SETTLEMENT AGREEMENT
This SETTLEMENT AGREEMENT is made this 24th day of February, 2004 by and
among ENERGY CORPORATION OF AMERICA, a West Virginia corporation (the "Company")
and MACKAY XXXXXXX LLC, a Delaware limited liability company; DEBT STRATEGIES
FUND, INC., a Maryland corporation; XXXXXXX XXXXX HIGH CURRENT INCOME FUND, a
series of XXXXXXX XXXXX VARIABLE SERIES FUNDS, INC., a New Jersey corporation;
HIGH INCOME PORTFOLIO, a series of XXXXXXX XXXXX XXXX FUND, INC., a Maryland
corporation; SENIOR HIGH INCOME PORTFOLIO, INC., a Maryland corporation; HIGH
YIELD PORTFOLIO, a series of XXXXXXX XXXXX SERIES FUND, INC., a New Jersey
corporation; INCOME STRATEGIES PORTFOLIO a series of XXXXXXX XXXXX GLOBAL
INVESTMENT SERIES, a Luxembourg entity; and U.S. HIGH YIELD FUND, a series of
XXXXXXX XXXXX INTERNATIONAL INVESTMENT FUNDS, a Luxembourg entity (collectively
the "Noteholders"). Capital terms used herein but not defined shall have the
meanings ascribed thereto in the Indenture (as defined below).
WHEREAS, on December 27, 2001 an informal committee (the "Informal
Committee") representing holders of more than fifty percent (50%) of the 9 1/2%
Senior Subordinated Notes due 2007 (the "Notes") issued under that certain
Indenture dated as of May 23, 1997 between the Company and the Bank of New York,
as Trustee (the "Indenture") issued a Notice of Default under the Indenture in
which the Informal Committee alleged that the Company failed to make an Asset
Sale Offer as required by
Section 4.9 of the Indenture in the amount of the Excess Proceeds resulting from
the sale by the Company of its subsidiary, Mountaineer Gas Company; and
WHEREAS, on December 28, 2001 the Company filed a Complaint for Declaratory
Judgment in the United States District Court for the Southern District of West
Virginia, Huntington Division, styled Energy Corporation of America, Plaintiff
x. XxxXxx Xxxxxxx, LLC, AXP Variable Portfolio Income Series, Inc., Income
Trust, American Express Financial Advisers, Inc., Debt Strategies Fund, Inc.,
Xxxxxxx Xxxxx Investment Managers, LP, Xxxxxxx Xxxxx Variable Series Funds,
Inc., Xxxxxxx Xxxxx Xxxx Fund, Inc., Senior High Income Portfolio, Inc., and
Xxxxxxx Xxxxx Series Fund, Inc., Civil Action No. 3:01-1317 (the "Civil Action")
seeking a determination that the Company properly calculated the amount of Net
Proceeds resulting from the sale of Mountaineer Gas Company and that it was not
in default under the Indenture because there were no Excess Proceeds; and
WHEREAS, the Noteholders disputed the Company's interpretation of Net
Proceeds under the Indenture and further asserted a counterclaim against the
Company in which they alleged that the sale of Mountaineer Gas Company
constituted a sale of substantially all of the Company's assets; and
WHEREAS, the District Court found that the Company was not in default under
the Indenture and dismissed the Noteholders' Counterclaim; and
WHEREAS, the Noteholders appealed the District Court's decision to the
Fourth Circuit Court of Appeals and in its decision dated December 15, 2003 the
Fourth Circuit Court of Appeals reversed the District Court's decision with
respect to the calculation of Net Proceeds and remanded the case to the District
Court; and
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WHEREAS, the Noteholders allege that the amount of Excess Proceeds is $43
million and the Company disputes such allegation; and
WHEREAS, the Company and the Noteholders desire to resolve such dispute
without further litigation;
NOW, THEREFORE, the parties have agreed to settle all issues arising from
the matters alleged in the Civil Action on the terms and conditions set forth
herein. Nothing contained herein shall be deemed an admission by any of the
parties as to the validity of any claim which was asserted in the Civil Action.
1. REPURCHASE OF NOTES. In settlement of the dispute and all claims
---------------------
asserted in the Civil Action, the Company agrees to repurchase a total of $38
million of Notes (i) by commencing within five (5) business days of the
execution of this Settlement Agreement an Asset Sale Offer to repurchase $4
million of Notes, (ii) by making and consummating an Asset Sale Offer to
repurchase an additional $17 million of Notes within one hundred and eighty
(180) consecutive days of the execution of this Settlement Agreement, and (iii)
by making and consummating an Asset Sale Offer to repurchase an additional $17
million of Notes within three hundred and sixty (360) consecutive days of the
execution of this Settlement Agreement. All Asset Sale Offers shall be made in
accordance with the procedures set forth in Section 3.9 of the Indenture and
subject to documentation reasonably acceptable to the Noteholders, (such
acceptance not to be unreasonably withheld, conditioned or delayed).
2. WAIVER OF DEFAULT. Upon consummation of the initial Asset Sale Offer
-----------------
in the amount of $4 million, the Noteholders shall withdraw and waive the Notice
of Default issued to the Company on December 27, 2001 (the "Notice of Default")
and
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deliver written notice thereof to the Company substantially in the form of
Exhibit A hereto; provided that, upon the occurrence of any of the events
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described in paragraph 3, the Notice of Default shall be reinstated with full
force and effect, effective immediately as of December 27, 2001. The
Noteholders and the Company shall also submit to the District Court for the
Southern District of West Virginia an agreed Dismissal Order, dismissing with
prejudice the Civil Action substantially in the form of Exhibit B hereto.
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3. FAILURE TO REPURCHASE NOTES. If the Company fails to make or
------------------------------
consummate the Asset Sale Offer(s) and related repurchase(s) as and when
scheduled above and in accordance with Section 3.9 of the Indenture, (i) the
total amount of Notes to be repurchased by the Company shall be $43 million and
the Company shall immediately make and consummate an Asset Sale offer for such
amount; (ii) such failure shall be treated as a failure to pay the principal
amount of the Notes triggering an automatic Event of Default and an immediate
right to accelerate under the Indenture, without any requirement of notice or
opportunity to cure of any kind; (iii) the Company shall reimburse the
Noteholders for their attorney's fees and expenses incurred through the date of
this Settlement Agreement; and (iv) the Notice of Default issued to the Company
on December 27, 2001 shall be reinstated with full force and effect, effective
immediately as of December 27, 2001.
4. COMPANY NOT TO PARTICIPATE IN ASSET SALE OFFERS. The Company shall
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not make or consummate any Asset Sale Offer in respect of or repurchase any
Notes purchased or held by the Company or any Affiliate.
5. INCURRENCE OF INDEBTEDNESS. The Company hereby covenants that, until
--------------------------
all of the Company's obligations under paragraph one, or paragraph three, as
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the case may be, above, are satisfied in full, it shall not grant or suffer to
exist any Indebtedness not in existence as of the date hereof except Permitted
Indebtedness (other than under clause (b)(ii) or clause (i) of the definition of
Permitted Indebtedness set forth in section 4.7 of the Indenture) and
Indebtedness incurred solely for the purpose of satisfying the Company's
obligations to the Noteholders under paragraph one, or paragraph three, as the
case may be, above.
6. LIMITATION ON LIENS. The Company hereby covenants that, until all of
-------------------
the Company's obligations under paragraph one, or paragraph three, as the case
may be, above, are satisfied in full, it shall not grant or suffer to exist any
Liens not in existence as of the date hereof, except Permitted Liens and Liens
granted with respect to Indebtedness incurred solely for the purpose of
satisfying the Company's obligations to the Noteholders under paragraph one, or
paragraph three, as the case may be, above.
7. EXECUTORY ACCORD. The agreements contained herein constitute an
-----------------
executory accord under Section 15-501 et seq., of the New York General
Obligations Law and the Noteholders shall be entitled to, among other rights,
the benefit of Section 15-501(3) upon any failure of performance by the Company.
8. ASSIGNABILITY. This Settlement Agreement shall be assignable by the
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Noteholders, or any one or more of the Noteholders, without the consent of the
Company or any other Noteholder.
9. OWNERSHIP INTEREST OF NOTEHOLDERS. Each Noteholder severally and not
----------------------------------
jointly represents that as of the date of this Settlement Agreement such
Noteholder owns, or represents the beneficial owners of, Notes in the respective
amounts set forth on Exhibit C hereto.
-
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10. RESERVATION OF REMEDIES. Except as expressly set forth herein, the
------------------------
Noteholders reserve the right to exercise any and all of their rights and
remedies available to them as holders of Notes under the Indenture or otherwise,
and nothing contained in this Settlement Agreement shall be deemed to limit,
waive, release or modify any of the Noteholders' rights, remedies or claims, in
any way, all of which rights, remedies and claims are expressly reserved.
11. COUNTERPARTS. This Settlement Agreement may be executed in one or
------------
more counterparts, each of which will be deemed to be an original copy of this
Settlement Agreement and all of which, when taken together, will be deemed to
constitute one and the same Settlement Agreement.
12. TIME OF THE ESSENCE. Time is of the essence with respect to the
----------------------
undertakings of the parties contained herein or contemplated hereby.
13. GOVERNING LAW. The substantive law of the State of New York shall
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govern and be used to construe this Settlement Agreement.
14. AMENDMENTS, WAIVERS, ETC. No modification, amendment, waiver of any
------------------------
provision of, or consent required by, this Settlement Agreement, nor any consent
to any departure from the terms of this Settlement Agreement, shall be effective
unless it is in writing and signed by each party to this Settlement Agreement.
Any such modification, amendment, waiver, or consent shall be effective only in
the specific instance and for the specific purpose for which it was given. The
failure of any party to enforce, or any delay by any party in enforcing, any
right, power or privilege hereunder shall not operate as a waiver of any such
right, power or privilege, nor preclude any further exercise of such right,
power or privilege.
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IN WITNESS WHEREOF, the parties have executed this Settlement Agreement as
of the date first above written.
ENERGY CORPORATION OF AMERICA,
A WEST VIRGINIA CORPORATION
By:___________________________________
Its:__________________________________
MACKAY XXXXXXX, LLC,
a Delaware limited liability company
By:___________________________________
Its:__________________________________
DEBT STRATEGIES FUND, INC.,
a Maryland corporation
By:___________________________________
Its:__________________________________
XXXXXXX XXXXX HIGH CURRENT
INCOME FUND, A SERIES OF
XXXXXXX XXXXX VARIABLE SERIES
FUNDS, INC.,
a New Jersey corporation
By:___________________________________
Its:__________________________________
HIGH INCOME PORTFOLIO, A SERIES OF
XXXXXXX XXXXX XXXX FUND, INC.,
a Maryland corporation
By:___________________________________
Its:__________________________________
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SENIOR HIGH INCOME PORTFOLIO, INC.,
a Maryland corporation
By:___________________________________
Its:__________________________________
HIGH YIELD PORTFOLIO,
A SERIES OF XXXXXXX XXXXX SERIES FUND, INC.,
a New Jersey corporation
By:___________________________________
Its:__________________________________
INCOME STRATEGIES PORTFOLIO
A SERIES OF XXXXXXX XXXXX GLOBAL
INVESTMENT SERIES,
a Luxembourg entity
By:___________________________________
Its:__________________________________
U.S. HIGH YIELD FUND,
A SERIES OF XXXXXXX XXXXX INTERNATIONAL
INVESTMENT FUNDS,
a Luxembourg entity
By:___________________________________
Its:__________________________________
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EXHIBIT A
(NOTICE OF WITHDRAWAL OF NOTICE OF DEFAULT)
EXHIBIT A TO
SETTLEMENT AGREEMENT
_______________, 2004
Xxxx Xxxx, President & CEO
Energy Corporation of America
4643 5. Xxxxxx Xxxxxx
Xxxxxx, XX 00000
NOTICE OF WITHDRAWAL AND
------------------------
WAIVER OF NOTICE OF DEFAULT
---------------------------
Dear Xx. Xxxx:
Pursuant to paragraph 2 of that certain Settlement Agreement dated
___________ 2004 (the "Settlement Agreement") by and among Energy Corporation of
America, a West Virginia corporation (the "Company") and Mackay Xxxxxxx, LLC, a
Delaware limited liability company; Debt Strategies Fund, Inc., a Maryland
corporation; Xxxxxxx Xxxxx High Current Income Fund, a series of Xxxxxxx Xxxxx
Variable Series Funds, Inc., a New Jersey corporation; High Income Portfolio, a
series of Xxxxxxx Xxxxx Xxxx Fund, Inc., a Maryland corporation; Senior High
Income Portfolio, Inc., a Maryland corporation; High Yield Portfolio, a series
of Xxxxxxx Xxxxx Series Fund, Inc., a New Jersey corporation; Income Strategies
Portfolio a series of Xxxxxxx Xxxxx Global Investment Series, a Luxembourg
entity; and U.S. High Yield Fund, a series of Xxxxxxx Xxxxx International
Investment Funds, a Luxembourg entity (collectively the "Noteholders"), you are
hereby notified that, subject in all respect to the terms and conditions of the
Settlement Agreement, the Notice of Default dated December 27, 2001 issued by an
informal committee (including, among others, the Noteholders) representing
holders of more than fifty percent (50%) of the 9 1/2% Senior Subordinated Notes
due 2007 issued under that certain Indenture dated as of May 23, 1997 between
the Company and the Bank of New York, as Trustee is hereby withdrawn and the
asserted Default described in said Notice of Default is hereby waived.
[signature page follows]
Sincerely,
MACKAY XXXXXXX, LLC,
a Delaware limited liability company
By:___________________________________
Its:__________________________________
DEBT STRATEGIES FUND, INC.,
a Maryland corporation
By:___________________________________
Its:__________________________________
XXXXXXX XXXXX HIGH CURRENT
INCOME FUND, A SERIES OF
XXXXXXX XXXXX VARIABLE SERIES
FUNDS, INC.,
a New Jersey corporation
By:___________________________________
Its:__________________________________
HIGH INCOME PORTFOLIO, A SERIES OF
XXXXXXX XXXXX XXXX FUND, INC.,
a Maryland corporation
By:___________________________________
Its:__________________________________
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SENIOR HIGH INCOME PORTFOLIO, INC.,
a Maryland corporation
By:___________________________________
Its:__________________________________
HIGH YIELD PORTFOLIO, A SERIES OF
XXXXXXX XXXXX SERIES FUND, INC.,
a New Jersey corporation
By:___________________________________
Its:__________________________________
INCOME STRATEGIES PORTFOLIO
A SERIES OF XXXXXXX XXXXX GLOBAL
INVESTMENT SERIES,
a Luxembourg entity
By:___________________________________
Its:__________________________________
U.S. HIGH YIELD FUND, A SERIES OF
XXXXXXX XXXXX INTERNATIONAL
INVESTMENT FUNDS,
a Luxembourg entity
By:___________________________________
Its:__________________________________
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EXHIBIT B
(DISMISSAL ORDER)
EXHIBIT B
TO SETTLEMENT AGREEMENT
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF WEST VIRGINIA
ENERGY CORPORATION OF AMERICA,
a West Virginia corporation,
Plaintiff,
Civil Action No. 3:01-1317
x.
XXXXXX XXXXXXX LLC,
a Delaware limited liability company;
AXP VARIABLE PORTFOLIO INCOME SERIES, INC.,
a Minnesota corporation;
INCOME TRUST, A DIVISION OR AFFILIATE OF
AMERICAN EXPRESS FINANCIAL ADVISORS, INC.,
a Delaware corporation;
DEBT STRATEGIES FUND, INC.,
a Maryland corporation;
XXXXXXX XXXXX INVESTMENT MANAGERS, L.P.,
a limited partnership;
XXXXXXX XXXXX VARIABLE SERIES FUNDS, INC.,
a New Jersey corporation;
XXXXXXX XXXXX XXXX FUND, INC.,
a Maryland corporation;
SENIOR HIGH INCOME PORTFOLIO, INC.,
a Maryland corporation; and
XXXXXXX XXXXX SERIES FUND, INC.,
a New Jersey corporation,
Defendants.
DISMISSAL ORDER
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This day came the Plaintiff, Energy Corporation of America, by its
attorneys, Xxxxxx X. Xxxxxxx, Xxxxx X. Xxxx and Xxxxxx X. Xxxxxxx XX, and came
Defendants, MacKay Xxxxxxx LLC; AXP Variable Portfolio Income Series, Inc.;
Income Trust, a division or affiliate of American Express Financial Advisors,
Inc.; Debt Strategies Fund, Inc.; Xxxxxxx Xxxxx Investment Managers, L.P.;
Xxxxxxx Xxxxx Variable Series Funds, Inc.; Xxxxxxx Xxxxx Xxxx Fund, Inc.; Senior
High Income Portfolio, Inc.; and Xxxxxxx Xxxxx Series Fund, Inc., by their
attorneys, Xxxx X. Xxxxxxxxx, Xxxxxx X. Xxxxxxx, and Xxxxxxx X. Xxxxx;
whereupon, the parties, by and through their attorneys, announced unto the Court
that all matters in difference between the Plaintiff and the Defendants have
been adjusted, compromised and settled, and the parties, by and through their
attorneys, moved the Court to dismiss said action with prejudice to the
Plaintiff and the Counterclaim with prejudice to the Defendants, and there being
no objection thereto, and the Court perceiving of none, it is, therefore,
accordingly
ORDERED that said action be, and it hereby is, dismissed with prejudice to
the parties as to their respective claims and is retired from the docket of this
Court.
The Clerk of the Court is hereby directed to send certified copies of this
Dismissal Order to all counsel of record.
ENTERED this _____ day of ________________, 2004.
_______________________________
XXXXXXXXX XXXXXX X. XXXXXXXX
UNITED STATES DISTRICT JUDGE
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Presented by:
_________________________________________
XXXXXX X. XXXXXXX (WVSB #1435)
XXXXX X. XXXX (WVSB #5552)
XXXXXX X. XXXXXXX XX (WVSB #4968)
XXXXXXX & XXXXXXX, LLP
000 Xxxxxxx Xxxxxx, Xxxxx 0000
P. 0. Xxx 0000
Xxxxxxxxxx, Xxxx Xxxxxxxx 00000-0000
(000) 000-0000
Counsel for Plaintiff
Approved by:
_________________________________________
XXXX X. XXXXXXXXX
XXXXXX X. XXXXXXX
Xxxx, Weiss, Rifkind, Xxxxxxx & Xxxxxxxx
1285 Avenue of the Americas
Xxx Xxxx, Xxx Xxxx 00000-0000
000-000-0000
XXXXXXX X. XXXXX (WVSB #329)
XXXXX, XXXXXXX XxXXXX & XXXXXX, PLLC
Laidley Tower
000 Xxx Xxxxxx, X., Xxxxx 000
Xxxxxxxxxx, Xxxx Xxxxxxxx 00000
(000) 000-0000
Counsel for Defendants
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EXHIBIT C
(OWNERSHIP OF NOTES)
NAME OF INSTITUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . AMOUNT OF NOTES
Mackay Xxxxxxx, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 44,696,000
Debt Strategies Fund, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,250,000
Xxxxxxx Xxxxx High Current Income Fund, a series of Xxxxxxx Xxxxx Variable Series Funds, Inc. $ 4,000,000
High Income Portfolio, a series of Xxxxxxx Xxxxx Xxxx Fund, Inc.. . . . . . . . . . . . . . . $ 26,000,000
Senior High Income Portfolio, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,500,000
High Yield Portfolio, a series of Xxxxxxx Xxxxx Series Fund, Inc. . . . . . . . . . . . . . . $ 2,000,000
Income Strategies Portfolio a series of Xxxxxxx Xxxxx Global Investment Series. . . . . . . . $ 10,100,000
U.S. High Yield Fund, a series of Xxxxxxx Xxxxx International Investment Funds. . . . . . . . $ 4,000,000
TOTAL:. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 95,546,000
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