452 | | $ | 1,614,686 | $ | 402,968 | $ | 1,614,686 | |||||||||||||
CNX Phantom Units: Unvested | | | | | | | ||||||||||||||||||
Benefits and Perquisites: |
||||||||||||||||||||||||
Outplacement service |
| | | | | $ | 25,000 | |||||||||||||||||
Continuation of medical/drug/dental benefits(5) | | | | | | $ | 24,506 | |||||||||||||||||
Supplemental Retirement Plan(6) | | | | | | $ | 17,617 | |||||||||||||||||
401(k) payment |
| | | | | $ | 39,750 | |||||||||||||||||
New Restoration Plan |
| | | | | $ | 148,323 | |||||||||||||||||
280G Tax Reduction(7) |
| | | | | $ | (1,846,594 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
TOTAL |
$ | 3,538,331 | $ | 1,456,948 | | $ | 5,112,387 | $ | 402,968 | $ | 5,618,547 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
* |
Applicable footnotes follow the last table in this section of the information statement. |
133
KATHARINE FREDRIKSEN*
Executive Benefits and Payments Upon
|
Incapacity
Retirement (with a social security disability) |
Termination
for Good Reason or Not for Cause (reduction in force) |
Termination
For Cause |
Death |
Disability
(without a social security disability) |
Change in
Control Termination(1) |
||||||||||||||||||
Compensation: |
||||||||||||||||||||||||
Base Salary |
| | | | | $ | 375,177 | |||||||||||||||||
Short-Term Incentive(2) |
| | | $ | 87,541 | | $ | 161,483 | ||||||||||||||||
Severance Pay Plan(3) |
| $ | 38,480 | | | | | |||||||||||||||||
Long-Term Incentive Compensation:(4) | ||||||||||||||||||||||||
Options: Unvested |
$ | 112,223 | | | $ | 112,223 | | $ | 112,223 | |||||||||||||||
RSUs: Unvested |
$ | 25,631 | $ | 25,631 | | $ | 25,631 | | $ | 25,631 | ||||||||||||||
PSUs: Unvested |
$ | 20,016 | $ | 30,025 | | $ | 78,013 | $ | 20,016 | $ | 78,013 | |||||||||||||
CNXC Phantom Units:
Unvested |
| | | | | | ||||||||||||||||||
Benefits and Perquisites: |
||||||||||||||||||||||||
Outplacement service |
| | | | | $ | 25,000 | |||||||||||||||||
Continuation of medical/drug/dental benefits(5) | | | | | | $ | 8,015 | |||||||||||||||||
401(k) payment |
| | | | | $ | 22,511 | |||||||||||||||||
Supplemental Retirement Plan(6) | | | | | | $ | 46,097 | |||||||||||||||||
New Restoration Plan |
| | | | | $ | 23,430 | |||||||||||||||||
280G Tax Reduction(7) |
| | | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
TOTAL |
$ | 157,870 | $ | 94,136 | | $ | 303,408 | $ | 20,016 | $ | 877,580 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
* |
Applicable footnotes follow the last table in this section of the information statement. |
134
JAMES MCCAFFREY*
Executive Benefits and Payments Upon
|
Incapacity
Retirement (with a social security disability) |
Termination
for Good Reason or Not for Cause (reduction in force) |
Termination
For Cause |
Death |
Disability
(without a social security disability) |
Change in
Control Termination(1) |
||||||||||||||||||
Compensation: |
||||||||||||||||||||||||
Base Salary |
| | | | | $ | 759,419 | |||||||||||||||||
Short-Term Incentive(2) |
| | | $ | 189,855 | | $ | 439,285 | ||||||||||||||||
Severance Pay Plan(3) |
| $ | 182,553 | | | | ||||||||||||||||||
Long-Term Incentive Compensation:(4)(8) | ||||||||||||||||||||||||
Options: Unvested |
| | | | | | ||||||||||||||||||
RSUs: Unvested |
| | | | | | ||||||||||||||||||
PSUs: Unvested |
| | | | | $ | 189,632 | |||||||||||||||||
CNXC Phantom Units: Unvested | | | | | | | ||||||||||||||||||
Benefits and Perquisites: |
||||||||||||||||||||||||
Outplacement service |
| | | | | $ | 25,000 | |||||||||||||||||
Continuation of medical/drug/dental benefits(5) | | | | | | $ | 25,516 | |||||||||||||||||
401(k) payment |
| | | | | $ | 31,800 | |||||||||||||||||
Restoration Plan |
| | | | | $ | 34,942 | |||||||||||||||||
Supplemental Retirement Plan(6) | | | | | | $ | 1,109,609 | |||||||||||||||||
New Restoration Plan |
| | | | | $ | 52,265 | |||||||||||||||||
280G Tax Reduction(7)(8) |
| | | | | $ | (52,889 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
TOTAL |
| $ | 182,553 | | $ | 189,855 | | $ | 2,614,579 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
* |
Applicable footnotes follow the last table in this section of the information statement. |
135
KURT SALVATORI*
Executive Benefits and Payments Upon
|
Incapacity
Retirement (with a social security disability) |
Termination
for Good Reason or Not for Cause (reduction in force) |
Termination
For Cause |
Death |
Disability
(without a social security disability) |
Change in
Control Termination(1) |
||||||||||||||||||
Compensation: |
||||||||||||||||||||||||
Base Salary |
| | | | | $ | 441,670 | |||||||||||||||||
Short-Term Incentive(2) |
| | | $ | 66,250 | | $ | 165,452 | ||||||||||||||||
Severance Pay Plan(3) |
| $ | 106,171 | | | | | |||||||||||||||||
Long-Term Incentive Compensation:(4) | ||||||||||||||||||||||||
Options: Unvested |
$ | 88,597 | | | $ | 88,597 | | $ | 88,597 | |||||||||||||||
RSUs: Unvested |
$ | 34,509 | $ | 34,509 | | $ | 34,509 | | $ | 34,509 | ||||||||||||||
PSUs: Unvested |
$ | 21,074 | $ | 31,611 | | $ | 69,500 | $ | 21,074 | $ | 69,500 | |||||||||||||
CNXC Phantom Units: Unvested | | | | | | | ||||||||||||||||||
Benefits and Perquisites: |
||||||||||||||||||||||||
Outplacement service |
| | | | | $ | 25,000 | |||||||||||||||||
Continuation of medical/drug/dental benefits(5) | | | | | | $ | 28,814 | |||||||||||||||||
401(k) payment |
| | | | | $ | 26,500 | |||||||||||||||||
Supplemental Retirement Plan(6) | | | | | | $ | 514,327 | |||||||||||||||||
New Restoration Plan |
| | | | | $ | 19,009 | |||||||||||||||||
280G Tax Reduction(7) |
| | | | | $ | (236,047 | ) | ||||||||||||||||
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TOTAL |
$ | 144,180 | $ | 172,291 | | $ | 258,856 | $ | 21,074 | $ | 1,177,331 | |||||||||||||
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* |
Applicable footnotes follow the last table in this section of the information statement. |
(1) |
If a change in control as described in the applicable agreements occurred and the named executives employment did not terminate, the named executive would be entitled only to the payments and benefits shown under Long-Term Incentive Compensation. The narrative following these tables contains a description of events that constitute a change in control. |
(2) |
In the event of death, each named executive would earn the short-term incentive award. In the event of a qualifying termination in connection with a change in control, each named executive, pursuant to his change in control agreement, would be entitled to a prorated payment of his short-term incentive compensation based upon the length of service during the year in which the termination occurred. Assuming a target payout for 2016 and a change in control at year-end, each individual would receive, in addition to the amount shown in the table, the amounts set forth in the Grants of Plan-Based Awards tables under the target amounts for non-equity incentive plan awards. |
(3) |
The Severance Pay Plan for Salaried Employees provides one week of severance for every year of service with a minimum of eight weeks and a maximum of 25 weeks in the event that employment is involuntarily terminated because of a reduction in workforce. As of December 31, 2016, Messrs. Brock, McCaffrey and Salvatori were entitled to 25 weeks of severance, and Mr. Khani and Ms. Fredriksen were entitled to eight weeks of severance. |
(4) |
If a currently employed named executive is eligible for Early Retirement, each as defined by the applicable equity award agreements, that named executive would be entitled to the following amounts for unvested RSUs under any termination scenario except termination for cause (in which case, the equity is forfeited): Mr. Brock $57,662 and Mr. McCaffrey $0 (as amounts have already vested). Messrs. Khani, Salvatori |
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and Ms. Fredriksen are not eligible for Early Retirement and, as such, would not receive the value of such equity awards in the event of an Early Retirement. The values for long-term incentive compensation represent the value of the unvested ParentCo options, RSUs and PSUs, which would accelerate and vest or would continue to vest according to the vesting schedule, depending on the termination event. The value of the ParentCo unvested options, RSUs and PSUs was calculated using a closing market price per share of $18.23 for ParentCo (noting that no value is listed for the options when the strike price exceeds $18.23 and assumes target payout for the PSUs granted in 2015 and threshold payout for the PSUs granted in 2016 as to the 2017 through 2020 tranches). The value of the CNXC phantom units included in Mr. Brocks table was calculated using a closing market price per unit of $18.25 for CNXC units. For the PSUs granted in 2014, which had a performance period ending December 31, 2016, and for the PSUs granted in 2016 with a 2016 tranche performance period ending December 31, 2016, we have not included these amounts since the performance periods, in each case, ended on December 31, 2016. |
(5) |
In the event of a qualifying termination in connection with a change in control, as of December 31, 2016, Messrs. Brock and Khani, Ms. Fredriksen, and Messrs. McCaffrey and Salvatori pursuant to their change in control agreements, would be entitled to the continuation of medical, drug, and dental coverage for a period of 24 months, 30 months, 18 months, 24 months and 24 months, respectively. |
(6) |
In the event of a termination for cause, no benefit is payable. Benefits vest immediately in the event of termination due to disability, death or change in control. Further, the SERP pays an unreduced benefit in the event of Incapacity Retirement or Disability, and accordingly, Messrs. Brock and Khani, Ms. Fredriksen, and Messrs. McCaffrey and Salvatori would receive $575,709, $20,365, $54,707, $642,282 and $522,914, respectively, in such cases. |
(7) |
This calculation is an estimate only. Note that actual payments for Messrs. Brock, Khani, McCaffrey and Salvatori would be reduced pursuant to the terms of their change in control agreement by the amounts shown in the above tables under 280G Tax Reduction. Payments on an actual change of control may differ based on factors such as transaction price, timing of employment termination and payments, methodology for valuing stock options, changes in compensation, reasonable compensation analyses and the value of the covenant not to compete. Assumptions used include: |
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Marginal federal, Pennsylvania state and FICA tax rates of 39.6%, 3.07% and 2.35%, respectively; |
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Any payments with respect to the 2015 bonus were not contingent on the change in control (and thus, not required to be included in the calculation); |
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Stock options are assumed to become fully vested and/or exercisable and are valued in accordance with Rev. Proc. 98-34 and Q&A 24(c) of Code Section 280G based on expected life of the option; and |
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No value was attributed to non-competition covenants nor was the position taken that any part of the value of the performance-based equity and long-term incentive plans provided to the applicable named executive was reasonable compensation for services prior to the change of control, which would have reduced the estimated excise tax gross-up payment, if any. |
(8) |
Various award amounts received due to accelerated vesting pursuant to the terms of the Retention Agreement, which is discussed below. |
Understanding Our Change in Control and Employment Termination Tables and Information
This section provides information regarding the following ParentCo agreements and/or plans that provide for benefits to be paid to our named executives in connection with employment termination and/or a change in control with respect to ParentCo and CNXC.
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Change in Control Agreements; |
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Retention Agreement; |
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ParentCo Stock Option Agreements; |
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ParentCo RSU Agreements; |
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ParentCo PSU Award Agreements; |
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CNXC Phantom Unit Award Agreements; |
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Supplemental Retirement Plan; |
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New Restoration Plan; and |
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Severance Pay Plan for Salaried Employees. |
Change in Control Agreements . As of December 31, 2016, each of our named executives had change in control severance agreements in place with ParentCo and/or its affiliates, which we refer to as the CIC Agreements.
The CIC Agreements provide severance benefits to the named executives if they are terminated (i) after, or in connection with, a ParentCo change in control for any reason, other than cause, death or disability (as defined below), not more than three months prior to or within two years after such change in control, or at the request of a third party initiating the change in control, or (ii) within the two-year period after a change in control, if the executive is constructively terminated (as defined below). Under the circumstances described above, our named executives would be entitled to receive:
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a lump sum cash payment equal to a multiple of base pay plus a multiple of incentive pay (the applicable multiples are 2.5 for Mr. Khani, 1.5 for each of Ms. Fredriksen, and 2.0 for each of Messrs. Brock, McCaffrey and Salvatori); |
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a pro-rated payment of his incentive pay for the year in which termination occurs; |
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for a specified period (24 months, 30 months, 18 months, 24 months and 24 months for Messrs. Brock and Khani, Ms. Fredriksen, and Messrs. McCaffrey and Salvatori, respectively), the continuation of medical and dental coverage (or monthly reimbursements in lieu of continuation); |
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if the executive would have been eligible for post-retirement medical benefits had the executive retired from employment during the applicable period, but is not so eligible due to termination, then at the conclusion of the benefit period, the executive is entitled to receive additional continued group medical coverage comparable to that which would have been available under the post-retirement program for so long as such coverage would have been available under such program, or the executive will receive monthly reimbursements in lieu of such coverage; |
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a lump sum cash payment equal to the total amount that the executive would have received under ParentCos 401(k) plan as a match if the executive was eligible to participate in the 401(k) plan for a specified period after the executives termination date (24 months, 30 months, 18 months, 24 months and 24 months for Messrs. Brock and Khani, Ms. Fredriksen, and Messrs. McCaffrey and Salvatori, respectively) and the executive contributed the maximum amount to the 401(k) plan for the match; |
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a lump-sum cash payment equal to the difference between the present value of the executives accrued pension benefits at the executives termination date under ParentCos qualified defined benefit pension plan and (if eligible) any plan or plans providing nonqualified retirement benefits and the present value of the accrued pension benefits to which the executive would have been entitled under the pension plans if the executive had continued participation in those plans for a specified period after the executives termination date (24 months, 30 months, 18 months, 24 months and 12 months for Messrs. Brock and Khani, Ms. Fredriksen, and Messrs. McCaffrey and Salvatori, respectively); |
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a lump-sum cash payment of $25,000 in order to cover the cost of outplacement assistance services and other expenses associated with seeking other employment; and |
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any amounts earned, accrued or owing but not yet paid as of the executives termination date, payable in a lump sum, and any benefits accrued or earned in accordance with the terms of any applicable benefit plans or programs. |
In addition, upon a change in control, all equity awards granted to the named executives will become fully vested and/or exercisable on the date the change in control occurs, and all stock options will remain exercisable for the
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period set forth in the applicable award agreement. The CIC Agreements contain confidentiality, noncompetition and nonsolicitation obligations pursuant to which the named executives have agreed not to compete with the business for one year, or to solicit employees for two years, following a termination of employment, when such executive is receiving severance benefits under the CIC Agreement.
No payments or benefits are provided under the CIC Agreements unless the executive executes, and does not revoke, a written release of any and all claims (other than for entitlements under the terms of the CIC Agreement or which may not be released under the law). For purposes of the CIC Agreements, cause is a determination by the ParentCo Board of Directors that the executive has (a) been convicted of, or has pleaded guilty or nolo contendere to, any felony or any misdemeanor involving fraud, embezzlement or theft; or (b) wrongfully disclosed material confidential information, intentionally violated any material express provision of ParentCos code of conduct for executives and management employees (as then in effect) or intentionally failed or refused to perform any of the executives material assigned duties, and any such failure or refusal has been demonstrably and materially harmful to ParentCo. Notwithstanding the foregoing, the executive will not be deemed to have been terminated for cause under clause (b) above unless the majority of the members of the ParentCo Board of Directors, plus one additional member of such board, find that, in its good-faith opinion, the executive has committed an act constituting cause, and such resolution is delivered in writing to the executive.
For purposes of the CIC Agreements, a change in control generally means:
(i) |
the acquisition by any individual, entity or group of beneficial ownership of more than 25% of the combined voting power of the then outstanding voting stock of ParentCo; provided, however, that the following acquisitions will not constitute a change in control: (A) any issuance of voting stock of ParentCo directly from ParentCo that is approved by the then incumbent Board, (B) any acquisition by ParentCo (or any subsidiaries) of voting stock of ParentCo, (C) any acquisition of voting stock of ParentCo by any employee benefit plan (or related trust) sponsored or maintained by ParentCo or any subsidiary of ParentCo, (D) any acquisition of voting stock of ParentCo by an underwriter holding securities of ParentCo in connection with a public offering thereof, or (E) any acquisition of voting stock of ParentCo by any person pursuant to a transaction that complies with clauses (A), (B) and (C) of (iii) below; |
(ii) |
individuals who constitute the Board as of the agreement date cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to such date whose election, or nomination for election by ParentCos shareholders was approved by a vote of at least two-thirds of the directors then comprising the incumbent Board are deemed to have then been a member of the incumbent Board, but excluding any individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board; |
(iii) |
consummation of a reorganization, merger or consolidation of ParentCo or a direct or indirect wholly owned subsidiary of ParentCo, a sale or other disposition of all or substantially all of the assets of ParentCo, or other transaction involving ParentCo, unless, in each case, immediately following such transaction, (A) all or substantially all of the individuals and entities who were the beneficial owners of voting stock of ParentCo immediately prior to such transaction beneficially own, directly or indirectly, more than 50% of the combined voting power or securities of the then outstanding shares of voting stock or securities of the entity resulting from such transaction or any direct or indirect parent corporation thereof, (B) no person other than ParentCo beneficially owns 25% or more of the combined voting power of the then outstanding shares of voting stock of the entity resulting from such transaction or any direct or indirect parent corporation thereof and (C) at least a majority of the members of the Board of the entity resulting from such transaction or any direct or indirect parent corporation thereof were members of the incumbent Board at the time of the execution of the initial agreement or of the action of the Board providing for such transaction; or |
(iv) |
approval by the shareholders of ParentCo of a complete liquidation or dissolution of ParentCo, except pursuant to a transaction that complies with clauses (A), (B) and (C) of (iii) above. |
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In addition, Mr. Brocks CIC Agreement included within the change in control definition a third party acquisition of greater than 75% of the book value of assets comprising the coal division.
For purposes of the CIC Agreements, a constructive termination means: (a) a material adverse change in position; (b) a material reduction in annual base salary or target bonus or a material reduction in employee benefits; (c) a material adverse change in circumstances as determined in good faith by the executive, including a material change in the scope of business or other activities for which the executive was responsible prior to the change in control, which has rendered the executive unable to carry out, has materially hindered the executives performance of, or has caused the executive to suffer a material reduction in, any of the authorities, powers, functions, responsibilities or duties attached to the position the executive held immediately prior to the change in control; (d) the liquidation, dissolution, merger, consolidation or reorganization of ParentCo or transfer of substantially all its business or assets, unless the successor assumes all duties and obligations of ParentCo under the applicable CIC Agreement; or (e) the relocation of the executives principal work location to a location that increases the executives normal commute by 50 miles or more or that requires travel increases by a material amount.
Retention Agreement . As further described in Compensation Discussion and Analysis , ParentCo entered into a retention agreement with Mr. McCaffrey on March 31, 2016 which provided for the vesting of (i) his outstanding equity incentive awards under the ParentCo LTIP if the Coal Tonnage Goal was attained and he remained employed with ParentCo or its subsidiaries through December 31, 2016 and (ii) any 2017 equity incentive awards granted to him under the ParentCo LTIP in 2017 if he remained employed with ParentCo or its subsidiaries through December 31, 2017.
ParentCo Stock Options . In the event that a named executives employment with ParentCo (including any affiliate of ParentCo) is terminated for cause (as defined in the ParentCo LTIP) or the named executive breaches noncompetition or proprietary information covenants (see description below), then any stock option (whether vested or unvested) that is granted to the named executive will be canceled and forfeited in its entirety on the date of termination of employment or breach of covenant, as applicable. In addition, any stock option exercised during the six-month period prior to such termination of employment or breach of covenant, as applicable, will be rescinded, and the named executive will be required to pay to ParentCo within 10 days an amount in cash equal to the gain realized by the exercise of the stock option.
In the event that the named executives employment terminates voluntarily, due to disability (as defined in the ParentCo LTIP) or by ParentCo without cause (as defined in the ParentCo LTIP), the nonvested portion of any stock option will be deemed cancelled on the termination date and the vested portion, if any, of the stock option as of the date of such termination will remain exercisable for the lesser of a period of 90 days following termination or until the expiration date of the stock option. Notwithstanding the previous sentence, if such termination occurs by reason of an incapacity retirement as defined in the Pension Plan (or any successor plan) and as provided in the award agreement, then in that event the non-vested portion of the stock option will continue to vest and become exercisable in the ordinary course and will remain exercisable until the stock options expiration date.
In the event that employment with ParentCo (including any affiliate) is terminated without cause and after a decision that such termination qualifies for special vesting treatment, the nonvested portion of a stock option will continue to vest and become exercisable in accordance with the vesting schedule set forth in the award agreement and will remain exercisable until the expiration date. In the event that the named executives employment is terminated by reason of death, the non-vested portion of the stock option will vest in its entirety immediately upon the date of death and will remain exercisable for the lesser of a period of three years following death or the expiration date.
ParentCo RSUs . All shares subject to RSU awards that are issued under the ParentCo LTIP will vest (i.e., will not be subject to forfeiture as the result of employment termination) upon the occurrence of certain specified
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termination of employment events, such as incapacity retirement under the Pension Plan, as in effect at that time, or termination of employment by reason of death or as part of a reduction in force as specified and implemented by ParentCo.
In no event will any shares vest in the event that employment with ParentCo is terminated for cause as defined in the ParentCo LTIP (see below) or if a named executive leaves ParentCos employment for any reason other than in connection with a special vesting event.
In addition, if employment is terminated for cause or the named executive breaches the noncompetition or proprietary information covenant (see below), then, in addition to awards being cancelled with respect to any unvested shares, the named executive will also forfeit all of his or her right, title and interest in and to any shares which have vested under existing awards and which are held by him at that time or are otherwise subject to deferred issuance. In addition, to the extent a named executive has sold any of his or her vested shares within the six-month period ending with the date of the named executives termination for cause or breach of the noncompetition or proprietary information covenant or at any time thereafter, then the named executive will be required to repay to ParentCo, within 10 days after receipt of written demand from ParentCo, the cash proceeds received upon each such sale, provided the demand is made by ParentCo within one year after the date of that sale.
In the event that employment is terminated because of a reduction in force, the named executive will not be subject to the noncompetition and certain non-solicitation provisions contained in the award agreement.
ParentCo PSUs . PSUs also include special vesting provisions in connection with certain employment termination circumstances.
With respect to PSUs granted during 2016, in the event the named executives employment with ParentCo (or an affiliate) is terminated (i) on or after the date the named executive has reached the age of 62, (ii) on account of death or disability, or (iii) by action taken by ParentCo (including any affiliate) without cause and after a decision by the ParentCo Compensation Committee that such termination without cause qualifies for special vesting treatment (a Qualifying Separation), the named executive will be entitled to retain the PSUs and receive payment therefor, to the extent earned and payable; provided, however, that in the case of a termination on or after the named executive has reached the age of 62 or on account of disability, the named executive will only be entitled to retain a prorated portion of the PSUs determined at the end of the performance period, based on the ratio of the number of complete months that the named executive worked in the performance period.
If the named executives employment with ParentCo or any affiliate generally is terminated for any other reason, including by the named executive voluntarily, or by ParentCo (including any affiliate) with or without cause (other than in connection with a Qualifying Separation), the PSUs awarded to the named executive will be cancelled and forfeited.
With respect to outstanding PSUs granted prior to 2016, the termination provisions generally are the same, except that (i) there will be no Qualifying Separation, and (ii) if a named executives employment terminates by reason of a reduction in force as specified and implemented by ParentCo prior to any payment date, the named executive will be entitled to retain the PSUs and receive payment therefore, to the extent earned and payable.
CNXC Phantom Units
Upon the termination of a named executives services for any reason, including upon any change in control of CNXC or the CNXC GP, all unvested CNXC phantom units are automatically forfeited without further action and for no consideration; provided, however, that the plan administrator of the CNXC LTIP will have discretion to (i) accelerate the time of exercisability or vesting or payment of an award, (ii) require awards to be surrendered in exchange for a cash payment or substitute other rights or property for the award, (iii) provide for the award to
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assumed by a successor or one of its affiliates, with appropriate adjustments thereto, (iv) cancel unvested awards without payment, or (v) make other adjustments to awards as the plan administrator deems appropriate to reflect the applicable transaction or event.
Equity Incentive Plan Definitions . The following definitions and provisions are set forth in the ParentCo LTIP:
Cause is defined, unless otherwise defined in the applicable award agreement, as a determination by the ParentCo Compensation Committee that a person has committed an act of embezzlement, fraud, dishonesty or breach of fiduciary duty to ParentCo, deliberately and repeatedly violated the rules of ParentCo or the valid instructions of ParentCos Board of Directors or an authorized officer of ParentCo, made any unauthorized disclosure of any of the material secrets or confidential information of ParentCo, or engaged in any conduct that could reasonably be expected to result in material loss, damage or injury to ParentCo.
Disability is defined, unless otherwise defined in the applicable award agreement, as an award recipients inability, because of physical or mental incapacity or injury (that has continued for a period of at least 12 consecutive calendar months) to perform for ParentCo or an affiliate of ParentCo substantially the same services as he or she performed prior to incurring the incapacity or injury.
Change in Control and Restrictive Covenant Provisions
ParentCo Options, RSUs and PSUs. All ParentCo Options, RSU and PSU awards and any other awards granted by ParentCo, whether or not vested, vest upon a change in control, which is defined under the ParentCo LTIP as (unless otherwise defined in the applicable award agreement) the earliest to occur of:
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any one person (other than ParentCo, any trustee or other fiduciary holding securities under an employee benefit plan of ParentCo, and any corporation owned, directly or indirectly, by the stockholders of ParentCo in substantially the same proportions as their ownership of ParentCo stock), or more than one person acting as a group, is or becomes the beneficial owner of shares that, together with the shares held by that person or group, possess more than 50% of the total fair market value or total voting power of ParentCos shares; |
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a majority of members of ParentCos Board of Directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of ParentCos Board of Directors prior to the date of the appointment or election; or |
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the sale of all or substantially all of ParentCos assets. |
However, in the event the accelerated vesting of the awards, either alone or together with any other payments or benefits to which the named executive may otherwise become entitled from ParentCo in connection with the change in control would, in ParentCos good-faith opinion, be deemed to be a parachute payment under Section 280G of the Code (or any successor provision), then, unless any agreement between the named executive and ParentCo provides otherwise, the number of awards that vest on this accelerated basis will be reduced to the extent necessary to ensure, in ParentCos good-faith opinion, that no portion of the accelerated award will be considered such a parachute payment.
All stock option and unit awards contain a covenant regarding confidential information and trade secrets, pursuant to which the recipient must agree, at any time during or after his or her employment with ParentCo, not to disclose or use for his (or her) or any other persons or entitys own benefit or purposes, other than ParentCo and its affiliates, any proprietary confidential information or trade secrets, which are unique to ParentCo and not generally known to the industry or the public. In addition, upon termination with ParentCo for any reason, the award recipient must immediately return all materials relating to the business of ParentCo and its affiliates, excluding personal notes, notebooks and diaries, and may not retain or use for such persons own account at any time any trade names, trademarks or other proprietary business designation used or owned in connection with the business of ParentCo or its affiliates.
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With respect to outstanding PSUs, upon a change in control, the applicable performance goals will be deemed to have been achieved on such date and the PSUs will be paid based on performance relative to such goals as of such date, with the value of such PSUs to be settled on the closing date of the change in control transaction; provided, however, that in the event of a change in control, PSUs may be settled in cash and/or securities or other property.
CNXC Phantom Units. As noted above, upon the termination of a named executives service for any reason (including in connection with a change in control), all CNXC phantom units that have not vested prior to or in connection with such termination of service are automatically forfeited without further action and for no consideration. Notwithstanding, all unvested CNXC phantom unit awards, may, at the discretion of the CNXC plan administrator, which is the CNXC GP Board, vest upon a change in control, which is defined under the CNXC LTIP as (unless otherwise defined in the applicable award agreement) the occurrence of one or more of the following events:
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any person or group within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act, other than the CNXC GP, CONE Gathering LLC (CONE) or ParentCo or an affiliate thereof (as determined immediately prior to such event), shall become the beneficial owner, by way of merger, acquisition, consolidation, recapitalization, reorganization or otherwise, of 50% or more of the combined voting power of the equity interests in the CNXC GP, CNXC or CONE; |
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the limited partners of CNXC approve, in one or a series of transactions, a plan of complete liquidation of CNXC; |
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the sale or other disposition by either the CNXC GP or CNXC of all or substantially all of the CNXC GPs or CNXCs assets, respectively, in one or more transactions to any person other than the CNXC GP, CNXC, CONE or ParentCo or an affiliate thereof; |
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a transaction resulting in a person other than the CNXC GP, CONE or ParentCo or an affiliate thereof (as determined immediately prior to such event) being the sole general partner of CNXC; or |
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a Change in Control as defined in the ParentCo LTIP. |
Notwithstanding the foregoing, if a Change in Control as defined above constitutes a payment event with respect to any CNXC award which provides for the deferral of compensation subject to Section 409A of the Code or such compensation otherwise would be subject to Section 409A, the transaction or event described in the first four bullets above with respect to such award must also constitute a change in control event, as defined in Treasury Regulation §1.409A-3(i)(5), and as relates to the holder of such Award, to the extent required to comply with Section 409A.
Phantom unit awards contain a covenant regarding confidential information and trade secrets, pursuant to which the recipient must agree, at any time during or after his or her employment with CNXC, the CNXC GP, or any of their affiliates, not to disclose or use for his (or her) or any other persons or entitys own benefit or purposes, other than CNXC, the CNXC GP and their affiliates, any proprietary confidential information or trade secrets, which are unique to CNXC, the CNXC GP and their affiliates and not generally known to the industry or the public. In addition, upon termination with CNXC, the CNXC GP and their affiliates for any reason, the award recipient must immediately return all materials relating to the business of CNXC, the CNXC GP and their affiliates, excluding personal notes, notebooks and diaries, and may not retain or use for such persons own account at any time any trade names, trademarks or other proprietary business designation used or owned in connection with the business of CNXC, the CNXC GP and their affiliates.
Supplemental Retirement Plan. If a participants employment with ParentCo or any subsidiary terminates for cause (which is defined in ParentCos Supplemental Retirement Plan to include a violation of any nonsolicitation, noncompetition or nondisclosure provision contained in any agreement entered into by and between a participant and ParentCo or any subsidiary), no benefits will be payable under the Supplemental Retirement Plan. Additionally, each participant agrees by participating in the Supplemental Retirement Plan that within ten (10) days after the date we provide the participant with a notice that there has occurred a termination
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on account of cause, the participant will pay to us in cash an amount equal to any and all distributions paid to or on behalf of such participant under the plan within the six (6) months prior to the date of the earliest breach. A forfeiture of Supplemental Retirement Plan benefits will also occur for certain cause events even if the event does not occur or is not discovered until after any termination of employment. Benefits under the Supplemental Retirement Plan will immediately vest upon death or disability of a participant or upon a change in control (as described below).
Further, the participant will be entitled to receive the vested benefits in a lump sum payment if the participants employment is terminated after, or in connection with, a change of control (as defined in the Supplemental Retirement Plan) on account of:
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an involuntary termination associated with a change in control within the two year period after the change in control, or |
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a termination by ParentCo other than for cause or due to the participants death or disability that (A) occurs not more than three months prior to the date on which a change in control occurs, or (B) is required by a third party who initiates a change in control. |
The benefit will be calculated as if the participant terminated on the date of the change in control, but the participant will be considered only for purposes of applying the appropriate actuarial reduction to have a minimum age of 55 and a minimum of 20 years of credited service. Additional service credit will also be provided for the term of any payments under a participants CIC Agreement, if any, with ParentCo.
New Restoration Plan. In the event a participant in the New Restoration Plan terminates employment with ParentCo and its subsidiaries in connection with a change in control (as defined in the New Restoration Plan), the participant is entitled to a contribution to the New Restoration Plan for the year in which the termination occurs. If such termination occurs prior to September 30 of a calendar year, then such contribution will be based upon the participants base salary and target bonus for the year and, if such termination occurs on or after September 30 of a calendar year, such contribution will be based upon the participants base salary and actual bonus for the year. Notably, the same contribution treatment applies for participants who incur an involuntary termination of employment due to death, disability, incapacity retirement or reduction in force, and the same compensation treatment for terminations that occur on or after September 30 applies to participants who voluntarily resign from employment. If a participants employment terminates on account of cause (as defined in the New Restoration Plan), no benefits will be payable under the plan. Additionally, each participant agrees by participating in the New Restoration Plan that within ten (10) days after the date we provide the participant with a notice that there has occurred a termination on account of cause, the participant will pay to us in cash an amount equal to any and all distributions paid to or on behalf of such participant under the plan within the six (6) months prior to the date of the earliest breach. A forfeiture of New Restoration Plan benefits will also occur for certain cause events even if the event does not occur or is not discovered until after any termination of employment.
Severance Pay Plan for Salaried Employees. Eligible employees of ParentCo are entitled to receive benefits under the Severance Pay Plan immediately upon completion of one year of continuous service with ParentCo. Pursuant to the terms of the Severance Pay Plan, upon an involuntary termination that is part of a workforce reduction, the employee is entitled to one weeks compensation for each completed full year of continuous service, with a minimum of eight weeks and up to a maximum of 25 weeks compensation, subject to the Severance Pay Plans reemployment provisions described below. Benefits under the Severance Pay Plan do not apply where the employee is terminated for cause (as defined in the Severance Pay Plan) or resigns, or where such employees employment ends in connection with the sale of stock or all or part of ParentCos assets and the employee is offered employment by the purchaser (or its affiliate) of the stock or all or part of ParentCos assets.
Calculation of the one weeks compensation is made on the basis of straight time pay (excluding any bonus or overtime compensation) for such employees permanently assigned position. In addition to severance benefits,
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employees are granted any vacation pay to which they are entitled. Employees with less than one year of service are paid only up to and including the date of termination.
In the event that the terminated employee is re-employed as a full-time employee before the severance pay period has expired, the employee shall reimburse ParentCo for the amount of severance benefits which relate to the unexpired period. If the employee was granted vacation pay, the employee may, at his or her option, remit the vacation pay to ParentCo and schedule a later vacation at a time mutually agreed upon with ParentCo.
Employees will not be entitled to severance under the plan unless and until such employee executes, and does not revoke, a release, deemed satisfactory by ParentCo, waiving any and all claims against ParentCo, its affiliates and subsidiaries and all related parties.
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COALCO INCENTIVE ARRANGEMENTS AND PLANS
CoalCo Omnibus Performance Incentive Plan
CoalCo plans to adopt the CONSOL Mining Corporation Omnibus Performance Incentive Plan (the CoalCo Plan) in connection with the separation. The following is a summary of the principal terms of the CoalCo Plan, which is qualified in its entirety by reference to the full text of the CoalCo Plan, the form of which is filed as Exhibit 10.10 hereto. The CoalCo equity-based awards into which the outstanding ParentCo equity-based awards will be converted upon separation (see The Separation and DistributionTreatment of Equity-Based Compensation) will be issued pursuant to the CoalCo Plan and, therefore, will reduce the shares authorized for issuance under the CoalCo Plan.
Purpose of the CoalCo Plan
The purposes of the CoalCo Plan are to promote the interests of CoalCo and our stockholders by (i) attracting and retaining eligible non-employee directors, executive officers and other key employees of CoalCo and its affiliates; (ii) motivating such individuals by means of cash and equity performance-related incentives to achieve annual and long-range performance goals; (iii) enabling such individuals to acquire shares of CoalCo; (iv) assuming and governing awards originally granted under the ParentCo LTIP; and (v) enabling such individuals to participate in the long-term growth and financial success of CoalCo.
Administration and Overview of the CoalCo Plan
Under the CoalCo Plan, our Board of Directors will have the authority to grant awards to employees and directors of CoalCo and its affiliates. Subject to the terms of the CoalCo Plan and applicable law, our Board of Directors generally may delegate authority to the CoalCo compensation committee, once formed, and matters to CoalCos officers. Under the terms of the CoalCo Plan, our Board of Directors will have the authority, among other matters, to (i) designate participants in the CoalCo Plan, (ii) determine the types of awards that may be granted thereunder, including the number of shares relating to such awards, (iii) determine the terms and conditions of such awards, including vesting, exercisability, and forfeiture provisions, and (iv) cancel, suspend or modify outstanding awards. Our Board of Directors also will have the authority to interpret the CoalCo Plan, establish, amend and rescind rules applicable to the CoalCo Plan or awards thereunder, approve the terms and provisions of any award agreements, determine whether any corporate transaction, such as a spin-off or joint venture, will result in a participants termination of service, and make all determinations relating to awards under the CoalCo Plan.
Authorized Shares
Subject to the adjustment provisions of the CoalCo Plan, the total number of shares authorized and available for issuance under the CoalCo Plan is . Shares of CoalCo common stock issuable under the CoalCo Plan may be made available from authorized and unissued shares or treasury shares. Shares tendered in payment of the exercise price of a stock option or a stock appreciation right (SAR), not issued upon the settlement of SARs, repurchased by CoalCo using proceeds from a stock option exercise or delivered to or withheld by CoalCo to pay federal, state or local withholding taxes may not be added back to the available pool of shares authorized under the CoalCo Plan. If awards granted under the CoalCo Plan are otherwise forfeited, cancelled or expired, the shares underlying such awards will become available for issuance under the CoalCo Plan.
Types of Awards
The following types of awards may be granted under the CoalCo Plan:
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Incentive and non-qualified stock options; |
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SARs; |
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Restricted shares; |
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RSUs; |
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Performance awards (cash and equity); |
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Deferred share units (DSUs); |
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ParentCo awards converted in connection with the separation; and |
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Other forms of awards authorized by the CoalCo Plan, whether equity or cash based. |
These forms of awards may have a performance feature under which the award is not earned unless performance goals are achieved.
Limitations on Awards
Generally, participants in the CoalCo Plan may not be granted, in any one calendar year of CoalCo, (i) stock options or SARs for more than shares, (ii) share-based performance awards intended to be performance-based compensation under Section 162(m) of the Code for more than shares (based on a maximum award level on the grant date), or (iii) cash-payable performance awards intended to be performance-based compensation under Section 162(m) of the Code for more than $ (based on a maximum award level on the grant date). Additionally, CoalCo Nonemployee Directors may not be granted, in any one fiscal year of CoalCo, awards specifically awarded under the CoalCo Plan that have an aggregate maximum value, calculated as of the respective grant dates, of more than $ . The foregoing limitations to not apply to awards converted or substituted in connection with certain corporate transactions or events involving CoalCo, as described in the CoalCo Plan.
Stock Options
Except as otherwise set forth under CoalCo Nonemployee Directors , the CoalCo Plan permits the granting of both incentive stock options and non-qualified stock options to purchase shares of CoalCo common stock, provided that incentive stock options may only be granted to employees of CoalCo or a parent or subsidiary of CoalCo. Our Board of Directors will establish the exercise price at the time each option is granted. The CoalCo Plan provides that (i) the option exercise price for each share covered by an option may not be less than the fair market value of a share of common stock on the date the option is granted (or 110% of the fair market value in the case of an incentive stock option granted to an employee who is a 10% Stockholder (as defined in the CoalCo Plan)), except in the case of substitute awards granted in assumption of, or in substitution for, outstanding awards previously granted by a company acquired by CoalCo, or with respect to converted awards granted in connection with the separation, and (ii) the term of the option may not exceed 10 years from the grant date (or five years in the case of an incentive stock option granted to a 10% Stockholder).
The exercise price of options granted under the CoalCo Plan may be paid for in cash or its equivalent, by exchanging shares of CoalCo common stock (subject to the terms of the CoalCo Plan), by another means approved by our Board of Directors, or by a combination of the foregoing, provided that the combined value of all cash and cash equivalents and the fair market value of any such shares so tendered to CoalCo as of the date of such tender is at least equal to the option price. A participant may also elect to pay all or any portion of the aggregate exercise price by having CoalCo shares with a fair market value on the exercise date equal to the aggregate exercise price withheld by the company or sold by a broker-dealer.
Stock Appreciation Rights
SARs entitle the participant to receive an amount equal to the excess of the fair market value of a share of common stock on the exercise date of the SAR over the grant price. SARs may be granted in tandem with another award, in addition to another award, or freestanding and unrelated to another award. SARs granted in tandem with or in addition to an award may be granted either at the same time as the award or, except in the case of incentive stock options, at a later time. The CoalCo Plan provides that SARs will have (i) grant prices no less
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than the fair market value of a share of CoalCo common stock on the grant date and (ii) terms no longer than 10 years. Our Board of Directors will determine whether a SAR may be settled in cash, CoalCo shares, or a combination of both, and will determine at or after the time of each SAR grant the methods of exercise, methods and form of settlement, and any other applicable terms and conditions.
Restricted Stock and RSUs
Restricted stock and RSUs may also be granted under the CoalCo Plan. Our Board of Directors will determine the number of shares of restricted stock and/or the number of RSUs to be granted to each participant, as well as the duration of such awards, the conditions under which the restricted stock and RSUs may be forfeited and other terms and conditions.
Shares of restricted stock and RSUs may not be sold, assigned, transferred, pledged or otherwise encumbered, except, in the case of restricted stock, as provided in the CoalCo Plan or the applicable award agreements. Each RSU has a value equal to the fair market value of a share on the settlement or payment date of such award. RSUs may be paid in cash, shares, other securities, or other property, as determined in the sole discretion of our Board of Directors, upon the lapse of restrictions applicable to the award or pursuant to the terms of the applicable award agreement.
Performance Awards
Performance awards may be granted under the CoalCo Plan. A performance award consists of a right that is:
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denominated and/or payable in cash, shares of CoalCo common stock or any other form of award issuable under the CoalCo Plan (or any combination thereof); |
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valued, as determined by our Board of Directors, in accordance with the achievement of performance goals during the applicable performance periods; and |
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payable at such time and in such form as our Board of Directors determines. |
The applicable performance period may consist of one or more calendar years or other period for which performance is being measured. Performance awards may be paid in a lump sum or in installments following the close of the performance period, or on a deferred basis. For awards intended to be performance-based compensation under Section 162(m) of the Code, performance goals, the achievement of which will be necessary to receive the underlying performance award, will be pre-established by the Board of Directors and relate to one or more of the following performance measures (subject to such modifications as specified by our Board of Directors): cash flow; cash flow from operations; earnings (including earnings before interest, taxes, depreciation, and amortization or some variation thereof); earnings per share, diluted or basic; earnings per share from continuing operations; internal rate of return; net asset turnover; inventory turnover; capital expenditures; debt; debt reduction; working capital; return on investment; return on sales; net or gross sales; market share; share price; equity ratios; economic value added; cost of capital; assets or change in assets; expenses; expense reduction levels; productivity; delivery performance; safety record and/or performance; environmental record and/or performance; mine closures; stock price; interest-sensitivity gap levels; return on equity or capital employed; total or relative increases to stockholder return; return on capital; return on assets or net assets; revenue; income or net income; operating income or net operating income; operating profit or net operating profit; gross margin, operating margin or profit margin; finding and development costs; volumes metrics (including volumes sold, volumes produced, volumes transported and similar measures); operating efficiency metrics; charge-offs; non-performing assets; asset sale targets; asset quality levels; value of assets; employee retention/attrition rates; investments; regulatory compliance; satisfactory internal or external audits; improvement of financial ratings; value creation; achievement of balance sheet or income statement objectives; and completion of acquisitions, business expansion, product diversification and other non-financial operating and management performance objectives.
To the extent consistent with Section 162(m) of the Code, the Board of Directors may determine that certain adjustments will apply, in whole or in part, in such manner as determined by the Board of Directors, to include or
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exclude the effect of any of the following events that occur during a performance period including the following: the impairment of tangible or intangible assets; asset write-downs; litigation or claim judgments or settlements; acquisitions or divestitures; gains/losses on the sale of assets; foreign exchange gains and/or losses; expenses related to stock offerings and stock repurchases; the effect of changes in tax law, accounting principles or other such laws or provisions affecting reported results; business combinations, reorganizations and/or restructuring programs, including, but not limited to, reductions in force and early retirement incentives; currency fluctuations; and any unusual, infrequent or non-recurring items, including, but not limited to, such items described in managements discussion and analysis of financial condition and results of operations or the financial statements and notes thereto appearing in CoalCos annual report to stockholders for the applicable year. Performance measures may be determined either individually, alternatively or in any combination, applied to either CoalCo as a whole or to a business unit or subsidiary entity thereof (except in the case of awards adjusted and converted due to the separation), either individually, alternatively or in any combination, and measured over a period of time including any portion of a year, annually or cumulatively over a period of years, on an absolute basis or relative to a pre-established target, to previous years results or to a designated comparison group, in each case as specified by the Board of Directors.
Our Board of Directors may, in its sole discretion, also establish such additional restrictions or conditions that must be satisfied as conditions precedent to the payment of all or a portion of any performance award. Our Board of Directors may also reduce the amount of any performance award if it concludes that such reduction is necessary or appropriate based on: (i) an evaluation of such participants performance; (ii) comparisons with compensation received by other similarly situated individuals working within our industry or peer group; (iii) our financial results and conditions; or (iv) such other factors or conditions that our Board of Directors deems relevant; provided that the Board of Directors will not have the discretion to increase any award that is intended to be performance-based compensation under Section 162(m) of the Code.
Other Stock-Based Awards and Cash Awards
Other stock-based awards may also be granted under the CoalCo Plan, which consist of any right that is not an award described above and is denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, shares (including, without limitation, securities convertible into shares), as deemed by the Board of Directors to be consistent with the purposes of the CoalCo Plan. The Board of Directors will determine the terms and conditions of any such other stock-based awards, subject to the terms of the CoalCo Plan and any applicable award agreement. An award may also be in the form of a cash award, with such vesting or other restrictions, if any, as determined by the Board of Directors.
CoalCo Nonemployee Directors
CoalCo Nonemployee Directors may receive grants of equity-based and other awards, subject to the terms of the CoalCo Plan. Except as otherwise determined by the Board of Directors in its sole discretion, the Board of Directors may grant to CoalCo Nonemployee Directors (i) stock option awards that vest ratably over a period of three years from the date of grant, (ii) deferred stock units in lieu of all or any portion of the annual retainer or meeting fees otherwise payable to such directors, and (iii) any other types of awards described in the CoalCo Plan.
Dividends
As discussed under Dividend Policy, the payment of any dividends in the future, and the timing and amount thereof, is within the discretion of our Board of Directors. Under the CoalCo Plan, dividends and other distributions paid on or in respect of any shares of restricted stock or RSUs may be paid directly to the participant, or may be reinvested in additional shares of restricted stock or RSUs, as determined by the Board of Directors in its sole discretion; provided, however, that no such dividends or distributions may be paid with respect to unvested restricted stock or unvested RSUs, including any unvested awards that are subject to performance measures, until such awards vest.
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Change in Control
In the event that CoalCo engages in a transaction constituting a Change in Control (as defined in the CoalCo Plan), our Board of Directors will have complete authority and discretion, but not the obligation, to accelerate the vesting of outstanding awards and the termination of restrictions on shares granted under the CoalCo Plan. In addition, the Board of Directors may, if deemed appropriate, in its discretion and in connection with a Change in Control: (i) provide for an equivalent award or substitute award in respect of securities of the surviving entity of such transaction; (ii) upon advance notice to the affected participants, cancel any outstanding options or SARs and pay an amount equal to the excess of the fair market value of the shares covered by the award, or (iii) subject to limited exceptions, make provision for a cash payment or payment of other property in settlement of such award.
Amendment and Termination
Generally our Board of Directors may amend, suspend, discontinue or terminate the CoalCo Plan or any award agreement or any portion thereof at any time; provided that no such amendment, alteration, suspension, discontinuation or termination will be made without shareholder approval, if required by NYSE or as otherwise deemed necessary, or without the consent of the affected participant, if such action would adversely affect his or her material rights under any outstanding award. Notwithstanding the foregoing, the Board of Directors may make modifications or amendments to the extent necessary to conform to Section 162(m), Section 409A or any other provision of the federal income tax laws.
Cancellation of Awards
Our Board of Directors may cause any award granted under the CoalCo Plan to be canceled in consideration of a cash payment or alternative award made to the holder of such canceled award equal in value to the fair market value of such canceled award, except to the extent that such payment would violate the requirements of Section 409A of the Code. Notwithstanding the foregoing or any other provision of the CoalCo Plan, except for adjustments pursuant to applicable provisions of the CoalCo Plan or in connection with certain corporate transactions or events involving CoalCo, the terms of outstanding options or SARs may not be amended to reduce the exercise price of such outstanding options or SARs or to cancel outstanding options or SARs in exchange for cash, other awards or options or SARs with an exercise price that is less than the exercise price of the original options or SARs without obtaining stockholder approval.
Clawback
Notwithstanding any other provisions in the CoalCo Plan, any award that is subject to recovery under any law, government regulation, stock exchange listing requirement or company policy shall be subject to such deductions, recoupment and clawback as may be required to be made pursuant to such law, government regulation, stock exchange listing requirement or company policy, as may be in effect from time to time, and which may operate to create additional rights for the company with respect to awards and recovery of amounts relating thereto. By accepting awards under the CoalCo Plan, participants agree and acknowledge that they are obligated to cooperate with, and provide any and all assistance necessary to, the company to recover or recoup any award or amounts paid under the CoalCo Plan subject to clawback pursuant to such law, government regulation, stock exchange listing requirement, or company policy. Such cooperation and assistance will include, but is not limited to, executing, completing and submitting any documentation necessary to recover or recoup any award or amounts paid under the CoalCo Plan from a participants accounts, or pending or future compensation or awards.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Agreements with GasCo
Following the separation and distribution, CoalCo and GasCo will operate separately, each as an independent public company. In connection with the separation, CoalCo will enter into the separation agreement with
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ParentCo, and will also enter into various other agreements, or modify or amend existing agreements that are currently in place between ParentCo and CNXC, which are discussed below, to effect the separation and provide a framework for its relationship with GasCo after the separation, including a transition services agreement, a tax matters agreement, an employee matters agreement, an intellectual property matters agreement and other agreements related to operations of CoalCo post-separation. These agreements, together with the existing agreements discussed below between ParentCo and CNXC and the documents and agreements by which the internal reorganization will be effected, will provide for the allocation between CoalCo and GasCo of ParentCos assets, employees, liabilities and obligations (including investments, property and employee benefits, and tax-related assets and liabilities) attributable to periods prior to, at and after CoalCos separation from ParentCo and will govern certain relationships between CoalCo and GasCo after the separation.
Separation Agreement
Transfer of Assets and Assumption of Liabilities. The separation agreement will identify the assets to be transferred, the liabilities to be assumed and the contracts to be transferred to each of CoalCo and GasCo as part of the separation of ParentCo into two companies, and will provide for when and how these transfers and assumptions will occur. In particular, the separation agreement will provide that, among other things, subject to the terms and conditions contained therein:
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certain assets related to ParentCos Coal Business, which we refer to as the CoalCo Assets, will be transferred to CoalCo or one of its subsidiaries, including: |
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equity interests in CNXC and certain ParentCo subsidiaries that hold assets relating to the Coal Business; |
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certain intellectual property, software, information and technology used in the Coal Business or related to the CoalCo Assets, the CoalCo Liabilities or CoalCos business; |
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facilities related to the Coal Business, including a portion of the current headquarters of ParentCo; |
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contracts (or portions thereof) that relate to the Coal Business; |
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rights and assets expressly allocated to CoalCo pursuant to the terms of the separation agreement or certain other agreements entered into in connection with the separation; |
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permits that primarily relate to the Coal Business; and |
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other assets that are included in CoalCos pro forma balance sheet, such as pension assets included in CoalCos Unaudited Pro Forma Condensed Combined Financial Statements; |
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certain liabilities related to the Coal Business or the CoalCo Assets, which we refer to as the CoalCo Liabilities, will be retained by or transferred to CoalCo, including certain liabilities associated with legacy pension and other employee legacy liabilities. Subject to limited exceptions, liabilities that relate to the Coal Business, including liabilities of various legal entities that will be subsidiaries of CoalCo following the separation, will be CoalCo Liabilities; |
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the treatment of certain outstanding guarantees given by ParentCo will be addressed. The majority of guarantees given by ParentCo with respect to certain sales contracts, equipment leases, land leases, and royalties with third parties with respect to various CoalCo Assets or that are held by various CoalCo subsidiaries will be severed prior to the distribution; the treatment of those that must continue in place at the time of the distribution (the Guarantees) will be set forth in the separation agreement. In all events, when the Guarantees expire, they will be renegotiated in the name of CoalCo; and |
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all of the assets and liabilities (whether accrued, contingent or otherwise) other than the CoalCo Assets and CoalCo Liabilities (such assets and liabilities, other than the CoalCo Assets and the CoalCo Liabilities, we refer to as the GasCo Assets and GasCo Liabilities, respectively) of ParentCo will be retained by or transferred to GasCo. |
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Except as expressly set forth in the separation agreement or any ancillary agreement, neither CoalCo nor ParentCo will make any representation or warranty as to the assets, business or liabilities transferred or assumed as part of the separation, as to any approvals or notifications required in connection with the transfers, as to the value of or the freedom from any security interests of any of the assets transferred, as to the absence or presence of any defenses or right of setoff or freedom from counterclaim with respect to any claim or other asset of either CoalCo or ParentCo, or as to the legal sufficiency of any document or instrument delivered to convey title to any asset or thing of value to be transferred in connection with the separation. All assets will be transferred on an as is, where is basis, and the respective transferees will bear the economic and legal risks that any conveyance will prove to be insufficient to vest in the transferee good and marketable title, free and clear of all security interests, that any necessary consents or governmental approvals are not obtained, or that any requirements of law, agreements, security interests or judgments are not complied with.
Information in this information statement with respect to the assets and liabilities of the parties following the distribution is presented based on the allocation of such assets and liabilities pursuant to the separation agreement, unless the context otherwise requires. The separation agreement will provide that in the event that the transfer of certain assets and liabilities to CoalCo or GasCo, as applicable, does not occur prior to the separation, then until such assets or liabilities are able to be transferred, CoalCo or GasCo, as applicable, will hold such assets on behalf and for the benefit of the other party and will pay, perform and discharge such liabilities, for which the other party will reimburse CoalCo or GasCo, as applicable, for all commercially reasonable payments made in connection with the performance and discharge of such liabilities.
The Distribution. The separation agreement will also govern the rights and obligations of the parties regarding the distribution following the completion of the separation. On the distribution date, ParentCo will distribute to its stockholders that hold ParentCo common stock as of the record date for the distribution, all of the issued and outstanding common stock of CoalCo, on a pro rata basis. Stockholders will receive cash in lieu of any fractional shares. Following the distribution, CoalCo will be a separate company from GasCo.
Conditions to the Distribution. The separation agreement will provide that the distribution is subject to satisfaction (or waiver by ParentCo) of certain conditions. These conditions are described under The Separation and DistributionConditions to the Distribution. ParentCo will have the sole and absolute discretion to determine (and change) the terms of, and to determine whether to proceed with, the distribution and, to the extent that it determines to so proceed, to determine the record date for the distribution, the distribution date and the distribution ratio.
Claims. In general, each party to the separation agreement will assume liability for all pending, threatened and unasserted legal matters related to its own business or its assumed or retained liabilities and will indemnify the other party for any liability to the extent arising out of or resulting from such assumed or retained legal matters.
Releases. The separation agreement will provide that CoalCo and its affiliates will release and discharge GasCo and its affiliates from all liabilities assumed by CoalCo as part of the separation, from all acts and events occurring or failing to occur, and all conditions existing, on or before the distribution date relating to CoalCos business, and from all liabilities existing or arising in connection with the implementation of the separation, except as expressly set forth in the separation agreement. GasCo and its affiliates will release and discharge CoalCo and its affiliates from all liabilities retained by GasCo and its affiliates as part of the separation, from all acts and events occurring or failing to occur, and all conditions existing, on or before the distribution date relating to GasCos business, and from all liabilities existing or arising in connection with the implementation of the separation, except as expressly set forth in the separation agreement.
These releases will not extend to obligations or liabilities under any agreements between the parties that remain in effect following the separation, which agreements include the separation agreement and the other agreements described under Certain Relationships and Related Party Transactions.
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Indemnification. In the separation agreement, CoalCo will agree to indemnify, defend and hold harmless GasCo, each of GasCos affiliates and each of GasCo and its affiliates respective directors, officers and employees, from and against all liabilities relating to, arising out of or resulting from:
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the CoalCo Liabilities; |
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CoalCos failure or the failure of any other person to pay, perform or otherwise promptly discharge any of the CoalCo Liabilities, in accordance with their respective terms, whether prior to, at or after the distribution; |
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except to the extent relating to a GasCo Liability, any Guarantees, indemnification or contribution obligation for the benefit of CoalCo by GasCo that survives the distribution; |
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any breach by CoalCo of the separation agreement or any of the ancillary agreements; and |
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any untrue statement or alleged untrue statement or omission or alleged omission of material fact in the Form 10, this information statement (as amended or supplemented), or certain other registration statements, except for any such statements or omissions made explicitly in GasCos name. |
GasCo will agree to indemnify, defend and hold harmless CoalCo, each of CoalCos affiliates and each of CoalCo and CoalCos affiliates respective directors, officers and employees from and against all liabilities relating to, arising out of or resulting from:
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the GasCo Liabilities; |
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the failure of GasCo or any other person to pay, perform or otherwise promptly discharge any of the GasCo Liabilities, in accordance with their respective terms whether prior to, at or after the distribution; |
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except to the extent relating to a CoalCo Liability, any guarantee, indemnification or contribution obligation for the benefit of GasCo by CoalCo that survives the distribution; |
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any breach by GasCo of the separation agreement or any of the ancillary agreements; and |
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any untrue statement or alleged untrue statement or omission or alleged omission of a material fact made explicitly in GasCos name in the Form 10, this information statement (as amended or supplemented), or certain other registration statements. |
The separation agreement will also establish procedures with respect to claims subject to indemnification and related matters.
Insurance. The separation agreement will provide for the allocation between the parties of rights and obligations under existing insurance policies with respect to occurrences prior to the distribution and will set forth procedures for the administration of insured claims and related matters.
Further Assurances. In addition to the actions specifically provided for in the separation agreement, except as otherwise set forth therein or in any ancillary agreement, both CoalCo and ParentCo will agree in the separation agreement to use reasonable best efforts, prior to, on and after the distribution date, to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws, regulations and agreements to consummate and make effective the transactions contemplated by the separation agreement and the ancillary agreements.
Dispute Resolution. The separation agreement will contain provisions that govern, except as otherwise provided in any ancillary agreement, the resolution of disputes, controversies or claims that may arise between CoalCo and GasCo related to the separation or distribution and that are unable to be resolved through good faith discussions between CoalCo and GasCo. These provisions will contemplate that efforts will be made to resolve disputes, controversies and claims by escalation of the matter to executives of CoalCo and GasCo, and that, if such efforts
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are not successful, either CoalCo or GasCo may submit the dispute, controversy or claim to mandatory, nonbinding mediation or, if such nonbinding mediation is not successful, litigation, subject to the provisions of the separation agreement.
Expenses. Except as expressly set forth in the separation agreement or in any ancillary agreement, or as otherwise agreed in writing by ParentCo and CoalCo, all costs and expenses incurred in connection with the separation prior to, as of or after the distribution date, will be paid by the party incurring such cost and expense; provided, that certain costs and expenses outlined in the schedules to the separation agreement relating to certain professional services, NYSE listing authorization, and dissemination of the Form 10 and this information statement will be allocated equally between ParentCo and CoalCo.
Other Matters. Other matters governed by the separation agreement will include access to financial and other information, confidentiality, non-competition and non-solicitation provisions, access to and provision of records and treatment of outstanding guarantees and similar credit support.
Termination. The separation agreement will provide that it may be terminated, and the separation and distribution may be modified or abandoned, at any time prior to the distribution date in the sole and absolute discretion of ParentCo without the approval of any person, including CoalCo or ParentCo stockholders. In the event of a termination of the separation agreement, no party, nor any of its directors, officers or employees, will have any liability of any kind to the other party or any other person. After the distribution date, the separation agreement may not be terminated, except by an agreement in writing signed by both GasCo and CoalCo.
Transition Services Agreement
CoalCo and ParentCo will enter into a transition services agreement in connection with the separation pursuant to which CoalCo and GasCo and their respective affiliates will provide each other, on an interim, transitional basis, various services, including, but not limited to, employee benefits administration information technology services, regulatory services, general administrative services and other support services. The agreed-upon charges for such services are generally intended to allow the servicing party to charge a price comprised of out-of-pocket costs and expenses and a predetermined profit in the form of a mark-up of such out-of-pocket expenses. The cost of the services to be provided by each party is estimated to be $ for services provided by GasCo to CoalCo and $ for services provided by CoalCo to GasCo. The party receiving each transition service will be provided with reasonable information that supports the charges for such transition service by the party providing the service.
Subject to certain exceptions, the liabilities of each party providing services under the transition services agreement will generally be limited to the aggregate charges actually paid to such party by the other party pursuant to the transition services agreement. The transition services agreement also will provide that the provider of a service will not be liable to the recipient of such service for any special, indirect, incidental or consequential damages.
Tax Matters Agreement
In connection with the separation, CoalCo and ParentCo will enter into a tax matters agreement that governs the parties respective rights, responsibilities and obligations with respect to taxes (including taxes arising in the ordinary course of business and taxes, if any, incurred as a result of any failure of the distribution and certain related transactions to qualify as tax-free for U.S. federal income tax purposes), tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings, and assistance and cooperation in respect of tax matters.
In addition, the tax matters agreement will impose certain restrictions on us and our subsidiaries (including restrictions on share issuances, business combinations, sales of assets and similar transactions) designed to preserve the tax-free status of the distribution and certain related transactions. The tax matters agreement will
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provide special rules that allocate tax liabilities in the event the distribution, together with certain related transactions, is not tax-free. In general, under the tax matters agreement, each party will be expected to be responsible for any taxes imposed on ParentCo or CoalCo that arise from the failure of the distribution, together with certain related transactions, to qualify as a transaction that is generally tax-free, for U.S. federal income tax purposes, under Sections 355 and 368(a)(1)(D) and certain other relevant provisions of the Code, to the extent that the failure to so qualify is attributable to actions, events or transactions relating to such partys respective stock, assets or business, or a breach of the relevant representations or covenants made by that party in the tax matters agreement.
As discussed elsewhere in this information statement, notwithstanding receipt by ParentCo of the IRS private letter ruling and the opinion(s) of tax advisors, the IRS could assert that the distribution does not qualify for tax-free treatment for U.S. federal income tax purposes. If the IRS were successful in taking this position, ParentCo, CoalCo and ParentCo stockholders could be subject to significant U.S. federal income tax liability. In addition, certain events that may or may not be within the control of ParentCo or CoalCo could cause the distribution and certain related transactions to not qualify for tax-free treatment for U.S. federal income tax purposes. Depending on the circumstances, CoalCo may be required to indemnify ParentCo for taxes (and certain related losses) resulting from the distribution and certain related transactions not qualifying as tax-free.
If the distribution fails to qualify as a tax-free transaction for U.S. federal income tax purposes, in general, ParentCo would recognize taxable gain as if it had sold the CoalCo common stock in a taxable sale for its fair market value (unless ParentCo and CoalCo jointly make an election under Section 336(e) of the Code with respect to the distribution, in which case, in general, (i) the ParentCo group would recognize taxable gain as if CoalCo had sold all of its assets in a taxable sale in exchange for an amount equal to the fair market value of the CoalCo common stock and the assumption of all CoalCos liabilities and (ii) CoalCo would obtain a related step up in the basis of its assets) and ParentCo stockholders who receive CoalCo common stock in the distribution would be subject to tax as if they had received a taxable distribution equal to the fair market value of such CoalCo common stock.
Employee Matters Agreement
CoalCo and ParentCo will enter into an employee matters agreement in connection with the separation to allocate liabilities and responsibilities relating to employment matters, employee compensation and benefits plans and programs, and other related matters. The employee matters agreement will govern certain compensation and employee benefit obligations with respect to the current and former employees and non-employee directors of each company.
The employee matters agreement will provide that, unless otherwise specified, GasCo will be responsible for certain liabilities associated with current and former employees of GasCo and its subsidiaries and certain other former employees classified as former employees of GasCo for purposes of post-separation compensation and benefits matters, and CoalCo will be responsible for certain liabilities associated with current and former employees of CoalCo and its subsidiaries and certain other former employees classified as former employees of CoalCo for purposes of post-separation compensation and benefits matters.
The employee matters agreement will also govern the treatment of equity-based awards granted by ParentCo prior to the separation. See The Separation and DistributionTreatment of Equity-Based Compensation.
Master Cooperation and Safety Agreement
In connection with the separation, CoalCo and ParentCo will enter into two master cooperation and safety agreements, which will contain provisions related to the safe and economical operation of GasCos Gas Business and CoalCos Coal Business where the parties have joint interests. The first is an amendment to an existing master cooperation and safety agreement that will relate to operations at the PAMC, and is discussed below under the heading Cooperation and Safety Agreement. The second master cooperation and safety agreement
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will relate to the safe and economical operation of the CNX Marine Terminal and other non-PAMC operations of the Coal Business and ParentCos natural gas business where joint interests exist, including with respect to surface rights and use and subsidence issues. Further, GasCo will agree to sign and deliver any waiver or consent necessary to allow coal mining operations of CoalCo in the vicinity of any property or gas rights owned by GasCo, and CoalCo will agree that GasCo has the right to capture gas from any well associated with CoalCos property, subject to CoalCos right to preclude GasCo from capturing gas with respect to any active mining area in order to promote safety for and productivity of its coal operations.
Agreements with CNXC
Following the separation and distribution, CoalCo will own those ownership interests of CNXC previously owned by ParentCo. CNXC and ParentCo (and certain of ParentCos affiliates, some of which will become subsidiaries of CoalCo pursuant to the internal restructuring prior to the separation) have previously entered into various agreements regarding the relationship between the two entities. The material terms of these agreements, which are anticipated to either be assumed by CoalCo, continue unmodified between the current parties, modified and amended in connection with the separation or subsumed within the related party agreements discussed above, are set forth below. These agreements, together with the documents discussed above and agreements by which the internal reorganization will be effected, will provide for the allocation between CoalCo and CNXC of certain assets, employees, liabilities and obligations relating to the management and operation of PAMC.
Operating Agreement
Under the current operating agreement, CNX Thermal Holdings, a wholly-owned subsidiary of CNXC, has agreed to serve as the operator and assumed management and control over the day-to-day operations of the PAMC for the life of the mines. As operator, CNX Thermal Holdings is responsible for managing and conducting all operations with respect to the PAMC, including: (i) mining the PAMC; (ii) handling coal production and delivery thereof to purchasers and/or facilities; (iii) operating the beltlines transporting raw coal into the PAMCs preparation plant and loading facility; (iv) storing, preparing, treating, managing and loading coal at the preparation plant and, if applicable, blending coal; (v) disposing, stockpiling, handling, treating and/or storing all coal refuse; and (vi) planning and coordinating of anticipated mining operations.
CNX Thermal, as the operator under the operating agreement, also possesses the following responsibilities for managing and conducting the following additional operational services with respect to the PAMC: (i) health, environmental, safety and security services, including MSHA reporting; (ii) services related to the acquisition, divestiture, management and administration of the real property interests underlying the PAMC; (iii) acquiring, managing and administering all permits necessary for the operation of the PAMC in material compliance with such permits; (iv) services necessary to market the production from the PAMC and negotiate, manage and administer the contracts necessary for the operation of the PAMC; (v) logistics relating to operation of the PAMC; and (vi) preparing, or causing to be prepared, such daily reports typically prepared by an operator of a mining complex similar to the PAMC that are prepared in the ordinary course of business and monthly per ton reports and annual reserve reports.
Pursuant to the operating agreement, a two-member operating committee, meets quarterly to review the annual budget for the PAMC. While CNX Thermal Holdings has been delegated the authority and responsibility for managing and further developing the PAMC, certain material actions, including the approval of the annual plan and budget and any permanent or extended temporary decommissioning of any of the mines at the PAMC, will require the unanimous consent of the operating committee. CNX Thermal Holdings may be removed as operator only in the event of its bankruptcy or gross negligence or willful misconduct in connection with the operational services.
Any liabilities arising from the operation of the PAMC that are not the result of CNX Thermal Holdings gross negligence or willful misconduct will be borne by CNX Thermal Holdings, certain ParentCo subsidiaries pro rata
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in relation to such persons ownership percentage of the PAMC. Under the operating agreement, CNX Thermal Holdings invoices ParentCo through its subsidiaries on a monthly basis for its pro rata share of the costs associated with the operation of the PAMC. The total amount of such amounts invoiced was approximately $414.5 million for 2016.
It is anticipated that the operating agreement will remain in effect following the separation with the current parties thereto, with amendment or modification as deemed necessary.
Employee Services Agreement
Pursuant to an employee services agreement ParentCo, through a wholly-owned subsidiary that will, as part of the separation, become a wholly-owned subsidiary of CoalCo, provides personnel to mine and process coal from the PAMC and perform the operational services that CNXC is charged with providing under the operating agreement described above. CNXC provides reimbursement for (i) all direct third-party costs and expenses actually incurred in providing operational services, including royalties required to be paid on the coal mined, certain taxes applicable to the coal and coal workers, per-ton reclamation fees or taxes and penalties imposed by any governmental authority for violation of any law or regulation arising out of performance of the operational services, except to the extent such penalties were as a result of gross negligence or willful misconduct, (ii) salary, benefits and other compensation costs of employees performing the operational services to the extent such employees are performing the operational services; and (iii) market rate rental fees for use of assets in performing the operational services, if any. CNXC paid approximately $45.0 million to ParentCo for such reimbursed expenses for the year ended December 31, 2016. It is currently anticipated that, since the wholly-owned subsidiary that is currently a party to the employee services agreement will become a wholly-owned subsidiary of CoalCo, the employee services agreement will not require assignment or amendment in connection with the separation, and will remain in effect following the separation.
Cooperation and Safety Agreements
CNXC is party to a master cooperation and safety agreement with a wholly owned subsidiary of ParentCo pursuant to which CNXC, in its capacity as operator of the PAMC, coordinates mining activities relating to the PAMC with the oil and natural gas drilling and development activities of ParentCo in and around the PAMC. The cooperation and safety agreement, which CoalCo anticipates will remain in place with GasCo following the separation, contains provisions related to the safe and economical operation of the PAMC coal business and ParentCos natural gas business where joint interests exist, including with respect to surface rights and use and subsidence issues.
Contract Agency Agreement
CNX Thermal Holdings, is party to a contract agency agreement with CONSOL Energy Sales Company (CES), a current subsidiary of ParentCo that will, as part of the separation, become a wholly-owned subsidiary of CoalCo. Under the contract agency agreement, CES acts as agent to market and sell the coal produced from the PAMC and administers CNXCs existing coal purchase and sale contracts, including any extensions or renewals thereof, and any new coal purchase and sale contracts for the sale of coal produced from the PAMC. The administration of these coal purchase and sale contracts includes CES making elections, enforcing rights, executing coal sale confirmations and invoicing, in each case at our direction and with respect to the coal reserves attributable to our interests and CES interest in the PAMC. Because it governs certain contracts which pertain to both coal and natural gas sales, it is anticipated that the contract agency agreement will be amended in connection with the separation to remove those contracts and parties that pertain to GasCo operations. Otherwise, it is anticipated that the amended contract agency agreement will remain in effect between CNX Thermal Holdings and CES following the separation.
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Terminal Throughput Agreement
CNX Thermal Holdings is party to a terminal throughput agreement with CNX Marine Terminals, Inc. (CNX Marine), a current subsidiary of ParentCo that will, as part of the separation, become a wholly-owned subsidiary of CoalCo. Under the terminal and throughput agreement, CNXC has the option, but not the obligation, to transport or to cause to be transported through the CNX Marine Terminal up to 5 million tons of coal each calendar year for a terminal fee of $4 per ton of coal transported through the CNX Marine Terminal, plus certain standard fees for long-term or excess storage, re-handling services at the CNX Marine Terminal (if elected) and certain fees related to the docking and undocking of vessels at the CNX Marine Terminal. The per ton terminal fee and other fees may be reasonably escalated by the owner of the CNX Marine Terminal on a quarterly basis based on changes in the volume of coal shipped through the CNX Marine Terminal and increases in operating costs at the terminal. The terminal throughput agreement will not require assignment or amendment in connection with the separation, and will remain in effect following the separation.
Water Supply and Services Agreement
CNXC is party to a water supply and services agreement with a wholly owned subsidiary of ParentCo pursuant to which it has the option, but not the obligation, to (i) acquire water from ParentCo for a fee of $3.50 per thousand gallons of water (the supply fee), in an amount up to 600 gallons per minute and (ii) cause ParentCo to treat and dispose of water produced from the PAMC for a fee of $1.91 per thousand gallons of water (the treatment fee). The supply fee is subject to a renegotiation based on market conditions at the end of the initial term, and the disposal fee is subject to annual renegotiation based on market conditions and operating costs of the water treatment facility. The water supply and services agreement, which CoalCo anticipates will remain in place with GasCo following the separation subject to amendment to revise certain services provided under the agreement, had an initial term of five years and will automatically renew for additional one-year terms unless terminated by either party on not less than 30 days prior notice.
Omnibus Agreement
CNXC and the CNXC GP are parties to an omnibus agreement with ParentCo, and certain other subsidiaries of ParentCo that address the matters discussed below. In the event ParentCo ceases to control the CNXC GP, either party may terminate the omnibus agreement, provided that the indemnification obligations will survive any such termination in accordance with their terms. Under the omnibus agreement, as it has been amended and restated, CNXC pays ParentCo an administrative support fee for the provision of certain administrative support services and an executive support fee for the provision of certain executive support services for its benefit. The omnibus agreement also addresses reimbursement for certain administrative and support costs incurred. The administrative support fee may change each calendar year, as determined by ParentCo in good faith after consultation with the CNXC GP, to accurately reflect the degree and extent of the general and administrative services provided to CNXC and may be adjusted to reflect, among other things, the contribution, acquisition or disposition of assets to or by CNXC or to reflect any change in the cost of providing general and administrative services Under the omnibus agreement, until the date that ParentCo no longer controls the CNXC GP, if ParentCo determines to sell, transfer or otherwise dispose of all or part of its retained 75% undivided interest in the PAMC or CNX Marine Terminal, ParentCo must provide CNXC with an opportunity to make the first offer to acquire such interests and assets.
Under the omnibus agreement, ParentCo has indemnification obligations to CNXC for certain liabilities under the omnibus agreement, which we currently anticipate will remain in place following the separation, including those relating to (i) the consummation of the transactions contemplated by the contribution agreement; (ii) all pre-contribution tax liabilities attributable to the assets contributed to CNXC; (iii) certain operational and title matters, including the failure to have the ability to operate under any governmental license, permit or approval or valid title to the contributed assets, in each case, that is necessary to own or operate any contributed assets; (iv) except to the extent resulting from CNXCs breach of the operating standard in the operating agreement,
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ParentCos ownership of its retained 75% interest in and to the PAMC; (v) certain liabilities retained by ParentCo; (vi) ParentCos gross negligence or willful misconduct in connection with the provision of general and administrative services or management services under the omnibus agreement; and (vii) a breach by ParentCo of the other agreements discussed herein.
CNXC also has the following indemnification obligations to ParentCo, which we also anticipate will remain in place following the separation, with respect to the following: (i) the use, ownership or operation of CNXC assets, including certain environmental liabilities; (ii) any liabilities incurred by ParentCo under the other agreements discussed herein, or by CNXCs breach of the cooperation and safety agreement; and (iii) CNXCs operation of the PAMC under permits and/or bonds, letters of credit, guarantees, deposits and other pre-payments held by ParentCo. Under the omnibus agreement, certain indemnification obligations by ParentCo are limited to pre-identified liabilities, and/or a deductible of $1.0 million per claim. For purposes of calculating the deductible, a claim will include all liabilities that arise from a discrete act or event. There is no limit on the amount for which ParentCo or CNXC will indemnify under the omnibus agreement once the deductible is met.
In connection with the separation, it is anticipated that the omnibus agreement will be amended to transfer the administrative support services and executive support obligations, as well as the right to receive the commensurate payments for such services and obligations, to CoalCo (or one of its wholly-owned subsidiaries). In the event that existing indemnification obligations remain in place as between GasCo and CNXC following the separation, we will provide indemnification to GasCo as it relates to the ongoing indemnification obligations, as part of the separation agreement.
Procedures for Approval of Related Person Transactions
CoalCo will adopt a written Related Person Policy and Procedures to set forth policies and procedures for the review and approval or ratification of related person transactions with directors, nominees for director, executive officers and certain family members (related persons). We expect that the policy will provide that, prior to entering into a potential related person transaction (which is generally a transaction in excess of $120,000 involving CoalCo and a related person), the related person must notify our chief financial officer and general counsel of the material facts regarding the transaction. If our chief financial officer and general counsel determine that the proposed transaction is in fact a related person transaction, the details of the transaction are presented to our Audit Committee (or if it is not practicable or desirable to wait until the next Audit Committee meeting, to the chairman of the Audit Committee) for approval. The Audit Committee or Chairman, as applicable, will consider all relevant facts and circumstances including the terms of the transaction and terms that would be available to unrelated parties, the benefits to us and, if the transaction involves an independent director, any impact the transaction would have on such directors independence. The Audit Committee or Chairman, as applicable, will also inform our N&CG Committee of any related person transactions involving directors or nominees. Since the SECs related party regulation also applies to directors and executive officers family members, as well as entities in which they may be deemed to have an indirect material interest, it is possible that related person transactions could occur without a director or executive officer being aware of them and seeking approval in accordance with the policy. When we become aware of a related person transaction that has not been previously approved, the policy will require that the details of the transaction be presented to our Audit Committee or Chairman, as applicable, for ratification or other action.
The Board of Directors is expected to consider the following types of potential related person transactions and pre-approve them under the companys Related Person Transaction Approval Policy as not presenting material conflicts of interest:
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employment of executive officers (except employment of an executive officer that is an immediate family member of another executive officer, director, or nominee for director) as long as the Compensation Committee has approved the executive officers compensation; |
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director compensation that the Board of Directors has approved; |
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any transaction with another entity in which the aggregate amount involved does not exceed the greater of $1 million or 2% of the other entitys total annual revenues, if a related persons interest arises only from: |
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such persons position as an employee or executive officer of the other entity; or |
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such persons position as a director of the other entity; or |
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the ownership by such person, together with his or her immediate family members, of less than a 10% equity interest in the aggregate in the other entity (other than a partnership); or |
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both such position as a director and ownership as described in the foregoing two bullets; or |
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such persons position as a limited partner in a partnership in which the person, together with his or her immediate family members, have an interest of less than 10%; |
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charitable contributions in which a related persons only relationship is as an employee (other than an executive officer), or a director or trustee, if the aggregate amount involved does not exceed the greater of $250,000 or 2% of the charitable organizations total annual receipts; |
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transactions, such as the receipt of dividends, in which all stockholders receive proportional benefits; |
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transactions involving competitive bids; |
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transactions involving the rendering of services as a common or contract carrier, or public utility, at rates or charges fixed in conformity with law or governmental authority; and |
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transactions with a related person involving services as a bank depositary of funds, transfer agent, registrar, trustee under a trust indenture, or similar services. |
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of material U.S. federal income tax consequences of the distribution of CoalCo common stock to U.S. holders (as defined below) of ParentCo common stock. This summary is based on the Code, U.S. Treasury Regulations promulgated thereunder, rulings and other administrative pronouncements issued by the IRS, and judicial decisions, all as in effect on the date of this information statement, and all of which are subject to differing interpretations and change at any time, possibly with retroactive effect. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax consequences described below. This discussion applies only to U.S. holders of shares of ParentCo common stock who hold such shares as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment).
The distribution is conditioned upon the receipt by ParentCo of a private letter ruling from the IRS and one or more opinions of its tax advisors, in each case, satisfactory to the ParentCo Board of Directors, regarding certain U.S. federal income tax matters relating to the separation and the distribution, including, with respect to the opinion of Wachtell, Lipton, Rosen & Katz, to the effect that, subject to the accuracy of and compliance with certain representations, assumptions, and covenants, the distribution will be a transaction described in Section 355(a) of the Code.
This discussion is based upon the assumption that the distribution, together with certain related transactions, will be consummated in accordance with the separation agreement and the other separation-related agreements and as described in this information statement and that the IRS takes no position inconsistent with the opinion(s) described above. This summary is not intended to be, and it should not be construed to be, legal or tax advice to any particular stockholder. It does not discuss all aspects of U.S. federal income taxation that may be relevant to a particular holder in light of its particular circumstances or to holders subject to special rules under the Code (including, but not limited to, insurance companies, tax-exempt organizations, financial institutions, broker-dealers, partners in partnerships that hold ParentCo or CoalCo common stock, pass-through entities (or investors
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therein), traders in securities who elect to apply a mark-to-market method of accounting, holders who hold ParentCo or CoalCo common stock as part of a hedge, straddle, conversion, synthetic security, integrated investment or constructive sale transaction, individuals who receive CoalCo common stock upon the exercise of employee stock options or otherwise as compensation, holders who are liable for alternative minimum tax or any holders who actually or constructively own or owned more than 5% of ParentCo common stock). This discussion also does not address any tax consequences arising under the unearned Medicare contribution tax pursuant to the Health Care and Education Reconciliation Act of 2010, nor does it address any tax considerations under state, local or foreign laws or U.S. federal laws other than those pertaining to the U.S. federal income tax. The distribution may be taxable under such other tax laws and all holders should consult their own tax advisors with respect to the applicability and effect of any such tax laws.
If a partnership, including for this purpose any entity or arrangement that is treated as a partnership for U.S. federal income tax purposes, holds ParentCo common stock, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. An investor that is a partnership and the partners in such partnership should consult their tax advisors about the U.S. federal income tax consequences of the distribution.
For purposes of this discussion, a U.S. holder is any beneficial owner of ParentCo common stock that is, for U.S. federal income tax purposes:
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an individual who is a citizen or a resident of the United States; |
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a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized under the laws of the United States, any state thereof or the District of Columbia; |
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an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or |
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a trust, if (i) a court within the United States is able to exercise primary supervision over its administration and one or more United States persons have the authority to control all of its substantial decisions or (ii) it has a valid election in place under applicable Treasury Regulations to be treated as a United States person. |
THE FOLLOWING DISCUSSION IS A SUMMARY OF MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION UNDER CURRENT LAW AND IT IS NOT INTENDED TO BE, AND IT SHOULD NOT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR STOCKHOLDER. ALL HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES OF THE DISTRIBUTION TO THEM, INCLUDING THE APPLICATION AND EFFECT OF U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
The IRS private letter ruling and the opinion(s) of tax advisors will be based upon and rely on, among other things, various facts and assumptions, as well as certain representations, statements and undertakings of CoalCo and ParentCo (including those relating to the past and future conduct of CoalCo and ParentCo). If any of these representations, statements or undertakings is, or becomes, inaccurate or incomplete, or if CoalCo or ParentCo breach any of their respective representations or covenants contained in any of the separation-related agreements and documents or in any documents relating to the IRS private letter ruling and/or the opinion(s) of tax advisors, such IRS private letter ruling and/or the opinion(s) of tax advisors may be invalid and the conclusions reached therein could be jeopardized.
Notwithstanding receipt by ParentCo of the IRS private letter ruling and the opinion(s) of tax advisors, the IRS could determine that the distribution and/or certain related transactions should be treated as taxable transactions for U.S. federal income tax purposes if it determines that any of the representations, assumptions or undertakings upon which the IRS private letter ruling or the opinion(s) of tax advisors was based are false or have been violated. In addition, neither the IRS private letter ruling nor the opinion(s) of tax advisors will address all of the
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issues that are relevant to determining whether the distribution, together with certain related transactions, qualifies as a transaction that is generally tax-free for U.S. federal income tax purposes, and an opinion of a tax advisor represents the judgment of such tax advisor and is not binding on the IRS or any court and the IRS or a court may disagree with the conclusions in the opinion(s) of tax advisors. Accordingly, notwithstanding receipt by ParentCo of the IRS private letter ruling and the opinion(s) of tax advisors, there can be no assurance that the IRS will not assert that the distribution and/or certain related transactions do not qualify for tax-free treatment for U.S. federal income tax purposes or that a court would not sustain such a challenge. In the event the IRS were to prevail with such challenge, ParentCo, CoalCo and ParentCo stockholders could be subject to significant U.S. federal income tax liability. Please refer to Material U.S. Federal Income Tax Consequences if the Distribution is Taxable below.
It is expected that, for U.S. federal income tax purposes:
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subject to the discussion below regarding Section 355(e) of the Code, no gain or loss will be recognized by, and no amount will be includible in the income of, ParentCo upon the distribution, other than gain or income arising in connection with certain internal restructurings undertaken in connection with the separation and distribution (including with respect to any portion of the borrowing proceeds transferred to ParentCo from CoalCo that is not used for qualifying purposes) and with respect to any excess loss account or intercompany transaction required to be taken into account by ParentCo under U.S. Treasury regulations relating to consolidated federal income tax returns; |
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no gain or loss will be recognized by (and no amount will be included in the income of) U.S. holders of ParentCo common stock upon the receipt of CoalCo common stock in the distribution, except with respect to any cash received in lieu of fractional shares of CoalCo common stock (as described below); |
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the aggregate tax basis of the ParentCo common stock and the CoalCo common stock received in the distribution (including any fractional share interest in CoalCo common stock for which cash is received) in the hands of each U.S. holder of ParentCo common stock immediately after the distribution will equal the aggregate tax basis of ParentCo common stock held by the U.S. holder immediately before the distribution, allocated between the ParentCo common stock and the CoalCo common stock (including any fractional share interest in CoalCo common stock for which cash is received) in proportion to the relative fair market value of each on the date of the distribution; and |
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the holding period of the CoalCo common stock received by each U.S. holder of ParentCo common stock in the distribution (including any fractional share interest in CoalCo common stock for which cash is received) will generally include the holding period at the time of the distribution for the ParentCo common stock with respect to which the distribution is made. |
A U.S. holder who receives cash in lieu of a fractional share of CoalCo common stock in the distribution will be treated as having sold such fractional share for cash, and will recognize capital gain or loss in an amount equal to the difference between the amount of cash received and such U.S. holders adjusted tax basis in such fractional share. Such gain or loss will be long-term capital gain or loss if the U.S. holders holding period for its ParentCo common stock exceeds one year at the time of distribution.
If a U.S. holder of ParentCo common stock holds different blocks of ParentCo common stock (generally shares of ParentCo common stock purchased or acquired on different dates or at different prices), such holder should consult its tax advisor regarding the determination of the basis and holding period of shares of CoalCo common stock received in the distribution in respect of particular blocks of ParentCo common stock.
U.S. Treasury regulations require certain U.S. holders who receive shares of CoalCo common stock in the distribution to attach to such U.S. holders federal income tax return for the year in which the distribution occurs a detailed statement setting forth certain information relating to the tax-free nature of the distribution.
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Material U.S. Federal Income Tax Consequences if the Distribution is Taxable.
As discussed above, notwithstanding receipt by ParentCo of the IRS private letter ruling and the opinion(s) of tax advisors, the IRS could assert that the distribution does not qualify for tax-free treatment for U.S. federal income tax purposes. If the IRS were successful in taking this position, some or all of the consequences described above would not apply and ParentCo, CoalCo and ParentCo stockholders could be subject to significant U.S. federal income tax liability. In addition, certain events that may or may not be within the control of ParentCo or CoalCo could cause the distribution and certain related transactions to not qualify for tax-free treatment for U.S. federal income tax purposes. Depending on the circumstances, CoalCo may be required to indemnify ParentCo for taxes (and certain related losses) resulting from the distribution and certain related transactions not qualifying as tax-free.
If the distribution fails to qualify as a tax-free transaction for U.S. federal income tax purposes, in general, ParentCo would recognize taxable gain as if it had sold the CoalCo common stock in a taxable sale for its fair market value (unless ParentCo and CoalCo jointly make an election under Section 336(e) of the Code with respect to the distribution, in which case, in general, (i) the ParentCo group would recognize taxable gain as if CoalCo had sold all of its assets in a taxable sale in exchange for an amount equal to the fair market value of the CoalCo common stock and the assumption of all CoalCos liabilities and (ii) CoalCo would obtain a related step up in the basis of its assets) and ParentCo stockholders who receive CoalCo common stock in the distribution would be subject to tax as if they had received a taxable distribution equal to the fair market value of such CoalCo common stock.
Even if the distribution were to otherwise qualify as tax-free under Sections 355 and 368(a)(1)(D) of the Code, it may result in taxable gain to ParentCo under Section 355(e) of the Code if the distribution were later deemed to be part of a plan (or series of related transactions) pursuant to which one or more persons acquire, directly or indirectly, shares representing a 50% or greater interest (by vote or value) in ParentCo or CoalCo. For this purpose, any acquisitions of ParentCo or CoalCo shares within the period beginning two years before the separation and ending two years after the separation are presumed to be part of such a plan, although CoalCo or ParentCo may be able to rebut that presumption.
In connection with the distribution, CoalCo and ParentCo will enter into a tax matters agreement pursuant to which CoalCo will be responsible for certain liabilities and obligations following the distribution. In general, under the terms of the tax matters agreement, if the distribution, together with certain related transactions, were to fail to qualify as a transaction that is generally tax-free, for U.S. federal income tax purposes, under Sections 355 and 368(a)(1)(D) of the Code (including as a result of Section 355(e) of the Code) and, in each case, such failure were the result of actions taken after the distribution by ParentCo or CoalCo, the party responsible for such failure will be responsible for all taxes imposed on ParentCo or CoalCo to the extent such taxes result from such actions. However, if such failure was the result of any acquisition of CoalCo shares or assets, or of any of CoalCos representations, statements or undertakings being incorrect, incomplete or breached, CoalCo generally will be responsible for all taxes imposed as a result of such acquisition or breach. For a discussion of the tax matters agreement, see Certain Relationships and Related Party TransactionsTax Matters Agreement. CoalCos indemnification obligations to ParentCo under the tax matters agreement are not expected to be limited in amount or subject to any cap. If CoalCo is required to pay any taxes or indemnify ParentCo and its subsidiaries and their respective officers and directors under the circumstances set forth in the tax matters agreement, CoalCo may be subject to substantial liabilities.
Backup Withholding and Information Reporting.
Payments of cash to U.S. holders of ParentCo common stock in lieu of fractional shares of CoalCo common stock may be subject to information reporting and backup withholding (currently, at a rate of 28%), unless such U.S. holder delivers a properly completed IRS Form W-9 certifying such U.S. holders correct taxpayer identification number and certain other information, or otherwise establishing a basis for exemption from backup withholding. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding
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rules may be refunded or credited against a U.S. holders U.S. federal income tax liability provided that the required information is timely furnished to the IRS.
THE FOREGOING DISCUSSION IS A SUMMARY OF MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION UNDER CURRENT LAW AND IT IS NOT INTENDED TO BE, AND IT SHOULD NOT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR STOCKHOLDER. THE FOREGOING DISCUSSION DOES NOT PURPORT TO ADDRESS ALL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION OR TAX CONSEQUENCES THAT MAY ARISE UNDER THE TAX LAWS OF OTHER JURISDICTIONS OR THAT MAY APPLY TO PARTICULAR CATEGORIES OF SHAREHOLDERS. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES OF THE DISTRIBUTION TO THEM, INCLUDING THE APPLICATION OF U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS, AND THE EFFECT OF POSSIBLE CHANGES IN TAX LAWS THAT MAY AFFECT THE TAX CONSEQUENCES DESCRIBED ABOVE.
DE SCRIPTION OF MATERIAL INDEBTEDNESS
CoalCo intends to incur certain indebtedness prior to or concurrent with the separation. Subject to market conditions and other factors, prior to or concurrent with the separation, CoalCo intends to provide for up to approximately $ of liquidity facilities through a senior secured revolving credit facility, asset-backed lending facility and/or funded debt through the issuance of term loans, secured notes and/or unsecured notes, and distribute a substantial portion of the proceeds of the funded debt to GasCo. As a result of these financing transactions, upon consummation of the spin-off we expect to have total indebtedness of approximately $ million. Further, CoalCo intends to retain those MEDCO 5.75% revenue bonds due September 2025, for which the principal amount as of June 30, 2017 was $103 million, and for which GasCo will remain as a guarantor with CoalCo providing indemnification with respect to such guarantee. ParentCos existing unsecured senior notes and credit facility are expected to remain an obligation of GasCo after the separation, except to the extent that GasCo uses funds received by it from CoalCo to repay existing indebtedness.
Additional information with respect to CoalCos debt will be included in an amendment to this information statement.
S ECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Before the separation and distribution, all of the outstanding shares of CoalCo common stock will be owned beneficially and of record by ParentCo. Following the separation and distribution, CoalCo expects to have outstanding an aggregate of approximately share(s) of common stock based upon approximately share(s) of ParentCo common stock issued and outstanding on , 2017, excluding treasury shares, assuming no exercise of ParentCo options and applying the distribution ratio.
Security Ownership of Certain Beneficial Owners
The following table reports the number of shares of CoalCo common stock that CoalCo expects will be beneficially owned, immediately following the completion of the distribution by each person who is expected to beneficially own more than 5% of CoalCo common stock at such time. The table is based upon information available as of , 2017 as to those persons who beneficially own more than 5% of ParentCo common stock and assumes a distribution of share(s) of CoalCo common stock for every share(s) of ParentCo common stock held by such persons.
Share Ownership of Executive Officers and Directors
The following table sets forth information, immediately following the completion of the distribution calculated as of , 2017, based upon the distribution of share(s) of CoalCo common stock for every
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share(s) of ParentCo common stock, regarding (i) each expected director, director nominee and executive officer of CoalCo and (ii) all of CoalCos expected directors and executive officers as a group. The address of each director, director nominee and executive officer shown in the table below is c/o CONSOL Mining Corporation, 1000 CONSOL Energy Drive, Canonsburg, PA 15317-6506.
Name of Beneficial Owner |
Shares
Beneficially Owned |
Percent
of Class |
||||||
James A. Brock |
||||||||
David M. Khani |
||||||||
Katharine Fredriksen |
||||||||
Kurt Salvatori |
||||||||
James McCaffrey |
||||||||
Martha A. Wiegand |
||||||||
Alvin R. Carpenter |
||||||||
John T. Mills |
||||||||
Joseph P. Platt |
||||||||
William P. Powell |
||||||||
Edwin S. Roberson |
||||||||
All directors and executive officers as a group (11 persons) |
* |
Indicates that the percentage of beneficial ownership does not exceed 1%. |
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DESCRIPTION OF COALCO CAPITAL STOCK
CoalCos certificate of incorporation and by-laws will be amended and restated prior to the distribution. The following is a summary of the material terms of our capital stock that will be contained in our amended and restated certificate of incorporation and by-laws. The summaries and descriptions below do not purport to be complete statements of the relevant provisions of our certificate of incorporation or by-laws that will be in effect at the time of the distribution, and are qualified in their entirety by reference to these documents, which you must read (along with the applicable provisions of Delaware law) for complete information on our capital stock as of the time of the distribution. The certificate of incorporation and by-laws, each in a form expected to be in effect at the time of the distribution, will be included as exhibits in a future amendment to CoalCos registration statement on Form 10, of which this information statement forms a part. We will include our amended and restated certificate of incorporation and by-laws, as in effect at the time of the distribution, in a Current Report on Form 8-K filed with the SEC. The following also summarizes certain relevant provisions of the Delaware General Corporation Law (which we refer to as the DGCL). Since the terms of the DGCL are more detailed than the general information provided below, you should read the actual provisions of the DGCL for complete information.
General
CoalCo will be authorized to issue shares, of which:
|
shares will be designated as common stock, par value $0.01 per share; and |
|
shares will be designated as preferred stock, par value $0.01 per share. |
Immediately following the distribution, we expect that approximately share(s) of our common stock will be issued and outstanding, and that no shares of our preferred stock will be issued and outstanding.
Common Stock
Dividend Rights. Holders of our common stock will be entitled to receive dividends only if and when declared by the Board of Directors. However, no dividend will be declared or paid on our common stock until CoalCo has paid (or declared and set aside funds for payment of) all dividends that have accrued on all classes of CoalCos outstanding preferred stock.
Voting Rights. Holders of our common stock will be entitled to one (1) vote per share and they will not have any cumulative voting rights.
Liquidation Rights. Upon any liquidation, dissolution or winding up of CoalCo, whether voluntary or involuntary, after payments to holders of preferred stock of amounts determined by the Board of Directors, plus any accrued dividends, the companys remaining assets will be divided among holders of our common stock pro rata.
Preemptive or Other Subscription Rights. Holders of our common stock will not have any preemptive right to subscribe for any securities of the company.
Conversion and Other Rights. No conversion, redemption or sinking fund provisions will apply to our common stock, and our common stock will be not liable to further call or assessment by the company. All issued and outstanding shares of our common stock will be fully paid and non-assessable.
Preferred Stock
Under the terms of our amended and restated certificate of incorporation, our Board of Directors will be authorized to issue up to shares of preferred stock in one or more series without further action by the holders of
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our common stock. Our Board of Directors will have the discretion, subject to limitations prescribed by Delaware law and by our amended and restated certificate of incorporation, to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, terms of redemption and liquidation preferences, of each series of preferred stock.
Although our Board of Directors does not currently intend to do so, it could authorize us to issue a class or series of preferred stock that could, depending upon the terms of the particular class or series, delay, defer or prevent a transaction or a change of control of our company, even if such transaction or change of control involves a premium price for our stockholders or our stockholders believe that such transaction or change of control may be in their best interests. CoalCos Board of Directors may be able to issue preferred stock with voting rights or conversion rights that, if exercised, could adversely affect the voting power of the holders of common stock.
Limitation on Liability of Directors; Indemnification; Insurance
The DGCL authorizes corporations to limit or eliminate the personal liability of directors to corporations and their stockholders for monetary damages for breaches of directors fiduciary duties as directors, and our amended and restated certificate of incorporation will include such an exculpation provision. Our amended and restated certificate of incorporation and by-laws will include provisions that indemnify, to the fullest extent allowable under the DGCL, the personal liability of directors or officers for monetary damages for actions taken as a director or officer of CoalCo, or for serving at CoalCos request as a director or officer or another position at another corporation or enterprise, as the case may be. Our amended and restated certificate of incorporation and by-laws will also provide that we must indemnify and advance reasonable expenses to our directors and officers, subject to our receipt of an undertaking from the indemnified party as may be required under the DGCL. Our amended and restated certificate of incorporation will expressly authorize us to carry directors and officers insurance to protect CoalCo, its directors, officers and certain employees against certain liabilities.
The limitation of liability and indemnification provisions that will be in our amended and restated certificate of incorporation and by-laws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duty. These provisions may also have the effect of reducing the likelihood of derivative litigation against our directors and officers, even though such an action, if successful, might otherwise benefit CoalCo and its stockholders. Your investment may be adversely affected to the extent that, in a class action or direct suit, CoalCo pays the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions. However, these provisions will not limit or eliminate our rights, or those of any stockholder, to seek non-monetary relief such as an injunction or rescission in the event of a breach of a directors duty of care. The provisions will not alter the liability of directors under the federal securities laws.
Anti-Takeover Effects of Various Provisions of Delaware Law and our Certificate of Incorporation and By-laws
Provisions of the DGCL and our amended and restated certificate of incorporation and by-laws could make it more difficult to acquire CoalCo by means of a tender offer, a proxy contest or otherwise, or to remove incumbent officers and directors. These provisions are expected to discourage certain types of coercive takeover practices and takeover bids that our Board of Directors may consider inadequate and to encourage persons seeking to acquire control of the company to first negotiate with our Board of Directors. We believe that the benefits of increased protection of our ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure it outweigh the disadvantages of discouraging takeover or acquisition proposals because, among other things, negotiation of these proposals could result in an improvement of their terms.
Delaware Anti-Takeover Provisions. CoalCo will be subject to Section 203 of the DGCL, an anti-takeover statute. In general, Section 203 of the DGCL prohibits a publicly-held Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years following the time the person became an interested stockholder, unless the business combination or the acquisition of shares that resulted in a stockholder becoming an interested stockholder is approved in a prescribed manner. Generally, a business
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combination includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. Generally, an interested stockholder is a person who, together with affiliates and associates, owns (or within three years prior to the determination of interested stockholder status did own) 15% or more of a corporations voting stock. The existence of this provision would be expected to have an anti-takeover effect with respect to transactions not approved in advance by our Board of Directors, including discouraging attempts that might result in a premium over the market price for the shares of common stock held by our stockholders.
Classified Board. Our amended and restated certificate of incorporation and amended and restated bylaws will provide that, following the separation, our Board will initially be divided into three classes, with each director serving for a term ending at the election of directors at the third annual meeting of stockholders following the annual meeting of stockholders at which the director was elected, subject to the provisions described below. For so long as there are three classes of directors, the number of directors in each class shall be as near as possible to one-third of the total number of directors. Each class will initially consist of two directors.
The two directors designated as Class I directors will have initial terms expiring at the first annual meeting of stockholders following the separation, expected to be held in 2018. Directors up for reelection at this annual meeting will be elected to a new three year term expiring in 2021. The two directors designated as Class II directors will have initial terms expiring at the second annual meeting of stockholders following the separation, expected to be held in 2019. Directors up for reelection at this annual meeting will be elected to a new three year term expiring in 2022. The two directors designated as Class III directors will have initial terms expiring at the third annual meeting of stockholders following the separation, expected to be held in 2020. Each director whose term expires at the 2020 annual meeting of stockholders or any annual meeting thereafter (and any other individual who is nominated for election at any such meeting) shall be elected for a term expiring at the next annual meeting of stockholders. As a result of these provisions, one-third of our total number of directors will be up for election at each of the first three annual meetings of stockholders following the separation, two-thirds of the total number will be up for election at the fourth annual meeting of stockholders following the separation, and beginning with the fifth annual meeting of stockholders following the separation (expected to be held in 2022), all of our directors will be subject to annual election. Prior to the annual meeting of stockholders held in 2021, it would take at least two elections for any individual or group to gain control of the Board of Directors. Accordingly, these provisions could discourage a third party from initiating a proxy contest, making a tender offer or otherwise attempting to control us. Any amendment to the classified Board provisions in our amended and restated certificate of incorporation or amended and restated bylaws shall require the affirmative vote of the holders of at least three quarters (75%) of the voting power of all outstanding shares of our capital stock entitled to vote thereon.
Size of Board; Vacancies; Removal. Our amended and restated by-laws will provide that the number of directors on our Board of Directors will be fixed exclusively by our Board of Directors. Any vacancies created in our Board of Directors resulting from any increase in the authorized number of directors or the death, resignation, retirement, disqualification, removal from office or other cause will be filled by a majority of the Board of Directors then in office, even if less than a quorum is present, or by a sole remaining director. Any director appointed to fill a vacancy on our Board of Directors will be appointed for a term expiring at the next election of directors and until his or her successor has been elected and qualified.
Our amended and restated by-laws will provide that at any time at which the Board of Directors is divided into classes, stockholders may only remove directors for cause, and only with the approval of at least 66 2/3% of the shares entitled to vote at an election of directors. Upon the Board of Directors no longer being divided into classes, stockholders may remove our directors with or without cause, with the approval of at least 66 2/3% of shares entitled to vote at an election of directors.
Stockholder Action by Written Consent. Our amended and restated certificate of incorporation will provide that stockholders may not act by written consent unless such written consent is unanimous. Stockholder action must otherwise take place at the annual or a special meeting of our stockholders.
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Special Stockholder Meetings. Our amended and restated certificate of incorporation will provide that the chairman of our Board of Directors, our chief executive officer or our Board of Directors pursuant to a resolution adopted by a majority of the entire Board of Directors may call special meetings of our stockholders.
Advance Notice for Stockholder Proposals and Nominations. Our amended and restated by-laws will establish advance notice procedures with respect to stockholder proposals and nomination of candidates for election as directors (other than nominations made by or at the direction of the Board of Directors).
Certain Effects of Authorized but Unissued Stock. We may issue additional shares of common stock or preferred stock without stockholder approval, subject to applicable rules of the NYSE and Delaware law, for a variety of corporate purposes, including future public or private offerings to raise additional capital, corporate acquisitions, and employee benefit plans and equity grants. The existence of unissued and unreserved common and preferred stock may enable us to issue shares to persons who are friendly to current management, which could discourage an attempt to obtain control of CoalCo by means of a proxy contest, tender offer, merger or otherwise. We will not solicit approval of our stockholders for issuance of common or preferred stock unless our Board of Directors believes that approval is advisable or is required by applicable stock exchange rules or Delaware law.
No Cumulative Voting. The DGCL provides that stockholders are denied the right to cumulate votes in the election of directors unless the companys certificate of incorporation provides otherwise. Our amended and restated certificate of incorporation will not provide for cumulative voting.
Exclusive Forum. Our amended and restated certificate of incorporation will provide that unless the Board of Directors otherwise determines, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for any derivative action or proceeding brought on behalf of CoalCo, any action asserting a claim for or based on a breach of a fiduciary duty owed by any current or former director or officer of CoalCo to CoalCo or to CoalCo stockholders, including a claim alleging the aiding and abetting of such a breach of fiduciary duty, any action asserting a claim against CoalCo or any current or former director or officer of CoalCo arising pursuant to any provision of the DGCL or our amended and restated certificate of incorporation or by-laws, any action asserting a claim relating to or involving CoalCo governed by the internal affairs doctrine, or any action asserting an internal corporate claim as that term is defined in Section 115 of the DGCL. However, if the Court of Chancery of the State of Delaware dismisses any such action for lack of subject matter jurisdiction, the action may be brought in the federal court for the District of Delaware.
Listing
In connection with the separation, CoalCo will be renamed CONSOL Energy Inc., and we intend to apply to have our shares of common stock listed on the NYSE under the symbol .
Sale of Unregistered Securities
In connection with its incorporation on June 21, 2017, CoalCo issued 100 shares of its common stock to ParentCo pursuant to Section 4(a)(2) of the Securities Act. We did not register the issuance of the issued shares under the Securities Act because such issuance did not constitute a public offering.
Other than as noted above, in the past three years, CoalCo has not sold any securities, including sales of reacquired securities, new issues, securities issued in exchange for property, services or other securities and new securities resulting from the modification of outstanding securities.
Transfer Agent and Registrar
After the distribution, the transfer agent and registrar for our common stock will be Computershare Trust Company, N.A.
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WHE RE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form 10 with the SEC with respect to the shares of our common stock being distributed as contemplated by this information statement. This information statement is a part of, and does not contain all of the information set forth in, the registration statement and the exhibits and schedules to the registration statement. For further information with respect to CoalCo and CoalCo common stock, please refer to the registration statement, including its exhibits and schedules. Statements made in this information statement relating to any contract or other document filed as an exhibit to the registration statement include the material terms of such contract or other document. However, such statements are not necessarily complete, and you should refer to the exhibits attached to the registration statement for copies of the actual contract or document. You may review a copy of the registration statement, including its exhibits and schedules, at the SECs public reference room, located at 100 F Street, NE, Washington, D.C. 20549, by calling the SEC at 1-800-SEC-0330, as well as on the Internet website maintained by the SEC at www.sec.gov . Information contained on or connected to any website referenced in this information statement is not incorporated into this information statement or the registration statement of which this information statement forms a part, or in any other filings with, or any information furnished or submitted to, the SEC .
As a result of the distribution, CoalCo will become subject to the information and reporting requirements of the Exchange Act and, in accordance with the Exchange Act, will file periodic reports, proxy statements and other information with the SEC.
We intend to furnish holders of our common stock with annual reports containing combined financial statements prepared in accordance with U.S. generally accepted accounting principles and audited and reported on, with an opinion expressed, by an independent registered public accounting firm.
You should rely only on the information contained in this information statement or to which this information statement has referred you. We have not authorized any person to provide you with different information or to make any representation not contained in this information statement.
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Reconciliation of Non-GAAP Measures
162(m) Considerations
STIC 2016 . The 2016 STIC was designed to comply with Section 162(m) of the Code by including a funding pool of 2% of 2016 annual EBITDA. The 2016 EBITDA pool was $12,520,140. The 2016 STIC Plan payout was based upon a free cash flow metric. This metric for 2016 was $956,656,000. Both measures were calculated as described below under Calculation for the 2016 Performance Period of the STIC and the tables on the following pages.
PSUs (2014-2016) . The 2014-2016 PSU awards were designed to comply with Section 162(m) of the Code by containing objective, performance-based three-year cumulative conditions of TSR and ROCE. The TSR relative to the S&P 500 was not achieved. The actual TSR was at the 4.5 percentile which did not meet the goal of the 25 th percentile for a 50% payout. The ROCE metric was achieved at 12.25% which exceeded the 7.5% threshold for a 200% payout. The ROCE goal was calculated as provided below under Calculation for the 2014-2016 PSUs.
Calculations of EBITDA, Free Cash Flow, and ROCE . We define EBITDA as earnings before deducting net interest expense (interest expense less interest income), income taxes, and depreciation, depletion, and amortization. ROCE is defined as return on capital employed.
Calculations for the 2016 Performance Period of the STIC
|
EBITDA Pool. Adjusted per Program Document (2016): The EBITDA pool of $12,520,140 for the 2016 Executive STIC was calculated as 2% of $626,007,000. The EBITDA funding pool was calculated without regard to: (i) the effect of changes in accounting principles; (ii) expenses associated with reorganizations and/or restructuring programs, including, but not limited to, reductions in force (pursuant to ASC 420) and early retirement incentives; (iii) the impairment of tangible or intangible assets (pursuant to ASC 360); (iv) all gains or losses on sales of assets; and (v) any unusual or infrequent items reported in ParentCos earnings release. |
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Free Cash Flow Metric (2016). The free cash flow metric was calculated as Free Cash Flow = Operating Cash Flow - Capital Expenditures + Asset Sales. |
Calculations for the 2014-2016 PSUs . ROCE will be calculated as a three-year average. On an annual basis, ROCE will be calculated using (A) net income plus after-tax cost of interest as the numerator (without regard to: (i) fluctuations in natural gas and coal prices from those prices used in the ParentCo Board-approved profit objective; (ii) the effect of changes in accounting principles; (iii) expenses associated with reorganizations and/or restructuring programs, including, but not limited to, reductions in force (pursuant to ASC 420) and early retirement incentives; (iv) the impairment of tangible or intangible assets (pursuant to ASC 360); (v) all gains or losses on sales of assets; and (vi) any extraordinary, unusual, or infrequent items reported in ParentCos earnings release) and (B) net assets (average of current and prior year-end balance: total assets minus total liabilities plus all interest-bearing debt) as the denominator.
A-1
GAAP Reconciliations - EBITDA Pool and Free Cash Flow of 2016 STIC Program and ROCE Goal of the 2014-2016 PSUs
EBIT AND EBITDA TABLE DECEMBER 2014, 2015 and 2016 (000 OMITTED)
2016 | ||||
Net Income (Loss) |
$ | (839,148 | ) | |
Add: Loss from Discontinued Operations |
$ | 303,183 | ||
Add: Interest Expense |
$ | 191,476 | ||
Less: Interest Income |
$ | (1,507 | ) | |
Less: Income Taxes |
$ | 10,010 | ||
Earnings (Loss) Before Interest & Taxes from Continuing Operations |
$ | (335,986 | ) | |
Loss from Discontinued Operations |
$ | (303,183 | ) | |
Add: Income Taxes from Discontinued Operations |
$ | (173,566 | ) | |
Loss Before Interest & Taxes from Discontinued Operations |
$ | (476,749 | ) | |
EARNINGS (LOSS) BEFORE INTEREST & TAXES |
$ | (812,735 | ) | |
Earnings (Loss) Before Interest & Taxes from Continuing Operations |
$ | (335,986 | ) | |
Add: Depreciation, Depletion & Amortization (DD&A) |
$ | 598,503 | ||
Earnings Before Interest, Taxes and DD&A |
$ | 262,517 | ||
Loss Before Interest & Taxes from Discontinued Operations |
$ | (476,749 | ) | |
Add: Depreciation, Depletion & Amortization from Discontinued Operations |
$ | 14,443 | ||
Earnings (Loss) Before Interest, Taxes and DD&A from Discontinued Operations |
$ | (462,306 | ) | |
EARNINGS (LOSS) BEFORE INTEREST, TAXES AND DD&A |
$ | (199,789 | ) | |
Less: Non-controlling Interest |
$ | (8,954 | ) | |
EARNINGS (LOSS) BEFORE INTEREST, TAXES AND DD&A ATTRIBUTABLE TO CONSOL ENERGY INC. SHAREHOLDERS |
$ | (208,743 | ) | |
Add Back: Unusual or Infrequent Items Reported in Earnings Release |
$ | 406,784 | ||
Add Back: Impairment of Tangible or Intangible Assets |
$ | 355,681 | ||
Add Back: Gains or Losses on Sales of Assets |
$ | 72,285 | ||
ADJUSTED EBITDA FUNDING POOL |
$ | 626,007 | ||
2% of EBITDA Pool |
$ | 12,520 |
A-2
ROCE TABLE (000 OMITTED)
2014 | 2015 | 2016 | ||||||||||
Total Assets |
$ | 11,401,290 | $ | 11,292,273 | $ | 10,056,941 | ||||||
Less: Total Current Liabilities |
$ | (1,132,787 | ) | $ | (1,416,943 | ) | $ | (1,310,476 | ) | |||
Add: Current Portion of Debt |
$ | 5,655 | $ | 6,926 | $ | 9,325 | ||||||
Less: Long-Term Liabilities |
$ | (5,100,626 | ) | $ | (4,782,707 | ) | $ | (4,348,127 | ) | |||
Add: Long-Term Portion of Debt |
$ | 3,189,928 | $ | 2,995,791 | $ | 2,755,137 | ||||||
AVERAGE CAPITAL EMPLOYED |
$ | 8,363,460 | $ | 8,095,340 | $ | 7,162,800 | ||||||
Net Income |
$ | 163,090 | $ | (364,475 | ) | $ | (839,148 | ) | ||||
Income Tax Expense (Benefit) |
$ | 12,991 | $ | (134,425 | ) | $ | (163,556 | ) | ||||
Effective Tax Rate |
7.38 | % | 26.94 | % | 16.31 | % | ||||||
Financing Costs: |
||||||||||||
Interest on Third-Party Debt |
$ | 227,219 | $ | 194,091 | $ | 185,711 | ||||||
All Other Financing Costs |
$ | 23,280 | $ | 17,447 | $ | 17,825 | ||||||
Total Financing Costs |
$ | 250,499 | $ | 211,538 | $ | 203,536 | ||||||
Total Financing Costs (After-Tax) |
$ | 232,018 | $ | 154,541 | $ | 170,336 | ||||||
Add: Adjustment for Flux in Gas Prices |
$ | 32,748 | $ | 415,402 | $ | 732,738 | ||||||
Add: Adjustment for Flux in Coal Prices |
$ | 123,408 | $ | 322,507 | $ | 600,877 | ||||||
Add: Adjustment for Reorganizations |
$ | | $ | 7,760 | $ | 4,061 | ||||||
Add: Adjustment for Unusual, Infrequent, or Non-Recurring Items |
$ | 56,632 | $ | 306,075 | $ | 698,602 | ||||||
EARNINGS EXCLUDING FINANCING COSTS |
$ | 607,896 | $ | 841,810 | $ | 1,367,466 | ||||||
Average Capital Employed |
$ | 8,363,460 | $ | 8,095,340 | $ | 7,162,800 | ||||||
YTD ROCE |
7.27 | % | 10.40 | % | 19.09 | % |
FREE CASH FLOW DECEMBER 2016 (000 OMITTED)
Free Cash Flow | ||||
Net Cash Provided By Operating Activities |
$ | 469,285 | ||
Capital Expenditures |
$ | (226,820 | ) | |
Proceeds From Sales of Assets |
$ | 59,902 | ||
Noble Exchange Agreement |
$ | 213,295 | ||
Net Investment in Equity Affiliates |
$ | 73,743 | ||
Capital Expenditures of Discontinued Operations |
$ | (8,295 | ) | |
Proceeds From Sale of Buchanan Mine |
$ | 403,817 | ||
Payments on Sale of Miller Creek/Fola |
$ | (28,271 | ) | |
FREE CASH FLOW |
$ | 956,656 |
A-3
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of CONSOL Energy Inc. and Subsidiaries
We have audited the accompanying combined balance sheets of CONSOL Mining Corporation as of December 31, 2016 and 2015, and the related combined statements of income, comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2016. These financial statements are the responsibility of CONSOL Mining Corporations management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of CONSOL Mining Corporations internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of CONSOL Mining Corporations internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of CONSOL Mining Corporation at December 31, 2016 and 2015, and the combined results of its operations and its cash flows for each of the three years in the period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
July 10, 2017
F-2
CONSOL MINING CORPORATION
(Dollars in Thousands)
For the Years Ended
December 31, |
||||||||||||
2016 | 2015 | 2014 | ||||||||||
Revenue and Other Income: |
||||||||||||
Coal Sales |
$ | 1,065,582 | $ | 1,289,036 | $ | 1,616,874 | ||||||
Other Outside Sales |
31,464 | 30,967 | 41,255 | |||||||||
Freight Revenue |
46,468 | 20,499 | 23,133 | |||||||||
Miscellaneous Other Income |
82,120 | 68,193 | 123,604 | |||||||||
Gain on Sale of Assets |
5,228 | 13,025 | 26,312 | |||||||||
|
|
|
|
|
|
|||||||
Total Revenue and Other Income |
1,230,862 | 1,421,720 | 1,831,178 | |||||||||
Costs and Expenses: |
||||||||||||
Operating and Other Costs |
877,177 | 699,594 | 1,110,332 | |||||||||
Depreciation, Depletion and Amortization |
178,122 | 195,337 | 206,684 | |||||||||
Freight Expense |
46,468 | 20,499 | 23,133 | |||||||||
Selling, General, and Administrative Costs |
50,027 | 55,720 | 78,724 | |||||||||
Interest Expense |
14,053 | 7,544 | | |||||||||
|
|
|
|
|
|
|||||||
Total Costs and Expenses |
1,165,847 | 978,694 | 1,418,873 | |||||||||
Earnings Before Income Tax |
65,015 | 443,026 | 412,305 | |||||||||
Income Tax |
14,565 | 125,605 | 121,353 | |||||||||
|
|
|
|
|
|
|||||||
Net Income |
50,450 | 317,421 | 290,952 | |||||||||
Less: Net Income Attributable to Noncontrolling Interest |
8,954 | 10,410 | | |||||||||
|
|
|
|
|
|
|||||||
Net Income Attributable to CONSOL Mining Corporation Shareholder |
$ | 41,496 | $ | 307,011 | $ | 290,952 | ||||||
|
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|
|
|
|
The accompanying notes are an integral part of these combined financial statements.
F-3
CONSOL MINING CORPORATION
COMBINED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in Thousands)
For the Years Ended
December 31, |
||||||||||||
2016 | 2015 | 2014 | ||||||||||
Net Income |
$ | 50,450 | $ | 317,421 | $ | 290,952 | ||||||
Other Comprehensive Income (Loss): |
||||||||||||
Actuarially Determined Long-Term Liability Adjustments (Net of tax: $18,101, $51,745, ($56,754)) |
(31,409 | ) | (89,442 | ) | 97,553 | |||||||
|
|
|
|
|
|
|
|
|
||||
Other Comprehensive Income |
(31,409 | ) | (89,442 | ) | 97,553 | |||||||
|
|
|
|
|
|
|
|
|
||||
Comprehensive Income |
19,041 | 227,979 | 388,505 | |||||||||
Less: Comprehensive Income Attributable to Noncontrolling Interest |
9,216 | 10,410 | | |||||||||
|
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|
|
|
|
|
|
|
||||
Comprehensive Income Attributable to CONSOL Mining Corporation Shareholder |
$ | 9,825 | $ | 217,569 | $ | 388,505 | ||||||
|
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|
|
|
|
|
|
|
The accompanying notes are an integral part of these combined financial statements.
F-4
CONSOL MINING CORPORATION
(Dollars in Thousands)
December 31, | ||||||||
2016 | 2015 | |||||||
ASSETS |
||||||||
Current Assets: |
||||||||
Cash and Cash Equivalents |
$ | 13,311 | $ | 6,639 | ||||
Trade Accounts Receivables |
95,707 | 78,888 | ||||||
Other Receivables |
23,320 | 19,689 | ||||||
Other Receivables - Related Party |
34 | | ||||||
Inventories |
50,161 | 52,977 | ||||||
Prepaid Expenses |
17,601 | 25,104 | ||||||
|
|
|
|
|||||
Total Current Assets |
200,134 | 183,297 | ||||||
Property, Plant and Equipment: |
||||||||
Property, Plant and Equipment |
4,593,395 | 4,562,540 | ||||||
LessAccumulated Depreciation, Depletion and Amortization |
2,413,125 | 2,237,359 | ||||||
|
|
|
|
|||||
Total Property, Plant and EquipmentNet |
2,180,270 | 2,325,181 | ||||||
Other Assets: |
||||||||
Other Assets |
122,451 | 99,652 | ||||||
Deferred Tax Asset |
184,579 | 259,603 | ||||||
|
|
|
|
|||||
Total Other Assets |
307,030 | 359,255 | ||||||
|
|
|
|
|||||
TOTAL ASSETS |
$ | 2,687,434 | $ | 2,867,733 | ||||
|
|
|
|
The accompanying notes are an integral part of these combined financial statements.
F-5
CONSOL MINING CORPORATION
COMBINED BALANCE SHEETS
(Dollars in Thousands)
December 31, | ||||||||
2016 | 2015 | |||||||
LIABILITIES AND EQUITY |
||||||||
Current Liabilities: |
||||||||
Accounts Payable |
$ | 82,897 | $ | 75,663 | ||||
Accounts Payable - Related Party |
| 13,741 | ||||||
Current Portion of Long-Term Debt |
4,076 | 1,032 | ||||||
Other Accrued Liabilities |
292,121 | 266,552 | ||||||
|
|
|
|
|
|
|||
Total Current Liabilities |
379,094 | 356,988 | ||||||
Long-Term Debt: |
||||||||
Long-Term Debt |
301,827 | 285,777 | ||||||
Capital Lease Obligations |
11,812 | 749 | ||||||
|
|
|
|
|
|
|||
Total Long-Term Debt |
313,639 | 286,526 | ||||||
Deferred Credits and Other Liabilities: |
||||||||
Postretirement Benefits Other Than Pensions |
659,474 | 630,892 | ||||||
Pneumoconiosis Benefits |
108,073 | 111,903 | ||||||
Asset Retirement Obligations |
246,279 | 256,032 | ||||||
Workers Compensation |
65,932 | 68,416 | ||||||
Salary Retirement |
99,872 | 79,832 | ||||||
Other |
14,947 | 15,305 | ||||||
|
|
|
|
|
|
|||
Total Deferred Credits and Other Liabilities |
1,194,577 | 1,162,380 | ||||||
|
|
|
|
|
|
|||
TOTAL LIABILITIES |
1,887,310 | 1,805,894 | ||||||
Equity: |
||||||||
Parent Net Investment |
1,057,694 | 1,276,482 | ||||||
Accumulated Other Comprehensive Loss |
(400,063 | ) | (368,392 | ) | ||||
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|
|
|
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|
|||
Total Parent Net Investment and Other Comprehensive Loss |
657,631 | 908,090 | ||||||
Noncontrolling Interest |
142,493 | 153,749 | ||||||
|
|
|
|
|
|
|||
TOTAL EQUITY |
800,124 | 1,061,839 | ||||||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
TOTAL LIABILITIES AND EQUITY |
$ | 2,687,434 | $ | 2,867,733 | ||||
|
|
|
|
|
|
The accompanying notes are an integral part of these combined financial statements.
F-6
CONSOL MINING CORPORATION
(Dollars in Thousands)
Parent
Net Investment |
Accumulated
Other Comprehensive Income (Loss) |
Noncontrolling
Interest |
Total
Equity |
|||||||||||||
December 31, 2013 | $ | 1,756,546 | $ | (376,503 | ) | $ | | $ | 1,380,043 | |||||||
Net Income | 290,952 | 290,952 | ||||||||||||||
Actuarially Determined Long-Term Liability Adjustments (Net of ($56,754) Tax) | 97,553 | | 97,553 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Comprehensive Income | 290,952 | 97,553 | | 388,505 | ||||||||||||
Net Parent Distributions | (522,356 | ) | (522,356 | ) | ||||||||||||
|
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|
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|
|
|
|
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|
|||||
December 31, 2014 | 1,525,142 | (278,950 | ) | | 1,246,192 | |||||||||||
Net Income | 307,011 | 10,410 | 317,421 | |||||||||||||
Actuarially Determined Long-Term Liability Adjustments (Net of ($51,745) Tax) | (89,442 | ) | (89,442 | ) | ||||||||||||
|
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|
|
|
|
|
|
|
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|
|||||
Comprehensive Income | 307,011 | (89,442 | ) | 10,410 | 227,979 | |||||||||||
Distributions to Noncontrolling Interest | (5,060 | ) | (5,060 | ) | ||||||||||||
Proceeds from Sale of MLP Interest | 148,399 | 148,399 | ||||||||||||||
Net Parent Distributions | (555,671 | ) | (555,671 | ) | ||||||||||||
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|
|
|
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|
|||||
December 31, 2015 | 1,276,482 | (368,392 | ) | 153,749 | 1,061,839 | |||||||||||
Net Income | 41,496 | 8,954 | 50,450 | |||||||||||||
Actuarially Determined Long-Term Liability Adjustments (Net of $18,101 Tax) | (31,671 | ) | 262 | (31,409 | ) | |||||||||||
|
|
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|
|
|
|
|
|
|
|
|
|||||
Comprehensive Income | 41,496 | (31,671 | ) | 9,216 | 19,041 | |||||||||||
Amortization of Unit-Based Compensation Awards | 1,185 | 1,185 | ||||||||||||||
Distributions to Noncontrolling Interest | (21,657 | ) | (21,657 | ) | ||||||||||||
Net Parent Distributions | (260,284 | ) | (260,284 | ) | ||||||||||||
|
|
|
|
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|
|
|
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|
|
|||||
December 31, 2016 | $ | 1,057,694 | $ | (400,063 | ) | $ | 142,493 | $ | 800,124 | |||||||
|
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|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these combined financial statements.
F-7
CONSOL MINING CORPORATION
STATEMENTS OF COMBINED CASH FLOWS
(Dollars in Thousands)
For the Years Ended December 31, | ||||||||||||
2016 | 2015 | 2014 | ||||||||||
Cash Flows from Operating Activities: |
||||||||||||
Net Income |
$ | 50,450 | $ | 317,421 | $ | 290,952 | ||||||
Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities: |
||||||||||||
Depreciation, Depletion and Amortization |
178,122 | 195,337 | 206,684 | |||||||||
Stock-Based Compensation |
11,710 | 8,406 | 19,860 | |||||||||
Gain on Sale of Assets |
(5,228 | ) | (13,025 | ) | (26,312 | ) | ||||||
Deferred Income Taxes |
91,525 | 72,616 | 40,664 | |||||||||
Unit Based Compensation |
1,185 | | | |||||||||
Changes in Operating Assets: |
||||||||||||
Accounts and Notes Receivable |
(17,608 | ) | 63,764 | (36,756 | ) | |||||||
Inventories |
3,352 | 4,951 | 22,441 | |||||||||
Prepaid Expenses |
7,503 | (485 | ) | (1,606 | ) | |||||||
Changes in Other Assets |
(10,652 | ) | (60,346 | ) | (12,994 | ) | ||||||
Changes in Operating Liabilities: |
||||||||||||
Accounts Payable |
(4,152 | ) | (575 | ) | 48,187 | |||||||
Other Operating Liabilities |
24,913 | (57,973 | ) | 7,186 | ||||||||
Changes in Other Liabilities |
(10,609 | ) | (266,700 | ) | (15,819 | ) | ||||||
Other |
8,596 | 28,302 | 1,032 | |||||||||
|
|
|
|
|
|
|
|
|
||||
Net Cash Provided by Operating Activities |
329,107 | 291,693 | 543,519 | |||||||||
|
|
|
|
|
|
|
|
|
||||
Cash Flows from Investing Activities: |
||||||||||||
Capital Expenditures |
(53,600 | ) | (143,053 | ) | (348,846 | ) | ||||||
Proceeds from Sales of Assets |
7,842 | 12,779 | 221,036 | |||||||||
|
|
|
|
|
|
|
|
|
||||
Net Cash Used in Investing Activities |
(45,758 | ) | (130,274 | ) | (127,810 | ) | ||||||
|
|
|
|
|
|
|
|
|
||||
Cash Flows from Financing Activities: |
||||||||||||
Payments on Miscellaneous Borrowings |
431 | (5,829 | ) | 5,835 | ||||||||
Net Proceeds from Revolver MLP |
16,000 | 185,000 | | |||||||||
Net Proceeds from sale of MLP Interest |
| 148,359 | | |||||||||
Distributions to Noncontrolling Interest |
(21,657 | ) | (5,060 | ) | | |||||||
Debt Issuance and Financing Fees |
(482 | ) | (16,336 | ) | | |||||||
Net Parent Distributions |
(270,969 | ) | (461,051 | ) | (421,674 | ) | ||||||
|
|
|
|
|
|
|
|
|
||||
Net Cash Used in Financing Activities |
(276,677 | ) | (154,917 | ) | (415,839 | ) | ||||||
Net Increase (Decrease) in Cash and Cash Equivalents |
6,672 | 6,502 | (130 | ) | ||||||||
Cash and Cash Equivalents at Beginning of Period |
6,639 | 137 | 267 | |||||||||
|
|
|
|
|
|
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|
||||
Cash and Cash Equivalents at End of Period |
$ | 13,311 | $ | 6,639 | $ | 137 | ||||||
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|
For the years ended December 31, 2016, 2015 and 2014, CONSOL Mining Corporation paid interest expense, net of capitalized interest, of $14,053, $7,544 and $-, respectively. The following are non-cash transactions that impact the investing and financing activities of CONSOL Mining Corporation. As of December 31, 2016, 2015 and 2014, CONSOL Mining Corporation purchased goods and services related to capital projects in the amount of $2,355, $11,962 and $-, respectively, which are included in accounts payable. As of December 31, 2016, 2015 and 2014, there were capital equipment transfers of ($575), $105,074, and $112,480 and non-cash settlements of parent receivables of $1,600, ($2,088) and $8,062, respectively, between CONSOL Mining Corporation and CONSOL Energy that are included in Net Parent Distributions.
The accompanying notes are an integral part of these combined financial statements.
F-8
CONSOL MINING CORPORATION
NOTES TO COMBINED FINANCIAL STATMENTS
(Dollars in Thousands)
NOTE 1THE PROPOSED SEPARATION AND BASIS OF PRESENTATION:
The Proposed Separation
In December 2016, CONSOL Energy announced its intent to separate into two independent, publicly-traded companies (the separation): CONSOL Mining Corporation (Predecessor), which will hold CONSOL Energys Pennsylvania Mining Operations (PAMC) and certain related coal assets, including CONSOL Energys ownership interest in CNX Coal Resources LP (CNXC), which owns a 25% stake in PAMC, the CNX Marine Terminal, and Greenfield Reserves (collectively, the Coal Business), and an oil and natural gas exploration and production (E&P) company focused on Appalachian area natural gas and liquids activities, including production, gathering, processing and acquisition of natural gas properties in the Appalachian Basin (the Gas Business) of CONSOL Energy.
The separation will occur by means of a pro rata distribution by CONSOL Energy of all of the common stock of the Predecessor. CONSOL Energy, the existing publicly traded company, will continue to own the Gas Business.
The separation transaction, which is expected to be completed in the second half of 2017, is subject to a number of conditions, including, but not limited to: final approval by CONSOL Energys Board of Directors; receipt of a private letter ruling from the Internal Revenue Service and one or more opinions of its tax advisors, in each case, regarding certain U.S. federal income tax matters relating to the transaction; and the U.S. Securities and Exchange Commission (the SEC) declaring effective the registration statement of which this information statement forms a part.
CONSOL Mining Corporation and CONSOL Energy will enter into an agreement (the Separation Agreement) that will identify the assets to be transferred, the liabilities to be assumed and the contracts to be transferred to each of CONSOL Mining Corporation and CONSOL Energy as part of the separation of CONSOL Energy into two companies, and will provide for when and how these transfers and assumptions will occur. CONSOL Energy may, at any time and for any reason until the proposed transaction is complete, abandon the separation plan or modify its terms.
Basis of Presentation
The Combined Financial Statements of CONSOL Mining Corporation are prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) and require management to make certain judgments, estimates, and assumptions. These may affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. They also may affect the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates upon subsequent resolution of identified matters. The Combined Financial Statements of CONSOL Mining Corporation include the accounts of CONSOL Mining Corporation and companies in which CONSOL Mining Corporation has a controlling interest. Intercompany transactions have been eliminated. The equity method of accounting is used for investments in affiliates and other joint ventures over which CONSOL Mining Corporation has significant influence but does not have effective control. Investments in affiliates in which CONSOL Mining Corporation cannot exercise significant influence are accounted for on the cost method.
Principles of Combination
The Combined Financial Statements include certain assets and liabilities that have historically been held at CONSOL Energys corporate level but are specifically identifiable or otherwise attributable to the Predecessor.
F-9
All significant transactions and accounts within the Predecessor have been eliminated. All significant intercompany transactions between CONSOL Energy and the Predecessor have been included within Parent Net Investment in these Combined Financial Statements.
Cost Allocations
Historically, CONSOL Energy has charged its operating subsidiaries for various corporate costs incurred in the operation of the business. Accordingly, no significant additional cost allocations were necessary for the preparation of these combined financial statements. The Combined Financial Statements of CONSOL Mining Corporation may not reflect the actual expenses that would have been incurred and may not reflect CONSOL Mining Corporations combined results of operations, financial position and cash flows had it been a standalone company during the periods presented. Actual costs that would have been incurred if CONSOL Mining Corporation had been a standalone company would depend on multiple factors, including organizational structure, capital structure, and strategic decisions made in various areas, including information technology and infrastructure. Transactions between CONSOL Mining Corporation and CONSOL Energy, have been included as related party transactions in these Combined Financial Statements and are considered to be effectively settled for cash at the time the transaction is recorded. The total net effect of the settlement of these transactions is reflected in the Statements of Combined Cash Flows as a financing activity and in the Combined Balance Sheet as Parent Net Investment.
Long-term employee obligations, comprised of pensions, OPEB, CWP, and workers compensation have been allocated to CONSOL Mining Corporation on the basis of the underlying employees comprising those plans.
All external debt not directly attributable to the Predecessor has been excluded from the Combined Balance Sheet of CONSOL Mining Corporation.
NOTE 2SIGNIFICANT ACCOUNTING POLICIES:
A summary of the significant accounting policies of CONSOL Mining Corporation is presented below. These, together with the other notes that follow, are an integral part of the Combined Financial Statements.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as various disclosures. Actual results could differ from those estimates. The most significant estimates included in the preparation of the combined financial statements are related to other postretirement benefits, coal workers pneumoconiosis, workers compensation, salary retirement benefits, asset retirement obligations, contingencies, and the values of coal reserves.
Cash and Cash Equivalents
The Predecessor, excluding CNX Coal Resources LP, participates in CONSOL Energys centralized cash management system. The centralized cash management system entitles the Predecessor to issue checks against the central bank account for on-going operations. The presented checks against the central bank account are reflected as contributions of CONSOL Energys equity investment. Remaining cash includes CNX Coal Resources LP cash balance, petty cash on hand, and on deposit at banking institutions that is not included in the centralized cash management system.
Trade Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. CONSOL Mining Corporation reserves for specific accounts receivable when it is probable that all or a part of an outstanding
F-10
balance will not be collected. Collectability is determined based on terms of sale, credit status of customers and various other circumstances. CONSOL Mining Corporation regularly reviews collectability and establishes or adjusts the allowance as necessary using the specific identification method. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Reserves for uncollectable amounts were not material in the periods presented. In addition, there were no material financing receivables with a contractual maturity greater than one year at December 31, 2016 and 2015.
Inventories
Inventories are stated at the lower of cost or market. The cost of coal inventory is determined by the first-in, first-out (FIFO) method and includes labor, supplies, equipment costs, operating overhead, depreciation, depletion, amortization, and other related costs. The cost of supplies inventory is determined by the average cost method and includes operating and maintenance supplies to be used in the operation of the Predecessors coal mines.
The Predecessors inventories consisted of the following:
December 31, | ||||||||
2016 | 2015 | |||||||
Coal |
$ | 7,800 | $ | 4,660 | ||||
Supplies |
42,361 | 48,317 | ||||||
|
|
|
|
|||||
Total Inventories |
$ | 50,161 | $ | 52,977 | ||||
|
|
|
|
Property, Plant and Equipment
Property, plant and equipment is recorded at cost upon acquisition. Costs of developing new underground mines and certain underground expansion projects are capitalized and typically include those costs incurred to make the mineral physically accessible. Such costs generally include those to create mine shafts and to drive main entries for ventilation, haulage costs, personnel costs, the construction of airshafts and roof protection.
Expenditures which extend the useful lives of existing plant and equipment are capitalized. Costs of additional mine 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. Planned major maintenance costs which do not extend the useful lives of existing plant and equipment are expensed as incurred. Interest costs applicable to major asset additions are capitalized during the construction period.
Coal exploration costs are expensed as incurred and include costs incurred to ascertain existence, location, extent or quality of ore or minerals before beginning the development stage of the mine.
Airshafts and capitalized mine development associated with a coal reserve are amortized on a units-of-production basis as the coal is produced so that each ton of coal is assigned a portion of the unamortized costs. The Predecessor employs this method to match costs with the related revenues realized in a particular period. Rates are updated when revisions to coal reserve estimates are made. Coal reserve estimates are reviewed when information becomes available that indicates a reserve change is needed, or at a minimum once per year. Any material effect from changes in estimates is disclosed in the period the change occurs. Amortization of development cost begins when the development phase is complete and the production phase begins. At an underground mine, the end of the development phase and the beginning of the production phase takes place when construction of the mine for economic extraction is substantially complete. Coal extracted during the development phase is incidental to the mines production capacity and is not considered to shift the mine into the production phase.
F-11
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 recognized in Gain on Sale of Assets in the Combined Statements of Income.
Depreciation of plant and equipment is calculated on the straight-line method over their estimated useful lives or lease terms, generally as follows:
Years | ||
Buildings and improvements |
10 to 45 | |
Machinery and equipment |
3 to 25 | |
Leasehold improvements |
Life of Lease |
Coal reserves are controlled either through fee ownership or by lease. The duration of the leases vary; however, the lease terms are generally extended automatically through the exhaustion of economically recoverable reserves, as long as active mining continues. Coal interests held by lease provide the same rights as fee ownership for mineral extraction and are legally considered real property interests. The Predecessor also makes advance payments (advanced mining royalties) to lessors under certain lease agreements that are recoupable against future production, and it makes payments that are generally based upon a specified rate per ton or a percentage of gross realization from the sale of the coal.
Advance mining royalties are advance payments made to lessors under terms of mineral lease agreements that are recoupable against future production and are amortized using the units-of-production method. Depletion of leased coal interests is computed using the units-of-production method over proven and probable coal reserves. Advance mining royalties and leased coal interests are evaluated at least once per year for impairment. More frequent tests are required on an interim basis whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Any revisions are accounted for prospectively as changes in accounting estimates.
Costs to obtain coal lands are capitalized based on the cost at acquisition and are amortized using the units-of-production method over all estimated proven and probable reserve tons assigned and accessible to the mine. Proven and probable coal reserves exclude non-recoverable coal reserves and anticipated processing losses. Rates are updated when revisions to coal reserve estimates are made. Coal reserve estimates are reviewed when events and circumstances indicate a reserve change is needed, or at a minimum once a year. Amortization of coal interests begins when the coal reserve is produced. At an underground mine, a ton is considered produced once it reaches the surface area of the mine. Any material effect from changes in estimates is disclosed in the period the change occurs.
Costs for purchased and internally developed software are expensed until it has been determined that the software will result in probable future economic benefits and management has committed to funding the project. Thereafter, all direct costs of materials and services incurred in developing or obtaining software, including certain payroll and benefit costs of employees associated with the project, are capitalized and amortized using the straight-line method over the estimated useful life which does not exceed seven years.
Impairment of Long-lived Assets
The Predecessor impairs long-lived assets 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 is then reduced to its estimated fair value which is usually measured based on an estimate of future discounted cash flows. The Predecessor did not record any impairments during the years ended December 31, 2016, 2015 and 2014.
F-12
Postretirement Benefits Other Than Pensions
Postretirement benefit obligations established by the Coal Industry Retiree Health Benefit Act of 1992 (the Coal Act) are treated as a multi-employer plan which requires expense to be recorded for the associated obligations as payments are made. Postretirement benefits other than pensions, except for those established pursuant to the Coal Act, are accounted for in accordance with the Retirement Benefits Compensation and Non-retirement Postemployment Benefits Compensation Topics of the FASB Accounting Standards Codification, which requires employers to accrue the cost of such retirement benefits for the employees active service periods. Such liabilities are determined on an actuarial basis and CONSOL Mining Corporation is primarily self-insured for these benefits. Differences between actual and expected results or changes in the value of obligations are recognized through Other Comprehensive Income.
Pneumoconiosis Benefits and Workers Compensation
The Predecessor is required by federal and state statutes to provide benefits to certain current and former totally disabled employees or their dependents for awards related to coal workers pneumoconiosis. The Predecessor is also required by various state statutes to provide workers compensation benefits for employees who sustain employment-related physical injuries or some types of occupational disease. Workers compensation benefits include compensation for their disability, medical costs, and on some occasions, the cost of rehabilitation. CONSOL Mining Corporation is primarily self-insured for these benefits. Provisions for estimated benefits are determined on an actuarial basis.
Asset Retirement Costs
Mine closing costs and costs associated with dismantling and removing de-gasification facilities are accrued using the accounting treatment prescribed by the Asset Retirement and Environmental Obligations Topic of the FASB Accounting Standards Codification. This topic requires the fair value of an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The present value of the estimated asset retirement costs is capitalized as part of the carrying amount of the long-lived asset. Generally, the capitalized asset retirement cost is depreciated on a units-of-production basis. Accretion of the asset retirement obligation is recognized over time and generally will escalate over the life of the producing asset, typically as production declines. Accretion is included in Operating and Other Costs on the Combined Statements of Income. Asset retirement obligations primarily relate to the closure of mines, which includes treatment of water and the reclamation of land upon exhaustion of coal reserves.
Accrued mine closing costs, perpetual care costs, reclamation and costs associated with dismantling and removing de-gasification facilities are regularly reviewed by management and are revised for changes in future estimated costs and regulatory requirements.
Subsidence
Subsidence occurs when there is sinking or shifting of the ground surface due to the removal of underlying coal. Areas affected may include, although are not limited to, streams, property, roads, pipelines and other land and surface structures. Total estimated subsidence claims are recognized in the period when the related coal has been extracted and are included in Operating and Other Costs on the Combined Statements of Income and Other Accrued Liabilities on the Combined Balance Sheets. On occasion, the Predecessor prepays the estimated damages prior to undermining the property, in return for a release of liability. Prepayments are included as assets and either recognized as Prepaid Expenses or in Other Assets on the Combined Balance Sheets if the payment is made less than or greater than one year, respectively, prior to undermining the property.
Retirement Plans
CONSOL Mining Corporation has non-contributory defined benefit retirement plans. Effective December 31, 2015, the Predecessors qualified defined benefit retirement plans have been frozen. The benefits for these plans
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are based primarily on years of service and employees pay. These plans are accounted for using the guidance outlined in the Compensation - Retirement Benefits Topic of the FASB Accounting Standards Codification. The cost of these retiree benefits are recognized over the employees service periods. CONSOL Mining Corporation uses actuarial methods and assumptions in the valuation of defined benefit obligations and the determination of expense. Differences between actual and expected results or changes in the value of obligations and plan assets are recognized through Other Comprehensive Income.
Stock-Based Compensation
Eligible CONSOL Mining Corporation employees have historically participated in CONSOL Energys equity-based compensation plans. CONSOL Energy recognizes compensation expense for all stock-based compensation awards based on the grant date fair value estimated in accordance with the provisions of the Stock Compensation Topic of the FASB Accounting Standards Codification. CONSOL Energy recognizes these compensation costs on a straight-line basis over the requisite services period of the award, which is generally the awards vesting term. The compensation expense recorded by CONSOL Mining Corporation, in all periods presented, includes the expense associated with employees historically attributable to CONSOL Mining Corporation operations.
Under the CNXC 2015 Long-Term Incentive Plan (the LTIP), the CNXC GP issued long-term equity based awards intended to compensate the recipients thereof based on the performance of CNXCs common units and the recipients continued service during the vesting period, as well as to align CNXCs long-term interests with those of the unitholders. The LTIP limits the number of units that may be delivered pursuant to vested awards to 2,300,000 common units, subject to proportionate adjustment in the event of unit splits and similar events. Common units subject to awards that are canceled, forfeited, withheld to satisfy exercise prices or tax withholding obligations or otherwise terminated without delivery of the common units will be available for delivery pursuant to other awards.
The CNXC GP has also granted equity-based phantom units that vest over a period of a directors continued service. The phantom units will be paid in common units or an amount of cash equal to the fair market value of a unit based on the vesting date. The awards may accelerate upon a change in control of CNXC. Compensation expense is recognized on a straight-line basis over the requisite service period, which is generally the vesting term.
Income Taxes
The Predecessors operations have historically been included in the income tax filings of CONSOL Energy. The provision for income taxes in the Predecessors combined statement of income is based on a separate return methodology using the asset and liability approach of accounting for income taxes. Under this approach, the provision for income taxes represents income taxes paid or payable (or received or receivable) for the current year plus the change in deferred taxes during the year calculated as if the Predecessor was a standalone taxpayer filing hypothetical income tax returns where applicable. Any additional accrued tax liability or refund arising as a result of this approach is assumed to be immediately settled with CONSOL Energy as a component of Parent Net Investment. Deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid, and result from differences between the financial and tax bases of CONSOL Mining Corporations assets and liabilities and are adjusted for changes in tax rates and tax laws when enacted. Deferred tax assets are reflected in the combined balance sheet for net operating losses, credits or other attributes to the extent that such attributes are expected to transfer to CONSOL Mining Corporation upon the separation. Any difference from attributes generated in a hypothetical return on a separate return basis is adjusted as a component of Parent Net investment.
Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not (greater than 50%) that a tax benefit will not be realized. In evaluating the need for a valuation allowance, management considers all potential sources of taxable income, including income available in carry-back periods, future
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reversals of taxable temporary differences, projections of taxable income, and income from tax planning strategies, as well as all available positive and negative evidence. Positive evidence includes factors such as a history of profitable operations, projections of future profitability within the carry-forward period, including from tax planning strategies, and CONSOL Mining Corporations experience with similar operations. Existing favorable contracts and the ability to sell products into established markets are additional positive evidence. Negative evidence includes items such as cumulative losses, projections of future losses, or carry-forward periods that are not long enough to allow for the utilization of a deferred tax asset based on existing projections of income. Deferred tax assets for which no valuation allowance is recorded may not be realized upon changes in facts and circumstances, resulting in a future charge to establish a valuation allowance. Existing valuation allowances are re-examined under the same standards of positive and negative evidence. If it is determined that it is more likely than not that a deferred tax asset will be realized, the appropriate amount of the valuation allowance, if any, is released. Deferred tax assets and liabilities are also re-measured to reflect changes in underlying tax rates due to law changes and the granting and lapse of tax holidays.
Tax benefits related to uncertain tax positions taken or expected to be taken on a tax return are recorded when such benefits meet a more likely than not threshold. Otherwise, these tax benefits are recorded when a tax position has been effectively settled, which means that the statute of limitation has expired or the appropriate taxing authority has completed their examination even though the statute of limitations remains open. Interest and penalties related to uncertain tax positions are recognized as part of the provision for income taxes and are accrued beginning in the period that such interest and penalties would be applicable under relevant tax law until such time that the related tax benefits are recognized.
Parent Net Investment
Parent Net Investment is primarily comprised of the Predecessors undivided interest in (i) CONSOL Energys initial investment in CONSOL Mining Corporation (and any subsequent adjustments thereto); (ii) the accumulated net earnings; (iii) net transfers to or from CONSOL Energy, including those related to cash management functions performed by CONSOL Energy; (iv) non-cash changes in financing arrangements, including the conversion of certain related party liabilities into Parent Net Investment and stock-based compensation; and (v) corporate cost allocations.
Revenue Recognition
Revenues are recognized when title passes to the customers and the price is fixed and determinable. For domestic coal sales, this generally occurs when coal is loaded at the mine or at offsite storage locations. For export coal sales, this generally occurs when coal is loaded onto marine vessels at terminal locations. Coal contract price per ton are fixed and determinable prior to the passage of coal title. Except for normal quality adjustments and positive electric power price related adjustments, none of the Companys coal sales contracts allow for retroactive adjustments to pricing after title to the coal has passed. These adjustments were not material for any of the periods presented. Revenues for coal sold that relate to production under royalty contracts are recorded on a gross basis.
Freight Revenue and Expense
Shipping and handling costs invoiced to coal customers and paid to third-party carriers are recorded as Freight-Outside Coal revenue and Freight Expense, respectively.
Concentration of Credit Risk and Major Customers
The Predecessor markets its high-Btu bituminous thermal coal primarily to electric utilities in the eastern United States, its core market. The Predecessor derived a significant portion of its revenues from two customers who represented at least 10% of its total coal sales revenues for the years ended December 31, 2016, 2015 and 2014. As of December 31, 2016, the Predecessor had approximately nine sales agreements with these customers that expire at various times between 2017 and 2018.
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Concentration of credit risk is summarized below:
December 31, | ||||||||
2016 | 2015 | |||||||
Thermal coal utilities |
$ | 62,525 | $ | 58,281 | ||||
Coal brokers and distributors |
28,955 | 14,435 | ||||||
Other |
4,227 | 6,172 | ||||||
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Total Accounts Receivable Trade |
$ | 95,707 | $ | 78,888 | ||||
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Contingencies
From time to time, the Predecessor is subject to various lawsuits and claims with respect to such matters as personal injury, wrongful death, damage to property, exposure to hazardous substances, governmental regulations (including environmental remediation), employment and contract disputes, and other claims and actions, arising out of the normal course of business. Liabilities are recorded when it is probable that obligations have been incurred and the amounts can be reasonably estimated. Estimates are developed through consultation with legal counsel involved in the defense of these matters and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. Legal fees associated with defending these various lawsuits and claims are expensed when incurred.
Recent Accounting Pronouncements:
In January 2017, the FASB issued Update 2017-01 - Business Combinations (Topic 805). This update clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The adoption of this new guidance is not expected to have a material impact on CONSOL Mining Corporations financial statements.
In December 2016, the FASB issued Update 2016-19 - Technical Corrections and Improvements, which covers a wide range of Topics in the Accounting Standards Codification (ASC). The amendments in this Update represent changes to clarify, correct errors, or make minor improvements to the ASC, making it easier to understand and apply by eliminating inconsistencies and providing clarifications. The amendments generally fall into one of the following categories: amendments related to differences between original guidance and the ASC, guidance clarification and reference corrections, simplification, or minor improvements. Most of the amendments in this Update do not require transition guidance and are effective upon issuance of this Update.
In October 2016, the FASB issued Update 2016-17 - Consolidation (Topic 810): Interests Held through Related Parties that are Under Common Control, which amends the consolidation guidance on how a reporting entity that is the single decision maker of a variable interest entity (VIE) should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE. The Update requires the reporting entity, in determining whether it satisfies the second characteristic of a primary beneficiary, to include its indirect economic interests in a VIE held through related parties that are under common control on a proportionate basis as opposed to in their entirety. The amendments in this Update will be applied retrospectively and are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The adoption of this new guidance is not expected to have a material impact on CONSOL Mining Corporations financial statements.
In August 2016, the FASB issued Update 2016-15 - Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The amendments relate to debt prepayment or debt extinguishment
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costs, settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, distributions received from equity method investees, and beneficial interests in securitization transactions. The Update also states that, in the absence of specific guidance for cash receipts and payments that have aspects of more than one class of cash flows, an entity should classify each separately identifiable source or use within the cash receipts and payments on the basis of their nature in financing, investing, or operating activities. In situations in which cash receipts or payments cannot be separated by source or use, the appropriate classification should depend on the activity that is likely to be the predominant source or use of cash flows for the item. The amendments in the Update will be applied using a retrospective transition method to each period presented and, for public entities, are effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. Management is currently evaluating the impact this guidance may have on CONSOL Mining Corporations financial statements.
In June 2016, the FASB issued Update 2016-13 - Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which provides financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this, the amendments in this Update replace the incurred loss impairment methodology in current Generally Accepted Accounting Principles (GAAP) with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The measurement of expected credit losses will be based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The amendments in this Update will be applied using a modified-retrospective approach and, for public entities, are effective for fiscal years beginning after December 15, 2019 and interim periods within those annual periods. Early adoption is permitted for fiscal years beginning after December 15, 2018 and interim periods within those annual periods. Management believes this guidance will not have a material impact on CONSOL Mining Corporations financial statements.
In May 2014, the FASB issued Update 2014-09 - Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Topic 605 - Revenue Recognition and most industry-specific guidance throughout the Industry Topics of the Codification. The objective of the amendments in this Update is to improve financial reporting by creating common revenue recognition guidance for U.S. GAAP and International Financial Reporting Standards (IFRS). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and should disclose sufficient information, both qualitative and quantitative, to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The following updates to Topic 606 were made during 2016:
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In March 2016, the FASB issued Update 2016-08 - Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies how an entity determines whether it is a principal or an agent for goods or services promised to a customer as well as the nature of the goods or services promised to their customers. |
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In April 2016, the FASB issued Update 2016-10 - Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, which seeks to address implementation issues in the areas of identifying performance obligations and licensing. |
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In May 2016, the FASB issued Update 2016-12 - Revenue from Contracts with Customers: Narrow Scope Improvements and Practical Expedients, which seeks to address implementation issues in the areas of collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition. |
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In December 2016, the FASB issued Update 2016-20 - Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which includes amendments related to loan guarantee fees, contract costs, provisions for losses on construction and production-type contracts, scope, disclosures, contract modification, contract asset versus receivable, refund liability and advertising costs. |
The new standards are effective for annual reporting periods beginning after December 15, 2017, with the option to adopt as early as annual reporting periods beginning after December 15, 2016. Management continues to evaluate the impacts that these standards will have on CONSOL Mining Corporations financial statements, specifically as it relates to contracts that contain positive electric power price related adjustments. CONSOL Mining Corporation anticipates using the modified retrospective approach at adoption as it relates to ASU 2014-09.
In March 2016, the FASB issued Update 2016-09 - Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Specifically, this Update states that: all excess tax benefits and tax deficiencies should be recognized as income tax expense or benefit in the income statement; excess tax benefits should be classified along with other income tax cash flows as an operating activity; an entity can make an accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur; the threshold to qualify for equity classification permits withholding up to the maximum statutory tax rates in the applicable jurisdictions; and cash paid by an employer when directly withholding shares for tax-withholding purposes should be classified as a financing activity. For public entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2016 and interim periods within those annual periods. Early adoption is permitted. The adoption of this new guidance did not have a material impact on CONSOL Mining Corporations financial statements.
In February 2016, the FASB issued Update 2016-02 - Leases (Topic 842), which increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Update 2016-02 does retain a distinction between finance leases and operating leases, which is substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous lease guidance. Retaining this distinction allows the recognition, measurement and presentation of expenses and cash flows arising from a lease to not significantly change from previous GAAP. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities, but to recognize lease expense on a straight-line basis over the lease term. For both financing and operating leases, the right-to-use asset and lease liability will be initially measured at the present value of the lease payments in the statement of financial position. The accounting applied by a lessor is largely unchanged from that applied under previous GAAP. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. Management is currently evaluating the impact this guidance may have on CONSOL Mining Corporations financial statements.
Subsequent Events
Events and transactions subsequent to the balance sheet date have been evaluated through July 10, 2017, the date these financial statements were issued, for potential recognition in the financial statements or disclosure in the accompanying footnotes.
NOTE 3RELATED PARTY TRANSACTIONS:
During 2016, 2015 and 2014, the Predecessors related parties included CONSOL Energy and its subsidiaries, including Fairmont Supply Company, which was a wholly-owned subsidiary of CONSOL Energy until December 2014.
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The Combined Statements of Income include expense allocations for certain corporate functions historically performed by CONSOL Energy, including allocations of stock based compensation and general corporate expenses related to legal, treasury, human resources, information technology and other administrative services. Those allocations, which are included in Selling, General and Administrative Costs in the Combined Statements of Income, were based primarily on specific identification, head counts and coal tons produced. Also, the Predecessor used centralized cash management activities at CONSOL Energy for collections and payments related to normal course of business accounts receivable and payments for goods and services. The balance of any receivable/payable from CONSOL Energy and other affiliates are presented as contributions/distributions in these combined financial statements.
The Predecessor believes that transactions with related parties, other than certain transactions with CONSOL Energy related to administrative services, were conducted on terms comparable to those with unrelated parties and would not have been materially different had they been calculated on a stand-alone basis. However, such expenses may not be indicative of the actual level of expense that the Predecessor would have incurred if it had operated as an independent, publicly-traded company or of the costs expected to be incurred in the future. It would be impracticable to estimate what the costs related to administrative services provided by CONSOL Energy would have been with an unrelated third party.
Fairmont Supply Company also sold the Predecessor supplies for use in its mines during the year ended December 31, 2014.
In July 2015, CNXC closed its initial public offering of 5,000,000 common units representing limited partnership interests at a price to the public of $15.00 per unit. Additionally, Greenlight Capital entered into a common unit purchase agreement with CNXC pursuant to which Greenlight Capital agreed to purchase, and CNXC agreed to sell, 5,000,000 common units at a price per unit equal to $15.00, which equates to $75,000 in net proceeds. CNXCs general partner is CNX Coal Resources GP, a wholly owned subsidiary of CONSOL Energy. The underwriters of the IPO filing exercised an over-allotment option of 561,067 common units to the public at $15.00 per unit.
In connection with the Initial Public Offering (IPO), CNXC entered into a $400,000 senior secured revolving credit facility with certain lenders and PNC Bank, National Association (PNC), as administrative agent. Obligations under the revolving credit facility are guaranteed by CNXCs subsidiaries (the guarantor subsidiaries) and are secured by substantially all of CNXCs and CNXCs subsidiaries assets pursuant to a security agreement and various mortgages. Under the new revolving credit facility, CNXC made an initial draw of $200,000, and after origination fees of $3,000, the net proceeds were $197,000.
The total net proceeds related to these transactions that were distributed to CONSOL Energy were $342,711.
In September 2016, CNXC and its wholly owned subsidiary, CNX Thermal Holdings LLC (CNX Thermal), entered into a Contribution Agreement with CONSOL Energy, Consol Pennsylvania Coal Company LLC and Conrhein Coal Company (the Contributing Parties) under which CNX Thermal acquired an additional 5% undivided interest in and to the Pennsylvania Mine Complex, in exchange for (i) cash consideration in the amount of $21,500 and (ii) CNXCs issuance of 3,956,496 Class A Preferred Units representing limited partner interests in CNXC at an issue price of $17.01 per Class A preferred Unit (the Class A Preferred Unit Issue Price), or an aggregate $67,300 in equity consideration. The Class A Preferred Unit Issue Price was calculated as the volume-weighted average trading price of CNXCs common units (the Common Units) over the trailing 15-day trading period ending on September 29, 2016 (or $14.79 per unit), plus a 15% premium.
In connection with the PAMC acquisition, in September 2016, the CNXC GP and CNXC entered into the First Amended and Restated Omnibus Agreement (the Amended Omnibus Agreement) with CONSOL Energy and certain of its subsidiaries. Under the Amended Omnibus Agreement, CONSOL Energy indemnified CNXC for certain liabilities. The Amended Omnibus Agreement also amended CNXCs obligations to CONSOL Energy
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with respect to the payment of an annual administrative support fee and reimbursement for the provisions of certain management and operating services provided, in each case to reflect structural changes in how those services are provided to CNXC by CONSOL Energy.
Charges for services from CONSOL Energy include the following:
December 31, | ||||||||||||
2016 | 2015 | 2014 | ||||||||||
Operating and Other Costs |
$ | 4,251 | $ | 6,793 | $ | 6,707 | ||||||
Selling, General and Administrative Expenses |
3,826 | 8,926 | 11,384 | |||||||||
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Total Services from CONSOL Energy |
$ | 8,077 | $ | 15,719 | $ | 18,091 | ||||||
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At March 31, 2017 and December 31, 2016, CNXC had a net payable to CONSOL Energy in the amount of $1,764 and $1,666, respectively. This payable includes reimbursements for business expenses, executive fees, stock-based compensation and other items under the omnibus agreement.
NOTE 4LONG-TERM DEBT:
December 31, | ||||||||
2016 | 2015 | |||||||
Debt: |
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Revolving Credit Facility - CNX Coal Resources LP |
$ | 201,000 | $ | 185,000 | ||||
MEDCO Revenue Bonds in Series due September 2025 at 5.75% |
102,865 | 102,865 | ||||||
Advance Royalty Commitments (7.73%, and 16.35% Weighted Average Interest Rate, respectively) | 2,678 | 3,962 | ||||||
Less: Unamortized Debt Issuance Costs |
4,343 | 5,375 | ||||||
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$ | 302,200 | $ | 286,452 | |||||
Less: Amounts Due in One Year* |
373 | 675 | ||||||
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Long-Term Debt |
$ | 301,827 | $ | 285,777 | ||||
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* Excludes current portion of Capital Lease Obligations of $3,703 and $357 at December 31, 2016 and 2015, respectively.
Annual undisclosed maturities on long-term debt during the next five years and thereafter are as follows:
Year ended December 31, | Amount | |||
2017 |
$373 | |||
2018 |
$314 | |||
2019 |
$292 | |||
2020 |
$201,270 | |||
2021 |
$250 | |||
Thereafter |
$104,044 | |||
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Total Long-term Debt Maturities |
$306,543 | |||
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NOTE 5PROPERTY, PLANT AND EQUIPMENT:
The Predecessors property, plant and equipment consist of the following:
December 31,
2016 |
December 31,
2015 |
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Plant and Equipment |
$ | 2,680,453 | $ | 2,663,314 | ||||
Airshafts |
381,755 | 361,872 | ||||||
Coal Properties and Surface Lands |
861,048 | 865,581 | ||||||
Mine Development |
344,139 | 344,298 | ||||||
Advance Mining Royalties |
326,000 | 327,475 | ||||||
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Total Property, Plant and Equipment |
4,593,395 | 4,562,540 | ||||||
Less Accumulated Depreciation, Depletion and Amortization |
2,413,125 | 2,237,359 | ||||||
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Total Property, Plant and Equipment, Net |
$ | 2,180,270 | $ | 2,325,181 | ||||
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NOTE 6OTHER ACCRUED LIABILITIES:
December 31, | ||||||||
2016 | 2015 | |||||||
Subsidence liability |
$ | 104,437 | $ | 86,860 | ||||
Accrued payroll and benefits |
17,326 | 15,640 | ||||||
Equipment lease rental |
15,286 | 15,286 | ||||||
Accrued other taxes |
12,732 | 6,071 | ||||||
Litigation |
12,532 | 13,215 | ||||||
Deferred revenue |
10,520 | 4,670 | ||||||
Short-term incentive compensation |
6,073 | 3,211 | ||||||
Other |
21,986 | 23,902 | ||||||
Current portion of long-term liabilities: |
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Postretirement benefits other than pensions |
40,611 | 40,863 | ||||||
Mine closing |
14,276 | 22,599 | ||||||
Workers compensation |
13,596 | 14,507 | ||||||
Gas well closing |
11,983 | 10,346 | ||||||
Pneumoconiosis benefits |
10,763 | 9,382 | ||||||
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Total Other Accrued Liabilities |
$ | 292,121 | $ | 266,552 | ||||
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NOTE 7ASSET RETIREMENT OBLIGATIONS:
The Predecessor accrues for mine closing costs, perpetual water care costs, costs related to the dismantling and removing of natural gas related facilities and surface reclamation costs using the accounting treatment prescribed by the Asset Retirement and Environmental Obligations Topic of the FASB Accounting Standards Codification. The Predecessor recognizes capitalized asset retirement costs by increasing the carrying amount of related long-lived assets.
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The reconciliation of changes in the asset retirement obligations:
December 31, | ||||||||
2016 | 2015 | |||||||
Balance at beginning of period |
$ | 288,977 | $ | 318,899 | ||||
Accretion expense |
20,111 | 22,740 | ||||||
Payments |
(11,637 | ) | (15,384 | ) | ||||
Revisions in estimated cash flows |
(25,427 | ) | (31,481 | ) | ||||
Other |
514 | (5,797 | ) | |||||
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Balance at end of period |
$ | 272,538 | $ | 288,977 | ||||
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For the year ended December 31, 2015, Other includes ($2,133) related to the disposition of two Perpetual Care sites and ($2,355) related to the disposition of a non-producing mine.
NOTE 8PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (OPEB):
Pension:
CONSOL Mining Corporation has non-contributory defined benefit retirement plans. Effective December 31, 2015, CONSOL Mining Corporations qualified defined benefit retirement plan was frozen. The benefits for these plans are based primarily on years of service and employees pay. CONSOL Mining Corporations qualified pension plan allows for lump-sum distributions of benefits earned up until December 31, 2005, at the employees election.
On September 30, 2014, the qualified pension plan was amended to reduce future accruals of pension benefits as of January 1, 2015. The plan amendment called for a hard freeze of the qualified defined benefit pension plan on January 1, 2015 for employees who were under age 40 or had less than 10 years of service as of September 30, 2014. Employees who were age 40 or over and had at least 10 years of service continued in the defined benefit pension plan unchanged. The modifications to the pension plan resulted in a $21,624 reduction in the pension liability.
On August 31, 2015, the qualified pension plan was remeasured to reflect an announced plan amendment that reduced accruals of pension benefits as of January 1, 2016. The plan amendment called for a hard freeze of the qualified defined benefit pension plan on January 1, 2016 for all remaining participants in the plan. The modifications to the pension plan resulted in a $26,352 reduction in the pension liability. The amendment resulted in a remeasurement of the qualified pension plan at August 31, 2015, which increased the pension liability by $17,793.
In the third quarter of 2015, CONSOL Mining Corporation remeasured its pension plan as a result of the previously discussed plan amendment. In conjunction with this remeasurement, the method used to estimate the service and interest components of net periodic benefit cost for pension was changed. This change was also made to other postretirement benefits in the fourth quarter during the annual remeasurement of that plan. This change, compared to the previous method, resulted in a decrease in the service and interest components for pension cost in the third quarter. Historically, CONSOL Mining Corporation estimated these service and interest cost components utilizing a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. CONSOL Mining Corporation has elected to utilize a full yield curve approach in the estimation of these components by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. This change was made to provide a more precise measurement of service and interest costs by improving the correlation between projected benefit cash flows to the corresponding spot yield curve rates. This change is immaterial to CONSOL Mining
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Corporations financial statements. CONSOL Mining Corporation has accounted for this change as a change in accounting estimate that is inseparable from a change in accounting principle and, accordingly, accounted for it prospectively.
According to the Defined Benefit Plans Topic of the Financial Accounting Standards Board (FASB) Accounting Standards Codification, if the lump sum distributions made during a plan year, which for CONSOL Mining Corporation is January 1 to December 31, exceed the total of the projected service cost and interest cost for the plan year, settlement accounting is required. Lump sum payments exceeded this threshold during the years ended December 31, 2016, 2015, and 2014. Accordingly, CONSOL Mining Corporation recognized settlement expense of $22,196, $19,053, and $29,095 for the years ended December 31, 2016, 2015 and 2014 respectively, in Operating and Other Costs in the Combined Statements of Income. The settlement charges resulted in remeasurements of the pension plan during 2016, 2015 and 2014.
Other Postretirement Benefit Plans:
Certain subsidiaries of CONSOL Mining Corporation provide medical and prescription drug benefits to retired employees covered by the Coal Industry Retiree Health Benefit Act of 1992 (the Coal Act). Represented hourly employees are eligible to participate based upon the terms of the National Bituminous Coal Wage Agreement of 2011.
On September 30, 2014, the Salaried OPEB plan and Production and Maintenance (P&M) OPEB plans were remeasured to reflect an announced plan amendment that reduced retiree medical and life insurance benefits as of September 30, 2014. Effective September 30, 2014, no retiree medical, prescription drug or life benefits were to be provided to active employees. Salaried and P&M retirees as of September 30, 2014 were to continue in the OPEB plans for a maximum period up to December 31, 2019 and coverage thereafter was eliminated (see below for information on an additional amendment made to these plans in 2015). CONSOL Mining Corporation elected to make cash transition payments totaling approximately $46,282 to the active employees whose retiree medical, prescription drug and life insurance benefits were eliminated by the changes to the OPEB plans. These cash payments are not considered to be post-retirement benefits, and as such, they are not reflected in the actuarial calculations related to the OPEB plans. The amendment to the OPEB plans resulted in a $315,439 reduction in the OPEB liability and a curtailment gain of $35,633.
On May 31, 2015, the Salaried OPEB and P&M OPEB plans were remeasured to reflect another plan amendment which eliminated Salaried and P&M OPEB benefits at December 31, 2015. The amendment to the OPEB plans resulted in a $43,598 reduction in the OPEB liability. The amendment also resulted in a remeasurement of the OPEB plan at May 31, 2015, which decreased the liability by $1,070. CONSOL Mining Corporation recognized income of $235,541 related to amortization of prior service credits, coupled with recognition of actuarial losses in Operating and Other Costs in the Combined Statements of Income for the year ended December 31, 2015 as a result of the changes made to the Salaried and P&M OPEB plans.
CONSOL Mining Corporation will incur savings from cost containment changes related to pharmacy benefits, which were implemented on January 1, 2017, and increased member responsibility when using out-of-network providers and facilities, which will be implemented on March 27, 2017. These plan amendments resulted in a $28,164 reduction in the OPEB liability during the year ended December 31, 2016.
F-23
The reconciliation of changes in the benefit obligation, plan assets and funded status of these plans at December 31, 2016, 2015 and 2014 is as follows:
Pension Benefits
at December 31, |
Other Postretirement
Benefits at December 31, |
|||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Change in benefit obligation: |
||||||||||||||||
Benefit obligation at beginning of period |
$ | 751,617 | $ | 858,864 | $ | 671,755 | $ | 760,959 | ||||||||
Service cost |
1,533 | 8,256 | | | ||||||||||||
Interest cost |
25,048 | 31,655 | 24,241 | 27,238 | ||||||||||||
Actuarial loss (gain) |
46,885 | (38,909 | ) | 77,640 | (9,224 | ) | ||||||||||
Plan amendments |
| | (28,164 | ) | (43,598 | ) | ||||||||||
Plan transfer* |
| | | (5,242 | ) | |||||||||||
Plan curtailments |
| (26,352 | ) | | | |||||||||||
Plan settlements |
(54,197 | ) | (51,497 | ) | | | ||||||||||
Participant contributions |
| | | 1,649 | ||||||||||||
Benefits and other payments |
(35,709 | ) | (30,400 | ) | (45,387 | ) | (60,027 | ) | ||||||||
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Benefit obligation at end of period |
$ | 735,177 | $ | 751,617 | $ | 700,085 | $ | 671,755 | ||||||||
Change in plan assets: |
||||||||||||||||
Fair value of plan assets at beginning of period |
$ | 669,039 | $ | 751,176 | $ | | $ | | ||||||||
Actual return (loss) on plan assets |
50,575 | (9,293 | ) | | | |||||||||||
Company contributions |
2,726 | 9,053 | 45,387 | 58,378 | ||||||||||||
Participant contributions |
| | | 1,649 | ||||||||||||
Benefits and other payments |
(35,709 | ) | (30,400 | ) | (45,387 | ) | (60,027 | ) | ||||||||
Plan settlements |
(54,197 | ) | (51,497 | ) | | | ||||||||||
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Fair value of plan assets at end of period |
$ | 632,434 | $ | 669,039 | $ | | $ | | ||||||||
Funded status: |
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Current liabilities |
$ | (2,871 | ) | $ | (2,746 | ) | $ | (40,611 | ) | $ | (40,863 | ) | ||||
Noncurrent liabilities |
(99,872 | ) | (79,832 | ) | (659,474 | ) | (630,892 | ) | ||||||||
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Net obligation recognized |
$ | (102,743 | ) | $ | (82,578 | ) | $ | (700,085 | ) | $ | (671,755 | ) | ||||
Amounts recognized in accumulated other comprehensive income consist of: |
||||||||||||||||
Net actuarial loss |
$ | 295,152 | $ | 283,528 | $ | 426,392 | $ | 367,920 | ||||||||
Prior service credit |
(1,372 | ) | (1,874 | ) | (28,164 | ) | | |||||||||
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Net amount recognized (before tax effect) |
$ | 293,780 | $ | 281,654 | $ | 398,228 | $ | 367,920 | ||||||||
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* The plan transfer relates to the IBNR (incurred but not reported) costs associated with the terminated Salaried and P&M OPEB plans. These costs are now included in Other Accrued Liabilities in the Combined Balance Sheets.
F-24
The components of net periodic benefit costs are as follows:
Pension Benefits | Other Postretirement Benefits | |||||||||||||||||||||||
For the Years Ended December 31, | For the Years Ended December 31, | |||||||||||||||||||||||
2016 | 2015 | 2014 | 2016 | 2015 | 2014 | |||||||||||||||||||
Components of net periodic benefit cost: |
||||||||||||||||||||||||
Service cost |
$ | 1,533 | $ | 8,256 | $ | 16,913 | $ | | $ | | $ | 7,089 | ||||||||||||
Interest cost |
25,048 | 31,655 | 34,998 | 24,241 | 27,238 | 44,177 | ||||||||||||||||||
Expected return on plan assets |
(46,674 | ) | (51,528 | ) | (51,400 | ) | | | | |||||||||||||||
Amortization of prior service credits |
(502 | ) | (579 | ) | (1,129 | ) | | (336,327 | ) | (21,163 | ) | |||||||||||||
Recognized net actuarial loss |
9,163 | 20,870 | 23,544 | 19,168 | 102,875 | 28,682 | ||||||||||||||||||
Curtailment loss (gain) |
| 5 | (549 | ) | | | (35,633 | ) | ||||||||||||||||
Settlement loss (gain) |
22,196 | 19,053 | 29,095 | | (8,932 | ) | | |||||||||||||||||
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Net periodic benefit cost (credit) |
$ | 10,764 | $ | 27,732 | $ | 51,472 | $ | 43,409 | $ | (215,146 | ) | $ | 23,152 | |||||||||||
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Amounts included in accumulated other comprehensive loss which are expected to be recognized in 2017 net periodic benefit costs:
Pension
Benefits |
Other
Postretirement Benefits |
|||||||
Prior service credit recognition |
$ | (502 | ) | $ | (2,405 | ) | ||
Actuarial loss recognition |
$ | 8,897 | $ | 23,112 |
CONSOL Mining Corporation utilizes a corridor approach to amortize actuarial gains and losses that have been accumulated under the Pension Plan. Cumulative gains and losses that are in excess of 10% of the greater of either the projected benefit obligation (PBO) or the market-related value of plan assets are amortized over the expected remaining future lifetime of all plan participants for the Pension plan.
CONSOL Mining Corporation also utilizes a corridor approach to amortize actuarial gains and losses that have been accumulated under the OPEB Plan. Cumulative gains and losses that are in excess of 10% of the greater of either the accumulated postretirement benefit obligation (APBO) or the market-related value of plan assets are amortized over the average future remaining lifetime of the current inactive population for the OPEB plan.
The following table provides information related to pension plans with an accumulated benefit obligation in excess of plan assets:
As of December 31, | ||||||||
2016 | 2015 | |||||||
Projected benefit obligation |
$ | 735,177 | $ | 751,617 | ||||
Accumulated benefit obligation |
$ | 733,542 | $ | 749,805 | ||||
Fair value of plan assets |
$ | 632,434 | $ | 669,039 |
F-25
Assumptions:
The weighted-average assumptions used to determine benefit obligations are as follows:
Pension Benefits | Other Postretirement Benefits | |||||||||||||||||||||||
For the Year Ended | For the Year Ended | |||||||||||||||||||||||
December 31, | December 31, | |||||||||||||||||||||||
2016 | 2015 | 2014 | 2016 | 2015 | 2014 | |||||||||||||||||||
Discount rate |
4.31% | 4.50% | 4.07% | 4.22% | 4.50% | 4.03% | ||||||||||||||||||
Rate of compensation increase |
3.90% | 3.80% | 3.80% | | | |
The discount rates are determined using a Company-specific yield curve model (above-mean) developed with the assistance of an external actuary. The Company-specific yield curve models (above-mean) use a subset of the expanded bond universe to determine the Company-specific discount rate. Bonds used in the yield curve are rated AA by Moodys or Standard & Poors as of the measurement date. The yield curve models parallel the plans projected cash flows, and the underlying cash flows of the bonds included in the models exceed the cash flows needed to satisfy the Predecessors plans.
The weighted-average assumptions used to determine net periodic benefit costs are as follows:
Pension Benefits at |
Other
Benefits at |
|||||||||||||||
December 31, | December 31, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Discount rate |
4.52% | 4.07% | 4.50% | 4.03% | ||||||||||||
Expected long-term return on plan assets |
7.25% | 7.75% | | | ||||||||||||
Rate of compensation increase |
3.80% | 3.80% | | |
The long-term rate of return is the sum of the portion of total assets in each asset class held multiplied by the expected return for that class, adjusted for expected expenses to be paid from the assets. The expected return for each class is determined using the plan asset allocation at the measurement date and a distribution of compound average returns over a twenty year time horizon. The model uses asset class returns, variances and correlation assumptions to produce the expected return for each portfolio. The return assumptions used forward-looking gross returns influenced by the current Treasury yield curve. These returns recognize current bond yields, corporate bond spreads and equity risk premiums based on current market conditions.
The assumed health care cost trend rates are as follows:
At December 31, | ||||||||
2016 | 2015 | |||||||
Health care cost trend rate for next year |
6.31 | % | 6.49 | % | ||||
Rate to which the cost trend is assumed to decline (ultimate trend rate) |
4.50 | % | 4.50 | % | ||||
Year that the rate reaches ultimate trend rate |
2038 | 2038 |
Assumed health care cost trend rates have a significant effect on the amounts reported for the medical plans. A one-percentage point change in assumed health care cost trend rates would have the following effects:
1 Percentage
Point Increase |
1 Percentage
Point Decrease |
|||||||
Effect on total of service and interest cost components |
$ | 3,659 | $ | (3,053) | ||||
Effect on accumulated postretirement benefit obligation |
$ | 84,381 | $ | (71,751) |
F-26
Plan Assets:
CONSOL Mining Corporations overall investment strategy is to meet current and future benefit payment needs through diversification across asset classes, fund strategies and fund managers to achieve an optimal balance between risk and return and between income and growth of assets through capital appreciation. Consistent with the objectives of the Trust and in consideration of the Trusts current funded status and the current level of market interest rates, the Retirement Board has approved an asset allocation strategy that will change over time in response to future improvements in the Trusts funded status and/or changes in market interest rates. Such changes in asset allocation strategy are intended to allocate additional assets to the fixed income asset class should the Trusts funded status improve. In this framework, the current target allocation for plan assets is 26% U.S. equity securities, 16.5% non-U.S. equity securities, 7.5% global equity securities and 50% fixed income. Both the equity and fixed income portfolios are comprised of both active and passive investment strategies. The Trust is primarily invested in Mercer Common Collective Trusts. Equity securities consist of investments in large and mid/small cap companies; non-U.S. equities are derived from both developed and emerging markets. Fixed income securities consist of U.S. as well as international instruments, including emerging markets. The core domestic fixed income portfolios invest in government, corporate, asset-backed securities and mortgage-backed obligations. The average quality of the fixed income portfolio must be rated at least investment grade by nationally recognized rating agencies. Within the fixed income asset class, investments are invested primarily across various strategies such that its overall profile strongly correlates with the interest rate sensitivity of the Trusts liabilities in order to reduce the volatility resulting from the risk of changes in interest rates and the impact of such changes on the Trusts overall financial status. Derivatives, interest rate swaps, options and futures are permitted investments for the purpose of reducing risk and to extend the duration of the overall fixed income portfolio; however, they may not be used for speculative purposes. All or a portion of the assets may be invested in mutual funds or other commingled vehicles so long as the pooled investment funds have an adequate asset base relative to their asset class; are invested in a diversified manner; and have management and/or oversight by an Investment Adviser registered with the SEC. The Retirement Board, as appointed by the CONSOL Mining Corporation Board of Directors, reviews the investment program on an ongoing basis including asset performance, current trends and developments in capital markets, changes in Trust liabilities and ongoing appropriateness of the overall investment policy.
In May 2015, the FASB issued an Accounting Standards Update that removes the requirement to categorize within the fair value hierarchy investments for which fair values are estimated using the net asset value practical expedient provided by Accounting Standards Codification 820, Fair Value Measurement. This new guidance is effective for public entities for fiscal years beginning after December 15, 2015. In accordance with this Update, certain investments in 2016, 2015 and 2014 that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified as Level 1, 2 or 3 in the below fair value hierarchy but are included in the total.
The fair values of plan assets at December 31, 2016 and 2015 by asset category are as follows:
Fair Value Measurements at December 31, 2016 | Fair Value Measurements at December 31, 2015 | |||||||||||||||||||||||||||||||
Quoted | Quoted | |||||||||||||||||||||||||||||||
Prices in | Prices in | |||||||||||||||||||||||||||||||
Active | Active | |||||||||||||||||||||||||||||||
Markets for | Significant | Significant | Markets for | Significant | Significant | |||||||||||||||||||||||||||
Identical | Observable | Unobservable | Identical | Observable | Unobservable | |||||||||||||||||||||||||||
Assets | Inputs | Inputs | Assets | Inputs | Inputs | |||||||||||||||||||||||||||
Total | (Level 1) | (Level 2) | (Level 3) | Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||||||||||||||
Asset Category |
||||||||||||||||||||||||||||||||
Cash/Accrued Income |
$ | 639 | $ | 639 | $ | | $ | | $ | 631 | $ | 631 | $ | | $ | | ||||||||||||||||
US Equities (a) |
11 | 11 | | | 10 | 10 | | | ||||||||||||||||||||||||
Mercer Common Collective Trusts (b) |
631,784 | | | | 668,398 | | | | ||||||||||||||||||||||||
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Total |
$ | 632,434 | $ | 650 | $ | | $ | | $ | 669,039 | $ | 641 | $ | | $ | | ||||||||||||||||
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F-27
(a) |
This category includes investments in US common stocks and corporate debt. |
(b) |
Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy but are included in the total. |
There are no investments in CONSOL Energy or CONSOL Mining Corporation stock held by these plans at December 31, 2016 and 2015.
There are no assets in the other postretirement benefit plans at December 31, 2016 and 2015.
Cash Flows:
If necessary, CONSOL Mining Corporation intends to contribute to the pension trust using prudent funding methods. However, CONSOL Mining Corporation does not expect to contribute to the pension plan trust in 2017. Pension benefit payments are primarily funded from the trust. CONSOL Mining Corporation expects to pay benefits of $2,871 from the non-qualified pension plan in 2017. CONSOL Mining Corporation does not expect to contribute to the other postemployment plan in 2017 and intends to pay benefit claims as they are due.
The following benefit payments, reflecting expected future service, are expected to be paid:
Other | ||||||||
Pension | Postretirement | |||||||
Benefits | Benefits | |||||||
2017 |
$ | 47,340 | $ | 40,611 | ||||
2018 |
$ | 47,066 | $ | 43,829 | ||||
2019 |
$ | 46,174 | $ | 43,932 | ||||
2020 |
$ | 45,735 | $ | 44,136 | ||||
2021 |
$ | 44,167 | $ | 44,233 | ||||
Year 2022-2026 |
$ | 223,536 | $ | 215,248 |
NOTE 9COAL WORKERS PNEUMOCONIOSIS (CWP) AND WORKERS COMPENSATION:
Under the Federal Coal Mine Health and Safety Act of 1969, as amended, CONSOL Mining Corporation is responsible for medical and disability benefits to employees and their dependents resulting from occurrences of coal workers pneumoconiosis disease. CONSOL Mining Corporation is also responsible under various state statutes for pneumoconiosis benefits. CONSOL Mining Corporation primarily provides for these claims through a self-insurance program. The calculation of the actuarial present value of the estimated pneumoconiosis obligation is based on an annual actuarial study by independent actuaries and uses assumptions regarding disability incidence, medical costs, indemnity levels, mortality, death benefits, dependents and interest rates which are derived from actual company experience and outside sources. Recent legislative changes have not been favorable for CWP. Although these changes have not had a significant impact on the liability, CONSOL Mining Corporation has noticed an increase in claims. Actuarial gains or losses can result from differences in incident rates and severity of claims filed as compared to original assumptions.
CONSOL Mining Corporation must also compensate individuals who sustain employment-related physical injuries or some types of occupational diseases and, on some occasions, for costs of their rehabilitation. Workers compensation laws will also compensate survivors of workers who suffer employment-related deaths. Workers compensation laws are administered by state agencies, and each state has its own set of rules and regulations regarding compensation that is owed to an employee that is injured in the course of employment. CONSOL Mining Corporation primarily provides for these claims through a self-insurance program. CONSOL Mining
F-28
Corporation recognizes an actuarial present value of the estimated workers compensation obligation calculated by independent actuaries. The calculation is based on claims filed and an estimate of claims incurred but not yet reported as well as various assumptions, including discount rate, future healthcare trend rate, benefit duration and recurrence of injuries. Actuarial gains or losses associated with workers compensation have resulted from discount rate changes and differences in claims experience and incident rates as compared to prior assumptions.
CWP |
Workers Compensation |
|||||||||||||||
at December 31, | at December 31, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Change in benefit obligation: |
||||||||||||||||
Benefit obligation at beginning of period |
$ | 121,285 | $ | 124,815 | $ | 81,502 | $ | 87,946 | ||||||||
State administrative fees and insurance bond premiums |
| | 3,199 | 3,510 | ||||||||||||
Service cost |
4,327 | 6,194 | 7,466 | 9,201 | ||||||||||||
Interest cost |
4,283 | 5,116 | 2,499 | 3,131 | ||||||||||||
Actuarial loss (gain) |
439 | (5,089 | ) | 121 | (4,007 | ) | ||||||||||
Benefits paid |
(10,191 | ) | (9,751 | ) | (16,688 | ) | (18,619 | ) | ||||||||
Curtailment gain |
(1,307 | ) | | | | |||||||||||
Settlements |
| | | 340 | ||||||||||||
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Benefit obligation at end of period |
$ | 118,836 | $ | 121,285 | $ | 78,099 | $ | 81,502 | ||||||||
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Current assets |
$ | | $ | | $ | 1,429 | $ | 1,421 | ||||||||
Current liabilities |
(10,763 | ) | (9,382 | ) | (13,596 | ) | (14,507 | ) | ||||||||
Noncurrent liabilities |
(108,073 | ) | (111,903 | ) | (65,932 | ) | (68,416 | ) | ||||||||
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Net obligation recognized |
$ | (118,836 | ) | $ | (121,285 | ) | $ | (78,099 | ) | $ | (81,502 | ) | ||||
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Amounts recognized in accumulated other comprehensive income consist of: |
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Net actuarial gain |
$ | (62,714 | ) | $ | (68,101 | ) | $ | (12,656 | ) | $ | (13,171 | ) | ||||
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Net amount recognized (before tax effect) |
$ | (62,714 | ) | $ | (68,101 | ) | $ | (12,656 | ) | $ | (13,171 | ) | ||||
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The components of the net periodic cost are as follows:
CWP | Workers Compensation | |||||||||||||||||||||||
For the Years Ended | For the Years Ended | |||||||||||||||||||||||
December 31, | December 31, | |||||||||||||||||||||||
2016 | 2015 | 2014 | 2016 | 2015 | 2014 | |||||||||||||||||||
Service cost |
$ | 4,327 | $ | 6,194 | $ | 5,587 | $ | 7,466 | $ | 9,201 | $ | 9,585 | ||||||||||||
Interest cost |
4,283 | 5,116 | 5,537 | 2,499 | 3,131 | 3,506 | ||||||||||||||||||
Recognized net actuarial gain |
(4,948 | ) | (5,576 | ) | (6,196 | ) | (395 | ) | (30 | ) | (375 | ) | ||||||||||||
State administrative fees and insurance bond premiums |
| | | 3,199 | 3,510 | 3,285 | ||||||||||||||||||
Curtailment gain |
(1,307 | ) | | | | | | |||||||||||||||||
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Net periodic cost |
$ | 2,355 | $ | 5,734 | $ | 4,928 | $ | 12,769 | $ | 15,812 | $ | 16,001 | ||||||||||||
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F-29
The following are amounts included in accumulated other comprehensive income that are expected to be recognized in 2017 net periodic benefit costs:
Workers | ||||||||
CWP | Compensation | |||||||
Benefits | Benefits | |||||||
Actuarial gain recognition |
$ | (7,631 | ) | $ | (598 | ) |
CONSOL Mining Corporation utilizes a corridor approach to amortize actuarial gains and losses that have been accumulated under the Workers Compensation and CWP plans. Cumulative gains and losses that are in excess of 10% of the greater of either the estimated liability or the market-related value of plan assets are amortized over the expected average remaining future service of the current active membership of the Workers Compensation and CWP plans.
Assumptions:
The weighted-average discount rates used to determine benefit obligations and net periodic cost are as follows:
CWP | Workers Compensation | |||||||||||||||||||||||
For the Years Ended | For the Years Ended | |||||||||||||||||||||||
December 31, | December 31, | |||||||||||||||||||||||
2016 | 2015 | 2014 | 2016 | 2015 | 2014 | |||||||||||||||||||
Benefit obligations |
4.40 | % | 4.60 | % | 4.21 | % | 4.05 | % | 4.26 | % | 3.84 | % | ||||||||||||
Net periodic cost |
4.60 | % | 4.21 | % | 4.75 | % | 4.26 | % | 3.84 | % | 4.57 | % |
Discount rates are determined using a Company-specific yield curve model (above-mean) developed with the assistance of an external actuary. The Company-specific yield curve models (above-mean) use a subset of the expanded bond universe to determine the Company-specific discount rate. Bonds used in the yield curve are rated AA by Moodys or Standard & Poors as of the measurement date. The yield curve models parallel the plans projected cash flows, and the underlying cash flows of the bonds included in the models exceed the cash flows needed to satisfy the Predecessors plans.
Cash Flows:
CONSOL Mining Corporation does not intend to make contributions to the CWP or Workers Compensation plans in 2017, but it intends to pay benefit claims as they become due.
The following benefit payments, which reflect expected future claims as appropriate, are expected to be paid:
Workers Compensation | ||||||||||||||||
CWP
Benefits |
Total
Benefits |
Actuarial
Benefits |
Other
Benefits |
|||||||||||||
2017 |
$ | 10,763 | $ | 15,579 | $ | 12,168 | $ | 3,411 | ||||||||
2018 |
$ | 8,417 | $ | 14,890 | $ | 11,393 | $ | 3,497 | ||||||||
2019 |
$ | 7,606 | $ | 14,760 | $ | 11,176 | $ | 3,584 | ||||||||
2020 |
$ | 7,137 | $ | 14,743 | $ | 11,069 | $ | 3,674 | ||||||||
2021 |
$ | 6,963 | $ | 14,755 | $ | 10,990 | $ | 3,765 | ||||||||
Year 2022-2026 |
$ | 35,714 | $ | 75,045 | $ | 54,758 | $ | 20,287 |
NOTE 10OTHER BENEFIT PLANS:
UMWA Benefit Trusts:
The Coal 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
F-30
United Mine Workers of America 1992 Benefit Plan (1992 Benefit Plan). CONSOL Mining Corporation accounts 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 1992 Benefit Plan provides medical and death benefits to orphan UMWA-represented members eligible for retirement on February 1, 1993, and for those who retired between July 20, 1992 and September 30, 1994. The Coal 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 Coal Act. The Coal Act requires that responsibility for funding the benefits to be paid to beneficiaries be assigned to their former signatory employers or related companies. This cost is recognized when contributions are assessed. CONSOL Mining Corporations total contributions under the Coal Act were $8,455, $9,239 and $10,121 for the years ended December 31, 2016, 2015 and 2014, respectively. Based on available information at December 31, 2016, CONSOL Mining Corporations obligation for the Combined Fund and 1992 Benefit Plans is estimated to be approximately $93,795.
Pursuant to the provisions of the Tax Relief and Healthcare Act of 2006 (the 2006 Act) and the 1992 Benefit Plan, CONSOL Mining Corporation is required to provide security in an amount based on the annual cost of providing health care benefits for all individuals receiving benefits from the 1992 Benefit Plan who are attributable to CONSOL Mining Corporation, plus all individuals receiving benefits from an individual employer plan maintained by CONSOL Mining Corporation who are entitled to receive such benefits. In accordance with the terms of the 2006 Act and the 1992 Benefit Plan, CONSOL Mining Corporation must secure its obligations by posting letters of credit, which were $19,170, $21,473 and $21,394 at December 31, 2016, 2015 and 2014, respectively. The 2016, 2015 and 2014 security amounts were based on the annual cost of providing health care benefits and included a reduction in the number of eligible employees.
Investment Plan:
CONSOL Energy has an investment plan available to most non-represented employees in which CONSOL Mining Corporation employees may participate. Throughout the year ended December 31, 2016, the Predecessors matching contribution was 6% of eligible compensation contributed by eligible employees. In conjunction with the qualified pension plan changes in 2015, the Predecessor contributed an additional 3% of eligible compensation into the 401(k) plan accounts for employees hired or rehired on or after October 1, 2014 or who were under age 40 or had less than 10 years of service with the Predecessor as of September 30, 2014. This additional contribution was eliminated on January 1, 2016. The Predecessor may also make discretionary contributions to the Plan ranging from 1% to 6% (1% to 4% prior to January 1, 2016) of eligible compensation for eligible employees (as defined by the Plan). Discretionary contributions made by the Predecessor were $9,499 for the year ended December 31, 2016. There were no such discretionary contributions made by the Predecessor for the years ended December 31, 2015 and 2014. Total payments and costs were $17,687, $13,729 and $11,564 for the years ended December 31, 2016, 2015 and 2014, respectively.
Long-Term Disability:
CONSOL Mining Corporation has a Long-Term Disability Plan available to all eligible 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.
For the Years Ended
December 31, |
||||||||||||
2016 | 2015 | 2014 | ||||||||||
Benefit cost |
$ | 1,936 | $ | 2,383 | $ | 2,014 | ||||||
Discount rate assumption used to determine net periodic benefit costs |
3.71 | % | 3.18 | % | 3.53 | % |
F-31
Liabilities incurred under the Long-Term Disability Plan are included in Other Accrued Liabilities and Long-Term LiabilitiesOther in the Combined Balance Sheets and amounted to a combined total of $17,421, $18,008 and $20,409 at December 31, 2016, 2015 and 2014, respectively.
NOTE 11COMMITMENTS AND CONTINGENCIES:
The Predecessor is subject to various lawsuits and claims with respect to such matters as personal injury, wrongful death, damage to property, exposure to hazardous substances, governmental regulations including environmental remediation, employment and contract disputes and other claims and actions arising out of the normal course of business. The Company accrues the estimated loss for these lawsuits and claims when the loss is probable and reasonably estimable. The Predecessor current estimated accruals related to these pending claims, individually and in the aggregate, are immaterial to the financial position, results of operations or cash flows of the Predecessor. It is possible that the aggregate loss in the future with respect to these lawsuits and claims could ultimately be material to the Predecessors financial position, results of operations or cash flows; however, such amounts cannot be reasonably estimated. The amount claimed against the Predecessor is disclosed below when an amount is expressly stated in the lawsuit or claim, which is not often the case.
Fitzwater Litigation : Three nonunion retired coal miners have sued CONSOL Energy Inc., Fola Coal Company and Consolidation Coal Company in West Virginia Federal Court alleging ERISA violations in the termination of retiree health care benefits. The Plaintiffs contend they relied to their detriment on oral statements and promises of lifetime health benefits allegedly made by various members of management during Plaintiffs employment and that they were allegedly denied access to Summary Plan Documents that clearly reserved to the Predecessor the right to modify or terminate the CONSOL Energy Inc. Retiree Health and Welfare Plan. Plaintiffs request that retiree health benefits be reinstated and seek to represent a class of all nonunion retirees of CONSOL Energy and its subsidiaries. The Predecessor believes it has meritorious defense and intends to vigorously defend this suit.
Virginia Mine Void Litigation . Four lawsuits naming Consolidation Coal Company, Island Creek Coal Company, CNX Gas Company, and/or CONSOL Energy have recently concluded in favor of the companies. After the trial court granted summary judgment in favor of the defendants in two of the actions upon its finding that plaintiffs claims are barred by the applicable statutes of limitation, plaintiffs appealed both cases to the U.S. Court of Appeals for the Fourth Circuit. On March 9, 2017, the Fourth Circuit affirmed and entered judgment in favor of the defendants. Plaintiffs did not seek review by the U.S. Supreme Court and those judgments are now final. As a direct result of the Fourth Circuit action, Motions for Voluntary Dismissal were filed and granted by the court in both of the two remaining cases. On January 26, 2016, six mine void lawsuits that had twice before been filed and voluntarily dismissed were refiled for a third time in state court but have not been served. Because each had twice before been filed and voluntarily dismissed, and because the most recent refilings were not served within a one-year period, under these procedural circumstances these actions should no longer be viable under federal or Virginia state law. The complaints sought damages and injunctive relief in connection with the transfer of water from mining activities at Buchanan Mine into void spaces in inactive ICCC mines adjacent to the Buchanan operations, voids ostensibly underlying plaintiffs properties. While some of the plaintiffs claimed an ownership interest in the coal, others had some interest in one or more of the fee, surface, oil/gas or other mineral estates. The suits alleged the water storage precluded access to and damaged coal, impeded coalbed methane gas production and was made without compensation to the property owners. Plaintiffs sought recovery in tort, contract and trespass assumpsit (quasi-contract). The suits each sought damages between $50,000 and in excess of $100,000 plus punitive damages.
Other Matters: The Predecessor is a defendant in certain other legal proceedings arising out of the conduct of its business. In the opinion of management, based upon an investigation of these matters and discussion with legal counsel, the ultimate outcome of such other legal proceedings and compliance reviews, individually and in the aggregate, is not expected to have a material adverse effect on the Predecessors financial position, results of operations or liquidity.
F-32
Employee-related financial guarantees have primarily been provided to support the United Mine Workers of Americas 1992 Benefit Plan and various state workers compensation self-insurance programs. Environmental financial guarantees have primarily been provided to support various performance bonds related to reclamation and other environmental issues. Coal and other financial guarantees have primarily been provided to support various sales contracts. Other guarantees have been extended to support insurance policies, legal matters, full and timely payments of mining equipment leases, and various other items necessary in the normal course of business.
At December 31, 2016, the Predecessor has provided the following financial guarantees, unconditional purchase obligations and letters of credit to certain third parties, as described by major category in the following table. These amounts represent the maximum potential of total future payments that the Predecessor could be required to make under these instruments. These amounts have not been reduced for potential recoveries under recourse or collateralization provisions. Generally, recoveries under reclamation bonds would be limited to the extent of the work performed at the time of the default. No amounts related to these financial guarantees and letters of credit are recorded as liabilities in the financial statements. CONSOL Mining Corporation management believes that these guarantees will expire without being funded, and therefore the commitments will not have a material adverse effect on financial condition.
Amount of Commitment Expiration Per Period | ||||||||||||||||||||
Total
Amounts Committed |
Less Than
1 Year |
1-3 Years | 3-5 Years |
Beyond
5 Years |
||||||||||||||||
Letters of Credit: |
||||||||||||||||||||
Employee-Related |
$ | 82,273 | $ | 67,871 | $ | 14,402 | $ | | $ | | ||||||||||
Environmental |
998 | 600 | 398 | | | |||||||||||||||
Other |
23,326 | 22,626 | 700 | | | |||||||||||||||
|
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|
|
||||||
Total Letters of Credit |
106,597 | 91,097 | 15,500 | | | |||||||||||||||
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|
||||||
Surety Bonds: |
||||||||||||||||||||
Employee-Related |
112,810 | 111,510 | 1,300 | | | |||||||||||||||
Environmental |
509,341 | 478,379 | 30,962 | | | |||||||||||||||
Other |
10,609 | 10,442 | 166 | 1 | | |||||||||||||||
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|
||||||
Total Surety Bonds |
632,760 | 600,331 | 32,428 | 1 | | |||||||||||||||
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||||||
Guarantees: |
||||||||||||||||||||
Other |
74,203 | 41,285 | 17,767 | 13,401 | 1,750 | |||||||||||||||
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|
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|
|
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|
|
|
|
|
|
|
||||||
Total Guarantees |
74,203 | 41,285 | 17,767 | 13,401 | 1,750 | |||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total Commitments |
$ | 813,560 | $ | 732,713 | $ | 65,695 | $ | 13,402 | $ | 1,750 | ||||||||||
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The Predecessor regularly evaluates the likelihood of default for all guarantees based on an expected loss analysis and records the fair value, if any, of its guarantees as an obligation in the combined financial statements.
F-33
NOTE 12LEASES:
CONSOL Mining Corporation uses various leased facilities and equipment in its operations. Future minimum lease payments under capital and operating leases, together with the present value of the net minimum capital lease payments, at December 31, 2016 are as follows:
Capital
Leases |
Operating
Leases |
|||||||
Year Ended December 31, |
||||||||
2017 |
$ | 4,492 | $ | 93,818 | ||||
2018 |
3,779 | 56,197 | ||||||
2019 |
3,644 | 30,017 | ||||||
2020 |
3,473 | 21,119 | ||||||
2021 |
2,252 | 20,213 | ||||||
Thereafter |
| 20,696 | ||||||
|
|
|
|
|||||
Total minimum lease payments |
$ | 17,640 | $ | 242,060 | ||||
|
|
|
|
|||||
Less amount representing interest (2.00% 6.00%) |
2,125 | |||||||
|
|
|||||||
Present value of minimum lease payments |
15,515 | |||||||
Less amount due in one year |
3,703 | |||||||
|
|
|||||||
Total Long-Term Capital Lease Obligation |
$ | 11,812 | ||||||
|
|
Rental expense under operating leases was $87,903, $83,423, and $84,034 for the years ended December 31, 2016, 2015 and 2014, respectively.
At December 31, 2016, certain of the above capital leases for mining equipment are subleased to a third-party. The following represents the minimum payments including interest for those capital subleases:
2017 | 2018 | 2019 | 2020 | 2021 | Thereafter | Total | ||||||||||||||||||||
$ | 3,699 | $ | 3,699 | $ | 3,699 | $ | 3,699 | $ | 2,157 | $ | | $ | 16,953 | |||||||||||||
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|
|
At December 31, 2016, certain of the above operating leases for mining equipment are subleased to third-parties. The following represents the minimum rental payments for those operating subleases:
2017 | 2018 | 2019 | 2020 | 2021 | Thereafter | Total | ||||||||||||||||||||
$ | 40,299 | $ | 13,819 | $ | 6,909 | $ | | $ | | $ | | $ | 61,027 | |||||||||||||
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CONSOL Mining Corporation leases certain owned mining equipment to a third-party under operating leases. The owned equipment included in gross property, plant and equipment was $26,005, with $15,603 accumulated depreciation at December 31, 2016 and $31,059, with $12,424 accumulated depreciation, at December 31, 2015.
At December 31, 2016, scheduled minimum rental payments for operating leases related to this equipment were as follows:
2017 | 2018 | 2019 | 2020 | 2021 | Thereafter | Total | ||||||||||||||||||||
$ | 4,496 | $ | 2,992 | $ | 1,701 | $ | 627 | $ | | $ | | $ | 9,816 | |||||||||||||
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F-34
NOTE 13SEGMENT INFORMATION:
CONSOL Mining Corporation consists of one principal business division: Pennsylvania Mining Complex (PAMC). The principal activities of the PAMC division are mining, preparation and marketing of thermal coal, sold primarily to power generators. It also includes selling, general and administrative activities, as well as various other activities assigned to the PAMC division.
CONSOL Mining Corporations Other division includes expenses from various corporate and diversified business activities that are not allocated to the PAMC division. The diversified business activities include coal terminal operations, closed and idle mine activities, selling, general and administrative activities, as well as various other non-operated activities, none of which are individually significant to the Predecessor.
Industry segment results for the year ended December 31, 2016 are:
PAMC | Other |
Adjustments
and Eliminations |
Combined | |||||||||||||
SalesOutside |
$ | 1,065,582 | $ | | $ | | $ | 1,065,582 | ||||||||
Other Outside Sales |
| 31,464 | | 31,464 | ||||||||||||
FreightOutside |
46,468 | | | 46,468 | ||||||||||||
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|
|||||
Total Sales and Freight |
$ | 1,112,050 | $ | 31,464 | $ | | $ | 1,143,514 | ||||||||
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|
|||||
Earnings (Loss) Before Income Tax |
$ | 130,708 | $ | (65,693 | ) | $ | | $ | 65,015 | |||||||
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|
|||||
Segment Assets |
$ | 1,982,206 | $ | 705,228 | $ | | $ | 2,687,434 | ||||||||
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|
|||||
Depreciation, Depletion and Amortization |
$ | 168,195 | $ | 9,927 | $ | | $ | 178,122 | ||||||||
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|
|||||
Capital Expenditures |
$ | 50,809 | $ | 2,791 | $ | | $ | 53,600 | ||||||||
|
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|
|
Industry segment results for the year ended December 31, 2015 are:
PAMC | Other |
Adjustments
and Eliminations |
Combined | |||||||||||||
SalesOutside |
$ | 1,289,036 | $ | | $ | | $ | 1,289,036 | ||||||||
Other Outside Sales |
| 30,967 | | 30,967 | ||||||||||||
FreightOutside |
20,499 | | | 20,499 | ||||||||||||
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|
|||||
Total Sales and Freight |
$ | 1,309,535 | $ | 30,967 | $ | | $ | 1,340,502 | ||||||||
|
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|
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|
|||||
Earnings Before Income Tax |
$ | 404,994 | $ | 38,032 | $ | | $ | 443,026 | ||||||||
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|
|||||
Segment Assets |
$ | 2,076,301 | $ | 791,432 | $ | | $ | 2,867,733 | ||||||||
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|
|||||
Depreciation, Depletion and Amortization |
$ | 176,864 | $ | 18,473 | $ | | $ | 195,337 | ||||||||
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|
|||||
Capital Expenditures |
$ | 136,291 | $ | 6,762 | $ | | $ | 143,053 | ||||||||
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|
F-35
Industry segment results for the year ended December 31, 2014 are:
PAMC | Other |
Adjustments
and Eliminations |
Combined | |||||||||||||
SalesOutside |
$ | 1,616,874 | $ | | $ | | $ | 1,616,874 | ||||||||
Other Outside Sales |
| 41,255 | | 41,255 | ||||||||||||
FreightOutside |
23,133 | | | 23,133 | ||||||||||||
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|
|||||
Total Sales and Freight |
$ | 1,640,007 | $ | 41,255 | $ | | $ | 1,681,262 | ||||||||
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|
|||||
Earnings (Loss) Before Income Tax |
$ | 430,968 | $ | (18,663 | ) | $ | | $ | 412,305 | |||||||
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|
|||||
Segment Assets |
$ | 2,094,041 | $ | 998,333 | $ | | $ | 3,092,374 | ||||||||
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|
|||||
Depreciation, Depletion and Amortization |
$ | 173,316 | $ | 33,368 | $ | | $ | 206,684 | ||||||||
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|
|||||
Capital Expenditures |
$ | 341,229 | $ | 7,617 | $ | | $ | 348,846 | ||||||||
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|
|
Reconciliation of Segment Information to Combined Amounts:
Revenue and Other Income:
For the Years Ended December 31, | ||||||||||||
2016 | 2015 | 2014 | ||||||||||
Total Segment Sales and Freight from External Customers |
$ | 1,143,514 | $ | 1,340,502 | $ | 1,681,262 | ||||||
Other Income not Allocated to Segments |
82,120 | 68,193 | 123,604 | |||||||||
Gain on Sale of Assets |
5,228 | 13,025 | 26,312 | |||||||||
|
|
|
|
|
|
|
|
|
||||
Total Combined Revenue and Other Income |
$ | 1,230,862 | $ | 1,421,720 | $ | 1,831,178 | ||||||
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|
|
Earnings (Loss) Before Income Tax:
For the Years Ended December 31, | ||||||||||||
2016 | 2015 | 2014 | ||||||||||
Segment Income Before Income Taxes for reportable business segments |
$ | 79,068 | $ | 450,570 | $ | 412,305 | ||||||
Interest expense |
(14,053 | ) | (7,544 | ) | | |||||||
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|
|
|
|
|
|
||||
Earnings Before Income Tax |
$ | 65,015 | $ | 443,026 | $ | 412,305 | ||||||
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|
Enterprise-Wide Disclosures:
CONSOL Mining Corporations Revenues by geographical location (A):
For the Years Ended December 31, | ||||||||||||
2016 | 2015 | 2014 | ||||||||||
United States |
$ | 962,258 | $ | 1,081,081 | $ | 1,464,923 | ||||||
Asia |
109,312 | 106,954 | 66,912 | |||||||||
Europe |
40,704 | 112,844 | 121,909 | |||||||||
South America |
25,406 | 28,060 | 19,013 | |||||||||
Canada |
5,834 | 11,563 | 8,505 | |||||||||
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|
||||
Total Revenues and Freight from External Customers (B) |
$ | 1,143,514 | $ | 1,340,502 | $ | 1,681,262 | ||||||
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F-36
(A) CONSOL Mining Corporation attributes revenue to individual countries based on the location of the customer.
(B) CONSOL Mining Corporation has contractual relationships with certain U.S. based customers who distribute coal to international markets. The table above reflects the ultimate destination of CONSOL Mining Corporation coal.
CONSOL Mining Corporations Property, Plant and Equipment by geographical location:
December 31, | ||||||||||||
2016 | 2015 | 2014 | ||||||||||
United States |
$ | 2,169,246 | $ | 2,314,157 | $ | 2,518,633 | ||||||
Canada |
11,024 | 11,024 | 11,024 | |||||||||
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|
|
|
|
|
|
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|
||||
Total Property, Plant and Equipment, net |
$ | 2,180,270 | $ | 2,325,181 | $ | 2,529,657 | ||||||
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|
|
NOTE 14MISCELLANEOUS OTHER INCOME:
For the Years Ended December 31, | ||||||||||||
2016 | 2015 | 2014 | ||||||||||
Rental Income |
$ | 34,789 | $ | 36,908 | $ | 44,367 | ||||||
Royalty Income - Non-Operated Coal |
19,739 | 15,356 | 19,608 | |||||||||
Right of Way Issuance |
11,281 | 10,827 | 6,667 | |||||||||
Coal Contract Buyout |
6,288 | | 30,000 | |||||||||
Purchased Coal Sales |
5,757 | 1,596 | 9,029 | |||||||||
Interest Income |
1,166 | 410 | 135 | |||||||||
Other |
3,100 | 3,096 | 13,798 | |||||||||
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|
|
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|
||||
Miscellaneous Other Income |
$ | 82,120 | $ | 68,193 | $ | 123,604 | ||||||
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|
|
NOTE 15INCOME TAXES:
Income tax expense (benefit) provided on earnings consisted of:
For The Years Ended December 31, | ||||||||||||
2016 | 2015 | 2014 | ||||||||||
Current: |
||||||||||||
U.S. Federal |
$ | (76,447 | ) | $ | 49,435 | $ | 68,753 | |||||
U.S. State |
(1,924 | ) | 2,591 | 9,970 | ||||||||
Non-U.S. |
1,411 | 963 | 1,966 | |||||||||
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|
|
|
|
|
||||
(76,960 | ) | 52,989 | 80,689 | |||||||||
Deferred: |
||||||||||||
U.S. Federal |
89,268 | 66,187 | 39,524 | |||||||||
U.S. State |
2,257 | 6,429 | 1,140 | |||||||||
91,525 | 72,616 | 40,664 | ||||||||||
|
|
|
|
|
|
|
|
|
||||
Total Income Tax Expense |
$ | 14,565 | $ | 125,605 | $ | 121,353 | ||||||
|
|
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|
|
|
|
|
|
F-37
The components of the net deferred taxes are as follows:
December 31, | ||||||||
2016 | 2015 | |||||||
Deferred Tax Assets: |
||||||||
Postretirement benefits other than pensions |
$ | 255,507 | $ | 246,173 | ||||
Mine closing |
85,003 | 91,593 | ||||||
Pneumoconiosis benefits |
43,371 | 44,446 | ||||||
Mine subsidence |
39,251 | 32,839 | ||||||
Salary retirement |
37,498 | 30,261 | ||||||
Workers compensation |
28,530 | 29,956 | ||||||
Gas well closing |
14,464 | 14,297 | ||||||
Long-term disability |
6,358 | 9,067 | ||||||
State bonus, net of Federal |
3,175 | 2,674 | ||||||
Reclamation |
| 198 | ||||||
Other |
8,042 | 8,572 | ||||||
|
|
|
|
|
|
|||
Total Deferred Tax Assets |
521,199 | 510,076 | ||||||
Valuation Allowance |
| | ||||||
|
|
|
|
|
|
|||
Net Deferred Tax Assets |
521,199 | 510,076 | ||||||
Deferred Tax Liabilities: |
||||||||
Property, plant and equipment |
(256,947 | ) | (168,992 | ) | ||||
Equity Partnerships |
(67,498 | ) | (68,081 | ) | ||||
Advance mining royalties |
(12,175 | ) | (13,400 | ) | ||||
|
|
|
|
|
|
|||
Total Deferred Tax Liabilities |
(336,620 | ) | (250,473 | ) | ||||
|
|
|
|
|
|
|||
Net Deferred Tax Asset (Liability) |
$ | 184,579 | $ | 259,603 | ||||
|
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|
|
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|
A valuation allowance is required when it is more likely than not that all or a portion of a deferred tax asset will not be realized. All available evidence, both positive and negative, must be considered in determining the need for a valuation allowance. For the years ended December 31, 2016 and 2015, positive evidence considered included financial earnings generated over the past three years for certain subsidiaries, reversals of financial to tax temporary differences and the implementation of and/or ability to employ various tax planning strategies. Negative evidence included financial and tax losses generated in prior periods, the inability to achieve forecasted results for those periods and the expectation that future financial results from normal operations would not be sufficient to support full utilization of certain tax credits within the foreseeable future. CONSOL Mining Corporation has no net operating losses and no valuation allowances at December 31, 2016 and 2015.
Management will continue to assess the potential for realized deferred tax assets based upon income forecast data and the feasibility of future tax planning strategies and may record adjustments to valuation allowances against deferred tax assets in future periods, as appropriate, that could materially impact net income.
F-38
The following is a reconciliation, stated as a percentage of pretax income, of the United States statutory federal income tax rate to CONSOL Mining Corporations effective tax rate:
For the Years Ended December 31, | ||||||||||||||||||||||||
2016 | 2015 | 2014 | ||||||||||||||||||||||
Amount | Percent | Amount | Percent | Amount | Percent | |||||||||||||||||||
Statutory U.S. federal income tax rate |
$ | 19,621 | 35.0 | % | $ | 151,416 | 35.0 | % | $ | 144,307 | 35.0 | % | ||||||||||||
Excess tax depletion |
(21,856 | ) | (39.0 | ) | (27,720 | ) | (6.4 | ) | (22,048 | ) | (5.3 | ) | ||||||||||||
Effect of domestic production activities |
1,621 | 2.9 | (4,933 | ) | (1.1 | ) | (5,956 | ) | (1.4 | ) | ||||||||||||||
IRS and state tax examination settlements |
14,048 | 25.1 | | | (1,327 | ) | (0.3 | ) | ||||||||||||||||
Net effect of state income taxes |
(52 | ) | (0.1 | ) | 5,725 | 1.3 | 6,125 | 1.5 | ||||||||||||||||
Net effect of state tax rate change on DIT |
1,049 | 1.9 | 1,042 | 0.2 | | | ||||||||||||||||||
Other |
134 | 0.2 | 75 | | 252 | 0.1 | ||||||||||||||||||
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Income Tax Expense / Effective Rate |
$ | 14,565 | 26.0 | % | $ | 125,605 | 29.0 | % | $ | 121,353 | 29.6 | % | ||||||||||||
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As part of our IRS examination of the tax years 2010-2013 we were able to claim bonus depreciation resulting in a net cash refund of $58,000. The bonus depreciation deduction adversely impacts earnings by reducing our percentage depletion adjustment on our mining operations and reducing our Section 199 manufacturing deduction in the years 2010-2013. This resulted in a net charge to earnings of $14,048.
CONSOL Mining Corporation had no unrecognized tax expense or benefit as of December 31, 2016 and December 31, 2015.
F-39
CONSOL MINING CORPORATION
(Dollars in Thousands)
(unaudited)
Six Months Ended
June 30, |
||||||||
Revenue and Other Income: | 2017 | 2016 | ||||||
Coal Sales |
$ | 620,155 | $ | 476,726 | ||||
Other Outside Sales |
27,742 | 15,767 | ||||||
Freight Revenue |
30,045 | 24,557 | ||||||
Miscellaneous Other Income |
32,794 | 36,133 | ||||||
Gain on Sale of Assets |
13,536 | 3,904 | ||||||
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Total Revenue and Other Income |
724,272 | 557,087 | ||||||
Costs and Expenses: |
||||||||
Operating and Other Costs |
452,876 | 407,446 | ||||||
Depreciation, Depletion and Amortization |
78,261 | 77,976 | ||||||
Freight Expense |
30,045 | 24,557 | ||||||
Selling, General, and Administrative Costs |
37,417 | 18,020 | ||||||
Interest Expense |
7,966 | 6,496 | ||||||
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Total Costs and Expenses |
606,565 | 534,495 | ||||||
Earnings Before Income Tax |
117,707 | 22,592 | ||||||
Income Tax Expense (Benefit) |
19,017 | (193 | ) | |||||
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Net Income |
98,690 | 22,785 | ||||||
Less: Net Income Attributable to Noncontrolling Interest |
9,777 | 2,293 | ||||||
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Net Income Attributable to CONSOL Mining Corporation Shareholder |
$ | 88,913 | $ | 20,492 | ||||
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The accompanying notes are an integral part of these combined financial statements.
F-40
CONSOL MINING CORPORATION
COMBINED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in Thousands)
(unaudited)
Six Months Ended
June 30, |
||||||||
2017 | 2016 | |||||||
Net Income |
$ | 98,690 | $ | 22,785 | ||||
Other Comprehensive Income: |
||||||||
Actuarially Determined Long-Term Liability Adjustments (Net of tax: ($3,786), ($3,621)) |
6,569 | 6,284 | ||||||
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Other Comprehensive Income |
6,569 | 6,284 | ||||||
Comprehensive Income |
105,259 | 29,069 | ||||||
Less: Comprehensive Income Attributable to Noncontrolling Interest |
9,754 | 2,293 | ||||||
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Comprehensive Income Attributable to CONSOL Mining Corporation Shareholder |
$ | 95,505 | $ | 26,776 | ||||
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The accompanying notes are an integral part of these combined financial statements.
CONSOL MINING CORPORATION
(Dollars in Thousands)
(unaudited)
Parent
Net Investment |
Accumulated
Other Comprehensive Income (Loss) |
Noncontrolling
Interest |
Total
Equity |
|||||||||||||
Balance at December 31, 2016 |
$ | 1,057,694 | $ | (400,063 | ) | $ | 142,493 | $ | 800,124 | |||||||
Net Income |
88,913 | | 9,777 | 98,690 | ||||||||||||
Actuarially Determined Long-Term Liability Adjustments (Net of ($3,786) Tax) | | 6,592 | (23 | ) | 6,569 | |||||||||||
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Comprehensive Income |
88,913 | 6,592 | 9,754 | 105,259 | ||||||||||||
Distributions to Noncontrolling Interest |
| | (10,935 | ) | (10,935 | ) | ||||||||||
Amortization of Stock-Based Compensation Awards |
| | 1,706 | 1,706 | ||||||||||||
Treasury Stock Activity |
| | (808 | ) | (808 | ) | ||||||||||
Net Parent Distributions |
(69,049 | ) | | | (69,049 | ) | ||||||||||
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Balance at June 30, 2017 |
$ | 1,077,558 | $ | (393,471 | ) | $ | 142,210 | $ | 826,297 | |||||||
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The accompanying notes are an integral part of these combined financial statements.
F-41
CONSOL MINING CORPORATION
(Dollars in Thousands)
(unaudited)
June 30, | December 31, | |||||||
2017 | 2016 | |||||||
ASSETS |
||||||||
Current Assets: |
||||||||
Cash and Cash Equivalents |
$ | 6,739 | $ | 13,311 | ||||
Trade Accounts Receivable |
107,028 | 95,707 | ||||||
Other Receivables |
17,445 | 23,320 | ||||||
Other Receivables - Related Party |
32 | 34 | ||||||
Inventories |
60,286 | 50,161 | ||||||
Prepaid Expenses |
12,364 | 17,601 | ||||||
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Total Current Assets |
203,894 | 200,134 | ||||||
Property, Plant and Equipment: |
||||||||
Property, Plant and Equipment |
4,613,940 | 4,593,395 | ||||||
LessAccumulated Depreciation, Depletion and Amortization |
2,495,546 | 2,413,125 | ||||||
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Total Property, Plant and EquipmentNet |
2,118,394 | 2,180,270 | ||||||
Other Assets: |
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Other Assets |
111,759 | 122,451 | ||||||
Deferred Tax Asset |
192,563 | 184,579 | ||||||
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Total Other Assets |
304,322 | 307,030 | ||||||
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TOTAL ASSETS |
$ | 2,626,610 | $ | 2,687,434 | ||||
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The accompanying notes are an integral part of these combined financial statements.
F-42
CONSOL MINING CORPORATION
UNAUDITED COMBINED BALANCE SHEETS
(Dollars in Thousands)
(unaudited)
June 30, | December 31, | |||||||
2017 | 2016 | |||||||
LIABILITIES AND EQUITY |
||||||||
Current Liabilities: |
||||||||
Accounts Payable |
$ | 72,263 | $ | 82,897 | ||||
Current Portion of Long-Term Debt |
3,643 | 4,076 | ||||||
Other Accrued Liabilities |
283,393 | 292,121 | ||||||
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Total Current Liabilities |
359,299 | 379,094 | ||||||
Long-Term Debt: |
||||||||
Long-Term Debt |
291,344 | 301,827 | ||||||
Capital Lease Obligations |
10,204 | 11,812 | ||||||
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Total Long-Term Debt |
301,548 | 313,639 | ||||||
Deferred Credits and Other Liabilities: |
||||||||
Postretirement Benefits Other Than Pensions |
652,206 | 659,474 | ||||||
Pneumoconiosis Benefits |
107,321 | 108,073 | ||||||
Asset Retirement Obligations |
228,576 | 246,279 | ||||||
Workers Compensation |
64,689 | 65,932 | ||||||
Salary Retirement |
72,529 | 99,872 | ||||||
Other |
14,145 | 14,947 | ||||||
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Total Deferred Credits and Other Liabilities |
1,139,466 | 1,194,577 | ||||||
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TOTAL LIABILITIES |
1,800,313 | 1,887,310 | ||||||
Equity: |
||||||||
Parent Net Investment |
1,077,558 | 1,057,694 | ||||||
Accumulated Other Comprehensive Loss |
(393,471 | ) | (400,063 | ) | ||||
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Total Parent Net Investment and Other Comprehensive Loss |
684,087 | 657,631 | ||||||
Noncontrolling Interest |
142,210 | 142,493 | ||||||
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TOTAL EQUITY |
826,297 | 800,124 | ||||||
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TOTAL LIABILITIES AND EQUITY |
$ | 2,626,610 | $ | 2,687,434 | ||||
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The accompanying notes are an integral part of these combined financial statements.
F-43
CONSOL MINING CORPORATION
STATEMENTS OF COMBINED CASH FLOWS
(Dollars in Thousands)
(unaudited)
Six Months Ended
June 30, |
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2017 | 2016 | |||||||
Cash Flows from Operating Activities: |
||||||||
Net Income |
$ | 98,690 | $ | 22,785 | ||||
Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities: |
||||||||
Depreciation, Depletion and Amortization |
78,261 | 77,976 | ||||||
Stock-Based Compensation |
8,765 | 5,364 | ||||||
Gain on Sale of Assets |
(13,536 | ) | (3,904 | ) | ||||
Deferred Income Taxes |
(11,770 | ) | 55,125 | |||||
Unit Based Compensation |
1,706 | 615 | ||||||
Changes in Operating Assets: |
||||||||
Accounts and Notes Receivable |
(4,749 | ) | (7,909 | ) | ||||
Inventories |
(10,125 | ) | 4,238 | |||||
Prepaid Expenses |
5,237 | 9,644 | ||||||
Changes in Other Assets |
10,625 | (17,088 | ) | |||||
Changes in Operating Liabilities: |
||||||||
Accounts Payable |
(16,400 | ) | (18,246 | ) | ||||
Other Operating Liabilities |
(8,728 | ) | 2,476 | |||||
Changes in Other Liabilities |
(34,847 | ) | (37,834 | ) | ||||
Other |
898 | 1,828 | ||||||
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Net Cash Provided by Operating Activities |
104,027 | 95,070 | ||||||
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Cash Flows from Investing Activities: |
||||||||
Capital Expenditures |
(23,229 | ) | (27,206 | ) | ||||
Proceeds from Sales of Assets |
16,985 | 4,585 | ||||||
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Net Cash Used in Investing Activities |
(6,244 | ) | (22,621 | ) | ||||
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Cash Flows from Financing Activities: |
||||||||
Payments on Miscellaneous Borrowings |
(1,990 | ) | (147 | ) | ||||
Net (Payments on) Proceeds from Revolver - CNX Coal Resources LP |
(11,000 | ) | 13,000 | |||||
Distributions to Noncontrolling Interest |
(10,935 | ) | (10,825 | ) | ||||
Net Parent Distributions |
(79,622 | ) | (72,066 | ) | ||||
Tax Cost from Unit-Based Compensation |
(808 | ) | | |||||
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Net Cash Used in Financing Activities |
(104,355 | ) | (70,038 | ) | ||||
Net (Decrease) Increase in Cash and Cash Equivalents |
(6,572 | ) | 2,411 | |||||
Cash and Cash Equivalents at Beginning of Period |
13,311 | 6,639 | ||||||
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Cash and Cash Equivalents at End of Period |
$ | 6,739 | $ | 9,050 | ||||
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For the six months ended June 30, 2017 and 2016, CONSOL Mining Corporation paid interest expense, net of capitalized interest, of $7,966 and $6,496, respectively.
The following are non-cash transactions that impact the investing and financing activities of CONSOL Mining Corporation.
As of June 30, 2017 and 2016, CONSOL Mining Corporation purchased goods and services related to capital projects in the amount of $53 and $1,703, respectively, which are included in accounts payable. As of June 30, 2017 and 2016, there were capital equipment transfers of ($1,808) and $615, respectively, between CONSOL Mining Corporation and CONSOL Energy that are included in Net Parent Distributions.
The accompanying notes are an integral part of these combined financial statements.
F-44
CONSOL MINING CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in Thousands)
NOTE 1THE PROPOSED SEPARATION AND BASIS OF PRESENTATION
The Proposed Separation
In December 2016, CONSOL Energy announced its intent to separate into two independent, publicly-traded companies (the separation): CONSOL Mining Corporation (Predecessor), which will hold CONSOL Energys Pennsylvania Mining Operations (PAMC) and certain related coal assets, including CONSOL Energys ownership interest in CNX Coal Resources LP (CNXC), which owns a 25% stake in PAMC, the CNX Marine Terminal, and Greenfield Reserves (collectively, the Coal Business), and an oil and natural gas exploration and production (E&P) company focused on Appalachian area natural gas and liquids activities, including production, gathering, processing and acquisition of natural gas properties in the Appalachian Basin (the Gas Business) of CONSOL Energy.
The separation will occur by means of a pro rata distribution by CONSOL Energy of all of the common stock of the Predecessor. CONSOL Energy, the existing publicly traded company, will continue to own the Gas Business.
The separation transaction, which is expected to be completed in the second half of 2017, is subject to a number of conditions, including, but not limited to: final approval by CONSOL Energys Board of Directors; receipt of a private letter ruling from the Internal Revenue Service and one or more opinions of its tax advisors, in each case, regarding certain U.S. federal income tax matters relating to the transaction; and the U.S. Securities and Exchange Commission (the SEC) declaring effective the registration statement of which this information statement forms a part.
CONSOL Mining Corporation and CONSOL Energy will enter into an agreement (the Separation Agreement) that will identify the assets to be transferred, the liabilities to be assumed and the contracts to be transferred to each of CONSOL Mining Corporation and CONSOL Energy as part of the separation of CONSOL Energy into two companies, and will provide for when and how these transfers and assumptions will occur. CONSOL Energy may, at any time and for any reason until the proposed transaction is complete, abandon the separation plan or modify its terms.
Basis of Presentation
The unaudited Combined Financial Statements of CONSOL Mining Corporation are prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) and require management to make certain judgments, estimates, and assumptions. These may affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. They also may affect the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates upon subsequent resolution of identified matters. The unaudited Combined Financial Statements of CONSOL Mining Corporation include the accounts of CONSOL Mining Corporation and companies in which CONSOL Mining Corporation has a controlling interest. Intercompany transactions have been eliminated. The equity method of accounting is used for investments in affiliates and other joint ventures over which CONSOL Mining Corporation has significant influence but does not have effective control. Investments in affiliates in which CONSOL Mining Corporation cannot exercise significant influence are accounted for on the cost method.
Cost Allocations
Historically, CONSOL Energy has charged its operating subsidiaries for various corporate costs incurred in the operation of the business. Accordingly, no significant additional cost allocations were necessary for the
F-45
preparation of these unaudited Combined Financial Statements. The unaudited Combined Financial Statements of CONSOL Mining Corporation may not reflect the actual expenses that would have been incurred and may not reflect CONSOL Mining Corporations combined results of operations, financial position and cash flows had it been a standalone company during the periods presented. Actual costs that would have been incurred if CONSOL Mining Corporation had been a standalone company would depend on multiple factors, including organizational structure, capital structure, and strategic decisions made in various areas, including information technology and infrastructure. Transactions between CONSOL Mining Corporation and CONSOL Energy have been included as related party transactions in these unaudited Combined Financial Statements and are considered to be effectively settled for cash at the time the transaction is recorded. The total net effect of the settlement of these transactions is reflected in the unaudited Statements of Combined Cash Flows as a financing activity and in the unaudited Combined Balance Sheets as Parent Net Investment.
All external debt not directly attributable to the Predecessor has been excluded from the unaudited Combined Balance Sheets of CONSOL Mining Corporation.
NOTE 2SIGNIFICANT ACCOUNTING POLICIES:
A summary of the significant accounting policies of CONSOL Mining Corporation is presented below. These, together with the other notes that follow, are an integral part of the unaudited Combined Financial Statements.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as various disclosures. Actual results could differ from those estimates. The most significant estimates included in the preparation of the unaudited Combined Financial Statements are related to other postretirement benefits, coal workers pneumoconiosis, workers compensation, salary retirement benefits, asset retirement obligations, contingencies, and the values of coal reserves.
Cash and Cash Equivalents
The Predecessor participates in CONSOL Energys centralized cash management system. The centralized cash management system entitles the Predecessor to issue checks against the central bank account for on-going operations. The presented checks against the central bank account are reflected as contributions of CONSOL Energys equity investment. Remaining cash includes petty cash on hand and on deposit at banking institutions that are not included in the centralized cash management system.
Trade Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. CONSOL Mining Corporation reserves for specific accounts receivable when it is probable that all or a part of an outstanding balance will not be collected, such as customer bankruptcies. Collectability is determined based on terms of sale, credit status of customers and various other circumstances. CONSOL Mining Corporation regularly reviews collectability and establishes or adjusts the allowance as necessary using the specific identification method. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Reserves for uncollectable amounts were not material in the periods presented. In addition, there were no material financing receivables with a contractual maturity greater than one year at June 30, 2017 and December 31, 2016.
Inventories
Inventories are stated at the lower of cost or net realizable value. The cost of coal inventory is determined by the first-in, first-out (FIFO) method and includes labor, supplies, equipment costs, operating overhead,
F-46
depreciation, depletion and amortization, and other related costs. The cost of supplies inventory is determined by the average cost method and includes operating and maintenance supplies to be used in operation of the Predecessors coal mines.
The Predecessors inventories consisted of the following:
June 30,
2017 |
December 31,
2016 |
|||||||
Coal |
$ | 17,170 | $ | 7,800 | ||||
Supplies |
43,116 | 42,361 | ||||||
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Total Inventories |
$ | 60,286 | $ | 50,161 | ||||
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Property, Plant and Equipment
Property, plant and equipment is recorded at cost upon acquisition. Costs of developing new underground mines and certain underground expansion projects are capitalized and typically include those costs incurred to make the mineral physically accessible. Such costs generally include those to create mine shafts and to drive main entries for ventilation, haulage costs, personnel costs, the construction of airshafts and roof protection.
Expenditures which extend the useful lives of existing plant and equipment are capitalized. Costs of additional mine 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. Planned major maintenance costs which do not extend the useful lives of existing plant and equipment are expensed as incurred. Interest costs applicable to major asset additions are capitalized during the construction period.
Coal exploration costs are expensed as incurred and include costs incurred to ascertain existence, location, extent or quality of ore or minerals before beginning the development stage of the mine.
Airshafts and capitalized mine development associated with a coal reserve are amortized on a units-of-production basis as the coal is produced so that each ton of coal is assigned a portion of the unamortized costs. The Predecessor employs this method to match costs with the related revenues realized in a particular period. Rates are updated when revisions to coal reserve estimates are made. Coal reserve estimates are reviewed when information becomes available that indicates a reserve change is needed, or at a minimum once per year. Any material effect from changes in estimates is disclosed in the period the change occurs. Amortization of development cost begins when the development phase is complete and the production phase begins. At an underground mine, the end of the development phase and the beginning of the production phase takes place when construction of the mine for economic extraction is substantially complete. Coal extracted during the development phase is incidental to the mines production capacity and is not considered to shift the mine into the production phase.
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 recognized in Gain (Loss) on Sale of Assets in the unaudited Combined Statements of Income.
Depreciation of plant and equipment is calculated on the straight-line method over their estimated useful lives or lease terms, generally as follows:
Years | ||
Buildings and improvements |
10 to 45 | |
Machinery and equipment |
3 to 25 | |
Leasehold improvements |
Life of Lease |
F-47
Coal reserves are controlled either through fee ownership or by lease. The duration of the leases vary; however, the lease terms are generally extended automatically through the exhaustion of economically recoverable reserves, as long as active mining continues. Coal interests held by lease provide the same rights as fee ownership for mineral extraction and are legally considered real property interests. The Predecessor also makes advance payments (advanced mining royalties) to lessors under certain lease agreements that are recoupable against future production, and it makes payments that are generally based upon a specified rate per ton or a percentage of gross realization from the sale of the coal.
Advance mining royalties are advance payments made to lessors under terms of mineral lease agreements that are recoupable against future production and are amortized using the units-of-production method. Depletion of leased coal interests is computed using the units-of-production method over proven and probable coal reserves. Advance mining royalties and leased coal interests are evaluated at least once per year for impairment. More frequent tests are required on an interim basis whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Any revisions are accounted for prospectively as changes in accounting estimates.
Costs to obtain coal lands are capitalized based on the cost at acquisition and are amortized using the units-of-production method over all estimated proven and probable reserve tons assigned and accessible to the mine. Proven and probable coal reserves exclude non-recoverable coal reserves and anticipated processing losses. Rates are updated when revisions to coal reserve estimates are made. Coal reserve estimates are reviewed when events and circumstances indicate a reserve change is needed, or at a minimum once a year. Amortization of coal interests begins when the coal reserve is produced. At an underground mine, a ton is considered produced once it reaches the surface area of the mine. Any material effect from changes in estimates is disclosed in the period the change occurs.
Costs for purchased and internally developed software are expensed until it has been determined that the software will result in probable future economic benefits and management has committed to funding the project. Thereafter, all direct costs of materials and services incurred in developing or obtaining software, including certain payroll and benefit costs of employees associated with the project, are capitalized and amortized using the straight-line method over the estimated useful life which does not exceed seven years.
Impairment of Long-lived Assets
The Predecessor impairs long-lived assets 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 is then reduced to its estimated fair value which is usually measured based on an estimate of future discounted cash flows. The Predecessor did not record any impairments during the six months ended June 30, 2017 and 2016.
Postretirement Benefits Other Than Pensions
Postretirement benefit obligations established by the Coal Industry Retiree Health Benefit Act of 1992 (the Coal Act) are treated as a multi-employer plan which requires expense to be recorded for the associated obligations as payments are made. Postretirement benefits other than pensions, except for those established pursuant to the Coal Act, are accounted for in accordance with the Retirement Benefits Compensation and Non-retirement Postemployment Benefits Compensation Topics of the FASB Accounting Standards Codification, which requires employers to accrue the cost of such retirement benefits for the employees active service periods. Such liabilities are determined on an actuarial basis and CONSOL Mining Corporation is primarily self-insured for these benefits. Differences between actual and expected results or changes in the value of obligations are recognized through Other Comprehensive Income.
F-48
Pneumoconiosis Benefits and Workers Compensation
The Predecessor is required by federal and state statutes to provide benefits to certain current and former totally disabled employees or their dependents for awards related to coal workers pneumoconiosis. The Predecessor is also required by various state statutes to provide workers compensation benefits for employees who sustain employment-related physical injuries or some types of occupational disease. Workers compensation benefits include compensation for their disability, medical costs, and on some occasions, the cost of rehabilitation. CONSOL Mining Corporation is primarily self-insured for these benefits. Provisions for estimated benefits are determined on an actuarial basis.
Asset Retirement Costs
Mine closing costs and costs associated with dismantling and removing de-gasification facilities are accrued using the accounting treatment prescribed by the Asset Retirement and Environmental Obligations Topic of the FASB Accounting Standards Codification. This topic requires the fair value of an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The present value of the estimated asset retirement costs is capitalized as part of the carrying amount of the long-lived asset. Generally, the capitalized asset retirement cost is depreciated on a units-of-production basis. Accretion of the asset retirement obligation is recognized over time and generally will escalate over the life of the producing asset, typically as production declines. Accretion is included in Operating and Other Costs on the unaudited Combined Statements of Income. Asset retirement obligations primarily relate to the closure of mines, which includes treatment of water and the reclamation of land upon exhaustion of coal reserves.
Accrued mine closing costs, perpetual care costs, reclamation and costs associated with dismantling and removing de-gasification facilities are regularly reviewed by management and are revised for changes in future estimated costs and regulatory requirements.
Subsidence
Subsidence occurs when there is sinking or shifting of the ground surface due to the removal of underlying coal. Areas affected may include, although are not limited to, streams, property, roads, pipelines and other land and surface structures. Total estimated subsidence claims are recognized in the period when the related coal has been extracted and are included in Operating and Other Costs on the unaudited Combined Statements of Income and Other Accrued Liabilities on the unaudited Combined Balance Sheets. On occasion, the Predecessor prepays the estimated damages prior to undermining the property, in return for a release of liability. Prepayments are included as assets and either recognized as Prepaid Expenses or in Other Assets on the unaudited Combined Balance Sheets if the payment is made less than or greater than one year, respectively, prior to undermining the property.
Retirement Plans
CONSOL Mining Corporation has non-contributory defined benefit retirement plans. Effective December 31, 2015, CONSOL Mining Corporations qualified defined benefit retirement plans have been frozen. The benefits for these plans are based primarily on years of service and employees pay. These plans are accounted for using the guidance outlined in the Compensation - Retirement Benefits Topic of the FASB Accounting Standards Codification. The cost of these retiree benefits are recognized over the employees service periods. CONSOL Mining Corporation uses actuarial methods and assumptions in the valuation of defined benefit obligations and the determination of expense. Differences between actual and expected results or changes in the value of obligations and plan assets are recognized through Other Comprehensive Income.
Stock-Based Compensation
Eligible CONSOL Mining Corporation employees have historically participated in CONSOL Energys equity-based compensation plans. CONSOL Energy recognizes compensation expense for all stock-based compensation
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awards based on the grant date fair value estimated in accordance with the provisions of the Stock Compensation Topic of the FASB Accounting Standards Codification. CONSOL Energy recognizes these compensation costs on a straight-line basis over the requisite service period of the award, which is generally the awards vesting term. The compensation expense recorded by CONSOL Mining Corporation, in all periods presented, includes the expense associated with employees historically attributable to CONSOL Mining Corporation operations, as well as the expense associated with the allocation of stock compensation expense for corporate employees.
Under the CNXC 2015 Long-Term Incentive Plan (the LTIP), the general partner issued long-term equity based awards intended to compensate the recipients thereof based on the performance of CNXCs common units and the recipients continued service during the vesting period, as well as to align CNXCs long-term interests with those of the unitholders. The LTIP limits the number of units that may be delivered pursuant to vested awards to 2,300,000 common units, subject to proportionate adjustment in the event of unit splits and similar events. Common units subject to awards that are canceled, forfeited, withheld to satisfy exercise prices or tax withholding obligations or otherwise terminated without delivery of the common units will be available for delivery pursuant to other awards.
CNXCs general partner has also granted equity-based phantom units that vest over a period of a directors continued service. The phantom units will be paid in common units or an amount of cash equal to the fair market value of a unit based on the vesting date. The awards may accelerate upon a change in control of CNXC. Compensation expense is recognized on a straight-line basis over the requisite service period, which is generally the vesting term.
Income Taxes
The Predecessors operations have historically been included in the income tax filings of CONSOL Energy. The provision for income taxes in the Predecessors unaudited Combined Statements of Income is based on a separate return methodology using the asset and liability approach of accounting for income taxes. Under this approach, the provision for income taxes represents income taxes paid or payable (or received or receivable) for the current year plus the change in deferred taxes during the year calculated as if the Predecessor was a standalone taxpayer filing hypothetical income tax returns where applicable. Any additional accrued tax liability or refund arising as a result of this approach is assumed to be immediately settled with CONSOL Energy as a component of Parent Net Investment. Deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid, and result from differences between the financial and tax bases of CONSOL Mining Corporations assets and liabilities and are adjusted for changes in tax rates and tax laws when enacted. Deferred tax assets are reflected in the unaudited Combined Balance Sheets for net operating losses, credits or other attributes to the extent that such attributes are expected to transfer to CONSOL Mining Corporation upon the separation. Any difference from attributes generated in a hypothetical return on a separate return basis is adjusted as a component of Parent Net Investment.
Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not (greater than 50%) that a tax benefit will not be realized. In evaluating the need for a valuation allowance, management considers all potential sources of taxable income, including income available in carry-back periods, future reversals of taxable temporary differences, projections of taxable income, and income from tax planning strategies, as well as all available positive and negative evidence. Positive evidence includes factors such as a history of profitable operations, projections of future profitability within the carry-forward period, including from tax planning strategies, and CONSOL Mining Corporations experience with similar operations. Existing favorable contracts and the ability to sell products into established markets are additional positive evidence. Negative evidence includes items such as cumulative losses, projections of future losses, or carry-forward periods that are not long enough to allow for the utilization of a deferred tax asset based on existing projections of income. Deferred tax assets for which no valuation allowance is recorded may not be realized upon changes in facts and circumstances, resulting in a future charge to establish a valuation allowance. Existing valuation allowances are re-examined under the same standards of positive and negative evidence. If it is determined that it
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is more likely than not that a deferred tax asset will be realized, the appropriate amount of the valuation allowance, if any, is released. Deferred tax assets and liabilities are also re-measured to reflect changes in underlying tax rates due to law changes and the granting and lapse of tax holidays.
Tax benefits related to uncertain tax positions taken or expected to be taken on a tax return are recorded when such benefits meet a more likely than not threshold. Otherwise, these tax benefits are recorded when a tax position has been effectively settled, which means that the statute of limitation has expired or the appropriate taxing authority has completed their examination even though the statute of limitations remains open. Interest and penalties related to uncertain tax positions are recognized as part of the provision for income taxes and are accrued beginning in the period that such interest and penalties would be applicable under relevant tax law until such time that the related tax benefits are recognized.
Parent Net Investment
Parent Net Investment is primarily comprised of the Predecessors undivided interest in (i) CONSOL Energys initial investment in CONSOL Mining Corporation (and any subsequent adjustments thereto); (ii) the accumulated net earnings; (iii) net transfers to or from CONSOL Energy, including those related to cash management functions performed by CONSOL Energy; (iv) non-cash changes in financing arrangements, including the conversion of certain related party liabilities into Parent Net Investment and stock-based compensation; and (v) corporate cost allocations.
Revenue Recognition
Revenues are recognized when title passes to the customers and the price is fixed and determinable. For domestic coal sales, this generally occurs when coal is loaded at the mine or at offsite storage locations. For export coal sales, this generally occurs when coal is loaded onto marine vessels at terminal locations. Coal contract price per ton are fixed and determinable prior to the passage of coal title. Except for normal quality adjustments and positive electric power price related adjustments, none of the Companys coal sales contracts allow for retroactive adjustments to pricing after title to the coal has passed. These adjustments were not material for any of the periods presented. Revenues for coal sold that relate to production under royalty contracts are recorded on a gross basis.
Freight Revenue and Expense
Shipping and handling costs invoiced to coal customers and paid to third-party carriers are recorded as Freight-Outside Coal revenue and Freight Expense, respectively.
Concentration of Credit Risk and Major Customers
The Predecessor markets its high-Btu bituminous thermal coal primarily to electric utilities in the eastern United States, its core market. The Predecessor derived a significant portion of its revenues from two customers who represented at least 10% of its total coal sales revenues for the six months ended June 30, 2017 and 2016. As of June 30, 2017, the Predecessor had approximately seven sales agreements with these customers that expire at various times between 2017 and 2018.
Contingencies
From time to time, the Predecessor is subject to various lawsuits and claims with respect to such matters as personal injury, wrongful death, damage to property, exposure to hazardous substances, governmental regulations (including environmental remediation), employment and contract disputes, and other claims and actions, arising out of the normal course of business. Liabilities are recorded when it is probable that obligations have been incurred and the amounts can be reasonably estimated. Estimates are developed through consultation
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with legal counsel involved in the defense of these matters and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. Legal fees associated with defending these various lawsuits and claims are expensed when incurred.
Recent Accounting Pronouncements
In May 2017, the FASB issued Update 2017-09 - Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting, which reduces diversity in practice and cost and complexity when applying the guidance in this Topic to a change to the terms or conditions of a share-based payment award. The amendments in this Update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The amendments in the Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, and should be applied prospectively to an award modified on or after the adoption date. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on CONSOL Mining Corporations financial statements.
In March 2017, the FASB issued Update 2017-07 - Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which improves the presentation of net periodic pension cost and net periodic postretirement benefit cost. The amendments in the Update require that an employer report the service cost component in the same line item as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented separately from the service cost component and outside a subtotal of income from operations, if one is presented. Because CONSOL Mining Corporation does not present an income from operations subtotal, that requirement is not applicable. Additionally, the Predecessors service cost component is deemed immaterial, and therefore, the other components of net benefit cost will not be presented separately. For public entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted as of the beginning of a fiscal year for which financial statements have not been issued. The adoption of this guidance is not expected to have an impact on CONSOL Mining Corporations financial statements.
In August 2016, the FASB issued Update 2016-15 - Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The amendments relate to debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, distributions received from equity method investees, and beneficial interests in securitization transactions. The Update also states that, in the absence of specific guidance for cash receipts and payments that have aspects of more than one class of cash flows, an entity should classify each separately identifiable source or use within the cash receipts and payments on the basis of their nature in financing, investing, or operating activities. In situations in which cash receipts or payments cannot be separated by source or use, the appropriate classification should depend on the activity that is likely to be the predominant source or use of cash flows for the item. The amendments in the Update will be applied using a retrospective transition method to each period presented and, for public entities, are effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. Management is currently evaluating the impact this guidance may have on CONSOL Mining Corporations financial statements.
In May 2014, the FASB issued Update 2014-09 - Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Topic 605 - Revenue Recognition and most industry-specific guidance throughout the Industry Topics of the Codification. The objective of the amendments in this Update is to improve financial reporting by creating common revenue recognition guidance for U.S. GAAP and
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International Financial Reporting Standards (IFRS). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and should disclose sufficient information, both qualitative and quantitative, to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The following updates to Topic 606 were made during 2016:
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In March 2016, the FASB issued Update 2016-08 - Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies how an entity determines whether it is a principal or an agent for goods or services promised to a customer as well as the nature of the goods or services promised to their customers. |
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In April 2016, the FASB issued Update 2016-10 - Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, which seeks to address implementation issues in the areas of identifying performance obligations and licensing. |
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In May 2016, the FASB issued Update 2016-12 - Revenue from Contracts with Customers: Narrow Scope Improvements and Practical Expedients, which seeks to address implementation issues in the areas of collectibility, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition. |
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In December 2016, the FASB issued Update 2016-20 - Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which includes amendments related to loan guarantee fees, contract costs, provisions for losses on construction and production-type contracts, scope, disclosures, contract modification, contract asset versus receivable, refund liability and advertising costs. |
The new standards are effective for annual reporting periods beginning after December 15, 2017, with the option to adopt as early as annual reporting periods beginning after December 15, 2016. Management continues to evaluate the impacts that these standards will have on CONSOL Mining Corporations financial statements, specifically as it relates to contracts that contain positive electric power price related adjustments. CONSOL Mining Corporation anticipates using the modified retrospective approach to adoption as it relates to ASU 2014-09.
In February 2016, the FASB issued Update 2016-02 - Leases (Topic 842), which increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Update 2016-02 does retain a distinction between finance leases and operating leases, which is substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous lease guidance. Retaining this distinction allows the recognition, measurement and presentation of expenses and cash flows arising from a lease to not significantly change from previous GAAP. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities, but to recognize lease expense on a straight-line basis over the lease term. For both financing and operating leases, the right-to-use asset and lease liability will be initially measured at the present value of the lease payments in the statement of financial position. The accounting applied by a lessor is largely unchanged from that applied under previous GAAP. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. Management is currently evaluating the impact this guidance may have on CONSOL Mining Corporations financial statements.
Subsequent Events
Events and transactions subsequent to the balance sheet date have been evaluated through September 7, 2017, the date these financial statements were issued, for potential recognition in the financial statements or disclosure in the accompanying footnotes.
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NOTE 3RELATED PARTY TRANSACTIONS:
During the six months ended June 30, 2017 and 2016 and the year ended December 31, 2016, the Predecessors related parties included CONSOL Energy and its subsidiaries.
The unaudited Combined Statements of Income include expense allocations for certain corporate functions historically performed by CONSOL Energy, including allocations of stock-based compensation and general corporate expenses related to legal, treasury, human resources, information technology and other administrative services. Those allocations, which are included in Selling, General and Administrative Costs in the unaudited Combined Statements of Income, were based primarily on specific identification, head counts and coal tons produced. Also, the Predecessor used centralized cash management activities at CONSOL Energy for collections and payments related to normal course of business accounts receivable and payments for goods and services. The balance of any receivable/payable from CONSOL Energy and other affiliates are presented as contributions/distributions in these unaudited combined financial statements.
The Predecessor believes that transactions with related parties, other than certain transactions with CONSOL Energy related to administrative services, were conducted on terms comparable to those with unrelated parties and would not have been materially different had they been calculated on a stand-alone basis. However, such expenses may not be indicative of the actual level of expense that the Predecessor would have incurred if it had operated as an independent, publicly-traded company or of the costs expected to be incurred in the future. It would be impracticable to estimate what the costs related to administrative services provided by CONSOL Energy would have been with an unrelated third party.
In September 2016, CNXC and its wholly owned subsidiary, CNX Thermal Holdings LLC (CNX Thermal), entered into a Contribution Agreement with CONSOL Energy, Consol Pennsylvania Coal Company LLC and Conrhein Coal Company (the Contributing Parties) under which CNX Thermal acquired an additional 5% undivided interest in and to the Pennsylvania Mine Complex, in exchange for (i) cash consideration in the amount of $21,500 and (ii) CNXCs issuance of 3,956,496 Class A Preferred Units representing limited partner interests in CNXC at an issue price of $17.01 per Class A preferred Unit (the Class A Preferred Unit Issue Price), or an aggregate $67,300 in equity consideration. The Class A Preferred Unit Issue Price was calculated as the volume-weighted average trading price of CNXCs common units (the Common Units) over the trailing 15-day trading period ending on September 29, 2016 (or $14.79 per unit), plus a 15% premium.
In connection with the PAMC acquisition, in September 2016, the General Partner and CNXC entered into the First Amended and Restated Omnibus Agreement (the Amended Omnibus Agreement) with CONSOL Energy and certain of its subsidiaries. Under the Amended Omnibus Agreement, CONSOL Energy indemnified CNXC for certain liabilities. The Amended Omnibus Agreement also amended CNXCs obligations to CONSOL Energy with respect to the payment of an annual administrative support fee and reimbursement for the provisions of certain management and operating services provided, in each case to reflect structural changes in how those services are provided to CNXC by CONSOL Energy.
Charges for services from CONSOL Energy include the following:
For the Six Months Ended June 30, | ||||||||
2017 | 2016 | |||||||
Operating and Other Costs |
$ | 1,739 | $ | 2,536 | ||||
Selling, General and Administrative Expenses |
1,454 | 2,305 | ||||||
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Total Services from CONSOL Energy |
$ | 3,193 | $ | 4,841 | ||||
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At June 30, 2017 and December 31, 2016, CNXC had a net payable to CONSOL Energy in the amount of $2,196 and $1,666, respectively. This payable includes reimbursements for business expenses, executive fees, stock-based compensation and other items under the omnibus agreement.
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NOTE 4LONG-TERM DEBT:
June 30,
2017 |
December 31,
2016 |
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Debt: |
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Revolving Credit Facility - CNX Coal Resources LP |
$ | 190,000 | $ | 201,000 | ||||
MEDCO Revenue Bonds in Series due September 2025 at 5.75% |
102,865 | 102,865 | ||||||
Advance Royalty Commitments (7.73% Weighted Average Interest Rate) |
2,678 | 2,678 | ||||||
Less: Unamortized Debt Issuance Costs |
3,826 | 4,343 | ||||||
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$ | 291,717 | $ | 302,200 | |||||
Less: Amounts Due in One Year* |
373 | 373 | ||||||
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Long-Term Debt |
$ | 291,344 | $ | 301,827 | ||||
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* Excludes current portion of Capital Lease Obligations of $3,270 and $3,703 at June 30, 2017 and December 31, 2016, respectively.
NOTE 5PROPERTY, PLANT AND EQUIPMENT:
The Predecessors property, plant and equipment consist of the following:
June 30,
2017 |
December 31,
2016 |
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Plant and Equipment |
$ | 2,696,928 | $ | 2,680,453 | ||||
Airshafts |
384,959 | 381,755 | ||||||
Coal Properties and Surface Lands |
861,141 | 861,048 | ||||||
Mine Development |
344,140 | 344,139 | ||||||
Advance Mining Royalties |
326,772 | 326,000 | ||||||
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Total Property, Plant and Equipment |
4,613,940 | 4,593,395 | ||||||
Less Accumulated Depreciation, Depletion and Amortization |
2,495,546 | 2,413,125 | ||||||
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Total Property, Plant and Equipment, Net |
$ | 2,118,394 | $ | 2,180,270 | ||||
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NOTE 6OTHER ACCRUED LIABILITIES:
June 30,
2017 |
December 31,
2016 |
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Subsidence liability |
$ | 108,838 | $ | 104,437 | ||||
Accrued payroll and benefits |
19,360 | 17,326 | ||||||
Litigation |
12,215 | 12,532 | ||||||
Equipment lease rental |
11,624 | 15,286 | ||||||
Deferred revenue |
8,803 | 10,520 | ||||||
Accrued other taxes |
7,223 | 12,732 | ||||||
Short-term incentive compensation |
2,163 | 6,073 | ||||||
Other |
19,873 | 21,986 | ||||||
Current portion of long-term liabilities: |
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Postretirement benefits other than pensions |
42,220 | 40,611 | ||||||
Asset retirement obligations |
28,675 | 26,259 | ||||||
Workers compensation |
12,809 | 13,596 | ||||||
Pneumoconiosis benefits |
9,590 | 10,763 | ||||||
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Total Other Accrued Liabilities |
$ | 283,393 | $ | 292,121 | ||||
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NOTE 7PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (OPEB):
Components of Net Periodic Benefit (Credit) Cost are as follows:
Pension Benefits | Other Post-Employment Benefits | |||||||||||||||
For the Six Months Ended
June 30, |
For the Six Months Ended
June 30, |
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2017 | 2016 | 2017 | 2016 | |||||||||||||
Service Cost |
$ | 1,518 | $ | 777 | $ | | $ | | ||||||||
Interest Cost |
12,242 | 13,045 | 11,972 | 12,121 | ||||||||||||
Expected Return on Plan Assets |
(21,191 | ) | (23,738 | ) | | | ||||||||||
Amortization of Prior Service Credits |
(120 | ) | (120 | ) | (1,203 | ) | | |||||||||
Recognized Net Actuarial Loss |
3,910 | 3,467 | 11,556 | 9,584 | ||||||||||||
Settlement Loss |
| 13,696 | | | ||||||||||||
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Net Periodic Benefit (Credit) Cost |
$ | (3,641 | ) | $ | 7,127 | $ | 22,325 | $ | 21,705 | |||||||
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According to the Defined Benefit Plans Topic of the FASB Accounting Standards Codification, if the lump sum distributions made during a plan year, which for CONSOL Mining Corporation is January 1 to December 31, exceed the total of the projected service cost and interest cost for the plan year, settlement accounting is required. Lump sum payments exceeded this threshold during the six months ended June 30, 2016. Accordingly, CONSOL Mining Corporation recognized settlement expense of $13,696 for the six months ended June 30, 2016 in Operating and Other Costs in the unaudited Combined Statements of Income. The settlement charges resulted in a remeasurement of the pension plan.
NOTE 8COAL WORKERS PNEUMOCONIOSIS (CWP) AND WORKERS COMPENSATION:
Components of Net Periodic Benefit Cost are as follows:
CWP | Workers Compensation | |||||||||||||||
For the Six Months Ended
June 30, |
For the Six Months Ended
June 30, |
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2017 | 2016 | 2017 | 2016 | |||||||||||||
Service Cost |
$ | 2,259 | $ | 2,244 | $ | 2,867 | $ | 3,733 | ||||||||
Interest Cost |
2,025 | 2,176 | 1,160 | 1,250 | ||||||||||||
Amortization of Actuarial Gain |
(3,816 | ) | (2,571 | ) | (299 | ) | (198 | ) | ||||||||
Administrative Fees |
303 | | 270 | | ||||||||||||
State Administrative Fees and Insurance Bond Premiums |
| | 1,360 | 1,665 | ||||||||||||
Curtailment Gain |
| (1,307 | ) | | | |||||||||||
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Net Periodic Benefit Cost |
$ | 771 | $ | 542 | $ | 5,358 | $ | 6,450 | ||||||||
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NOTE 9COMMITMENTS AND CONTINGENCIES:
The Predecessor is subject to various lawsuits and claims with respect to such matters as personal injury, wrongful death, damage to property, exposure to hazardous substances, governmental regulations including environmental remediation, employment and contract disputes and other claims and actions arising out of the normal course of business. The Predecessor accrues the estimated loss for these lawsuits and claims when the loss is probable and reasonably estimable. The Predecessors current estimated accruals related to these pending claims, individually and in the aggregate, are immaterial to the financial position, results of operations or cash flows of the Predecessor. It is possible that the aggregate loss in the future with respect to these lawsuits and claims could ultimately be material to the Predecessors financial position, results of operations or cash flows;
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however, such amounts cannot be reasonably estimated. The amount claimed against the Predecessor is disclosed below when an amount is expressly stated in the lawsuit or claim, which is not often the case.
Fitzwater Litigation: Three nonunion retired coal miners have sued CONSOL Energy Inc., Fola Coal Company (AMVEST), Consolidation Coal Company and CONSOL of Kentucky Inc. (COK) in West Virginia Federal Court alleging ERISA violations in the termination of retiree health care benefits. The Plaintiffs contend they relied to their detriment on oral statements and promises of lifetime health benefits allegedly made by various members of management during Plaintiffs employment and that they were allegedly denied access to Summary Plan Documents that clearly reserved to the Company the right to modify or terminate the CONSOL Energy Inc. Retiree Health and Welfare Plan. Pursuant to plaintiffs amended complaint filed on April 24, 2017, plaintiffs request that retiree health benefits be reinstated and seek to represent a class of all nonunion retirees who were associated with AMVEST and COK areas of operation. The Predecessor believes it has meritorious defense and intends to vigorously defend this suit.
Casey Litigation: The Company has become aware of (but not served with) a Complaint filed on August 23, 2017, on behalf of two nonunion retired coal miners against Parent, CONSOL Buchanan Mining Co., Inc. and Consolidation Coal Company in West Virginia Federal Court alleging ERISA violations in the termination of retiree health care benefits. Filed by the same lawyers who filed the Fitzwater litigation, and raising nearly identical claims, the Plaintiffs contend they relied to their detriment on oral promises of lifetime health benefits allegedly made by various members of management during Plaintiffs employment and that they were not provided with copies of Summary Plan Documents clearly reserving to the Company the right to modify or terminate the Retiree Health and Welfare Plan. Plaintiffs request that retiree health benefits be reinstated for them and their dependents and seek to represent a class of all nonunion retirees of any Parent subsidiary that operated or employed individuals in McDowell or Mercer Counties, West Virginia, or Buchanan or Tazewell Counties, Virginia whose retiree welfare benefits were terminated.
Other Matters: The Predecessor is a defendant in certain other legal proceedings arising out of the conduct of its business. In the opinion of management, based upon an investigation of these matters and discussion with legal counsel, the ultimate outcome of such other legal proceedings and compliance reviews, individually and in the aggregate, is not expected to have a material adverse effect on the Predecessors financial position, results of operations or liquidity.
Employee-related financial guarantees have primarily been provided to support the United Mine Workers of Americas 1992 Benefit Plan and various state workers compensation self-insurance programs. Environmental financial guarantees have primarily been provided to support various performance bonds related to reclamation and other environmental issues. Coal and other financial guarantees have primarily been provided to support various sales contracts. Other guarantees have been extended to support insurance policies, legal matters, full and timely payments of mining equipment leases, and various other items necessary in the normal course of business.
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At June 30, 2017, the Predecessor has provided the following financial guarantees, unconditional purchase obligations and letters of credit to certain third parties, as described by major category in the following table. These amounts represent the maximum potential of total future payments that the Predecessor could be required to make under these instruments. These amounts have not been reduced for potential recoveries under recourse or collateralization provisions. Generally, recoveries under reclamation bonds would be limited to the extent of the work performed at the time of the default. No amounts related to these financial guarantees and letters of credit are recorded as liabilities in the financial statements. CONSOL Mining Corporation management believes that these guarantees will expire without being funded, and therefore the commitments will not have a material adverse effect on financial condition.
Amount of Commitment Expiration Per Period | ||||||||||||||||||||
Total
Amounts Committed |
Less Than
1 Year |
1-3 Years | 3-5 Years |
Beyond
5 Years |
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Letters of Credit: |
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Employee-Related |
$ | 83,836 | $ | 39,934 | $ | 43,902 | $ | | $ | | ||||||||||
Environmental |
998 | 998 | | | | |||||||||||||||
Other |
9,847 | 5,555 | 4,292 | | | |||||||||||||||
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Total Letters of Credit |
94,681 | 46,487 | 48,194 | | | |||||||||||||||
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Surety Bonds: |
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Employee-Related |
112,460 | 112,460 | | | | |||||||||||||||
Environmental |
506,200 | 500,502 | 5,698 | | | |||||||||||||||
Other |
11,840 | 11,357 | 482 | 1 | | |||||||||||||||
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Total Surety Bonds |
630,500 | 624,319 | 6,180 | 1 | | |||||||||||||||
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Guarantees: |
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Other |
38,373 | 10,227 | 16,426 | 10,840 | 880 | |||||||||||||||
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Total Guarantees |
38,373 | 10,227 | 16,426 | 10,840 | 880 | |||||||||||||||
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Total Commitments |
$ | 763,554 | $ | 681,033 | $ | 70,800 | $ | 10,841 | $ | 880 | ||||||||||
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The Predecessor regularly evaluates the likelihood of default for all guarantees based on an expected loss analysis and records the fair value, if any, of its guarantees as an obligation in the combined financial statements.
NOTE 10SEGMENT INFORMATION:
CONSOL Mining Corporation consists of one principal business division: Pennsylvania Mining Complex (PAMC). The principal activities of the PAMC division are mining, preparation and marketing of thermal coal, sold primarily to power generators. It also includes selling, general and administrative activities, as well as various other activities assigned to the PAMC division.
CONSOL Mining Corporations Other division includes expenses from various corporate and diversified business activities that are not allocated to the PAMC division. The diversified business activities include coal terminal operations, closed and idle mine activities, selling, general and administrative activities, as well as various other non-operated activities, none of which are individually significant to the Predecessor.
F-58
Industry segment results for the six months ended June 30, 2017 are:
PAMC | Other |
Adjustments
and Eliminations |
Combined | |||||||||||||
SalesOutside |
$ | 620,155 | $ | | $ | | $ | 620,155 | ||||||||
Other Outside Sales |
| 27,742 | | 27,742 | ||||||||||||
FreightOutside |
30,045 | | | 30,045 | ||||||||||||
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Total Sales and Freight |
$ | 650,200 | $ | 27,742 | $ | | $ | 677,942 | ||||||||
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Earnings Before Income Tax |
$ | 110,658 | $ | 7,049 | $ | | $ | 117,707 | ||||||||
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Segment Assets |
$ | 1,938,811 | $ | 687,799 | $ | | $ | 2,626,610 | ||||||||
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Depreciation, Depletion and Amortization |
$ | 83,703 | $ | (5,442 | ) | $ | | $ | 78,261 | |||||||
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Capital Expenditures |
$ | 21,888 | $ | 1,341 | $ | | $ | 23,229 | ||||||||
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Industry segment results for the six months ended June 30, 2016 are:
PAMC | Other |
Adjustments
and Eliminations |
Combined | |||||||||||||
SalesOutside |
$ | 476,726 | $ | | $ | | $ | 476,726 | ||||||||
Other Outside Sales |
| 15,767 | | 15,767 | ||||||||||||
FreightOutside |
24,557 | | | 24,557 | ||||||||||||
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Total Sales and Freight |
$ | 501,283 | $ | 15,767 | $ | | $ | 517,050 | ||||||||
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Earnings (Loss) Before Income Tax |
$ | 45,847 | $ | (23,255 | ) | $ | | $ | 22,592 | |||||||
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Segment Assets |
$ | 2,038,366 | $ | 719,804 | $ | | $ | 2,758,170 | ||||||||
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Depreciation, Depletion and Amortization |
$ | 82,964 | $ | (4,988 | ) | $ | | $ | 77,976 | |||||||
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Capital Expenditures |
$ | 26,003 | $ | 1,203 | $ | | $ | 27,206 | ||||||||
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Reconciliation of Segment Information to Combined Amounts:
Earnings Before Income Tax:
For the Six Months Ended
June 30, |
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2017 | 2016 | |||||||
Segment Income Before Income Taxes for reportable business segments |
$ | 125,673 | $ | 29,088 | ||||
Less: Interest expense |
7,966 | 6,496 | ||||||
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Earnings Before Income Tax |
$ | 117,707 | $ | 22,592 | ||||
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F-59
NOTE 11MISCELLANEOUS OTHER INCOME:
For the Six Months
Ended June 30, |
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2017 | 2016 | |||||||
Royalty Income - Non-Operated Coal |
$ | 12,193 | $ | 4,433 | ||||
Rental Income |
11,133 | 17,623 | ||||||
Purchased Coal Sales |
6,098 | 604 | ||||||
Interest Income |
1,047 | 423 | ||||||
Right of Way Issuance |
994 | 5,581 | ||||||
Contract Buyout |
| 6,288 | ||||||
Other |
1,329 | 1,181 | ||||||
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Miscellaneous Other Income |
$ | 32,794 | $ | 36,133 | ||||
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NOTE 12INCOME TAXES:
The effective tax rate for the six months ended June 30, 2017 and 2016 was 17.6% and (1.0%), respectively. The fluctuation in the effective tax rates is primarily attributable to the impact of the percentage of depletion on the respective periods pre-tax income.
The effective rate for the six months ended June 30, 2017 and 2016 differs from the U.S. federal statutory rate of 35% primarily due to the income tax benefit for excess percentage depletion.
F-60