September 23, 2004
Wilbur L. Ross
NewCoal, LLC
c/o WL Ross & Co. LLC
101 East 52nd Street
19th Floor
New York, NY 10022
Dear Wilbur:
Third Point Management Company L.L.C ("Third Point") is a holder of
approximately $37 million of Second Lien Notes (the "Notes") issued by
Horizon Natural Resources Company ("Horizon" or the "Company"), making us
one of the Company's largest creditors. We estimate that we will own
approximately 6.5% of the Company following its anticipated emergence
from bankruptcy.
We were aware that the ad hoc creditors committee (the "Ross-led
Committee") was to receive a cash fee of $3.75 million as provided in the
Third Amended Disclosure Statement dated July 11, 2004 and Amended Plan
of Reorganization (the "Disclosure Statement" and "Plan", respectively).
The reason we are writing you, in your capacity as head of the
restructuring process, is your bald attempt to obtain a windfall by, in
our view, "double-dipping" and taking payment of this fee in
significantly undervalued equity (the "Windfall") rather than cash, as
proposed in the Disclosure Statement. We received notification of the
Windfall in a letter to creditors that you sent "at the 11th hour," the
day after we wired funds to help finance the Company's emergence from
bankruptcy. The resulting dilution of 2.48 million shares is unfair to
other second-lien note holders and is inconsistent with terms set forth
in the Disclosure Statement.
We regret having to contact you in this manner, but we attempted in vain
to reach you yesterday, having left two telephone messages; your failure
to speak to us has left us with no other choice. We were eventually
forwarded to your partner, Wendy Teramoto, to express our confusion and
dismay over your apparent self-dealing in connection with the Windfall.
Wendy (who promised to call back and still has not) stated that it was
UBS Securities ("UBS') that demanded that this fee be paid in equity
rather than cash. Given that UBS was originally comfortable with
$150 million of term debt and the adjusted credit facility will provide
for $145 million in acquisition debt, $3.75 million does not seem like an
excessive financial burden for the Company. Furthermore, if the fee was a
stumbling block to obtaining financing we believe a more honorable course
would have been to simply waive the fee and thus complete the financing
and restructuring process.
Your timing of this notification on September 21, 2004 is, to put it
charitably, unfortunate considering that all subscriptions for the rights
offerings were due on September 22, 2004. We believe that all creditors
should have the opportunity to purchase these shares and fund the cash
payment to the Ross-led Committee. Third Point is willing to guarantee
that all 2.48 million shares are purchased so that your fee can be paid
in cash.
In conclusion, we will not rescind our subscription, but be advised that
we are reserving our rights to pursue any and all legal and other
remedies relating to this matter. Given that the value of stock being
issued is below market, we will seek to disgorge any value post-closing
from the appreciation of these shares that rightly belongs to the entire
creditors group.
Wilbur, we mean you no disrespect by sending you this letter; it simply
appears to us that the many years you spent generating fees as a
financial advisor makes it irresistible for you to try to extract fees in
your relatively new capacity as a principal. We urge you to avoid the
temptation to use your position as the head of the restructuring process
or in the future as Chairman of the Company, to extract special,
unwarranted consideration not provided to those with whom you have a
fiduciary relationship.
I know that other large creditors, with whom we have spoken, such as JANA
Partners (holder of $20 million face amount of the Notes), share our
concern about the Windfall and your conduct. We urge other creditors who
share these views to contact you.
Sincerely,
Daniel S. Loeb
Managing Member