PROSPECTUS SUPPLEMENT
(To prospectus dated April 19, 2001)
Filed pursuant to Rule 424(b)(2);
Registration Statement No. 333-58738
8,500,000 Shares
Arch Coal, Inc.
Common Stock
---------------
We are selling 8,500,000 shares of common stock.
Our common stock trades on the New York Stock Exchange under the symbol
"ACI". On May 2, 2001, the last sale price of the shares as reported on the
New York Stock Exchange was $33.00 per share.
Investing in our common stock involves risks that are described in the
"Risk Factors" section beginning on page 3 of the accompanying prospectus, as
supplemented in the "Supplemental Risk Factors" section beginning on page S-3
of this prospectus supplement.
---------------
Per Share Total
--------- -----
Public offering price............................... $33.00 $280,500,000
Underwriting discount............................... $1.62 $13,770,000
Proceeds, before expenses, to Arch Coal............. $31.38 $266,730,000
The underwriters may also purchase up to an additional 1,275,000 shares
from us at the public offering price, less the underwriting discount, within
30 days from the date of this prospectus supplement to cover over-allotments.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus supplement or the accompanying prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
The shares will be ready for delivery on or about May 8, 2001.
---------------
Merrill Lynch & Co.
Bear, Stearns & Co. Inc.
JPMorgan
Lehman Brothers
Morgan Stanley Dean Witter
---------------
The date of this prospectus supplement is May 2, 2001.
TABLE OF CONTENTS
Prospectus Supplement
Page
----
Supplemental Risk Factors.................................................. S-3
Use of Proceeds............................................................ S-5
Underwriting............................................................... S-6
Legal Matters.............................................................. S-8
Prospectus
Summary.................................................................... 1
Risk Factors............................................................... 3
Forward Looking Statements................................................. 9
Ratios of Earnings to Fixed Charges........................................ 9
Use of Proceeds............................................................ 9
Description of Debt Securities............................................. 10
Description of Preferred Stock............................................. 19
Description of Common Stock................................................ 21
Description of Depositary Shares........................................... 21
Description of Securities Warrants......................................... 23
Description of Capital Securities.......................................... 24
Selling Stockholders....................................................... 27
Plan of Distribution....................................................... 27
Legal Matters.............................................................. 28
Experts.................................................................... 28
---------------
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus supplement, the accompanying
prospectus and the documents incorporated by reference is accurate only as of
their respective dates. Our business, financial condition, results of
operations and prospects may have changed since those dates.
S-2
SUPPLEMENTAL RISK FACTORS
Any investment in our common stock will be subject to risks, including
risks inherent in our business. The value of your investment could decline and
could result in a loss. You should carefully consider the following factors as
well as factors described in the "Risk Factors" section of the accompanying
prospectus and the other information contained and incorporated by reference in
this prospectus supplement and accompanying prospectus before deciding to
invest in our common stock.
We have a substantial amount of debt relative to our equity capitalization,
which limits our flexibility and imposes restrictions on us, and a downturn in
economic or industry conditions may materially affect our ability to meet our
future debt service and liquidity needs.
As of March 31, 2001, we had outstanding consolidated indebtedness of
$1.052 billion, representing approximately 77.5% of our capital employed. As a
result, we will have significant debt service obligations, and the terms of our
credit agreements limit our flexibility and impose a number of restrictions
upon us. We also have significant lease and royalty obligations. Debt service
consists of payments of interest and principal. Before giving effect to the
application of the net proceeds of this offering to the reduction of our
indebtedness, we are required to make aggregate principal payments on our
indebtedness of $32.3 million for the remainder of 2001, $58.5 million in 2002,
$957.2 million in 2003, $0.6 million in each of 2004 and 2005 and $2.9 million,
in the aggregate, thereafter. Our ability to satisfy our debt service and lease
and royalty obligations, and our ability to effect any refinancing of our
indebtedness, will depend upon our future operating performance, which will be
affected by prevailing economic conditions in the markets that we serve and
financial, business and other factors, many of which are beyond our control. We
may be unable to generate sufficient cash flow from operations and future
borrowings or other financing may be unavailable in an amount sufficient to
enable us to fund our debt service, lease and royalty payment obligations or
our other liquidity needs.
Our relative amount of debt could have material consequences to our
business, including, but not limited to:
. making it more difficult for us to satisfy our debt covenants and debt
service, lease payment and other obligations;
. making it more difficult for us to pay quarterly dividends as we have in
the past;
. increasing our vulnerability to general adverse economic and industry
conditions;
. limiting our ability to obtain additional financing to fund future
acquisitions, working capital, capital expenditures or other general
corporate requirements;
. reducing the availability of cash flow from operations to fund
acquisitions, working capital, capital expenditures or other general
corporate purposes;
. limiting our flexibility in planning for, or reacting to, changes in our
business and the industry in which we compete; and
. placing us at a competitive disadvantage when compared to competitors
with less relative amounts of debt.
A significant portion of our debt bears interest at variable rates that
are linked to short-term interest rates. If interest rates rise, our costs
relative to those obligations would also rise.
Pending litigation could result in the permanent closure of all or a portion of
our mining operations in West Virginia, which would cause our profitability to
materially decline and could cause our stock price to decline.
A federal district court injunction that prohibits the West Virginia
Division of Environmental Protection from issuing permits for our Dal-Tex mine
to use valley fill mining techniques resulted in the
S-3
shutdown of this mine in July 1999. A subsequent order prohibits the
construction or expansion of valley fills
in West Virginia. Valley fill or mountaintop mining techniques used in Central
Appalachia involve the creation of large, engineered works into which excess
earth and rock extracted during surface mining are placed. The plaintiffs in
the litigation alleged, among other things, that the issuance of mining permits
without the preparation of an environmental impact statement, or EIS, that
would evaluate the environmental effects of mountaintop mining and the
construction of valley fills violated environmental laws. We appealed the order
specific to our Dal-Tex operations, and we, the West Virginia Division of
Environmental Protection and others appealed the broader order concerning
valley fills. On April 24, 2001, the United States Court of Appeals for the
Fourth Circuit vacated the judgment of the district court with respect to the
injunction that prohibited the West Virginia Division of Environmental
Protection from issuing permits to use valley fill mining techniques. The
decision of the Fourth Circuit could be subject to a possible appeal to the
United States Supreme Court, and does not preclude the plaintiffs from pursuing
remedies in state court. Because it is not financially viable for coal
producers to operate some mining properties without valley fills, if the
decision of the Fourth Circuit is overturned or state court remedies similar to
those obtained in the federal district court are available to the plaintiffs,
we and other coal producers in West Virginia may be forced to close all or a
portion of our mining operations in West Virginia, to the extent those
operations are dependent on the use of valley fills. If we permanently close
these operations in West Virginia, our profitability will decline because we
will record various charges in connection with the closures. We will also
experience a loss of revenues from these operations. For the year ended
December 31, 1998, we received approximately $100.8 million in revenues from
our Dal-Tex mining operations, which constituted 6.7% of our total 1998
revenues. A settlement agreement entered into between the parties will require
the preparation of an EIS prior to the issuance of permits for the construction
of valley fills. The preparation of these statements is time-consuming and is
sometimes the subject of litigation. As a result, even though the district
court decision has been overturned, we do not expect to reopen our Dal-Tex
mining operation for at least several months, subject to then-existing market
conditions.
Our profitability may be adversely impacted by unanticipated mine operating
conditions and other factors that are not within our control, which could cause
our quarterly or annual results to decrease and our stock price to decline.
Our mining operations are inherently subject to changing conditions that
can affect levels of production and production costs at particular mines for
varying lengths of time and can result in decreases in our profitability.
Weather conditions, equipment replacement or repair, fires, variations in
thickness of the layer, or seam, of coal, amounts of rock and other natural
materials and other geological conditions, have had, and can be expected in the
future to have, a significant impact on our operating results. Our West Elk
mine in Colorado, which accounted for 7.0% of our total 1999 revenues, has
recently encountered higher-than-expected methane levels following the
relocation of its longwall mining system to a new reserve area in late February
2001. The higher methane levels have resulted in intermittent closures of all
or part of the mine and have resulted in significantly lower coal production at
West Elk than we would normally expect. If we are unable to adequately control
methane levels at the mine, we may be forced to operate the mine at lower
levels of production than planned, or idle the mine. In such an event, our
revenues and profitability would be adversely affected. In addition, a
prolonged disruption of production at any of our other principal mines,
particularly our Mingo Logan operation in West Virginia, would result in a
decrease in our revenues and profitability, which could be material. Other
factors affecting the production and sale of our coal that could result in
decreases in our profitability include:
. expiration or termination of, or sales price redeterminations or
suspension of deliveries under, coal supply agreements;
. disruption or increases in the cost of transportation services;
. changes in laws or regulations, including permitting requirements;
. litigation;
S-4
. the timing and amount of insurance recoveries;
. work stoppages or other labor difficulties;
. mine worker vacation schedules and related maintenance activities; and
. changes in coal market and general economic conditions.
Any adverse impact on our operating results could cause our stock price
to decline substantially, particularly if the results are below research
analyst or investor expectations.
USE OF PROCEEDS
We estimate that the net proceeds to us from this offering will be
approximately $266.3 million, or approximately $306.3 million if the
underwriters exercise their over-allotment option in full to purchase 1,275,000
additional shares, based on the public offering price of $33.00 per share, and
after deducting the underwriting discount and estimated offering expenses
payable by us.
We currently intend to use a portion of the net proceeds of this offering
to repay in full outstanding indebtedness under our amortizing term loan and
the remainder to reduce indebtedness under our revolving credit facility. As of
March 31, 2001, outstanding indebtedness under our revolving credit facility
and amortizing term loan was $281.7 million and $88.0 million, respectively.
The indebtedness to be reduced bears interest at variable rates based on a PNC
Bank rate or LIBOR. The interest rates in effect as of March 31, 2001 were
6.71% and 7.90% on outstanding indebtedness under the revolving credit facility
and amortizing term loan, respectively. The indebtedness under the revolving
credit facility matures on May 31, 2003.
S-5
UNDERWRITING
We intend to offer the shares through the underwriters. Merrill Lynch,
Pierce, Fenner & Smith Incorporated is acting as representative of the
underwriters named below. Subject to the terms and conditions described in an
underwriting agreement between us and the underwriters, we have agreed to sell
to the underwriters, and the underwriters severally have agreed to purchase
from us, the number of shares listed opposite their names below.
Number
Underwriter of Shares
----------- ---------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............................................... 5,100,000
Bear, Stearns & Co. Inc......................................... 850,000
J.P. Morgan Securities Inc...................................... 850,000
Lehman Brothers Inc............................................. 850,000
Morgan Stanley & Co. Incorporated............................... 850,000
---------
Total...................................................... 8,500,000
=========
The underwriters have agreed to purchase all of the shares sold under the
underwriting agreement if any of these shares are purchased. If an underwriter
defaults, the underwriting agreement provides that the purchase commitments of
the nondefaulting underwriters may be increased or the underwriting agreement
may be terminated.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments
the underwriters may be required to make in respect of those liabilities.
The underwriters are offering the shares, subject to prior sale, when, as
and if issued to and accepted by them, subject to approval of legal matters by
their counsel, including the validity of the shares, and other conditions
contained in the underwriting agreement, such as the receipt by the
underwriters of officers' certificates and legal opinions. The underwriters
reserve the right to withdraw, cancel or modify offers to the public and to
reject orders in whole or in part.
Commissions and Discounts
The representative has advised us that the underwriters propose initially
to offer the shares to the public at the public offering price on the cover
page of this prospectus supplement and to dealers at that price less a
concession not in excess of $1.00 per share. The underwriters may allow, and
the dealers may reallow, a discount not in excess of $.10 per share to other
dealers. After the public offering, the public offering price, concession and
discount may be changed.
The following table shows the public offering price, underwriting
discount and proceeds before expenses to us. The information assumes either no
exercise or full exercise by the underwriters of their over-allotment option.
Per
Share Without Option With Option
----- -------------- -----------
Public offering price... $33.00 $280,500,000 $322,575,000
Underwriting discount... $1.62 $13,770,000 $15,835,500
Proceeds, before
expenses, to Arch
Coal................... $31.38 $266,730,000 $306,739,500
The expenses of the offering, not including the underwriting discount,
are estimated at $400,000 and are payable by us.
S-6
Over-allotment Option
We have granted an option to the underwriters to purchase up to 1,275,000
additional shares at the public offering price less the underwriting discount.
The underwriters may exercise this option for 30 days from the date of this
prospectus supplement solely to cover any over-allotments. If the underwriters
exercise this option, each will be obligated, subject to conditions contained
in the underwriting agreement, to purchase a number of additional shares
proportionate to that underwriter's initial amount reflected in the above
table.
No Sales of Similar Securities
We, our directors and certain of our executive officers have agreed, with
exceptions, not to sell or transfer any common stock for 90 days after the date
of this prospectus supplement without first obtaining the written consent of
Merrill Lynch. Specifically, we and these other individuals have agreed not to
directly or indirectly:
. offer, pledge, sell or contract to sell any common stock;
. sell any option or contract to purchase any common stock;
. purchase any option or contract to sell any common stock;
. grant any option, right or warrant for the sale of any common stock;
. lend or otherwise dispose of or transfer any common stock;
. request or demand that we file a registration statement related to
the common stock; or
. enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of any common stock
whether any such swap or transaction is to be settled by delivery of
shares or other securities, in cash or otherwise.
This lockup provision applies to common stock and to securities
convertible into or exchangeable or exercisable for or repayable with common
stock. It also applies to common stock owned now or acquired later by the
person executing the agreement or for which the person executing the agreement
later acquires the power of disposition. Merrill Lynch, in its sole discretion,
may release any of the securities subject to lockup at any time prior to the
expiration of the lockup period without notice. Merrill Lynch has no present
intent or arrangement to release any of the securities subject to this lockup
agreement.
We are not restricted by this lockup provision from the sale or
distribution of our common stock under our stock-based compensation plans and
our dividend reinvestment plan.
We are party to a registration rights agreement with a number of our
current and former stockholders that contains a lockup provision applicable to
these stockholders when we sell shares of common stock. We have waived that
provision with respect to these stockholders in connection with this offering.
New York Stock Exchange Listing
The shares are listed on the New York Stock Exchange and traded under the
symbol "ACI."
Price Stabilization and Short Positions
Until the distribution of the shares is completed, Securities and
Exchange Commission rules may limit underwriters and selling group members from
bidding for and purchasing our common stock. However, the representative may
engage in transactions that stabilize the price of the common stock, such as
bids or purchases to peg, fix or maintain that price.
S-7
In connection with the offering, the underwriters may make short sales of
the common stock. Short sales involve the sale by the underwriters at the time
of the offering of a greater number of shares than they are required to
purchase in the offering. Covered short sales are sales made in an amount not
greater than the over-allotment option. The underwriters may close out any
covered short position by either exercising the over-allotment option or
purchasing shares in the open market. In determining the source of shares to
close out the covered short position, the underwriters will consider, among
other things, the price of shares available for purchase in the open market as
compared to the public offering price at which they may purchase the shares
through the over-allotment option. Naked short sales are sales in excess of the
over-allotment option. The underwriters must close out any naked short position
by purchasing shares in the open market. A naked short position is more likely
to be created if the underwriters are concerned that there may be downward
pressure on the price of the shares in the open market after pricing that could
adversely affect investors who purchase in the offering. Purchases of the
common stock to stabilize its price or to reduce a short position may cause the
price of the common stock to be higher than it might be in the absence of such
purchases.
Neither we nor the underwriters make any representation or prediction as
to the direction or magnitude of any effect that the transactions described
above may have on the price of the common stock. In addition, neither we nor
the underwriters make any representation that the underwriters will engage in
these transactions or that these transactions, once commenced, will not be
discontinued without notice.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for us by Robert G. Jones, our Vice President--Law, General Counsel and
Secretary. Certain legal matters with respect to the offering will be passed
upon for us by Kirkpatrick & Lockhart LLP, Pittsburgh, Pennsylvania. The
underwriters have been represented by Cravath, Swaine & Moore, New York, New
York.
S-8
PROSPECTUS
$750,000,000
Arch Coal, Inc.
Debt Securities
Preferred Stock
Depositary Shares
Common Stock
Warrants
---------------
We will provide specific terms of these securities in supplements to
this prospectus. You should read this prospectus and any supplement carefully
before you invest.
See "Risk Factors" and other information included or incorporated by
reference in this prospectus and any prospectus supplement for a discussion of
factors you should carefully consider before deciding to invest in our
securities.
We may use this prospectus to offer up to $750,000,000 of securities.
Arch Coal common stock is traded on the New York Stock Exchange under
the symbol "ACI".
This prospectus may not be used to consummate sales of securities unless
accompanied by a prospectus supplement.
---------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
---------------
The date of this prospectus is April 19, 2001.
SUMMARY
Arch Coal, Inc.
We are one of the largest coal producers in the United States. We mine,
process and market compliance and low-sulfur coal from mines located in both
the eastern and western United States, enabling us to ship coal cost-
effectively to most of the major domestic coal-fired electric generation
facilities. As of December 31, 2000, we had 28 operating mines and controlled
approximately 3.37 billion tons of proven and probable coal reserves, of which
approximately 1.90 billion tons were assigned reserves and 1.47 billion tons
were unassigned reserves. We sell substantially all of our coal to producers of
electric power.
Our principal executive office is located at CityPlace One, Suite 300,
St. Louis, Missouri 63141, and our telephone number is (314) 994-2700.
About This Prospectus
This prospectus is part of a registration statement (No. 333-58738) that
we filed with the SEC utilizing a "shelf" registration process. Under this
shelf process, we may offer from time to time up to $750 million of any of the
securities described in this prospectus. In addition, under this shelf process,
one or more selling stockholders may sell our common stock in one or more
offerings, which would reduce the aggregate dollar amount of securities that we
may offer. This prospectus provides you with a general description of the
securities we or such selling stockholders may offer. Each time we offer
securities, we will provide you with a prospectus supplement that will describe
the specific amounts, prices and terms of the securities being offered. The
prospectus supplement may also add, update or change information contained in
this prospectus.
We may use this prospectus to offer the following securities:
. Debt securities;
. Preferred stock;
. Depositary shares;
. Common stock; and
. Warrants.
To understand the terms of our securities, you should carefully read this
document with the attached prospectus supplement which together give the
specific terms of the securities we are offering. You should also read the
documents we have referred to you in "Where You Can Find More Information About
Arch Coal" below for information about our company, including our financial
statements.
Where You Can Find More Information About Arch Coal
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings are also available
to the public at the SEC's web site at http://www.sec.gov.
The SEC allows us to "incorporate by reference" into this prospectus the
information we file with it, which means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be a part of this prospectus, and
later information filed with the SEC will update and supersede this
information. We incorporate by reference the documents listed
1
below and any future filings made with the SEC under Section 13(a), 13(c), 14,
or 15(d) of the Securities Exchange Act of 1934 until we sell all of the
securities:
(a) Annual Report on Form 10-K for the year ended December 31,
2000;
(b) Current Report on Form 8-K dated March 28, 2001;
(c) The description of our common stock, par value $.01 per share,
set forth in the registration statement on Form 8-B dated June 17, 1997;
and
(d) The description of our preferred stock purchase rights set
forth in the registration statement on Form 8-A dated March 9, 2000.
You may request a copy of these filings, at no cost, by writing to or
telephoning us at the following address:
External Affairs
Arch Coal, Inc.
City Place One, Suite 300
St. Louis, MO 63141
telephone: (314) 994-2700
facsimile: (314) 994-2878
You should rely only on the information incorporated by reference or
provided in this prospectus or the prospectus supplement. We have authorized no
one to provide you with different information. We are not making an offer of
these securities in any state where the offer is not permitted. You should not
assume that the information in this prospectus or the prospectus supplement is
accurate as of any date other than the date on the front of the document.
2
RISK FACTORS
Investing in our securities will be subject to risks, including risks
inherent in our business. The value of your investment may increase or decline
and could result in a loss. You should carefully consider the following factors
as well as other information contained and incorporated by reference in this
prospectus, together with any added, updated or changed information included in
the prospectus supplement, before deciding to invest in our securities.
We have a substantial amount of debt relative to our equity capitalization,
which limits our flexibility and imposes restrictions on us, and a downturn in
economic or industry conditions may materially affect our ability to meet our
future debt service and liquidity needs.
We will have significant debt service obligations, and the terms of our
credit agreements limit our flexibility and impose a number of restrictions
upon us. We have significant lease and royalty obligations. We are required to
make aggregate principal payments on our indebtedness of $33.6 million in 2001,
$60.5 million in 2002, $1.1 billion in 2003, $0.6 million in each of 2004 and
2005 and $2.9 million, in the aggregate, thereafter. Our ability to satisfy our
debt service and lease and royalty obligations, and our ability to effect any
refinancing of our indebtedness, will depend upon our future operating
performance, which will be affected by prevailing economic conditions in the
markets that we serve and financial, business and other factors, many of which
are beyond our control. We may be unable to generate sufficient cash flow from
operations and future borrowings or other financing may be unavailable in an
amount sufficient to enable us to fund our debt service, lease and royalty
payment obligations or our other liquidity needs.
Our relative amount of debt and the terms of our credit agreements could
have material consequences to our business, including, but not limited to:
. making it more difficult for us to satisfy our debt covenants and
debt service, lease payment and other obligations;
. making it more difficult for us to pay quarterly dividends as we have
in the past;
. increasing our vulnerability to general adverse economic and industry
conditions;
. limiting our ability to obtain additional financing to fund future
acquisitions, working capital, capital expenditures or other general
corporate requirements;
. reducing the availability of cash flow from operations to fund
acquisitions, working capital, capital expenditures or other general
corporate purposes;
. limiting our flexibility in planning for, or reacting to, changes in
our business and the industry in which we compete; and
. placing us at a competitive disadvantage when compared to competitors
with less relative amounts of debt.
A significant portion of our debt bears interest at variable rates that
are linked to short-term interest rates. If interest rates rise, our costs
relative to those obligations would also rise.
We have experienced operating and net losses, which may continue or reoccur in
the future.
Because the coal mining industry is subject to significant regulatory
oversight, and due to the continuing possibility of adverse pricing trends or
other industry trends beyond our control, we may suffer losses in the future if
legal and regulatory rulings, mine idlings and closures, adverse pricing trends
or other factors continue to affect our ability to mine and sell coal
profitably.
3
We may be unable to comply with restrictions imposed by our credit facilities
and other debt agreements, which could result in a default under these
agreements, enabling lenders to declare amounts borrowed due and payable or
otherwise result in unanticipated costs.
The agreements governing our outstanding debt impose a number of
restrictions on us. For example, the terms of our credit facilities and leases
contain financial and other convenants that create limitations on our ability
to, among other things, effect acquisitions or dispositions and borrow
additional funds, and require us to, among other things, maintain various
financial ratios and comply with various other financial covenants. Our ability
to comply with these restrictions may be affected by events beyond our control
and, as a result, we may be unable to comply with these restrictions. A failure
to comply with these restrictions could result in an event of default under
these agreements. In the event of a default, our lenders could terminate their
commitments to us and declare all amounts borrowed, together with accrued
interest and fees, immediately due and payable. If this were to occur, we might
not be able to pay these amounts, or we might be forced to seek an amendment to
our debt agreements which could make the terms of these agreements more onerous
for us.
An adverse decision in pending litigation could result in the permanent closure
of all or a portion of our mining operations in West Virginia, which would
cause our profitability to materially decline and could cause our stock price
to decline.
As a result of litigation, a federal district court injunction
prohibiting the West Virginia Division of Environmental Protection from issuing
permits for our Dal-Tex mine to use valley fill mining techniques resulted in
the shutdown of this mine in July 1999. A subsequent order prohibits the
construction or expansion of a valley fills in West Virginia. Valley fill or
mountaintop mining techniques used in Central Appalachia involve the creation
of large, engineered works into which excess earth and rock extracted during
surface mining are placed. The plaintiffs in the litigation alleged, among
other things, that the issuance of mining permits without the preparation of an
environmental impact statement, or EIS, that would evaluate the environmental
effects of mountaintop mining and the construction of valley fills violated
environmental laws. We have appealed the order specific to our Dal-Tex
operations, and we, the West Virginia Division of Environmental Protection and
others have appealed the broader order concerning valley fills. Because it is
not financially viable for coal producers to operate some mining properties
without valley fills, if the appeals court agrees with the district court, we
and other coal producers in West Virginia may be forced to close all or a
portion of our mining operations in West Virginia, to the extent that those
operations are dependent on the use of valley fills. If we permanently close
these operations in West Virginia, our profitability will decline because we
will record various charges in connection with the closures. We will also
experience a loss of revenue from these operations. If the district court
decision is overturned, then a settlement agreement entered into between the
parties will require the preparation of an EIS prior to the issuance of permits
for the construction of valley fills. The preparation of these statements is
time-consuming and is sometimes the subject of litigation. As a result, even if
the district court decision is overturned, we do not expect to re-open our Dal-
Tex mining operation for several months at the earliest, subject to then-
existing market conditions.
New environmental regulations governing coal-fired electric generating plants
could reduce the demand for coal as a fuel source and affect the volume of our
sales.
Several new environmental regulations require a reduction in nitrogen
oxide emissions generated by coal-fired electric generating plants.
Substantially all of our revenues from sales of coal in the year ended December
31, 2000 were from sales to generators operating these types of plants.
Enforcement actions against a number of these generators, which include some of
our customers, and proposed legislation ultimately may require additional
reductions in nitrogen oxide emissions. The Environmental Protection Agency is
also considering regulations that would require reductions in mercury emissions
from coal-fired electric generating plants. To comply with these regulations
and enforcement actions, these generators may choose to switch to other fuels
that generate less of these emissions, such as natural gas or oil.
4
Because our industry is highly regulated, our ability to conduct mining
operations is restricted and our profitability may decline.
Federal, state and local governmental authorities regulate the coal
mining industry on matters as diverse as employee health and safety, air
quality standards, water pollution, groundwater quality and availability, plant
and wildlife protection, the reclamation and restoration of mining properties,
the discharge of materials into the environment and surface subsidence from
underground mining. In addition, federal legislation mandates benefits for
various retired coal miners represented by the United Mine Workers of America.
These regulations and legislation have had, and will continue to have, a
significant effect on our costs of production and competitive position. Further
regulations, legislation or orders may also cause our sales or profitability to
decline by hindering our ability to continue our mining operations, by
increasing our costs or by causing coal to become a less attractive fuel
source.
Mining companies must obtain numerous permits that strictly regulate
environmental and health and safety matters in connection with coal mining.
Regulatory authorities exercise considerable discretion in the timing of permit
issuance. Also, private individuals and the public at large possess rights to
comment on and otherwise engage in the permit process, including through
intervention in the courts. As described above, we shut down our Dal-Tex mining
operation in West Virginia in July 1999 as a result of legal action preventing
the issuance of permits necessary for those operations. Accordingly, the
permits we need for our mining operations may not be issued, or if issued, may
not be issued in a timely fashion, or may involve requirements that may be
changed or interpreted in a manner which restricts our ability to conduct our
mining operations or to do so profitably.
Our profitability may be adversely impacted by unanticipated mine operating
conditions and other factors that are not within our control, which could cause
our quarterly or annual results to decrease and our stock price to decline.
Our mining operations are inherently subject to changing conditions that
can affect levels of production and production costs at particular mines for
varying lengths of time and can result in decreases in our profitability.
Weather conditions, equipment replacement or repair, fires, variations in
thickness of the layer, or seam, of coal, amounts of overburden, rock and other
natural materials and other geological conditions have had, and can be expected
in the future to have, a significant impact on our operating results. In
addition, a prolonged disruption of production at any of our principal mines,
particularly our Mingo Logan operation in West Virginia, would result in a
decrease, which could be material, in our revenues and profitability. Other
factors affecting the production and sale of our coal that could result in
decreases in our profitability include:
. expiration or termination of, or sales price redeterminations or
suspension of deliveries under, coal supply agreements;
. disruption or increases in the cost of transportation services;
. changes in laws or regulations, including permitting requirements;
. litigation;
. the timing and amount of insurance recoveries;
. work stoppages or other labor difficulties;
. mine worker vacation schedules and related maintenance activities; and
. changes in coal market and general economic conditions.
Decreases in our profitability as a result of the factors described above
could adversely impact our quarterly or annual results materially. Any adverse
impact on our operating results could cause our stock price to decline
substantially, particularly if the results are below research analyst or
investor expectations.
5
Intense competition and excess industry capacity in the coal producing regions
in which we operate has adversely affected our revenues and profitability and
may continue to do so in the future.
The coal industry is intensely competitive, primarily as a result of the
existence of numerous producers in the coal producing regions in which we
operate, and a number of our competitors have greater financial resources than
we do. We compete with several major coal producers in the Central Appalachian
and Powder River Basin areas. We also compete with a number of smaller
producers in those and our other market regions. We are subject to the risk of
reduced profitability as a result of excess industry capacity, which has
occurred in the past, and which results in reduced prices for our coal.
The demand for and pricing of our coal is greatly influenced by consumption
patterns of the domestic electric generation industry, and any reduction in the
demand for our coal by this industry may cause our profitability to decline.
Demand for our coal and the prices that we will be able to obtain for our
coal are closely linked to coal consumption patterns of the domestic electric
generation industry, which has accounted for approximately 90% of domestic coal
consumption in recent years. These coal consumption patterns are influenced by
factors beyond our control, including the demand for electricity, which is
significantly dependent upon summer and winter temperatures in the United
States, government regulation, technological developments and the location,
availability, quality and price of competing sources of coal, alternative fuels
such as natural gas, oil, and nuclear, and alternative energy sources such as
hydroelectric power. Demand for our low-sulfur coal and the prices that we will
be able to obtain for it will also be affected by the price and availability of
high-sulfur coal, which can be marketed in tandem with emissions allowances in
order to meet federal Clean Air Act requirements. Any reduction in the demand
for our coal by the domestic electric generation industry may cause our
profitability to decline.
Deregulation of the electric utility industry may cause our customers to be
more price-sensitive in purchasing coal, which could cause our profitability to
decline.
Electric utility deregulation is expected to provide incentives to
generators of electricity to minimize their fuel costs and is believed to have
caused electric generators to be more aggressive in negotiating prices with
coal suppliers. To the extent utility deregulation causes our customers to be
more cost sensitive, deregulation may have a negative effect on our
profitability.
Our profitability may be adversely affected by the renegotiation, termination
or expiration of favorable long-term coal supply contracts.
We sell a substantial portion of our coal under long-term coal supply
agreements, which are contracts with a term greater than 12 months. In 2000,
sales of coal under long-term contracts accounted for approximately 78% of our
total revenues. As a consequence, we may experience fluctuations in operating
results due to the expiration or termination of, or sales price
redeterminations or suspensions of deliveries under, these coal supply
agreements. In addition, the increasingly short terms of sales contracts and
the consequent absence of price adjustment provisions in such contracts make it
more likely that we will not be able to recover inflation related increases in
mining costs during the contract term through a later price adjustment. Some of
these contracts include pricing which is above, and, in some cases, materially
above, current market prices. We currently supply coal under long-term coal
supply contracts with one customer which have price renegotiation or
modification provisions that take effect in mid-2001. The prices for coal
shipped under these contracts are materially above the current market price for
similar type coal. For the year ended December 31, 2000, approximately $18.4
million of our operating income related to these contracts. We expect income
from operations to be reduced by approximately one-half of the operating income
attributable to these contracts in 2001, and by the full amount of this
operating income in 2002. These amounts are predicated on current market
pricing and will change with market conditions. Some price adjustment
provisions permit a periodic decrease in the contract price to reflect
decreases in production costs, including those related to
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technological improvements, changes in specified indices or items such as taxes
or royalties. Price renegotiation or modification provisions may provide for
downward adjustments in the contract price based on market factors.
We have also renegotiated some contracts to change the contract term or
accommodate adverse market conditions such as decreasing coal spot market
prices. New nitrous oxide emission limits could also result in price
adjustments, or could force electric generators to terminate or modify long-
term contracts. Other short- and long-term contracts define base or optional
tonnage requirements by reference to the customer's requirements, which may
change as a result of factors beyond our, and in some instances, the customer's
control, including utility deregulation. If the parties to any long-term
contracts with us were to modify, suspend or terminate those contracts, our
profitability would decline to the extent that we are unable to find
alternative customers at a similar or higher level of profitability.
Because our profitability is substantially dependent on the availability of an
adequate supply of coal reserves that can be mined at competitive costs, the
unavailability of these types of reserves would cause our profitability to
decline.
Our profitability depends substantially on our ability to mine coal
reserves that have the geological characteristics that enable them to be mined
at competitive costs. Replacements reserves may not be available when required
or, if available, may not be capable of being mined at costs comparable to
those characteristic of the depleting mines. We have in the past, and will in
the future, acquire coal reserves for our mine portfolio from third parties. We
may not be able to accurately assess the geological characteristics of any
reserves that we acquire, which may adversely affect our profitability and
financial condition. Exhaustion of reserves at particular mines also may have
an adverse effect on our operating results that is disproportionate to the
percentage of overall production represented by such mines.
Disruption in or increased costs of transportation services could adversely
affect our profitability.
The coal industry depends on rail, trucking and barge transportation to
deliver shipments of coal to customers, and transportation costs are a
significant component of the total cost of supplying coal. Disruptions of these
transportation services could temporarily impair our ability to supply coal to
our customers and thus adversely affect our business and the results of our
operations. In addition, increases in transportation costs, or changes in costs
relative to transportation costs for coal produced by our competitors or of
other fuels, could adversely affect our profitability.
We face numerous 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.
The coal reserve information included or incorporated in this prospectus
has not been audited by an independent expert. We base our reserve information
on geological data assembled and analyzed by our staff which includes various
engineers and geologists, and outside firms. The reserve estimates are annually
updated to reflect production of coal from the reserves and new drilling or
other data received. There are numerous uncertainties inherent in estimating
quantities of recoverable reserves, including many factors beyond our control.
Estimates of economically recoverable coal reserves and net cash flows
necessarily depend upon a number of variable factors and assumptions, such as
geological and mining conditions, which may not be fully identified by
available exploration data or may differ from experience in current operations,
historical production from the area compared with production from other
producing areas, the assumed effects of regulation by governmental agencies and
assumptions concerning coal prices, operating costs, severance and excise tax,
development costs and reclamation costs, all of which may vary considerably
from actual results.
For these reasons, estimates of the economically recoverable quantities
attributable to any particular group of properties, classifications of reserves
based on risk of recovery and estimates of net cash flows expected therefrom
prepared by different engineers or by the same engineers at different times may
vary substantially. Actual coal tonnage recovered from identified reserve areas
or properties, and revenues and
7
expenditures with respect to our reserves, may vary from estimates, and these
variances may be material. These estimates thus may not accurately reflect our
actual reserves.
Defects in title or loss of any leasehold interests in our properties could
limit our ability to mine these properties or result in significant
unanticipated costs.
We conduct a significant part of our mining operations on properties that
we lease. The loss of any lease could adversely affect our ability to mine the
associated reserves. Because title to most of our leased properties and mineral
rights is not usually verified until we make a commitment to develop a
property, which may not occur until after we have obtained necessary permits
and completed exploration of the property, our right to mine some of our
reserves has in the past, and may again in the future, be adversely affected if
defects in title or boundaries exist. In order to obtain leases or mining
contracts to conduct our mining operations on property where these defects
exist, we have had to, and 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.
Agreements entered into in connection with the acquisition of our reserves and
mining facilities in the western United States contain limitations on our
ability to manage these operations exclusively and could subject us to
significant indemnification obligations.
Our affiliate, Arch Western Resources, LLC, is the owner of reserves and
mining facilities in the western United States. The agreement under which Arch
Western was formed provides that one of our subsidiaries, as the managing
member of Arch Western, generally has exclusive power and authority to conduct,
manage and control the business of Arch Western. However, consent of ARCO, the
other member of Arch Western, would generally be required in the event that
Arch Western proposes to make a distribution, incur indebtedness, sell
properties or merge or consolidate with any other entity if, at that time, Arch
Western has a debt rating less favorable than specified ratings from Moody's
Investors Service or from Standard & Poor's or fails to meet specified
indebtedness and interest ratios.
In connection with the Arch Western acquisition, we entered into an
agreement under which we agreed to indemnify ARCO against specified tax
liabilities in the event that these liabilities arise as a result of actions
taken prior to June 1, 2013, including the sale or other disposition of
specified properties of Arch Western, the repurchase of some equity interests
in Arch Western by Arch Western or the reduction under some circumstances of
indebtedness incurred by Arch Western in connection with the Arch Western
acquisition. Depending on the time at which any indemnification obligation were
to arise, it could impact our profitability for the period in which it arises.
The membership interests in Canyon Fuel Company, LLC, which operates
three coal mines in Utah, are owned 65% by Arch Western and 35% by a subsidiary
of ITOCHU Corporation of Japan. The agreement which governs the management and
operations of Canyon Fuel provides for a management board to manage the
business and affairs of Canyon Fuel. Some major business decisions concerning
Canyon Fuel require the vote of 70% of the membership interests and therefore
limit our ability to make these decisions. These decisions include admission of
additional members; approval of annual business plans; the making of
significant capital expenditures; sales of coal below specified prices;
agreements between Canyon Fuel and any member; institution or settlement of
litigation; a material change in the nature of Canyon Fuel's business or a
material acquisition; the sale or other disposition, including by merger, of
assets other than in the ordinary course of business; incurrence of
indebtedness; entering into leases; and the selection and removal of officers.
The Canyon Fuel agreement also contains restrictions on the transfer of our
membership interest in Canyon Fuel.
Our stockholder rights plan and amended charter documents may make it harder
for others to obtain control of us even though some stockholders might consider
such a development favorable, which may adversely affect our stock price.
8
Our stockholder rights plan and provisions of our amended and restated
certificate of incorporation and our by-laws, may delay, inhibit or prevent
someone from gaining control of us through a tender offer, business
combination, proxy contest or some other method even if some of our
stockholders might believe a change in control is desirable. See '"Description
of Capital Securities" for a description of our rights plan and these charter
and by-law provisions.
FORWARD LOOKING STATEMENTS
This prospectus, including the information incorporated by reference
herein, information included in or incorporated by reference from future
filings by us with the SEC, as well as information contained in written
material, press releases and oral statements issued by us or on our behalf,
contains, or may contain, certain statements that may be deemed to be "forward-
looking statements" under applicable provisions of the federal securities laws.
Such "forward-looking statements" include information relating to, among other
matters, our future prospects, developments and business strategies for our
operations. These forward-looking statements are identified by their use of
terms and phrases such as "estimate", "expect", "anticipate", "intend",
"believe", and similar terms and phrases. These statements are based on certain
assumptions and analyses made by us in light of our experience and perception
of historical trends, current conditions, expected future developments and
other factors that we believe are appropriate under the circumstances, and
involve risks and uncertainties that may cause actual future activities and
results of operations to be materially different from those suggested or
described in this prospectus or in such other documents. These risks include,
but are not limited to, the risks described in our Annual Report on Form 10-K
for the year ended December 31, 2000 filed with the SEC on March 16, 2001,
which is incorporated by reference in this prospectus, and any risks that may
be described from time to time in our filings with the SEC or in any prospectus
supplement relating to specific offerings of securities.
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratios of earnings to fixed charges
for Arch Coal:
Year Ended December 31,
------------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
Ratio of earnings to fixed charges..................... 3.76 3.04 2.29 * 1.77
--------
* Fixed charges exceeded earnings (as defined below) by $327.0 million.
The above ratios are computed on a total enterprise basis including our
consolidated subsidiaries, plus our share of significant affiliates accounted
for on the equity method that are 50% or greater owned or whose indebtedness
has been directly or indirectly guaranteed by us. Earnings consist of income
(loss) from continuing operations before income taxes and are adjusted to
include fixed charges (excluding capitalized interest). Fixed charges consist
of interest incurred on indebtedness, the portion of operating lease rentals
deemed representative of the interest factor and the amortization of debt
expense.
In 1999, our losses were primarily attributable to a write-down of the
carrying value of some of our operating assets and coal reserves.
USE OF PROCEEDS
We will use the net proceeds we receive from the sale of the securities
offered by this prospectus and the accompanying prospectus supplement for
general corporate purposes, unless we specify otherwise in the applicable
prospectus supplement. General corporate purposes may include additions to
working capital, capital expenditures, stock redemption, repayment of debt or
the financing of possible acquisitions. Pending these uses, we expect to invest
the net proceeds in short-term, interest-bearing securities. We will not
receive any of the proceeds from the sale of common stock by any selling
stockholder.
9
DESCRIPTION OF DEBT SECURITIES
The following description sets forth the general terms and provisions
that could apply to the debt securities. Each prospectus supplement will state
the particular terms that actually will apply to the debt securities offered by
the supplement.
The debt securities will be either senior debt securities or subordinated
debt securities. Unless the applicable prospectus supplement states otherwise,
senior securities will be issued under an indenture between us and The Bank of
New York Company, Inc., as trustee. Subordinated securities will be issued
under a separate indenture between us and a commercial bank to be selected as
trustee. The senior indenture and the subordinated indenture are together
called the "indentures".
The following summary of selected provisions of the indentures is not
complete. You should refer to the senior indenture and the subordinated
indenture, copies of which will be incorporated by reference into this
prospectus, for more detailed information.
General
Neither indenture will limit the aggregate principal amount of debt
securities that we may issue under that indenture. The debt securities may be
issued in one or more series as we may authorize at various times. All debt
securities will be unsecured. The senior securities will have the same rank as
all of our other unsecured and unsubordinated debt. The subordinated securities
will be subordinated to superior indebtedness as described in the "Subordinated
Securities" section below. The senior securities and subordinated securities
may be combined into one series or offered separately. The prospectus
supplement relating to the particular series of debt securities being offered
will specify the amounts, prices and terms of those debt securities. These
terms may include:
. the title and any limit on the aggregate principal amount of the debt
securities;
. the price (expressed as a percentage of the total principal amount)
at which such debt securities will be issued;
. the date or dates on which the debt securities will mature or the
method by which such dates can be determined;
. if the debt securities will bear interest, the annual interest rate
or rates (which may be fixed or variable), or the method of
determining the interest rate or rates; the date or dates from which
any interest will accrue, the interest payment dates on which any
interest will be payable, the record dates for those interest payment
dates and the basis upon which interest shall be calculated if other
than that of a 360 day year of twelve 30-day months;
. the currency or currencies or units of two or more currencies in
which the debt securities are denominated and principal and interest
may be payable, and for which the debt securities may be purchased,
which may be in United States dollars, a foreign currency or
currencies or units of two or more foreign currencies;
. whether such debt securities are to be senior securities or
subordinated securities;
. any redemption or sinking fund terms;
. any events of default or covenants with respect to the debt
securities of a particular series, if not set forth in this
prospectus;
. whether the debt securities will be issued as registered securities
or as bearer securities and, if in registered form, the denominations
of the debt securities if other than $1,000 and multiples of $1,000;
10
. whether the debt securities are to be issued in whole or in part in
the form of one or more global securities and the depositary for the
global security or securities;
. the date or dates on which the principal of and any premium on the
debt securities will be payable or the method for determining the
date or dates;
. the place or places where payments on the debt securities will be
made and the debt securities may be surrendered for registration of
transfer or exchange;
. whether the debt securities will be issued in certificated or book-
entry form;
. the applicability of the defeasance and covenant defeasance
provisions of the applicable indenture;
. whether the debt securities will be convertible into shares of common
stock and/or exchangeable for other securities and, if so, the terms
and conditions upon which the debt securities will be so convertible
or exchangeable; and
. any other terms of the series, which will not conflict with the terms
of applicable indenture.
Principal, any premium and any interest will be payable and the debt
securities will be transferable at the corporate trust office of the
appropriate trustee, unless we specify otherwise in the accompanying prospectus
supplement. At our option, however, payment of interest may be made by check
mailed to the registered holders of the debt securities at their registered
addresses.
We will issue the debt securities in fully registered form without
coupons unless the applicable prospectus supplement provides for an issuance to
be in bearer form with or without coupons. Unless we specify otherwise in the
applicable prospectus supplement, we will issue debt securities denominated in
U.S. dollars in denominations of $1,000 or multiples of $1,000 for registered
securities and in denominations of $5,000 or multiples of $5,000 for bearer
securities. No service charge will be made for any transfer or exchange of debt
securities, but we may require payment beforehand of any related taxes or other
governmental charges. Debt securities may also be issued pursuant to the
indentures in transactions exempt from the registration requirements of the
Securities Act of 1933. Those debt securities will not be considered in
determining the aggregate amount of securities issued under the registration
statement.
We will describe special Federal income tax and other considerations
relating to debt securities denominated in foreign currencies or units of two
or more foreign currencies in the applicable prospectus supplement.
Exchange, Registration and Transfer
Registered securities of any series that are not global securities will
be exchangeable for other registered securities of the same series and of like
aggregate principal amount, tenor and terms, in different authorized
denominations. In addition, if debt securities of any series are issuable as
both registered securities and bearer securities, the holder may choose, upon
written request, and subject to the terms of the applicable indenture, to
exchange bearer securities and the appropriate related coupons of that series
into registered securities of the same series of any authorized denominations
and of like aggregate principal amount, tenor and terms. Bearer securities with
attached coupons surrendered in exchange for registered securities between a
regular record date or a special record date and the relevant date for interest
payment shall be surrendered without the coupon relating to the interest
payment date. Interest will not be payable with respect to the registered
security issued in exchange for that bearer security. That interest will be
payable only to the holder of the coupon when due in accordance with the terms
of the applicable indenture. Bearer securities will not be issued in exchange
for registered securities.
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You may present debt securities for exchange as provided above. In
addition, you may present registered securities for registration of transfer,
together with a duly executed form of transfer, at the office of the security
registrar or at the office of any transfer agent designated by us for that
purpose with respect to any series of debt securities and referred to in the
applicable prospectus supplement. This may be done without service charge and
upon payment of any taxes and other governmental charges as described in the
applicable indenture. The security registrar or the transfer agent will effect
the transfer or exchange upon being satisfied with the documents of title and
identity of the person making the request. We have appointed the applicable
trustee as security registrar for the applicable indenture. If a prospectus
supplement refers to any transfer agents (in addition to the security
registrar) initially designated by us with respect to any series of debt
securities, we may at any time rescind the designation of any such transfer
agent or approve a change in the location through which such transfer agent
acts. However, if debt securities of a series are issuable solely as registered
securities, we will be required to maintain a transfer agent in each place of
payment for such series, and if debt securities of a series are issuable as
bearer securities, we will be required to maintain (in addition to the security
registrar) a transfer agent in a place of payment for such series located in
Europe. We may at any time designate additional transfer agents with respect to
any series of debt securities.
In the event of any redemption in part, we will not be required to:
. issue, register the transfer of or exchange debt securities of any
series during a period beginning at the opening of business 15 days
before any selection of debt securities of that series to be redeemed
and ending at the close of business on:
-- if debt securities of the series are issuable only as registered
securities, the day of mailing of the relevant notice of
redemption;
-- if debt securities of the series are issuable only as bearer
securities, the day of the first publication of the relevant
notice of redemption; or
-- if debt securities of the series are issuable as registered
securities and bearer securities and there is no publication of
the relevant notice of redemption, the day of mailing of the
relevant notice of redemption, or the date of such publication, if
applicable;
. register the transfer of or exchange any registered security, or
portion thereof, called for redemption, except the unredeemed portion
of any registered security being redeemed in part; or
. exchange any bearer security called for redemption, except to
exchange such bearer security for a registered security of that
series and like tenor and terms which is immediately surrendered for
redemption.
For a discussion of restrictions on the exchange, registration and
transfer of global securities, see "Global Securities" below.
Payment and Paying Agents
Unless we specify otherwise in the applicable prospectus supplement,
payment of principal, any premium and any interest on registered securities
will be made at the office of the paying agent or paying agents that we
designate at various times. However, at our option, we may make interest
payments by check mailed to the address, as it appears in the security
register, of the person entitled to the payments. Unless we specify otherwise
in the applicable prospectus supplement, we will make payment of any
installment of interest on registered securities to the person in whose name
that registered security is registered at the close of business on the regular
record date for such interest.
Unless we specify otherwise in the applicable prospectus supplement,
payment of principal, any premium and interest on bearer securities will be
payable, in accordance with any applicable laws and regulations, at the offices
of those paying agents outside the U.S. that we may designate at various times.
We
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will make interest payments on bearer securities and the attached coupons on
any interest payment date only against surrender of the coupon relating to that
interest payment date. No payment with respect to any bearer security will be
made at any of our offices or agencies in the U.S., by check mailed to any U.S.
address or by transfer to an account maintained with a bank located in the U.S.
However, if (but only if) payment in U.S. dollars of the full amount of
principal, any premium and interest on bearer securities denominated and
payable in U.S. dollars at all offices or agencies outside the U.S. is illegal
or effectively precluded by exchange controls or other similar restrictions,
then those payments will be made at the office of our paying agent in the
Borough of Manhattan, The City of New York.
Unless we specify otherwise in the applicable prospectus supplement, the
Corporate Trust Office of the trustee in the Borough of Manhattan, The City of
New York, will be designated:
. as our sole paying agent for payments with respect to debt securities
that are issuable solely as registered securities; and
. as our paying agent in the Borough of Manhattan, The City of New
York, for payments with respect to debt securities (subject to the
limitation described above in the case of bearer securities) that are
issuable solely as bearer securities or as both registered securities
and bearer securities. We will name any paying agents outside the
U.S. and any other paying agents in the U.S. initially designated by
us for the debt securities in the applicable prospectus supplement.
We may at any time designate additional paying agents or rescind the
designation of any paying agent or approve a change in the office
through which any paying agent acts. However, if debt securities of a
series are issuable solely as registered securities, we will be
required to maintain a paying agent in each place of payment for that
series. If debt securities of a series are issuable as bearer
securities, we will be required to maintain:
. a paying agent in the Borough of Manhattan, The City of New York,
(a) for payments with respect to any registered securities of the
series and (b) for payments with respect to bearer securities of
the series in the circumstance described above, but not
otherwise; and
. a paying agent in a place of payment located outside the U.S.
where debt securities of that series and any attached coupons may
be presented and surrendered for payment. However, if the debt
securities of that series are listed on the London Stock
Exchange, the Luxembourg Stock Exchange or any other stock
exchange located outside the U.S. and if the stock exchange
requires it, we will maintain a paying agent in London or
Luxembourg or any other required city located outside the U.S.
for those debt securities.
All moneys we pay to a paying agent for the payment of principal, any
premium or interest on any debt security or coupon that remains unclaimed at
the end of two years after becoming due and payable will be repaid to us. After
that time, the holder of the debt security or coupon will look only to us for
payments out of those repaid amounts.
Global Securities
The debt securities of a series may be issued in whole or in part in the
form of one or more global certificates that we will deposit with a depositary
identified in the applicable prospectus supplement. Global securities may be
issued in either registered or bearer form and in either temporary or permanent
form. Unless and until it is exchanged in whole or in part for the individual
debt securities it represents, a global security may not be transferred except
as a whole:
. by the applicable depositary to a nominee of the depositary;
. by any nominee to the depositary itself or another nominee; or
. by the depositary or any nominee to a successor depositary or any
nominee of the successor.
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We will describe the specific terms of the depositary arrangement with
respect to a series of debt securities in the applicable prospectus supplement.
We anticipate that the following provisions will generally apply to depositary
arrangements.
When we issue a global security in registered form, the depositary for
the global security or its nominee will credit, on its book-entry registration
and transfer system, the respective principal amounts of the individual debt
securities represented by that global security to the accounts of persons that
have accounts with the depositary ("participants"). Those accounts will be
designated by the dealers, underwriters or agents with respect to the
underlying debt securities or by us if those debt securities are offered and
sold directly by us. Ownership of beneficial interests in a global security
will be limited to participants or persons that may hold interests through
participants. For interests of participants, ownership of beneficial interests
in the global security will be shown on records maintained by the applicable
depositary or its nominee. For interests of persons other than participants,
that ownership information will be shown on the records of participants.
Transfer of that ownership will be effected only through those records. The
laws of some states require that certain purchasers of securities take physical
delivery of securities in definitive form. These limits and laws may impair our
ability to transfer beneficial interests in a global security.
As long as the depositary for a global security, or its nominee, is the
registered owner of that global security, the depositary or nominee will be
considered the sole owner or holder of the debt securities represented by the
global security for all purposes under the applicable indenture. Except as
provided below, owners of beneficial interests in a global security:
. will not be entitled to have any of the underlying debt securities
registered in their names;
. will not receive or be entitled to receive physical delivery of any
of the underlying debt securities in definitive form; and
. will not be considered the owners or holders under the indenture
relating to those debt securities.
Payments of principal of, any premium and any interest on individual debt
securities represented by a global security registered in the name of a
depositary or its nominee will be made to the depositary or its nominee as the
registered owner of the global security representing such debt securities. None
of the trustee for the debt securities, any paying agent, the registrar for the
debt securities, nor us will be responsible for any aspect of the records
relating to, or payments made by, the depositary or any participants on account
of beneficial interests of the global security.
We expect the depositary or its nominee, upon receipt of any payment of
principal, any premium or interest relating to a permanent global security
representing any series of debt securities, immediately will credit
participants' accounts with the payments. Those payments will be credited in
amounts proportional to the respective beneficial interests of the participants
in the principal amount of the global security as shown on the records of the
depositary or its nominee. We also expect that payments by participants to
owners of beneficial interests in the global security held through those
participants will be governed by standing instructions and customary practices.
This is not the case with securities held for the accounts of customers in
bearer form or registered in "street name." Those payments will be the sole
responsibility of those participants.
If the depositary for a series of debt securities is at any time
unwilling, unable or ineligible to continue as depositary and we do not appoint
a successor depositary within 90 days, we will issue individual debt securities
of that series in exchange for the global security or securities representing
that series. In addition, we may at any time in our sole discretion determine
not to have any debt securities of a series represented by one or more global
securities. In that event, we will issue individual debt securities of that
series in exchange for the global security or securities. Further, if we
specify, an owner of a beneficial interest in a global security may, on terms
acceptable to the trustee, the applicable depositary and us, receive individual
debt securities of that series in exchange for those beneficial interests. The
foregoing is subject to any limitations described in the applicable prospectus
supplement. In any such instance, the owner of the beneficial interest will be
entitled to
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physical delivery of individual debt securities equal in principal amount to
the beneficial interest and to have the debt securities registered in its name.
Those individual debt securities will be issued in denominations, unless we
specify otherwise, of $1,000 or integral multiples of $1,000.
If we specify in an applicable prospectus supplement, all or any portion
of the debt securities of a series that are issuable as bearer securities
initially will be represented by one or more temporary global securities, with
or without interest coupons. These temporary global securities will be
deposited with a common depositary in London for Morgan Guaranty Trust Company
of New York, Brussels Office, as operator of the Euroclear System and
Clearstream Banking (formerly known as Cedel Bank) for credit to the respective
accounts of the beneficial owners of those debt securities or to other accounts
as they may direct. On and after the exchange date determined as provided in
the temporary global security and described in the applicable prospectus
supplement, each temporary global security will be exchangeable for definitive
debt securities in bearer form, registered form, or definitive global form or
any combination of these. No bearer security, including one in definitive
global bearer form delivered in exchange for a portion of a temporary global
security will be mailed or otherwise delivered to any location in the U.S. in
connection with this exchange.
Unless we specify otherwise in the applicable prospectus supplement, we
or our agent must receive a certificate signed by Euroclear or Clearstream
prior to the delivery of a definitive bearer security. We must also receive
this signed certificate prior to the actual payment of interest on the
applicable portion of the temporary global security payable before delivery of
a definitive debt security. The certificate must be based on statements
provided to Euroclear or Clearstream by its member organizations. The
certificate must be dated on the earlier of the date of the first actual
payment of interest on the debt security or the date of delivery of the debt
security in definitive form, and must state that on that date the debt security
is owned by:
. a person that is not a U.S. person and is not a financial institution
holding the obligation for purposes of resale during the restricted
period;
. a U.S. person that is either (a) the foreign branch of a U.S.
financial institution purchasing for its own account or for resale
during the restricted period or (b) a U.S. person who acquired its
interest through the foreign branch of a U.S. financial institution
and who holds the obligation through such financial institution on
the date of certification. In either case, the U.S. financial
institution must provide a certificate stating that it agrees to
comply with the requirements and regulations of Section 165(j)(3)(A),
(B) or (C) of the Internal Revenue Code unless it has provided a
valid blanket certificate stating the same; or
. a financial institution holding for purposes of resale during the
restricted period. That financial institution must certify in
addition that it has not acquired the obligation for purposes of
resale directly or indirectly to a U.S. person or to a person within
the United States or its possessions.
As used in this paragraph, the term "restricted period" means (a) the period
from the closing date until 40 days thereafter or (b) any time if the
obligation is held as part of an unsold allotment or subscription.
Each of Euroclear and Clearstream will in these circumstances credit the
interest received by it to the accounts of the beneficial owners of the
temporary global security or to other accounts as they may direct.
The beneficial owner of a debt security underlying a definitive global
security in bearer form may exchange its interest in that definitive global
security for a definitive bearer security or securities, or a definitive
registered security or securities of any authorized denomination. The
beneficial owner must give at least 30 days' written notice of the exchange
through either Euroclear or Clearstream. No individual definitive bearer
security will be delivered in or to the U.S.
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Subordinated Securities
Payment of the principal, interest and any premium on subordinated
securities will generally be subordinated in right of payment to the prior
payment in full of all of our superior indebtedness.
"Superior indebtedness" will include the principal of, any premium and
accrued and unpaid interest on the following items, whether outstanding on or
created, incurred or assumed after the date of execution of the subordinated
indenture:
. purchase money and similar obligations;
. our indebtedness for money borrowed (other than the subordinated
securities);
. guarantees by us of indebtedness for money borrowed of any other
person;
. indebtedness evidenced by notes, debentures, bonds or other
instruments of indebtedness for the payment of which we are
responsible or liable, by guarantees or otherwise;
. our obligations under any agreement relating to any interest rate or
currency swap, interest rate cap, interest rate collar, interest rate
future, currency exchange or forward currency transaction or any
similar interest rate or currency hedging transaction, whether
outstanding on the date of the subordinated indenture or created,
incurred or assumed afterward;
. our obligations under any agreement to lease, or any lease of, any
real or personal property which, in accordance with accounting
principles generally accepted in the United States, is classified on
our balance sheet as a liability; and
. interest or obligations in respect of indebtedness accruing after the
commencement of any insolvency or bankruptcy proceedings.
Superior indebtedness will also include modifications, renewals,
extensions and refundings of any of the types of indebtedness, liability,
obligations or guarantees listed above, unless the relevant instrument provides
that it is not superior in right of payment to the subordinated securities.
Superior indebtedness will not, however, include (a) any of our obligations to
any subsidiary of ours and (b) any of our indebtedness, guarantees or
obligations of the type set forth above which is subordinate or junior in
ranking in any respect to any of our other indebtedness, guarantees or
obligations.
No payment by us on account of principal, any premium or interest on the
subordinated securities, including any sinking fund payments may be made if:
. any default or event of default with respect to any superior
indebtedness occurs and is continuing and
. unless the default or event of default is our failure to pay
principal or interest on any instrument constituting superior
indebtedness, written notice of this default or event of default is
given to the trustee by us or to us and the trustee by the holders or
their representatives of at least 10% in principal amount of any
superior indebtedness.
We may resume payments on the subordinated securities (unless otherwise
prohibited by the related indenture) if (a) the default is cured or waived, or
(b) 180 days pass after the notice is given, if the default is not the subject
of judicial proceedings, unless the default is our failure to pay principal or
interest on any superior indebtedness.
In the event that any subordinated security is declared due and payable
before its specified date, or upon any payment or distribution of assets by us
to creditors upon our dissolution, winding up, liquidation or
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reorganization, all principal of, any premium and any interest due or to become
due on all superior indebtedness must be paid in full before the holders of
subordinated securities are entitled to receive or take any payment. However,
this does not apply to payments received by the holders of subordinated
securities consisting of shares of stock or subordinated indebtedness provided
by a plan of reorganization or adjustment which does not alter the rights of
holders of superior indebtedness without any holder's consent. Subject to the
payment in full of all superior indebtedness, the holders of the subordinated
securities are to be subrogated to the rights of the holders of superior
indebtedness to receive payments or distribution of our assets applicable to
superior indebtedness until the subordinated securities are paid in full.
By reason of this subordination, in the event of insolvency, our
creditors who are holders of superior indebtedness, as well as certain of our
general creditors, may recover more, ratably, than the holders of the
subordinated securities.
The subordinated indenture will not limit the amount of superior
indebtedness or debt securities which may be issued by us or any of our
subsidiaries.
Modification of the Indentures
Our rights and obligations and the rights of the holders under each
indenture may be modified with the consent of the holders of at least two-
thirds in principal amount of the then outstanding debt securities of each
series affected by the modification. None of the following modifications,
however, will be effective against any holder without the consent of the
holders of all of the affected outstanding debt securities:
. changing the maturity, installment or interest rate of any of the
debt securities;
. reducing the principal amount, any premium or the rate of interest of
any of the debt securities;
. changing the currency, currencies or currency unit or units in which
any principal, premium or interest of any of the debt securities is
payable;
. changing any of our obligations to maintain an office or agency in
the places and for the purposes required by the indentures;
. impairing any right to take legal action for an overdue payment;
. reducing the percentage required for modifications or waivers of
compliance with the indentures; or
. with certain exceptions, modifying the provisions for the waiver of
certain covenants and defaults and any of the foregoing provisions.
Any actions we or the trustee may take toward adding to our covenants,
adding events of default or establishing the structure or terms of the debt
securities as permitted by the indentures will not require the approval of any
holder of debt securities. In addition, we or the trustee may cure ambiguities
or inconsistencies in the indentures or make other provisions without the
approval of any holder in certain limited circumstances.
Waiver of Certain Covenants
We will not be required to comply with certain restrictive covenants
contained in an indenture if the holders of at least two-thirds in principal
amount of each series of outstanding debt securities affected waive compliance
with the restrictive covenants.
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Events of Default, Notice and Waiver
"Event of default" when used in an indenture, will mean any of the
following in relation to a series of debt securities:
. failure to pay interest on any debt security for 30 days after the
interest becomes due;
. failure to pay the principal or any premium on any debt security for
5 days after such payment becomes due;
. failure to deposit any sinking fund payment for 30 days after such
payment becomes due;
. failure to perform or breach of any other covenant or warranty in the
indenture that continues for 60 days after our being given written
notice from the trustee or the holders of at least 25% in principal
amount of the outstanding debt securities of the series;
. certain events of bankruptcy, insolvency or reorganization of ours;
or
. any other event of default provided for debt securities of that
series.
If any event of default relating to outstanding debt securities of any
series occurs and is continuing, either the trustee or the holders of at least
than 25% in principal amount of the outstanding debt securities of that series
may declare the principal of all of the outstanding debt securities of such
series to be due and immediately payable.
The holders of at least a majority in principal amount of the outstanding
debt securities of any series may direct the time, method and place of
conducting any proceeding for any remedy available to the trustee, or of
exercising any trust or power conferred on the trustee, with respect to the
debt securities of that series. The trustee may act in any way that is
consistent with those directions and may decline to act if any of the
directions is contrary to law or to the indentures or would involve the trustee
in personal liability.
The holders of at least a majority in principal amount of the outstanding
debt securities of any series may on behalf of the holders of all of the
outstanding debt securities of the series waive any past default (and its
consequences) under the indentures relating to the series, except a default (a)
in the payment of the principal of or any premium or interest on any of the
debt securities of the series or (b) with respect to a covenant or provision of
such indentures which, under the terms of such indentures, cannot be modified
or amended without the consent of the holders of all of the outstanding debt
securities of the series affected.
The indentures will contain provisions entitling the trustee, subject to
the duty of the trustee during an event of default to act with the required
standard of care, to be indemnified by the holders of the debt securities of
the relevant series before proceeding to exercise any right or power under the
indentures at the request of those holders.
The indentures will require the trustee to, within 90 days after the
occurrence of a default known to it with respect to any series of outstanding
debt securities, give the holders of that series notice of the default if
uncured and unwaived. However, the trustee may withhold this notice if it in
good faith determines that the withholding of this notice is in the interest of
those holders. However, the trustee may not withhold this notice in the case of
a default in payment of principal, premium, interest or sinking fund
installment with respect to any debt securities of the series. The above notice
shall not be given until at least 30 days after the occurrence of a default in
the performance of or a breach of a covenant or warranty in the applicable
indenture other than a covenant to make payment. The term "default" for the
purpose of this provision means any event that is, or after notice or lapse of
time, or both, would become, an event of default with respect to the debt
securities of that series.
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Each indenture will require us to file annually with the trustee a
certificate, executed by one of our officers, indicating whether the officer
has knowledge of any default under the indenture.
Notices
Except as otherwise provided in the applicable prospectus supplement,
notices to holders of bearer securities will be given by publication at least
once in a daily newspaper in each of New York City and London and in any other
cities specified in the bearer securities. For holders of bearer securities,
notices will also be mailed to those persons whose names and addresses were
previously filed with the trustee within the last two years under the
indentures, within the time prescribed for the giving of that information.
Notices to holders of registered securities will be sent by mail to the
addresses of those holders as they appear in the security register.
Defeasance
The indentures will contain a provision that, if made applicable to any
series of debt securities, permits us to elect (a) to defease and be discharged
from all of our obligations (subject to limited exceptions) with respect to any
series of debt securities then outstanding, which we refer to below as "legal
defeasance," or (b) to be released from our obligations under certain
restrictive covenants, which we refer to below as "covenant defeasance". To
make either of the above elections, we must:
. deposit in trust with the trustee (a) in the case of debt securities
and coupons denominated in U.S. dollars, U.S. government obligations
and (b) in the case of debt securities and coupons denominated in a
foreign currency, foreign government securities, which through the
payment of principal and interest in accordance with their terms will
provide sufficient money, U.S. government obligations and/or foreign
government obligations as necessary, without reinvestment, to repay
in full those debt securities; and
. deliver to the trustee an opinion of counsel that holders of the debt
securities will not recognize income, gain or loss for Federal income
tax purposes as a result of the deposit and related defeasance and
will be subject to Federal income tax in the same amount, in the same
manner and at the same times as would have been the case if such
deposit and related defeasance had not occurred (in the case of legal
defeasance only, such opinion of counsel to be based on a ruling of
the Internal Revenue Service or other change in applicable Federal
income tax law).
Governing Law
The indentures, the debt securities and the coupons will be governed by,
and construed in accordance with, the laws of the State of New York.
DESCRIPTION OF PREFERRED STOCK
Our amended and restated certificate of incorporation authorizes our
board of directors without further stockholder action, to provide for the
issuance of up to 10 million shares of preferred stock, in one or more series,
and to fix the designations, terms, and relative rights and preferences,
including the dividend rate, voting rights, conversion rights, redemption and
sinking fund provisions and liquidation values of each of these series, except
that the holders of preferred stock:
. will not be entitled to more than the lesser of one vote per $100 of
liquidation value or one vote per share when voting as a class with
the holders of shares of other capital stock; and
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. will not be entitled to vote on any matter separately as a class,
except to the extent required by law or as specified with respect to
each series with respect to any amendment or alteration of the
provisions of the certificate of incorporation that would adversely
affect the powers, preferences or special rights of the applicable
series of preferred stock, or our failure to pay dividends on any
series of preferred stock in full for any six quarterly dividend
payment periods, whether or not consecutive, in which case the number
of directors may be increased by two and the holders of outstanding
shares of preferred stock then similarly entitled will be entitled to
elect the two additional directors until full accumulated dividends
on all such shares of preferred stock have been paid.
We may amend from time to time our certificate of incorporation to
increase the number of authorized shares of preferred stock. As of the date of
this prospectus, we have no preferred stock outstanding. We have 602,944 shares
of preferred stock reserved for issuance upon exercise of rights under the
rights agreement described below under "Preferred Stock Purchase Rights".
The particular terms of any series of preferred stock being offered by us
under this shelf registration will be described in the prospectus supplement
relating to that series of preferred stock. Those terms may include:
. the title and liquidation preference per share of the preferred stock
and the number of shares offered;
. the purchase price of the preferred stock;
. the dividend rate (or method of calculation), the dates on which
dividends will be paid and the date from which dividends will begin
to accumulate;
. any redemption or sinking fund provisions of the preferred stock;
. any conversion provisions of the preferred stock;
. the voting rights, if any, of the preferred stock; and
. any additional dividend, liquidation, redemption, sinking fund and
other rights, preferences, privileges, limitations and restrictions
of the preferred stock.
If the terms of any series of preferred stock being offered differ from
the terms set forth in this prospectus, those terms will also be disclosed in
the prospectus supplement relating to that series of preferred stock. The
summary in this prospectus is not complete. You should refer to the certificate
of amendment to our
certificate of incorporation establishing a particular series of preferred
stock which will be filed with the Secretary of State of the State of Delaware
and the SEC in connection with the offering of the preferred stock.
The preferred stock will, when issued, be fully paid and nonassessable.
Dividend Rights. The preferred stock will be preferred over the common
stock as to payment of dividends. Before any dividends or distributions (other
than dividends or distributions payable in common stock) on the common stock
shall be declared and set apart for payment or paid, the holders of shares of
each series of preferred stock will be entitled to receive dividends when, as
and if declared by our board of directors. We will pay those dividends either
in cash, shares of common stock or preferred stock or otherwise, at the rate
and on the date or dates set forth in the prospectus supplement. With respect
to each series of preferred stock, the dividends on each share of the series
will be cumulative from the date of issue of the share unless some other date
is set forth in the prospectus supplement relating to the series. Accruals of
dividends will not bear interest.
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Rights Upon Liquidation. The preferred stock will be preferred over the
common stock as to assets so that the holders of each series of preferred stock
will be entitled to be paid, upon our voluntary or involuntary liquidation,
dissolution or winding up and before any distribution is made to the holders of
common stock, the amount set forth in the applicable prospectus supplement.
However, in this case the holders of preferred stock will not be entitled to
any other or further payment. If upon any liquidation, dissolution or winding
up our net assets are insufficient to permit the payment in full of the
respective amounts to which the holders of all outstanding preferred stock are
entitled, our entire remaining net assets will be distributed among the holders
of each series of preferred stock in amounts proportional to the full amounts
to which the holders of each series are entitled.
Redemption. All shares of any series of preferred stock will be
redeemable to the extent set forth in the prospectus supplement relating to the
series. All shares of any series of preferred stock will be convertible into
shares of common stock or into shares of any other series of preferred stock to
the extent set forth in the applicable prospectus supplement.
Voting Rights. Except as indicated in the prospectus supplement, the
holders of preferred stock shall be entitled to one vote for each share of
preferred stock held by them on all matters properly presented to stockholders.
The holders of common stock and the holders of all series of preferred stock
will vote together as one class.
DESCRIPTION OF COMMON STOCK
We may issue, either separately or together with other securities, shares
of our common stock. Under our amended and restated certificate of
incorporation, we are authorized to issue up to 100 million shares of our
common stock. A prospectus supplement relating to an offering of common stock,
or other securities convertible or exchangeable for, or exercisable into,
common stock, will describe the relevant terms, including the number of shares
offered, any initial offering price, and market price and dividend information,
as well as, if applicable, information on other related securities. See
"Description of Capital Securities."
DESCRIPTION OF DEPOSITARY SHARES
General. We may, at our option, elect to offer fractional shares of
preferred stock, rather than full shares of preferred stock. If we exercise
this option, we will issue to the public receipts for depositary shares, and
each of these depositary shares will represent a fraction (to be set forth in
the applicable prospectus supplement) of a share of a particular series of
preferred stock.
The shares of any series of preferred stock underlying the depositary
shares will be deposited under a deposit agreement between us and a bank or
trust company selected by us. The depositary will have its principal office in
the United States and a combined capital and surplus of at least $50 million.
Subject to the terms of the deposit agreement, each owner of a depositary share
will be entitled, in proportion to the applicable fraction of a share of
preferred stock underlying that depositary share, to all the rights and
preferences of the preferred stock underlying that depositary share. Those
rights include dividend, voting, redemption and liquidation rights.
The depositary shares will be evidenced by depositary receipts issued
pursuant to the deposit agreement. Depositary receipts will be distributed to
those persons purchasing the fractional shares of preferred stock underlying
the depositary shares, in accordance with the terms of the offering. Copies of
the forms of deposit agreement and depositary receipt will be filed as exhibits
to the registration statement. The following summary of the deposit agreement,
the depositary shares and the depositary receipts is not complete. You should
refer to the forms of the deposit agreement and depositary receipts that will
be filed with the SEC in connection with the offering of the specific
depositary shares.
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Pending the preparation of definitive engraved depositary receipts, the
depositary may, upon our written order, issue temporary depositary receipts
substantially identical to the definitive depositary receipts but not in
definitive form. These temporary depositary receipts entitle their holders to
all the rights of definitive depositary receipts which are to be prepared
without unreasonable delay. Temporary depositary receipts will then be
exchangeable for definitive depositary receipts at our expense.
Dividends and Other Distributions. The depositary will distribute all
cash dividends or other cash distributions received with respect to the
preferred stock to the record holders of depositary shares relating to the
preferred stock in proportion to the number of depositary shares owned by those
holders.
If there is a distribution other than in cash, the depositary will
distribute property received by it to the record holders of depositary shares
that are entitled to receive the distribution, unless the depositary determines
that it is not feasible to make the distribution. If this occurs, the
depositary may, with our approval, sell the property and distribute the net
proceeds from the sale to the applicable holders.
Redemption of Depositary Shares. If a series of preferred stock
represented by depositary shares is subject to redemption, the depositary
shares will be redeemed from the proceeds received by the depositary resulting
from the redemption, in whole or in part, of that series of preferred stock
held by the depositary. The redemption price per depositary share will be equal
to the applicable fraction of the redemption price per share payable with
respect to that series of the preferred stock. Whenever we redeem shares of
preferred stock that are held by the depositary, the depositary will redeem, as
of the same redemption date, the number of depositary shares representing the
shares of preferred stock so redeemed. If fewer than all the depositary shares
are to be redeemed, the depositary shares to be redeemed will be selected by
lot or pro rata as may be determined by the depositary.
Voting the Preferred Stock. Upon receipt of notice of any meeting at
which the holders of the preferred stock are entitled to vote, the depositary
will mail the information contained in the notice to the record holders of the
depositary shares underlying the preferred stock. Each record holder of the
depositary shares on the record date (which will be the same date as the record
date for the preferred stock) will be entitled to instruct the depositary as to
the exercise of the voting rights pertaining to the amount of the preferred
stock represented by such holder's depositary shares. The depositary will then
try, as far as practicable, to vote the number of shares of preferred stock
underlying those depositary shares in accordance with such instructions, and we
will agree to take all actions which may be deemed necessary by the depositary
to enable the depositary to do so. The depositary will not vote the shares of
preferred stock to the extent it does not receive specific instructions from
the holders of depositary shares underlying the preferred stock.
Amendment and Termination of the Depositary Agreement. The form of
depositary receipt evidencing the depositary shares and any provision of the
deposit agreement may at any time be amended by agreement between us and the
depositary. However, any amendment which materially and adversely alters the
rights of the holders of depositary shares will not be effective unless the
amendment has been approved by the holders of at least a majority of the
depositary shares then outstanding. The deposit agreement may be terminated by
us or by the depositary only if (a) all outstanding depositary shares have been
redeemed or (b) there has been a final distribution of the underlying preferred
stock in connection with our liquidation, dissolution or winding up and the
preferred stock has been distributed to the holders of depositary receipts.
Charges of Depositary. We will pay all transfer and other taxes and
governmental charges arising solely from the existence of the depositary
arrangements. We will also pay charges of the depositary in connection with the
initial deposit of the preferred stock and any redemption of the preferred
stock. Holders of depositary receipts will pay other transfer and other taxes
and governmental charges and those other charges, including a fee for the
withdrawal of shares of preferred stock upon surrender of depositary receipts,
as are expressly provided in the deposit agreement to be for their accounts.
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Miscellaneous. The depositary will forward to holders of depositary
receipts all reports and communications from us that we deliver to the
depositary and that we are required to furnish to the holders of the preferred
stock.
Neither we nor the depositary will be liable if either of us is prevented
or delayed by law or any circumstance beyond our control in performing our
respective obligations under the deposit agreement. Our obligations and those
of the depositary will be limited to performance in good faith of our
respective duties under the deposit agreement. Neither we nor they will be
obligated to prosecute or defend any legal proceeding in respect of any
depositary shares or preferred stock unless satisfactory indemnity is
furnished. We and the depositary may rely upon written advice of counsel or
accountants, or upon information provided by persons presenting preferred stock
for deposit, holders of depositary receipts or other persons believed to be
competent and on documents believed to be genuine.
Resignation and Removal of Depositary. The depositary may resign at any
time by delivering notice to us of its election to resign. We may remove the
depositary at any time. Any resignation or removal will take effect upon the
appointment of a successor depositary and its acceptance of the appointment.
The successor depositary must be appointed within 60 days after delivery of the
notice of resignation or removal and must be a bank or trust company having its
principal office in the United States and having a combined capital and surplus
of at least $50 million.
DESCRIPTION OF SECURITIES WARRANTS
We may issue securities warrants for the purchase of debt securities,
preferred stock or common stock. Securities warrants may be issued
independently or together with debt securities, preferred stock or common stock
and may be attached to or separate from any offered securities. Each series of
securities warrants will be issued under a separate warrant agreement to be
entered into between us and a bank or trust company, as warrant agent. The
securities warrant agent will act solely as our agent in connection with the
securities warrants and will not assume any obligation or relationship of
agency or trust for or with any registered holders of securities warrants or
beneficial owners of securities warrants. This summary of some provisions of
the securities warrants is not complete. You should refer to the securities
warrant agreement, including the forms of securities warrant certificate
representing the securities warrants, relating to the specific securities
warrants being offered for the complete terms of the securities warrant
agreement and the securities warrants. That securities warrant agreement,
together with the terms of securities warrant certificate and securities
warrants, will be filed with the SEC in connection with the offering of the
specific securities warrants.
The particular terms of any issue of securities warrants will be
described in the prospectus supplement relating to the issue. Those terms may
include:
. the designation, aggregate principal amount, currencies,
denominations and terms of the series of debt securities purchasable
upon exercise of securities warrants to purchase debt securities and
the price at which the debt securities may be purchased upon
exercise;
. the designation, number of shares, stated value and terms (including,
without limitation, liquidation, dividend, conversion and voting
rights) of the series of preferred stock purchasable upon exercise of
securities warrants to purchase shares of preferred stock and the
price at which such number of shares of preferred stock of such
series may be purchased upon such exercise;
. the number of shares of common stock purchasable upon the exercise of
securities warrants to purchase shares of common stock and the price
at which such number of shares of common stock may be purchased upon
such exercise;
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. the date on which the right to exercise the securities warrants will
commence and the date on which the right will expire;
. the U.S. Federal income tax consequences applicable to the securities
warrants; and
. any other terms of the securities warrants.
Securities warrants for the purchase of preferred stock and common stock
will be offered and exercisable for U.S. dollars only. Securities warrants will
be issued in registered form only. The exercise price for securities warrants
will be subject to adjustment in accordance with the applicable prospectus
supplement.
Each securities warrant will entitle its holder to purchase the principal
amount of debt securities or the number of shares of preferred stock or common
stock at the exercise price set forth in, or calculable as set forth in, the
applicable prospectus supplement. The exercise price may be adjusted upon the
occurrence of certain events as set forth in the prospectus supplement. After
the close of business on the expiration date, unexercised securities warrants
will become void. We will specify the place or places where, and the manner in
which, securities warrants may be exercised in the applicable prospectus
supplement.
Prior to the exercise of any securities warrants to purchase debt
securities, preferred stock or common stock, holders of the securities warrants
will not have any of the rights of holders of the debt securities, preferred
stock or common stock purchasable upon exercise, including:
. in the case of securities warrants for the purchase of debt
securities, the right to receive payments of principal of, any
premium or interest on the debt securities purchasable upon exercise
or to enforce covenants in the applicable indenture; or
. in the case of securities warrants for the purchase of preferred
stock or common stock, the right to vote or to receive any payments
of dividends on the preferred stock or common stock purchasable upon
exercise.
DESCRIPTION OF CAPITAL SECURITIES
Common Stock
As of the date of this prospectus, we are authorized to issue up to 100
million shares of common stock. As of April 1, 2001, we had 43,548,886 shares
of common stock issued and outstanding and had reserved 5,753,598 additional
shares of common stock for issuance under our various stock compensation plans.
The following summary is not complete and is not intended to give full
effect to provisions of statutory or common law. You should refer to the
applicable provisions of the following documents:
. the amended and restated certificate of incorporation, which is
incorporated by reference to Exhibit 3.1 to our Form 10-Q for the
quarter ended March 31, 2000, and
. the restated and amended bylaws which are incorporated by reference
to Exhibit 3.2 to our Form 10-K for the year ended December 31, 2000.
Dividends. The holders of common stock are entitled to receive dividends
when, as and if declared by our board of directors, out of funds legally
available for their payment subject to the rights of holders of the preferred
stock.
Voting Rights. The holders of common stock are entitled to one vote per
share on all matters submitted to a vote of stockholders.
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Rights Upon Liquidation. In the event of our voluntary or involuntary
liquidation, dissolution or winding up, the holders of common stock will be
entitled to share equally in any of our assets available for distribution after
the payment in full of all debts and distributions and after the holders of all
series of outstanding preferred stock have received their liquidation
preferences in full.
Miscellaneous. The outstanding shares of common stock are fully paid and
nonassessable. The holders of common stock are not entitled to preemptive or
redemption rights. Shares of common stock are not convertible into shares of
any other class of capital stock. EquiServe, N.A. is the transfer agent and
registrar for the common stock.
Preferred Stock
Our Board of Directors is authorized to approve the issuance of Arch Coal
preferred stock without any approval of stockholders. Our Board determines the
rights, qualification, restrictions, and limitations on each series of Arch
Coal preferred stock at the time of issuance. Shares of Arch Coal preferred
stock may have dividend, redemption, voting and liquidation rights taking
priority over Arch Coal common stock, and may be convertible into Arch Coal
common stock. As of the date of this prospectus, there are no outstanding
shares of preferred stock.
Preferred Stock Purchase Rights
On March 3, 2000, we entered into a rights agreement with First Chicago
Trust Company of New York, as rights agent, which is a stockholder rights plan
providing for a dividend of one preferred stock purchase right for each
outstanding share of our common stock. We issued the dividend to stockholders
of record on March 20, 2000, and holders of shares of common stock issued since
that date are issued rights with their shares. The rights trade automatically
with shares of common stock and become exercisable only under certain
circumstances as described below. The rights are designed to protect our
interests and the interests of our stockholders against coercive takeover
tactics. The purpose of the rights is to encourage potential acquirors to
negotiate with our board of directors prior to attempting a takeover and to
provide our board with leverage in negotiating on behalf of all stockholders
the terms of any proposed takeover. The rights may have certain anti-takeover
effects. The rights should not, however, interfere with any merger or other
business combination approved by our board of directors.
Until a right is exercised, the holder of a right will have no rights as
an Arch Coal stockholder, including, without limitation, the right to vote or
to receive dividends. Upon becoming exercisable, each right will entitle its
holder to purchase from us one one-hundredth of a share of Series One Junior
Preferred Stock, par value $0.01 per share, at a purchase price of $42.00 per
right, subject to adjustment. In general, the rights will not be exercisable
until the earlier of (a) the close of business on the tenth business day after
the date that we learn that a person or group or an affiliate or associate of
the person or group has acquired, or has obtained the right to acquire,
beneficial ownership of 20% or more of our outstanding common stock and (b) the
close of business on the tenth business day following the commencement of, or
first public disclosure of an intent to commence, a tender or exchange offer
for 20% or more of our outstanding common stock. Below we refer to the earlier
of those dates as the "distribution date" and the person or group acquiring at
least 20% of our common stock as an "acquiring person". You should assume that
any of the following provisions that refers to an acquiring person applies to
any associate or affiliate of the acquiring person as well.
If, after the distribution date, any acquiring person acquires 20% or
more of our outstanding voting stock without the prior approval of our board of
directors, each right will entitle its holder to acquire the number of shares
of our common stock that is equal to the result obtained by multiplying the
then current purchase price by the number of one one-hundredths of a share of
preferred stock for which a right is then exercisable and dividing that product
by 50% of the then current per-share market price of our common stock.
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If any acquiring person acquires more than 20% but less than 50% of the
outstanding shares of our common stock subsequent to the distribution date
without prior written consent of our board of directors, each right may be
exchanged by our board of directors for one share of our common stock.
In the event that, following the distribution date, we are acquired in a
merger or other business combination in which we are not the surviving
corporation, or in which 50% or more of our assets or assets representing 50%
or more of our revenues or cash flow are sold in one or several transactions
without the prior written consent of our board of directors, each right will
entitle its holder to receive the number of shares of the acquiring company's
common stock as is equal to the result obtained by multiplying the then current
purchase price by the number of one one-hundredths of a share of preferred
stock for which the right is then exercisable and dividing that product by 50%
of the then current market price per share of the common stock of the acquiring
company.
Any rights that are at any time beneficially owned by an acquiring person
will be null and void, and any holder of such rights, including any purported
transferee or subsequent holder, will be unable to exercise the rights.
The rights will expire at the close of business on March 20, 2010, unless
redeemed or exchanged before that time. At any time prior to the earlier of (a)
the time a person or group becomes an acquiring person and (b) the expiration
date, our board of directors may exchange all or part of the then outstanding
and exercisable rights for shares of our common stock at an exchange ratio of
one share of common stock per right or redeem the rights in whole, but not in
part, at a price of $0.01 per right. The exchange rate and redemption price are
subject to adjustment as provided in the rights agreement.
The preceding summary is not complete and is not intended to give full
effect to provisions of statutory or common law. You should refer to the
applicable provisions of the rights agreement and the form of right
certificate, which are incorporated by reference to Exhibit 1 to our Form 8-A,
filed with the SEC on March 9, 2000.
In the event of a proposed merger or tender offer, proxy contest or other
attempt to gain control of us and not approved by our board of directors, it
would be possible for the board to authorize the issuance of one or more series
of preferred stock with voting rights or other rights and preferences which
would impede the success of the proposed merger, tender offer, proxy contest or
other attempt to gain control of us. This authority may be limited by
applicable law, the restated articles and the applicable rules of the stock
exchanges upon which the common stock is listed. The consent of our
stockholders would not be required for any such issuance of preferred stock.
Special Charter Provisions
Our certificate of incorporation provides that:
. our board of directors is classified into three classes;
. subject to the rights of holders of our preferred stock, if any, the
affirmative vote of the holders of not less than two-thirds of the
shares of common stock voting thereon is required in order to:
-- adopt an agreement or plan of merger or consolidation,
-- authorize the sale, lease or exchange of all or substantially all
of our property and assets, or
-- authorize the disposition of Arch Coal or the distribution of all
or substantially all of our assets to our stockholders;
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. subject to the rights of holders of our preferred stock, if any,
certain provisions of the amended and restated certificate may be
amended only by the affirmative vote of the holders of at least two-
thirds of the shares of common stock voting thereon;
. subject to the rights of holders of our preferred stock, if any, all
actions required to be taken or which may be taken at any annual or
special meeting of our stockholders must be taken at a duly called
annual or special meeting of stockholders, and cannot be taken by a
consent in writing without a meeting; and
. special meetings of the stockholders may be called at any time by any
two or more of our directors and may not be called by any other
person or persons or in any other manner.
SELLING STOCKHOLDERS
The selling stockholders may be our directors, executive officers,
employees or certain holders of our common stock, including Hunt Coal
Corporation, the holder of approximately 5.2% of our outstanding common stock,
and Carboex, S.A. A prospectus supplement with respect to any offering of
common stock by selling stockholders will include the following information:
. the names of the selling stockholders;
. the number of shares of common stock held by each of the selling
stockholders; and
. the number of shares of common stock offered by each of the selling
stockholders.
PLAN OF DISTRIBUTION
We and any selling stockholders may sell the securities offered by this
prospectus and applicable prospectus supplements (together referred to as the
"offered securities") (a) through underwriters or dealers; (b) directly to one
or a limited number of institutional purchasers; or (c) through agents. This
prospectus or the applicable prospectus supplement will set forth the terms of
the offering of any offered securities, including the name or names of any
underwriters, dealers or agents, the price of the offered securities and the
net proceeds to us or to any selling stockholders from such sale, any
underwriting commissions or other items constituting underwriters'
compensation.
If underwriters are used in the sale, the offered securities will be
acquired by the underwriters for their own account and may be resold from time
to time in one or more transactions, including negotiated transactions, at a
fixed public offering price or at varying prices determined at the time of
sale. The offered securities may be offered to the public either through
underwriting syndicates represented by managing underwriters or directly by one
or more investment banking firms or others, as designated. Unless otherwise set
forth in the applicable prospectus supplement, the obligations of the
underwriters or agents to purchase the offered securities will be subject to
certain conditions precedent and the underwriters will be obligated to purchase
all the offered securities if any are purchased. Any initial public offering
price and any underwriting commissions or other items constituting
underwriters' compensation may be changed from time to time.
If a dealer is utilized in the sale of any offered securities, we and any
selling stockholders will sell those offered securities to the dealer, as
principal. The dealer may then resell the offered securities to the public at
varying prices to be determined by the dealer at the time of resale.
We and any selling stockholders may sell offered securities directly to
one or more institutional purchasers, or through agents at a fixed price or
prices, which may be changed, or at varying prices determined
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at time of sale. Unless otherwise indicated in the prospectus supplement, any
agent will be acting on a best efforts basis for the period of its appointment.
If an applicable prospectus supplement indicates, agents, underwriters or
dealers will be authorized to solicit offers by certain specified institutions
to purchase offered securities at the public offering price set forth in the
prospectus supplement under delayed delivery contracts providing for payment
and delivery on a specified date in the future. These contracts will be subject
only to those conditions set forth in the prospectus supplement, and the
prospectus supplement will set forth the commission payable for solicitation of
the contracts.
Under agreements entered into with us, agents and underwriters who
participate in the distribution of the offered securities may be entitled to
indemnification by us against certain civil liabilities, including liabilities
under the Securities Act of 1933, or to contribution with respect to payments
which the agents or underwriters may be required to make. Agents and
underwriters may be customers of, engage in transactions with or perform
services for us in the ordinary course of business.
LEGAL MATTERS
The validity of the issuance of the offered securities will be passed
upon for us by Robert G. Jones, our Vice President-Law, General Counsel and
Secretary. Mr. Jones owns beneficially 2,180 shares of our common stock.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule for the years ended December 31, 1998, 1999
and 2000 included or incorporated by reference in our Annual Report on Form 10-
K for the year ended December 31, 2000, and the financial statements of Canyon
Fuel Company, LLC for the years ended December 31, 1998, 1999 and 2000 included
in our Annual Report on Form 10-K for the year ended December 31, 2000, all as
set forth in their reports, which are incorporated by reference in this
prospectus and elsewhere in the registration statement. Our financial
statements and schedule and the financial statements of Canyon Fuel Company,
LLC are incorporated by reference in reliance on the reports of Ernst & Young
LLP, given on their authority as experts in accounting and auditing.
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8,500,000 Shares
Arch Coal, Inc.
Common Stock
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PROSPECTUS SUPPLEMENT
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Merrill Lynch & Co.
Bear, Stearns & Co. Inc.
JPMorgan
Lehman Brothers
Morgan Stanley Dean Witter
May 2, 2001
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