<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 9, 1999
REGISTRATION NO. 333-78845
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 4 TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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ALLIANCE RESOURCE PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 1222 73-1564280
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
1717 SOUTH BOULDER AVENUE
TULSA, OKLAHOMA 74119
(918) 295-7600
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
THOMAS L. PEARSON
SENIOR VICE PRESIDENT -- LAW AND ADMINISTRATION,
GENERAL COUNSEL AND SECRETARY
1717 SOUTH BOULDER AVENUE
TULSA, OKLAHOMA 74119
(918) 295-7600
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
<TABLE>
<S> <C>
ANDREWS & KURTH L.L.P. BAKER & BOTTS, L.L.P.
600 TRAVIS, SUITE 4200 ONE SHELL PLAZA
HOUSTON, TEXAS 77002 910 LOUISIANA
(713) 220-4200 HOUSTON, TEXAS 77002
ATTN: DAVID P. OELMAN (713) 229-1234
ATTN: JOSHUA DAVIDSON
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED AUGUST 9, 1999
PROSPECTUS
8,969,335 COMMON UNITS
ALLIANCE RESOURCE PARTNERS, L.P.
REPRESENTING LIMITED PARTNER INTERESTS
$ PER UNIT
------------------
Alliance Resource Partners, L.P. is selling 8,969,335 common units which
represent limited partner interests in our partnership. Alliance Resource
Partners was recently formed to acquire, own and operate substantially all of
the coal production and marketing business and assets of Alliance Resource
Holdings, Inc. The underwriters named in this prospectus may purchase up to
1,345,400 additional common units from Alliance Resource Partners under certain
circumstances.
Common units are entitled to receive distributions of operating cash of
$0.50 per quarter, or $2.00 on an annualized basis, before any distributions are
paid on subordinated units. Subordinated units also represent limited partner
interests in our partnership and will be owned by our special general partner.
We expect that the priority of the common units will continue until at least
September 30, 2004.
This is an initial public offering of common units. Alliance Resource
Partners currently expects the initial public offering price to be between
$19.00 and $21.00 per share. The common units have been approved for quotation
on the Nasdaq National Market under the symbol "ARLP".
------------------
INVESTING IN THE COMMON UNITS INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 20.
These risks include the following:
- Cash distributions on the common units are not assured.
- The legal duties of our managing general partner to unitholders are
limited.
- Our business will be managed by our managing general partner. You will
have limited voting rights and limited ability to remove the managing
general partner.
- Environmental regulations have changed consumption patterns by electric
utility companies and may limit our ability to sell coal.
- Competition within the coal industry and from other fuels may affect our
ability to sell our coal.
- We depend on a few customers for a significant portion of our revenues.
- Our customers may choose not to extend existing or enter into new
long-term contracts.
- Our indebtedness may limit our ability to borrow additional funds, make
distributions to unitholders or capitalize on business opportunities.
- Purchasers of common units will experience immediate and substantial
dilution.
- You may be required to pay taxes on income from us even if you receive no
cash distributions.
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.
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<TABLE>
<CAPTION>
PER COMMON UNIT TOTAL
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<S> <C> <C>
Public Offering Price $ $
Underwriting Discount $ $
Proceeds to Alliance Resource Partners (before expenses) $ $
</TABLE>
The underwriters are offering the common units subject to various
conditions. The underwriters expect to deliver the common units to purchasers on
or about , 1999.
------------------
SALOMON SMITH BARNEY MORGAN STANLEY DEAN WITTER
A.G. EDWARDS & SONS, INC.
LEHMAN BROTHERS
, 1999
<PAGE> 3
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS.
ALLIANCE RESOURCE PARTNERS HAS NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
DIFFERENT INFORMATION. ALLIANCE RESOURCE PARTNERS IS NOT MAKING AN OFFER OF
THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT
ASSUME THAT THE INFORMATION PROVIDED BY THIS PROSPECTUS IS ACCURATE AS OF ANY
DATE OTHER THAN THE DATE ON THE FRONT OF THIS PROSPECTUS.
---------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
GUIDE TO READING THIS PROSPECTUS................. (iii)
PROSPECTUS SUMMARY............................... 1
Alliance Resource Partners..................... 1
Partnership Structure and Management........... 5
The Offering................................... 7
Summary Historical and Pro Forma Financial and
Operating Data of Alliance Resource
Partners..................................... 9
Summary of Risk Factors........................ 11
The Transactions............................... 14
Summary of Conflicts of Interest and Fiduciary
Responsibilities............................. 15
Distributions and Payments to the General
Partners and their Affiliates................ 16
Summary of Tax Considerations.................. 18
RISK FACTORS..................................... 20
Risks Inherent in an Investment in Alliance
Resource Partners............................ 20
Risks Inherent in Our Business................. 22
Regulatory Risks............................... 29
Tax Risks to Common Unitholders................ 31
USE OF PROCEEDS.................................. 34
CAPITALIZATION................................... 35
DILUTION......................................... 36
CASH DISTRIBUTION POLICY......................... 37
Quarterly Distributions of Available Cash...... 37
Available Cash................................. 37
Operating Surplus and Capital Surplus.......... 37
Maintenance and Expansion Capital
Expenditures................................. 38
Distributions of Available Cash from Operating
Surplus During the Subordination Period...... 39
Distributions of Available Cash from Operating
Surplus After the Subordination Period....... 39
Subordination Period; Conversion of
Subordinated Units........................... 39
Incentive Distribution Rights.................. 40
Distributions from Capital Surplus............. 42
Adjustment of Minimum Quarterly Distribution
and Target Distribution Levels............... 43
Distributions of Cash Upon Liquidation......... 43
CASH AVAILABLE FOR DISTRIBUTION.................. 46
SELECTED HISTORICAL AND PRO FORMA FINANCIAL AND
OPERATING DATA OF ALLIANCE RESOURCE PARTNERS... 48
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............ 50
Results of Operations.......................... 52
Liquidity and Capital Resources................ 55
Inflation...................................... 59
Impact of Year 2000 Issue...................... 59
Recent Accounting Pronouncements............... 61
COAL INDUSTRY OVERVIEW........................... 62
Demand for Coal................................ 62
Generation of Electricity...................... 63
Coal Imports and Exports....................... 64
Coal Production................................ 65
Coal Types..................................... 65
Coal Qualities................................. 66
Coal Regions................................... 67
Mining Methods................................. 68
Coal Preparation............................... 69
Coal Prices.................................... 69
Transportation................................. 70
Deregulation of the Electric Utility
Industry..................................... 70
BUSINESS......................................... 72
Business Strategy.............................. 72
Competitive Strengths.......................... 73
Coal Reserves.................................. 74
Mining Methods................................. 75
Mining Operations and Production............... 75
Other Operations............................... 78
Coal Transportation............................ 78
Customers...................................... 79
Coal Contracts................................. 79
Employees and Labor Relations.................. 80
Competition.................................... 81
Legal Proceedings.............................. 81
Regulation..................................... 82
Other Environmental, Health and Safety
Regulation................................... 88
MANAGEMENT....................................... 89
The Managing General Partner Will Manage
Alliance Resource Partners................... 89
Directors and Executive Officers of the
Managing General Partner..................... 89
Reimbursement of Expenses of the Managing
General Partner.............................. 91
Executive Compensation......................... 91
Compensation of Directors...................... 92
Employment Agreements.......................... 92
Long-Term Incentive Plan....................... 92
Short-Term Incentive Plan...................... 93
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT................................. 94
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS... 96
Agreements Governing the Transactions.......... 96
Relationship with Alliance Resource Holdings... 96
Purchase of Managing General Partner
Interest..................................... 96
Omnibus Agreement.............................. 96
CONFLICTS OF INTEREST AND FIDUCIARY
RESPONSIBILITIES............................... 98
</TABLE>
(i)
<PAGE> 4
<TABLE>
<S> <C>
Conflicts of Interest.......................... 98
Fiduciary Duties Owed to Unitholders by the
General Partners are Prescribed by Law and
the Partnership Agreement.................... 101
DESCRIPTION OF THE COMMON UNITS.................. 103
The Units...................................... 103
Transfer Agent and Registrar................... 103
Transfer of Common Units....................... 103
DESCRIPTION OF THE
SUBORDINATED UNITS............................. 105
Conversion of Subordinated Units............... 105
Limited Voting Rights.......................... 106
Distributions upon Liquidation................. 106
THE PARTNERSHIP AGREEMENT........................ 107
Organization and Duration...................... 107
Purpose........................................ 107
Power of Attorney.............................. 107
Capital Contributions.......................... 108
Limited Liability.............................. 108
Issuance of Additional Securities.............. 109
Amendment of the Partnership Agreement......... 110
Merger, Sale or Other Disposition of Assets.... 112
Termination and Dissolution.................... 112
Liquidation and Distribution of Proceeds....... 112
Withdrawal or Removal of the General
Partners..................................... 113
Transfer of General Partner Interests and
Incentive Distribution Rights................ 114
Change of Management Provisions................ 115
Limited Call Right............................. 115
Meetings; Voting............................... 115
Status as Limited Partner or Assignee.......... 116
Non-citizen Assignees; Redemption.............. 116
Indemnification................................ 117
Books and Reports.............................. 117
Right to Inspect Alliance Resource Partners'
Books and Records............................ 117
Registration Rights............................ 118
UNITS ELIGIBLE FOR FUTURE SALE................... 119
TAX CONSIDERATIONS............................... 121
Legal Opinions and Advice...................... 121
Partnership Status............................. 122
Limited Partner Status......................... 123
Tax Consequences of Unit Ownership............. 124
Tax Treatment of Operations.................... 129
Disposition of Common Units.................... 132
Tax-Exempt Organizations and Other Investors... 134
Administrative Matters......................... 135
State, Local and Other Tax Considerations...... 138
INVESTMENT IN ALLIANCE RESOURCE PARTNERS BY
EMPLOYEE BENEFIT
PLANS.......................................... 139
UNDERWRITING..................................... 140
VALIDITY OF THE COMMON UNITS..................... 142
EXPERTS.......................................... 142
WHERE YOU CAN FIND MORE
INFORMATION.................................... 142
FORWARD-LOOKING STATEMENTS....................... 143
INDEX TO FINANCIAL STATEMENTS.................... F-1
Appendix A -- Form of Amended and Restated
Agreement of Limited Partnership............... A-1
Appendix B -- Form of Application for Transfer of
Common Units................................... B-1
Appendix C -- Glossary of Terms.................. C-1
Appendix D -- Pro Forma Available Cash from
Operating Surplus.............................. D-1
Appendix E -- Coal Reserve Audit Summary Report
of Weir International Mining Consultants....... E-1
</TABLE>
---------------------
Until , 1999 (the 25th day after the date of this prospectus),
all dealers that buy, sell or trade the common units, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
(ii)
<PAGE> 5
GUIDE TO READING THIS PROSPECTUS
The following information should help you understand some of the
conventions used in this prospectus:
- For ease of reference, a glossary of some of the terms used in this
prospectus is included as Appendix C to this prospectus. Capitalized
terms not otherwise defined have the meanings given in the glossary.
- Unless otherwise indicated, the information set forth in this prospectus
assumes: (1) an initial public offering price of $20.00 per common unit
and (2) that the underwriters' over-allotment option has not been
exercised.
- Weir International Mining Consultants has audited the estimates of our
coal reserves as of March 31, 1999 contained in this prospectus.
- In this prospectus, we use three principal sources to provide coal
industry data: Resource Data International, Inc., the National Mining
Association and the Energy Information Administration of the U.S.
Department of Energy. Occasionally, the data from one source may differ
from the data provided from another source. We do not believe any of
these differences are material.
(iii)
<PAGE> 6
PROSPECTUS SUMMARY
The summary highlights information contained elsewhere in this prospectus.
It does not contain all of the information that you should consider before
investing in the common units. You should read the entire prospectus carefully,
including the "Risk Factors" section and the financial statements and the notes
to those statements.
ALLIANCE RESOURCE PARTNERS
We are a diversified producer and marketer of coal to major United States
utilities and industrial users. We began mining operations in 1971 and since
then have grown through acquisitions and internal development to become the
eighth largest coal producer in the eastern United States. At March 31, 1999, we
had approximately 407 million tons of reserves in Illinois, Indiana, Kentucky,
Maryland and West Virginia. In 1998, we produced 13.4 million tons of coal and
sold 15.1 million tons of coal. The coal we produced in 1998 was approximately
18% low-sulfur coal, 23% medium-sulfur coal and 59% high-sulfur coal. In 1998,
over 90% of our medium- and high-sulfur coal was sold to utility plants with
installed pollution control devices, also known as "scrubbers," to remove sulfur
dioxide.
We currently operate six mining complexes in Illinois, Kentucky and
Maryland and have one complex under development in Indiana. Five of our active
mining complexes are underground and one has both surface and underground mines.
Our mining activities are organized into three operating regions:
- ILLINOIS BASIN OPERATIONS. Our three active Illinois Basin mining
complexes are located in western Kentucky and southern Illinois. In 1998,
they produced 7.9 million tons of high-sulfur coal, approximately 79% of
which were sold under long-term contracts having a term of one year or
more. Our reserves in the region were 307.4 million tons as of March 31,
1999. We have also commenced construction of a new underground mining
complex for production from the low-sulfur portion of our Gibson County,
Indiana reserves. We expect to begin operations at this mining complex in
the fall of 2000.
- EAST KENTUCKY OPERATIONS. Our two East Kentucky mining complexes produced
2.5 million tons of low-sulfur coal in 1998, approximately 31% of which
were sold under long-term contracts. Our reserves in the region were 53.5
million tons as of March 31, 1999.
- MARYLAND OPERATIONS. Our Maryland mining complex produced 3.0 million
tons of medium-sulfur coal in 1998, approximately 94% of which were sold
under long-term contracts. Our reserves in the region were 46.5 million
tons as of March 31, 1999.
CUSTOMERS AND CONTRACTS
In 1998, approximately 84% of our production was consumed by electric
utilities with the balance consumed by cogeneration plants and industrial users.
Our largest customers in 1998 were Tennessee Valley Authority, Seminole Electric
Cooperative, Inc. and Virginia Electric Power Company. We have had relationships
with each of these customers for at least 15 years. In 1998, approximately 75%
of our sales tonnage, including approximately 84% of our medium- and high-sulfur
coal sales tonnage, was sold under long-term contracts. The balance of our sales
were made on the spot market. In June 1999, we entered into a long-term contract
to provide 23 million tons of low-sulfur coal to a subsidiary of Cinergy, Inc.
through December 2012. Our long-term contracts contribute to our stability and
profitability by providing more predictable sales volumes and sales prices. As
of June 30, 1999, our significant long-term contracts represented total
commitments of approximately 97.5 million tons of coal.
1
<PAGE> 7
BUSINESS STRATEGY
Our business strategy is to increase our profitability and to maximize our
distributions to unitholders by:
- continuing to make productivity improvements in order to be a low-cost
producer in each region in which we operate;
- offering our customers a broad range of coal qualities, transportation
alternatives and customized services;
- extending the lives of our mines through the development of currently
undeveloped coal reserves using our existing infrastructure;
- developing new mining complexes in locations with attractive market
conditions;
- engaging in strategic acquisitions of mining operations and reserves; and
- developing strategic relationships to take advantage of opportunities
created by the deregulation of the electric utility industry.
COMPETITIVE STRENGTHS
We believe we are in a strong position to successfully execute our business
strategy due to the following competitive strengths:
- WE ARE A PROVEN OPERATOR WITH A TRACK RECORD OF STEADY GROWTH. Over the
past five years, we have successfully increased our total coal production
from 8.5 million tons in 1994 to 13.4 million tons in 1998.
- WE HAVE SUCCESSFULLY INCREASED OUR PRODUCTIVITY. From 1994 through 1998,
we achieved a 7% compound annual growth rate in our productivity,
measured in tons produced per man hour. This resulted in a 16% reduction
of the cost per ton of the coal we sold during this period.
- WE HAVE AN ATTRACTIVE PORTFOLIO OF LONG-TERM CONTRACTS. Of the 97.5
million tons of coal committed under our significant long-term contracts
as of June 30, 1999, a majority is committed to electric utilities with
investment grade credit ratings.
- WE POSSESS SUBSTANTIAL LONG-LIVED RESERVES WITH ADJACENT EXPANSION
OPPORTUNITIES. Our total proven and probable reserves at March 31, 1999
were estimated to be approximately 407 million tons. In addition, there
are substantial reserves on adjacent properties that we intend to acquire
or lease as our mining operations approach these areas.
- OUR MINING OPERATIONS ARE STRATEGICALLY LOCATED. Our mining operations
are located near many of the major utility generating plants and the coal
hauling railroads in the eastern United States. We believe this gives us
a transportation cost advantage compared to many of our competitors.
- WE PRODUCE AND SELL A WIDE VARIETY OF COALS TO SEVERAL GEOGRAPHIC
REGIONS. Our product diversity allows us to participate in the major
segments of the eastern United States coal markets while limiting our
exposure to a downturn in any single market segment. In addition, our
coal generally has a relatively high heat content for the regions in
which it is produced, and as a result, sells at a premium price.
- WE HAVE A STRONG MANAGEMENT TEAM WITH A SUCCESSFUL RECORD OF DEVELOPING
AND ACQUIRING COAL PROPERTIES. Our senior management team has been with
us for an average of 18 years. This management team has been responsible
for the successful construction of three new mining complexes and the
acquisition of two existing mining complexes.
While we believe we have a number of competitive strengths, you should also
be aware that our business is subject to a number of risks, including our high
levels of indebtedness, dependence on a few significant customers and changing
fuel consumption patterns by utilities. See "Risk Factors."
2
<PAGE> 8
RECENT DEVELOPMENTS
The following results of operations for the three months ended June 30,
1998 and June 30, 1999 are based on the unaudited accounting information
currently available to us. The results of operations for interim periods are not
necessarily indicative of the results for a full year. The amounts in the table
below are in millions.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JUNE 30
----------------
1998 1999
----- -----
<S> <C> <C>
Total revenues................................ $90.9 $86.7
Net income.................................... 0.7 4.9
Tons sold..................................... 3.8 3.8
EBITDA(1)..................................... 11.8 16.6
</TABLE>
- ---------------
(1) EBITDA is defined as income (loss) before interest expense, income taxes and
depreciation, depletion and amortization. EBITDA should not be considered as
an alternative to net income, income (loss) before income taxes, cash flows
from operating activities or any other measure of financial performance
presented in accordance with generally accepted accounting principles.
EBITDA is not intended to represent cash flow and does not represent the
measure of cash available for distribution, but provides additional
information for evaluating our ability to make the minimum quarterly
distribution.
The decrease in total revenues reflects reduced low margin brokerage
volumes, partially offset by higher volumes from our Illinois Basin operations
and a higher average sale price at our Pontiki/Excel mining complex, primarily
due to a new long-term contract. The increase in net income is principally
attributable to lower costs per ton sold at our Hopkins County Coal mining
complex due to capital improvements made in 1998 and a higher average sales
price at Pontiki/Excel. The increase in earnings before interest, income taxes
and depreciation, depletion and amortization is attributable to the same factors
that resulted in an increase in net income.
DEMAND FOR COAL
Over the last two decades, total domestic coal consumption in the United
States has increased at an average annual rate of 2.5% from approximately 625
million tons in 1978 to over one billion tons in 1998. The growth in demand for
coal has been driven by a growth in electricity consumption. In 1998, electric
utilities accounted for 90% of domestic coal consumption.
We believe that demand for our coal will continue to grow for the following
reasons:
- DEMAND FOR ELECTRICITY WILL CONTINUE TO INCREASE AS THE ECONOMY CONTINUES
TO GROW. Electricity production by domestic utilities increased 46% from
1978 through 1998. Over that same period, demand for coal increased 66%.
We believe much of the projected increase in demand for electricity will
be supplied by existing coal-fired plants because they possess excess
capacity which can be utilized at low incremental costs.
- DEREGULATION OF ELECTRIC UTILITY MARKETS WILL INCREASE DEMAND FOR
COAL. We believe that competition and market-based pricing resulting from
the deregulation of electric utility markets will cause power companies
to consume more coal. This is because electricity generated from existing
coal-fired plants is generally less expensive than electricity generated
from readily available alternatives, including natural gas-fired plants.
- AS NUCLEAR POWER PLANTS ARE RETIRED, EXISTING COAL-FIRED PLANTS WILL
REPLACE A LARGE PART OF THE RETIRED NUCLEAR CAPACITY. We believe that
electricity generation from nuclear plants will decline over the next 15
years because a number of nuclear plants are likely to be retired during
that period. We believe that excess capacity at existing coal-fired
plants will be used to replace a large part of the retired nuclear
capacity.
3
<PAGE> 9
- COAL PRICES ARE LOWER AND MORE STABLE THAN NATURAL GAS PRICES. The market
price of natural gas historically has been higher and more volatile than
the market price of coal. While new natural gas-fired plants generally
are less expensive to construct than new coal-fired plants, we believe
that higher prices and volatility will continue to make natural gas a
less attractive energy source than coal for many utilities, particularly
for baseload electricity generation.
- DEMAND FOR OUR MEDIUM- AND HIGH-SULFUR COAL PRODUCTION WILL
CONTINUE. Over 90% of our current medium- and high-sulfur coal production
is shipped to customers who operate power plants in which some or all of
the generating units have scrubbers installed. Although the Clean Air Act
emission requirements may cause a general shift in demand toward lower
sulfur coal, we believe that we will experience continued demand for our
medium- and high-sulfur coal for use in these scrubbed plants.
RELATIONSHIP WITH THE BEACON GROUP AND OWNERSHIP OF THE GENERAL PARTNERS
The Beacon Group, LP, a Delaware limited partnership, together with its
subsidiaries and affiliates, is a private investment and advisory partnership
based in New York City with specific expertise in the energy industry. In 1996,
The Beacon Group and management formed Alliance Resource Holdings, formerly
known as Alliance Coal Corporation, to acquire the coal production and sales
business of MAPCO Inc. Alliance Resource Holdings is owned 12.9% by management
and 87.1% by funds managed by The Beacon Group and its affiliates. It is
anticipated that management and the funds managed by The Beacon Group and its
affiliates will purchase ownership interests in the managing general partner in
similar proportions to their holdings in Alliance Resource Holdings. Our special
general partner is a wholly-owned subsidiary of Alliance Resource Holdings. In
addition to energy-related investments, The Beacon Group is engaged, through its
affiliates, in a number of other activities, including merger and acquisition
advisory work and non-energy principal investments. The Beacon Group has in
excess of $2.0 billion of committed equity capital under management. After the
completion of the offering, The Beacon Group will retain an interest in our
operations through the funds it and its affiliates manage. These funds will have
a direct interest in the managing general partner and an indirect interest in
the special general partner. See "Security Ownership of Certain Beneficial
Owners and Management."
4
<PAGE> 10
PARTNERSHIP STRUCTURE AND MANAGEMENT
Our operations will be conducted through, and our operating assets will be
owned by, our subsidiaries. We will own our interests in our subsidiaries
through an intermediate partnership, Alliance Resource Operating Partners, L.P.
Upon consummation of the offering of the common units and the related
transactions:
- Alliance Resource Partners will own a 98.9899% limited partner interest
in the intermediate partnership;
- Alliance Resource Management GP, LLC, the managing general partner, will
own a 0.99% general partner interest in Alliance Resource Partners, a
1.0001% general partner interest in the intermediate partnership and a
0.001% managing interest in Alliance Coal, LLC, the operating subsidiary;
- Alliance Resource GP, LLC, the special general partner, will own a 0.01%
general partner interest and a 41.3% limited partner interest in Alliance
Resource Partners and a 0.01% general partner interest in the
intermediate partnership; and
- the intermediate partnership will own a 99.999% non-managing interest in
Alliance Coal, LLC.
The general partners, therefore, will own a combined 2% general
partner/managing interest in Alliance Resource Partners, the intermediate
partnership and the operating subsidiary on a combined basis. In this
prospectus, we refer to this interest owned by the general partners as their
combined 2% general partner interest.
The managing general partner will have sole responsibility for conducting
our business and managing our operations and will own all of the incentive
distribution rights. The special general partner has no operational or
managerial responsibilities under our partnership agreement, but will own all of
the subordinated units. The senior executives who currently manage our business
will manage and operate the business as the senior executives of the managing
general partner. The managing general partner will not receive any management
fee or other compensation in connection with its management of our business, but
it will be reimbursed for all direct and indirect expenses incurred on our
behalf.
Our principal executive offices are located at 1717 South Boulder Avenue,
Tulsa, Oklahoma 74119, and our phone number is (918) 295-7600.
The chart on the following page depicts the organization and ownership of
Alliance Resource Partners, the intermediate partnership and the operating
subsidiary after giving effect to the offering of the common units and the
related formation transactions. The percentages reflected in the organization
chart represent the approximate ownership interest in Alliance Resource
Partners, the intermediate partnership and the operating subsidiary individually
and not on a combined basis, unlike the other presentations in this prospectus.
5
<PAGE> 11
Organizational chart depicting the following organizational and ownership
information.
Ownership of Alliance Resource Management GP, LLC (the Managing General Partner)
Percentage Interest Interest Held By
- ------------------- ----------------
% Management and funds affiliated with The Beacon Group
Ownership of Alliance Resource GP, LLC (the Special General Partner)
Percentage Interest Interest Held By
- ------------------- ----------------
100% Alliance Resource Holdings, Inc.
Ownership of Alliance Resource Partners, L.P.
(the Partnership)
<TABLE>
<S> <C> <C>
Percentage/Type of Interest Held Number/Type of Units Rights Interest Held By
- -------------------------------- --------------------------- ----------------
.99% general partner incentive distribution rights Alliance Resource Management GP, LLC
.01% general partner general partner interest Alliance Resource GP, LLC
41.3% limited partner 6,413,075 subordinated units Alliance Resource GP, LLC
57.7% limited partner 8,969,335 common units public unitholders
</TABLE>
Ownership of Alliance Operating Partners, L.P.
(the Intermediate Partnership)
Percentage Interest Interest Held By
- ------------------- ----------------
0.01% general partner Alliance Resource GP, LLC
1.0001% general partner Alliance Resource Management GP, LLC
98.9899% limited partner Alliance Resource Partners, L.P.
Ownership of Alliance Coal, LLC (the Operating Subsidiary)
Percentage Interest Interest Held By
- ------------------- ----------------
.001% managing Alliance Resource Management GP, LLC
99.999% non-managing Alliance Operating Partners, L.P.
Effective Aggregate Ownership of Alliance
Resource Partners, the Intermediate Partnership and the Operating Subsidiary
Public common unitholders ........................... 57.1%
Alliance Resource GP, LLC's Subordinated Units ...... 40.9%
Combined General Partner Interest ................... 2.0%
6
<PAGE> 12
THE OFFERING
Common units offered....... 8,969,335 common units.
10,314,735 common units if the underwriters'
over-allotment option is exercised in full.
Units outstanding after
this offering.............. 8,969,335 common units and 6,413,075 subordinated
units, representing 57.1% and 40.9% limited partner
interests in Alliance Resource Partners.
If the underwriters' over-allotment option is
exercised in full:
- 1,345,400 additional common units will be issued
and 672,700 subordinated units will be redeemed;
and
- 10,314,735 common units and 5,740,375
subordinated units, representing 63.0% and 35.0%
limited partner interests in Alliance Resource
Partners, will be outstanding.
Cash distributions......... We are required to distribute all of our cash on
hand at the end of each quarter, plus working
capital borrowings after the end of the quarter,
less reserves established by our managing general
partner in its discretion. We refer to this cash as
"available cash" and its meaning is precisely
defined in our partnership agreement. We have also
included this definition in our glossary in
Appendix C. The amount of this cash may be greater
than or less than the minimum quarterly
distribution.
Prior to making quarterly distributions, our
managing general partner will establish reserves
for our operations.
In general, cash distributions each quarter will be
based on the following priorities:
- first, 98% to the common units and 2% to the
general partners, until each common unit has
received a minimum quarterly distribution of
$0.50 plus any arrearages in the payment of the
minimum quarterly distribution from prior
quarters; and
- second, 98% to the subordinated units and 2% to
the general partners, until each subordinated
unit has received a minimum quarterly
distribution of $0.50.
If cash distributions per unit exceed target levels
greater than $0.55 in a quarter, the managing
general partner will receive incentive
distributions.
Cash distributions will generally be made within 45
days after the end of each quarter. The first
distribution to unitholders will be made within 45
days after the quarter ending September 30, 1999.
The minimum quarterly distribution for the period
from the closing of the offering through September
30, 1999 will be adjusted downward based on the
actual length of the period.
Although we can provide no assurances, based on the
assumptions listed on page 45 of the prospectus, we
believe that we will generate sufficient cash to
enable us to make the minimum quarterly
distribution of $0.50 per quarter on the common
units and the
7
<PAGE> 13
subordinated units through December 31, 2000. The
amount of pro forma cash available for distribution
generated during 1998 would have been sufficient to
allow us to pay approximately 90% of the minimum
quarterly distribution on the common units and
would have been insufficient to make a distribution
on the subordinated units. See "Cash Available for
Distribution" for an explanation of this shortfall.
Subordination period....... The subordination period will end once we meet the
financial tests in the partnership agreement, but
it generally cannot end before September 30, 2004.
When the subordination period ends, all remaining
subordinated units will convert into common units
on a one-for-one basis, and the common units will
no longer be entitled to arrearages.
Early conversion of
subordinated units......... If the financial tests in the partnership agreement
have been met for any quarter on or after September
30, 2003, 50% of subordinated units will convert
into common units.
Issuance of additional
units...................... In general, during the subordination period we can
issue up to 4,484,668 additional common units
without obtaining unitholder approval. We can also
issue an unlimited number of common units for
acquisitions which increase cash flow from
operations per unit on a pro forma basis.
Voting rights.............. The managing general partner will manage and
operate Alliance Resource Partners. Unlike the
holders of common stock in a corporation, you will
have only limited voting rights on matters
affecting our business. You will have no right to
elect our managing general partner on an annual or
other continuing basis. The managing general
partner may not be removed except pursuant to the
vote of the holders of at least 66 2/3% of the
outstanding units, including units owned by the
general partners and their affiliates.
Partnership termination.... Our existence will terminate on December 31, 2098,
unless terminated sooner in accordance with the
terms of our partnership agreement.
Quotation on Nasdaq
National Market............ The common units have been approved for quotation
on the Nasdaq National Market under the symbol
"ARLP".
8
<PAGE> 14
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING
DATA OF ALLIANCE RESOURCE PARTNERS
The following table sets forth summary historical and pro forma financial
and operating data of Alliance Resource Partners for the periods and at the
dates indicated. The results of operations for interim periods are not
necessarily indicative of the results for a full year. This table is derived
from, should be read in conjunction with, and is qualified in its entirety by
reference to our historical and pro forma financial statements and the
accompanying notes. The amounts in the table below, except for the per unit data
and the per ton information, are in millions.
<TABLE>
<CAPTION>
THREE MONTHS PRO FORMA
YEAR ENDED PRO FORMA ENDED THREE MONTHS
DECEMBER 31, YEAR ENDED MARCH 31, ENDED
--------------- DECEMBER 31, --------------- MARCH 31,
1997 1998 1998 1998 1999 1999
------ ------ ------------ ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Sales and operating revenues
Coal sales............................ $305.3 $357.4 $357.4 $ 87.2 $ 82.8 $ 82.8
Other sales and operating revenues.... 8.5 4.5 4.5 1.1 0.3 0.3
------ ------ ------ ------ ------ ------
Total revenues................ 313.8 361.9 361.9 88.3 83.1 83.1
------ ------ ------ ------ ------ ------
Expenses
Operating expenses.................... 197.4 237.6 237.6 58.5 56.8 56.8
Outside purchases..................... 49.8 51.2 51.2 11.0 8.5 8.5
General and administrative............ 15.4 15.3 15.3 4.2 3.6 3.6
Depreciation, depletion and
amortization....................... 33.7 39.8 39.8 9.9 9.9 9.9
Interest expense...................... -- 0.2 19.2 -- -- 4.8
Unusual item(1)....................... -- 5.2 5.2 -- -- --
------ ------ ------ ------ ------ ------
Total operating expenses...... 296.3 349.3 368.3 83.6 78.8 83.6
------ ------ ------ ------ ------ ------
Income (loss) from operations........... 17.5 12.6 (6.4) 4.7 4.3 (0.5)
Other income (expense).................. 0.5 (0.1) (0.1) 0.1 -- --
------ ------ ------ ------ ------ ------
Income (loss) before income taxes....... 18.0 12.5 (6.5) 4.8 4.3 (0.5)
Income tax expense (benefit)............ 4.3 3.8 -- 1.5 1.3 --
------ ------ ------ ------ ------ ------
Net income (loss)(2).................... $ 13.7 $ 8.7 $ (6.5) $ 3.3 $ 3.0 $ (0.5)
====== ====== ====== ====== ====== ======
Pro forma net loss per unit............. $(0.42) $(0.03)
====== ======
BALANCE SHEET DATA:
Working capital(3)...................... $ 10.3 $ 7.1 $ 19.5 $ 13.0 $ 60.5
Total assets............................ 245.8 261.1 281.7 264.3 315.8
Long-term debt.......................... 1.9 1.7 1.9 1.7 230.3
Total liabilities....................... 87.0 108.3 110.3 109.4 334.7
Net parent investment................... 158.8 152.8 171.4 154.9 --
Pro forma partners' equity (deficit).... -- -- -- -- (18.9)
OTHER OPERATING DATA:
Tons sold............................... 12.4 15.1 15.1 3.6 3.6 3.6
Tons produced........................... 10.9 13.4 13.4 3.5 3.6 3.6
Revenues per ton sold................... $25.31 $23.97 $23.97 $24.53 $23.08 $23.08
Cost per ton sold(4).................... $21.18 $20.14 $20.14 $20.47 $19.14 $19.14
OTHER FINANCIAL DATA:
EBITDA(5)............................... $ 51.7 $ 52.5 $ 52.5 $ 14.7 $ 14.2 $ 14.2
Net cash provided by operating
activities............................ 53.2 50.5 4.1 6.3
Net cash used in investing activities... (22.4) (35.6) (13.3) (5.4)
Net cash provided by (used in) financing
activities............................ (30.8) (14.9) 9.2 (0.9)
Maintenance capital expenditures(6)..... 15.2 17.2 17.2 4.8 5.0 5.0
Expansion and other capital
expenditures(6)....................... 7.2 18.6 18.6 8.5 0.7 0.7
Total capital expenditures.............. 22.4 35.8 35.8 13.3 5.7 5.7
(footnotes on following page)
</TABLE>
9
<PAGE> 15
- ---------------
(1) Represents the net loss incurred during the temporary closing of one of our
mining complexes in the second half of 1998.
(2) In calculating pro forma net loss, we have not included interest income that
we would have received from the U.S. Treasury notes that we are required to
purchase with the proceeds of our term loan facility. The interest cost
associated with the term loan borrowings is reflected in our pro forma
adjustments. Had interest from the U.S. Treasury notes been included,
interest income of $2.6 million and $0.7 million would have been generated
for the year ended December 31, 1998 and the three months ended March 31,
1999, respectively.
(3) Excludes accounts receivable from affiliates.
(4) Cost per ton sold is based on the total of operating expenses, outside
purchases and general and administrative expenses divided by tons sold.
(5) EBITDA is defined as income (loss) before interest expense, income taxes and
depreciation, depletion and amortization. EBITDA has not been adjusted to
add back unusual items. EBITDA should not be considered as an alternative to
net income, income (loss) before income taxes, cash flows from operating
activities or any other measure of financial performance presented in
accordance with generally accepted accounting principles. EBITDA is not
intended to represent cash flow and does not represent the measure of cash
available for distribution, but provides additional information for
evaluating our ability to make the minimum quarterly distribution.
(6) Maintenance capital expenditures shown in this table reflect our historical
designation of maintenance capital expenditures. Under the partnership
agreement, certain of the expenditures shown under expansion and other
capital expenditures will be treated as maintenance capital expenditures.
For the definition of maintenance capital expenditures and expansion capital
expenditures under the partnership agreement, see "Cash Distribution
Policy -- Maintenance and Expansion Capital Expenditures."
10
<PAGE> 16
SUMMARY OF RISK FACTORS
RISKS INHERENT IN AN INVESTMENT IN ALLIANCE RESOURCE PARTNERS
- You will have limited voting rights and will not control our managing
general partner.
- Purchasers of common units will experience immediate and substantial
dilution.
- We may issue additional common units without your approval, which would
dilute existing unitholders' interests.
- Issuance of additional common units, including upon conversion of
subordinated units or exercise of the underwriters' over-allotment
option, will increase the risk that we will be unable to pay the full
minimum quarterly distribution on all common units.
- Cost reimbursements due to our general partners may be substantial and
would reduce our cash available for distribution.
- Our managing general partner has a limited call right that may require
you to sell your units at an undesirable time or price.
- You may not have limited liability in some circumstances.
RISKS INHERENT IN OUR BUSINESS
- Competition within the coal industry may adversely affect our ability to
sell coal, and excess production capacity in the industry could put
downward pressure on coal prices.
- We expect most newly constructed power plants to be fueled by natural
gas. Any change in consumption patterns by utilities away from the use of
coal could affect our ability to sell the coal we produce.
- Current conditions in the coal industry may make it more difficult for us
to extend existing or enter into new long-term contracts. This could
affect the stability and profitability of our operations.
- Some of our long-term contracts contain provisions allowing for the
renegotiation of prices and, in some instances, the termination of the
contract or the suspension of purchases by customers.
- Some of our long-term contracts require us to supply all of our
customers' coal needs. If these customers' coal requirements decline, our
revenues under these contracts will also drop.
- A substantial portion of our coal has a high-sulfur content. This coal
may become more difficult to sell because the Clean Air Act limits the
ability of electric utilities to burn high-sulfur coal.
- We depend on a few customers for a significant portion of our revenues,
and the loss of one or more significant customers could affect our
ability to sell coal.
- Litigation relating to disputes with our customers may result in
substantial costs, liabilities and loss of revenues.
- We are currently involved in litigation with respect to our Mt. Vernon
transfer facility, the outcome of which is uncertain.
- A loss of the benefit from state tax credits may affect adversely our
ability to pay the minimum quarterly distribution.
- Coal mining is subject to inherent risks that are beyond our control, and
we cannot assure you that these risks will be fully covered under our
insurance policies.
- We depend on third party service providers to produce a portion of our
coal. If these providers' services were no longer available, our ability
to produce and sell coal would be adversely affected.
11
<PAGE> 17
- Although none of our employees are members of unions, we cannot assure
you that our work force will remain union-free in the future.
- Any significant increase in transportation costs or disruption of the
transportation of our coal may impair our ability to sell coal.
- We may not be able to grow successfully through future acquisitions, and
we may not be able to effectively integrate the various businesses or
properties we do acquire.
- Our business may be adversely affected if we are unable to replace our
coal reserves.
- The estimates of our reserves may prove inaccurate, and you should not
place undue reliance on these estimates.
- Cash distributions are not guaranteed and may fluctuate with our
performance. In addition, our managing general partner's discretion in
establishing reserves may negatively impact your receipt of cash
distributions.
- Our indebtedness may limit our ability to borrow additional funds, make
distributions to unitholders or capitalize on business opportunities.
- We are required to place and maintain bonds to secure our obligations to
return mined property to its original condition. The failure to do so
could result in fines and the loss of our mining permits.
- Our operations could be adversely affected by data processing failures
after December 31, 1999. Failures could occur in our own systems as well
as the systems of our customers or suppliers.
REGULATORY RISKS
- We are subject to federal, state and local regulation on numerous
matters. These regulations increase our costs of doing business and may
discourage customers from buying our coal.
- We have black lung benefits and workers' compensation obligations that
could increase if new legislation is enacted.
- The Clean Air Act affects our customers and could significantly influence
their purchasing decisions.
- The passage of legislation responsive to the Framework Convention on
Global Climate Change could result in a reduced use of coal by electric
power generators. This reduction in use could adversely affect our
revenues and results of operations.
- We are subject to the Clean Water Act, which imposes limitations and
monitoring and reporting obligations on our discharge of pollutants into
water.
- We are subject to reclamation, mine closure and real property restoration
regulations and must accrue for the estimated cost of complying with
these regulations.
- We could incur significant costs under federal and state Superfund and
waste management statutes.
- We may not be able to obtain consents to the transfer of some mining and
environmental permits prior to closing of the offering.
TAX RISKS TO COMMON UNITHOLDERS
- The IRS could treat us as a corporation, which would substantially reduce
the cash available for distribution to unitholders.
- We have not requested an IRS ruling with respect to our tax treatment.
- You may be required to pay taxes on income from us even if you receive no
cash distributions.
- Tax gain or loss on disposition of common units could be different than
expected.
12
<PAGE> 18
- Investors, other than individuals who are U.S. residents, may have
adverse tax consequences from owning units.
- We will register as a tax shelter. This may increase the risk of an IRS
audit of Alliance Resource Partners or a unitholder.
- We treat a purchaser of units as having the same tax benefits as the
seller; the IRS may challenge this treatment which could adversely affect
the value of the units.
- You will likely be subject to state and local taxes as a result of an
investment in units.
13
<PAGE> 19
THE TRANSACTIONS
Concurrently with the closing of the offering of the common units, the
special general partner will:
- issue $180 million principal amount of 8.31% senior notes due 2014 in a
private placement to institutional investors;
- enter into a senior credit facility of up to $100 million consisting of
three tranches: a term loan facility of up to $50 million, a $25 million
working capital facility and a $25 million revolving credit facility.
The intermediate partnership will assume the special general partner's
obligations under the senior notes and the credit facilities. At closing, the
special general partner will borrow $48.6 million under the term loan facility.
We do not anticipate that any amounts will be drawn at closing under the working
capital facility or the revolving credit facility. The offering of the common
units is conditioned upon the issuance of the senior notes and the borrowings
under the term loan facility.
The following table sets forth an estimated breakdown of the sources and
uses of these transactions:
<TABLE>
<CAPTION>
AMOUNTS
-------------
(IN MILLIONS)
<S> <C>
Sources of Funds:
Common units offering(1).................................. $167.9
Senior notes private placement............................ 180.0
Term loan................................................. 48.6
Sale of managing general partner interest................. 6.3
------
$402.8
======
Uses of Funds:
Amounts retained by the special general partner........... $228.6
Distribution to the special general partner(2)............ 81.1
Purchase of U.S. Treasury Notes........................... 48.6
Payment of expenses....................................... 8.0
Working capital and general corporate purposes............ 36.5
------
$402.8
======
</TABLE>
- ---------------
(1) After deducting underwriting discounts and commissions, but before deducting
our other transaction expenses.
(2) Represents a reimbursement of the special general partner for capital
expenditures.
All of the amounts distributed to or retained by the special general
partner will be distributed to Alliance Resource Holdings. We will use one-half
of the net proceeds from any exercise of the underwriters' over-allotment option
to redeem an amount of subordinated units from our special general partner equal
to one-half of the number of common units issued upon exercise of that option.
We will use the balance of the net proceeds from any exercise of the
underwriters' over-allotment option to fund future capital expenditures and for
working capital and other general corporate purposes.
14
<PAGE> 20
SUMMARY OF CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITIES
Alliance Resource Management GP, our managing general partner, has a legal
duty to manage us in a manner beneficial to our unitholders. This legal duty
originates in statutes and judicial decisions and is commonly referred to as a
"fiduciary" duty. However, because Alliance Resource Management GP is owned by
management and funds affiliated with The Beacon Group, its officers and
directors have fiduciary duties to manage its business in a manner beneficial to
those parties. As a result of this relationship, conflicts of interest may arise
in the future between Alliance Resource Partners and our unitholders, on the one
hand, and the managing general partner and its affiliates, on the other hand.
The following situations, among others, could give rise to conflicts of
interest:
- our managing general partner determines the amount and timing of asset
purchases and sales, capital expenditures, borrowings, issuances of
additional securities, and reserves, which can affect the amount of
distributions to unitholders;
- our managing general partner may take actions that have the effect of
enabling it or its affiliates to receive distributions on their own units
or incentive distribution rights, or hastening the expiration of the
subordination period or the conversion of their subordinated units into
common units; and
- some of the officers of our managing general partner, who will provide
services to us, are also officers of Alliance Resource Holdings and may
devote time to the businesses of Alliance Resource Holdings. Accordingly,
competition for their services may arise.
Our managing general partner is permitted to resolve conflicts of interest
by considering the interests of all the parties involved. Therefore, our
managing general partner can consider the interests of its affiliates, including
Alliance Resource Holdings, if a conflict of interest arises.
Our managing general partner will have a conflicts committee, consisting of
at least two independent members of its board of directors, that will be
available to review matters involving conflicts of interest.
Our partnership agreement limits the liability and reduces the fiduciary
duties of our managing general partner to the unitholders. Our partnership
agreement also restricts the remedies available to unitholders for actions that
might otherwise constitute breaches of our managing general partner's fiduciary
duty. By purchasing a common unit, you are treated as having consented to
various actions contemplated in the partnership agreement and conflicts of
interest that might otherwise be considered a breach of fiduciary or other
duties under applicable state law.
Alliance Resource Holdings will agree, and will cause its controlled
affiliates to agree, for so long as management and funds affiliated with The
Beacon Group control the managing general partner, not to engage in the business
of mining, marketing or transporting coal in the United States unless it first
offers us the opportunity to engage in this activity or acquire this business,
and the board of directors of the managing general partner, with the concurrence
of its conflicts committee, elects to cause us not to pursue the opportunity or
acquisition. The restriction will not apply to the assets and businesses
retained by Alliance Resource Holdings at the closing of the offering of common
units. See "Certain Relationships and Related Transactions." Except as provided
above, Alliance Resource Holdings and its controlled affiliates will not be
prohibited from engaging in activities in which they compete directly with us.
In addition, The Beacon Group, and the funds it manages, will not be prohibited
from owning or engaging in businesses which compete with us.
15
<PAGE> 21
DISTRIBUTIONS AND PAYMENTS TO THE GENERAL PARTNERS AND THEIR AFFILIATES
The following table summarizes the distributions and payments to be made by
us to our general partners and their affiliates in connection with the
formation, the ongoing operation and the liquidation of Alliance Resource
Partners. These distributions and payments were determined by and among
affiliated entities and, consequently, are not the result of arm's length
negotiations.
FORMATION STAGE
The consideration received
by our general partners
for the transfer of
their interests in the
subsidiaries and a
capital contribution..... - 6,413,075 subordinated units;
- an aggregate 2% general partner interest in
Alliance Resource Partners, the intermediate
partnership and the operating subsidiary on a
combined basis;
- the incentive distribution rights;
- $309.7 million of the net proceeds of the
offering of the common units, the private
placement of the senior notes and the borrowings
under the term loan facility. All of these
proceeds will be distributed by the special
general partner to its parent, Alliance Resource
Holdings, which is owned by management and funds
managed by The Beacon Group and its affiliates.
In addition, one-half of the net proceeds from
any exercise of the underwriters' over-allotment
option will be used to redeem an amount of
subordinated units from the special general
partner equal to one-half of the number of common
units issued upon exercise of that option; and
- assumption by our intermediate partnership of the
special general partner's obligations under the
senior notes and the senior credit facility.
OPERATIONAL STAGE
Distributions of available
cash to our general
partners................. Cash distributions will generally be made 98% to
the unitholders, including to the special general
partner as holder of the subordinated units, and 2%
to the general partners. In addition, if
distributions exceed the target levels, our
managing general partner will be entitled to
increasing percentages of the distributions, up to
48% of the distributions above the highest target
level.
Assuming we have sufficient available cash to pay
the full minimum quarterly distribution on all of
our outstanding units for four quarters, our
general partners would receive distributions of
approximately $0.6 million on the combined 2%
general partner interest and the special general
partner would receive a distribution of
approximately $12.8 million on the subordinated
units.
Payments to our managing
general partner and
its affiliates........... Our managing general partner and its affiliates
will not receive any management fee or other
compensation for the management of Alliance
Resource Partners. Our managing general partner and
its affiliates will be reimbursed, however, for all
direct and indirect
16
<PAGE> 22
expenses incurred on behalf of Alliance Resource
Partners. On a pro forma basis for 1998, we
estimate that expense reimbursement to the managing
general partner and its affiliates would have been
approximately $2.6 million.
Withdrawal or removal of
our general partners....... If either general partner withdraws or is removed,
its general partner interest and, in the case of
the managing general partner, its incentive
distribution rights, will either be sold to the new
general partner for cash or converted into common
units, in each case for an amount equal to the fair
market value of those interests. See "The
Partnership Agreement -- Withdrawal or Removal of
the General Partners."
LIQUIDATION STAGE
Liquidation................ Upon the liquidation of Alliance Resource Partners,
the partners, including our general partners, will
be entitled to receive liquidating distributions
according to their particular capital account
balances.
17
<PAGE> 23
SUMMARY OF TAX CONSIDERATIONS
We have included below a summary of the primary tax considerations
associated with the ownership of common units. For a discussion of all of the
material tax considerations associated with the ownership of common units,
please see the discussion included under "Tax Considerations" which appears
later in this prospectus.
WE WILL BE CLASSIFIED AS A PARTNERSHIP FOR TAX PURPOSES
In the opinion of Andrews & Kurth L.L.P., our tax counsel, we are
classified for federal income tax purposes as a partnership. Accordingly, we
will pay no federal income taxes, and you will be required to report on your
federal income tax return your share of our income, gains, losses and deductions
without regard to distributions. An opinion of Andrews & Kurth L.L.P. is
included as an exhibit to the registration statement of which this prospectus is
a part.
ALLOCATIONS AND DISTRIBUTIONS ARE BASED ON YOUR PERCENTAGE INTEREST IN US
In general, our income and loss will be allocated to the general partners
and the unitholders for each taxable year according to their particular
percentage interests in Alliance Resource Partners. You will be required to take
into account, in determining your federal income tax liability, your share of
our taxable income for each of our taxable years ending with or within your
taxable year, even if cash distributions are not made to you. As a consequence,
your share of our taxable income, and possibly the income tax payable for that
income, may exceed the cash distributed to you.
THE RATIO OF TAXABLE INCOME TO DISTRIBUTIONS WILL BE LESS THAN 30 PERCENT
We estimate that if you purchase common units in this offering and hold
them through December 31, 2002, you will be allocated an amount of federal
taxable income for that period which is less than 30% of the cash distributed
for that period. We anticipate that for taxable years beginning after December
31, 2002, the taxable income allocable to you will constitute a significantly
higher percentage of cash distributed to you. However, we cannot assure you that
these estimates will be correct.
LOSSES ARE ONLY AVAILABLE TO OFFSET OUR FUTURE INCOME
In the case of taxpayers subject to the passive loss rules, generally
individuals and closely held corporations, our losses will only be available to
offset our future income and cannot be used to offset income from other
activities, including passive activities or investments, salary or other active
business income. Any losses unused by virtue of these rules can be deducted when
you dispose of all of your units in a fully taxable transaction with an
unrelated party.
WE INTEND TO MAKE AN ELECTION TO PERMIT US TO ADJUST A PURCHASER'S TAX BASIS IN
OUR ASSETS TO REFLECT THE PURCHASE PRICE OF A PURCHASER'S COMMON UNITS
We intend to make the election provided for by Section 754 of the Internal
Revenue Code. This election will generally permit us to adjust a common unit
purchaser's tax basis in our assets to reflect the purchase price of his or her
common units and will generally give the purchaser income and deductions
calculated by reference to the portion of his or her purchase price attributable
to each of our assets. This election does not apply to a person who purchases
common units directly from us.
DISPOSITION OF COMMON UNITS WILL RESULT IN GAIN OR LOSS
If you sell your common units you will recognize gain or loss equal to the
difference between the amount realized and your adjusted basis in those common
units. Thus, our distributions to you in excess of your share of our income
will, in effect, become taxable income if you sell your units at a price greater
than your adjusted tax basis, even if the price is less than your original cost.
18
<PAGE> 24
OWNERSHIP OF COMMON UNITS BY TAX-EXEMPT ORGANIZATIONS AND OTHER INVESTORS RAISES
TAX ISSUES
An investment in units by tax-exempt organizations, including individual
retirement accounts and other retirement plans, regulated investment companies
and foreign persons raises issues unique to them. Virtually all of our income
allocated to a unitholder which is a tax-exempt organization will be unrelated
business taxable income and will be taxable to the unitholder. Furthermore, no
significant amount of our gross income will be qualifying income for purposes of
determining whether a unitholder will qualify as a regulated investment company.
A unitholder who is a nonresident alien, foreign corporation or other foreign
person will be subject to withholding on his or her distributions and will be
required to file federal income tax returns and pay tax on his or her share of
our taxable income.
WE WILL REGISTER AS A TAX SHELTER WITH THE IRS
We have applied to register as a tax shelter with the Secretary of the
Treasury. Please see the discussion appearing under the caption "Tax
Considerations -- Administrative Matters; Registration as a Tax Shelter" for a
more complete discussion of the consequences of this registration.
THE ISSUANCE OF A REGISTRATION NUMBER BY THE SECRETARY OF THE TREASURY DOES
NOT INDICATE THAT AN INVESTMENT IN ALLIANCE RESOURCE PARTNERS OR THE CLAIMED TAX
BENEFITS HAVE BEEN REVIEWED, EXAMINED OR APPROVED BY THE IRS.
OTHER TAX CONSIDERATIONS
In addition to federal income taxes, you will likely be subject to other
taxes, including state and local income taxes, unincorporated business taxes and
estate, inheritance or intangible taxes that may be imposed by the various
jurisdictions in which you reside and in which we do business or own property.
You will likely be required to file state income tax returns and to pay taxes in
various states. You may also be subject to penalties for failure to comply with
these requirements.
The tax consequences of an investment in Alliance Resource Partners,
including federal income tax consequences, will depend in part on your own tax
circumstance. You should consult your own tax advisor to determine whether
specific personal tax consequences apply to you, as well as about the state,
local and foreign tax consequences of an investment in common units.
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RISK FACTORS
Limited partner interests are inherently different from capital stock of a
corporation, although many of the business risks to which we are subject are
similar to those that would be faced by a corporation engaged in a similar
business. You should carefully consider the following risk factors together with
all of the other information included in this prospectus in evaluating an
investment in the common units.
If any of the following risks were actually to occur, our business,
financial condition or results of operations could be materially adversely
affected. In that case, the trading price of our common units could decline and
you may lose all or part of your investment.
RISKS INHERENT IN AN INVESTMENT IN ALLIANCE RESOURCE PARTNERS
YOU WILL HAVE LIMITED VOTING RIGHTS AND WILL NOT CONTROL OUR MANAGING
GENERAL PARTNER.
The managing general partner will manage and operate Alliance Resource
Partners. Unlike the holders of common stock in a corporation, you will have
only limited voting rights on matters affecting our business. You will have no
right to elect our managing general partner on an annual or other continuing
basis. Holders of units cannot remove the managing general partner without the
vote of the holders of at least 66 2/3% of the outstanding units, including
units owned by the general partners and their affiliates. The ownership of an
aggregate of 41.7%, or 35.8% upon exercise of the underwriters' over-allotment
option in full, of the outstanding units by the special general partner gives it
the practical ability to prevent the removal of the managing general partner.
In addition, the partnership agreement contains provisions that may have
the effect of discouraging a person or group from attempting to remove our
managing general partner or otherwise changing the management of Alliance
Resource Partners. These provisions may diminish the price at which the common
units will trade under some circumstances. The partnership agreement also
contains provisions limiting the ability of unitholders to call meetings or to
acquire information about our operations, as well as other provisions limiting
the unitholders' ability to influence the manner or direction of management. All
matters, other than removal of a general partner, requiring the approval of the
unitholders during the subordination period must first be proposed by our
managing general partner. See "The Partnership Agreement -- Withdrawal or
Removal of the General Partners" and "-- Change of Management Provisions."
PURCHASERS OF COMMON UNITS WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL
DILUTION.
The assumed initial public offering price of $20.00 per unit exceeds pro
forma negative tangible book value of $(1.21) per unit. You will incur immediate
and substantial dilution of $21.21 per common unit. See "Dilution."
WE MAY ISSUE ADDITIONAL COMMON UNITS WITHOUT YOUR APPROVAL, WHICH WOULD
DILUTE EXISTING UNITHOLDERS' INTERESTS.
During the subordination period, our managing general partner, without the
approval of the unitholders, may cause us to issue common units in a number of
circumstances. See "The Partnership Agreement -- Issuance of Additional
Securities" for a discussion of these circumstances.
After the end of the subordination period, we may issue an unlimited number
of limited partner interests of any type without the approval of the
unitholders. Based on the circumstances of each case, the issuance of additional
common units or securities ranking senior to or on a parity with the common
units may dilute the value of the interests of the then-existing holders of
common units in the net assets of Alliance Resource Partners, dilute the
interests of unitholders in distributions by Alliance Resource Partners and, if
issued during the subordination period, reduce the support provided by the
subordination feature of the subordinated units. Our partnership agreement does
not give the unitholders the right to approve our issuance of equity securities
ranking junior to the common units at any time.
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ISSUANCE OF ADDITIONAL COMMON UNITS, INCLUDING UPON CONVERSION OF
SUBORDINATED UNITS OR EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION, WILL
INCREASE THE RISK THAT WE WILL BE UNABLE TO PAY THE FULL MINIMUM QUARTERLY
DISTRIBUTION ON ALL COMMON UNITS.
Our ability to pay the full minimum quarterly distribution on all the
common units may be reduced by any increase in the number of outstanding common
units. Additional common units would be issued as a result of:
- the conversion of subordinated units;
- the exercise of the underwriters' over-allotment option;
- upon the conversion of the general partner interests and the incentive
distribution rights as a result of the withdrawal of our general
partners; or
- other future issuances of common units.
Any of these actions will increase the percentage of the aggregate minimum
quarterly distribution payable to the common unitholders and decrease the
percentage of the aggregate minimum quarterly distribution payable to the
subordinated unitholders, which will in turn have the effect of:
- reducing the amount of support provided by the subordination feature of
the subordinated units; and
- increasing the risk that we will be unable to pay the minimum quarterly
distribution in full on all the common units.
COST REIMBURSEMENTS DUE TO OUR GENERAL PARTNERS MAY BE SUBSTANTIAL AND
WOULD REDUCE OUR CASH AVAILABLE FOR DISTRIBUTION.
Prior to making any distribution on the common units, we will reimburse the
general partners and their affiliates, including officers and directors of the
general partners, for all expenses incurred on our behalf. The reimbursement of
expenses and the payment of fees could adversely affect our ability to make
distributions. The managing general partner has sole discretion to determine the
amount of these expenses. In addition, our general partners and their affiliates
may provide us services for which we will be charged reasonable fees as
determined by the managing general partner.
OUR MANAGING GENERAL PARTNER HAS A LIMITED CALL RIGHT THAT MAY REQUIRE YOU
TO SELL YOUR UNITS AT AN UNDESIRABLE TIME OR PRICE.
If our general partners and their affiliates own 80% or more of the common
units, the managing general partner will have the right, which it may assign to
any of its affiliates, to acquire all, but not less than all, of the remaining
common units held by unaffiliated persons at a price generally equal to the
then-current market price of the common units. As a result, you may be required
to sell your common units at a time when you may not desire to sell them or at a
price that is less than the price you would like to receive. You may also incur
a tax liability upon a sale of your units. See "The Partnership Agreement --
Limited Call Right."
YOU MAY NOT HAVE LIMITED LIABILITY IN SOME CIRCUMSTANCES.
The limitations on the liability of holders of limited partner interests
for the obligations of a limited partnership have not been clearly established
in some states. You could be held liable in some circumstances for Alliance
Resource Partners' obligations to the same extent as a general partner if a
state or a court determined that:
- Alliance Resource Partners had been conducting business in any state
without compliance with the applicable limited partnership statute; or
- the right or the exercise of the right by the unitholders as a group to
remove or replace our managing general partner, to approve some
amendments to the partnership agreement or to take other action under the
partnership agreement constituted participation in the "control" of
Alliance Resource Partners' business.
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In addition, under some circumstances a unitholder may be liable to Alliance
Resource Partners for the amount of a distribution for a period of three years
from the date of the distribution. See "The Partnership Agreement -- Limited
Liability" for a discussion of the implications of the limitations on liability
to a unitholder.
RISKS INHERENT IN OUR BUSINESS
COMPETITION WITHIN THE COAL INDUSTRY MAY ADVERSELY AFFECT OUR ABILITY TO
SELL COAL, AND EXCESS PRODUCTION CAPACITY IN THE INDUSTRY COULD PUT DOWNWARD
PRESSURE ON COAL PRICES.
We compete with other large coal producers and hundreds of small coal
producers in various regions of the United States for domestic sales. The
industry has undergone significant consolidation since 1988, with the top ten
producers increasing their share of total domestic coal production during that
period from 37% to 61%. This consolidation has led to several competitors having
significantly larger financial and operating resources than we do. In addition,
we compete to some extent with western surface coal mining operations that have
a much lower cost of production and produce lower sulfur coal. Over the last 20
years, growth in production from western coal mines has substantially exceeded
growth in production from the east. The development of these western coal mines,
as well as the implementation of more efficient mining techniques throughout the
industry, has created excess production capacity in the industry, resulting in
downward pressure on prices. Declining prices would reduce our revenues and
would adversely affect our ability to make distributions to unitholders.
In addition, recent adverse economic developments in Asia have reduced
demand for coal in that region. In addition to reducing demand for U.S. export
coals, this reduced demand has caused foreign producers who previously supplied
coal to Asia to bid for contracts in the U.S. This could cause competition in
the U.S. to intensify, potentially resulting in additional downward pressure on
prices.
WE EXPECT MOST NEWLY CONSTRUCTED POWER PLANTS TO BE FUELED BY NATURAL GAS.
ANY CHANGE IN CONSUMPTION PATTERNS BY UTILITIES AWAY FROM THE USE OF COAL COULD
AFFECT OUR ABILITY TO SELL THE COAL WE PRODUCE.
We expect most new power plants built in the future to be units which would
produce electricity during peak periods of demand for the applicable utility.
These new power plants would be fueled by natural gas because of the cheaper
construction costs compared to coal-fired plants and because natural gas is a
cleaner burning fuel. The demand for natural gas is expected to increase at a
faster rate than the demand for coal. In addition, the dramatic decline in oil
prices in 1998 and early 1999 caused some utilities with power plants that have
the capability to burn oil to switch at least temporarily from coal to oil.
While the price of oil has recently increased, any subsequent declines could
again cause utilities to switch from coal to oil to fuel their power plants.
The domestic electric utility industry accounts for approximately 90% of
domestic coal consumption. The amount of coal consumed by the domestic electric
utility industry is affected primarily by the overall demand for electricity,
the price and availability of competing fuels for power plants such as nuclear,
natural gas and fuel oil as well as hydroelectric power, and environmental and
other governmental regulations. Growth in demand for electricity over the past
20 years has averaged 1.9% per year nationally. Over the same period, demand for
coal has grown an average of 2.6% per year nationally.
CURRENT CONDITIONS IN THE COAL INDUSTRY MAY MAKE IT MORE DIFFICULT FOR US
TO EXTEND EXISTING OR ENTER INTO NEW LONG-TERM CONTRACTS. THIS COULD AFFECT THE
STABILITY AND PROFITABILITY OF OUR OPERATIONS.
A substantial decrease in the amount of coal sold by us pursuant to
long-term contracts would reduce the certainty of the price and amounts of coal
sold by us and subject our revenue stream to increased volatility. If that were
to happen, changes in spot market coal prices would have a greater impact on our
results, and any decreases in the spot market price for coal could adversely
affect our profitability. In 1998, we sold approximately 75% of our sales
tonnage under contracts having a term greater than one year. We refer to these
contracts as "long-term contracts". Long-term sales contracts have historically
provided a relatively secure market for the amount of production committed under
the terms of the contract. Current
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industry conditions, however, may make it more difficult for us to enter into
long-term contracts with our electric utility customers in the future. As the
electric utilities prepare themselves for compliance with the Phase II
requirements of the Clean Air Act and the impending deregulation of their
industry, they may become less willing to lock in price or quantity commitments
for an extended period of time, choosing instead to purchase higher percentages
of coal on the spot market. Accordingly, we cannot assure you that we will
continue to be able to obtain long-term sales contracts with reliable customers
as existing contracts expire.
SOME OF OUR LONG-TERM CONTRACTS CONTAIN PROVISIONS ALLOWING FOR THE
RENEGOTIATION OF PRICES AND, IN SOME INSTANCES, THE TERMINATION OF THE CONTRACT
OR THE SUSPENSION OF PURCHASES BY CUSTOMERS.
Some of our long-term contracts contain provisions which allow for the
purchase price to be renegotiated at periodic intervals. These price reopener
provisions may automatically set a new price based on the prevailing market
price or, in some instances, require the parties to the contract to agree on a
new price. Any adjustment or renegotiation leading to a significantly lower
contract price could adversely affect our operating profit margins. Accordingly,
long-term contracts may provide only limited protection during adverse market
conditions. In some circumstances, failure of the parties to agree on a price
under a reopener can also lead to early termination of a contract.
Some of our long-term contracts also contain provisions which allow the
customer to suspend or terminate performance under the contract upon the
occurrence or continuation of some specified events. These events are called
"force majeure" events. Some of these events which are specific to the coal
industry include:
- our inability to deliver the volumes or qualities of coal specified;
- changes in the Clean Air Act rendering use of our coal inconsistent with
the customer's pollution control strategies; and
- the occurrence of events beyond the reasonable control of the affected
party, including labor disputes, mechanical malfunctions and changes in
government regulations.
SOME OF OUR LONG-TERM CONTRACTS REQUIRE US TO SUPPLY ALL OF OUR CUSTOMERS'
COAL NEEDS. IF THESE CUSTOMERS' COAL REQUIREMENTS DECLINE, OUR REVENUES UNDER
THESE CONTRACTS WILL ALSO DROP.
If our customers who have requirements contracts need less coal in the
future, we could be affected adversely to the extent that we cannot find
alternative customers at the same price and volume levels. Requirements
contracts are contracts that obligate us to supply all of our customers' coal
needs. In addition, one of our requirements contracts is an "above-market"
contract with James River Cogeneration Company. James River Cogeneration's
purchases under this contract have declined from approximately 324,000 tons in
1997 to approximately 121,000 tons in 1998 and 54,851 tons in the first six
months of 1999. We cannot assure you that James River Cogeneration will not
further reduce its purchases or cease purchasing altogether. This contract
represented 5.1% of our revenues for 1997 and 1.7% of our revenues for both 1998
and the first six months of 1999. See "Business -- Coal Contracts."
A SUBSTANTIAL PORTION OF OUR COAL HAS A HIGH-SULFUR CONTENT. THIS COAL MAY
BECOME MORE DIFFICULT TO SELL BECAUSE THE CLEAN AIR ACT LIMITS THE ABILITY OF
ELECTRIC UTILITIES TO BURN HIGH-SULFUR COAL.
The Clean Air Act limits the amount of sulfur dioxide (SO(2)) emitted from
coal-fired power plants, which has affected demand and prices for our
high-sulfur coal. Accordingly, the ability of our utility customers to burn
high-sulfur coal may be limited unless they:
- have already installed or will install costly pollution control devices
such as scrubbers;
- purchase and use emission allowances; or
- blend high-sulfur coal with low-sulfur coal.
In 1998, 59% of our production was high-sulfur coal. Our ability to
continue to sell high-sulfur coal will be dependent on our ability to enter into
new contracts with electric utility companies that are able to burn high-sulfur
coal. If our utility customers, or potential utility customers in our market
areas, choose
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not to purchase our high-sulfur coal, we may be unable to find other buyers for
this coal at our current price and volume levels.
WE DEPEND ON A FEW CUSTOMERS FOR A SIGNIFICANT PORTION OF OUR REVENUES, AND
THE LOSS OF ONE OR MORE SIGNIFICANT CUSTOMERS COULD AFFECT OUR ABILITY TO SELL
COAL.
During 1998, we derived approximately 51% of our total revenues from coal
sales to our three largest customers, Seminole Electric Cooperative (19%),
Virginia Electric Power Company (16%) and Tennessee Valley Authority (16%). We
currently have six contracts with these customers with expiration dates ranging
from 2000 to 2010. If we were to lose any of these customers or if they were to
change the amounts of coal purchased or the terms, including pricing terms, on
which they buy coal from us, it could have a material adverse effect on our
business, financial condition and results of operations. As discussed below, we
are engaged in litigation with Seminole Electric Cooperative on a matter
unrelated to the coal supply contract.
LITIGATION RELATING TO DISPUTES WITH OUR CUSTOMERS MAY RESULT IN
SUBSTANTIAL COSTS, LIABILITIES AND LOSS OF REVENUES.
From time to time we have disputes with our customers over the provisions
of long-term coal supply contracts relating to, among other things, coal
quality, pricing, quantity and the existence of specified conditions beyond our
control which suspend performance obligations under the particular contract. We
cannot assure you that disputes will not occur in the future or that we will be
able to resolve those disputes in a satisfactory manner.
WE ARE CURRENTLY INVOLVED IN LITIGATION WITH RESPECT TO OUR MT. VERNON
TRANSFER FACILITY, THE OUTCOME OF WHICH IS UNCERTAIN.
We are currently involved in litigation with Seminole Electric Cooperative
with respect to a long-term contract for the annual transfer of 2.7 million tons
of coal from rail to barge through our Mt. Vernon, Indiana terminal. Seminole
has filed suit in Indiana state court to terminate this contract and is seeking
a declaratory judgment as to the amount of damages it owes us in connection with
the termination of the contract.
We cannot assure you that the damages determined by the court will be
sufficient to offset the loss of income from the contract. In addition, without
the volumes provided by the Seminole contract, we may be forced to cease
operating the Mt. Vernon terminal as a coal terminal. Accordingly, we are
currently exploring our options with respect to this terminal, including
shipping alternative products through the terminal or selling it.
In response to Seminole's actions, we have ceased transporting any coal
shipped to Seminole through the Mt. Vernon terminal. We now transport all of the
coal we deliver to Seminole by rail. The dispute with Seminole regarding the
terminal has not otherwise affected deliveries under our long-term coal supply
contract with them. We cannot assure you that Seminole will not seek to
terminate or renegotiate the coal supply contract. If the contract were
terminated, we could be affected adversely to the extent we could not find
alternative customers at the same price and volume levels. For more information
concerning our dispute with Seminole, please see "Business -- Legal
Proceedings."
A LOSS OF THE BENEFIT FROM STATE TAX CREDITS MAY AFFECT ADVERSELY OUR
ABILITY TO PAY THE MINIMUM QUARTERLY DISTRIBUTION.
Several states in which we operate or our utility customers reside have
established a statutory framework for tax credits against income, franchise, or
severance taxes, which have benefited, directly or indirectly, coal operators or
customers purchasing coal mine production from within the applicable state. In
1996, 1997 and 1998, the benefit of these credits to us has been approximately
$5.0 million, $4.8 million, and $6.0 million. The state statutes authorizing
these tax credits are scheduled to expire in accordance with their term
provisions. Furthermore, these state statutes or our ability to benefit,
directly or indirectly, from them may be subject to challenge by third parties.
If any of these challenges were successful, we would lose the benefits of these
credits. Although it is possible that the tax credit benefits will continue
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into future years, you should assume that substantially all of the benefits
associated with these tax credit statutes will terminate by no later than June
2001. Therefore, if our operations do not produce increased cash flow sufficient
to replace any lost benefits, we would not be able to make the minimum quarterly
distribution on our outstanding common and subordinated units.
COAL MINING IS SUBJECT TO INHERENT RISKS THAT ARE BEYOND OUR CONTROL, AND
WE CANNOT ASSURE YOU THAT THESE RISKS WILL BE FULLY COVERED UNDER OUR INSURANCE
POLICIES.
Our mines are subject to conditions or events beyond our control that could
disrupt operations and affect the cost of mining at particular mines for varying
lengths of time. These risks include:
- fires and explosions from methane;
- natural disasters, such as heavy rains and flooding;
- mining and processing equipment failures and unexpected maintenance
problems;
- mine flooding due to the failure of subsurface water seals or water
removal equipment;
- changes or variations in geologic conditions, such as the thickness of
the coal deposits and the amount of rock and soil overlying the coal
deposit;
- inability to acquire mining rights or permits;
- employee injuries or fatalities; and
- labor-related interruptions.
These conditions may increase the cost of mining and delay or halt
production at particular mines for varying lengths of time. We do not carry
business interruption insurance, but we do maintain property and general
liability insurance policies which may mitigate some of the above risks.
However, we cannot provide assurance that these risks will be fully covered by
these insurance policies.
WE DEPEND ON THIRD PARTY SERVICE PROVIDERS TO PRODUCE A PORTION OF OUR
COAL. IF THESE PROVIDERS' SERVICES WERE NO LONGER AVAILABLE, OUR ABILITY TO
PRODUCE AND SELL COAL WOULD BE ADVERSELY AFFECTED.
We currently operate two mines using a third-party "contract miner" to
which we pay a fee in exchange for their production from our coal reserves. We
may elect to employ a contract miner at other operations in the future should
they be economically justified. If the operators with whom we contract our
mining operations were to suspend their operations due to labor stoppages,
financial difficulties or other circumstances, our ability to produce coal would
be impaired and our financial results would be adversely affected.
ALTHOUGH NONE OF OUR EMPLOYEES ARE MEMBERS OF UNIONS, WE CANNOT ASSURE YOU
THAT OUR WORK FORCE WILL REMAIN UNION-FREE IN THE FUTURE.
None of our employees are represented under collective bargaining
agreements. However, we cannot assure you that all of our work force will remain
union-free in the future. If some or all of our currently union-free operations
were to become unionized, it could adversely affect our productivity and
increase the risk of work stoppages at our mining complexes. In addition, even
if we remain union-free, our operations may still be adversely affected by work
stoppages at unionized companies, particularly if union workers were to
orchestrate boycotts against our operations.
ANY SIGNIFICANT INCREASE IN TRANSPORTATION COSTS OR DISRUPTION OF THE
TRANSPORTATION OF OUR COAL MAY IMPAIR OUR ABILITY TO SELL COAL.
Transportation costs, which are generally borne directly by the customer,
are a significant component of the total delivered cost of coal. If
transportation costs incurred by our customers to take delivery of our coal were
to increase relative to costs of transporting coal sold by our competitors it
could impair our ability to sell coal. In addition, if the cost of transporting
coal compared with competing power plant fuels,
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such as natural gas or oil, were to increase, it could have a material adverse
effect on our business, financial condition or results of operations. In
addition, we are dependent upon rail, barge, vessels and truck transport to
deliver coal to our customers. Disruption of these transportation services could
temporarily impair our ability to supply coal and, as a consequence, adversely
affect our business, financial condition or results of operations. See
"Business - Coal Transportation."
WE MAY NOT BE ABLE TO GROW SUCCESSFULLY THROUGH FUTURE ACQUISITIONS, AND WE
MAY NOT BE ABLE TO EFFECTIVELY INTEGRATE THE VARIOUS BUSINESSES OR PROPERTIES WE
DO ACQUIRE.
Historically, our growth and operating results have been substantially
dependent on the successful completion of acquisitions. Our future growth could
be limited if we are unable to continue to make acquisitions, or if we are
unable to successfully integrate the companies, businesses or properties we are
able to acquire. We cannot predict whether we will be successful in consummating
any of these acquisitions or what the consequences of any of these acquisitions
would be. Moreover, we cannot assure you that any acquisitions will not be
dilutive to earnings and distributions to unitholders or that any additional
debt incurred to finance an acquisition will not affect our ability to make
distributions to unitholders. Our ability to make acquisitions in the future
could be limited by restrictions under our existing or future debt agreements,
competition from other coal companies for attractive properties or the lack of
suitable acquisition candidates.
OUR BUSINESS MAY BE ADVERSELY AFFECTED IF WE ARE UNABLE TO REPLACE OUR COAL
RESERVES.
Our business depends, in part, upon our ability to find, develop or acquire
additional coal reserves that we can recover economically. Our reserves will
generally decline as they are depleted. We cannot assure you that our planned
development projects and acquisition activities will increase our reserves
significantly or that we will have continued success expanding existing and
developing additional mines. We believe that there are substantial reserves on
adjacent or neighboring properties that are unleased and otherwise available.
However, we cannot assure you that we will be able to negotiate leases with the
landowners on acceptable terms. An inability to expand our operations into
adjacent or neighboring reserves under this strategy could have a material
adverse effect on our business, financial condition or results of operations.
THE ESTIMATES OF OUR RESERVES MAY PROVE INACCURATE, AND YOU SHOULD NOT
PLACE UNDUE RELIANCE ON THESE ESTIMATES.
The estimates of our reserves may vary substantially from actual amounts of
coal we are able to economically recover. The reserve data set forth in this
prospectus represent our engineering estimates, as audited by Weir International
Mining Consultants, an independent mining and geological consultant. All of the
reserves presented in this prospectus constitute proven and probable reserves.
We have included complete definitions of the terms proven reserves and possible
reserves in our glossary. There are numerous uncertainties inherent in
estimating quantities of reserves, including many factors beyond our control.
Estimates of coal reserves necessarily depend upon a number of variables and
assumptions, any one of which may vary considerably from actual results. These
factors and assumptions relate to:
- geological and mining conditions, which may not be fully identified by
available exploration data and/or differ from our experiences in areas
where we currently mine;
- the percentage of coal in the ground ultimately recoverable;
- historical production from the area compared with production from other
producing areas;
- the assumed effects of regulation by governmental agencies; and
- assumptions concerning future coal prices, operating costs, capital
expenditures, severance and excise taxes and development and reclamation
costs.
For these reasons, estimates of the recoverable quantities of coal
attributable to any particular group of properties, classifications of reserves
based on risk of recovery and estimates of future net cash flows
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expected from these properties as prepared by different engineers or by the same
engineers at different times may vary substantially. Actual production, revenue
and expenditures with respect to our reserves will likely vary from estimates,
and these variations may be material. As a result, you should not place undue
reliance on the coal reserve data included herein.
CASH DISTRIBUTIONS ARE NOT GUARANTEED AND MAY FLUCTUATE WITH OUR
PERFORMANCE. IN ADDITION, OUR MANAGING GENERAL PARTNER'S DISCRETION IN
ESTABLISHING RESERVES MAY NEGATIVELY IMPACT YOUR RECEIPT OF CASH DISTRIBUTIONS.
Because distributions on the common units are dependent on the amount of
cash generated through our coal sales, distributions may fluctuate based on the
amount of coal we are able to produce and the price at which we are able to sell
it. We cannot guarantee that the minimum quarterly distributions will be paid
each quarter. The actual amount of cash that is available to be distributed each
quarter will depend upon numerous factors, some of which are beyond our control
and the control of our managing general partner. See "Cash Available for
Distribution." Cash distributions are dependent primarily on cash flow,
including cash flow from financial reserves and working capital borrowings, and
not solely on profitability, which is affected by non-cash items. Therefore,
cash distributions might be made during periods when we record losses and might
not be made during periods when we record profits.
The amount of Available Cash needed to pay the minimum quarterly
distribution for four quarters on the common units, the subordinated units and
the general partner interests to be outstanding immediately after the offering
is approximately $31.4 million. If we had completed the transactions
contemplated in this prospectus on January 1, 1998, pro forma Available Cash
from Operating Surplus generated during 1998 would have been approximately $16.6
million. The amount of pro forma Available Cash from Operating Surplus generated
during 1998 would have been sufficient to allow us to pay approximately 90% of
the minimum quarterly distribution on the common units and would have been
insufficient to make a distribution on the subordinated units. For a calculation
of our ability to make distributions to unitholders based on our pro forma
results in 1998 and for the first quarter of 1999, please see "Cash Available
for Distribution" and Appendix D. The terms "Available Cash" and "Operating
Surplus" are technical terms which are precisely defined in our partnership
agreement. We have included these definitions in our glossary. "Available Cash"
generally means cash on hand at the end of the quarter, including any working
capital borrowings, less appropriate reserves. "Operating Surplus" generally
means cash received from our operations, as opposed to long-term borrowings or
major asset sales, less our operating expenses.
The partnership agreement gives our managing general partner broad
discretion in establishing financial reserves for the proper conduct of our
business. These reserves also will affect the amount of cash available for
distribution. Our managing general partner may establish reserves for
distributions on the subordinated units, but only if those reserves will not
prevent us from distributing the full minimum quarterly distribution, plus any
arrearages, on the common units for the following four quarters. In addition,
the partnership agreement requires the managing general partner to deduct from
operating surplus each year estimated maintenance capital expenditures as
opposed to actual expenditures in order to reduce wide disparities in operating
surplus caused by fluctuating maintenance capital expenditure levels. If
estimated maintenance capital expenditures in a year are higher than actual
maintenance capital expenditures, then the amount of cash available for
distribution to unitholders will be lower than if actual maintenance capital
expenditures were deducted from operating surplus.
OUR INDEBTEDNESS MAY LIMIT OUR ABILITY TO BORROW ADDITIONAL FUNDS, MAKE
DISTRIBUTIONS TO UNITHOLDERS OR CAPITALIZE ON BUSINESS OPPORTUNITIES.
Upon completion of the transactions contemplated in this prospectus, we
expect our total long-term indebtedness to be $230.3 million, consisting of $180
million principal amount of 8.31% senior unsecured notes outstanding and
approximately $48.6 million outstanding under our senior credit facility and
$1.7 million of other partnership debt. Our leverage may:
- adversely affect our ability to finance future operations and capital
needs;
- limit our ability to pursue acquisitions and other business
opportunities;
27
<PAGE> 33
- make our results of operations more susceptible to adverse economic or
operating conditions; and
- make it more difficult to self-insure for our workers' compensation
obligations.
Our indebtedness on a pro forma basis will exceed our total book capitalization.
In addition, we will have $50.0 million of aggregate unused borrowing capacity
under our senior credit facility at the closing of this offering. Future
borrowings, under our credit facilities or otherwise, could result in a
significant increase in our leverage.
Our payment of principal and interest on the indebtedness will reduce the
cash available for distribution on the units. We will be prohibited from making
cash distributions:
- during an event of default under any of our indebtedness; or
- if either before or after such distribution, we fail to meet a coverage
test based on the ratio of our consolidated debt to our consolidated cash
flow. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity of Capital
Resources -- Description of Senior Notes."
Various limitations in our indebtedness may reduce our ability to incur
additional indebtedness, to engage in some transactions and to capitalize on
business opportunities. Any subsequent refinancing of our current indebtedness
or any new indebtedness could have similar or greater restrictions.
WE ARE REQUIRED TO PLACE AND MAINTAIN BONDS TO SECURE OUR OBLIGATIONS TO
RETURN MINED PROPERTY TO ITS ORIGINAL CONDITION. THE FAILURE TO DO SO COULD
RESULT IN FINES AND THE LOSS OF OUR MINING PERMITS.
Federal and state laws require us to place and maintain bonds to secure our
obligations to repair and return property to its original state after it has
been mined (often referred to as "reclaim"), to pay federal and state workers'
compensation benefits and to satisfy other miscellaneous obligations. These
bonds provide assurance that we will perform our statutorily required
obligations and are referred to in this prospectus as "surety" bonds. These
bonds are typically renewable on a yearly basis. We cannot assure you that
surety bond holders will continue to renew the bonds or refrain from demanding
collateral or additional collateral upon the renewal of the bonds. The failure
to maintain or the inability to acquire sufficient surety bonds, as required by
state and federal laws, could subject us to fines and other penalties as well as
the loss of our mining permits. This failure could result from a variety of
factors, including:
- lack of availability, higher expense or unreasonable terms of new surety
bonds;
- restrictions on the ability of current and future third-party surety bond
holders to have collateral due to terms of other current and future debt
instruments; and
- the exercise by third-party surety bond holders of their right to refuse
to renew the surety.
As of December 31, 1998, we had outstanding surety bonds with third parties for
reclamation expenses totaling $35.2 million. Surety bonds valued at an
additional $19.2 million are in place for federal and state workers'
compensation obligations and other miscellaneous obligations.
Furthermore, the reorganization of our subsidiaries in connection with the
formation of Alliance Resource Partners and the offering of the common units may
require that we place and maintain additional surety bonds with respect to some
reclamation obligations. We may not have all these bonds in place at the time of
the closing of the offering of the common units.
OUR OPERATIONS COULD BE ADVERSELY AFFECTED BY DATA PROCESSING FAILURES
AFTER DECEMBER 31, 1999. FAILURES COULD OCCUR IN OUR OWN SYSTEMS AS WELL AS THE
SYSTEMS OF OUR CUSTOMERS OR SUPPLIERS.
The approach of the year 2000 presents significant issues for many
financial information and operational computer systems. Many computer systems in
use today use two digits rather than four to identify a year, with the result
that these systems may be unable to distinguish the year 2000 from the year
1900. We have embedded microprocessor systems in certain of our mining equipment
and in older hardware or software in our mining complexes which we are currently
evaluating for Year 2000 compliance. If these systems contain deficiencies and
appropriate modifications and replacements are not
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<PAGE> 34
made, are not made properly or are not completed in a timely manner, the Year
2000 issue may interrupt our mining operations as well as our billing and
collection processes and adversely affect our operating results.
In addition, if any of our suppliers or customers do not successfully deal
with the year 2000 issue, we could experience delays in receiving or shipping
coal and equipment which could result in increased costs, lost revenues and
customers and even claims for damages. Of particular concern is the ability of
the railroads which ship our coal to continue to make timely deliveries to our
customers. Customer problems with the year 2000 issue could also result in
delays in invoicing our customers or in our receiving payments from them that
would affect our liquidity. We are unable to predict the extent to which the
Year 2000 issue will have an effect on us. The severity of these possible
problems would depend on the nature of the problem and how quickly it could be
corrected or an alternative implemented, which is unknown at this time. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Impact of Year 2000 Issues."
REGULATORY RISKS
WE ARE SUBJECT TO FEDERAL, STATE AND LOCAL REGULATION ON NUMEROUS MATTERS.
THESE REGULATIONS INCREASE OUR COSTS OF DOING BUSINESS AND MAY DISCOURAGE
CUSTOMERS FROM BUYING OUR COAL.
Numerous governmental permits and approvals are required for coal mining
operations. We may be required to prepare and present to federal, state and
local authorities data describing the effect or impact that any proposed mining
operations may have upon the environment. Any of these requirements may be
costly and time-consuming and may delay commencement or continuation of mining
operations.
New legislation and new regulations under existing laws related to the
protection of the environment, which would further regulate or tax the coal
industry, may also require us or our customers to change operations
significantly or incur increased costs. This type of legislation, if enacted,
could have a material adverse effect on our business, financial condition and
results of operations. See "Business -- Regulation."
WE HAVE BLACK LUNG BENEFITS AND WORKERS' COMPENSATION OBLIGATIONS THAT
COULD INCREASE IF NEW LEGISLATION IS ENACTED.
Under black lung benefits legislation, each coal mine operator is required
to make payments of pneumoconiosis, or black lung disease, benefits to current
and former coal miners, survivors of a miner who dies from black lung disease
and a trust fund for some qualified claimants. In addition to federal acts, we
are also liable under various state statutes for black lung claims. We provide
self-insured accruals for present and future liabilities for these benefits. We
had accrued $17.0 million, $17.9 million and $22.7 million for these benefits at
December 31, 1996, 1997 and 1998. The increase in 1998 is primarily attributable
to the acquisition of Hopkins County Coal. The actual claims paid could change
significantly if current legislation is amended or if new legislation is
enacted. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources -- Accruals or Other
Liabilities" and "Business -- Regulation -- Black Lung Legislation" and
"-- Workers' Compensation."
Additionally, we are required to compensate employees for work-related
injuries. We had accrued $16.9 million, $17.4 million and $18.1 million at
December 31, 1996, 1997 and 1998 for these costs. Several states in which we
operate consider changes to workers' compensation laws from time to time. These
changes, if enacted, could adversely affect our business, financial condition
and results of operations.
THE CLEAN AIR ACT AFFECTS OUR CUSTOMERS AND COULD SIGNIFICANTLY INFLUENCE
THEIR PURCHASING DECISIONS.
The Clean Air Act extensively regulates the emission into the air of SO(2),
particulate matter and other compounds, including nitrogen oxides and mercury,
emitted by coal-fueled electric power generation plants. These emission
restrictions could affect the demand for and price of coal, especially higher
sulfur coal, for a number of years. The Clean Air Act provides for a two-phase
process to reduce SO(2) emissions. Phase I began in 1995, and Phase II will
require further emissions reductions beginning in the year 2000. The initiation
of Phase II next year will subject additional coal-burning electric power
generation plants to emission controls under the Clean Air Act. If we fail to
secure new contracts for our higher sulfur coal
29
<PAGE> 35
production at favorable prices when our current contracts expire, our business,
financial condition and results of operations could be materially adversely
affected.
The Clean Air Act also requires utilities that currently are major sources
of nitrogen oxide, which are precursors to ozone, in moderate or higher ozone
nonattainment areas to install reasonably available control technology. In July
1997, the U.S. Environmental Protection Agency adopted new, more stringent
National Ambient Air Quality Standards for particulate matter and ozone which
the Environmental Protection Agency expects to implement by 2003. In May 1999, a
three judge panel of the United States Court of Appeals for the District of
Columbia Circuit held these Standards invalid. The case is not yet final, and
the specific provisions of these Standards could be subject to revision by the
Environmental Protection Agency. These potential policies and control strategies
could restrict our ability to develop new mines or could require us to modify
our existing operations, which in turn may have a material adverse effect on our
business, financial condition and results of operations. The effect which these
regulations or other future requirements could have on the coal industry in
general and on us in particular cannot be predicted with certainty. We cannot
assure you that the implementation of the Clean Air Act, the new National
Ambient Air Quality Standards or other future regulatory provisions to address
air pollution will not materially adversely affect our business, financial
condition and results of operations.
THE PASSAGE OF LEGISLATION RESPONSIVE TO THE FRAMEWORK CONVENTION ON GLOBAL
CLIMATE CHANGE COULD RESULT IN A REDUCED USE OF COAL BY ELECTRIC POWER
GENERATORS. THIS REDUCTION IN USE COULD ADVERSELY AFFECT OUR REVENUES AND
RESULTS OF OPERATIONS.
The United States and more than 160 other nations are signatories to the
1992 Framework Convention on Global Climate Change which is intended to limit or
capture emissions of greenhouse gases, such as carbon dioxide. Efforts to
control greenhouse gas emissions could result in reduced use of coal if electric
power generators switched to lower carbon sources of fuel. These restrictions
could have a material adverse effect on our business, financial condition and
results of operations. Although the United States Senate has neither ratified
the 1992 Framework Convention on Global Climate Change, which is known as the
Kyoto Protocol, nor enacted any law specifically controlling greenhouse gas
emissions, the Environmental Protection Agency has some authority to regulate
and restrict these emissions. See "Business -- Regulation -- Framework
Convention on Global Climate Change" for a discussion of the Kyoto Protocol.
WE ARE SUBJECT TO THE CLEAN WATER ACT, WHICH IMPOSES LIMITATIONS AND
MONITORING AND REPORTING OBLIGATIONS ON OUR DISCHARGE OF POLLUTANTS INTO WATER.
The federal Clean Water Act and state clean water laws affect coal mining
operations by, among other things, imposing restrictions on discharge of
pollutants into waters, and dredging and filling of wetlands. Coal mining
operations can generate highly acidic or toxic water pollution discharges that,
unless treated, can severely pollute surface and ground waters. Regular
monitoring, as well as compliance with reporting requirements and performance
standards, are preconditions for the issuance and renewal of permits governing
the discharge of pollutants into water. We cannot assure you that requirements
under the Clean Water Act will not materially adversely affect our business,
financial condition and results of operations.
WE ARE SUBJECT TO RECLAMATION, MINE CLOSURE AND REAL PROPERTY RESTORATION
REGULATIONS AND MUST ACCRUE FOR THE ESTIMATED COST OF COMPLYING WITH THESE
REGULATIONS.
The federal Surface Mining Control and Reclamation Act of 1977 and similar
state statutes require that we obtain and periodically renew permits for mining
operations and restore our mine property in accordance with specified standards
and an approved plan. This restoration process is commonly referred to as
"reclamation" in the industry. These laws also impose on mine operators the
responsibility of repairing or compensating for some types of damages occurring
on the surface as a result of mining operations.
We have accrued for the estimated costs of reclamation and mine closing,
including the cost of treating mine water discharge when necessary. The accrual
for reclamation and mine closing costs is based upon permit requirements and the
costs and timing of reclamation and mine closing procedures. Our
30
<PAGE> 36
reclamation and mine-closing cost accruals were $13.8 million at December 31,
1998. The amount that was included as an operating expense for the year ended
December 31, 1998 was $0.7 million, while the related cash payment in 1998 for
this liability was $1.5 million. Although management believes it is making
adequate provisions for all expected reclamation and other costs associated with
mine closures, future operating results would be adversely affected if we later
determined these accruals to be insufficient.
WE COULD INCUR SIGNIFICANT COSTS UNDER FEDERAL AND STATE SUPERFUND AND
WASTE MANAGEMENT STATUTES.
The Comprehensive Environmental Response, Compensation and Liability Act,
known as CERCLA or "Superfund," and similar state laws create liabilities for
investigation and remediation for releases of hazardous substances to the
environment and damages to natural resources. Our current and former coal mining
operations are incurring, and will continue to incur, expenditures associated
with the investigation and remediation of environmental matters. These costs
could increase substantially if our high-volume wastes, including utility fly
ash and scrubber sludge, lose their existing exemption from federal regulations.
Items which may require investigation under separate state and federal laws
include underground petroleum and hazardous substance storage tanks, solid and
hazardous waste disposal and other matters under CERCLA and state environmental
laws. A number of these laws impose liability on us for the actions of prior
owners and operators and provide for strict liability for violations.
The magnitude of the liability and the cost of complying with these
environmental laws cannot be predicted with certainty. As a result, material
liabilities or costs related to environmental matters may be incurred in the
future and we may be affected adversely by these environmental liabilities or
costs. In addition, changes in laws or regulations may affect the manner in
which these laws require us to conduct our operations. See
"Business -- Regulation."
WE MAY NOT BE ABLE TO OBTAIN CONSENTS TO THE TRANSFER OF SOME MINING AND
ENVIRONMENTAL PERMITS PRIOR TO CLOSING OF THE OFFERING.
In connection with the formation of Alliance Resource Partners and the
related reorganization of our subsidiaries, we will be required to transfer
mining and environmental permits and approvals from federal, state or local
regulatory authorities. In some instances, the process of transferring these
permits and approvals will involve comment periods and public meetings. It is
possible that we will not complete the transfer of all of the necessary permits
and approvals prior to the completion of the offering of the common units. We
cannot assure you that this will not have any material adverse effect on our
business, financial condition or results of operations.
TAX RISKS TO COMMON UNITHOLDERS
For a discussion of all of the expected material federal income tax
consequences of owning and disposing of common units, see "Tax Considerations."
THE IRS COULD TREAT US AS A CORPORATION, WHICH WOULD SUBSTANTIALLY REDUCE
THE CASH AVAILABLE FOR DISTRIBUTION TO UNITHOLDERS.
The federal income tax benefit of an investment in the common units depends
largely on our being treated as a partnership for federal income tax purposes.
If we were classified as a corporation for federal income tax purposes, we would
pay federal income tax on our income at the corporate tax rate, which is
currently 35%. Distributions to you would generally be taxed again as corporate
distributions, and no income, gains, losses, deductions or credits would flow
through to you. Because a tax would be imposed upon us as an entity, the cash
available for distribution to you would be substantially reduced. Treatment of
us as a corporation would result in a material reduction in the anticipated cash
flow and after-tax return to the unitholders, likely causing a substantial
reduction in the value of the common units.
We cannot assure you that the law will not change and cause us to be taxed
as a corporation for federal income tax purposes or otherwise subject us to
entity-level taxation. The partnership agreement provides that, if a law is
enacted or existing law is modified or interpreted in a manner that subjects us
to taxation as a corporation or otherwise subjects us to entity-level taxation
for federal, state or local income
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<PAGE> 37
tax purposes, then specified provisions of the partnership agreement relating to
distributions will be subject to change, including a decrease in distributions,
to reflect the impact of that law on us.
WE HAVE NOT REQUESTED AN IRS RULING WITH RESPECT TO OUR TAX TREATMENT.
We have not requested a ruling from the IRS with respect to any matter
affecting us. The IRS may adopt positions that differ from the conclusions of
our counsel expressed in this prospectus or from the positions taken by us. It
may be necessary to resort to administrative or court proceedings to sustain
some or all of our counsel's conclusions or the positions taken by us. A court
may not concur with some or all of our conclusions. Any contest with the IRS may
materially and adversely impact the market for common units and the price at
which they trade. In addition, the costs of any contest with the IRS will be
borne directly or indirectly by some of the unitholders and the general
partners.
YOU MAY BE REQUIRED TO PAY TAXES ON INCOME FROM US EVEN IF YOU RECEIVE NO
CASH DISTRIBUTIONS.
You will be required to pay any federal income taxes and, in some cases,
state and local income taxes on your allocable share of our income, whether or
not you receive cash distributions. We cannot assure you that you will receive
cash distributions equal to your allocable share of our taxable income or even
equal to the actual tax liability that results from this allocable share of
income. Further, upon the sale of your units, you may incur a tax liability in
excess of the amount of cash you receive.
TAX GAIN OR LOSS ON DISPOSITION OF COMMON UNITS COULD BE DIFFERENT THAN
EXPECTED.
Upon the sale of common units, you will recognize gain or loss equal to the
difference between the amount realized and your tax basis in those common units.
Prior distributions in excess of the total net taxable income you were allocated
for a common unit, which decreased your tax basis in that common unit, will, in
effect, become taxable income if the common unit is sold at a price greater than
your tax basis in that common unit, even if the price is less than your original
cost. A substantial portion of the amount realized, whether or not representing
gain, may be ordinary income. Furthermore, should the IRS successfully contest
some conventions to be used by us, you could recognize more gain on the sale of
units than would be the case under those conventions, without the benefit of
decreased income in prior years.
INVESTORS, OTHER THAN INDIVIDUALS WHO ARE U.S. RESIDENTS, MAY HAVE ADVERSE
TAX CONSEQUENCES FROM OWNING UNITS.
Investment in common units by tax-exempt entities, regulated investment
companies and foreign persons raises issues unique to them. For example,
virtually all of our income allocated to organizations exempt from federal
income tax, including individual retirement accounts and other retirement plans,
will be unrelated business taxable income and will be taxable to the unitholder.
Very little of our income will be qualifying income to a regulated investment
company. Distributions to foreign persons will be reduced by withholding taxes.
WE WILL REGISTER AS A TAX SHELTER. THIS MAY INCREASE THE RISK OF AN IRS
AUDIT OF ALLIANCE RESOURCE PARTNERS OR A UNITHOLDER.
Our managing general partner has applied to register us with the Secretary
of the Treasury as a "tax shelter." The Secretary of Treasury has required that
some types of entities, including some partnerships, register as "tax shelters"
in response to the perception that they claim to generate tax benefits that the
IRS may believe to be unwarranted. We cannot assure unitholders that we will not
be audited by the IRS or that tax adjustments will not be made. Any unitholder
owning less than a 1% profit interest in us has very limited rights to
participate in the income tax audit process. Further, any adjustments in our tax
returns will lead to adjustments in the unitholders' tax returns and may lead to
audits of unitholders' tax returns and adjustments of items unrelated to us.
Each unitholder would bear the cost of any expense incurred in connection with
an examination of his or her personal tax return.
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<PAGE> 38
WE TREAT A PURCHASER OF UNITS AS HAVING THE SAME TAX BENEFITS AS THE
SELLER; THE IRS MAY CHALLENGE THIS TREATMENT WHICH COULD ADVERSELY AFFECT THE
VALUE OF THE UNITS.
Because we cannot match transferors and transferees of common units, we
will adopt depreciation and amortization conventions that do not conform with
all aspects of specified proposed and final Treasury regulations. A successful
IRS challenge to those conventions could adversely affect the amount of tax
benefits available to you. It also could affect the timing of these tax benefits
or the amount of gain from your sale of common units and could have a negative
impact on the value of the common units or result in audit adjustments to your
tax returns.
YOU WILL LIKELY BE SUBJECT TO STATE AND LOCAL TAXES AS A RESULT OF AN
INVESTMENT IN UNITS.
In addition to federal income taxes, you will likely be subject to other
taxes, including state and local taxes, unincorporated business taxes and
estate, inheritance or intangible taxes that are imposed by the various
jurisdictions in which we do business or own property. You will likely be
required to file state and local income tax returns and pay state and local
income taxes in some or all of the various jurisdictions in which we do business
or own property. Further, you may be subject to penalties for failure to comply
with those requirements. We will initially own assets and do business in
Illinois, Indiana, Kentucky, Maryland, Oklahoma and West Virginia. Each of these
states currently impose a personal income tax. It is your responsibility to file
all United States federal, state and local tax returns. Counsel has not rendered
an opinion on the state or local tax consequences of an investment in the common
units.
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<PAGE> 39
USE OF PROCEEDS
We estimate that the net proceeds we will receive from this offering of
common units will be approximately $167.9 million. We anticipate using the net
proceeds of this offering and the sale of a general partner interest to the
managing general partner, together with the gross proceeds of the private
placement of the senior notes, which are estimated to be approximately $180.0
million, and the $48.6 million of term loan borrowings under the senior credit
facility, to:
- pay $8.0 million in fees and expenses incurred in connection with this
offering and the related transactions;
- purchase $48.6 million of U.S. Treasury Notes which will be assigned as
collateral to secure the term loan borrowings under our senior credit
facility;
- make a distribution of $81.1 million to the special general partner; and
- have approximately $36.5 million available to fund future capital
expenditures and for working capital and other general corporate
purposes.
The balance of the proceeds, approximately $228.6 million, will be retained
by the special general partner, which is the original borrower under the term
loan and senior credit facility. All of the amounts distributed to or retained
by the special general partner will be distributed to Alliance Resource
Holdings, which is owned by management and funds managed by The Beacon Group and
its affiliates. One-half of the proceeds from any exercise of the underwriters'
over-allotment option will be used to redeem an amount of subordinated units
from the special general partner equal to one-half of the number of common units
issued upon the exercise of that option. The balance of the proceeds from any
exercise of the underwriters' over-allotment option will be used to fund future
capital expenditures and for working capital and other general corporate
purposes. We cannot assure you that the cash retained for capital expenditures
and working capital purposes will ultimately be spent in a manner which proves
beneficial to holders of common units.
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<PAGE> 40
CAPITALIZATION
The following table shows (1) our historical capitalization as of March 31,
1999 on an actual basis and (2) our pro forma capitalization as of March 31,
1999, adjusted to reflect the offering of the common units, the private
placement of the 8.31% senior notes due 2014, the borrowings under the term loan
facility and the application of the net proceeds we receive in the offering and
these financings in the manner described under "Use of Proceeds." This table is
derived from, should be read in conjunction with and is qualified in its
entirety by reference to our historical and pro forma financial statements and
the accompanying notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
-----------------------
PRO FORMA,
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash, cash equivalents and U.S. Treasury Notes.............. $ -- $ 85,142
======== =========
Long-term debt:
Term loan facility........................................ $ -- $ 48,619
Working capital facility.................................. -- --
Revolving credit facility................................. -- --
8.31% senior notes due 2014............................... -- 180,000
Other debt................................................ 1,727 1,727
-------- ---------
Total long-term debt.............................. 1,727 230,346
-------- ---------
Total net parent investment/partners' capital (deficit):
Net parent investment..................................... 154,860 --
Common unitholders........................................ -- 164,051
Subordinated unitholders.................................. -- 147,633
General partners.......................................... -- (330,635)
-------- ---------
Total net parent investment/partners' capital
(deficit)....................................... 154,860 (18,951)
-------- ---------
Total capitalization.............................. $156,587 $ 211,395
======== =========
</TABLE>
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<PAGE> 41
DILUTION
On a pro forma basis as of March 31, 1999 after giving effect to the
offering of common units and the related transactions, our negative tangible
book value was $(18.9) million, or $(1.21) per common unit (assuming an initial
public offering price of $20 per common unit). Purchasers of common units in
this offering will experience substantial and immediate dilution in net tangible
book value per common unit for financial accounting purposes, as illustrated in
the following table:
<TABLE>
<S> <C>
Assumed initial public offering price per common unit....... $20.00
Less: Pro forma negative tangible book value per common unit
after the offering(1)..................................... (1.21)
------
Immediate dilution in tangible net book value per common
unit to new investors..................................... $21.21
======
</TABLE>
The following table sets forth the number of units that we will issue and
the total consideration contributed to Alliance Resource Partners by the general
partners and their affiliates in respect of their units and by the purchasers of
common units in this offering upon consummation of the transactions contemplated
by this prospectus:
<TABLE>
<CAPTION>
TOTAL
UNITS ACQUIRED CONSIDERATION
-------------------- -------------
NUMBER PERCENT (IN MILLIONS)
---------- ------- -------------
<S> <C> <C> <C>
General Partners and their affiliates(2)(3).......... 6,727,002 42.9% $(182.9)
New Investors........................................ 8,969,335 57.1 164.0
---------- ----- -------
Total...................................... 15,696,337 100.0% $ (18.9)
========== ===== =======
</TABLE>
- ---------------
(1) Determined by dividing the total number of units (8,969,335 common units,
6,413,075 subordinated units and the combined 2% general partner interest,
which has a dilutive effect equivalent to 313,927 units) to be outstanding
after the offering into the pro forma negative tangible book value of
Alliance Resource Partners, after giving effect to the application of the
net proceeds of the offering.
(2) Upon the consummation of the transactions contemplated by this prospectus,
the special general partner will own an aggregate of 6,413,075 subordinated
units and our general partners will own a 2% general partner interest in
Alliance Resource Partners having a dilutive effect equivalent to 313,927
units.
(3) The assets contributed and sold by the general partners will be recorded at
historical cost in accordance with generally accepted accounting principles.
Book value of the consideration provided by the general partners and their
affiliates, as of March 31, 1999, after giving effect to the application of
the net proceeds of the offering, is as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
Book value of net assets contributed by Alliance Resource
Holdings.................................................. $ 154.9
Add: Sale of managing general partner interest.............. 6.3
Less: Receivables and income taxes retained by Alliance
Resource Holdings......................................... (34.4)
Less: Distribution of a portion of the net proceeds from the
sale of common units and private placement of senior
notes..................................................... (309.7)
-------
Total consideration............................... $(182.9)
=======
</TABLE>
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<PAGE> 42
CASH DISTRIBUTION POLICY
QUARTERLY DISTRIBUTIONS OF AVAILABLE CASH
We will make distributions to our partners for each of our fiscal quarters
before liquidation in an amount equal to all of Available Cash that quarter.
Available Cash is defined below in "-- Available Cash" and in our glossary. We
expect to make distributions of all Available Cash within approximately 45 days
after the end of each quarter, beginning with the quarter ending September 30,
1999, to holders of record on the applicable record date. The minimum quarterly
distribution and the target distribution levels for the period from the closing
of the offering through September 30, 1999 will be adjusted downward based on
the actual length of this period.
For each quarter during the subordination period, to the extent there is
sufficient Available Cash, the holders of common units will have the right to
receive the minimum quarterly distribution of $0.50 per unit, plus any
arrearages on the common units, before any distribution is made to the holders
of subordinated units. This subordination feature will enhance our ability to
distribute the minimum quarterly distribution on the common units during the
subordination period. There is no guarantee, however, that the minimum quarterly
distribution will be made on the common units.
If distributions from Available Cash on the common units for any quarter
during the subordination period are less than the minimum quarterly distribution
of $0.50 per common unit, holders of common units will be entitled to
arrearages. Common unit arrearages will accrue and be paid in a future quarter
if there is Available Cash remaining after the minimum quarterly distribution on
the common units is paid for that quarter. Common units will not accrue
arrearages after the subordination period, and subordinated units will not
accrue any arrearages at any time.
The holders of subordinated units will have the right to receive the
minimum quarterly distribution only after the common units have received the
minimum quarterly distribution plus any arrearages in payment of the minimum
quarterly distribution. Upon expiration of the subordination period, which will
generally not occur before September 30, 2004, the subordinated units will
convert into common units on a one-for-one basis. The subordinated units will
then participate pro rata with the other common units in distributions of
Available Cash. Under the circumstances described below, up to 50% of the
subordinated units may convert into common units before the expiration of the
subordination period.
AVAILABLE CASH
Available Cash is defined in the glossary and generally means, for any of
our fiscal quarters, all cash on hand at the end of the quarter less the amount
of cash reserves that is necessary or appropriate in the reasonable discretion
of the managing general partner to:
(1) provide for the proper conduct of our business;
(2) comply with applicable law, any of our debt instruments or other
agreements; or
(3) provide funds for distributions to unitholders and the general
partners for any one or more of the next four quarters,
plus Working Capital Borrowings after the end of the quarter. Working Capital
Borrowings are generally borrowings used solely for working capital purposes or
to pay distributions to partners made under our working capital facility or
pursuant to another arrangement.
OPERATING SURPLUS AND CAPITAL SURPLUS
Cash distributions will be characterized as distributions from either
Operating Surplus or Capital Surplus. This distinction affects the amounts
distributed to unitholders relative to the general partners, and also determines
whether holders of subordinated units receive any distributions.
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<PAGE> 43
Operating Surplus is defined in the glossary and generally means:
(1) our cash balance on the closing date plus $20 million, plus all of
our cash receipts from our operations since the closing date, excluding
cash from borrowings other than Working Capital Borrowings, sales of equity
and debt securities and sales of assets outside the ordinary course of
business, less
(2) all of our operating expenses (other than reclamation and mine
closing costs), the repayment of Working Capital Borrowings, estimated
maintenance capital expenditures and reserves established for future
operations, in each case since the closing of the transactions contemplated
in this prospectus.
All Available Cash distributed from any source will be treated as
distributed from Operating Surplus until the sum of all Available Cash
distributed since we began operations equals the Operating Surplus as of the end
of the quarter before that distribution. This method of cash distribution avoids
the difficulty of trying to determine whether Available Cash is distributed from
Operating Surplus or Capital Surplus. Any excess of Available Cash, irrespective
of its source, will be treated as Capital Surplus, which would represent a
return of capital. Capital Surplus is defined in the glossary.
If Capital Surplus is distributed on a common unit issued in the offering
in an aggregate amount equal to the initial public offering price of the common
units, plus any arrearages in the payment of minimum quarterly distributions on
the common units, then the distinction between Operating Surplus and Capital
Surplus will cease. All subsequent distributions of Available Cash will be made
from Operating Surplus. See "-- Distributions from Capital Surplus" below. We do
not anticipate that there will be significant distributions of Capital Surplus.
Adjusted Operating Surplus for any period generally means Operating Surplus
generated during that period, less:
(1) any net increase in Working Capital Borrowings during that period;
and
(2) any net reduction in cash reserves for operating expenditures
during that period not relating to an operating expenditure made during
that period; plus
(a) any net decrease in Working Capital Borrowings during that
period; and
(b) any net increase in cash reserves for operating expenditures
during that period required by any debt instrument for the repayment of
principal, interest or premium.
Generally speaking, Adjusted Operating Surplus is intended to reflect the cash
generated from operations during a particular period and therefore excludes net
increases in borrowings and net drawdowns of reserves of cash generated in prior
periods. Adjusted Operating Surplus is used in the test of whether subordinated
units can convert into common units.
MAINTENANCE AND EXPANSION CAPITAL EXPENDITURES
Operating Surplus is reduced by the amount of our maintenance capital
expenditures, but not our expansion capital expenditures. For our purposes,
maintenance capital expenditures are those capital expenditures required to
maintain, over the long term, the operating capacity of our capital assets, and
expansion capital expenditures are those capital expenditures that increase,
over the long term, the operating capacity of our capital assets. Examples of
maintenance capital expenditures include the replacement of equipment and the
replacement of reserves, whether through the expansion of an existing mine or
the acquisition or development of a new mine. Because these expenditures can be
very large and irregular, the amount of actual maintenance capital expenditures
may differ substantially from period to period, causing similar fluctuations in
the amount of Operating Surplus, Adjusted Operating Surplus and Available Cash.
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<PAGE> 44
To eliminate these large fluctuations, the partnership agreement will
require that an estimate of the average quarterly maintenance capital
expenditures necessary to maintain the operating capacity of our capital assets
over the long-term be subtracted from Operating Surplus each quarter as opposed
to the actual amounts spent. For purposes of this estimate, reclamation and mine
closing costs will be treated as maintenance capital expenditures. The
determination of the estimate will be made by the board of directors of the
managing general partner in any manner it determines is reasonable in its sole
discretion. The conflicts committee must concur with this determination. The
estimate will be made at least annually and whenever an event occurs that is
likely to result in a material adjustment to the amount of our maintenance
capital expenditures over the long-term, such as a major acquisition. Any
adjustment to this estimate will be prospective only. We currently expect that
our average annual maintenance capital expenditures will be approximately $23.5
million.
The use of estimated maintenance capital expenditures in calculating
Operating Surplus will reduce the risk that Available Cash from Operating
Surplus in any one quarter will be insufficient to pay the minimum quarterly
distribution on all the units. The use of estimated maintenance capital
expenditures in calculating Adjusted Operating Surplus, by evening out the
amount of Adjusted Operating Surplus over consecutive periods, will make it less
likely that a large capital expenditure in a period will prevent the special
general partner from being able to convert some or all of its subordinated units
into common units.
DISTRIBUTIONS OF AVAILABLE CASH FROM OPERATING SURPLUS DURING THE SUBORDINATION
PERIOD
Distributions of Available Cash from Operating Surplus for any quarter
during the subordination period will be made in the following manner:
- First, 98% to the common unitholders, pro rata, and 2% to the general
partners, pro rata, until we have distributed for each outstanding common
unit an amount equal to the minimum quarterly distribution for that
quarter;
- Second, 98% to the common unitholders, pro rata, and 2% to the general
partners, pro rata, until we have distributed for each outstanding common
unit an amount equal to any arrearages in payment of the minimum
quarterly distribution on the common units for any prior quarters during
the subordination period;
- Third, 98% to the subordinated unitholders, pro rata, and 2% to the
general partners, pro rata, until we have distributed for each
subordinated unit an amount equal to the minimum quarterly distribution
for that quarter; and
- Thereafter, in the manner described in "-- Incentive Distributions
Rights" below.
DISTRIBUTIONS OF AVAILABLE CASH FROM OPERATING SURPLUS AFTER THE SUBORDINATION
PERIOD
Distributions of Available Cash from Operating Surplus for any quarter
after the subordination period will be made in the following manner:
- First, 98% to all unitholders, pro rata, and 2% to the general partners,
pro rata, until we have distributed for each outstanding unit an amount
equal to the minimum quarterly distribution for that quarter; and
- Thereafter, in the manner described in "-- Incentive Distribution Rights"
below.
SUBORDINATION PERIOD; CONVERSION OF SUBORDINATED UNITS
The subordination period is defined in the glossary and will generally
extend until the first day of any quarter beginning after September 30, 2004
that each of the following three events occur:
(1) distributions of Available Cash from Operating Surplus on the
common units and the subordinated units equal or exceed the sum of the
minimum quarterly distributions on all of the outstanding common units and
subordinated units for each of the three non-overlapping four-quarter
periods immediately preceding that date;
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<PAGE> 45
(2) the Adjusted Operating Surplus generated during each of the three
immediately preceding non-overlapping four-quarter periods equals or
exceeds the sum of the minimum quarterly distributions on all of the
outstanding common units and subordinated units during those periods on a
fully diluted basis and the related distribution on the 2% general partner
interest during those periods; and
(3) there are no arrearages in payment of the minimum quarterly
distribution on the common units.
Before the end of the subordination period, half of the subordinated units
(up to 3,206,538 subordinated units) will convert into common units on a
one-for-one basis on the first day after the record date established for the
distribution for any quarter ending on or after September 30, 2003, if at the
end of the applicable quarter each of the following three events occurs:
(1) distributions of Available Cash from Operating Surplus on the
common units and the subordinated units equal or exceed the sum of the
minimum quarterly distributions on all of the outstanding common units and
subordinated units for each of the three non-overlapping four-quarter
periods immediately preceding that date;
(2) the Adjusted Operating Surplus generated during each of the two
immediately preceding non-overlapping four-quarter periods equals or
exceeds 110% of the sum of the minimum quarterly distributions on all of
the outstanding common units and subordinated units during those periods on
a fully diluted basis and the related distribution on the 2% general
partner interest during those periods; and
(3) there are no arrearages in payment of the minimum quarterly
distribution on the common units.
For purposes of determining whether the criteria in each clause (2) above
has been satisfied, Adjusted Operating Surplus will be adjusted upwards or
downwards if the conflicts committee of the board of directors of the managing
general partner determines in good faith that the estimated amount of
maintenance capital expenditures used in the determination of Adjusted Operating
Surplus in either clause (2) was materially incorrect, based on circumstances
prevailing at the time of original determination of the estimate for any one or
more of the preceding three four-quarter periods.
Upon expiration of the subordination period, all remaining subordinated
units will convert into common units on a one-for-one basis and will then
participate, pro rata, with the other common units in distributions of Available
Cash. In addition, if the managing general partner is removed as managing
general partner of Alliance Resource Partners under circumstances where cause
does not exist and units held by the general partners and their affiliates are
not voted in favor of that removal:
(1) the subordination period will end and all outstanding subordinated
units will immediately convert into common units on a one-for-one basis;
(2) any existing arrearages in payment of the minimum quarterly
distribution on the common units will be extinguished; and
(3) the managing general partner will have the right to convert its
general partner interest and its incentive distribution rights into common
units or to receive cash in exchange for those interests.
INCENTIVE DISTRIBUTION RIGHTS
Incentive distribution rights represent the right to receive an increasing
percentage of quarterly distributions of Available Cash from Operating Surplus
after the minimum quarterly distribution and the target distribution levels have
been achieved. The managing general partner currently holds the incentive
distribution rights, but may transfer these rights separately from its general
partner interest, subject to restrictions in the partnership agreement. The
target distribution levels are the amounts of Available Cash
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<PAGE> 46
from Operating Surplus distributed in excess of the payments made for the
minimum quarterly distribution and arrearages on the common units, if any, and
the related 2% distribution to the general partners.
If for any quarter:
(1) we have distributed Available Cash from Operating Surplus to the
common and subordinated unitholders in an amount equal to the minimum
quarterly distribution; and
(2) we have distributed Available Cash from Operating Surplus on
outstanding common units in an amount necessary to eliminate any cumulative
arrearages in payment of the minimum quarterly distribution;
then, we will distribute any additional Available Cash from Operating Surplus
for that quarter among the unitholders and the general partners in the following
manner:
- First, 98% to all unitholders and 2% to the general partners, pro rata,
until each unit has received a total of $0.55 per unit for that quarter
(the "First Target Distribution");
- Second, 85% to all unitholders, pro rata, 2% to the general partners, pro
rata, and 13% to the managing general partner, until each unitholder has
received a total of $0.625 per unit for that quarter (the "Second Target
Distribution");
- Third, 75% to all unitholders, pro rata, 2% to the general partners, pro
rata, and 23% to the managing general partner, until each unitholder has
received a total of $0.75 per unit for that quarter (the "Third Target
Distribution"); and
- Thereafter, 50% to all units, pro rata, 2% to the general partners, pro
rata, and 48% to the managing general partner.
In each case, the amount of the Target Distribution set forth above is exclusive
of any distributions to common unitholders to eliminate any cumulative
arrearages in payment of the minimum quarterly distribution on the common units.
The following table illustrates the amount of Available Cash from Operating
Surplus that would be distributed on a yearly basis to the unitholders and the
general partners at each of the target distribution levels. This table is based
on the 8,969,335 common units and the 6,413,075 subordinated units to be
outstanding immediately after the offering and assumes that there are no
arrearages in payment of the minimum quarterly distribution on the common units.
The "Percentage" columns under "Yearly Distributions" in the table below show
the percentage interest of the unitholders and the general partners in Available
Cash from Operating Surplus that would be distributed on a yearly basis between
the indicated target distribution levels. The "Amount" columns under "Yearly
Distribution" in the table below show the cumulative amount that would be
distributed on a yearly basis to the unitholders and the general partners if
Available Cash from Operating Surplus equaled the indicated target distribution
level.
<TABLE>
<CAPTION>
YEARLY DISTRIBUTIONS
--------------------------------------------------------------
UNITHOLDERS GENERAL PARTNERS TOTAL
QUARTERLY ----------------------- ----------------------- ----------
AMOUNT PER AMOUNT AMOUNT AMOUNT
TARGET DISTRIBUTION UNIT (MILLIONS) PERCENTAGE (MILLIONS) PERCENTAGE (MILLIONS)
- ------------------- ------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Minimum Quarterly Distribution.... $0.50 $30.8 98% $0.6 2% $31.4
First Target Distribution......... 0.55 33.8 98 0.7 2 34.5
Second Target Distribution........ 0.625 38.5 85 1.5 15 40.0
Third Target Distribution......... 0.75 46.1 75 4.1 25 50.2
Thereafter........................ above $0.75 50 50
</TABLE>
The amounts and percentages shown under "Yearly Distributions -- General
Partner" include the general partners' combined 2% general partner interest and
the managing general partner's incentive distribution rights. The amounts and
percentages shown under "Yearly Distributions -- Unitholders" include amounts
41
<PAGE> 47
distributable on both the common units and the subordinated units. Assuming the
special general partner continues to own 6,413,075 subordinated units and other
persons own 8,969,335 common units, the special general partner will receive, in
the aggregate, 41.7% of each amount shown as distributable to common and
subordinated unitholders.
DISTRIBUTIONS FROM CAPITAL SURPLUS
We will make distributions of Available Cash from Capital Surplus in the
following manner:
- First, 98% to all unitholders, pro rata, and 2% to the general partners,
pro rata, until we have distributed for each common unit that was issued
in this offering, an amount of Available Cash from Capital Surplus equal
to the initial public offering price;
- Second, 98% to the common unitholders, pro rata, and 2% to the general
partners, pro rata, until we have distributed for each common unit that
was issued in the offering, an amount of Available Cash from Capital
Surplus equal to any unpaid arrearages in payment of the minimum
quarterly distribution on the common units; and
- Thereafter, all distributions of Available Cash from Capital Surplus will
be distributed as if they were from Operating Surplus.
When a distribution is made from Capital Surplus, it is treated as if it
were a repayment of the unit price from this initial public offering. To reflect
repayment, we will adjust the minimum quarterly distribution and the target
distribution levels downward by multiplying each amount by a fraction. This
fraction is determined as follows:
- the numerator is the unrecovered initial public unit price of the common
units immediately after giving effect to the repayment; and
- the denominator is the unrecovered initial unit price of the common units
immediately before the repayment.
The unrecovered initial unit price is generally the initial public offering
price per unit less any distributions from Capital Surplus.
This adjustment to the minimum quarterly distribution may make it more
likely that subordinated units will be converted into common units, whether upon
the termination of the subordination period or the early conversion of some
subordinated units. This adjustment may also accelerate the dates at which these
conversions occur.
A "payback" of the unit price from this initial public offering occurs when
the unrecovered initial unit price of the common units is zero. At that time,
the minimum quarterly distribution and the target distribution levels each will
have been reduced to zero. All distributions of Available Cash from all sources
after that time will be treated as if they were from Operating Surplus. Because
the minimum quarterly distribution and the target distribution levels will have
been reduced to zero, the managing general partner, in its capacity as holder of
the incentive distribution rights, will then be entitled to receive 48% of all
distributions of Available Cash. This is in addition to any distributions to
which it may be entitled as a holder of units or its general partner interest.
Distributions from Capital Surplus will not reduce the minimum quarterly
distribution or target distribution levels for the quarter in which they are
distributed. We do not anticipate that there will be significant distributions
from Capital Surplus.
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<PAGE> 48
ADJUSTMENT OF MINIMUM QUARTERLY DISTRIBUTION AND TARGET DISTRIBUTION LEVELS
In addition to adjustments made upon a distribution of Available Cash from
Capital Surplus, we will adjust the following proportionately upward or
downward, as appropriate, if any combination or subdivision of units should
occur:
(1) the minimum quarterly distribution;
(2) the target distribution levels;
(3) the unrecovered initial unit price;
(4) the number of additional common units issuable during the
subordination period without a unitholder vote;
(5) the number of common units issuable upon conversion of the
subordinated units; and
(6) other amounts calculated on a per unit basis.
For example, if a two-for-one split of the common units should occur, the
minimum quarterly distribution, the target distribution levels and the
unrecovered initial unit price would each be reduced to 50% of its initial
level. We will not make any adjustment by reason of the issuance of additional
units for cash or property.
We may also adjust the minimum quarterly distribution and target
distribution levels if legislation is enacted or if existing law is modified or
interpreted in a manner that causes us, the intermediate partnership or the
operating subsidiary to become taxable as a corporation or otherwise subject to
taxation as an entity for federal, state or local income tax purposes. In this
event, the minimum quarterly distribution and target distribution levels for
each quarter after that time would be reduced to amounts equal to the product
of:
(1) the minimum quarterly distribution and each of the target
distribution levels; multiplied by
(2) one minus the sum of:
(x) the highest marginal federal corporate income tax rate which
could apply; plus
(y) any increase in the effective overall state and local income
tax rate that would have been applicable to us, the intermediate
partnership or the operating subsidiary in the preceding calendar year
as a result of the new imposition of the entity level tax, after taking
into account the benefit of any deduction allowable for federal income
tax purposes for the payment of state and local income taxes, but only
to the extent of the increase in rates resulting from that legislation
or interpretation.
For example, assuming we are not previously subject to state and local income
tax, if we were to become taxable as an entity for federal income tax purposes
and we became subject to a maximum marginal federal, and effective state and
local, income tax rate of 38%, then the minimum quarterly distribution and the
target distribution levels would each be reduced to 62% of the amount thereof
immediately before the adjustment.
DISTRIBUTIONS OF CASH UPON LIQUIDATION
Following the beginning of our dissolution and during the process of
selling all our assets, we will sell or otherwise dispose of assets and the
partners' capital account balances will be adjusted to reflect any resulting
gain or loss. Our dissolution and the process of selling all of our assets is
referred to as "liquidation." The proceeds of liquidation will first be applied
to the payment of our creditors in the order of priority provided in the
partnership agreement and by law. After that, we will distribute the proceeds to
the unitholders and the general partners in accordance with their capital
account balances, as so adjusted.
Partners are entitled to liquidating distributions in accordance with
capital account balances. The allocations of gains and losses upon liquidation
are intended, to the extent possible, to entitle the holders of outstanding
common units to a preference over the holders of outstanding subordinated units
upon the liquidation of Alliance Resource Partners, to the extent required to
permit common unitholders to receive their unrecovered initial unit price plus
any unpaid arrearages in payment of the minimum quarterly
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<PAGE> 49
distribution on the common units. Thus, net losses recognized upon liquidation
of Alliance Resource Partners will be allocated to the holders of the
subordinated units to the extent of their capital account balances before any
loss is allocated to the holders of the common units. Also net gains recognized
upon liquidation will be allocated first to restore negative balances in the
capital accounts of the general partners and any unitholders and then to the
common unitholders until their capital account balances equal their unrecovered
initial unit price plus unpaid arrearages in payment of the minimum quarterly
distribution of the common units. However, we cannot assure you that there will
be sufficient gain upon liquidation of Alliance Resource Partners to enable the
holders of common units to fully recover all of these amounts, even though there
may be cash available for distribution to the holders of subordinated units. Any
further net gain as recognized upon liquidation will be allocated in a manner
that takes into account the incentive distribution rights of the managing
general partner.
The manner of the adjustment is as provided in the partnership agreement.
If our liquidation occurs before the end of the subordination period, we will
allocate any gain, or unrealized gain attributable to assets distributed in
kind, to the partners in the following manner:
- First, to the general partners and the holders of units who have negative
balances in their capital accounts to the extent of and in proportion to
those negative balances;
- Second, 98% to the common unitholders, pro rata, and 2% to the general
partners, pro rata, until the capital account for each common unit is
equal to the sum of:
(1) the unrecovered initial unit price for that common unit; plus
(2) the amount of the minimum quarterly distribution for the quarter
during which our liquidation occurs; plus
(3) any unpaid arrearages in payment of the minimum quarterly
distribution on that common unit;
- Third, 98% to the subordinated unitholders, pro rata, and 2% to the
general partners, pro rata, until the capital account for each
subordinated unit is equal to the sum of:
(1) the unrecovered initial unit price on that subordinated unit; and
(2) the amount of the minimum quarterly distribution for the quarter
during which our liquidation occurs;
- Fourth, 98% to all unitholders, pro rata, and 2% to the general partners,
pro rata, until there has been allocated under this paragraph an amount
per unit equal to:
(1) the sum of the excess of the First Target Distribution per unit
over the minimum quarterly distribution per unit for each quarter of our
existence; less
(2) the cumulative amount per unit of any distributions of Available
Cash from Operating Surplus in excess of the minimum quarterly distribution
per unit that was distributed 98% to the units, pro rata, and 2% to the
general partners, pro rata, for each quarter of our existence;
- Fifth, 85% to all unitholders, pro rata, 2% to the general partners, pro
rata and 13% to the managing general partner, until there has been
allocated under this paragraph an amount per unit equal to:
(1) the sum of the excess of the Second Target Distribution per unit
over the First Target Distribution per unit for each quarter of our
existence; less
(2) the cumulative amount per unit of any distributions of Available
Cash from Operating Surplus in excess of the First Target Distribution per
unit that was distributed 85% to the units, pro rata, 2% to the general
partners, pro rata, and 13% to the managing general partner for each
quarter of our existence;
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<PAGE> 50
- Sixth, 75% to all unitholders, pro rata, 2% to the general partners, pro
rata, and 23% to the managing general partner, until there has been
allocated under this paragraph an amount per unit equal to:
(1) the sum of the excess of the Third Target Distribution per unit
over the Second Target Distribution per unit for each quarter of our
existence; less
(2) the cumulative amount per unit of any distributions of Available
Cash from Operating Surplus in excess of the Second Target Distribution per
unit that was distributed 75% to the units, pro rata, 2% to the general
partners, pro rata, and 23% to the managing general partner for each
quarter of our existence; and
- Thereafter, 50% to all unitholders, pro rata, 2% to the general partners,
pro rata, and 48% to the managing general partner.
If the liquidation occurs after the end of the subordination period, the
distinction between common units and subordinated units will disappear, so that
clause (3) of the second priority above and all of the third priority above will
no longer be applicable.
Upon our liquidation, we will generally allocate any loss to the general
partners and the unitholders in the following manner:
- First, 98% to holders of subordinated units in proportion to the positive
balances in their capital accounts and 2% to the general partners, pro
rata, until the capital accounts of the holders of the subordinated units
have been reduced to zero;
- Second, 98% to the holders of common units in proportion to the positive
balances in their capital accounts and 2% to the general partners, pro
rata, until the capital accounts of the common unitholders have been
reduced to zero; and
- Thereafter, 100% to the general partners, pro rata.
If the liquidation occurs after the end of the subordination period, the
distinction between common units and subordinated units will disappear, so that
all of the first priority above will no longer be applicable.
In addition, we will make interim adjustments to capital accounts at the
time we issue additional interests in Alliance Resource Partners or make
distributions of property. These adjustments will be based on the fair market
value of the interests or the property distributed. We will allocate any gain or
loss resulting from the adjustments to the unitholders and the general partners
in the same manner as gain or loss is allocated upon liquidation. In the event
that positive interim adjustments are made to the capital accounts, any later
negative adjustments to the capital accounts resulting from the issuance of
additional Alliance Resource Partners' interests, our distributions of property
or upon our liquidation, will be allocated in a manner which results, to the
extent possible, in the capital account balances of the general partners
equaling the amount which would have been the general partners' capital account
balances if no earlier positive adjustments to the capital accounts have been
made.
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<PAGE> 51
CASH AVAILABLE FOR DISTRIBUTION
We believe that, following completion of the offering, we will have
sufficient Available Cash from Operating Surplus (each as defined in our
glossary) for each quarter through December 31, 2000 to allow us to make the
full minimum quarterly distribution on all the outstanding units. The inclusion
of this belief does not constitute an undertaking that we will provide updates
based on future developments. Available Cash for any quarter will consist
generally of all cash on hand at the end of that quarter, plus Working Capital
Borrowings after the end of the quarter, as adjusted for reserves. The
definition of Available Cash is in the glossary. Operating Surplus generally
consists of cash on hand at closing, cash generated from operations after
deducting related expenditures and other items, plus working capital borrowings
after the end of the quarter, plus $20 million.
Assumptions. Our belief is based on a number of assumptions, including the
assumptions that:
(1) we will experience productivity levels in line with our current
performance;
(2) we will not experience any material decline in the margins we earn
from the sale of our coal;
(3) we will not experience any unanticipated loss of, or material
changes in the terms for, any significant customer contracts;
(4) we will not experience any unanticipated increases in labor costs
or adverse changes in work rules;
(5) we will not be obligated to pay any unexpected cash payments
associated with post-mine reclamation, workers' compensation claims, or
environmental litigation or cleanup;
(6) we will not have any major mine-related accidents or
interruptions; and
(7) we will not experience a major adverse change in the domestic coal
industry, in the electric utility industry, or in general economic
conditions.
Although we believe our assumptions are reasonable, most of our assumptions
are not within our control and cannot be predicted with any degree of certainty.
If our assumptions are not realized, the actual Available Cash from Operating
Surplus that we generate could be substantially less than that currently
expected and could, therefore, be insufficient to permit us to make cash
distributions at the levels described above. Accordingly, we cannot assure you
that distributions of the minimum quarterly distribution or any other amounts
will be made.
Alliance Resource Partners' Pro Forma Available Cash. The amount of
Available Cash constituting Operating Surplus needed to pay the minimum
quarterly distribution for one quarter and for four quarters on the common
units, the subordinated units and the general partner interests to be
outstanding immediately after the transactions is approximately:
<TABLE>
<CAPTION>
ONE FOUR
QUARTER QUARTERS
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Common units............................................. $4,485 $17,939
Subordinated units....................................... 3,207 12,826
Combined 2% general partner interest..................... 157 628
------ -------
Total.......................................... $7,849 $31,393
====== =======
</TABLE>
If we had completed the transactions contemplated in this prospectus on
January 1, 1998, pro forma Available Cash from Operating Surplus generated
during 1998 would have been approximately $16.6 million. This amount would have
been sufficient to allow us to pay approximately 90% of the minimum quarterly
distribution on the common units and would have been insufficient to make a
distribution on the subordinated units. Consistent with the requirements of the
partnership agreement, in calculating pro forma Available Cash from Operating
Surplus, we have deducted $18 million of
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<PAGE> 52
maintenance capital expenditures. This amount represents the average maintenance
capital expenditures which we determined would have been appropriate for our
level of operations in 1998.
Our financial performance in 1998 was adversely affected by a net loss
incurred in connection with the temporary suspension of operations at
Pontiki/Excel in the second half of 1998. If we:
- add back the $5.2 million unusual net loss at Pontiki/Excel;
- add back $2.6 million in interest income which would have been generated
from the U.S. Treasury notes we are obligated to purchase with the
proceeds of the term loan;
- subtract $5.5 million of additional maintenance capital expenditures
which we believe will be appropriate for our targeted level of operations
for the four quarters following completion of this offering; and
- subtract $1 million in additional annual administrative expense we expect
to incur as a public entity, then
our pro forma Available Cash from Operating Surplus would have been
approximately $17.9 million. This amount would have been sufficient to allow us
to pay approximately 98% of the minimum quarterly distribution on the common
units and would have been insufficient to allow us to make a distribution on the
subordinated units.
If we had completed the transaction contemplated in this prospectus on
January 1, 1999, pro forma Available Cash from Operating Surplus generated
during the first quarter of 1999 would have been approximately $4.8 million.
This amount would have been sufficient to allow us to pay the minimum quarterly
distribution on the common units and a portion of the minimum quarterly
distribution on the subordinated units.
Consistent with the adjustments described above, if we recognize higher
levels of maintenance capital expenditures and administrative expenses and
interest income generated by the U.S. Treasury notes expected to be appropriate
for the quarter, our pro forma Available Cash from Operating Surplus for the
first quarter of 1999 would have been $4.6 million, which amount would have been
sufficient to allow us to pay approximately 99% of the minimum quarterly
distribution on the common units and would have been insufficient to allow us to
make a distribution on the subordinated units.
In 1998 and early 1999, our financial performance was also adversely
impacted by low productivity at Hopkins County Coal as well as the closing and
subsequent reopening of Pontiki/Excel. Based on the performance of our
operations at current production levels, we believe we would have generated
sufficient operating surplus to make the minimum quarterly distribution on the
common units, the subordinated units and the 2% general partner interest for the
twelve-month period ended December 31, 1998 and the three-month period ended
March 31, 1999.
We derived the amounts of pro forma Available Cash from Operating Surplus
shown above from our pro forma financial statements in the manner described in
Appendix D. The pro forma adjustments are based upon currently available
information and specific estimates and assumptions. The pro forma financial
statements do not purport to present our results of operations had the
transactions contemplated in this prospectus actually been completed as of the
dates indicated. Furthermore, Available Cash from Operating Surplus as defined
in the partnership agreement is a cash accounting concept, while our pro forma
financial statements have been prepared on an accrual basis. As a result, the
amount of pro forma Available Cash from Operating Surplus should only be viewed
as a general indication of the amount of Available Cash from Operating Surplus
that we might have generated had Alliance Resource Partners been formed in
earlier periods. For definitions of Available Cash and Operating Surplus, see
the glossary.
47
<PAGE> 53
SELECTED HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING
DATA OF ALLIANCE RESOURCE PARTNERS
The following table sets forth selected historical and pro forma financial
and operating data of Alliance Resource Partners for the periods and at the
dates indicated. Effective August 1, 1996, we were acquired in a business
combination using the purchase method of accounting, and the purchase price was
allocated to the assets acquired and liabilities assumed based on their fair
value. Accordingly, the predecessor financial data is not necessarily comparable
to the successor financial data. Our selected historical financial data below as
of and for the seven months ended July 31, 1996 for the predecessor entity, the
five months ended December 31, 1996, and the years ended December 31, 1997 and
1998 for the successor entity is derived from our audited financial statements.
The selected historical financial data below as of and for the years ended
December 1994 and 1995 and for the three-month periods ended March 31, 1998 and
1999 is derived from our unaudited financial statements. In our opinion, each of
the unaudited financial statements includes all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the results
of the unaudited periods. The results of operations for the interim periods are
not necessarily indicative of the results for a full year. The pro forma balance
sheet data below assumes that the offering and the transactions occurred as of
March 31, 1999. The summary pro forma financial and operating data below for the
year ended December 31, 1998 and the three months ended March 31, 1999 are
derived from our unaudited pro forma financial statements and assumes this
offering and the related transactions occurred on January 1, 1998. This table is
derived from, should be read in conjunction with, and is qualified in its
entirety by reference to our historical and pro forma financial statements and
the accompanying notes. The amounts in the table below, except for the per unit
data and the per ton information, are in millions.
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
-------------------------- ---------------------------------------------
SEVEN FIVE
YEAR ENDED MONTHS MONTHS YEAR ENDED PRO FORMA
DECEMBER 31, ENDED ENDED DECEMBER 31, YEAR ENDED
--------------- JULY 31, DECEMBER 31, --------------- DECEMBER 31,
1994 1995 1996 1996 1997 1998 1998
------ ------ -------- ------------ ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Sales and operating revenues
Coal sales............................... $278.6 $294.6.. $184.1 $133.9 $305.3 $357.4 $357.4
Other sales and operating revenues....... 4.5 16.4 7.5 4.4 8.5 4.5 4.5
------ ------ ------ ------ ------ ------ ------
Total revenues..................... 283.1 311.0 191.6 138.3 313.8 361.9 361.9
------ ------ ------ ------ ------ ------ ------
Expenses
Operating expenses....................... 183.4 173.1 110.7 79.2 197.4 237.6 237.6
Outside purchases........................ 43.5 69.7 45.7 34.7 49.8 51.2 51.2
General and administrative............... 10.5 10.9 7.3 5.9 15.4 15.3 15.3
Depreciation, depletion and
amortization........................... 25.7 24.8 7.7 11.9 33.7 39.8 39.8
Interest expense......................... -- -- -- -- -- 0.2 19.2
Unusual items(1)......................... -- 107.5 -- -- -- 5.2 5.2
------ ------ ------ ------ ------ ------ ------
Total expenses..................... 263.1 386.0 171.4 131.7 296.3 349.3 368.3
------ ------ ------ ------ ------ ------ ------
Income (loss) from operations............. 20.0 (75.0) 20.2 6.6 17.5 12.6 (6.4)
Other income (expense).................... -- -- -- 0.3 0.5 (0.1) (0.1)
------ ------ ------ ------ ------ ------ ------
Income (loss) before income taxes......... 20.0 (75.0) 20.2 6.9 18.0 12.5 (6.5)
Income tax expense (benefit).............. 3.5 (32.2) 5.5 (0.9) 4.3 3.8 --
------ ------ ------ ------ ------ ------ ------
Net income (loss)(2)...................... $ 16.5 $(42.8) $ 14.7 $ 7.8 $ 13.7 $ 8.7 $ (6.5)
====== ====== ====== ====== ====== ====== ======
Pro forma net loss per unit............... $(0.42)
======
BALANCE SHEET DATA:
Working capital(3)........................ $ 22.9 $ 32.4 $ 24.6 $ 15.9 $ 10.3 $ 7.1
Total assets.............................. 326.4 254.9 270.7 262.0 245.8 261.1
Long-term debt............................ -- -- -- -- 1.9 1.7
Total liabilities......................... 114.7 83.9 85.0 85.8 87.0 108.3
Net Parent investment..................... 211.7 171.0 185.7 176.2 158.8 152.8
Partners' equity (deficit)................ -- -- -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
SUCCESSOR
------------------------------
PRO FORMA
THREE MONTHS THREE
ENDED MONTHS
MARCH 31, ENDED
--------------- MARCH 31,
1998 1999 1999
------ ------ ------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS:
Sales and operating revenues
Coal sales............................... $ 87.2 $ 82.8 $ 82.8
Other sales and operating revenues....... 1.1 0.3 0.3
------ ------ ------
Total revenues..................... 88.3 83.1 83.1
------ ------ ------
Expenses
Operating expenses....................... 58.5 56.8 56.8
Outside purchases........................ 11.0 8.5 8.5
General and administrative............... 4.2 3.6 3.6
Depreciation, depletion and
amortization........................... 9.9 9.9 9.9
Interest expense......................... -- -- 4.8
Unusual items(1)......................... -- -- --
------ ------ ------
Total expenses..................... 83.6 78.8 83.6
------ ------ ------
Income (loss) from operations............. 4.7 4.3 (0.5)
Other income (expense).................... 0.1 -- --
------ ------ ------
Income (loss) before income taxes......... 4.8 4.3 (0.5)
Income tax expense (benefit).............. 1.5 1.3 --
------ ------ ------
Net income (loss)(2)...................... $ 3.3 $ 3.0 $ (0.5)
====== ====== ======
Pro forma net loss per unit............... $(0.03)
======
BALANCE SHEET DATA:
Working capital(3)........................ $ 19.5 $ 13.0 $ 60.5
Total assets.............................. 281.7 264.3 315.8
Long-term debt............................ 1.9 1.7 230.3
Total liabilities......................... 110.3 109.4 334.7
Net Parent investment..................... 171.4 154.9 --
Partners' equity (deficit)................ -- -- (18.9)
</TABLE>
48
<PAGE> 54
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
-------------------------- ---------------------------------------------
SEVEN FIVE
YEAR ENDED MONTHS MONTHS YEAR ENDED PRO FORMA
DECEMBER 31, ENDED ENDED DECEMBER 31, YEAR ENDED
--------------- JULY 31, DECEMBER 31, --------------- DECEMBER 31,
1994 1995 1996 1996 1997 1998 1998
------ ------ -------- ------------ ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER OPERATING DATA:
Tons sold................................. 10.0 10.9 6.9 5.1 12.4 15.1 15.1
Tons produced............................. 8.5 8.8 5.3 3.9 10.9 13.4 13.4
Revenues per ton sold..................... $28.31 $28.53 $27.77 $27.12 $25.31 $23.97 $23.97
Cost per ton sold(4)...................... $23.74 $23.28 $23.72 $23.49 $21.18 $20.14 $20.14
OTHER FINANCIAL DATA:
EBITDA(5)................................. $ 45.7 $(50.2) $ 27.9 $ 18.8 $ 51.7 $ 52.5 $ 52.5
Net cash provided by operating
activities............................... 37.9 16.0 16.7 23.0 53.2 50.5
Net cash used in investing activities..... (16.4) (17.7) (16.7) (13.0) (22.4) (35.6)
Net cash provided by (used in) financing
activities............................... (21.5) 1.7 -- (10.0) (30.8) (14.9)
Maintenance capital expenditures(6)....... 16.3 14.9 10.8 2.7 15.2 17.2 17.2
Expansion and other capital
expenditures(6).......................... 1.2 2.9 5.9 10.3 7.2 18.6 18.6
Total capital expenditures................ 17.5 17.8 16.7 13.0 22.4 35.8 35.8
<CAPTION>
SUCCESSOR
------------------------------
PRO FORMA
THREE MONTHS THREE
ENDED MONTHS
MARCH 31, ENDED
--------------- MARCH 31,
1998 1999 1999
------ ------ ------------
<S> <C> <C> <C>
OTHER OPERATING DATA:
Tons sold................................. 3.6 3.6 3.6
Tons produced............................. 3.5 3.6 3.6
Revenues per ton sold..................... $24.53 $23.08 $23.08
Cost per ton sold(4)...................... $20.47 $19.14 $19.14
OTHER FINANCIAL DATA:
EBITDA(5)................................. $ 14.7 $ 14.2 $ 14.2
Net cash provided by operating
activities............................... 4.1 6.3
Net cash used in investing activities..... (13.3) (5.4)
Net cash provided by (used in) financing
activities............................... 9.2 (0.9)
Maintenance capital expenditures(6)....... 4.8 5.0 5.0
Expansion and other capital
expenditures(6).......................... 8.5 0.7 0.7
Total capital expenditures................ 13.3 5.7 5.7
</TABLE>
- ---------------
(1) Represents impairment of long lived assets in 1995 and the net loss incurred
during the temporary closing of one of our mining complexes in the second
half of 1998. The impairment of long-lived assets in 1995 represents the
impairment loss recorded in accordance with Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" to reduce the net book
value of the predecessor entity to the estimated purchase price, net of
related transaction fees, from the sale to The Beacon Group and management.
The letter of intent for the sale was entered into in December 1995, and the
related stock purchase agreement was finalized with an effective date
beginning August 1, 1996.
(2) In calculating pro forma net loss, we have not included interest income that
we would have received from the U.S. Treasury notes that we are required to
purchase with the proceeds of our term loan facility. The interest cost
associated with the term loan borrowings is reflected in our pro forma
adjustments. Had interest from the U.S. Treasury notes been included,
interest income of $2.6 million and $0.7 million would have been generated
for the year ended December 31, 1998 and the three months ended March 31,
1999, respectively.
(3) Excludes accounts receivable from affiliates for the predecessor company.
The successor company did not have any of these receivables.
(4) Cost per ton is based on the total of operating expenses, outside purchases
and general and administrative expenses divided by tons sold.
(5) EBITDA is defined as income (loss) before interest expense, income taxes and
depreciation, depletion and amortization. EBITDA has not been adjusted to
add back unusual items. EBITDA should not be considered as an alternative to
net income, income (loss) before income taxes, cash flows from operating
activities or any other measure of financial performance presented in
accordance with generally accepted accounting principles. EBITDA is not
intended to represent cash flow and does not represent the measure of cash
available for distribution, but provides additional information for
evaluating our ability to make the minimum quarterly distribution.
(6) Maintenance capital expenditures shown in this table reflect our historical
designation of maintenance capital expenditures. Under the partnership
agreement, certain of the expenditures shown under expansion and other
capital expenditures will be treated as maintenance capital expenditures.
For the definition of maintenance capital expenditures and expansion capital
expenditures under the partnership agreement, see "Cash Distribution
Policy -- Maintenance and Expansion Capital Expenditures."
49
<PAGE> 55
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations for Alliance Resource Partners and its predecessor entities should be
read in conjunction with the historical and pro forma financial statements and
notes thereto included elsewhere in this prospectus. For more detailed
information regarding the basis of presentation for the following financial
information, see the notes to the pro forma and historical financial statements.
We are a diversified producer and marketer of coal to major United States
utilities and industrial users. We began mining operations in 1971 and since
then have grown through acquisitions and internal development to become the
eighth largest coal producer in the eastern United States. In 1998, our total
production was 13.4 million tons and our total sales were 15.1 million tons. The
coal we produced in 1998 was approximately 18% low-sulfur coal, 23%
medium-sulfur coal and 59% high-sulfur coal.
At March 31, 1999, we had 407 million tons of proven and probable coal
reserves in Illinois, Indiana, Kentucky, Maryland and West Virginia. We believe
we control adequate reserves to implement our currently contemplated mining
plan. In addition, there are substantial unleased reserves on adjacent
properties that we intend to acquire or lease as our mining operations approach
these areas.
In 1998, approximately 84% of our production was consumed by electric
utilities with the balance consumed by cogeneration plants and industrial users.
Our largest customers in 1998 were Tennessee Valley Authority, Seminole Electric
Cooperative and Virginia Electric Power Company. We have had relationships with
each of these customers for at least 15 years. In 1998, approximately 75% of our
sales tonnage, including approximately 84% of our medium- and high-sulfur coal
sales tonnage, was sold under long-term contracts. The balance of our sales were
made on the spot market. In June 1999, we entered into a long-term contract to
provide 23 million tons of low-sulfur coal to a subsidiary of Cinergy through
December 2012. Our long-term contracts contribute to our stability and
profitability by providing greater predictability of sales volumes and sales
prices. As of June 30, 1999, our significant long-term contracts represented
total commitments of approximately 97.5 million tons of coal. In 1998, over 90%
of our medium- and high-sulfur coal was sold to utility plants with installed
pollution control devices, also known as scrubbers, to remove sulfur dioxide.
One of our business strategies is to continue to make productivity
improvements to be a low cost producer in each region in which we operate. Our
principal expenses related to the production of coal are labor and benefits,
materials and supplies, maintenance, royalties and excise taxes. Unlike most of
our competitors in the eastern United States, we employ a totally union-free
work force. Many of the benefits of the union-free work force are not
necessarily reflected in direct costs, but are related to higher productivity.
In addition, while we do not pay our customers' transportation costs, they may
be a substantial, and often the determining factor in a coal consumer's
contracting decision. Our mining operations are located near many of the major
eastern utility generating plants and on major coal hauling railroads in the
eastern United States. We believe this gives us a transportation cost advantage
compared to many of our competitors.
50
<PAGE> 56
The following table sets forth production data and reserve information
about each of our mining complexes.
<TABLE>
<CAPTION>
TOTAL
PROVED AND YEAR
1998 PROBABLE COMMENCED
OPERATIONS LOCATION PRODUCTION RESERVES OPERATIONS
- ---------- -------- ---------- ----------- ----------
(TONS IN MILLIONS)
------------------
<S> <C> <C> <C> <C>
Illinois Basin
Dotiki Webster County, KY 3.5 53.0 1971
Pattiki White County, IL 2.1 72.7 1980
Hopkins County Coal Hopkins County, KY 2.3 39.7 1998
Gibson County (North) Gibson County, IN -- 37.8 --
Gibson County (South) Gibson County, IN -- 104.2 --
---- -----
Region Total 7.9 307.4
East Kentucky
Pontiki/Excel Martin County, KY 1.6 28.7(1) 1977
MC Mining Pike County, KY 0.9 24.8 1996
---- -----
Region Total 2.5 53.5
Maryland
Mettiki Garrett County, MD,
Grant County, WV and
Tucker County, WV 3.0 46.5 1977
---- -----
Total 13.4 407.4
==== =====
</TABLE>
- ---------------
(1) Includes 1.3 million tons of low-sulfur reserves at our inactive Toptiki
mine. See "Mining Operations and Production -- East Kentucky
Operations -- Toptiki."
See "Business -- Mining Operations and Production" for a detailed
description of each of our mining complexes.
In 1998 and early 1999, our financial performance was impacted by the
following:
- In January 1998, we acquired Hopkins County Coal for approximately $7.3
million in cash and direct acquisition costs of $0.8 million. In
accordance with our acquisition plan, we spent approximately $9.4 million
to rebuild older equipment and purchase new or refurbished equipment. We
began to realize higher productivity as a result of these capital
investments beginning in the third quarter of 1998. We expect to realize
the full impact of these efficiencies in 1999.
- In September 1998, we suspended operations at Pontiki and terminated all
267 members of our workforce due to adverse market conditions. While we
had originally intended to idle the mine for an indefinite period, we
were able to procure a new long-term coal supply agreement with AEI Coal
Sales, Inc., which then resells the coal it purchases from us to Carolina
Power & Light, that justified the re-opening of the mine beginning in
late 1998. The coal supply agreement provides for the shipment of 1.1
million tons in 1999 and up to 1.5 million tons per year during the
seven-year period of January 1, 2000 to December 31, 2006. As a result,
this operation was restructured with a new mine plan, operating
structure, and workforce hired by Excel Mining, LLC, an affiliate of
Pontiki. While idled, the mine incurred a net loss of approximately $5.2
million, consisting of workers' compensation accruals of $1.2 million and
severance payments consistent with the federal Worker Adjustment and
Retraining Notification, or "WARN," Act, of $1.2 million as well as the
costs associated with maintaining an idled mine of $2.8 million. The $1.2
million of wage costs associated with the WARN Act have already been
paid. The $1.2 million of workers' compensation accruals is management's
estimate of amounts which may be required to be paid to certain former
Pontiki miners who may pursue worker compensation claims. Of this
estimated amount, approximately $400,000 is expected to be paid over
three years, $500,000 over eight years and $300,000 over thirty years.
The timing of these payments is governed by the level and type of award
(for example, permanent total disability, permanent partial disability
and legal and medical expenses) which management has estimated based on
past experience. Other than the $1.2 million of workers' compensation
accruals already recorded by Pontiki, we do not believe that there are
any additional workers' compensation costs to be accrued in connection
with the suspension of operations at Pontiki
51
<PAGE> 57
and the termination of its work force. During late 1998 and early 1999,
Pontiki/Excel's cost per ton was adversely impacted by reduced production
as the new mine plan was implemented and the mine moved toward its
current production level. Despite operating at reduced production
volumes, our current productivity levels are approximately 9% higher than
what we achieved during the first three quarters of 1998. We expect to
reach full production at Pontiki/Excel during the second half of 1999.
- We conduct a coal brokerage business which markets both steam and
metallurgical coals. Because our coal brokerage operations generate lower
margins than our direct coal sales, changes in our levels of brokerage
activity have a greater impact on revenues than on margins. Since 1996,
we have experienced a steady decline in brokerage sales, most of which
are for export. These declining volumes are largely attributable to
competition from lower cost foreign production. The brokerage business is
not expected to be a material part of our business in the future.
Several states in which we operate or our utility customers reside have
established a statutory framework for tax credits against income, franchise, or
severance taxes, which have benefited, directly or indirectly, coal operators or
customers purchasing coal mine production from within the applicable state. In
1996, 1997 and 1998, the benefit of these credits to us has been approximately
$5.0 million, $4.8 million, and $6.0 million. The state statutes authorizing
these tax credits are scheduled to expire in accordance with their term
provisions. Furthermore, these state statutes or our ability to benefit,
directly or indirectly, from them may be subject to challenge by third parties.
If any of these challenges were successful, we would lose the benefits of these
credits. Although it is possible that the tax credit benefits will continue into
future years, you should assume that substantially all of the benefits
associated with these tax credit statutes will terminate by June 2001.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1998
Coal sales. Coal sales decreased 5.1% to $82.8 million for the first
quarter of 1999 from $87.2 million for the first quarter of 1998. Total tons
sold in the first quarter of 1998 and 1999 were approximately 3.6 million. The
decrease of $4.4 million in coal sales is primarily due to:
- lower coal sales of $5.1 million reflecting reduced volumes at
Pontiki/Excel during the start-up period following the temporary closing
of that mine in September 1998;
- lower coal sales of $3.5 million at Mettiki due to timing differences in
customer shipments; and
- lower coal sales of $2.5 million reflecting decreased brokerage sales
volumes due to weak export markets.
These reductions were partially offset by increased coal sales of $6.1
million reflecting increased shipments of lower-priced coal from the Illinois
Basin region. Tons produced in the first quarter of 1999 increased 2.9% to 3.6
million tons from 3.5 million tons in the first quarter of 1998.
Other sales and operating revenues. Other sales and operating revenues,
which consist primarily of revenues from our terminal at Mt. Vernon and other
materials handling services, decreased 72.7% to $0.3 million for the first
quarter of 1999 compared with $1.1 million for the first quarter of 1998. The
decrease of $0.8 million was primarily due to lower volumes at Mount Vernon due
to the dispute with Seminole over their contract with us for that terminal. The
provisions of the contract stipulate the calculation of damages to be paid in
the event of breach. Rather than pay the amount of damages stipulated in the
contract, Seminole is seeking the court's agreement that the proper damage award
should be calculated based on our loss of net profits from the Mt. Vernon
facility for the term of the agreement. We fully intend to pursue the damages
stipulated in the contract and have filed pleadings to that effect. We intend to
vigorously pursue our contract rights and believe we will prevail in our
interpretation of the contract provision concerning the amount of damages
Seminole owes as a result of its breach of the contract. We also believe that,
even under Seminole's theory of the level of appropriate damages to be awarded
to Mt. Vernon, we will receive damages in an amount sufficient to offset the
loss of income from the contract. At a minimum, we believe the damages recovered
from Seminole will be in excess of the net
52
<PAGE> 58
book value of the terminal. We are exploring our options with respect to the Mt.
Vernon terminal, including loading coal or aggregate products for other parties
or a sale of the facility. See "Business -- Legal Proceedings."
Operating expenses. Operating expenses decreased 2.9% to $56.8 million for
the first quarter of 1999 from $58.5 million in the first quarter of 1998. The
$1.7 million decrease in operating expenses is mostly due to:
- lower aggregate operating expenses of $4.5 million at Pontiki/Excel
because of lower production and sales volumes; and
- lower aggregate operating expenses of $1.8 million at Mettiki because of
lower volumes.
Although aggregate operating expenses were lower at these operations, the
costs per ton were higher principally because of the lower volumes. The lower
aggregate operating expenses were offset by higher aggregate operating expenses
of $4.5 million reflecting higher volumes from the Illinois Basin region
operations. Although aggregate operating expenses were higher in the Illinois
Basin region, the region's cost per ton was lower reflecting improved
productivity, including the efficiencies gained from rebuilt and new mining
equipment for Hopkins County Coal.
Outside purchases. Outside purchases primarily represent purchases of coal
for resale through our brokerage operations. Outside purchases decreased 22.7%
to $8.5 million in the first quarter of 1999 from $11.0 million in the first
quarter of 1998. The decrease of $2.5 million was the result of lower coal
export brokerage volumes, largely due to weak export market conditions.
General and administrative. General and administrative expenses declined
16.7% to $3.5 million in the first quarter of 1999 from $4.2 million in the
first quarter of 1998. This decrease is attributable to a decline in
expenditures for outside consultants and services. These expenses and services
were necessary as we established an administrative structure independent of
MAPCO Inc.
1998 COMPARED WITH 1997
Coal sales. Coal sales increased 17.1% to $357.4 million for 1998 from
$305.3 million for 1997. Total tons sold increased 21.8% to 15.1 million tons
for 1998 from 12.4 million tons for 1997. The increase of $52.1 million in coal
sales is attributable primarily to:
- the acquisition of Hopkins County Coal in January 1998 which accounted
for $41.1 million of our increased sales;
- increased volumes at MC Mining which accounted for $6.8 million of our
increased sales; and
- increased shipments at Dotiki, Pattiki and Mettiki which accounted for
$16.1 million of our increased sales.
The increase in coal sales was partially offset by lower sales at
Pontiki/Excel of $16.7 million reflecting lower productivity during 1998 and the
temporary suspension of operations in September 1998. Tons produced in 1998
increased 22.9% to 13.4 million tons from 10.9 million tons in 1997.
Other sales and operating revenues. Other sales and operating revenues
decreased 47.7% to $4.5 million for 1998 compared with $8.6 million for 1997. In
1997, other sales included the sale of coke to a foreign steel producer. The
decrease of $4.1 million was primarily due to a reduction in these coke sales.
Operating expenses. Operating expenses increased 20.4% to $237.6 million
for 1998 from $197.4 million in 1997. The increase of $40.2 million in operating
expenses is attributable primarily to:
- the acquisition of Hopkins County Coal in January 1998, which accounted
for $42.9 million of our increased operating expenses; and
- increased volumes at MC Mining, which accounted for $6.8 million of our
increased operating expenses.
53
<PAGE> 59
The increase in operating expenses was partially offset by a reduction of
operating expenses of $10.9 million at Pontiki/Excel reflecting lower production
during 1998 and the temporary suspension of operations in September 1998.
Operating expense per ton sold decreased 4.9% to $20.14 in 1998 from $21.18 in
1997, primarily due to increased productivity at Dotiki and Pattiki, offset by
the higher cost per ton at Pontiki.
Outside purchases. Outside purchases of coal and coke increased 2.8% to
$51.2 million in 1998 from $49.8 million in 1997. The increase of $1.4 million
was the result of higher coal brokerage volumes offset by a reduction in coke
sales.
Depreciation, depletion and amortization. Depreciation, depletion and
amortization increased 18.1% to $39.8 million for 1998 compared with $33.7
million for 1997. The increase of $6.1 million was primarily due to the
acquisition of Hopkins County Coal.
Unusual item. Pontiki/Excel ceased operations from September to November
1998. While idled, the mine incurred a net loss of approximately $5.2 million,
consisting of workers' compensation accruals and severance payments consistent
with the federal WARN Act, as well as the costs associated with maintaining an
idled mine.
Income tax expense. Income tax expense was $3.9 million for 1998 and $4.3
million for 1997. The effective rate increased to 31% in 1998 compared with 24%
in 1997. The increase in the effective rate is primarily attributable to an
increase in the deferred tax asset valuation allowance partially offset by
additional benefit of excess of tax over book depletion.
1997 COMPARED WITH SEVEN MONTHS ENDED JULY 31, 1996 AND FIVE MONTHS ENDED
DECEMBER 31, 1996
Effective August 1, 1996, we were acquired from MAPCO Inc. in a business
combination using the purchase method of accounting. The purchase price was
allocated to the assets acquired and liabilities assumed based on their fair
value. Accordingly, the predecessor financial data for the seven months ended
July 31, 1996 is not comparable to the successor financial data for the five
months ended December 31, 1996.
Significant assets and liabilities to which we assigned a fair value
included, among others, property, plant and equipment, advance royalties, coal
supply agreements, accrued black lung benefits, accrued workers' compensation
and accrued reclamation and mine closing expenses. Therefore, the depreciation
and amortization of these assets and the ongoing accrual of these liabilities
have been charged to expenses at different amounts in the 1996 predecessor and
successor statements of income.
In comparing 1997 to 1996, revenues and expense categories for the
respective seven and five month periods have been aggregated. Although this
aggregated information is not necessarily comparable and may not be indicative
of the successor company's results of operations, management believes this
information may be helpful in understanding the past operations and in
evaluating an investment in the common units.
Coal sales. Coal sales decreased 4.0% to $305.3 million compared with
$317.9 million in 1996. Tons sold for 1997 increased 3.3% to 12.4 million tons
compared to 12.0 million tons in 1996. The $12.6 million decrease is principally
attributable to lower brokerage sales of $24.4 million, reflecting $18.4 million
of domestic volumes that did not continue after 1996, and a softening foreign
market, partially offset by increased sales of $15.3 million from the initiation
of production at MC Mining.
Other sales and operating revenues. Other sales and operating revenues
decreased 27.7% to $8.6 million compared with $11.9 million in 1996. The $3.3
million decrease was primarily attributable to lower sales on a brokerage
arrangement for the sale of coke to a foreign steel producer.
Operating expenses. Operating expenses increased 4.0% to $197.4 million in
1997 compared with $189.9 million in 1996. The increase of $7.5 million was
attributable to:
- $10.4 million related to the initial full year of operations at MC
Mining; and
- $3.5 million related to additional production at Pontiki/Excel.
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The increases in operating expenses were partially offset by lower costs of
$7.9 million at Mettiki reflecting improved mining conditions and productivity.
Outside purchases. Outside purchases decreased 38.1% to $49.8 million
compared with $80.4 million in 1996. The decrease of $30.6 million from 1996 to
1997 was the result of lower coal brokerage volumes and lower sales of coke to a
foreign steel producer.
General and administrative. General and administrative expenses increased
16.7% to $15.4 million compared with $13.2 million. The increase of $2.2 million
reflects a period of duplicate costs as we established an administrative
structure independent of MAPCO Inc.
Depreciation, depletion and amortization. Depreciation, depletion and
amortization increased 71.9% to $33.7 million from $19.6 million. The increase
of $14.1 million reflects the impact of purchase accounting on the allocation of
the purchase price to property, plant and coal supply agreements.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Net cash provided by operating activities was $39.7 million for 1996, $53.2
million in 1997 and $50.5 million in 1998. The decrease in 1998 compared to 1997
reflects slightly lower operating results and the initial funding of $2.9
million of our defined benefit plan for operating employees.
Net cash used in investing activities was $29.7 million for 1996, $22.4
million in 1997 and $35.6 million in 1998. The change in net cash used in
investing activities from 1997 to 1998 primarily reflects the purchase of
Hopkins County Coal and related capital expenditures.
Net cash used in financing activities was $10.0 million for 1996, $30.8
million in 1997 and $14.9 million in 1998. The differences between periods are
due to differing levels of distributions to Alliance Resource Holdings.
Capital Expenditures
Capital expenditures were $13.0 million in the five months ended December
31, 1996, $22.4 million in 1997 and $35.8 million in 1998. We made these
expenditures in order to replace mining equipment, expand mining capacity and
improve the efficiency of mining operations. In 1998, we spent approximately
$16.2 million in order to acquire Hopkins County Coal as well as to purchase and
refurbish mining equipment for that operation. For each of the periods
discussed, we used cash generated from operations to fund capital expenditures.
We currently anticipate making cash capital expenditures of approximately $34
million during 1999 and approximately $35 million during 2000, primarily for
maintenance and replacement of mining equipment and operations and for mine
development. To eliminate the effect of fluctuations in maintenance capital
expenditures on Operating Surplus, the partnership agreement will require that
an estimate of the average quarterly maintenance capital expenditures necessary
to maintain the operating capacity of our capital assets over the long-term be
subtracted from Operating Surplus each quarter, as opposed to the actual amounts
spent. We currently expect that our average annual maintenance capital
expenditures will be approximately $23.5 million. See "Cash Distribution
Policy -- Maintenance and Expansion Capital Expenditures." We currently expect
to fund our anticipated capital expenditures with cash generated by operations
and the utilization of the revolving credit facility described below.
Description of Senior Notes
The following is a summary of the material terms of the $180 million
aggregate principal amount of unsecured senior notes our special general partner
expects to issue in connection with the closing of the offering of the common
units. The intermediate partnership will then assume and the restricted
subsidiaries of the intermediate partnership will guarantee the special general
partner's obligations under the senior notes. A copy of the note purchase
agreement is filed as an exhibit to the registration statement of which this
prospectus is a part. The indebtedness of the intermediate partnership under the
note purchase
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agreement is unsecured and non-recourse to the managing general partner. The
senior notes will mature in 2014 and will carry a fixed interest rate of 8.31%.
Interest on the notes will be paid semi-annually.
The senior notes will rank equally with all the outstanding unsecured and
unsubordinated debt of the intermediate partnership. The senior notes provide
for nine annual mandatory prepayments of $18 million of the principal amount,
subject to adjustment for any prepayments, without any premium, beginning on the
sixth anniversary of their issuance. We may at any time optionally prepay the
notes in whole or in part upon not less than 30 nor more than 60 days' notice.
The amount of any optional prepayment will be at 100% of the principal amount to
be prepaid plus interest accrued and unpaid through the date of the prepayment
and a premium generally equal to the excess of the present value of the
remaining interest and principal payments on the senior notes. This premium will
be calculated by using a discount rate equal to the yield on the U.S. Treasury
obligation having a maturity date corresponding to the then remaining weighted
average life of the senior notes being prepaid plus a spread of 50 basis points
over the principal amount of the senior notes, plus accrued and unpaid interest.
The note purchase agreement contains various restrictive and affirmative
covenants, including restrictions on:
- the incurrence of other debt:
- prior to December 31, 1999, if the aggregate amount of all debt of
the intermediate partnership and our other subsidiaries exceeds
$230,000,000;
- subsequent to December 31, 1999, unless consolidated cash flow
would be greater than 225% of consolidated interest expense and
consolidated debt would not be greater than 400% of consolidated
cash flow, for the periods specified in the note purchase
agreement.
- incurrence of debt that is senior to the notes in an amount greater than
15% of total assets;
- certain intercompany debt;
- liens, investments, lines of business, and mergers, consolidation, or
sales or assets; and
- transactions with affiliates, with some exceptions and except on an
arm's-length basis.
In addition, the note purchase agreement will contain a requirement that
the intermediate partnership maintain mining reserves, not permit its
subsidiaries to agree to restrictions on their ability to pay dividends or make
loans to or investments in the intermediate partnership.
Under the note purchase agreement, the intermediate partnership is
permitted to make cash distributions so long as:
- the amount of the cash distributions does not exceed Available Cash for
the immediately preceding fiscal quarter;
- no default or event of default, as defined in the note purchase
agreement, exists before or after the cash distribution; and
- after giving effect to the distribution, consolidated debt would not be
greater than 425% of consolidated cash flow for the periods specified in
the note purchase agreement.
If an event of default exists on the senior notes, the holders of senior
notes may accelerate the maturity of the senior notes and exercise other rights
and remedies. Events of default include:
- failure to pay any principal or premium when due, or interest within five
business days of when due;
- failure to perform or otherwise comply with the covenants in the note
purchase agreement;
- failure of any representation or warranty to be materially true and
correct;
- default by the intermediate partnership or our subsidiaries under some
other indebtedness;
- unsatisfied final judgments;
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- bankruptcy or insolvency events involving the general partners, the
intermediate partnership or our subsidiaries;
- any guarantee of the intermediate partnership's obligations ceasing to be
in full force and effect; and
- various failures to comply with employee benefit plans.
- amendments of the partnership agreements in any manner that would have a
material adverse effect on us, the intermediate partnership or the
holders of senior notes.
Description of Senior Credit Facility
We expect that the special general partner will also enter into a senior
credit facility of up to $100 million with Citicorp USA, Inc., The Chase
Manhattan Bank, or any of their affiliates, and other lenders in connection with
the closing of the offering of the common units. The intermediate partnership
will then assume the special general partner's obligations under the senior
credit facility. The following is a summary of the material terms of the senior
credit facility, a copy of which is filed as an exhibit to the registration
statement of which this prospectus is a part.
The senior credit facility is expected to consist of three tranches:
- a term loan facility of up to $50 million;
- a $25 million working capital facility; and
- a $25 million revolving credit facility, with availability to be reduced
to $15 million after four years.
Approximately $48.6 million will be drawn under the term loan facility at
closing and used to purchase approximately $48.6 million of U.S. Treasury Notes
which will secure the term loan. The U.S. Treasury Notes may be liquidated for
the sole purpose of funding capital expenditures. The working capital facility
will be used to provide working capital and, if necessary, to fund distributions
to unitholders. The revolving credit facility will be used for general business
purposes, including capital expenditures and acquisitions. The intermediate
partnership's obligations under the working capital facility and the revolving
credit facility will be unsecured. The indebtedness under the senior credit
facility will rank equally with all the outstanding unsecured and unsubordinated
debt of the intermediate partnership and will be non-recourse to the managing
general partner. The obligations of the intermediate partnership under the
senior credit facility will be guaranteed by some of its subsidiaries.
The term loan facility will amortize quarterly, commencing on October 31,
2001 in an amount equal to 7.5% of the principal amount of the term loan
facility outstanding on that date to and including July 31, 2003 and thereafter,
commencing on October 31, 2003, in an amount equal to 10% of the outstanding
principal amount. On July 31, 2004 the term loan will mature and the working
capital facility and revolving credit facility will terminate and all amounts
outstanding will become due and payable. All loans may be prepaid at any time
without penalty. All borrowings under the working capital facility must be
reduced to no more than $5 million on average for a period of 30 consecutive
days once during each fiscal year.
The senior credit facility will bear interest at our option at either the
base rate or the eurodollar rate, as those terms are defined in the bank credit
agreement, in either case plus an applicable margin. The intermediate
partnership will incur a commitment fee on the unused portion of the working
capital facility and the revolving credit facility.
The senior credit facility is expected to contain a prohibition on
distributions by the intermediate partnership in excess of available cash or if
any default or event of default, as defined in the senior credit facility, is
continuing. In addition, the senior credit facility will contain various
covenants limiting its ability and the ability of its subsidiaries to:
- incur indebtedness;
- grant liens;
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- engage in transactions with affiliates;
- make investments;
- enter into a merger, consolidation or sale of assets; or
- optionally prepay or redeem the senior notes.
In addition, the senior credit facility is expected to contain the
following financial covenants:
- a ratio of consolidated net debt to consolidated cash flow;
- a cumulative asset writedowns/impairments test;
- a ratio of consolidated cash flow to consolidated interest expense; and
- a ratio of consolidated current assets to consolidated current
liabilities.
If an event of default exists under the senior credit facility, the lenders
may accelerate the maturity of the senior credit facility and exercise other
rights and remedies. Events of default include:
- failure to pay any principal or premium when due, or interest within five
days of when due;
- failure of any representation or warranty to be materially true and
correct;
- failure to perform or otherwise comply with the covenants in the bank
credit agreement or other related loan document;
- default by the intermediate partnership or any of our subsidiaries on any
payment in excess of $10 million under any debt obligation;
- bankruptcy or insolvency events involving the general partners, the
intermediate partnership or our other subsidiaries;
- any unsatisfied final judgment in excess of $10 million over the amount
covered by insurance;
- any guarantee of the intermediate partnership's obligations, or other
document relating to the bank credit agreement, ceasing to be in full
force and effect;
- various failures to comply with employee benefit plans and environmental
defaults;
- amendment of our partnership agreement or the intermediate partnership's
partnership agreement in a manner that materially affects the
intermediate partnership's business or its ability to perform its
obligations under the bank credit agreement, or the remedies of the
lenders under the agreement; and
- (1) funds managed by The Beacon Group and its affiliates ceasing to own,
directly or indirectly, at least 51% of the managing ownership interest
in the managing general partner or the managing general partner of the
intermediate partnership or (2) the managing general partner ceasing to
be our managing general partner or the managing general partner of the
intermediate partnership.
Accruals of Other Liabilities
We have accrued for the costs we will incur in the future to satisfy
obligations. We had accrued $46.3 million, $49.3 million and $65.3 million at
December 31, 1996, 1997 and 1998 for deferred credits and other liabilities,
including current obligations. These accruals are chiefly comprised of workers'
compensation benefits, black lung benefits and costs associated with reclamation
and mine closing. These obligations are self-insured and are funded at the time
the expense is incurred. The accruals of these items are based on estimates of
future liabilities, plans and legislation and other developments. Thus, from
time to time, Alliance Resource Partners' results of operations may be
significantly affected by changes to these deferred credits and other
liabilities. See Notes 10 and 11 of Notes to Consolidated Financial Statements.
We are required to pay black lung benefits to eligible and former employees
under the Black Lung Benefits Act of 1969, the Black Lung Benefits Revenue Act
of 1977 and the Black Lung Benefits Reform Act of 1977. We also are liable under
various state statutes for similar claims. We provide self-insured
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accruals for present and future liabilities for these benefits. We had accrued
$17.0 million, $17.9 million and $22.7 million for these benefits at December
31, 1996, 1997 and 1998. The actual claims paid could change significantly if
current legislation is amended or if new legislation is enacted. The increase in
1998 is primarily attributable to the acquisition of Hopkins County Coal.
We have accrued for costs associated with reclamation and mine closing. We
have estimated the costs and timing of future reclamation and mine closing costs
and recorded those estimates on a present value basis. We had accrued $5.3
million, $5.4 million and $13.8 million at December 31, 1996, 1997 and 1998 for
these costs. The increase in 1998 is primarily attributable to the acquisition
of Hopkins County Coal.
We accrue for workers' compensation claims resulting from traumatic
injuries based on actuarial valuations and periodically adjust these estimates
based on the estimated costs of claims made. We had accrued $16.9 million, $17.4
million and $18.1 million at December 31, 1996, 1997 and 1998 for these costs.
INFLATION
Inflation in the United States has been relatively low in recent years and
did not have a material impact on our results of operations for the years ended
December 31, 1996, 1997 or 1998.
IMPACT OF YEAR 2000 ISSUE
Year 2000 Issue. The year 2000 issue is the result of computer programs
being written using two digits rather than four to define the applicable year.
Any software, hardware and equipment and embedded chip systems that are
date-sensitive may recognize a date using "-00" as the year 1900 rather than the
year 2000. Our failure or the failure of any other entity with which we interact
to correct this problem could result in system failures or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices or engage in similar normal
business activities. Because we substantially replaced all of our hardware and
software following our separation from MAPCO Inc. in 1996, we believe that most
of our critical hardware and software is Year 2000 compliant. However, we may
have embedded chip systems in certain of our mining equipment and in older
hardware or software in our mining complexes which we are currently evaluating
for Year 2000 compliance. We believe that with modification and replacement of
some of our existing software, hardware and equipment and embedded chip systems,
the year 2000 issue can be mitigated substantially. If these modifications and
replacements are not made or are not completed on a timely basis, the Year 2000
issue could have a material impact on our operations.
Compliance Program. As part of our compliance program, we have performed an
evaluation of our state of readiness. Our evaluation included examination of our
information technology systems and our operating equipment. Our key information
technology systems consist of:
- financial systems applications;
- human resources and payroll systems applications;
- hardware and equipment; and
- third-party developed software.
Our key operating equipment consists of coal mining, processing and loadout
equipment. We are also evaluating major equipment used in our mining operations.
Our evaluation also includes the evaluation of the exposure of third parties
material to our operations. We have not hired independent contractors to verify
our assessment and estimates related to the year 2000 issue.
State of Readiness. We have completed an assessment of all material
information technology systems that would be affected by the year 2000 issue if
not modified and have initiated a program to modify or replace portions of our
software and hardware so that our computer systems will function properly in the
year 2000 and thereafter. We are in the process of assessing our operating
equipment which contains
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embedded chip systems to determine the extent that it is at risk for year 2000
problems. The remediation of operating equipment depends primarily on the
manufacturers of that equipment for modifications. We expect this remediation,
testing and implementation to be completed by the third quarter of 1999. We are
also in the process of assessing the extent to which our customers and suppliers
of products and services will be affected by year 2000 issues. We have initiated
formal communications with all of our significant customers and equipment
vendors and other suppliers. The responses to date from these third parties to
our inquiries indicate that these third parties expect, at this time, to be
compliant by the year 2000 based on their progress to date. We have received
written assurances from substantially all of our significant customers and third
party service providers. These assurances include specific letters to us
responding to our Y2K inquiries. In addition, we have verified the Y2K readiness
of much of our specific mining equipment, software, and hardware through vendor
published product bulletins. These assurances provide comfort that our third
party vendors are aware of and are addressing their Y2K issues, but they cannot
guarantee us that they will not encounter Y2K problems that could negatively
impact our business. We are not aware of any contract provisions or agreements
that would limit our legal remedies due to Y2K non-compliance of any of our
products or services. We have not obtained timetables of expected completion
dates or modification, testing and implementation from all of these third
parties. We do not control our customers, suppliers and vendors. Furthermore, we
cannot assure you that our customers, suppliers or vendors will not experience
material business disruptions that could affect us as a result of the year 2000
problem. We plan to complete communications with these third parties as to their
year 2000 readiness in the third quarter of 1999.
Costs to Address Year 2000 Compliance. Although many of our critical
financial and production application systems, hardware and software are year
2000 compliant, some systems and equipment remain to be converted. We do not
expect the cost in connection with these modifications and replacements to be
material. We currently estimate that the cost of these modifications will not
exceed $500,000. We expect to fund these costs through cash from operations or
borrowings.
Risks of Non-Compliance and Contingency Plans. We believe that it is
difficult to fully assess the risks of the year 2000 issue due to numerous
uncertainties surrounding the issue. We believe that the primary risks are
external to us and relate to the year 2000 readiness of customers, suppliers,
transportation suppliers such as railroads, barge lines, terminal operators,
ocean vessel brokers, and others. In the worst case scenario, our utility
customers may not purchase coal if their generators fail to operate, we may not
be able to access our bank accounts or make or receive payments and our
transportation providers may not be able to make timely coal shipments to
customers. Our mines and processing plants are highly mechanized and employ
equipment that incorporates embedded chip systems. The failure of these embedded
chip systems in critical equipment due to the year 2000 problem could cause
significant coal mining and processing disruptions.
We have not established contingency plans in case of failure of our
information technology systems since we expect to have our material systems in
place by the third quarter of 1999. Some of these systems may be interrelated
with systems outside of our control and we cannot assure you that all
implementations will be successful. Accordingly, contingency plans will be
developed to respond to any failures as they occur. In connection with our
assessment of our operating equipment and third party readiness, we will
evaluate the necessity of contingency plans based on the level of uncertainty
regarding compliance in the third quarter of 1999. In the event our
intermediaries or vendors or the manufacturers of our operating equipment do not
expect to be year 2000 compliant, our contingency plan will include replacing
the non-compliant intermediaries or vendors or operating equipment. Based on
information available at this time, we cannot conclude that our failure or the
failure of third parties to achieve year 2000 compliance will not adversely
affect us. Our inability or the inability of third parties to adequately address
the year 2000 issues on a timely basis could result in a material financial
risk, including loss of revenue, substantial unanticipated costs and service
interruptions.
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RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). The
statement establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. We have not determined the
impact on our financial statements that may result from adoption of SFAS 133,
which was revised during June 1999 to be implemented no later than January 1,
2001.
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COAL INDUSTRY OVERVIEW
DEMAND FOR COAL
Growing Domestic Consumption. Over the last two decades, total coal
consumption in the United States has increased at an average annual rate of 2.5%
from approximately 625 million tons in 1978 to over 1 billion tons in 1998. The
growth in the demand for coal has coincided with a similar growth in the
electric utility industry, which in 1998 accounted for 90% of domestic coal
consumption. We believe this growth in domestic coal consumption will continue
because of:
- Demand for electricity will continue to increase as the economy continues
to grow. Electricity production by domestic utilities increased 46% from
1978 through 1998. Over that same period, demand for coal increased 66%.
In 1998, coal combustion accounted for 56% of the electricity generated
by domestic electric utilities. We believe that much of the projected
increase in demand for electricity will be supplied by existing
coal-fired plants because they possess excess capacity which can be
utilized at low incremental costs. According to Resource Data
International, domestic coal-fired generating plants currently run at 68%
of capacity on average. The optimal sustainable capacity utilization over
time is approximately 80% for a typical plant. We believe utilities with
coal-fired power plants will seek to meet the increased demand for
electricity by using available capacity at those coal-fired plants rather
than by building new plants.
- Deregulation of electric utility markets will increase demand for
coal. The electric utility industry in the United States has undergone
deregulation at the wholesale, generation and transmission levels, and
numerous states have initiated plans for deregulation at the retail
level. We believe the resulting competition and market-based pricing will
cause power companies to utilize generating plants with low fuel costs.
We believe this will cause utilities to consume more coal because
electricity generated from existing coal-fired plants is generally less
expensive than electricity generated from readily available alternatives,
including natural gas-fired plants.
- As nuclear power plants are retired, existing coal-fired plants will
replace a large part of the retired nuclear capacity. After experiencing
growth in the mid-1990s, electricity generation from nuclear plants has
leveled off in recent years. In 1998, generating plants using nuclear
fuel accounted for approximately 21% of the electricity generated in the
United States. We believe that electricity generation from nuclear plants
will decline over the next 15 years because a number of nuclear plants
are likely to be retired during that period as their operating licenses
are not renewed. We believe that excess capacity at existing coal-fired
plants will be used to replace a large part of the retired nuclear
capacity.
- Coal prices are lower and more stable than natural gas prices. The market
price of natural gas has historically been significantly higher and more
volatile than the market price of coal. In 1998, natural gas accounted
for only approximately 10% of the electricity generated by domestic
utilities. Notwithstanding the higher and more volatile price of gas,
most new construction power plants are likely to be natural gas-fired
because the construction costs are significantly less expensive than for
coal-fired plants. However, we believe that higher prices and volatility
will continue to make natural gas a less attractive energy source than
coal for many utilities, particularly for baseload generation.
- Demand for our medium- and high-sulfur coal production will
continue. According to Resource Data International, in 1998,
approximately 36% of all the coal delivered to domestic electric
utilities, or 331 million tons of coal, was supplied to generating plants
with scrubbers installed in at least one of their units. Over 90% of our
current medium- and high-sulfur coal production is shipped to customers
who operate power plants in which some or all of the generating units
have scrubbers installed. Although the Clean Air Act emission
requirements may cause a general shift in demand toward lower sulfur
coal, we believe that we will experience continued demand for our medium-
and high-sulfur coal for use in these scrubbed plants.
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Impact of the Clean Air Act. The Clean Air Act indirectly affects the coal
industry by limiting emissions of various air contaminants from coal-fired power
plants. The most significant of these contaminants are sulfur dioxide (SO(2))
and nitrogen oxides (NO(x)). Other pollutants of concern are particulate matter,
some toxic metals, including mercury, and dioxins.
The amount of SO(2) produced by a power plant depends on the chemical
composition and sulfur content of the coal burned as fuel. High-sulfur coal
produces larger amounts of SO(2) when burned compared to low-sulfur coal. The
1990 Clean Air Act Amendments implemented a two-phase process to reduce SO(2)
emissions. Phase I began in 1995, and Phase II will require further emission
reductions in the year 2000. Coal-fueled utilities may meet these standards by:
- burning lower sulfur coal, either exclusively or mixed with higher sulfur
coal;
- installing pollution control devices such as scrubbers which reduce the
emissions from high-sulfur coal;
- reducing electricity generating levels; or
- purchasing and utilizing emission allowances.
Utilities earn emission credits by burning coal with a sulfur content below
the compliance requirements. There is an active market in buying and selling
sulfur emission allowances. As a result, utilities can purchase credits which
allow them to burn coal with a sulfur content higher than the compliance
requirements.
The amount of NO(x) produced by a power plant depends on the composition
and energy content of the fuel burned and the nature of the combustion equipment
employed. As a result of Clean Air Act programs designed to achieve ambient air
quality standards for ozone, the Environmental Protection Agency and the states
are requiring substantial reductions in NO(x) emissions from existing coal-fired
power plants over the next 3-10 years. It is likely that these requirements will
make it more expensive for these power plants to continue to burn coal. Some
plants may consider shifting to other sources of energy.
We do not believe that the Clean Air Act Amendments will significantly
affect the demand for the varieties of coal we produce and sell. Demand for
low-sulfur coal has grown substantially in recent years and may continue to
increase as many coal-fired plants increase the amount of lower sulfur coal they
burn in order to comply with the more stringent Phase II emission requirements
which go into effect next year. In addition, we believe demand for medium- and
high-sulfur coal will also remain strong as many coal-fired power plants
continue to burn medium- and high-sulfur coal, either exclusively or mixed with
lower sulfur coal, for the following principal reasons:
- the geographic proximity of many of our customers' coal-fired power
plants to medium- and high-sulfur coal reserves makes the associated
transportation costs substantially lower than the costs associated with
shipping lower sulfur coal over greater distances; and
- the current use and additional installation of scrubbing equipment by
some power plant operators to reduce emissions, which will allow them to
burn medium- and high-sulfur coal in compliance with the Clean Air Act.
GENERATION OF ELECTRICITY
Coal is the predominant fuel used in the generation of electricity. Over
the past 20 years, the electric utility industry has increased its coal
consumption from 481 million tons per year in 1978 to 912 million tons in 1998.
Coal's share of the fuel market for electricity generation has risen from 44% to
56% during that period. The increase in coal consumption began with a shift in
attitudes toward fuel supply security following the Arab oil embargoes during
the 1970s.
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The following table shows fuel source comparisons for the generation of
electricity by electric utilities in terms of kilowatts generated for the years
1995 through 1998:
DOMESTIC ELECTRICITY FUEL SOURCES COMPARISON
<TABLE>
<CAPTION>
1995 1996 1997 1998 (EST.)
---- ---- ---- -----------
<S> <C> <C> <C> <C>
Coal................................................ 55% 56% 57% 56%
Nuclear............................................. 22 22 20 21
Hydro............................................... 10 11 11 10
Natural Gas......................................... 10 9 9 10
Other............................................... 3 2 3 3
---- ---- ---- ---
Total..................................... 100% 100% 100% 100%
==== ==== ==== ===
</TABLE>
- ---------------
Source: Department of Energy, Energy Information Administration Monthly Energy
Review, March 1999.
Coal consumption has continued to increase because coal-fired electricity
generation is less expensive, on average, than generation from natural gas or
nuclear power. Hydroelectric power is less expensive than coal, but its growth
potential is limited due to a lack of suitable new dam sites. Resource Data
International expects generators of electricity to increase their demand for
coal as demand for electricity increases. Because coal-fired generation is used
in most cases to meet baseload requirements, coal consumption has generally
grown at the pace of growth in demand for electricity. For power generators,
daily demand for electricity is categorized as either baseload demand or peak
demand. Baseload demand is the amount of power that is consistently required 24
hours per day. Peak demand is the maximum amount of power that is required in a
24-hour period.
The following table shows a comparison of the average production costs of
electricity for each primary fuel for each of the years set forth below:
AVERAGE PRODUCTION COSTS FOR U.S. ELECTRIC UTILITIES
<TABLE>
<CAPTION>
$/MEGAWATT HOUR
--------------------------------------
1995 1996 1997 1998 (EST.)
------ ------ ------ -----------
<S> <C> <C> <C> <C>
Coal............................................ $19.26 $18.82 $18.40 $17.31
Natural Gas..................................... 27.69 34.03 35.63 30.68
Nuclear......................................... 19.84 19.15 19.85 18.44
Hydro........................................... 6.63 6.03 5.82 6.44
</TABLE>
- ---------------
Source: Resource Data International, April 20, 1999.
COAL IMPORTS AND EXPORTS
Coal imports into the United States represent a small percentage of the
total U.S. market for coal. In 1998, total consumption of coal in the United
States was 1,016 million tons while imports of coal were 9 million tons, or
approximately 1%. The largest exporter of coal to the United States was Colombia
with 3 million tons in 1997. Imported coal typically competes only in coastal
markets in the eastern United States.
The Energy Information Administration estimates that the United States
exported 77 million tons of coal in 1998, or 7% of total domestic production of
1,110 million tons. Metallurgical coal, used in steel making, historically has
been the principal type of coal exported from the United States. In 1998, an
estimated 63% of the coal exported was metallurgical coal. Coal exports have
steadily declined since 1981 when export volumes reached an all-time high of 113
million tons. Export volumes have declined as the metallurgical coal market has
softened due to competition from lower cost foreign producers. The
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remainder of the export coal was used for the generation of electricity, cement
making and other industrial processes. In 1997, the three largest export
purchasers of U.S. coal were Canada, Japan, and Brazil.
COAL PRODUCTION
Domestic coal production in 1998 is estimated by Energy Information
Administration to have been a record 1,110 million tons. Domestic coal producers
have significantly improved the efficiency of their operations over the last
decade. Production in the U.S. increased 8% from 1990 to 1998, while the number
of operating mines declined approximately 49% during the same period. This
reflects the shift in domestic production from smaller, high-cost operations to
larger, technologically advanced, lower-cost operations.
This shift has been accompanied by significant consolidation. In most
cases, coal operations were sold by oil, steel and utility companies that viewed
these businesses as non-core assets. The ten largest producers in 1988 accounted
for 37% of total domestic coal production, while the ten largest producers in
1998 accounted for 61% of total domestic coal production. Major coal producers
have pursued acquisitions, creating consolidation, for one or more of the
following reasons:
- to increase economies of scale;
- to reduce capital costs;
- to utilize management or technical expertise at underperforming
operations;
- to acquire attractive long-term contracts;
- to diversify their asset and customer bases;
- to increase their presence in a particular coal-producing region; or
- to enter new markets.
The following table shows principal U.S. coal production statistics for the
period 1990 to 1998:
U.S. COAL PRODUCTION STATISTICS
<TABLE>
<CAPTION>
CATEGORY 1990 1991 1992 1993 1994 1995 1996 1997 1998(EST.)
- -------- ------- ------- ------- ------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Tons (in millions)....... 1,029.1 996.0 997.5 945.4 1,033.5 1,033.0 1,063.9 1,089.9 1,109.8
Percentage of Total Tons
Underground.................. 41.3% 40.9% 40.8% 37.1% 38.6% 38.4% 38.5% 38.6% 38.6%
Surface...................... 58.7% 59.1% 59.2% 62.9% 61.4% 61.6% 61.5% 61.4% 61.4%
Number of Mines
Total........................ 3,430 3,022 2,746 2,475 2,354 2,104 1,903 1,828 1,750
Underground.................. 1,690 1,489 1,354 1,196 1,143 977 885 874 860
Surface...................... 1,740 1,533 1,392 1,279 1,211 1,127 1,018 954 890
Number of Mine Employees
Total........................ 131,306 120,602 110,196 101,322 97,500 90,252 83,462 81,516 80,000
Underground.................. 84,154 78,050 70,907 64,604 61,652 57,879 53,796 52,487 51,000
Surface...................... 47,152 42,552 39,289 36,718 35,938 32,373 29,666 29,029 29,000
Average Production Per Mine (in
thousands of tons)
Total........................ 300 330 363 382 439 491 559 596 634
Underground.................. 251 273 301 293 349 406 463 481 498
Surface...................... 347 384 424 465 524 565 642 701 766
</TABLE>
- ---------------
Source: Energy Information Administration/National Mining Association
COAL TYPES
The four basic types of coal are lignite, subbituminous, bituminous and
anthracite. Heat value is commonly measured in British Thermal Units or "Btus."
Coal is also generally classified as "steam" coal or "metallurgical" coal. Steam
coal is used by utilities for electricity generation and by industrial entities
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to produce steam, electricity, or both. Metallurgical coal is converted to coke,
which is used in the production of molten iron or in foundries to heat metal.
All types of coal may be used as steam coal. Only bituminous coals that satisfy
particular characteristics qualify for use as metallurgical coal.
- Lignite Coal. Lignite coal is a brownish-black coal with a heat content
that generally ranges from 3,500 to 8,300 Btus per pound. Major lignite
operations are located in Texas, North Dakota, Montana and Louisiana.
Lignite coal is used almost exclusively in power plants adjacent to mines
because the addition of any transportation costs to the mining costs
would exceed the price a customer would pay for this low-heat content
coal.
- Subbituminous Coal. Subbituminous coal is a "soft" black coal with a heat
content that ranges from approximately 8,300 to 10,500 Btus per pound.
Most subbituminous reserves are found in Montana, Wyoming, Colorado, New
Mexico, Washington and Alaska. Subbituminous coal is used primarily by
electric utilities and some industrial consumers.
- Bituminous Coal. Bituminous coal is a "soft" black coal with a heat
content that ranges from 10,500 to 14,000 Btus per pound. This coal is
found in the Appalachia area, the Midwest, Colorado and Utah, and is the
type most commonly used for electric power generation in the United
States. Bituminous coal is used by electric utility and industrial users
to generate steam, and as a feedstock to produce coke. Coal used in
metallurgical processes has characteristics that facilitate coke
production.
- Anthracite Coal. Anthracite coal is a "hard" black coal with a heat
content as high as 15,000 Btus per pound. Anthracite deposits are found
primarily in eastern Pennsylvania, and are used primarily for utility,
industrial and home heating purposes.
COAL QUALITIES
The primary factors considered in determining the value and marketability
of steam coal include heat content, sulfur content, and the percentage of ash,
moisture and volatile matter. Most coal supply contracts require that these
factors must fall within a specified range.
- Heat or Btu content. The heat content is the amount of energy contained
in a given weight of coal. Coal is used to produce steam which drives
turbines to generate electricity. The capacity of a steam boiler is
limited by the amount of coal it can burn. High heat content coal allows
for more efficient use of boiler capacity. The operators of coal-fired
generating plants frequently blend coals with varying heat contents to
optimize their fuel efficiencies.
- Sulfur. Coal is commonly described with reference to its sulfur content
because environmental regulations dictate allowable sulfur dioxide
emissions when coal is burned. These emissions are measured on a
percentage basis or in terms of pounds per million Btu. Compliance coal
meets or exceeds the requirements of Phase I and the prospective
requirements of Phase II of the Clean Air Act Amendments. For purposes of
the Clean Air Act, compliance coal is coal with a sulfur content of up to
1.2 pounds of sulfur dioxide per million Btus. Compliance coal is
desirable for some utility consumers because they can burn it without
blending and earn sulfur emission credits or blend it with higher-sulfur,
non-compliance coal even under Phase II requirements without having to
install scrubbers.
- Ash. Ash is a non-combustible material contained in coal, which
diminishes the heating value. Since it is non-combustible, it is a waste
product of the combustion process and must be disposed afterwards.
Electric utilities typically require coal with an ash content ranging
from 4% to 17%, depending on individual power plant specifications. While
the ash content of raw coal typically exceeds these specifications, the
ash content can be reduced at a coal preparation plant.
- Moisture Content. Moisture also diminishes the heating value of coal.
Like ash, a high percentage of moisture increases the weight of the coal,
making it more expensive to transport, and causes
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handling difficulties. Moisture can be removed through thermal drying or
mechanical processes. The moisture content of coal varies by the type of
coal and the region where it is mined.
- Volatile Matter. Volatile matter is combustible matter that vaporizes
easily during combustion. It is important for electric utilities because
most utility power plant boilers are designed to burn coal having a
medium to high percentage of volatile matter.
COAL REGIONS
The United States has the world's largest reserve base with approximately
24% of the world's coal reserves. The majority of U.S. coal production comes
from the Appalachia, the Interior or the Western regions of the country.
LOGO
Appalachia Region
- Northern Appalachia. Northern Appalachia includes Maryland, Ohio,
Pennsylvania and northern West Virginia. Coal from this region generally
has a high heat content (12,000-13,000 Btus per pound of coal). However,
its sulfur content (1.5%-2.5%) generally does not meet the Phase II
requirements. Production in the region was approximately 158 million tons
in 1998, up from 155 million tons in 1997. In 1998, 125 million tons were
sold to electric utilities.
- Central Appalachia. Central Appalachia includes eastern Kentucky,
Virginia and southern West Virginia. Coal from this region generally has
a low-sulfur content (0.7%-1.5%) and a high heat content (12,000-13,500
Btus per pound of coal). Much of this coal complies with Phase II
requirements. Production in central Appalachia was 278 million tons in
1998 compared with 287 million tons in 1997. In 1998, 177 million tons
produced in Central Appalachia were sold to electric utilities
principally in the southeast United States.
- Southern Appalachia. Southern Appalachia includes Alabama and Tennessee.
Coal from this region also has a low-sulfur content (0.7%-1.5%) and a
high heat content (12,000-13,000 Btus per pound of coal). Much of this
coal complies with Phase II requirements. Production in the region was
approximately 24 million tons in 1998, compared to 25 million tons in
1997. In 1998, 17 million tons were sold to electric utilities.
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Interior Region
- Illinois Basin. The Illinois Basin includes Illinois, Indiana and western
Kentucky. Coal from this region varies in heat content (10,000-12,500
Btus per pound of coal) and has a high-sulfur content (2.5%-3.5%).
Generally, Illinois Basin coal does not satisfy the Phase II standards.
However, Illinois Basin coal can be burned in plants equipped with
scrubbers, blended with low-sulfur coal or burned by plants with SO(2)
emission credits. Production in the basin was 111 million tons in 1998
and 112 million tons in 1997. In 1998, 98 million tons were sold to
electric utilities.
Western Region
- Rocky Mountains. The Rocky Mountain region consists primarily of Colorado
and Utah. The coal from this region has a low-sulfur content (0.4%-0.6%)
and varies in heat content (10,500-12,800 Btus per pound of coal). Most
of this coal complies with Phase II standards. Production in the region
was approximately 55 million tons in 1998, compared to 53 million tons in
1997. In 1998, 41 million tons were sold to electric utilities.
- Powder River Basin. The Powder River Basin consists mainly of
southeastern Montana and northeastern Wyoming. This coal has a very
low-sulfur content (0.25% to 0.65%), a low-heat content (8,000-9,200 Btus
per pound of coal) and is very high in moisture content (20%-35%). Most
of this coal complies with the Phase II standards, but many utilities
cannot burn it without reducing the capacity of their plants, unless it
is blended with higher Btu coal. Production in 1998 was 340 million tons
compared with 305 million tons in 1997. In 1998, 331 million tons were
sold to electric utilities throughout the country.
The following table presents U.S. coal production by region for the
six-year period 1993 through 1998:
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998 (EST.)
----- ------- ------- ------- ------- -----------
(TONS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Appalachia.................... 409.7 445.4 434.9 451.9 467.8 468.0
Interior...................... 167.2 179.9 168.5 172.8 170.8 165.0
Western....................... 368.5 408.3 429.6 439.1 451.3 480.0
----- ------- ------- ------- ------- -------
Total............... 945.4 1,033.6 1,033.0 1,063.8 1,089.9 1,113.0
===== ======= ======= ======= ======= =======
</TABLE>
- ---------------
Source: National Mining Association
MINING METHODS
Coal is mined using either surface or underground methods. The method used
depends upon several factors, including the proximity of the target coal seam to
the earth's surface, and the geology of the surrounding area. Underground mining
methods typically are used for deeper seams. In 1998, surface mining accounted
for approximately 61% of total U.S. coal production, with underground mining
account for the balance of production.
Underground Mining Methods
- Continuous Mining. Continuous mining is a form of room and pillar mining
that uses remote-controlled continuous miners to cut a network of
interconnected passages as high as the coal seam. Roof bolters stabilize
the mine roof and pillars are left to provide overall roof support. As a
result of significant technological advances, this mining method has
become the most common method of deep mining. Room and pillar mining is
used as a primary recovery method in smaller mines and for developing a
network of panels for longwall mining. Typically, the coal is loaded onto
shuttle cars which transport the coal to a conveyor belt or rail cars for
transport to the surface. The efficiency of continuous mining can be
enhanced through use of "synchronized" mining. Synchronized mining
entails the operation of continuous miners in pairs to minimize down
time.
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- Longwall Mining. Longwall mining is more efficient than room and pillar
mining, but it is more expensive to install and can only be used if the
geologic conditions of the coal seam are suitable. Longwall mining uses
powerful hydraulic jacks, varying from four feet to 12 feet in height, to
support the roof of the mine while mobile shearing machines extract the
coal. A chain conveyor then moves the coal from the working face to a
high capacity mine belt system for delivery to the surface. The longwall
machine generally cuts blocks of coal, referred to as longwall panels,
that have a width of up to 900 feet and a length of up to 11,000 feet.
Longwall mining is a low-cost, high-output method of deep mining that
results in the recovery of approximately 60% of coal reserves.
Surface Mining Methods
Surface mining consists of the following operations: removal of the
covering layer of rock and soil, called overburden, extraction of the coal using
power shovels, which load the coal into trucks to transport the coal from the
"pit," backfilling the excavation with earth, and restoring the site to its
approximate original vegetation and appearance. In smaller surface mines,
bulldozers and front-end loaders are often used to remove overburden. Front-end
loaders can also be used to load coal.
COAL PREPARATION
Depending on coal quality and customer requirements, raw coal may be
shipped directly from the mine to the customer or upgraded in a coal preparation
plant. Most raw coal requires processing in a preparation plant to meet customer
specifications. Preparation plants size coal, wash it in a water solution,
remove waste materials and separate coal into grades. This processing increases
the quality and heat content of the coal, and ultimately the value, by reducing
sulfur, ash and moisture content. However, this process results in additional
expense and the loss of some coal. Coals of various quality can be mixed or
"blended" at a preparation plant or loading facility to meet specific customer
requirements. Coal blending can increase profit margins by reducing the cost of
meeting quality specifications for individual customer contracts.
COAL PRICES
Coal prices vary dramatically among coals and are affected primarily by the
required coal quality specifications, marginal cost of production and
transportation costs to the customer.
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The following table summarizes average yearly open market steam coal prices
for the generation of electricity for selected regions:
<TABLE>
<CAPTION>
AVERAGE DOLLARS PER TON
BTU/ POUNDS SO(2)/ ------------------------------
POUNDS(1) MILLION BTU(1) 1996 1997 1998(EST.)
------------------------------- ---------------------------- ------ ------ ----------
<S> <C> <C> <C> <C> <C>
Appalachia Region
Central Appalachia greater than or equal to 12,500 less than or equal to 1.2 $26.35 $25.01 $26.93
greater than or equal to 12,500 1.21 - 1.7 25.46 24.89 25.84
greater than or equal to 12,500 1.71 - 2.5 24.62 23.92 24.63
less than 12,500 less than or equal to 1.2 22.31 23.22 24.77
less than 12,500 1.21 - 1.7 21.77 22.85 23.31
less than 12,500 1.71 - 2.5 21.20 21.24 22.99
Southern Appalachia greater than or equal to 12,000 1.21 - 2.5 25.93 26.68 26.86
less than 12,000 less than or equal to 1.2 27.36 27.81 23.53
less than 12,000 1.21 - 2.5 25.06 23.72 22.08
Northeastern Appalachia greater than or equal to 12,750 1.21 - 2.5 25.98 25.83 24.52
greater than or equal to 12,750 greater than 2.5 22.91 24.12 23.20
less than 12,750 greater than 2.5 22.14 22.07 21.64
Interior Region
Illinois Basin greater than or equal to 11,000 1.21 - 2.5 23.34 22.73 22.48
greater than or equal to 11,000 greater than 2.5 19.55 19.69 20.47
less than 11,000 greater than 2.5 17.50 18.89 18.26
Western Region
Southern Powder River Basin greater than or equal to 8,600 less than or equal to 1.2 4.27 4.04 4.40
less than 8,600 less than or equal to 1.2 3.23 3.25 3.30
Northern Powder River Basin greater than or equal to 8,800 less than or equal to 1.2 6.24 6.14 6.73
less than 8,800 less than or equal to 1.2 4.33 4.32 5.41
Rockies -- Colorado greater than or equal to 11,500 greater than or equal to 1.2 13.44 14.48 15.88
less than 11,500 less than or equal to 1.2 11.36 11.92 12.51
Rockies -- Utah greater than or equal to 11,500 less than or equal to 1.2 15.40 16.45 16.65
less than 11,500 less than or equal to 1.2 14.47 15.36 15.96
</TABLE>
- ---------------
Source: Resource Data International Inc., Outlook for Coal, Winter 1998-1999.
(1) Average Btu/lb and lb SO(2)/MMBtu for spot coals in each quality category
over the 1996-1998 period.
TRANSPORTATION
Coal for domestic consumption generally is sold at the mine and
transportation costs are normally borne by the purchaser. Coal for electricity
generation is purchased on the basis of its delivered cost per million Btus.
Most utilities arrange long-term shipping contracts with rail, barge or truck
companies to assure stable transportation costs.
Transportation is often a large component of the delivered cost of coal.
Although the customer pays the freight, transportation cost is still important
to coal mining companies because the customer may choose a supplier largely
based on the cost of transportation. According to Resource Data International,
in 1998, transportation costs represented 57% of the overall delivered cost of
coal produced in the western United States, 24% in the eastern United States and
19% in the midwestern United States.
According to the National Mining Association, in 1997 approximately 77% of
all domestically produced coal was shipped by rail or barge. Trucks and overland
conveyors are used to haul coal over shorter distances. Ships transport coal to
export markets. Railroads move more coal than any other commodity, and in 1997
coal accounted for 22% of total U.S. rail freight revenue and 45% of total rail
freight tonnage.
DEREGULATION OF THE ELECTRIC UTILITY INDUSTRY
In October 1992, the National Energy Policy Act went into effect, giving
both utility and non-utility power generators access to the electricity
transmission system. In April 1996, the Federal Energy
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Regulatory Commission issued orders establishing rules which encouraged
competition among power generators by providing for open access to the
electricity transmission system and enabling power generators to have access to
a much broader national market. While broad deregulation legislation is still
being considered at the federal level, a number of states have undertaken
significant deregulation initiatives which would provide for greater competition
among power generators. Deregulation of the electric utility industry, if and
where implemented, would enable industrial, commercial and residential customers
to shop for the lowest cost supply of power. This fundamental change in the
industry is expected to compel electric utilities to be more aggressive in
developing and defending market share, to be more focused on their cost and
pricing structure and to be more flexible in reacting to changes in the market.
Federal deregulation of the electricity industry at the wholesale level
combined with the opening of the transmission system has had a substantial
impact on the market for wholesale power. An active electricity futures trading
market has developed and there has been considerable activity in the sale of
electricity generating assets in the last several years. This has generally been
in response to mandates by state public utility regulatory commissions for
electricity utilities to "unbundle" generation of power from their distribution
and transmission activities. For the period from January 1997 through March
1999, according to Cambridge Energy Research Associates, a total of 59 power
generation sale transactions have been completed totaling an aggregate sale
amount of $22.9 billion and 28% of the total generating capacity sold during
this period has been coal-fired capacity.
Recent sale transactions of existing coal-fired power plants have
demonstrated that buyers have attributed a high value to these plants. According
to data from Cambridge Energy Research Associates, Resource Data International
and Utility Data Institute, coal-fired power plants sold since 1997 averaged a
price per kilowatt of capacity of $665 versus $240 per kilowatt for gas-fired
plants and $113 per kilowatt for nuclear plants. We believe that the higher
price per kilowatt for coal-fired plants versus gas-fired and nuclear plants
reflects the view by buyers that the coal-fired plants, even after complying
with the mandates of the Clean Air Act and environmental requirements of
electric utility deregulation legislation, will have lower fuel and operating
costs per kilowatt hour of power than other fossil fuel and nuclear plants. We
also believe that the higher purchase price reflects confidence that these
plants will have long operating lives in a market for coal-fired power plants
that previously has not existed.
We believe that the move toward a competitive market for electricity should
prove beneficial to coal demand. According to Resource Data International, 22 of
the 25 lowest cost baseload electric generating stations are coal fired. As
deregulation occurs and competition among generators increases, electricity
generators will become increasingly sensitive to fuel costs because these costs
typically represent about 78% of the variable cost of generating electricity
from fossil fuels.
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BUSINESS
We are a union-free, diversified producer and marketer of steam coal to
major United States electric utilities and industrial corporations. We began
mining operations in 1971 with the purchase of the Dotiki mining complex in the
Illinois Basin mining region in western Kentucky. Since then, over the past 28
years, we have constructed three new mining complexes, acquired two existing
mining complexes and are currently developing a new mining complex from which we
expect to begin production in the fall of 2000. We are the eighth largest coal
producer in the eastern United States. At March 31, 1999, we had approximately
407 million tons of reserves. In 1998, we produced 13.4 million tons of coal and
sold 15.1 million tons of coal.
BUSINESS STRATEGY
Our business strategy is to increase our profitability and to maximize our
distributions to unitholders by:
- Continuing to make productivity improvements in order to be a low-cost
producer in each region in which we operate. We are continually working
to improve our mining methods and the efficiency of our operations in an
effort to reduce our production costs. We believe that the deregulation
of the electric utility industry will cause utilities to become more
aggressive in seeking low cost supplies of coal. Accordingly, we believe
that our focus on lowering our production costs will enable us to bid
more successfully for contracts and to increase our profitability.
- Offering our customers a broad range of coal qualities, transportation
alternatives and customized services. Some utilities will operate
scrubbed generating units, which can burn high-sulfur coal, and
unscrubbed generating units, which require low-sulfur coal, at the same
power plant. We believe it is important to produce coals with a broad
range of qualities to satisfy customer demand. In addition, we also work
with customers to provide customized additional services, such as
scrubber sludge removal and alternative transportation arrangements, to
meet particular needs.
- Extending the lives of our mines through the development of currently
undeveloped coal reserves using our existing infrastructure. We expect
to be able to extend production from our existing reserves. As we secure
additional coal supply contracts, we believe we will be able to expand
existing mines or develop new mines on our existing properties. In
addition, we believe favorable geological conditions will allow us to
begin using a longwall miner, the most efficient underground mining
technique currently available, at a second mining complex. The longwall
mining method is described under "Coal Industry Overview -- Mining
Methods."
- Developing new mining complexes in locations with attractive market
conditions. We have recently initiated plans to construct a new mining
complex in Gibson County, Indiana. We entered into a contract with PSI
Energy, Inc. a subsidiary of Cinergy, in June 1999 to supply low-sulfur
coal to the unscrubbed generating units at Gibson Generating Station in
Gibson County, Indiana. We anticipate that production from this mine will
commence in the fall of 2000.
- Engaging in strategic acquisitions of mining operations and
reserves. When attractive opportunities exist, we intend to acquire coal
reserves and mining operations that are adjacent or otherwise
complementary to our existing operations. In May 1999, we exercised an
option to acquire approximately 14.6 million tons of reserves in Grant
and Tucker Counties in West Virginia in accordance with the mining plan
at our Mettiki mining complex. We will continue to acquire additional
reserves at or adjacent to existing producing mines in order to replace
reserves on a cost-efficient basis.
- Developing strategic relationships to take advantage of opportunities
created by the deregulation of the electric utility industry. We believe
the deregulation of the electric industry will offer the opportunity to
enter into strategic relationships with some utility customers. In
addition to supplying coal, we may coordinate transportation alternatives
and provide other customized services. Using
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these successful relationships, we believe we will have the opportunity
to supply our utility customers with an increasing portion of their
aggregate coal requirements.
COMPETITIVE STRENGTHS
We believe we are in a strong position to successfully execute our business
strategy due to the following competitive strengths:
- We are a proven operator with a track record of steady growth. Over the
past five years, we have successfully grown our operations by increasing
our total coal production from 8.5 million tons in 1994 to 13.4 million
tons in 1998. Over the same period, our earnings before interest, income
taxes, depreciation, depletion and amortization has increased from $45.7
million in 1994 to $52.5 million in 1998. Earnings before interest,
income taxes, depreciation, depletion and amortization is presented to
provide additional information related to our ability to service debts
and pay the minimum quarterly distribution and should not be interpreted
as an alternative measure of operating results or cash flow from
operations.
- We have successfully increased our productivity. From 1994 through 1998,
we have achieved a 7% compound annual growth rate in our productivity,
measured in tons produced per man hour. This resulted in a 16% reduction
of the cost per ton of the coal we sold during this period. Our improved
productivity is primarily a result of improvements in mining methods,
prior capital expenditures, increased operational expertise and favorable
geological conditions. We believe our cost competitiveness gives us an
advantage in winning contracts and increases the profitability of these
contracts.
- We have an attractive portfolio of long-term contracts. In 1998,
approximately 75% of our sales tonnage was sold under long-term contracts
with maturities extending through 2010, generally at market prices. Of
the 97.5 million tons of coal committed under our significant long-term
contracts as of June 30, 1999, a majority is committed under long-term
contracts with electric utilities with investment grade credit ratings.
Accordingly, unlike some other coal companies, we do not have a large
portfolio of long-term contracts with above-market prices that will be
difficult to match as those contracts expire. We believe that our
domestic utility customers are among the most efficient electricity
producers in the country and should be in a strong competitive position
as the electric utility industry deregulates. In addition, many of our
domestic utility customers operate power plants with scrubbed generating
units that burn medium- and high-sulfur coal. Medium- and high-sulfur
coal make up approximately 64.7% of our total volumes committed under our
significant long-term contracts.
- We possess substantial long-lived reserves with adjacent expansion
opportunities. Our total proven and probable reserves at March 31, 1999
were estimated to be approximately 407 million tons. This includes
approximately 142.0 million tons of undeveloped reserves in Gibson
County, Indiana, approximately one-third of which are low-sulfur coal. We
believe that we control adequate reserves to implement our currently
contemplated mining plans. In addition, there are substantial reserves on
adjacent properties that we intend to acquire or lease as our mining
operations approach these areas. We believe that we are the most logical
buyer for these properties because of our nearby operations and that we
will be able to buy most of these properties on attractive terms.
- Our mining operations are strategically located. Our mining operations
are located near many of the major utility generating plants and on or
near the coal hauling railroads in the eastern United States.
Transportation costs, which are generally incurred directly by a
customer, can represent a significant portion of that customer's total
delivered cost of coal. Accordingly, the availability and cost of
transportation significantly impacts the marketability of coal. We
believe our strategic geographic location gives us a transportation cost
advantage compared to many of our competitors.
- We produce and sell a wide variety of coals to several geographic
regions. Our product diversity allows us to participate in the major
segments of the eastern United States coal markets while limiting our
exposure to a downturn in any single market segment. In 1998, our
production was
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approximately 18% low-sulfur coal, 23% medium-sulfur coal and 59%
high-sulfur coal. In addition, our coal generally has a relatively high
heat content for the regions in which it is produced, and as a result,
sells at a premium price.
- We have a strong management team with a successful record of developing
and acquiring coal properties. Our senior management team has been with
us for an average of 18 years. This management team has been responsible
for the successful construction of three new mining complexes and the
acquisition of two existing mining complexes. Most recently, we acquired
the Hopkins County Coal mining complex in 1998 and have successfully
integrated it into our Illinois Basin operations on schedule and in
accordance with our business plan.
COAL RESERVES
As of March 31, 1999, we had approximately 407 million tons of coal
reserves. All of the estimates of reserves which are presented in this
prospectus are of proven and probable reserves. Proven and probable reserves are
reserves that we can economically produce using current extraction technology
from acreage we own, lease or have an option to purchase or lease. We have
included a more complete definition of these terms in our glossary.
The following table sets forth production data and reserve information, as
of March 31, 1999, about each of our mining complexes.
<TABLE>
<CAPTION>
TYPICAL CLEAN COAL
QUALITY
--------------------------
1998 HEAT
PRODUCTION CONTENT
(MILLIONS (BTUS SULFUR ASH
OPERATIONS LOCATION MINE TYPE OF TONS) PER POUND) (%) (%)
- ---------- -------- --------- ---------- ---------- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Illinois Basin
Dotiki Webster County, KY Underground 3.5 12,500 2.9 8.1
Pattiki White County, IL Underground 2.1 11,700 3.0 7.9
Hopkins County Coal Hopkins County, KY Surface/
Underground 2.3 11,300 3.2 12.4
Gibson County
(North) Gibson County, IN Underground -- 11,600 1.0 7.0
Gibson County
(South) Gibson County, IN Underground -- 11,600 2.1 NA
----
Region Total 7.9
----
East Kentucky
Pontiki/Excel Martin County, KY Underground 1.6 12,800 0.7 6.7
MC Mining Pike County, KY Underground 0.9 12,800 0.7 7.2
----
Region Total 2.5
----
Maryland
Mettiki Garrett County, MD, Underground 3.0 13,000 1.6 10.0
Grant County, WV
and Tucker County, WV
----
Total 13.4
====
% of Total
<CAPTION>
PROVEN AND PROBABLE RESERVES
-----------------------------------------
LOW MEDIUM HIGH
OPERATIONS SULFUR(1) SULFUR(1) SULFUR(1) TOTAL
- ---------- --------- --------- --------- -----
(TONS IN MILLIONS)
<S> <C> <C> <C> <C>
Illinois Basin
Dotiki -- -- 53.0 53.0
Pattiki -- -- 72.7 72.7
Hopkins County Coal
-- -- 39.7 39.7
Gibson County
(North) 37.8 -- -- 37.8
Gibson County
(South) 10.9 44.1 49.2 104.2
----- ----- ----- -----
Region Total 48.7 44.1 214.6 307.4
----- ----- ----- -----
East Kentucky
Pontiki/Excel 28.7(2) -- -- 28.7(2)
MC Mining 24.8 -- -- 24.8
----- ----- ----- -----
Region Total 53.5 -- -- 53.5
----- -----
Maryland
Mettiki -- 46.5 -- 46.5
----- ----- ----- -----
Total 102.2 90.6 214.6 407.4
===== ===== ===== =====
% of Total 25.1% 22.2% 52.7% 100.0%
===== ===== ===== =====
</TABLE>
- ---------------
(1) We classify low-sulfur coal as coal with a sulfur content of less than 1%,
medium-sulfur coal as coal with a sulfur content between 1% and 2% and
high-sulfur coal as coal with a sulfur content of greater than 2%.
(2) Includes 1.3 million tons of low-sulfur reserves at our inactive Toptiki
mine. See "Mining Operations and Production -- East Kentucky
Operations -- Toptiki."
Our reserve estimates are prepared from geological data assembled and
analyzed by our staff of geologists and engineers. This data is obtained through
our extensive, ongoing exploration drilling and in-mine channel sampling
programs. Reserve estimates will change from time to time in reflection of
mining activities, analysis of new engineering and geological data, acquisition
or divestment of reserve holdings, modification of mining plans or mining
methods and other factors. Weir International Mining Consultants, an independent
mining and geological consultant, has audited our estimates of our coal
reserves. The audit included a review of reserve base maps, data from drill
holes, our reserve calculation
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<PAGE> 80
methodology and assumptions and available quality trend maps. See Appendix E,
"Coal Reserve Audit Summary Report of Weir International Mining Consultants."
We estimate that approximately 73 million tons of our reserves, or
approximately 71% of our low-sulfur reserves and 18% of our reserves at March
31, 1999, meet compliance standards for Phase II of the Clean Air Act
Amendments. Compliance coal consists of coal that emits less than 1.2 pounds of
SO(2) per million Btu.
We lease almost all of our reserves and generally have the right to
maintain the lease in force until the exhaustion of minable and merchantable
coal located within the leased premises or a larger coal reserve area. These
leases provide for royalties to be paid to the lessor at a fixed amount per ton
or as a percentage of the sales price. Many leases require payment of minimum
royalties, payable either at the time of the execution of the lease or in
periodic installments, even if no mining activities have begun. These minimum
royalties are normally credited against the production royalties owed to a
lessor once coal production has commenced. We made lease payments to third party
surface and mineral owners of $13.2 million in 1998.
Consistent with industry practices, we conduct only limited investigations
of title to third-party coal properties prior to leasing these properties. The
title of the lessors or grantors and the boundaries of our leased properties are
not fully verified until we prepare to mine the reserves contained in these
properties. If defects in title or boundaries of undeveloped reserves arise in
the future, our right to mine these reserves could be materially adversely
affected. In connection with our reorganization in preparation for this
offering, we have obtained the consents of our lessors or determined that
obtaining such consents is not required. Although we believe we have obtained
all necessary consents, in the event that we have failed to obtain a necessary
consent, our operations may be adversely impacted if we experience any
disruption of our mining operations as a consequence. We have requested that the
lessor of a portion of our reserves at the MC Mining and Pontiki mines, Big
Sandy Management Company, Inc., confirm that a consent to this transaction is
not necessary. As of the date of this Prospectus, Big Sandy has not responded to
this request. While we believe that this consent is not required, we cannot
assure you what the outcome will be with respect to this matter.
For economic and other operational reasons, a portion of our reserves
described above may be mined only after the construction of additional mining
facilities. The extent to which we will eventually mine our reserves will depend
on the price and demand for coal of the quality and type we control, the price
and supply of alternative fuels and future mining practices and regulations.
MINING METHODS
We mine coal using both underground and surface methods. Approximately 88%
of the coal we produced in 1998 came from underground mines and 12% came from
surface mines. We use the continuous mining method in all of our underground
mines. In several of these mines we have synchronized these units with two
continuous miners to improve productivity and reduce unit costs. We also use the
longwall method at Mettiki. All of our surface mining operations are at Hopkins
County Coal.
MINING OPERATIONS AND PRODUCTION
We produce a diverse range of steam coals with varying sulfur and heat
contents which enables us to satisfy the broad range of specifications demanded
by our customers. In 1998, we produced 13.4 million
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<PAGE> 81
tons of coal from our existing mines and sold approximately 15.1 million tons of
coal, including brokered tonnage. The following chart illustrates our production
by region for the last four years.
<TABLE>
<CAPTION>
OPERATING REGION AND MINES 1995 1996 1997 1998
- -------------------------- ---- ---- ---- ----
(TONS IN MILLIONS)
<S> <C> <C> <C> <C>
Illinois Basin Operations:
Dotiki, Pattiki, Hopkins County Coal...................... 4.4 4.3 5.2 7.9
East Kentucky Operations:
Pontiki/Excel, MC Mining.................................. 1.8 2.0 2.8 2.5
Maryland Operations:
Mettiki................................................... 2.6 2.7 2.9 3.0
--- --- ---- ----
Total............................................. 8.8 9.0 10.9 13.4
=== === ==== ====
</TABLE>
Illinois Basin Operations
Our Illinois Basin mining operations are located in western Kentucky and
southern Illinois. We have 760 employees in the Illinois Basin. We operate three
mining complexes and a rail-to-barge transloading terminal in the Illinois
Basin.
Dotiki. Dotiki is an underground mining operation located in Webster
County, Kentucky. The mine was opened in 1966, and we purchased the mine in
1971. Our Dotiki operation utilizes continuous mining units employing room and
pillar mining techniques. As a result of more efficient mining methods and
certain capital improvements, from 1994 to 1998 we have achieved a compound
annual growth rate in the productivity of the mine of approximately 12%. We
expect to begin synchronous mining during 1999. We are in the process of
increasing the throughput capacity of our preparation plant from 650 to 1,000
tons of raw coal an hour. We expect these improvements to increase productivity
and reduce unit costs. Production from the mine is shipped via the CSX railroad,
the Paducah & Louisville railroad and by truck. Our primary customers for coal
produced at Dotiki are Seminole Electric Cooperative, Tennessee Valley Authority
and West Kentucky Energy, who purchase our coal pursuant to long-term contracts
for use in their scrubbed generating units.
Pattiki. Pattiki is an underground mining operation located in White
County, Illinois. We constructed the mine in 1980 and have operated it since its
inception. Our Pattiki operation utilizes continuous mining units employing room
and pillar mining techniques. Half of our continuous mining units are engaged in
synchronous mining. The preparation plant has a throughput capacity of 1,000
tons of raw coal an hour. Production from the mine is shipped via the CSX
railroad. Our primary customers for coal produced at Pattiki are Seminole
Electric Cooperative and Tennessee Valley Authority, who purchase our coal
pursuant to long-term contracts for use in their scrubbed generating units.
Hopkins County Coal. Hopkins County Coal is a mining complex located in
Hopkins County, Kentucky. The operation has three surface mines, one of which is
currently idle, and one underground mine. We acquired Hopkins County Coal in
January 1998. Following the acquisition, we completed extensive equipment
rebuilds and purchases. In accordance with our acquisition plan, we incurred
substantial start-up costs in early 1998, while we completed extensive rebuilds
of older equipment and purchases of new or refurbished equipment. We began to
realize higher productivity as a result of these capital investments beginning
in the third quarter of 1998. We expect to realize the full impact of these
efficiencies in 1999. The surface operations utilize dragline mining, and the
underground operations utilize continuous mining units employing room and pillar
mining techniques. The preparation plant has a throughput capacity of 1,000 tons
of raw coal an hour. Production from the complex is shipped via the CSX and the
Paducah & Louisville railroads and by truck. Our primary customers for coal
produced at the Hopkins County Coal complex include Louisville Gas & Electric,
Tennessee Valley Authority and Western Kentucky Energy.
Gibson County. Over the last 19 years, we have acquired and leased 37.8
million tons of low-sulfur coal reserves located in Gibson County, Indiana,
situated in the southwestern portion of the state. We refer to these reserves as
the Gibson County "north" reserves, all of which are low-sulfur coal. In 1997,
we
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<PAGE> 82
acquired an additional 104.2 million tons of reserves in Gibson County. We refer
to these reserves as the Gibson County "south" reserves. Approximately 10.9
million tons of our Gibson County south reserves are low-sulfur coal. We believe
that the low-sulfur quality of our Gibson County properties is uncommon in the
Illinois Basin. We recently entered into a long-term contract with PSI Energy, a
subsidiary of Cinergy, for production from our new development project for our
Gibson County north reserves. We have commenced construction of a new mining
complex adjacent to these reserves to supply this contract. We plan to utilize
continuous mining units in the mine upon construction. We expect production from
the new mine to commence in the fall of 2000 and have contractual commitments
for an aggregate of 23 million tons of production from this mine through 2012.
East Kentucky Operations
Our East Kentucky mining operations are located in the central Appalachia
coal fields. Our East Kentucky mines are currently our principal source for
low-sulfur coal. We have 230 employees and operate two mining complexes in East
Kentucky. We also have one inactive mining complex in East Kentucky.
Pontiki/Excel. Pontiki/Excel is an underground mining complex located in
Martin County, Kentucky. In 1977, we constructed the mine and operated it
continuously until September 1998, when we suspended operations and terminated
substantially all of our workforce due to adverse market conditions. While we
had intended originally to idle the mine for an indefinite period, we were able
to procure a new long-term supply agreement that justified the re-opening of the
mine beginning in late 1998. As a result, this operation was restructured with a
new mine plan, operating structure, and workforce hired by Excel, an affiliate
of Pontiki. Pontiki owns the mining complex and reserves and Excel is
responsible for conducting all mining operations. While idled, the mine incurred
a net loss of approximately $5.2 million, consisting of workers' compensation
accruals and severance payments consistent with the federal WARN Act, as well as
the costs associated with maintaining an idled mine. During late 1998 and early
1999, we incurred substantial start-up costs to bring Pontiki/Excel up to its
current production level. Despite operating at reduced production volumes, our
current productivity levels are approximately 9% higher than what we achieved
during the first three quarters of 1998. We expect to reach full production at
Pontiki/Excel during the second half of 1999. All of the coal produced at
Pontiki/Excel meets or exceeds the compliance requirements of Phase II of the
Clean Air Act Amendments. Our Pontiki/Excel operation utilizes continuous mining
units employing room and pillar mining techniques. The preparation plant has a
throughput capacity of 800 tons of raw coal an hour. Production from the mine is
shipped via the Norfolk Southern railroad and by truck. Our primary customers
for coal produced at Pontiki are Cogentrix and AEI Coal Sales, which resells the
coal it purchases from us to Carolina Power & Light.
MC Mining. MC Mining is an underground mining facility located in Pike
County, Kentucky which we acquired in 1989. MC Mining began production in
December 1996 and is expected to reach full capacity in 1999. The mine is
operated by a contract mining company. The operation utilizes continuous mining
units employing room and pillar mining techniques. The preparation plant has a
throughput capacity of 850 tons of raw coal an hour. An upgrade of the
preparation plant is planned for 1999 and is expected to increase yields
approximately 3% and to reduce unit operating costs. Production from the mine is
shipped via the CSX railroad and by truck. MC Mining sells its production
primarily to industrial customers.
Toptiki. Toptiki is a surface and underground mining complex located in
Martin County, Kentucky which we acquired in 1978. After conducting surface
mining operations through 1982 and underground operations through 1996, we
discontinued mining at the complex. Reclamation activities at the mine are still
ongoing and approximately 1.3 million tons of low-sulfur reserves remain in
place. We are currently evaluating a number of options with respect to this
property, including a potential sale.
Maryland Operations
Our Maryland operations are located in the northern Appalachia coal fields.
We have 242 employees in Maryland.
Mettiki. Mettiki is an underground longwall mining operation located in
Garrett County, Maryland. We constructed Mettiki in 1977 and have operated it
since its inception. As a result of more efficient
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<PAGE> 83
mining methods and certain capital improvements, from 1994 to 1998 we have
achieved a compound annual growth rate in the productivity of the mine of
approximately 7%. The operation utilizes a longwall miner for the majority of
the coal extraction plus continuous mining units to prepare the mine for future
longwall mining operation areas. The preparation plant has a throughput capacity
of 1,350 tons of raw coal an hour. Production from the mine is shipped via
trucks and the CSX railroad. Our primary customer for coal produced at Mettiki
is Virginia Electric Power Company which purchases the coal pursuant to a long-
term contract for use in the generating units at its Mt. Storm, West Virginia
power plant located less than 30 miles away. We also process coal at Mettiki for
Anker Energy Corporation and one of its affiliates, which is sold to Virginia
Electric Power Company for use at the Mt. Storm facility.
OTHER OPERATIONS
Coal Brokerage
We buy coal from independent producers throughout the eastern United
States, which we then sell directly and indirectly to steam, metallurgical and
industrial customers. We purchased and sold 1.6 million tons of coal in 1998. We
have a policy of matching our purchases and sales to minimize market risks
associated with buying and selling coal.
Mt. Vernon Terminal
Mt. Vernon terminal is a rail-to-barge loading terminal on the Ohio River
in Mt. Vernon, Indiana. The terminal has a capacity of 5.5 million tons per year
with existing ground storage. Our primary customer at Mt. Vernon is Seminole
Electric Cooperative, with whom we have a contract to load up to 2.7 million
tons of coal annually. However, Seminole has filed suit in Indiana state court
to terminate this contract and is seeking a declaratory judgment as to the
damages they owe us in connection with the termination of the contract. We are
currently not loading any volumes for Seminole. We are currently exploring our
options with respect to this terminal, including loading agriculture products or
aggregate or a potential sale of the facility. See "-- Legal Proceedings."
Additional Services
We aggressively develop and market additional services in order to
establish ourselves as the supplier of choice for our customers. Examples of the
kind of services we have offered to date include ash and scrubber sludge
removal, coal yard maintenance and arranging alternate transportation services.
We will continue to think proactively in providing additional services for
customers and believe that this approach will give us a competitive advantage in
obtaining coal supply contracts in the future.
COAL TRANSPORTATION
Our coal is transported to our customers by rail, barge and truck.
Depending on the proximity of the customer to the mine and the transportation
available for delivering coal to that customer, transportation costs can range
from 10% to 60% of the delivered cost of a customer's coal. As a consequence,
the availability and cost of transportation constitute important factors in the
marketability of coal. We believe our mines are located in favorable geographic
locations that minimize transportation costs for our customers.
We generally pay truck charges to deliver coal to a barge or rail loadout
facility, and customers typically pay the transportation costs from the loadout
facilities to the customer's plant. At the Mettiki mine, we operate a truck
delivery system that transports the coal from the mine to Virginia Electric
Power Company's Mt. Storm power plant.
In 1998, the largest volume transporter of our coal production was CSX
which moved approximately 50% of our tonnage over its rail system. The practices
of and rates set by the railroad serving a particular mine might affect, either
adversely or favorably, our marketing efforts with respect to coal produced from
the relevant mine.
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<PAGE> 84
CUSTOMERS
In 1998, approximately 84% of our production was consumed by electric
utilities with the balance consumed by cogeneration plants and industrial users.
Our three largest customers are Tennessee Valley Authority, Seminole Electric
Cooperative and Virginia Electric Power Company. Shipments to these customers
accounted for approximately 52% of our 1998 sales tonnage. Each of these
customers has purchased coal regularly from us for more than 15 years.
The following chart sets forth our major customers, the tons sold to those
customers (contract and spot), the percentage of total sales represented by
those sales and the date we began supplying coal to each customer:
<TABLE>
<CAPTION>
1998 1998 1998 1998
CONTRACTUAL SPOT TOTAL % TOTAL CUSTOMER
MAJOR CUSTOMERS TONS SOLD TONS SOLD TONS SOLD TONS SOLD SINCE(1)
- --------------- ----------- --------- --------- --------- --------
(TONS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
TVA............................... 2,592 161 2,753 18% 1971
Seminole Electric................. 2,396 286 2,682 18% 1982
VEPCO............................. 2,338 90 2,428 16% 1977
Louisville Gas & Electric......... 1,083 628 1,711 11% 1997
Anker/VEPCO(2).................... 419 -- 419 3% 1990
Cogentrix(3)...................... 278 -- 278 2% 1978
Other (71 customers).............. 2,359 2,523 4,882 32%
------ ----- ------ ---
Total........................... 11,465 3,688 15,153 100%
</TABLE>
- ---------------
(1) Represents the year we first began supplying coal to that particular
customer. However, for some of our customers, there were periods lasting up
to several years where we did not supply any coal.
(2) Represents coal processed under contract to Anker which is sold to Virginia
Electric Power Company.
(3) Includes sales to James River Cogeneration Company, a joint venture between
Cogentrix of Virginia and a subsidiary of Southern California Edison
Company.
COAL CONTRACTS
As is customary in the coal industry, we have entered into long-term
contracts with many of our customers. These arrangements are mutually
beneficial. Our utility customers secure a fuel supply for their power plants
for years into the future. Our long-term contracts contribute to our stability
and profitability by providing greater predictability of sales volumes and sales
prices. In 1998, approximately 85% of our production and 75% of our sales were
made under long-term contracts. Historically, approximately 70% of our sales
have been made pursuant to long-term contracts. We believe our long-term
contract position compares favorably to that of our competitors.
By providing a diverse range of coals with varying sulfur and heat
contents, we can satisfy the demanding specifications of a broad customer base.
Our diversity of coals enables us to serve a broader market and more readily
secure long-term contracts.
The terms of long-term contracts are the results of both bidding procedures
and extensive negotiations with the customer. As a result, the terms of these
contracts vary significantly in many respects, including price adjustment
features, price and contract reopener terms, permitted sources of supply, force
majeure provisions, coal qualities, quantity, flexibility and adjustments.
Virtually all of our long-term contracts are subject to price adjustment
provisions which permit an increase or decrease periodically in the contract
price to reflect changes in specified price indices or items such as taxes or
royalties or increases and decreases in actual production costs. These
provisions, however, may not assure that the contract price will reflect every
change in production or other costs. Failure of the parties to agree on a price
pursuant to an adjustment or a reopener provision can lead to early termination
of a contract. Some of the long-term contracts also permit the contract to be
reopened to renegotiate terms and conditions in addition to price or to
terminate the contract. The long-term contracts typically stipulate procedures
for quality control, sampling and weighing. Most contain provisions requiring us
to deliver coal within ranges for specific coal characteristic such as heat,
sulfur, ash, moisture, grindability, volatility and other qualities. Failure to
meet
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<PAGE> 85
these specifications can result in economic penalties or termination of the
contracts. While most of the contracts specify the approved seams and/or
approved locations from which the coal is to be mined, some contracts allow the
coal to be sourced from more than one mine or location. Although the volume to
be delivered pursuant to a long-term contract is stipulated, the buyers often
have the option to vary the volume within specified limits.
The table below sets forth information about our significant long-term
contracts as of June 30, 1999. The total commitment of coal under contract is an
approximate number because, in some instances, the contract contains provisions
which could cause the nominal total commitment to increase or decrease by as
much as 20%.
<TABLE>
<CAPTION>
NOMINAL COMMITMENT
UNDER CONTRACT
CUSTOMER SULFUR TYPE (TONS IN MILLIONS) EXPIRATION
-------- ------------- ------------------ ----------------
<S> <C> <C> <C>
Seminole....................... High sulfur 28.7 December 2010
Cinergy(1)..................... Low sulfur 22.8 December 2012
VEPCO.......................... Medium sulfur 16.9 December 2006
AEI/Carolina Power & Light..... Low sulfur 11.0(2) December 2006
TVA............................ High sulfur 6.0(3) June 2003
LG&E........................... High sulfur 3.7 December 2001
TVA............................ High sulfur 2.4 June 2001
West Kentucky Energy........... High sulfur 2.2 December 2001
Anker Energy/VEPCO............. Medium sulfur 1.5 December 2002
TVA............................ High sulfur 0.9 June 2000
VEPCO-North Branch............. High sulfur 0.5(4) June 2001
Owensboro Municipal............ High sulfur 0.3 December 2001
James River Cogeneration
Company...................... Low sulfur 0.3(5) October 2002
Cogentrix of North Carolina.... Low sulfur 0.3(6) December 2002
----
Total Tons........... 97.5
====
</TABLE>
- ---------------
(1) Represents a contract with PSI Energy, a subsidiary of Cinergy. Deliveries
under this contract are not scheduled to begin until the fall of 2000.
(2) Includes our option to sell an additional 400,000 tons per year or an
aggregate 2.8 million tons.
(3) Represents two contracts contained in one requisition order from TVA.
(4) Represents a contract with deliverable quantities between 175,000 and
350,000 tons per year at the option of the purchaser. The sulfur type
designated for this contract is "high sulfur" because the volumes delivered
under this contract represent a blend of Mettiki's regular medium-sulfur
coal and a high-sulfur, low-Btu byproduct of the cleaning process.
(5) James River Cogeneration Company is a joint venture between Cogentrix of
Virginia and a subsidiary of Southern California Edison Company. Represents
an estimate of 80,000 tons annually through the term of the contract. This
requirements contract obligates James River Cogeneration Company to purchase
an amount of coal from us equal to the amount burned at the Hopewell Station
power plant. In 1998, James River Cogeneration Company purchased
approximately 121,000 tons pursuant to this agreement.
(6) Represents an estimate of 100,000 tons annually through the term of the
contract. This requirements contract obligates Cogentrix of North Carolina
to purchase an amount of coal from us equal to the amount burned at the
Roxboro and Southport Station power plants. In 1998, Cogentrix of North
Carolina purchased approximately 157,000 tons pursuant to this agreement.
EMPLOYEES AND LABOR RELATIONS
We have approximately 1,332 employees, including 100 corporate employees
and 1,232 in active operations. Our work force is entirely union-free. Relations
with employees are generally good, and there have been no recent work stoppages
or union organizing campaigns among the employees since the unsuccessful
campaigns to organize Mettiki in 1992 and Pontiki in 1993.
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COMPETITION
The United States coal industry is highly competitive with numerous
producers in all coal producing regions. We compete with other large producers
and hundreds of small producers in the United States. The largest coal company
is estimated to have sold less than 15% of the total 1998 tonnage sold in the
United States market. We compete with other coal producers primarily on the
basis of coal price at the mine, coal quality (including sulfur content),
transportation cost from the mine to the customer and the reliability of supply.
Continued demand for our coal and the prices that we obtain are also affected by
demand for electricity, environmental and government regulations, technological
developments and the availability and price of alternative fuel supplies,
including nuclear, natural gas, oil and hydroelectric power.
LEGAL PROCEEDINGS
We are subject to various types of litigation in the ordinary course of our
business. Disputes with our customers over the provisions of long-term coal
supply contracts arise occasionally and generally relate to, among other things,
coal quality, pricing, quantity, and the existence of force majeure conditions.
Although we are not currently involved in any litigation involving our long-term
coal supply contracts, we cannot assure you that disputes will not occur in the
future or that we will be able to resolve those disputes in a satisfactory
manner. Other than the litigation with Seminole Electric Cooperative described
immediately below, we are not engaged in any litigation which we believe is
material to our operations. In addition, we are not aware of any legal
proceedings against us under the various environmental protection statutes to
which we are subject. See "-- Regulation" below for a more complete discussion
of our material environmental obligations.
We are currently involved in litigation with Seminole Electric Cooperative
with respect to a long-term contract for the annual transloading of 2.7 million
tons of coal from rail to barge through our Mt. Vernon, Indiana terminal.
Seminole has filed suit to terminate this contract and is seeking a declaratory
judgment as to the amount of damages it owes us in connection with the
termination of the contract. This action, styled Seminole Electric Cooperative,
Inc. v. Mount Vernon Coal Transfer Co., Case No. IP 98-1732-C Y/F was filed in
the federal court for the Southern District of Indiana in December of 1998. We
filed an answer and a counterclaim in February of 1999 and Seminole moved to
dismiss the counterclaim in March of 1999. We responded to the motion to dismiss
in March of 1999. We amended our counterclaim in June of 1999 and Seminole moved
to dismiss our amended counterclaim in July of 1999. Discovery is proceeding.
Seminole has admitted in a filing with the trial court that its actions are
in breach of the contract. The provisions of the contract stipulate the
calculation of damages to be paid in the event of breach. Rather than pay the
amount of damages stipulated in the contract, Seminole is seeking the court's
agreement that the proper damage award should be calculated based on our loss of
net profits from the Mt. Vernon facility for the term of the agreement. We fully
intend to pursue the damages stipulated in the contract and have filed pleadings
to that effect. Additionally, while we believe that under either interpretation
of the contract we are entitled to receive damages in an amount sufficient to
offset the loss of income from the contract, we cannot assure you that the court
will agree with our interpretation or that the damages determined by the court
will be sufficient to offset the loss of income from the contract. In addition,
without the volumes provided by the Seminole contract, the continued operation
of the Mt. Vernon terminal may become uneconomic. Accordingly, we are currently
exploring our options with respect to this terminal, including shipping
alternative products through the terminal or selling it.
In response to Seminole's actions, we have ceased transloading any coal
shipments to Seminole through the Mt. Vernon terminal. We now transport all of
the coal we deliver to Seminole by rail. The dispute with Seminole regarding the
terminal has not otherwise affected deliveries under our long-term coal supply
contract with them, and we do not anticipate that the coal supply contract will
be affected. However, we cannot assure you that Seminole will not seek to
terminate or renegotiate that contract. If
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the contract were terminated, we could be affected adversely to the extent we
could not find alternative customers at the same price and volume levels.
REGULATION
The coal mining industry is subject to regulation by federal, state and
local authorities on matters such as:
- employee health and safety;
- mine permits and other licensing requirements;
- air quality standards;
- water pollution;
- storage of petroleum products and substances which are regarded as
hazardous under applicable laws;
- plant and wildlife protection;
- reclamation and restoration of mining properties after mining is
completed;
- the discharge of materials into the environment;
- management of solid wastes generated by mining operations;
- protection of wetlands;
- management of electrical equipment containing polychlorinated biphenyls,
or PCBs;
- surface subsidence from underground mining;
- the effects that mining has on groundwater quality and availability; and
- legislatively mandated benefits for current and retired coal miners.
In addition, the utility industry is subject to extensive regulation regarding
the environmental impact of its power generation activities which could affect
demand for our coal. The possibility exists that new legislation or regulations
may be adopted which may have a significant impact on our mining operations or
our customers' ability to use coal and may require us or our customers to change
our or their operations significantly or incur substantial costs.
We try to conduct mining operations in compliance with all applicable
federal, state and local laws and regulations. However, because of extensive and
comprehensive regulatory requirements, violations during mining operations are
not unusual in the industry and, notwithstanding compliance efforts, we do not
believe these violations can be eliminated completely. None of the violations to
date or the monetary penalties assessed have been material.
While it is not possible to quantify the costs of compliance with all
applicable federal and state laws, those costs have been and are expected to
continue to be significant. Capital expenditures for environmental matters have
not been material in recent years. We have accrued for the estimated costs of
reclamation and mine closing, including the cost of treating mine water
discharge when necessary. The accrual for reclamation and mine closing costs is
based upon permit requirements and the costs and timing of reclamation and mine
closing procedures. Our accrued reclamation and mine-closing costs were $13.8
million at December 31, 1998. The amount that was included as an operating
expense for the year ended December 31, 1998 was $0.7 million, while the related
cash payment in 1998 for this liability was $1.5 million. Although management
believes it is making adequate provisions for all expected reclamation and other
costs associated with mine closures, future operating results would be adversely
affected if we later determined these accruals to be insufficient. Under the
partnership agreement, estimated reclamation and mine closing costs will be
included in the estimate of maintenance capital expenditures that will be
deducted from Operating Surplus. Actual reclamation and mine closing costs will
not be deducted from Operating Surplus. Compliance with these laws has
substantially increased the cost of coal mining for all domestic coal producers.
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As part of a restructuring undertaken in connection with the offering of
the common units, substantially all of our operating subsidiaries will be merged
into new limited liability companies. As a matter of law, each of these limited
liability companies will assume the liabilities of their respective
predecessors, including liability for any past or present environmental
regulatory infractions by either entity and including their subsidiaries, and
for environmental cleanup, or recovery of environmental cleanup costs,
associated with land or water areas where these corporations' wastes have been
disposed. The regulatory infractions or waste management practices giving rise
to this liability could be associated with the predecessors' mining activities
or they could relate to property or mining operations that were formerly owned
or operated by the predecessors, or that have been owned or operated by other
corporations which have been previously acquired by or merged into the
predecessors.
Mining Permits and Approvals. Numerous governmental permits or approvals
are required for mining operations. We may be required to prepare and present to
federal, state or local authorities data pertaining to the effect or impact that
any proposed production of coal may have upon the environment. All requirements
imposed by any of these authorities may be costly and time-consuming and may
delay commencement or continuation of mining operations. Future legislation and
administrative regulations may emphasize the protection of the environment and,
as a consequence, our activities may be more closely regulated. Legislation and
regulations, as well as future interpretations of existing laws, may require
substantial increases in equipment and operating costs and delays, interruptions
or a termination of operations, the extent of which cannot be predicted.
Before commencing mining on a particular property, we must obtain mining
permits and approval by state regulatory authorities of a reclamation plan for
restoring upon the completion of mining the mined property to its prior
condition, productive use or other permitted condition. Typically we commence
actions to obtain permits between 18 and 24 months before we plan to mine a new
area. In our experience, permits generally are approved within 12 months after a
completed application is submitted. We have already secured all of the material
permits and approvals necessary to begin mining operations in Gibson County. We
have not experienced difficulties in obtaining mining permits in the areas where
our reserves are currently located. However, we cannot assure you that we will
not experience difficulty in obtaining mining permits in the future.
In connection with the formation of Alliance Resource Partners and the
related reorganization of our subsidiaries, which conduct our mining operations,
we will be required to transfer mining permits and approvals from state and
local regulatory authorities. In some instances, the process of transferring
these permits and approvals will involve comment periods and public meetings.
While we do not anticipate any difficulty in ultimately transferring all of the
required permits and approvals, it is possible that we will not be able to
transfer all of the necessary permits and approvals prior to the completion of
the offering of the common units. We do not anticipate that this will have any
material adverse effect on our business, financial condition or results of
operations or on our ability to pay the minimum quarterly distribution to our
unitholders.
Under some circumstances, substantial fines and penalties, including
revocation of mining permits, may be imposed under the laws described above.
Monetary sanctions and, in severe circumstances, criminal sanctions may be
imposed for failure to comply with these laws. Regulations also provide that a
mining permit can be refused or revoked if an officer, director or a shareholder
with a 10% or greater interest in the entity is affiliated with another entity
which has outstanding permit violations. Although we have been cited for
violations in the ordinary course of our business, we have never had a permit
suspended or revoked because of any violation, and the penalties assessed for
these violations have not been material.
Mine Health and Safety Laws. Stringent safety and health standards have
been imposed by federal legislation since 1969 when the federal Coal Mine Health
and Safety Act of 1969 was adopted. The Mine Health and Safety Act of 1969
resulted in increased operating costs and reduced productivity. The federal Mine
Safety and Health Act of 1977, which significantly expanded the enforcement of
health and safety standards of the Mine Health and Safety Act of 1969, imposes
comprehensive safety and health standards
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on all mining operations. Regulations are comprehensive and affect numerous
aspects of mining operations, including training of mine personnel, mining
procedures, blasting, the equipment used in mining operations and other matters.
The Mine Safety and Health Administration monitors compliance with these federal
laws and regulations. In addition, as part of the Mine Health and Safety Act of
1969 and the Mine Safety and Health Act of 1977, the Black Lung Acts require
payments of benefits by all businesses conducting current mining operations to
coal miners with black lung and to some survivors of a miner who dies from this
disease. Most of the states where we operate have state programs for mine safety
and health regulation and enforcement. In combination, federal and state safety
and health regulation in the coal mining industry is perhaps the most
comprehensive and pervasive system for protection of employee safety and health
affecting any segment of the industry. Even the most minute aspects of mine
operations, particularly underground mine operations, are subject to extensive
regulation. This regulation has a significant effect on our operating costs.
However, our competitors in all of the areas in which we operate are subject to
the same laws and regulations.
One of our goals is to achieve excellent health and safety performance as
measured by accident frequency rates and other measures. We believe that
attainment of this goal is inherently tied to the attainment of productivity and
financial goals. We try to achieve this goal by:
- training employees in safe work practices;
- openly communicating with employees;
- establishing, following, and improving safety standards;
- involving employees in establishing safety standards; and
- recording, reporting and investigating all accidents, incidents and
losses to avoid reoccurrences.
Black Lung Legislation. The Black Lung Acts levy a tax on production of
$1.10 per ton for deep-mined coal and $0.55 per ton for surface-mined coal, but
not to exceed 4.4% of the sales price in order to compensate miners who are
totally disabled due to black lung and some survivors of miners who died from
this disease and who were last employed as miners prior to 1970 or subsequently
where no responsible coal mine operator has been identified for claims. In
addition, the Black Lung Acts provide that some claims for which coal operators
had previously been responsible will be obligations of the government trust
funded by the tax. The Revenue Act of 1987 extended the termination date of the
tax from January 1, 1996 to the earlier of January 1, 2014, or the date on which
the government trust becomes solvent. For miners last employed as miners after
1969 who are determined to have contracted black lung, we self insure against
potential cost using actuarially determined estimates of the cost of present and
future claims. We are also liable under state statutes for black lung claims.
In the past, legislation on black lung reform has been introduced in
Congress, but not enacted. This legislation has been recently reintroduced. If
enacted, this legislation could:
- restrict the evidence that can be offered by a mining company;
- establish a standard for evaluation of evidence that greatly favors black
lung claimants;
- allow claimants who have been denied benefits at any time since 1981 to
refile their claims for consideration under the new law;
- make surviving spouse benefits significantly easier to obtain; and
- retroactively waive repayment of preliminarily awarded benefits that are
later determined to have been improperly paid.
If this or similar legislation is passed, the number of claimants who are
awarded benefits could significantly increase. We cannot assure you that this
proposed legislation or other proposed changes in black lung legislation will
not have an adverse effect on our business.
The U.S. Department of Labor has issued proposed amendments to the
regulations implementing the federal black lung laws which, among other things,
establish a presumption in favor of a claimant's treating physician, allow
previously denied claimants to challenge benefit determinations in some
circumstances,
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increase the time period required for self-insured operations to pay benefits to
black lung claimants and limit a coal operator's ability to introduce medical
evidence regarding the claimant's medical condition. If adopted, the amendments
could have an adverse impact on us, the extent of which cannot be accurately
predicted.
Workers' Compensation. We are required to compensate employees for
work-related injuries. Several states in which we operate consider changes in
workers compensation laws from time to time. These changes, if enacted, could
adversely affect our financial condition and results of operation.
Retiree Health Benefits Legislation. The Coal Industry Retiree Health
Benefits Act of 1992 was enacted to provide for the funding of health benefits
for some United Mine Workers of America retirees. The act merged previously
established union benefit plans into a newly created fund into which "signatory
operators" and "related persons" are obligated to pay annual premiums for
beneficiaries. The act also created a second benefit fund for miners who retired
between July 21, 1992 and September 30, 1994 and whose former employers are no
longer in business. Because of our union-free status, we are not required to
make any payments to retired miners under the Coal Industry Retiree Health
Benefits Act of 1992, with the exception of limited payments on behalf of MC
Mining. In addition, in connection with their sale of Alliance Resource Holdings
in 1996, MAPCO Inc. has agreed to indemnify us for liabilities under the Coal
Industry Retiree Health Benefits Act of 1992.
Surface Mining Control and Reclamation Act. The Surface Mining Control and
Reclamation Act establishes operational, reclamation and closure standards for
all aspects of surface mining as well as many aspects of deep mining. The act
requires that comprehensive environmental protection and reclamation standards
be met during the course of and upon completion of mining activities. In
conjunction with mining the property, we reclaim and restore the mined areas by
grading, shaping and preparing the soil for seeding. Upon completion of the
mining, reclamation generally is completed by seeding with grasses or planting
trees for use as pasture or timberland, as specified in the approved reclamation
plan. We believe that we are in compliance in all material respects with
applicable regulations relating to reclamation.
The Surface Mining Control and Reclamation Act and similar state statutes,
require, among other things, that mined property be restored in accordance with
specified standards and approved reclamation plans. The act requires us to
restore the surface to approximate the original contours as contemporaneously as
practicable with the completion of surface mining operations. The mine operator
must submit a bond or otherwise secure the performance of these reclamation
obligations. The earliest a reclamation bond can be released is five years after
reclamation has been achieved. Federal law and some states impose on mine
operators the responsibility for repairing or compensating for damage occurring
on the surface as a result of mine subsidence, a consequence of longwall mining
and possibly other mining operations. In addition, the Abandoned Mine Lands Act,
which is part of the Surface Mining Control and Reclamation Act, imposes a tax
on all current mining operations, the proceeds of which are used to restore
mines closed before 1977. The maximum tax is $0.35 per ton on surface-mined coal
and $0.15 per ton on underground-mined coal. We have accrued for the estimated
costs of reclamation and mine closing, including the cost of treating mine water
discharge when necessary. See "-- Regulation" above.
Under the Surface Mining Control and Reclamation Act, responsibility for
unabated violations, unpaid civil penalties and unpaid reclamation fees of
independent contract mine operators and other third parties can be imputed to
other companies which are deemed, according to the regulations, to have "owned"
or "controlled" the contract mine operator. Sanctions against the "owner" or
"controller" are quite severe and can include being blocked from receiving new
permits and revocation of any permits that have been issued since the time of
the violations or, in the case of civil penalties and reclamation fees, since
the time their amounts became due. We are not aware of any currently pending or
asserted claims relating to the "ownership" or "control" theories discussed
above. However, we cannot assure you that their claims will not develop in the
future.
Clean Air Act. The federal Clean Air Act and similar state laws, which
regulate emissions into the air, affect coal mining and processing operations
primarily through permitting and/or emissions control requirements. The Clean
Air Act also indirectly affects coal mining operations by extensively regulating
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the air emissions of coal-fueled electric power generating plants. For example,
the Clean Air Act requires reduction of SO(2) emissions from electric power
generation plants in two phases. Only some facilities are subject to the Phase I
requirements. By the year 2000, Phase II requires nearly all facilities to
reduce emissions. The affected utilities will be able to meet these requirements
by;
- switching to lower sulfur fuels;
- by installing pollution control devices such as scrubbers;
- by reducing electricity generating levels; or
- by purchasing or trading so-called pollution "credits."
Specific emissions sources receive these "credits" which utilities and
industrial concerns can trade or sell to allow other units to emit higher levels
of SO(2). In addition, the Clean Air Act requires a study of utility power plant
emission of some toxic substances and their eventual regulation, if warranted.
The effect of the Clean Air Act cannot be completely ascertained at this time,
although the SO(2) emissions reduction requirement is projected generally to
increase the demand for lower sulfur coal and potentially decrease demand for
higher sulfur coal.
The Clean Air Act also indirectly affects coal mining operations by
requiring utilities that currently are major sources of nitrogen oxides in
moderate or higher ozone nonattainment areas to install reasonably available
control technology for nitrogen oxides, which are precursors of ozone. The
Environmental Protection Agency recently announced a proposal that would require
22 eastern states to make substantial reductions in nitrogen oxide emissions by
the year 2003. Both the content and the timetable for adoption of this proposal
is uncertain at this time. The Environmental Protection Agency expects these
states will achieve reductions by requiring power plants to make substantial
reductions in their nitrogen oxide emissions. This in turn will require power
plants to install reasonably available control technology and additional control
measures. Installation of reasonably available control technology and additional
measures required under the Environmental Protection Agency proposal will make
it more costly to operate coal-fired plants and, depending on the requirements
of individual state implementation plans and the development of revised new
source performance standards, could make coal a less attractive fuel alternative
in the planning and building of utility power plants in the future. Any
reduction in coal's share of the capacity for power generation could have a
material adverse effect on our business, financial condition and results of
operations. The effect these regulations, or other requirements that may be
imposed in the future, could have on the coal industry in general and on our
business in particular cannot be predicted with certainty. We cannot assure you
that the implementation of the Clean Air Act, the new National Ambient Air
Quality Standards or any other future regulatory provisions will not materially
adversely affect our business, financial condition or results of operations.
In addition, the U.S. Environmental Protection Agency has already issued
and is considering further regulations relating to fugitive dust and emissions
of other coal-related pollutants such as mercury, nickel, dioxin and fine
particulates. These regulations could restrict our ability to develop new mines
or require us or our customers to modify our operations. For example, in July
1997, the Environmental Protection Agency adopted new, more stringent National
Ambient Air Quality Standards for particulate matter which may require some
states to change existing implementation plans. These National Ambient Air
Quality Standards are expected to be implemented by 2003, although a recent
decision by the U.S. Court of Appeals for the D.C. Circuit could delay or modify
the Environmental Protection Agency's implementation of the new standards.
Because coal mining operations emit particulate matter, our mining operations
and utility customers are likely to be directly affected when the revisions to
the National Ambient Air Quality Standards are implemented by the states. These
and other regulatory developments may restrict our ability to develop new mines
or could require us to modify our existing operations, and may have a material
adverse effect on our financial condition and results of operations.
Framework Convention On Global Climate Change. The United States and more
than 160 other nations are signatories to the 1992 Framework Convention on
Global Climate Change which is intended to limit or capture emissions of
greenhouse gases, such as carbon dioxide. In the Kyoto Protocol, the
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signatories to the Framework Convention on Global Climate Change established a
binding set of emissions targets for developed nations. The specific limits vary
from country to country. Under the terms of Kyoto Protocol, the United States
would be required to reduce emissions to 93% of 1990 levels over a five-year
budget period from 2008 through 2012. The Clinton Administration signed the
protocol in November 1998. Although the U.S. Senate has not ratified the Kyoto
Protocol and no comprehensive regulations focusing on greenhouse gas emissions
have been enacted, efforts to control greenhouse gas emissions could result in
reduced use of coal if electric power generators switch to lower carbon sources
of fuel. These restrictions, if established through regulation or legislation,
could have a material adverse effect on our business, financial condition and
results of operations.
Clean Water Act. The federal Clean Water Act affects coal mining operations
by imposing restrictions on effluent discharge into waters. Regular monitoring,
as well as compliance with reporting requirements and performance standards, are
preconditions for the issuance and renewal of permits governing the discharge of
pollutants into water. We are also subject to Section 404 of the Clean Water
Act, which imposes permitting and mitigation requirements associated with the
dredging and filling of wetlands. The federal Clean Water Act and equivalent
state legislation, where such equivalent state legislation exists, affect coal
mining operations that impact wetlands. We believe we have obtained all
necessary wetlands permits required under Section 404. However, mitigation
requirements under those existing, and possible future, wetlands permits may
vary considerably. For that reason, the setting of accruals for such mitigation
projects is difficult to ascertain with certainty. We believe that we have
obtained all permits required under the Clean Water Act and that compliance with
the Clean Water Act will not materially adversely affect our business, financial
condition and results of operations.
Comprehensive Environmental Response, Compensation and Liability
Act. CERCLA and similar state laws affect coal mining operations by, among other
things, imposing cleanup requirements for threatened or actual releases of
hazardous substances that may endanger public health or welfare or the
environment. Under CERCLA, and similar state laws, joint and several liability
may be imposed on waste generators, site owners and operators and others
regardless of fault or the legality of the original disposal activity. Where the
Environmental Protection Agency deems waste substances generated by coal mining
and processing operations to constitute high volume, but low-risk wastes, it
generally does not regard those wastes to constitute a hazardous substances for
the purposes of CERCLA. However, some products used by coal companies in
operations, such as chemicals, are governed by the statute. Thus, coal mines
that we currently own or have previously owned or operated, and sites to which
we sent waste materials, may be subject to liability under CERCLA and similar
state laws. We have been, from time to time, the subject of administrative
proceedings, litigation and investigations relating to environmental matters,
none of which has had a material adverse effect on our financial condition or
results of operations. However, we cannot assure you that we will not become
involved in future proceedings, litigation or investigations or that these
liabilities will not be material.
Resource Conservation and Recovery Act. The federal Resource Conservation
and Recovery Act affects coal mining operations by imposing requirements for the
generation, transportation, treatment, storage, disposal and cleanup of
hazardous wastes. Although many mining wastes are excluded from the regulatory
definition of hazardous waste, and coal mining operations covered by the Surface
Mining Control and Reclamation Act permits are exempted from regulation under
the Resource Conservation and Recovery Act by statute, the Environmental
Protection Agency may consider the possibility of expanding regulation of mining
wastes under the Resource Conservation and Recovery Act. This expansion could
have a material adverse affect on our results of operations and financial
condition.
Safe Drinking Water Act. The federal Safe Drinking Water Act and its state
equivalents affects coal mining operations by imposing requirements on the
underground injection of fine coal slurries, fly ash, and flue gas scrubber
sludge, and by requiring a permit to conduct such underground injection
activities. While unlikely, the inability to obtain these permits could have a
material impact on our acid mine discharge treatment activities at some of our
underground mines due to the need to inject alkaline materials such as fly ash
or flue gas scrubber sludge as neutralizing agents.
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In addition to establishing the underground injection control program, the
federal Safe Drinking Water Act also imposes regulatory requirements on owners
and operators of "public water systems." This regulatory program could impact
our reclamation operations where subsidence, or other mining-related problems
require the provision of drinking water to affected adjacent homeowners.
However, the federal Safe Drinking Water Act defines a "public water system" for
purposes of regulatory jurisdiction as a system for the provision to the public
of water for human consumption through pipes or other constructed conveyances,
if the system has at least fifteen service connections or regularly serves at
least twenty-five individuals. It is unlikely that any of our reclamation
activities would require the provision of such a "public water system." In
addition, we have at least one drinking water supply well for our employees and
contractors which is subject to Safe Drinking Water Act regulation. Hence, the
federal Safe Drinking Water Act is unlikely to have a material impact on our
operations.
Toxic Substances Control Act. The federal Toxic Substances Control Act
regulates, among other things, electrical equipment containing polychlorinated
biphenyls (PCBs) in excess of 50 parts-per-million. Specifically, the Toxic
Substances Control Act's PCB rules require that all PCB-containing equipment be
properly labeled, stored, and disposed of, and requires the maintenance on-site
of annual records regarding the presence and use of equipment containing PCBs in
excess of 50 parts-per-million. Because the regulated PCB-containing electrical
equipment in use in our operations is owned by the utilities that serve the
operations where they are located, and because the use of PCB-containing fluids
in such equipment is in the process of being phased out, we do not believe the
Toxic Substances Control Act will have a material impact on our operations.
Impact of Possible Changes to Regulatory Status of Coal Combustion
Byproducts Used as Minefill. Pursuant to a consent decree entered into by the
Environmental Protection Agency, the agency is tentatively considering the
option of subjecting to hazardous waste regulatory control the practice of using
coal combustion byproducts as minefill. Such a regulatory classification may
materially impact our reclamation activities due to the use of flyash from some
of our customers' electricity generation plants to neutralize acid mine drainage
and as fill material for reclamation projects. At this time, the Environmental
Protection Agency has noted that it currently lacks sufficient information with
which to assess adequately the risks associated with this practice. Therefore,
the Environmental Practice Agency has solicited comment on whether there are
some minefill practices that are universally poor and warrant specific
attention.
While we cannot predict the ultimate outcome of the Environmental
Protection Agency's assessment, we believe that the beneficial usages of coal
combustion byproducts we employ do not constitute such a universally poor
practice due to, among other things, the fact that our Clean Water Act discharge
permits for treated acid mine drainage contain parameters for pollutants of
concern, such as metals, and those permits require monitoring and reporting of
effluent quality data.
OTHER ENVIRONMENTAL, HEALTH AND SAFETY REGULATION
In addition to the laws and regulations described above, we are subject to
regulations regarding underground and above ground storage tanks where we may
store petroleum or other substances. Some monitoring equipment that we use is
subject to licensing under the federal Atomic Energy Act. Water supply wells
located on our property are subject to federal, state and local regulation. The
costs of compliance with these requirements should not adversely affect our
business, financial condition or results of operations.
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MANAGEMENT
THE MANAGING GENERAL PARTNER WILL MANAGE ALLIANCE RESOURCE PARTNERS
The managing general partner will manage our operations and activities.
Unitholders will not directly or indirectly participate in our management or
operation. The managing general partner owes a fiduciary duty to the
unitholders. The managing general partner and the special general partner will
be liable, as general partners, for all of our debts (to the extent not paid
from our assets), except for indebtedness or other obligations that are made
specifically non-recourse to them. However, whenever possible, the general
partners intend to incur indebtedness or other obligations that are
non-recourse.
At least two members of the board of directors of the managing general
partner will serve on a conflicts committee to review specific matters which the
board believes may involve conflicts of interest. The conflicts committee will
determine if the resolution of the conflict of interest is fair and reasonable
to Alliance Resource Partners. The members of the conflicts committee may not be
officers or employees of the general partners or directors, officers or
employees of their affiliates. Any matters approved by the conflicts committee
will be conclusively deemed to be fair and reasonable to us, approved by all of
our partners, and not a breach by the managing general partner of any duties it
may owe Alliance Resource Partners or our unitholders. In addition, the members
of the conflicts committee will also serve on an audit committee which will
review our external financial reporting, recommend engagement of our independent
auditors and review procedures for internal auditing and the adequacy of our
internal accounting controls. The members of the conflicts committee will also
serve on the compensation committee, which will oversee compensation decisions
for the officers of the managing general partner as well as the compensation
plans described below.
As is commonly the case with publicly-traded limited partnerships, we are
managed and operated by the directors and officers of our managing general
partner. Most of our operational personnel will be employees of Alliance
Resource Partners' subsidiaries.
Some officers of our managing general partner may spend a substantial
amount of time managing the business and affairs of Alliance Resource Holdings
and its affiliates. These officers may face a conflict regarding the allocation
of their time between our business and the other business interests of Alliance
Resource Holdings. Our managing general partner intends to cause its officers to
devote as much time to the management of our business and affairs as is
necessary for the proper conduct of our business and affairs.
DIRECTORS AND EXECUTIVE OFFICERS OF THE MANAGING GENERAL PARTNER
The following table shows information for the directors and executive
officers of the managing general partner. Executive officers and directors are
elected for one-year terms.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE MANAGING GENERAL PARTNER
---- --- ------------------------------------------
<S> <C> <C>
Joseph W. Craft, III............................ 48 President, Chief Executive Officer and Director
Thomas L. Pearson............................... 45 Senior Vice President -- Law and
Administration, General Counsel and Secretary
Michael L. Greenwood............................ 43 Senior Vice President -- Chief Financial
Officer and Treasurer
Charles R. Wesley............................... 45 Senior Vice President -- Operations
Gary J. Rathburn................................ 48 Senior Vice President -- Marketing
John J. MacWilliams............................. 43 Director
Preston R. Miller, Jr. ......................... 50 Director
John P. Neafsey................................. 59 Director
</TABLE>
Joseph W. Craft, III has worked for us since 1980. He is the President and
Chief Executive Officer of our managing general partner, Alliance Resource
Holdings, MAPCO Coal Inc. and various other
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subsidiary corporations. Prior to the formation of Alliance Resource Holdings,
Mr. Craft was Senior Vice President of MAPCO Inc., serving as General Counsel
and Chief Financial Officer and since 1986 President of MAPCO Coal Inc. Prior to
working with us, Mr. Craft was an attorney at Falcon Coal Corporation and
Diamond Shamrock Corporation. Mr. Craft holds a Bachelor of Science degree in
Accounting and a Doctor of Jurisprudence from the University of Kentucky. Mr.
Craft also is a graduate of the Senior Executive program of the Alfred P. Sloan
School of Management at Massachusetts Institute of Technology. Mr. Craft has
held numerous industry leadership positions and is the immediate past Chairman
of the National Coal Council, a Board and Executive Committee member of the
National Mining Association, and a Director of the Center for Energy and
Economic Development.
Thomas L. Pearson is the Senior Vice President -- Law and Administration,
General Counsel and Secretary of our managing general partner and Alliance
Resource Holdings and Senior Vice President -- Law and Administration and
Secretary of MAPCO Coal Inc. and other subsidiary companies. Mr. Pearson has
worked for us since 1989. Prior to the formation of Alliance Resource Holdings,
he was Assistant General Counsel of MAPCO Inc. and served as General Counsel of
MAPCO Coal Inc. from 1989-1996 and has served as secretary since 1989.
Previously, Mr. Pearson was the General Counsel and Secretary of McLouth Steel
Products Corporation, one of the largest integrated steel producers in the
United States; and corporate counsel of Midland-Ross Corporation, a
multi-national company with numerous international joint venture companies and
projects. Prior to working with us, he was a senior associate with Arter &
Hadden in Cleveland, Ohio. In addition to his responsibility at Alliance
Resource Holdings, Mr. Pearson is or has been active in a number of educational,
charitable and business organizations, including the following: Vice Chairman,
Legal Affairs Committee, National Mining Association; Member, Dean's Committee,
University of Iowa College of Law; and Contributions Committee, Greater
Cleveland United Way. Mr. Pearson holds a Bachelor of Arts degree in History and
Communications from DePauw University and a Doctor of Jurisprudence from the
University of Iowa.
Michael L. Greenwood has worked for us since 1986. He is the Senior Vice
President -- Chief Financial Officer and Treasurer of our managing general
partner, Alliance Resource Holdings, MAPCO Coal Inc. and other subsidiary
companies. Prior to the formation of Alliance Resource Holdings, Mr. Greenwood
served in various financial management capacities, including General
Manager -- Finance of MAPCO Coal Inc., General Manager of Planning and Financial
Analysis and Manager -- Mergers and Acquisitions of MAPCO Inc. Prior to working
for us, Mr. Greenwood held financial planning and business development
management positions in the energy industry with Davis Investments, The Williams
Companies and Penn Central Corporation. Mr. Greenwood holds a Bachelor of
Science degree in Business Administration from Oklahoma State University and a
Master of Business Administration degree from the University of Tulsa. Mr.
Greenwood has also completed executive programs at Northwestern University,
Southern Methodist University and The Center for Creative Leadership.
Charles R. Wesley has worked for us since 1974. He is Senior Vice
President -- Operations of our managing general partner, Alliance Resource
Holdings, MAPCO Coal Inc. and various other subsidiary companies. Mr. Wesley
joined the company's Webster County Coal Subsidiary in 1974 as an engineering
co-op student and worked through the ranks to become General Superintendent. In
1992 he became Vice President of Operations for Mettiki Coal Corp. He has held
his position as Senior Vice President of Operations since 1996. Mr. Wesley has
served the industry as past president of the West Kentucky Mining Institute and
National Mine Rescue Association Post 11. He has also served on the board of the
Kentucky Mining Institute. Mr. Wesley holds a Bachelor of Science degree in
Mining Engineering from the University of Kentucky.
Gary J. Rathburn has worked for us since 1980 when he joined MAPCO Coal
Inc. as Manager of Brokerage Coals. He is Senior Vice President -- Marketing of
our managing general partner and Alliance Resource Holdings, MAPCO Coal Inc. and
various other subsidiary companies. Since 1980, Mr. Rathburn has managed all
phases of the marketing group involving transportation and distribution,
international sales and the brokering of coal. Prior to working for us, Mr.
Rathburn was employed by Eastern Associated Coal Corporation in its
International Sales and Brokerage groups for seven years. Mr. Rathburn has been
active in industry groups such as the Maryland Coal Association, North Carolina
Coal Institute and the
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National Mining Association. Mr. Rathburn was a Director of NCA and Chairman of
the Coal Exporters Association for several years. Mr. Rathburn holds a Bachelor
of Arts degree in Political Science from the University of Pittsburgh and has
participated in industry-related programs at the World Trade Institute,
Princeton University and the Colorado School of Mines.
John J. MacWilliams will serve as a director of our managing general
partner. He has been a general partner of The Beacon Group, LP since May 1993.
Prior to the formation of The Beacon Group, Mr. MacWilliams was an Executive
Director of Goldman Sachs International in London, where he was responsible for
heading the firm's International Structured Financing Group. Prior to moving to
London, Mr. MacWilliams was a Vice President in the Investment Banking Division
of Goldman, Sachs & Co. in New York. Prior to joining Goldman Sachs, Mr.
MacWilliams was an attorney at Davis Polk & Wardwell in New York, where he
worked on international bank financings, partnership financings, and mergers and
acquisitions. Mr. MacWilliams is a graduate of Harvard Law School (J.D.),
Massachusetts Institute of Technology (M.S.), and Stanford University (B.A.).
Preston R. Miller, Jr. will serve as a director of our managing general
partner. He has been a general partner of The Beacon Group, LP since June 1993.
Prior to the formation of The Beacon Group, Mr. Miller was employed for fourteen
years by Goldman, Sachs & Co., New York City, New York, where he was a Vice
President in the Structured Finance Group and had global responsibility for the
coverage of the independent power industry and for asset-backed power generation
and oil and gas financings. Mr. Miller also has a background in credit analysis,
and was head of the revenue bond rating group at Standard & Poor's Corp. prior
to joining Goldman Sachs. Mr. Miller is a graduate of Harvard University
(M.P.A.) and Yale University (B.A.).
John P. Neafsey will serve as a director of our managing general partner.
He has served as Chairman of Alliance Resource Holdings since September 1996 and
has served as President of JN Associates, an investment consulting firm, since
January 1994. Prior to the formation of Alliance Resource Holdings, Mr. Neafsey
served as President and CEO of Greenwich Capital Markets and served on its board
of directors since its founding in 1983. In addition, Mr. Neafsey held numerous
other positions during his twenty-three years at The Sun Company, including:
Executive Vice President responsible for Canadian operations, Sun Coal Company
and Helios Capital Corporation; Chief Financial Officer; and other executive
management positions with numerous subsidiary companies. In addition to his
responsibilities at Alliance Resource Holdings, Mr. Neafsey is or has been
active in a number of educational, charitable and business organizations,
including the following: Member of the board of directors of The West Company
and the Provident Mutual Life Insurance Company; Trustee of Cornell University;
Board Member, Crozer-Chester Medical Center, the Drama Guild, and The American
Petroleum Institute. Mr. Neafsey is a graduate of Cornell University
(A.B.S./M.S. (Engineering) and M.B.A. (Finance)).
REIMBURSEMENT OF EXPENSES OF THE MANAGING GENERAL PARTNER
The managing general partner will not receive any management fee or other
compensation for its management of Alliance Resource Partners. The managing
general partner and its affiliates, including Alliance Resource Holdings will be
reimbursed for all expenses incurred on our behalf. These expenses include the
costs of employee, officer and director compensation and benefits properly
allocable to Alliance Resource Partners, and all other expenses necessary or
appropriate to the conduct of the business of, and allocable to, Alliance
Resource Partners. The partnership agreement provides that the managing general
partner will determine the expenses that are allocable to Alliance Resource
Partners in any reasonable manner determined by the managing general partner in
its sole discretion.
EXECUTIVE COMPENSATION
Alliance Resource Partners was formed in May 1999, and the managing general
partner was formed in June 1999. Accordingly, the managing general partner paid
no compensation to its directors and officers with respect to the 1998 fiscal
year. No obligations were accrued in respect of management incentive or
retirement benefits for the directors and officers with respect to the 1998
fiscal year. Officers and employees of the managing general partner may
participate in employee benefit plans and arrangements
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sponsored by the managing general partner or its affiliates, including plans
which may be established by the managing general partner or its affiliates in
the future.
COMPENSATION OF DIRECTORS
No additional remuneration will be paid to officers or employees of the
managing general partner who also serve as directors. The managing general
partner anticipates that each independent director will receive a combination of
cash and units for attending meetings of the board of directors as well as
committee meetings. In addition, each independent director will be reimbursed
for his out-of-pocket expenses in connection with attending meetings of the
board of directors or committees. Each director will be fully indemnified by
Alliance Resource Partners for his actions associated with being a director to
the extent permitted under Delaware law.
EMPLOYMENT AGREEMENTS
The executive officers of the managing general partner and some additional
members of senior management will enter into employment agreements among the
executive officer or member of senior management, on the one hand, and the
managing general partner and Alliance Resource Holdings, on the other, to become
effective upon the consummation of the offering of the common units. We will
reimburse the managing general partner for the compensation and benefits to be
paid under these agreements. This summary of the terms of the employment
agreements does not purport to be complete but outlines their material
provisions. A form of the agreements with each of Messrs. Craft, Pearson,
Greenwood, Wesley and Rathburn is filed as an exhibit to the registration
statement of which this prospectus is a part.
Each of the employment agreements will have an initial term that expires on
December 31, 2001, but will automatically be extended for successive one-year
terms unless either party gives 12 months prior notice to the other party. The
employment agreements provide for a base salary of $292,950, $177,000, $151,400,
$187,000 and $152,000 for Messrs. Craft, Pearson, Greenwood, Wesley and
Rathburn. The employment agreements will provide for continued salary payments,
bonus and benefits for a period of three years, in the case of Mr. Craft, and 18
months, in the case of Messrs. Pearson, Greenwood, Wesley and Rathburn,
following termination of employment, except in the case of a change of control
of the managing general partner.
In the case of a "change of control" as defined in the agreements, in lieu
of the continuation of salary and benefits, that executive will be entitled to a
lump sum payment in an amount equal to three times base salary plus bonus, in
the case of Mr. Craft, and two times base salary plus bonus in the case of
Messrs. Pearson, Greenwood, Wesley and Rathburn. Unless the executive waives his
or her right to the continuation of base salary and bonus, the agreements
provide for a noncompetition period of 18 months. The noncompetition period does
not apply after a change in control. Amounts paid by the managing general
partner pursuant to the employment agreements will be reimbursed by Alliance
Resource Partners.
The executives who are subject to employment agreements will also
participate in the short-term and long-term incentive plans of the managing
general partner described below with other members of management. They will also
be entitled to participate in the other employee benefit plans and programs that
the managing general partner provides for its employees.
LONG-TERM INCENTIVE PLAN
The managing general partner intends to adopt the long-term incentive plan
for employees and directors of the managing general partner and its affiliates
who perform services for us. The summary of the long-term incentive plan
contained herein does not purport to be complete but outlines its material
provisions.
The long-term incentive plan will be administered by the compensation
committee of the managing general partner's board of directors. Annual grant
levels for designated employees will be recommended by the chief executive
officer of the managing general partner, subject to the review and approval of
the compensation committee. We will reimburse the managing general partner for
all payments made pursuant to the programs described below. Grants may be made
either of restricted units, which are "phantom"
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units that entitle the grantee to receive a Common Unit or an equivalent amount
of cash upon the vesting of a phantom unit or options to purchase Common Units.
Common Units to be delivered upon the vesting of restricted units or to be
issued upon exercise of a unit option will be acquired by the managing general
partner in the open market at a price equal to the then-prevailing price on the
principal national securities exchange upon which the common units are then
traded, or directly from Alliance Resource Holdings or any other third party,
including units newly issued by us, or use units already owned by the managing
general partner, or any combination of the foregoing. The managing general
partner will be entitled to reimbursement by us for the cost incurred in
acquiring these common units or in paying cash in lieu of Common Units upon
vesting of the restricted units. If we issue new common units upon payment of
the restricted units or unit options instead of purchasing them, the total
number of common units outstanding will increase. The aggregate number of units
reserved for issuance under the long-term incentive plan is 600,000. We
anticipate making initial grants of up to 138,000 restricted phantom units
following the closing of the offering of the common units to the members of
senior management.
Restricted Units. Restricted units will vest ratably over a three-year
period from the grant date. However, if a grantee's employment is terminated for
any reason prior to the vesting of any restricted units, those restricted units
will be automatically forfeited, unless the compensation committee, in its sole
discretion, provides otherwise. In addition, vested restricted units will not be
payable before the conversion of any subordinated units and will only become
payable upon, and in the same proportion as, the conversion of subordinated
units into common units.
The issuance of the common units pursuant to the restricted unit plan is
intended to serve as a means of incentive compensation for performance and not
primarily as an opportunity to participate in the equity appreciation in respect
of the common units. Therefore, no consideration will be payable by the plan
participants upon receipt of the common units, and we will receive no
remuneration for these units.
Unit Options. Initially, we will not make any grants of unit options. The
compensation committee may, in the future, determine to make option grants to
employees and directors containing the specific terms that they determine. When
granted, unit options will have an exercise price equal to the fair market value
of a common unit on the date of grant. Unit options, if any, granted during the
subordination period will become exercisable upon, and in the same proportions
as, the conversion of the subordinated units to common units, or a later date as
determined by the compensation committee in its sole discretion.
The managing general partner's board of directors, in its discretion, may
terminate the long-term incentive plan at any time with respect to any common
units for which a grant has not theretofore been made. The managing general
partner's board of directors will also have the right to alter or amend the
long-term incentive plan or any part of it from time to time, subject to
unitholder approval as required by the exchange upon which the common units may
be listed at that time; provided, however, that no change in any outstanding
grant may be made that would materially impair the rights of the participant
without the consent of the affected participant. In addition, the managing
general partner may, in its discretion, establish such additional compensation
and incentive arrangements as it deems appropriate to motivate and reward its
employees. The managing general partner will be reimbursed for all compensation
expenses incurred on our behalf.
SHORT-TERM INCENTIVE PLAN
The managing general partner also intends to adopt a short-term incentive
plan for management and other salaried employees. The short-term incentive plan
is designed to enhance the financial performance by rewarding management and
salaried employees with cash awards for achieving an annual financial
performance objective. The annual performance objective for each year will be
recommended by the president of the managing general partner and approved by the
compensation committee of its board of directors prior to January 1 of that
year. The short-term incentive plan will be administered by the compensation
committee. Individual participants and payments each year will be determined by
and in the discretion of the compensation committee, and the managing general
partner will be able to amend the plan at any time. The managing general partner
will be entitled to reimbursement by us for payments and costs incurred under
the short-term incentive plan.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of units that will
be issued upon the consummation of this offering and the related transactions
and held by beneficial owners of 5% or more of the units, by directors of the
managing general partner and by all directors and executive officers of the
managing general partner as a group. The managing general partner is owned by
funds affiliated with The Beacon Group and members of management. The special
general partner is a wholly-owned subsidiary of Alliance Resource Holdings. The
address of Alliance Resource Holdings, Alliance Resource Management GP, LLC and
Alliance Resource GP, LLC is 1717 South Boulder Avenue, Tulsa, Oklahoma 74119.
If the over-allotment option is exercised in full, the special general partner
will own 5,740,375 subordinated units.
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF PERCENTAGE
COMMON COMMON SUBORDINATED SUBORDINATED OF TOTAL
UNITS TO BE UNITS TO BE UNITS TO BE UNITS TO BE UNITS TO BE
BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED OWNED OWNED OWNED OWNED
------------------------ ------------ ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Alliance Resource GP LLC(1)(2).... -- -- 6,413,075 100% 41.7%
Joseph W. Craft, III(1)(3)........ -- -- -- -- --
Thomas L. Pearson(1)(3)........... -- -- -- -- --
Michael L. Greenwood(1)(3)........ -- -- -- -- --
Charles R. Wesley(1)(3)........... -- -- -- -- --
Gary J. Rathburn(1)(3)............ -- --
John J. MacWilliams(4)............ -- -- -- -- --
Preston R. Miller, Jr.(4)......... -- -- -- -- --
John P. Neafsey(1)................ -- -- -- -- --
All directors and executive
officers as a group (8
persons)........................ -- -- -- -- --
</TABLE>
- ---------------
* Less than one percent.
(1) The address of Messrs. Craft, Pearson, Greenwood, Wesley, Rathburn and
Neafsey is also 1717 South Boulder Avenue, Tulsa, Oklahoma 74119.
(2) Alliance Resource Holdings may be deemed to beneficially own the
subordinated units held by the special general partner as a result of
Alliance Resource Holdings' ownership of all of the member interests in the
special general partner. MPC Partners, LP may also be deemed to beneficially
own the subordinated units held by the special general partner as a result
of MPC Partners, LP's ownership of 86.2% of Alliance Resource Holdings's
outstanding common stock. MPC Partners, LP is an affiliate of The Beacon
Group.
(3) We anticipate making initial grants of up to a total of 138,000 restricted
phantom units following the closing of the offering to members of senior
management, including the named executive officers. See
"Management -- Long-term Incentive Plan."
(4) The address of Messrs. MacWilliams and Miller is 399 Park Avenue, New York,
New York 10022.
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The following table sets forth the beneficial ownership of Alliance
Resource Holdings (the sole member of the special general partner) held by
directors and executive officers of the managing general partner as of June 30,
1999. It is currently anticipated that management and the funds managed by The
Beacon Group and its affiliates will purchase ownership interests in the
managing general partner in similar proportion to their holdings in Alliance
Resource Holdings.
<TABLE>
<CAPTION>
ALLIANCE RESOURCE
HOLDINGS
------------------------
SHARES PERCENT
BENEFICIALLY OF
NAME OF BENEFICIAL OWNER OWNED CLASS
------------------------ ------------ -------
<S> <C> <C>
MPC Partners, LP(1) ........................................ 507,870 86.2%
The Beacon Group Investors II, LLC(1)....................... 5,130 *
Joseph W. Craft, III(2)..................................... 28,783 4.9%
Thomas L. Pearson(2)........................................ 4,990 *
Michael L. Greenwood(2)..................................... 3,990 *
Charles R. Wesley(2)........................................ 4,822 *
Gary J. Rathburn(2)......................................... 4,190 *
John J. MacWilliams(3)...................................... 513,000 87.1%
Preston R. Miller, Jr.(3)................................... 513,000 87.1%
John P. Neafsey(2).......................................... 10,758 1.8%
Directors and executive officers as a group (8
persons)(3)............................................... 570,533 96.9%
</TABLE>
- ---------------
* Less than one percent.
(1) The address of MPC Partners, LP and The Beacon Group Investors II, LLC is
399 Park Avenue, New York, New York 10022.
(2) Includes shares subject to options which will be exercised at the completion
of this offering.
(3) Messrs. MacWilliams and Miller may be deemed to share beneficial ownership
of these shares of common stock owned of record by MPC Partners, LP and The
Beacon Group Investors II, LLC by virtue of their status as partners of The
Beacon Group, an affiliate of MPC Partners, LP and The Beacon Group
Investors II, LLC. Messrs. MacWilliams and Miller disclaim beneficial
ownership of the shares of common stock owned by MPC Partners, LP and The
Beacon Group Investors II, LLC.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
After this offering, the special general partner will own 6,413,075
subordinated units representing an aggregate 40.9% limited partner interest in
Alliance Resource Partners, or 35.0% if the underwriters' over-allotment option
is exercised in full. In addition, the general partners will own an aggregate 2%
general partner interest in Alliance Resource Partners, the intermediate
partnership and the subsidiaries on a combined basis. The managing general
partner's ability, as managing general partner, to manage and operate Alliance
Resource Partners and the special general partner's ownership of 6,413,075
subordinated units, effectively gives the general partners the ability to veto
some actions of Alliance Resource Partners and to control the management of
Alliance Resource Partners.
AGREEMENTS GOVERNING THE TRANSACTIONS
Alliance Resource Partners, the general partners, the intermediate
partnership and some other parties will enter into the various documents and
agreements that will effect some transactions, including the vesting of assets
in, and the assumption of liabilities by, the subsidiaries, and the application
of the proceeds of this offering. These agreements will not be the result of
arm's-length negotiations, and we cannot assure you that they, or that any of
the transactions which they provide for, will be effected on terms at least as
favorable to the parties to these agreements as they could have been obtained
from unaffiliated third parties. All of the transaction expenses incurred in
connection with these transactions, including the expenses associated with
vesting assets into our subsidiaries, will be paid from the proceeds of this
offering.
RELATIONSHIP WITH ALLIANCE RESOURCE HOLDINGS
The special general partner will distribute $309.7 million in proceeds
retained or received by it in the transactions described in this prospectus to
Alliance Resources Holdings, which is owned by management and funds managed by
The Beacon Group and its affiliates.
We will have extensive ongoing relationships with Alliance Resource
Holdings and its stockholders. These relationships will include Alliance
Resource Holdings' wholly owned subsidiary, Alliance Resource GP, LLC, which
serves as our special general partner, and the ownership of Alliance Resource
Management GP, LLC, which serves as our managing general partner, by the
stockholders of Alliance Resource Holdings. See "Conflicts of Interest and
Fiduciary Responsibilities -- Conflicts of Interest -- The general partners'
affiliates may compete with Alliance Resource Partners."
In connection with this offering, Alliance Resource Holdings will make
60-day unsecured loans in an aggregate amount of up to $2.5 million at an annual
interest rate of 6.84% to some of the officers and employees of our general
partners and its subsidiaries who will use the funds to purchase common units in
this offering. See "Underwriting".
PURCHASE OF MANAGING GENERAL PARTNER INTEREST
It is anticipated that management and the funds managed by The Beacon Group
and its affiliates will purchase ownership interests in the managing general
partner in similar proportions to their holdings in Alliance Resource Holdings
for approximately $6.3 million. In turn, the managing general partner will
purchase its general partner interest in us for the same amount.
OMNIBUS AGREEMENT
Concurrent with the closing of the offering of the common units, we will
enter into an agreement with Alliance Resource Holdings and the general
partners, which will govern potential competition among us and the other parties
to the agreement. Alliance Resource Holdings will agree, and will cause its
controlled affiliates to agree, for so long as management and funds managed by
The Beacon Group and its affiliates control the managing general partner, not to
engage in the business of mining, marketing or transporting coal in the United
States unless it first offers Alliance Resource Partners the opportunity to
engage in this
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activity or acquire this business, and the board of directors of the managing
general partner, with the concurrence of its conflicts committee, elects to
cause us not to pursue such opportunity or acquisition. In addition, Alliance
Resource Holdings will be able to purchase businesses the majority value of
which is not mining, marketing or transporting coal, provided Alliance Resource
Holdings offers Alliance Resource Partners the opportunity to purchase the coal
assets following their acquisition. The restriction will not apply to the assets
retained and business conducted by Alliance Resource Holdings at the closing of
the offering of common units. Except as provided above, Alliance Resource
Holdings and its controlled affiliates will not be prohibited from engaging in
activities in which they compete directly with us. In addition, The Beacon
Group, and the funds it manages, will not be prohibited from owning or engaging
in businesses which compete with Alliance Resource Partners.
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CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITIES
CONFLICTS OF INTEREST
Conflicts of interest exist and may arise in the future as a result of the
relationships between the general partners and their affiliates (including
Alliance Resource Holdings), on the one hand, and Alliance Resource Partners and
its limited partners, on the other hand. The directors and officers of the
managing general partner and the special general partner have fiduciary duties
to manage each general partner in a manner beneficial to its owners. At the same
time, the general partners have a fiduciary duty to manage Alliance Resource
Partners in a manner beneficial to Alliance Resource Partners and the
unitholders.
The partnership agreement contains provisions that allow the managing
general partner to take into account the interests of parties in addition to
Alliance Resource Partners in resolving conflicts of interest. In effect, these
provisions limit the general partners' fiduciary duties to the unitholders. The
partnership agreement also restricts the remedies available to unitholders for
actions taken that might, without those limitations, constitute breaches of
fiduciary duty. Whenever a conflict arises between a general partner or its
affiliates, on the one hand, and Alliance Resource Partners or any other
partner, on the other, the managing general partner will resolve that conflict.
A conflicts committee of the board of directors of the managing general partner
will, at the request of the managing general partner, review conflicts of
interest. The managing general partner will not be in breach of its obligations
under the partnership agreement or its duties to Alliance Resource Partners or
the unitholders if the resolution of the conflict is considered to be fair and
reasonable to Alliance Resource Partners. Any resolution is considered to be
fair and reasonable to Alliance Resource Partners if that resolution is:
- approved by the conflicts committee, although no party is obligated to
seek approval and the managing general partner may adopt a resolution or
course of action that has not received approval;
- on terms no less favorable to Alliance Resource Partners than those
generally being provided to or available from unrelated third parties; or
- fair to Alliance Resource Partners, taking into account the totality of
the relationships between the parties involved, including other
transactions that may be particularly favorable or advantageous to
Alliance Resource Partners.
In resolving a conflict, the managing general partner may, unless the
resolution is specifically provided for in the partnership agreement, consider:
- the relative interests of the parties involved in the conflict or
affected by the action;
- any customary or accepted industry practices or historical dealings with
a particular person or entity; and
- generally accepted accounting practices or principles and other factors
it considers relevant, if applicable.
Conflicts of interest could arise in the situations described below, among
others:
ACTIONS TAKEN BY THE MANAGING GENERAL PARTNER MAY AFFECT THE AMOUNT OF CASH
AVAILABLE FOR DISTRIBUTION TO UNITHOLDERS OR ACCELERATE THE RIGHT TO CONVERT
SUBORDINATED UNITS.
The amount of cash that is available for distribution to unitholders is
affected by decisions of the managing general partner regarding matters,
including:
- amount and timing of asset purchases and sales;
- cash expenditures;
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- borrowings;
- issuance of additional units; and
- the creation, reduction or increase of reserves in any quarter.
In addition, borrowings by Alliance Resource Partners do not constitute a
breach of any duty owed by the managing general partner to the unitholders,
including borrowings that have the purpose or effect of:
- enabling the general partners to receive distributions on any
subordinated units held by them or the incentive distribution rights; or
- hastening the expiration of the subordination period.
The partnership agreement provides that Alliance Resource Partners, the
intermediate partnership and the subsidiaries may borrow funds from the general
partners and their affiliates. The general partners and their affiliates may not
borrow funds from Alliance Resource Partners, the intermediate partnership or
the subsidiaries.
We will not have any officers or employees and will rely solely on officers
and employees of the managing general partner, affiliates and the employees of
the subsidiaries. Affiliates of the general partners will conduct businesses and
activities of their own in which we will have no economic interest. If these
separate activities are significantly greater than our activities, there could
be material competition for the time and effort of the officers and employees
who provide services to the general partners. The officers of the managing
general partner will not be required to work full time on our affairs. These
officers may devote significant time to the affairs of Alliance Resource
Holdings or its affiliates and will be compensated by these affiliates for the
services rendered to them.
ALLIANCE RESOURCE PARTNERS WILL REIMBURSE THE MANAGING GENERAL PARTNER AND
ITS AFFILIATES FOR EXPENSES.
Alliance Resource Partners will reimburse the managing general partner and
its affiliates for costs incurred in managing and operating Alliance Resource
Partners, including costs incurred in rendering corporate staff and support
services to Alliance Resource Partners. The partnership agreement provides that
the managing general partner will determine the expenses that are allocable to
Alliance Resource Partners in any reasonable manner determined by the managing
general partner in its sole discretion.
THE MANAGING GENERAL PARTNER INTENDS TO LIMIT THE LIABILITY OF THE GENERAL
PARTNERS REGARDING ALLIANCE RESOURCE PARTNERS' OBLIGATIONS.
The managing general partner intends to limit the liability of the general
partners under contractual arrangements so that the other party has recourse
only to all or particular assets of Alliance Resource Partners, and not against
the general partners or their assets. The partnership agreement provides that
any action taken by the managing general partner to limit its liability, or that
of the special general partner or Alliance Resource Partners, is not a breach of
the managing general partners' fiduciary duties, even if we could have obtained
more favorable terms without the limitation on liability.
COMMON UNITHOLDERS WILL HAVE NO RIGHT TO ENFORCE OBLIGATIONS OF THE
MANAGING GENERAL PARTNER AND ITS AFFILIATES UNDER AGREEMENTS WITH ALLIANCE
RESOURCE PARTNERS.
Any agreements between Alliance Resource Partners on the one hand, and the
managing general partner and its affiliates, on the other, will not grant to the
unitholders, separate and apart from Alliance Resource Partners, the right to
enforce the obligations of the managing general partner and its affiliates in
favor of Alliance Resource Partners.
CONTRACTS BETWEEN ALLIANCE RESOURCE PARTNERS, ON THE ONE HAND, AND THE
MANAGING GENERAL PARTNER AND ITS AFFILIATES, ON THE OTHER, WILL NOT BE THE
RESULT OF ARM'S-LENGTH NEGOTIATIONS.
The partnership agreement allows the managing general partner to pay itself
or its affiliates for any services rendered, provided these services are
rendered on terms that are fair and reasonable to us. The managing general
partner may also enter into additional contractual arrangements with any of its
affiliates
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on our behalf. Neither the partnership agreement nor any of the other
agreements, contracts and arrangements between Alliance Resource Partners, on
the one hand, and the managing general partner and its affiliates, on the other,
are or will be the result of arm's-length negotiations.
All of these transactions entered into after the sale of the common units
offered in this offering are to be on terms which are fair and reasonable to
Alliance Resource Partners.
The managing general partner and its affiliates will have no obligation to
permit us to use any facilities or assets of the managing general partner and
its affiliates, except as may be provided in contracts entered into specifically
dealing with that use. There will not be any obligation of the managing general
partner and its affiliates to enter into any contracts of this kind.
COMMON UNITS ARE SUBJECT TO THE MANAGING GENERAL PARTNER'S LIMITED CALL
RIGHT.
The managing general partner may exercise its right to call and purchase
common units as provided in the partnership agreement or assign this right to
one of its affiliates or to us. The managing general partner may use its own
discretion, free of fiduciary duty restrictions, in determining whether to
exercise this right. As a consequence, a common unitholder may have his common
units purchased from him at an undesirable time or price. For a description of
this right, see "The Partnership Agreement -- Limited Call Right."
ALLIANCE RESOURCE PARTNERS MAY NOT CHOOSE TO RETAIN SEPARATE COUNSEL FOR
ITSELF OR FOR THE HOLDERS OF COMMON UNITS.
The attorneys, independent auditors and others who have performed services
for us regarding the offering have been retained by the general partners, their
affiliates and us and may continue to be retained by the general partners, their
affiliates and us after the offering. Attorneys, independent auditors and others
who will perform services for us in the future will be selected by the managing
general partner or the conflicts committee and may also perform services for the
general partners and their affiliates. Alliance Resource Partners may retain
separate counsel for Alliance Resource Partners or the holders of common units
in the event of a conflict of interest arising between the general partners and
their affiliates, on the one hand, the Alliance Resource Partners or the holders
of common units, on the other, after the sale of the common units offered in
this prospectus, depending on the nature of the conflict. Alliance Resource
Partners does not intend to do so in most cases.
THE GENERAL PARTNERS' AFFILIATES MAY COMPETE WITH ALLIANCE RESOURCE
PARTNERS.
The partnership agreement provides that the general partners will be
restricted from engaging in any business activities other than those incidental
to their ownership of interests in Alliance Resource Partners. Alliance Resource
Holdings will agree, and will cause its controlled affiliates to agree, for so
long as management and funds managed by The Beacon Group and its affiliates
control the managing general partner, not to engage in the business of mining,
marketing or transporting coal in the United States unless it first offers us
the opportunity to engage in this activity or acquire this business, and the
board of directors of the managing general partner, with the concurrence of its
conflicts committee, elects to cause us not to pursue such opportunity or
acquisition. In addition, Alliance Resource Holdings will be able to purchase
businesses the majority value of which is not mining, marketing or transporting
coal, provided Alliance Resource Holdings offers us the opportunity to purchase
the coal-related assets following their acquisition. The restriction will not
apply to the assets retained and business conducted by Alliance Resource
Holdings at the closing of the offering of common units. Except as provided
above, Alliance Resource Holdings and its controlled affiliates will not be
prohibited from engaging in activities in which they compete directly with us.
In addition, The Beacon Group, and the funds it manages, will not be prohibited
from owning or engaging in businesses which compete with us.
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FIDUCIARY DUTIES OWED TO UNITHOLDERS BY THE GENERAL PARTNERS ARE PRESCRIBED BY
LAW AND THE PARTNERSHIP AGREEMENT
The general partners are accountable to us and the Alliance Resource
Partners unitholders as fiduciaries. The Delaware Act provides that Delaware
limited partnerships may, in their partnership agreements, restrict or expand
the fiduciary duties owed by general partners to limited partners and the
partnership.
In order to induce the managing general partner to manage the business of
Alliance Resource Partners, the partnership agreement contains various
provisions restricting the fiduciary duties that might otherwise be owed by the
general partners. The following is a summary of the material restrictions of the
fiduciary duties owed by the general partners to the limited partners:
State-law fiduciary duty
standards.................. Fiduciary duties are generally considered to
include an obligation to act with due care and
loyalty. The duty of care, in the absence of a
provision in a partnership agreement providing
otherwise, would generally require a general
partner to act for the partnership in the same
manner as a prudent person would act on their own
behalf. The duty of loyalty, in the absence of a
provision in a partnership agreement providing
otherwise, would generally prohibit a general
partner of a Delaware limited partnership from
taking any action or engaging in any transaction
where a conflict of interest is present.
The Delaware Act generally provides that a limited
partner may institute legal action on our behalf to
recover damages from a third party where a general
partner has refused to institute the action or
where an effort to cause a general partner to do so
is not likely to succeed. In addition, the
statutory or case law of some jurisdictions may
permit a limited partner to institute legal action
on behalf of himself and all other similarly
situated limited partners to recover damages from a
general partner for violations of its fiduciary
duties to the limited partners.
Partnership agreement
modified standards......... The partnership agreement contains provisions that
waive or consent to conduct by the general partners
and their affiliates that might otherwise raise
issues as to compliance with fiduciary duties or
applicable law. For example, the partnership
agreement permits the managing general partner to
make a number of decisions in its "sole
discretion." This entitles the managing general
partner to consider only the interests and factors
that it desires and it shall have no duty or
obligation to give any consideration to any
interest of, or factors affecting, Alliance
Resource Partners, its affiliates or any limited
partner. Other provisions of the partnership
agreement provide that the managing general
partner's actions must be made in its reasonable
discretion. These standards reduce the obligations
to which the managing general partner would
otherwise be held.
The partnership agreement generally provides that
affiliated transactions and resolutions of
conflicts of interest not involving a required vote
of unitholders must be "fair and reasonable" to
Alliance Resource Partners under the factors
previously set forth. In determining whether a
transaction or resolution is "fair and reasonable"
the managing general partner may consider interests
of all parties involved, including its own. Unless
the managing general partner has acted in bad
faith,
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the action taken by the managing general partner
shall not constitute a breach of its fiduciary
duty. These standards reduce the obligations to
which the managing general partner would otherwise
be held.
In addition to the other more specific provisions
limiting the obligations of the general partners,
the partnership agreement further provides that the
general partners and their officers and directors
will not be liable for monetary damages to Alliance
Resource Partners, the limited partners or
assignees for errors of judgment or for any acts or
omissions if the general partners and those other
persons acted in good faith.
In order to become a limited partner of Alliance Resource Partners, a
common unitholder is required to agree to be bound by the provisions in the
partnership agreement, including the provisions discussed above. This is in
accordance with the policy of the Delaware Act favoring the principle of freedom
of contract and the enforceability of partnership agreements. The failure of a
limited partner or assignee to sign a partnership agreement does not render the
partnership agreement unenforceable against that person.
Alliance Resource Partners is required to indemnify the general partners
and their officers, directors, employees, affiliates, partners, members, agents
and trustees, to the fullest extent permitted by law, against liabilities, costs
and expenses incurred by the general partners or these other persons. This
indemnification is required if the general partners or these persons acted in
good faith and in a manner they reasonably believed to be in, or (in the case of
a person other than the general partners) not opposed to, the best interests of
Alliance Resource Partners. Indemnification is required for criminal proceedings
if the general partners or these other persons had no reasonable cause to
believe their conduct was unlawful. Thus, the general partners could be
indemnified for their negligent acts if they met these requirements concerning
good faith and the best interests of Alliance Resource Partners. See "The
Partnership Agreement -- Indemnification."
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DESCRIPTION OF THE COMMON UNITS
Once this offering is complete, the common units will be registered under
the Exchange Act and Alliance Resource Partners will be subject to the reporting
and other requirements of the Exchange Act. Alliance Resource Partners will be
required to file periodic reports containing financial and other information
with the Securities and Exchange Commission.
THE UNITS
The common units and the subordinated units represent limited partner
interests in Alliance Resource Partners. The holders of units are entitled to
participate in partnership distributions and exercise the rights or privileges
available to limited partners under the Alliance Resource Partners partnership
agreement. For a description of the relative rights and preferences of holders
of common units and subordinated units in and to partnership distributions, see
"Cash Distribution Policy" and "Description of Subordinated Units." For a
description of the rights and privileges of limited partners under the Alliance
Resource Partners partnership agreement, see "The Partnership Agreement."
TRANSFER AGENT AND REGISTRAR
Duties
American Stock Transfer & Trust Company will serve as registrar and
transfer agent for the common units and will receive a fee from Alliance
Resource Partners. All fees charged by the transfer agent for transfers of
common units will be borne by Alliance Resource Partners, except the following
will be paid by unitholders:
- surety bond premiums to replace lost or stolen certificates, taxes and
other governmental charges;
- special charges for services requested by a holder of a common unit; and
- other similar fees or charges.
There will be no charge to holders for disbursements of Alliance Resource
Partners cash distributions. Alliance Resource Partners will indemnify the
transfer agent, its agents and each of their shareholders, directors, officers
and employees against all claims and losses that may arise out of acts performed
or omitted for its activities in that capacity, except for any liability due to
any gross negligence or intentional misconduct of the indemnified person or
entity.
Resignation or Removal
The transfer agent may at any time resign, by notice to us, or be removed
by us. The resignation or removal of the transfer agent will become effective
upon the appointment by Alliance Resource Partners of a successor transfer agent
and registrar and its acceptance of the appointment. If no successor has been
appointed and accepted the appointment within 30 days after notice of the
resignation or removal, the managing general partner is authorized to act as the
transfer agent and registrar until a successor is appointed.
TRANSFER OF COMMON UNITS
The transfer of the common units to persons that purchase directly from the
underwriters will be accomplished through the completion, execution and delivery
of a transfer application by the investor. Any later transfers of a common unit
will not be recorded by the transfer agent or recognized by Alliance Resource
Partners unless the transferee executes and delivers a transfer application. The
form of transfer application is set forth as Appendix B to this prospectus and
is also set forth on the reverse side of the
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certificates representing units. By executing and delivering a transfer
application, the transferee of common units:
(1) becomes the record holder of the common units and is an assignee
until admitted into Alliance Resource Partners as a substituted limited
partner;
(2) automatically requests admission as a substituted limited partner
in Alliance Resource Partners;
(3) agrees to be bound by the terms and conditions of, and executes,
the Alliance Resource Partners partnership agreement;
(4) represents that the transferee has the capacity, power and
authority to enter into the partnership agreement;
(5) grants powers of attorney to officers of the managing general
partner and any liquidator of Alliance Resource Partners as specified in
the partnership agreement; and
(6) makes the consents and waivers contained in the partnership
agreement.
An assignee will become a substituted limited partner of Alliance Resource
Partners for the transferred common units upon the consent of the managing
general partner and the recording of the name of the assignee on the books and
records of Alliance Resource Partners. The managing general partner may withhold
its consent in its sole discretion.
Transfer applications may be completed, executed and delivered by a
transferee's broker, agent or nominee. Alliance Resource Partners is entitled to
treat the nominee holder of a common unit as the absolute owner. In that case,
the beneficial holders' rights are limited solely to those that it has against
the nominee holder as a result of any agreement between the beneficial owner and
the nominee holder.
Common units are securities and are transferable according to the laws
governing transfer of securities. In addition to other rights acquired upon
transfer, the transferor gives the transferee the right to request admission as
a substituted limited partner in Alliance Resource Partners for the transferred
common units. A purchaser or transferee of common units who does not execute and
deliver a transfer application obtains only:
- the right to assign the common unit to a purchaser or other transferee;
and
- the right to transfer the right to seek admission as a substituted
limited partner in Alliance Resource Partners for the transferred common
units.
Thus, a purchaser or transferee of common units who does not execute and
deliver a transfer application:
- will not receive cash distributions or federal income tax allocations,
unless the common units are held in a nominee or "street name" account
and the nominee or broker has executed and delivered a transfer
application; and
- may not receive some federal income tax information or reports furnished
to record holders of common units.
The transferor of common units will have a duty to provide the transferee
with all information that may be necessary to transfer the common units. The
transferor will not have a duty to insure the execution of the transfer
application by the transferee and will have no liability or responsibility if
the transferee neglects or chooses not to execute and forward the transfer
application to the transfer agent. See "The Partnership Agreement -- Status as
Limited Partner or Assignee."
Until a common unit has been transferred on the books of Alliance Resource
Partners, Alliance Resource Partners and the transfer agent, notwithstanding any
notice to the contrary, may treat the record holder of the unit as the absolute
owner for all purposes, except as otherwise required by law or stock exchange
regulations.
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DESCRIPTION OF THE SUBORDINATED UNITS
The subordinated units are a separate class of limited partner interests in
Alliance Resource Partners, and the rights of holders to participate in
distributions to partners differ from, and are subordinated to, the rights of
the holders of common units. For any given quarter, any Available Cash will
first be distributed to the general partners and to the holders of common units,
until the holders of common units have received the minimum quarterly
distribution plus any arrearages, and then will be distributed to the holders of
subordinated units. See "Cash Distribution Policy."
CONVERSION OF SUBORDINATED UNITS
The subordination period will generally extend from the closing of this
offering until the first day of any quarter beginning after September 30, 2004
in which each of the following events occur:
(1) distributions of Available Cash from Operating Surplus on the
common units and the subordinated units equal or exceed the sum of the
minimum quarterly distributions on all of the outstanding common units and
subordinated units for each of the three non-overlapping four-quarter
periods immediately preceding that date;
(2) the Adjusted Operating Surplus generated during each of the three
immediately preceding non-overlapping four-quarter periods equals or
exceeds the sum of the minimum quarterly distributions on all of the
outstanding common units and subordinated units during those periods on a
fully diluted basis and the related distribution on the 2% general partner
interest during those periods; and
(3) there are no arrearages in payment of the minimum quarterly
distribution on the common units.
Before the end of the subordination period, half of the subordinated units
(up to 3,206,538 subordinated units) will convert into common units on a
one-for-one basis on the first day after the record date established for the
distribution for any quarter ending on or after September 30, 2003, if at the
end of the applicable quarter each of the following three events occurs:
(1) distributions of Available Cash from Operating Surplus on the
common units and the subordinated units equal or exceed the sum of the
minimum quarterly distributions on all of the outstanding common units and
subordinated units for each of the three non-overlapping four-quarter
periods immediately preceding that date;
(2) the Adjusted Operating Surplus generated during each of the two
immediately preceding non-overlapping four-quarter periods equals or
exceeds 110% of the sum of the minimum quarterly distributions on all of
the outstanding common units and subordinated units during those periods on
a fully diluted basis and the related distribution on the 2% general
partner interest during those periods; and
(3) there are no arrearages in payment of the minimum quarterly
distribution on the common units.
For purposes of determining whether the criteria in each clause (2) above
has been satisfied, Adjusted Operating Surplus will be adjusted upwards or
downwards if the conflicts committee of the board of directors of the managing
general partner determines in good faith that the estimated amount of
maintenance capital expenditures used in the determination of Adjusted Operating
Surplus in either clause (2) was materially incorrect, based on circumstances
prevailing at the time of original determination of the estimate for any one or
more of the preceding three four-quarter periods.
Upon expiration of the subordination period, all remaining subordinated
units will convert into common units on a one-for-one basis and will then
participate, pro rata, with the other common units in distributions of Available
Cash. In addition, if the managing general partner is removed as managing
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general partner of Alliance Resource Partners under circumstances where cause
does not exist and units held by the general partners and their affiliates are
not voted in favor of that removal:
(1) the subordination period will end and all outstanding subordinated
units will immediately convert into common units on a one-for-one basis;
(2) any existing arrearages in payment of the minimum quarterly
distribution on the common units will be extinguished; and
(3) the managing general partner will have the right to convert its
general partner interest and its incentive distribution rights into common
units or to receive cash in exchange for those interests.
LIMITED VOTING RIGHTS
Holders of subordinated units will sometimes vote as a single class
together with the common units and sometimes vote as a class separate from the
holders of common units and, as in the case of holders of common units, will
have very limited voting rights. During the subordination period, common units
and subordinated units each vote separately as a class on the following matters:
(1) a sale or exchange of all or substantially all of our assets;
(2) the election of a successor managing general partner in connection
with the removal of the managing general partner;
(3) a dissolution or reconstitution of Alliance Resource Partners;
(4) a merger of Alliance Resource Partners;
(5) issuance of limited partner interests in some circumstances; and
(6) some amendments to the partnership agreement, including any
amendment that would cause Alliance Resource Partners to be treated as an
association taxable as a corporation.
The subordinated units are not entitled to vote on approval of the withdrawal of
the managing general partner or the transfer by the managing general partner of
its managing general partner interest or incentive distribution rights under
some circumstances. Removal of the managing general partner requires:
- a two-thirds vote of all outstanding units voting as a single class; and
- the election of a successor managing general partner by the holders of a
majority of the outstanding common units and subordinated units, voting
as separate classes.
Under the partnership agreement, the managing general partner generally will be
permitted to effect amendments to the partnership agreement that do not
materially adversely affect unitholders without the approval of any unitholders.
DISTRIBUTIONS UPON LIQUIDATION
If Alliance Resource Partners liquidates during the subordination period,
in some circumstances holders of outstanding common units will be entitled to
receive more per unit in liquidating distributions than holders of outstanding
subordinated units. The per unit difference will be dependent upon the amount of
gain or loss recognized by Alliance Resource Partners in liquidating its assets.
Following conversion of the subordinated units into common units, all units will
be treated the same upon liquidation of Alliance Resource Partners.
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THE PARTNERSHIP AGREEMENT
The following is a summary of the material provisions of the Alliance
Resource Partners partnership agreement. The form of the partnership agreement
is included in this prospectus as Appendix A. The form of partnership agreement
of the intermediate partnership is included as an exhibit to the registration
statement of which this prospectus constitutes a part. Alliance Resource
Partners will provide prospective investors with a copy of the forms of these
agreements upon request at no charge. Unless the context otherwise requires,
references in this prospectus to the "partnership agreement" constitute
references to the partnership agreement of Alliance Resource Partners and the
partnership agreement of the intermediate partnership, collectively.
The following provisions of the partnership agreement are summarized
elsewhere in this prospectus.
- With regard to the transfer of common units, see "Description of the
Common Units -- Transfer of Common Units."
- With regard to distributions of Available Cash, see "Cash Distribution
Policy."
- With regard to allocations of taxable income and taxable loss, see "Tax
Considerations."
ORGANIZATION AND DURATION
Alliance Resource Partners was organized in May, 1999. Alliance Resource
Partners will dissolve on December 31, 2098 unless sooner dissolved under the
terms of the partnership agreement.
PURPOSE
Our purpose under the partnership agreement is limited to serving as the
limited partner of the intermediate partnership and engaging in any business
activities that may be engaged in by the intermediate partnership or that is
approved by the managing general partner. The partnership agreement of the
intermediate partnership provides that the intermediate partnership may,
directly or indirectly, engage in:
(1) their operations as conducted immediately before the offering;
(2) any other activity approved by the managing general partner but
only to the extent that the managing general partner reasonably determines
that, as of the date of the acquisition or commencement of the activity,
the activity generates "qualifying income" as this term is defined in
Section 7704 of the Internal Revenue Code; or
(3) any activity that enhances the operations of an activity that is
described in (1) or (2) above.
Although the managing general partner has the ability to cause Alliance
Resource Partners, the intermediate partnership and the operating subsidiary to
engage in activities other than the production and marketing of coal, the
managing general partner has no current plans to do so. The managing general
partner is authorized in general to perform all acts deemed necessary to carry
out our purposes and to conduct our business.
POWER OF ATTORNEY
Each limited partner, and each person who acquires a unit from a unitholder
and executes and delivers a transfer application, grants to the managing general
partner and, if appointed, a liquidator, a power of attorney to, among other
things, execute and file documents required for the qualification, continuance
or dissolution of Alliance Resource Partners. The power of attorney also grants
the authority for the amendment of, and to make consents and waivers under, the
partnership agreement.
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CAPITAL CONTRIBUTIONS
For a description of the initial capital contributions to be made to us,
see "Prospectus Summary -- The Transactions." Unitholders are not obligated to
make additional capital contributions, except as described below under
"-- Limited Liability."
LIMITED LIABILITY
Assuming that a limited partner does not participate in the control of our
business within the meaning of the Delaware Revised Uniform Limited Partnership
Act and that he otherwise acts in conformity with the provisions of the
partnership agreement, his liability under the Delaware Act will be limited,
subject to possible exceptions, to the amount of capital he is obligated to
contribute to us for his common units plus his share of any undistributed
profits and assets. If it were determined, however, that the right or exercise
of the right by the limited partners as a group:
- to remove or replace the general partners;
- to approve some amendments to the partnership agreement; or
- to take other action under the partnership agreement;
constituted "participation in the control" of our business for the purposes of
the Delaware Act, then the limited partners could be held personally liable for
our obligations under the laws of Delaware, to the same extent as the general
partners. This liability would extend to persons who transacts business with us
who reasonably believe that the limited partner is a general partner. Neither
the partnership agreement nor the Delaware Act specifically provides for legal
recourse against the general partners if a limited partner were to lose limited
liability through any fault of the general partners. While this does not mean
that a limited partner could not seek legal recourse, we have found no precedent
for this type of a claim in Delaware case law.
Under the Delaware Act, a limited partnership may not make a distribution
to a partner if after the distribution, all liabilities of the limited
partnership, other than liabilities to partners on account of their partnership
interests and liabilities for which the recourse of creditors is limited to
specific property of the partnership, exceed the fair value of the assets of the
limited partnership. For the purpose of determining the fair value of the assets
of a limited partnership, the Delaware Act provides that the fair value of
property subject to liability for which recourse of creditors is limited shall
be included in the assets of the limited partnership only to the extent that the
fair value of that property exceeds the nonrecourse liability. The Delaware Act
provides that a limited partner who receives a distribution and knew at the time
of the distribution that the distribution was in violation of the Delaware Act
shall be liable to the limited partnership for the amount of the distribution
for three years. Under the Delaware Act, an assignee who becomes a substituted
limited partner of a limited partnership is liable for the obligations of his
assignor to make contributions to the partnership, except the assignee is not
obligated for liabilities unknown to him at the time he became a limited partner
and which could not be ascertained from the partnership agreement.
Our subsidiaries will initially conduct business in five states.
Maintenance of limited liability for Alliance Resource Partners, as a limited
partner of the intermediate partnership, may require compliance with legal
requirements in the jurisdictions in which the intermediate partnership conducts
business, including qualifying our subsidiaries to do business there.
Limitations on the liability of limited partners for the obligations of a
limited partner have not been clearly established in many jurisdictions. If it
were determined that we were, by virtue of our limited partner interest in the
intermediate partnership or otherwise, conducting business in any state without
compliance with the applicable limited partnership or limited liability company
statute, or that the right or exercise of the right by the limited partners as a
group to remove or replace the general partners, to approve some amendments to
the partnership agreement, or to take other action under the partnership
agreement constituted "participation in the control" of our business for
purposes of the statutes of any relevant jurisdiction, then the limited partners
could be held personally liable for our obligations under the law of that
jurisdiction to the same extent as
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the general partners under the circumstances. We will operate in a manner as the
managing general partner considers reasonable and necessary or appropriate to
preserve the limited liability of the limited partners.
ISSUANCE OF ADDITIONAL SECURITIES
The partnership agreement authorizes us to issue an unlimited number of
additional limited partner interests and other equity securities for the
consideration and on the terms and conditions established by the managing
general partner in its sole discretion without the approval of any limited
partners. During the subordination period, however, except as set forth in the
following paragraph, we may not issue equity securities ranking senior to the
common units or an aggregate of more than 4,484,668 additional common units or
units on a parity with the common units, in each case, without the approval of
the holders of a majority of the outstanding common units and subordinated
units, voting as separate classes.
During the subordination period or thereafter, we may issue an unlimited
number of common units as follows:
(1) upon exercise of the underwriters' overallotment option;
(2) upon conversion of the subordinated units;
(3) under employee benefit plans;
(4) upon conversion of the general partner interests and incentive
distribution rights as a result of a withdrawal of the general partners;
(5) in the event of a combination or subdivision of common units;
(6) to finance an acquisition or a capital improvement that would have
resulted, on a pro forma basis, in an increase in Adjusted Operating
Surplus on a per unit basis for the preceding four-quarter period; or
(7) to repay up to $40 million of debt, provided that the interest
cost of such debt is greater than the cost of the additional distributions
which would have been made on the newly issued units had these units been
outstanding for the prior four-quarter period.
It is possible that we will fund acquisitions through the issuance of
additional common units or other equity securities. Holders of any additional
common units we issue will be entitled to share equally with the then-existing
holders of common units in our distributions of Available Cash. In addition, the
issuance of additional partnership interests may dilute the value of the
interests of the then-existing holders of common units in our net assets.
In accordance with Delaware law and the provisions of the partnership
agreement, we may also issue additional partnership securities interests that,
in the sole discretion of the managing general partner, may have special voting
rights to which the common units are not entitled.
Upon issuance of additional partnership securities, other than upon
exercise of the underwriters' over-allotment option, the general partners will
be required to make additional capital contributions to the extent necessary to
maintain their combined 2% general partner interest in us, the intermediate
partnership and the operating subsidiary. Moreover, the general partners will
have the right, which they may from time to time assign in whole or in part to
any of their affiliates, to purchase common units, subordinated units or other
equity securities whenever, and on the same terms that, we issue those
securities to persons other than the general partners and their affiliates, to
the extent necessary to maintain their percentage interest, including their
interest represented by common units and subordinated units, that existed
immediately prior to each issuance. The holders of common units will not have
preemptive rights to acquire additional common units or other partnership
interests.
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AMENDMENT OF THE PARTNERSHIP AGREEMENT
Amendments to the partnership agreement may be proposed only by or with the
consent of the managing general partner, which consent may be given or withheld
in its sole discretion. In order to adopt a proposed amendment, other than the
amendments discussed below, the managing general partner is required to seek
written approval of the holders of the number of units required to approve the
amendment or call a meeting of the limited partners to consider and vote upon
the proposed amendment except as described below.
Prohibited Amendments. No amendment may be made that would:
(1) enlarge the obligations of any limited partner without its
consent, unless approved by at least a majority of the type or class of
limited partner interests so affected;
(2) enlarge the obligations of, restrict in any way any action by or
rights of, or reduce in any way the amounts distributable, reimbursable or
otherwise payable by Alliance Resource Partners to either of the general
partners or any of their affiliates without the consent of the affected
general partner, which may be given or withheld in its sole discretion;
(3) change the term of Alliance Resource Partners;
(4) provide that Alliance Resource Partners is not dissolved upon the
expiration of its term or upon an election to dissolve Alliance Resource
Partners by the managing general partner that is approved by the holders of
a majority of the outstanding common units and subordinated units, voting
as separate classes; or
(5) give any person the right to dissolve Alliance Resource Partners
other than the managing general partner's right to dissolve Alliance
Resource Partners with the approval of the holders of a majority of the
outstanding common units and subordinated units, voting as separate
classes.
The provision of the partnership agreement preventing the amendments having the
effects described in clauses (1) - (5) above can be amended upon the approval of
the holders of at least 90% of the outstanding units voting together as a single
class.
No Unitholder Approval. The managing general partner may generally make
amendments to the partnership agreement without the approval of any limited
partner or assignee to reflect:
(1) a change in the name of Alliance Resource Partners, the location
of the principal place of business of Alliance Resource Partners, the
registered agent or the registered office of Alliance Resource Partners;
(2) the admission, substitution, withdrawal or removal of partners in
accordance with the partnership agreement;
(3) a change that, in the sole discretion of the managing general
partner, is necessary or advisable to qualify or continue the qualification
of Alliance Resource Partners as a limited partnership or a partnership in
which the limited partners have limited liability under the laws of any
state or to ensure that none of Alliance Resource Partners, the
intermediate partnership nor the operating subsidiary will be treated as an
association taxable as a corporation or otherwise taxed as an entity for
federal income tax purposes;
(4) an amendment that is necessary, in the opinion of counsel to
Alliance Resource Partners, to prevent Alliance Resource Partners or the
managing general partner or its directors, officers, agents or trustees,
from in any manner being subjected to the provisions of the Investment
Company Act of 1940, the Investment Advisors Act of 1940, or "plan asset"
regulations adopted under the Employee Retirement Income Security Act of
1974, whether or not substantially similar to plan asset regulations
currently applied or proposed;
(5) subject to the limitations on the issuance of additional common
units or other limited or general partner interests described above, an
amendment that in the discretion of the managing
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general partner is necessary or advisable for the authorization of
additional limited or general partner interests;
(6) any amendment expressly permitted in the partnership agreement to
be made by the managing general partner acting alone;
(7) an amendment effected, necessitated or contemplated by a merger
agreement that has been approved under the terms of the partnership
agreement;
(8) any amendment that, in the discretion of the managing general
partner, is necessary or advisable for the formation by Alliance Resource
Partners of, or its investment in, any corporation, partnership or other
entity, as otherwise permitted by the partnership agreement;
(9) a change in the fiscal year or taxable year of Alliance Resource
Partners and related changes; and
(10) any other amendments substantially similar to any of the matters
described in (1) - (9) above.
In addition, the managing general partner may make amendments to the
partnership agreement without the approval of any limited partner or assignee if
those amendments, in the discretion of the managing general partner:
(1) do not adversely affect the limited partners in any material
respect;
(2) are necessary or advisable to satisfy any requirements, conditions
or guidelines contained in any opinion, directive, order, ruling or
regulation of any federal or state agency or judicial authority or
contained in any federal or state statute;
(3) are necessary or advisable to facilitate the trading of limited
partner interests or to comply with any rule, regulation, guideline or
requirement of any securities exchange on which the limited partner
interests are or will be listed for trading, compliance with any of which
the managing general partner deems to be in the best interests of Alliance
Resource Partners and the limited partners;
(4) are necessary or advisable for any action taken by the managing
general partner relating to splits or combinations of units under the
provisions of the partnership agreement; or
(5) are required to effect the intent expressed in this prospectus or
the intent of the provisions of the partnership agreement or are otherwise
contemplated by the partnership agreement.
Opinion of Counsel and Unitholder Approval. The managing general partner
will not be required to obtain an opinion of counsel that an amendment will not
result in a loss of limited liability to the limited partners or result in
Alliance Resource Partners being treated as an entity for federal income tax
purposes if one of the amendments described above under "-- No Unitholder
Approval" should occur. No other amendments to the partnership agreement will
become effective without the approval of holders of at least 90% of the units
unless Alliance Resource Partners obtains an opinion of counsel to the effect
that the amendment will not affect the limited liability under applicable law of
any limited partner in Alliance Resource Partners or cause Alliance Resource
Partners, the intermediate partnership or the operating subsidiary to be taxable
as a corporation or otherwise to be taxed as an entity for federal income tax
purposes (to the extent not previously taxed as such).
Any amendment that would have a material adverse effect on the rights or
preferences of any type or class of outstanding units in relation to other
classes of units will require the approval of at least a majority of the type or
class of units so affected. Any amendment that reduces the voting percentage
required to take any action is required to be approved by the affirmative vote
of limited partners constituting not less than the voting requirement sought to
be reduced.
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MERGER, SALE OR OTHER DISPOSITION OF ASSETS
The managing general partner is generally prohibited, without the prior
approval of the holders of a majority of the outstanding common units and
subordinated units, voting as separate classes, from causing Alliance Resource
Partners to, among other things, sell, exchange or otherwise dispose of all or
substantially all of its assets in a single transaction or a series of related
transactions, including by way of merger, consolidation or other combination, or
approving on behalf of Alliance Resource Partners the sale, exchange or other
disposition of all or substantially all of the assets of the subsidiaries;
provided that the managing general partner may mortgage, pledge, hypothecate or
grant a security interest in all or substantially all of Alliance Resource
Partners' assets without that approval. The managing general partner may also
sell all or substantially all of Alliance Resource Partners' assets under a
foreclosure or other realization upon the encumbrances above without that
approval. Furthermore, provided that conditions specified in the partnership
agreement are satisfied, the managing general partner may merge Alliance
Resource Partners or any of its subsidiaries into, or convey some or all of
their assets to, a newly formed entity if the sole purpose of that merger or
conveyance is to effect a mere change in the legal form of Alliance Resource
Partners into another limited liability entity. The unitholders are not entitled
to dissenters' rights of appraisal under the partnership agreement or applicable
Delaware law in the event of a merger or consolidation, a sale of substantially
all of Alliance Resource Partners' assets or any other transaction or event.
TERMINATION AND DISSOLUTION
We will continue until December 31, 2098, unless terminated sooner under
the partnership agreement. We will dissolve upon:
(1) the election of the managing general partner to dissolve us, if
approved by the holders of a majority of the outstanding common units and
subordinated units, voting as separate classes;
(2) the sale, exchange or other disposition of all or substantially
all of the assets and properties of Alliance Resource Partners and the
subsidiaries;
(3) the entry of a decree of judicial dissolution of Alliance Resource
Partners; or
(4) the withdrawal or removal of the managing general partner or any
other event that results in its ceasing to be the managing general partner
other than by reason of a transfer of its general partner interest in
accordance with the partnership agreement or withdrawal or removal
following approval and admission of a successor.
Upon a dissolution under clause (4), the holders of a majority of the
outstanding common units and subordinated units, voting as separate classes, may
also elect, within specific time limitations, to reconstitute Alliance Resource
Partners and continue its business on the same terms and conditions described in
the partnership agreement by forming a new limited partnership on terms
identical to those in the partnership agreement and having as managing general
partner an entity approved by the holders of a majority of the outstanding
common units and subordinated units, voting as separate classes, subject to
receipt by Alliance Resource Partners of an opinion of counsel to the effect
that:
(1) the action would not result in the loss of limited liability of
any limited partner; and
(2) neither Alliance Resource Partners, the reconstituted limited
partnership, nor the operating subsidiary would be treated as an
association taxable as a corporation or otherwise be taxable as an entity
for federal income tax purposes upon the exercise of that right to
continue.
LIQUIDATION AND DISTRIBUTION OF PROCEEDS
Upon our dissolution, unless we are reconstituted and continued as a new
limited partnership, the liquidator authorized to wind up our affairs will,
acting with all of the powers of the managing general partner that the
liquidator deems necessary or desirable in its judgment, liquidate our assets
and apply the proceeds of the liquidation as provided in "Cash Distribution
Policy -- Distributions of Cash upon Liquidation." The liquidator may defer
liquidation or distribution of our assets for a reasonable period of
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time or distribute assets to partners in kind if it determines that a sale would
be impractical or would cause undue loss to the partners.
WITHDRAWAL OR REMOVAL OF THE GENERAL PARTNERS
Except as described below, our managing general partner has agreed not to
withdraw voluntarily as managing general partner of either Alliance Resource
Partners or the intermediate partnership or as the managing member of the
operating subsidiary prior to September 30, 2009 without obtaining the approval
of the holders of at least a majority of the outstanding common units, excluding
common units held by the general partners and their affiliates, and furnishing
an opinion of counsel regarding limited liability and tax matters. On or after
September 30, 2009, our managing general partner may withdraw as managing
general partner without first obtaining approval of any unitholder by giving 90
days' written notice, and that withdrawal will not constitute a violation of the
partnership agreement. Notwithstanding the information above, our managing
general partner may withdraw without unitholder approval upon 90 days' notice to
the limited partners if at least 50% of the outstanding common units are held or
controlled by one person and its affiliates other than the general partners and
their affiliates. Our special general partner may withdraw as a general partner
without unitholder approval at any time upon 90 day's written notice and
furnishing an opinion of counsel regarding limited liability and tax matters. In
addition, the partnership agreement permits the general partners in some
instances to sell or otherwise transfer all of their general partner interests
in Alliance Resource Partners without the approval of the unitholders. See
"-- Transfer of General Partner Interest and Incentive Distribution Rights." Our
special general partner shall withdraw as a general partner at any time after a
transfer of its general partner interest upon obtaining the consent of the
managing general partner. If our special general partner is removed or withdraws
and no successor is appointed, the managing general partner will continue the
business of Alliance Resource Partners.
Upon the withdrawal of the managing general partner under any
circumstances, other than as a result of a transfer by the managing general
partner of all or a part of its general partner interest in Alliance Resource
Partners, the holders of a majority of the outstanding common units and
subordinated units, voting as separate classes, may select a successor to that
withdrawing managing general partner. If a successor is not elected, or is
elected but an opinion of counsel regarding limited liability and tax matters
cannot be obtained, Alliance Resource Partners will be dissolved, wound up and
liquidated, unless within 180 days after that withdrawal, the holders of a
majority of the outstanding common units and subordinated units, voting as
separate classes, agree in writing to continue the business of Alliance Resource
Partners and to appoint a successor managing general partner. See
"-- Termination and Dissolution."
Neither the managing general partner nor the special general partner may be
removed unless that removal is approved by the vote of the holders of not less
than 66 2/3% of the outstanding units, including units held by the general
partners and their affiliates, and Alliance Resource Partners receives an
opinion of counsel regarding limited liability and tax matters. Any removal of
the managing general partner is also subject to the approval of a successor
managing general partner by the vote of the holders of a majority of the
outstanding common units and subordinated units, voting as separate classes. The
ownership of an aggregate of 41.7% of the outstanding units by the special
general partner gives it the practical ability to prevent its removal and the
removal of the managing general partner.
The partnership agreement also provides that if the managing general
partner is removed as a general partner of Alliance Resource Partners under
circumstances where cause does not exist and units held by the general partners
and their affiliates are not voted in favor of that removal:
(1) the subordination period will end and all outstanding subordinated
units will immediately convert into common units on a one-for-one basis;
(2) any existing arrearages in payment of the minimum quarterly
distribution on the common units will be extinguished; and
(3) the managing general partner will have the right to convert its
general partner interest and its incentive distribution rights into common
units or to receive cash in exchange for those interests.
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Withdrawal or removal of the managing general partner as a general partner
of Alliance Resource Partners also constitutes withdrawal or removal, as the
case may be, of the managing general partner as the managing general partner of
the intermediate partnership and as managing member of the operating subsidiary.
In the event of removal of a general partner under circumstances where
cause exists or withdrawal of a general partner where that withdrawal violates
the partnership agreement, a successor general partner will have the option to
purchase the general partner interests and incentive distribution rights of the
departing general partner for a cash payment equal to the fair market value of
those interests. Under all other circumstances where a general partner withdraws
or is removed by the limited partners, the departing general partner will have
the option to require the successor general partner to purchase the general
partner interests of the departing general partner and its incentive
distribution rights for the fair market value. In each case, this fair market
value will be determined by agreement between the departing general partner and
the successor general partner. If no agreement is reached, an independent
investment banking firm or other independent expert selected by the departing
general partner and the successor general partner will determine the fair market
value. Or, if the departing general partner and the successor general partner
cannot agree upon an expert, then an expert chosen by agreement of the experts
selected by each of them will determine the fair market value.
If the above-described option is not exercised by either the departing
general partner or the successor general partner, the departing general
partner's general partner interest and its incentive distribution rights will
automatically convert into common units equal to the fair market value of those
interests as determined by an investment banking firm or other independent
expert selected in the manner described in the preceding paragraph.
In addition, Alliance Resource Partners will be required to reimburse the
departing general partner for all amounts due the departing general partner,
including, without limitation, all employee-related liabilities, including
severance liabilities, incurred for the termination of any employees employed by
the departing general partner for the benefit of Alliance Resource Partners.
TRANSFER OF GENERAL PARTNER INTERESTS AND INCENTIVE DISTRIBUTION RIGHTS
Except for transfer by either general partner of all, but not less than
all, of its general partner interests in Alliance Resource Partners and the
intermediate partnership and the managing interest in the operating subsidiary
to:
(a) an affiliate of either general partner; or
(b) another person as part of the merger or consolidation of either of
the general partners with or into another person or the transfer by either
of the general partners of all or substantially all of their assets to
another person,
the general partners may not transfer all or any part of their general partner
interest in Alliance Resource Partners and the intermediate partnership and the
managing interest in the operating subsidiary to another person prior to
September 30, 2009, without the approval of the holders of at least a majority
of the outstanding common units, excluding common units held by the general
partners and their affiliates. As a condition of this transfer, the transferee
must assume the rights and duties of the general partner to whose interest that
transferee has succeeded, agree to be bound by the provisions of the partnership
agreement, furnish an opinion of counsel regarding limited liability and tax
matters, agree to acquire all of the general partners' interests in the
intermediate partnership and managing interest in the operating subsidiary and
agree to be bound by the provisions of the partnership agreement of the
intermediate partnership and the limited liability company agreement of the
operating subsidiary. The general partners and their affiliates may at any time,
however, transfer subordinated units to one or more persons, other than Alliance
Resource Partners, without unitholder approval. At any time, the member(s) of
either general partner may sell or transfer all or part of their member
interests in the general partner to an affiliate without the approval of the
unitholders. The managing general partner or its affiliates or a later holder
may transfer its incentive distribution rights to an affiliate or another person
as part of its merger or consolidation with or into, or sale of all or
substantially all of its assets to, that person without the prior approval of
the
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unitholders; provided that, in each case, the transferee agrees to be bound by
the provisions of the partnership agreement. Prior to September 30, 2009, other
transfers of the incentive distribution rights will require the affirmative vote
of holders of a majority of the outstanding common units and subordinated units,
voting as separate classes. On or after September 30, 2009, the incentive
distribution rights will be freely transferable.
CHANGE OF MANAGEMENT PROVISIONS
The partnership agreement contains specific provisions that are intended to
discourage a person or group from attempting to remove Alliance Resource
Management GP as managing general partner of Alliance Resource Partners or
otherwise change management. If any person or group other than the general
partners and their affiliates acquires beneficial ownership of 20% or more of
any class of units, that person or group loses voting rights on all of its
units. This loss of voting rights does not apply to any person or group that
acquires the units from our general partners or their affiliates and any
transferees of that person or group approved by our managing general partner.
The partnership agreement also provides that if the managing general
partner is removed under circumstances where cause does not exist and units held
by the general partners and their affiliates are not voted in favor of that
removal:
(1) the subordination period will end and all outstanding subordinated
units will immediately convert into common units on a one-for-one basis;
(2) any existing arrearages in payment of the minimum quarterly
distribution on the common units will be extinguished; and
(3) the managing general partner will have the right to convert its
general partner interest and its incentive distribution rights into common
units or to receive cash in exchange for those interests.
LIMITED CALL RIGHT
If at any time not more than 20% of the then-issued and outstanding limited
partner interests of any class are held by persons other than the general
partners and their affiliates, the managing general partner will have the right,
which it may assign in whole or in part to any of its affiliates or to Alliance
Resource Partners, to acquire all, but not less than all, of the remaining
limited partner interests of the class held by unaffiliated persons as of a
record date to be selected by the managing general partner, on at least 10 but
not more than 60 days' notice. The purchase price in the event of this purchase
is the greater of:
(1) the highest cash price paid by either of the general partners or
any of their affiliates for any limited partner interests of the class
purchased within the 90 days preceding the date on which the managing
general partner first mails notice of its election to purchase those
limited partner interests; and
(2) the current market price as of the date three days before the date
the notice is mailed.
As a result of the managing general partner's right to purchase outstanding
limited partner interests, a holder of limited partner interests may have his
limited partner interests purchased at an undesirable time or price. The tax
consequences to a unitholder of the exercise of this call right are the same as
a sale by that unitholder of his common units in the market. See "Tax
Considerations -- Disposition of Common Units."
MEETINGS; VOTING
Except as described below regarding a person or group owning 20% or more of
any class of units then outstanding, unitholders or assignees who are record
holders of units on the record date will be entitled to notice of, and to vote
at, meetings of limited partners of Alliance Resource Partners and to act upon
matters for which approvals may be solicited. Common units that are owned by an
assignee who is a record holder, but who has not yet been admitted as a limited
partner, shall be voted by the managing general partner at the written direction
of the record holder. Absent direction of this kind, the common units will not
be voted, except that, in the case of common units held by the managing general
partner on
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behalf of non-citizen assignees, the managing general partner shall distribute
the votes on those common units in the same ratios as the votes of limited
partners on other units are cast.
The managing general partner does not anticipate that any meeting of
unitholders will be called in the foreseeable future. Any action that is
required or permitted to be taken by the unitholders may be taken either at a
meeting of the unitholders or without a meeting if consents in writing
describing the action so taken are signed by holders of the number of units as
would be necessary to authorize or take that action at a meeting. Meetings of
the unitholders may be called by the managing general partner or by unitholders
owning at least 20% of the outstanding units of the class for which a meeting is
proposed. Unitholders may vote either in person or by proxy at meetings. The
holders of a majority of the outstanding units of the class or classes for which
a meeting has been called represented in person or by proxy shall constitute a
quorum unless any action by the unitholders requires approval by holders of a
greater percentage of the units, in which case the quorum shall be the greater
percentage.
Each record holder of a unit has a vote according to his percentage
interest in Alliance Resource Partners, although additional limited partner
interests having special voting rights could be issued. See "-- Issuance of
Additional Securities." However, if at any time any person or group, other than
the general partners and their affiliates, or a direct or subsequently approved
transferee of the general partners or their affiliates, acquires, in the
aggregate, beneficial ownership of 20% or more of any class of units then
outstanding, the person or group will lose voting rights on all of its units and
the units may not be voted on any matter and will not be considered to be
outstanding when sending notices of a meeting of unitholders, calculating
required votes, determining the presence of a quorum or for other similar
purposes. Common units held in nominee or street name account will be voted by
the broker or other nominee in accordance with the instruction of the beneficial
owner unless the arrangement between the beneficial owner and his nominee
provides otherwise. Except as otherwise provided in the partnership agreement,
subordinated units will vote together with common units as a single class.
Any notice, demand, request, report or proxy material required or permitted
to be given or made to record holders of common units under the partnership
agreement will be delivered to the record holder by Alliance Resource Partners
or by the transfer agent.
STATUS AS LIMITED PARTNER OR ASSIGNEE
Except as described above under "-- Limited Liability," the common units
will be fully paid, and unitholders will not be required to make additional
contributions.
An assignee of a common unit, after executing and delivering a transfer
application, but pending its admission as a substituted limited partner, is
entitled to an interest equivalent to that of a limited partner for the right to
share in allocations and distributions from Alliance Resource Partners,
including liquidating distributions. The managing general partner will vote and
exercise other powers attributable to common units owned by an assignee who has
not become a substitute limited partner at the written direction of the
assignee. See "-- Meetings; Voting." Transferees who do not execute and deliver
a transfer application will be treated neither as assignees nor as record
holders of common units, and will not receive cash distributions, federal income
tax allocations or reports furnished to holders of common units. See
"Description of the Common Units -- Transfer of Common Units."
NON-CITIZEN ASSIGNEES; REDEMPTION
If we are or become subject to federal, state or local laws or regulations
that, in the reasonable determination of the managing general partner, create a
substantial risk of cancellation or forfeiture of any property that we have an
interest in because of the nationality, citizenship or other related status of
any limited partner or assignee, we may redeem the units held by the limited
partner or assignee at their current market price. In order to avoid any
cancellation or forfeiture, the managing general partner may require each
limited partner or assignee to furnish information about his nationality,
citizenship or related status. If a limited partner or assignee fails to furnish
information about this nationality, citizenship or other related status within
30 days after a request for the information or the managing general partner
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determines after receipt of the information that the limited partner or assignee
is not an eligible citizen, the limited partner or assignee may be treated as a
non-citizen assignee. In addition to other limitations on the rights of an
assignee who is not a substituted limited partner, a non-citizen assignee does
not have the right to direct the voting of his units and may not receive
distributions in kind upon our liquidation.
INDEMNIFICATION
Under the partnership agreement, in most circumstances, we will indemnify
the following persons, to the fullest extent permitted by law, from and against
all losses, claims, damages or similar events:
(1) the general partners;
(2) any departing general partner;
(3) any person who is or was an affiliate of a general partner or any
departing general partner;
(4) any person who is or was a member, partner, officer, director,
employee, agent or trustee of a general partner or any departing general
partner or any affiliate of a general partner or any departing general
partner; or
(5) any person who is or was serving at the request of a general
partner or any departing general partner or any affiliate of a general
partner or any departing general partner as an officer, director, employee,
member, partner, agent or trustee of another person.
Any indemnification under these provisions will only be out of our assets.
The general partners shall not be personally liable for, or have any obligation
to contribute or loan funds or assets to us to enable us to effectuate
indemnification. We are authorized to purchase insurance against liabilities
asserted against and expenses incurred by persons for our activities, regardless
of whether we would have the power to indemnify the person against liabilities
under the partnership agreement.
BOOKS AND REPORTS
The managing general partner is required to keep appropriate books of our
business at our principal offices. The books will be maintained for both tax and
financial reporting purposes on an accrual basis. For tax and fiscal reporting
purposes, our fiscal year is the calendar year.
We will furnish or make available to record holders of common units, within
120 days after the close of each fiscal year, an annual report containing
audited financial statements and a report on those financial statements by our
independent public accountants. Except for our fourth quarter, we will also
furnish or make available summary financial information within 90 days after the
close of each quarter.
We will furnish each record holder of a unit with information reasonably
required for tax reporting purposes within 90 days after the close of each
calendar year. This information is expected to be furnished in summary form so
that some complex calculations normally required of partners can be avoided. Our
ability to furnish this summary information to unitholders will depend on the
cooperation of unitholders in supplying us with specific information. Every
unitholder will receive information to assist him in determining his federal and
state tax liability and filing his federal and state income tax returns,
regardless of whether he supplies us with information.
RIGHT TO INSPECT ALLIANCE RESOURCE PARTNERS' BOOKS AND RECORDS
The partnership agreement provides that a limited partner can, for a
purpose reasonably related to his interest as a limited partner, upon reasonable
demand and at his own expense, have furnished to him:
(1) a current list of the name and last known address of each partner;
(2) a copy of our tax returns;
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(3) information as to the amount of cash, and a description and
statement of the agreed value of any other property or services,
contributed or to be contributed by each partner and the date on which each
became a partner;
(4) copies of the partnership agreement, the certificate of limited
partnership of the partnership, related amendments and powers of attorney
under which they have been executed;
(5) information regarding the status of our business and financial
condition; and
(6) any other information regarding our affairs as is just and
reasonable.
The managing general partner may, and intends to, keep confidential from
the limited partners trade secrets or other information the disclosure of which
the managing general partner believes in good faith is not in our best interests
or which we are required by law or by agreements with third parties to keep
confidential.
REGISTRATION RIGHTS
Under the partnership agreement, we have agreed to register for resale
under the Securities Act and applicable state securities laws any common units,
subordinated units or other partnership securities proposed to be sold by the
general partners or any of their affiliates or their assignees if an exemption
from the registration requirements is not otherwise available. These
registration rights continue for two years following any withdrawal or removal
of our general partners as the general partners of Alliance Resource Partners.
We are obligated to pay all expenses incidental to the registration, excluding
underwriting discounts and commissions. See "Units Eligible for Future Sale."
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UNITS ELIGIBLE FOR FUTURE SALE
After the sale of the common units offered hereby, the special general
partner will hold 6,413,075 (or 5,740,375 if the underwriters' over-allotment
option is exercised in full) subordinated units. All of these subordinated units
will convert into common units at the end of the subordination period and some
may convert earlier. The sale of these units could have an adverse impact on the
price of the common units or on any trading market that may develop.
The common units sold in the offering will generally be freely transferable
without restriction or further registration under the Securities Act, except
that any common units owned by an "affiliate" of Alliance Resource Partners may
not be resold publicly except in compliance with the registration requirements
of the Securities Act or under an exemption under Rule 144 or otherwise. Rule
144 permits securities acquired by an affiliate of the issuer to be sold into
the market in an amount that does not exceed, during any three-month period, the
greater of:
(1) 1% of the total number of the securities outstanding; or
(2) the average weekly reported trading volume of the common units for
the four calendar weeks prior to the sale.
Sales under Rule 144 are also subject to specific manner of sale
provisions, notice requirements and the availability of current public
information about Alliance Resource Partners. A person who is not deemed to have
been an affiliate of Alliance Resource Partners at any time during the three
months preceding a sale, and who has beneficially owned his or her common units
for at least two years, would be entitled to sell common units under Rule 144
without regard to the public information requirements, volume limitations,
manner of sale provisions and notice requirements of Rule 144.
Prior to the end of the subordination period, Alliance Resource Partners
may not issue equity securities of the partnership ranking prior or senior to
the common units or an aggregate of more than 4,484,668 additional common units
or an equivalent amount of securities ranking on a parity with the common units,
without the approval of the holders of a majority of the outstanding common
units and subordinated units, voting as separate classes. The 4,484,668 number
is subject to adjustment in the event of a combination or subdivision of common
units and shall exclude common units issued:
- upon exercise of the underwriters' over-allotment option;
- upon conversion of subordinated units;
- in connection with Alliance Resource Partner's making acquisitions or
capital improvements that are accretive to our cash flow on a per-unit
basis;
- under an employee benefit plan; or
- upon conversion of the general partner interests and incentive
distribution rights as a result of the withdrawal of the general
partners.
The partnership agreement provides that, after the subordination period,
Alliance Resource Partners may issue an unlimited number of limited partner
interests of any type without a vote of the unitholders. The partnership
agreement does not restrict Alliance Resource Partners' ability to issue equity
securities ranking junior to the common units at any time. Any issuance of
additional common units or other equity securities would result in a
corresponding decrease in the proportionate ownership interest in Alliance
Resource Partners represented by, and could adversely affect the cash
distributions to and market price of, common units then outstanding. See "The
Partnership Agreement -- Issuance of Additional Securities."
Under the partnership agreement, the general partners and their affiliates
have the right to cause Alliance Resource Partners to register under the
Securities Act and state laws the offer and sale of any units that they hold.
Subject to the terms and conditions of the partnership agreement, these
registration rights allow the general partners and their affiliates or their
assignees holding any units to require
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registration of any of these units and to include any of these units in a
registration by Alliance Resource Partners of other units, including units
offered by Alliance Resource Partners or by any unitholder. Each general partner
will continue to have these registration rights for two years following its
withdrawal or removal as a general partner of Alliance Resource Partners. In
connection with any registration of this kind, Alliance Resource Partners will
indemnify each unitholder participating in the registration and its officers,
directors and controlling persons from and against any liabilities under the
Securities Act or any state securities laws arising from the registration
statement or prospectus. Alliance Resource Partners will bear all costs and
expenses incidental to any registration, excluding any underwriting discounts
and commissions. Except as described below, the general partners and their
affiliates may sell their units in private transactions at any time, subject to
compliance with applicable laws.
Alliance Resource Holdings, Alliance Resource Partners, various
subsidiaries, the general partners and the officers and directors of the general
partners have agreed that, for a period of 180 days from the date of this
prospectus, they will not, without the prior written consent of Salomon Smith
Barney Inc., dispose of or hedge any common units or subordinated units of
Alliance Resource Partners or any securities convertible into or exchangeable
for, or that represent the right to receive, common units or subordinated units
or any securities that are senior to or on a parity with common units or grant
any options or warrants to purchase common units or subordinated units, other
than pursuant to our long-term incentive plan or the redemption of the
subordinated units in the event the over-allotment option is exercised.
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TAX CONSIDERATIONS
This section is a summary of the material tax considerations that may be
relevant to prospective unitholders who are individual citizens or residents of
the United States and, to the extent set forth below under "-- Legal Opinions
and Advice," expresses the opinion of Andrews & Kurth L.L.P., special counsel to
the general partners and us, insofar as it relates to matters of United States
federal income tax law and legal conclusions with respect thereto. This section
is based upon current provisions of the Internal Revenue Code, existing and
proposed regulations and current administrative rulings and court decisions, all
of which are subject to change. Later changes in these authorities may cause the
tax consequences to vary substantially from the consequences described below.
Unless the context otherwise requires, references in this section to us are
references to Alliance Resource Partners, the intermediate partnership and the
operating subsidiary.
No attempt has been made in the following discussion to comment on all
federal income tax matters affecting us or the unitholders. Moreover, the
discussion focuses on unitholders who are individual citizens or residents of
the United States and has only limited application to corporations, estates,
trusts, non-resident aliens or other unitholders subject to specialized tax
treatment, such as tax-exempt institutions, foreign persons, IRAs, REITs or
mutual funds. Accordingly, each prospective unitholder should consult, and
should depend on, his or her own tax advisor in analyzing the federal, state,
local and foreign tax consequences to him or her of the ownership or disposition
of common units.
LEGAL OPINIONS AND ADVICE
Counsel is of the opinion that, based on the accuracy of representations
and covenants and subject to the qualifications set forth in the detailed
discussion that follows, for federal income tax purposes:
(1) Alliance Resource Partners, the intermediate partnership and the
operating subsidiary will each be treated as a partnership; and
(2) owners of common units, with some exceptions, as described in
"-- Limited Partner Status" below, will be treated as partners of Alliance
Resource Partners, but not in the intermediate partnership or the operating
subsidiary.
In addition, all statements as to matters of law and legal conclusions contained
in this section, unless otherwise noted, are the opinion of counsel.
No ruling has been or will be requested from the IRS regarding our
classification as a partnership for federal income tax purposes, whether our
operations generate "qualifying income" under Section 7704 of the Internal
Revenue Code or any other matter affecting us or prospective unitholders. An
opinion of counsel represents only that counsel's best legal judgment and does
not bind the IRS or the courts. Accordingly, we cannot assure you that the
opinions and statements made here would be sustained by a court if contested by
the IRS. Any contest of this sort with the IRS may materially and adversely
impact the market for the common units and the prices at which common units
trade. In addition, the costs of any contest with the IRS will be borne directly
or indirectly by the unitholders and the general partners. Furthermore, we
cannot assure you that the treatment of Alliance Resource Partners, or an
investment in Alliance Resource Partners, will not be significantly modified by
future legislative or administrative changes or court decisions. Any
modifications may or may not be retroactively applied.
For the reasons described below, counsel has not rendered an opinion with
respect to the following specific federal income tax issues:
(1) the treatment of a unitholder whose common units are loaned to a
short seller to cover a short sale of common units (see "-- Tax
Consequences of Unit Ownership -- Treatment of Short Sales");
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(2) whether a unitholder acquiring common units in separate
transactions must maintain a single aggregate adjusted tax basis in his or
her common units (see "-- Disposition of Common Units -- Recognition of
Gain or Loss");
(3) whether our monthly convention for allocating taxable income and
losses is permitted by existing Treasury Regulations (see "-- Disposition
of Common Units -- Allocations Between Transferors and Transferees"); and
(4) whether our method for depreciating Section 743 adjustments is
sustainable (see "-- Tax Consequences of Unit Ownership -- Section 754
Election").
PARTNERSHIP STATUS
A partnership is not a taxable entity and incurs no federal income tax
liability. Instead, each partner of a partnership is required to take into
account his or her allocable share of items of income, gain, loss and deduction
of the partnership in computing his or her federal income tax liability,
regardless of whether cash distributions are made. Distributions by a
partnership to a partner are generally not taxable unless the amount of cash
distributed is in excess of the partner's adjusted basis in his or her
partnership interest.
No ruling has been or will be sought from the IRS and the IRS has made no
determination as to the status of Alliance Resource Partners, the intermediate
partnership or the operating subsidiary as partnerships for federal income tax
purposes. Instead, we have relied on the opinion of counsel that, based upon the
Internal Revenue Code, its regulations, published revenue rulings and court
decisions and the representations described below, each of Alliance Resource
Partners, the intermediate partnership and the operating subsidiary will be
classified as a partnership for federal income tax purposes.
In rendering its opinion, counsel has relied on factual representations and
covenants made by us and the general partners. The representations and covenants
made by us and our general partners upon which counsel has relied are:
(a) None of Alliance Resource Partners, the intermediate partnership
or the operating subsidiary will elect to be treated as an association or
corporation;
(b) Alliance Resource Partners and the intermediate partnership will
be operated in accordance with
(1) all applicable partnership statutes,
(2) the applicable partnership agreement, and
(3) their description in this prospectus;
(c) The operating subsidiary will be operated in accordance with
(1) all applicable limited liability company statutes,
(2) its limited liability company agreement, and
(3) its description in this prospectus;
(d) For each taxable year, more than 90% of our gross income will be
derived from:
(1) the exploration, development, production, processing, refining,
transportation or marketing of any mineral or natural resource,
including oil, gas, its products and naturally occurring carbon dioxide,
or
(2) other items of income as to which counsel has or will opine are
"qualifying income" within the meaning of Section 7704(d) of the
Internal Revenue Code.
Section 7704 of the Internal Revenue Code provides that publicly-traded
partnerships will, as a general rule, be taxed as corporations. However, an
exception, referred to as the "Qualifying Income Exception," exists with respect
to publicly-traded partnerships of which 90% or more of the gross income
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for every taxable year consists of "qualifying income." Qualifying income
includes income and gains derived from the transportation and marketing of coal,
crude oil, natural gas and products thereof. Other types of qualifying income
include interest (from other than a financial business), dividends, gains from
the sale of real property and gains from the sale or other disposition of
capital assets held for the production of income that otherwise constitutes
qualifying income. We estimate that less than 2% of our current income is not
qualifying income; however, this estimate could change from time to time. Based
upon and subject to this estimate, the factual representations made by us and
the general partners and a review of the applicable legal authorities, counsel
is of the opinion that at least 90% of our gross income constitutes qualifying
income.
If we fail to meet the Qualifying Income Exception, other than a failure
which is determined by the IRS to be inadvertent and which is cured within a
reasonable time after discovery, we will be treated as if we had transferred all
of our assets, subject to liabilities, to a newly formed corporation, on the
first day of the year in which we fail to meet the Qualifying Income Exception,
in return for stock in that corporation, and then distributed that stock to the
partners in liquidation of their interests in us. This contribution and
liquidation should be tax-free to unitholders and Alliance Resource Partners so
long as we, at that time, do not have liabilities in excess of the tax basis of
our assets. Thereafter, we would be treated as a corporation for federal income
tax purposes.
If Alliance Resource Partners, the intermediate partnership or the
operating subsidiary were treated as an association taxable as a corporation in
any taxable year, either as a result of a failure to meet the Qualifying Income
Exception or otherwise, its items of income, gain, loss and deduction would be
reflected only on its tax return rather than being passed through to the
unitholders, and its net income would be taxed to Alliance Resource Partners,
the intermediate partnership or the operating subsidiary at corporate rates. In
addition, any distribution made to a unitholder would be treated as either
taxable dividend income, to the extent of our current or accumulated earnings
and profits, or, in the absence of earnings and profits, a nontaxable return of
capital, to the extent of the unitholder's tax basis in his or her common units,
or taxable capital gain, after the unitholder's tax basis in his or her common
units is reduced to zero. Accordingly, treatment of Alliance Resource Partners,
the intermediate partnership or the operating subsidiary as an association
taxable as a corporation would result in a material reduction in a unitholder's
cash flow and after-tax return and thus would likely result in a substantial
reduction of the value of the units.
The discussion below is based on the assumption that we will be classified
as a partnership for federal income tax purposes.
LIMITED PARTNER STATUS
Unitholders who have become limited partners of Alliance Resource Partners
will be treated as partners of Alliance Resource Partners for federal income tax
purposes. Counsel is also of the opinion that
(a) assignees who have executed and delivered transfer applications,
and are awaiting admission as limited partners, and
(b) unitholders whose common units are held in street name or by a
nominee and who have the right to direct the nominee in the exercise of all
substantive rights attendant to the ownership of their common units,
will be treated as partners of Alliance Resource Partners for federal income tax
purposes. As there is no direct authority addressing assignees of common units
who are entitled to execute and deliver transfer applications and thereby become
entitled to direct the exercise of attendant rights, but who fail to execute and
deliver transfer applications, counsel's opinion does not extend to these
persons. Furthermore, a purchaser or other transferee of common units who does
not execute and deliver a transfer application may not receive some federal
income tax information or reports furnished to record holders of common units
unless the common units are held in a nominee or street name account and the
nominee or broker has executed and delivered a transfer application for those
common units.
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A beneficial owner of common units whose units have been transferred to a
short seller to complete a short sale would appear to lose his or her status as
a partner with respect to these units for federal income tax purposes. See
"-- Tax Consequences of Unit Ownership -- Treatment of Short Sales."
Income, gain, deductions or losses would not appear to be reportable by a
unitholder who is not a partner for federal income tax purposes, and any cash
distributions received by a unitholder who is not a partner for federal income
tax purposes would therefore be fully taxable as ordinary income. These holders
should consult their own tax advisors with respect to their status as partners
in Alliance Resource Partners for federal income tax purposes.
TAX CONSEQUENCES OF UNIT OWNERSHIP
Flow-through of Taxable Income. We will not pay any federal income tax.
Instead, each unitholder will be required to report on his or her income tax
return his or her allocable share of our income, gains, losses and deductions
without regard to whether corresponding cash distributions are received by that
unitholder. Consequently, a unitholder may be allocated income from us even if
he or she has not received a cash distribution. Each unitholder will be required
to include in income his or her allocable share of Alliance Resource Partners
income, gain, loss and deduction for the taxable year of Alliance Resource
Partners ending with or within the taxable year of the unitholder.
Treatment of Distributions. Distributions by us to a unitholder generally
will not be taxable to the unitholder for federal income tax purposes to the
extent of his or her tax basis in his or her common units immediately before the
distribution. Our cash distributions in excess of a unitholder's tax basis
generally will be considered to be gain from the sale or exchange of the common
units, taxable in accordance with the rules described under "-- Disposition of
Common Units" below. Any reduction in a unitholder's share of our liabilities
for which no partner, including the general partners, bears the economic risk of
loss, known as "nonrecourse liabilities," will be treated as a distribution of
cash to that unitholder. To the extent our distributions cause a unitholder's
"at risk" amount to be less than zero at the end of any taxable year, he or she
must recapture any losses deducted in previous years. See "-- Limitations on
Deductibility of Losses."
A decrease in a unitholder's percentage interest in us because of our
issuance of additional common units will decrease his or her share of our
nonrecourse liabilities, and thus will result in a corresponding deemed
distribution of cash. A non-pro rata distribution of money or property may
result in ordinary income to a unitholder, regardless of his or her tax basis in
his or her common units, if the distribution reduces the unitholder's share of
our "unrealized receivables," including depreciation recapture, and/or
substantially appreciated "inventory items," both as defined in Section 751 of
the Internal Revenue Code, and collectively, "Section 751 Assets." To that
extent, he or she will be treated as having been distributed his or her
proportionate share of the Section 751 Assets and having exchanged those assets
with us in return for the non-pro rata portion of the actual distribution made
to him or her. This latter deemed exchange will generally result in the
unitholder's realization of ordinary income under Section 751(b) of the Internal
Revenue Code. That income will equal the excess of (1) the non-pro rata portion
of that distribution over (2) the unitholder's tax basis for the share of
Section 751 Assets deemed relinquished in the exchange.
Ratio of Taxable Income to Distributions. We estimate that a purchaser of
common units in the offering who holds those common units from the date of
closing of the offering through December 31, 2002, will be allocated an amount
of federal taxable income for that period that will be less than 30% of the cash
distributed with respect to that period. We anticipate that after the taxable
year ending December 31, 2002, the ratio of taxable income allocable to cash
distributions to the unitholders will increase. These estimates are based upon
the assumption that gross income from operations will approximate the amount
required to make the minimum quarterly distribution on all units and other
assumptions with respect to capital expenditures, cash flow and anticipated cash
distributions. These estimates and assumptions are subject to, among other
things, numerous business, economic, regulatory, competitive and political
uncertainties beyond our control. Further, the estimates are based on current
tax
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law and tax reporting positions that we intend to adopt and with which the IRS
could disagree. Accordingly, we cannot assure you that these estimates will
prove to be correct. The actual percentage of distributions that will constitute
taxable income could be higher or lower, and any differences could be material
and could materially affect the value of the common units.
Basis of Common Units. A unitholder's initial tax basis for his or her
common units will be the amount he or she paid for the common units plus his or
her share of our nonrecourse liabilities. That basis will be increased by his or
her share of our income and by any increases in his or her share of our
nonrecourse liabilities. That basis will be decreased, but not below zero, by
distributions from us, by the unitholder's share of our losses, by any decreases
in his or her share of our nonrecourse liabilities and by his or her share of
our expenditures that are not deductible in computing taxable income and are not
required to be capitalized. A limited partner will have no share of our debt
which is recourse to the general partners, but will have a share, generally
based on his or her share of profits, of our nonrecourse liabilities. See
"-- Disposition of Common Units -- Recognition of Gain or Loss."
Limitations on Deductibility of Losses. The deduction by a unitholder of
his or her share of our losses will be limited to the tax basis in his or her
units and, in the case of an individual unitholder or a corporate unitholder, if
more than 50% of the value of its stock is owned directly or indirectly by five
or fewer individuals or some tax-exempt organizations, to the amount for which
the unitholder is considered to be "at risk" with respect to our activities, if
that is less than his or her tax basis. A unitholder must recapture losses
deducted in previous years to the extent that distributions cause his or her at
risk amount to be less than zero at the end of any taxable year. Losses
disallowed to a unitholder or recaptured as a result of these limitations will
carry forward and will be allowable to the extent that his or her tax basis or
at risk amount, whichever is the limiting factor, is subsequently increased.
Upon the taxable disposition of a unit, any gain recognized by a unitholder can
be offset by losses that were previously suspended by the at risk limitation but
may not be offset by losses suspended by the basis limitation. Any excess loss
above that gain previously suspended by the at risk or basis limitations is no
longer utilizable.
In general, a unitholder will be at risk to the extent of the tax basis of
his or her units, excluding any portion of that basis attributable to his or her
share of our nonrecourse liabilities, reduced by any amount of money he or she
borrows to acquire or hold his or her units, if the lender of those borrowed
funds owns an interest in us, is related to the unitholder or can look only to
the units for repayment. A unitholder's at risk amount will increase or decrease
as the tax basis of the unitholder's units increases or decreases, other than
tax basis increases or decreases attributable to increases or decreases in his
or her share of our nonrecourse liabilities.
The passive loss limitations generally provide that individuals, estates,
trusts and some closely-held corporations and personal service corporations can
deduct losses from passive activities, which are generally activities in which
the taxpayer does not materially participate, only to the extent of the
taxpayer's income from those passive activities. The passive loss limitations
are applied separately with respect to each publicly-traded partnership.
Consequently, any passive losses we generate will only be available to offset
our passive income generated in the future and will not be available to offset
income from other passive activities or investments, including other
publicly-traded partnerships, or salary or active business income. Passive
losses that are not deductible because they exceed a unitholder's income
generated by us may be deducted in full when he or she disposes of his or her
entire investment in us in a fully taxable transaction with an unrelated party.
The passive activity loss rules are applied after other applicable limitations
on deductions, including the at risk rules and the basis limitation.
A unitholder's share of our net income may be offset by any suspended
passive losses, but it may not be offset by any other current or carryover
losses from other passive activities, including those attributable to other
publicly-traded partnerships. The IRS has announced that Treasury Regulations
will be issued that characterize net passive income from a publicly-traded
partnership as investment income for purposes of the limitations on the
deductibility of investment interest.
Limitations on Interest Deductions. The deductibility of a non-corporate
taxpayer's "investment interest expense" is generally limited to the amount of
that taxpayer's "net investment income." As noted,
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a unitholder's share of our net passive income will be treated as investment
income for this purpose. In addition, the unitholder's share of our portfolio
income will be treated as investment income. Investment interest expense
includes:
(1) interest on indebtedness properly allocable to property held for
investment;
(2) our interest expense attributed to portfolio income; and
(3) the portion of interest expense incurred to purchase or carry an
interest in a passive activity to the extent attributable to portfolio
income.
The computation of a unitholder's investment interest expense will take
into account interest on any margin account borrowing or other loan incurred to
purchase or carry a unit. Net investment income includes gross income from
property held for investment and amounts treated as portfolio income under the
passive loss rules, less deductible expenses, other than interest, directly
connected with the production of investment income, but generally does not
include gains attributable to the disposition of property held for investment.
Entity-Level Collections. If we are required or elect under applicable law
to pay any federal, state or local income tax on behalf of any unitholder or the
general partners or any former unitholder, we are authorized to pay those taxes
from our funds. That payment, if made, will be treated as a distribution of cash
to the partner on whose behalf the payment was made. If the payment is made on
behalf of a person whose identity cannot be determined, we are authorized to
treat the payment as a distribution to all current unitholders. We are
authorized to amend the partnership agreement in the manner necessary to
maintain uniformity of intrinsic tax characteristics of units and to adjust
later distributions, so that after giving effect to these distributions, the
priority and characterization of distributions otherwise applicable under the
partnership agreement is maintained as nearly as is practicable. Payments by us
as described above could give rise to an overpayment of tax on behalf of an
individual partner in which event the partner could file a claim for credit or
refund.
Allocation of Income, Gain, Loss and Deduction. In general, if we have a
net profit, our items of income, gain, loss and deduction will be allocated
among the general partners and the unitholders in accordance with their
particular percentage interests in us. At any time that distributions are made
to the common units and not to the subordinated units, or that incentive
distributions are made to the managing general partner, gross income will be
allocated to the recipients to the extent of these distributions. If we have a
net loss for the entire year, the amount of that loss will be allocated first,
to the general partners and the unitholders in accordance with their particular
percentage interests in us to the extent of their positive capital accounts and,
second, to the general partners.
As required by Section 704(c) of the Internal Revenue Code and as permitted
by its Regulations, specified items of our income, gain, loss and deduction will
be allocated to account for the difference between the tax basis and fair market
value of property contributed to us by the special general partner referred to
in this discussion as "Contributed Property." The effect of these allocations to
a unitholder will be essentially the same as if the tax basis of the Contributed
Property were equal to its fair market value at the time of contribution. In
addition, specified items of recapture income will be allocated to the extent
possible to the partner who was allocated the deduction giving rise to the
treatment of that gain as recapture income in order to minimize the recognition
of ordinary income by some unitholders. Finally, although we do not expect that
our operations will result in the creation of negative capital accounts, if
negative capital accounts nevertheless result, items of our income and gain will
be allocated in an amount and manner sufficient to eliminate the negative
balance as quickly as possible.
Treasury regulations provide that an allocation of items of our income,
gain, loss or deduction, other than an allocation required by Section 704(c) of
the Internal Revenue Code to eliminate the difference between a partner's "book"
capital account, credited with the fair market value of Contributed Property,
and "tax" capital account, credited with the tax basis of Contributed Property,
(the "Book-Tax Disparity"), will generally be given effect for federal income
tax purposes in determining a partner's
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distributive share of an item of income, gain, loss or deduction only if the
allocation has substantial economic effect. In any other case, a partner's
distributive share of an item will be determined on the basis of the partner's
interest in us, which will be determined by taking into account all the facts
and circumstances, including the partner's relative contributions to us, the
interests of the partners in economic profits and losses, the interest of the
partners in cash flow and other nonliquidating distributions and rights of the
partners to distributions of capital upon liquidation.
Counsel is of the opinion that, with the exception of the issues described
in "-- Tax Consequences of Unit Ownership -- Section 754 Election" and
"-- Disposition of Common Units -- Allocations Between Transferors and
Transferees," allocations under our partnership agreement will be given effect
for federal income tax purposes in determining a partner's distributive share of
an item of income, gain, loss or deduction.
Treatment of Short Sales. A unitholder whose units are loaned to a "short
seller" to cover a short sale of units may be considered as having disposed of
ownership of those units. If so, he or she would no longer be a partner for
those units during the period of the loan and may recognize gain or loss from
the disposition. As a result, during this period:
- any of our income, gain, loss or deduction with respect to those units
would not be reportable by the unitholder;
- any cash distributions received by the unitholder for those units would
be fully taxable; and
- all of these distributions would appear to be treated as ordinary income.
Unitholders desiring to assure their status as partners and avoid the risk
of gain recognition should modify any applicable brokerage account agreements to
prohibit their brokers from borrowing their units. The IRS has announced that it
is actively studying issues relating to the tax treatment of short sales of
partnership interests. See also "-- Disposition of Common Units -- Recognition
of Gain or Loss."
Alternative Minimum Tax. Although it is not expected that we will generate
significant tax preference items or adjustments, each unitholder will be
required to take into account his or her distributive share of any items of our
income, gain, loss or deduction for purposes of the alternative minimum tax. The
minimum tax rate for noncorporate taxpayers is 26% on the first $175,000 of
alternative minimum taxable income in excess of the exemption amount and 28% on
any additional alternative minimum taxable income. Prospective unitholders
should consult with their tax advisors as to the impact of an investment in
units on their liability for the alternative minimum tax.
Tax Rates. In general the highest effective United States federal income
tax rate for individuals for 1999 is 39.6% and the maximum United States federal
income tax rate for net capital gains of an individual for 1999 is 20% if the
asset disposed of was held for more than 12 months at the time of disposition.
Section 754 Election. We intend to make the election permitted by Section
754 of the Internal Revenue Code. That election is irrevocable without the
consent of the IRS. The election will generally permit us to adjust a common
unit purchaser's tax basis in our assets ("inside basis") under Section 743(b)
of the Internal Revenue Code to reflect his or her purchase price. This election
does not apply to a person who purchases common units directly from us. The
Section 743(b) adjustment belongs to the purchaser and not to other partners.
For purposes of this discussion, a partner's inside basis in our assets will be
considered to have two components: (1) his or her share of our tax basis in our
assets ("common basis") and (2) his or her Section 743(b) adjustment to that
basis.
Proposed Treasury regulations under Section 743 of the Internal Revenue
Code require, if the remedial allocation method is adopted (which we intend to
do), a portion of the Section 743(b) adjustment attributable to recovery
property to be depreciated over the remaining cost recovery period for the
Section 704(c) built-in gain. Nevertheless, Proposed Treasury Regulation Section
1.197-2(g)(3) indicates that the Section 743(b) adjustment attributable to an
amortizable Section 197 intangible should
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be treated as a newly-acquired asset placed in service in the month when the
purchaser acquires the unit. Under Treasury Regulation Section 1.167(c)-1(a)(6),
a Section 743(b) adjustment attributable to property subject to depreciation
under Section 167 of the Internal Revenue Code rather than cost recovery
deductions under Section 168 is generally required to be depreciated using
either the straight-line method or the 150% declining balance method. Although
the proposed regulations under Section 743 will likely eliminate many of the
problems if finalized in their current form, the depreciation and amortization
methods and useful lives associated with the Section 743(b) adjustment may
differ from the methods and useful lives generally used to depreciate the common
basis in these properties. Under our partnership agreement, the managing general
partner is authorized to adopt a convention to preserve the uniformity of units
even if that convention is not consistent with specified Treasury Regulations.
See "-- Tax Treatment of Operations -- Uniformity of Units."
Although counsel is unable to opine as to the validity of this approach, we
intend to depreciate the portion of a Section 743(b) adjustment attributable to
unrealized appreciation in the value of Contributed Property, to the extent of
any unamortized Book-Tax Disparity, using a rate of depreciation or amortization
derived from the depreciation or amortization method and useful life applied to
the common basis of the property, or treat that portion as non-amortizable to
the extent attributable to property the common basis of which is not
amortizable. This method is consistent with the proposed regulations under
Section 743 but is arguably inconsistent with Treasury Regulation Section
1.167(c)-1(a)(6) and Proposed Treasury Regulation Section 1.197-2(g)(3), neither
of which is expected to directly apply to a material portion of our assets. To
the extent this Section 743(b) adjustment is attributable to appreciation in
value in excess of the unamortized Book-Tax Disparity, we will apply the rules
described in the Treasury Regulations and legislative history. If we determine
that this position cannot reasonably be taken, we may adopt a depreciation or
amortization convention under which all purchasers acquiring units in the same
month would receive depreciation or amortization, whether attributable to common
basis or Section 743(b) adjustment, based upon the same applicable rate as if
they had purchased a direct interest in our assets. This kind of aggregate
approach may result in lower annual depreciation or amortization deductions than
would otherwise be allowable to some unitholders. See "-- Tax Treatment of
Operations -- Uniformity of Units."
The allocation of the Section 743(b) adjustment among our assets must be
made in accordance with the Internal Revenue Code. The IRS could seek to
reallocate some or all of any Section 743(b) adjustment to goodwill not so
allocated by us. Goodwill, as an intangible asset, is generally amortizable over
a longer period of time or under a less accelerated method than our tangible
assets.
A Section 754 election is advantageous if the transferee's tax basis in his
or her units is higher than the units' share of the aggregate tax basis of our
assets immediately prior to the transfer. In that case, as a result of the
election, the transferee would have a higher tax basis in his or her share of
our assets for purposes of calculating, among other items, his or her
depreciation and depletion deductions and his or her share of any gain or loss
on a sale of our assets. Conversely, a Section 754 election is disadvantageous
if the transferee's tax basis in his or her units is lower than those units'
share of the aggregate tax basis of our assets immediately prior to the
transfer. Thus, the fair market value of the units may be affected either
favorably or adversely by the election.
The calculations involved in the Section 754 election are complex and we
will make them on the basis of assumptions as to the value of our assets and
other matters. We cannot assure you that the determinations made by us will not
be successfully challenged by the IRS and that the deductions resulting from
them will not be reduced or disallowed altogether. Should the IRS require a
different basis adjustment to be made, and should, in our opinion, the expense
of compliance exceed the benefit of the election, we may seek permission from
the IRS to revoke our Section 754 election. If permission is granted, a
subsequent purchaser of units may be allocated more income than he would have
been allocated had the election not been revoked.
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TAX TREATMENT OF OPERATIONS
Accounting Method and Taxable Year. We will use the year ending December 31
as our taxable year and we will adopt the accrual method of accounting for
federal income tax purposes. Each unitholder will be required to include in
income his or her allocable share of our income, gain, loss and deduction for
our taxable year ending within or with his or her taxable year. In addition, a
unitholder who has a taxable year ending on a date other than December 31 and
who disposes of all of his or her units following the close of our taxable year
but before the close of his or her taxable year must include his or her
allocable share of our income, gain, loss and deduction in income for his or her
taxable year, with the result that he or she will be required to include in
income for his or her taxable year his or her share of more than one year of our
income, gain, loss and deduction. See "-- Disposition of Common
Units -- Allocations Between Transferors and Transferees."
Initial Tax Basis, Depreciation and Amortization. The tax basis of our
assets will be used for purposes of computing depreciation and cost recovery
deductions and, ultimately, gain or loss on the disposition of these assets. The
federal income tax burden associated with the difference between the fair market
value of property contributed to us and the tax basis established for that
property will be borne by the special general partner. See "-- Tax Consequences
of Unit Ownership -- Allocation of Income, Gain, Loss and Deduction."
To the extent allowable, we may elect to use the depreciation and cost
recovery methods that will result in the largest deductions being taken in the
early years after assets are placed in service. We will not be entitled to any
amortization deductions with respect to any goodwill conveyed to us on
formation. Property subsequently acquired or constructed by us may be
depreciated using accelerated methods permitted by the Internal Revenue Code.
If we dispose of depreciable property by sale, foreclosure, or otherwise,
all or a portion of any gain, determined by reference to the amount of
depreciation previously deducted and the nature of the property, may be subject
to the recapture rules and taxed as ordinary income rather than capital gain.
Similarly, a partner who has taken cost recovery or depreciation deductions with
respect to property owned by us may be required to recapture those deductions as
ordinary income upon a sale of his or her interest in us. See "-- Tax
Consequences of Unit Ownership -- Allocation of Income, Gain, Loss and
Deduction" and "-- Disposition of Common Units -- Recognition of Gain or Loss."
Costs incurred in organizing Alliance Resource Partners may be amortized
over any period selected by us not shorter than 60 months. The costs incurred in
promoting the issuance of units (i.e. syndication expenses) must be capitalized
and cannot be deducted currently, ratably or upon termination of Alliance
Resource Partners. There are uncertainties regarding the classification of costs
as organization expenses, which may be amortized, and as syndication expenses,
which may not be amortized. Under recently adopted regulations, the underwriting
discounts and commissions would be treated as a syndication cost.
Coal Depletion. In general, we are entitled to depletion deductions with
respect to coal mined from the underlying mineral property. We are generally
entitled to the greater of cost depletion limited to the basis of our property
or percentage depletion based on the gross income of our property. The
percentage depletion rate for coal is 10%. In general, depletion deductions we
claim will reduce the tax basis of the mineral property. However, depletion
deductions can exceed the total tax basis of the mineral property. The excess of
our percentage depletion deduction over the adjusted cost basis of the property
at the end of the taxable year is subject to tax preference treatment in
computing the alternative minimum tax. See "-- Tax Consequences of Unit
Ownership -- Alternative Minimum Tax." Upon the disposition of the mineral
property, a portion of the gain, if any, equal to the lesser of the deductions
for depletion which reduce the adjusted tax basis of the mineral property plus
deductible development and mining exploration expenses, or the amount of gain
recognized upon the disposition, will be treated as ordinary income to us.
A corporate partner's allocable share of the amount allowable as a
percentage depletion deduction for any property will be reduced by 20% of the
amount of the excess, if any, of that partner's allocable share
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of the amount of percentage depletion deductions for the taxable year over the
adjusted tax basis of the mineral property as of the close of the taxable year.
Mining Exploration and Development Expenditures. We will elect to currently
deduct mining exploration expenditures that we pay or incur to determine the
existence, location, extent or quality of coal deposits prior to the time the
existence of coal in commercially marketable quantities has been disclosed.
Amounts we deduct for mine exploration expenditures must be recaptured and
included in our taxable income at the time a mine reaches the production stage,
unless we elect to reduce future depletion deductions by the amount of the
recapture. A mine reaches the producing stage when the major part of the coal
production is obtained from working mines other than those opened for the
purpose of development or the principal activity of the mine is the production
of developed coal rather than the development of additional coal for mining.
This recapture is accomplished through the disallowance of both cost and
percentage depletion deductions on the particular mine reaching the producing
stage. This disallowance of depletion deductions continues until the amount of
adjusted exploration expenditures with respect to the mine have been fully
recaptured. This recapture is not applied to the full amount of the previously
deducted exploration expenditures. Instead, these expenditures are reduced by
the amount of percentage depletion, if any, that was lost as a result of
deducting these exploration expenditures.
We will also generally deduct currently mine development expenditures
incurred in making coal accessible for extraction, after the exploration process
has disclosed the existence of coal in commercially marketable quantities. To
increase the allowable percentage depletion deduction for a mine or mines, we
may however, elect to defer mine development expenses and deduct them on a
ratable basis as the coal benefitted by the expenses is sold. This election can
be made on a mine-by-mine and year-by-year basis.
Mine exploration and development expenditures are subject to recapture as
ordinary income to the extent of any gain upon a sale or other disposition of
our property or of your common units. See "-- Disposition of Common Units."
Corporate unitholders are subject to an additional rule that requires them to
capitalize a portion of their otherwise deductible mine exploration and
development expenditures. Corporate unitholders, other than some S corporations,
are required to reduce their otherwise deductible exploration expenditures by
30%. These capitalized mine exploration and development expenditures must be
amortized over a 60 month period, beginning in the month paid or incurred, using
a straight-line method and may not be treated as part of the basis of the
property for purposes of computing depletion.
When computing the alternative minimum tax, mine exploration and
development expenditures are capitalized and deducted over a ten year period.
Unitholders may avoid this alternative minimum tax adjustment of their mine
exploration and development expenditures by electing to capitalize all or part
of the expenditures and deducting them over ten years for regular income tax
purposes. You may select the specific amount of these expenditures for which you
wish to make this election.
Sales of Coal Reserves. If we sell or otherwise dispose of coal reserves in
a taxable transaction, we will recognize gain or loss measured by the difference
between the amount realized, including the amount of any indebtedness assumed by
the purchaser upon the disposition or to which the property is subject, and the
adjusted tax basis of the property. Generally, the character of any gain or loss
we recognize upon that disposition will depend upon whether we held the
reserves:
(i) for sale to customers in the ordinary course of business, i.e., we
are a "dealer" with respect to the property;
(ii) for "use in a trade or business" within the meaning of Section
1231 of the Internal Revenue Code; or
(iii) as a "capital asset" within the meaning of Section 1221 of the
Internal Revenue Code.
In determining dealer status with respect to real estate, the courts have
identified a number of factors for distinguishing between a particular property
held for sale in the ordinary course of business and one
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held for investment. Any determination must be based on all the facts and
circumstances surrounding the particular property and sale in question.
We intend to hold coal reserves primarily for use in a trade or business
and for the purpose of achieving long-term capital appreciation. Although the
managing general partner may consider strategic sales of coal reserves
consistent with achieving long-term capital appreciation, the managing general
partner does not anticipate frequent sales. Thus, the managing general partner
does not believe we will be viewed as a dealer. However, in light of the factual
nature of this question, we cannot assure you that we will not be viewed by the
IRS as a "dealer" in coal reserves.
If we are not a dealer with respect to particular coal reserves and we have
held the coal reserves for a one-year period primarily for use in a trade or
business, the character of any gain or loss realized from the disposition of the
coal reserves will be determined under Section 1231 of the Internal Revenue
Code. Net Section 1231 gains are generally treated as long-term capital gain. If
we have not held the coal reserves for more than one year at the time of sale,
gain or loss from the sale will be ordinary.
If we are not a dealer with respect to the coal reserves, and the coal
reserves are not used in a trade or business, those coal reserves will be a
"capital asset" within the meaning of Section 1221 of the Internal Revenue Code.
We will recognize gain or loss from the disposition of those coal reserves which
will be taxable as capital gain or loss, and the character of this capital gain
or loss as long-term or short-term will be based upon our holding period in this
property at the time of its sale.
Since amounts we realize upon the sale, exchange or other disposition of
coal reserves may be used to reduce any liability to which the coal reserves are
subject, it is possible, although not anticipated, that our gain on the sale of
these reserves would exceed the distributive proceeds of the sale, and a
unitholder's income taxes payable on the sale could exceed his distributive
share of these proceeds.
Uniformity of Units. Because we cannot match transferors and transferees of
units, uniformity of the economic and tax characteristics of the units to a
purchaser of these units must be maintained. In the absence of uniformity,
compliance with a number of federal income tax requirements, both statutory and
regulatory, could be substantially diminished. A lack of uniformity can result
from a literal application of Treasury Regulation Section 1.167(c)-1(a)(6) and
Proposed Treasury Regulation Section 1.197-2(g)(3). Any non-uniformity could
have a negative impact on the value of the units. See "-- Tax Consequences of
Unit Ownership -- Section 754 Election."
We intend to depreciate the portion of a Section 743(b) adjustment
attributable to unrealized appreciation in the value of contributed property or
adjusted property, to the extent of any unamortized Book-Tax Disparity, using a
rate of depreciation or amortization derived from the depreciation or
amortization method and useful life applied to the common basis of that
property, or treat that portion as nonamortizable, to the extent attributable to
property the common basis of which is not amortizable, consistent with the
proposed regulations under Section 743, but despite its inconsistency with
Treasury Regulation Section 1.167(c)-1(a)(6) and Proposed Treasury Regulation
Section 1.197-2(g)(3), neither of which is expected to directly apply to a
material portion of our assets. See "-- Tax Consequences of Unit
Ownership -- Section 754 Election." To the extent that the Section 743(b)
adjustment is attributable to appreciation in value in excess of the unamortized
Book-Tax Disparity, we will apply the rules described in the Treasury
Regulations and legislative history. If we determine that this type of position
cannot reasonably be taken, we may adopt a depreciation and amortization
convention under which all purchasers acquiring units in the same month would
receive depreciation and amortization deductions, whether attributable to a
common basis or Section 743(b) adjustment, based upon the same applicable rate
as if they had purchased a direct interest in our property. If this kind of an
aggregate approach is adopted, it may result in lower annual depreciation and
amortization deductions than would otherwise be allowable to some unitholders
and risk the loss of depreciation and amortization deductions not taken in the
year that these deductions are otherwise allowable. This convention will not be
adopted if we determine that the loss of depreciation and amortization
deductions will have a material adverse effect on the unitholders. If we choose
not to utilize this aggregate method, we may use any other reasonable
depreciation and amortization convention to preserve the uniformity of the
intrinsic tax characteristics of any units that
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would not have a material adverse effect on the unitholders. The IRS may
challenge any method of depreciating the Section 743(b) adjustment described in
this paragraph. If this type of challenge were sustained, the uniformity of
units might be affected, and the gain from the sale of units might be increased
without the benefit of additional deductions. See "-- Disposition of Common
Units -- Recognition of Gain or Loss."
Valuation and Tax Basis of Our Properties. The federal income tax
consequences of the ownership and disposition of units will depend in part on
our estimates of the relative fair market values, and determinations of the
initial tax bases, of our assets. Although we may from time to time consult with
professional appraisers regarding valuation matters, we will make many of the
relative fair market value estimates ourselves. These estimates and
determinations of basis are subject to challenge and will not be binding on the
IRS or the courts. If the estimates of fair market value or determinations of
basis are later found to be incorrect, the character and amount of items of
income, gain, loss or deductions previously reported by unitholders might
change, and unitholders might be required to adjust their tax liability for
prior years.
DISPOSITION OF COMMON UNITS
Recognition of Gain or Loss. Gain or loss will be recognized on a sale of
units equal to the difference between the amount realized and the unitholder's
tax basis for the units sold. A unitholder's amount realized will be measured by
the sum of the cash or the fair market value of other property received plus his
or her share of our nonrecourse liabilities. Because the amount realized
includes a unitholder's share of our nonrecourse liabilities, the gain
recognized on the sale of units could result in a tax liability in excess of any
cash received from the sale.
Prior distributions from us in excess of cumulative net taxable income for
a common unit that decreased a unitholder's tax basis in that common unit will,
in effect, become taxable income if the common unit is sold at a price greater
than the unitholder's tax basis in that common unit, even if the price is less
than his or her original cost.
Should the IRS successfully contest our convention to amortize only a
portion of the Section 743(b) adjustment, described under "-- Tax Consequences
of Unit Ownership -- Section 754 Election," attributable to an amortizable
Section 197 intangible after a sale by the special general partner of units, a
unitholder could realize additional gain from the sale of units than had our
convention been respected. In that case, the unitholder may have been entitled
to additional deductions against income in prior years but may be unable to
claim them, with the result to him or her of greater overall taxable income than
appropriate. Counsel is unable to opine as to the validity of the convention but
believes a contest by the IRS is unlikely because a successful contest could
result in substantial additional deductions to other unitholders.
Except as noted below, gain or loss recognized by a unitholder, other than
a "dealer" in units, on the sale or exchange of a unit held for more than one
year will generally be taxable as capital gain or loss. Capital gain recognized
by an individual on the sale of units held more than 12 months will generally be
taxed a maximum rate of 20%. A portion of this gain or loss, which will likely
be substantial, however, will be separately computed and taxed as ordinary
income or loss under Section 751 of the Internal Revenue Code to the extent
attributable to assets giving rise to depreciation recapture or other
"unrealized receivables" or to "inventory items" owned by us. The term
"unrealized receivables" includes potential recapture items, including
depreciation recapture. Ordinary income attributable to unrealized receivables,
inventory items and depreciation recapture may exceed net taxable gain realized
upon the sale of the unit and may be recognized even if there is a net taxable
loss realized on the sale of the unit. Deductions for mine exploration and
development expenditures are also subject to recapture as ordinary income to the
extent of any gain recognized on the sale or disposition of units. Thus, a
unitholder may recognize both ordinary income and a capital loss upon a
disposition of units. Net capital loss may offset no more than $3,000 of
ordinary income in the case of individuals and may only be used to offset
capital gain in the case of corporations.
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The IRS has ruled that a partner who acquires interests in a partnership in
separate transactions must combine those interests and maintain a single
adjusted tax basis. Upon a sale or other disposition of less than all of those
interests, a portion of that tax basis must be allocated to the interests sold
using an "equitable apportionment" method. The ruling is unclear as to how the
holding period of these interests is determined once they are combined. If this
ruling is applicable to the holders of common units, a common unitholder will be
unable to select high or low basis common units to sell as would be the case
with corporate stock. It is not clear whether the ruling applies to us, because,
similar to corporate stock, interests in us are evidenced by separate
certificates. Accordingly, counsel is unable to opine as to the effect this
ruling will have on the unitholders. A unitholder considering the purchase of
additional units or a sale of common units purchased in separate transactions
should consult his or her tax advisor as to the possible consequences of this
ruling.
Specific provisions of the Internal Revenue Code affect the taxation of
some financial products and securities, including partnership interests, by
treating a taxpayer as having sold an "appreciated" partnership interest, one in
which gain would be recognized if it were sold, assigned or terminated at its
fair market value, if the taxpayer or related persons enter(s) into:
(1) a short sale;
(2) an offsetting notional principal contract; or
(3) a futures or forward contract with respect to the partnership
interest or substantially identical property.
Moreover, if a taxpayer has previously entered into a short sale, an
offsetting notional principal contract or a futures or forward contract with
respect to the partnership interest, the taxpayer will be treated as having sold
that position if the taxpayer or a related person then acquires the partnership
interest or substantially identical property. The Secretary of Treasury is also
authorized to issue regulations that treat a taxpayer that enters into
transactions or positions that have substantially the same effect as the
preceding transactions as having constructively sold the financial position.
Allocations Between Transferors and Transferees. In general, our taxable
income and losses will be determined annually, will be prorated on a monthly
basis and will be subsequently apportioned among the unitholders in proportion
to the number of units owned by each of them as of the opening of the NYSE on
the first business day of the month (the "Allocation Date"). However, gain or
loss realized on a sale or other disposition of our assets other than in the
ordinary course of business will be allocated among the unitholders on the
Allocation Date in the month in which that gain or loss is recognized. As a
result, a unitholder transferring units in the open market may be allocated
income, gain, loss and deduction accrued after the date of transfer.
The use of this method may not be permitted under existing Treasury
Regulations. Accordingly, counsel is unable to opine on the validity of this
method of allocating income and deductions between the transferors and the
transferees of units. If this method is not allowed under the Treasury
Regulations, or only applies to transfers of less than all of the unitholder's
interest, our taxable income or losses might be reallocated among the
unitholders. We are authorized to revise our method of allocation between
transferors and transferees, as well as among partners whose interests otherwise
vary during a taxable period, to conform to a method permitted under future
Treasury Regulations.
A unitholder who owns units at any time during a quarter and who disposes
of these units prior to the record date set for a cash distribution for that
quarter will be allocated items of our income, gain, loss and deductions
attributable to that quarter but will not be entitled to receive that cash
distribution.
Notification Requirements. A unitholder who sells or exchanges units is
required to notify us in writing of that sale or exchange within 30 days after
the sale or exchange and in any event by no later than January 15 of the year
following the calendar year in which the sale or exchange occurred. We are
required to notify the IRS of that transaction and to furnish specified
information to the transferor and transferee. However, these reporting
requirements do not apply to a sale by an individual who is a citizen
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of the United States and who effects the sale or exchange through a broker.
Additionally, a transferor and a transferee of a unit will be required to
furnish statements to the IRS, filed with their income tax returns for the
taxable year in which the sale or exchange occurred, that describe the amount of
the consideration received for the unit that is allocated to our goodwill or
going concern value. Failure to satisfy these reporting obligations may lead to
the imposition of substantial penalties.
Constructive Termination. Alliance Resource Partners, the intermediate
partnership and the operating subsidiary will be considered to have been
terminated for tax purposes if there is a sale or exchange of 50% or more of the
total interests in our capital and profits within a 12-month period. If we elect
to be treated as a large partnership, which we do not currently intend to do, we
will not terminate by reason of the sale or exchange of interests in us. A
termination of Alliance Resource Partners will cause a termination of the
intermediate partnership and the operating subsidiary. A termination of us will
result in the closing of our taxable year for all unitholders. In the case of a
unitholder reporting on a taxable year other than a fiscal year ending December
31, the closing of our taxable year may result in more than 12 months' of our
taxable income or loss being includable in his or her taxable income for the
year of termination. New tax elections required to be made by us, including a
new election under Section 754 of the Internal Revenue Code, must be made after
a termination, and a termination would result in a deferral of our deductions
for depreciation. A termination could also result in penalties if we were unable
to determine that the termination had occurred. Moreover, a termination might
either accelerate the application of, or subject us to, any tax legislation
enacted before the termination.
TAX-EXEMPT ORGANIZATIONS AND OTHER INVESTORS
Ownership of units by employee benefit plans, other tax-exempt
organizations, nonresident aliens, foreign corporations, other foreign persons
and regulated investment companies raises issues unique to those investors and,
as described below, may have substantially adverse tax consequences. Employee
benefit plans and most other organizations exempt from federal income tax,
including individual retirement accounts and other retirement plans, are subject
to federal income tax on unrelated business taxable income. Virtually all of our
income allocated to a unitholder which is a tax-exempt organization will be
unrelated business taxable income and will be taxable to the unitholder.
A regulated investment company or "mutual fund" is required to derive 90%
or more of its gross income from interest, dividends and gains from the sale of
stocks or securities or foreign currency or specified related sources. It is not
anticipated that any significant amount of our gross income will include that
type of income.
Non-resident aliens and foreign corporations, trusts or estates that own
units will be considered to be engaged in business in the United States on
account of ownership of units. As a consequence they will be required to file
federal tax returns for their share of our income, gain, loss or deduction and
pay federal income tax at regular rates on any net income or gain. Generally, a
partnership is required to pay a withholding tax on the portion of the
partnership's income that is effectively connected with the conduct of a United
States trade or business and which is allocable to the foreign partners,
regardless of whether any actual distributions have been made to these partners.
However, under rules applicable to publicly traded partnerships, we will
withhold (currently at the rate of 39.6%) on actual cash distributions made
quarterly to foreign unitholders. Each foreign unitholder must obtain a taxpayer
identification number from the IRS and submit that number to our transfer agent
on a Form W-8 in order to obtain credit for the taxes withheld. A change in
applicable law may require us to change these procedures.
Because a foreign corporation that owns units will be treated as engaged in
a United States trade or business, that a corporation may be subject to United
States branch profits tax a rate of 30%, in addition to regular federal income
tax, on its share of our income and gain, as adjusted for changes in the foreign
corporation's "U.S. net equity," which are effectively connected with the
conduct of a United States trade or business. That tax may be reduced or
eliminated by an income tax treaty between the United States and the country in
which the foreign corporate unitholder is a "qualified resident." In addition,
this type of
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unitholder is subject to special information reporting requirements under
Section 6038C of the Internal Revenue Code.
Under a ruling of the IRS, a foreign unitholder who sells or otherwise
disposes of a unit will be subject to federal income tax on gain realized on the
disposition of that unit to the extent that this gain is effectively connected
with a United States trade or business of the foreign unitholder. Apart from the
ruling, a foreign unitholder will not be taxed or subject to withholding upon
the disposition of a unit if he has owned less than 5% in value of the units
during the five-year period ending on the date of the disposition and if the
units are regularly traded on an established securities market at the time of
the disposition.
ADMINISTRATIVE MATTERS
Information Returns and Audit Procedures. We intend to furnish to each
unitholder, within 90 days after the close of each calendar year, specific tax
information, including a Schedule K-1, which describes each unitholder's share
of our income, gain, loss and deduction for our preceding taxable year. In
preparing this information, which will generally not be reviewed by counsel, we
will use various accounting and reporting conventions, some of which have been
mentioned earlier, to determine the unitholder's share of income, gain, loss and
deduction. We cannot assure you that any of those conventions will yield a
result that conforms to the requirements of the Internal Revenue Code,
regulations or administrative interpretations of the IRS. Neither we nor counsel
can assure prospective unitholders that the IRS will not successfully contend in
court that those accounting and reporting conventions are impermissible. Any
challenge by the IRS could negatively affect the value of the units.
The IRS may audit our federal income tax information returns. Adjustments
resulting from any audit of this kind may require each unitholder to adjust a
prior year's tax liability, and possibly may result in an audit of that
unitholder's own return. Any audit of a unitholder's return could result in
adjustments not related to our returns as well as those related to our returns.
Partnerships generally are treated as separate entities for purposes of
federal tax audits, judicial review of administrative adjustments by the IRS and
tax settlement proceedings. The tax treatment of partnership items of income,
gain, loss and deduction are determined in a partnership proceeding rather than
in separate proceedings with the partners. The Internal Revenue Code provides
for one partner to be designated as the "Tax Matters Partner" for these
purposes. The partnership agreement appoints the managing general partner as the
Tax Matters Partner of Alliance Resource Partners.
The Tax Matters Partner will make some elections on our behalf and on
behalf of unitholders. In addition, the Tax Matters Partner can extend the
statute of limitations for assessment of tax deficiencies against unitholders
for items in our returns. The Tax Matters Partner may bind a unitholder with
less than a 1% profits interest in us to a settlement with the IRS unless that
unitholder elects, by filing a statement with the IRS, not to give that
authority to the Tax Matters Partner. The Tax Matters Partner may seek judicial
review, by which all the unitholders are bound, of a final partnership
administrative adjustment and, if the Tax Matters Partner fails to seek judicial
review, judicial review may be sought by any unitholder having at least a 1%
interest in profits or by any group of unitholders having in the aggregate at
least a 5% interest in profits. However, only one action for judicial review
will go forward, and each unitholder with an interest in the outcome may
participate. However, if we elect to be treated as a large partnership, a
unitholder will not have the right to participate in settlement conferences with
the IRS or to seek a refund.
A unitholder must file a statement with the IRS identifying the treatment
of any item on his federal income tax return that is not consistent with the
treatment of the item on our return. Intentional or negligent disregard of the
consistency requirement may subject a unitholder to substantial penalties.
However, if we elect to be treated as a large partnership, the unitholders would
be required to treat all partnership items in a manner consistent with our
return.
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If we elect to be treated as a large partnership, each partner would take
into account separately his share of the following items, determined at the
partnership level:
(1) taxable income or loss from passive loss limitation activities;
(2) taxable income or loss from other activities (including portfolio
income or loss);
(3) net capital gains to the extent allocable to passive loss
limitation activities and other activities;
(4) tax exempt interest;
(5) a net alternative minimum tax adjustment separately computed for
passive loss limitation activities and other activities;
(6) general credits;
(7) low-income housing credit;
(8) rehabilitation credit;
(9) foreign income taxes;
(10) credit for producing fuel from a nonconventional source; and
(11) any other items the Secretary of Treasury deems appropriate.
Moreover, miscellaneous itemized deductions would not be passed through to the
partners and 30% of those deductions would be used at the partnership level.
A number of other changes have been made to the tax compliance and
administrative rules relating to electing large partnerships. Adjustments
relating to partnership items for a previous taxable year are generally taken
into account by those persons who were partners in the previous taxable year.
Each partner in an electing large partnership, however, must take into account
his share of any adjustments to partnership items in the year that adjustments
are made. Alternatively, an electing large partnership could elect to or, in
some circumstances could be required to, directly pay the tax resulting from any
adjustments of this kind. In either case, therefore, unitholders could bear
significant costs associated with tax adjustments relating to periods predating
their acquisition of units. It is not expected that we will elect to have the
large partnership provisions apply to us because of the cost of their
application.
Nominee Reporting. Persons who hold an interest in Alliance Resource
Partners as a nominee for another person are required to furnish to us:
(a) the name, address and taxpayer identification number of the
beneficial owner and the nominee;
(b) whether the beneficial owner is
(1) a person that is not a United States person,
(2) a foreign government, an international organization or any
wholly owned agency or instrumentality of either of the foregoing, or
(3) a tax-exempt entity;
(c) the amount and description of units held, acquired or transferred
for the beneficial owner; and
(d) specific information including the dates of acquisitions and
transfers, means of acquisitions and transfers, and acquisition cost for
purchases, as well as the amount of net proceeds from sales.
Brokers and financial institutions are required to furnish additional
information, including whether they are United States persons and specific
information on units they acquire, hold or transfer for their
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own account. A penalty of $50 per failure, up to a maximum of $100,000 per
calendar year, is imposed by the Internal Revenue Code for failure to report
that information to us. The nominee is required to supply the beneficial owner
of the units with the information furnished to us.
Registration as a Tax Shelter. The Internal Revenue Code requires that "tax
shelters" be registered with the Secretary of the Treasury. The temporary
Treasury Regulations interpreting the tax shelter registration provisions of the
Internal Revenue Code are extremely broad. It is arguable that we are not
subject to the registration requirement on the basis that we will not constitute
a tax shelter. However, the managing general partner, as the principal organizer
of us, has applied to register us as a tax shelter with the Secretary of
Treasury in the absence of assurance that we will not be subject to tax shelter
registration and in light of the substantial penalties which might be imposed if
registration is required and not undertaken.
ISSUANCE OF THIS REGISTRATION NUMBER DOES NOT INDICATE THAT INVESTMENT IN
US OR THE CLAIMED TAX BENEFITS HAVE BEEN REVIEWED, EXAMINED OR APPROVED BY THE
IRS.
We will furnish the registration number to the unitholders, and a
unitholder who sells or otherwise transfers a unit in a later transaction must
furnish the registration number to the transferee. The penalty for failure of
the transferor of a unit to furnish the registration number to the transferee is
$100 for each failure. The unitholders must disclose our tax shelter
registration number on Form 8271 to be attached to the tax return on which any
deduction, loss or other benefit generated by us is claimed or on which any of
our income is included. A unitholder who fails to disclose the tax shelter
registration number on his or her return, without reasonable cause for that
failure, will be subject to a $250 penalty for each failure. Any penalties
discussed are not deductible for federal income tax purposes.
Accuracy-related Penalties. An additional tax equal to 20% of the amount of
any portion of an underpayment of tax that is attributable to one or more
specified causes, including negligence or disregard of rules or regulations,
substantial understatements of income tax and substantial valuation
misstatements, is imposed by the Internal Revenue Code. No penalty will be
imposed, however, for any portion of an underpayment if it is shown that there
was a reasonable cause for that portion and that the taxpayer acted in good
faith regarding that portion.
A substantial understatement of income tax in any taxable year exists if
the amount of the understatement exceeds the greater of 10% of the tax required
to be shown on the return for the taxable year or $5,000 ($10,000 for most
corporations). The amount of any understatement subject to penalty generally is
reduced if any portion is attributable to a position adopted on the return:
(1) for which there is, or was, "substantial authority"; or
(2) as to which there is a reasonable basis and the pertinent facts of
that position are disclosed on the return.
More stringent rules apply to "tax shelters," a term that in this context
does not appear to include us. If any item of income, gain, loss or deduction
included in the distributive shares of unitholders might result in that kind of
an "understatement" of income for which no "substantial authority" exists, we
must disclose the pertinent facts on our return. In addition, we will make a
reasonable effort to furnish sufficient information for unitholders to make
adequate disclosure on their returns to avoid liability for this penalty.
A substantial valuation misstatement exists if the value of any property,
or the adjusted basis of any property, claimed on a tax return is 200% or more
of the amount determined to be the correct amount of the valuation or adjusted
basis. No penalty is imposed unless the portion of the underpayment attributable
to a substantial valuation misstatement exceeds $5,000 ($10,000 for most
corporations). If the valuation claimed on a return is 400% or more than the
correct valuation, the penalty imposed increases to 40%.
137
<PAGE> 143
STATE, LOCAL AND OTHER TAX CONSIDERATIONS
In addition to federal income taxes, you will be subject to other taxes,
including state and local income taxes, unincorporated business taxes, and
estate, inheritance or intangible taxes that may be imposed by the various
jurisdictions in which we do business or own property. Although an analysis of
those various taxes is not presented here, each prospective unitholder should
consider their potential impact on his or her investment in us. We will
initially own property or do business in Illinois, Indiana, Kentucky, Maryland,
Oklahoma and West Virginia. Each of these states currently imposes a personal
income tax. A unitholder will be required to file state income tax returns and
to pay state income taxes in some or all of these states in which we do business
or own property and may be subject to penalties for failure to comply with those
requirements. In some states, tax losses may not produce a tax benefit in the
year incurred and also may not be available to offset income in subsequent
taxable years. Some of the states may require us, or we may elect, to withhold a
percentage of income from amounts to be distributed to a unitholder who is not a
resident of the state. Specifically, Indiana requires us to withhold Indiana
income taxes on a nonresident's distributive share of our income. Kentucky has
proposed withholding amendments to its statutes but these proposals have not
been enacted. Withholding, the amount of which may be greater or less than a
particular unitholder's income tax liability to the state, generally does not
relieve a nonresident unitholder from the obligation to file an income tax
return. Amounts withheld may be treated as if distributed to unitholders for
purposes of determining the amounts distributed by us. See "-- Tax Consequences
of Unit Ownership -- Entity-Level Collections." Based on current law and our
estimate of our future operations, the managing general partner anticipates that
any amounts required to be withheld will not be material. We may also own
property or do business in other states in the future.
IT IS THE RESPONSIBILITY OF EACH UNITHOLDER TO INVESTIGATE THE LEGAL AND
TAX CONSEQUENCES, UNDER THE LAWS OF PERTINENT STATES AND LOCALITIES, OF HIS OR
HER INVESTMENT IN US. ACCORDINGLY, EACH PROSPECTIVE UNITHOLDER SHOULD CONSULT,
AND MUST DEPEND UPON, HIS OR HER OWN TAX COUNSEL OR OTHER ADVISOR WITH REGARD TO
THOSE MATTERS. FURTHER, IT IS THE RESPONSIBILITY OF EACH UNITHOLDER TO FILE ALL
STATE AND LOCAL, AS WELL AS UNITED STATES FEDERAL TAX RETURNS THAT MAY BE
REQUIRED OF HIM OR HER. COUNSEL HAS NOT RENDERED AN OPINION ON THE STATE OR
LOCAL TAX CONSEQUENCES OF AN INVESTMENT IN US.
138
<PAGE> 144
INVESTMENT IN ALLIANCE RESOURCE PARTNERS BY EMPLOYEE BENEFIT PLANS
An investment in Alliance Resource Partners by an employee benefit plan is
subject to additional considerations because the investments of these plans are
subject to the fiduciary responsibility and prohibited transaction provisions of
ERISA, and restrictions imposed by Section 4975 of the Internal Revenue Code.
For these purposes the term "employee benefit plan" includes, but is not limited
to, qualified pension, profit-sharing and stock bonus plans, Keogh plans,
simplified employee pension plans and tax deferred annuities or IRAs established
or maintained by an employer or employee organization. Among other things,
consideration should be given to:
(a) whether the investment is prudent under Section 404(a)(1)(B) of
ERISA;
(b) whether in making the investment, that plan will satisfy the
diversification requirements of Section 404(a)(1)(C) of ERISA; and
(c) whether the investment will result in recognition of unrelated
business taxable income by the plan and, if so, the potential after-tax
investment return.
The person with investment discretion with respect to the assets of an
employee benefit plan, often called a fiduciary, should determine whether an
investment in Alliance Resource Partners is authorized by the appropriate
governing instrument and is a proper investment for the plan.
Section 406 of ERISA and Section 4975 of the Internal Revenue Code
prohibits employee benefit plans, and also IRAs that are not considered part of
an employee benefit plan, from engaging in specified transactions involving
"plan assets" with parties that are "parties in interest" under ERISA or
"disqualified persons" under the Internal Revenue Code with respect to the plan.
In addition to considering whether the purchase of common units is a
prohibited transaction, a fiduciary of an employee benefit plan should consider
whether the plan will, by investing in Alliance Resource Partners, be deemed to
own an undivided interest in the assets of Alliance Resource Partners, with the
result that the general partners also would be fiduciaries of the plan and the
operations of Alliance Resource Partners would be subject to the regulatory
restrictions of ERISA, including its prohibited transaction rules, as well as
the prohibited transaction rules of the Internal Revenue Code.
The Department of Labor regulations provide guidance with respect to
whether the assets of an entity in which employee benefit plans acquire equity
interests would be deemed "plan assets" under some circumstances. Under these
regulations, an entity's assets would not be considered to be "plan assets" if,
among other things,
(a) the equity interests acquired by employee benefit plans are
publicly offered securities -- i.e., the equity interests are widely held
by 100 or more investors independent of the issuer and each other, freely
transferable and registered under some provisions of the federal securities
laws,
(b) the entity is an "operating company,"-- i.e., it is primarily
engaged in the production or sale of a product or service other than the
investment of capital either directly or through a majority-owned
subsidiary or subsidiaries, or
(c) there is no significant investment by benefit plan investors,
which is defined to mean that less than 25% of the value of each class of
equity interest, disregarding some interests held by the general partners,
their affiliates, and some other persons, is held by the employee benefit
plans referred to above, IRAs and other employee benefit plans not subject
to ERISA, including governmental plans.
Alliance Resource Partners' assets should not be considered "plan assets"
under these regulations because it is expected that the investment will satisfy
the requirements in (a) above.
Plan fiduciaries contemplating a purchase of common units should consult
with their own counsel regarding the consequences under ERISA and the Internal
Revenue Code in light of the serious penalties imposed on persons who engage in
prohibited transactions or other violations.
139
<PAGE> 145
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated the date hereof, each of the underwriters named below have severally
agreed to purchase, and Alliance Resource Partners has agreed to sell to the
underwriters, the number of common units set forth opposite the name of the
underwriters.
<TABLE>
<CAPTION>
NUMBER OF
NAME COMMON UNITS
- ---- ------------
<S> <C>
Salomon Smith Barney Inc....................................
Morgan Stanley & Co. Incorporated...........................
A.G. Edwards & Sons, Inc....................................
Lehman Brothers Inc.........................................
---------
Total.................................................. 8,969,335
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the common units included in this offering are subject
to approval of legal matters by counsel and to other conditions. The
underwriters are obligated to purchase all the common units (other than those
covered by the over-allotment option described below) if they purchase any of
the common units.
The underwriters, for whom Salomon Smith Barney Inc., Morgan Stanley & Co.
Incorporated, A.G. Edwards & Sons, Inc. and Lehman Brothers Inc. are acting as
representatives, propose to offer some of the common units directly to the
public at the public offering price set forth on the cover page of this
prospectus and some of the common units to dealers at the public offering price
less a concession not in excess of $ per common unit. The underwriters may
allow, and the dealers may reallow, a concession not in excess of $ per
common unit on sales to other dealers. If all of the common units are not sold
at the initial offering price, the representatives may change the public
offering price and the other selling terms. The representatives have advised
Alliance Resource Partners that the underwriters do not intend to confirm any
sales to any accounts over which they exercise discretionary authority.
Alliance Resource Partners has granted to the underwriters an option,
exercisable for 30 days from the date of this prospectus, to purchase up to
1,345,400 additional common units at the public offering price less the
underwriting discount. The underwriters may exercise this option solely for the
purpose of covering over-allotments, if any, in connection with this offering.
To the extent the option is exercised, each underwriter will be obligated,
subject to conditions, to purchase a number of additional common units
approximately proportionate to the underwriter's initial purchase commitment.
Alliance Resource Holdings, Alliance Resource Partners, various
subsidiaries, the general partners and the officers and directors of the general
partners have agreed that, for a period of 180 days from the date of this
prospectus, they will not, without the prior written consent of Salomon Smith
Barney Inc., dispose of or hedge any common units or subordinated units of
Alliance Resource Partners or any securities convertible into or exchangeable
for, or that represent a right to receive, common units or subordinated units or
any securities that are senior to or on a parity with the common units or grant
any options or warrants to purchase common units or subordinated units, other
than pursuant to our long-term incentive plan or the redemption of the
subordinated units in the event the over-allotment option is exercised.
Prior to this offering, there has been no public market for the common
units. Consequently, the initial public offering price will be negotiated by the
managing general partner and the representatives. Among the factors to be
considered in determining the initial public offering price of the common units,
in addition to prevailing market conditions, will be Alliance Resource Partners'
pro forma historical performance, estimates of the business potential and
earnings prospects of Alliance Resource Partners, an assessment of Alliance
Resource Partners' management and consideration of the above factors in relation
to market value of companies in related businesses.
The common units have been approved for quotation on the Nasdaq National
Market under the symbol "ARLP."
140
<PAGE> 146
The following table shows the underwriting discounts and commissions to be
paid to the underwriters by Alliance Resource Partners in connection with this
offering. These amounts are shown assuming both no exercise and full exercise of
the underwriters' option to purchase additional shares of common units.
<TABLE>
<CAPTION>
PAID BY ALLIANCE RESOURCE PARTNERS
-----------------------------------
NO EXERCISE FULL EXERCISE
------------- ---------------
<S> <C> <C>
Per common unit.......................................... $ $
Total.................................................... $ $
</TABLE>
In connection with the offering, Salomon Smith Barney Inc., on behalf of
the underwriters, may purchase and sell shares of common units in the open
market. These transactions may include over-allotment, syndicate covering
transactions and stabilizing transactions. Over-allotment involves syndicate
sales of common units in excess of the number of common units to be purchased by
the underwriters in the offering, which creates a syndicate short position.
Syndicate covering transactions involve purchases of the common units in the
open market after the distribution has been completed in order to cover
syndicate short positions. Stabilizing transactions consist of bids or purchases
of common units made for the purpose of preventing or retarding a decline in the
market price of the common units while the offering is in progress.
The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Salomon Smith Barney Inc., in covering syndicate short positions or making
stabilizing purchases, repurchases shares originally sold by that syndicate
member.
Any of these activities may cause the price of the common units to be
higher than the price that otherwise would exist in the open market in the
absence of these transactions. These transactions may be effected on the Nasdaq
National Market or otherwise and, if commenced, may be discontinued at any time.
Because the National Association for Securities Dealers, Inc., or the NASD,
views the common units offered hereby as an interest in a direct participation
program, the offering is being made in compliance with Rule 2810 of the NASD's
Conduct Rules. Investor suitability with respect to the common units should be
judged similarly to the suitability with respect to other securities that are
listed for trading on a national securities exchange.
The underwriters have reserved for sale, at the initial public offering
price, up to 157,894 common units for officers and directors of our general
partners and affiliates that we have designated and who have expressed an
interest in purchasing our common units. The number of common units available
for sale to the general public in this offering will be reduced to the extent
those persons purchase the reserved common units. Any reserved common units not
so purchased will be offered to the general public on the same basis as other
common units offered hereby. Alliance Resource Holdings is making short-term
loans to a number of these designated purchasers to fund their purchase of the
common units. See "Certain Relationships and Related
Transactions -- Relationship with Alliance Resource Holdings".
We estimate that the total expenses of this offering, excluding
underwriting discounts and commissions, will be approximately $2,720,000.
Alliance Resource Holdings, Alliance Resource Partners, the general
partners and various subsidiaries have agreed to indemnify the several
underwriters against various liabilities, including liabilities under the
Securities Act, or to contribute to payments the underwriters may be required to
make in respect of any of those liabilities.
Some of the underwriters engage in transactions with, and, from time to
time, have performed services for, the managing general partner and its
subsidiaries in the ordinary course of business and have received customary fees
for performing these services. Salomon Smith Barney Inc. and Lehman Brothers
Inc. are acting as placement agents in connection with the private placement of
the senior notes for which they will receive customary compensation. Citicorp
USA, Inc., an affiliate of Salomon Smith Barney, Inc., will be a lender under
the senior credit facility to be entered into by the special general partner and
141
<PAGE> 147
assumed by the intermediate partnership. In addition, Lehman Brothers Inc. has
provided and will continue to provide general investment banking and financial
advisory services to the managing general partner and its subsidiaries for which
it has received and will continue to receive customary compensation.
VALIDITY OF THE COMMON UNITS
The validity of the common units will be passed upon for Alliance Resource
Partners by Andrews & Kurth L.L.P., Houston, Texas. Certain legal matters in
connection with the common units offered hereby will be passed upon for the
underwriters by Baker & Botts, L.L.P., Houston, Texas.
EXPERTS
The combined balance sheets of Alliance Resource Group as of December 31,
1997 and 1998 and the related combined statements of income and cash flows for
the seven months ended July 31, 1996 (predecessor), the five months ended
December 31, 1996 and the years ended December 31, 1997 and 1998 (successor) and
the balance sheet of Alliance Resource Partners, L.P. as of May 17, 1999 and the
balance sheet of Alliance Resource GP, LLC as of May 17, 1999 and the balance
sheet of Alliance Resource Management GP, LLC as of July 19, 1999 included in
this prospectus and in the Registration Statement filed with the Securities and
Exchange Commission for the registration of common units representing limited
partner interests offered hereby, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing in the Registration
Statement, and have been so included in reliance upon the reports of such firm
given their authority as experts in accounting and auditing.
The reserve report and estimates of our proven and probable coal reserves
included in this prospectus have, to the extent described in this prospectus,
been prepared by us and audited by Weir International Mining Consultants. A
summary of these estimates contained in the coal reserve audit summary report of
Weir International Mining Consultants has been included in this prospectus as
Appendix E in reliance upon that firm as an experts with respect to the
measurement of coal reserves.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1, regarding
the common units offered by this prospectus. This prospectus does not contain
all of the information set forth in the registration statement. For further
information with respect to Alliance Resource Partners and the common units
offered hereby in this prospectus, you may desire to review the registration
statement, including its exhibits and schedules. You may desire to review the
full text of any contracts, agreements or other documents filed as exhibits to
the registration statement for a more complete description of the matter
involved. The registration statement, including the exhibits and schedules, may
be inspected and copied at the public reference facilities maintained by the SEC
at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission located at 7 World Trade Center, Suite 1300,
New York, New York 10048 and 500 West Madison Street, Chicago, Illinois 60661.
Copies of this material can also be obtained upon written request from the
Public Reference Section of the SEC at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates or from the SEC's web site on the
Internet at http://www.sec.gov. Please call the SEC at 1-800-SEC-0330 for
further information on public reference rooms.
As a result of the offering, we will file periodic reports and other
information with the SEC. These reports and other information may be inspected
and copied at the public reference facilities maintained by the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates or obtained from the
SEC's web site on the Internet at http://www.sec.gov.
We intend to furnish our unitholders annual reports containing audited
financial statements and furnish or make available quarterly reports containing
unaudited interim financial information for the first three fiscal quarters of
each fiscal year of Alliance Resource Partners.
142
<PAGE> 148
FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus may contain forward-looking
statements. These statements can be identified by the use of forward-looking
terminology including "may," "believe," "will," "expect," "anticipate,"
"estimate," "continue" or other similar words. These statements discuss future
expectations, contain projections of results of operations or of financial
condition or state other "forward-looking" information. These forward-looking
statements involve risks and uncertainties. When considering these
forward-looking statements, you should keep in mind the risk factors and other
cautionary statements in this prospectus. The risk factors and other factors
noted throughout this prospectus could cause our actual results to differ
materially from those contained in any forward-looking statement.
143
<PAGE> 149
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ALLIANCE RESOURCE PARTNERS, L.P.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS:
Introduction........................................... F-2
Unaudited Pro Forma Balance Sheet at March 31, 1999.... F-3
Unaudited Pro Forma Statement of Operations -- Year
Ended December 31, 1998............................... F-4
Unaudited Pro Forma Statement of Operations -- Three
Months Ended March 31, 1999........................... F-5
Notes to Unaudited Pro Forma Financial Statements...... F-6
ALLIANCE RESOURCE GROUP
UNAUDITED COMBINED INTERIM FINANCIAL STATEMENTS:
Combined Balance Sheet at March 31, 1999............... F-9
Combined Statements of Income for the Three Months
Ended March 31, 1998 and 1999......................... F-10
Combined Statements of Cash Flows for the Three Months
Ended March 31, 1998 and 1999......................... F-11
Notes to the Unaudited Combined Financial Statements... F-12
ALLIANCE RESOURCE GROUP
AUDITED COMBINED FINANCIAL STATEMENTS:
Independent Auditors' Report........................... F-13
Combined Balance Sheets at December 31, 1997 and
1998.................................................. F-14
Combined Statements of Income for the Seven Months
Ended July 31, 1996 (predecessor), the Five Months
Ended December 31, 1996, and the Years Ended December
31, 1997 and 1998 (successor)......................... F-15
Combined Statements of Cash Flows for the Seven Months
Ended July 31, 1996 (predecessor), the Five Months
Ended December 31, 1996, and the Years Ended December
31, 1997 and 1998 (successor)......................... F-16
Notes to Combined Financial Statements................. F-17
ALLIANCE RESOURCE MANAGEMENT GP, LLC
AUDITED BALANCE SHEET:
Independent Auditors' Report........................... F-28
Balance Sheet at July 19, 1999......................... F-29
Note to Balance Sheet.................................. F-30
ALLIANCE RESOURCE GP, LLC
AUDITED BALANCE SHEET:
Independent Auditors' Report........................... F-31
Balance Sheet at May 17, 1999.......................... F-32
Note to Balance Sheet.................................. F-33
ALLIANCE RESOURCE PARTNERS, L.P.
AUDITED BALANCE SHEET:
Independent Auditors' Report........................... F-34
Balance Sheet at May 17, 1999.......................... F-35
Note to Balance Sheet.................................. F-36
</TABLE>
F-1
<PAGE> 150
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Following are the unaudited pro forma financial statements of Alliance
Resource Partners, L.P. ("Alliance Resource Partners"), a newly formed limited
partnership, as of March 31, 1999 and for the year ended December 31, 1998 and
the three months ended March 31, 1999. The unaudited pro forma balance sheet
assumes that the offering and the transactions occurred as of March 31, 1999,
and the statements of operations assume the offering and transactions occurred
on January 1, 1998. These transaction adjustments are presented in the notes to
the unaudited pro forma financial statements. The unaudited pro forma financial
statements and accompanying notes should be read together with the Financial
Statements and related notes included elsewhere in this Prospectus.
Alliance Resource Partners believes that the accounting treatment used to
reflect these transactions provides a reasonable basis on which to present this
unaudited pro forma financial data. The pro forma balance sheet and the pro
forma statements of operations are unaudited and were derived by adjusting the
historical financial statements of Alliance Resource Partners. Alliance Resource
Partners is providing unaudited pro forma financial statements for informational
purposes only. They should not be construed as indicative of Alliance Resource
Partners' financial position or results of operations had the transactions been
consummated on the dates assumed. Moreover, they do not project Alliance
Resource Partners' financial position or results of operations for any future
date or period.
F-2
<PAGE> 151
ALLIANCE RESOURCE PARTNERS, L.P.
UNAUDITED PRO FORMA BALANCE SHEET
MARCH 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
OFFERING AND
TRANSACTIONS PRO FORMA
ACTUAL ADJUSTMENTS AS ADJUSTED
-------- ------------ -----------
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 179,387(A) $ 36,523
180,000(B)
48,619(C)
(48,619)(C)
(19,361)(D)
(309,753)(E)
6,250(E)
U.S. Treasury Notes....................................... 48,619(C) 48,619
Trade receivables......................................... $ 37,166 (37,166)(F) --
Income tax receivable..................................... 508 (508)(F) --
Inventories............................................... 22,322 22,322
Advance royalties......................................... 2,499 2,499
Prepaid expenses and other assets......................... 887 887
-------- --------
Total current assets................................ 63,382 110,850
-------- --------
PROPERTY, PLANT AND EQUIPMENT, AT COST...................... 244,866 244,866
LESS - ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION.............................................. (77,354) (77,354)
-------- --------
167,512 167,512
-------- --------
OTHER ASSETS:
Advance royalties......................................... 8,375 8,375
Deferred financing costs, net............................. 0 4,025(D) 4,025
Coal supply agreements, net............................... 23,163 23,163
Other long-term assets.................................... 1,866 1,866
-------- --------
$264,298 $315,791
======== ========
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Current maturities, long-term debt........................ $ 350 $ 350
Accounts payable.......................................... 24,094 24,094
Accrued taxes other than income taxes..................... 5,018 5,018
Accrued payroll and related expenses...................... 9,970 9,970
Workers' compensation and pneumoconiosis benefits......... 4,848 4,848
Other current liabilities................................. 6,101 6,101
-------- --------
Total current liabilities........................... 50,381 50,381
-------- --------
LONG-TERM LIABILITIES:
Long-term debt, excluding current maturities.............. 1,727 180,000(B) 230,346
48,619(C)
Deferred income taxes..................................... 3,315 (3,315)(F) 0
Accrued pneumoconiosis benefits........................... 22,456 22,456
Workers' compensation..................................... 13,480 13,480
Reclamation and mine closing.............................. 12,824 12,824
Other liabilities......................................... 5,255 5,255
-------- --------
Total liabilities................................... 109,438 334,742
-------- --------
EQUITY
Net Parent Investment..................................... 154,860 (154,860)(G) --
Common units (8,969,335 common units)..................... -- 179,387(A) 164,051
(15,336)(D)
Subordinated units (6,413,075 subordinated units)......... -- 147,633(G) 147,633
General partners interest................................. -- 7,227(G) (330,635)
(309,753)(E)
6,250(E)
(34,359)(F)
-------- --------
Total equity (deficit).............................. 154,860 (18,951)
-------- --------
$264,298 $315,791
======== ========
</TABLE>
See Notes to Unaudited Pro Forma Financial Statements
F-3
<PAGE> 152
ALLIANCE RESOURCE PARTNERS, L.P.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
OFFERING AND
TRANSACTIONS PRO FORMA
ACTUAL ADJUSTMENTS AS ADJUSTED
-------- ------------ -----------
<S> <C> <C> <C>
SALES AND OPERATING REVENUES:
Coal sales.......................................... $357,440 $ 357,440
Other sales and operating revenues.................. 4,453 4,453
-------- -----------
Total revenues.............................. 361,893 361,893
-------- -----------
EXPENSES:
Operating expenses.................................. 237,576 237,576
Outside purchases................................... 51,151 51,151
General and administrative.......................... 15,301 15,301
Depreciation, depletion and amortization............ 39,838 39,838
Interest expense.................................... 169 $19,092(H,I) 19,261
Unusual item........................................ 5,211 5,211
-------- -----------
Total operating expenses.................... 349,246 368,338
-------- -----------
INCOME (LOSS) FROM OPERATIONS......................... 12,647 (6,445)
OTHER INCOME (EXPENSE)................................ (113) (113)
-------- -----------
INCOME (LOSS) BEFORE INCOME TAXES..................... 12,534 (6,558)
INCOME TAX EXPENSE.................................... 3,866 (3,866)(J,K) --
-------- -----------
NET INCOME (LOSS)..................................... $ 8,668 $ (6,558)
========
GENERAL PARTNER'S INTEREST IN NET LOSS................ (131)
-----------
LIMITED PARTNERS' INTEREST IN NET LOSS................ $ (6,427)
===========
NET LOSS PER UNIT..................................... $ (0.42)
===========
WEIGHTED AVERAGE LIMITED PARTNERS' UNITS
OUTSTANDING(L)...................................... 15,382,410
===========
</TABLE>
See Notes to Unaudited Pro Forma Financial Statements
F-4
<PAGE> 153
ALLIANCE RESOURCE PARTNERS, L.P.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
OFFERING AND
TRANSACTIONS PRO FORMA
ACTUAL ADJUSTMENTS AS ADJUSTED
------- ------------ -----------
<S> <C> <C> <C>
SALES AND OPERATING REVENUES:
Coal sales............................................ $82,798 $ 82,798
Other sales and operating revenues.................... 264 264
------- -----------
Total revenues................................ 83,062 83,062
------- -----------
EXPENSES:
Operating expenses.................................... 56,843 56,843
Outside purchases..................................... 8,464 8,464
General and administrative............................ 3,549 3,549
Depreciation, depletion and amortization.............. 9,933 9,933
Interest expense...................................... 40 $ 4,773(H,I) 4,813
------- -----------
Total operating expenses...................... 78,829 83,602
------- -----------
INCOME (LOSS) FROM OPERATIONS........................... 4,233 (540)
OTHER INCOME............................................ 41 41
------- -----------
INCOME (LOSS) BEFORE INCOME TAXES....................... 4,274 (499)
INCOME TAX EXPENSE...................................... 1,305 (1,305)(J,K) --
------- -----------
NET INCOME (LOSS)....................................... $ 2,969 (499)
=======
GENERAL PARTNER'S INTEREST IN NET LOSS.................. (10)
-----------
LIMITED PARTNERS' INTEREST IN NET LOSS.................. $ (489)
===========
NET LOSS PER UNIT....................................... $ (.03)
===========
WEIGHTED AVERAGE LIMITED PARTNERS' UNITS
OUTSTANDING(L)........................................ 15,382,410
===========
</TABLE>
See Notes to Unaudited Pro Forma Financial Statements
F-5
<PAGE> 154
ALLIANCE RESOURCE PARTNERS, L.P.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND MARCH 31, 1999
The pro forma financial statements are based upon the historical financial
position and results of operations of the wholly owned subsidiaries of Alliance
Resource Holdings (the "Alliance Resource Group" or the "Group") that will be
contributed to Alliance Resource Partners, L.P. ("Alliance Resource Partners"),
a newly formed limited partnership. Alliance Resource Partners will include all
the assets and liabilities of the entities currently included in Alliance
Resource Group's historical financial statements, except for approximately
$37,166,000 of trade receivables, $508,000 of income tax receivable, and
$3,315,000 of deferred income tax liabilities. The assets and liabilities of
Alliance Resource Group will be transferred at historical cost to Alliance
Resource Partners, L.P.
The pro forma financial statements reflect the simultaneous closing of the
following transactions: (i) the public offering by Alliance Resource Partners of
8,969,335 Common Units at the initial public offering price of $20.00 per Common
Unit resulting in aggregate gross proceeds to Alliance Resource Partners of
$179,387,000, (ii) the issuance by Alliance Resource Partners of 6,413,075
Subordinated Units to Alliance Resource GP, LLC, the special general partner of
Alliance Resource Partners, (iii) the purchase by the managing general partner
of its general partner interests in exchange for approximately $6.3 million,
(iv) the issuance by Alliance Resource Partners of an aggregate 2% general
partner interest to the general partners, (v) the assumption by a subsidiary of
Alliance Resource Partners of $180,000,000 of senior unsecured notes (the
"Notes") from the special general partner, (vi) the assumption by a subsidiary
of Alliance Resource Partners from the special general partner of $100,000,000
of bank credit facilities, of which $48,619,000 will be drawn down under the
term loan facility, (vii) the purchase by Alliance Resource Partners of
$48,619,000 of U.S. Treasury Notes, (viii) receipt by the special general
partner of and ultimate distribution to Alliance Resource Holdings of
approximately $309,753,000, representing both amounts borrowed and retained by
the special general partner as well as a distribution from Alliance Resource
Partners, and (ix) the payment of underwriting fees and commissions, and other
fees and expenses associated with the transactions, expected to be approximately
$19,361,000.
Upon completion of the offering, Alliance Resource Partners anticipates
incurring incremental general and administrative costs (e.g. cost of tax return
preparation and quarterly reports to unitholders, investor relations and
registrar and transfer agent fees) at an annual rate of approximately
$1,000,000. The pro forma financial statements do not reflect any adjustments
for these estimated incremental costs.
The adjustments are based upon currently available information and certain
estimates and assumptions, and therefore, the actual adjustments may differ from
the pro forma adjustments. However, management believes that the assumptions
provide a reasonable basis for presenting the significant effects of the
transactions as contemplated and that the pro forma adjustments give appropriate
effect to those assumptions and are properly applied in the pro forma financial
statements. The unaudited pro forma financial statements do not purport to
present the financial position or results of operations of Alliance Resource
Partners had the transactions to be effected at the closing actually been
completed as of the dates indicated.
OFFERING AND TRANSACTIONS ADJUSTMENTS
The pro forma offering and transaction adjustments have been prepared as if
the transactions had taken place on March 31, 1999, in the case of the pro forma
balance sheet, or as of January 1, 1998 in case of the pro forma statements of
operations for the year ended December 31, 1998 and the three month period ended
March 31, 1999.
BALANCE SHEET
(A) Reflects the proceeds to Alliance Resource Partners of $179,387,000 from
the issuance and sale of 8,969,335 Common Units at an assumed initial
public offering price of $20.00 per unit.
F-6
<PAGE> 155
ALLIANCE RESOURCE PARTNERS, L.P.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(B) Reflects the proceeds from the private placement of senior unsecured
notes of $180,000,000 at an assumed annual interest rate of 8.31%.
(C) Reflects the proceeds from the term loan facility of $48,619,000 and the
corresponding purchase of U.S. Treasury Notes of $48,619,000.
(D) Reflects the payment of debt financing and underwriting commissions and
fees of $4,025,000 and $15,336,000, respectively. The debt financing fees
will be capitalized as deferred financing costs, and the syndication fees
will be allocated to the common units.
(E) Represents receipt by the special general partner of, and ultimate
distribution to Alliance Resource Holdings of approximately $309,753,000,
representing both amounts borrowed and retained by the special general
partner, including $6,250,000 of consideration paid by the managing
general partner for its general partner interest, as well as a
distribution from Alliance Resource Partners.
(F) Represents the retention by Alliance Resource Holdings of trade
receivables of $37,166,000, an income tax receivable of $508,000, and
deferred income taxes of $3,315,000.
(G) Represents the allocation of the net assets of the Group of $154,860,000,
of which $147,633,000 is allocated to the subordinated unitholders and
$7,227,000 to the general partners.
STATEMENTS OF OPERATIONS
(H) Reflects interest expense for the year ended December 31, 1998 and the
three months ended March 31, 1999 as if the senior unsecured notes were
issued and the term loan was drawn down on January 1, 1998. The pro forma
interest expense applicable to Alliance Resource Partners is as follows
(in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1998 1999
------------ ------------
<S> <C> <C>
Pro Forma Interest Expense
Notes ($180,000 principal balance), at an assumed annual
interest rate of 8.31%................................. $14,958 $3,739
Bank Debt ($48,619 principal drawn under term loan
facility) at an assumed annual interest rate of
6.81%.................................................. 3,311 828
Fee on the unused portion of the working capital facility
and revolving credit facility ($50,000 unused portion)
at an assumed annual rate of 0.75%..................... 375 94
------- ------
Pro Forma Interest Expense................................ $18,644 $4,661
</TABLE>
(I) Reflects the amortization of deferred debt offering fees and expenses for
the year ended December 31, 1998 and the three months ended March 31,
1999 as if the senior unsecured notes were issued and the term loan was
drawn down on January 1, 1998. The pro forma amortization of
F-7
<PAGE> 156
ALLIANCE RESOURCE PARTNERS, L.P.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
deferred debt offering fees and expenses applicable to Alliance Resource
Partners is as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1998 1999
------------ ------------
<S> <C> <C>
Pro Forma Amortization Expense
Amortization of $2,673 deferred financing fees over 15
year term for the senior unsecured notes............... $178 $ 45
Amortization of $1,352 deferred financing fees over 5 year
term for the bank debt................................. 270 67
---- ----
Pro Forma Amortization Expense............................ $448 $112
</TABLE>
(J) Represents the retention by Alliance Resource Holdings of income taxes of
$3,866,000 for the year ended December 31, 1998, and $1,305,000 for the
three months ended March 31, 1999.
(K) Pro forma net income excludes federal and state income taxes as income
taxes will be the responsibility of the unitholders and not Alliance
Resource Partners.
(L) The weighted average limited partners' units outstanding used in the
income (loss) per unit calculation includes the limited partners' Common
and Subordinated Units and excludes the general partners' interest.
SUPPLEMENTAL DISCLOSURE
The proceeds from the term loan facility will be immediately invested in
U.S. Treasury Notes. In calculating pro forma net loss, we have not
included interest income from the U.S. Treasury Notes. Assuming the U.S.
Treasury Notes were purchased on January 1, 1998 the pro forma interest
income applicable to Alliance Resources Partners for the year ended
December 31, 1998 and the three months ended March 31, 1999 is as follows
(in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1998 1999
------------ ------------
<S> <C> <C>
Pro Forma Interest Income
One year U.S. Treasury Notes -- $8,050 bearing interest at
an assumed annual rate of 4.94%........................ $ 398 $ 99
Two year U.S. Treasury Notes -- $40,569 bearing interest
at an assumed annual rate of 5.44%..................... 2,207 552
------ ----
Pro Forma Interest Income................................. $2,605 $651
</TABLE>
F-8
<PAGE> 157
ALLIANCE RESOURCE GROUP
COMBINED BALANCE SHEET
MARCH 31, 1999 (UNAUDITED)
(AMOUNTS IN THOUSANDS)
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS:
Trade receivables......................................... $ 37,166
Income tax receivable..................................... 508
Inventories............................................... 22,322
Advance royalties......................................... 2,499
Prepaid expenses and other assets......................... 887
--------
Total current assets.............................. 63,382
--------
PROPERTY, PLANT AND EQUIPMENT, AT COST...................... 244,866
LESS ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION... (77,354)
--------
167,512
--------
OTHER ASSETS:
Advance royalties......................................... 8,375
Coal supply agreements, net............................... 23,163
Other long-term assets.................................... 1,866
--------
$264,298
========
LIABILITIES AND NET PARENT INVESTMENT
CURRENT LIABILITIES:
Current maturities, long-term debt........................ $ 350
Accounts payable.......................................... 24,094
Accrued taxes other than income taxes..................... 5,018
Accrued payroll and related expenses...................... 9,970
Workers' compensation and pneumoconiosis benefits......... 4,848
Other current liabilities................................. 6,101
--------
Total current liabilities......................... 50,381
--------
LONG-TERM LIABILITIES:
Long-term debt, excluding current maturities.............. 1,727
Deferred income taxes..................................... 3,315
Accrued pneumoconiosis benefits........................... 22,456
Workers' compensation..................................... 13,480
Reclamation and mine closing.............................. 12,824
Other liabilities......................................... 5,255
--------
Total liabilities................................. 109,438
COMMITMENTS AND CONTINGENCIES
NET PARENT INVESTMENT....................................... 154,860
--------
$264,298
========
</TABLE>
See notes to unaudited combined financial statements.
F-9
<PAGE> 158
ALLIANCE RESOURCE GROUP
COMBINED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1998 AND 1999 (UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31,
-----------------
1998 1999
------- -------
<S> <C> <C>
SALES AND OPERATING REVENUES:
Coal sales................................................ $87,226 $82,798
Other sales and operating revenues........................ 1,096 264
------- -------
Total revenues.................................... 88,322 83,062
EXPENSES:
Operating expenses........................................ 58,480 56,843
Outside purchases......................................... 11,048 8,464
General and administrative................................ 4,187 3,549
Depreciation, depletion and amortization.................. 9,857 9,933
Interest expense.......................................... 44 40
------- -------
Total operating expenses.......................... 83,616 78,829
------- -------
INCOME FROM OPERATIONS...................................... 4,706 4,233
OTHER INCOME................................................ 112 41
------- -------
INCOME BEFORE INCOME TAXES.................................. 4,818 4,274
INCOME TAX EXPENSE.......................................... 1,494 1,305
------- -------
NET INCOME.................................................. $ 3,324 $ 2,969
======= =======
</TABLE>
See notes to unaudited combined financial statements.
F-10
<PAGE> 159
ALLIANCE RESOURCE GROUP
COMBINED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 AND 1999 (UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31,
------------------
1998 1999
-------- -------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income................................................ $ 3,324 $ 2,969
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation, depletion and amortization............... 9,857 9,933
Deferred income taxes.................................. (437) (590)
Reclamation and mine closings.......................... 204 87
Other.................................................. 44 15
Changes in operating assets and liabilities, net of
effects from 1998 purchase of coal business:
Trade receivables...................................... (12,680) (5,898)
Income tax receivable/payable.......................... (586) (5)
Inventories............................................ (4,069) (2,267)
Advance royalties...................................... (100) 507
Accounts payable....................................... 6,233 (433)
Accrued taxes other than income taxes.................. 2 492
Accrued payroll and related benefits................... 926 701
Accrued pneumoconiosis benefits........................ 263 223
Workers' compensation.................................. 44 (454)
Other.................................................. 1,038 983
-------- -------
Total net adjustments............................. 739 3,294
-------- -------
Net cash provided by operating activities......... 4,063 6,263
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for purchase of business.......................... (7,310) --
Direct acquisition costs.................................. (821) --
Purchase of property, plant and equipment................. (5,185) (5,738)
Proceeds from sale of property, plant and equipment....... 4 353
-------- -------
Net cash used in investing activities............. (13,312) (5,385)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contribution (return) of capital to Parent................ 9,249 (878)
-------- -------
Net cash provided by (used in) financing
activities....................................... 9,249 (878)
-------- -------
NET CHANGE IN CASH AND BALANCE AT END OF PERIOD............. $ -- $ --
======== =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid through Parent.......................... $ 2,517 $ 1,900
======== =======
</TABLE>
See notes to unaudited combined financial statements.
F-11
<PAGE> 160
ALLIANCE RESOURCE GROUP
NOTES TO THE UNAUDITED COMBINED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 AND 1999
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited combined financial
statements of Alliance Resource Group (the "Group") include all adjustments,
consisting only of normal recurring adjustments, necessary for the fair
presentation of the financial position at March 31, 1999, and the results of
operations and cash flows for the three-month periods ended March 31, 1998 and
1999. The results of operations for interim periods are not indicative of the
results for a full year.
For a summary of significant accounting policies and additional financial
information, see the Group's combined financial statements which are included in
this Prospectus.
2. COMMITMENTS AND CONTINGENCIES
Parent Company Debt -- The stock of the entities included in the
accompanying combined financial statements is pledged as collateral on debt of
$127,432,000 at March 31, 1999 for Alliance Resource Holdings, the parent of the
Group.
Transloading Facility Dispute -- The Group is currently involved in
litigation with Seminole Electric Cooperative with respect to a long-term
contract for the transloading of coal from rail to barge through the Group's
terminal in Indiana. Seminole has filed a lawsuit to terminate this contract and
is seeking declaratory judgment as to the damages owed to the Group. The
provisions of the contract stipulate the calculation of damages to be paid in
the event of breach. Rather than pay the amount of damages stipulated, Seminole
is seeking the court's agreement that the proper damage award should be
calculated based on our loss of net profits from the terminal for the term of
the agreement. The Group fully intends to pursue the damages stipulated in the
contract.
Seminole has ceased transloading any coal shipments through this terminal
and is transporting coal deliveries under the supply contract through other
means. The Group is currently exploring alternative uses for this terminal,
including shipping different products to other customers or selling the
terminal. The Group intends to vigorously defend its contract rights and
believes it will prevail in the determination of the amount of damages Seminole
owes under the contract and believes those damages will be in excess of the
carrying value of this terminal.
General Litigation -- The Group is involved in various lawsuits, claims and
regulatory proceedings incidental to its business. In the opinion of management,
the outcome of such matters will not have a material adverse effect on the
Group's business, combined financial position or results of operations.
F-12
<PAGE> 161
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder of Alliance Resource Group:
We have audited the accompanying combined balance sheets of Alliance
Resource Group (the "Group") as of December 31, 1997 and 1998, and the related
combined statements of income and cash flows for the seven months ended July 31,
1996 (predecessor), the five months ended December 31, 1996 and the years ended
December 31, 1997 and 1998 (successor). These combined financial statements are
the responsibility of the Group's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the financial position of Alliance Resource Group at December
31, 1997 and 1998, and the results of their operations and their cash flows for
the seven months ended July 31, 1996 (predecessor), the five months ended
December 31, 1996, and the years ended December 31, 1997 and 1998, (successor),
in conformity with generally accepted accounting principles.
As discussed in Note 1, effective August 1, 1996, the combined entities of
Alliance Resource Group became wholly owned by Alliance Resource Holdings in a
business combination accounted for using the purchase method of accounting and
the purchase price was allocated to the assets acquired and liabilities assumed
based on fair values. Accordingly, the predecessor combined financial statements
for the seven months ended July 31, 1996, are not necessarily comparable to the
successor financial statements subsequent to August 1, 1996.
Deloitte & Touche LLP
Tulsa, Oklahoma
May 14, 1999
F-13
<PAGE> 162
ALLIANCE RESOURCE GROUP
COMBINED BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
(AMOUNTS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Trade receivables......................................... $ 31,497 $ 31,268
Income tax receivable..................................... 2,985 503
Inventories............................................... 13,981 20,055
Advance royalties......................................... 2,370 2,501
Prepaid expenses and other assets......................... 891 1,456
-------- --------
Total current assets.............................. 51,724 55,783
-------- --------
PROPERTY, PLANT AND EQUIPMENT AT COST....................... 189,982 240,294
LESS ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION... (36,300) (69,158)
-------- --------
153,682 171,136
-------- --------
OTHER ASSETS:
Advance royalties......................................... 9,590 8,880
Coal supply agreements, net............................... 29,813 24,062
Other long-term assets.................................... 1,039 1,235
-------- --------
$245,848 $261,096
======== ========
LIABILITIES AND NET PARENT INVESTMENT
CURRENT LIABILITIES:
Current maturities, long-term debt........................ $ 350 $ 350
Accounts payable.......................................... 20,488 24,527
Accrued taxes other than income taxes..................... 3,389 4,526
Accrued payroll and related expenses...................... 8,566 9,269
Workers' compensation and pneumoconiosis benefits......... 4,792 4,707
Other current liabilities................................. 3,840 5,302
-------- --------
Total current liabilities......................... 41,425 48,681
-------- --------
LONG-TERM LIABILITIES:
Long-term debt, excluding current maturities.............. 1,866 1,687
Deferred income taxes..................................... 3,622 3,906
Accrued pneumoconiosis benefits........................... 17,416 22,233
Workers' compensation..................................... 13,095 13,934
Reclamation and mine closing.............................. 5,439 12,824
Other liabilities......................................... 4,166 5,062
-------- --------
Total liabilities................................. 87,029 108,327
COMMITMENTS AND CONTINGENCIES
NET PARENT INVESTMENT....................................... 158,819 152,769
-------- --------
$245,848 $261,096
======== ========
</TABLE>
See notes to combined financial statements.
F-14
<PAGE> 163
ALLIANCE RESOURCE GROUP
COMBINED STATEMENTS OF INCOME
SEVEN MONTHS ENDED JULY 31, 1996 (PREDECESSOR), THE FIVE MONTHS ENDED
DECEMBER 31, 1996 AND THE YEARS ENDED DECEMBER 31, 1997 AND 1998 (SUCCESSOR)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------ ----------------------------------
SEVEN MONTHS FIVE MONTHS YEARS ENDED
ENDED ENDED DECEMBER 31,
JULY 31, DECEMBER 31, -------------------
1996 1996 1997 1998
------------ ------------ -------- --------
<S> <C> <C> <C> <C>
SALES AND OPERATING REVENUES:
Coal sales................................... $184,067 $133,870 $305,270 $357,440
Other sales and operating revenues........... 7,509 4,391 8,550 4,453
-------- -------- -------- --------
Total revenues....................... 191,576 138,261 313,820 361,893
-------- -------- -------- --------
EXPENSES:
Operating expenses........................... 110,723 79,155 197,422 237,576
Outside purchases............................ 45,716 34,675 49,800 51,151
General and administrative................... 7,263 5,890 15,417 15,301
Depreciation, depletion and amortization..... 7,700 11,943 33,667 39,838
Interest expense............................. -- -- 29 169
Unusual item................................. -- -- -- 5,211
-------- -------- -------- --------
Total operating expenses............. 171,402 131,663 296,335 349,246
-------- -------- -------- --------
INCOME FROM OPERATIONS......................... 20,174 6,598 17,485 12,647
OTHER INCOME (EXPENSE)......................... -- 289 520 (113)
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES..................... 20,174 6,887 18,005 12,534
INCOME TAX EXPENSE (BENEFIT)................... 5,469 (922) 4,288 3,866
-------- -------- -------- --------
NET INCOME..................................... $ 14,705 $ 7,809 $ 13,717 $ 8,668
======== ======== ======== ========
</TABLE>
See notes to combined financial statements.
F-15
<PAGE> 164
ALLIANCE RESOURCE GROUP
COMBINED STATEMENTS OF CASH FLOWS
SEVEN MONTHS ENDED JULY 31, 1996 (PREDECESSOR), THE FIVE MONTHS ENDED
DECEMBER 31, 1996 AND THE YEARS ENDED DECEMBER 31, 1997 AND 1998 (SUCCESSOR)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------ ------------------------------------------
SEVEN MONTHS FIVE MONTHS YEARS ENDED
ENDED ENDED DECEMBER 31,
JULY 31, DECEMBER 31, ---------------------------
1996 1996 1997 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................... $ 14,705 $ 7,809 $ 13,717 $ 8,668
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization...... 7,700 11,943 33,667 39,838
Deferred income taxes......................... (207) (4,586) (1,937) (1,750)
Reclamation and mine closings................. 195 100 339 705
Coal inventory adjustment to market........... -- -- 547 1,743
Other......................................... (2,019) 3 134 34
Changes in operating assets and liabilities, net
of effects from 1998 purchase of coal
business:
Trade receivables............................. 353 (614) 11,955 229
Income tax receivable/payable................. 770 554 (3,539) 2,482
Inventories................................... 1,401 1,455 (4,229) (6,563)
Advance royalties............................. (2,334) 419 1,856 579
Accounts payable.............................. 88 5,651 (6,216) 2,296
Accrued taxes other than income taxes......... (79) 506 293 1,137
Accrued payroll and related benefits.......... 824 463 1,666 491
Due to MAPCO Inc.............................. (8,614) -- -- --
Accrued pneumoconiosis benefits............... (230) (20) 209 839
Workers' compensation......................... 4,130 22 903 817
Other......................................... (5) (686) 3,860 (1,048)
-------- -------- -------- --------
Total net adjustments.................... 1,973 15,210 39,508 41,829
-------- -------- -------- --------
Net cash provided by operating
activities............................. 16,678 23,019 53,225 50,497
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for purchase of business................ -- -- -- (7,310)
Direct acquisition costs........................ (821)
Purchase of property, plant and equipment....... (16,678) (13,011) (22,436) (27,669)
Proceeds from sale of property, plant and
equipment..................................... -- 14 49 185
-------- -------- -------- --------
Net cash used in investing activities.... (16,678) (12,997) (22,387) (35,615)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividend to Parent.............................. -- (7,700) (13,795) (8,642)
Initial capital contribution by Parent.......... -- 9,099 -- --
Return of capital to Parent..................... -- (11,421) (17,043) (5,890)
Payments on long-term debt...................... -- -- -- (350)
-------- -------- -------- --------
Net cash used in financing activities.... -- (10,022) (30,838) (14,882)
-------- -------- -------- --------
NET CHANGE IN CASH AND BALANCE AT END OF PERIOD... $ -- $ -- $ -- $ --
======== ======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid through Parent (Note 8)....... $ 4,906 $ 3,110 $ 9,764 $ 3,135
======== ======== ======== ========
Issuance of promissory note for acquisition of
minerals and other assets..................... $ -- $ -- $ 2,186 $ --
======== ======== ======== ========
</TABLE>
See notes to combined financial statements.
F-16
<PAGE> 165
ALLIANCE RESOURCE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
SEVEN MONTHS ENDED JULY 31, 1996 (PREDECESSOR), THE FIVE MONTHS ENDED DECEMBER
31, 1996 AND THE YEARS ENDED DECEMBER 31, 1997 AND 1998 (SUCCESSOR)
1. ORGANIZATION
The combined financial statements represent the results of the following
companies (collectively the "Group") which are wholly owned by Alliance Resource
Holdings ("ACC" or "Parent"):
- MAPCO Coal Inc.
- Webster County Coal Corporation
- White County Coal Corporation
- Mettiki Coal Corporation
- Mettiki Coal Corporation (West Virginia)
- Pontiki Coal Corporation
- MC Mining, Inc.
- Hopkins County Coal LLC
- Mt. Vernon Coal Transfer Company
- MAPCO Land & Development Corporation
- Excel Mining, LLC
- Gibson County Coal Corporation
- Garrett County Coal Corporation
The Group produces and markets coal from six mining complexes in Kentucky,
Maryland and Illinois. Five of these mining complexes are underground and one
has both surface and underground mines. The Group also operates a rail-to-barge
coal transloading terminal on the Ohio River in Indiana and conducts a coal
brokerage operation for customers and other coal suppliers. Steam coal is sold
primarily to electric utilities located in the eastern United States and, to a
lesser extent, Europe. Metallurgical coal is purchased and sold through its coal
brokerage operation to steel and coke producers located primarily in the United
States, South America, the Far East, Europe and Northern Africa.
The Group's operations, except for the Hopkins County Coal operations which
were acquired in 1998 by ACC (Note 3), represent the majority of the coal
operations formerly owned by MAPCO Inc. ("MAPCO"). ACC is owned by the Beacon
Energy Investors II, LLC, MPC Partners, LP and certain members of management and
was formed to acquire a majority of MAPCO's coal operations. ACC purchased the
coal operations of MAPCO, effective August 1, 1996, in a business combination
using the purchase method of accounting and the purchase price was allocated to
the assets acquired and the liabilities assumed based on their fair values.
Accordingly, the predecessor combined financial statements for the seven months
ended July 31, 1996 are not necessarily comparable to the successor and combined
financial statements in subsequent periods.
ACC intends to contribute the net assets of the Group to Alliance Resource
Partners, L.P. in connection with its initial public offering of common units.
The assets and liabilities of Alliance Resource Group will be transferred at
historical cost to Alliance Resource Partners, L.P.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination -- The combined financial statements include the
accounts and operations of the entities listed in Note 1. All intercompany
accounts and transactions have been eliminated.
Estimates -- The preparation of combined financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures in
the combined financial statements. Actual results could differ from those
estimates.
F-17
<PAGE> 166
ALLIANCE RESOURCE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Fair Value of Financial Instruments -- The carrying amount for trade
receivables and accounts payable approximates fair value because of the short
maturity of those instruments. The carrying amount of long-term debt is a
reasonable estimate of its fair value. The fair value of long-term debt is based
on interest rates that are currently available to the Group for issuance of debt
with similar terms and remaining maturities.
Cash Management -- The Group participated in the cash management program of
ACC subsequent to August 1, 1996 and MAPCO prior to August 1, 1996. At the end
of each business day, the operating cash accounts for the Group are swept to the
related operating cash accounts maintained by the treasury function for MAPCO
(predecessor) and ACC (successor). The Company reclassified cash overdrafts of
$3,802,000 and $6,308,000 as of December 31, 1997 and 1998, respectively, to
accounts payable on the combined balance sheets.
Inventories -- Inventories are stated at the lower of cost or market on a
first-in, first-out basis.
Property, Plant and Equipment -- Property, plant, and equipment were
presented at fair value at August 1, 1996. Additions and replacements
constituting improvements are capitalized. Maintenance, repairs, and minor
replacements are expensed as incurred. Depreciation and amortization is computed
principally on the straight-line method based upon the estimated useful lives of
the assets or the estimated life of each mine (9 to 15 years at revaluation date
of August 1, 1996), whichever is less and for 5 years on certain assets related
to the 1998 business acquisition. Depreciable lives for mining equipment and
processing facilities range from 1 to 15 years. Depreciable lives for land and
land improvements range from 5 to 15 years. Depreciable lives for buildings,
office equipment and improvements range from 1 to 13 years. Gains or losses
arising from retirements are included in current operations.
Depletion of mineral rights is provided on the basis of tonnage mined in
relation to estimated recoverable tonnage.
Long-Lived Assets -- The Group reviews the carrying value of long-lived
assets and certain identifiable intangibles whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable based
upon estimated undiscounted future cash flows. The amount of an impairment is
measured by the difference between the fair value of the asset based on cash
flows from that asset, discounted at a rate commensurate with the risk involved
and the carrying value.
Advance Royalties -- Rights to coal mineral leases are often acquired
through advance royalty payments. Management assesses the recoverability of
royalty prepayments based on estimated future production and capitalizes these
amounts accordingly. Royalty prepayments expected to be recouped within one year
are classified as a current asset. As mining occurs on those leases, the royalty
prepayments are included in the cost of mined coal. Royalty prepayments
estimated to be nonrecoverable are expensed.
Coal Supply Agreements -- Effective August 1, 1996, a portion of the
acquisition costs was allocated to coal supply agreements. This allocated cost
is being amortized on the basis of coal shipped in relation to total coal to be
supplied during the periods that contract prices exceed spot prices. The
amortization periods end on various dates from September 2002 to December 2005.
Accumulated amortization for coal supply agreements was $8,650,000 and
$14,401,000 at December 31, 1997 and 1998, respectively.
Reclamation and Mine Closing Costs -- Estimates of the cost of future mine
reclamation and closing procedures of currently active mines are recorded on a
present value basis. Those costs relate to sealing portals at underground mines
and to reclaiming the final pit and support acreage at surface mines. Other
costs common to both types of mining are related to removing or covering refuse
piles and settling ponds and dismantling preparation plants and other facilities
and roadway infrastructure. Ongoing reclamation costs principally involve
restoration of disturbed land and are expensed as incurred during the mining
process. For the Predecessor, reclamation and mine closing costs were accrued
based on coal production over the estimated lives of the respective mines.
F-18
<PAGE> 167
ALLIANCE RESOURCE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Workers' Compensation and Pneumoconiosis ("Black Lung") Benefits -- The
Group is self-insured for workers' compensation benefits, including black lung
benefits. The Group accrues a workers' compensation liability for the estimated
present value of current and future workers' compensation benefits based on
actuarial valuations.
Income Taxes -- The Group's operations are included in the consolidated
U.S. income tax returns of MAPCO (predecessor) and ACC (successor). The Group
has provided for income taxes on its separate taxable income and other tax
attributes. Deferred income taxes are computed based on recognition of future
tax expense or benefits, measured by enacted tax rates, that are attributable to
taxable or deductible temporary differences between financial statement and
income tax reporting bases of assets and liabilities.
Revenue Recognition -- Revenues are recognized when coal is shipped from
the mine. Revenues not arising from coal sales, which primarily consist of
transloading fees, are included in operating revenues and are recognized as
services are performed.
Comprehensive Income -- In 1998, the Group adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130").
SFAS 130 establishes standards for reporting and display of comprehensive income
(loss) and its components in a full set of general purpose financial statements.
The adoption of this standard had no impact on the Group's financial statements.
New Accounting Standards -- During 1998, the Group adopted Statement of
Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use." This SOP provides guidance on accounting for the
costs of computer software developed or obtained for internal use and requires
that entities capitalize certain internal-use software costs once certain
criteria are met. The adoption of this standard did not have a material impact
on the combined financial statements.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS No. 131"), requires
publicly-held companies to report financial and descriptive information about
operating segments in financial statements issued to shareholders for interim
and annual periods. SFAS No. 131 also requires additional disclosures with
respect to products and services, geographic areas of operation, and major
customers. The Group adopted SFAS No. 131 effective January 1998. The Group has
no reportable segments due to its operations consisting solely of producing and
marketing coal, and the Group has disclosed major customer sales information
(Note 13) and geographic areas of operation (Note 14) in accordance with SFAS
No. 131.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). The
statement establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The Group has not
determined the impact on its financial statements that may result from adoption
of SFAS 133, which is required no later than January 1, 2000.
3. BUSINESS ACQUISITION
Effective January 23, 1998, the Parent acquired substantially all of the
assets and assumed certain liabilities, excluding working capital, of a
company's west Kentucky coal operations, now Hopkins County Coal LLC for cash of
approximately $7,310,000 and direct acquisition costs of $821,000. The
acquisition was accounted for using the purchase method of accounting.
Accordingly, the purchase price was allocated to the assets acquired and
liabilities assumed based on their estimated fair values of $25,320,000 and
$17,189,000, respectively. The results of operations are included in the Group's
combined financial statements from the acquisition date and are not considered
significant.
F-19
<PAGE> 168
ALLIANCE RESOURCE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. UNUSUAL ITEM
In response to market conditions, one of the Group's operating mines ceased
operations and terminated substantially all of its workforce in September 1998.
Management planned to maintain the mine in an indefinite idle status pending
improvement in market conditions. Shortly after the mine closure, the mine
executed a new long term coal supply contract and the mine resumed production in
late November 1998. During the idle status period, the mine incurred a net loss
of approximately $5,211,000 consisting of estimated amounts for increased
workers' compensation claims of $1,200,000 and severance payments consistent
with the Federal Worker Adjustment and Returning Notification, or "WARN" Act, of
$1,200,000 as well as the costs associated with maintaining the idled mine of
$2,811,000.
5. INVENTORIES
Inventories consist of the following at December 31, (in thousands):
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Coal........................................................ $ 8,261 $14,308
Supplies.................................................... 5,720 5,747
------- -------
$13,981 $20,055
======= =======
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at December 31, (in
thousands):
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Mining equipment and processing facilities.................. $173,925 $218,199
Land and mineral rights..................................... 10,214 11,947
Buildings, office equipment and improvements................ 4,620 7,387
Construction in progress.................................... 1,223 2,761
-------- --------
189,982 240,294
Less accumulated depreciation, depletion and amortization... (36,300) (69,158)
-------- --------
$153,682 $171,136
======== ========
</TABLE>
7. LONG-TERM DEBT
Long-term debt consists of the following at December 31, (in thousands):
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Promissory note, net of discount of $935 and $764 at
December 31, 1997 and 1998, respectively.................. $2,216 $2,037
Less current maturities..................................... (350) (350)
------ ------
$1,866 $1,687
====== ======
</TABLE>
During 1997, the Group acquired certain minerals and other assets primarily
financed through the issuance of a non-interest bearing promissory note for
$3.15 million payable in annual installments of $350,000 through 2006. The Group
discounted the promissory note at an imputed interest rate of 8%.
F-20
<PAGE> 169
ALLIANCE RESOURCE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES
The Group recognizes a deferred tax asset for the future tax benefits
attributable to deductible temporary differences and other credit carryforwards
to the extent that realization of such benefits is more likely than not.
Realization of these future tax benefits is dependent on the Group's ability to
generate future taxable income. Management believes that future taxable income
will be sufficient to recognize only a portion of the tax benefits and has
established a valuation allowance. There can be no assurance, however, that the
Group will generate sufficient taxable earnings in the future.
Due to the Group's inclusion in its Parent's consolidated U.S. income tax
returns, the Parent has allocated alternative minimum tax to the Group. The
Group has alternative minimum tax credit carryforwards of $2,361,000 at December
31, 1998 that are available for use in the Parent's consolidated U.S. income tax
returns in future periods. A valuation allowance has been established for the
total estimated future tax effects of the alternative minimum tax credit
carryforwards due to the utilization on future U.S. income tax returns not being
considered more likely than not.
The tax effects of significant items comprising the Group's net deferred
tax liability are as follows at December 31, (in thousands):
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Differences between book and tax basis of property........ $ 12,825 $ 18,489
Differences between book and tax basis of advance
royalties.............................................. 1,533 1,238
Other..................................................... 1,806 2,601
-------- --------
Deferred tax liability................................. $ 16,164 $ 22,328
-------- --------
Deferred tax assets:
Accrued workers' compensation and pneumoconiosis
benefits............................................... $ 12,418 $ 14,856
Accrued reclamation and mine closing...................... 2,176 5,520
Accrued expenses not currently deductible................. 3,579 4,349
Coal supply agreements.................................... 4,673 5,838
Alternative minimum tax credit carryforwards for future
use in parent tax returns.............................. 1,576 2,361
Other..................................................... 115 --
-------- --------
24,537 32,924
Valuation allowance....................................... (11,995) (14,502)
-------- --------
Deferred tax asset..................................... 12,542 18,422
-------- --------
Net deferred tax liability............................. $ 3,622 $ 3,906
======== ========
</TABLE>
F-21
<PAGE> 170
ALLIANCE RESOURCE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Income before income taxes is derived from domestic operations. Significant
components of income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------ ------------------------------------------
SEVEN MONTHS FIVE MONTHS YEARS ENDED
ENDED ENDED DECEMBER 31,
JULY 31, DECEMBER 31, ---------------------------
1996 1996 1997 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Current:
Federal......................... $5,104 $ 3,258 $ 5,184 $ 4,815
State........................... 572 406 1,041 801
------ ------- ------- -------
5,676 3,664 6,225 5,616
Deferred:
Federal......................... (181) (4,013) (1,695) (1,531)
State........................... (26) (573) (242) (219)
------ ------- ------- -------
(207) (4,586) (1,937) (1,750)
------ ------- ------- -------
Income tax expense (benefit)...... $5,469 $ (922) $ 4,288 $ 3,866
====== ======= ======= =======
</TABLE>
A reconciliation of the statutory U.S. federal income tax rate and the
Group's effective income tax rate is as follows:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------ ------------------------------------------
SEVEN MONTHS FIVE MONTHS YEARS ENDED
ENDED ENDED DECEMBER 31,
JULY 31, DECEMBER 31, ---------------------------
1996 1996 1997 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Statutory rate.................... 35% 35% 35% 35%
Increase (decrease) resulting
from:
Excess of tax over book
depletion.................... (12) (41) (21) (29)
Alternative minimum tax credit
carryforwards................ -- 5 7 6
State income taxes, net of
federal benefit.............. 3 4 4 4
Valuation allowance............. -- (17) (3) 14
Other........................... 1 1 2 1
--- --- --- ---
Effective income tax rate......... 27% (13)% 24% 31%
=== === === ===
</TABLE>
9. EMPLOYEE BENEFIT PLANS
Defined Contribution Plans -- Prior to August 1, 1996, the Group's
employees participated in a defined contribution profit sharing and savings plan
sponsored by MAPCO which covered substantially all full-time employees. The plan
provisions were similar to the provisions of the plan sponsored by the Group
discussed below.
The Group's employees currently participate in a defined contribution
profit sharing and savings plan sponsored by the Group, which covers
substantially all full-time employees. Plan participants may elect to make
voluntary contributions to this plan up to a specified amount of their
compensation. The Group makes contributions based on matching 75% of employee
contributions up to 3% of their annual compensation as well as an additional 25%
after 3% of employees annual compensation. Additionally, the Group contributes a
defined percentage of eligible earnings for employees not covered by the defined
benefit plan described below. The Group's expense for the profit sharing and
savings plan for the seven
F-22
<PAGE> 171
ALLIANCE RESOURCE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
months ended July 31, 1996 that was allocated by MAPCO was $631,000. The Group's
expense for its plan was approximately $378,000 for the five months ended
December 31, 1996, $1,542,000 and $1,944,000 for the years ended December 31,
1997 and 1998, respectively.
Defined Benefit Plans -- Prior to August 1, 1996, the Group participated in
MAPCO's defined benefit plan, which covered substantially all employees at the
mining operations. Total accrued pension benefit included in the Group's
operating expenses was allocated to the Group by MAPCO based on its proportional
number of employees participating in the plans. The allocated net pension
benefit included in operating expenses for the seven months ended July 31, 1996
was approximately $1,919,000. The allocated pension benefit was settled through
the intercompany account with the Parent. The Group did not participate in a
defined benefit plan during the five months ended December 31, 1996. Effective
January 1, 1997, the Group established a defined benefit plan covering
substantially all employees at the mining operations of the Group. The benefit
formula for this plan is a fixed dollar unit based on years of service.
The following sets forth changes in benefit obligations and plan assets for
the years ended December 31, 1997 and 1998 and the funded status of the plans
reconciled with amounts reported in the Group's combined financial statements at
December 31, (dollars in thousands):
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATIONS:
Benefit obligations at beginning of year.................. $ -- $ 3,501
Service cost.............................................. 2,715 2,980
Interest cost............................................. 36 240
Prior service cost recognized............................. 477 --
Actuarial loss............................................ 273 166
Benefits paid............................................. -- (145)
------- -------
Benefit obligation at end of year......................... $ 3,501 $ 6,742
------- -------
CHANGE IN PLAN ASSETS:
Employer contribution..................................... $ -- $ 2,940
Actual return on plan assets.............................. -- 116
Benefits paid............................................. -- (145)
------- -------
Fair value of plan assets at end of year.................. -- 2,911
------- -------
Funded status............................................. (3,501) (3,831)
Unrecognized prior service cost........................... 429 380
Unrecognized actuarial loss............................... 273 459
------- -------
Net amount recognized............................. $(2,799) $(2,992)
======= =======
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31:
Discount rate............................................. 7.00% 6.75%
Expected return on plan assets............................ N/A 9.00%
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost.............................................. $ 2,715 $ 2,980
Interest cost............................................. 36 240
Expected return on plan assets............................ -- (135)
Prior service cost........................................ 48 48
------- -------
Net periodic benefit cost......................... $ 2,799 $ 3,133
======= =======
Effect on minimum pension liability............... $ 273 $ 186
======= =======
</TABLE>
F-23
<PAGE> 172
ALLIANCE RESOURCE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Parent funds on behalf of the Group the defined benefit plan in amounts
not less than the minimum statutory funding requirements under the Employment
Retirement Income Security Act of 1974 as amended. Accordingly, the pension
expense for 1997 and 1998 were settled through the intercompany account with the
Parent.
10. RECLAMATION AND MINE CLOSING COSTS
The majority of the Group's operations are governed by various state
statutes and the Federal Surface Mining Control and Reclamation Act of 1977
which establish reclamation and mine closing standards. These regulations, among
other requirements, require restoration of property in accordance with specified
standards and an approved reclamation plan. The Group has estimated the costs
and timing of future reclamation and mine closing costs and recorded those
estimates on a present value basis using a 6% discount rate.
Discounting resulted in reducing the accrual for reclamation and mine
closing costs by $4,936,000 and $6,738,000 at December 31, 1997 and 1998,
respectively. Estimated payments of reclamation and mine closing costs as of
December 31, 1998 are as follows (in thousands):
<TABLE>
<S> <C>
1999........................................................ $ 976
2000........................................................ 1,215
2001........................................................ 714
2002........................................................ 1,557
2003........................................................ 1,806
Thereafter.................................................. 14,270
-------
Aggregate undiscounted reclamation and mine closing......... 20,538
Effect of discounting....................................... 6,738
-------
Total reclamation and mine closing costs.................... 13,800
Less current portion........................................ 976
-------
Reclamation and mine closing costs.......................... $12,824
-------
</TABLE>
The following table presents the activity affecting the reclamation and
mine closing liability:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------ ----------------------------
SEVEN MONTHS FIVE MONTHS YEARS ENDED
ENDED ENDED DECEMBER 31,
JULY 31, DECEMBER 31, -------------
1996 1996 1997 1998
------------ ------------ ----- -----
<S> <C> <C> <C> <C>
Beginning balance............................ $2,767 $5,213 5$,313 5$,439
Accrual...................................... 195 100 339 705
Payments..................................... -- -- (213) (1,544)
Allocation of liability associated with
Hopkins County Coal acquisition............ -- -- -- 9,200
------ ------ -- ---
Ending balance............................... $2,962 $5,313 5$,439 1$3,800
====== ====== == ===
</TABLE>
11. PNEUMOCONIOSIS ("BLACK LUNG") BENEFITS
Certain mine operating entities of the Group are liable under state
statutes and the Federal Coal Mine Health and Safety Act of 1969, as amended, to
pay black lung benefits to eligible employees and former employees and their
dependents. These entities provide self-insurance accruals, determined by
independent actuaries, at the present value of the actuarially computed present
and future liabilities for such benefits. The actuarial studies utilize a 6%
discount rate and various assumptions as to the frequency of future claims,
inflation, employee turnover and life expectancies.
F-24
<PAGE> 173
ALLIANCE RESOURCE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The cost of black lung benefits charged to operations for the seven months
ended July 31, 1996, the five months ended December 31, 1996, and the years
ended December 31, 1997 and 1998 was $896,000, $477,000, $1,252,000 and
$1,139,000, respectively.
12. COMMITMENTS AND CONTINGENCIES
Parent Company Debt -- The stock of the entities included in the
accompanying combined financial statements is pledged as collateral on debt of
the Parent of $130,535,000 at December 31, 1998.
Commitments -- The Group leases buildings and equipment under operating
lease agreements, which provide for the payment of both minimum and contingent
rentals. Rent expense under all operating leases was $642,000, $417,000,
$1,142,000 and $1,169,000 for the seven months ended July 31, 1996, the five
months ended December 31, 1996, the years ended December 31, 1997 and 1998,
respectively.
Future minimum payments under operating leases are $2.58 million in total
of which $363,000 is payable in 1999, $366,000 in 2000, $366,000 in 2001,
$288,000 in 2002, $154,000 in 2003 and $1,041,000 thereafter.
Transloading Facility Dispute -- The Group is currently involved in
litigation with Seminole Electric Cooperative with respect to a long-term
contract for the transloading of coal from rail to barge through the Group's
terminal in Indiana. Seminole has filed a lawsuit to terminate this contract and
is seeking declaratory judgment as to the damages owed to the Group. The
provisions of the contract stipulate the calculation of damages to be paid in
the event of breach. Rather than pay the amount of damages stipulated, Seminole
is seeking the court's agreement that the proper damage award should be
calculated based on the Group's loss of net profits from the terminal for the
term of the agreement.
Seminole has ceased transloading any coal shipments through this terminal
and is transporting coal deliveries under the supply contract through other
means. The Group is currently exploring alternative uses for this terminal,
including shipping different products to other customers or selling the
terminal. The Group intends to vigorously defend its contract rights and
believes that it will prevail in the determination of the amount of damages
Seminole owes under the contract and believes those damages will be in excess of
the carrying value of this terminal.
General Litigation -- The Group is involved in various lawsuits, claims and
regulatory proceedings incidental to its business. In the opinion of management,
the outcome of such matters will not have a material adverse effect on the
Group's business, combined financial position or results of operations.
13. SIGNIFICANT CUSTOMERS
The Group has significant long-term coal supply agreements some of which
contain price adjustment provisions designed to reflect changes in market
conditions, labor and other production costs and, when the coal is sold other
than FOB the mine, changes in railroad and/or barge freight rates. Sales to
major customers which exceed ten percent of total sales are as follows (in
thousands):
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------ --------------------------------
SEVEN MONTHS FIVE MONTHS YEARS ENDED
ENDED ENDED DECEMBER 31,
JULY 31, DECEMBER 31, -----------------
1996 1996 1997 1998
------------ ------------ ------- -------
<S> <C> <C> <C> <C>
Customer A............................... $43,337 $25,288 $57,382 $69,651
Customer B............................... 18,261 14,635 40,297 56,351
Customer C............................... 18,988 13,390 50,219 56,280
</TABLE>
F-25
<PAGE> 174
ALLIANCE RESOURCE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The coal supply agreements with customers A and C expire in 2010 and 2006,
respectively. The coal supply agreements with customer B expire at dates between
2000 and 2003.
14. GEOGRAPHIC INFORMATION
Included in the combined financial statements are the following revenues
and long-lived assets relating to geographic locations (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------ ----------------------------------
SEVEN MONTHS FIVE MONTHS YEARS ENDED
ENDED ENDED DECEMBER 31,
JULY 31, DECEMBER 31, -------------------
1996 1996 1997 1998
------------ ------------ -------- --------
<S> <C> <C> <C> <C>
Revenues:
United States........................ $153,830 $114,048 $267,096 $330,312
Other foreign countries.............. 37,746 24,213 46,724 31,581
-------- -------- -------- --------
$191,576 $138,261 $313,820 $361,893
======== ======== ======== ========
Long-lived assets:
United States........................ $151,999 $203,519 $193,085 $204,078
Other foreign countries.............. -- -- -- --
-------- -------- -------- --------
$151,999 $203,519 $193,085 $204,078
======== ======== ======== ========
</TABLE>
15. NET PARENT INVESTMENT IN ALLIANCE RESOURCE GROUP
The net Parent investment in the Group is comprised of the following for
the seven months ended July 31, 1996 (predecessor), the five months ended
December 31, 1996 and the years ended December 31, 1997 and 1998 (successor) (in
thousands):
<TABLE>
<S> <C>
Predecessor balance, January 1, 1996........................ $171,013
Net income................................................ 14,705
--------
Predecessor balance, July 31, 1996.......................... 185,718
Purchase price allocation in business combination......... 1,807
--------
Successor balance, August 1, 1996........................... 187,525
Net income................................................ 7,809
Dividends to parent....................................... (7,700)
Return of capital to parent............................... (11,421)
--------
Balance, December 31, 1996.................................. 176,213
Net income................................................ 13,717
Dividends to Parent....................................... (13,795)
Return of capital to parent............................... (17,043)
Other..................................................... (273)
--------
Balance, December 31, 1997.................................. 158,819
Net income................................................ 8,668
Dividends to Parent....................................... (8,642)
Return of capital to parent............................... (5,890)
Other..................................................... (186)
--------
Balance, December 31, 1998.................................. $152,769
========
</TABLE>
F-26
<PAGE> 175
ALLIANCE RESOURCE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
16. PARENT SERVICES
The Group was charged for certain corporate services rendered by MAPCO for
the seven months ended July 31, 1996 and by ACC for the periods subsequent to
August 1, 1996. The expenses allocated to the Group primarily related to
executive management, accounting, treasury, land administration, environmental
and permitting management, disability and workers compensation management, legal
and information technology services. These allocations were primarily based on
the relative size of the direct mining operating costs incurred by each of the
mine locations of the Group. The allocations of general and administrative
expenses were approximately $1,743,000, $842,000, $2,942,000 and $2,595,000 for
the seven months ended July 31, 1996, the five months ended December 31, 1996
and the years ended December 31, 1997 and 1998, respectively. Management is of
the opinion that the allocations used are reasonable and appropriate.
F-27
<PAGE> 176
INDEPENDENT AUDITORS' REPORT
To Alliance Resource Management GP, LLC:
We have audited the accompanying balance sheet of Alliance Resource
Management GP, LLC (the "Company") as of July 19, 1999. This financial statement
is the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, such balance sheet presents fairly, in all material
respects, the financial position of the Company, as of July 19, 1999 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Tulsa, Oklahoma
July 20, 1999
F-28
<PAGE> 177
ALLIANCE RESOURCE MANAGEMENT GP, LLC
BALANCE SHEET
JULY 19, 1999
ASSET
<TABLE>
<S> <C>
CURRENT ASSET:
Cash...................................................... $1,000
EQUITY
Members' Equity............................................. $1,000
======
</TABLE>
See note to balance sheet.
F-29
<PAGE> 178
ALLIANCE RESOURCE MANAGEMENT GP, LLC
NOTE TO BALANCE SHEET
JULY 19, 1999
1. NATURE OF OPERATIONS
Alliance Resource Management GP, LLC is a Delaware limited liability
company that was formed June 30, 1999 to become the managing general partner and
manage the operations and activities of and provide incentive distribution
rights for Alliance Resource Partners, L.P., a partnership formed to acquire
substantially all of the assets, liabilities and operations of Alliance Coal,
LLC, which is a Delaware limited liability company engaged primarily in the
mining and sale of coal.
F-30
<PAGE> 179
INDEPENDENT AUDITORS' REPORT
To Alliance Resource GP, LLC:
We have audited the accompanying balance sheet of Alliance Resource GP, LLC
(the "Company") as of May 17, 1999. This financial statement is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, such balance sheet presents fairly, in all material
respects, the financial position of the Company, as of May 17, 1999 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Tulsa, Oklahoma
May 17, 1999
F-31
<PAGE> 180
ALLIANCE RESOURCE GP, LLC
BALANCE SHEET
MAY 17, 1999
ASSETS
<TABLE>
<S> <C>
CURRENT ASSET:
Cash...................................................... $ 990
INVESTMENT IN ALLIANCE RESOURCE PARTNERS, L.P............... 10
------
Total Assets...................................... $1,000
======
EQUITY
Members Equity.............................................. $1,000
======
</TABLE>
See note to balance sheet.
F-32
<PAGE> 181
ALLIANCE RESOURCE GP, LLC
NOTE TO BALANCE SHEET
MAY 17, 1999
1. NATURE OF OPERATIONS
Alliance Resource GP, LLC is a Delaware limited liability company that was
formed May 17, 1999 to become the special general partner and provide private
placement of indebtedness which will be assumed by Alliance Resource Operating
Partners, L.P., an intermediate partnership formed to provide the proceeds of
this indebtedness to Alliance Resource Partners, L.P. a partnership which will
acquire substantially all of the assets, liabilities and operations of Alliance
Coal, LLC, which is a Delaware limited liability company engaged primarily in
the mining and sale of coal.
F-33
<PAGE> 182
INDEPENDENT AUDITORS' REPORT
To Alliance Resource Partners, L.P.:
We have audited the accompanying balance sheet of Alliance Resource
Partners, L.P. (the "Partnership") as of May 17, 1999. This financial statement
is the responsibility of the Partnership management. Our responsibility is to
express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, such balance sheet presents fairly, in all material
respects, the financial position of the Partnership, as of May 17, 1999 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Tulsa, Oklahoma
May 17, 1999
F-34
<PAGE> 183
ALLIANCE RESOURCE PARTNERS, L.P.
BALANCE SHEET
MAY 17, 1999
ASSET
<TABLE>
<S> <C>
CURRENT ASSET:
Cash........................................................ $1,000
======
EQUITY
LIMITED PARTNERS' EQUITY.................................... $ 990
GENERAL PARTNER'S EQUITY.................................... 10
------
Total partners' equity............................ $1,000
======
</TABLE>
See note to balance sheet.
F-35
<PAGE> 184
ALLIANCE RESOURCE PARTNERS, L.P.
NOTE TO BALANCE SHEET
MAY 17, 1999
1. NATURE OF OPERATIONS
Alliance Resource Partners, L.P. is a Delaware limited partnership that was
formed May 17, 1999 to acquire substantially all of the equity interests in
Alliance Coal, LLC which is a Delaware limited liability company engaged in the
mining and sale of coal. The Partnership's general partners are Alliance
Resource Management GP, LLC and Alliance Resource GP, LLC.
F-36
<PAGE> 185
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
ALLIANCE RESOURCE PARTNERS, L.P.
<PAGE> 186
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions................................................. 1
SECTION 1.2 Construction................................................ 15
ARTICLE II
ORGANIZATION
SECTION 2.1 Formation................................................... 15
SECTION 2.2 Name........................................................ 15
SECTION 2.3 Registered Office; Registered Agent; Principal Office; Other
Offices................................................... 16
SECTION 2.4 Purpose and Business........................................ 16
SECTION 2.5 Powers...................................................... 16
SECTION 2.6 Power of Attorney........................................... 16
SECTION 2.7 Term........................................................ 18
SECTION 2.8 Title to Partnership Assets................................. 18
ARTICLE III
RIGHTS OF LIMITED PARTNERS
SECTION 3.1 Limitation of Liability..................................... 18
SECTION 3.2 Management of Business...................................... 18
SECTION 3.3 Outside Activities of the Limited Partners.................. 18
SECTION 3.4 Rights of Limited Partners.................................. 19
ARTICLE IV
CERTIFICATES; RECORD HOLDERS; TRANSFER OF PARTNERSHIP INTERESTS;
REDEMPTION OF PARTNERSHIP INTERESTS
SECTION 4.1 Certificates................................................ 19
SECTION 4.2 Mutilated, Destroyed, Lost or Stolen Certificates........... 20
SECTION 4.3 Record Holders.............................................. 20
SECTION 4.4 Transfer Generally.......................................... 21
SECTION 4.5 Registration and Transfer of Limited Partner Interests...... 21
SECTION 4.6 Transfer of the General Partners' General Partner
Interests................................................. 22
SECTION 4.7 Transfer of Incentive Distribution Rights................... 22
SECTION 4.8 Restrictions on Transfers................................... 23
SECTION 4.9 Citizenship Certificates; Non-citizen Assignees............. 23
SECTION 4.10 Redemption of Partnership Interests of Non-citizen
Assignees................................................. 24
ARTICLE V
CAPITAL CONTRIBUTIONS AND ISSUANCE OF PARTNERSHIP INTERESTS
SECTION 5.1 Organizational Contributions................................ 25
SECTION 5.2 Contributions by the General Partners and their
Affiliates................................................ 25
SECTION 5.3 Contributions by Initial Limited Partners and Reimbursement
of the Special General Partner............................ 26
SECTION 5.4 Interest and Withdrawal..................................... 26
SECTION 5.5 Capital Accounts............................................ 27
SECTION 5.6 Issuances of Additional Partnership Securities.............. 29
SECTION 5.7 Limitations on Issuance of Additional Partnership
Securities................................................ 30
SECTION 5.8 Conversion of Subordinated Units............................ 31
SECTION 5.9 Limited Preemptive Right.................................... 32
SECTION 5.10 Splits and Combinations..................................... 32
SECTION 5.11 Fully Paid and Non-Assessable Nature of Limited Partner
Interests................................................. 33
</TABLE>
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<PAGE> 187
<TABLE>
<S> <C> <C>
ARTICLE VI
ALLOCATIONS AND DISTRIBUTIONS
SECTION 6.1 Allocations for Capital Account Purposes.................... 33
SECTION 6.2 Allocations for Tax Purposes................................ 39
SECTION 6.3 Requirement and Characterization of Distributions;
Distributions to Record Holders........................... 40
SECTION 6.4 Distributions of Available Cash from Operating Surplus...... 41
SECTION 6.5 Distributions of Available Cash from Capital Surplus........ 42
SECTION 6.6 Adjustment of Minimum Quarterly Distribution and Target
Distribution Levels....................................... 42
SECTION 6.7 Special Provisions Relating to the Holders of Subordinated
Units..................................................... 43
SECTION 6.8 Special Provisions Relating to the Holders of Incentive
Distribution Rights....................................... 43
SECTION 6.9 Entity-Level Taxation....................................... 43
ARTICLE VII
MANAGEMENT AND OPERATION OF BUSINESS
SECTION 7.1 Management.................................................. 44
SECTION 7.2 Certificate of Limited Partnership.......................... 46
SECTION 7.3 Restrictions on General Partners' Authority................. 46
SECTION 7.4 Reimbursement of the General Partners....................... 46
SECTION 7.5 Outside Activities.......................................... 47
SECTION 7.6 Loans from the General Partners; Loans or Contributions from
the Partnership; Contracts with Affiliates; Certain
Restrictions on the General Partners...................... 48
SECTION 7.7 Indemnification............................................. 49
SECTION 7.8 Liability of Indemnitees.................................... 51
SECTION 7.9 Resolution of Conflicts of Interest......................... 51
SECTION 7.10 Other Matters Concerning the General Partners............... 52
SECTION 7.11 Purchase or Sale of Partnership Securities.................. 53
SECTION 7.12 Registration Rights of the General Partners and their
Affiliates................................................ 53
SECTION 7.13 Reliance by Third Parties................................... 55
ARTICLE VIII
BOOKS, RECORDS, ACCOUNTING AND REPORTS
SECTION 8.1 Records and Accounting...................................... 55
SECTION 8.2 Fiscal Year................................................. 55
SECTION 8.3 Reports..................................................... 56
ARTICLE IX
TAX MATTERS
SECTION 9.1 Tax Returns and Information................................. 56
SECTION 9.2 Tax Elections............................................... 56
SECTION 9.3 Tax Controversies........................................... 56
SECTION 9.4 Withholding................................................. 57
ARTICLE X
ADMISSION OF PARTNERS
SECTION 10.1 Admission of Initial Limited Partners....................... 57
SECTION 10.2 Admission of Substituted Limited Partner.................... 57
SECTION 10.3 Admission of Successor General Partners..................... 58
SECTION 10.4 Admission of Additional Limited Partners.................... 58
SECTION 10.5 Amendment of Agreement and Certificate of Limited
Partnership............................................... 58
</TABLE>
A-ii
<PAGE> 188
<TABLE>
<S> <C> <C>
ARTICLE XI
WITHDRAWAL OR REMOVAL OF PARTNERS
SECTION 11.1 Withdrawal of the Managing General Partner.................. 58
SECTION 11.2 Removal of the Managing General Partner..................... 60
SECTION 11.3 Interest of Departing Partner and Successor General
Partners.................................................. 60
SECTION 11.4 Withdrawal or Removal of Special General Partner............ 61
SECTION 11.5 Termination of Subordination Period, Conversion of
Subordinated Units and Extinguishment of Cumulative Common
Unit Arrearages........................................... 62
SECTION 11.6 Withdrawal of Limited Partners.............................. 63
ARTICLE XII
DISSOLUTION AND LIQUIDATION
SECTION 12.1 Dissolution................................................. 63
SECTION 12.2 Continuation of the Business of the Partnership After
Dissolution............................................... 63
SECTION 12.3 Liquidator.................................................. 64
SECTION 12.4 Liquidation................................................. 64
SECTION 12.5 Cancellation of Certificate of Limited Partnership.......... 65
SECTION 12.6 Return of Contributions..................................... 65
SECTION 12.7 Waiver of Partition......................................... 65
SECTION 12.8 Capital Account Restoration................................. 65
ARTICLE XIII
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS; RECORD DATE
SECTION 13.1 Amendment to be Adopted Solely by the Managing General
Partner................................................... 65
SECTION 13.2 Amendment Procedures........................................ 66
SECTION 13.3 Amendment Requirements...................................... 67
SECTION 13.4 Special Meetings............................................ 67
SECTION 13.5 Notice of a Meeting......................................... 68
SECTION 13.6 Record Date................................................. 68
SECTION 13.7 Adjournment................................................. 68
SECTION 13.8 Waiver of Notice; Approval of Meeting; Approval of
Minutes................................................... 68
SECTION 13.9 Quorum...................................................... 68
SECTION 13.10 Conduct of a Meeting........................................ 69
SECTION 13.11 Action Without a Meeting.................................... 69
SECTION 13.12 Voting and Other Rights..................................... 70
ARTICLE XIV
MERGER
SECTION 14.1 Authority................................................... 70
SECTION 14.2 Procedure for Merger or Consolidation....................... 70
SECTION 14.3 Approval by Limited Partners of Merger or Consolidation..... 71
SECTION 14.4 Certificate of Merger....................................... 72
SECTION 14.5 Effect of Merger............................................ 72
ARTICLE XV
RIGHT TO ACQUIRE LIMITED PARTNER INTERESTS
SECTION 15.1 Right to Acquire Limited Partner Interests.................. 72
ARTICLE XVI
GENERAL PROVISIONS
SECTION 16.1 Addresses and Notices....................................... 74
SECTION 16.2 Further Action.............................................. 74
SECTION 16.3 Binding Effect.............................................. 74
SECTION 16.4 Integration................................................. 74
</TABLE>
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<PAGE> 189
<TABLE>
<S> <C> <C>
SECTION 16.5 Creditors................................................... 74
SECTION 16.6 Waiver...................................................... 75
SECTION 16.7 Counterparts................................................ 75
SECTION 16.8 Applicable Law.............................................. 75
SECTION 16.9 Invalidity of Provisions.................................... 75
SECTION 16.10 Consent of Partners......................................... 75
</TABLE>
A-iv
<PAGE> 190
FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
ALLIANCE RESOURCE PARTNERS, L.P.
THIS FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF
ALLIANCE RESOURCE PARTNERS, L.P. dated as of , 1999, is entered into
by and among Alliance Resource Management GP, LLC, a Delaware limited liability
company, as the Managing General Partner, Alliance Resource GP, LLC, a Delaware
limited liability company, as the Special General Partner, and Thomas L.
Pearson, as the Organizational Limited Partner, together with any other Persons
who become Partners in the Partnership or parties hereto as provided herein. In
consideration of the covenants, conditions and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions.
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.
"Acquisition" means any transaction in which any Group Member acquires
(through an asset acquisition, merger, stock acquisition or other form of
investment) control over all or a portion of the assets, properties or business
of another Person for the purpose of increasing, over the long term, the
operating capacity of the Partnership Group from the operating capacity of the
Partnership Group existing immediately prior to such transaction.
"Additional Book Basis" means the portion of any remaining Carrying Value
of an Adjusted Property that is attributable to positive adjustments made to
such Carrying Value as a result of Book-Up Events. For purposes of determining
the extent that Carrying Value constitutes Additional Book Basis:
(i) Any negative adjustment made to the Carrying Value of an Adjusted
Property as a result of either a Book-Down Event or a Book-Up Event shall
first be deemed to offset or decrease that portion of the Carrying Value of
such Adjusted Property that is attributable to any prior positive
adjustments made thereto pursuant to a Book-Up Event or Book-Down Event.
(ii) If Carrying Value that constitutes Additional Book Basis is
reduced as a result of a Book-Down Event and the Carrying Value of other
property is increased as a result of such Book-Down Event, an allocable
portion of any such increase in Carrying Value shall be treated as
Additional Book Basis; provided that the amount treated as Additional Book
Basis pursuant hereto as a result of such Book-Down Event shall not exceed
the amount by which the Aggregate Remaining Net Positive Adjustments after
such Book-Down Event exceeds the remaining Additional Book Basis
attributable to all of the Partnership's Adjusted Property after such
Book-Down Event (determined without regard to the application of this
clause (ii) to such Book-Down Event).
"Additional Book Basis Derivative Items" means any Book Basis Derivative
Items that are computed with reference to Additional Book Basis. To the extent
that the Additional Book Basis attributable to all of the Partnership's Adjusted
Property as of the beginning of any taxable period exceeds the Aggregate
Remaining Net Positive Adjustments as of the beginning of such period (the
"Excess Additional Book Basis"), the Additional Book Basis Derivative Items for
such period shall be reduced by the amount that bears the same ratio to the
amount of Additional Book Basis Derivative Items determined without regard to
this sentence as the Excess Additional Book Basis bears to the Additional Book
Basis as of the beginning of such period.
"Additional Limited Partner" means a Person admitted to the Partnership as
a Limited Partner pursuant to Section 10.4 and who is shown as such on the books
and records of the Partnership.
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<PAGE> 191
"Adjusted Capital Account" means the Capital Account maintained for each
Partner as of the end of each fiscal year of the Partnership, (a) increased by
any amounts that such Partner is obligated to restore under the standards set by
Treasury Regulation Section 1.704-1(b)(2)(ii)(c) (or is deemed obligated to
restore under Treasury Regulation Sections 1.704-2(g) and 1.704-2(i)(5)) and (b)
decreased by (i) the amount of all losses and deductions that, as of the end of
such fiscal year, are reasonably expected to be allocated to such Partner in
subsequent years under Sections 704(e)(2) and 706(d) of the Code and Treasury
Regulation Section 1.751-1(b)(2)(ii), and (ii) the amount of all distributions
that, as of the end of such fiscal year, are reasonably expected to be made to
such Partner in subsequent years in accordance with the terms of this Agreement
or otherwise to the extent they exceed offsetting increases to such Partner's
Capital Account that are reasonably expected to occur during (or prior to) the
year in which such distributions are reasonably expected to be made (other than
increases as a result of a minimum gain chargeback pursuant to Section 6.1(d)(i)
or 6.1(d)(ii)). The foregoing definition of Adjusted Capital Account is intended
to comply with the provisions of Treasury Regulation Section
1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith. The
"Adjusted Capital Account" of a Partner in respect of a General Partner
Interest, a Common Unit, a Subordinated Unit or an Incentive Distribution Right
or any other specified interest in the Partnership shall be the amount which
such Adjusted Capital Account would be if such General Partner Interest, Common
Unit, Subordinated Unit, Incentive Distribution Right or other interest in the
Partnership were the only interest in the Partnership held by such Partner from
and after the date on which such General Partner Interest, Common Unit,
Subordinated Unit, Incentive Distribution Right or other interest was first
issued.
"Adjusted Operating Surplus" means, with respect to any period, Operating
Surplus generated during such period (a) less (i) any net increase in Working
Capital Borrowings during such period and (ii) any net reduction in cash
reserves for Operating Expenditures during such period not relating to an
Operating Expenditure made during such period, and (b) plus (i) any net decrease
in Working Capital Borrowings during such period, and (ii) any net increase in
cash reserves for Operating Expenditures during such period required by any debt
instrument for the repayment of principal, interest or premium. Adjusted
Operating Surplus does not include that portion of Operating Surplus included in
clause (a)(i) of the definition of Operating Surplus.
"Adjusted Property" means any property the Carrying Value of which has been
adjusted pursuant to Section 5.5(d)(i) or 5.5(d)(ii).
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly through one or more intermediaries controls, is
controlled by or is under common control with, the Person in question. As used
herein, the term "control" means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of a
Person, whether through ownership of voting securities, by contract or
otherwise.
"Aggregate Remaining Net Positive Adjustments" means, as of the end of any
taxable period, the sum of the Remaining Net Positive Adjustments of all the
Partners.
"Agreed Allocation" means any allocation, other than a Required Allocation,
of an item of income, gain, loss or deduction pursuant to the provisions of
Section 6.1, including, without limitation, a Curative Allocation (if
appropriate to the context in which the term "Agreed Allocation" is used).
"Agreed Value" of any Contributed Property means the fair market value of
such property or other consideration at the time of contribution as determined
by the Managing General Partner using such reasonable method of valuation as it
may adopt. The Managing General Partner shall, in its discretion, use such
method as it deems reasonable and appropriate to allocate the aggregate Agreed
Value of Contributed Properties contributed to the Partnership in a single or
integrated transaction among each separate property on a basis proportional to
the fair market value of each Contributed Property.
"Agreement" means this First Amended and Restated Agreement of Limited
Partnership of Alliance Resource Partners, L.P., as it may be amended,
supplemented or restated from time to time.
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<PAGE> 192
"Assignee" means a Non-citizen Assignee or a Person to whom one or more
Limited Partner Interests have been transferred in a manner permitted under this
Agreement and who has executed and delivered a Transfer Application as required
by this Agreement, but who has not been admitted as a Substituted Limited
Partner.
"Associate" means, when used to indicate a relationship with any Person,
(a) any corporation or organization of which such Person is a director, officer
or partner or is, directly or indirectly, the owner of 20% or more of any class
of voting stock or other voting interest; (b) any trust or other estate in which
such Person has at least a 20% beneficial interest or as to which such Person
serves as trustee or in a similar fiduciary capacity; and (c) any relative or
spouse of such Person, or any relative of such spouse, who has the same
principal residence as such Person.
"Available Cash" means, with respect to any Quarter ending prior to the
Liquidation Date, and without duplication:
(a) the sum of (i) all cash and cash equivalents of the Partnership
Group on hand at the end of such Quarter, and (ii) all additional cash and
cash equivalents of the Partnership Group on hand on the date of
determination of Available Cash with respect to such Quarter resulting from
Working Capital Borrowings made subsequent to the end of such Quarter, less
(b) the amount of any cash reserves that are necessary or appropriate
in the reasonable discretion of the Managing General Partner to (i) provide
for the proper conduct of the business of the Partnership Group (including
reserves for future capital expenditures and for anticipated future credit
needs of the Partnership Group) subsequent to such Quarter, (ii) comply
with applicable law or any loan agreement, security agreement, mortgage,
debt instrument or other agreement or obligation to which any Group Member
is a party or by which it is bound or its assets are subject or (iii)
provide funds for distributions under Section 6.4 or 6.5 in respect of any
one or more of the next four Quarters; provided, however, that the Managing
General Partner may not establish cash reserves pursuant to (iii) above if
the effect of such reserves would be that the Partnership is unable to
distribute the Minimum Quarterly Distribution on all Common Units, plus any
Cumulative Common Unit Arrearage on all Common Units, with respect to such
Quarter; and, provided further, that disbursements made by a Group Member
or cash reserves established, increased or reduced after the end of such
Quarter but on or before the date of determination of Available Cash with
respect to such Quarter shall be deemed to have been made, established,
increased or reduced, for purposes of determining Available Cash, within
such Quarter if the Managing General Partner so determines.
Notwithstanding the foregoing, "Available Cash" with respect to the Quarter
in which the Liquidation Date occurs and any subsequent Quarter shall equal
zero.
"Book Basis Derivative Items" means any item of income, deduction, gain or
loss included in the determination of Net Income or Net Loss that is computed
with reference to the Carrying Value of an Adjusted Property (e.g.,
depreciation, depletion, or gain or loss with respect to an Adjusted Property).
"Book-Down Event" means an event which triggers a negative adjustment to
the Capital Accounts of the Partners pursuant to Section 5.5(d).
"Book-Tax Disparity" means with respect to any item of Contributed Property
or Adjusted Property, as of the date of any determination, the difference
between the Carrying Value of such Contributed Property or Adjusted Property and
the adjusted basis thereof for federal income tax purposes as of such date. A
Partner's share of the Partnership's Book-Tax Disparities in all of its
Contributed Property and Adjusted Property will be reflected by the difference
between such Partner's Capital Account balance as maintained pursuant to Section
5.5 and the hypothetical balance of such Partner's Capital Account computed as
if it had been maintained strictly in accordance with federal income tax
accounting principles.
"Book-Up Event" means an event which triggers a positive adjustment to the
Capital Accounts of the Partners pursuant to Section 5.5(d).
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<PAGE> 193
"Business Day" means Monday through Friday of each week, except that a
legal holiday recognized as such by the government of the United States of
America or the states of New York or Texas shall not be regarded as a Business
Day.
"Capital Account" means the capital account maintained for a Partner
pursuant to Section 5.5. The "Capital Account" of a Partner in respect of a
General Partner Interest, a Common Unit, a Subordinated Unit, an Incentive
Distribution Right or any other Partnership Interest shall be the amount which
such Capital Account would be if such General Partner Interest, Common Unit,
Subordinated Unit, Incentive Distribution Right or other Partnership Interest
were the only interest in the Partnership held by such Partner from and after
the date on which such General Partner Interest, Common Unit, Subordinated Unit,
Incentive Distribution Right or other Partnership Interest was first issued.
"Capital Contribution" means any cash, cash equivalents or the Net Agreed
Value of Contributed Property that a Partner contributes to the Partnership
pursuant to this Agreement or the Contribution Agreement.
"Capital Improvement" means any (a) addition or improvement to the capital
assets owned by any Group Member or (b) acquisition of existing, or the
construction of new, capital assets (including, without limitation, coal mines,
preparation plants and related assets), in each case if such addition,
improvement, acquisition or construction is made to increase over the long term
the operating capacity of the Partnership Group from the operating capacity of
the Partnership Group existing immediately prior to such addition, improvement,
acquisition or construction.
"Capital Surplus" has the meaning assigned to such term in Section 6.3(a).
"Carrying Value" means (a) with respect to a Contributed Property, the
Agreed Value of such property reduced (but not below zero) by all depreciation,
amortization and cost recovery deductions charged to the Partners' and
Assignees' Capital Accounts in respect of such Contributed Property, and (b)
with respect to any other Partnership property, the adjusted basis of such
property for federal income tax purposes, all as of the time of determination.
The Carrying Value of any property shall be adjusted from time to time in
accordance with Sections 5.5(d)(i) and 5.5(d)(ii) and to reflect changes,
additions or other adjustments to the Carrying Value for dispositions and
acquisitions of Partnership properties, as deemed appropriate by the Managing
General Partner.
"Cause" means a court of competent jurisdiction has entered a final,
non-appealable judgment finding a General Partner liable for actual fraud, gross
negligence or willful or wanton misconduct in its capacity as a general partner
of the Partnership.
"Certificate" means a certificate (i) substantially in the form of Exhibit
A to this Agreement, (ii) issued in global form in accordance with the rules and
regulations of the Depositary or (iii) in such other form as may be adopted by
the Managing General Partner in its discretion, issued by the Partnership
evidencing ownership of one or more Common Units or a certificate, in such form
as may be adopted by the Managing General Partner in its discretion, issued by
the Partnership evidencing ownership of one or more other Partnership
Securities.
"Certificate of Limited Partnership" means the Certificate of Limited
Partnership of the Partnership filed with the Secretary of State of the State of
Delaware as referenced in Section 2.1, as such Certificate of Limited
Partnership may be amended, supplemented or restated from time to time.
"Citizenship Certification" means a properly completed certificate in such
form as may be specified by the Managing General Partner by which an Assignee or
a Limited Partner certifies that he (and if he is a nominee holding for the
account of another Person, that to the best of his knowledge such other Person)
is an Eligible Citizen.
"Claim" has the meaning assigned to such term in Section 7.12(c).
"Closing Date" means the first date on which Common Units are sold by the
Partnership to the Underwriters pursuant to the provisions of the Underwriting
Agreement.
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<PAGE> 194
"Closing Price" has the meaning assigned to such term in Section 15.1(a).
"Code" means the Internal Revenue Code of 1986, as amended and in effect
from time to time. Any reference herein to a specific section or sections of the
Code shall be deemed to include a reference to any corresponding provision of
successor law.
"Combined Interest" has the meaning assigned to such term in Section
11.3(a).
"Commission" means the United States Securities and Exchange Commission.
"Common Unit" means a Partnership Security representing a fractional part
of the Partnership Interests of all Limited Partners and Assignees and of the
General Partners (exclusive of their interests as holders of the General Partner
Interests and, with respect to the Managing General Partner, the Incentive
Distribution Rights) and having the rights and obligations specified with
respect to Common Units in this Agreement. The term "Common Unit" does not refer
to a Subordinated Unit prior to its conversion into a Common Unit pursuant to
the terms hereof.
"Common Unit Arrearage" means, with respect to any Common Unit, whenever
issued, as to any Quarter within the Subordination Period, the excess, if any,
of (a) the Minimum Quarterly Distribution with respect to a Common Unit in
respect of such Quarter over (b) the sum of all Available Cash distributed with
respect to a Common Unit in respect of such Quarter pursuant to Section
6.4(a)(i).
"Conflicts Committee" means a committee of the Board of Directors of the
Managing General Partner composed entirely of two or more directors who are
neither security holders, officers nor employees of the Managing General Partner
nor officers, directors or employees of any Affiliate of the Managing General
Partner.
"Contributed Property" means each property or other asset, in such form as
may be permitted by the Delaware Act, but excluding cash, contributed to the
Partnership. Once the Carrying Value of a Contributed Property is adjusted
pursuant to Section 5.5(d), such property shall no longer constitute a
Contributed Property, but shall be deemed an Adjusted Property.
"Contribution Agreement" means that certain Contribution and Assumption
Agreement, dated as of the Closing Date, among the Managing General Partner, the
Special General Partner, the Partnership, the Intermediate Partnership, the
Operating Subsidiary and certain other parties, together with the additional
conveyance documents and instruments contemplated or referenced thereunder.
"Cumulative Common Unit Arrearage" means, with respect to any Common Unit,
whenever issued, and as of the end of any Quarter, the excess, if any, of (a)
the sum resulting from adding together the Common Unit Arrearage as to an
Initial Common Unit for each of the Quarters within the Subordination Period
ending on or before the last day of such Quarter over (b) the sum of any
distributions theretofore made pursuant to Section 6.4(a)(ii) and the second
sentence of Section 6.5 with respect to an Initial Common Unit (including any
distributions to be made in respect of the last of such Quarters).
"Curative Allocation" means any allocation of an item of income, gain,
deduction, loss or credit pursuant to the provisions of Section 6.1(d)(xi).
"Current Market Price" has the meaning assigned to such term in Section
15.1(a).
"Delaware Act" means the Delaware Revised Uniform Limited Partnership Act,
6 Del C. sec.17-101, et seq., as amended, supplemented or restated from time to
time, and any successor to such statute.
"Departing Partner" means a former General Partner from and after the
effective date of any withdrawal or removal of such former General Partner
pursuant to Section 11.1, 11.2 or 11.4.
"Depositary" means, with respect to any Units issued in global form, The
Depository Trust Company and its successors and permitted assigns.
"Economic Risk of Loss" has the meaning set forth in Treasury Regulation
Section 1.752-2(a).
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"Eligible Citizen" means a Person qualified to own interests in real
property in jurisdictions in which any Group Member does business or proposes to
do business from time to time, and whose status as a Limited Partner or Assignee
does not or would not subject such Group Member to a significant risk of
cancellation or forfeiture of any of its properties or any interest therein.
"Estimated Maintenance Capital Expenditures" means an estimate made in good
faith by the board of directors of the Managing General Partner (with the
concurrence of the Conflicts Committee) of the average quarterly Maintenance
Capital Expenditures that the Partnership will incur over the long term. The
board of directors of the Managing General Partner will be permitted to make
such estimate in any manner it determines reasonable in its sole discretion. The
estimate will be made annually and whenever an event occurs that is likely to
result in a material adjustment to the amount of Maintenance Capital
Expenditures on a long term basis. The Partnership shall disclose to its
Partners the amount of Estimated Maintenance Capital Expenditures. Except as
provided in the definition of Subordination Period, any adjustments to Estimated
Maintenance Capital Expenditures shall be prospective only.
"Event of Withdrawal" has the meaning assigned to such term in Section
11.1(a).
"Expansion Capital Expenditures" means cash capital expenditures for
Acquisitions or Capital Improvements. Expansion Capital Expenditures shall not
include Maintenance Capital Expenditures.
"Final Subordinated Units" has the meaning assigned to such term in Section
6.1(d)(x).
"First Liquidation Target Amount" has the meaning assigned to such term in
Section 6.1(c)(i)(D).
"First Target Distribution" means $.55 per Unit per Quarter (or, with
respect to the period commencing on the Closing Date and ending on September 30,
1999, it means the product of $.55 multiplied by a fraction of which the
numerator is the number of days in such period, and of which the denominator is
92), subject to adjustment in accordance with Sections 6.6 and 6.9.
"General Partners" means the Managing General Partner and the Special
General Partner and their successors and permitted assigns as managing general
partner and special general partner, respectively, of the Partnership.
"General Partner Interest" means the ownership interest of a General
Partner in the Partnership (in its capacity as a general partner without
reference to any Limited Partner Interest held by it) which may be evidenced by
Partnership Securities or a combination thereof or interest therein, and
includes any and all benefits to which a General Partner is entitled as provided
in this Agreement, together with all obligations of a General Partner to comply
with the terms and provisions of this Agreement.
"Group" means a Person that with or through any of its Affiliates or
Associates has any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting (except voting pursuant to a revocable proxy or
consent given to such Person in response to a proxy or consent solicitation made
to 10 or more Persons) or disposing of any Partnership Securities with any other
Person that beneficially owns, or whose Affiliates or Associates beneficially
own, directly or indirectly, Partnership Securities.
"Group Member" means a member of the Partnership Group.
"Holder" as used in Section 7.12, has the meaning assigned to such term in
Section 7.12(a).
"Incentive Distribution Right" means a non-voting Limited Partner Interest
issued to the Managing General Partner in connection with the transfer of all of
its limited partner interests in the Intermediate Partnership to the Partnership
and substantially all of its member interests in the Operating Subsidiary to the
Intermediate Partnership pursuant to Section 5.2, which Partnership Interest
will confer upon the holder thereof only the rights and obligations specifically
provided in this Agreement with respect to Incentive Distribution Rights (and no
other rights otherwise available to or other obligations of a holder of a
Partnership Interest). Notwithstanding anything in this Agreement to the
contrary, the holder of an Incentive Distribution Right shall not be entitled to
vote such Incentive Distribution Right on any Partnership matter except as may
otherwise be required by law.
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"Incentive Distributions" means any amount of cash distributed to the
holders of the Incentive Distribution Rights pursuant to Sections 6.4(a)(v),
(vi) and (vii) and 6.4(b)(iii), (iv) and (v).
"Indemnified Persons" has the meaning assigned to such term in Section
7.12(c).
"Indemnitee" means (a) each General Partner, (b) any Departing Partner, (c)
any Person who is or was an Affiliate of a General Partner or any Departing
Partner, (d) any Person who is or was a member, partner, officer, director,
employee, agent or trustee of any Group Member, a General Partner or any
Departing Partner or any Affiliate of any Group Member, a General Partner or any
Departing Partner, and (e) any Person who is or was serving at the request of a
General Partner or any Departing Partner or any Affiliate of a General Partner
or any Departing Partner as an officer, director, employee, member, partner,
agent, fiduciary or trustee of another Person; provided, that a Person shall not
be an Indemnitee by reason of providing, on a fee-for-services basis, trustee,
fiduciary or custodial services.
"Initial Common Units" means the Common Units sold in the Initial Offering.
"Initial Limited Partners" means the General Partners (with respect to the
Subordinated Units and the Incentive Distribution Rights received by them
pursuant to Section 5.2) and the Underwriters, in each case upon being admitted
to the Partnership in accordance with Section 10.1.
"Initial Offering" means the initial offering and sale of Common Units to
the public, as described in the Registration Statement.
"Initial Unit Price" means (a) with respect to the Common Units and the
Subordinated Units, the initial public offering price per Common Unit at which
the Underwriters offered the Common Units to the public for sale as set forth on
the cover page of the prospectus included as part of the Registration Statement
and first issued at or after the time the Registration Statement first became
effective or (b) with respect to any other class or series of Units, the price
per Unit at which such class or series of Units is initially sold by the
Partnership, as determined by the Managing General Partner, in each case
adjusted as the Managing General Partner determines to be appropriate to give
effect to any distribution, subdivision or combination of Units.
"Interim Capital Transactions" means the following transactions if they
occur prior to the Liquidation Date: (a) borrowings, refinancings or refundings
of indebtedness and sales of debt securities (other than Working Capital
Borrowings and other than for items purchased on open account in the ordinary
course of business) by any Group Member; (b) sales of equity interests by any
Group Member (including one-half of the Common Units sold to the Underwriters
pursuant to the exercise of their over-allotment option); and (c) sales or other
voluntary or involuntary dispositions of any assets of any Group Member other
than (i) sales or other dispositions of inventory, accounts receivable and other
assets in the ordinary course of business, and (ii) sales or other dispositions
of assets as part of normal retirements or replacements.
"Intermediate Partnership" means Alliance Resource Operating Partners,
L.P., a Delaware limited partnership, and any successors thereto.
"Intermediate Partnership Agreement" means the Agreement of Limited
Partnership of Alliance Resource Operating Partners, L.P., as it may be amended,
supplemented or restated from time to time.
"Issue Price" means the price at which a Unit is purchased from the
Partnership, after taking into account any sales commission or underwriting
discount charged to the Partnership.
"Limited Partner" means, unless the context otherwise requires, (a) the
Organizational Limited Partner prior to his withdrawal from the Partnership,
each Initial Limited Partner, each Substituted Limited Partner, each Additional
Limited Partner and any Departing Partner upon the change of its status from
Managing General Partner to Limited Partner pursuant to Section 11.3 or (b)
solely for purposes of Articles V, VI, VII and IX and Sections 12.3 and 12.4,
each Assignee; provided, however, that when the term "Limited Partner" is used
herein in the context of any vote or other approval, including without
limitation Articles XIII and XIV, such term shall not, solely for such purpose,
include any holder of an Incentive Distribution Right except as may otherwise be
required by law.
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"Limited Partner Interest" means the ownership interest of a Limited
Partner or Assignee in the Partnership, which may be evidenced by Common Units,
Subordinated Units, Incentive Distribution Rights or other Partnership
Securities or a combination thereof or interest therein, and includes any and
all benefits to which such Limited Partner or Assignee is entitled as provided
in this Agreement, together with all obligations of such Limited Partner or
Assignee to comply with the terms and provisions of this Agreement; provided,
however, that when the term "Limited Partner Interest" is used herein in the
context of any vote or other approval, including without limitation Articles
XIII and XIV, such term shall not, solely for such purpose, include any holder
of an Incentive Distribution Right except as may otherwise be required by law.
"Liquidation Date" means (a) in the case of an event giving rise to the
dissolution of the Partnership of the type described in clauses (a) and (b) of
the first sentence of Section 12.2, the date on which the applicable time period
during which the holders of Outstanding Units have the right to elect to
reconstitute the Partnership and continue its business has expired without such
an election being made, and (b) in the case of any other event giving rise to
the dissolution of the Partnership, the date on which such event occurs.
"Liquidator" means one or more Persons selected by the Managing General
Partner to perform the functions described in Section 12.3 as liquidating
trustee of the Partnership within the meaning of the Delaware Act.
"Maintenance Capital Expenditures" means cash capital expenditures
(including expenditures for the addition or improvement to the capital assets
owned by any Group Member or for the acquisition of existing, or the
construction of new, capital assets (including, without limitation, coal mines,
preparation plants and related assets) if such expenditure is made to maintain
over the long term the operating capacity of the capital assets of the
Partnership Group, as such assets existed at the time of such expenditure.
Maintenance Capital Expenditures shall not include Expansion Capital
Expenditures, but shall include reclamation expenses.
"Managing General Partner" means Alliance Resource Management GP, LLC and
its successors and permitted assigns as managing general partner of the
Partnership.
"Merger Agreement" has the meaning assigned to such term in Section 14.1.
"Minimum Quarterly Distribution" means $.50 per Unit per Quarter (or with
respect to the period commencing on the Closing Date and ending on September 30,
1999, it means the product of $.50 multiplied by a fraction of which the
numerator is the number of days in such period and of which the denominator is
92), subject to adjustment in accordance with Sections 6.6 and 6.9.
"National Securities Exchange" means an exchange registered with the
Commission under Section 6(a) of the Securities Exchange Act of 1934, as
amended, supplemented or restated from time to time, and any successor to such
statute, or the Nasdaq Stock Market or any successor thereto.
"Net Agreed Value" means, (a) in the case of any Contributed Property, the
Agreed Value of such property reduced by any liabilities either assumed by the
Partnership upon such contribution or to which such property is subject when
contributed, and (b) in the case of any property distributed to a Partner or
Assignee by the Partnership, the Partnership's Carrying Value of such property
(as adjusted pursuant to Section 5.5(d)(ii)) at the time such property is
distributed, reduced by any indebtedness either assumed by such Partner or
Assignee upon such distribution or to which such property is subject at the time
of distribution, in either case, as determined under Section 752 of the Code.
"Net Income" means, for any taxable year, the excess, if any, of the
Partnership's items of income and gain (other than those items taken into
account in the computation of Net Termination Gain or Net Termination Loss) for
such taxable year over the Partnership's items of loss and deduction (other than
those items taken into account in the computation of Net Termination Gain or Net
Termination Loss) for such taxable year. The items included in the calculation
of Net Income shall be determined in accordance with Section 5.5(b) and shall
not include any items specially allocated under Section 6.1(d); provided that
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the determination of the items that have been specially allocated under Section
6.1(d) shall be made as if Section 6.1(d)(xii) were not in this Agreement.
"Net Loss" means, for any taxable year, the excess, if any, of the
Partnership's items of loss and deduction (other than those items taken into
account in the computation of Net Termination Gain or Net Termination Loss) for
such taxable year over the Partnership's items of income and gain (other than
those items taken into account in the computation of Net Termination Gain or Net
Termination Loss) for such taxable year. The items included in the calculation
of Net Loss shall be determined in accordance with Section 5.5(b) and shall not
include any items specially allocated under Section 6.1(d); provided that the
determination of the items that have been specially allocated under Section
6.1(d) shall be made as if Section 6.1(d)(xii) were not in this Agreement.
"Net Positive Adjustments" means, with respect to any Partner, the excess,
if any, of the total positive adjustments over the total negative adjustments
made to the Capital Account of such Partner pursuant to Book-Up Events and
Book-Down Events.
"Net Termination Gain" means, for any taxable year, the sum, if positive,
of all items of income, gain, loss or deduction recognized by the Partnership
after the Liquidation Date. The items included in the determination of Net
Termination Gain shall be determined in accordance with Section 5.5(b) and shall
not include any items of income, gain or loss specially allocated under Section
6.1(d).
"Net Termination Loss" means, for any taxable year, the sum, if negative,
of all items of income, gain, loss or deduction recognized by the Partnership
after the Liquidation Date. The items included in the determination of Net
Termination Loss shall be determined in accordance with Section 5.5(b) and shall
not include any items of income, gain or loss specially allocated under Section
6.1(d).
"Non-citizen Assignee" means a Person whom the Managing General Partner has
determined in its discretion does not constitute an Eligible Citizen and as to
whose Partnership Interest the Managing General Partner has become the
Substituted Limited Partner, pursuant to Section 4.9.
"Nonrecourse Built-in Gain" means with respect to any Contributed
Properties or Adjusted Properties that are subject to a mortgage or pledge
securing a Nonrecourse Liability, the amount of any taxable gain that would be
allocated to the Partners pursuant to Sections 6.2(b)(i)(A), 6.2(b)(ii)(A) and
6.2(b)(iii) if such properties were disposed of in a taxable transaction in full
satisfaction of such liabilities and for no other consideration.
"Nonrecourse Deductions" means any and all items of loss, deduction or
expenditure (including, without limitation, any expenditure described in Section
705(a)(2)(B) of the Code) that, in accordance with the principles of Treasury
Regulation Section 1.704-2(b), are attributable to a Nonrecourse Liability.
"Nonrecourse Liability" has the meaning set forth in Treasury Regulation
Section 1.752-1(a)(2).
"Notice of Election to Purchase" has the meaning assigned to such term in
Section 15.1(b).
"Omnibus Agreement" means that Omnibus Agreement, dated as of the Closing
Date, among Alliance Resource Holdings, Inc., the Managing General Partner, the
Special General Partner, the Partnership, the Intermediate Partnership and the
Operating Subsidiary.
"Operating Expenditures" means all Partnership Group expenditures,
including, but not limited to, taxes, reimbursements of the Managing General
Partner, repayment of Working Capital Borrowings, debt service payments and
capital expenditures, subject to the following:
(a) Payments (including prepayments) of principal of and premium on
indebtedness other than Working Capital Borrowings shall not constitute
Operating Expenditures; and
(b) Operating Expenditures shall not include Expansion Capital
Expenditures or actual Maintenance Capital Expenditures but shall include
Estimated Maintenance Capital Expenditures.
(c) Operating Expenditures shall not include (i) payment of
transaction expenses relating to Interim Capital Transactions or (ii)
distribution to partners.
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"Operating Subsidiary" means Alliance Coal, LLC, a Delaware limited
liability company, and any successors thereto.
"Operating Subsidiary Agreement" means the Limited Liability Company
Agreement of the Operating Subsidiary, as it may be amended, supplemented or
restated from time to time.
"Operating Surplus" means, with respect to any period ending prior to the
Liquidation Date, on a cumulative basis and without duplication,
(a) the sum of (i) $20.0 million plus all cash and cash equivalents of
the Partnership Group on hand as of the close of business on the Closing
Date, (ii) all cash receipts of the Partnership Group for the period
beginning on the Closing Date and ending with the last day of such period,
other than cash receipts from Interim Capital Transactions (except to the
extent specified in Section 6.5) and (iii) all cash receipts of the
Partnership Group after the end of such period but on or before the date of
determination of Operating Surplus with respect to such period resulting
from Working Capital Borrowings, less
(b) the sum of (i) Operating Expenditures for the period beginning on
the Closing Date and ending with the last day of such period and (ii) the
amount of cash reserves that is necessary or advisable in the reasonable
discretion of the Managing General Partner to provide funds for future
Operating Expenditures; provided, however, that disbursements made
(including contributions to a Group Member or disbursements on behalf of a
Group Member) or cash reserves established, increased or reduced after the
end of such period but on or before the date of determination of Available
Cash with respect to such period shall be deemed to have been made,
established, increased or reduced, for purposes of determining Operating
Surplus, within such period if the Managing General Partner so determines..
Notwithstanding the foregoing, "Operating Surplus" with respect to the
Quarter in which the Liquidation Date occurs and any subsequent Quarter shall
equal zero.
"Opinion of Counsel" means a written opinion of counsel (who may be regular
counsel to the Partnership or either of the General Partners or any of their
Affiliates) acceptable to the Managing General Partner in its reasonable
discretion.
"Organizational Limited Partner" means Thomas L. Pearson in his capacity as
the organizational limited partner of the Partnership pursuant to this
Agreement.
"Outstanding" means, with respect to Partnership Securities, all
Partnership Securities that are issued by the Partnership and reflected as
outstanding on the Partnership's books and records as of the date of
determination; provided, however, that if at any time any Person or Group (other
than the General Partners or their Affiliates) beneficially owns 20% or more of
any Outstanding Partnership Securities of any class then Outstanding, all
Partnership Securities owned by such Person or Group shall not be voted on any
matter and shall not be considered to be Outstanding when sending notices of a
meeting of Limited Partners to vote on any matter (unless otherwise required by
law), calculating required votes, determining the presence of a quorum or for
other similar purposes under this Agreement, except that Common Units so owned
shall be considered to be Outstanding for purposes of Section 11.1(b)(iv) (such
Common Units shall not, however, be treated as a separate class of Partnership
Securities for purposes of this Agreement); provided, further, that the
foregoing limitation shall not apply (i) to any Person or Group who acquired 20%
or more of any Outstanding Partnership Securities of any class then Outstanding
directly from the General Partners or their Affiliates or (ii) to any Person or
Group who acquired 20% or more of any Outstanding Partnership Securities of any
class then Outstanding directly or indirectly from a Person or Group described
in clause (i) provided that the General Partners shall have notified such Person
or Group in writing that such limitation shall not apply.
"Over-Allotment Option" means the over-allotment option granted to the
Underwriters by the Partnership pursuant to the Underwriting Agreement.
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"Parity Units" means Common Units and all other Units having rights to
distributions or in liquidation ranking on a parity with the Common Units.
"Partner Nonrecourse Debt" has the meaning set forth in Treasury Regulation
Section 1.704-2(b)(4).
"Partner Nonrecourse Debt Minimum Gain" has the meaning set forth in
Treasury Regulation Section 1.704-2(i)(2).
"Partner Nonrecourse Deductions" means any and all items of loss, deduction
or expenditure (including, without limitation, any expenditure described in
Section 705(a)(2)(B) of the Code) that, in accordance with the principles of
Treasury Regulation Section 1.704-2(i), are attributable to a Partner
Nonrecourse Debt.
"Partners" means the General Partners and the Limited Partners.
"Partnership" means Alliance Resource Partners, L.P., a Delaware limited
partnership, and any successors thereto.
"Partnership Group" means the Partnership, the Intermediate Partnership,
the Operating Subsidiary and any Subsidiary of any such entity, treated as a
single consolidated entity.
"Partnership Interest" means an interest in the Partnership, which shall
include the General Partner Interests and Limited Partner Interests.
"Partnership Minimum Gain" means that amount determined in accordance with
the principles of Treasury Regulation Section 1.704-2(d).
"Partnership Security" means any class or series of equity interest in the
Partnership (but excluding any options, rights, warrants and appreciation rights
relating to an equity interest in the Partnership), including without
limitation, Common Units, Subordinated Units and Incentive Distribution Rights.
"Percentage Interest" means as of any date of determination (a) as to the
Managing General Partner (in its capacity as Managing General Partner without
reference to any Limited Partner Interests held by it), .99%, (b) as to the
Special General Partner (in its capacity as Special General Partner without
reference to any Limited Partner Interests held by it), .01%, (c) as to any
Unitholder or Assignee holding Units, the product obtained by multiplying (i)
99% less the percentage applicable to paragraph (d) by (ii) the quotient
obtained by dividing (A) the number of Units held by such Unitholder or Assignee
by (B) the total number of all Outstanding Units, and (d) as to the holders of
additional Partnership Securities issued by the Partnership in accordance with
Section 5.6, the percentage established as a part of such issuance. The
Percentage Interest with respect to an Incentive Distribution Right shall at all
times be zero.
"Person" means an individual or a corporation, limited liability company,
partnership, joint venture, trust, unincorporated organization, association,
government agency or political subdivision thereof or other entity.
"Per Unit Capital Amount" means, as of any date of determination, the
Capital Account, stated on a per Unit basis, underlying any Unit held by a
Person other than the General Partners or any Affiliate of either General
Partner who holds Units.
"Pro Rata" means (a) when modifying Units or any class thereof, apportioned
equally among all designated Units in accordance with their relative Percentage
Interests, (b) when modifying General Partners, apportioned among all General
Partners in accordance with their relative Percentage Interests, (c) when
modifying Partners and Assignees, apportioned among all Partners and Assignees
in accordance with their relative Percentage Interests and (d) when modifying
holders of Incentive Distribution Rights, apportioned equally among all holders
of Incentive Distribution Rights in accordance with the relative number of
Incentive Distribution Rights held by each such holder.
"Purchase Date" means the date determined by the Managing General Partner
as the date for purchase of all Outstanding Units of a certain class (other than
Units owned by the General Partners and their Affiliates) pursuant to Article
XV.
"Quarter" means, unless the context requires otherwise, a fiscal quarter of
the Partnership.
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"Recapture Income" means any gain recognized by the Partnership (computed
without regard to any adjustment required by Section 734 or Section 743 of the
Code) upon the disposition of any property or asset of the Partnership, which
gain is characterized as ordinary income because it represents the recapture of
deductions previously taken with respect to such property or asset.
"Record Date" means the date established by the Managing General Partner
for determining (a) the identity of the Record Holders entitled to notice of, or
to vote at, any meeting of Limited Partners or entitled to vote by ballot or
give approval of Partnership action in writing without a meeting or entitled to
exercise rights in respect of any lawful action of Limited Partners or (b) the
identity of Record Holders entitled to receive any report or distribution or to
participate in any offer.
"Record Holder" means the Person in whose name a Common Unit is registered
on the books of the Transfer Agent as of the opening of business on a particular
Business Day, or with respect to other Partnership Securities, the Person in
whose name any such other Partnership Security is registered on the books which
the Managing General Partner has caused to be kept as of the opening of business
on such Business Day.
"Redeemable Interests" means any Partnership Interests for which a
redemption notice has been given, and has not been withdrawn, pursuant to
Section 4.10.
"Registration Statement" means the Registration Statement on Form S-1
(Registration No. 333-78845) as it has been or as it may be amended or
supplemented from time to time, filed by the Partnership with the Commission
under the Securities Act to register the offering and sale of the Common Units
in the Initial Offering.
"Remaining Net Positive Adjustments" means as of the end of any taxable
period, (i) with respect to the Unitholders holding Common Units or Subordinated
Units, the excess of (a) the Net Positive Adjustments of the Unitholders holding
Common Units or Subordinated Units as of the end of such period over (b) the sum
of those Partners' Share of Additional Book Basis Derivative Items for each
prior taxable period, (ii) with respect to the General Partners (as holders of
the General Partner Interests), the excess of (a) the Net Positive Adjustments
of the General Partners as of the end of such period over (b) the sum of the
General Partners' Share of Additional Book Basis Derivative Items with respect
to the General Partner Interests for each prior taxable period, and (iii) with
respect to the holders of Incentive Distribution Rights, the excess of (a) the
Net Positive Adjustments of the holders of Incentive Distribution Rights as of
the end of such period over (b) the sum of the Share of Additional Book Basis
Derivative Items of the holders of the Incentive Distribution Rights for each
prior taxable period.
"Required Allocations" means (a) any limitation imposed on any allocation
of Net Losses or Net Termination Losses under Section 6.1(b) or 6.1(c)(ii) and
(b) any allocation of an item of income, gain, loss or deduction pursuant to
Section 6.1(d)(i), 6.1(d)(ii), 6.1(d)(iv), 6.1(d)(vii) or 6.1(d)(ix).
"Residual Gain" or "Residual Loss" means any item of gain or loss, as the
case may be, of the Partnership recognized for federal income tax purposes
resulting from a sale, exchange or other disposition of a Contributed Property
or Adjusted Property, to the extent such item of gain or loss is not allocated
pursuant to Section 6.2(b)(i)(A) or 6.2(b)(ii)(A), respectively, to eliminate
Book-Tax Disparities.
"Restricted Business" has the meaning assigned to such term in the Omnibus
Agreement.
"Second Liquidation Target Amount" has the meaning assigned to such term in
Section 6.1(c)(i)(E).
"Second Target Distribution" means $.625 per Unit per Quarter (or, with
respect to the period commencing on the Closing Date and ending on September 30,
1999, it means the product of $.625 multiplied by a fraction of which the
numerator is equal to the number of days in such period and of which the
denominator is 92), subject to adjustment in accordance with Sections 6.6 and
6.9.
"Securities Act" means the Securities Act of 1933, as amended, supplemented
or restated from time to time and any successor to such statute.
"Share of Additional Book Basis Derivative Items" means in connection with
any allocation of Additional Book Basis Derivative Items for any taxable period,
(i) with respect to the Unitholders holding
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Common Units or Subordinated Units, the amount that bears the same ratio to such
Additional Book Basis Derivative Items as the Unitholders' Remaining Net
Positive Adjustments as of the end of such period bears to the Aggregate
Remaining Net Positive Adjustments as of that time, (ii) with respect to the
General Partners (as holder(s) of the General Partner Interests), the amount
that bears the same ratio to such additional Book Basis Derivative Items as the
General Partners' Remaining Net Positive Adjustments as of the end of such
period bears to the Aggregate Remaining Net Positive Adjustment as of that time,
and (iii) with respect to the Partners holding Incentive Distribution Rights,
the amount that bears the same ratio to such Additional Book Basis Derivative
Items as the Remaining Net Positive Adjustments of the Partners holding the
Incentive Distribution Rights as of the end of such period bears to the
Aggregate Remaining Net Positive Adjustments as of that time.
"Special Approval" means approval by a majority of the members of the
Conflicts Committee.
"Special General Partner" means Alliance Resource GP, LLC and its
successors and permitted assigns as special general partner of the Partnership.
"Subordinated Unit" means a Unit representing a fractional part of the
Partnership Interests of all Limited Partners and Assignees (other than of
holders of the Incentive Distribution Rights) and having the rights and
obligations specified with respect to Subordinated Units in this Agreement. The
term "Subordinated Unit" as used herein does not include a Common Unit.
"Subordination Period" means the period commencing on the Closing Date and
ending on the first to occur of the following dates:
(a) the first day of any Quarter beginning after September 30, 2004 in
respect of which (i) (A) distributions of Available Cash from Operating
Surplus on each of the Outstanding Common Units and Subordinated Units with
respect to each of the three consecutive, non-overlapping four-Quarter
periods immediately preceding such date equaled or exceeded the sum of the
Minimum Quarterly Distribution on all Outstanding Common Units and
Subordinated Units during such periods and (B) the Adjusted Operating
Surplus generated during each of the three consecutive, non-overlapping
four-Quarter periods immediately preceding such date equaled or exceeded
the sum of the Minimum Quarterly Distribution on all of the Common Units
and Subordinated Units that were Outstanding during such periods on a fully
diluted basis (i.e., taking into account for purposes of such determination
all Outstanding Common Units, all Outstanding Subordinated Units, all
Common Units and Subordinated Units issuable upon exercise of employee
options that have, as of the date of determination, already vested or are
scheduled to vest prior to the end of the Quarter immediately following the
Quarter with respect to which such determination is made, and all Common
Units and Subordinated Units that have as of the date of determination,
been earned by but not yet issued to management of the Partnership in
respect of incentive compensation), plus the related distribution on the
General Partner Interests in the Partnership and on the general partner
interests in the Intermediate Partnership and on the managing member
interest in the Operating Subsidiary, during such periods and (ii) there
are no Cumulative Common Unit Arrearages; and
(b) the date on which the Managing General Partner is removed as
general partner of the Partnership upon the requisite vote by holders of
Outstanding Units under circumstances where Cause does not exist and Units
held by the Managing General Partner and its Affiliates are not voted in
favor of such removal.
(c) For purposes of determining whether the test in subclause
(a)(i)(B) above has been satisfied, Adjusted Operating Surplus will be
adjusted upwards or downwards if the Conflicts Committee determines in good
faith that the amount of Estimated Maintenance Capital Expenditures used in
the determination of Adjusted Operating Surplus in subclause (a)(i)(B) was
materially incorrect, based on circumstances prevailing at the time of
original determination of Estimated Maintenance Capital Expenditures, for
any one or more of the preceding three four-quarter periods.
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"Subsidiary" means, with respect to any Person, (a) a corporation of which
more than 50% of the voting power of shares entitled (without regard to the
occurrence of any contingency) to vote in the election of directors or other
governing body of such corporation is owned, directly or indirectly, at the date
of determination, by such Person, by one or more Subsidiaries of such Person or
a combination thereof, (b) a partnership (whether general or limited) in which
such Person or a Subsidiary of such Person is, at the date of determination, a
general or limited partner of such partnership, but only if more than 50% of the
partnership interests of such partnership (considering all of the partnership
interests of the partnership as a single class) is owned, directly or
indirectly, at the date of determination, by such Person, by one or more
Subsidiaries of such Person, or a combination thereof, or (c) any other Person
(other than a corporation or a partnership) in which such Person, one or more
Subsidiaries of such Person, or a combination thereof, directly or indirectly,
at the date of determination, has (i) at least a majority ownership interest or
(ii) the power to elect or direct the election of a majority of the directors or
other governing body of such Person.
"Substituted Limited Partner" means a Person who is admitted as a Limited
Partner to the Partnership pursuant to Section 10.2 in place of and with all the
rights of a Limited Partner and who is shown as a Limited Partner on the books
and records of the Partnership.
"Surviving Business Entity" has the meaning assigned to such term in
Section 14.2(b).
"Third Target Distribution" means $.75 per Unit per Quarter (or, with
respect to the period commencing on the Closing Date and ending on September 30,
1999, it means the product of $.75 multiplied by a fraction of which the
numerator is equal to the number of days in such period and of which the
denominator is 92), subject to adjustment in accordance with Sections 6.6 and
6.9.
"Trading Day" has the meaning assigned to such term in Section 15.1(a).
"Transfer" has the meaning assigned to such term in Section 4.4(a).
"Transfer Agent" means such bank, trust company or other Person (including
the Managing General Partner or one of its Affiliates) as shall be appointed
from time to time by the Partnership to act as registrar and transfer agent for
the Common Units; provided that if no Transfer Agent is specifically designated
for any other Partnership Securities, the Managing General Partner shall act in
such capacity.
"Transfer Application" means an application and agreement for transfer of
Units in the form set forth on the back of a Certificate or in a form
substantially to the same effect in a separate instrument.
"Underwriter" means each Person named as an underwriter in Schedule I to
the Underwriting Agreement who purchases Common Units pursuant thereto.
"Underwriting Agreement" means the Underwriting Agreement dated , 1999
among the Underwriters, the Partnership and certain other parties, providing for
the purchase of Common Units by such Underwriters.
"Unit" means a Partnership Security that is designated as a "Unit" and
shall include Common Units and Subordinated Units but shall not include (i) a
General Partner Interest or (ii) Incentive Distribution Rights.
"Unitholders" means the holders of Common Units and Subordinated Units.
"Unit Majority" means, during the Subordination Period, at least a majority
of the Outstanding Common Units voting as a class and at least a majority of the
Outstanding Subordinated Units voting as a class, and thereafter, at least a
majority of the Outstanding Common Units.
"Unpaid MQD" has the meaning assigned to such term in Section 6.1(c)(i)(B).
"Unrealized Gain" attributable to any item of Partnership property means,
as of any date of determination, the excess, if any, of (a) the fair market
value of such property as of such date (as determined under Section 5.5(d)) over
(b) the Carrying Value of such property as of such date (prior to any adjustment
to be made pursuant to Section 5.5(d) as of such date).
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"Unrealized Loss" attributable to any item of Partnership property means,
as of any date of determination, the excess, if any, of (a) the Carrying Value
of such property as of such date (prior to any adjustment to be made pursuant to
Section 5.5(d) as of such date) over (b) the fair market value of such property
as of such date (as determined under Section 5.5(d)).
"Unrecovered Capital" means at any time, with respect to a Unit, the
Initial Unit Price less the sum of all distributions constituting Capital
Surplus theretofore made in respect of an Initial Common Unit and any
distributions of cash (or the Net Agreed Value of any distributions in kind) in
connection with the dissolution and liquidation of the Partnership theretofore
made in respect of an Initial Common Unit, adjusted as the Managing General
Partner determines to be appropriate to give effect to any distribution,
subdivision or combination of such Units.
"U.S. GAAP" means United States Generally Accepted Accounting Principles
consistently applied.
"Withdrawal Opinion of Counsel" has the meaning assigned to such term in
Section 11.1(b).
"Working Capital Borrowings" means borrowings used solely for working
capital purposes or to pay distributions to partners made pursuant to a credit
facility or other arrangement requiring all such borrowings thereunder to be
reduced to a relatively small amount each year for an economically meaningful
period of time.
SECTION 1.2 Construction.
Unless the context requires otherwise: (a) any pronoun used in this
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular form of nouns, pronouns and verbs shall include the plural and
vice versa; (b) references to Articles and Sections refer to Articles and
Sections of this Agreement; and (c) the term "include" or "includes" means
includes, without limitation, and "including" means including, without
limitation.
ARTICLE II
ORGANIZATION
SECTION 2.1 Formation.
The Special General Partner and the Organizational Limited Partner have
previously formed the Partnership as a limited partnership pursuant to the
provisions of the Delaware Act and, together with the Managing General Partner,
hereby amend and restate the original Agreement of Limited Partnership of
Alliance Resource Partners, L.P. in its entirety. This amendment and restatement
shall become effective on the date of this Agreement. Except as expressly
provided to the contrary in this Agreement, the rights, duties (including
fiduciary duties), liabilities and obligations of the Partners and the
administration, dissolution and termination of the Partnership shall be governed
by the Delaware Act. All Partnership Interests shall constitute personal
property of the owner thereof for all purposes and a Partner has no interest in
specific Partnership property.
SECTION 2.2 Name.
The name of the Partnership shall be "Alliance Resource Partners, L.P." The
Partnership's business may be conducted under any other name or names deemed
necessary or appropriate by the Managing General Partner in its sole discretion,
including the name of the Managing General Partner. The words "Limited
Partnership," "L.P.," "Ltd." or similar words or letters shall be included in
the Partnership's name where necessary for the purpose of complying with the
laws of any jurisdiction that so requires. The
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Managing General Partner in its discretion may change the name of the
Partnership at any time and from time to time and shall notify the Limited
Partners of such change in the next regular communication to the Limited
Partners.
SECTION 2.3 Registered Office; Registered Agent; Principal Office; Other
Offices.
Unless and until changed by the Managing General Partner, the registered
office of the Partnership in the State of Delaware shall be located at 1013
Center Road, Wilmington, Delaware 19805-1297, and the registered agent for
service of process on the Partnership in the State of Delaware at such
registered office shall be Corporation Service Company. The principal office of
the Partnership shall be located at 1717 South Boulder Avenue, Tulsa, Oklahoma
74119 or such other place as the Managing General Partner may from time to time
designate by notice to the Limited Partners. The Partnership may maintain
offices at such other place or places within or outside the State of Delaware as
the Managing General Partner deems necessary or appropriate. The address of the
Managing General Partner shall be 1717 South Boulder Avenue, Tulsa, Oklahoma
74119 or such other place as the Managing General Partner may from time to time
designate by notice to the Limited Partners.
SECTION 2.4 Purpose and Business.
The purpose and nature of the business to be conducted by the Partnership
shall be to (a) serve as a partner of the Intermediate Partnership and, in
connection therewith, to exercise all the rights and powers conferred upon the
Partnership as a partner of the Intermediate Partnership pursuant to the
Intermediate Partnership Agreement or otherwise, (b) engage directly in, or
enter into or form any corporation, partnership, joint venture, limited
liability company or other arrangement to engage indirectly in, any business
activity that the Intermediate Partnership is permitted to engage in by the
Intermediate Partnership Agreement and any business activity that the Operating
Subsidiary are permitted to engage in by the Operating Subsidiary Agreement,
and, in connection therewith, to exercise all of the rights and powers conferred
upon the Partnership pursuant to the agreements relating to such business
activity, (c) engage directly in, or enter into or form any corporation,
partnership, joint venture, limited liability company or other arrangement to
engage indirectly in, any business activity that is approved by the Managing
General Partner and which lawfully may be conducted by a limited partnership
organized pursuant to the Delaware Act and, in connection therewith, to exercise
all of the rights and powers conferred upon the Partnership pursuant to the
agreements relating to such business activity; provided, however, that the
Managing General Partner reasonably determines, as of the date of the
acquisition or commencement of such activity, that such activity (i) generates
"qualifying income" (as such term is defined pursuant to Section 7704 of the
Code) or (ii) enhances the operations of an activity of the Intermediate
Partnership or the Operating Subsidiary or a Partnership activity that generates
qualifying income, and (d) do anything necessary or appropriate to the
foregoing, including the making of capital contributions or loans to a Group
Member. The Managing General Partner has no obligation or duty to the
Partnership, the Limited Partners, the Special General Partner or the Assignees
to propose or approve, and in its discretion may decline to propose or approve,
the conduct by the Partnership of any business.
SECTION 2.5 Powers.
The Partnership shall be empowered to do any and all acts and things
necessary, appropriate, proper, advisable, incidental to or convenient for the
furtherance and accomplishment of the purposes and business described in Section
2.4 and for the protection and benefit of the Partnership.
SECTION 2.6 Power of Attorney.
(a) Each Limited Partner and each Assignee hereby constitutes and appoints
the Managing General Partner and, if a Liquidator shall have been selected
pursuant to Section 12.3, the Liquidator, (and any successor to the Liquidator
by merger, transfer, assignment, election or otherwise) and each of their
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authorized officers and attorneys-in-fact, as the case may be, with full power
of substitution, as his true and lawful agent and attorney-in-fact, with full
power and authority in his name, place and stead, to:
(i) execute, swear to, acknowledge, deliver, file and record in the
appropriate public offices (A) all certificates, documents and other
instruments (including this Agreement and the Certificate of Limited
Partnership and all amendments or restatements hereof or thereof) that the
Managing General Partner or the Liquidator deems necessary or appropriate
to form, qualify or continue the existence or qualification of the
Partnership as a limited partnership (or a partnership in which the limited
partners have limited liability) in the State of Delaware and in all other
jurisdictions in which the Partnership may conduct business or own
property; (B) all certificates, documents and other instruments that the
Managing General Partner or the Liquidator deems necessary or appropriate
to reflect, in accordance with its terms, any amendment, change,
modification or restatement of this Agreement; (C) all certificates,
documents and other instruments (including conveyances and a certificate of
cancellation) that the Managing General Partner or the Liquidator deems
necessary or appropriate to reflect the dissolution and liquidation of the
Partnership pursuant to the terms of this Agreement; (D) all certificates,
documents and other instruments relating to the admission, withdrawal,
removal or substitution of any Partner pursuant to, or other events
described in, Article IV, X, XI or XII; (E) all certificates, documents and
other instruments relating to the determination of the rights, preferences
and privileges of any class or series of Partnership Securities issued
pursuant to Section 5.6; and (F) all certificates, documents and other
instruments (including agreements and a certificate of merger) relating to
a merger or consolidation of the Partnership pursuant to Article XIV; and
(ii) execute, swear to, acknowledge, deliver, file and record all
ballots, consents, approvals, waivers, certificates, documents and other
instruments necessary or appropriate, in the discretion of the Managing
General Partner or the Liquidator, to make, evidence, give, confirm or
ratify any vote, consent, approval, agreement or other action that is made
or given by the Partners hereunder or is consistent with the terms of this
Agreement or is necessary or appropriate, in the discretion of the Managing
General Partner or the Liquidator, to effectuate the terms or intent of
this Agreement; provided, that when required by Section 13.3 or any other
provision of this Agreement that establishes a percentage of the Limited
Partners or of the Limited Partners of any class or series required to take
any action, the Managing General Partner and the Liquidator may exercise
the power of attorney made in this Section 2.6(a)(ii) only after the
necessary vote, consent or approval of the Limited Partners or of the
Limited Partners of such class or series, as applicable.
Nothing contained in this Section 2.6(a) shall be construed as authorizing
the Managing General Partner to amend this Agreement except in accordance with
Article XIII or as may be otherwise expressly provided for in this Agreement.
(b) The foregoing power of attorney is hereby declared to be irrevocable
and a power coupled with an interest, and it shall survive and, to the maximum
extent permitted by law, not be affected by the subsequent death, incompetency,
disability, incapacity, dissolution, bankruptcy or termination of any Limited
Partner or Assignee and the transfer of all or any portion of such Limited
Partner's or Assignee's Partnership Interest and shall extend to such Limited
Partner's or Assignee's heirs, successors, assigns and personal representatives.
Each such Limited Partner or Assignee hereby agrees to be bound by any
representation made by the Managing General Partner or the Liquidator acting in
good faith pursuant to such power of attorney; and each such Limited Partner or
Assignee, to the maximum extent permitted by law, hereby waives any and all
defenses that may be available to contest, negate or disaffirm the action of the
Managing General Partner or the Liquidator taken in good faith under such power
of attorney. Each Limited Partner or Assignee shall execute and deliver to the
Managing General Partner or the Liquidator, within 15 days after receipt of the
request therefor, such further designation, powers of attorney and other
instruments as the Managing General Partner or the Liquidator deems necessary to
effectuate this Agreement and the purposes of the Partnership.
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SECTION 2.7 Term.
The term of the Partnership commenced upon the filing of the Certificate of
Limited Partnership in accordance with the Delaware Act and shall continue in
existence until the close of Partnership business on December 31, 2098 or until
the earlier dissolution of the Partnership in accordance with the provisions of
Article XII. The existence of the Partnership as a separate legal entity shall
continue until the cancellation of the Certificate of Limited Partnership as
provided in the Delaware Act.
SECTION 2.8 Title to Partnership Assets.
Title to Partnership assets, whether real, personal or mixed and whether
tangible or intangible, shall be deemed to be owned by the Partnership as an
entity, and no Partner or Assignee, individually or collectively, shall have any
ownership interest in such Partnership assets or any portion thereof. Title to
any or all of the Partnership assets may be held in the name of the Partnership,
the Managing General Partner, one or more of its Affiliates or one or more
nominees, as the Managing General Partner may determine. The Managing General
Partner hereby declares and warrants that any Partnership assets for which
record title is held in the name of the Managing General Partner or one or more
of its Affiliates or one or more nominees shall be held by the Managing General
Partner or such Affiliate or nominee for the use and benefit of the Partnership
in accordance with the provisions of this Agreement; provided, however, that the
Managing General Partner shall use reasonable efforts to cause record title to
such assets (other than those assets in respect of which the Managing General
Partner determines that the expense and difficulty of conveyancing makes
transfer of record title to the Partnership impracticable) to be vested in the
Partnership as soon as reasonably practicable; provided, further, that, prior to
the withdrawal or removal of the Managing General Partner or as soon thereafter
as practicable, the Managing General Partner shall use reasonable efforts to
effect the transfer of record title to the Partnership and, prior to any such
transfer, will provide for the use of such assets in a manner satisfactory to
the Managing General Partner. All Partnership assets shall be recorded as the
property of the Partnership in its books and records, irrespective of the name
in which record title to such Partnership assets is held.
ARTICLE III
RIGHTS OF LIMITED PARTNERS
SECTION 3.1 Limitation of Liability.
The Limited Partners and the Assignees shall have no liability under this
Agreement except as expressly provided in this Agreement or the Delaware Act.
SECTION 3.2 Management of Business.
No Limited Partner or Assignee, in its capacity as such, shall participate
in the operation, management or control (within the meaning of the Delaware Act)
of the Partnership's business, transact any business in the Partnership's name
or have the power to sign documents for or otherwise bind the Partnership. Any
action taken by any Affiliate of a General Partner or any officer, director,
employee, member, general partner, agent or trustee of a General Partner or any
of its Affiliates, or any officer, director, employee, member, general partner,
agent or trustee of a Group Member, in its capacity as such, shall not be deemed
to be participation in the control of the business of the Partnership by a
limited partner of the Partnership (within the meaning of Section 17-303(a) of
the Delaware Act) and shall not affect, impair or eliminate the limitations on
the liability of the Limited Partners or Assignees under this Agreement.
SECTION 3.3 Outside Activities of the Limited Partners.
Subject to the provisions of Section 7.5 and the Omnibus Agreement, which
shall continue to be applicable to the Persons referred to therein, regardless
of whether such Persons shall also be Limited
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Partners or Assignees, any Limited Partner or Assignee shall be entitled to and
may have business interests and engage in business activities in addition to
those relating to the Partnership, including business interests and activities
in direct competition with the Partnership Group. Neither the Partnership nor
any of the other Partners or Assignees shall have any rights by virtue of this
Agreement in any business ventures of any Limited Partner or Assignee.
SECTION 3.4 Rights of Limited Partners.
(a) In addition to other rights provided by this Agreement or by applicable
law, and except as limited by Section 3.4(b), each Limited Partner shall have
the right, for a purpose reasonably related to such Limited Partner's interest
as a limited partner in the Partnership, upon reasonable written demand and at
such Limited Partner's own expense:
(i) to obtain true and full information regarding the status of the
business and financial condition of the Partnership;
(ii) promptly after becoming available, to obtain a copy of the
Partnership's federal, state and local income tax returns for each year;
(iii) to have furnished to him a current list of the name and last
known business, residence or mailing address of each Partner;
(iv) to have furnished to him a copy of this Agreement and the
Certificate of Limited Partnership and all amendments thereto, together
with a copy of the executed copies of all powers of attorney pursuant to
which this Agreement, the Certificate of Limited Partnership and all
amendments thereto have been executed;
(v) to obtain true and full information regarding the amount of cash
and a description and statement of the Net Agreed Value of any other
Capital Contribution by each Partner and which each Partner has agreed to
contribute in the future, and the date on which each became a Partner; and
(vi) to obtain such other information regarding the affairs of the
Partnership as is just and reasonable.
(b) The Managing General Partner may keep confidential from the Limited
Partners and Assignees, for such period of time as the Managing General Partner
deems reasonable, (i) any information that the Managing General Partner
reasonably believes to be in the nature of trade secrets or (ii) other
information the disclosure of which the Managing General Partner in good faith
believes (A) is not in the best interests of the Partnership Group, (B) could
damage the Partnership Group or (C) that any Group Member is required by law or
by agreement with any third party to keep confidential (other than agreements
with Affiliates of the Partnership the primary purpose of which is to circumvent
the obligations set forth in this Section 3.4).
ARTICLE IV
CERTIFICATES; RECORD HOLDERS; TRANSFER OF PARTNERSHIP INTERESTS;
REDEMPTION OF PARTNERSHIP INTERESTS
SECTION 4.1 Certificates.
Upon the Partnership's issuance of Common Units or Subordinated Units to
any Person, the Partnership shall issue one or more Certificates in the name of
such Person evidencing the number of such Units being so issued. In addition,
(a) upon a General Partner's request, the Partnership shall issue to it one or
more Certificates in the name of the General Partner evidencing its interests in
the Partnership and (b) upon the request of any Person owning Incentive
Distribution Rights or any other Partnership Securities other than Common Units
or Subordinated Units, the Partnership shall issue to such Person one
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or more certificates evidencing such Incentive Distribution Rights or other
Partnership Securities other than Common Units or Subordinated Units.
Certificates shall be executed on behalf of the Partnership by the Chairman of
the Board, President or any Executive Vice President or Vice President and the
Secretary or any Assistant Secretary of the Managing General Partner. No Common
Unit Certificate shall be valid for any purpose until it has been countersigned
by the Transfer Agent; provided, however, that if the Managing General Partner
elects to issue Common Units in global form, the Common Unit Certificates shall
be valid upon receipt of a certificate from the Transfer Agent certifying that
the Common Units have been duly registered in accordance with the directions of
the Partnership and the Underwriters. Subject to the requirements of Section
6.7(b), the Partners holding Certificates evidencing Subordinated Units may
exchange such Certificates for Certificates evidencing Common Units on or after
the date on which such Subordinated Units are converted into Common Units
pursuant to the terms of Section 5.8.
SECTION 4.2 Mutilated, Destroyed, Lost or Stolen Certificates.
(a) If any mutilated Certificate is surrendered to the Transfer Agent, the
appropriate officers of the Managing General Partner on behalf of the
Partnership shall execute, and the Transfer Agent shall countersign and deliver
in exchange therefor, a new Certificate evidencing the same number and type of
Partnership Securities as the Certificate so surrendered.
(b) The appropriate officers of the Managing General Partner on behalf of
the Partnership shall execute and deliver, and the Transfer Agent shall
countersign a new Certificate in place of any Certificate previously issued if
the Record Holder of the Certificate:
(i) makes proof by affidavit, in form and substance satisfactory to
the Partnership, that a previously issued Certificate has been lost,
destroyed or stolen;
(ii) requests the issuance of a new Certificate before the Partnership
has notice that the Certificate has been acquired by a purchaser for value
in good faith and without notice of an adverse claim;
(iii) if requested by the Partnership, delivers to the Partnership a
bond, in form and substance satisfactory to the Partnership, with surety or
sureties and with fixed or open penalty as the Partnership may reasonably
direct, in its sole discretion, to indemnify the Partnership, the Partners,
the Managing General Partner and the Transfer Agent against any claim that
may be made on account of the alleged loss, destruction or theft of the
Certificate; and
(iv) satisfies any other reasonable requirements imposed by the
Partnership.
If a Limited Partner or Assignee fails to notify the Partnership within a
reasonable time after he has notice of the loss, destruction or theft of a
Certificate, and a transfer of the Limited Partner Interests represented by the
Certificate is registered before the Partnership, the Managing General Partner
or the Transfer Agent receives such notification, the Limited Partner or
Assignee shall be precluded from making any claim against the Partnership, the
Managing General Partner or the Transfer Agent for such transfer or for a new
Certificate.
(c) As a condition to the issuance of any new Certificate under this
Section 4.2, the Partnership may require the payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto and any other expenses (including the fees and expenses of the Transfer
Agent) reasonably connected therewith.
SECTION 4.3 Record Holders.
The Partnership shall be entitled to recognize the Record Holder as the
Partner or Assignee with respect to any Partnership Interest and, accordingly,
shall not be bound to recognize any equitable or other claim to or interest in
such Partnership Interest on the part of any other Person, regardless of whether
the Partnership shall have actual or other notice thereof, except as otherwise
provided by law or any applicable rule, regulation, guideline or requirement of
any National Securities Exchange on which such Partnership
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Interests are listed for trading. Without limiting the foregoing, when a Person
(such as a broker, dealer, bank, trust company or clearing corporation or an
agent of any of the foregoing) is acting as nominee, agent or in some other
representative capacity for another Person in acquiring and/or holding
Partnership Interests, as between the Partnership on the one hand, and such
other Persons on the other, such representative Person (a) shall be the Partner
or Assignee (as the case may be) of record and beneficially, (b) must execute
and deliver a Transfer Application and (c) shall be bound by this Agreement and
shall have the rights and obligations of a Partner or Assignee (as the case may
be) hereunder and as, and to the extent, provided for herein.
SECTION 4.4 Transfer Generally.
(a) The term "transfer," when used in this Agreement with respect to a
Partnership Interest, shall be deemed to refer to a transaction by which a
General Partner assigns its General Partner Interest to another Person who
becomes a General Partner, by which the holder of a Limited Partner Interest
assigns such Limited Partner Interest to another Person who is or becomes a
Limited Partner or an Assignee, and includes a sale, assignment, gift, pledge,
encumbrance, hypothecation, mortgage, exchange or any other disposition by law
or otherwise.
(b) No Partnership Interest shall be transferred, in whole or in part,
except in accordance with the terms and conditions set forth in this Article IV.
Any transfer or purported transfer of a Partnership Interest not made in
accordance with this Article IV shall be null and void.
(c) Nothing contained in this Agreement shall be construed to prevent a
disposition by any stockholder of a General Partner of any or all of the issued
and outstanding stock of such General Partner.
SECTION 4.5 Registration and Transfer of Limited Partner Interests.
(a) The Partnership shall keep or cause to be kept on behalf of the
Partnership a register in which, subject to such reasonable regulations as it
may prescribe and subject to the provisions of Section 4.5(b), the Partnership
will provide for the registration and transfer of Limited Partner Interests. The
Transfer Agent is hereby appointed registrar and transfer agent for the purpose
of registering Common Units and transfers of such Common Units as herein
provided. The Partnership shall not recognize transfers of Certificates
evidencing Limited Partner Interests unless such transfers are effected in the
manner described in this Section 4.5. Upon surrender of a Certificate for
registration of transfer of any Limited Partner Interests evidenced by a
Certificate, and subject to the provisions of Section 4.5(b), the appropriate
officers of the Managing General Partner on behalf of the Partnership shall
execute and deliver, and in the case of Common Units, the Transfer Agent shall
countersign and deliver, in the name of the holder or the designated transferee
or transferees, as required pursuant to the holder's instructions, one or more
new Certificates evidencing the same aggregate number and type of Limited
Partner Interests as was evidenced by the Certificate so surrendered.
(b) Except as otherwise provided in Section 4.9, the Partnership shall not
recognize any transfer of Limited Partner Interests until the Certificates
evidencing such Limited Partner Interests are surrendered for registration of
transfer and such Certificates are accompanied by a Transfer Application duly
executed by the transferee (or the transferee's attorney-in-fact duly authorized
in writing). No charge shall be imposed by the Partnership for such transfer;
provided, that as a condition to the issuance of any new Certificate under this
Section 4.5, the Partnership may require the payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed with respect
thereto.
(c) Limited Partner Interests may be transferred only in the manner
described in this Section 4.5. The transfer of any Limited Partner Interests and
the admission of any new Limited Partner shall not constitute an amendment to
this Agreement.
(d) Until admitted as a Substituted Limited Partner pursuant to Section
10.2, the Record Holder of a Limited Partner Interest shall be an Assignee in
respect of such Limited Partner Interest. Limited
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Partners may include custodians, nominees or any other individual or entity in
its own or any representative capacity.
(e) A transferee of a Limited Partner Interest who has completed and
delivered a Transfer Application shall be deemed to have (i) requested admission
as a Substituted Limited Partner, (ii) agreed to comply with and be bound by and
to have executed this Agreement, (iii) represented and warranted that such
transferee has the right, power and authority and, if an individual, the
capacity to enter into this Agreement, (iv) granted the powers of attorney set
forth in this Agreement and (v) given the consents and approvals and made the
waivers contained in this Agreement.
(f) The General Partners and their Affiliates shall have the right at any
time to transfer their Subordinated Units and Common Units (whether issued upon
conversion of the Subordinated Units or otherwise) to one or more Persons.
SECTION 4.6 Transfer of the General Partners' General Partner Interests.
(a) Subject to Section 4.6(c) below, prior to September 30, 2009, a General
Partner shall not transfer all or any part of its General Partner Interest to a
Person unless such transfer (i) has been approved by the prior written consent
or vote of the holders of at least a majority of the Outstanding Common Units
(excluding Common Units held by the General Partners and their Affiliates) or
(ii) is of all, but not less than all, of its General Partner Interest to (A) an
Affiliate of such General Partner or (B) another Person in connection with the
merger or consolidation of such General Partner with or into another Person or
the transfer by such General Partner of all or substantially all of its assets
to another Person.
(b) Subject to Section 4.6(c) below, on or after September 30, 2009, a
General Partner may transfer all or any of its General Partner Interest without
Unitholder approval.
(c) Notwithstanding anything herein to the contrary, no transfer by a
General Partner of all or any part of its General Partner Interest to another
Person shall be permitted unless (i) the transferee agrees to assume the rights
and duties of such General Partner under this Agreement and the Intermediate
Partnership Agreement and, in the case of the Managing General Partner, the
managing member under the Operating Subsidiary Agreement and to be bound by the
provisions of this Agreement, the Intermediate Partnership Agreement and, in the
case of the Managing General Partner, the Operating Subsidiary Agreement, (ii)
the Partnership receives an Opinion of Counsel that such transfer would not
result in the loss of limited liability of any Limited Partner or of any limited
partner of the Intermediate Partnership or of any member of the Operating
Subsidiary or cause the Partnership, the Intermediate Partnership or the
Operating Subsidiary to be treated as an association taxable as a corporation or
otherwise to be taxed as an entity for federal income tax purposes (to the
extent not already so treated or taxed), (iii) in the case of a transfer of the
Managing Partner's General Partner Interest, such transferee also agrees to
purchase all (or the appropriate portion thereof, if applicable) of the
partnership interest of the Managing General Partner as the general partner or
managing member of each other Group Member and (iv) in the case of a transfer of
the Special General Partner's General Partner Interest (x) such transferee also
agrees to purchase all (or the appropriate portion thereof, if applicable) of
the partnership interest of the Special General Partner as the general partner
of the Intermediate Partnership and (y) the Managing General Partner consents to
such transfer. In the case of a transfer pursuant to and in compliance with this
Section 4.6, the transferee or successor (as the case may be) shall, subject to
compliance with the terms of Section 10.3, be admitted to the Partnership as a
General Partner immediately prior to the transfer of the Partnership Interest,
and the business of the Partnership shall continue without dissolution.
SECTION 4.7 Transfer of Incentive Distribution Rights.
Prior to September 30, 2009, a holder of Incentive Distribution Rights may
transfer any or all of the Incentive Distribution Rights held by such holder
without any consent of the Unitholders (a) to an Affiliate or (b) to another
Person in connection with (i) the merger or consolidation of such holder of
Incentive Distribution Rights with or into such other Person or (ii) the
transfer by such holder of all or
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substantially all of its assets to such other Person. Any other transfer of the
Incentive Distribution Rights prior to September 30, 2009, shall require the
prior approval of holders of at least a majority of the Outstanding Common Units
(excluding Common Units held by the General Partners and their Affiliates). On
or after September 30, 2009, the Managing General Partner or any other holder of
Incentive Distribution Rights may transfer any or all of its Incentive
Distribution Rights without Unitholder approval. Notwithstanding anything herein
to the contrary, no transfer of Incentive Distribution Rights to another Person
shall be permitted unless the transferee agrees to be bound by the provisions of
this Agreement. The Managing General Partner shall have the authority (but shall
not be required) to adopt such reasonable restrictions on the transfer of
Incentive Distribution Rights and requirements for registering the transfer of
Incentive Distribution Rights as the Managing General Partner, in its sole
discretion, shall determine are necessary or appropriate.
SECTION 4.8 Restrictions on Transfers.
(a) Except as provided in Section 4.8(d) below, but notwithstanding the
other provisions of this Article IV, no transfer of any Partnership Interests
shall be made if such transfer would (i) violate the then applicable federal or
state securities laws or rules and regulations of the Commission, any state
securities commission or any other governmental authority with jurisdiction over
such transfer, (ii) terminate the existence or qualification of the Partnership,
the Intermediate Partnership or the Operating Subsidiary under the laws of the
jurisdiction of its formation, or (iii) cause the Partnership, the Intermediate
Partnership or the Operating Subsidiary to be treated as an association taxable
as a corporation or otherwise to be taxed as an entity for federal income tax
purposes (to the extent not already so treated or taxed).
(b) The Managing General Partner may impose restrictions on the transfer of
Partnership Interests if a subsequent Opinion of Counsel determines that such
restrictions are necessary to avoid a significant risk of the Partnership, the
Intermediate Partnership or the Operating Subsidiary becoming taxable as a
corporation or otherwise to be taxed as an entity for federal income tax
purposes. The restrictions may be imposed by making such amendments to this
Agreement as the Managing General Partner may determine to be necessary or
appropriate to impose such restrictions; provided, however, that any amendment
that the Managing General Partner believes, in the exercise of its reasonable
discretion, could result in the delisting or suspension of trading of any class
of Limited Partner Interests on the principal National Securities Exchange on
which such class of Limited Partner Interests is then traded must be approved,
prior to such amendment being effected, by the holders of at least a majority of
the Outstanding Limited Partner Interests of such class.
(c) The transfer of a Subordinated Unit that has converted into a Common
Unit shall be subject to the restrictions imposed by Section 6.7(b).
(d) Nothing contained in this Article IV, or elsewhere in this Agreement,
shall preclude the settlement of any transactions involving Partnership
Interests entered into through the facilities of any National Securities
Exchange on which such Partnership Interests are listed for trading.
SECTION 4.9 Citizenship Certificates; Non-citizen Assignees.
(a) If any Group Member is or becomes subject to any federal, state or
local law or regulation that, in the reasonable determination of the Managing
General Partner, creates a substantial risk of cancellation or forfeiture of any
property in which the Group Member has an interest based on the nationality,
citizenship or other related status of a Limited Partner or Assignee, the
Managing General Partner may request any Limited Partner or Assignee to furnish
to the Managing General Partner, within 30 days after receipt of such request,
an executed Citizenship Certification or such other information concerning his
nationality, citizenship or other related status (or, if the Limited Partner or
Assignee is a nominee holding for the account of another Person, the
nationality, citizenship or other related status of such Person) as the Managing
General Partner may request. If a Limited Partner or Assignee fails to furnish
to the Managing General Partner within the aforementioned 30-day period such
Citizenship Certification or other requested
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information or if upon receipt of such Citizenship Certification or other
requested information the Managing General Partner determines, with the advice
of counsel, that a Limited Partner or Assignee is not an Eligible Citizen, the
Partnership Interests owned by such Limited Partner or Assignee shall be subject
to redemption in accordance with the provisions of Section 4.10. In addition,
the Managing General Partner may require that the status of any such Partner or
Assignee be changed to that of a Non-citizen Assignee and, thereupon, the
Managing General Partner shall be substituted for such Non-citizen Assignee as
the Limited Partner in respect of his Limited Partner Interests.
(b) The Managing General Partner shall, in exercising voting rights in
respect of Limited Partner Interests held by it on behalf of Non-citizen
Assignees, distribute the votes in the same ratios as the votes of Partners
(including without limitation the General Partners) in respect of Limited
Partner Interests other than those of Non-citizen Assignees are cast, either
for, against or abstaining as to the matter.
(c) Upon dissolution of the Partnership, a Non-citizen Assignee shall have
no right to receive a distribution in kind pursuant to Section 12.4 but shall be
entitled to the cash equivalent thereof, and the Partnership shall provide cash
in exchange for an assignment of the Non-citizen Assignee's share of the
distribution in kind. Such payment and assignment shall be treated for
Partnership purposes as a purchase by the Partnership from the Non-citizen
Assignee of his Limited Partner Interest (representing his right to receive his
share of such distribution in kind).
(d) At any time after he can and does certify that he has become an
Eligible Citizen, a Non-citizen Assignee may, upon application to the Managing
General Partner, request admission as a Substituted Limited Partner with respect
to any Limited Partner Interests of such Non-citizen Assignee not redeemed
pursuant to Section 4.10, and upon his admission pursuant to Section 10.2, the
Managing General Partner shall cease to be deemed to be the Limited Partner in
respect of the Non-citizen Assignee's Limited Partner Interests.
SECTION 4.10 Redemption of Partnership Interests of Non-citizen Assignees.
(a) If at any time a Limited Partner or Assignee fails to furnish a
Citizenship Certification or other information requested within the 30-day
period specified in Section 4.9(a), or if upon receipt of such Citizenship
Certification or other information the Managing General Partner determines, with
the advice of counsel, that a Limited Partner or Assignee is not an Eligible
Citizen, the Partnership may, unless the Limited Partner or Assignee establishes
to the satisfaction of the Managing General Partner that such Limited Partner or
Assignee is an Eligible Citizen or has transferred his Partnership Interests to
a Person who is an Eligible Citizen and who furnishes a Citizenship
Certification to the Managing General Partner prior to the date fixed for
redemption as provided below, redeem the Partnership Interest of such Limited
Partner or Assignee as follows:
(i) The Managing General Partner shall, not later than the 30th day
before the date fixed for redemption, give notice of redemption to the
Limited Partner or Assignee, at his last address designated on the records
of the Partnership or the Transfer Agent, by registered or certified mail,
postage prepaid. The notice shall be deemed to have been given when so
mailed. The notice shall specify the Redeemable Interests, the date fixed
for redemption, the place of payment, that payment of the redemption price
will be made upon surrender of the Certificate evidencing the Redeemable
Interests and that on and after the date fixed for redemption no further
allocations or distributions to which the Limited Partner or Assignee would
otherwise be entitled in respect of the Redeemable Interests will accrue or
be made.
(ii) The aggregate redemption price for Redeemable Interests shall be
an amount equal to the Current Market Price (the date of determination of
which shall be the date fixed for redemption) of Limited Partner Interests
of the class to be so redeemed multiplied by the number of Limited Partner
Interests of each such class included among the Redeemable Interests. The
redemption price shall be paid, in the discretion of the Managing General
Partner, in cash or by delivery of a promissory note of the Partnership in
the principal amount of the redemption price, bearing interest at the rate
of 10%
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annually and payable in three equal annual installments of principal
together with accrued interest, commencing one year after the redemption
date.
(iii) Upon surrender by or on behalf of the Limited Partner or
Assignee, at the place specified in the notice of redemption, of the
Certificate evidencing the Redeemable Interests, duly endorsed in blank or
accompanied by an assignment duly executed in blank, the Limited Partner or
Assignee or his duly authorized representative shall be entitled to receive
the payment therefor.
(iv) After the redemption date, Redeemable Interests shall no longer
constitute issued and Outstanding Limited Partner Interests.
(b) The provisions of this Section 4.10 shall also be applicable to Limited
Partner Interests held by a Limited Partner or Assignee as nominee of a Person
determined to be other than an Eligible Citizen.
(c) Nothing in this Section 4.10 shall prevent the recipient of a notice of
redemption from transferring his Limited Partner Interest before the redemption
date if such transfer is otherwise permitted under this Agreement. Upon receipt
of notice of such a transfer, the Managing General Partner shall withdraw the
notice of redemption, provided the transferee of such Limited Partner Interest
certifies to the satisfaction of the Managing General Partner in a Citizenship
Certification delivered in connection with the Transfer Application that he is
an Eligible Citizen. If the transferee fails to make such certification, such
redemption shall be effected from the transferee on the original redemption
date.
ARTICLE V
CAPITAL CONTRIBUTIONS AND ISSUANCE OF PARTNERSHIP INTERESTS
SECTION 5.1 Organizational Contributions.
In connection with the formation of the Partnership under the Delaware Act,
the Special General Partner made an initial Capital Contribution to the
Partnership in the amount of $990.00, for a certain interest in the Partnership
and has been admitted as a General Partner and as a Limited Partner of the
Partnership, and the Organizational Limited Partner made an initial Capital
Contribution to the Partnership in the amount of $10.00 for an interest in the
Partnership and has been admitted as a Limited Partner of the Partnership. As of
the Closing Date, the interest of the Organizational Limited Partner shall be
redeemed as provided in the Contribution Agreement; the initial Capital
Contributions of each Partner shall thereupon be refunded; and the
Organizational Limited Partner shall cease to be a Limited Partner of the
Partnership. One percent of any interest or other profit that may have resulted
from the investment or other use of such initial Capital Contributions shall be
allocated and distributed to the Organizational Limited Partner, and the balance
thereof shall be allocated and distributed to the Special General Partner.
SECTION 5.2 Contributions by the General Partners and their Affiliates.
(a) On the Closing Date and pursuant to the Contribution Agreement (i) the
Managing General Partner shall contribute $3.1 million in cash to the
Partnership in exchange for a .99% managing general partner interest in the
Partnership and the Incentive Distribution Rights, (ii) the Managing General
Partner shall contribute $3.2 million in cash to the Intermediate Partnership in
exchange for a 1.0001% managing general partner interest in the Intermediate
Partnership, (iii) the Managing General Partner shall contribute $3,139 to the
Operating Subsidiary in exchange for a .001% managing member interest in the
Operating Subsidiary, (iv) the Special General Partner shall contribute a 100%
interest in the operating subsidiary to the Intermediate Partnership in exchange
for (A) a .001% general partner interest in the Intermediate Partnership, (B) a
limited partner interest in the Intermediate Partnership and (C) the
Intermediate Partnership's assumption of the Special General Partner's
obligations under $180 million of senior notes and a $100 million credit
facility and (v) the Special General Partner shall contribute its limited
partner interest in the Intermediate Partnership to the Partnership in exchange
for (A) a .001% general partner interest in the Partnership and (B) 6,413,075
Subordinated Units.
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(b) Upon the issuance of any additional Limited Partner Interests by the
Partnership (other than the issuance of the Common Units issued in the Initial
Offering and other than the issuance of one-half of the Common Units issued
pursuant to the Over-Allotment Option), the Managing General Partner and the
Special General Partner shall be required to make additional Capital
Contributions equal to its percentage interest of 1/99th of any amount
contributed to the Partnership by the Limited Partners in exchange for such
additional Limited Partner Interests. Except as set forth in the immediately
preceding sentence and Article XII, the General Partners shall not be obligated
to make any additional Capital Contributions to the Partnership.
SECTION 5.3 Contributions by Initial Limited Partners and Reimbursement of the
Special General Partner.
(a) On the Closing Date and pursuant to the Underwriting Agreement, each
Underwriter shall contribute to the Partnership cash in an amount equal to the
Issue Price per Initial Common Unit, multiplied by the number of Common Units
specified in the Underwriting Agreement to be purchased by such Underwriter at
the Closing Date. In exchange for such Capital Contributions by the
Underwriters, the Partnership shall issue Common Units to each Underwriter on
whose behalf such Capital Contribution is made in an amount equal to the
quotient obtained by dividing (i) the cash contribution to the Partnership by or
on behalf of such Underwriter by (ii) the Issue Price per Initial Common Unit.
(b) Notwithstanding anything else herein contained, $81,134,000 of the
proceeds received by the Partnership from the issuance of Common Units pursuant
to Section 5.3(a) will be distributed to the Special General Partner. Such
distribution shall be a reimbursement for certain capital expenditures incurred
within two years preceding the Closing Date with respect to assets contributed
to the Partnership Group.
(c) Upon the exercise of the Over-Allotment Option, each Underwriter shall
contribute to the Partnership cash in an amount equal to the Issue Price per
Initial Common Unit, multiplied by the number of Common Units specified in the
Underwriting Agreement to be purchased by such Underwriter at the Option Closing
Date. In exchange for such Capital Contributions by the Underwriters, the
Partnership shall issue Common Units to each Underwriter on whose behalf such
Capital Contribution is made in an amount equal to the quotient obtained by
dividing (i) the cash contributions to the Partnership by or on behalf of such
Underwriter by (ii) the Issue Price per Initial Common Unit. Upon receipt by the
Partnership of the Capital Contributions from the Underwriters as provided in
this Section 5.3(c), the Partnership shall use such cash to redeem from the
Special General Partner or its Affiliates that number of Subordinated Units held
by the Special General Partner or its Affiliates equal to one-half of the number
of Common Units (rounded down to the nearest whole number) issued to the
Underwriters as provided in this Section 5.3(c).
(d) No Limited Partner Interests will be issued or issuable as of or at the
Closing Date other than (i) the Common Units issuable pursuant to subparagraph
(a) hereof in aggregate number equal to 8,969,335, (ii) the "Additional Units"
as such term is used in the Underwriting Agreement in an aggregate number up to
1,345,400 issuable upon exercise of the Over-Allotment Option pursuant to
subparagraph (c) hereof, (iii) the Subordinated Units issuable to the Special
General Partner or its Affiliates pursuant to Section 5.2 hereof, and (iv) the
Incentive Distribution Rights.
SECTION 5.4 Interest and Withdrawal.
No interest shall be paid by the Partnership on Capital Contributions. No
Partner or Assignee shall be entitled to the withdrawal or return of its Capital
Contribution, except to the extent, if any, that distributions made pursuant to
this Agreement or upon termination of the Partnership may be considered as such
by law and then only to the extent provided for in this Agreement. Except to the
extent expressly provided in this Agreement, no Partner or Assignee shall have
priority over any other Partner or Assignee either as to the return of Capital
Contributions or as to profits, losses or distributions. Any such return
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shall be a compromise to which all Partners and Assignees agree within the
meaning of 17-502(b) of the Delaware Act.
SECTION 5.5 Capital Accounts.
(a) The Partnership shall maintain for each Partner (or a beneficial owner
of Partnership Interests held by a nominee in any case in which the nominee has
furnished the identity of such owner to the Partnership in accordance with
Section 6031(c) of the Code or any other method acceptable to the Managing
General Partner in its sole discretion) owning a Partnership Interest a separate
Capital Account with respect to such Partnership Interest in accordance with the
rules of Treasury Regulation Section 1.704-1(b)(2)(iv). Such Capital Account
shall be increased by (i) the amount of all Capital Contributions made to the
Partnership with respect to such Partnership Interest pursuant to this Agreement
and (ii) all items of Partnership income and gain (including, without
limitation, income and gain exempt from tax) computed in accordance with Section
5.5(b) and allocated with respect to such Partnership Interest pursuant to
Section 6.1, and decreased by (x) the amount of cash or Net Agreed Value of all
actual and deemed distributions of cash or property made with respect to such
Partnership Interest pursuant to this Agreement and (y) all items of Partnership
deduction and loss computed in accordance with Section 5.5(b) and allocated with
respect to such Partnership Interest pursuant to Section 6.1.
(b) For purposes of computing the amount of any item of income, gain, loss
or deduction which is to be allocated pursuant to Article VI and is to be
reflected in the Partners' Capital Accounts, the determination, recognition and
classification of any such item shall be the same as its determination,
recognition and classification for federal income tax purposes (including,
without limitation, any method of depreciation, cost recovery or amortization
used for that purpose), provided, that:
(i) Solely for purposes of this Section 5.5, the Partnership shall be
treated as owning directly its proportionate share (as determined by the
Managing General Partner based upon the provisions of the Intermediate
Partnership Agreement and the Operating Subsidiary Agreement) of all
property owned by the Intermediate Partnership, the Operating Subsidiary or
any other Subsidiary that is classified as a partnership for federal income
tax purposes.
(ii) All fees and other expenses incurred by the Partnership to
promote the sale of (or to sell) a Partnership Interest that can neither be
deducted nor amortized under Section 709 of the Code, if any, shall, for
purposes of Capital Account maintenance, be treated as an item of deduction
at the time such fees and other expenses are incurred and shall be
allocated among the Partners pursuant to Section 6.1.
(iii) Except as otherwise provided in Treasury Regulation Section
1.704-1(b)(2)(iv)(m), the computation of all items of income, gain, loss
and deduction shall be made without regard to any election under Section
754 of the Code which may be made by the Partnership and, as to those items
described in Section 705(a)(1)(B) or 705(a)(2)(B) of the Code, without
regard to the fact that such items are not includable in gross income or
are neither currently deductible nor capitalized for federal income tax
purposes. To the extent an adjustment to the adjusted tax basis of any
Partnership asset pursuant to Section 734(b) or 743(b) of the Code is
required, pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(m), to
be taken into account in determining Capital Accounts, the amount of such
adjustment in the Capital Accounts shall be treated as an item of gain or
loss.
(iv) Any income, gain or loss attributable to the taxable disposition
of any Partnership property shall be determined as if the adjusted basis of
such property as of such date of disposition were equal in amount to the
Partnership's Carrying Value with respect to such property as of such date.
(v) In accordance with the requirements of Section 704(b) of the Code,
any deductions for depreciation, cost recovery or amortization attributable
to any Contributed Property shall be determined as if the adjusted basis of
such property on the date it was acquired by the Partnership were equal to
the Agreed Value of such property. Upon an adjustment pursuant to Section
5.5(d) to
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the Carrying Value of any Partnership property subject to depreciation,
cost recovery or amortization, any further deductions for such
depreciation, cost recovery or amortization attributable to such property
shall be determined (A) as if the adjusted basis of such property were
equal to the Carrying Value of such property immediately following such
adjustment and (B) using a rate of depreciation, cost recovery or
amortization derived from the same method and useful life (or, if
applicable, the remaining useful life) as is applied for federal income tax
purposes; provided, however, that, if the asset has a zero adjusted basis
for federal income tax purposes, depreciation, cost recovery or
amortization deductions shall be determined using any reasonable method
that the Managing General Partner may adopt.
(vi) If the Partnership's adjusted basis in a depreciable or cost
recovery property is reduced for federal income tax purposes pursuant to
Section 48(q)(1) or 48(q)(3) of the Code, the amount of such reduction
shall, solely for purposes hereof, be deemed to be an additional
depreciation or cost recovery deduction in the year such property is placed
in service and shall be allocated among the Partners pursuant to Section
6.1. Any restoration of such basis pursuant to Section 48(q)(2) of the Code
shall, to the extent possible, be allocated in the same manner to the
Partners to whom such deemed deduction was allocated.
(c) (i) A transferee of a Partnership Interest shall succeed to a pro
rata portion of the Capital Account of the transferor relating to the
Partnership Interest so transferred.
(ii) Immediately prior to the transfer of a Subordinated Unit or of a
Subordinated Unit that has converted into a Common Unit pursuant to Section
5.8 by a holder thereof (other than a transfer to an Affiliate unless the
Special General Partner elects to have this subparagraph 5.5(c)(ii) apply),
the Capital Account maintained for such Person with respect to its
Subordinated Units or converted Subordinated Units will (A) first, be
allocated to the Subordinated Units or converted Subordinated Units to be
transferred in an amount equal to the product of (x) the number of such
Subordinated Units or converted Subordinated Units to be transferred and
(y) the Per Unit Capital Amount for a Common Unit, and (B) second, any
remaining balance in such Capital Account will be retained by the
transferor, regardless of whether it has retained any Subordinated Units or
converted Subordinated Units. Following any such allocation, the
transferor's Capital Account, if any, maintained with respect to the
retained Subordinated Units or converted Subordinated Units, if any, will
have a balance equal to the amount allocated under clause (B) hereinabove,
and the transferee's Capital Account established with respect to the
transferred Subordinated Units or converted Subordinated Units will have a
balance equal to the amount allocated under clause (A) hereinabove.
(d) (i) In accordance with Treasury Regulation Section
1.704-1(b)(2)(iv)(f), on an issuance of additional Partnership Interests
for cash or Contributed Property or the conversion of a General Partner's
Combined Interest to Common Units pursuant to Section 11.3(b), the Capital
Account of all Partners and the Carrying Value of each Partnership property
immediately prior to such issuance shall be adjusted upward or downward to
reflect any Unrealized Gain or Unrealized Loss attributable to such
Partnership property, as if such Unrealized Gain or Unrealized Loss had
been recognized on an actual sale of each such property immediately prior
to such issuance and had been allocated to the Partners at such time
pursuant to Section 6.1 in the same manner as any item of gain or loss
actually recognized during such period would have been allocated. In
determining such Unrealized Gain or Unrealized Loss, the aggregate cash
amount and fair market value of all Partnership assets (including, without
limitation, cash or cash equivalents) immediately prior to the issuance of
additional Partnership Interests shall be determined by the Managing
General Partner using such reasonable method of valuation as it may adopt;
provided, however, that the Managing General Partner, in arriving at such
valuation, must take fully into account the fair market value of the
Partnership Interests of all Partners at such time. The Managing General
Partner shall allocate such aggregate value among the assets of the
Partnership (in such manner as it determines in its discretion to be
reasonable) to arrive at a fair market value for individual properties.
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(ii) In accordance with Treasury Regulation Section
1.704-1(b)(2)(iv)(f), immediately prior to any actual or deemed
distribution to a Partner of any Partnership property (other than a
distribution of cash that is not in redemption or retirement of a
Partnership Interest), the Capital Accounts of all Partners and the
Carrying Value of all Partnership property shall be adjusted upward or
downward to reflect any Unrealized Gain or Unrealized Loss attributable to
such Partnership property, as if such Unrealized Gain or Unrealized Loss
had been recognized in a sale of such property immediately prior to such
distribution for an amount equal to its fair market value, and had been
allocated to the Partners, at such time, pursuant to Section 6.1 in the
same manner as any item of gain or loss actually recognized during such
period would have been allocated. In determining such Unrealized Gain or
Unrealized Loss the aggregate cash amount and fair market value of all
Partnership assets (including, without limitation, cash or cash
equivalents) immediately prior to a distribution shall (A) in the case of
an actual distribution which is not made pursuant to Section 12.4 or in the
case of a deemed distribution, be determined and allocated in the same
manner as that provided in Section 5.5(d)(i) or (B) in the case of a
liquidating distribution pursuant to Section 12.4, be determined and
allocated by the Liquidator using such reasonable method of valuation as it
may adopt.
SECTION 5.6 Issuances of Additional Partnership Securities.
(a) Subject to Section 5.7, the Partnership may issue additional
Partnership Securities and options, rights, warrants and appreciation rights
relating to the Partnership Securities for any Partnership purpose at any time
and from time to time to such Persons for such consideration and on such terms
and conditions as shall be established by the Managing General Partner in its
sole discretion, all without the approval of any Limited Partners.
(b) Each additional Partnership Security authorized to be issued by the
Partnership pursuant to Section 5.6(a) may be issued in one or more classes, or
one or more series of any such classes, with such designations, preferences,
rights, powers and duties (which may be senior to existing classes and series of
Partnership Securities), as shall be fixed by the Managing General Partner in
the exercise of its sole discretion, including (i) the right to share
Partnership profits and losses or items thereof; (ii) the right to share in
Partnership distributions; (iii) the rights upon dissolution and liquidation of
the Partnership; (iv) whether, and the terms and conditions upon which, the
Partnership may redeem the Partnership Security; (v) whether such Partnership
Security is issued with the privilege of conversion or exchange and, if so, the
terms and conditions of such conversion or exchange; (vi) the terms and
conditions upon which each Partnership Security will be issued, evidenced by
certificates and assigned or transferred; and (vii) the right, if any, of each
such Partnership Security to vote on Partnership matters, including matters
relating to the relative rights, preferences and privileges of such Partnership
Security.
(c) The Managing General Partner is hereby authorized and directed to take
all actions that it deems necessary or appropriate in connection with (i) each
issuance of Partnership Securities and options, rights, warrants and
appreciation rights relating to Partnership Securities pursuant to this Section
5.6, (ii) the conversion of any General Partner Interest or Incentive
Distribution Rights into Units pursuant to the terms of this Agreement, (iii)
the admission of Additional Limited Partners and (iv) all additional issuances
of Partnership Securities. The Managing General Partner is further authorized
and directed to specify the relative rights, powers and duties of the holders of
the Units or other Partnership Securities being so issued. The Managing General
Partner shall do all things necessary to comply with the Delaware Act and is
authorized and directed to do all things it deems to be necessary or advisable
in connection with any future issuance of Partnership Securities or in
connection with the conversion of any General Partner Interest or Incentive
Distribution Rights into Units pursuant to the terms of this Agreement,
including compliance with any statute, rule, regulation or guideline of any
federal, state or other governmental agency or any National Securities Exchange
on which the Units or other Partnership Securities are listed for trading.
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SECTION 5.7 Limitations on Issuance of Additional Partnership Securities.
The issuance of Partnership Securities pursuant to Section 5.6 shall be
subject to the following restrictions and limitations:
(a) During Subordination Period, the Partnership shall not issue (and shall
not issue any options, rights, warrants or appreciation rights relating to) an
aggregate of more than 4,484,668 additional Parity Units without the prior
approval of the holders of a Unit Majority. In applying this limitation, there
shall be excluded Common Units and other Parity Units issued (A) in connection
with the exercise of the Over-Allotment Option, (B) in accordance with Sections
5.7(b) and 5.7(c), (C) upon conversion of Subordinated Units pursuant to Section
5.8, (D) upon conversion of any General Partner Interest or Incentive
Distribution Rights pursuant to Section 11.3(b), (D) pursuant to the employee
benefit plans of the Managing General Partner, the Partnership or any other
Group Member and (E) in the event of a combination or subdivision of Common
Units.
(b) The Partnership may also issue an unlimited number of Parity Units,
prior to the end of the Subordination Period and without the prior approval of
the Unitholders, if such issuance occurs (i) in connection with an Acquisition
or a Capital Improvement or (ii) within 365 days of, and the net proceeds from
such issuance are used to repay debt incurred in connection with, an Acquisition
or a Capital Improvement, in each case where such Acquisition or Capital
Improvement involves assets that, if acquired by the Partnership as of the date
that is one year prior to the first day of the Quarter in which such Acquisition
is to be consummated or such Capital Improvement is to be completed, would have
resulted, on a pro forma basis, in an increase in:
(A) the amount of Adjusted Operating Surplus generated by the
Partnership on a per-Unit basis (for all Outstanding Units) with respect to
each of the four most recently completed Quarters (on a pro forma basis as
described below) as compared to
(B) the actual amount of Adjusted Operating Surplus generated by the
Partnership on a per-Unit basis (for all Outstanding Units) (excluding
Adjusted Operating Surplus attributable to the Acquisition or Capital
Improvement) with respect to each of such four most recently completed
Quarters.
If the issuance of Parity Units with respect to an Acquisition or Capital
Improvement occurs within the first four full Quarters after the Closing Date,
then Adjusted Operating Surplus as used in clauses (A) (subject to the
succeeding sentence) and (B) above shall be calculated (i) for each Quarter, if
any, that commenced after the Closing Date for which actual results of
operations are available, based on the actual Adjusted Operating Surplus of the
Partnership generated with respect to such Quarter, and (ii) for each other
Quarter, on a pro forma basis consistent with the procedures, as applicable, set
forth in Appendix D to the Registration Statement. Furthermore, the amount in
clause (A) shall be determined on a pro forma basis assuming that (1) all of the
Parity Units to be issued in connection with or within 365 days of such
Acquisition or Capital Improvement had been issued and outstanding, (2) all
indebtedness for borrowed money to be incurred or assumed in connection with
such Acquisition or Capital Improvement (other than any such indebtedness that
is to be repaid with the proceeds of such issuance of Parity Units) had been
incurred or assumed, in each case as of the commencement of such four-Quarter
period, (3) the personnel expenses that would have been incurred by the
Partnership in the operation of the acquired assets are the personnel expenses
for employees to be retained by the Partnership in the operation of the acquired
assets, and (4) the non-personnel costs and expenses are computed on the same
basis as those incurred by the Partnership in the operation of the Partnership's
business at similarly situated Partnership facilities.
(c) The Partnership may also issue an unlimited number of Parity Units,
prior to the end of the Subordination Period and without the approval of the
Unitholders, if the proceeds from such issuance are used exclusively to repay up
to $40 million of indebtedness of a Group Member where the aggregate amount of
distributions that would have been paid with respect to such newly issued Units
or Partnership Securities, plus the related distributions on the General Partner
Interests in the Partnership, the general partner interest in the Intermediate
Partnership and the member interest in the Operating Subsidiary in
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respect of the four-Quarter period ending prior to the first day of the Quarter
in which the issuance is to be consummated (assuming such additional Units or
Partnership Securities had been Outstanding throughout such period and that
distributions equal to the distributions that were actually paid on the
Outstanding Units during the period were paid on such additional Units or
Partnership Securities) did not exceed the interest costs actually incurred
during such period on the indebtedness that is to be repaid (or, if such
indebtedness was not outstanding throughout the entire period, would have been
incurred had such indebtedness been outstanding for the entire period). In the
event that the Partnership is required to pay a prepayment penalty in connection
with the repayment of such indebtedness, for purposes of the foregoing test the
number of Parity Units issued to repay such indebtedness shall be deemed
increased by the number of Parity Units that would need to be issued to pay such
penalty.
(d) During the Subordination Period, the Partnership shall not issue (and
shall not issue any options, rights, warrants or appreciation rights relating
to) additional Partnership Securities having rights to distributions or in
liquidation ranking prior or senior to the Common Units, without the prior
approval of the holders of a Unit Majority.
(e) No fractional Units shall be issued by the Partnership.
SECTION 5.8 Conversion of Subordinated Units.
(a) A total of one-half of the Outstanding Subordinated Units (determined
as of the Closing Date or if the Over-Allotment Option is exercised, determined
as of the closing date of the Over-Allotment Option) will convert into Common
Units on a one-for-one basis on the first day after the Record Date for
distribution in respect of any Quarter ending on or after September 30, 2003, in
respect of which:
(i) distributions under Section 6.4 in respect of all Outstanding
Common Units and Subordinated Units with respect to each of the three
consecutive, non-overlapping four-Quarter periods immediately preceding
such date equaled or exceeded the sum of the Minimum Quarterly Distribution
on all of the Outstanding Common Units and Subordinated Units during such
periods;
(ii) the Adjusted Operating Surplus generated during each of the two
consecutive, non-overlapping four-Quarter periods immediately preceding
such date equaled or exceeded 110% of the sum of the Minimum Quarterly
Distribution on all of the Common Units and Subordinated Units that were
Outstanding during such periods on a fully-diluted basis (i.e. taking into
account for purposes of such determination all Outstanding Common Units,
all Outstanding Subordinated Units, all Common Units and Subordinated Units
issuable upon exercise of employee options that have, as of the date of
determination, already vested or are scheduled to vest prior to the end of
the Quarter immediately following the Quarter with respect to which such
determination is made, and all Common Units and Subordinated Units that
have, as of the date of determination, been earned by but not yet issued to
management of the Partnership in respect of incentive compensation), plus
the related distribution on the General Partner Interests in the
Partnership, the general partner interest in the Intermediate Partnership
and the member interest in the Operating Subsidiary, during such periods;
and
(iii) the Cumulative Common Unit Arrearage on all of the Common Units
is zero.
(b) In the event that less than all of the Outstanding Subordinated Units
shall convert into Common Units pursuant to Section 5.8(a) at a time when there
shall be more than one holder of Subordinated Units, then, unless all of the
holders of Subordinated Units shall agree to a different allocation, the
Subordinated Units that are to be converted into Common Units shall be allocated
among the holders of Subordinated Units pro rata based on the number of
Subordinated Units held by each such holder.
(c) Any Subordinated Units that are not converted into Common Units
pursuant to Section 5.8(a) shall convert into Common Units on a one-for-one
basis on the first day following the Record Date for distributions in respect of
the final Quarter of the Subordination Period.
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(d) Notwithstanding any other provision of this Agreement, all the then
Outstanding Subordinated Units will automatically convert into Common Units on a
one-for-one basis as set forth in, and pursuant to the terms of, Section 11.4.
(e) A Subordinated Unit that has converted into a Common Unit shall be
subject to the provisions of Section 6.7(b).
(f) For purposes of determining whether the test in Section 5.8(a)(ii)
above has been satisfied, Adjusted Operating Surplus will be adjusted upwards or
downwards if the Conflicts Committee determines in good faith that the amount of
Estimated Maintenance Capital Expenditures used in the determination of Adjusted
Operating Surplus in Section 5.8(a)(ii) was materially incorrect, based on
circumstances prevailing at the time of original determination of Estimated
Maintenance Capital Expenditures, for any one or more of the preceding two
four-quarter periods.
SECTION 5.9 Limited Preemptive Right.
Except as provided in this Section 5.9 and in Section 5.2, no Person shall
have any preemptive, preferential or other similar right with respect to the
issuance of any Partnership Security, whether unissued, held in the treasury or
hereafter created. The General Partners shall have the right, which they may
from time to time assign in whole or in part to any of their Affiliates, to
purchase Partnership Securities from the Partnership whenever, and on the same
terms that, the Partnership issues Partnership Securities to Persons other than
the General Partners and their Affiliates, to the extent necessary to maintain
the Percentage Interests of the General Partners and their Affiliates equal to
that which existed immediately prior to the issuance of such Partnership
Securities.
SECTION 5.10 Splits and Combinations.
(a) Subject to Sections 5.10(d), 6.6 and 6.9 (dealing with adjustments of
distribution levels), the Partnership may make a Pro Rata distribution of
Partnership Securities to all Record Holders or may effect a subdivision or
combination of Partnership Securities so long as, after any such event, each
Partner shall have the same Percentage Interest in the Partnership as before
such event, and any amounts calculated on a per Unit basis (including any Common
Unit Arrearage or Cumulative Common Unit Arrearage) or stated as a number of
Units (including the number of Subordinated Units that may convert prior to the
end of the Subordination Period and the number of additional Parity Units that
may be issued pursuant to Section 5.7 without a Unitholder vote) are
proportionately adjusted retroactive to the beginning of the Partnership.
(b) Whenever such a distribution, subdivision or combination of Partnership
Securities is declared, the Managing General Partner shall select a Record Date
as of which the distribution, subdivision or combination shall be effective and
shall send notice thereof at least 20 days prior to such Record Date to each
Record Holder as of a date not less than 10 days prior to the date of such
notice. The Managing General Partner also may cause a firm of independent public
accountants selected by it to calculate the number of Partnership Securities to
be held by each Record Holder after giving effect to such distribution,
subdivision or combination. The Managing General Partner shall be entitled to
rely on any certificate provided by such firm as conclusive evidence of the
accuracy of such calculation.
(c) Promptly following any such distribution, subdivision or combination,
the Partnership may issue Certificates to the Record Holders of Partnership
Securities as of the applicable Record Date representing the new number of
Partnership Securities held by such Record Holders, or the Managing General
Partner may adopt such other procedures as it may deem appropriate to reflect
such changes. If any such combination results in a smaller total number of
Partnership Securities Outstanding, the Partnership shall require, as a
condition to the delivery to a Record Holder of such new Certificate, the
surrender of any Certificate held by such Record Holder immediately prior to
such Record Date.
(d) The Partnership shall not issue fractional Units upon any distribution,
subdivision or combination of Units. If a distribution, subdivision or
combination of Units would result in the issuance of fractional
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Units but for the provisions of Section 5.7(e) and this Section 5.10(d), each
fractional Unit shall be rounded to the nearest whole Unit (and a 0.5 Unit shall
be rounded to the next higher Unit).
SECTION 5.11 Fully Paid and Non-Assessable Nature of Limited Partner Interests.
All Limited Partner Interests issued pursuant to, and in accordance with
the requirements of, this Article V shall be fully paid and non-assessable
Limited Partner Interests in the Partnership, except as such non-assessability
may be affected by Section 17-607 of the Delaware Act.
ARTICLE VI
ALLOCATIONS AND DISTRIBUTIONS
SECTION 6.1 Allocations for Capital Account Purposes.
For purposes of maintaining the Capital Accounts and in determining the
rights of the Partners among themselves, the Partnership's items of income,
gain, loss and deduction (computed in accordance with Section 5.5(b)) shall be
allocated among the Partners in each taxable year (or portion thereof) as
provided herein below.
(a) Net Income. After giving effect to the special allocations set forth in
Section 6.1(d), Net Income for each taxable year and all items of income, gain,
loss and deduction taken into account in computing Net Income for such taxable
year shall be allocated as follows:
(i) First, 100% to the General Partners, Pro Rata, in an amount equal
to the aggregate Net Losses allocated to the General Partners pursuant to
Section 6.1(b)(iii) for all previous taxable years until the aggregate Net
Income allocated to the General Partners pursuant to this Section 6.1(a)(i)
for the current taxable year and all previous taxable years is equal to the
aggregate Net Losses allocated to the General Partners pursuant to Section
6.1(b)(iii) for all previous taxable years;
(ii) Second, 1% to the General Partners, Pro Rata, in an amount equal
to the aggregate Net Losses allocated to the General Partners pursuant to
Section 6.1(b)(ii) for all previous taxable years and 99% to the
Unitholders, in accordance with their respective Percentage Interests,
until the aggregate Net Income allocated to such Partners pursuant to this
Section 6.1(a)(ii) for the current taxable year and all previous taxable
years is equal to the aggregate Net Losses allocated to such Partners
pursuant to Section 6.1(b)(ii) for all previous taxable years; and
(iii) Third, 1% to the General Partners, Pro Rata, and 99% to the
Unitholders, Pro Rata.
(b) Net Losses. After giving effect to the special allocations set forth in
Section 6.1(d), Net Losses for each taxable period and all items of income,
gain, loss and deduction taken into account in computing Net Losses for such
taxable period shall be allocated as follows:
(i) First, 1% to the General Partners, Pro Rata, and 99% to the
Unitholders, Pro Rata, until the aggregate Net Losses allocated pursuant to
this Section 6.1(b)(i) for the current taxable year and all previous
taxable years is equal to the aggregate Net Income allocated to such
Partners pursuant to Section 6.1(a)(iii) for all previous taxable years,
provided that the Net Losses shall not be allocated pursuant to this
Section 6.1(b)(i) to the extent that such allocation would cause any
Unitholder to have a deficit balance in its Adjusted Capital Account at the
end of such taxable year (or increase any existing deficit balance in its
Adjusted Capital Account);
(ii) Second, 1% to the General Partners, Pro Rata, and 99% to the
Unitholders, Pro Rata; provided, that Net Losses shall not be allocated
pursuant to this Section 6.1(b)(ii) to the extent that such allocation
would cause any Unitholder to have a deficit balance in its Adjusted
Capital Account at the end of such taxable year (or increase any existing
deficit balance in its Adjusted Capital Account);
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(iii) Third, the balance, if any, 100% to the General Partners, Pro
Rata.
(c) Net Termination Gains and Losses. After giving effect to the special
allocations set forth in Section 6.1(d), all items of income, gain, loss and
deduction taken into account in computing Net Termination Gain or Net
Termination Loss for such taxable period shall be allocated in the same manner
as such Net Termination Gain or Net Termination Loss is allocated hereunder. All
allocations under this Section 6.1(c) shall be made after Capital Account
balances have been adjusted by all other allocations provided under this Section
6.1 and after all distributions of Available Cash provided under Sections 6.4
and 6.5 have been made; provided, however, that solely for purposes of this
Section 6.1(c), Capital Accounts shall not be adjusted for distributions made
pursuant to Section 12.4.
(i) If a Net Termination Gain is recognized (or deemed recognized
pursuant to Section 5.5(d)), such Net Termination Gain shall be allocated
among the Partners in the following manner (and the Capital Accounts of the
Partners shall be increased by the amount so allocated in each of the
following subclauses, in the order listed, before an allocation is made
pursuant to the next succeeding subclause):
(A) First, to each Partner having a deficit balance in its Capital
Account, in the proportion that such deficit balance bears to the total
deficit balances in the Capital Accounts of all Partners, until each
such Partner has been allocated Net Termination Gain equal to any such
deficit balance in its Capital Account;
(B) Second, 99% to all Unitholders holding Common Units, Pro Rata,
and 1% to the General Partners, Pro Rata, until the Capital Account in
respect of each Common Unit then Outstanding is equal to the sum of (1)
its Unrecovered Capital plus (2) the Minimum Quarterly Distribution for
the Quarter during which the Liquidation Date occurs, reduced by any
distribution pursuant to Section 6.4(a)(i) or (b)(i) with respect to
such Common Unit for such Quarter (the amount determined pursuant to
this clause (2) is hereinafter defined as the "Unpaid MQD") plus (3) any
then existing Cumulative Common Unit Arrearage;
(C) Third, if such Net Termination Gain is recognized (or is deemed
to be recognized) prior to the expiration of the Subordination Period,
99% to all Unitholders holding Subordinated Units, Pro Rata, and 1% to
the General Partners, Pro Rata, until the Capital Account in respect of
each Subordinated Unit then Outstanding equals the sum of (1) its
Unrecovered Capital, determined for the taxable year (or portion
thereof) to which this allocation of gain relates, plus (2) the Minimum
Quarterly Distribution for the Quarter during which the Liquidation Date
occurs, reduced by any distribution pursuant to Section 6.4(a)(iii) with
respect to such Subordinated Unit for such Quarter;
(D) Fourth, 99% to all Unitholders, Pro Rata, and 1% to the General
Partners, Pro Rata, until the Capital Account in respect of each Common
Unit then Outstanding is equal to the sum of (1) its Unrecovered
Capital, plus (2) the Unpaid MQD, plus (3) any then existing Cumulative
Common Unit Arrearage, plus (4) the excess of (aa) the First Target
Distribution less the Minimum Quarterly Distribution for each Quarter of
the Partnership's existence over (bb) the cumulative per Unit amount of
any distributions of Operating Surplus that was distributed pursuant to
Sections 6.4(a)(iv) and 6.4(b)(ii) (the sum of (1) plus (2) plus (3)
plus (4) is hereinafter defined as the "First Liquidation Target
Amount");
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(E) Fifth, 85.8673% to all Unitholders, Pro Rata, 13.1327% to the
holders of the Incentive Distribution Rights, Pro Rata, and 1% to the
General Partners, Pro Rata, until the Capital Account in respect of each
Common Unit then Outstanding is equal to the sum of (1) the First
Liquidation Target Amount, plus (2) the excess of (aa) the Second Target
Distribution less the First Target Distribution for each Quarter of the
Partnership's existence over (bb) the cumulative per Unit amount of any
distributions of Operating Surplus that was distributed pursuant to
Sections 6.4(a)(v) and 6.4(b)(iii) (the sum of (1) plus (2) is
hereinafter defined as the "Second Liquidation Target Amount");
(F) Sixth, 75.7653% to all Unitholders, Pro Rata, 23.2347% to the
holders of the Incentive Distribution Rights, Pro Rata, and 1% to the
General Partners, Pro Rata, until the Capital Account in respect of each
Common Unit then Outstanding is equal to the sum of (1) the Second
Liquidation Target Amount, plus (2) the excess of (aa) the Third Target
Distribution less the Second Target Distribution for each Quarter of the
Partnership's existence over (bb) the cumulative per Unit amount of any
distributions of Operating Surplus that was distributed pursuant to
Sections 6.4(a)(vi)and 6.4(b)(iv); and
(G) Finally, any remaining amount 50.5102% to all Unitholders, Pro
Rata, 48.4898% to the holders of the Incentive Distribution Rights, Pro
Rata, and 1% to the General Partners, Pro Rata.
(ii) If a Net Termination Loss is recognized (or deemed recognized
pursuant to Section 5.5(d)), such Net Termination Loss shall be allocated
among the Partners in the following manner:
(A) First, if such Net Termination Loss is recognized (or is deemed
to be recognized) prior to the conversion of the last Outstanding
Subordinated Unit, 99% to the Unitholders holding Subordinated Units,
Pro Rata, and 1% to the General Partners, Pro Rata, until the Capital
Account in respect of each Subordinated Unit then Outstanding has been
reduced to zero;
(B) Second, 99% to all Unitholders holding Common Units, Pro Rata,
and 1% to the General Partners, Pro Rata, until the Capital Account in
respect of each Common Unit then Outstanding has been reduced to zero;
and
(C) Third, the balance, if any, 100% to the General Partners, Pro
Rata.
(d) Special Allocations. Notwithstanding any other provision of this
Section 6.1, the following special allocations shall be made for such taxable
period:
(i) Partnership Minimum Gain Chargeback. Notwithstanding any other
provision of this Section 6.1, if there is a net decrease in Partnership
Minimum Gain during any Partnership taxable period, each Partner shall be
allocated items of Partnership income and gain for such period (and, if
necessary, subsequent periods) in the manner and amounts provided in
Treasury Regulation Sections 1.704-2(f)(6), 1.704-2(g)(2) and
1.704-2(j)(2)(i), or any successor provision. For purposes of this Section
6.1(d), each Partner's Adjusted Capital Account balance shall be
determined, and the allocation of income or gain required hereunder shall
be effected, prior to the application of any other allocations pursuant to
this Section 6.1(d) with respect to such taxable period (other than an
allocation pursuant to Sections 6.1(d)(vi) and 6.1(d)(vii)). This Section
6.1(d)(i) is intended to comply with the Partnership Minimum Gain
chargeback requirement in Treasury Regulation Section 1.704-2(f) and shall
be interpreted consistently therewith.
(ii) Chargeback of Partner Nonrecourse Debt Minimum
Gain. Notwithstanding the other provisions of this Section 6.1 (other than
Section 6.1(d)(i)), except as provided in Treasury Regulation Section
1.704-2(i)(4), if there is a net decrease in Partner Nonrecourse Debt
Minimum
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Gain during any Partnership taxable period, any Partner with a share of
Partner Nonrecourse Debt Minimum Gain at the beginning of such taxable
period shall be allocated items of Partnership income and gain for such
period (and, if necessary, subsequent periods) in the manner and amounts
provided in Treasury Regulation Sections 1.704-2(i)(4) and
1.704-2(j)(2)(ii), or any successor provisions. For purposes of this
Section 6.1(d), each Partner's Adjusted Capital Account balance shall be
determined, and the allocation of income or gain required hereunder shall
be effected, prior to the application of any other allocations pursuant to
this Section 6.1(d), other than Section 6.1(d)(i) and other than an
allocation pursuant to Sections 6.1(d)(vi) and 6.1(d)(vii), with respect to
such taxable period. This Section 6.1(d)(ii) is intended to comply with the
chargeback of items of income and gain requirement in Treasury Regulation
Section 1.704-2(i)(4) and shall be interpreted consistently therewith.
(iii) Priority Allocations.
(A) If the amount of cash or the Net Agreed Value of any property
distributed (except cash or property distributed pursuant to Section
12.4) to any Unitholder with respect to its Units for a taxable year is
greater (on a per Unit basis) than the amount of cash or the Net Agreed
Value of property distributed to the other Unitholders with respect to
their Units (on a per Unit basis), then (1) each Unitholder receiving
such greater cash or property distribution shall be allocated gross
income in an amount equal to the product of (aa) the amount by which the
distribution (on a per Unit basis) to such Unitholder exceeds the
distribution (on a per Unit basis) to the Unitholders receiving the
smallest distribution and (bb) the number of Units owned by the
Unitholder receiving the greater distribution; and (2) the General
Partners shall be allocated gross income, in proportion to their
respective Percentage Interests, in an aggregate amount equal to 1/99th
of the sum of the amounts allocated in clause (1) above.
(B) After the application of Section 6.1(d)(iii)(A), all or any
portion of the remaining items of Partnership gross income or gain for
the taxable period, if any, shall be allocated 100% to the holders of
Incentive Distribution Rights, Pro Rata, until the aggregate amount of
such items allocated to the holders of Incentive Distribution Rights
pursuant to this paragraph 6.1(d)(iii)(B) for the current taxable year
and all previous taxable years is equal to the cumulative amount of all
Incentive Distributions made to the holders of Incentive Distribution
Rights from the Closing Date to a date 45 days after the end of the
current taxable year.
(iv) Qualified Income Offset. In the event any Partner unexpectedly
receives any adjustments, allocations or distributions described in
Treasury Regulation Sections 1.704-1(b)(2)(ii)(d)(4),
1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6), items of Partnership
income and gain shall be specially allocated to such Partner in an amount
and manner sufficient to eliminate, to the extent required by the Treasury
Regulations promulgated under Section 704(b) of the Code, the deficit
balance, if any, in its Adjusted Capital Account created by such
adjustments, allocations or distributions as quickly as possible unless
such deficit balance is otherwise eliminated pursuant to Section 6.1(d)(i)
or (ii).
(v) Gross Income Allocations. In the event any Partner has a deficit
balance in its Capital Account at the end of any Partnership taxable period
in excess of the sum of (A) the amount such Partner is required to restore
pursuant to the provisions of this Agreement and (B) the amount such
Partner is deemed obligated to restore pursuant to Treasury Regulation
Sections 1.704-2(g) and 1.704-2(i)(5), such Partner shall be specially
allocated items of Partnership gross income and gain in the amount of such
excess as quickly as possible; provided, that an allocation pursuant to
this Section 6.1(d)(v) shall be made only if and to the extent that such
Partner would have a deficit balance in its Capital Account as adjusted
after all other allocations provided for in this Section 6.1 have been
tentatively made as if this Section 6.1(d)(v) were not in this Agreement.
(vi) Nonrecourse Deductions. Nonrecourse Deductions for any taxable
period shall be allocated to the Partners in accordance with their
respective Percentage Interests. If the Managing General Partner determines
in its good faith discretion that the Partnership's Nonrecourse Deductions
must be
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allocated in a different ratio to satisfy the safe harbor requirements of
the Treasury Regulations promulgated under Section 704(b) of the Code, the
Managing General Partner is authorized, upon notice to the other Partners,
to revise the prescribed ratio to the numerically closest ratio that does
satisfy such requirements.
(vii) Partner Nonrecourse Deductions. Partner Nonrecourse Deductions
for any taxable period shall be allocated 100% to the Partner that bears
the Economic Risk of Loss with respect to the Partner Nonrecourse Debt to
which such Partner Nonrecourse Deductions are attributable in accordance
with Treasury Regulation Section 1.704-2(i). If more than one Partner bears
the Economic Risk of Loss with respect to a Partner Nonrecourse Debt, such
Partner Nonrecourse Deductions attributable thereto shall be allocated
between or among such Partners in accordance with the ratios in which they
share such Economic Risk of Loss.
(viii) Nonrecourse Liabilities. For purposes of Treasury Regulation
Section 1.752-3(a)(3), the Partners agree that Nonrecourse Liabilities of
the Partnership in excess of the sum of (A) the amount of Partnership
Minimum Gain and (B) the total amount of Nonrecourse Built-in Gain shall be
allocated among the Partners in accordance with their respective Percentage
Interests.
(ix) Code Section 754 Adjustments. To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to Section 734(b) or
743(c) of the Code is required, pursuant to Treasury Regulation Section
1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital
Accounts, the amount of such adjustment to the Capital Accounts shall be
treated as an item of gain (if the adjustment increases the basis of the
asset) or loss (if the adjustment decreases such basis), and such item of
gain or loss shall be specially allocated to the Partners in a manner
consistent with the manner in which their Capital Accounts are required to
be adjusted pursuant to such Section of the Treasury Regulations.
(x) Economic Uniformity. At the election of the Managing General
Partner with respect to any taxable period ending upon, or after, the
termination of the Subordination Period, all or a portion of the remaining
items of Partnership gross income or gain for such taxable period, after
taking into account allocations pursuant to Section 6.1(d)(iii), shall be
allocated 100% to each Partner holding Subordinated Units that are
Outstanding as of the termination of the Subordination Period ("Final
Subordinated Units") in the proportion of the number of Final Subordinated
Units held by such Partner to the total number of Final Subordinated Units
then Outstanding, until each such Partner has been allocated an amount of
gross income or gain which increases the Capital Account maintained with
respect to such Final Subordinated Units to an amount equal to the product
of (A) the number of Final Subordinated Units held by such Partner and (B)
the Per Unit Capital Amount for a Common Unit. The purpose of this
allocation is to establish uniformity between the Capital Accounts
underlying Final Subordinated Units and the Capital Accounts underlying
Common Units held by Persons other than the General Partners and their
Affiliates immediately prior to the conversion of such Final Subordinated
Units into Common Units. This allocation method for establishing such
economic uniformity will only be available to the Managing General Partner
if the method for allocating the Capital Account maintained with respect to
the Subordinated Units between the transferred and retained Subordinated
Units pursuant to Section 5.5(c)(ii) does not otherwise provide such
economic uniformity to the Final Subordinated Units.
(xi) Curative Allocation.
(A) Notwithstanding any other provision of this Section 6.1, other
than the Required Allocations, the Required Allocations shall be taken
into account in making the Agreed Allocations so that, to the extent
possible, the net amount of items of income, gain, loss and deduction
allocated to each Partner pursuant to the Required Allocations and the
Agreed Allocations, together, shall be equal to the net amount of such
items that would have been allocated to each such Partner under the
Agreed Allocations had the Required Allocations and the related Curative
Allocation not otherwise been provided in this Section 6.1.
Notwithstanding the preceding sentence, Required Allocations relating to
(1) Nonrecourse Deductions shall not
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be taken into account except to the extent that there has been a
decrease in Partnership Minimum Gain and (2) Partner Nonrecourse
Deductions shall not be taken into account except to the extent that
there has been a decrease in Partner Nonrecourse Debt Minimum Gain.
Allocations pursuant to this Section 6.1(d)(xi)(A) shall only be made
with respect to Required Allocations to the extent the Managing General
Partner reasonably determines that such allocations will otherwise be
inconsistent with the economic agreement among the Partners. Further,
allocations pursuant to this Section 6.1(d)(xi)(A) shall be deferred
with respect to allocations pursuant to clauses (1) and (2) hereof to
the extent the Managing General Partner reasonably determines that such
allocations are likely to be offset by subsequent Required Allocations.
(B) The Managing General Partner shall have reasonable discretion,
with respect to each taxable period, to (1) apply the provisions of
Section 6.1(d)(xi)(A) in whatever order is most likely to minimize the
economic distortions that might otherwise result from the Required
Allocations, and (2) divide all allocations pursuant to Section
6.1(d)(xi)(A) among the Partners in a manner that is likely to minimize
such economic distortions.
(xii) Corrective Allocations. In the event of any allocation of
Additional Book Basis Derivative Items or any Book-Down Event or any
recognition of a Net Termination Loss, the following rules shall apply:
(A) In the case of any allocation of Additional Book Basis
Derivative Items (other than an allocation of Unrealized Gain or
Unrealized Loss under Section 5.5(d) hereof), the Managing General
Partner shall allocate additional items of gross income and gain away
from the holders of Incentive Distribution Rights to the Unitholders and
the General Partners, or additional items of deduction and loss away
from the Unitholders and the General Partners to the holders of
Incentive Distribution Rights, to the extent that the Additional Book
Basis Derivative Items allocated to the Unitholders or the General
Partners exceed their Share of Additional Book Basis Derivative Items.
For this purpose, the Unitholders and the General Partners shall be
treated as being allocated Additional Book Basis Derivative Items to the
extent that such Additional Book Basis Derivative Items have reduced the
amount of income that would otherwise have been allocated to the
Unitholders or the General Partners under the Partnership Agreement
(e.g., Additional Book Basis Derivative Items taken into account in
computing cost of goods sold would reduce the amount of book income
otherwise available for allocation among the Partners). Any allocation
made pursuant to this Section 6.1(d)(xii)(A) shall be made after all of
the other Agreed Allocations have been made as if this Section
6.1(d)(xii) were not in this Agreement and, to the extent necessary,
shall require the reallocation of items that have been allocated
pursuant to such other Agreed Allocations.
(B) In the case of any negative adjustments to the Capital Accounts
of the Partners resulting from a Book-Down Event or from the recognition
of a Net Termination Loss, such negative adjustment (1) shall first be
allocated, to the extent of the Aggregate Remaining Net Positive
Adjustments, in such a manner, as reasonably determined by the Managing
General Partner, that to the extent possible the aggregate Capital
Accounts of the Partners will equal the amount which would have been the
Capital Account balance of the Partners if no prior Book-Up Events had
occurred, and (2) any negative adjustment in excess of the Aggregate
Remaining Net Positive Adjustments shall be allocated pursuant to
Section 6.1(c) hereof.
(C) In making the allocations required under this Section
6.1(d)(xii), the Managing General Partner, in its sole discretion, may
apply whatever conventions or other methodology it deems reasonable to
satisfy the purpose of this Section 6.1(d)(xii).
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SECTION 6.2 Allocations for Tax Purposes.
(a) Except as otherwise provided herein, for federal income tax purposes,
each item of income, gain, loss and deduction shall be allocated among the
Partners in the same manner as its correlative item of "book" income, gain, loss
or deduction is allocated pursuant to Section 6.1.
(b) In an attempt to eliminate Book-Tax Disparities attributable to a
Contributed Property or Adjusted Property, items of income, gain, loss,
depreciation, amortization and cost recovery deductions shall be allocated for
federal income tax purposes among the Partners as follows:
(i) (A) In the case of a Contributed Property, such items attributable
thereto shall be allocated among the Partners in the manner provided under
Section 704(c) of the Code that takes into account the variation between
the Agreed Value of such property and its adjusted basis at the time of
contribution; and (B) any item of Residual Gain or Residual Loss
attributable to a Contributed Property shall be allocated among the
Partners in the same manner as its correlative item of "book" gain or loss
is allocated pursuant to Section 6.1.
(ii) (A) In the case of an Adjusted Property, such items shall (1)
first, be allocated among the Partners in a manner consistent with the
principles of Section 704(c) of the Code to take into account the
Unrealized Gain or Unrealized Loss attributable to such property and the
allocations thereof pursuant to Section 5.5(d)(i) or 5.5(d)(ii), and (2)
second, in the event such property was originally a Contributed Property,
be allocated among the Partners in a manner consistent with Section
6.2(b)(i)(A); and (B) any item of Residual Gain or Residual Loss
attributable to an Adjusted Property shall be allocated among the Partners
in the same manner as its correlative item of "book" gain or loss is
allocated pursuant to Section 6.1.
(iii) The Managing General Partner shall apply the principles of
Treasury Regulation Section 1.704-3(d) to eliminate Book-Tax Disparities.
(c) For the proper administration of the Partnership and for the
preservation of uniformity of the Limited Partner Interests (or any class or
classes thereof), the Managing General Partner shall have sole discretion to (i)
adopt such conventions as it deems appropriate in determining the amount of
depreciation, amortization and cost recovery deductions; (ii) make special
allocations for federal income tax purposes of income (including, without
limitation, gross income) or deductions; and (iii) amend the provisions of this
Agreement as appropriate (x) to reflect the proposal or promulgation of Treasury
Regulations under Section 704(b) or Section 704(c) of the Code or (y) otherwise
to preserve or achieve uniformity of the Limited Partner Interests (or any class
or classes thereof). The Managing General Partner may adopt such conventions,
make such allocations and make such amendments to this Agreement as provided in
this Section 6.2(c) only if such conventions, allocations or amendments would
not have a material adverse effect on the Partners, the holders of any class or
classes of Limited Partner Interests issued and Outstanding or the Partnership,
and if such allocations are consistent with the principles of Section 704 of the
Code.
(d) The Managing General Partner in its discretion may determine to
depreciate or amortize the portion of an adjustment under Section 743(b) of the
Code attributable to unrealized appreciation in any Adjusted Property (to the
extent of the unamortized Book-Tax Disparity) using a predetermined rate derived
from the depreciation or amortization method and useful life applied to the
Partnership's common basis of such property, despite any inconsistency of such
approach with Treasury Regulation Section 1.167(c)-l(a)(6), Proposed Treasury
Regulation 1.197-2(g)(3), or any successor regulations thereto. If the Managing
General Partner determines that such reporting position cannot reasonably be
taken, the Managing General Partner may adopt depreciation and amortization
conventions under which all purchasers acquiring Limited Partner Interests in
the same month would receive depreciation and amortization deductions, based
upon the same applicable rate as if they had purchased a direct interest in the
Partnership's property. If the Managing General Partner chooses not to utilize
such aggregate method, the Managing General Partner may use any other reasonable
depreciation and amortization conventions to preserve the uniformity of the
intrinsic tax characteristics of any Limited Partner Interests that would not
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have a material adverse effect on the Limited Partners or the Record Holders of
any class or classes of Limited Partner Interests.
(e) Any gain allocated to the Partners upon the sale or other taxable
disposition of any Partnership asset shall, to the extent possible, after taking
into account other required allocations of gain pursuant to this Section 6.2, be
characterized as Recapture Income in the same proportions and to the same extent
as such Partners (or their predecessors in interest) have been allocated any
deductions directly or indirectly giving rise to the treatment of such gains as
Recapture Income.
(f) All items of income, gain, loss, deduction and credit recognized by the
Partnership for federal income tax purposes and allocated to the Partners in
accordance with the provisions hereof shall be determined without regard to any
election under Section 754 of the Code which may be made by the Partnership;
provided, however, that such allocations, once made, shall be adjusted as
necessary or appropriate to take into account those adjustments permitted or
required by Sections 734 and 743 of the Code.
(g) Each item of Partnership income, gain, loss and deduction attributable
to a transferred Partnership Interest, shall for federal income tax purposes, be
determined on an annual basis and prorated on a monthly basis and shall be
allocated to the Partners as of the opening of the New York Stock Exchange on
the first Business Day of each month; provided, however, that (i) such items for
the period beginning on the Closing Date and ending on the last day of the month
in which the Option Closing Date or the expiration of the Over-allotment Option
occurs shall be allocated to the Partners as of the opening of the New York
Stock Exchange on the first Business Day of the next succeeding month; and
provided, further, that gain or loss on a sale or other disposition of any
assets of the Partnership other than in the ordinary course of business shall be
allocated to the Partners as of the opening of the New York Stock Exchange on
the first Business Day of the month in which such gain or loss is recognized for
federal income tax purposes. The Managing General Partner may revise, alter or
otherwise modify such methods of allocation as it determines necessary, to the
extent permitted or required by Section 706 of the Code and the regulations or
rulings promulgated thereunder.
(h) Allocations that would otherwise be made to a Limited Partner under the
provisions of this Article VI shall instead be made to the beneficial owner of
Limited Partner Interests held by a nominee in any case in which the nominee has
furnished the identity of such owner to the Partnership in accordance with
Section 6031(c) of the Code or any other method acceptable to the Managing
General Partner in its sole discretion.
SECTION 6.3 Requirement and Characterization of Distributions; Distributions to
Record Holders.
(a) Within 45 days following the end of each Quarter commencing with the
Quarter ending on September 30, 1999, an amount equal to 100% of Available Cash
with respect to such Quarter shall, subject to Section 17-607 of the Delaware
Act, be distributed in accordance with this Article VI by the Partnership to the
Partners as of the Record Date selected by the Managing General Partner in its
reasonable discretion. All amounts of Available Cash distributed by the
Partnership on any date from any source shall be deemed to be Operating Surplus
until the sum of all amounts of Available Cash theretofore distributed by the
Partnership to the Partners pursuant to Section 6.4 equals the Operating Surplus
from the Closing Date through the close of the immediately preceding Quarter.
Any remaining amounts of Available Cash distributed by the Partnership on such
date shall, except as otherwise provided in Section 6.5, be deemed to be
"Capital Surplus." All distributions required to be made under this Agreement
shall be made subject to Section 17-607 of the Delaware Act.
(b) Notwithstanding Section 6.3(a), in the event of the dissolution and
liquidation of the Partnership, all receipts received during or after the
Quarter in which the Liquidation Date occurs, other than from borrowings
described in (a)(ii) of the definition of Available Cash, shall be applied and
distributed solely in accordance with, and subject to the terms and conditions
of, Section 12.4.
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(c) The Managing General Partner shall have the discretion to treat taxes
paid by the Partnership on behalf of, or amounts withheld with respect to, all
or less than all of the Partners, as a distribution of Available Cash to such
Partners.
(d) Each distribution in respect of a Partnership Interest shall be paid by
the Partnership, directly or through the Transfer Agent or through any other
Person or agent, only to the Record Holder of such Partnership Interest as of
the Record Date set for such distribution. Such payment shall constitute full
payment and satisfaction of the Partnership's liability in respect of such
payment, regardless of any claim of any Person who may have an interest in such
payment by reason of an assignment or otherwise.
SECTION 6.4 Distributions of Available Cash from Operating Surplus.
(a) During Subordination Period. Available Cash with respect to any Quarter
within the Subordination Period that is deemed to be Operating Surplus pursuant
to the provisions of Section 6.3 or 6.5 shall, subject to Section 17-607 of the
Delaware Act, be distributed as follows, except as otherwise required by Section
5.6(b) in respect of additional Partnership Securities issued pursuant thereto:
(i) First, 99% to the Unitholders holding Common Units, Pro Rata, and
1% to the General Partners, Pro Rata, until there has been distributed in
respect of each Common Unit then Outstanding an amount equal to the Minimum
Quarterly Distribution for such Quarter;
(ii) Second, 99% to the Unitholders holding Common Units, Pro Rata,
and 1% to the General Partners, Pro Rata, until there has been distributed
in respect of each Common Unit then Outstanding an amount equal to the
Cumulative Common Unit Arrearage existing with respect to such Quarter;
(iii) Third, 99% to the Unitholders holding Subordinated Units, Pro
Rata, and 1% to the General Partners, Pro Rata, until there has been
distributed in respect of each Subordinated Unit then Outstanding an amount
equal to the Minimum Quarterly Distribution for such Quarter;
(iv) Fourth, 99% to all Unitholders, Pro Rata, and 1% to the General
Partners, Pro Rata, until there has been distributed in respect of each
Unit then Outstanding an amount equal to the excess of the First Target
Distribution over the Minimum Quarterly Distribution for such Quarter;
(v) Fifth, 85.8673% to all Unitholders, Pro Rata, 13.1327% to the
holders of the Incentive Distribution Rights, Pro Rata, and 1% to the
General Partners, Pro Rata, until there has been distributed in respect of
each Unit then Outstanding an amount equal to the excess of the Second
Target Distribution over the First Target Distribution for such Quarter;
(vi) Sixth, 75.7653% to all Unitholders, Pro Rata, 23.2347% to the
holders of the Incentive Distribution Rights, Pro Rata, and 1% to the
General Partners, Pro Rata, until there has been distributed in respect of
each Unit then Outstanding an amount equal to the excess of the Third
Target Distribution over the Second Target Distribution for such Quarter;
and
(vii) Thereafter, 50.5102% to all Unitholders, Pro Rata, 48.4898% to
the holders of the Incentive Distribution Rights, Pro Rata, and 1% to the
General Partners, Pro Rata;
provided, however, if the Minimum Quarterly Distribution, the First Target
Distribution, the Second Target Distribution and the Third Target Distribution
have been reduced to zero pursuant to the second sentence of Section 6.6(a), the
distribution of Available Cash that is deemed to be Operating Surplus with
respect to any Quarter will be made solely in accordance with Section
6.4(a)(vii).
(b) After Subordination Period. Available Cash with respect to any Quarter
after the Subordination Period that is deemed to be Operating Surplus pursuant
to the provisions of Section 6.3 or 6.5, subject to
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Section 17-607 of the Delaware Act, shall be distributed as follows, except as
otherwise required by Section 5.6(b) in respect of additional Partnership
Securities issued pursuant thereto:
(i) First, 99% to all Unitholders, Pro Rata, and 1% to the General
Partners, Pro Rata, until there has been distributed in respect of each
Unit then Outstanding an amount equal to the Minimum Quarterly Distribution
for such Quarter;
(ii) Second, 99% to all Unitholders, Pro Rata, and 1% to the General
Partners, Pro Rata, until there has been distributed in respect of each
Unit then Outstanding an amount equal to the excess of the First Target
Distribution over the Minimum Quarterly Distribution for such Quarter;
(iii) Third, 85.8673% to all Unitholders, Pro Rata, and 13.1327% to
the holders of the Incentive Distribution Rights, Pro Rata, and 1% to the
General Partners, Pro Rata, until there has been distributed in respect of
each Unit then Outstanding an amount equal to the excess of the Second
Target Distribution over the First Target Distribution for such Quarter;
(iv) Fourth, 75.7653% to all Unitholders Pro Rata, and 23.2347% to the
holders of the Incentive Distribution Rights, Pro Rata, and 1% to the
General Partners, Pro Rata, until there has been distributed in respect of
each Unit then Outstanding an amount equal to the excess of the Third
Target Distribution over the Second Target Distribution for such Quarter;
and
(v) Thereafter, 50.5102% to all Unitholders, Pro Rata, and 48.4898% to
the holders of the Incentive Distribution Rights, Pro Rata, and 1% to the
General Partners, Pro Rata;
provided, however, if the Minimum Quarterly Distribution, the First Target
Distribution, the Second Target Distribution and the Third Target Distribution
have been reduced to zero pursuant to the second sentence of Section 6.6(a), the
distribution of Available Cash that is deemed to be Operating Surplus with
respect to any Quarter will be made solely in accordance with Section 6.4(b)(v).
SECTION 6.5 Distributions of Available Cash from Capital Surplus.
Available Cash that is deemed to be Capital Surplus pursuant to the
provisions of Section 6.3(a) shall, subject to Section 17-607 of the Delaware
Act, be distributed, unless the provisions of Section 6.3 require otherwise, 99%
to all Unitholders, Pro Rata, and 1% to the General Partners, Pro Rata, until a
hypothetical holder of a Common Unit acquired on the Closing Date has received
with respect to such Common Unit, during the period since the Closing Date
through such date, distributions of Available Cash that are deemed to be Capital
Surplus in an aggregate amount equal to the Initial Unit Price. Available Cash
that is deemed to be Capital Surplus shall then be distributed 99% to all
Unitholders holding Common Units, Pro Rata, and 1% to the General Partners, Pro
Rata, until there has been distributed in respect of each Common Unit then
Outstanding an amount equal to the Cumulative Common Unit Arrearage. Thereafter,
all Available Cash shall be distributed as if it were Operating Surplus and
shall be distributed in accordance with Section 6.4.
SECTION 6.6 Adjustment of Minimum Quarterly Distribution and Target
Distribution Levels.
(a) The Minimum Quarterly Distribution, First Target Distribution, Second
Target Distribution, Third Target Distribution, Common Unit Arrearages and
Cumulative Common Unit Arrearages shall be proportionately adjusted in the event
of any distribution, combination or subdivision (whether effected by a
distribution payable in Units or otherwise) of Units or other Partnership
Securities in accordance with Section 5.10. In the event of a distribution of
Available Cash that is deemed to be from Capital Surplus, the then applicable
Minimum Quarterly Distribution, First Target Distribution, Second Target
Distribution and Third Target Distribution, shall be adjusted proportionately
downward to equal the product obtained by multiplying the otherwise applicable
Minimum Quarterly Distribution, First Target Distribution, Second Target
Distribution and Third Target Distribution, as the case may be, by a fraction of
which the numerator is the Unrecovered Capital of the Common Units immediately
after giving effect to such
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distribution and of which the denominator is the Unrecovered Capital of the
Common Units immediately prior to giving effect to such distribution.
(b) The Minimum Quarterly Distribution, First Target Distribution, Second
Target Distribution and Third Target Distribution, shall also be subject to
adjustment pursuant to Section 6.9.
SECTION 6.7 Special Provisions Relating to the Holders of Subordinated Units.
(a) Except with respect to the right to vote on or approve matters
requiring the vote or approval of a percentage of the holders of Outstanding
Common Units and the right to participate in allocations of income, gain, loss
and deduction and distributions made with respect to Common Units, the holder of
a Subordinated Unit shall have all of the rights and obligations of a Unitholder
holding Common Units hereunder; provided, however, that immediately upon the
conversion of Subordinated Units into Common Units pursuant to Section 5.8, the
Unitholder holding a Subordinated Unit shall possess all of the rights and
obligations of a Unitholder holding Common Units hereunder, including the right
to vote as a Common Unitholder and the right to participate in allocations of
income, gain, loss and deduction and distributions made with respect to Common
Units; provided, however, that such converted Subordinated Units shall remain
subject to the provisions of Sections 5.5(c)(ii), 6.1(d)(x) and 6.7(b).
(b) The Unitholder holding a Subordinated Unit which has converted into a
Common Unit pursuant to Section 5.8 shall not be issued a Common Unit
Certificate pursuant to Section 4.1, and shall not be permitted to transfer its
converted Subordinated Units to a Person which is not an Affiliate of the holder
until such time as the Managing General Partner determines, based on advice of
counsel, that a converted Subordinated Unit should have, as a substantive
matter, like intrinsic economic and federal income tax characteristics, in all
material respects, to the intrinsic economic and federal income tax
characteristics of an Initial Common Unit. In connection with the condition
imposed by this Section 6.7(b), the Managing General Partner may take whatever
reasonable steps are required to provide economic uniformity to the converted
Subordinated Units in preparation for a transfer of such converted Subordinated
Units, including the application of Sections 5.5(c)(ii) and 6.1(d)(x); provided,
however, that no such steps may be taken that would have a material adverse
effect on the Unitholders holding Common Units represented by Common Unit
Certificates.
SECTION 6.8 Special Provisions Relating to the Holders of Incentive
Distribution Rights.
Notwithstanding anything to the contrary set forth in this Agreement, the
holders of the Incentive Distribution Rights (a) shall (i) possess the rights
and obligations provided in this Agreement with respect to a Limited Partner
pursuant to Articles III and VII and (ii) have a Capital Account as a Partner
pursuant to Section 5.5 and all other provisions related thereto and (b) shall
not (i) be entitled to vote on any matters requiring the approval or vote of the
holders of Outstanding Units, (ii) be entitled to any distributions other than
as provided in Sections 6.4(a)(v), (vi) and (vii), 6.4(b)(iii), (iv) and (v),
and 12.4 or (iii) be allocated items of income, gain, loss or deduction other
than as specified in this Article VI.
SECTION 6.9 Entity-Level Taxation.
If legislation is enacted or the interpretation of existing language is
modified by the relevant governmental authority which causes the Partnership,
the Intermediate Partnership or the Operating Subsidiary to be treated as an
association taxable as a corporation or otherwise subjects the Partnership, the
Intermediate Partnership or the Operating Subsidiary to entity-level taxation
for federal, state or local income tax purposes, the then applicable Minimum
Quarterly Distribution, First Target Distribution, Second Target Distribution
and Third Target Distribution, shall be adjusted to equal the product obtained
by multiplying (a) the amount thereof by (b) one minus the sum of (i) the
highest marginal federal corporate (or other entity, as applicable) income tax
rate of the Partnership, the Intermediate Partnership or the Operating
Subsidiary for the taxable year of the Partnership, the Intermediate Partnership
or the Operating Subsidiary in which such Quarter occurs (expressed as a
percentage) plus (ii) the effective overall state and local income tax rate
(expressed as a percentage) applicable to the Partnership, the
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Intermediate Partnership or the Operating Subsidiary for the calendar year next
preceding the calendar year in which such Quarter occurs (after taking into
account the benefit of any deduction allowable for federal income tax purposes
with respect to the payment of state and local income taxes), but only to the
extent of the increase in such rates resulting from such legislation or
interpretation. Such effective overall state and local income tax rate shall be
determined for the taxable year next preceding the first taxable year during
which the Partnership, the Intermediate Partnership or the Operating Subsidiary
is taxable for federal income tax purposes as an association taxable as a
corporation or is otherwise subject to entity-level taxation by determining such
rate as if the Partnership, the Intermediate Partnership or the Operating
Subsidiary had been subject to such state and local taxes during such preceding
taxable year.
ARTICLE VII
MANAGEMENT AND OPERATION OF BUSINESS
SECTION 7.1 Management.
(a) The Managing General Partner shall conduct, direct and manage all
activities of the Partnership. Except as otherwise expressly provided in this
Agreement, all management powers over the business and affairs of the
Partnership shall be exclusively vested in the Managing General Partner, and
neither the Special General Partner nor any Limited Partner or Assignee shall
have any management power over the business and affairs of the Partnership. In
addition to the powers now or hereafter granted a general partner of a limited
partnership under applicable law or which are granted to the Managing General
Partner under any other provision of this Agreement, the Managing General
Partner, subject to Section 7.3, shall have full power and authority to do all
things and on such terms as it, in its sole discretion, may deem necessary or
appropriate to conduct the business of the Partnership, to exercise all powers
set forth in Section 2.5 and to effectuate the purposes set forth in Section
2.4, including the following:
(i) the making of any expenditures, the lending or borrowing of money,
the assumption or guarantee of, or other contracting for, indebtedness and
other liabilities, the issuance of evidences of indebtedness, including
indebtedness that is convertible into Partnership Securities, and the
incurring of any other obligations;
(ii) the making of tax, regulatory and other filings, or rendering of
periodic or other reports to governmental or other agencies having
jurisdiction over the business or assets of the Partnership;
(iii) the acquisition, disposition, mortgage, pledge, encumbrance,
hypothecation or exchange of any or all of the assets of the Partnership or
the merger or other combination of the Partnership with or into another
Person (the matters described in this clause (iii) being subject, however,
to any prior approval that may be required by Section 7.3);
(iv) the use of the assets of the Partnership (including cash on hand)
for any purpose consistent with the terms of this Agreement, including the
financing of the conduct of the operations of the Partnership Group;
subject to Section 7.6(a), the lending of funds to other Persons (including
the Intermediate Partnership or the Operating Subsidiary); the repayment of
obligations of the Partnership Group and the making of capital
contributions to any member of the Partnership Group;
(v) the negotiation, execution and performance of any contracts,
conveyances or other instruments (including instruments that limit the
liability of the Partnership under contractual arrangements to all or
particular assets of the Partnership, with the other party to the contract
to have
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no recourse against the General Partners or their assets other than their
interest in the Partnership, even if same results in the terms of the
transaction being less favorable to the Partnership than would otherwise be
the case);
(vi) the distribution of Partnership cash;
(vii) the selection and dismissal of employees (including employees
having titles such as "president," "vice president," "secretary" and
"treasurer") and agents, outside attorneys, accountants, consultants and
contractors and the determination of their compensation and other terms of
employment or hiring;
(viii) the maintenance of such insurance for the benefit of the
Partnership Group and the Partners as it deems necessary or appropriate;
(ix) the formation of, or acquisition of an interest in, and the
contribution of property and the making of loans to, any further limited or
general partnerships, joint ventures, corporations, limited liability
companies or other relationships (including the acquisition of interests
in, and the contributions of property to, the Intermediate Partnership or
the Operating Subsidiary from time to time) subject to the restrictions set
forth in Section 2.4;
(x) the control of any matters affecting the rights and obligations of
the Partnership, including the bringing and defending of actions at law or
in equity and otherwise engaging in the conduct of litigation and the
incurring of legal expense and the settlement of claims and litigation;
(xi) the indemnification of any Person against liabilities and
contingencies to the extent permitted by law;
(xii) the entering into of listing agreements with any National
Securities Exchange and the delisting of some or all of the Limited Partner
Interests from, or requesting that trading be suspended on, any such
exchange (subject to any prior approval that may be required under Section
4.8);
(xiii) unless restricted or prohibited by Section 5.7, the purchase,
sale or other acquisition or disposition of Partnership Securities, or the
issuance of additional options, rights, warrants and appreciation rights
relating to Partnership Securities; and
(xiv) the undertaking of any action in connection with the
Partnership's participation in the Operating Subsidiary as a member.
(b) Notwithstanding any other provision of this Agreement, the Intermediate
Partnership Agreement, the Operating Subsidiary Agreement, the Delaware Act or
any applicable law, rule or regulation, each of the Partners and the Assignees
and each other Person who may acquire an interest in Partnership Securities
hereby (i) approves, ratifies and confirms the execution, delivery and
performance by the parties thereto of the Operating Subsidiary Agreement, the
Intermediate Partnership Agreement, the Underwriting Agreement, the Omnibus
Agreement, the Contribution Agreement, and the other agreements described in or
filed as exhibits to the Registration Statement that are related to the
transactions contemplated by the Registration Statement; (ii) agrees that the
Managing General Partner (on its own or through any officer of the Partnership)
is authorized to execute, deliver and perform the agreements referred to in
clause (i) of this sentence and the other agreements, acts, transactions and
matters described in or contemplated by the Registration Statement on behalf of
the Partnership without any further act, approval or vote of the Partners or the
Assignees or the other Persons who may acquire an interest in Partnership
Securities; and (iii) agrees that the execution, delivery or performance by the
General Partners, any Group Member or any Affiliate of any of them, of this
Agreement or any agreement authorized or permitted under this Agreement
(including the exercise by the Managing General Partner or any Affiliate of the
Managing General Partner of the rights accorded pursuant to Article XV), shall
not constitute a breach by the General Partners of any duty that the General
Partners may owe the Partnership or the Limited Partners or any other Persons
under this Agreement (or any other agreements) or of any duty stated or implied
by law or equity.
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SECTION 7.2 Certificate of Limited Partnership.
The Managing General Partner has caused the Certificate of Limited
Partnership to be filed with the Secretary of State of the State of Delaware as
required by the Delaware Act and shall use all reasonable efforts to cause to be
filed such other certificates or documents as may be determined by the Managing
General Partner in its sole discretion to be reasonable and necessary or
appropriate for the formation, continuation, qualification and operation of a
limited partnership (or a partnership in which the limited partners have limited
liability) in the State of Delaware or any other state in which the Partnership
may elect to do business or own property. To the extent that such action is
determined by the Managing General Partner in its sole discretion to be
reasonable and necessary or appropriate, the Managing General Partner shall file
amendments to and restatements of the Certificate of Limited Partnership and do
all things to maintain the Partnership as a limited partnership (or a
partnership or other entity in which the limited partners have limited
liability) under the laws of the State of Delaware or of any other state in
which the Partnership may elect to do business or own property. Subject to the
terms of Section 3.4(a), the Managing General Partner shall not be required,
before or after filing, to deliver or mail a copy of the Certificate of Limited
Partnership, any qualification document or any amendment thereto to any Limited
Partner.
SECTION 7.3 Restrictions on General Partners' Authority.
(a) The General Partners may not, without written approval of the specific
act by holders of all of the Outstanding Limited Partner Interests or by other
written instrument executed and delivered by holders of all of the Outstanding
Limited Partner Interests subsequent to the date of this Agreement, take any
action in contravention of this Agreement, including, except as otherwise
provided in this Agreement, (i) committing any act that would make it impossible
to carry on the ordinary business of the Partnership; (ii) possessing
Partnership property, or assigning any rights in specific Partnership property,
for other than a Partnership purpose; (iii) admitting a Person as a Partner;
(iv) amending this Agreement in any manner; or (v) transferring its interest as
a general partner of the Partnership.
(b) Except as provided in Articles XII and XIV, no General Partner may
sell, exchange or otherwise dispose of all or substantially all of the
Partnership's assets in a single transaction or a series of related transactions
(including by way of merger, consolidation or other combination) or approve on
behalf of the Partnership the sale, exchange or other disposition of all or
substantially all of the assets of the Intermediate Partnership and the
Operating Subsidiary, taken as a whole, without the approval of holders of a
Unit Majority; provided however that this provision shall not preclude or limit
the General Partners' ability to mortgage, pledge, hypothecate or grant a
security interest in all or substantially all of the assets of the Partnership,
the Intermediate Partnership or the Operating Subsidiary and shall not apply to
any forced sale of any or all of the assets of the Partnership, the Intermediate
Partnership or the Operating Subsidiary pursuant to the foreclosure of, or other
realization upon, any such encumbrance. Without the approval of holders of a
Unit Majority, the General Partners shall not, on behalf of the Partnership, (i)
consent to any amendment to the Intermediate Partnership Agreement or the
Operating Subsidiary Agreement or, except as expressly permitted by Section
7.9(d), take any action permitted to be taken by a partner of the Intermediate
Partnership or a member of the Operating Subsidiary, in either case, that would
have a material adverse effect on the Partnership as partner of the Intermediate
Partnership or a member of the Operating Subsidiary or (ii) except as permitted
under Sections 4.6, 11.1 and 11.2, elect or cause the Partnership to elect a
successor general partner of the Partnership or a successor general partner of
the Intermediate Partnership or a successor managing member of the Operating
Subsidiary.
SECTION 7.4 Reimbursement of the General Partners.
(a) Except as provided in this Section 7.4 and elsewhere in this Agreement,
the Intermediate Partnership Agreement or in the Operating Subsidiary Agreement,
the General Partners shall not be compensated for their services as general
partners or managing members of any Group Member.
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(b) Each of the General Partners shall be reimbursed on a monthly basis, or
such other reasonable basis as the Managing General Partner may determine in its
sole discretion, for (i) all direct and indirect expenses it incurs or payments
it makes on behalf of the Partnership (including salary, bonus, incentive
compensation and other amounts paid to any Person including Affiliates of such
General Partner to perform services for the Partnership or for such General
Partner in the discharge of its duties to the Partnership), and (ii) all other
necessary or appropriate expenses allocable to the Partnership or otherwise
reasonably incurred by such General Partner in connection with operating the
Partnership's business (including expenses allocated to such General Partner by
its Affiliates). The Managing General Partner shall determine the expenses that
are allocable to the Partnership in any reasonable manner determined by the
Managing General Partner in its sole discretion. Reimbursements pursuant to this
Section 7.4 shall be in addition to any reimbursement to the General Partners as
a result of indemnification pursuant to Section 7.7.
(c) Subject to Section 5.7, the Managing General Partner, in its sole
discretion and without the approval of the Limited Partners (who shall have no
right to vote in respect thereof), may propose and adopt on behalf of the
Partnership employee benefit plans, employee programs and employee practices
(including plans, programs and practices involving the issuance of Partnership
Securities or options to purchase Partnership Securities), or cause the
Partnership to issue Partnership Securities in connection with, or pursuant to,
any employee benefit plan, employee program or employee practice maintained or
sponsored by either of the General Partners or one of its Affiliates, in each
case for the benefit of employees of either of the General Partners, any Group
Member or any Affiliate, or any of them, in respect of services performed,
directly or indirectly, for the benefit of the Partnership Group. The
Partnership agrees to issue and sell to the General Partners or any of their
Affiliates any Partnership Securities that the General Partners or such
Affiliates are obligated to provide to any employees pursuant to any such
employee benefit plans, employee programs or employee practices. Expenses
incurred by the General Partners in connection with any such plans, programs and
practices (including the net cost to the General Partners or such Affiliates of
Partnership Securities purchased by the General Partners or such Affiliates from
the Partnership to fulfill options or awards under such plans, programs and
practices) shall be reimbursed in accordance with Section 7.4(b). Any and all
obligations of the General Partners under any employee benefit plans, employee
programs or employee practices adopted by the Managing General Partner as
permitted by this Section 7.4(c) shall constitute obligations of the General
Partners hereunder and shall be assumed by any successor General Partner
approved pursuant to Section 11.1, 11.2 or 11.4 or the transferee of or
successor to all of the Managing General Partner's General Partner Interest or
the Special General Partner's General Partner Interest pursuant to Section 4.6.
SECTION 7.5 Outside Activities.
(a) After the Closing Date, the Managing General Partner, for so long as it
is a General Partner of the Partnership (i) agrees that its sole business will
be to act as a general partner or managing member, as the case may be, of the
Partnership, the Intermediate Partnership, the Operating Subsidiary, and any
other partnership or limited liability company of which the Partnership, the
Intermediate Partnership or the Operating Subsidiary is, directly or indirectly,
a partner and to undertake activities that are ancillary or related thereto
(including being a limited partner in the Partnership), (ii) shall not engage in
any business or activity or incur any debts or liabilities except in connection
with or incidental to (A) its performance as general partner of one or more
Group Members or as described in or contemplated by the Registration Statement
or (B) the acquiring, owning or disposing of debt or equity securities in any
Group Member and (iii) except to the extent permitted in the Omnibus Agreement,
shall not, and shall cause its Affiliates not to, engage in any Restricted
Business.
(b) Alliance Resource Holdings, Inc. has entered into the Omnibus Agreement
with the Partnership, the Intermediate Partnership and the Operating Subsidiary,
which agreement sets forth certain restrictions on the ability of Alliance
Resource Holdings, Inc. and its Affiliates to engage in Restricted Businesses.
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(c) Except as specifically restricted by Section 7.5(a) and the Omnibus
Agreement, each Indemnitee (other than the Managing General Partner) shall have
the right to engage in businesses of every type and description and other
activities for profit and to engage in and possess an interest in other business
ventures of any and every type or description, whether in businesses engaged in
or anticipated to be engaged in by any Group Member, independently or with
others, including business interests and activities in direct competition with
the business and activities of any Group Member, and none of the same shall
constitute a breach of this Agreement or any duty express or implied by law to
any Group Member or any Partner or Assignee. Neither any Group Member, any
Limited Partner nor any other Person shall have any rights by virtue of this
Agreement, the Operating Subsidiary Agreement or the partnership relationship
established hereby or thereby in any business ventures of any Indemnitee.
(d) Subject to the terms of Section 7.5(a), Section 7.5(b), Section 7.5(c)
and the Omnibus Agreement, but otherwise notwithstanding anything to the
contrary in this Agreement, (i) the engaging in competitive activities by any
Indemnitees (other than the Managing General Partner) in accordance with the
provisions of this Section 7.5 is hereby approved by the Partnership and all
Partners, (ii) it shall be deemed not to be a breach of the General Partners'
fiduciary duties or any other obligation of any type whatsoever of the General
Partners for the Indemnitees (other than the Managing General Partner) to engage
in such business interests and activities in preference to or to the exclusion
of the Partnership and (iii) except as set forth in the Omnibus Agreement, the
General Partners and the Indemnitees shall have no obligation to present
business opportunities to the Partnership.
(e) The General Partners and any of their Affiliates may acquire Units or
other Partnership Securities in addition to those acquired on the Closing Date
and, except as otherwise provided in this Agreement, shall be entitled to
exercise all rights of a General Partner or Limited Partner, as applicable,
relating to such Units or Partnership Securities.
(f) The term "Affiliates" when used in Section 7.5(a) and Section 7.5(e)
with respect to the General Partners shall not include any Group Member or any
Subsidiary of the Group Member.
(g) Anything in this Agreement to the contrary notwithstanding, to the
extent that provisions of Sections 7.7, 7.8, 7.9, 7.10 or other Sections of this
Agreement purport or are interpreted to have the effect of restricting the
fiduciary duties that might otherwise, as a result of Delaware or other
applicable law, be owed by the General Partners to the Partnership and its
Limited Partners, or to constitute a waiver or consent by the Limited Partners
to any such restriction, such provisions shall be inapplicable and have no
effect in determining whether the General Partners have complied with their
fiduciary duties in connection with determinations made by them under this
Section 7.5.
SECTION 7.6 Loans from the General Partners; Loans or Contributions from the
Partnership; Contracts with Affiliates; Certain Restrictions on the
General Partners.
(a) Each of the General Partners or any of their Affiliates may lend to any
Group Member, and any Group Member may borrow from a General Partner or any of
its Affiliates, funds needed or desired by the Group Member for such periods of
time and in such amounts as the Managing General Partner may determine;
provided, however, that in any such case the lending party may not charge the
borrowing party interest at a rate greater than the rate that would be charged
the borrowing party or impose terms less favorable to the borrowing party than
would be charged or imposed on the borrowing party by unrelated lenders on
comparable loans made on an arm's-length basis (without reference to the lending
party's financial abilities or guarantees). The borrowing party shall reimburse
the lending party for any costs (other than any additional interest costs)
incurred by the lending party in connection with the borrowing of such funds.
For purposes of this Section 7.6(a) and Section 7.6(b), the term "Group Member"
shall include any Affiliate of a Group Member that is controlled by the Group
Member. No Group Member may lend funds to a General Partner or any of its
Affiliates (other than another Group Member).
(b) The Partnership may lend or contribute to any Group Member, and any
Group Member may borrow from the Partnership, funds on terms and conditions
established in the sole discretion of the Managing General Partner; provided,
however, that the Partnership may not charge the Group Member
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interest at a rate less than the rate that would be charged to the Group Member
(without reference to the Managing General Partner's financial abilities or
guarantees) by unrelated lenders on comparable loans. The foregoing authority
shall be exercised by the Managing General Partner in its sole discretion and
shall not create any right or benefit in favor of any Group Member or any other
Person.
(c) The General Partners may, or may enter into an agreement with any of
their Affiliates to, render services to a Group Member or to the General
Partners in the discharge of their duties as general partners of the
Partnership. Any services rendered to a Group Member by the General Partners or
any of their Affiliates shall be on terms that are fair and reasonable to the
Partnership; provided, however, that the requirements of this Section 7.6(c)
shall be deemed satisfied as to (i) any transaction approved by Special
Approval, (ii) any transaction, the terms of which are no less favorable to the
Partnership Group than those generally being provided to or available from
unrelated third parties or (iii) any transaction that, taking into account the
totality of the relationships between the parties involved (including other
transactions that may be particularly favorable or advantageous to the
Partnership Group), is equitable to the Partnership Group. The provisions of
Section 7.4 shall apply to the rendering of services described in this Section
7.6(c).
(d) The Partnership Group may transfer assets to joint ventures, other
partnerships, corporations, limited liability companies or other business
entities in which it is or thereby becomes a participant upon such terms and
subject to such conditions as are consistent with this Agreement and applicable
law.
(e) Neither of the General Partners nor any of their Affiliates shall sell,
transfer or convey any property to, or purchase any property from, the
Partnership, directly or indirectly, except pursuant to transactions that are
fair and reasonable to the Partnership; provided, however, that the requirements
of this Section 7.6(e) shall be deemed to be satisfied as to (i) the
transactions effected pursuant to Sections 5.2 and 5.3, the Contribution
Agreement and any other transactions described in or contemplated by the
Registration Statement, (ii) any transaction approved by Special Approval, (iii)
any transaction, the terms of which are no less favorable to the Partnership
than those generally being provided to or available from unrelated third
parties, or (iv) any transaction that, taking into account the totality of the
relationships between the parties involved (including other transactions that
may be particularly favorable or advantageous to the Partnership), is equitable
to the Partnership. With respect to any contribution of assets to the
Partnership in exchange for Partnership Securities, the Conflicts Committee, in
determining whether the appropriate number of Partnership Securities are being
issued, may take into account, among other things, the fair market value of the
assets, the liquidated and contingent liabilities assumed, the tax basis in the
assets, the extent to which tax-only allocations to the transferor will protect
the existing partners of the Partnership against a low tax basis, and such other
factors as the Conflicts Committee deems relevant under the circumstances.
(f) The General Partners and their Affiliates will have no obligation to
permit any Group Member to use any facilities or assets of the General Partners
and their Affiliates, except as may be provided in contracts entered into from
time to time specifically dealing with such use, nor shall there be any
obligation on the part of the General Partners or their Affiliates to enter into
such contracts.
(g) Without limitation of Sections 7.6(a) through 7.6(f), and
notwithstanding anything to the contrary in this Agreement, the existence of the
conflicts of interest described in the Registration Statement are hereby
approved by all Partners.
SECTION 7.7 Indemnification.
(a) To the fullest extent permitted by law but subject to the limitations
expressly provided in this Agreement, all Indemnitees shall be indemnified and
held harmless by the Partnership from and against any and all losses, claims,
damages, liabilities, joint or several, expenses (including legal fees and
expenses), judgments, fines, penalties, interest, settlements or other amounts
arising from any and all claims, demands, actions, suits or proceedings, whether
civil, criminal, administrative or investigative, in which any Indemnitee may be
involved, or is threatened to be involved, as a party or otherwise, by reason of
its status as an Indemnitee; provided, that in each case the Indemnitee acted in
good faith and in a
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manner that such Indemnitee reasonably believed to be in, or (in the case of a
Person other than the General Partners) not opposed to, the best interests of
the Partnership and, with respect to any criminal proceeding, had no reasonable
cause to believe its conduct was unlawful; provided, further, no indemnification
pursuant to this Section 7.7 shall be available to the General Partners with
respect to their obligations incurred pursuant to the Underwriting Agreement or
the Contribution Agreement (other than obligations incurred by the General
Partners on behalf of the Partnership, the Intermediate Partnership or the
Operating Subsidiary). The termination of any action, suit or proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere, or
its equivalent, shall not create a presumption that the Indemnitee acted in a
manner contrary to that specified above. Any indemnification pursuant to this
Section 7.7 shall be made only out of the assets of the Partnership, it being
agreed that the General Partners shall not be personally liable for such
indemnification and shall have no obligation to contribute or loan any monies or
property to the Partnership to enable it to effectuate such indemnification.
(b) To the fullest extent permitted by law, expenses (including legal fees
and expenses) incurred by an Indemnitee who is indemnified pursuant to Section
7.7(a) in defending any claim, demand, action, suit or proceeding shall, from
time to time, be advanced by the Partnership prior to the final disposition of
such claim, demand, action, suit or proceeding upon receipt by the Partnership
of any undertaking by or on behalf of the Indemnitee to repay such amount if it
shall be determined that the Indemnitee is not entitled to be indemnified as
authorized in this Section 7.7.
(c) The indemnification provided by this Section 7.7 shall be in addition
to any other rights to which an Indemnitee may be entitled under any agreement,
pursuant to any vote of the holders of Outstanding Limited Partner Interests, as
a matter of law or otherwise, both as to actions in the Indemnitee's capacity as
an Indemnitee and as to actions in any other capacity (including any capacity
under the Underwriting Agreement), and shall continue as to an Indemnitee who
has ceased to serve in such capacity and shall inure to the benefit of the
heirs, successors, assigns and administrators of the Indemnitee.
(d) The Partnership may purchase and maintain (or reimburse the General
Partners or their Affiliates for the cost of) insurance, on behalf of the
General Partners, their Affiliates and such other Persons as the Managing
General Partner shall determine, against any liability that may be asserted
against or expense that may be incurred by such Person in connection with the
Partnership's activities or such Person's activities on behalf of the
Partnership, regardless of whether the Partnership would have the power to
indemnify such Person against such liability under the provisions of this
Agreement.
(e) For purposes of this Section 7.7, the Partnership shall be deemed to
have requested an Indemnitee to serve as fiduciary of an employee benefit plan
whenever the performance by it of its duties to the Partnership also imposes
duties on, or otherwise involves services by, it to the plan or participants or
beneficiaries of the plan; excise taxes assessed on an Indemnitee with respect
to an employee benefit plan pursuant to applicable law shall constitute "fines"
within the meaning of Section 7.7(a); and action taken or omitted by it with
respect to any employee benefit plan in the performance of its duties for a
purpose reasonably believed by it to be in the interest of the participants and
beneficiaries of the plan shall be deemed to be for a purpose which is in, or
not opposed to, the best interests of the Partnership.
(f) In no event may an Indemnitee subject the Limited Partners to personal
liability by reason of the indemnification provisions set forth in this
Agreement.
(g) An Indemnitee shall not be denied indemnification in whole or in part
under this Section 7.7 because the Indemnitee had an interest in the transaction
with respect to which the indemnification applies if the transaction was
otherwise permitted by the terms of this Agreement.
(h) The provisions of this Section 7.7 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons.
(i) No amendment, modification or repeal of this Section 7.7 or any
provision hereof shall in any manner terminate, reduce or impair the right of
any past, present or future Indemnitee to be indemnified
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by the Partnership, nor the obligations of the Partnership to indemnify any such
Indemnitee under and in accordance with the provisions of this Section 7.7 as in
effect immediately prior to such amendment, modification or repeal with respect
to claims arising from or relating to matters occurring, in whole or in part,
prior to such amendment, modification or repeal, regardless of when such claims
may arise or be asserted.
SECTION 7.8 Liability of Indemnitees.
(a) Notwithstanding anything to the contrary set forth in this Agreement,
no Indemnitee shall be liable for monetary damages to the Partnership, the
Limited Partners, the Assignees or any other Persons who have acquired interests
in the Partnership Securities, for losses sustained or liabilities incurred as a
result of any act or omission if such Indemnitee acted in good faith.
(b) Subject to its obligations and duties as Managing General Partner set
forth in Section 7.1(a), the Managing General Partner may exercise any of the
powers granted to it by this Agreement and perform any of the duties imposed
upon it hereunder either directly or by or through its agents, and the Managing
General Partner shall not be responsible for any misconduct or negligence on the
part of any such agent appointed by the Managing General Partner in good faith.
(c) To the extent that, at law or in equity, an Indemnitee has duties
(including fiduciary duties) and liabilities relating thereto to the Partnership
or to the Partners, the General Partners and any other Indemnitee acting in
connection with the Partnership's business or affairs shall not be liable to the
Partnership or to any Partner for its good faith reliance on the provisions of
this Agreement. The provisions of this Agreement, to the extent that they
restrict or otherwise modify the duties and liabilities of an Indemnitee
otherwise existing at law or in equity, are agreed by the Partners to replace
such other duties and liabilities of such Indemnitee.
(d) Any amendment, modification or repeal of this Section 7.8 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the liability to the Partnership, the Limited Partners, the
General Partners, and the Partnership's and General Partners' directors,
officers and employees under this Section 7.8 as in effect immediately prior to
such amendment, modification or repeal with respect to claims arising from or
relating to matters occurring, in whole or in part, prior to such amendment,
modification or repeal, regardless of when such claims may arise or be asserted.
SECTION 7.9 Resolution of Conflicts of Interest.
(a) Unless otherwise expressly provided in this Agreement, the Intermediate
Partnership Agreement or the Operating Subsidiary Agreement, whenever a
potential conflict of interest exists or arises between a General Partner or any
of its Affiliates, on the one hand, and the Partnership, the Intermediate
Partnership, the Operating Subsidiary, any Partner or any Assignee, on the
other, any resolution or course of action by a General Partner or its Affiliates
in respect of such conflict of interest shall be permitted and deemed approved
by all Partners, and shall not constitute a breach of this Agreement, of the
Intermediate Partnership Agreement, of the Operating Subsidiary Agreement, of
any agreement contemplated herein or therein, or of any duty stated or implied
by law or equity, if the resolution or course of action is, or by operation of
this Agreement is deemed to be, fair and reasonable to the Partnership. The
Managing General Partner shall be authorized but not required in connection with
its resolution of such conflict of interest to seek Special Approval of such
resolution. Any conflict of interest and any resolution of such conflict of
interest shall be conclusively deemed fair and reasonable to the Partnership if
such conflict of interest or resolution is (i) approved by Special Approval (as
long as the material facts known to the Managing General Partner or any of its
Affiliates regarding any proposed transaction were disclosed to the Conflicts
Committee at the time it gave its approval), (ii) on terms no less favorable to
the Partnership than those generally being provided to or available from
unrelated third parties or (iii) fair to the Partnership, taking into account
the totality of the relationships between the parties involved (including other
transactions that may be particularly favorable or advantageous to the
Partnership). The Managing General Partner may also adopt a resolution or course
of action that has not received Special Approval.
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The Managing General Partner (including the Conflicts Committee in connection
with Special Approval) shall be authorized in connection with its determination
of what is "fair and reasonable" to the Partnership and in connection with its
resolution of any conflict of interest to consider (A) the relative interests of
any party to such conflict, agreement, transaction or situation and the benefits
and burdens relating to such interest; (B) any customary or accepted industry
practices and any customary or historical dealings with a particular Person; (C)
any applicable generally accepted accounting practices or principles; and (D)
such additional factors as the Managing General Partner (including the Conflicts
Committee) determines in its sole discretion to be relevant, reasonable or
appropriate under the circumstances. Nothing contained in this Agreement,
however, is intended to nor shall it be construed to require the Managing
General Partner (including the Conflicts Committee) to consider the interests of
any Person other than the Partnership. In the absence of bad faith by the
Managing General Partner, the resolution, action or terms so made, taken or
provided by the Managing General Partner with respect to such matter shall not
constitute a breach of this Agreement or any other agreement contemplated herein
or a breach of any standard of care or duty imposed herein or therein or, to the
extent permitted by law, under the Delaware Act or any other law, rule or
regulation.
(b) Whenever this Agreement or any other agreement contemplated hereby
provides that the Managing General Partner or any of its Affiliates is permitted
or required to make a decision (i) in its "sole discretion" or "discretion,"
that it deems "necessary or appropriate" or "necessary or advisable" or under a
grant of similar authority or latitude, except as otherwise provided herein, the
Managing General Partner or such Affiliate shall be entitled to consider only
such interests and factors as it desires and shall have no duty or obligation to
give any consideration to any interest of, or factors affecting, the
Partnership, the Intermediate Partnership, the Operating Subsidiary, any Limited
Partner or any Assignee, (ii) it may make such decision in its sole discretion
(regardless of whether there is a reference to "sole discretion" or
"discretion") unless another express standard is provided for, or (iii) in "good
faith" or under another express standard, the Managing General Partner or such
Affiliate shall act under such express standard and shall not be subject to any
other or different standards imposed by this Agreement, the Intermediate
Partnership Agreement, the Operating Subsidiary Agreement, any other agreement
contemplated hereby or under the Delaware Act or any other law, rule or
regulation. In addition, any actions taken by the Managing General Partner or
such Affiliate consistent with the standards of "reasonable discretion" set
forth in the definitions of Available Cash or Operating Surplus shall not
constitute a breach of any duty of the Managing General Partner to the
Partnership or the Limited Partners. The Managing General Partner shall have no
duty, express or implied, to sell or otherwise dispose of any asset of the
Partnership Group other than in the ordinary course of business. No borrowing by
any Group Member or the approval thereof by the Managing General Partner shall
be deemed to constitute a breach of any duty of the Managing General Partner to
the Partnership or the Limited Partners by reason of the fact that the purpose
or effect of such borrowing is directly or indirectly to (A) enable
distributions to the General Partners or their Affiliates (including in their
capacities as Limited Partners) to exceed 1% of the total amount distributed to
all partners or (B) hasten the expiration of the Subordination Period or the
conversion of any Subordinated Units into Common Units.
(c) Whenever a particular transaction, arrangement or resolution of a
conflict of interest is required under this Agreement to be "fair and
reasonable" to any Person, the fair and reasonable nature of such transaction,
arrangement or resolution shall be considered in the context of all similar or
related transactions.
(d) The Unitholders hereby authorize the Managing General Partner, on
behalf of the Partnership as a partner of a Group Member, to approve of actions
by the general partner of such Group Member similar to those actions permitted
to be taken by the Managing General Partner pursuant to this Section 7.9.
SECTION 7.10 Other Matters Concerning the General Partners.
(a) A General Partner may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond,
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debenture or other paper or document believed by it to be genuine and to have
been signed or presented by the proper party or parties.
(b) A General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers and other consultants and
advisers selected by it, and any act taken or omitted to be taken in reliance
upon the opinion (including an Opinion of Counsel) of such Persons as to matters
that such General Partner reasonably believes to be within such Person's
professional or expert competence shall be conclusively presumed to have been
done or omitted in good faith and in accordance with such opinion.
(c) A General Partner shall have the right, in respect of any of its powers
or obligations hereunder, to act through any of its duly authorized officers, a
duly appointed attorney or attorneys-in-fact or the duly authorized officers of
the Partnership.
(d) Any standard of care and duty imposed by this Agreement or under the
Delaware Act or any applicable law, rule or regulation shall be modified, waived
or limited, to the extent permitted by law, as required to permit the General
Partners to act under this Agreement or any other agreement contemplated by this
Agreement and to make any decision pursuant to the authority prescribed in this
Agreement, so long as such action is reasonably believed by the Managing General
Partner to be in, or not inconsistent with, the best interests of the
Partnership.
SECTION 7.11 Purchase or Sale of Partnership Securities.
The Managing General Partner may cause the Partnership to purchase or
otherwise acquire Partnership Securities; provided that, except as permitted
pursuant to Section 4.10, the Managing General Partner may not cause any Group
Member to purchase Subordinated Units during the Subordination Period. As long
as Partnership Securities are held by any Group Member, such Partnership
Securities shall not be considered Outstanding for any purpose, except as
otherwise provided herein. The General Partners or any of their Affiliates may
also purchase or otherwise acquire and sell or otherwise dispose of Partnership
Securities for their own account, subject to the provisions of Articles IV and
X.
SECTION 7.12 Registration Rights of the General Partners and their Affiliates.
(a) If (i) either of the General Partners or any Affiliate of either of the
General Partners (including for purposes of this Section 7.12, any Person that
is an Affiliate of either of the General Partners at the date hereof
notwithstanding that it may later cease to be an Affiliate of either of the
General Partners) holds Partnership Securities that it desires to sell and (ii)
Rule 144 of the Securities Act (or any successor rule or regulation to Rule 144)
or another exemption from registration is not available to enable such holder of
Partnership Securities (the "Holder") to dispose of the number of Partnership
Securities it desires to sell at the time it desires to do so without
registration under the Securities Act, then upon the request of such General
Partner or any of its Affiliates, the Partnership shall file with the Commission
as promptly as practicable after receiving such request, and use all reasonable
efforts to cause to become effective and remain effective for a period of not
less than six months following its effective date or such shorter period as
shall terminate when all Partnership Securities covered by such registration
statement have been sold, a registration statement under the Securities Act
registering the offering and sale of the number of Partnership Securities
specified by the Holder; provided, however, that the Partnership shall not be
required to effect more than three registrations pursuant to this Section
7.12(a); and provided further, however, that if the Conflicts Committee
determines in its good faith judgment that a postponement of the requested
registration for up to six months would be in the best interests of the
Partnership and its Partners due to a pending transaction, investigation or
other event, the filing of such registration statement or the effectiveness
thereof may be deferred for up to six months, but not thereafter. In connection
with any registration pursuant to the immediately preceding sentence, the
Partnership shall promptly prepare and file (x) such documents as may be
necessary to register or qualify the securities subject to such registration
under the securities laws of such states as the Holder shall reasonably request;
provided, however, that no such qualification shall be required in any
jurisdiction where, as a result thereof, the
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Partnership would become subject to general service of process or to taxation or
qualification to do business as a foreign corporation or partnership doing
business in such jurisdiction solely as a result of such registration, and (y)
such documents as may be necessary to apply for listing or to list the
Partnership Securities subject to such registration on such National Securities
Exchange as the Holder shall reasonably request, and do any and all other acts
and things that may reasonably be necessary or advisable to enable the Holder to
consummate a public sale of such Partnership Securities in such states. Except
as set forth in Section 7.12(c), all costs and expenses of any such registration
and offering (other than the underwriting discounts and commissions) shall be
paid by the Partnership, without reimbursement by the Holder.
(b) If the Partnership shall at any time propose to file a registration
statement under the Securities Act for an offering of equity securities of the
Partnership for cash (other than an offering relating solely to an employee
benefit plan), the Partnership shall use all reasonable efforts to include such
number or amount of securities held by the Holder in such registration statement
as the Holder shall request. If the proposed offering pursuant to this Section
7.12(b) shall be an underwritten offering, then, in the event that the managing
underwriter or managing underwriters of such offering advise the Partnership and
the Holder in writing that in their opinion the inclusion of all or some of the
Holder's Partnership Securities would adversely and materially affect the
success of the offering, the Partnership shall include in such offering only
that number or amount, if any, of securities held by the Holder which, in the
opinion of the managing underwriter or managing underwriters, will not so
adversely and materially affect the offering. Except as set forth in Section
7.12(c), all costs and expenses of any such registration and offering (other
than the underwriting discounts and commissions) shall be paid by the
Partnership, without reimbursement by the Holder.
(c) If underwriters are engaged in connection with any registration
referred to in this Section 7.12, the Partnership shall provide indemnification,
representations, covenants, opinions and other assurance to the underwriters in
form and substance reasonably satisfactory to such underwriters. Further, in
addition to and not in limitation of the Partnership's obligation under Section
7.7, the Partnership shall, to the fullest extent permitted by law, indemnify
and hold harmless the Holder, its officers, directors and each Person who
controls the Holder (within the meaning of the Securities Act) and any agent
thereof (collectively, "Indemnified Persons") against any losses, claims,
demands, actions, causes of action, assessments, damages, liabilities (joint or
several), costs and expenses (including interest, penalties and reasonable
attorneys' fees and disbursements), resulting to, imposed upon, or incurred by
the Indemnified Persons, directly or indirectly, under the Securities Act or
otherwise (hereinafter referred to in this Section 7.12(c) as a "claim" and in
the plural as "claims") based upon, arising out of or resulting from any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement under which any Partnership Securities were registered
under the Securities Act or any state securities or Blue Sky laws, in any
preliminary prospectus (if used prior to the effective date of such registration
statement), or in any summary or final prospectus or in any amendment or
supplement thereto (if used during the period the Partnership is required to
keep the registration statement current), or arising out of, based upon or
resulting from the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements made therein
not misleading; provided, however, that the Partnership shall not be liable to
any Indemnified Person to the extent that any such claim arises out of, is based
upon or results from an untrue statement or alleged untrue statement or omission
or alleged omission made in such registration statement, such preliminary,
summary or final prospectus or such amendment or supplement, in reliance upon
and in conformity with written information furnished to the Partnership by or on
behalf of such Indemnified Person specifically for use in the preparation
thereof.
(d) The provisions of Section 7.12(a) and 7.12(b) shall continue to be
applicable with respect to the General Partners (and any of the General
Partners' Affiliates) after they cease to be Partners of the Partnership, during
a period of two years subsequent to the effective date of such cessation and for
so long thereafter as is required for the Holder to sell all of the Partnership
Securities with respect to which it has requested during such two-year period
inclusion in a registration statement otherwise filed or that a registration
statement be filed; provided, however, that the Partnership shall not be
required to file
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successive registration statements covering the same Partnership Securities for
which registration was demanded during such two-year period. The provisions of
Section 7.12(c) shall continue in effect thereafter.
(e) Any request to register Partnership Securities pursuant to this Section
7.12 shall (i) specify the Partnership Securities intended to be offered and
sold by the Person making the request, (ii) express such Person's present intent
to offer such shares for distribution, (iii) describe the nature or method of
the proposed offer and sale of Partnership Securities, and (iv) contain the
undertaking of such Person to provide all such information and materials and
take all action as may be required in order to permit the Partnership to comply
with all applicable requirements in connection with the registration of such
Partnership Securities.
SECTION 7.13 Reliance by Third Parties.
Notwithstanding anything to the contrary in this Agreement, any Person
dealing with the Partnership shall be entitled to assume that the Managing
General Partner and any officer of the Managing General Partner authorized by
the Managing General Partner to act on behalf of and in the name of the
Partnership has full power and authority to encumber, sell or otherwise use in
any manner any and all assets of the Partnership and to enter into any
authorized contracts on behalf of the Partnership, and such Person shall be
entitled to deal with the Managing General Partner or any such officer as if it
were the Partnership's sole party in interest, both legally and beneficially.
Each Limited Partner hereby waives any and all defenses or other remedies that
may be available against such Person to contest, negate or disaffirm any action
of the Managing General Partner or any such officer in connection with any such
dealing. In no event shall any Person dealing with the Managing General Partner
or any such officer or its representatives be obligated to ascertain that the
terms of the Agreement have been complied with or to inquire into the necessity
or expedience of any act or action of the Managing General Partner or any such
officer or its representatives. Each and every certificate, document or other
instrument executed on behalf of the Partnership by the Managing General Partner
or its representatives shall be conclusive evidence in favor of any and every
Person relying thereon or claiming thereunder that (a) at the time of the
execution and delivery of such certificate, document or instrument, this
Agreement was in full force and effect, (b) the Person executing and delivering
such certificate, document or instrument was duly authorized and empowered to do
so for and on behalf of the Partnership and (c) such certificate, document or
instrument was duly executed and delivered in accordance with the terms and
provisions of this Agreement and is binding upon the Partnership.
ARTICLE VIII
BOOKS, RECORDS, ACCOUNTING AND REPORTS
SECTION 8.1 Records and Accounting.
The Managing General Partner shall keep or cause to be kept at the
principal office of the Partnership appropriate books and records with respect
to the Partnership's business, including all books and records necessary to
provide to the Limited Partners any information required to be provided pursuant
to Section 3.4(a). Any books and records maintained by or on behalf of the
Partnership in the regular course of its business, including the record of the
Record Holders and Assignees of Units or other Partnership Securities, books of
account and records of Partnership proceedings, may be kept on, or be in the
form of, computer disks, hard drives, punch cards, magnetic tape, photographs,
micrographics or any other information storage device; provided, that the books
and records so maintained are convertible into clearly legible written form
within a reasonable period of time. The books of the Partnership shall be
maintained, for financial reporting purposes, on an accrual basis in accordance
with U.S. GAAP.
SECTION 8.2 Fiscal Year.
The fiscal year of the Partnership shall be a fiscal year ending December
31.
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SECTION 8.3 Reports.
(a) As soon as practicable, but in no event later than 120 days after the
close of each fiscal year of the Partnership, the Managing General Partner shall
cause to be mailed or made available to each Record Holder of a Unit as of a
date selected by the Managing General Partner in its discretion, an annual
report containing financial statements of the Partnership for such fiscal year
of the Partnership, presented in accordance with U.S. GAAP, including a balance
sheet and statements of operations, Partnership equity and cash flows, such
statements to be audited by a firm of independent public accountants selected by
the Managing General Partner.
(b) As soon as practicable, but in no event later than 90 days after the
close of each Quarter except the last Quarter of each fiscal year, the Managing
General Partner shall cause to be mailed or made available to each Record Holder
of a Unit, as of a date selected by the Managing General Partner in its
discretion, a report containing unaudited financial statements of the
Partnership and such other information as may be required by applicable law,
regulation or rule of any National Securities Exchange on which the Units are
listed for trading, or as the Managing General Partner determines to be
necessary or appropriate.
ARTICLE IX
TAX MATTERS
SECTION 9.1 Tax Returns and Information.
The Partnership shall timely file all returns of the Partnership that are
required for federal, state and local income tax purposes on the basis of the
accrual method and a taxable year ending on December 31. The tax information
reasonably required by Record Holders for federal and state income tax reporting
purposes with respect to a taxable year shall be furnished to them within 90
days of the close of the calendar year in which the Partnership's taxable year
ends. The classification, realization and recognition of income, gain, losses
and deductions and other items shall be on the accrual method of accounting for
federal income tax purposes.
SECTION 9.2 Tax Elections.
(a) The Partnership shall make the election under Section 754 of the Code
in accordance with applicable regulations thereunder, subject to the reservation
of the right to seek to revoke any such election upon the Managing General
Partner's determination that such revocation is in the best interests of the
Limited Partners. Notwithstanding any other provision herein contained, for the
purposes of computing the adjustments under Section 743(b) of the Code, the
Managing General Partner shall be authorized (but not required) to adopt a
convention whereby the price paid by a transferee of a Limited Partner Interest
will be deemed to be the lowest quoted closing price of the Limited Partner
Interests on any National Securities Exchange on which such Limited Partner
Interests are traded during the calendar month in which such transfer is deemed
to occur pursuant to Section 6.2(g) without regard to the actual price paid by
such transferee.
(b) The Partnership shall elect to deduct expenses incurred in organizing
the Partnership ratably over a sixty-month period as provided in Section 709 of
the Code.
(c) Except as otherwise provided herein, the Managing General Partner shall
determine whether the Partnership should make any other elections permitted by
the Code.
SECTION 9.3 Tax Controversies.
Subject to the provisions hereof, the Managing General Partner is
designated as the Tax Matters Partner (as defined in the Code) and is authorized
and required to represent the Partnership (at the Partnership's expense) in
connection with all examinations of the Partnership's affairs by tax
authorities, including resulting administrative and judicial proceedings, and to
expend Partnership funds for
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professional services and costs associated therewith. Each Partner agrees to
cooperate with the Managing General Partner and to do or refrain from doing any
or all things reasonably required by the Managing General Partner to conduct
such proceedings.
SECTION 9.4 Withholding.
Notwithstanding any other provision of this Agreement, the Managing General
Partner is authorized to take any action that it determines in its discretion to
be necessary or appropriate to cause the Partnership, the Intermediate
Partnership and the Operating Subsidiary to comply with any withholding
requirements established under the Code or any other federal, state or local law
including, without limitation, pursuant to Sections 1441, 1442, 1445 and 1446 of
the Code. To the extent that the Partnership is required or elects to withhold
and pay over to any taxing authority any amount resulting from the allocation or
distribution of income to any Partner or Assignee (including, without
limitation, by reason of Section 1446 of the Code), the amount withheld may at
the discretion of the Managing General Partner be treated by the Partnership as
a distribution of cash pursuant to Section 6.3 in the amount of such withholding
from such Partner.
ARTICLE X
ADMISSION OF PARTNERS
SECTION 10.1 Admission of Initial Limited Partners.
Upon the issuance by the Partnership of Common Units, Subordinated Units
and Incentive Distribution Rights to the General Partners as described in
Section 5.2, each General Partner shall be deemed to have been admitted to the
Partnership as a Limited Partner in respect of the Common Units, Subordinated
Units or Incentive Distribution Rights issued to it. Upon the issuance by the
Partnership of Common Units to the Underwriters as described in Section 5.3 in
connection with the Initial Offering and the execution by each Underwriter of a
Transfer Application, the Managing General Partner shall admit the Underwriters
to the Partnership as Initial Limited Partners in respect of the Common Units
purchased by them.
SECTION 10.2 Admission of Substituted Limited Partner.
By transfer of a Limited Partner Interest in accordance with Article IV,
the transferor shall be deemed to have given the transferee the right to seek
admission as a Substituted Limited Partner subject to the conditions of, and in
the manner permitted under, this Agreement. A transferor of a Certificate
representing a Limited Partner Interest shall, however, only have the authority
to convey to a purchaser or other transferee who does not execute and deliver a
Transfer Application (a) the right to negotiate such Certificate to a purchaser
or other transferee and (b) the right to transfer the right to request admission
as a Substituted Limited Partner to such purchaser or other transferee in
respect of the transferred Limited Partner Interests. Each transferee of a
Limited Partner Interest (including any nominee holder or an agent acquiring
such Limited Partner Interest for the account of another Person) who executes
and delivers a Transfer Application shall, by virtue of such execution and
delivery, be an Assignee and be deemed to have applied to become a Substituted
Limited Partner with respect to the Limited Partner Interests so transferred to
such Person. Such Assignee shall become a Substituted Limited Partner (x) at
such time as the Managing General Partner consents thereto, which consent may be
given or withheld in the Managing General Partner's discretion, and (y) when any
such admission is shown on the books and records of the Partnership. If such
consent is withheld, such transferee shall be an Assignee. An Assignee shall
have an interest in the Partnership equivalent to that of a Limited Partner with
respect to allocations and distributions, including liquidating distributions,
of the Partnership. With respect to voting rights attributable to Limited
Partner Interests that are held by Assignees, the Managing General Partner shall
be deemed to be the Limited Partner with respect thereto and shall, in
exercising the voting rights in respect of such Limited Partner Interests on any
matter, vote such Limited Partner Interests at the written
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direction of the Assignee who is the Record Holder of such Limited Partner
Interests. If no such written direction is received, such Limited Partner
Interests will not be voted. An Assignee shall have no other rights of a Limited
Partner.
SECTION 10.3 Admission of Successor General Partners.
A successor General Partner approved pursuant to Section 11.1, 11.2 or 11.4
or the transferee of or successor to all of such General Partner Interest
pursuant to Section 4.6 who is proposed to be admitted as a successor General
Partner shall be admitted to the Partnership as the Managing General Partner, or
the Special General Partner, as the case may be, effective immediately prior to
the withdrawal or removal of the predecessor or transferring Managing General
Partner or Special General Partner, as the case may be, pursuant to Section
11.1, 11.2 or 11.4 or the transfer of such General Partner's General Partner
Interest pursuant to Section 4.6, provided, however, that no such successor
shall be admitted to the Partnership until compliance with the terms of Section
4.6 has occurred and such successor has executed and delivered such other
documents or instruments as may be required to effect such admission. Any such
successor shall, subject to the terms hereof, carry on the business of the
members of the Partnership Group without dissolution.
SECTION 10.4 Admission of Additional Limited Partners.
(a) A Person (other than a General Partner, an Initial Limited Partner or a
Substituted Limited Partner) who makes a Capital Contribution to the Partnership
in accordance with this Agreement shall be admitted to the Partnership as an
Additional Limited Partner only upon furnishing to the Managing General Partner
(i) evidence of acceptance in form satisfactory to the Managing General Partner
of all of the terms and conditions of this Agreement, including the power of
attorney granted in Section 2.6, and (ii) such other documents or instruments as
may be required in the discretion of the Managing General Partner to effect such
Person's admission as an Additional Limited Partner.
(b) Notwithstanding anything to the contrary in this Section 10.4, no
Person shall be admitted as an Additional Limited Partner without the consent of
the Managing General Partner, which consent may be given or withheld in the
Managing General Partner's discretion. The admission of any Person as an
Additional Limited Partner shall become effective on the date upon which the
name of such Person is recorded as such in the books and records of the
Partnership, following the consent of the Managing General Partner to such
admission.
SECTION 10.5 Amendment of Agreement and Certificate of Limited Partnership.
To effect the admission to the Partnership of any Partner, the Managing
General Partner shall take all steps necessary and appropriate under the
Delaware Act to amend the records of the Partnership to reflect such admission
and, if necessary, to prepare as soon as practicable an amendment to this
Agreement and, if required by law, the Managing General Partner shall prepare
and file an amendment to the Certificate of Limited Partnership, and the
Managing General Partner may for this purpose, among others, exercise the power
of attorney granted pursuant to Section 2.6.
ARTICLE XI
WITHDRAWAL OR REMOVAL OF PARTNERS
SECTION 11.1 Withdrawal of the Managing General Partner.
(a) The Managing General Partner shall be deemed to have withdrawn from the
Partnership upon the occurrence of any one of the following events (each such
event herein referred to as an "Event of Withdrawal");
(i) The Managing General Partner voluntarily withdraws from the
Partnership by giving written notice to the other Partners (and it shall be
deemed that the Managing General Partner has
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withdrawn pursuant to this Section 11.1(a)(i) if the Managing General
Partner voluntarily withdraws (A) as general partner of the Intermediate
Partnership or (B) as managing member of the Operating Subsidiary);
(ii) The Managing General Partner transfers all of its rights as
Managing General Partner pursuant to Section 4.6;
(iii) The Managing General Partner is removed pursuant to Section
11.2;
(iv) The Managing General Partner (A) makes a general assignment for
the benefit of creditors; (B) files a voluntary bankruptcy petition for
relief under Chapter 7 of the United States Bankruptcy Code; (C) files a
petition or answer seeking for itself a liquidation, dissolution or similar
relief (but not a reorganization) under any law; (D) files an answer or
other pleading admitting or failing to contest the material allegations of
a petition filed against the Managing General Partner in a proceeding of
the type described in clauses (A)-(C) of this Section 11.1(a)(iv); or (E)
seeks, consents to or acquiesces in the appointment of a trustee (but not a
debtor-in-possession), receiver or liquidator of the Managing General
Partner or of all or any substantial part of its properties;
(v) A final and non-appealable order of relief under Chapter 7 of the
United States Bankruptcy Code is entered by a court with appropriate
jurisdiction pursuant to a voluntary or involuntary petition by or against
the Managing General Partner; or
(vi) (A) in the event the Managing General Partner is a corporation, a
certificate of dissolution or its equivalent is filed for the Managing
General Partner, or 90 days expire after the date of notice to the Managing
General Partner of revocation of its charter without a reinstatement of its
charter, under the laws of its state of incorporation; (B) in the event the
Managing General Partner is a partnership or a limited liability company,
the dissolution and commencement of winding up of the Managing General
Partner; (C) in the event the Managing General Partner is acting in such
capacity by virtue of being a trustee of a trust, the termination of the
trust; (D) in the event the Managing General Partner is a natural person,
his death or adjudication of incompetency; and (E) otherwise in the event
of the termination of the Managing General Partner.
If an Event of Withdrawal specified in Section 11.1(a)(iv), (v) or (vi)(A),
(B), (C) or (E) occurs, the withdrawing Managing General Partner shall give
notice to the Limited Partners within 30 days after such occurrence. The
Partners hereby agree that only the Events of Withdrawal described in this
Section 11.1 shall result in the withdrawal of the Managing General Partner from
the Partnership.
(b) Withdrawal of the Managing General Partner from the Partnership upon
the occurrence of an Event of Withdrawal shall not constitute a breach of this
Agreement under the following circumstances: (i) at any time during the period
beginning on the Closing Date and ending at 12:00 midnight, Eastern Standard
Time, on September 30, 2009, the Managing General Partner voluntarily withdraws
by giving at least 90 days' advance notice of its intention to withdraw to the
Limited Partners; provided that prior to the effective date of such withdrawal,
the withdrawal is approved by Unitholders holding at least a majority of the
Outstanding Common Units (excluding Common Units held by the General Partners
and their Affiliates) and the Managing General Partner delivers to the
Partnership an Opinion of Counsel ("Withdrawal Opinion of Counsel") that such
withdrawal (following the selection of the successor Managing General Partner)
would not result in the loss of the limited liability of any Limited Partner or
of a limited partner of the Intermediate Partnership or of a member of the
Operating Subsidiary or cause the Partnership or the Intermediate Partnership or
the Operating Subsidiary to be treated as an association taxable as a
corporation or otherwise to be taxed as an entity for federal income tax
purposes (to the extent not previously treated as such); (ii) at any time after
12:00 midnight, Eastern Standard Time, on September 30, 2009, the Managing
General Partner voluntarily withdraws by giving at least 90 days' advance notice
to the Unitholders, such withdrawal to take effect on the date specified in such
notice; (iii) at any time that the Managing General Partner ceases to be the
Managing General Partner pursuant to Section 11.1(a)(ii) or is removed pursuant
to Section 11.2; or (iv) notwithstanding clause (i) of this sentence, at any
time that the Managing General Partner voluntarily withdraws by giving at least
90 days'
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advance notice of its intention to withdraw to the Limited Partners, such
withdrawal to take effect on the date specified in the notice, if at the time
such notice is given one Person and its Affiliates (other than the General
Partners and their Affiliates) own beneficially or of record or control at least
50% of the Outstanding Units. The withdrawal of the Managing General Partner
from the Partnership upon the occurrence of an Event of Withdrawal shall also
constitute the withdrawal of the Managing General Partner as general partner or
managing member, as the case may be, of the other Group Members. If the Managing
General Partner gives a notice of withdrawal pursuant to Section 11.1(a)(i), the
holders of a Unit Majority, may, prior to the effective date of such withdrawal,
elect a successor Managing General Partner. The Person so elected as successor
Managing General Partner shall automatically become the successor general
partner or managing member, as the case may be, of the other Group Members of
which the Managing General Partner is a general partner or a managing member.
If, prior to the effective date of the Managing General Partner's withdrawal, a
successor is not selected by the Unitholders as provided herein or the
Partnership does not receive a Withdrawal Opinion of Counsel, the Partnership
shall be dissolved in accordance with Section 12.1. Any successor Managing
General Partner elected in accordance with the terms of this Section 11.1 shall
be subject to the provisions of Section 10.3.
SECTION 11.2 Removal of the Managing General Partner.
The Managing General Partner may be removed if such removal is approved by
the Unitholders holding at least 66 2/3% of the Outstanding Units (including
Units held by the General Partners and their Affiliates). Any such action by
such holders for removal of the Managing General Partner must also provide for
the election of a successor Managing General Partner by the Unitholders holding
a Unit Majority (including Units held by the General Partners and their
Affiliates). Such removal shall be effective immediately following the admission
of a successor Managing General Partner pursuant to Section 10.3. The removal of
the Managing General Partner shall also automatically constitute the removal of
the Managing General Partner as general partner or managing member, as the case
may be, of the other Group Members of which the Managing General Partner is a
general partner or a managing member. If a Person is elected as a successor
Managing General Partner in accordance with the terms of this Section 11.2, such
Person shall, upon admission pursuant to Section 10.3, automatically become a
successor general partner or managing member, as the case may be, of the other
Group Members of which the Managing General Partner is a general partner or a
managing member. The right of the holders of Outstanding Units to remove the
Managing General Partner shall not exist or be exercised unless the Partnership
has received an opinion opining as to the matters covered by a Withdrawal
Opinion of Counsel. Any successor Managing General Partner elected in accordance
with the terms of this Section 11.2 shall be subject to the provisions of
Section 10.3.
SECTION 11.3 Interest of Departing Partner and Successor General Partners.
(a) In the event of (i) withdrawal of a General Partner under circumstances
where such withdrawal does not violate this Agreement or (ii) removal of the
Managing General Partner by the holders of Outstanding Units under circumstances
where Cause does not exist, if a successor General Partner is elected in
accordance with the terms of Section 11.1, 11.2 or 11.4, the Departing Partner
shall have the option exercisable prior to the effective date of the departure
of such Departing Partner to require its successor to purchase its General
Partner Interest and its managing member interest (or equivalent interest) in
the other Group Members and, in the case of the Managing General Partner, all of
its Incentive Distribution Rights (collectively, the "Combined Interest") in
exchange for an amount in cash equal to the fair market value of such Combined
Interest, such amount to be determined and payable as of the effective date of
its departure. If the Managing General Partner is removed by the Unitholders
under circumstances where Cause exists or if a General Partner withdraws under
circumstances where such withdrawal violates this Agreement, the Intermediate
Partnership Agreement or the Operating Subsidiary Agreement, and if a successor
General Partner is elected in accordance with the terms of Section 11.1, 11.2 or
11.4, such successor shall have the option, exercisable prior to the effective
date of the departure of such Departing Partner, to purchase the Combined
Interest for such fair market value of such Combined Interest of the Departing
Partner. In either event, the Departing Partner shall be entitled
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to receive all reimbursements due such Departing Partner pursuant to Section
7.4, including any employee-related liabilities (including severance
liabilities), incurred in connection with the termination of any employees
employed by the Departing Partner for the benefit of the Partnership or the
other Group Members.
For purposes of this Section 11.3(a), the fair market value of a Departing
Partner's Combined Interest shall be determined by agreement between the
Departing Partner and its successor or, failing agreement within 30 days after
the effective date of such Departing Partner's departure, by an independent
investment banking firm or other independent expert selected by the Departing
Partner and its successor, which, in turn, may rely on other experts, and the
determination of which shall be conclusive as to such matter. If such parties
cannot agree upon one independent investment banking firm or other independent
expert within 45 days after the effective date of such departure, then the
Departing Partner shall designate an independent investment banking firm or
other independent expert, the Departing Partner's successor shall designate an
independent investment banking firm or other independent expert, and such firms
or experts shall mutually select a third independent investment banking firm or
independent expert, which third independent investment banking firm or other
independent expert shall determine the fair market value of the Combined
Interest of the Departing Partner. In making its determination, such third
independent investment banking firm or other independent expert may consider the
then current trading price of Units on any National Securities Exchange on which
Units are then listed, the value of the Partnership's assets, the rights and
obligations of the Departing Partner and other factors it may deem relevant.
(b) If the Combined Interest is not purchased in the manner set forth in
Section 11.3(a), the Departing Partner (or its transferee) shall become a
Limited Partner and its Combined Interest shall be converted into Common Units
pursuant to a valuation made by an investment banking firm or other independent
expert selected pursuant to Section 11.3(a), without reduction in such
Partnership Interest (but subject to proportionate dilution by reason of the
admission of its successor). Any successor General Partner shall indemnify the
Departing Partner (or its transferee) as to all debts and liabilities of the
Partnership arising on or after the date on which the Departing Partner (or its
transferee) becomes a Limited Partner. For purposes of this Agreement,
conversion of the Combined Interest of the Departing Partner to Common Units
will be characterized as if the Departing Partner (or its transferee)
contributed its Combined Interest to the Partnership in exchange for the newly
issued Common Units.
(c) If a successor General Partner is elected in accordance with the terms
of Section 11.1, 11.2 or 11.4 and the option described in Section 11.3(a) is not
exercised by the party entitled to do so, the successor General Partner shall,
at the effective date of its admission to the Partnership, contribute to the
Partnership cash in the amount equal to its Percentage Interest of 1/99th of the
Net Agreed Value of the Partnership's assets on such date. In such event, such
successor General Partner shall, subject to the following sentence, be entitled
to such Percentage Interest of all Partnership allocations and distributions to
which the Departing Partner was entitled. In addition, a successor Managing
General Partner shall cause this Agreement to be amended to reflect that, from
and after the date of such successor Managing General Partner's admission, the
successor Managing General Partner's interest in all Partnership distributions
and allocations shall be .99%.
SECTION 11.4 Withdrawal or Removal of Special General Partner.
(a) The Special General Partner may withdraw from the Partnership in the
capacity of Special General Partner (i) upon 90 days' advance written notice to
the Managing General Partner or (ii) by transferring its General Partner
Interest in the Partnership pursuant to Section 4.6 hereof. Such withdrawal
shall take effect on the date specified in such notice. Upon receiving such
notice, the Managing General Partner shall select a successor Special General
Partner within such 90-day period. Any withdrawal of the Special General Partner
shall not become effective unless the Partnership has received by the end of
such 90-day period a Withdrawal Opinion of Counsel that such withdrawal will not
result in the loss of limited liability of any Limited Partner or of a limited
partner of the Intermediate Partnership or of a member of the Operating
Subsidiary or cause the Partnership or the Intermediate Partnership or the
Operating
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Subsidiary to be treated as a corporation or as an association taxable as a
corporation for federal income tax purposes. Following any withdrawal of the
Special General Partner, the business and operations of the Partnership shall be
continued by the Managing General Partner.
(b) In addition to the voluntary withdrawal described above, the Special
General Partner shall be deemed to have withdrawn (i) when and if, the Special
General Partner (A) makes a general assignment for the benefit of creditors, (B)
files a voluntary bankruptcy petition, (C) files a petition or answer seeking
for itself a reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any law, (D) files an answer or
other pleading admitting or failing to contest the material allegations of a
petition filed against the Special General Partner in a proceeding of the type
described in clauses (A)-(C) of this subsection, or (E) seeks, consents to or
acquiesces in the appointment of a trustee, receiver or liquidator of the
Special General Partner or of all or any substantial part of its properties; or
(ii), when a final and non-appealable judgment is entered by a court with
appropriate jurisdiction ruling that the Special General Partner is bankrupt or
insolvent, or a final and non-appealable order for relief is entered by a court
with appropriate jurisdiction against the Special General Partner, in each case
under any federal or state bankruptcy or insolvency laws as now or hereinafter
in effect; or (iii) (A) in the event the Special General Partner is a
corporation, when a certificate of dissolution or its equivalent is filed for
the Special General Partner, or 90 days expire after the date of notice to the
Special General Partner of revocation of its charter without a reinstatement of
its charter, under the laws of its state of incorporation, (B) in the event the
Special General Partner is a partnership or a limited liability company, the
dissolution and commencement of winding up of the Special General Partner, (C)
in the event the Special General Partner is acting in such capacity by virtue of
being a trustee of a trust, the termination of the trust, (D) in the event the
Special General Partner is a natural person, his death or adjudication of
incompetency, and (E) otherwise in the event of the termination of the Special
General Partner.
(c) The Special General Partner may be removed only if such removal is
approved by the written consent or affirmative vote of Limited Partners holding
at least 66 2/3% of the Outstanding Units (including Units owned by the General
Partners and their Affiliates). Any such action by the Limited Partners for
removal of the Special General Partner must also provide for the approval of a
successor Special General Partner. Such removal shall be effective immediately
following the admission of the successor Special General Partner pursuant to
Section 10.3. The right of the Limited Partners to remove the Special General
Partner shall not exist or be exercised unless the Partnership has received an
Opinion of Counsel that the removal of the Special General Partner and the
selection of a successor Special General Partner will not result in (i) the loss
of limited liability of any Limited Partner or of a limited partner of the
Intermediate Partnership or of a member of the Operating Subsidiary or (ii) the
taxation of the Partnership or the Intermediate Partnership or the Operating
Subsidiary as an association taxable as a corporation for federal income tax
purposes unless already so taxed.
(d) Notwithstanding the other provisions of this Section 11.4, a successor
Special General Partner need not be selected if the Partnership has received an
Opinion of Counsel that the failure to select a successor would not cause the
Partnership or the Intermediate Partnership or the Operating Subsidiary to be
treated as a corporation or as an association taxable as a corporation for
federal income tax purposes.
SECTION 11.5 Termination of Subordination Period, Conversion of Subordinated
Units and Extinguishment of Cumulative Common Unit Arrearages.
Notwithstanding any provision of this Agreement, if the Managing General
Partner is removed as general partner of the Partnership under circumstances
where Cause does not exist and Units held by the General Partners and their
Affiliates are not voted in favor of such removal, (i) the Subordination Period
will end and all Outstanding Subordinated Units will immediately and
automatically convert into Common Units on a one-for-one basis and (ii) all
Cumulative Common Unit Arrearages on the Common Units will be extinguished.
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SECTION 11.6 Withdrawal of Limited Partners.
No Limited Partner shall have any right to withdraw from the Partnership;
provided, however, that when a transferee of a Limited Partner's Limited Partner
Interest becomes a Record Holder of the Limited Partner Interest so transferred,
such transferring Limited Partner shall cease to be a Limited Partner with
respect to the Limited Partner Interest so transferred.
ARTICLE XII
DISSOLUTION AND LIQUIDATION
SECTION 12.1 Dissolution.
The Partnership shall not be dissolved by the admission of Substituted
Limited Partners or Additional Limited Partners or by the admission of a
successor Managing General Partner or a successor Special General Partner in
accordance with the terms of this Agreement or by the withdrawal of the Special
General Partner pursuant to Section 11.4. Upon the removal or withdrawal of the
Managing General Partner, if a successor Managing General Partner is elected
pursuant to Section 11.1 or 11.2, the Partnership shall not be dissolved and
such successor Managing General Partner shall continue the business of the
Partnership. The Partnership shall dissolve, and (subject to Section 12.2) its
affairs shall be wound up, upon:
(a) the expiration of its term as provided in Section 2.7;
(b) an Event of Withdrawal of the Managing General Partner as provided
in Section 11.1(a) (other than Section 11.1(a)(ii)), unless a successor is
elected and an Opinion of Counsel is received as provided in Section
11.1(b) or 11.2 and such successor is admitted to the Partnership pursuant
to Section 10.3;
(c) an election to dissolve the Partnership by the Managing General
Partner that is approved by the holders of a Unit Majority;
(d) the entry of a decree of judicial dissolution of the Partnership
pursuant to the provisions of the Delaware Act; or
(e) the sale of all or substantially all of the assets and properties
of the Partnership Group.
SECTION 12.2 Continuation of the Business of the Partnership After Dissolution.
Upon (a) dissolution of the Partnership following an Event of Withdrawal
caused by the withdrawal or removal of the Managing General Partner as provided
in Section 11.1(a)(i) or (iii) and the failure of the Partners to select a
successor to such Departing Partner pursuant to Section 11.1 or 11.2, then
within 90 days thereafter, or (b) dissolution of the Partnership upon an event
constituting an Event of Withdrawal as defined in Section 11.1(a)(iv), (v) or
(vi), then, to the maximum extent permitted by law, within 180 days thereafter,
the holders of a Unit Majority may elect to reconstitute the Partnership and
continue its business on the same terms and conditions set forth in this
Agreement by forming a new limited partnership on terms identical to those set
forth in this Agreement and having as the successor managing general partner a
Person approved by the holders of a Unit Majority. Unless such an election is
made within the applicable time period as set forth above, the Partnership shall
conduct only activities necessary to wind up its affairs. If such an election is
so made, then:
(i) the reconstituted Partnership shall continue until the end of the
term set forth in Section 2.7 unless earlier dissolved in accordance with
this Article XII;
(ii) if the successor Managing General Partner is not the former
Managing General Partner, then the interest of the former Managing General
Partner shall be treated in the manner provided in Section 11.3; and
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(iii) all necessary steps shall be taken to cancel this Agreement and
the Certificate of Limited Partnership and to enter into and, as necessary,
to file a new partnership agreement and certificate of limited partnership,
and the successor managing general partner may for this purpose exercise
the powers of attorney granted the Managing General Partner pursuant to
Section 2.6; provided, that the right of the holders of a Unit Majority to
approve a successor Managing General Partner and to reconstitute and to
continue the business of the Partnership shall not exist and may not be
exercised unless the Partnership has received an Opinion of Counsel that
(x) the exercise of the right would not result in the loss of limited
liability of any Limited Partner and (y) neither the Partnership, the
reconstituted limited partnership, the Intermediate Partnership nor the
Operating Subsidiary would be treated as an association taxable as a
corporation or otherwise be taxable as an entity for federal income tax
purposes upon the exercise of such right to continue.
SECTION 12.3 Liquidator.
Upon dissolution of the Partnership, unless the Partnership is continued
under an election to reconstitute and continue the Partnership pursuant to
Section 12.2, the Managing General Partner shall select one or more Persons to
act as Liquidator. The Liquidator (if other than the Managing General Partner)
shall be entitled to receive such compensation for its services as may be
approved by holders of at least a majority of the Outstanding Common Units and
Subordinated Units voting as a single class. The Liquidator (if other than the
Managing General Partner) shall agree not to resign at any time without 15 days'
prior notice and may be removed at any time, with or without cause, by notice of
removal approved by holders of at least a majority of the Outstanding Common
Units and Subordinated Units voting as a single class. Upon dissolution, removal
or resignation of the Liquidator, a successor and substitute Liquidator (who
shall have and succeed to all rights, powers and duties of the original
Liquidator) shall within 30 days thereafter be approved by holders of at least a
majority of the Outstanding Common Units and Subordinated Units voting as a
single class. The right to approve a successor or substitute Liquidator in the
manner provided herein shall be deemed to refer also to any such successor or
substitute Liquidator approved in the manner herein provided. Except as
expressly provided in this Article XII, the Liquidator approved in the manner
provided herein shall have and may exercise, without further authorization or
consent of any of the parties hereto, all of the powers conferred upon the
Managing General Partner under the terms of this Agreement (but subject to all
of the applicable limitations, contractual and otherwise, upon the exercise of
such powers, other than the limitation on sale set forth in Section 7.3(b)) to
the extent necessary or desirable in the good faith judgment of the Liquidator
to carry out the duties and functions of the Liquidator hereunder for and during
such period of time as shall be reasonably required in the good faith judgment
of the Liquidator to complete the winding up and liquidation of the Partnership
as provided for herein.
SECTION 12.4 Liquidation.
The Liquidator shall proceed to dispose of the assets of the Partnership,
discharge its liabilities, and otherwise wind up its affairs in such manner and
over such period as the Liquidator determines to be in the best interest of the
Partners, subject to Section 17-804 of the Delaware Act and the following:
(a) Disposition of Assets. The assets may be disposed of by public or
private sale or by distribution in kind to one or more Partners on such terms as
the Liquidator and such Partner or Partners may agree. If any property is
distributed in kind, the Partner receiving the property shall be deemed for
purposes of Section 12.4(c) to have received cash equal to its fair market
value; and contemporaneously therewith, appropriate cash distributions must be
made to the other Partners. The Liquidator may, in its absolute discretion,
defer liquidation or distribution of the Partnership's assets for a reasonable
time if it determines that an immediate sale or distribution of all or some of
the Partnership's assets would be impractical or would cause undue loss to the
Partners. The Liquidator may, in its absolute discretion, distribute the
Partnership's assets, in whole or in part, in kind if it determines that a sale
would be impractical or would cause undue loss to the Partners.
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(b) Discharge of Liabilities. Liabilities of the Partnership include
amounts owed to Partners otherwise than in respect of their distribution rights
under Article VI. With respect to any liability that is contingent, conditional
or unmatured or is otherwise not yet due and payable, the Liquidator shall
either settle such claim for such amount as it thinks appropriate or establish a
reserve of cash or other assets to provide for its payment. When paid, any
unused portion of the reserve shall be distributed as additional liquidation
proceeds.
(c) Liquidation Distributions. All property and all cash in excess of that
required to discharge liabilities as provided in Section 12.4(b) shall be
distributed to the Partners in accordance with, and to the extent of, the
positive balances in their respective Capital Accounts, as determined after
taking into account all Capital Account adjustments (other than those made by
reason of distributions pursuant to this Section 12.4(c)) for the taxable year
of the Partnership during which the liquidation of the Partnership occurs (with
such date of occurrence being determined pursuant to Treasury Regulation Section
1.704-1(b)(2)(ii)(g)), and such distribution shall be made by the end of such
taxable year (or, if later, within 90 days after said date of such occurrence).
SECTION 12.5 Cancellation of Certificate of Limited Partnership.
Upon the completion of the distribution of Partnership cash and property as
provided in Section 12.4 in connection with the liquidation of the Partnership,
the Partnership shall be terminated and the Certificate of Limited Partnership
and all qualifications of the Partnership as a foreign limited partnership in
jurisdictions other than the State of Delaware shall be canceled and such other
actions as may be necessary to terminate the Partnership shall be taken.
SECTION 12.6 Return of Contributions.
No General Partner shall be personally liable for, and shall have no
obligation to contribute or loan any monies or property to the Partnership to
enable it to effectuate, the return of the Capital Contributions of the Limited
Partners or Unitholders, or any portion thereof, it being expressly understood
that any such return shall be made solely from Partnership assets.
SECTION 12.7 Waiver of Partition.
To the maximum extent permitted by law, each Partner hereby waives any
right to partition of the Partnership property.
SECTION 12.8 Capital Account Restoration.
No Limited Partner shall have any obligation to restore any negative
balance in its Capital Account upon liquidation of the Partnership. Each General
Partner shall be obligated to restore any negative balance in its Capital
Account upon liquidation of its interest in the Partnership by the end of the
taxable year of the Partnership during which such liquidation occurs, or, if
later, within 90 days after the date of such liquidation.
ARTICLE XIII
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS; RECORD DATE
SECTION 13.1 Amendment to be Adopted Solely by the Managing General Partner.
Each Partner agrees that the Managing General Partner, without the approval
of any Partner or Assignee, may amend any provision of this Agreement and
execute, swear to, acknowledge, deliver, file and record whatever documents may
be required in connection therewith, to reflect:
(a) a change in the name of the Partnership, the location of the principal
place of business of the Partnership, the registered agent of the Partnership or
the registered office of the Partnership;
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(b) admission, substitution, withdrawal or removal of Partners in
accordance with this Agreement;
(c) a change that, in the sole discretion of the Managing General Partner,
is necessary or advisable to qualify or continue the qualification of the
Partnership as a limited partnership or a partnership in which the Limited
Partners have limited liability under the laws of any state or to ensure that
the Partnership, the Intermediate Partnership and the Operating Subsidiary will
not be treated as an association taxable as a corporation or otherwise taxed as
an entity for federal income tax purposes;
(d) a change that, in the discretion of the Managing General Partner, (i)
does not adversely affect the Limited Partners in any material respect, (ii) is
necessary or advisable to (A) satisfy any requirements, conditions or guidelines
contained in any opinion, directive, order, ruling or regulation of any federal
or state agency or judicial authority or contained in any federal or state
statute (including the Delaware Act) or (B) facilitate the trading of the
Limited Partner Interests (including the division of any class or classes of
Outstanding Limited Partner Interests into different classes to facilitate
uniformity of tax consequences within such classes of Limited Partner Interests)
or comply with any rule, regulation, guideline or requirement of any National
Securities Exchange on which the Limited Partner Interests are or will be listed
for trading, compliance with any of which the Managing General Partner
determines in its discretion to be in the best interests of the Partnership and
the Limited Partners, (iii) is necessary or advisable in connection with action
taken by the Managing General Partner pursuant to Section 5.10 or (iv) is
required to effect the intent expressed in the Registration Statement or the
intent of the provisions of this Agreement or is otherwise contemplated by this
Agreement;
(e) a change in the fiscal year or taxable year of the Partnership and any
changes that, in the discretion of the Managing General Partner, are necessary
or advisable as a result of a change in the fiscal year or taxable year of the
Partnership including, if the Managing General Partner shall so determine, a
change in the definition of "Quarter" and the dates on which distributions are
to be made by the Partnership;
(f) an amendment that is necessary, in the Opinion of Counsel, to prevent
the Partnership, or either of the General Partners or their directors, officers,
trustees or agents from in any manner being subjected to the provisions of the
Investment Company Act of 1940, as amended, the Investment Advisers Act of 1940,
as amended, or "plan asset" regulations adopted under the Employee Retirement
Income Security Act of 1974, as amended, regardless of whether such are
substantially similar to plan asset regulations currently applied or proposed by
the United States Department of Labor;
(g) subject to the terms of Section 5.7, an amendment that, in the
discretion of the Managing General Partner, is necessary or advisable in
connection with the authorization of issuance of any class or series of
Partnership Securities pursuant to Section 5.6;
(h) any amendment expressly permitted in this Agreement to be made by the
Managing General Partner acting alone;
(i) an amendment effected, necessitated or contemplated by a Merger
Agreement approved in accordance with Section 14.3;
(j) an amendment that, in the discretion of the Managing General Partner,
is necessary or advisable to reflect, account for and deal with appropriately
the formation by the Partnership of, or investment by the Partnership in, any
corporation, partnership, joint venture, limited liability company or other
entity, in connection with the conduct by the Partnership of activities
permitted by the terms of Section 2.4;
(k) a merger or conveyance pursuant to Section 14.3(d); or
(l) any other amendments substantially similar to the foregoing.
SECTION 13.2 Amendment Procedures.
Except as provided in Sections 13.1 and 13.3, all amendments to this
Agreement shall be made in accordance with the following requirements.
Amendments to this Agreement may be proposed only by or
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with the consent of the Managing General Partner which consent may be given or
withheld in its sole discretion. A proposed amendment shall be effective upon
its approval by the holders of a Unit Majority, unless a greater or different
percentage is required under this Agreement or by Delaware law. Each proposed
amendment that requires the approval of the holders of a specified percentage of
Outstanding Units shall be set forth in a writing that contains the text of the
proposed amendment. If such an amendment is proposed, the Managing General
Partner shall seek the written approval of the requisite percentage of
Outstanding Units or call a meeting of the Unitholders to consider and vote on
such proposed amendment. The Managing General Partner shall notify all Record
Holders upon final adoption of any such proposed amendments.
SECTION 13.3 Amendment Requirements.
(a) Notwithstanding the provisions of Sections 13.1 and 13.2, no provision
of this Agreement that establishes a percentage of Outstanding Units (including
Units deemed owned by the General Partners) required to take any action shall be
amended, altered, changed, repealed or rescinded in any respect that would have
the effect of reducing such voting percentage unless such amendment is approved
by the written consent or the affirmative vote of holders of Outstanding Units
whose aggregate Outstanding Units constitute not less than the voting
requirement sought to be reduced.
(b) Notwithstanding the provisions of Sections 13.1 and 13.2, no amendment
to this Agreement may (i) enlarge the obligations of any Limited Partner without
its consent, unless such shall be deemed to have occurred as a result of an
amendment approved pursuant to Section 13.3(c), (ii) enlarge the obligations of,
restrict in any way any action by or rights of, or reduce in any way the amounts
distributable, reimbursable or otherwise payable to, either of the General
Partners or any of their Affiliates without its consent, which consent may be
given or withheld in its sole discretion, (iii) change Section 12.1(a) or
12.1(c), or (iv) change the term of the Partnership or, except as set forth in
Section 12.1(c), give any Person the right to dissolve the Partnership.
(c) Except as provided in Section 14.3, and except as otherwise provided,
and without limitation of the Managing General Partner's authority to adopt
amendments to this Agreement as contemplated in Section 13.1, any amendment that
would have a material adverse effect on the rights or preferences of any class
of Partnership Interests in relation to other classes of Partnership Interests
must be approved by the holders of not less than a majority of the Outstanding
Partnership Interests of the class affected.
(d) Notwithstanding any other provision of this Agreement, except for
amendments pursuant to Section 13.1 and except as otherwise provided by Section
14.3(b), no amendments shall become effective without the approval of the
holders of at least 90% of the Outstanding Common Units and Subordinated Units
voting as a single class unless the Partnership obtains an Opinion of Counsel to
the effect that such amendment will not affect the limited liability of any
Limited Partner under applicable law.
(e) Except as provided in Section 13.1, this Section 13.3 shall only be
amended with the approval of the holders of at least 90% of the Outstanding
Units.
SECTION 13.4 Special Meetings.
All acts of Limited Partners to be taken pursuant to this Agreement shall
be taken in the manner provided in this Article XIII. Special meetings of the
Limited Partners may be called by the Managing General Partner or by Limited
Partners owning 20% or more of the Outstanding Limited Partner Interests of the
class or classes for which a meeting is proposed. Limited Partners shall call a
special meeting by delivering to the Managing General Partner one or more
requests in writing stating that the signing Limited Partners wish to call a
special meeting and indicating the general or specific purposes for which the
special meeting is to be called. Within 60 days after receipt of such a call
from Limited Partners or within such greater time as may be reasonably necessary
for the Partnership to comply with any statutes, rules, regulations, listing
agreements or similar requirements governing the holding of a meeting or the
solicitation of proxies for use at such a meeting, the Managing General Partner
shall send a notice of the meeting to the Limited Partners either directly or
indirectly through the Transfer Agent. A meeting shall
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be held at a time and place determined by the Managing General Partner on a date
not less than 10 days nor more than 60 days after the mailing of notice of the
meeting. Limited Partners shall not vote on matters that would cause the Limited
Partners to be deemed to be taking part in the management and control of the
business and affairs of the Partnership so as to jeopardize the Limited
Partners' limited liability under the Delaware Act or the law of any other state
in which the Partnership is qualified to do business.
SECTION 13.5 Notice of a Meeting.
Notice of a meeting called pursuant to Section 13.4 shall be given to the
Record Holders of the class or classes of Limited Partner Interests for which a
meeting is proposed in writing by mail or other means of written communication
in accordance with Section 16.1. The notice shall be deemed to have been given
at the time when deposited in the mail or sent by other means of written
communication.
SECTION 13.6 Record Date.
For purposes of determining the Limited Partners entitled to notice of or
to vote at a meeting of the Limited Partners or to give approvals without a
meeting as provided in Section 13.11 the Managing General Partner may set a
Record Date, which shall not be less than 10 nor more than 60 days before (a)
the date of the meeting (unless such requirement conflicts with any rule,
regulation, guideline or requirement of any National Securities Exchange on
which the Limited Partner Interests are listed for trading, in which case the
rule, regulation, guideline or requirement of such exchange shall govern) or (b)
in the event that approvals are sought without a meeting, the date by which
Limited Partners are requested in writing by the Managing General Partner to
give such approvals.
SECTION 13.7 Adjournment.
When a meeting is adjourned to another time or place, notice need not be
given of the adjourned meeting and a new Record Date need not be fixed, if the
time and place thereof are announced at the meeting at which the adjournment is
taken, unless such adjournment shall be for more than 45 days. At the adjourned
meeting, the Partnership may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than 45 days
or if a new Record Date is fixed for the adjourned meeting, a notice of the
adjourned meeting shall be given in accordance with this Article XIII.
SECTION 13.8 Waiver of Notice; Approval of Meeting; Approval of Minutes.
The transactions of any meeting of Limited Partners, however called and
noticed, and whenever held, shall be as valid as if it had occurred at a meeting
duly held after regular call and notice, if a quorum is present either in person
or by proxy, and if, either before or after the meeting, Limited Partners
representing such quorum who were present in person or by proxy and entitled to
vote, sign a written waiver of notice or an approval of the holding of the
meeting or an approval of the minutes thereof. All waivers and approvals shall
be filed with the Partnership records or made a part of the minutes of the
meeting. Attendance of a Limited Partner at a meeting shall constitute a waiver
of notice of the meeting, except when the Limited Partner does not approve, at
the beginning of the meeting, of the transaction of any business because the
meeting is not lawfully called or convened; and except that attendance at a
meeting is not a waiver of any right to disapprove the consideration of matters
required to be included in the notice of the meeting, but not so included, if
the disapproval is expressly made at the meeting.
SECTION 13.9 Quorum.
The holders of a majority of the Outstanding Limited Partner Interests of
the class or classes for which a meeting has been called (including Limited
Partner Interests deemed owned by the General Partners) represented in person or
by proxy shall constitute a quorum at a meeting of Limited Partners of such
class or classes unless any such action by the Limited Partners requires
approval by holders of a greater percentage of such Limited Partner Interests,
in which case the quorum shall be such greater
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percentage. At any meeting of the Limited Partners duly called and held in
accordance with this Agreement at which a quorum is present, the act of Limited
Partners holding Outstanding Limited Partner Interests that in the aggregate
represent a majority of the Outstanding Limited Partner Interests entitled to
vote and be present in person or by proxy at such meeting shall be deemed to
constitute the act of all Limited Partners, unless a greater or different
percentage is required with respect to such action under the provisions of this
Agreement, in which case the act of the Limited Partners holding Outstanding
Limited Partner Interests that in the aggregate represent at least such greater
or different percentage shall be required. The Limited Partners present at a
duly called or held meeting at which a quorum is present may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
Limited Partners to leave less than a quorum, if any action taken (other than
adjournment) is approved by the required percentage of Outstanding Limited
Partner Interests specified in this Agreement (including Limited Partner
Interests deemed owned by the General Partners). In the absence of a quorum any
meeting of Limited Partners may be adjourned from time to time by the
affirmative vote of holders of at least a majority of the Outstanding Limited
Partner Interests entitled to vote at such meeting (including Limited Partner
Interests deemed owned by the General Partners) represented either in person or
by proxy, but no other business may be transacted, except as provided in Section
13.7.
SECTION 13.10 Conduct of a Meeting.
The Managing General Partner shall have full power and authority concerning
the manner of conducting any meeting of the Limited Partners or solicitation of
approvals in writing, including the determination of Persons entitled to vote,
the existence of a quorum, the satisfaction of the requirements of Section 13.4,
the conduct of voting, the validity and effect of any proxies and the
determination of any controversies, votes or challenges arising in connection
with or during the meeting or voting. The Managing General Partner shall
designate a Person to serve as chairman of any meeting and shall further
designate a Person to take the minutes of any meeting. All minutes shall be kept
with the records of the Partnership maintained by the Managing General Partner.
The Managing General Partner may make such other regulations consistent with
applicable law and this Agreement as it may deem advisable concerning the
conduct of any meeting of the Limited Partners or solicitation of approvals in
writing, including regulations in regard to the appointment of proxies, the
appointment and duties of inspectors of votes and approvals, the submission and
examination of proxies and other evidence of the right to vote, and the
revocation of approvals in writing.
SECTION 13.11 Action Without a Meeting.
If authorized by the Managing General Partner, any action that may be taken
at a meeting of the Limited Partners may be taken without a meeting if an
approval in writing setting forth the action so taken is signed by Limited
Partners owning not less than the minimum percentage of the Outstanding Limited
Partner Interests (including Limited Partner Interests deemed owned by the
General Partners) that would be necessary to authorize or take such action at a
meeting at which all the Limited Partners were present and voted (unless such
provision conflicts with any rule, regulation, guideline or requirement of any
National Securities Exchange on which the Limited Partner Interests are listed
for trading, in which case the rule, regulation, guideline or requirement of
such exchange shall govern). Prompt notice of the taking of action without a
meeting shall be given to the Limited Partners who have not approved in writing.
The Managing General Partner may specify that any written ballot submitted to
Limited Partners for the purpose of taking any action without a meeting shall be
returned to the Partnership within the time period, which shall be not less than
20 days, specified by the Managing General Partner. If a ballot returned to the
Partnership does not vote all of the Limited Partner Interests held by the
Limited Partners the Partnership shall be deemed to have failed to receive a
ballot for the Limited Partner Interests that were not voted. If approval of the
taking of any action by the Limited Partners is solicited by any Person other
than by or on behalf of the Managing General Partner, the written approvals
shall have no force and effect unless and until (a) they are deposited with the
Partnership in care of the Managing General Partner, (b) approvals sufficient to
take the action proposed are dated as of a date not more than 90 days prior to
the date sufficient approvals are deposited with the Partnership and (c) an
Opinion of Counsel is
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delivered to the Managing General Partner to the effect that the exercise of
such right and the action proposed to be taken with respect to any particular
matter (i) will not cause the Limited Partners to be deemed to be taking part in
the management and control of the business and affairs of the Partnership so as
to jeopardize the Limited Partners' limited liability, and (ii) is otherwise
permissible under the state statutes then governing the rights, duties and
liabilities of the Partnership and the Partners.
SECTION 13.12 Voting and Other Rights.
(a) Only those Record Holders of the Limited Partner Interests on the
Record Date set pursuant to Section 13.6 (and also subject to the limitations
contained in the definition of "Outstanding") shall be entitled to notice of,
and to vote at, a meeting of Limited Partners or to act with respect to matters
as to which the holders of the Outstanding Limited Partner Interests have the
right to vote or to act. All references in this Agreement to votes of, or other
acts that may be taken by, the Outstanding Limited Partner Interests shall be
deemed to be references to the votes or acts of the Record Holders of such
Outstanding Limited Partner Interests.
(b) With respect to Limited Partner Interests that are held for a Person's
account by another Person (such as a broker, dealer, bank, trust company or
clearing corporation, or an agent of any of the foregoing), in whose name such
Limited Partner Interests are registered, such other Person shall, in exercising
the voting rights in respect of such Limited Partner Interests on any matter,
and unless the arrangement between such Persons provides otherwise, vote such
Limited Partner Interests in favor of, and at the direction of, the Person who
is the beneficial owner, and the Partnership shall be entitled to assume it is
so acting without further inquiry. The provisions of this Section 13.12(b) (as
well as all other provisions of this Agreement) are subject to the provisions of
Section 4.3.
ARTICLE XIV
MERGER
SECTION 14.1 Authority.
The Partnership may merge or consolidate with one or more corporations,
limited liability companies, business trusts or associations, real estate
investment trusts, common law trusts or unincorporated businesses, including a
general partnership or limited partnership, formed under the laws of the State
of Delaware or any other state of the United States of America, pursuant to a
written agreement of merger or consolidation ("Merger Agreement") in accordance
with this Article XIV.
SECTION 14.2 Procedure for Merger or Consolidation.
Merger or consolidation of the Partnership pursuant to this Article XIV
requires the prior approval of the Managing General Partner. If the Managing
General Partner shall determine, in the exercise of its discretion, to consent
to the merger or consolidation, the Managing General Partner shall approve the
Merger Agreement, which shall set forth:
(a) The names and jurisdictions of formation or organization of each of the
business entities proposing to merge or consolidate;
(b) The name and jurisdiction of formation or organization of the business
entity that is to survive the proposed merger or consolidation (the "Surviving
Business Entity");
(c) The terms and conditions of the proposed merger or consolidation;
(d) The manner and basis of exchanging or converting the equity securities
of each constituent business entity for, or into, cash, property or general or
limited partner interests, rights, securities or obligations of the Surviving
Business Entity; and (i) if any general or limited partner interests, securities
or rights of any constituent business entity are not to be exchanged or
converted solely for, or into, cash, property or general or limited partner
interests, rights, securities or obligations of the Surviving Business
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Entity, the cash, property or general or limited partner interests, rights,
securities or obligations of any limited partnership, corporation, trust or
other entity (other than the Surviving Business Entity) which the holders of
such general or limited partner interests, securities or rights are to receive
in exchange for, or upon conversion of their general or limited partner
interests, securities or rights, and (ii) in the case of securities represented
by certificates, upon the surrender of such certificates, which cash, property
or general or limited partner interests, rights, securities or obligations of
the Surviving Business Entity or any general or limited partnership,
corporation, trust or other entity (other than the Surviving Business Entity),
or evidences thereof, are to be delivered;
(e) A statement of any changes in the constituent documents or the adoption
of new constituent documents (the articles or certificate of incorporation,
articles of trust, declaration of trust, certificate or agreement of limited
partnership or other similar charter or governing document) of the Surviving
Business Entity to be effected by such merger or consolidation;
(f) The effective time of the merger, which may be the date of the filing
of the certificate of merger pursuant to Section 14.4 or a later date specified
in or determinable in accordance with the Merger Agreement (provided, that if
the effective time of the merger is to be later than the date of the filing of
the certificate of merger, the effective time shall be fixed no later than the
time of the filing of the certificate of merger and stated therein); and
(g) Such other provisions with respect to the proposed merger or
consolidation as are deemed necessary or appropriate by the Managing General
Partner.
SECTION 14.3 Approval by Limited Partners of Merger or Consolidation.
(a) Except as provided in Section 14.3(d), the Managing General Partner,
upon its approval of the Merger Agreement, shall direct that the Merger
Agreement be submitted to a vote of Limited Partners, whether at a special
meeting or by written consent, in either case in accordance with the
requirements of Article XIII. A copy or a summary of the Merger Agreement shall
be included in or enclosed with the notice of a special meeting or the written
consent.
(b) Except as provided in Section 14.3(d), the Merger Agreement shall be
approved upon receiving the affirmative vote or consent of the holders of a Unit
Majority unless the Merger Agreement contains any provision that, if contained
in an amendment to this Agreement, the provisions of this Agreement or the
Delaware Act would require for its approval the vote or consent of a greater
percentage of the Outstanding Limited Partner Interests or of any class of
Limited Partners, in which case such greater percentage vote or consent shall be
required for approval of the Merger Agreement.
(c) Except as provided in Section 14.3(d), after such approval by vote or
consent of the Limited Partners, and at any time prior to the filing of the
certificate of merger pursuant to Section 14.4, the merger or consolidation may
be abandoned pursuant to provisions therefor, if any, set forth in the Merger
Agreement.
(d) Notwithstanding anything else contained in this Article XIV or in this
Agreement, the Managing General Partner is permitted, in its discretion, without
Limited Partner approval, to merge the Partnership or any Group Member into, or
convey all of the Partnership's assets to, another limited liability entity
which shall be newly formed and shall have no assets, liabilities or operations
at the time of such Merger other than those it receives from the Partnership or
other Group Member if (i) the Managing General Partner has received an Opinion
of Counsel that the merger or conveyance, as the case may be, would not result
in the loss of the limited liability of any Limited Partner or any limited
partner in the Intermediate Partnership or any member of the Operating
Subsidiary or cause the Partnership, the Intermediate Partnership or the
Operating Subsidiary to be treated as an association taxable as a corporation or
otherwise to be taxed as an entity for federal income tax purposes (to the
extent not previously treated as such), (ii) the sole purpose of such merger or
conveyance is to effect a mere change in the legal form of the Partnership into
another limited liability entity and (iii) the governing instruments of the new
entity
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provide the Limited Partners and the General Partners with the same rights and
obligations as are herein contained.
SECTION 14.4 Certificate of Merger.
Upon the required approval by the Managing General Partner and the
Unitholders of a Merger Agreement, a certificate of merger shall be executed and
filed with the Secretary of State of the State of Delaware in conformity with
the requirements of the Delaware Act.
SECTION 14.5 Effect of Merger.
(a) At the effective time of the certificate of merger:
(i) all of the rights, privileges and powers of each of the business
entities that has merged or consolidated, and all property, real, personal
and mixed, and all debts due to any of those business entities and all
other things and causes of action belonging to each of those business
entities, shall be vested in the Surviving Business Entity and after the
merger or consolidation shall be the property of the Surviving Business
Entity to the extent they were of each constituent business entity;
(ii) the title to any real property vested by deed or otherwise in any
of those constituent business entities shall not revert and is not in any
way impaired because of the merger or consolidation;
(iii) all rights of creditors and all liens on or security interests
in property of any of those constituent business entities shall be
preserved unimpaired; and
(iv) all debts, liabilities and duties of those constituent business
entities shall attach to the Surviving Business Entity and may be enforced
against it to the same extent as if the debts, liabilities and duties had
been incurred or contracted by it.
(b) A merger or consolidation effected pursuant to this Article shall not
be deemed to result in a transfer or assignment of assets or liabilities from
one entity to another.
ARTICLE XV
RIGHT TO ACQUIRE LIMITED PARTNER INTERESTS
SECTION 15.1 Right to Acquire Limited Partner Interests.
(a) Notwithstanding any other provision of this Agreement, if at any time
not more than 20% of the total Limited Partner Interests of any class then
Outstanding is held by Persons other than the General Partners and their
Affiliates, the Managing General Partner shall then have the right, which right
it may assign and transfer in whole or in part to the Partnership or any
Affiliate of the Managing General Partner, exercisable in its sole discretion,
to purchase all, but not less than all, of such Limited Partner Interests of
such class then Outstanding held by Persons other than the General Partners and
their Affiliates, at the greater of (x) the Current Market Price as of the date
three days prior to the date that the notice described in Section 15.1(b) is
mailed and (y) the highest price paid by a General Partner or any of its
Affiliates for any such Limited Partner Interest of such class purchased during
the 90-day period preceding the date that the notice described in Section
15.1(b) is mailed. As used in this Agreement, (i) "Current Market Price" as of
any date of any class of Limited Partner Interests listed or admitted to trading
on any National Securities Exchange means the average of the daily Closing
Prices (as hereinafter defined) per limited partner interest of such class for
the 20 consecutive Trading Days (as hereinafter defined) immediately prior to
such date; (ii) "Closing Price" for any day means the last sale price on such
day, regular way, or in case no such sale takes place on such day, the average
of the closing bid and asked prices on such day, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted for trading on the principal National
Securities Exchange (other than the Nasdaq Stock Market) on which such Limited
Partner Interests of
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such class are listed or admitted to trading or, if such Limited Partner
Interests of such class are not listed or admitted to trading on any National
Securities Exchange (other than the Nasdaq Stock Market), the last quoted price
on such day or, if not so quoted, the average of the high bid and low asked
prices on such day in the over-the-counter market, as reported by the Nasdaq
Stock Market or such other system then in use, or, if on any such day such
Limited Partner Interests of such class are not quoted by any such organization,
the average of the closing bid and asked prices on such day as furnished by a
professional market maker making a market in such Limited Partner Interests of
such class selected by the Managing General Partner, or if on any such day no
market maker is making a market in such Limited Partner Interests of such class,
the fair value of such Limited Partner Interests on such day as determined
reasonably and in good faith by the Managing General Partner; and (iii) "Trading
Day" means a day on which the principal National Securities Exchange on which
such Limited Partner Interests of any class are listed or admitted to trading is
open for the transaction of business or, if Limited Partner Interests of a class
are not listed or admitted to trading on any National Securities Exchange, a day
on which banking institutions in New York City generally are open.
(b) If the Managing General Partner, any Affiliate of the Managing General
Partner or the Partnership elects to exercise the right to purchase Limited
Partner Interests granted pursuant to Section 15.1(a), the Managing General
Partner shall deliver to the Transfer Agent notice of such election to purchase
(the "Notice of Election to Purchase") and shall cause the Transfer Agent to
mail a copy of such Notice of Election to Purchase to the Record Holders of
Limited Partner Interests of such class (as of a Record Date selected by the
Managing General Partner) at least 10, but not more than 60, days prior to the
Purchase Date. Such Notice of Election to Purchase shall also be published for a
period of at least three consecutive days in at least two daily newspapers of
general circulation printed in the English language and published in the Borough
of Manhattan, New York. The Notice of Election to Purchase shall specify the
Purchase Date and the price (determined in accordance with Section 15.1(a)) at
which Limited Partner Interests will be purchased and state that the Managing
General Partner, its Affiliate or the Partnership, as the case may be, elects to
purchase such Limited Partner Interests, upon surrender of Certificates
representing such Limited Partner Interests in exchange for payment, at such
office or offices of the Transfer Agent as the Transfer Agent may specify, or as
may be required by any National Securities Exchange on which such Limited
Partner Interests are listed or admitted to trading. Any such Notice of Election
to Purchase mailed to a Record Holder of Limited Partner Interests at his
address as reflected in the records of the Transfer Agent shall be conclusively
presumed to have been given regardless of whether the owner receives such
notice. On or prior to the Purchase Date, the Managing General Partner, its
Affiliate or the Partnership, as the case may be, shall deposit with the
Transfer Agent cash in an amount sufficient to pay the aggregate purchase price
of all of such Limited Partner Interests to be purchased in accordance with this
Section 15.1. If the Notice of Election to Purchase shall have been duly given
as aforesaid at least 10 days prior to the Purchase Date, and if on or prior to
the Purchase Date the deposit described in the preceding sentence has been made
for the benefit of the holders of Limited Partner Interests subject to purchase
as provided herein, then from and after the Purchase Date, notwithstanding that
any Certificate shall not have been surrendered for purchase, all rights of the
holders of such Limited Partner Interests (including any rights pursuant to
Articles IV, V, VI, and XII) shall thereupon cease, except the right to receive
the purchase price (determined in accordance with Section 15.1(a)) for Limited
Partner Interests therefor, without interest, upon surrender to the Transfer
Agent of the Certificates representing such Limited Partner Interests, and such
Limited Partner Interests shall thereupon be deemed to be transferred to the
Managing General Partner, its Affiliate or the Partnership, as the case may be,
on the record books of the Transfer Agent and the Partnership, and the Managing
General Partner or any Affiliate of the Managing General Partner, or the
Partnership, as the case may be, shall be deemed to be the owner of all such
Limited Partner Interests from and after the Purchase Date and shall have all
rights as the owner of such Limited Partner Interests (including all rights as
owner of such Limited Partner Interests pursuant to Articles IV, V, VI and XII).
(c) At any time from and after the Purchase Date, a holder of an
Outstanding Limited Partner Interest subject to purchase as provided in this
Section 15.1 may surrender his Certificate evidencing such
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Limited Partner Interest to the Transfer Agent in exchange for payment of the
amount described in Section 15.1(a), therefor, without interest thereon.
ARTICLE XVI
GENERAL PROVISIONS
SECTION 16.1 Addresses and Notices.
Any notice, demand, request, report or proxy materials required or
permitted to be given or made to a Partner or Assignee under this Agreement
shall be in writing and shall be deemed given or made when delivered in person
or when sent by first class United States mail or by other means of written
communication to the Partner or Assignee at the address described below. Any
notice, payment or report to be given or made to a Partner or Assignee hereunder
shall be deemed conclusively to have been given or made, and the obligation to
give such notice or report or to make such payment shall be deemed conclusively
to have been fully satisfied, upon sending of such notice, payment or report to
the Record Holder of such Partnership Securities at his address as shown on the
records of the Transfer Agent or as otherwise shown on the records of the
Partnership, regardless of any claim of any Person who may have an interest in
such Partnership Securities by reason of any assignment or otherwise. An
affidavit or certificate of making of any notice, payment or report in
accordance with the provisions of this Section 16.1 executed by the Managing
General Partner, the Transfer Agent or the mailing organization shall be prima
facie evidence of the giving or making of such notice, payment or report. If any
notice, payment or report addressed to a Record Holder at the address of such
Record Holder appearing on the books and records of the Transfer Agent or the
Partnership is returned by the United States Postal Service marked to indicate
that the United States Postal Service is unable to deliver it, such notice,
payment or report and any subsequent notices, payments and reports shall be
deemed to have been duly given or made without further mailing (until such time
as such Record Holder or another Person notifies the Transfer Agent or the
Partnership of a change in his address) if they are available for the Partner or
Assignee at the principal office of the Partnership for a period of one year
from the date of the giving or making of such notice, payment or report to the
other Partners and Assignees. Any notice to the Partnership shall be deemed
given if received by the Managing General Partner at the principal office of the
Partnership designated pursuant to Section 2.3. The Managing General Partner may
rely and shall be protected in relying on any notice or other document from a
Partner, Assignee or other Person if believed by it to be genuine.
SECTION 16.2 Further Action.
The parties shall execute and deliver all documents, provide all
information and take or refrain from taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.
SECTION 16.3 Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.
SECTION 16.4 Integration.
This Agreement constitutes the entire agreement among the parties hereto
pertaining to the subject matter hereof and supersedes all prior agreements and
understandings pertaining thereto.
SECTION 16.5 Creditors.
None of the provisions of this Agreement shall be for the benefit of, or
shall be enforceable by, any creditor of the Partnership.
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SECTION 16.6 Waiver.
No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute waiver of any
such breach of any other covenant, duty, agreement or condition.
SECTION 16.7 Counterparts.
This Agreement may be executed in counterparts, all of which together shall
constitute an agreement binding on all the parties hereto, notwithstanding that
all such parties are not signatories to the original or the same counterpart.
Each party shall become bound by this Agreement immediately upon affixing its
signature hereto or, in the case of a Person acquiring a Unit, upon accepting
the certificate evidencing such Unit or executing and delivering a Transfer
Application as herein described, independently of the signature of any other
party.
SECTION 16.8 Applicable Law.
This Agreement shall be construed in accordance with and governed by the
laws of the State of Delaware, without regard to the principles of conflicts of
law.
SECTION 16.9 Invalidity of Provisions.
If any provision of this Agreement is or becomes invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby.
SECTION 16.10 Consent of Partners.
Each Partner hereby expressly consents and agrees that, whenever in this
Agreement it is specified that an action may be taken upon the affirmative vote
or consent of less than all of the Partners, such action may be so taken upon
the concurrence of less than all of the Partners and each Partner shall be bound
by the results of such action.
[SIGNATURES ON FOLLOWING PAGE.]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
MANAGING GENERAL PARTNER:
ALLIANCE RESOURCE MANAGEMENT GP, LLC
By:
----------------------------------
Name:
---------------------------------
Title:
---------------------------------
SPECIAL GENERAL PARTNER
ALLIANCE RESOURCE GP, LLC
By:
----------------------------------
Name:
---------------------------------
Title:
---------------------------------
ORGANIZATIONAL LIMITED PARTNER:
------------------------------------
THOMAS L. PEARSON
LIMITED PARTNERS:
All Limited Partners now and
hereafter admitted as Limited
Partners of the Partnership,
pursuant to powers of attorney now
and hereafter executed in favor of,
and granted and delivered to the
Managing General Partner.
ALLIANCE RESOURCE MANAGEMENT GP, LLC
By:
----------------------------------
Name:
---------------------------------
Title:
---------------------------------
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EXHIBIT A
TO THE FIRST AMENDED AND
RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF
ALLIANCE RESOURCE PARTNERS, L.P.
CERTIFICATE EVIDENCING COMMON UNITS
REPRESENTING LIMITED PARTNER INTERESTS IN
ALLIANCE RESOURCE PARTNERS, L.P.
No. Common Units
In accordance with Section 4.1 of the First Amended and Restated Agreement
of Limited Partnership of Alliance Resource Partners, L.P., as amended,
supplemented or restated from time to time (the "Partnership Agreement"),
Alliance Resource Partners, L.P., a Delaware limited partnership (the
"Partnership"), hereby certifies that (the "Holder") is the registered
owner of Common Units representing limited partner interests in the
Partnership (the "Common Units") transferable on the books of the Partnership,
in person or by duly authorized attorney, upon surrender of this Certificate
properly endorsed and accompanied by a properly executed application for
transfer of the Common Units represented by this Certificate. The rights,
preferences and limitations of the Common Units are set forth in, and this
Certificate and the Common Units represented hereby are issued and shall in all
respects be subject to the terms and provisions of, the Partnership Agreement.
Copies of the Partnership Agreement are on file at, and will be furnished
without charge on delivery of written request to the Partnership at, the
principal office of the Partnership located at 1717 South Boulder Avenue, Tulsa,
Oklahoma 74119. Capitalized terms used herein but not defined shall have the
meanings given them in the Partnership Agreement.
The Holder, by accepting this Certificate, is deemed to have (i) requested
admission as, and agreed to become, a Limited Partner and to have agreed to
comply with and be bound by and to have executed the Partnership Agreement, (ii)
represented and warranted that the Holder has all right, power and authority
and, if an individual, the capacity necessary to enter into the Partnership
Agreement, (iii) granted the powers of attorney provided for in the Partnership
Agreement and (iv) made the waivers and given the consents and approvals
contained in the Partnership Agreement.
This Certificate shall not be valid for any purpose unless it has been
countersigned and registered by the Transfer Agent and Registrar.
<TABLE>
<S> <C>
DATED: ALLIANCE RESOURCE PARTNERS, L.P.
Countersigned and Registered by: By: Alliance Resource Management GP, LLC,
its Managing General Partner
------------------------------------------ By:
as Transfer Agent and Registrar --------------------------------------------
Name:
--------------------------------------------
By:
------------------------------------------
Authorized Signature By:
--------------------------------------------
Secretary
</TABLE>
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[REVERSE OF CERTIFICATE]
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as follows according to applicable laws or
regulations:
<TABLE>
<S> <C> <C> <C>
TEN COM - as tenants in common UNIF GIFT/TRANSFERS MIN ACT
TEN ENT - as tenants by the entireties --------------- Custodian
---------------
JT TEN - as joint tenants with right of (Cust) (Minor)
survivorship and not as tenants under Uniform
in common Gifts/Transfers to
Minors Act
---------------------------
(State)
</TABLE>
Additional abbreviations, though not in the above list, may also be used.
ASSIGNMENT OF COMMON UNITS
IN
ALLIANCE RESOURCE PARTNERS, L.P.
IMPORTANT NOTICE REGARDING INVESTOR
RESPONSIBILITIES DUE TO TAX SHELTER STATUS OF
ALLIANCE RESOURCE PARTNERS, L.P.
You have acquired an interest in Alliance Resource Partners, L.P., 1717
South Boulder Avenue, Tulsa, Oklahoma 74119, whose taxpayer identification
number is . The Internal Revenue Service has issued Alliance Resource
Partners, L.P. the following tax shelter registration number: .
YOU MUST REPORT THIS REGISTRATION NUMBER TO THE INTERNAL REVENUE SERVICE IF
YOU CLAIM ANY DEDUCTION, LOSS, CREDIT OR OTHER TAX BENEFIT OR REPORT ANY INCOME
BY REASON OF YOUR INVESTMENT IN ALLIANCE RESOURCE PARTNERS, L.P.
You must report the registration number as well as the name and taxpayer
identification number of Alliance Resource Partners, L.P. on Form 8271. FORM
8271 MUST BE ATTACHED TO THE RETURN ON WHICH YOU CLAIM THE DEDUCTION, LOSS,
CREDIT OR OTHER TAX BENEFIT OR REPORT ANY INCOME BY REASON OF YOUR INVESTMENT IN
ALLIANCE RESOURCE PARTNERS, L.P.
If you transfer your interest in Alliance Resource Partners, L.P. to
another person, you are required by the Internal Revenue Service to keep a list
containing (a) that person's name, address and taxpayer identification number,
(b) the date on which you transferred the interest and (c) the name, address and
tax shelter registration number of Alliance Resource Partners, L.P. If you do
not want to keep such a list, you must (1) send the information specified above
to the Partnership, which will keep the list for this tax shelter, and (2) give
a copy of this notice to the person to whom you transfer your interest. Your
failure to comply with any of the above-described responsibilities could result
in the imposition of a penalty under Section 6707(b) or 6708(a) of the Internal
Revenue Code of 1986, as amended, unless such failure is shown to be due to
reasonable cause.
ISSUANCE OF A REGISTRATION NUMBER DOES NOT INDICATE THAT THIS INVESTMENT OR
THE CLAIMED TAX BENEFITS HAVE BEEN REVIEWED, EXAMINED OR APPROVED BY THE
INTERNAL REVENUE SERVICE.
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FOR VALUE RECEIVED,
-------------------------- HEREBY ASSIGNS, CONVEYS, SELLS AND TRANSFERS
UNTO
<TABLE>
<S> <C>
- -------------------------------------------- --------------------------------------------
(Please print or typewrite name (Please insert Social Security or other
and address of Assignee) identifying
and number of Assignee)
</TABLE>
- ---------- Common Units representing limited partner interests evidenced by this
Certificate, subject to the Partnership Agreement, and does hereby irrevocably
constitute and appoint
- ------------- as its attorney-in-fact with full power of substitution to
transfer the same on the books of Alliance Resource Partners, L.P.
<TABLE>
<S> <C> <C>
Date: NOTE: The signature to any endorsement hereon must
correspond with the name as written upon the
face of this Certificate in every particular,
without alteration, enlargement or change.
SIGNATURE(S) MUST BE GUARANTEED BY A ------------------------------------------------
MEMBER FIRM OF THE NATIONAL ASSOCIATION (Signature)
OF SECURITIES DEALERS, INC. OR BY A
COMMERCIAL BANK OR TRUST COMPANY ------------------------------------------------
(Signature)
</TABLE>
SIGNATURE(S) GUARANTEED
No transfer of the Common Units evidenced hereby will be registered on the
books of the Partnership, unless the Certificate evidencing the Common Units to
be transferred is surrendered for registration or transfer and an Application
for Transfer of Common Units has been executed by a transferee either (a) on the
form set forth below or (b) on a separate application that the Partnership will
furnish on request without charge. A transferor of the Common Units shall have
no duty to the transferee with respect to execution of the transfer application
in order for such transferee to obtain registration of the transfer of the
Common Units.
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APPLICATION FOR TRANSFER OF COMMON UNITS
The undersigned ("Assignee") hereby applies for transfer to the name of the
Assignee of the Common Units evidenced hereby.
The Assignee (a) requests admission as a Substituted Limited Partner and
agrees to comply with and be bound by, and hereby executes, the First Amended
and Restated Agreement of Limited Partnership of Alliance Resource Partners,
L.P. (the "Partnership"), as amended, supplemented or restated to the date
hereof (the "Partnership Agreement"), (b) represents and warrants that the
Assignee has all right, power and authority and, if an individual, the capacity
necessary to enter into the Partnership Agreement, (c) appoints the General
Partner of the Partnership and, if a Liquidator shall be appointed, the
Liquidator of the Partnership as the Assignee's attorney-in-fact to execute,
swear to, acknowledge and file any document, including, without limitation, the
Partnership Agreement and any amendment thereto and the Certificate of Limited
Partnership of the Partnership and any amendment thereto, necessary or
appropriate for the Assignee's admission as a Substituted Limited Partner and as
a party to the Partnership Agreement, (d) gives the powers of attorney provided
for in the Partnership Agreement, and (e) makes the waivers and gives the
consents and approvals contained in the Partnership Agreement. Capitalized terms
not defined herein have the meanings assigned to such terms in the Partnership
Agreement.
<TABLE>
<S> <C>
Date: --------------------------------------------
- --------------------------------------------
Signature of Assignee
- -------------------------------------------- --------------------------------------------
Social Security or other identifying number Name and Address of Assignee
of Assignee
- --------------------------------------------
Purchase Price including commissions, if any
</TABLE>
Type of Entity (check one):
<TABLE>
<S> <C> <C>
[ ] Individual [ ] Partnership [ ] Corporation
[ ] Trust [ ] Other (specify)
</TABLE>
Nationality (check one):
<TABLE>
<S> <C> <C>
[ ] U.S. Citizen, Resident or Domestic Entity
[ ] Foreign Corporation [ ] Non-resident Alien
</TABLE>
If the U.S. Citizen, Resident or Domestic Entity box is checked, the
following certification must be completed.
Under Section 1445(e) of the Internal Revenue Code of 1986, as amended (the
"Code"), the Partnership must withhold tax with respect to certain transfers of
property if a holder of an interest in the Partnership is a foreign person. To
inform the Partnership that no withholding is required with respect to the
undersigned interestholder's interest in it, the undersigned hereby certifies
the following (or, if applicable, certifies the following on behalf of the
interestholder).
Complete Either A or B:
A. Individual Interestholder
1. I am not a non-resident alien for purposes of U.S. income taxation.
2. My U.S. taxpayer identification number (Social Security Number) is
--------------------------------- .
3. My home address is
- --------------------------------------------------------------------------- .
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B. Partnership, Corporation or Other Interestholder
1. (Name of Interestholder) is not a foreign corporation, foreign
partnership, foreign trust or foreign estate (as those terms are defined
in the Code and Treasury Regulations).
2. The interestholder's U.S. employer identification number is
------------------------------------------- .
3. The interestholder's office address and place of incorporation (if
applicable) is
-------------------------- .
The interestholder agrees to notify the Partnership within sixty (60) days
of the date the interestholder becomes a foreign person.
The interestholder understands that this certificate may be disclosed to
the Internal Revenue Service by the Partnership and that any false statement
contained herein could be punishable by fine, imprisonment or both.
Under penalties of perjury, I declare that I have examined this
certification and to the best of my knowledge and belief it is true, correct and
complete and, if applicable, I further declare that I have authority to sign
this document on behalf of:
------------------------------------------------
Name of Interestholder
------------------------------------------------
Signature and Date
------------------------------------------------
Title (if applicable)
Note: If the Assignee is a broker, dealer, bank, trust company, clearing
corporation, other nominee holder or an agent of any of the foregoing, and is
holding for the account of any other person, this application should be
completed by an officer thereof or, in the case of a broker or dealer, by a
registered representative who is a member of a registered national securities
exchange or a member of the National Association of Securities Dealers, Inc.,
or, in the case of any other nominee holder, a person performing a similar
function. If the Assignee is a broker, dealer, bank, trust company, clearing
corporation, other nominee owner or an agent of any of the foregoing, the above
certification as to any person for whom the Assignee will hold the Common Units
shall be made to the best of the Assignee's knowledge.
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APPENDIX B
No transfer of the Common Units evidenced hereby will be registered on the
books of the Partnership, unless the Certificate evidencing the Common Units to
be transferred is surrendered for registration or transfer and an Application
for Transfer of Common Units has been executed by a transferee either (a) on the
form set forth below or (b) on a separate application that the Partnership will
furnish on request without charge. A transferor of the Common Units shall have
no duty to the transferee with respect to execution of the transfer application
in order for such transferee to obtain registration of the transfer of the
Common Units.
APPLICATION FOR TRANSFER OF COMMON UNITS
The undersigned ("Assignee") hereby applies for transfer to the name of the
Assignee of the Common Units evidenced hereby.
The Assignee (a) requests admission as a Substituted Limited Partner and
agrees to comply with and be bound by, and hereby executes, the Amended and
Restated Agreement of Limited Partnership of Alliance Resource Partners, L.P.
(the "Partnership"), as amended, supplemented or restated to the date hereof
(the "Partnership Agreement"), (b) represents and warrants that the Assignee has
all right, power and authority and, if an individual, the capacity necessary to
enter into the Partnership Agreement, (c) appoints the General Partner of the
Partnership and, if a Liquidator shall be appointed, the Liquidator of the
Partnership as the Assignee's attorney-in-fact to execute, swear to, acknowledge
and file any document, including, without limitation, the Partnership Agreement
and any amendment thereto and the Certificate of Limited Partnership of the
Partnership and any amendment thereto, necessary or appropriate for the
Assignee's admission as a Substituted Limited Partner and as a party to the
Partnership Agreement, (d) gives the powers of attorney provided for in the
Partnership Agreement, and (e) makes the waivers and gives the consents and
approvals contained in the Partnership Agreement. Capitalized terms not defined
herein have the meanings assigned to such terms in the Partnership Agreement.
Date:
- ------------------
- ------------------------------------------------------
Social Security or other identifying number of Assignee
- ------------------------------------------------------
Purchase Price including commissions, if any
- ------------------------------------------------------
Signature of Assignee
- ------------------------------------------------------
Name and Address of Assignee
Type of Entity (check one):
<TABLE>
<S> <C> <C>
[ ] Individual [ ] Partnership [ ] Corporation
[ ] Trust [ ] Other (specify) ------------------------------------
</TABLE>
Nationality (check one):
[ ] U.S. Citizen, Resident or Domestic Entity
[ ] Foreign Corporation [ ] Non-resident Alien
If the U.S. Citizen, Resident or Domestic Entity box is checked, the
following certification must be completed.
Under Section 1445(e) of the Internal Revenue Code of 1986, as amended (the
"Code"), the Partnership must withhold tax with respect to certain transfers of
property if a holder of an interest in the Partnership is a foreign person. To
inform the Partnership that no withholding is required with respect to the
undersigned interestholder's interest in it, the undersigned hereby certifies
the following (or, if applicable, certifies the following on behalf of the
interestholder).
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Complete Either A or B:
A. Individual Interestholder
1. I am not a non-resident alien for purposes of U.S. income taxation.
2. My U.S. taxpayer identification number (Social Security Number) is
----------------------------- .
3. My home address is
----------------------------------------------------------------- .
B. Partnership, Corporation or Other Interestholder
<TABLE>
<S> <C>
1. is not a foreign corporation, foreign partnership,
------------------------------------ foreign trust or foreign estate (as those terms are
(Name of Interestholder) defined in the Code and Treasury Regulations).
</TABLE>
2. The interestholder's U.S. employer identification number is
----------------------------------- .
3. The interestholder's office address and place of incorporation (if
applicable) is
------------------------------------- .
The interestholder agrees to notify the Partnership within sixty (60) days
of the date the interestholder becomes a foreign person.
The interestholder understands that this certificate may be disclosed to
the Internal Revenue Service by the Partnership and that any false statement
contained herein could be punishable by fine, imprisonment or both.
Under penalties of perjury, I declare that I have examined this
certification and to the best of my knowledge and belief it is true, correct and
complete and, if applicable, I further declare that I have authority to sign
this document on behalf of:
------------------------------------------------------
Name of Interestholder
------------------------------------------------------
Signature and Date
------------------------------------------------------
Title (if applicable)
Note: If the Assignee is a broker, dealer, bank, trust company, clearing
corporation, other nominee holder or an agent of any of the foregoing, and is
holding for the account of any other person, this application should be
completed by an officer thereof or, in the case of a broker or dealer, by a
registered representative who is a member of a registered national securities
exchange or a member of the National Association of Securities Dealers, Inc.,
or, in the case of any other nominee holder, a person performing a similar
function. If the Assignee is a broker, dealer, bank, trust company, clearing
corporation, other nominee owner or an agent of any of the foregoing, the above
certification as to any person for whom the Assignee will hold the Common Units
shall be made to the best of the Assignee's knowledge.
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APPENDIX C
GLOSSARY OF TERMS
Adjusted Operating Surplus: For any period, Operating Surplus generated
during that period as adjusted to:
(a) decrease Operating Surplus by:
(1) any net increase in working capital borrowings during that
period, and
(2) any net reduction in cash reserves for Operating Expenditures
during that period not relating to an Operating Expenditure made during
that period; and
(b) increase Operating Surplus by:
(1) any net decrease in working capital borrowings during that
period; and
(2) any net increase in cash reserves for Operating Expenditures
during that period required by any debt instrument for the repayment of
principal, interest or premium.
Adjusted Operating Surplus does not include that portion of Operating
Surplus included in clause (a)(1) of the definition of Operating Surplus.
Anthracite: The highest rank of economically usable coal with moisture
content less than 15% by weight and heat value as high as 15,000 Btus per pound.
Ash: Impurities consisting of incombustible matter that are contained in
coal. Since ash increases the weight of coal, it adds to the cost of
transportation handling, and can affect the burning characteristics of coal.
Coal with a higher percentage of ash will have a lower heating value.
Available Cash: For any quarter prior to liquidation:
(a) the sum of:
(1) all cash and cash equivalents of the Alliance Resource Partners
and its subsidiaries on hand at the end of that quarter; and
(2) all additional cash and cash equivalents of Alliance Resource
Partners and its subsidiaries on hand on the date of determination of
Available Cash for that quarter resulting from Working Capital
Borrowings after the end of that quarter;
(b) less the amount of cash reserves that is necessary or appropriate
in the reasonable discretion of the managing general partner to:
(1) provide for the proper conduct of the business of Alliance
Resource Partners and its subsidiaries (including reserves for future
capital expenditures) after that quarter;
(2) provide funds for minimum quarterly distributions and
cumulative common unit arrearages for any one or more of the next four
quarters; and
(3) comply with applicable law or any debt instrument or other
agreement or obligation to which any member of Alliance Resource
Partners and its subsidiaries is a party or its assets are subject;
provided, however, that the managing general partner may not establish
cash reserves for distributions to the subordinated units unless the
managing general partner has determined that in its judgment the
establishment of reserves will not prevent Alliance Resource Partners from
distributing the minimum quarterly distribution on all common units and any
common unit arrearages thereon for the next four quarters; and,
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provided further, that disbursements made by Alliance Resource
Partners and its subsidiaries or cash reserves established, increased or
reduced after the end of that quarter but on or before the date of
determination of Available Cash for that quarter shall be deemed to have
been made, established, increased or reduced, for purposes of determining
Available Cash, within that quarter if the managing general partner so
determines.
Baseload Electricity Demand: The amount of power that is consistently
required 24 hours per day.
Bituminous Coal: The most common type of coal with moisture content less
than 20% by weight and heating value of 10,500 to 14,000 Btus per pound.
British Thermal Unit, or Btu: A measure of the energy required to raise the
temperature of one pound of water one degree Fahrenheit.
Capital Account: The capital account maintained for a partner under the
amended and restated partnership agreement. The Capital Account for a common
unit, a subordinated unit or any other specified interest in Alliance Resource
Partners shall be the amount which that Capital Account will be if that common
unit, subordinated unit or other interest in Alliance Resource Partners were the
only interest in Alliance Resource Partners held by a partner.
Capital Surplus: All Available Cash distributed by Alliance Resource
Partners from any source will be treated as distributed from Operating Surplus
until the sum of all Available Cash distributed since the commencement of
Alliance Resource Partners equals the Operating Surplus as of the end of the
quarter before that distribution. Any excess Available Cash will be deemed to be
Capital Surplus.
Clean Air Act: The Clean Air Act indirectly affects coal mining operations
by regulating the air emissions of coal-fired electric power generating plants.
Title IV of the Clean Air Act Amendments places limits on the sulfur dioxide
emissions from electric power generation plants. Reductions in emissions are
mandated to occur in two phases, the first having begun in 1996 ("Phase I")
which is applicable to identified facilities, and the second in the year 2000
("Phase II") which is applicable to all facilities, including those already
identified by Phase I. The affected utilities may meet these requirements by
switching to lower sulfur fuels, by installing pollution control devices such as
scrubbers, by reducing electricity generating levels or by purchasing or trading
so-called "pollution credits." Specific emission sources will receive these
pollution credits which utilities and industrial concerns can trade or sell to
allow other units to emit higher levels of sulfur dioxide.
The Clean Air Act contains provisions which, among other things, are aimed
at controlling acid rain and the production of chemicals that deplete the
earth's ozone layer. The Act's provisions are contained in six Titles. Of
greatest significance to coal mining and processing operations and to
coal-burning electric power generation plants are Titles I, Air Quality
Standards, and IV, Acid Deposition Control. It is important to note that in most
instances, equivalent Clean Air Act state legislation allows individual states
to administer those Clean Air Act Titles in lieu of the Federal government.
Therefore, those Titles impact coal mining and processing operations and
coal-burning electric power generation plants through complex permitting and
emission control requirements directed at a variety of air pollutants, including
sulfur dioxide ("SO(2)"), particulate matter, nitrogen oxides and mercury.
Title I addresses air pollution from stationary sources by, among other
things, establishing national ambient air quality standards for each air
pollutant for which air quality standards have been issued by the Environmental
Protection Agency. Title I also establishes a framework for the technology-based
control of hazardous air pollutants such as mercury, which are typically emitted
by coal-burning electric power generation plants. In addition, Title I
establishes a program, known as the "Prevention of Significant Deterioration" or
"PSD" program that regulates emissions growth in areas that have achieved
compliance with the national ambient air quality standards. This aspect of Title
I is also of great significance to coal-burning electric power generation plants
because it requires the Environmental Protection Agency to set limits on the
amount of sulfur dioxide, nitrogen oxides, and particulate matter pollution
allowed in a given PSD area. These requirements also impact coal processing
operations, especially those that employ thermal
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dryers. All new and modified sources that emit more than a specified annual
tonnage of any regulated air pollutant such as SO(2) must attain PSD permits
before commencing construction.
Title IV is directed at reducing the effects of acid rain, and therefore
principally applies to emissions of sulfur dioxide. Title IV envisions a gradual
reduction and eventual cap on the amount of SO(2) emitted by coal-burning
electric power generation plants in the United States. It sets up a two-phase
program with Phase I beginning January 1, 1995, and Phase II beginning January
1, 2000, during which time these plants will be required to reduce sulfur
dioxide emissions by an amount, expressed in pounds per million Btus, multiplied
by an average of the source's historical fuel consumption. Following the
establishment by the Environmental Protection Agency of allowances based on
those computations, coal-burning electric power generation plants will be
required either to implement emissions reduction programs to meet their
allowable emissions or to purchase "allowances" on the open market.
Closing Price: The last sale price on a day, regular way, or in case no
sale takes place on that day, the average of the closing bid and asked prices on
that day, regular way. In either case, as reported in the principal consolidated
transaction reporting system for securities listed or admitted to trading on the
principal national securities exchange on which the units of that class are
listed or admitted to trading. If the units of that class are not listed or
admitted to trading on any national securities exchange, the last quoted price
on that day. If no quoted price exists, the average of the high bid and low
asked prices on that day in the over-the-counter market, as reported by the
Nasdaq Stock Market or any other system then in use. If on any day the units of
that class are not quoted by any organization of that type, the average of the
closing bid and asked prices on that day as furnished by a professional market
maker making a market in the units of the class selected by the board of
directors of the managing general partner. If on that day no market maker is
making a market in the units of that class, the fair value of the units on that
day as determined reasonably and in good faith by the board of directors of the
managing general partner.
Coal Seam: Coal deposits occur in layers typically separated by rock. Each
layer is called a "seam."
Coke: A hard, dry carbon substance produced by heating coal to a very high
temperature in the absence of air. Coke is used in the manufacture of iron and
steel. Its production results in a number of useful by-products.
Compliance Coal: Coal which, when burned, emits less than 1.2 pounds of
sulfur dioxide per million Btu. Compliance coal meets sulfur emission standards
imposed by Phase I and II of the Clean Air Act.
Continuous Mining: A form of underground room and pillar mining, which
involves the excavation of a series of "rooms" into the coal seam leaving
"pillars" or columns of coal to help support the mine roof. A specialized
cutting machine, the continuous miner, mechanizes the extraction procedure.
Continuous miners tear the coal from the seam and load it onto conveyors or into
shuttle cars in a continuous operation.
Current Market Price: With respect to any class of units listed or admitted
to trading on any national securities exchange as of any date, the average of
the daily Closing Prices for the 20 consecutive trading days immediately prior
to the date.
Dragline: A large machine used in the surface mining process to remove the
overburden, or layers of earth and rock, covering a coal seam. The dragline has
a large bucket suspended from the end of a huge boom. The bucket, which is
suspended by cables, is able to scoop up great amounts of overburden as it is
dragged across the excavation area. These machines, which "walk" by moving huge
pontoon-like "feet," are among the largest land-based machines in the world.
Estimated Maintenance Capital Expenditures: An estimate made in good faith
by the board of directors of the managing general partner (with the concurrence
of the conflicts committee of the board of directors of the managing general
partner) of the average quarterly Maintenance Capital Expenditures that Alliance
Resource Partners will incur over the long-term. The board of directors of the
managing general partner may make the estimate in any manner it determines is
reasonable in its sole discretion. The
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estimate will be made annually and whenever an event occurs that is likely to
result in a material adjustment to the amount of Maintenance Capital
Expenditures on a long-term basis. Alliance Resource Partners shall disclose to
its partners the amount of Estimated Maintenance Capital Expenditures. Except as
provided in the definition of Subordination Period, any adjustments to Estimated
Maintenance Capital Expenditures shall be prospective only.
Expansion Capital Expenditures: Cash capital expenditures for acquisitions
or capital improvements. Expansion Capital Expenditures shall not include
Maintenance Capital Expenditures.
High-sulfur Coal: Coal with a sulfur content of greater than 2%.
Interim Capital Transactions:
(a) borrowings, refinancings or refundings of indebtedness and sales
of debt securities (other than Working Capital Borrowings and other than
for items purchased on open account in the ordinary course of business) by
any member of Alliance Resource Partners and its subsidiaries;
(b) sales of equity interests (including one-half of the common units
sold to the underwriters in the exercise of their over-allotment option) by
any member of Alliance Resource Partners and its subsidiaries; and
(c) sales or other voluntary or involuntary dispositions of any assets
of any member of Alliance Resource Partners and its subsidiaries (other
than sales or other dispositions of inventory in the ordinary course of
business, sales or other dispositions of other current assets, including,
without limitation, receivables and accounts, in the ordinary course of
business and sales or other dispositions of assets as a part of normal
retirements or replacements), in each case before the dissolution and
liquidation of Alliance Resource Partners.
Lignite: A brownish-black coal with a heat content that generally ranges
from 3,500 to 8,300 Btus per pound.
Longwall Mining: A form of underground mining in which two sets of parallel
entries, which can be up to 1,000 feet apart, are joined together at their far
ends by a crosscut, called the longwall. The longwall machine consists of a
rotating drum that moves back and forth across the longwall. The loosened coal
falls onto a conveyor for removal from the mine.
Low-sulfur Coal: Coal with a sulfur content of less than 1%.
Maintenance Capital Expenditures: Cash capital expenditures (including
expenditures for the addition or improvement to our capital assets or for the
acquisition of existing, or the construction of new, capital assets (including,
without limitation, coal mines, preparation plants and related assets)) if such
expenditure is made to maintain over the long-term the operating capacity of our
capital assets, as such assets existed at the time of such expenditure.
Maintenance Capital Expenditures shall not include Expansion Capital
Expenditures, but shall include reclamation and mine closing expenses.
Medium-sulfur Coal: Coal with a sulfur content between 1% and 2%.
Metallurgical Coal: The various grades of coal suitable for carbonization
to make coke for iron and steel manufacture. Also known as "met" coal, it has a
particularly high Btu, but low ash content.
Nitrogen Oxide (NO(2)): A gas formed in high temperature environments such
as coal combustion. It is reported to contribute to ground level ozone and
visibility degradation.
Operating Expenditures: All expenditures of Alliance Resource Partners and
its subsidiaries including, but not limited to, taxes, reimbursements of the
managing general partner, repayment of working capital borrowings, debt service
payments and capital expenditures, subject to the following:
(a) Payments (including prepayments) of principal of and premium on
indebtedness other than Working Capital Borrowings shall not constitute
Operating Expenditures.
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(b) Operating Expenditures shall not include Expansion Capital
Expenditures or actual Maintenance Capital Expenditures but shall include
Estimated Maintenance Capital Expenditures.
(c) Operating Expenditures shall not include (i) payment of
transaction expenses relating to Interim Capital Transactions or (ii)
distributions to partners.
Operating Surplus: means, with respect to any period before liquidation, on
a cumulative basis and without duplication:
(a) the sum of:
(1) $20 million plus the net working capital of Alliance Resource
Partners and its subsidiaries as of the close of business on the closing
date of the initial public offering;
(2) all the cash receipts of Alliance Resource Partners and its
subsidiaries for the period beginning on the closing date of the initial
public offering and ending with the last day of that period, other than
cash receipts from Interim Capital Transactions (except to the extent
specified in the amended and restated partnership agreement); and
(3) all cash receipts of Alliance Resource Partners and its
subsidiaries after the end of that period but on or before the date of
determination of Operating Surplus for the period resulting from Working
Capital Borrowings; less
(b) the sum of:
(1) Operating Expenditures for the period beginning on the date of
the closing of the initial public offering and ending with the last day
of that period; and
(2) the amount of cash reserves that is necessary or advisable in
the reasonable discretion of the managing general partner to provide
funds for future Operating Expenditures; provided, however, that
disbursements made (including contributions to Alliance Resource
Partners or any of its subsidiaries or disbursements on behalf of
Alliance Resource Partners or any of its subsidiaries) or cash reserves
established, increased or reduced after the end of such period but on or
before the date of determination of Available Cash with respect to such
period shall be deemed to have been made, established, increased or
decreased for the purposes of determining Operating Surplus within such
period if the managing general partner so determines.
Notwithstanding the foregoing, "Operating Surplus" for the quarter in which the
liquidation date occurs and any later quarter shall equal zero.
Peak Electricity Demand: The maximum amount of power that is required in a
24-hour period.
Preparation Plant: Usually located on a mine site, although one plant may
serve several mines. A preparation plant is a facility for sizing and washing
coal to prepare it for use by a particular customer. The washing process removes
ash from the coal and has the added benefit of removing some of the coal's
sulfur content.
Probable Reserves: Reserves for which quantity and grade and/or quality are
computed from information similar to that used for proven reserves, but the
sites for inspection, sampling, and measurement are farther apart or are
otherwise less adequately spaced. The degree of assurance, although lower than
that for proven reserves, is high enough to assume continuity between points of
observation. Also known as "indicated" reserves.
Proven Reserves: Reserves for which (a) quantity is computed from
dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or
quality are computed from the results of detailed sampling and (b) the sites for
inspection, sampling and measurement are spaced so closely and the geologic
character is so well defined that size, shape, depth and mineral content of
reserves are well-established. Also known as "measured" reserves.
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Reclamation: The restoration of land and environmental values to a mining
site after the coal is extracted. Reclamation operations are usually underway
where the coal has already been taken from a mine even as mining operations are
taking place elsewhere at the site. The process commonly includes "recontouring"
or reshaping the land to its approximate original appearance, restoring topsoil
and planting native grass and ground covers. Reclamation is closely regulated by
both state and federal law.
Reserves: That part of a mineral deposit which could be economically and
legally extracted or produced at the time of the reserve determination.
Room and Pillar Mining: A system of coal mining commonly used in the United
States in which rooms are driven off the entries with pillars of coal left
standing between them for temporary or permanent roof support.
Scrubber (flue gas desulfurization unit): Any of several forms of
chemical/physical devices which operate to neutralize sulfur compounds formed
during coal combustion. These devices combine the sulfur in gaseous emissions
with other chemicals to form inert compounds, such as gypsum, which must then be
removed for disposal.
Spot Market: Sales of coal pursuant to an agreement for shipments over a
period of one year or less. Spot market sales are generally obtained via a
competitive bidding process.
Steam Coal: Coal used by power plants and industrial boilers to produce
steam for the generation or heating processes. It generally is lower in Btu heat
content and higher in volatile matter than metallurgical coal.
Subbituminous Coal: Dull, black coal that ranks between lignite and
bituminous coal. Its moisture content is between 20% and 30% by weight, and its
heat content ranges from 8,300 to 10,500 Btus per pound of coal.
Subordination Period: The subordination period will extend from the date of
the closing of the initial public offering until the first to occur of the
following:
(a) the first day of any quarter beginning on or after September 30,
2004 for which:
(1) distributions of Available Cash from Operating Surplus on each
of the outstanding common units and subordinated units, equaled or
exceeded the sum of the minimum quarterly distribution on all of the
outstanding common units and subordinated units for each of the three
non-overlapping four-quarter periods immediately preceding that date;
(2) the Adjusted Operating Surplus, generated during each of the
three immediately preceding, non-overlapping four quarter periods
equaled or exceeded the sum of minimum quarterly distribution on all of
the common units and subordinated units that were outstanding during
those periods on a fully diluted basis and the related distribution on
the general partner interests in Alliance Resource Partners, the
intermediate partnership and the managing member interest in the
operating subsidiary during these periods; and
(3) there are no arrearages in payment of the minimum quarterly
distribution on the common units.
(b) the date on which the managing general partner is removed as
managing general partner of Alliance Resource Partners upon the requisite
vote by limited partners under circumstances where cause does not exist and
units held by the general partners and their affiliates are not voted in
favor of removal.
Before the end of the subordination period, 50% of the subordinated units
will convert to common units if the tests set forth below are met for any
quarter ending on or after September 30, 2003:
(1) distributions of Available Cash from Operating Surplus on each
of the outstanding common units and subordinated units, equaled or
exceeded the sum of the minimum quarterly
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distribution on all of the outstanding common units and subordinated
units for each of the three non-overlapping four-quarter periods
immediately preceding that date;
(2) the Adjusted Operating Surplus, generated during each of the
two immediately preceding, non-overlapping four quarter periods equaled
or exceeded 110% of the sum of minimum quarterly distribution on all of
the common units and subordinated units that were outstanding during
those periods on a fully diluted basis and the related distribution on
the general partner interests in Alliance Resource Partners, the
intermediate partnership and the managing member interest in the
operating subsidiary during these periods; and
(3) there are no arrearages in payment of the minimum quarterly
distribution on the common units.
For purposes of determining whether the test in clauses (a)(2) and (b)(2)
above have been satisfied, Adjusted Operating Surplus will be adjusted upwards
or downwards if the conflicts committee of the board of directors of the
managing general partner determines in good faith that the amount of Estimated
Maintenance Capital Expenditures used in the determination of Adjusted Operating
Surplus in either clause (2) was materially incorrect, based on circumstances
prevailing at the time of original determination of Estimated Maintenance
Capital Expenditures, for any one or more of the preceding three four-quarter
periods.
Sulfur: One of the elements present in varying quantities in coal. Sulfur
dioxide (SO(2)) is produced as a gaseous byproduct of coal combustion.
Tons: A "short" or net ton is equal to 2,000 pounds. A "long" or British
ton is 2,240 pounds. A "metric" ton is approximately 2,205 pounds. The short ton
is the unit of measure referred to in this document.
Units: The term "units" refers to both common units and subordinated units,
but not the general partner interest.
Volatile Matter: Combustible matter which is vaporized in the combustion
process. Power plant boilers are designed to burn coal containing specific
amounts of volatile matter.
Working Capital Borrowings: Borrowings under our facility or other
arrangement requiring all of its borrowings to be reduced to a relatively small
amount each year for an economically meaningful period of time. Borrowings that
are not intended exclusively for working capital purposes shall not be treated
as Working Capital Borrowings.
C-7
<PAGE> 280
APPENDIX D
PRO FORMA AVAILABLE CASH FROM
OPERATING SURPLUS
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
1998 1999
------------ ---------------
(IN THOUSANDS)
<S> <C> <C>
Pro forma net loss........................................ $ (6,558) $ (499)
Add: Depreciation, depletion, and amortization........... 39,838 9,933
Change in advance royalties......................... 579 507
Reclamation accrual................................. 705 87
Less: Pro forma maintenance capital expenditures(a)....... (18,000) (5,250)
-------- -------
Pro forma Available Cash from Operating
Surplus(b)(c)(d)(e)..................................... $ 16,564 $ 4,778
======== =======
Add: Unusual item(f)..................................... $ 5,211 $ --
Add: Interest income(g).................................. 2,605 651
Less: Additional maintenance capital expenditures(h)...... (5,500) (625)
Less: Additional administrative expenses(i)............... (1,000) (250)
-------- -------
Pro forma Available Cash from Operating Surplus, as
adjusted(j)(k)(l)................................... $ 17,880 $ 4,554
======== =======
</TABLE>
- ------------------
(a) Consistent with the requirements of the partnership agreement, we have
deducted an amount of maintenance capital expenditures which we determined
would have been appropriate for our level of operations in 1998.
(b) The pro forma adjustments in the unaudited pro forma financial statements
are based upon currently available information and various estimates and
assumptions. The unaudited pro forma financial statements do not purport to
present the financial position or results of operations of Alliance Resource
Partners had the transactions to be effected at the closing of this offering
actually been completed as of the date indicated. As a consequence, the
amount of pro forma Available Cash from Operating Surplus shown above should
only be viewed as a general indication of the amount of Available Cash from
Operating Surplus that may have been generated by Alliance Resource Partners
had it been formed in an earlier period.
(c) The amount of Available Cash constituting Operating Surplus needed to pay
the minimum quarterly distribution for one quarter and for four quarters on
the common units, the subordinated units and the general partner interest to
be outstanding immediately after the transactions is approximately:
<TABLE>
<CAPTION>
FOUR ONE
QUARTERS QUARTER
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Common units............................................. $17,939 $ 4,485
Subordinated units....................................... 12,826 3,207
Combined 2% general partner interest..................... 628 157
------- -------
Total.......................................... $31,393 $ 7,849
======= =======
</TABLE>
(d) Our pro forma Available Cash from Operating Surplus generated during 1998
would have been sufficient to pay approximately 90% of the minimum quarterly
distribution on the common units and would have been insufficient to make a
distribution on the subordinated units.
(e) Our pro forma Available Cash from Operating Surplus generated during the
first quarter of 1999 would have been sufficient to allow us to pay the full
minimum quarterly distribution on the common units and a portion of the
minimum quarterly distribution on the subordinated units.
D-1
<PAGE> 281
(f) The unusual item relates to a net loss of approximately $5.2 million
incurred in connection with the temporary suspension of operations at
Pontiki/Excel in the second half of 1998.
(g) We are required to purchase U.S. Treasury notes with the proceeds from our
term loan facility. The interest income we would have generated from the
U.S. Treasury notes would have been $2.6 million and $0.7 million for the
year ended December 31, 1998 and the three months ended March 31, 1999. This
interest income is not included in pro forma net income.
(h) Consistent with the requirements of our partnership agreement, this
adjustment reflects an increase in maintenance capital expenditures which we
have determined would be appropriate for our target level of operations in
the four quarters following the completion of our offering.
(i) We estimate that we will incur incremental general and administrative
expenses of approximately $1 million a year as a result of becoming a public
company.
(j) Our pro forma Available Cash from Operating Surplus, as adjusted, generated
during 1998 would have been sufficient to pay approximately 98% of the
minimum quarterly distribution on the common units and would have been
insufficient to make a distribution on the subordinated units.
(k) Our pro forma Available Cash from Operating Surplus, as adjusted, for the
first quarter of 1999, would have been sufficient to allow us to pay
approximately 99% of the minimum quarterly distribution on the common units
and would have been insufficient to allow us to make a distribution on the
subordinated units.
(l) In 1998 and early 1999, our financial performance was adversely impacted by
start-up costs associated with the acquisition of Hopkins County Coal as
well as the reopening of Pontiki/Excel after its temporary closing. Based on
the performance of our operations at current production levels, we believe
we would have generated sufficient operating surplus to pay the minimum
quarterly distribution on the common units, the subordinated units and the
general partner interest for the twelve-month period ended December 31, 1998
and the three-month period ended March 31, 1999.
D-2
<PAGE> 282
[Letterhead of Weir International Mining Consultants]
May 18, 1999
Thomas L. Pearson, Esq.
Senior Vice President -- Law & Administration
Alliance Resource Holdings
1717 South Boulder Avenue
Tulsa, OK 74119
Reference: Audit of Estimated Proven and Probable Coal Reserves of Selected
Mining Properties of MAPCO Coal Inc. and MC Mining, Inc.
Gentlemen:
Weir International Mining Consultants ("WIMC") has completed an overview audit
of the proven and probable coal reserves, as of March 31, 1999, for selected
mining properties of MAPCO Coal Inc. and MC Mining, Inc. (collectively,
"MAPCO"), both of which are wholly-owned subsidiaries of Alliance Resource
Holdings. The selected mining properties are Mettiki Coal Corporation, Pontiki
Coal Corporation, Webster County Coal Corporation, White County Coal
Corporation, Gibson County Coal Corporation and Hopkins County Coal, L.L.C. (all
of which are wholly-owned subsidiaries of MAPCO Coal Inc.) and MC Mining, Inc.
These proven and probable coal reserve estimates of the selected mining
properties are the responsibility of MAPCO's management. By assignment, the
objective of this summary report is to express an independent opinion on these
estimates of proven and probable coal reserves based on our audit review,
familiarity with the properties, and knowledge of the coal mining industry in
the regions being studied. As such, this summary report addresses the following
three areas: summary conclusions of our audit, definitions necessary for an
understanding of the audit conclusions, and our qualifications to conduct the
coal reserve audit.
A. SUMMARY OF CONCLUSIONS
Based on the scope and process of our audit of MAPCO's proven and probable coal
reserve estimates, it is our professional opinion that:
1. Proven and probable reserve estimates presented by MAPCO are properly
calculated in accordance with MAPCO's stated procedures and parameters,
which comply with practices and standards generally employed by and
within the coal mining industry and are consistent with the requirements
of Item 102 of Regulation S-K as well as Industry Guide 7, both of which
are promulgated pursuant to the Securities Act of 1933, as amended .
2. As of March 31, 1999, MAPCO controlled by lease, ownership, or option an
estimated 407 million product tons of proven and probable coal reserves
as summarized as follows:
<TABLE>
<CAPTION>
PROVEN AND PROBABLE
MINE/PROPERTY LOCATION MINING METHOD TONS (000)
------------- -------- ------------- -------------------
<S> <C> <C> <C>
Mettiki Mine...................... Garrett County, Maryland Underground 46,498
Excel Mining...................... Martin County, Kentucky Underground 28,922
MC Mining......................... Pike County, Kentucky Underground 24,633
Dotiki Mine....................... Webster County, Kentucky Underground 53,052
Pattiki Mine...................... White County, Illinois Underground 72,659
Gibson County..................... Gibson County, Indiana Underground 142,038
Hopkins County.................... Hopkins County, Kentucky Underground 24,820
Surface 14,849
-------
Total Proven and Probable Product Tons..................................... 407,471
=======
</TABLE>
E-1
<PAGE> 283
Alliance Resource Holdings
May 18, 1999
Page 2
MAPCO's coal resources may include tonnage in excess of the proven and probable
tons set forth above that may be mined in the future following potential
improvements in mining equipment and techniques. Such potential additional
reserves have been excluded from the summary report because they cannot be
economically extracted or produced as of March 31, 1999.
B. DEFINITIONS RELATING TO COAL RESERVE AUDIT
Definitions of terms and criteria applied in our summary study are as follows:
Reserve Classification: Refers to the reliability or accuracy of the
reserve estimate. This report is limited to two reserve classifications:
proven (measured) and probable (indicated) (in descending order of geologic
assurance).
Proven (Measured): Tonnages computed from seam measurements as observed and
recorded in drill holes, mine workings, and/or seam outcrop prospect
openings. The sites for measurement are so closely spaced and the geologic
character so well-defined that the thickness, areal extent, size, shape and
depth of coal are well established. The maximum acceptable distance for
projection from seam data points varies with the geologic nature of the
coal seam being studied, but generally a radius of 1/4 mile is recognized
as the standard. This classification has the highest degree of geological
assurance.
Probable (Indicated): Coal tonnages computed by projection of data from
available seam measurements for a distance beyond coal classified as proven
(measured). The assurance, although lower than for proven (measured), is
high enough to assume continuity between points of measurement. The maximum
acceptable distance for projection of indicated tonnage is 3/4 mile from
points of observation. The indicated classification has a moderate degree
of geological assurance. Further exploration is necessary to place these
reserves in the measured category.
Product Tons: Tons mined and prepared for sale; can include both tonnage
cleaned and processed in a preparation plant and ROM tonnage that can be
sold without cleaning.
ROM: Run-of-mine tons. Tonnage as mined, including in-seam rock and
out-of-seam dilution (top and bottom rock).
In preparing this overview audit report, we have relied on real property
information and other data provided by MAPCO. We have not independently
investigated real property ownership, verified such data or other information,
or examined any agreement or documents in regard to MAPCO's reserve ownership or
control.
C. QUALIFICATIONS
WIMC has provided consulting services to the United States and International
mining industries continuously for over 60 years. The company was founded in
1936 in Chicago, Illinois, as the Paul Weir Company, where the firm continues to
maintain one of its principal offices. WIMC has provided independent
professional advice to the mining industry and enjoys an unrivaled reputation
for objectivity.
E-2
<PAGE> 284
Alliance Resource Holdings
May 18, 1999
Page 3
WIMC operates independently from equipment manufacturers, government agencies
and producing companies to ensure total independence.
WIMC is a member of the International Mining Consultants Group, and thus has
access to the resources of the world's largest consulting company serving the
specialized needs of the mining and minerals industries through 400 staff and 25
offices worldwide. WIMC provides a complete range of consulting and engineering
services in mining, geology, geotechnical and hydrogeologic engineering,
environmental investigations, economics, and coal benefication, combustion and
utilization. WIMC has been involved in over 3,000 assignments for clients in all
significant geographical areas across the United States and in many foreign
countries.
WIMC is familiar with MAPCO's coal holdings and has visited a substantial
majority of MAPCO's operations in the past 18 months. In conducting this study,
WIMC visited all of the selected mining properties of MAPCO. Our audit was
planned and performed to obtain a reasonable assurance on the reserve estimates
of MAPCO. The audit process included a review and examination, where
appropriate, on a test basis, of evidence supporting the reserve estimates as
well as assessing the methodology and practices applied by MAPCO in formulating
the reserve estimates.
Based on the foregoing, we believe our findings are reasonable and realistic and
have been developed using accepted engineering practices. All findings are
subject to the accuracy and reliability of the source data used as the basis of
this report.
Respectfully submitted,
Weir International Mining Consultants
By: /s/ JOHN W. SABO
------------------------------------
John W. Sabo
Senior Vice President
E-3
<PAGE> 285
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
8,969,335 COMMON UNITS
ALLIANCE RESOURCE PARTNERS, L.P.
REPRESENTING
LIMITED PARTNER INTERESTS
-------------
PROSPECTUS
, 1999
-------------
SALOMON SMITH BARNEY
MORGAN STANLEY DEAN WITTER
A.G. EDWARDS & SONS, INC.
LEHMAN BROTHERS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 286
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below are the expenses (other than underwriting discounts and
commissions) expected to be incurred in connection with the issuance and
distribution of the securities registered hereby. With the exception of the
Securities and Exchange Commission registration fee, the NASD filing fee and the
NYSE filing fee, the amounts set forth below are estimates:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 62,168
NASD filing fee............................................. 22,863
Nasdaq listing fee.......................................... 450,000
Printing and engraving expenses............................. 72,875
Legal fees and expenses..................................... 1,350,000
Accounting fees and expenses................................ 475,000
Transfer agent and registrar fees........................... 4,000
Miscellaneous............................................... 283,094
----------
TOTAL............................................. $2,720,000
==========
</TABLE>
- ---------------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The section of the Prospectus entitled "The Partnership
Agreement -- Indemnification" is incorporated herein by this reference.
Reference is made to Section 7 of the Underwriting Agreement filed as Exhibit
1.1 to the Registration Statement. Subject to any terms, conditions or
restrictions set forth in the Partnership Agreement, Section 17-108 of the
Delaware Revised Uniform Limited Partnership Act empowers a Delaware limited
partnership to indemnify and hold harmless any partner or other person from and
against all claims and demands whatsoever.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Alliance Resource Partners issued to Alliance Resource GP, LLC, limited
partner interests in the Partnership in connection with the formation of the
Partnership on May 17, 1999 in an offering exempt from registration under
Section 4(2) of the Securities Act of 1933, as amended. There have been no other
sales of unregistered securities within the past three years.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a. Exhibits:
<TABLE>
<C> <S>
+1.1 -- Form of Underwriting Agreement
+3.1 -- Form of Amended and Restated Agreement of Limited
Partnership of Alliance Resource Partners, L.P. (included
as Appendix A to the Prospectus)
+3.2 -- Form of Amended and Restated Agreement of Limited
Partnership of Alliance Resource Operating Partners, L.P.
+3.5 -- Certificate of Limited Partnership of Alliance Resource
Partners, L.P.
+3.6 -- Certificate of Formation of Alliance Resource GP, LLC
+3.7 -- Certificate of Formation of Alliance Resource Management
GP, LLC
+3.8 -- Certificate of Limited Partnership of Alliance Resource
Operating Partners, L.P.
*5.1 -- Opinion of Andrews & Kurth L.L.P. as to the legality of
the securities being registered
*8.1 -- Opinion of Andrews & Kurth L.L.P. relating to tax matters
*10.1 -- Form of Bank Credit Agreement
*10.2 -- Form of Note Purchase Agreement
*10.3 -- Form of Contribution and Assumption Agreement
*10.4 -- Form of Alliance Resource GP, LLC Long-term Incentive
Plan
</TABLE>
II-1
<PAGE> 287
<TABLE>
<S> <C>
*10.5 -- Form of Alliance Resource GP, LLC Short-term Incentive Plan
*10.6 -- Form of Employment Agreement for Messrs. Craft, Pearson, Greenwood, Wesley and
Rathburn.
+10.7 -- Restated and Amended Coal Supply Agreement, dated February 1, 1986, among Seminole
Electric Cooperative, Inc., Webster County Coal Corporation and White County Coal
Corporation (Portions of this agreement have been omitted based on a request for
confidential treatment. Those omitted portions have been filed with the SEC).
+10.8 -- Contract for Purchase and Sale of Coal, dated January 31, 1995, between Tennessee
Valley Authority and Webster County Coal Corporation (Portions of this agreement have
been omitted based on a request for confidential treatment. Those omitted portions have
been filed with the SEC).
+10.9 -- Assignment/Transfer Agreement between Andalex Resources, Inc., Hopkins County Coal,
LLC, Webster County Coal Corporation and Tennessee Valley Authority, dated January 23,
1998, with Exhibit A -- Contract for Purchase and Sale of Coal between Tennessee Valley
Authority and Andalex Resources, Inc., dated January 31, 1995 (Portions of this
agreement have been omitted based on a request for confidential treatment. Those
omitted portions have been filed with the SEC).
+10.10 -- Contract for Purchase and Sale of Coal, dated July 7, 1998, between Tennessee Valley
Authority and Webster County Coal Corporation (Portions of this agreement have been
omitted based on a request for confidential treatment. Those omitted portions have been
filed with the SEC).
+10.11 -- Contract for Purchase and Sale of Coal, dated July 7, 1998, between Tennessee Valley
Authority and White County Coal Corporation (Portions of this agreement have been
omitted based on a request for confidential treatment. Those omitted portions have been
filed with the SEC).
10.12 -- Agreement for the Supply of Coal to the Mt. Storm Power Station, dated January 15,
1996, between Virginia Electric Power Company and Mettiki Coal Corporation
(Incorporated by reference to Exhibit 10.(t) to MAPCO Inc.'s Form 10-K, filed April 1,
1996, File No. 1-5254)
*21.1 -- List of subsidiaries of Alliance Resource Partners, L.P.
*23.1 -- Consent of Deloitte & Touche LLP
+23.2 -- Consent of Weir International Mining Consultants
+23.3 -- Consent of Andrews & Kurth L.L.P. (contained in Exhibits 5.1 and 8.1)
*23.4 -- Consent of Resource Data International Inc.
*23.5 -- Consent of the National Mining Association
+24.1 -- Powers of Attorney (included on the signature page)
+27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* Filed herewith.
+ Previously filed.
(b) Financial Statement Schedules
All financial statement schedules are omitted because the information is
not required, is not material or is otherwise included in the financial
statements or related notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide at the closing
specified in the underwriting agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
II-2
<PAGE> 288
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 289
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Tulsa, State of Oklahoma, on August 9, 1999.
ALLIANCE RESOURCE PARTNERS, L.P.
By: Alliance Resource GP, LLC
its general partner
By: /s/ THOMAS L. PEARSON
----------------------------------
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED BELOW.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* President, Chief Executive Officer August 9, 1999
- ------------------------------------------------ and Director (Principal
Joseph W. Craft, III Executive Officer)
* Senior Vice President and Chief August 9, 1999
- ------------------------------------------------ Financial Officer (Principal
Michael L. Greenwood Financial Officer and Principal
Accounting Officer)
* Director August 9, 1999
- ------------------------------------------------
John P. Neafsey
* Director August 9, 1999
- ------------------------------------------------
Preston R. Miller, Jr.
* Director August 9, 1999
- ------------------------------------------------
John J. MacWilliams
*By: /s/ THOMAS L. PEARSON
- ------------------------------------------------
as Power of Attorney
</TABLE>
II-4
<PAGE> 290
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
+1.1 -- Form of Underwriting Agreement
+3.1 -- Form of Amended and Restated Agreement of Limited
Partnership of Alliance Resource Partners, L.P. (included
as Appendix A to the Prospectus)
+3.2 -- Form of Amended and Restated Agreement of Limited
Partnership of Alliance Resource Operating Partners, L.P.
+3.5 -- Certificate of Limited Partnership of Alliance Resource
Partners, L.P.
+3.6 -- Certificate of Formation of Alliance Resource GP, LLC
+3.7 -- Certificate of Formation of Alliance Resource Management
GP, LLC
+3.8 -- Certificate of Limited Partnership of Alliance Resource
Operating Partners, L.P.
*5.1 -- Opinion of Andrews & Kurth L.L.P. as to the legality of
the securities being registered
*8.1 -- Opinion of Andrews & Kurth L.L.P. relating to tax matters
*10.1 -- Form of Bank Credit Agreement
*10.2 -- Form of Note Purchase Agreement
*10.3 -- Form of Contribution and Assumption Agreement
*10.4 -- Form of Alliance Resource GP, LLC Long-term Incentive
Plan
*10.5 -- Form of Alliance Resource GP, LLC Short-term Incentive
Plan
*10.6 -- Form of Employment Agreement for Messrs. Craft, Pearson,
Greenwood, Wesley and Rathburn.
+10.7 -- Restated and Amended Coal Supply Agreement, dated
February 1, 1986, among Seminole Electric Cooperative,
Inc., Webster County Coal Corporation and White County
Coal Corporation (Portions of this agreement have been
omitted based on a request for confidential treatment.
Those omitted portions have been filed with the SEC).
+10.8 -- Contract for Purchase and Sale of Coal, dated January 31,
1995, between Tennessee Valley Authority and Webster
County Coal Corporation (Portions of this agreement have
been omitted based on a request for confidential
treatment. Those omitted portions have been filed with
the SEC).
+10.9 -- Assignment/Transfer Agreement between Andalex Resources,
Inc., Hopkins County Coal, LLC, Webster County Coal
Corporation and Tennessee Valley Authority, dated January
23, 1998, with Exhibit A -- Contract for Purchase and
Sale of Coal between Tennessee Valley Authority and
Andalex Resources, Inc., dated January 31, 1995 (Portions
of this agreement have been omitted based on a request
for confidential treatment. Those omitted portions have
been filed with the SEC).
+10.10 -- Contract for Purchase and Sale of Coal, dated July 7,
1998, between Tennessee Valley Authority and Webster
County Coal Corporation (Portions of this agreement have
been omitted based on a request for confidential
treatment. Those omitted portions have been filed with
the SEC).
+10.11 -- Contract for Purchase and Sale of Coal, dated July 7,
1998, between Tennessee Valley Authority and White County
Coal Corporation (Portions of this agreement have been
omitted based on a request for confidential treatment.
Those omitted portions have been filed with the SEC).
10.12 -- Agreement for the Supply of Coal to the Mt. Storm Power
Station, dated January 15, 1996, between Virginia
Electric Power Company and Mettiki Coal Corporation
(Incorporated by reference to Exhibit 10.(t) to MAPCO
Inc.'s Form 10-K, filed April 1, 1996, File No. 1-5254)
*21.1 -- List of subsidiaries of Alliance Resource Partners, L.P.
</TABLE>
<PAGE> 291
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
*23.1 -- Consent of Deloitte & Touche LLP
+23.2 -- Consent of Weir International Mining Consultants
+23.3 -- Consent of Andrews & Kurth L.L.P. (contained in Exhibits
5.1 and 8.1)
*23.4 -- Consent of Resource Data International Inc.
*23.5 -- Consent of the National Mining Association
+24.1 -- Powers of Attorney (included on the signature page)
+27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* Filed herewith.
+ Previously filed.
<PAGE> 1
EXHIBIT 5.1
August 9, 1999
Alliance Resource Partners, L.P.
1717 South Boulder Avenue
Tulsa, Oklahoma 74119
Gentlemen:
We have acted as counsel to Alliance Resource Partners, L.P., a
Delaware limited partnership (the "partnership"), and Alliance Resource
Management GP, LLC, a Delaware limited liability company and the managing
general partner of the Partnership, in connection with the registration under
the Securities Act of 1933, as amended (the "Act"), of the offering and sale of
up to an aggregate of 10,314,735 common units representing limited partner
interests in the Partnership (the "Common Units").
As the basis for the opinion hereinafter expressed, we have examined
such statutes, regulations, corporate records and documents, certificates of
corporate and public officials, and other instruments as we have deemed
necessary or advisable for the purposes of this opinion. In such examination we
have assumed the authenticity of all documents submitted to us as originals and
the conformity with the original documents of all documents submitted to us as
copies.
Based on the foregoing and on such legal considerations as we deem
relevant, we are of the opinion that:
1. The Partnership has been duly formed and is validly existing as a
limited partnership under the Delaware Revised Uniform Limited Partnership Act.
2. The Common Units will, when issued and paid for as described in the
Partnership's Registration Statement on Form S-1 (File No. 333-78845) relating
to the Common Units, as amended (the "Registration Statement"), be duly
authorized, validly issued, fully paid and nonassessable, except as such
nonassessability may be affected by the matters described in the prospectus
included in the Registration Statement (the "Prospectus") under the caption
"The Partnership Agreement -- Limited Liability."
<PAGE> 2
Alliance Resource Partners, L.P.
August 9, 1999
Page 2
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Validity
of the Common Units" in the Prospectus.
Very truly yours,
ANDREWS & KURTH L.L.P.
<PAGE> 1
EXHIBIT 8.1
August 9, 1999
Alliance Resource Partners, L.P.
1717 South Boulder Avenue
Tulsa, Oklahoma 74119
RE: ALLIANCE RESOURCE PARTNERS, L.P.; REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
We have acted as special counsel in connection with the Registration
Statement on Form S-1, Registration No.: 333-78845 (the "Registration
Statement") of Alliance Resource Partners, L.P. (the "Partnership"), relating to
the registration of the offering and sale (the "Offering") of 8,969,335 common
units (10,314,735 common units if the underwriters' overallotment option is
exercised in full) representing limited partner interests in the Partnership
(the "Common Units"). In connection therewith, we have participated in the
preparation of the discussion set forth under the caption "Tax Considerations"
(the "Discussion") in the Registration Statement. Capitalized terms used and not
otherwise defined herein are used as defined in the Registration Statement.
The Discussion, subject to the qualifications stated therein,
constitutes our opinion as to the material United States federal income tax
consequences for purchasers of Common Units pursuant to the Offering.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the Discussion. The
issuance of such consent does not concede that we are an "expert" for the
purposes of the Securities Act of 1933.
Very truly yours,
ANDREWS & KURTH L.L.P.
<PAGE> 1
EXHIBIT 10.1
$100,000,000
CREDIT AGREEMENT
Dated as of August 12, 1999
Among
ALLIANCE RESOURCE GP, LLC
as Borrower
and
THE INITIAL LENDERS AND
SWING LINE BANK NAMED HEREIN
as Initial Lenders and Swing Line Bank
and
THE CHASE MANHATTAN BANK
as Paying Agent
and
THE CHASE MANHATTAN BANK and CITICORP USA, INC.
as Co-Administrative Agents
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms.....................................................................2
SECTION 1.03. Accounting Terms.........................................................................34
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The Advances. (a) The Term Advances...................................................34
SECTION 2.02. Making the Advances......................................................................35
SECTION 2.03. Repayment of Advances....................................................................37
SECTION 2.04. Termination or Reduction of the Commitments .............................................38
SECTION 2.05. Prepayments..............................................................................39
SECTION 2.06. Interest.................................................................................40
SECTION 2.07. Fees.....................................................................................42
SECTION 2.08. Conversion of Advances...................................................................42
SECTION 2.09. Increased Costs, Etc.....................................................................44
SECTION 2.10. Payments and Computations................................................................45
SECTION 2.11. Taxes....................................................................................47
SECTION 2.12. Sharing of Payments, Etc.................................................................49
SECTION 2.13. Use of Proceeds..........................................................................50
SECTION 2.14. Defaulting Lenders.......................................................................50
SECTION 2.15. Evidence of Debt.........................................................................53
SECTION 2.16. Replacement of Certain Lenders...........................................................53
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. Conditions Precedent to Initial Extension of Credit......................................54
SECTION 3.02. Conditions Precedent to Each Borrowing...................................................59
SECTION 3.03. Determinations Under Section 3.01........................................................60
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrower...........................................60
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. Affirmative Covenants....................................................................68
SECTION 5.02. Negative Covenants.......................................................................71
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
SECTION 5.03. Reporting Requirements...................................................................80
SECTION 5.04. Financial Covenants......................................................................83
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default........................................................................87
ARTICLE VII
THE AGENTS
SECTION 7.01. Authorization and Action.................................................................91
SECTION 7.02. Agents' Reliance, Etc....................................................................91
SECTION 7.03. Chase, Citicorp and Affiliates...........................................................92
SECTION 7.04. Lender Party Credit Decision.............................................................92
SECTION 7.05. Indemnification..........................................................................92
SECTION 7.06. Successor Agents.........................................................................93
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc..........................................................................95
SECTION 8.02. Notices, Etc.............................................................................96
SECTION 8.03. No Waiver; Remedies......................................................................96
SECTION 8.04. Costs and Expenses.......................................................................96
SECTION 8.05. Right of Set-off.........................................................................98
SECTION 8.06. Binding Effect...........................................................................99
SECTION 8.07. Assignments and Participations...........................................................99
SECTION 8.08. Execution in Counterparts...............................................................102
SECTION 8.09. Confidentiality.........................................................................103
SECTION 8.10. Release of Collateral...................................................................103
SECTION 8.11. Jurisdiction, Etc.......................................................................103
SECTION 8.12. Governing Law...........................................................................104
SECTION 8.13. Non-Recourse to the General Partner and Associated Persons..............................104
SECTION 8.14. Waiver of Jury Trial....................................................................104
</TABLE>
<TABLE>
<CAPTION>
SCHEDULES
<S> <C> <C>
Schedule I - Commitments and Applicable Lending Offices
Schedule II - Subsidiary Guarantors
Schedule 4.01(a) - Capital Stock
Schedule 4.01(b) - Subsidiaries
Schedule 4.01(d) - Authorizations, Approvals, Actions, Notices and Filings
Schedule 4.01(f) - Disclosed Litigation
Schedule 4.01(p) - Plans, Multiemployer Plans and Welfare Plans
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
Schedule 4.01(q) - Environmental Disclosure
Schedule 4.01(r) - Open Years
Schedule 4.01(t) - Existing Debt
Schedule 4.01(u) - Surviving Debt
Schedule 4.01(v) - Liens
Schedule 4.01(w) - Investments
Schedule 4.01(x) - Material Contracts
Schedule 5.01(q) - Transactions with Affiliates
</TABLE>
<TABLE>
<CAPTION>
EXHIBITS
<S> <C> <C>
Exhibit A-1 - Form of Working Capital Note
Exhibit A-2 - Form of Term Note
Exhibit A-3 - Form of Revolving Credit Note
Exhibit B - Form of Notice of Borrowing
Exhibit C - Form of Assignment and Acceptance
Exhibit D - Form of Pledge Agreement
Exhibit E - Form of Subsidiary Guaranty
Exhibit F - Form of Solvency Certificate
Exhibit G - Form of Opinion of Counsel to the Loan Parties
Exhibit H - Form of Assumption Agreement
</TABLE>
<PAGE> 5
CREDIT AGREEMENT
CREDIT AGREEMENT dated as of August 12, 1999 among ALLIANCE
RESOURCE GP, LLC, a Delaware limited liability company (the "COMPANY"), the
banks, financial institutions and other institutional lenders listed on the
signature pages hereof as the Initial Lenders (the "INITIAL LENDERS"), the
Swing Line Bank (as hereinafter defined), THE CHASE MANHATTAN BANK ("CHASE"),
as paying agent (together with any successor paying agent appointed pursuant to
Article VII, the "PAYING AGENT"), and CITICORP USA, INC. ("CITICORP") and
CHASE, as co-administrative agents (together with any successor administrative
agent appointed pursuant to Article VII, the "CO-ADMINISTRATIVE AGENTS" and,
together with the Paying Agent, the "AGENTS") for the Lender Parties (as
hereinafter defined).
PRELIMINARY STATEMENTS:
(1) Alliance Resource Partners, L.P., a Delaware limited
partnership (the "MLP"), intends to complete an initial public offering (the
"INITIAL PUBLIC OFFERING") of common units (the "MLP UNITS"), representing an
approximate 57.7% ownership interest in the MLP on a fully diluted basis and
yielding net proceeds of approximately $[140,000,000], and the remainder of
which will be owned by the Equity Investor (as hereinafter defined) or one or
more of its affiliates.
(2) The Company intends to issue at least $180,000,000 of
senior notes as most recently amended (as defined in Section 1.02) (the "SENIOR
NOTES") in a private placement pursuant to the Note Purchase Agreement (as
hereinafter defined). Immediately upon the closings under the Note Purchase
Agreement and this Agreement, Alliance Resource Operating Partners, L.P., a
Delaware limited partnership ("AROP"), will assume the obligations of the
Company under the Loan Documents and under the Note Purchase Agreement and the
Senior Notes. The Initial Public Offering, the issuance and sale of the Senior
Notes, the making of the Advances (as hereinafter defined) under this Agreement
and all related transactions are hereinafter collectively referred to as the
"TRANSACTION". As used herein, the term "BORROWER" shall mean (i) prior to the
time the Assumption Agreement (as hereinafter defined) shall become effective,
the Company, and (ii) thereafter, AROP.
(3) The Borrower has requested the Lender Parties lend to the
Borrower up to $100,000,000 to purchase Qualifying Securities (as hereinafter
defined) that will be liquidated from time to time to finance certain capital
expenditures of AROP and its Subsidiaries (as hereinafter defined), to pay cash
distributions to the holders of the MLP Units, to provide working capital for
the Borrower and its Subsidiaries and for other general business purposes of
AROP and its Subsidiaries (including, without limitation, acquisitions and
capital expenditures). The Lender Parties have indicated their willingness to
agree to lend such amount on the terms and conditions of this Agreement.
<PAGE> 6
2
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements contained herein, the parties hereto hereby
agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this
Agreement, the following terms shall have the following meanings (such meanings
to be equally applicable to both the singular and plural forms of the terms
defined):
"ACCEPTABLE BANK" means (a) any bank or trust company (i)
which is organized under the laws of the United States of America or
any State thereof, (ii) which has capital, surplus and undivided
profits aggregating at least $500,000,000, and (iii) (A) whose
long-term unsecured debt obligations (or the long-term unsecured debt
obligations of the holding company owning all of the capital stock of
such bank or trust company) shall have been given a rating of "AA-" or
better by S&P, "Aa3" or better by Moody's or an equivalent rating by
any other credit rating agency of recognized national standing or (B)
the commercial paper or other short-term unsecured debt obligations of
which (or the short-term unsecured debt obligations of the holding
company owning all of the capital stock of such bank or trust company)
shall have been given a rating of "Al " or better by S&P or "Prime 1"
or better by Moody's or an equivalent rating by any other credit
rating agency of recognized national standing or (b) any Lender Party.
"ACCEPTABLE BROKER-DEALER" means any Person other than a
natural person (a) which is registered as a broker or dealer pursuant
to the Exchange Act and (b) whose long-term unsecured debt obligations
shall have been given a rating of "AA-" or better by S&P, "Aa3" or
better by Moody's or an equivalent rating by any other credit rating
agency of recognized national standing.
"ADVANCE" means a Term Advance, a Working Capital Advance, a
Revolving Credit Advance or a Swing Line Advance.
"AFFILIATE" means, as to any Person, any other Person that,
directly or indirectly, controls, is controlled by or is under common
control with such Person or is a director or officer of such Person.
For purposes of this definition, the term "control" (including the
terms "controlling", "controlled by" and "under common control with")
of a Person means the possession, direct or indirect, of the power to
vote 10% or more of the Voting Stock of such Person or to direct or
cause the direction of the management and policies of such Person,
whether through the ownership of Voting Stock, by contract or
otherwise.
<PAGE> 7
3
Unless the context otherwise clearly requires, any reference to an
"Affiliate" is a reference to an Affiliate of the Borrower; provided,
however, the Borrower shall not be an Affiliate of any Restricted
Subsidiary and no Restricted Subsidiary shall be an Affiliate of the
Borrower or any Restricted Subsidiary.
"AGENTS" has the meaning specified in the recital of parties
to this Agreement.
"ALLIANCE RESOURCE GROUP" means the Wholly Owned Subsidiaries
of Alliance Resource Holdings, Inc., a Delaware corporation.
"APPLICABLE LENDING OFFICE" means, with respect to each
Lender Party, such Lender Party's Domestic Lending Office in the case
of a Base Rate Advance and such Lender Party's Eurodollar Lending
Office in the case of a Eurodollar Rate Advance.
"APPLICABLE MARGIN" means (a) in the case of Secured
Advances, (i) during the period from the Effective Date to the
one-year anniversary of the Effective Date, in the case of Eurodollar
Rate Advances, 0.75% per annum and, in the case of Base Rate Advances,
0% per annum, (ii) during the period from the one-year anniversary of
the Effective Date to the two-year anniversary of the Effective Date,
in the case of Eurodollar Rate Advances, 1.25% per annum and, in the
case of Base Rate Advances, 0.25% per annum, and (iii) thereafter, a
percentage per annum determined by reference to the Consolidated Net
Debt to Consolidated Cash Flow Ratio as set forth below and (b) in the
case of all other Advances, (i) during the period from the Effective
Date to the six-month anniversary of the Effective Date, in the case
of Eurodollar Rate Advances, 1.5% per annum, and in the case of Base
Rate Advances, 0.5% per annum, and (ii) thereafter, a percentage per
annum determined by reference to the Consolidated Net Debt to
Consolidated Cash Flow Ratio as set forth below:
<TABLE>
<CAPTION>
Consolidated Net Debt to
Consolidated Cash Flow Ratio Base Rate Advances Eurodollar Rate Advances
<S> <C> <C>
Level I
less than 1.75:1.0 0.00% 1.00%
Level II
1.75:1.0 or greater,
but less than 2.50:1.0 0.25% 1.25%
Level III
2.50:1.0 or greater,
but less than 3.50:1.0 0.50% 1.50%
</TABLE>
<PAGE> 8
4
<TABLE>
<S> <C> <C>
Level IV
3.50:1.0 or greater 0.75% 1.75%
</TABLE>
In the case of Advances for which the Applicable Margin is determined
based on the preceding table, the Applicable Margin for each Advance
shall be determined by reference to the Consolidated Net Debt to
Consolidated Cash Flow Ratio in effect from time to time which ratio
shall be determined by reference to the financial statements most
recently delivered in accordance with Section 5.03(b) or (c), as the
case may be; provided, however, that the Applicable Margin shall be at
Level IV for so long as the Borrower has not submitted to the Paying
Agent the financial statements as and when required under Section
5.03(b) or (c), as the case may be.
"APPLICABLE PERCENTAGE" means (a) during the period from the
date hereof to the six-month anniversary hereof, 0.50% per annum and
(b) thereafter, a percentage per annum determined by reference to the
Consolidated Net Debt to Consolidated Cash Flow Ratio as set forth
below:
Consolidated Net Debt to
Consolidated Cash Flow Ratio Applicable Percentage
Level I
less than 1.75:1.0 0.375%
Level II
1.75:1.0 or greater,
but less than 2.50:1.0 0.375%
Level III
2.50:1.0 or greater,
but less than 3.50:1.0 0.500%
Level IV
3.50:1.0 or greater 0.500%
In the case of the Applicable Percentage specified in clause (b), the
Applicable Percentage shall be determined by reference to the
Consolidated Net Debt to Consolidated Cash Flow Ratio, in effect from
time to time, which ratio shall be determined by reference to the
financial statements most recently delivered in accordance with
Section 5.03(b) or (c), as the case may be; provided, however, that
the Applicable Margin shall be at Level IV for so long as the Borrower
has not submitted to the Paying
<PAGE> 9
5
Agent the financial statements as and when required under Section
5.03(b) or (c), as the case may be.
"APPROPRIATE LENDER" means, at any time, with respect to (a)
any of the Term or Revolving Credit or Working Capital Facilities, a
Lender that has a Commitment with respect to such Facility at such
time, or (b) the Swing Line Facility, (i) the Swing Line Bank and (ii)
if the Revolving Credit Lenders have made Swing Line Advances pursuant
to Section 2.02(b) that are outstanding at such time, each such
Revolving Credit Lender.
"AROP" has the meaning specified in Preliminary Statement
(2).
"ASSET ACQUISITION" means (a) an Investment by the Borrower
or any Restricted Subsidiary in any other Person pursuant to which
such Person shall become a Restricted Subsidiary or shall be merged
with or into the Borrower or any Restricted Subsidiary, (b) the
acquisition by the Borrower or any Restricted Subsidiary of the assets
of any Person (other than a Restricted Subsidiary) which constitute
all or substantially all of the assets of such Person or (c) the
acquisition by the Borrower or any Restricted Subsidiary of any
division or line of business of any Person (other than a Restricted
Subsidiary).
"ASSIGNMENT AND ACCEPTANCE" means an assignment and
acceptance entered into by a Lender Party and an Eligible Assignee,
and accepted by the Paying Agent, in accordance with Section 8.07 and
in substantially the form of Exhibit C hereto.
"ASSUMPTION AGREEMENT" has the meaning specified in Section
3.01(a)(x).
"BASE RATE" means a fluctuating interest rate per annum in
effect from time to time, which rate per annum shall at all times be
equal to the higher of:
(a) the rate of interest announced publicly by The
Chase Manhattan Bank in New York, New York, from time to
time, as its prime rate; and
(b) 1/2 of 1% per annum above the Federal Funds
Rate.
"BASE RATE ADVANCE" means an Advance that bears interest as
provided in Section 2.06(a)(i).
"BEACON INVESTORS" means collectively, The Beacon Group
Energy Investment Fund, L.P., a Delaware limited partnership, and MPC
Partners, L.P., a Delaware limited partnership.
"BEACON CONTROLLED AFFILIATE" means any Person which directly
or indirectly, is in control of, is controlled by, or is under common
control with The Beacon Group
<PAGE> 10
6
Energy Investment Fund, L.P. or the Equity Investor or its Affiliates;
for purposes of this definition, "control" (including the terms
"controlling", "controlled by" and "under common control with") of a
Person shall mean the power, direct or indirect, to direct or cause
the direction of the management and policies of such Person whether by
contract or otherwise, but shall not include any Person who is a
director or officer of any Beacon Investor or such Person.
"BORROWER" has the meaning specified in Preliminary Statement
(2).
"BORROWER'S ACCOUNT" means the account of the Borrower
maintained by the Borrower with Chase at its office at 270 Park
Avenue, New York, New York 10017, Account No. __________, or such
other account as the Borrower shall specify in writing to the Paying
Agent.
"BORROWING" means a Term Borrowing, a Working Capital
Borrowing, a Revolving Credit Borrowing or a Swing Line Borrowing.
"BUSINESS DAY" means a day of the year on which banks are not
required or authorized by law to close in New York City and, if the
applicable Business Day relates to any Eurodollar Rate Advances, on
which dealings are carried on in the London interbank market.
"BUSINESS PLAN" means a rolling five year business plan for
the Borrower which shall include, without limitation, forecasts
prepared by management of the Borrower, in form satisfactory to the
Co-Administrative Agents, of balance sheets, income statements and
cash flow statements on an annual basis for each of the next five
Fiscal Years and which shall set forth (without limitation) mine
development plans, an analysis of business outlook (including the
Gibson County Project) for the term of the Facility in form and scope
satisfactory to the Co-Administrative Agents, capital expenditures,
coal reserve profiles, property acquisitions, production levels and
other similar items, which Business Plan may be revised by the
Borrower from time to time to reflect changes in operating and market
conditions.
"CAPITAL EXPENDITURES" means, for any Person for any period,
the sum of, without duplication, all expenditures made, directly or
indirectly, by such Person or any of its Subsidiaries during such
period for equipment, fixed assets, real property or improvements, or
for replacements or substitutions therefor or additions thereto, that
have been or should be, in accordance with GAAP, reflected as
additions to property, plant or equipment on a Consolidated balance
sheet of such Person or have a useful life of more than one year.
<PAGE> 11
7
"CAPITAL LEASE" means, at any time, a lease with respect to
which the lessee is required concurrently to recognize the acquisition
of an asset and the incurrence of a liability in accordance with GAAP.
"CAPITAL LEASE OBLIGATION" means, with respect to any Person
and a Capital Lease, the amount of the obligation of such Person as
the lessee under such Capital Lease which would, in accordance with
GAAP, appear as a liability on a balance sheet of such Person.
"CAPITAL STOCK" shall mean, with respect to any Person, any
and all shares, units representing interests, participations, rights
in or other equivalents (however designated) of such Person's capital
stock, including, (a) with respect to partnerships, partnership
interests (whether general or limited) and any other interest or
participation that confers upon a Person the right to receive a share
of the profits and losses of, or distributions of assets of, such
partnership, (b) with respect to limited liability companies, member
interests, and (c) with respect to any Person, any rights (other than
debt securities convertible into capital stock), warrants or options
exchangeable for or convertible into such capital stock.
"CASH EQUIVALENTS" means any of the following, to the extent
owned by the Borrower or any of its Restricted Subsidiaries free and
clear of all Liens other than Liens created under the Pledge Agreement
and, unless otherwise specified below, having a maturity of not
greater than two years from the date of acquisition thereof:
(a) United States Governmental Securities maturing
within one year (or, in the case of Qualifying Securities,
two years) from the date of acquisition;
(b) certificates of deposit, banker's acceptances or
other bank instruments maturing within one year from the date
of acquisition thereof, issued by Acceptable Banks;
(c) Repurchase Agreements;
(d) obligations of any state of the United States of
America, or any municipality of any such state, in each case
rated "AA" or better by S&P, "Aa2" or better by Moody's or an
equivalent rating by any other credit rating agency of
recognized national standing, provided that such obligations
mature within one year from the date of acquisition thereof;
and
(e) commercial paper maturing in 270 days or less
from the date of issuance which, at the time of acquisition
by the Borrower or any Restricted
<PAGE> 12
8
Subsidiary, is rated A-l or better by S&P or P1 or better by
Moody's or an equivalent rating by any other credit rating
agency of recognized national standing.
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended from time to time.
"CERCLIS" means the Comprehensive Environmental Response,
Compensation and Liability Information System maintained by the U.S.
Environmental Protection Agency.
"CHANGE OF CONTROL" means the occurrence of either of the
following: (a) Beacon Investors and the Beacon Controlled Affiliates
shall at any time for any reason cease collectively to own, directly
or indirectly, at least 51% of the managing ownership interest of the
sole or managing general partner, as the case may be, of the Borrower
or (b) the managing general partner of the Borrower shall at any time
for any reason cease to be either the sole or managing general partner
of Alliance Resource Partners, L.P.
"CHASE" has the meaning specified in the recital of parties
to this Agreement.
"CITICORP" has the meaning specified in the recital of
parties to this Agreement.
"CO-ADMINISTRATIVE AGENTS" has the meaning specified in the
recital of parties to this Agreement.
"COLLATERAL" means all "Collateral" referred to in the Pledge
Agreement and all other property that is or is intended to be subject
to any Lien in favor of the Paying Agent for the benefit of the
Secured Parties.
"COMMITMENT" means a Term Commitment, a Working Capital
Commitment, a Revolving Credit Commitment or a Swing Line Commitment.
"COMPANY" has the meaning specified in the recital of parties
to this Agreement.
"CONFIDENTIAL INFORMATION" means information that any Loan
Party furnishes to any Agent or any Lender Party as confidential;
provided, however, that such term does not include any such
information that is or becomes generally available to the public or
that is or becomes available to such Agent or such Lender Party from a
source other than the Loan Parties (it being understood that except as
set forth in the proviso, all information that any Loan Party submits
to any Agent or any Lender Party is confidential).
<PAGE> 13
9
"CONSOLIDATED" refers to the consolidation of accounts in
accordance with GAAP.
"CONSOLIDATED CASH FLOW" means, as of any date of
determination for any applicable period, the excess, if any, of (a)
the sum of, without duplication, the amounts for such period, taken as
a single accounting period, of (i) Consolidated Net Income for such
period, plus (ii) to the extent deducted in the determination of
Consolidated Net Income for such period, without duplication, (A)
Consolidated Non-Cash Charges, (B) Consolidated Interest Expense and
(C) Consolidated Income Tax Expense, over (b) any non-cash items
increasing Consolidated Net Income for such period to the extent that
such items constitute reversals of Consolidated Non-Cash Charges for a
previous period and which were included in the computation of
Consolidated Cash Flow for such previous period pursuant to the
provisions of the preceding clause (a), provided that in calculating
Consolidated Cash Flow for any such period, (1) full effect shall be
given to the proviso to the definition of "Consolidated Interest
Expense" set forth below and (2) Consolidated Cash Flow shall be
calculated after giving effect on a pro forma basis for such period,
in all respects in accordance with GAAP, to any Transfer or Asset
Acquisitions (including, without limitation any Asset Acquisition by
the Borrower or any Restricted Subsidiary giving rise to the need to
determine Consolidated Cash Flow as a result of the Borrower or one of
its Restricted Subsidiaries (including any Person that becomes a
Restricted Subsidiary as result of any such Asset Acquisition)
incurring, assuming or otherwise becoming liable for any Debt)
occurring during the period commencing on the first day of such period
to and including the date of the transaction, as if such Transfer or
Asset Acquisition occurred on the first day of such period.
"CONSOLIDATED INCOME TAX EXPENSE" means, with respect to any
period, all provisions for Federal, state, local and foreign income
taxes of the Borrower and its Restricted Subsidiaries for such period
as determined on a consolidated basis in accordance with GAAP.
"CONSOLIDATED INTEREST EXPENSE" means, as of the date of any
determination for any applicable period, the sum (without duplication)
of the following (in each case, eliminating all offsetting debits and
credits between the Borrower and its Restricted Subsidiaries and all
other items required to be eliminated in the course of the preparation
of consolidated financial statements of the Borrower and its
Restricted Subsidiaries in accordance with GAAP): (a) all interest in
respect of Debt of the Borrower and its Restricted Subsidiaries
whether paid or accrued (including non-cash interest payments and
imputed interest on Capital Lease Obligations) deducted in determining
Consolidated Net Income for such period, and (b) all debt discount
(but not expense) amortized or required to be amortized in the
determination of Consolidated Net Income for such period, less (c) all
interest earned or accrued with respect to Qualifying Securities
during such period; provided that for purposes of calculating the
Consolidated Net Debt to
<PAGE> 14
10
Consolidated Cash Flow Ratio, Consolidated Interest Expense shall be
determined on a pro forma basis giving effect to the incurrence of all
Debt (and the application of proceeds thereof) which either (x) is the
subject of such computation, or (y) was issued after the end of such
period and prior to such date of computation, as if all of such Debt
had been incurred (and the proceeds thereof applied) on the first day
of such period. In computing Consolidated Interest Expense for any
period prior to the end of the first four fiscal quarters ending after
the Effective Date, Consolidated Interest Expense of the Borrower and
the Restricted Subsidiaries shall be determined with respect to the
principal amount of Debt actually outstanding from time to time but on
the basis of interest accruing at a rate equal to the weighted average
interest rate payable on the date of determination with respect to
Debt outstanding under the Senior Notes and this Agreement, rather
than the rates of interest actually applicable to the Debt refinanced
thereby.
"CONSOLIDATED NET DEBT" means, as of any date of
determination, the aggregate outstanding principal amount of all Debt
of the Borrower and its Restricted Subsidiaries outstanding on such
date, after eliminating all offsetting debits and credits between the
Borrower and its Restricted Subsidiaries and all other items required
to be eliminated in the course of the preparation of consolidated
financial statements of the Borrower and its Restricted Subsidiaries
in accordance with GAAP; less the principal amount of all Qualifying
Securities held by the Borrower and its Restricted Subsidiaries.
"CONSOLIDATED NET DEBT TO CONSOLIDATED CASH FLOW RATIO"
means, at any date of determination, the ratio of Consolidated Net
Debt of the Borrower and its Restricted Subsidiaries as at the end of
the most recently ended fiscal quarter of the Borrower for which
financial statements are required to be delivered to the Lender
Parties pursuant to Section 5.03(b) or (c), as the case may be, to
Consolidated Cash Flow of the Borrower and its Restricted Subsidiaries
for such fiscal quarter and the immediately preceding three fiscal
quarters; provided, however, that for purposes of calculating the
Consolidated Net Debt to Consolidated Cash Flow Ratio for the periods
commencing on October 1, 1999 and ending on the last day of the fiscal
quarters of the Borrower ending December 31, 1999, March 31, 2000 and
June 30, 2000, Consolidated Cash Flow for purposes of this definition
shall be the actual Consolidated Cash Flow for such period multiplied
by a fraction the numerator of which is four and the denominator of
which is the actual number of fiscal quarters that have elapsed since
October 1, 1999.
"CONSOLIDATED NET INCOME" means, with reference to any
period, the net income (or loss) of the Borrower and its Restricted
Subsidiaries for such period (taken as a cumulative whole), as
determined in accordance with GAAP, provided that there shall be
excluded:
<PAGE> 15
11
(a) the income (or loss) of any Person accrued prior
to the date it becomes a Subsidiary or is merged into or
consolidated with the Borrower or a Subsidiary, and the
income (or loss) of any Person, substantially all of the
assets of which have been acquired in any manner, realized by
such other Person prior to the date of acquisition,
(b) the income (or loss) of any Person (other than a
Restricted Subsidiary) in which the Borrower or any
Restricted Subsidiary has an ownership interest, except to
the extent that any such income has been actually received by
the Borrower or such Restricted Subsidiary in the form of
cash dividends or similar cash distributions,
(c) the undistributed earnings of any Restricted
Subsidiary to the extent that the declaration or payment of
dividends or similar distributions by such Restricted
Subsidiary is not at the time permitted by the terms of its
charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to
such Restricted Subsidiary,
(d) any aggregate net gain or loss during such
period arising from the sale, conversion, exchange or other
disposition of capital assets (such term to include, without
limitation, (i) all non-current assets, and, without
duplication, (ii) the following, whether or not current: all
fixed assets, whether tangible or intangible, all inventory
sold in conjunction with the disposition of fixed assets, and
all Securities), and
(e) any net income or gain or loss during such
period from (i) any change in accounting principles in
accordance with GAAP, (ii) any prior period adjustments
resulting from any change in accounting principles in
accordance with GAAP, or (iii) any extraordinary or unusual
items.
"CONSOLIDATED NON-CASH CHARGES" means, with respect to the
Borrower and its Restricted Subsidiaries for any period, the aggregate
depreciation, depletion and amortization (other than amortization of
debt discount and expense), the non-cash portion of advance royalties
and any non-cash employee compensation expenses for such period, in
each case, reducing Consolidated Net Income of the Borrower and its
Restricted Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP.
"CONSTITUTIVE DOCUMENTS" means, with respect to any Person,
the certificate of incorporation or registration or formation
(including, if applicable, certificate of change of name), articles of
incorporation or association, memorandum of association, charter,
<PAGE> 16
12
bylaws, partnership agreement, trust agreement, joint venture
agreement, limited liability company operating or members agreement,
joint venture agreement or one or more similar agreements, instruments
or documents constituting the organization or formation of such
Person.
"CONTRIBUTION AGREEMENT" means the Contribution Agreement
dated as of August 12, 1999 between the Company and AROP, as most
recently amended in accordance with this Agreement.
"CONTRIBUTION TRANSACTION" has the meaning specified in
Section 3.01(m).
"CONVERSION", "CONVERT" and "CONVERTED" each refer to a
conversion of Advances of one Type into Advances of the other Type
pursuant to Section 2.06(d), 2.08 or 2.09.
"CURRENT ASSETS" of any Person means all assets of such
Person that would, in accordance with GAAP, be classified as current
assets, after deducting adequate reserves in each case in which a
reserve is proper in accordance with GAAP.
"CURRENT LIABILITIES" of any Person means (a) all Debt of
such Person that by its terms is payable on demand or matures within
one year after the date of determination (excluding current maturities
of long term Debt and any Debt renewable or extendible, at the option
of such Person, to a date more than one year from such date or arising
under a revolving credit or similar agreement that obligates the
lender or lenders to extend credit during a period of more than one
year from such date), and (b) all other items (including taxes accrued
as estimated) that in accordance with GAAP would be classified as
current liabilities of such Person.
"DEBT" means, with respect to any Person, without
duplication,
(a) its liabilities for borrowed money;
(b) its liabilities for the deferred purchase price
of property acquired by such Person (excluding accounts
payable arising in the ordinary course of business but
including, without limitation, all liabilities created or
arising under any conditional sale or other title retention
agreement with respect to any such property);
(c) its Capital Lease Obligations;
<PAGE> 17
13
(d) all liabilities secured by any Lien with respect
to any property owned by such Person (whether or not it has
assumed or otherwise become liable for such liabilities);
(e) all its liabilities in respect of letters of
credit or instruments serving a similar function issued or
accepted for its account by banks or other financial
institutions (whether or not representing obligations for
borrowed money), other than any thereof incurred in the
ordinary course of business of such Person and which are
issued (i) to support such Person's obligations in respect of
workmen's compensation or unemployment insurance laws, the
payment of retirement benefits or performance guarantees
relating to coal deliveries or insurance deductibles and
aggregating no more than $10,000,000 at any time outstanding
for all of the foregoing or (ii) in respect of current trade
payables of such Person;
(f) Swaps of such Person, to the extent required to
be reflected on a balance sheet of such Person prepared as of
any date of determination in accordance with GAAP;
(g) Preferred Stock of Restricted Subsidiaries owned
by Persons other than the Borrower, a Subsidiary Guarantor or
a Wholly-Owned Restricted Subsidiary; and
(h) any Guaranty of such Person with respect to
liabilities of a type described in any of clauses (a) through
(g) hereof.
Debt of any Person shall include all obligations of such
Person of the character described in clauses (a) through (h) to the
extent such Person remains legally liable in respect thereof
notwithstanding that any such obligation is deemed to be extinguished
under GAAP.
"DEFAULT" means any Event of Default or any event that would
constitute an Event of Default but for the requirement that notice be
given or time elapse or both.
"DEFAULTED ADVANCE" means, with respect to any Lender Party
at any time, the portion of any Advance required to be made by such
Lender Party to the Borrower pursuant to Section 2.01 or 2.02 at or
prior to such time that has not been made by such Lender Party or by
the Paying Agent for the account of such Lender Party pursuant to
Section 2.02(e) as of such time. In the event that a portion of a
Defaulted Advance shall be deemed made pursuant to Section 2.14(a),
the remaining portion of such Defaulted Advance shall be considered a
Defaulted Advance originally required to be made
<PAGE> 18
14
pursuant to Section 2.01 on the same date as the Defaulted Advance so
deemed made in part.
"DEFAULTED AMOUNT" means, with respect to any Lender Party at
any time, any amount required to be paid by such Lender Party to any
Agent or any other Lender Party hereunder or under any other Loan
Document at or prior to such time that has not been so paid as of such
time, including, without limitation, any amount required to be paid by
such Lender Party to (a) the Swing Line Bank pursuant to Section
2.02(b) to purchase a portion of a Swing Line Advance made by the
Swing Line Bank, (b) the Paying Agent pursuant to Section 2.02(e) to
reimburse the Paying Agent for the amount of any Advance made by the
Paying Agent for the account of such Lender Party, (c) any other
Lender Party pursuant to Section 2.12 to purchase any participation in
Advances owing to such other Lender Party and (d) any Agent pursuant
to Section 7.05 to reimburse such Agent for such Lender Party's
ratable share of any amount required to be paid by the Lender Parties
to such Agent as provided therein. In the event that a portion of a
Defaulted Amount shall be deemed paid pursuant to Section 2.14(b), the
remaining portion of such Defaulted Amount shall be considered a
Defaulted Amount originally required to be paid hereunder or under any
other Loan Document on the same date as the Defaulted Amount so deemed
paid in part.
"DEFAULTING LENDER" means, at any time, any Lender Party
that, at such time (a) owes a Defaulted Advance or a Defaulted Amount
or (b) shall take any action or be the subject of any action or
proceeding of a type described in Section 6.01(f).
"DISCLOSED LITIGATION" has the meaning specified in Section
3.01(i).
"DOMESTIC LENDING OFFICE" means, with respect to any Lender
Party, the office of such Lender Party specified as its "Domestic
Lending Office" opposite its name on Schedule I hereto or in the
Assignment and Acceptance pursuant to which it became a Lender Party,
as the case may be, or such other office of such Lender Party as such
Lender Party may from time to time specify to the Borrower and the
Paying Agent.
"DOMESTIC SUBSIDIARY" means any Subsidiary other than a
Foreign Subsidiary.
"EFFECTIVE DATE" means the first date on which the conditions
set forth in Article III shall have satisfied.
"ELIGIBLE ASSIGNEE" means (a) a Lender; (b) an Affiliate of a
Lender that qualifies under clause (c), (d), (e), or (f) of this
definition; (c) a commercial bank organized under the laws of the
United States, or any state thereof, and having total assets in excess
of $1,000,000,000; (d) a commercial bank organized under the laws of
any other country
<PAGE> 19
15
which is a member of the OECD, or a political subdivision of any such
country, and having total assets in excess of $1,000,000,000; provided
that such bank is acting through a branch or agency located in the
country in which it is organized or another country which is also a
member of the OECD; (e) the central bank of any country which is a
member of the OECD; and (f) any other financial institution approved
by the Paying Agent and, unless a Default has occurred and is
continuing at the time any assignment is effected pursuant to Section
8.07, the Borrower (which approvals shall not be unreasonably withheld
or delayed); provided, however, that neither any Loan Party nor any
Affiliate of a Loan Party, nor any competitor, or Affiliate of a
competitor, of the Borrower shall qualify as an Eligible Assignee
under this definition.
"ENVIRONMENTAL ACTION" means any action, suit, demand, demand
letter, claim, notice of non-compliance or violation, notice of
liability or potential liability, investigation, proceeding, consent
order or consent agreement relating in any way to any Environmental
Law, any Environmental Permit or Hazardous Material or arising from
alleged injury or threat to health, safety or the environment,
including, without limitation, (a) by any governmental or regulatory
authority for enforcement, cleanup, removal, response, remedial or
other actions or damages and (b) by any governmental or regulatory
authority or third party for damages, contribution, indemnification,
cost recovery, compensation or injunctive relief.
"ENVIRONMENTAL LAW" means any Federal, state, local or
foreign statute, law, ordinance, rule, regulation, code, order, writ,
judgment, injunction, decree or judicial or agency interpretation,
policy or guidance relating to pollution or protection of the
environment, health, safety or natural resources, including, without
limitation, those relating to the use, handling, transportation,
treatment, storage, disposal, release or discharge of Hazardous
Materials.
"ENVIRONMENTAL PERMIT" means any permit, approval,
identification number, license or other authorization required under
any Environmental Law.
"EQUITY INVESTOR" means The Beacon Group, LP, a Delaware
limited partnership.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated
and rulings issued thereunder.
"ERISA AFFILIATE" means any Person that for purposes of Title
IV of ERISA is a member of the controlled group of any Loan Party, or
under common control with any Loan Party, within the meaning of
Section 414 of the Internal Revenue Code.
<PAGE> 20
16
"ERISA EVENT" means (a)(i) the occurrence of a reportable
event, within the meaning of Section 4043 of ERISA, with respect to
any Plan unless the 30-day notice requirement with respect to such
event has been waived by the PBGC or (ii) the requirements of Section
4043(b) of ERISA apply with respect to a contributing sponsor, as
defined in Section 4001(a)(13) of ERISA, of a Plan, and an event
described in paragraph (9), (10), (11), (12) or (13) of Section
4043(c) of ERISA is reasonably expected to occur with respect to such
Plan within the following 30 days; (b) the application for a minimum
funding waiver with respect to a Plan; (c) the provision by the
administrator of any Plan of a notice of intent to terminate such
Plan, pursuant to Section 4041(a)(2) of ERISA (including any such
notice with respect to a plan amendment referred to in Section 4041(e)
of ERISA); (d) the cessation of operations at a facility of any Loan
Party or any ERISA Affiliate in the circumstances described in Section
4062(e) of ERISA; (e) the withdrawal by any Loan Party or any ERISA
Affiliate from a Multiple Employer Plan during a plan year for which
it was a substantial employer, as defined in Section 4001(a)(2) of
ERISA; (f) the conditions for imposition of a lien under Section
302(f) of ERISA shall have been met with respect to any Plan; (g) the
adoption of an amendment to a Plan requiring the provision of security
to such Plan pursuant to Section 307 of ERISA; or (h) the institution
by the PBGC of proceedings to terminate a Plan pursuant to Section
4042 of ERISA, or the occurrence of any event or condition described
in Section 4042 of ERISA that constitutes grounds for the termination
of, or the appointment of a trustee to administer, such Plan.
"EUROCURRENCY LIABILITIES" has the meaning specified in
Regulation D of the Board of Governors of the Federal Reserve System,
as in effect from time to time.
"EURODOLLAR LENDING OFFICE" means, with respect to any Lender
Party, the office of such Lender Party specified as its "Eurodollar
Lending Office" opposite its name on Schedule I hereto or in the
Assignment and Acceptance pursuant to which it became a Lender Party
(or, if no such office is specified, its Domestic Lending Office), or
such other office of such Lender Party as such Lender Party may from
time to time specify to the Borrower and the Paying Agent.
"EURODOLLAR RATE" means, for any Interest Period for all
Eurodollar Rate Advances comprising part of the same Borrowing, an
interest rate per annum equal to the rate per annum obtained by
dividing (a) (i) the rate per annum (rounded upwards, if necessary, to
the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any
successor page) as the London interbank offered rate for deposits in
U.S. dollars at 11:00 A.M. (London time) two Business Days before the
first day of such Interest Period for a period equal to such Interest
Period (provided that, if for any reason such rate is not available,
the term "Eurodollar Rate" shall mean, for any Interest Period for all
Eurodollar Rate Advances comprising part of the same Borrowing, the
rate per annum (rounded upwards,
<PAGE> 21
17
if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen
LIBO Page as the London interbank offered rate for deposits in Dollars
at approximately 11:00 A.M. (London time) two Business Days prior to
the first day of such Interest Period for a term comparable to such
Interest Period; provided, however, if more than one rate is specified
on Reuters Screen LIBO Page, the applicable rate shall be the
arithmetic mean of all such rates) by (ii) a percentage equal to 100%
minus the Eurodollar Rate Reserve Percentage for such Interest Period
or (b) upon 3 Business Days' prior written request by the Borrower to
the Paying Agent, (i) the average (rounded upward to the nearest whole
multiple of 1/16 of 1% per annum, if such average is not such a
multiple) of the rate per annum at which deposits in U.S. dollars are
offered by the principal office of each of the Reference Banks in
London, England to prime banks in the London interbank market at 11:00
A.M. (London time) two Business Days before the first day of such
Interest Period in an amount substantially equal to such Reference
Bank's Eurodollar Rate Advance comprising part of such Borrowing to be
outstanding during such Interest Period (or, if such Reference Bank
shall not have such a Eurodollar Rate Advance, $1,000,000) and for a
period equal to such Interest Period by (ii) a percentage equal to
100% minus the Eurodollar Rate Reserve Percentage for such Interest
Period. The Eurodollar Rate for any Interest Period for each
Eurodollar Rate Advance comprising part of the same Borrowing shall be
determined by the Paying Agent on the basis of applicable rates
furnished to and received by the Paying Agent from the Reference Banks
two Business Days before the first day of such Interest Period,
subject, however, to the provisions of Section 2.06.
"EURODOLLAR RATE ADVANCE" means an Advance that bears
interest as provided in Section 2.06(a)(ii).
"EURODOLLAR RATE RESERVE PERCENTAGE" for any Interest Period
for all Eurodollar Rate Advances comprising part of the same Borrowing
means the reserve percentage applicable two Business Days before the
first day of such Interest Period under regulations issued from time to
time by the Board of Governors of the Federal Reserve System (or any
successor) for determining the maximum reserve requirement (including,
without limitation, any emergency, supplemental or other marginal
reserve requirement) for a member bank of the Federal Reserve System in
New York City with respect to liabilities or assets consisting of or
including Eurocurrency Liabilities (or with respect to any other
category of liabilities that includes deposits by reference to which
the interest rate on Eurodollar Rate Advances is determined) having a
term equal to such Interest Period.
"EVENTS OF DEFAULT" has the meaning specified in Section
6.01.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
<PAGE> 22
18
"EXISTING DEBT" means Debt of each Loan Party and its
Subsidiaries outstanding immediately before giving effect to the
consummation of the Transaction.
"FACILITY" means the Term Facility, the Working Capital
Facility, the Revolving Credit Facility or the Swing Line Facility.
"FEDERAL FUNDS RATE" means, for any period, a fluctuating
interest rate per annum equal for each day during such period to the
weighted average of the rates on overnight Federal funds transactions
with members of the Federal Reserve System arranged by Federal funds
brokers, as published for such day (or, if such day is not a Business
Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day that is
a Business Day, the average of the quotations for such day for such
transactions received by the Paying Agent from three Federal funds
brokers of recognized standing selected by it.
"FEE LETTER" means the fee letter dated July 6, 1999 between
the Borrower and the Agents, as amended.
"FISCAL YEAR" means a fiscal year of the Borrower and its
Consolidated Subsidiaries ending on December 31 in any calendar year.
"FOREIGN SUBSIDIARY" means a Subsidiary organized under the
laws of a jurisdiction other than the United States or any State
thereof or the District of Columbia.
"GAAP" has the meaning specified in Section 1.03.
"GENERAL PARTNER" means Alliance Resource Management GP, LLC,
a Delaware limited liability company.
"GIBSON COUNTY PROJECT" means the mining development project
on the property of the Borrower located in Gibson County, Indiana.
"GREENFIELD PROJECT" means any mine development project
involving the expenditure of greater than $5,000,000 for the
development of mine infrastructure to access unmined reserves.
"GUARANTY" and, with correlative meaning, "GUARANTEED" means,
with respect to any Person, any obligation (except the endorsement in
the ordinary course of business of negotiable instruments for deposit
or collection) of such Person guaranteeing or in effect guaranteeing
any Debt of any other Person in any manner, whether directly or
indirectly,
<PAGE> 23
19
including (without limitation) obligations incurred through an
agreement, contingent or otherwise, by such Person:
(a) to purchase such Debt or any property constituting
security therefor;
(b) to advance or supply funds (i) for the purchase or
payment of such Debt, or (ii) to maintain any working capital or other
balance sheet condition or any income statement condition of any other
Person or otherwise to advance or make available funds for the
purchase or payment of such Debt;
(c) to lease properties or to purchase properties or services
primarily for the purpose of assuring the owner of such Debt of the
ability of any other Person to make payment of the Debt; or
(d) otherwise to assure the owner of such Debt against loss
in respect thereof.
In any computation of the Debt of the obligor under any
Guaranty, the Debt that is the subject of such Guaranty shall be
assumed to be a direct obligation of such obligor. The amount of any
Guaranty shall be equal to the outstanding amount of the Debt
guaranteed, or such lesser amount to which the maximum exposure of
such Person shall have been specifically limited.
"HAZARDOUS MATERIALS" means (a) petroleum or petroleum
products, by-products or breakdown products, radioactive materials,
asbestos-containing materials, polychlorinated biphenyls and radon gas
and (b) any other chemicals, materials or substances designated,
classified or regulated as hazardous or toxic or as a pollutant or
contaminant under any Environmental Law.
"INDEMNIFIED PARTY" has the meaning specified in Section
8.04(b).
"INFORMATION MEMORANDUM" means the information memorandum
dated July 1999 used by the Joint Arrangers in connection with the
syndication of the Commitments.
"INITIAL EXTENSION OF CREDIT" means the initial Borrowing
hereunder.
"INITIAL LENDERS" has the meaning specified in the recital of
parties to this Agreement.
"INITIAL PUBLIC OFFERING" has the meaning specified in
Preliminary Statement (1).
<PAGE> 24
20
"INSUFFICIENCY" means, with respect to any Plan, the amount,
if any, of its unfunded benefit liabilities, as defined in Section
4001(a)(18) of ERISA.
"INTEREST COVERAGE RATIO" means, at any date of
determination, the ratio of (a) Consolidated Cash Flow to (b)
Consolidated Interest Expense during the four consecutive fiscal
quarters most recently ended for which financial statements are
required to be delivered to the Lender Parties pursuant to Section
5.03(b) or (c), as the case may be; provided, however, that for
purposes of calculating the Interest Coverage Ratio for the fiscal
quarters of the Borrower ending December 31, 1999, March 31, 2000 and
June 30, 2000, each component of the Interest Coverage Ratio for
purposes of this definition shall be the actual amount of such
component for the period ending at the end of such fiscal quarter
since October 1, 1999 multiplied by a fraction the numerator of which
is four and the denominator of which is the number of fiscal quarters
that have elapsed since October 1, 1999.
"INTEREST PERIOD" means, for each Eurodollar Rate Advance
comprising part of the same Borrowing, the period commencing on the
date of such Eurodollar Rate Advance or the date of the Conversion of
any Base Rate Advance into such Eurodollar Rate Advance, and ending on
the last day of the period selected by the Borrower pursuant to the
provisions below and, thereafter, each subsequent period commencing on
the last day of the immediately preceding Interest Period and ending
on the last day of the period selected by the Borrower pursuant to the
provisions below. The duration of each such Interest Period shall be
one, two, three or six or, if available to each Appropriate Lender,
nine or twelve months, as the Borrower may, upon notice received by
the Paying Agent not later than 12:00 noon (New York City time) on the
third Business Day prior to the first day of such Interest Period,
select; provided, however, that:
(a) the Borrower may not select any Interest Period
with respect to any Eurodollar Rate Advance under a Facility
that ends after any principal repayment installment date for
such Facility unless, after giving effect to such selection,
the aggregate principal amount of Base Rate Advances and of
Eurodollar Rate Advances having Interest Periods that end on
or prior to such principal repayment installment date for
such Facility shall be at least equal to the aggregate
principal amount of Advances under such Facility due and
payable on or prior to such date;
(b) Interest Periods commencing on the same date for
Eurodollar Rate Advances comprising part of the same
Borrowing shall be of the same duration;
(c) whenever the last day of any Interest Period
would otherwise occur on a day other than a Business Day, the
last day of such Interest Period shall be extended to occur
on the next succeeding Business Day, provided, however, that,
<PAGE> 25
21
if such extension would cause the last day of such Interest
Period to occur in the next following calendar month, the
last day of such Interest Period shall occur on the next
preceding Business Day; and
(d) whenever the first day of any Interest Period
occurs on a day of an initial calendar month for which there
is no numerically corresponding day in the calendar month
that succeeds such initial calendar month by the number of
months equal to the number of months in such Interest Period,
such Interest Period shall end on the last Business Day of
such succeeding calendar month.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of
1986, as amended from time to time, and the regulations promulgated
and rulings issued thereunder.
"INVENTORY" means inventory held for sale or lease in the
ordinary course of business.
"INVESTMENT" means any investment, made in cash or by
delivery of property, by the Borrower or any of its Restricted
Subsidiaries (a) in any Person, whether by acquisition of stock, debt
or other obligations or Security, or by loan, guaranty of any debt,
advance, capital contribution or otherwise, or (b) in any property.
"JOINT ARRANGERS" means Salomon Smith Barney Inc. and Chase
Securities, Inc. and/or its Affiliates.
"LENDER PARTY" means any Lender or the Swing Line Bank.
"LENDERS" means the Initial Lenders and each Person that
shall become a Lender hereunder pursuant to Section 8.07 for so long
as such Initial Lender or Person, as the case may be, shall be a party
to this Agreement.
"LIEN" means, with respect to any Person, any mortgage, lien,
pledge, charge, security interest, production payment or other
encumbrance, or any interest or title of any vendor, lessor, lender or
other secured party to or of such Person under any conditional sale or
other title retention agreement or Capital Lease, upon or with respect
to any property or asset of such Person (including in the case of
stock, stockholder agreements, voting trust agreements and all similar
arrangements); provided, however, "Lien" shall not include any
negative pledge.
"LOAN DOCUMENTS" means (a) this Agreement, (b) the Notes, (c)
the Subsidiary Guaranty, (d) the Pledge Agreement, (e) the Fee Letter
and (f) the Assumption Agreement, in each case as amended.
<PAGE> 26
22
"LOAN PARTIES" means the Company, AROP and the Subsidiary
Guarantors.
"MARGIN STOCK" has the meaning specified in Regulation U.
"MATERIAL ADVERSE CHANGE" means any material adverse change
in the business, operations, affairs, financial condition, assets or
properties of the Borrower and its Restricted Subsidiaries, taken as a
whole.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on
(a) the business, operations, affairs, financial condition, assets or
properties of the Borrower and its Restricted Subsidiaries taken as a
whole, (b) the ability of the Borrower to perform its payment
obligations, its obligations under Article V or any other material
obligations under any Loan Document to which it is a party, (c) the
ability of any Subsidiary Guarantor to perform its payment obligations
or other material obligations under the Subsidiary Guaranty, or (d)
the validity or enforceability of any Loan Document.
"MLP" has the meaning specified in Preliminary Statement (1).
"MLP AGREEMENT" means the First Amended and Restated
Agreement of Limited Partnership of Alliance Resource Partners, L.P.,
as amended, to the extent permitted under the Loan Documents.
"MLP UNITS" has the meaning specified in Preliminary
Statement (1).
"MOODY'S" means Moody's Investors Service, Inc.
"MULTIEMPLOYER PLAN" means a multiemployer plan, as defined
in Section 4001(a)(3) of ERISA, to which any Loan Party or any ERISA
Affiliate is making or accruing an obligation to make contributions,
or has within any of the preceding five plan years made or accrued an
obligation to make contributions.
"MULTIPLE EMPLOYER PLAN" means a single employer plan, as
defined in Section 4001(a)(15) of ERISA, that (a) is maintained for
employees of any Loan Party or any ERISA Affiliate and at least one
Person other than the Loan Parties and the ERISA Affiliates or (b) was
so maintained and in respect of which any Loan Party or any ERISA
Affiliate could have liability under Section 4064 or 4069 of ERISA in
the event such plan has been or were to be terminated.
"NET CASH PROCEEDS" means, with respect to any sale, lease,
transfer or other disposition of any asset or the incurrence or
issuance of any Debt or the sale or issuance of any Capital Stock
(including, without limitation, any capital contribution) by any
<PAGE> 27
23
Person, the aggregate amount of cash received from time to time
(whether as initial consideration or through payment or disposition of
deferred consideration) by or on behalf of such Person in connection
with such transaction after deducting therefrom only (without
duplication) (a) reasonable and customary brokerage commissions,
underwriting fees and discounts, legal fees, finder's fees and other
similar fees and commissions, and (b) the amount of taxes payable in
connection with or as a result of such transaction and (c) the amount
of any Debt secured by a Lien on such asset that, by the terms of the
agreement or instrument governing such Debt, is required to be repaid
upon such disposition, in each case to the extent, but only to the
extent, that the amounts so deducted are, at the time of receipt of
such cash, actually paid to a Person that is not an Affiliate of such
Person or any Loan Party or any Affiliate of any Loan Party and are
properly attributable to such transaction or to the asset that is the
subject thereof.
"NOTE" means a Term Note, a Working Capital Note or a
Revolving Credit Note.
"NOTE PURCHASE AGREEMENT" means the Note Purchase Agreement
dated as of August 1, 1999 among the Borrower and the purchasers of
the Senior Notes, pursuant to which the Senior Notes are issued, as
amended, to the extent permitted under the Loan Documents.
"NOTICE OF BORROWING" has the meaning specified in Section
2.02(a).
"NOTICE OF SWING LINE BORROWING" has the meaning specified in
Section 2.02(b).
"NPL" means the National Priorities List under CERCLA.
"OBLIGATION" means, for purposes of the Pledge Agreement and
the Subsidiary Guaranty, with respect to any Loan Party, any payment,
performance or other obligation of such Loan Party of any kind,
including, without limitation, any liability of such Loan Party on any
claim, whether or not the right of any creditor to payment in respect
of such claim is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, disputed, undisputed, legal, equitable, secured
or unsecured, and whether or not such claim is discharged, stayed or
otherwise affected by any proceeding referred to in Section 6.01(f),
including without limitation, (a) the obligation to pay principal,
interest, charges, expenses, fees, attorneys' fees and disbursements,
indemnities and other amounts payable by such Loan Party under any
Loan Document and (b) the obligation of such Loan Party to reimburse
any amount in respect of any of the foregoing that any Lender Party,
in its sole discretion, may elect to pay or advance on behalf of such
Loan Party.
"OECD" means the Organization for Economic Cooperation and
Development.
"OPEN YEAR" has the meaning specified in Section
4.01(r)(iii).
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24
"OTHER TAXES" has the meaning specified in Section 2.11(b).
"PARTNERSHIP AGREEMENT" means the partnership agreement of
AROP, as most recently amended in accordance with the terms of this
Agreement.
"PAYING AGENT" has the meaning specified in the recital of
parties to this Agreement.
"PAYING AGENT'S ACCOUNT" means the account of the Paying
Agent maintained by the Paying Agent with Chase at its office at 270
Park Avenue, New York, New York 10017, Account No. __________,
Attention: _______________, or such other account as the Paying Agent
shall specify in writing to the Lender Parties.
"PBGC" means the Pension Benefit Guaranty Corporation (or any
successor).
"PERMITTED LIENS" means each of the following:
(a) Liens for property taxes, assessments or other
governmental charges which are not yet due and payable and
delinquent or the validity of which is being contested in
good faith in compliance with Section 5.01(b);
(b) statutory Liens of landlords and Liens of
carriers, warehousemen, mechanics, materialmen and other
similar Liens, in each case, incurred in the ordinary course
of business for sums not yet due and payable or the amount,
applicability or validity thereof is being contested by the
Borrower or such Restricted Subsidiary on a timely basis in
good faith and in appropriate proceedings, and the Borrower
or a Restricted Subsidiary has established adequate reserves
therefor in accordance with GAAP on the books of the Borrower
or such Restricted Subsidiary;
(c) Liens (other than any Lien imposed by ERISA)
incurred or deposits made in the ordinary course of business
(i) in connection with workers' compensation, unemployment
insurance and other types of social security or retirement
benefits, or (ii) to secure (or to obtain letters of credit
that secure) the performance of tenders, statutory
obligations, surety bonds, appeal bonds, bids, leases (other
than Capital Leases), performance bonds, purchase,
construction or sales contracts and other similar
obligations, in each case not incurred or made in connection
with the borrowing of money, the obtaining of advances or
credit or the payment of the deferred purchase price of
property;
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25
(d) any attachment or judgment Lien for the payment
of money in an aggregate amount not to exceed $10,000,000,
provided that the execution or other enforcement of such
Liens is effectively stayed and the claims secured thereby
are contested by the Borrower or such Restricted Subsidiary
on a timely basis in good faith and in appropriate
proceedings, and the Borrower or a Restricted Subsidiary has
established adequate reserves therefor in accordance with
GAAP on the books of the Borrower or such Restricted
Subsidiary; and
(e) leases or subleases granted to others, zoning
restrictions, easements, licenses, reservations, provisions,
covenants, conditions, waivers, restrictions on the use of
property or irregularities of title (and with respect to
leasehold interests, mortgages, obligations, liens and other
encumbrances incurred, created, assumed or permitted to exist
and arising by, through or under a landlord or owner of the
leased property, with or without consent of the lessee), and
not interfering with, the ordinary conduct of the business of
the Borrower or any of its Restricted Subsidiaries, provided
that such Liens do not, in the aggregate, materially detract
from the value of such property or impair the use of such
property.
"PERSON" means an individual, partnership, corporation
(including a business trust), limited liability company, joint stock
company, trust, unincorporated association, joint venture or other
entity, or a government or any political subdivision or agency
thereof.
"PLAN" means a Single Employer Plan or a Multiple Employer
Plan.
"PLEDGE AGREEMENT" has the meaning specified in Section
3.01(a)(ii).
"PREFERRED STOCK" of any Person means any class of Capital
Stock of such Person that is preferred over any other class of Capital
Stock of such Person as to the payment of dividends or the payment of
any amount upon liquidation or dissolution of such Person.
"PREPAYMENT DATE" has the meaning specified in Section
2.05(b)(i).
"PRO RATA SHARE" of any amount means, with respect to any
Revolving Credit Lender at any time, the product of such amount times
a fraction the numerator of which is the amount of such Lender's
Revolving Credit Commitment at such time (or, if the Commitments shall
have been terminated pursuant to Section 2.04 or 6.01, such Lender's
Revolving Credit Commitment as in effect immediately prior to such
termination) and the denominator of which is the Revolving Credit
Facility at such time (or, if the
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26
Commitments shall have been terminated pursuant to Section 2.04 or
6.01, the Revolving Credit Facility as in effect immediately prior to
such termination).
"QUALIFYING SECURITIES" means readily marketable direct
obligations of the Government of the United States or any agency or
instrumentality thereof or obligations unconditionally guaranteed by
the full faith and credit of the Government of the United States to
the extent owned by the Borrower free and clear of all Liens (other
than Liens created under the Pledge Agreement) and having a remaining
maturity not greater than 24 months and which have been pledged to,
and are under the control of, the Paying Agent pursuant to, and in
accordance with the terms of, the Pledge Agreement as Collateral for
the Term Advances.
"REFERENCE BANKS" means Citicorp, Chase and Bankers Trust
Company.
"REGISTER" has the meaning specified in Section 8.07(d).
"REGULATION U" means Regulation U of the Board of Governors
of the Federal Reserve System, as in effect from time to time.
"RELATED DOCUMENTS" means the Note Purchase Agreement, the
Partnership Agreement, the MLP Agreement, the Contribution Agreement
and the Senior Notes.
"REPURCHASE AGREEMENT" means any written agreement:
(a) that provides for (i) the transfer of one or
more United States Governmental Securities in an aggregate
principal amount at least equal to the amount of the Transfer
Price (defined below) to the Borrower or any of its
Restricted Subsidiaries from an Acceptable Bank or an
Acceptable Broker-Dealer against a transfer of funds (the
"Transfer Price") by the Borrower or such Restricted
Subsidiary to such Acceptable Bank or Acceptable
Broker-Dealer, and (ii) a simultaneous agreement by the
Borrower or such Restricted Subsidiary, in connection with
such transfer of funds, to transfer to such Acceptable Bank
or Acceptable Broker-Dealer the same or substantially similar
United States Governmental Securities for a price not less
than the Transfer Price plus a reasonable return thereon at a
date certain not later than 365 days after such transfer of
funds,
(b) in respect of which the Borrower or such
Restricted Subsidiary shall have the right, whether by
contract or pursuant to applicable law, to liquidate such
agreement upon the occurrence of any default thereunder, and
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27
(c) in connection with the Borrower or such
Restricted Subsidiary, or an agent thereof, shall have taken
all action required by applicable law or regulations to
perfect a Lien in such United States Governmental Securities.
"REQUIRED LENDERS" means, at any time, Lenders owed or
holding at least a majority in interest of the sum of (a) the
aggregate principal amount of the Advances outstanding at such time,
(b) the aggregate Unused Term Commitments at such time, (c) the
aggregate Unused Working Capital Commitments at such time and (d) the
aggregate Unused Revolving Credit Commitments at such time; provided,
however, that if any Lender shall be a Defaulting Lender at such time,
there shall be excluded from the determination of Required Lenders at
such time (A) the aggregate principal amount of the Advances owing to
such Lender (in its capacity as a Lender) and outstanding at such
time, (B) the Unused Term Commitment of such Lender at such time, (C)
Unused Working Capital Commitment of such Lender at such time and (D)
the Unused Revolving Credit Commitment of such Lender at such time.
For purposes of this definition, the aggregate principal amount of
Swing Line Advances owing to the Swing Line Bank shall be considered
to be owed to the Revolving Credit Lenders ratably in accordance with
their respective Revolving Credit Commitments.
"RESPONSIBLE OFFICER" means any officer of any Loan Party or
any of its Subsidiaries.
"RESTRICTED PAYMENT" has the meaning set forth in Section
5.02(g).
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Borrower
(a) of which more than 50% (by number of votes) of each class of (i)
Voting Stock, and (ii) all other securities convertible into,
exchangeable for or representing the right to purchase, Voting Stock
is beneficially owned, directly or indirectly, by the Borrower, (b)
which is organized under the laws of the United States or any State
thereof, (c) which maintains substantially all of its assets and
conducts substantially all of its business within the United States,
and (d) which is properly designated as such by the Borrower in the
most recent notice (or, prior to any such notice, on Schedule 4.01(b)
hereto, including, without limitation, Alliance Coal, LLC, a Delaware
limited liability company), with respect to such Subsidiary given by
the Borrower pursuant to and in accordance with the provisions of
Section 5.02(r).
"REVOLVING CREDIT ADVANCE" has the meaning specified in
Section 2.01(c).
"REVOLVING CREDIT BORROWING" means a borrowing consisting of
simultaneous Revolving Credit Advances of the same Type made by the
Revolving Credit Lenders.
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"REVOLVING CREDIT COMMITMENT" means, with respect to any
Revolving Credit Lender, the amount set forth opposite such Lender's
name on Schedule I hereto under the caption "Revolving Credit
Commitment", or, if such Lender has entered into one or more
Assignment and Acceptances, set forth for such Lender in the Register
maintained by the Paying Agent pursuant to Section 8.07(d) as such
Lender's "Revolving Credit Commitment", as such amount may be reduced
at or prior to such time pursuant to Section 2.04.
"REVOLVING CREDIT FACILITY" means, at any time, the aggregate
amount of the Revolving Credit Lenders' Revolving Credit Commitments
at such time.
"REVOLVING CREDIT LENDER" means any Lender that has a
Revolving Credit Commitment.
"REVOLVING CREDIT NOTE" means a promissory note of the
Borrower payable to the order of any Revolving Credit Lender, in
substantially the form of Exhibit A-3 hereto, evidencing the aggregate
indebtedness of the Borrower to such Lender resulting from the
Revolving Credit Advances and Swing Line Advances made by such Lender,
as amended.
"S&P" means Standard & Poor's Ratings Group, a division of
The McGraw-Hill Companies, Inc.
"SBHC" means Salomon Brothers Holding Company Inc.
"SECURED ADVANCES" means Term Advances that are secured by
Qualifying Securities. For purposes of this definition, the amount of
Term Advances constituting Secured Advances on any day shall be equal
to the aggregate mark-to-market value of the Qualifying Securities
held by the Paying Agent as Collateral on such day which value shall
be marked-to-market by the Paying Agent from time to time but no less
frequently than monthly.
"SECURED OBLIGATIONS" has the meaning specified in Section 2
of the Pledge Agreement.
"SECURED PARTIES" means the Term Lenders.
"SECURITIES ACT" means the Securities Act of 1933, as amended
from time to time.
"SECURITY" has the meaning set forth in Section 2(a)(1) of
the Securities Act.
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29
"SENIOR NOTE PERCENTAGE" means, at any time, an amount,
expressed as a percentage, equal to (a) the principal amount
outstanding at such time under the Senior Notes divided by (b) the sum
of the principal amount outstanding at such time under the Senior
Notes plus the outstanding at such time principal amount of the Term
Advances.
"SENIOR NOTES" has the meaning specified in Preliminary
Statement (2).
"SINGLE EMPLOYER PLAN" means a single employer plan, as
defined in Section 4001(a)(15) of ERISA, that (a) is maintained for
employees of any Loan Party or any ERISA Affiliate and no Person other
than the Loan Parties and the ERISA Affiliates or (b) was so
maintained and in respect of which any Loan Party or any ERISA
Affiliate could have liability under Section 4069 of ERISA in the
event such plan has been or were to be terminated.
"SOLVENT" and "SOLVENCY" mean, with respect to any Person on
a particular date, that on such date (a) the fair value of the
property of such Person is greater than the total amount of
liabilities, including, without limitation, contingent liabilities, of
such Person, (b) the present fair salable value of the assets of such
Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute
and matured, (c) such Person does not intend to, and does not believe
that it will, incur debts or liabilities beyond such Person's ability
to pay such debts and liabilities as they mature and (d) such Person
is not engaged in business or a transaction, and is not about to
engage in business or a transaction, for which such Person's property
would constitute an unreasonably small capital. The amount of
contingent liabilities at any time shall be computed as the amount
that, in the light of all the facts and circumstances existing at such
time, represents the amount that can reasonably be expected to become
an actual or matured liability.
"SPECIAL GENERAL PARTNER" means Alliance Resource GP, LLC, a
Delaware limited liability company, and its successors and permitted
assigns as a special general partner of AROP.
"SUBSIDIARY" means, with respect to any Person, any
corporation, limited liability company, partnership, joint venture,
association, trust or other entity of which (or in which) more than
50% of (a) the issued and outstanding Capital Stock having ordinary
voting power to elect a majority of the board of directors of such
corporation (irrespective of whether at the time Capital Stock of any
other class or classes of such corporation shall or might have voting
power upon the occurrence of any contingency), (b) the interests in
the capital or profits of such partnership, limited liability company,
joint venture or association with ordinary voting power to elect a
majority of the board of directors (or Persons performing similar
functions) of such partnership, limited liability company,
<PAGE> 34
30
joint venture or association, or (c) the beneficial interests in such
trust or other entity with ordinary voting power to elect a majority
of the board of trustees (or Persons performing similar functions) of
such trust or other entity, is at the time directly or indirectly
owned or controlled by such Person, by such Person and one or more of
its Subsidiaries, or by one or more of such Person's other
Subsidiaries.
"SUBSIDIARY GUARANTORS" means the Subsidiaries of the
Borrower listed on Schedule II hereto and each other Restricted
Subsidiary of the Borrower that shall be required to execute and
deliver a guaranty pursuant to Section 5.01(j).
"SUBSIDIARY GUARANTY" has the meaning specified in Section
3.01(a)(iii).
"SURVIVING DEBT" means Debt of each Loan Party and its
Subsidiaries outstanding immediately before and after giving effect to
the Transaction.
"SWAPS" means, with respect to any Person, payment
obligations with respect to interest rate swaps, currency or commodity
swaps and hedging obligations obligating such Person to make payments,
whether periodically or upon the happening of a contingency. For the
purposes of this Agreement, the amount of the obligation under any
Swap shall be the amount determined in respect thereof as of the end
of the then most recently ended fiscal quarter of such Person, based
on the assumption that such Swap had terminated at the end of such
fiscal quarter, and in making such determination, if any agreement
relating to such Swap provides for the netting of amounts payable by
and to such Person thereunder or if any such agreement provides for
the simultaneous payment of amounts by and to such Person, then in
each such case, the amount of such obligation shall be the net amount
so determined.
"SWING LINE ADVANCE" means an advance made by (a) the Swing
Line Bank pursuant to Section 2.01(d) or (b) any Revolving Credit
Lender pursuant to Section 2.02(b).
"SWING LINE BANK" means Chase.
"SWING LINE BORROWING" means a borrowing consisting of a
Swing Line Advance made by the Swing Line Bank pursuant to Section
2.01(d) or the Revolving Credit Lenders pursuant to Section 2.02(b).
"SWING LINE COMMITMENT" means, with respect to the Swing Line
Bank, the amount of the Swing Line Facility set forth in Section
2.01(d), as such amount may be reduced at or prior to such time
pursuant to Section 2.04.
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31
"SWING LINE FACILITY" has the meaning specified in Section
2.01(d).
"TAXES" has the meaning specified in Section 2.11(a).
"TERM ADVANCE" has the meaning specified in Section 2.01(a).
"TERM BORROWING" means a borrowing consisting of simultaneous
Term Advances of the same Type made by the Term Lenders.
"TERM COMMITMENT" means, with respect to any Term Lender at
any time, the amount set forth opposite such Lender's name on Schedule
I hereto under the caption "Term Commitment" or, if such Lender has
entered into one or more Assignment and Acceptances, set forth for
such Lender in the Register maintained by the Paying Agent pursuant to
Section 8.07(d) as such Lender's "Term Commitment", as such amount may
be reduced at or prior to such time pursuant to Section 2.04.
"TERM FACILITY" means, at any time, the aggregate amount of
the Term Lenders' Term Commitments at such time.
"TERM LENDER" means any Lender that has a Term Commitment.
"TERM LOAN PERCENTAGE" means, at any time, a percentage equal
to 100% less the Senior Note Percentage at such time.
"TERM NOTE" means a promissory note of the Borrower payable
to the order of any Term Lender, in substantially the form of Exhibit
A-2 hereto, evidencing the indebtedness of the Borrower to such Lender
resulting from the Term Advance made by such Lender, as amended.
"TERMINATION DATE" means the earlier of August 12, 2004 and
the date of termination in whole of the Working Capital Commitments,
the Revolving Credit Commitments, the Swing Line Commitment and the
Term Commitments pursuant to Section 2.04 or 6.01.
"TRANSACTION" has the meaning specified in Preliminary
Statement (2).
"TRANSACTION DOCUMENTS" means, collectively, the Loan
Documents and the Related Documents.
"TRANSFER" means, with respect to any Person, any transaction
in which such Person sells, conveys, abandons, transfers, leases (as
lessor), or otherwise disposes of any
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32
of its assets; provided, however, that "Transfer" shall not include
(a) the granting of any Liens permitted to be granted pursuant to this
Agreement, (b) any transfer of assets permitted pursuant to Section
5.02(d), (c) the making of any Restricted Payment permitted pursuant
to Section 5.02(g) or (d) the making of any Investments permitted
pursuant to Section 5.02(f).
"TYPE" refers to the distinction between Advances bearing
interest at the Base Rate and Advances bearing interest at the
Eurodollar Rate.
"UNITED STATES GOVERNMENTAL SECURITY" means any direct
obligation of, or obligation guaranteed by, the United States of
America, or any agency controlled or supervised by or acting as an
instrumentality of the United States of America pursuant to authority
granted by the Congress of the United States of America, so long as
such obligation or guarantee shall have the benefit of the full faith
and credit of the United Sates of America which shall have been
pledged pursuant to authority granted by the Congress of the United
States of America.
"UNRESTRICTED SUBSIDIARY" means a Subsidiary which is not a
Restricted Subsidiary.
"UNUSED REVOLVING CREDIT COMMITMENT" means, with respect to
any Revolving Credit Lender at any time (a) such Lender's Revolving
Credit Commitment at such time minus (b) the sum of (i) the aggregate
principal amount of all Revolving Credit Advances and Swing Line
Advances made by such Lender (in its capacity as a Lender and not as
the Swing Line Bank) and outstanding at such time plus (ii) such
Lender's Pro Rata Share of the aggregate principal amount of all Swing
Line Advances made by the Swing Line Bank pursuant to Section 2.01(d)
and outstanding at such time.
"UNUSED TERM COMMITMENT" means with respect to any Term
Lender at any time, such Lender's unused Term Commitment at such time.
"UNUSED WORKING CAPITAL COMMITMENT" means, with respect to
any Working Capital Lender at any time (a) such Lender's Working
Capital Commitment at such time minus (b) the aggregate principal
amount of all Working Capital Advances made by such Lender (in its
capacity as a Lender) and outstanding at such time.
"VOTING STOCK" means, (i) Securities of any class of classes,
the holders of which are ordinarily, in the absence of contingencies,
entitled to elect a majority of the directors (or Persons performing
similar functions) or (ii) in the case of a partnership, limited
liability company or joint venture, interests in the profits or
capital thereof entitling the holders of such interests to approve
major business actions.
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"WHOLLY OWNED" means, at any time, with respect to any
Subsidiary of any Person, a Subsidiary of which at least ninety-eight
percent (98%) of all of the equity interests (except directors'
qualifying shares) and Voting Stock are owned by any one or more of
such Person and such Person's other Wholly Owned Subsidiaries at such
time.
"WITHDRAWAL LIABILITY" has the meaning specified in Part I of
Subtitle E of Title IV of ERISA.
"WORKING CAPITAL ADVANCE" has the meaning specified in
Section 2.01(b).
"WORKING CAPITAL BORROWING" means a borrowing consisting of
simultaneous Working Capital Advances of the same Type made by the
Working Capital Lenders.
"WORKING CAPITAL COMMITMENT" means, with respect to any
Working Capital Lender at any time, the amount set forth opposite such
Lender's name on Schedule I hereto under the caption "Working Capital
Commitment", or, if such Lender has entered into one or more
Assignment and Acceptances, set forth for such Lender in the Register
maintained by the Paying Agent pursuant to Section 8.07(d) as such
Lender's "Working Capital Commitment", as such amount may be reduced
at or prior to such time pursuant to Section 2.04.
"WORKING CAPITAL FACILITY" means, at any time, the aggregate
amount of the Working Capital Lenders' Working Capital Commitments at
such time.
"WORKING CAPITAL LENDER" means any Lender that has a Working
Capital Commitment.
"WORKING CAPITAL NOTE" means a promissory note of the
Borrower payable to the order of any Working Capital Lender, in
substantially the form of Exhibit A-1 hereto, evidencing the aggregate
indebtedness of the Borrower to such Lender resulting from the Working
Capital Advances made by such Lender, as amended.
SECTION 1.02. Computation of Time Periods; Other Definitional
Provisions. In this Agreement and the other Loan Documents in the computation
of periods of time from a specified date to a later specified date, the word
"FROM" means "from and including" and the words "TO" and "UNTIL" each mean "to
but excluding". References in the Loan Documents to any agreement or contract
"AS AMENDED" shall mean and be a reference to such agreement or contract as
amended, amended and restated, supplemented or otherwise modified from time to
time in accordance with its terms.
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34
SECTION 1.03. Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with generally
accepted accounting principles in effect from time to time ("GAAP").
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The Advances. (a) The Term Advances. Each Term
Lender severally agrees, on the terms and conditions hereinafter set forth, to
make a single advance (a "TERM ADVANCE") to the Borrower on the Effective Date
in an amount not to exceed such Lender's Term Commitment at such time. The Term
Borrowing shall consist of Term Advances made simultaneously by the Term
Lenders ratably according to their Term Commitments. Amounts borrowed under
this Section 2.01(a) and repaid or prepaid may not be reborrowed.
(b) The Working Capital Advances. Each Working Capital Lender
severally agrees, on the terms and conditions hereinafter set forth, to make
advances (each a "WORKING CAPITAL ADVANCE") to the Borrower from time to time
on any Business Day during the period from the date hereof until the
Termination Date in an amount for each such Advance not to exceed such Lender's
Unused Working Capital Commitment at such time. Each Working Capital Borrowing
shall be in an aggregate amount of $1,000,000 or an integral multiple of
$100,000 in excess thereof in the case of Base Rate Advances, and in an
aggregate amount of $5,000,000 or an integral multiple of $1,000,000 in excess
thereof in the case of Eurodollar Rate Advances and shall consist of Working
Capital Advances made simultaneously by the Working Capital Lenders ratably
according to their Working Capital Commitments. Within the limits of each
Working Capital Lender's Unused Working Capital Commitment in effect from time
to time, the Borrower may borrow under this Section 2.01(b), prepay pursuant to
Section 2.05(a) and reborrow under this Section 2.01(b).
(c) The Revolving Credit Advances. Each Revolving Credit
Lender severally agrees, on the terms and conditions hereinafter set forth, to
make advances (each a "REVOLVING CREDIT ADVANCE") to the Borrower from time to
time on any Business Day during the period from the date hereof until the
Termination Date in an amount for each such Advance not to exceed such Lender's
Unused Revolving Credit Commitment at such time. Each Revolving Credit
Borrowing shall be in an aggregate amount of $1,000,000 or an integral multiple
of $100,000 in excess thereof in the case of Base Rate Advances and in an
aggregate amount of $5,000,000 or an integral multiple of $1,000,000 in excess
thereof in the case of Eurodollar Rate Advances (other than, in each case, a
Borrowing the proceeds of which shall be used solely to repay or prepay in full
outstanding Swing Line Advances) and shall consist of Revolving Credit Advances
made simultaneously by the Revolving Credit Lenders ratably according to their
Revolving
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35
Credit Commitments. Within the limits of each Revolving Credit Lender's Unused
Revolving Credit Commitment in effect from time to time, the Borrower may
borrow under this Section 2.01(c), prepay pursuant to Section 2.05(a) and
reborrow under this Section 2.01(c).
(d) The Swing Line Advances. The Borrower may request the
Swing Line Bank to make, and the Swing Line Bank agrees to make, on the terms
and conditions hereinafter set forth, Swing Line Advances to the Borrower from
time to time on any Business Day during the period from the date hereof until
the Termination Date (i) in an aggregate outstanding amount not to exceed at
any time $10,000,000 (the "SWING LINE FACILITY") and (ii) in an amount for each
such Swing Line Borrowing not to exceed the aggregate of the Unused Revolving
Credit Commitments of the Revolving Credit Lenders at such time. No Swing Line
Advance shall be used for the purpose of funding the payment of principal of
any other Swing Line Advance. Each Swing Line Borrowing shall be in an amount
of $500,000 or an integral multiple of $100,000 in excess thereof and shall be
made as a Base Rate Advance. Within the limits of the Swing Line Facility and
within the limits referred to in clause (ii) above the Borrower may borrow
under this Section 2.01(d), repay pursuant to Section 2.03(d) or prepay
pursuant to Section 2.05(a) and reborrow under this Section 2.01(d).
SECTION 2.02. Making the Advances. (a) Except as otherwise
provided in Section 2.02(b), each Borrowing shall be made on notice, given not
later than 12:00 noon (New York City time) on the third Business Day prior to
the date of the proposed Borrowing in the case of a Borrowing consisting of
Eurodollar Rate Advances, or the first Business Day prior to the date of the
proposed Borrowing in the case of a Borrowing consisting of Base Rate Advances,
by the Borrower to the Paying Agent, which shall give to each Appropriate
Lender prompt notice thereof by telecopier. Each such notice of a Borrowing (a
"NOTICE OF BORROWING") shall be by telephone, confirmed immediately in writing,
or by telecopier, in substantially the form of Exhibit B hereto, specifying
therein the requested (i) date of such Borrowing, (ii) Facility under which
such Borrowing is to be made, (iii) Type of Advances comprising such Borrowing,
(iv) aggregate amount of such Borrowing and (v) in the case of a Borrowing
consisting of Eurodollar Rate Advances, initial Interest Period for each such
Advance. Each Appropriate Lender shall, before 12:00 noon (New York City time)
on the date of such Borrowing, make available for the account of its Applicable
Lending Office to the Paying Agent at the Paying Agent's Account, in same day
funds, such Lender's ratable portion of such Borrowing in accordance with the
respective Commitments under the applicable Facility of such Lender and the
other Appropriate Lenders. After the Paying Agent's receipt of such funds and
upon fulfillment of the applicable conditions set forth in Article III, the
Paying Agent will make such funds available to the Borrower by crediting the
Borrower's Account; provided, however, that, in the case of any Revolving
Credit Borrowing, the Paying Agent shall first make a portion of such funds
equal to the aggregate principal amount of any Swing Line Advances made by the
Swing Line Bank and by any other Revolving Credit Lender and outstanding on the
date of such Revolving Credit Borrowing, plus interest accrued and unpaid
thereon to and as of such date,
<PAGE> 40
36
available to the Swing Line Bank and such other Revolving Credit Lenders for
repayment of such Swing Line Advances.
(b) Each Swing Line Borrowing shall be made on notice, given
not later than 12:00 noon (New York City time) on the date of the proposed
Swing Line Borrowing, by the Borrower to the Swing Line Bank and the Paying
Agent. Each such notice of a Swing Line Borrowing (a "NOTICE OF SWING LINE
BORROWING") shall be by telephone, confirmed immediately in writing, or by
telecopier, specifying therein the requested (i) date of such Borrowing, (ii)
amount of such Borrowing and (iii) maturity of such Borrowing (which maturity
shall be no later than the thirtieth day after the requested date of such
Borrowing). The Swing Line Bank will make the amount thereof available to the
Paying Agent at the Paying Agent's Account, in same day funds. After the Paying
Agent's receipt of such funds and upon fulfillment of the applicable conditions
set forth in Article III, the Paying Agent will make such funds available to
the Borrower by crediting the Borrower's Account. Upon written demand by the
Swing Line Bank, with a copy of such demand to the Paying Agent, each other
Revolving Credit Lender shall purchase from the Swing Line Bank, and the Swing
Line Bank shall sell and assign to each such other Revolving Credit Lender,
such other Lender's Pro Rata Share of such outstanding Swing Line Advance as of
the date of such demand, by making available for the account of its Applicable
Lending Office to the Paying Agent for the account of the Swing Line Bank, by
deposit to the Paying Agent's Account, in same day funds, an amount equal to
the portion of the outstanding principal amount of such Swing Line Advance to
be purchased by such Lender. The Borrower hereby agrees to each such sale and
assignment. Each Revolving Credit Lender agrees to purchase its Pro Rata Share
of an outstanding Swing Line Advance on (i) the Business Day on which demand
therefor is made by the Swing Line Bank, provided that notice of such demand is
given not later than 12:00 noon (New York City time) on such Business Day or
(ii) the first Business Day next succeeding such demand if notice of such
demand is given after such time. Upon any such assignment by the Swing Line
Bank to any other Revolving Credit Lender of a portion of a Swing Line Advance,
the Swing Line Bank represents and warrants to such other Lender that the Swing
Line Bank is the legal and beneficial owner of such interest being assigned by
it, but makes no other representation or warranty and assumes no responsibility
with respect to such Swing Line Advance, the Loan Documents or any Loan Party.
If and to the extent that any Revolving Credit Lender shall not have so made
the amount of such Swing Line Advance available to the Paying Agent, such
Revolving Credit Lender agrees to pay to the Paying Agent forthwith on demand
such amount together with interest thereon, for each day from the date of
demand by the Swing Line Bank until the date such amount is paid to the Paying
Agent, at the Federal Funds Rate. If such Lender shall pay to the Paying Agent
such amount for the account of the Swing Line Bank on any Business Day, such
amount so paid in respect of principal shall constitute a Swing Line Advance
made by such Lender on such Business Day for purposes of this Agreement, and
the outstanding principal amount of the Swing Line Advance made by the Swing
Line Bank shall be reduced by such amount on such Business Day.
<PAGE> 41
37
(c) Anything in subsection (a) above to the contrary
notwithstanding, (i) the Borrower may not select Eurodollar Rate Advances for
the initial Borrowing hereunder or for any Borrowing if the aggregate amount of
such Borrowing is less than $5,000,000 or if the obligation of the Appropriate
Lenders to make Eurodollar Rate Advances shall then be suspended pursuant to
Section 2.06(d)(ii), 2.08(b)(iii) or 2.09(c) or (d) and (i) the Revolving
Credit Advances and the Revolving Credit Advances may not be outstanding as
part of more than eight separate Borrowings in aggregate.
(d) Each Notice of Borrowing and Notice of Swing Line
Borrowing shall be irrevocable and binding on the Borrower.
(e) Unless the Paying Agent shall have received notice from
an Appropriate Lender prior to the date of any Borrowing under a Facility under
which such Lender has a Commitment that such Lender will not make available to
the Paying Agent such Lender's ratable portion of such Borrowing, the Paying
Agent may assume that such Lender has made such portion available to the Paying
Agent on the date of such Borrowing in accordance with subsection (a) of this
Section 2.02 and the Paying Agent may, in reliance upon such assumption, make
available to the Borrower on such date a corresponding amount. If and to the
extent that such Lender shall not have so made such ratable portion available
to the Paying Agent, such Lender and the Borrower severally agree to repay or
pay to the Paying Agent forthwith on demand such corresponding amount and to
pay interest thereon, for each day from the date such amount is made available
to the Borrower until the date such amount is repaid or paid to the Paying
Agent at (i) in the case of the Borrower, the interest rate applicable at such
time under Section 2.06 to Advances comprising such Borrowing and (ii) in the
case of such Lender, the Federal Funds Rate. If such Lender shall pay to the
Paying Agent such corresponding amount, such amount so paid shall constitute
such Lender's Advance as part of such Borrowing for all purposes.
(f) The failure of any Lender to make the Advance to be made
by it as part of any Borrowing shall not relieve any other Lender of its
obligation, if any, hereunder to make its Advance on the date of such
Borrowing, but no Lender shall be responsible for the failure of any other
Lender to make the Advance to be made by such other Lender on the date of any
Borrowing.
SECTION 2.03. Repayment of Advances. (a) Term Advances. The
Borrower shall repay to the Paying Agent for the ratable account of the Term
Lenders the aggregate outstanding principal amount of the Term Advances on the
following dates in amounts equal to the percentage indicated of the principal
amount of Term Advances outstanding on October 31, 2001 (as such amounts shall
be reduced as a result of the application of prepayments in accordance with the
order of priority set forth in Section 2.05):
<PAGE> 42
38
<TABLE>
<CAPTION>
Date Percentage
---- ----------
<S> <C>
October 31, 2001 7.50%
January 31, 2002 7.50%
April 30, 2002 7.50%
July 31, 2002 7.50%
October 31, 2002 7.50%
January 31, 2003 7.50%
April 30, 2003 7.50%
July 31, 2003 7.50%
October 31, 2003 10.00%
January 31, 2004 10.00%
April 30, 2004 10.00%
August 12, 2004 10.00%
</TABLE>
provided, however, that the final principal installment shall be repaid on the
Termination Date and in any event shall be in an amount equal to the aggregate
principal amount of the Term Advances outstanding on such date.
(b) Working Capital Advances. The Borrower shall repay to the
Paying Agent for the ratable account of the Working Capital Lenders on the
Termination Date the aggregate principal amount of the Working Capital Advances
then outstanding.
(c) Revolving Credit Advances. The Borrower shall repay to
the Paying Agent for the ratable account of the Revolving Credit Lenders on the
Termination Date the aggregate principal amount of the Revolving Credit
Advances then outstanding.
(d) Swing Line Advances. The Borrower shall repay to the
Paying Agent for the account of the Swing Line Bank and each other Revolving
Credit Lender that has made a Swing Line Advance the outstanding principal
amount of each Swing Line Advance made by each of them on the earlier of the
maturity date specified in the applicable Notice of Swing Line Borrowing (which
maturity shall be no later than the thirtieth day after the requested date of
such Borrowing) and the Termination Date.
SECTION 2.04. Termination or Reduction of the Commitments.
(a) Optional. The Borrower may, upon at least three Business Days' notice to
the Paying Agent, terminate in whole or reduce in part the Unused Term
Commitments, the Unused Working Capital Commitments and the Unused Revolving
Credit Commitments; provided, however, that each partial reduction of a
Facility (i) shall be in an aggregate amount of $5,000,000 or an integral
<PAGE> 43
39
multiple of $1,000,000 in excess thereof and (ii) shall be made ratably among
the Appropriate Lenders in accordance with their Commitments with respect to
such Facility.
(b) Mandatory. (i) On the date of the Term Borrowing, after
giving effect to such Term Borrowing, and from time to time thereafter upon
each repayment or prepayment of the Term Advances, the aggregate Term
Commitments of the Term Lenders shall be automatically and permanently reduced,
on a pro rata basis, by an amount equal to the amount by which the aggregate
Term Commitments immediately prior to such reduction exceed the aggregate
unpaid principal amount of the Term Advances then outstanding.
(ii) If, on the fourth anniversary of the Effective Date, the
aggregate Revolving Credit Commitments of the Revolving Credit Lenders exceed
$15,000,000, then, on such day, the aggregate Revolving Credit Commitments of
the Revolving Credit Lenders shall be automatically and permanently reduced, on
a pro rata basis, in an amount such that, after giving effect to such
reduction, the aggregate Revolving Credit Commitments equal $15,000,000.
(iii) The Swing Line Facility shall be permanently reduced
from time to time on the date of each reduction in the Revolving Credit
Facility by the amount, if any, by which the amount of the Swing Line Facility
exceeds the Revolving Credit Facility after giving effect to such reduction of
the Revolving Credit Facility.
SECTION 2.05. Prepayments. (a) Optional. The Borrower may,
upon at least one Business Day's notice in the case of Base Rate Advances and
three Business Days' notice in the case of Eurodollar Rate Advances, in each
case to the Paying Agent stating the proposed date and aggregate principal
amount of the prepayment, and if such notice is given the Borrower shall,
prepay the outstanding aggregate principal amount of the Advances comprising
part of the same Borrowing in whole or ratably in part, together with accrued
interest to the date of such prepayment on the aggregate principal amount
prepaid; provided, however, that (x) each partial prepayment shall be in an
aggregate principal amount of $1,000,000 or an integral multiple of $100,000 in
excess thereof in the case of Base Rate Advances and $5,000,000 or an integral
multiple of $1,000,000 in excess thereof in the case of Eurodollar Rate
Advances and if any prepayment of a Eurodollar Rate Advance is made on a date
other than the last day of an Interest Period for such Advance, the Borrower
shall also pay any amounts owing pursuant to Section 8.04(c). Each such
prepayment of any Term Advances shall be applied to the installments thereof on
a pro rata basis.
(b) Mandatory. (i) The Borrower shall, on the date (the
"PREPAYMENT DATE") that is the earlier of (A) the first anniversary of the date
of receipt of the Net Cash Proceeds by the Borrower or any of its Subsidiaries
from the sale, lease, transfer or other disposition of any assets of the
Borrower or any of its Subsidiaries (other than any sale, lease, transfer or
other disposition of assets pursuant to clause (i), (ii ), (iii) or (iv) of
Section 5.02(e)) and (B) the date
<PAGE> 44
40
on which the Borrower is required to apply any portion of such Net Cash
Proceeds to prepay the Senior Notes pursuant to the Note Purchase Agreement,
but only to the extent such Net Cash Proceeds shall not have been reinvested
prior to such date in substantially similar assets constituting Investments
permitted under Section 5.02(f), prepay an aggregate principal amount of the
Term Advances comprising part of the same Borrowings in an amount equal to the
sum of (x) the Term Loan Percentage on the Prepayment Date of such Net Cash
Proceeds and (y) the amount of such Net Cash Proceeds that shall not be
required to prepay the Senior Notes on such Prepayment Date. Each such
prepayment of the Term Advances made on or after October 31, 2001 shall be
applied to the installments due thereon pursuant to Section 2.03(a) on a pro
rata basis.
(ii) The Borrower shall, on each Business Day, prepay an
aggregate principal amount of the Revolving Credit Advances comprising part of
the same Borrowings and the Swing Line Advances in an amount equal to the
amount by which (A) the sum of the aggregate principal amount of (x) the
Revolving Credit Advances and (y) the Swing Line Advances then outstanding
exceeds (B) the Revolving Credit Facility on such Business Day.
(iii) Prepayments of the Revolving Credit Facility made
pursuant to clause (ii) shall be first applied to prepay Swing Line Advances
then outstanding until such Advances are paid in full and second applied to
prepay Revolving Credit Advances then outstanding comprising part of the same
Borrowings until such Advances are paid in full.
(iv) The Borrower shall, on each Business Day, prepay an
aggregate principal amount of the Working Capital Advances comprising part of
the same Borrowings in an amount equal to the amount by which (A) the aggregate
principal amount of the Working Capital Advances then outstanding exceeds (B)
the Working Capital Facility on such Business Day.
(v) The Borrower shall, on the last day of each of the first
three fiscal quarters and the last day of each fiscal year of the Borrower,
prepay the principal amount of each Swing Line Borrowing in excess of
$2,500,000 outstanding on such day.
(vi) All prepayments under this subsection (b) shall be made
together with accrued interest to the date of such prepayment on the principal
amount prepaid.
SECTION 2.06. Interest. (a) Scheduled Interest. The Borrower
shall pay interest on the unpaid principal amount of each Advance owing to each
Lender from the date of such Advance until such principal amount shall be paid
in full, at the following rates per annum:
(i) Base Rate Advances. During such periods as such Advance
is a Base Rate Advance, a rate per annum equal at all times to the sum
of (A) the Base Rate in effect from time to time plus (B) the
Applicable Margin in effect from time to time, which ratio
<PAGE> 45
41
shall be determined in accordance with the definition of that term,
payable in arrears quarterly on the last day of each fiscal quarter
during such periods and on the date such Base Rate Advance shall be
Converted or paid in full.
(ii) Eurodollar Rate Advances. During such periods as such
Advance is a Eurodollar Rate Advance, a rate per annum equal at all
times during each Interest Period for such Advance to the sum of (A)
the Eurodollar Rate for such Interest Period for such Advance plus (B)
the Applicable Margin in effect prior to the first day of such
Interest Period, which ratio shall be determined in accordance with
the definition of that term, payable in arrears on the last day of
such Interest Period and, if such Interest Period has a duration of
more than three months, on each day that occurs during such Interest
Period every three months from the first day of such Interest Period
and on the date such Eurodollar Rate Advance shall be Converted or
paid in full.
(b) Default Interest. Upon the occurrence and during the
continuance of an Event of Default, the Borrower shall pay interest on (i) the
unpaid principal amount of each Advance owing to each Lender, payable in
arrears on the dates referred to in clause (a)(i) or (a)(ii) above and on
demand, at a rate per annum equal at all times to 2% per annum above the rate
per annum required to be paid on such Advance pursuant to clause (a)(i) or
(a)(ii) above and (ii) to the fullest extent permitted by law, the amount of
any interest, fee or other amount payable under the Loan Documents that is not
paid when due, from the date such amount shall be due until such amount shall
be paid in full, payable in arrears on the date such amount shall be paid in
full and on demand, at a rate per annum equal at all times to 2% per annum
above the rate per annum required to be paid, in the case of interest, on the
Type of Advance on which such interest has accrued pursuant to clause (a)(i) or
(a)(ii) above and, in all other cases, on Base Rate Advances pursuant to clause
(a)(i) above.
(c) Notice of Interest Period and Interest Rate. Promptly
after receipt of a Notice of Borrowing pursuant to Section 2.02(a), a notice of
Conversion pursuant to Section 2.08 or a notice of selection of an Interest
Period pursuant to the terms of the definition of "Interest Period", the Paying
Agent shall give notice to the Borrower and each Appropriate Lender of the
applicable Interest Period and the applicable interest rate determined by the
Paying Agent for purposes of clause (a)(i) or (a)(ii) above, and the applicable
rate, if any, furnished by each Reference Bank at the Borrowers request for
the purpose of determining the applicable interest rate under clause (a)(ii)
above.
(d) Interest Rate Determination. (i) In the event that the
Borrower requests, in accordance with the definition of "Eurodollar Rate", that
the Eurodollar Rate be based on interest rate quotes received from the
Reference Banks, each Reference Bank agrees to furnish to the Paying Agent
timely information for the purpose of determining each Eurodollar Rate. If any
one or more of the Reference Banks shall not furnish such timely information to
the Paying
<PAGE> 46
42
Agent for the purpose of determining any such interest rate, the Paying Agent
shall determine such interest rate on the basis of timely information furnished
by the remaining Reference Banks.
(ii) If fewer than two Reference Banks are able to furnish
timely information to the Paying Agent for determining the Eurodollar Rate for
any Eurodollar Rate Advances and the Eurodollar Rate cannot otherwise be
determined in accordance with clause (b) of the definition of "Eurodollar
Rate", the Paying Agent shall forthwith notify the Borrower and the Lenders
that the interest rate cannot be determined pursuant to said clause (b) for
such Eurodollar Rate Advances, and, unless the Eurodollar Rate cannot be
determined by reference to clause (a) of the definition of Eurodollar Rate,
then
(A) each such Advance will automatically, on the last day of
the then existing Interest Period therefor, Convert into a Base Rate
Advance (or if such Advance is then a Base Rate Advance, will continue
as a Base Rate Advance), and
(B) the obligation of the Lenders to make, or to Convert
Advances into, Eurodollar Rate Advances shall be suspended until the
Paying Agent shall notify the Borrower and the Lenders that the
circumstances causing such suspension no longer exist.
SECTION 2.07. Fees. (a) Commitment Fee. The Borrower shall
pay to the Paying Agent for the account of the Lenders a commitment fee, from
the date hereof in the case of each Initial Lender and from the effective date
specified in the Assignment and Acceptance pursuant to which it became a Lender
in the case of each other Lender until the Termination Date (or in the case of
the Term Commitments, until the Term Borrowing is made), payable in arrears on
the date of the initial Borrowing hereunder, thereafter, in the case of the
Revolving Credit Commitments and Working Capital Commitments, quarterly on the
last day of each fiscal quarter, commencing with the fiscal quarter ending at
September 30, 1999, and on the Termination Date, at a percentage per annum
equal to the Applicable Percentage at such time on the average daily unused
portion of each Appropriate Lender's Term Commitment for the period until the
Term Borrowing is made and on the sum of the average daily Unused Revolving
Credit Commitment of such Lender plus its Pro Rata Share of the average daily
outstanding Swing Line Advances during such quarter plus the average daily
Unused Working Capital Commitment of such Lender; provided, however, that no
commitment fee shall accrue on any of the Commitments of a Defaulting Lender so
long as such Lender shall be a Defaulting Lender.
(b) Agents' Fees. The Borrower shall pay to each Agent for
its own account such fees as may from time to time be agreed between the
Borrower and such Agent.
SECTION 2.08. Conversion of Advances. (a) Optional. The
Borrower may on any Business Day, upon notice given to the Paying Agent not
later than 12:00 noon (New York
<PAGE> 47
43
City time) on the third Business Day prior to the date of the proposed
Conversion or continuation, in the case of the Conversion or continuation of
any Advances into or as Eurodollar Rate Advances, and on the same Business Day,
in the case of the Conversion of any Advances into Base Rate Advances, and
subject, in each case, to the provisions of Sections 2.06 and 2.09, Convert (or
in the case of Eurodollar Rate Advances, continue) all or any portion of the
Advances of one Type comprising the same Borrowing into Advances of the other
Type; provided, however, that any Conversion of Eurodollar Rate Advances into
Base Rate Advances or continuation of Eurodollar Rate Advances shall be made
only on the last day of an Interest Period for such Eurodollar Rate Advances,
any Conversion of Base Rate Advances into Eurodollar Rate Advances shall be in
an amount not less than the minimum amount specified in Section 2.02(c), no
Conversion of any Advances shall result in more separate Borrowings than
permitted under Section 2.02(c) and each Conversion of Advances comprising part
of the same Borrowing under any Facility shall be made ratably among the
Appropriate Lenders in accordance with their Commitments under such Facility.
Each such notice of Conversion or continuation shall, within the restrictions
specified above, specify (i) the date of such Conversion or continuation, (ii)
the Advances to be Converted or continued and (iii) if such Conversion or
continuation is into Eurodollar Rate Advances, the duration of the initial
Interest Period for such Advances. Each notice of Conversion shall be
irrevocable and binding on the Borrower.
(b) Mandatory. (i) On the date on which the aggregate unpaid
principal amount of Eurodollar Rate Advances comprising any Borrowing shall be
reduced, by payment or prepayment or otherwise, to less than $5,000,000, such
Advances shall automatically Convert into Base Rate Advances.
(ii) If the Borrower shall provide a notice of Conversion or
continuation and fail to select the duration of any Interest Period for any
Eurodollar Rate Advances in accordance with the provisions contained in the
definition of "Interest Period" in Section 1.01, the Paying Agent will
forthwith so notify the Borrower and the Appropriate Lenders, whereupon each
such Eurodollar Rate Advance will automatically, on the last day of the then
existing Interest Period therefor, Convert into or continue as a Eurodollar
Rate Advance with an interest period of one month. In addition, if the Borrower
shall fail to provide a timely notice of Conversion or continuation for any
Eurodollar Rate Advance, such Eurodollar Rate Advance will automatically
Convert into a Base Rate Advance.
(iii) Upon the occurrence and during the continuance of any
Event of Default, (x) each Eurodollar Rate Advance will automatically, on the
last day of the then existing Interest Period therefor, Convert into a Base
Rate Advance and (y) the obligation of the Lenders to make, or to Convert
Advances into or to continue Eurodollar Rate Advances as, Eurodollar Rate
Advances shall be suspended during such continuance.
<PAGE> 48
44
SECTION 2.09. Increased Costs, Etc. (a) If, due to either (i)
the introduction of or any change in or in the interpretation of any law or
regulation after the date hereof or (ii) the compliance with any guideline or
request from any central bank or other governmental authority (whether or not
having the force of law), there shall be any increase in the cost to any Lender
Party of agreeing to make or of making, funding or maintaining Eurodollar Rate
Advances (excluding, for purposes of this Section 2.09, any such increased
costs resulting from (x) Taxes or Other Taxes (as to which Section 2.11 shall
govern) and (y) changes in the basis of taxation of overall net income or
overall gross income by the United States or by the foreign jurisdiction or
state under the laws of which such Lender Party is organized or has its
Applicable Lending Office or any political subdivision thereof), then the
Borrower shall from time to time, upon demand by such Lender Party (with a copy
of such demand to the Paying Agent), pay to the Paying Agent for the account of
such Lender Party additional amounts sufficient to compensate such Lender Party
for such increased cost. A certificate as to the amount of such increased cost,
submitted to the Borrower by such Lender Party, shall be conclusive and binding
for all purposes, absent manifest error.
(b) If any Lender Party determines that compliance with any
law or regulation or any guideline or request from any central bank or other
governmental authority enacted, promulgated, issued or made after the date
hereof (whether or not having the force of law) affects or would affect the
amount of capital required or expected to be maintained by such Lender Party or
any corporation controlling such Lender Party and that the amount of such
capital is increased by or based upon the existence of such Lender Party's
commitment to lend hereunder and other commitments of such type, then, upon
demand by such Lender Party or such corporation (with a copy of such demand to
the Paying Agent), the Borrower shall pay to the Paying Agent for the account
of such Lender Party, from time to time as specified by such Lender Party,
additional amounts sufficient to compensate such Lender Party in the light of
such circumstances, to the extent that such Lender Party reasonably determines
such increase in capital to be allocable to the existence of such Lender
Party's commitment to lend hereunder. A certificate as to such amounts
submitted to the Borrower by such Lender Party shall be conclusive and binding
for all purposes, absent manifest error.
(c) If, with respect to any Eurodollar Rate Advances under
any Facility, Lenders owed at least 50% of the then aggregate unpaid principal
thereof notify the Paying Agent that the Eurodollar Rate for any Interest
Period for such Advances will not adequately reflect the cost to such Lenders
of making, funding or maintaining their Eurodollar Rate Advances for such
Interest Period, the Paying Agent shall forthwith so notify the Borrower and
the Appropriate Lenders, whereupon (i) each such Eurodollar Rate Advance under
such Facility will automatically, on the last day of the then existing Interest
Period therefor, Convert into a Base Rate Advance and (ii) the obligation of
the Appropriate Lenders to make, or to Convert Advances into, Eurodollar Rate
Advances shall be suspended until the Paying Agent shall notify
<PAGE> 49
45
the Borrower that such Lenders have determined that the circumstances causing
such suspension no longer exist.
(d) Notwithstanding any other provision of this Agreement, if
the introduction of or any change in or in the interpretation of any law or
regulation after the date hereof shall make it unlawful, or any central bank or
other governmental authority shall assert that it is unlawful, for any Lender
or its Eurodollar Lending Office to perform its obligations hereunder to make
Eurodollar Rate Advances or to continue to fund or maintain Eurodollar Rate
Advances hereunder, then, on notice thereof and demand therefor by such Lender
to the Borrower through the Paying Agent, (i) each Eurodollar Rate Advance
under each Facility under which such Lender has a Commitment will
automatically, upon such demand, Convert into a Base Rate Advance and (ii) the
obligation of the Appropriate Lenders to make, or to Convert Advances into,
Eurodollar Rate Advances shall be suspended until the Paying Agent shall notify
the Borrower that such Lender has determined that the circumstances causing
such suspension no longer exist.
(e) All amounts paid hereunder shall be without duplication
of any amounts included within the definition of the term "Eurodollar Rate".
SECTION 2.10. Payments and Computations. (a) The Borrower
shall make each payment hereunder and under the Notes, irrespective of any
right of counterclaim or set-off (except as otherwise provided in Section
2.14), not later than 12:00 noon (New York City time) on the day when due in
U.S. dollars to the Paying Agent at the Paying Agent's Account in same day
funds, with payments being received by the Paying Agent after such time being
deemed to have been received on the next succeeding Business Day. The Paying
Agent will promptly thereafter cause like funds to be distributed (i) if such
payment by the Borrower is in respect of principal, interest, commitment fees
or any other obligation then payable hereunder and under the Notes to more than
one Lender Party, to such Lender Parties for the account of their respective
Applicable Lending Offices ratably in accordance with the amounts of such
respective obligations then payable to such Lender Parties and (ii) if such
payment by the Borrower is in respect of any obligation then payable hereunder
to one Lender Party, to such Lender Party for the account of its Applicable
Lending Office, in each case to be applied in accordance with the terms of this
Agreement. Upon its acceptance of an Assignment and Acceptance and recording of
the information contained therein in the Register pursuant to Section 8.07(d)
or upon the purchase by any Revolving Credit Lender of any Swing Line Advance
pursuant to Section 2.02(b), from and after the effective date of such
Assignment and Acceptance or purchase, as the case may be, the Paying Agent
shall make all payments hereunder and under the Notes in respect of the
interest assigned or purchased thereby to the Lender Party assignee or
purchaser thereunder, and, in the case of an Assignment and Acceptance, the
parties to any such Assignment and Acceptance shall make all appropriate
adjustments in such payments for periods prior to such effective date directly
between themselves.
<PAGE> 50
46
(b) The Borrower hereby authorizes each Lender Party and each
of its Affiliates, if and to the extent payment owed to such Lender Party is
not made when due hereunder (after giving effect to any period of grace) or, in
the case of a Lender, under the Note held by such Lender, to charge from time
to time, to the fullest extent permitted by law, against any or all of the
Borrower's accounts with such Lender Party or such Affiliate any amount so due.
(c) All computations of interest based on the Base Rate shall
be made by the Paying Agent on the basis of a year of 365 or 366 days, as the
case may be, and all computations of interest based on the Eurodollar Rate or
the Federal Funds Rate and of fees shall be made by the Paying Agent on the
basis of a year of 360 days, in each case for the actual number of days
(including the first day but excluding the last day) occurring in the period
for which such interest or fees are payable. Each determination by the Paying
Agent of an interest rate or fee hereunder shall be conclusive and binding for
all purposes, absent manifest error.
(d) Whenever any payment hereunder or under the Notes shall
be stated to be due on a day other than a Business Day, such payment shall be
made on the next succeeding Business Day, and such extension of time shall in
such case be included in the computation of payment of interest or commitment
fee, as the case may be; provided, however, that, if such extension would cause
payment of interest on or principal of Eurodollar Rate Advances to be made in
the next following calendar month, such payment shall be made on the next
preceding Business Day.
(e) Unless the Paying Agent shall have received notice from
the Borrower prior to the date on which any payment is due to any Lender Party
hereunder that the Borrower will not make such payment in full, the Paying
Agent may assume that the Borrower has made such payment in full to the Paying
Agent on such date and the Paying Agent may, in reliance upon such assumption,
cause to be distributed to each such Lender Party on such due date an amount
equal to the amount then due such Lender Party. If and to the extent the
Borrower shall not have so made such payment in full to the Paying Agent, each
such Lender Party shall repay to the Paying Agent forthwith on demand such
amount distributed to such Lender Party together with interest thereon, for
each day from the date such amount is distributed to such Lender Party until
the date such Lender Party repays such amount to the Paying Agent, at the
Federal Funds Rate.
(f) If the Paying Agent receives funds for application to the
obligations of the Loan Parties under the Loan Documents under circumstances
for which the Loan Documents do not specify the Advances or the Facility to
which, or the manner in which, such funds are to be applied, the Paying Agent
shall distribute such funds to each Lender Party ratably in accordance with
such Lender Party's proportionate share of the principal amount of all
outstanding Advances
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47
then due and payable in repayment or prepayment of such of the outstanding
Advances or other obligations owed to such Lender Party and shall return any
unused funds to the Borrower.
SECTION 2.11. Taxes. (a) Any and all payments by the Borrower
hereunder or under the Notes shall be made, in accordance with Section 2.10,
free and clear of and without deduction for any and all present or future
taxes, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto, excluding, in the case of each Lender Party
and each Agent, taxes that are imposed on its overall net income by the United
States and taxes that are imposed on its overall net income (and franchise
taxes imposed in lieu thereof) by the state or foreign jurisdiction under the
laws of which such Lender Party or such Agent, as the case may be, is organized
or any political subdivision thereof and, in the case of each Lender Party,
taxes that are imposed on its overall net income (and franchise taxes imposed
in lieu thereof) by the state or foreign jurisdiction of such Lender Party's
Applicable Lending Office or any political subdivision thereof (all such
non-excluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities in respect of payments hereunder or under the Notes being
hereinafter referred to as "TAXES"). If the Borrower shall be required by law
to deduct any Taxes from or in respect of any sum payable hereunder or under
any Note to any Lender Party or any Agent, (i) the sum payable by the Borrower
shall be increased as may be necessary so that after the Borrower and the
Paying Agent have made all required deductions (including deductions applicable
to additional sums payable under this Section 2.11) such Lender Party or such
Agent, as the case may be, receives an amount equal to the sum it would have
received had no such deductions been made, (ii) the Borrower shall make all
such deductions and (iii) the Borrower shall pay the full amount deducted to
the relevant taxation authority or other authority in accordance with
applicable law.
(b) In addition, the Borrower shall pay any present or future
stamp, documentary, excise, property or similar taxes, charges or levies that
arise from any payment made hereunder or under the Notes or from the execution,
delivery or registration of, performance under, or otherwise with respect to,
this Agreement or the Notes (hereinafter referred to as "OTHER TAXES").
(c) The Borrower shall indemnify each Lender Party and each
Agent for and hold them harmless against the full amount of Taxes and Other
Taxes, and for the full amount of taxes of any kind imposed by any jurisdiction
on amounts payable under this Section 2.11, imposed on or paid by such Lender
Party or such Agent (as the case may be) and any liability (including
penalties, additions to tax, interest and expenses) arising therefrom or with
respect thereto. This indemnification shall be made within 30 days from the
date such Lender Party or such Agent (as the case may be) makes written demand
therefor.
(d) Within 30 days after the date of any payment of Taxes,
the Borrower shall furnish to the Paying Agent, at its address referred to in
Section 8.02, the original or a certified
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48
copy of a receipt evidencing such payment. In the case of any payment hereunder
or under the Notes by or on behalf of the Borrower through an account or branch
outside the United States or by or on behalf of the Borrower by a payor that is
not a United States person, if the Borrower determines that no Taxes are
payable in respect thereof, the Borrower shall furnish, or shall cause such
payor to furnish, to the Paying Agent, at such address, an opinion of counsel
acceptable to the Paying Agent stating that such payment is exempt from Taxes.
For purposes of subsections (d) and (e) of this Section 2.11, the terms "UNITED
STATES" and "UNITED STATES PERSON" shall have the meanings specified in Section
7701 of the Internal Revenue Code.
(e) Each Lender Party organized under the laws of a
jurisdiction outside the United States shall, on or prior to the date of its
execution and delivery of this Agreement in the case of each Initial Lender and
on the date of the Assignment and Acceptance pursuant to which it becomes a
Lender Party in the case of each other Lender Party, and from time to time
thereafter as requested in writing by the Borrower (but only so long thereafter
as such Lender Party remains lawfully able to do so), provide each of the
Paying Agent and the Borrower with two original Internal Revenue Service forms
1001 or 4224, as appropriate, or any successor or other form prescribed by the
Internal Revenue Service, certifying that such Lender Party is exempt from or
entitled to a reduced rate of United States withholding tax on payments
pursuant to this Agreement or the Notes. If the forms provided by a Lender
Party at the time such Lender Party first becomes a party to this Agreement
indicate a United States interest withholding tax rate in excess of zero,
withholding tax at such rate shall be considered excluded from Taxes unless and
until such Lender Party provides the appropriate forms certifying that a lesser
rate applies, whereupon withholding tax at such lesser rate only shall be
considered excluded from Taxes for periods governed by such forms; provided,
however, that if, at the effective date of the Assignment and Acceptance
pursuant to which a Lender Party becomes a party to this Agreement, the Lender
Party assignor was entitled to payments under subsection (a) of this Section
2.11 in respect of United States withholding tax with respect to interest paid
at such date, then, to such extent, the term Taxes shall include (in addition
to withholding taxes that may be imposed in the future or other amounts
otherwise includable in Taxes) United States withholding tax, if any,
applicable with respect to the Lender Party assignee on such date. If any form
or document referred to in this subsection (e) requires the disclosure of
information, other than information necessary to compute the tax payable and
information required on the date hereof by Internal Revenue Service form 1001
or 4224, that the applicable Lender Party reasonably considers to be
confidential, such Lender Party shall give notice thereof to the Borrower and
shall not be obligated to include in such form or document such confidential
information.
(f) For any period with respect to which a Lender Party has
failed to provide the Borrower with the appropriate form described in
subsection (e) above (other than if such failure is due to a change in law
occurring after the date on which a form originally was required to be provided
or if such form otherwise is not required under subsection (e) above), such
Lender Party shall not be entitled to indemnification under subsection (a) or
(c) of this Section 2.11 with
<PAGE> 53
49
respect to Taxes imposed by the United States by reason of such failure;
provided, however, that should a Lender Party become subject to Taxes because
of its failure to deliver a form required hereunder, the Borrower shall take
such steps as such Lender Party shall reasonably request to assist such Lender
Party to recover such Taxes.
SECTION 2.12. Sharing of Payments, Etc. If any Lender Party
shall obtain at any time any payment (whether voluntary, involuntary, through
the exercise of any right of set-off, or otherwise, other than as a result of
an assignment pursuant to Section 8.07) (a) on account of obligations due and
payable to such Lender Party hereunder and under the Notes at such time in
excess of its ratable share (according to the proportion of (i) the amount of
such obligations due and payable to such Lender Party at such time to (ii) the
aggregate amount of the obligations due and payable to all Lender Parties
hereunder and under the Notes at such time) of payments on account of the
obligations due and payable to all Lender Parties hereunder and under the Notes
at such time obtained by all the Lender Parties at such time or (b) on account
of obligations owing (but not due and payable) to such Lender Party hereunder
and under the Notes at such time in excess of its ratable share (according to
the proportion of (i) the amount of such obligations owing to such Lender Party
at such time to (ii) the aggregate amount of the obligations owing (but not due
and payable) to all Lender Parties hereunder and under the Notes at such time)
of payments on account of the obligations owing (but not due and payable) to
all Lender Parties hereunder and under the Notes at such time obtained by all
of the Lender Parties at such time, such Lender Party shall forthwith purchase
from the other Lender Parties such interests or participating interests in the
obligations due and payable or owing to them, as the case may be, as shall be
necessary to cause such purchasing Lender Party to share the excess payment
ratably with each of them; provided, however, that if all or any portion of
such excess payment is thereafter recovered from such purchasing Lender Party,
such purchase from each other Lender Party shall be rescinded and such other
Lender Party shall repay to the purchasing Lender Party the purchase price to
the extent of such Lender Party's ratable share (according to the proportion of
(i) the purchase price paid to such Lender Party to (ii) the aggregate purchase
price paid to all Lender Parties) of such recovery together with an amount
equal to such Lender Party's ratable share (according to the proportion of (i)
the amount of such other Lender Party's required repayment to (ii) the total
amount so recovered from the purchasing Lender Party) of any interest or other
amount paid or payable by the purchasing Lender Party in respect of the total
amount so recovered; provided further that, so long as the obligations under
the Loan Documents shall not have been accelerated, any excess payment received
by any Appropriate Lender shall be shared on a pro rata basis only with other
Appropriate Lenders. The Borrower agrees that any Lender Party so purchasing an
interest or participating interest from another Lender Party pursuant to this
Section 2.12 may, to the fullest extent permitted by law, exercise all its
rights of payment (including the right of set-off) with respect to such
interest or participating interest, as the case may be, as fully as if such
Lender Party were the direct creditor of the Borrower in the amount of such
interest or participating interest, as the case may be.
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50
SECTION 2.13. Use of Proceeds. The proceeds of the Advances
shall be available (and the Borrower agrees that it shall use such proceeds)
solely (a) in the case of the Term Advances, to purchase Qualifying Securities
to be liquidated for the sole purpose of funding capital expenditures of the
Borrower and its Subsidiaries substantially as set forth in the Business Plan
delivered to the Paying Agent from time to time pursuant to Section 5.03(d),
(b) in the case of the Working Capital Advances, to provide working capital for
the Borrower and its Subsidiaries and to fund cash distributions to the holders
of the MLP Units, and (c) in the case of the Revolving Credit Advances, for
general corporate purposes, including, without limitation, to finance
acquisitions and capital expenditures of the Borrower and its Subsidiaries
substantially as set forth in the Business Plan delivered to the Paying Agent
from time to time pursuant to Section 5.03(d).
SECTION 2.14. Defaulting Lenders. (a) In the event that, at
any one time, (i) any Lender Party shall be a Defaulting Lender, (ii) such
Defaulting Lender shall owe a Defaulted Advance to the Borrower and (iii) the
Borrower shall be required to make any payment hereunder or under any other
Loan Document to or for the account of such Defaulting Lender, then the
Borrower may, so long as no Default shall occur or be continuing at such time
and to the fullest extent permitted by applicable law, set off and otherwise
apply the obligation of the Borrower to make such payment to or for the account
of such Defaulting Lender against the obligation of such Defaulting Lender to
make such Defaulted Advance. In the event that, on any date, the Borrower shall
so set off and otherwise apply its obligation to make any such payment against
the obligation of such Defaulting Lender to make any such Defaulted Advance on
or prior to such date, the amount so set off and otherwise applied by the
Borrower shall constitute for all purposes of this Agreement and the other Loan
Documents an Advance by such Defaulting Lender made on the date of such setoff
under the Facility pursuant to which such Defaulted Advance was originally
required to have been made pursuant to Section 2.01. Such Advance shall be
considered, for all purposes of this Agreement, to comprise part of the
Borrowing in connection with which such Defaulted Advance was originally
required to have been made pursuant to Section 2.01, even if the other Advances
comprising such Borrowing shall be Eurodollar Rate Advances on the date such
Advance is deemed to be made pursuant to this subsection (a). The Borrower
shall notify the Paying Agent at any time the Borrower exercises its right of
set-off pursuant to this subsection (a) and shall set forth in such notice (A)
the name of the Defaulting Lender and the Defaulted Advance required to be made
by such Defaulting Lender and (B) the amount set off and otherwise applied in
respect of such Defaulted Advance pursuant to this subsection (a). Any portion
of such payment otherwise required to be made by the Borrower to or for the
account of such Defaulting Lender which is paid by the Borrower, after giving
effect to the amount set off and otherwise applied by the Borrower pursuant to
this subsection (a), shall be applied by the Paying Agent as specified in
subsection (b) or (c) of this Section 2.14.
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51
(b) In the event that, at any one time, (i) any Lender Party
shall be a Defaulting Lender, (ii) such Defaulting Lender shall owe a Defaulted
Amount to any Agent or any of the other Lender Parties and (iii) the Borrower
shall make any payment hereunder or under any other Loan Document to the Paying
Agent for the account of such Defaulting Lender, then the Paying Agent may, on
its behalf or on behalf of such other Agents or such other Lender Parties and
to the fullest extent permitted by applicable law, apply at such time the
amount so paid by the Borrower to or for the account of such Defaulting Lender
to the payment of each such Defaulted Amount to the extent required to pay such
Defaulted Amount. In the event that the Paying Agent shall so apply any such
amount to the payment of any such Defaulted Amount on any date, the amount so
applied by the Paying Agent shall constitute for all purposes of this Agreement
and the other Loan Documents payment, to such extent, of such Defaulted Amount
on such date. Any such amount so applied by the Paying Agent shall be retained
by the Paying Agent or distributed by the Paying Agent to such other Agents or
such other Lender Parties, ratably in accordance with the respective portions
of such Defaulted Amounts payable at such time to the Paying Agent, such other
Agents and such other Lender Parties and, if the amount of such payment made by
the Borrower shall at such time be insufficient to pay all Defaulted Amounts
owing at such time to the Paying Agent, such other Agents and such other Lender
Parties, in the following order of priority:
(i) first, to the Agents for any Defaulted Amounts then owing
to them, in their capacities as such, ratably in accordance with such
respective Defaulted Amounts then owing to the Agents;
(ii) second, to the Swing Line Bank for any Defaulted Amounts
then owing to it, in its capacity as such; and
(iii) third, to any other Lender Parties for any Defaulted
Amounts then owing to such other Lender Parties, ratably in accordance
with such respective Defaulted Amounts then owing to such other Lender
Parties.
Any portion of such amount paid by the Borrower for the account of such
Defaulting Lender remaining, after giving effect to the amount applied by the
Paying Agent pursuant to this subsection (b), shall be applied by the Paying
Agent as specified in subsection (c) of this Section 2.14.
(c) In the event that, at any one time (i) any Lender Party
shall be a Defaulting Lender, (ii) such Defaulting Lender shall not owe a
Defaulted Advance or a Defaulted Amount and (iii) the Borrower, any Agent or
any other Lender Party shall be required to pay or distribute any amount
hereunder or under any other Loan Document to or for the account of such
Defaulting Lender, then the Borrower or such Agent or such other Lender Party
shall pay such amount to the Paying Agent to be held by the Paying Agent, to
the fullest extent permitted by
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52
applicable law, in escrow or the Paying Agent shall, to the fullest extent
permitted by applicable law, hold in escrow such amount otherwise held by it.
Any funds held by the Paying Agent in escrow under this subsection (c) shall be
deposited by the Paying Agent in an interest bearing account at a bank (the
"ESCROW BANK") selected by the Paying Agent at the time, in the name and under
the control of the Paying Agent, but subject to the provisions of this
subsection (c). The terms applicable to such account, including the rate of
interest payable with respect to the credit balance of such account from time
to time, shall be the Escrow Bank's standard terms applicable to escrow
accounts maintained with it. Any interest credited to such account from time to
time shall be held by the Paying Agent in escrow under, and applied by the
Paying Agent from time to time in accordance with the provisions of, this
subsection (c). The Paying Agent shall, to the fullest extent permitted by
applicable law, apply all funds so held in escrow from time to time to the
extent necessary to make any Advances required to be made by such Defaulting
Lender and to pay any amount payable by such Defaulting Lender hereunder and
under the other Loan Documents to the Paying Agent or any other Lender Party,
as and when such Advances or amounts are required to be made or paid and, if
the amount so held in escrow shall at any time be insufficient to make and pay
all such Advances and amounts required to be made or paid at such time, in the
following order of priority:
(i) first, to the Agents for any amounts then due and payable
by such Defaulting Lender to them hereunder, in their capacities as
such, ratably in accordance with such respective amounts then due and
payable to the Agents;
(ii) second, to the Swing Line Bank for any amounts then due
and payable to it hereunder, in its capacity as such, by such
Defaulting Lender;
(iii) third, to any other Lender Parties for any amount then
due and payable by such Defaulting Lender to such other Lender Parties
hereunder, ratably in accordance with such respective amounts then due
and payable to such other Lender Parties; and
(iv) fourth, to the Borrower for any Advance then required to
be made by such Defaulting Lender pursuant to a Commitment of such
Defaulting Lender.
In the event that any Lender Party that is a Defaulting Lender shall, at any
time, cease to be a Defaulting Lender, any funds held by the Paying Agent in
escrow at such time with respect to such Lender Party shall be distributed by
the Paying Agent to such Lender Party and applied by such Lender Party to the
obligations owing to such Lender Party at such time under this Agreement and
the other Loan Documents ratably in accordance with the respective amounts of
such obligations outstanding at such time.
(d) The rights and remedies against a Defaulting Lender under
this Section 2.14 are in addition to other rights and remedies that the
Borrower may have against such
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53
Defaulting Lender with respect to any Defaulted Advance and that any Agent or
any Lender Party may have against such Defaulting Lender with respect to any
Defaulted Amount.
SECTION 2.15. Evidence of Debt. (a) Each Lender Party shall
maintain in accordance with its usual practice an account or accounts
evidencing the indebtedness of the Borrower to such Lender resulting from each
Advance owing to such Lender Party from time to time, including the amounts of
principal and interest payable and paid to such Lender from time to time
hereunder. The Borrower agrees that upon notice by any Lender Party to the
Borrower (with a copy of such notice to the Paying Agent) to the effect that a
promissory note or other evidence of indebtedness is required or appropriate in
order for such Lender Party to evidence (whether for purposes of pledge,
enforcement or otherwise) the Advances owing to, or to be made by, such Lender
Party, the Borrower shall promptly execute and deliver to such Lender Party,
with a copy to the Paying Agent, a Working Capital Note, a Term Note and a
Revolving Credit Note, as applicable, in substantially the form of Exhibits
A-1, A-2 and A-3 hereto, respectively, payable to the order of such Lender
Party in a principal amount equal to the Working Capital Commitment, the Term
Commitment and the Revolving Credit Commitment, respectively, of such Lender
Party. All references to Notes in the Loan Documents shall mean Notes, if any,
to the extent issued hereunder.
(b) The Register maintained by the Paying Agent pursuant to
Section 8.07(d) shall include a control account, and a subsidiary account for
each Lender Party, in which accounts (taken together) shall be recorded (i) the
date and amount of each Borrowing made hereunder, the Type of Advances
comprising such Borrowing and, if appropriate, the Interest Period applicable
thereto, (ii) the terms of each Assignment and Acceptance delivered to and
accepted by it, (iii) the amount of any principal or interest due and payable
or to become due and payable from the Borrower to each Lender Party hereunder,
and (iv) the amount of any sum received by the Paying Agent from the Borrower
hereunder and each Lender Party's share thereof.
(c) Entries made in good faith by the Paying Agent in the
Register pursuant to subsection (b) above, and by each Lender Party in its
account or accounts pursuant to subsection (a) above, shall be prima facie
evidence of the amount of principal and interest due and payable or to become
due and payable from the Borrower to, in the case of the Register, each Lender
Party and, in the case of such account or accounts, such Lender Party, under
this Agreement, absent manifest error; provided, however, that the failure of
the Paying Agent or such Lender Party to make an entry, or any finding that an
entry is incorrect, in the Register or such account or accounts shall not limit
or otherwise affect the obligations of the Borrower under this Agreement.
SECTION 2.16. Replacement of Certain Lenders. If any Lender
(a "SUBJECT LENDER") (a) is a Defaulting Lender that owes a Defaulted Advance
to the Borrower, (b) makes
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demand upon the Borrower for (or if the Borrower is otherwise required to pay)
amounts pursuant to Section 2.09(a) or (b) or Section 2.11 or (c) gives notice
pursuant to Section 2.09(d) requiring a Conversion of such Subject Lender's
Eurodollar Rate Advances to Base Rate Advances or suspending such Lender's
obligation to make Advances as, or to Convert or continue Advances into or as,
Eurodollar Rate Advances, the Borrower may, within 90 days after receipt by the
Borrower of such demand or notice (or the occurrence of such other event
causing the Borrower to be required to pay such compensation), as the case may
be, give notice (a "REPLACEMENT NOTICE") in writing to the Paying Agent and
such Subject Lender of its intention to replace such Subject Lender with an
Eligible Assignee designated in such Replacement Notice (a "REPLACEMENT
LENDER"). Such Subject Lender shall, subject to the payment to such Subject
Lender of any amounts due pursuant to Sections 2.09(a) and (b) and Section 2.11
and all other amounts then owing to it under the Loan Documents assign, in
accordance with Section 8.07, all of its Commitments, Advances, Notes and other
rights and obligations under this Agreement and all other Loan Documents to
such proposed Eligible Assignee. Promptly upon the effective date of an
assignment described above, the Borrower shall issue a replacement Note or
Notes, as the case may be, to such Replacement Lender and such Replacement
Lender shall become a "Lender" for all purposes under this Agreement and the
other Loan Documents.
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. Conditions Precedent to Initial Extension of
Credit. The obligation of each Lender to make an Advance on the occasion of the
Initial Extension of Credit hereunder is subject to the satisfaction of the
following conditions precedent before or concurrently with the Initial
Extension of Credit:
(a) The Paying Agent shall have received on or before the day
of the Initial Extension of Credit the following, each dated such day
(unless otherwise specified), in form and substance satisfactory to
the Paying Agent (unless otherwise specified) and (except for the
Notes) in sufficient copies for each Lender Party:
(i) The Notes payable to the order of the Lenders that have
requested Notes prior to the Effective Date.
(ii) A pledge agreement in substantially the form of Exhibit
D hereto (as amended, the "PLEDGE AGREEMENT"), duly executed by the
Borrower, together with:
(A) evidence that the Qualified Securities have been
credited to the Securities Account (as defined in the Pledge
Agreement),
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(B) duly executed copies of proper financing
statements, to be filed immediately after the Initial
Extension of Credit under the Uniform Commercial Code of all
jurisdictions that the Paying Agent may deem necessary or
desirable in order to perfect and protect the first priority
liens and security interests created under the Pledge
Agreement,
(C) completed requests for information, dated on or
before the date of the Initial Extension of Credit, listing
all effective financing statements on file in the office of
the county clerk of Oklahoma County, Oklahoma that name the
Borrower as debtor, together with copies of such other
financing statements, and
(D) evidence that all action that the Paying Agent
may reasonably deem necessary or desirable in order to
perfect and protect the first priority Liens created under
the Pledge Agreement has been taken.
(iii) A guaranty in substantially the form of Exhibit E
hereto (together with each other guaranty and guaranty supplement
delivered pursuant to Section 5.01(j), in each case as amended, the
"SUBSIDIARY GUARANTY"), duly executed by each Subsidiary Guarantor.
(iv) Certified copies of the resolutions of or on behalf of
each Loan Party approving the Transaction and each Transaction
Document to which it is or is to be a party and/or authorizing the
general partner or managing member, as applicable, to act on behalf of
such limited partnership or limited liability company, as the case may
be, and of all documents evidencing other necessary action (including,
without limitation, all necessary general partner, managing member or
other similar action) and governmental and other third party approvals
and consents, if any, with respect to the Transaction and each
Transaction Document to which it is or is to be a party.
(v) A copy of a certificate of the Secretary of State of the
jurisdiction of organization or formation of each Loan Party and (if
applicable) each general partner or managing member of each Loan Party
dated reasonably near the date of the Initial Extension of Credit,
certifying (A) as to a true and correct copy of the charter or similar
Constitutive Documents of such Person and each amendment thereto on
file in such Secretary's office and (B) that (1) such amendments are
the only amendments to such Person's charter or Constitutive Documents
on file in such Secretary's office, (2) such Person has paid all
franchise taxes to the date of such certificate and (C) such Person is
duly formed and in good standing or presently subsisting under the
laws of the State of the jurisdiction of its organization.
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(vi) A copy of a certificate of the Secretary of State of
each jurisdiction in which any Loan Party or any general partner or
managing member, as applicable, of each Loan Party is required to be
qualified to do business, dated reasonably near the date of the
Initial Extension of Credit, stating that such Person is duly
qualified and in good standing as a foreign corporation, limited
partnership or limited liability company, as applicable, in such State
and has filed all annual reports required to be filed to the date of
such certificate.
(vii) A certificate of each Loan Party or on its behalf by
its managing general partner or managing member, as applicable, of
each Loan Party, signed on behalf of such Person by its President or a
Vice President and its Secretary or any Assistant Secretary (or
persons performing similar functions), dated the date of the Initial
Extension of Credit (the statements made in which certificate shall be
true on and as of the date of the Initial Extension of Credit),
certifying as to (A) the absence of any amendments to the Constitutive
Documents of such Person since the date of the Secretary of State's
certificate referred to in Section 3.01(a)(v), (B) a true and correct
copy of the bylaws (or similar Constitutive Documents) as in effect on
the date on which the resolutions referred to in Section 3.01(a)(iv)
were adopted and on the date of the Initial Extension of Credit, (C)
the due organization or formation and good standing or valid existence
of such Person as a corporation, a limited liability company or a
limited partnership, as the case may be, organized or formed under the
laws of the jurisdiction of its organization or formation, and the
absence of any proceeding for the dissolution or liquidation of such
Person, (D) the truth of the representations and warranties contained
in the Loan Documents as though made on and as of the date of the
Initial Extension of Credit and (E) the absence of any event occurring
and continuing, or resulting from the Initial Extension of Credit,
that constitutes a Default.
(viii) A certificate of the Secretary or an Assistant
Secretary of each Loan Party or on its behalf by its managing general
partner or managing member, as applicable certifying the names and
true signatures of the officers or managers, as applicable, of such
Person authorized to sign on its behalf each Transaction Document to
which it is or is to be a party and the other documents to be
delivered hereunder and thereunder.
(ix) Certified copies of each of the Related Documents, duly
executed by or on behalf of the parties thereto and in form and
substance satisfactory to the Lender Parties, together with all
agreements, instruments and other documents delivered in connection
therewith as the Paying Agent shall request.
(x) An assumption agreement in substantially the form of
Exhibit H hereto (the "ASSUMPTION AGREEMENT"), duly executed by AROP.
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(xi) Certificates, in form and substance satisfactory to the
Lender Parties, attesting to the Solvency of each Loan Party before
and after giving effect to the Transaction, from its Chief Financial
Officer (or person performing similar functions).
(xii) An environmental assessment report previously delivered
to the Co-Administrative Agents prior to the Effective Date, as to any
hazards, costs or liabilities under Environmental Laws to which any
Loan Party or any of its Subsidiaries may be subject, the amount and
nature of which and the Borrower's plans with respect to which shall
be acceptable to the Lender Parties, together with evidence, in form
and substance satisfactory to the Lender Parties, that all applicable
Environmental Laws shall have been complied with. To the extent that
either such report or any other information that may become available
to the Lender Parties shall disclose any hazards, costs or liabilities
under Environmental Laws or otherwise that the Lender Parties deem
material, the Lender Parties shall be satisfied that such hazards,
costs or liabilities were adequately reflected in the Borrower's
financial reserves shown on the financial statements included in the
Information Memorandum or that, to the extent not so reflected, the
Borrower has made adequate provision for such hazards, costs or
liabilities.
(xiii) A reasonableness review from Weir International Mining
Consultants with respect to the mine development plans that were
delivered to the Paying Agent prior to the date hereof in form and
substance satisfactory to the Lenders, including, without limitation,
minimum coal reserves, verification of operating and productivity
assumptions, the Gibson County Project, Capital Expenditures,
reclamation and closing costs and revenue projections.
(xiv) A five year Business Plan in form and scope
satisfactory to the Lenders.
(xv) A Notice of Borrowing relating to the Initial Extension
of Credit.
(xvi) Favorable opinions of (i) Andrews & Kurth L.L.P.,
special counsel for the Loan Parties, (ii) Crowell & Moring LLP,
counsel for the Loan Parties, (iii) Thomas L. Pearson, Senior Vice
President-Law and Administration and General Counsel of Alliance
Resource Holdings, Inc., in substantially the respective forms of
Exhibits G-1, G-2 and G-3 hereto, and (iv) local counsel with respect
to the laws of Illinois, Indiana, Kentucky, Maryland and West Virginia
in form satisfactory to the Co-Administrative Agents.
(xvii) A favorable opinion of Shearman & Sterling, counsel
for the Agents, in form and substance satisfactory to the Agents.
(b) The Lenders shall be satisfied with the partnership or
limited liability company structure and capitalization of each Loan Party,
including, without limitation, the terms
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and conditions of the Constitutive Documents and each class of Equity Interest
in such Loan Party and each other agreement or instrument relating to such
partnership structure, legal structure, and capitalization, and the tax status
of the Borrower as being treated as a partnership for tax purposes.
(c) The Lender Parties shall be satisfied that all Existing
Debt, other than Surviving Debt, has been prepaid, redeemed or defeased in full
or otherwise satisfied and extinguished and that all Surviving Debt shall be on
terms and conditions satisfactory to the Lender Parties.
(d) Before giving effect to the Transaction, there shall have
occurred no Material Adverse Change since December 31, 1998.
(e) There shall exist no action, suit, investigation,
litigation or proceeding affecting any Loan Party or any of its Subsidiaries
pending or, to the best knowledge of the Borrower, threatened before any court,
governmental agency or arbitrator that (i) would be reasonably likely to have a
Material Adverse Effect other than the matters satisfactory to the Paying Agent
and described on Schedule 4.01(f) hereto (the "DISCLOSED LITIGATION") or (ii)
purports to affect the legality, validity or enforceability of any Transaction
Document or the consummation of the Transaction, and there shall have been no
adverse change in the status, or financial effect on any Loan Party or any of
its Subsidiaries, of the Disclosed Litigation from that described on Schedule
4.01(f) hereto.
(f) All governmental and third party consents and approvals
necessary in connection with the Transaction shall have been obtained or shall
be in the process of being obtained so long as it is not anticipated that such
consents and approvals may not be obtained (in each case without the imposition
of any conditions that are not acceptable to the Lender Parties) and those
obtained shall be in effect (other than those the failure to obtain which would
individually or collectively be reasonably likely not to have a Material
Adverse Effect); and no law or regulation shall be applicable in the judgment
of the Lender Parties, in each case that restrains, prevents or imposes
materially adverse conditions upon the Transaction or the rights of the Loan
Parties or their Subsidiaries freely to transfer or otherwise dispose of, or to
create any Lien on, any Collateral.
(g) The Agents shall have completed a due diligence
investigation of each Loan Party and its Subsidiaries in scope, and with
results, satisfactory to the Lender Parties.
(h) The Borrower shall have paid all accrued fees of the
Agents, the Joint Arrangers and the Lender Parties and all reasonable expenses
of the Agents (including the reasonable fees and expenses of Shearman &
Sterling, counsel to the Agents) to the extent such
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fees and expenses have been invoiced at least 24 hours prior to the date hereof
or are specifically set forth in the Fee Letter.
(i) The Borrower shall have received (i) $180,000,000 in
gross proceeds from the sale of the Senior Notes and (ii) $[140,000,000] in Net
Cash Proceeds from the sale of the MLP Units.
(j) The MLP Units and the Senior Notes shall have been issued
in accordance with the Transaction Documents.
(k) The Senior Notes shall have received long-term senior
unsecured non-credit enhanced debt ratings of at least BBB- from both Duff &
Phelps Credit Rating Co. and Fitch IBCA, Inc and such rating shall remain in
effect at the time of closing.
(l) The Borrowers and its Subsidiaries employee benefit
plans shall be, in all material respects, funded in accordance with the minimum
statutory requirements, (ii) no "reportable event" (as defined in ERISA, but
excluding events for which reporting has been waived) shall have occurred and
be continuing as to any such employee benefit plan, and (iii) no termination
of, or withdrawal from, any such employee benefit plan shall have occurred and
be continuing or be contemplated.
(m) The Company and AROP shall have completed each of the
transactions described in the Contribution Agreement (the "CONTRIBUTION
TRANSACTIONS") and no provision of the Contribution Agreement relating to the
Contribution Transactions shall have been waived, modified or supplemented
without the consent of the Co-Administrative Agents.
SECTION 3.02. Conditions Precedent to Each Borrowing. The
obligation of each Appropriate Lender to make an Advance (other than a Swing
Line Advance made by a Revolving Credit Lender pursuant to Section 2.02(b)) on
the occasion of each Borrowing (including the initial Borrowing) and the
obligation of the Swing Line Bank to make a Swing Line Advance on the occasion
of each Swing Line Borrowing, shall be subject to the further conditions
precedent that on the date of such Borrowing (a) the following statements shall
be true (and each of the giving of the applicable Notice of Borrowing or Notice
of Swing Line Borrowing and the acceptance by the Borrower of the proceeds of
such Borrowing shall constitute a representation and warranty by the Borrower
that both on the date of such notice and on the date of such Borrowing such
statements are true):
(i) the representations and warranties contained in each Loan
Document are correct in all material respects on and as of such date, before
and after giving effect to such Borrowing and to the application of the
proceeds therefrom, as though made on and as of such
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date, other than any such representations or warranties that, by their terms,
refer to an earlier date, in which case as of such earlier date; and
(ii) no Default has occurred and is continuing, or would
result from such Borrowing or from the application of the proceeds therefrom;
and (b) the Paying Agent shall have received such other approvals, opinions or
documents as any Appropriate Lender Party through the Paying Agent may
reasonably request.
SECTION 3.03. Determinations Under Section 3.01. For purposes
of determining compliance with the conditions specified in Section 3.01, each
Lender Party shall be deemed to have consented to, approved or accepted or to
be satisfied with each document or other matter required thereunder to be
consented to or approved by or acceptable or satisfactory to the Lender Parties
unless an officer of the Paying Agent responsible for the transactions
contemplated by the Loan Documents shall have received notice from such Lender
Party prior to the Initial Extension of Credit specifying its objection thereto
and, if the Initial Extension of Credit consists of a Borrowing, such Lender
Party shall not have made available to the Paying Agent such Lender Party's
ratable portion of such Borrowing.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrower.
The Borrower represents and warrants as follows:
(a) Each Loan Party and each of its Subsidiaries and each
general partner or managing member of each Loan Party and each of its
Subsidiaries (i) is a corporation, limited partnership or limited liability
company, as the case may be, duly organized or formed, validly existing and in
good standing or validly subsisting under the laws of the jurisdiction of its
organization or formation, (ii) is duly qualified and in good standing as a
foreign corporation, limited partnership or limited liability company in each
other jurisdiction in which it owns or leases property or in which the conduct
of its business requires it to so qualify or be licensed and (iii) has all
requisite corporate, limited liability company or partnership power and
authority (including, without limitation, all material governmental licenses,
permits and other approvals other than such licenses, permits and other
approvals that are being obtained in the ordinary course of business) to own or
lease and operate its properties and to carry on its business as now conducted
and as proposed to be conducted. All of the outstanding Capital Stock in the
Company and AROP have been validly issued, are fully paid and non-assessable
and are owned by the Persons in the amounts specified on Schedule 4.01(a)
hereto free and clear of all Liens.
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(b) Set forth on Schedule 4.01(b) hereto is a complete and
accurate list of all Subsidiaries of each Loan Party, showing as of the date
hereof (as to each such Subsidiary) the status of each Subsidiary as a
Restricted Subsidiary or Unrestricted Subsidiary, the jurisdiction of its
organization, the number of shares of each class of its Capital Stock
authorized, and the number outstanding, on the date hereof and the percentage
of each such class of its Capital Stock owned (directly or indirectly) by such
Loan Party and the number of shares covered by all outstanding options,
warrants, rights of conversion or purchase and similar rights at the date
hereof. All of the outstanding Capital Stock in each Loan Party's Subsidiaries
have been validly issued, are fully paid and non-assessable and are owned by
such Loan Party and/or one or more of its Subsidiaries free and clear of all
Liens.
(c) The execution, delivery and performance by each Loan
Party of each Transaction Document to which it is or is to be a party, and the
consummation of the Transaction, are within such Loan Party's or such Loan
Party's general partner's or managing member's corporate, partnership or
limited liability company powers, have been duly authorized by all necessary
action by or on behalf of such Loan Party (including, without limitation, all
necessary partner, managing member or other similar action), and do not (i)
contravene such Loan Party's or such Loan Party's general partner's or managing
member's Constitutive Documents, (ii) violate any law, rule, regulation
(including, without limitation, Regulations U and X of the Board of Governors
of the Federal Reserve System), order, writ, judgment, injunction, decree,
determination or award, (iii) conflict with or result in the breach of, or
constitute a default or require any payment to be made under, any contract,
loan agreement, indenture, mortgage, deed of trust, lease or other instrument
binding on or affecting any Loan Party, any of its Subsidiaries or any of their
properties or (iv) except for the Liens created under the Loan Documents,
result in or require the creation or imposition of any Lien upon or with
respect to any of the properties of any Loan Party or any of its Subsidiaries.
No Loan Party or any of its Subsidiaries is in violation of any such law, rule,
regulation, order, writ, judgment, injunction, decree, determination or award
or in breach of any such contract, loan agreement, indenture, mortgage, deed of
trust, lease or other instrument, the violation or breach of which would be
reasonably likely to have a Material Adverse Effect.
(d) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body or any
other third party is required for (i) the due execution, delivery, recordation,
filing or performance by or on behalf of any Loan Party or any general partner
or managing member of any Loan Party of any Transaction Document to which it is
or is to be a party, or for the consummation of the Transaction, (ii) the grant
by any Loan Party of the Liens granted by it pursuant to the Pledge Agreement,
(iii) except as required to comply with the requirements of Articles 8 and 9 of
the New York Uniform Commercial Code, the perfection or maintenance of the
Liens created under the Pledge Agreement (including the first priority nature
thereof) or (iv) the exercise by any Agent or any Lender Party of its rights
under the Loan Documents or the remedies in respect of the Collateral
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62
pursuant to the Pledge Agreement, except for the authorizations, approvals,
actions, notices and filings listed on Schedule 4.01(d) hereto, all of which
have been duly obtained, taken, given or made, or are in the process of being
obtained and it is not anticipated that such consents and approvals may not be
obtained (in each case without the imposition of any conditions that are not
acceptable to the Lender Parties) and those obtained are in full force and
effect (other than those the failure to obtain which would not individually or
collectively be reasonably likely to have a Material Adverse Effect).
(e) This Agreement has been, and each other Transaction
Document when delivered hereunder will have been, duly executed and delivered
by each Loan Party party thereto. This Agreement is, and each other Transaction
Document when delivered hereunder will be, the legal, valid and binding
obligation of each Loan Party party thereto, enforceable against such Loan
Party in accordance with its terms.
(f) There is no action, suit, investigation, litigation or
proceeding affecting any Loan Party or any of its Subsidiaries, including any
Environmental Action, pending or to the best knowledge of the Borrower,
threatened before any court, governmental agency or arbitrator that (i) would
be reasonably expected to be adversely determined, and if so determined would
be reasonably expected to have a Material Adverse Effect except as set forth on
Schedule 4.01(f) hereto, or (ii) purports to affect the legality, validity or
enforceability of any Transaction Document or the consummation of the
Transaction, and there has been no material adverse change in the status, or
financial effect on any Loan Party or any of its Subsidiaries, of the Disclosed
Litigation from that described on Schedule 4.01(f) hereto.
(g) The Consolidated balance sheet of Alliance Resource Group
as at December 31, 1998, and the related Consolidated statement of income and
Consolidated statement of cash flows of Alliance Resource Group for the fiscal
year then ended, accompanied by an unqualified opinion of Deloitte & Touche
LLP, independent public accountants, and the Consolidated balance sheet of
Alliance Resource Group as at March 31, 1999, and the related Consolidated
statement of income and Consolidated statement of cash flows of Alliance
Resource Group for the three months then ended, duly certified by the Chief
Financial Officer (or person performing similar functions) of the Company,
copies of which have been furnished to each Lender Party, fairly present,
subject, in the case of said balance sheet as at March 31, 1999, and said
statements of income and cash flows for the three months then ended, to
year-end audit adjustments, the Consolidated financial condition of Alliance
Resource Group as at such dates and the Consolidated results of operations of
Alliance Resource Group for the periods ended on such dates, all in accordance
with generally accepted accounting principles applied on a consistent basis,
and since December 31, 1998, there has been no Material Adverse Change.
(h) The Consolidated pro forma balance sheet of the MLP and
its Subsidiaries as at March 31, 1999, and the related Consolidated pro forma
statement of income and cash
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63
flows of the MLP and its Subsidiaries for the three months then ended,
certified by the Chief Financial Officer (or person performing similar
functions) of the Company, copies of which have been furnished to each Lender
Party, fairly present the Consolidated pro forma financial condition of the MLP
and its Subsidiaries as at such date and the Consolidated pro forma results of
operations of the MLP and its Subsidiaries for the period ended on such date,
in each case giving effect to the Transaction, all in accordance with GAAP.
(i) The Consolidated and consolidating forecasted balance
sheets, statements of income and statements of cash flows of the Borrower and
its Subsidiaries delivered to the Lender Parties pursuant to Section
3.01(a)(xii) or 5.03 were prepared in good faith on the basis of the
assumptions stated therein, which assumptions were fair in light of the
conditions existing at the time of delivery of such forecasts, and represented,
at the time of delivery, the Borrower's best estimate of its future financial
performance.
(j) Neither the Information Memorandum nor any other written
information, exhibit or report furnished by or on behalf of any Loan Party to
any Agent or any Lender Party in connection with the negotiation and
syndication of the Loan Documents or pursuant to the terms of the Loan
Documents contained any untrue statement of a material fact or omitted to state
a material fact necessary to make the statements made therein not misleading in
light of the circumstances under which the same were made.
(k) The Borrower is not engaged in the business of extending
credit for the purpose of purchasing or carrying Margin Stock, and no proceeds
of any Advance will be used to purchase or carry any Margin Stock or to extend
credit to others for the purpose of purchasing or carrying any Margin Stock.
(l) Neither the Borrower nor any of its Subsidiaries is an
"investment company", or an "affiliated person" of, or "promoter" or "principal
underwriter" for, an "investment company", as such terms are defined in the
Investment Company Act of 1940, as amended. Neither any Loan Party nor any of
its Subsidiaries is a "holding company", or a "subsidiary company" of a
"holding company", or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company", as such terms are defined in the Public
Utility Holding Company Act of 1935, as amended. Neither the making of any
Advances, nor the application of the proceeds or repayment thereof by the
Borrower, nor the consummation of the other transactions contemplated by the
Transaction Documents, will violate any provision of any such Act or any rule,
regulation or order of the Securities and Exchange Commission thereunder.
(m) Neither the Borrower nor any of its Subsidiaries is a
party to any indenture, loan or credit agreement or any lease or other
agreement or instrument or subject to any charter or corporate restriction that
would be reasonably likely to have a Material Adverse Effect.
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(n) All actions necessary or desirable to perfect and protect
the security interest in the Collateral created under the Pledge Agreement have
been duly made or taken and are in full force and effect, and the Pledge
Agreement creates in favor of the Paying Agent for the benefit of the Secured
Parties a valid and, together with such filings and other actions, perfected
first priority security interest in the Collateral, securing the payment of the
Secured Obligations, and all filings and other actions necessary or desirable
to perfect and protect such security interest have been duly taken. The Loan
Parties are the legal and beneficial owners of the Collateral free and clear of
any Lien, except for the Liens created under the Pledge Agreement.
(o) Each Loan Party is, individually and together with its
Subsidiaries, Solvent.
(p) (i) Set forth on Schedule 4.01(p) hereto is a complete
and accurate list of all Plans and Multiemployer Plans.
(ii) No ERISA Event has occurred or is reasonably expected to
occur with respect to any Plan which could reasonably be expected to
result in a Material Adverse Effect.
(iii) Schedule B (Actuarial Information) to the most recent
annual report (Form 5500 Series) for each Plan, copies of which have
been filed with the Internal Revenue Service and furnished to the
Paying Agent, is complete and accurate and fairly presents the funding
status of such Plan, and since the date of such Schedule B there has
been no change in such funding status which could reasonably be
expected to result in a Material Adverse Effect.
(iv) Neither any Loan Party nor any ERISA Affiliate has
incurred or is reasonably expected to incur any Withdrawal Liability
to any Multiemployer Plan which could reasonably be expected to result
in a Material Adverse Effect.
(v) Neither any Loan Party nor any ERISA Affiliate has been
notified by the sponsor of a Multiemployer Plan that such
Multiemployer Plan is in reorganization or has been terminated, within
the meaning of Title IV of ERISA, and no such Multiemployer Plan is
reasonably expected to be in reorganization or to be terminated,
within the meaning of Title IV of ERISA which could reasonably be
expected to result in a Material Adverse Effect.
(q) (i) Except as set forth on Part I of Schedule 4.01(q)
hereto, the operations and properties of each Loan Party and each of its
Subsidiaries comply in all material respects with all applicable Environmental
Laws and Environmental Permits, all past non-compliance with such Environmental
Laws and Environmental Permits has been resolved
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without ongoing obligations or costs, and no circumstances exist that would be
reasonably likely to (A) form the basis of an Environmental Action against any
Loan Party or any of its Subsidiaries or any of their properties that could
have a Material Adverse Effect or (B) cause any such property to be subject to
any restrictions on ownership, occupancy, use or transferability under any
Environmental Law.
(ii) Except as set forth on Part II of Schedule 4.01(q)
hereto, none of the properties currently or formerly owned or operated
by any Loan Party or any of its Subsidiaries is listed or proposed for
listing on the NPL or on the CERCLIS or any analogous foreign, state
or local list or is adjacent to any such property; there are no and
never have been any underground or aboveground storage tanks or any
surface impoundments, septic tanks, pits, sumps or lagoons in which
Hazardous Materials are being or have been treated, stored or disposed
on any property currently owned or operated by any Loan Party or any
of its Subsidiaries or, to the best of its knowledge, on any property
formerly owned or operated by any Loan Party or any of its
Subsidiaries; there is no asbestos or asbestos-containing material on
any property currently owned or operated by any Loan Party or any of
its Subsidiaries; and Hazardous Materials have not been released,
discharged or disposed of on any property currently or formerly owned
or operated by any Loan Party or any of its Subsidiaries.
(iii) Except as set forth on Part III of Schedule 4.01(q)
hereto, neither any Loan Party nor any of its Subsidiaries is
undertaking, and has not completed, either individually or together
with other potentially responsible parties, any investigation or
assessment or remedial or response action relating to any actual or
threatened release, discharge or disposal of Hazardous Materials at
any site, location or operation, either voluntarily or pursuant to the
order of any governmental or regulatory authority or the requirements
of any Environmental Law; and all Hazardous Materials generated, used,
treated, handled or stored at, or transported to or from, any property
currently or formerly owned or operated by any Loan Party or any of
its Subsidiaries have been disposed of in a manner not reasonably
expected to result in material liability to any Loan Party or any of
its Subsidiaries.
(r) (i) Each Loan Party and each of its Subsidiaries and
Affiliates has filed, has caused to be filed or has been included in all tax
returns (Federal, state, local and foreign) required to be filed and has paid
all taxes shown thereon to be due, together with applicable interest and
penalties.
(ii) Set forth on Schedule 4.01(r) hereto is a complete and
accurate list, as of the date hereof, of each taxable year of each
Loan Party and each of its Subsidiaries and Affiliates for which
Federal income tax returns have been filed and for which the
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expiration of the applicable statute of limitations for assessment or
collection has not occurred by reason of extension or otherwise (an
"OPEN YEAR").
(iii) The aggregate unpaid amount, as of the date hereof, of
adjustments to the Federal income tax liability of each Loan Party and
each of its Subsidiaries and Affiliates proposed by the Internal
Revenue Service with respect to Open Years does not exceed $0. No
issues have been raised by the Internal Revenue Service in respect of
Open Years that, in the aggregate, would be reasonably likely to have
a Material Adverse Effect.
(iv) The aggregate unpaid amount, as of the date hereof, of
adjustments to the state, local and foreign tax liability of each Loan
Party and its Subsidiaries and Affiliates proposed by all state, local
and foreign taxing authorities (other than amounts arising from
adjustments to Federal income tax returns) does not exceed $0. No
issues have been raised by such taxing authorities that, in the
aggregate, would be reasonably likely to have a Material Adverse
Effect.
(v) Each of AROP and MLP will be treated as a partnership for
Federal income tax purposes.
(s) Neither the business nor the properties of the Borrower
or any of its Subsidiaries are affected by any fire, explosion, accident,
strike, lockout or other labor dispute, drought, storm, hail, earthquake,
embargo, act of God or of the public enemy or other casualty (whether or not
covered by insurance) that would be reasonably likely to have a Material
Adverse Effect.
(t) Set forth on Schedule 4.01(t) hereto is a complete and
accurate list of all Existing Debt (other than Surviving Debt), showing as of
the date hereof the obligor and the principal amount outstanding thereunder.
(u) Set forth on Schedule 4.01(u) hereto is a complete and
accurate list of all Surviving Debt, showing as of the date hereof the obligor
and the principal amount outstanding thereunder, the maturity date thereof and
the amortization schedule (if any) therefor.
(v) Set forth on Schedule 4.01(v) hereto is a complete and
accurate list of all Liens on the property or assets of the Borrower or any of
its Subsidiaries, showing as of the date hereof the lienholder thereof, the
principal amount of the obligations secured thereby and the property or assets
of the Borrower or such Subsidiary subject thereto.
(w) Set forth on Schedule 4.01(w) hereto is a complete and
accurate list of all Investments held by the Borrower or any of its
Subsidiaries on the date hereof, showing as of the date hereof the amount,
obligor or issuer and maturity, if any, thereof.
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(x) The Borrower has (i) initiated a review and assessment of
all areas within its and each of its Subsidiaries' business and operations that
could be adversely affected by the risk that computer applications used by the
Borrower or any of its Subsidiaries may be unable to recognize and perform
properly date-sensitive functions involving certain dates prior to and any date
after December 31, 1999 (the "YEAR 2000 PROBLEM"), (ii) distributed a
questionnaire to each of its suppliers, vendors and customers requesting such
party s plans and timetable for addressing the Year 2000 Problem, (iii)
developed a plan and timetable for addressing the Year 2000 Problem on a timely
basis and no later than November 31, 1999 will have completed such plan, and
(iv) to date, implemented that plan in accordance with such timetable. Based on
the foregoing, the Borrower believes that all computer applications that are
material to its or any of its Subsidiaries' business and operations are
reasonably expected on a timely basis to be able to perform properly
date-sensitive functions for all dates before and after January 1, 2000 ("YEAR
2000 COMPLIANT"), except to the extent that a failure to do so could not
reasonably be expected to have a Material Adverse Effect.
(y) (i) The Borrower and its Subsidiaries own or possess all
licenses, permits, franchises, authorizations, patents, copyrights, service
marks, trademarks and trade names, or rights thereto, for which the failure so
to do, individually or in the aggregate, would reasonably be likely to have a
Material Adverse Effect, without known conflict with the rights of others, (ii)
to the best knowledge of the Borrower, no product or practice of the Borrower
or any of its Subsidiaries infringes in any material respect on any license,
permit, franchise, authorization, patent, copyright, service mark, trademark,
trade name or other right owned by any other Person, and (iii) to the best
knowledge of the Borrower, there is no material violation by any Person of any
right of the Borrower of any of its Subsidiaries with respect to any patent,
copyright, service mark, trademark, trade name or other right owned or used by
the Borrower or any of its Subsidiaries.
(z) To the best knowledge of the Borrower, the Borrower and
its Subsidiaries maintain adequate reserves for future costs associated with
any lung disease claim alleging pneumoconiosis or silicosis or arising out of
exposure or alleged exposure to coal dust or the coal mining environment, and
such reserves are not less than those required by GAAP.
(aa) The Borrower s obligations under this Agreement and the
Notes and each Subsidiary Guarantor s obligations under the Subsidiary
Guaranty, will, upon (a) the execution and delivery of the Notes and the
execution and delivery of such Subsidiary Guaranty, respectively, and (b) the
effectiveness of the Assumption Agreement, rank pari passu, without preference
or priority, with all of the other outstanding unsecured and unsubordinated
Debt of the Borrower or of such Subsidiary Guarantor, as the case may be
(disregarding for this purpose the Collateral for the Term Advances pledged
pursuant to the Pledge Agreement).
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ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. Affirmative Covenants. So long as any Advance
or any other monetary obligation of any Loan Party under any Loan Document
shall remain unpaid or any Lender Party shall have any Commitment hereunder,
the Borrower will:
(a) Compliance with Laws, Etc. Comply, and cause each of its
Subsidiaries to comply, in all material respects, with all applicable laws,
rules, regulations and orders, such compliance to include, without limitation,
compliance with ERISA, except to the extent failure so to comply, individually
or in the aggregate, would not reasonably be expected to have a Material
Adverse Effect.
(b) Payment of Taxes, Etc. Pay and discharge, and cause each
of its Subsidiaries to pay and discharge, before the same shall become
delinquent, (i) all taxes, assessments and governmental charges or levies
imposed upon it or upon its property and (ii) all lawful claims that, if
unpaid, might by law become a Lien upon its property, except to the extent
failure to so pay or discharge, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect; provided, however,
that neither the Borrower nor any of its Subsidiaries shall be required to pay
or discharge any such tax, assessment, charge or claim that is being contested
in good faith and by proper proceedings and as to which appropriate reserves
are being maintained, unless and until any Lien resulting therefrom attaches to
its property and becomes enforceable against its other creditors.
(c) Compliance with Environmental Laws. Comply, and cause
each of its Subsidiaries and all lessees and other Persons operating or
occupying its properties to comply, in all material respects, with all
applicable Environmental Laws and Environmental Permits; obtain and renew and
cause each of its Subsidiaries to obtain and renew all material Environmental
Permits necessary for its operations and properties; and conduct, and cause
each of its Subsidiaries to conduct, any investigation, study, sampling and
testing, and undertake any cleanup, removal, remedial or other action necessary
to remove and clean up all Hazardous Materials from any of its properties, in
accordance in all material respects, with the requirements of all Environmental
Laws; provided, however, that neither the Borrower nor any of its Subsidiaries
shall be required to undertake any such cleanup, removal, remedial or other
action to the extent that its obligation to do so is being contested in good
faith and by proper proceedings and appropriate reserves are being maintained
with respect to such circumstances.
(d) Maintenance of Insurance. Maintain, and cause each of its
Subsidiaries to maintain, insurance with responsible and reputable insurance
companies or associations in such
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amounts and covering such risks as is usually carried by companies engaged in
similar businesses and owning similar properties in the same general areas in
which the Borrower or such Subsidiary operates, except to the extent failure to
maintain such insurance, individually or in the aggregate, would not reasonably
be expected to have a Material Adverse Effect.
(e) Preservation of Partnership or Limited Liability Company
Existence, Etc. Preserve and maintain, and cause each of its Subsidiaries to
preserve and maintain, its existence, legal structure, legal name (in the case
of the Borrower), rights (charter and statutory), permits, licenses, approvals,
privileges, franchises and intellectual property; provided, however, that the
Borrower and its Subsidiaries may consummate any merger or consolidation
permitted under Section 5.02(d) and; provided further that neither the Borrower
nor any of its Subsidiaries shall be required to preserve any right, permit,
license, approval, privilege, franchise or intellectual property if the Board
of Directors (or persons performing similar functions) of or on behalf of the
Borrower or such Subsidiary shall determine that the preservation thereof is no
longer desirable in the conduct of the business of the Borrower or such
Subsidiary, as the case may be, and that the loss thereof, individually or in
the aggregate, would not reasonably be expected to have a Material Adverse
Effect.
(f) Visitation Rights. At any reasonable time and from time
to time upon reasonable notice, permit any of the Agents or any of the Lender
Parties, or any agents or representatives thereof, to examine and make copies
of and abstracts from the records and books of account of, and visit the
properties of, the Borrower and any of its Subsidiaries, and to discuss the
affairs, finances and accounts of the Borrower and any of its Subsidiaries with
any of their officers or directors and with their independent certified public
accountants.
(g) Keeping of Books. Keep, and cause each of its
Subsidiaries to keep, proper books of record and account, in which full and
correct entries shall be made of all financial transactions and the assets and
business of the Borrower and each such Subsidiary in accordance with GAAP.
(h) Maintenance of Properties, Etc. Maintain and preserve,
and cause each of its Subsidiaries to maintain and preserve, all of its
properties that are used or useful in the conduct of its business in good
working order and condition, ordinary wear and tear excepted, except to the
extent the failure to so maintain or preserve such properties, individually or
in the aggregate, would not reasonably be expected to have a Material Adverse
Effect.
(i) Covenant to Guarantee Obligations. Upon the formation or
acquisition by the Borrower of any new direct or indirect Restricted Subsidiary
that is a Domestic Subsidiary, the Borrower shall, in each case at the
Borrower's expense (i) within 10 days after such formation or acquisition,
cause each such Restricted Subsidiary, and cause each direct and indirect
parent of such Restricted Subsidiary (if it has not already done so), to duly
execute and deliver to the
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Paying Agent a guaranty or guaranty supplement, in form and substance
satisfactory to the Paying Agent, guaranteeing the other Loan Parties'
obligations under the Loan Documents and (ii) at any time and from time to
time, promptly execute and deliver any and all further instruments and
documents and take all such other action as the Paying Agent may deem necessary
or desirable in obtaining the full benefits of such guaranties.
(j) Further Assurances. (i) Promptly upon request by the
Paying Agent, or any Lender Party through the Paying Agent, correct, and cause
each of its Subsidiaries promptly to correct, any material defect or error that
may be discovered in any Loan Document or in the execution, acknowledgment,
filing or recordation thereof, and
(ii) Promptly upon request by the Paying Agent, or any Lender
Party through the Paying Agent, take such action as the Paying Agent,
or any Lender Party through the Paying Agent, may reasonably require
from time to time in order to (A) carry out more effectively the
purposes of the Loan Documents, and (B) perfect and maintain the
validity, effectiveness and priority of the Pledge Agreement and any
of the Liens intended to be created thereunder, and cause each of its
Subsidiaries to do so.
(k) Performance of Related Documents. Perform and observe,
and cause each of its Subsidiaries to perform and observe, all of the terms and
provisions of each Related Document to be performed or observed by it, maintain
each such Related Document in full force and effect, enforce such Related
Document in accordance with its terms, take all such action to such end as may
be from time to time requested by the Paying Agent and, upon request of the
Paying Agent, make to each other party to each such Related Document such
demands and requests for information and reports or for action as any Loan
Party or any of its Subsidiaries is entitled to make under such Related
Document, except, in any case, where the failure to do so, either individually
or in the aggregate, would not be reasonably likely to have a Material Adverse
Effect.
(l) Preparation of Environmental Reports. At the request of
the Paying Agent from time to time and upon the occurrence and during the
continuance of an Event of Default, provide to the Lender Parties within 60
days after such request, at the expense of the Borrower, an environmental site
assessment report for any of its or its Subsidiaries' properties described in
such request, prepared by an environmental consulting firm acceptable to the
Paying Agent, indicating the presence or absence of Hazardous Materials and the
estimated cost of any compliance, removal or remedial action in connection with
any Hazardous Materials on such properties; without limiting the generality of
the foregoing, if the Paying Agent determines at any time that a material risk
exists that any such report will not be provided within the time referred to
above, the Paying Agent may retain an environmental consulting firm to prepare
such report at the expense of the Borrower, and the Borrower hereby grants and
agrees to cause any Subsidiary that owns any property described in such request
to grant at the time of such request
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to the Paying Agent, the Lender Parties, such firm and any agents or
representatives thereof an irrevocable non-exclusive license, subject to the
rights of tenants, to enter onto their respective properties to undertake such
an assessment.
(m) Compliance with Terms of Leaseholds. Make all payments
and otherwise perform all obligations in respect of all leases of real property
to which the Borrower or any of its Restricted Subsidiaries is a party, keep
such leases in full force and effect and not allow such leases to lapse or be
terminated or any rights to renew such leases to be forfeited or canceled,
notify the Paying Agent of any default by any party with respect to such leases
and cooperate with the Paying Agent in all respects to cure any such default,
and cause each of its Subsidiaries to do so, except, in any case, where the
failure to do so, either individually or in the aggregate, would not be
reasonably likely to have a Material Adverse Effect.
(n) Maintenance of Controlled Reserve Base. Maintain a
controlled reserve base of sufficient mineable tonnage of coal such that the
ratio of aggregate controlled mineable tons of coal over current annual
production levels of tons of coal per year is greater than 125% of the
remaining duration of the Senior Notes issued pursuant to the Note Purchase
Agreement. For purposes of this Section 5.01(n), a "controlled reserve base" of
coal denotes the aggregate of coal reserves which may be economically and
legally mined by the Borrower or a Restricted Subsidiary at the time of the
reserve determination. In making any determination of reserves for the purpose
of this Section 5.01(n), the Borrower may include properties ("OPTION
PROPERTIES") which may be acquired by the Borrower or a Restricted Subsidiary
under a valid and enforceable option or purchase contract which is subject to
no conditions other than the payment of the purchase price provided for under
such option or contract (the "CONTRACT PRICE"); provided that to the extent and
for so long as the Borrower shall elect to include Option Properties in any
such determination, (x) the amount equal to the Contract Price could then be
incurred as Debt under the provisions of Section 10.1(a) of the Note Purchase
Agreement (the "Notional Debt") and (y) assuming for all purposes of Sections
10.1(a) and 10.4(a)(ii) of the Note Purchase Agreement that amount equal to all
such Notional Debt was considered to be outstanding.
SECTION 5.02. Negative Covenants. So long as any Advance or
any other monetary obligation of any Loan Party under any Loan Document shall
remain unpaid or any Lender Party shall have any Commitment hereunder, the
Borrower will not, at any time:
(a) Liens, Etc. Create, incur, assume or suffer to exist, or
permit any of its Restricted Subsidiaries to create, incur, assume or suffer to
exist, any Lien on or with respect to any of its properties of any character
(including, without limitation, accounts) whether now owned or hereafter
acquired, or sign or file or suffer to exist, or permit any of its Restricted
Subsidiaries to sign or file or suffer to exist, under the Uniform Commercial
Code of any jurisdiction, a financing statement that names the Borrower or any
of its Restricted Subsidiaries as debtor, or sign or suffer to exist, or permit
any of its Restricted Subsidiaries to sign or suffer to
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72
exist, any security agreement authorizing any secured party thereunder to file
such financing statement, or assign, or permit any of its Restricted
Subsidiaries to assign, any accounts or other right to receive income, except:
(i) Liens created under the Loan Documents including Liens on
the Qualifying Securities;
(ii) Permitted Liens;
(iii) other Liens incurred in the ordinary course of business
securing obligations in an amount not to exceed $10,000,000;
(iv) Liens existing on the date hereof and described on
Schedule 4.01(v) hereto;
(v) non-recourse Liens upon or in real property or equipment
acquired or held by the Borrower or any of its Restricted Subsidiaries
in the ordinary course of business to secure the purchase price of
such property or equipment or to secure non-recourse, tax-exempt Debt
incurred solely for the purpose of financing the acquisition,
construction or improvement of any such property or equipment to be
subject to such Liens, or Liens existing on any such property or
equipment at the time of acquisition (other than any such Liens
created in contemplation of such acquisition that do not secure the
purchase price), or extensions, renewals or replacements of any of the
foregoing for the same or a lesser amount; provided, however, that no
such Lien shall extend to or cover any property other than the
property or equipment being acquired, constructed or improved, and no
such extension, renewal or replacement shall extend to or cover any
property not theretofore subject to the Lien being extended, renewed
or replaced;
(vi) Liens arising in connection with Capital Leases
permitted under Section 5.02(b)(iii)(G); provided that no such Lien
shall extend to or cover any Collateral or assets other than the
assets subject to such Capital Leases;
(vii) the replacement, extension or renewal of any Lien
permitted by clauses (iii) through (vi) above upon or in the same
property theretofore subject thereto or the replacement, extension or
renewal (without increase in the amount or change in any direct or
contingent obligor) of the Debt secured thereby;
(viii) Liens on personal property leased under leases
(including synthetic leases) entered into by the Borrower which are
accounted for as operating leases in accordance with GAAP to the
extent not prohibited under Section 5.02(h);
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73
(ix) easements, exceptions or reservations in any property of
the Borrower or any Restricted Subsidiary granted or reserved for the
purpose of pipelines, roads, the removal of oil, gas, coal or other
minerals, and other like purposes, or for the joint or common use of
real property, facilities and equipment, which are incidental to, and
do not materially interfere with, the ordinary conduct of the business
of the Borrower or any of its Restricted Subsidiaries;
(x) Liens on documents of title and the property covered
thereby securing obligations in respect of letters of credit that are
commercial letters of credit (i.e., obtained for the purpose of paying
all or a portion of the purchase price of such property) to the extent
not prohibited under Section 5.02(b); and
(xi) Liens on property or assets of the Borrower or any of
its Restricted Subsidiaries securing Debt owing to the Borrower or to
a Wholly Owned Restricted Subsidiary in an aggregate principal amount
not to exceed $10,000,000; provided that no promissory note evidencing
such intercompany Debt shall be pledged to any other Person as
security for any Debt or any other obligation of the Borrower or such
Restricted Subsidiary.
(b) Debt. Create, incur, assume or suffer to exist, or permit
any of its Restricted Subsidiaries to create, incur, assume or suffer to exist,
any Debt, except:
(i) in the case of the Borrower, Debt owed to a Wholly Owned
Restricted Subsidiary of the Borrower, and
(ii) in the case of any Restricted Subsidiary of the
Borrower, Debt owed to the Borrower or to a Wholly Owned Restricted
Subsidiary of the Borrower; and
(iii) in the case of the Borrower and its Restricted
Subsidiaries,
(A) Debt under the Loan Documents,
(B) the Surviving Debt,
(C) Debt under the Note Purchase Agreement evidenced
by the Senior Notes in a principal amount not to exceed
$180,000,000 plus, to the extent not otherwise utilized
pursuant to clause (H) of this Section 5.02(b)(iii),
$190,000,000,
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(D) non-recourse Debt of the Borrower and Restricted
Subsidiaries incurred solely to finance Capital Expenditures
for the development of Greenfield Projects,
(E) non-recourse Debt secured by Liens permitted by
Section 5.02(a)(v),
(F) Debt in respect of Swaps incurred in the
ordinary course of business and consistent with prudent
business practice with the aggregate value thereof not to
exceed $10,000,000 at any time outstanding, and
(G) any Debt extending the maturity of, or refunding
or refinancing, in whole or in part, any Surviving Debt or
other Debt permitted under this Section 5.02(b), provided
that the principal amount of such Debt shall not be increased
above the principal amount thereof outstanding immediately
prior to such extension, refunding or refinancing, and the
direct and contingent obligors therefor shall not be changed,
as a result of or in connection with such extension,
refunding or refinancing, provided further that the terms
relating to principal amount, amortization, maturity,
collateral (if any) and subordination (if any), and other
material terms taken as a whole, of any such extending,
refunding or refinancing Debt, and of any agreement entered
into and of any instrument issued in connection therewith,
are consistent with prudent business practice and incurred in
the ordinary course of business and, in the case of the
Senior Notes, are on terms no less favorable in any material
respect to the Loan Parties or the Lender Parties than the
terms of the Senior Notes being extended, refunded or
refinanced.
(H) other unsecured Debt incurred in the ordinary
course of business and Capital Lease Obligations aggregating
not more than $10,000,000 at any time outstanding other than
Contingent Obligations of the Borrower or any Restricted
Subsidiary with respect to any Debt or other obligation of
any Unrestricted Subsidiary; provided, in each case, that the
Borrower shall be in pro forma compliance with the covenants
contained in Section 5.04, calculated based on the financial
statements most recently delivered to the Lender Parties
pursuant to Section 5.03 and as though such Debt or Capital
Lease Obligations had been incurred at the beginning of the
four-quarter period covered thereby, as evidenced by a
certificate of the Chief Financial Officer (or person
performing similar functions) of the Borrower delivered to
the Paying Agent demonstrating such compliance.
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75
(c) Change in Nature of Business. Make, or permit any of its
Restricted Subsidiaries to make, any material change in the nature of their
businesses, taken as a whole, as carried on at the date hereof.
(d) Mergers, Etc. Merge into or consolidate with any Person
or permit any Person to merge into it or convey, transfer or lease
substantially all of its assets in a single transaction or series of
transactions to any Person, or permit any of its Restricted Subsidiaries to do
so, except that:
(i) any Restricted Subsidiary of the Borrower may merge into
or consolidate with any other Wholly Owned Restricted Subsidiary of
the Borrower, provided that, in the case of any such merger or
consolidation, the Person formed by such merger or consolidation shall
be a Wholly Owned Restricted Subsidiary of the Borrower, provided
further that, in the case of any such merger or consolidation to which
a Subsidiary Guarantor is a party, the Person formed by such merger or
consolidation shall be a Subsidiary Guarantor;
(ii) any of the Borrower's Subsidiaries may consolidate with
or merge into the Borrower, provided that the Borrower is the
surviving entity; and
(iii) any of the Restricted Subsidiaries of the Borrower may
(A) merge into or consolidate with, or (B) convey, transfer or lease
substantially all of its assets in compliance with Section 5.02(e)
(other than clause (iv) thereof) in a single transaction or series of
transactions to, any other Person or (C) permit any other Person to
merge into or consolidate with it; provided, in the case of any merger
or consolidation or conveyance, transfer or lease of substantially all
of its assets, (1) the Person formed by such consolidation or into
which the Restricted Subsidiary shall be merged or assets shall be
conveyed, transferred or leased shall, at the effective time of such
merger or consolidation or transfer or lease be Solvent and shall have
assumed all obligations of such Restricted Subsidiary under any
Subsidiary Guaranty to which such Restricted Subsidiary is a party in
a writing satisfactory in form and substance to the Required Lenders
and (2) the Borrower shall have caused to be delivered to the Paying
Agent an opinion of independent counsel satisfactory to the Paying
Agent to the effect that all agreements or instruments effecting such
assumption are enforceable in accordance with the terms thereof;
provided, however, that in each case, immediately after giving effect thereto,
no event shall occur and be continuing that constitutes a Default.
(e) Sales, Etc., of Assets. Sell, lease, transfer or
otherwise dispose of, or permit any of its Restricted Subsidiaries to sell,
lease, transfer or otherwise dispose of, any
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assets, or grant any option or other right to purchase, lease or otherwise
acquire any assets other than Inventory to be sold in the ordinary course of
its business, except:
(i) sales of Inventory in the ordinary course of its
business;
(ii) sales of assets that are obsolete or no longer used or
useful for fair value in an aggregate amount not to exceed $5,000,000
over the term of the Facilities;
(iii) sales of assets (x) by the Borrower to a Wholly Owned
Restricted Subsidiary, or (y) by a Restricted Subsidiary to the
Borrower or to another Restricted Subsidiary with respect to which the
Borrower shall have at least the same degree of ownership and control
as it had with respect to the Restricted Subsidiary responsible for
the asset sale, transfer or disposition;
(iv) in a transaction authorized by Section 5.02(d); and
(v) sales of other assets with a fair value in an amount not
to exceed $10,000,000 individually or $25,000,000 in the aggregate
over the term of the Facilities; provided, however, that the purchase
price paid to the Borrower or such Restricted Subsidiary for such
asset shall be no less than the fair market value of such asset at the
time of such sale and such sale shall be in the best interest of the
Borrower or such Restricted Subsidiary, as determined in good faith by
the Board of Directors (or other person performing such functions) of
the Borrower or such Restricted Subsidiary, as the case may be, and
(ii) immediately after giving effect to such sales of assets, no
Default or Event of Default shall exist;
provided that in the case of sales of assets pursuant to clause (v) above, the
Borrower shall, on the date of receipt by the Borrower or any of its
Subsidiaries of the Net Cash Proceeds from such sale, prepay the Advances
pursuant to, and in the amount and order of priority set forth in, Section
2.05(b)(i), as specified therein.
(f) Investments in Other Persons. Make or hold, or permit any
of its Restricted Subsidiaries to make or hold, any Investment in any Person,
except:
(i) Investments consisting of property to be used in the
ordinary course of business;
(ii) Investments in accounts receivable arising from the
sales of goods and services in the ordinary course of business;
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(iii) equity Investments by the Borrower and its Restricted
Subsidiaries in Wholly Owned Restricted Subsidiaries;
(iv) Investments by the Borrower and its Restricted
Subsidiaries in Cash Equivalents;
(v) Investments existing on the date hereof and described on
Schedule 4.01(w) hereto;
(vi) Investments by the Borrower in Swaps permitted under
Section 5.02(b)(iii)(F); and
(vii) other Investments in any other Person; provided that
with respect to Investments made under this clause (vii): (1) any
newly acquired or organized Subsidiary of the Borrower or any of its
Restricted Subsidiaries shall be a Restricted Subsidiary thereof; (2)
immediately before and after giving effect thereto, no Default shall
have occurred and be continuing or would result therefrom; (3) any
company or business acquired or invested in pursuant to this clause
(vii) shall be in the same line of business as the business of the
Borrower or any of its Restricted Subsidiaries; and (4) immediately
after giving effect to the acquisition of a company or business
pursuant to this clause (vii), the Borrower shall be in pro forma
compliance with the covenants contained in Section 5.04, calculated
based on the financial statements most recently delivered to the
Lender Parties pursuant to Section 5.03 and as though such acquisition
had occurred at the beginning of the four-quarter period covered
thereby, as evidenced by a certificate of the Chief Financial Officer
(or person performing similar functions) of the Borrower delivered to
the Lender Parties demonstrating such compliance;
(viii) Investments by the Borrower and its Restricted
Subsidiaries in Unrestricted Subsidiaries and in Restricted
Subsidiaries that are not Wholly Owned Subsidiaries in an amount not
to exceed $10,000,000 at any time outstanding; and
(ix) Investments consisting of intercompany Debt permitted
under Section 5.02(b)(i) and (ii).
(g) Restricted Payments. Declare or pay any dividends,
purchase, redeem, retire, defease or otherwise acquire for value any of its
Capital Stock now or hereafter outstanding, return any capital to its
stockholders, partners or members (or the equivalent Persons thereof) as such,
make any distribution of assets, Capital Stock, obligations or securities to
its stockholders, partners or members (or the equivalent Persons thereof) as
such, or permit any of its Restricted Subsidiaries to do any of the foregoing
(each of the foregoing being a "RESTRICTED PAYMENT"), or permit any of its
Restricted Subsidiaries to purchase, redeem, retire,
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defease or otherwise acquire for value any Capital Stock in the Borrower or to
issue or sell any Capital Stock therein, except that, so long as no Default or
Event of Default shall have occurred and be continuing at the time of any
action described in clause (i) or (ii) below or would result therefrom:
(i) the Borrower may declare, make or incur a liability to
make any such Restricted Payment; provided that immediately after
giving effect thereto (i) the aggregate amount of Restricted Payments
made in any fiscal quarter of the Borrower shall not exceed Available
Cash (as defined in the MLP Agreement as in effect on the date hereof)
for the immediately preceding fiscal quarter of the Borrower, and (ii)
promptly after each such distribution, the Borrower will provide the
Lender Parties with a report in form satisfactory to the Lender
Parties setting forth the amount of the cash reserve withheld from
distribution that is necessary for the proper conduct of business
(including reserves for future capital expenditures) as set forth in
the most recent Business Plan delivered to the Paying Agent pursuant
to Section 5.03(d); and
(ii) (A) any Wholly Owned Subsidiary of the Borrower may
declare, make or incur a liability to make any Restricted Payment to
the Borrower or any other Wholly Owned Subsidiary of the Borrower of
which it is a Subsidiary, (B) any non-Wholly Owned Subsidiary may
declare, make or incur a liability to make any Restricted Payment to
its equity holders, provided that the general partner of such
Subsidiary does not own greater than a 2% Equity Interest in such
Subsidiary, and (C) any Subsidiary of the Borrower may accept capital
contributions from its parent to the extent permitted under Section
5.02(f)(iii).
(h) Lease Obligations. Create, incur, assume or suffer to
exist, or permit any of its Restricted Subsidiaries to create, incur, assume or
suffer to exist, any obligations as lessee (excluding for this purpose
obligations as lessee under Capital Leases) (i) for the rental or hire of real
or personal property in connection with any sale and leaseback transaction, or
(ii) for the rental or hire of other real or personal property of any kind
under leases or agreements to lease having an original term of one year or more
that would cause the direct and contingent liabilities of the Borrower and its
Subsidiaries, on a Consolidated basis, in respect of all such obligations to
exceed $10,000,000 payable in any period of 12 consecutive months.
(i) Amendments of Constitutive Documents. Amend, or permit
any of its Restricted Subsidiaries to amend, its Constitutive Documents (other
than the Partnership Agreement) in any manner that has a Material Adverse
Effect.
(j) Accounting Changes. Make or permit, or permit any of its
Restricted Subsidiaries to make or permit, any change in (i) accounting
policies or reporting practices, except as required by generally accepted
accounting principles, or (ii) Fiscal Year.
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(k) Prepayments, Etc., of Debt. Prepay, redeem, purchase,
defease or otherwise satisfy prior to the scheduled maturity thereof in any
manner the Senior Notes for so long as any Term Advances are outstanding,
except mandatory prepayments of principal, and payments of interest, required
under the Note Purchase Agreement.
(l) Amendment, Etc., of Related Documents. Amend, modify or
change in any manner any term or provision of the Note Purchase Agreement that
would allow for any scheduled amortization payments to be made on the Senior
Notes prior to the date the Facilities are paid in full.
(m) Partnerships, Etc. Become a general partner in any
general or limited partnership or joint venture, or permit any of its
Restricted Subsidiaries to do so, except that (i) the Company may be a general
partner of AROP and MLP and (ii) AROP and/or any of its Restricted Subsidiaries
may be a general partner in any partnership or joint venture provided such
partnership or such joint venture incurs no Debt or other liability for which
AROP or such Subsidiary is liable as guarantor or a provider of any other
credit support, or by virtue of its status as such general partner or joint
venturer.
(n) Speculative Transactions. Enter into any foreign currency
exchange contracts, interest rate swap arrangements or other derivative
contracts or transactions, other than such contracts, arrangements or
transactions entered into in the ordinary course of business for the purpose of
hedging (i) the interest rate exposure of the Borrower or any of its Restricted
Subsidiaries, (ii) the purchase requirements of the Borrower or any of its
Restricted Subsidiaries with respect to raw materials and inventory and (iii)
the fluctuations in the prices of commodities affecting the Borrower or any of
its Restricted Subsidiaries.
(o) Formation of Subsidiaries. Organize or invest, or permit
any Restricted Subsidiary to organize or invest, in any new Subsidiary except
as permitted under Section 5.02(f)(vii) or 5.02(f)(viii).
(p) Payment Restrictions Affecting Restricted Subsidiaries.
Directly or indirectly, enter into or suffer to exist, or permit any of its
Restricted Subsidiaries to enter into or suffer to exist, any agreement or
arrangement limiting the ability of any of its Subsidiaries to declare or pay
dividends or other distributions in respect of its Capital Stock or repay or
prepay any Debt owed to, make loans or advances to, or otherwise transfer
assets to or invest in, the Borrower or any Subsidiary of the Borrower (whether
through a covenant restricting dividends, loans, asset transfers or
investments, a financial covenant or otherwise), except the Loan Documents and
the Note Purchase Agreement.
(q) Transactions with Affiliates. Except as set forth on
Schedule 5.01(q) hereto, enter into, or permit any of its Restricted
Subsidiaries to enter into, directly or indirectly,
<PAGE> 84
80
any transaction or group of related transactions (including without limitation
the purchase, lease, sale or exchange of properties of any kind or the
rendering of any service) with any Affiliate, except in the ordinary course and
pursuant to the reasonable requirements of the Borrower's or such Restricted
Subsidiary's business and upon fair and reasonable terms no less favorable
(taken as a whole, as determined in good faith by the board of directors of the
General Partner) to the Borrower or such Restricted Subsidiary than would be
obtainable in a comparable arm's-length transaction with a Person not an
Affiliate.
(r) Change in Status of Subsidiaries. Change the designation
of any Subsidiary as a Restricted Subsidiary or an Unrestricted Subsidiary
except, so long as no Default or Event of Default shall have occurred and be
continuing, the Borrower may at any time and from time to time, upon not less
than 30 days' prior written notice given to each Lender Party, designate a
previously Restricted Subsidiary as an Unrestricted Subsidiary or a previously
Unrestricted Subsidiary (including a new Subsidiary designated on the date of
its formation or acquisition) which satisfies the requirements of clauses (i),
(ii) and (iii) of the definition of "Restricted Subsidiary" as a Restricted
Subsidiary, provided that immediately after such designation and after giving
effect thereto no Default or Event of Default shall have occurred and be
continuing, and the Borrower would be permitted, pursuant to the provisions of
Section 10.1(a) of the Note Purchase Agreement to incur at least $1 of
additional Debt (as defined in the Note Purchase Agreement) owing to a Person
other than a Restricted Subsidiary, and provided further that after such
designation the status of such Subsidiary had not been changed more than twice.
SECTION 5.03. Reporting Requirements. So long as any Advance
or any other monetary obligation of any Loan Party under any Loan Document
shall remain unpaid, or any Lender Party shall have any Commitment hereunder,
the Borrower will furnish to the Paying Agent:
(a) Default Notice. As soon as possible and in any event
within five Business Days after the occurrence of each Default or any event,
development or occurrence reasonably likely to have a Material Adverse Effect
continuing on the date of such statement, a statement of the Chief Financial
Officer (or person performing similar functions) of the Borrower setting forth
details of such Default and the action that the Borrower has taken and proposes
to take with respect thereto.
(b) Annual Financials. As soon as available and in any event
within 120 days after the end of each Fiscal Year, a copy of the annual audit
report for such year for the Borrower and its Subsidiaries, including therein a
Consolidated balance sheet of the Borrower and its Subsidiaries as of the end
of such Fiscal Year and a Consolidated statement of income and a Consolidated
statement of cash flows of the Borrower and its Subsidiaries for such Fiscal
Year, in each case accompanied by an opinion acceptable to the Required Lenders
of Deloitte &
<PAGE> 85
81
Touche LLP or other independent public accountants of recognized standing
acceptable to the Required Lenders, together with (i) a certificate of such
accounting firm to the Lender Parties stating that in the course of the regular
audit of the business of the Borrower and its Subsidiaries, which audit was
conducted by such accounting firm in accordance with generally accepted
auditing standards, such accounting firm has obtained no knowledge that a
Default has occurred and is continuing, or if, in the opinion of such
accounting firm, a Default has occurred and is continuing, a statement as to
the nature thereof, (ii) a schedule in form satisfactory to the Paying Agent of
the computations used by such accountants in determining, as of the end of such
Fiscal Year, compliance with the covenants contained in Section 5.04, provided
that in the event of any change in GAAP used in the preparation of such
financial statements, the Borrower shall also provide, if necessary for the
determination of compliance with Section 5.04, a statement of reconciliation
conforming such financial statements to GAAP and (iii) a certificate of the
Chief Financial Officer (or person performing similar functions) of the
Borrower stating that no Default has occurred and is continuing or, if a
default has occurred and is continuing, a statement as to the nature thereof
and the action that the Borrower has taken and proposes to take with respect
thereto.
(c) Quarterly Financials. As soon as available and in any
event within 60 days after the end of each of the first three quarters of each
Fiscal Year, a Consolidated balance sheet of the Borrower and its Subsidiaries
as of the end of such quarter and a Consolidated statement of income and a
Consolidated statement of cash flows of the Borrower and its Subsidiaries for
the period commencing at the end of the previous fiscal quarter and ending with
the end of such fiscal quarter and a Consolidated statement of income and a
Consolidated statement of cash flows of the Borrower and its Subsidiaries for
the period commencing at the end of the previous Fiscal Year and ending with
the end of such quarter, setting forth in each case in comparative form the
corresponding figures for the corresponding date or period of the preceding
Fiscal Year, all in reasonable detail and duly certified (subject to normal
year-end audit adjustments) by the Chief Financial Officer (or person
performing similar functions) of the Borrower as having been prepared in
accordance with GAAP, together with (i) a certificate of said officer stating
that no Default has occurred and is continuing or, if a Default has occurred
and is continuing, a statement as to the nature thereof and the action that the
Borrower has taken and proposes to take with respect thereto and (ii) a
schedule in form satisfactory to the Paying Agent of the computations used by
the Borrower in determining compliance with the covenants contained in Section
5.04, provided that in the event of any change in GAAP used in the preparation
of such financial statements, the Borrower shall also provide, if necessary for
the determination of compliance with Section 5.04, a statement of
reconciliation conforming such financial statements to GAAP.
(d) Annual Business Plan. As soon as available and in any
event no later than 120 days after the end of each Fiscal Year, a Business
Plan.
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82
(e) Litigation. Promptly after the commencement thereof,
notice of all actions, suits, investigations, litigation and proceedings before
any court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, affecting any Loan Party or any of its
Subsidiaries, including any Environmental Action, that (i) would be reasonably
expected to have a Material Adverse Effect or (ii) purports to effect the
legality, validity or enforceability of any Transaction Document or the
consummation of the Transaction, and promptly after the occurrence thereof,
notice of any material adverse change in the status or the financial effect on
any Loan Party or any of its Subsidiaries of the Disclosed Litigation from that
described on Schedule 4.01(f) hereto.
(f) Securities Reports. Promptly after the sending or filing
thereof, copies of all proxy statements, financial statements and reports that
MLP or any Loan Party or any of its Subsidiaries sends to its stockholders,
partners or members, and copies of all regular, periodic and special reports,
and all registration statements, that MLP or any Loan Party or any of its
Subsidiaries files with the Securities and Exchange Commission or any
governmental authority that may be substituted therefor, or with any national
securities exchange.
(g) ERISA. (i) ERISA Events and ERISA Reports. (A) Promptly
and in any event within 10 days after any Loan Party or any ERISA Affiliate
knows or has reason to know that any ERISA Event has occurred, a statement of
the Chief Financial Officer (or person performing similar functions) of the
Borrower describing such ERISA Event and the action, if any, that such Loan
Party or such ERISA Affiliate has taken and proposes to take with respect
thereto and (B) on the date any records, documents or other information must be
furnished to the PBGC with respect to any Plan pursuant to Section 4010 of
ERISA, a copy of such records, documents and information.
(ii) Plan Terminations. Promptly and in any event within two
Business Days after receipt thereof by any Loan Party or any ERISA
Affiliate, copies of each notice from the PBGC stating its intention
to terminate any Plan or to have a trustee appointed to administer any
Plan.
(iii) Plan Annual Reports. Promptly and in any event within
30 days after the filing thereof with the Internal Revenue Service,
copies of each Schedule B (Actuarial Information) to the annual report
(Form 5500 Series) with respect to each Plan.
(iv) Multiemployer Plan Notices. Promptly and in any event
within five Business Days after receipt thereof by any Loan Party or
any ERISA Affiliate from the sponsor of a Multiemployer Plan, copies
of each notice concerning (A) the imposition of Withdrawal Liability
by any such Multiemployer Plan, (B) the reorganization or termination,
within the meaning of Title IV of ERISA, of any such Multiemployer
Plan
<PAGE> 87
83
or (C) the amount of liability incurred, or that may be incurred, by
such Loan Party or any ERISA Affiliate in connection with any event
described in clause (A) or (B).
(h) Environmental Conditions. Promptly after the assertion or
occurrence thereof, notice of any material Environmental Action against or of
any noncompliance by any Loan Party or any of its Subsidiaries with any
Environmental Law or Environmental Permit.
(i) Year 2000 Compliance. Promptly after the Borrower's
discovery or determination thereof, notice (in reasonable detail) that any
computer application that is material to its or any of its Subsidiaries'
business and operations will not be Year 2000 Compliant (as defined in Section
4.01(y)), except to the extent that such failure could not reasonably be
expected to have a Material Adverse Effect.
(j) Available Cash. Within 60 days (or in the case of the
fourth fiscal quarter, 120 days) following the end of each fiscal quarter of
the Borrower, a report of Available Cash (as defined in the MLP Agreement),
cash reserves and other related items of the Borrower and its Subsidiaries in
form and substance satisfactory to the Paying Agent to be delivered at the same
time as the compliance certificate of the Borrower delivered pursuant to
Section 5.03(b) or (c), as the case may be.
(k) Coal and Mining Agreements. Promptly after the occurrence
thereof, notice of any material change to any coal sales agreement or contract,
contract mining agreement or coal purchase agreements to which the Borrower or
any of its Subsidiaries is a party.
(l) Rating Agency Reports. Promptly upon receipt thereof,
copies of any statement or report furnished by any rating agency to any Loan
Party or any of its Subsidiaries in connection with the Senior Notes.
(m) Other Information. Such other information respecting the
business, condition (financial or otherwise), operations, performance,
properties or prospects of any Loan Party or any of its Subsidiaries as any
Agent, or any Lender Party through the Paying Agent, may from time to time
reasonably request.
SECTION 5.04. Financial Covenants. So long as any Advance or
any other obligation of any Loan Party under any Loan Document shall remain
unpaid or any Lender Party shall have any Commitment hereunder, the Borrower
will:
(a) Consolidated Net Debt to Consolidated Cash Flow Ratio.
Maintain at all times from and after October 1, 1999, a Consolidated Net Debt
to Consolidated Cash Flow Ratio of not more than the amount set forth below for
each period set forth below:
<PAGE> 88
84
<TABLE>
<CAPTION>
PERIOD RATIO
<S> <C>
October 1, 1999 through 4.00:1.00
December 30, 1999
December 31, 1999 through 4.00:1.00
March 30, 2000
March 31, 2000 through 4.00:1.00
June 29, 2000
June 30, 2000 through 4.00:1.00
September 29, 2000
September 30, 2000 through 4.00:1.00
December 30, 2000
December 31, 2000 through 3.75:1.00
March 30, 2001
March 31, 2001 through 3.75:1.00
June 29, 2001
June 30, 2001 through 3.75:1.00
September 29, 2001
September 30, 2001 through 3.75:1.00
December 30, 2001
December 31, 2001 through 3.50:1.00
March 30, 2002
March 31, 2002 through 3.50:1.00
June 29, 2002
June 30, 2002 through 3.50:1.00
September 29, 2002
September 30, 2002 through 3.50:1.00
December 30, 2002
</TABLE>
<PAGE> 89
85
<TABLE>
<S> <C>
December 31, 2002 through 3.50:1.00
March 30, 2003
March 31, 2003 through 3.50:1.00
June 29, 2003
June 30, 2003 through 3.50:1.00
September 29, 2003
September 30, 2003 through 3.50:1.00
December 31, 2003 through 3.50:1.00
March 30, 2004
March 31, 2004 through 3.50:1.00
June 30, 2004
June 31, 2004 and thereafter 3.50:1.00
</TABLE>
(b) Maximum Asset Impairments and Incremental Long-term
Liabilities. Maintain at all times the sum of: (i) cumulative asset writedowns
and impairments plus (ii) the increase in the sum of accrued pneumoconiosis
benefits, workers compensation and reclamation and mine closing liabilities
associated with properties and assets that are owned by the Borrower and its
Restricted Subsidiaries as of the Effective Date of not more than $35,000,000.
(c) Interest Coverage Ratio. Maintain at all times from and
after October 1, 1999, an Interest Coverage Ratio of not less than the amount
set forth below for each period set forth below:
<TABLE>
<CAPTION>
PERIOD RATIO
<S> <C>
October 1, 1999 through 2.75:1.00
December 30, 1999
December 31, 1999 through 2.75:1.00
March 30, 2000
March 31, 2000 through 2.75:1.00
June 29, 2000
</TABLE>
<PAGE> 90
86
<TABLE>
<S> <C>
June 30, 2000 through 2.75:1.00
September 29, 2000
September 30, 2000 through 2.75:1.00
December 30, 2000
December 31, 2000 through 2.75:1.00
March 30, 2001
March 31, 2001 through 2.75:1.00
June 29, 2001
June 30, 2001 through 2.75:1.00
September 29, 2001
September 30, 2001 through 2.75:1.00
December 30, 2001
December 31, 2001 through 3.00:1.00
March 30, 2002
March 31, 2002 through 3.00:1.00
June 29, 2002
June 30, 2002 through 3.00:1.00
September 29, 2002
September 30, 2002 through 3.00:1.00
December 30, 2002
December 31, 2002 through 3.00:1.00
March 30, 2003
March 31, 2003 through 3.00:1.00
June 29, 2003
June 30, 2003 through 3.00:1.00
September 29, 2003
September 30, 2003 through 3.00:1.00
</TABLE>
<PAGE> 91
87
<TABLE>
<S> <C>
December 31, 2003 through 3.00:1.00
March 30, 2004
March 31, 2004 through 3.00:1.00
June 30, 2004
June 31, 2004 and thereafter 3.00:1.00
</TABLE>
(d) Current Ratio. Maintain at all times a ratio of
Consolidated Current Assets to Consolidated Current Liabilities of the Borrower
and its Restricted Subsidiaries of at least 1.00:1.00.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the following
events ("EVENTS OF DEFAULT") shall occur and be continuing:
(a) (i) the Borrower shall fail to pay any principal of any
Advance when the same shall become due and payable or (ii) the Borrower shall
fail to pay any interest on any Advance, or any Loan Party shall fail to make
any other payment under any Loan Document, in each case under this clause (ii)
within five Business Days after the same becomes due and payable; or
(b) any representation or warranty made in writing by any
Loan Party (or any of its officers) under or in connection with any Loan
Document (including, without limitation, in any certificate or financial
information delivered pursuant thereto) shall prove to have been incorrect in
any material respect when made or any financial projections prepared by or on
behalf of any Loan Party and made available to the Agents or any Lender Party
shall prove not to have been prepared in good faith based upon assumptions that
were reasonable at the time made and at the time made available to the Agents;
or
(c) the Borrower shall fail to perform or observe any term,
covenant or agreement contained in Section 5.01(d) or (e), 5.02, 5.03(a) or
5.04; or
(d) any Loan Party shall fail to perform or observe any other
term, covenant or agreement contained in any Loan Document on its part to be
performed or observed if such failure shall remain unremedied for 30 days after
the earlier of the date on which (i) a
<PAGE> 92
88
Responsible Officer becomes aware of such failure or (ii) written notice
thereof shall have been given to the Borrower by any Agent or any Lender Party;
or
(e) any Loan Party shall fail to pay any principal of,
premium or interest on or any other amount payable in respect of any Debt of
such Loan Party or such Subsidiary (as the case may be) that is outstanding in
a principal amount (or, in the case of any Hedge Agreement, an Agreement Value)
of at least $10,000,000 either individually or in the aggregate (but excluding
Debt outstanding hereunder), when the same becomes due and payable (whether by
scheduled maturity, required prepayment, acceleration, demand or otherwise),
and such failure shall continue after the applicable grace period, if any,
specified in the agreement or instrument relating to such Debt; or any other
event shall occur or condition shall exist under any agreement or instrument
relating to any such Debt, if the effect of such event or condition is to
accelerate, or to permit the acceleration of, the maturity of such Debt or
otherwise to cause, or to permit the holder thereof to cause, such Debt to
mature; or any such Debt shall be declared to be due and payable or required to
be prepaid or redeemed (other than by a regularly scheduled required prepayment
or redemption), purchased or defeased, or an offer to prepay, redeem, purchase
or defease such Debt shall be required to be made, in each case prior to the
stated maturity thereof; or
(f) any Loan Party or either general partner of the Borrower
shall generally not pay its debts as such debts become due, or shall admit in
writing its inability to pay its debts generally, or shall make a general
assignment for the benefit of creditors; or any proceeding shall be instituted
by or against any Loan Party or any general partner of the Borrower seeking to
adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief, or composition of
it or its debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking the entry of an order for
relief or the appointment of a receiver, trustee or other similar official for
it or for any substantial part of its property and, in the case of any such
proceeding instituted against it (but not instituted by it) that is being
diligently contested by it in good faith, either such proceeding shall remain
undismissed or unstayed for a period of 60 days or any of the actions sought in
such proceeding (including, without limitation, the entry of an order for
relief against, or the appointment of a receiver, trustee, custodian or other
similar official for, it or any substantial part of its property) shall occur;
or any Loan Party or any of its Restricted Subsidiaries or any general partner
of the Borrower shall take any corporate action to authorize any of the actions
set forth above in this subsection (f); or
(g) any judgments or orders, either individually or in the
aggregate, for the payment of money in excess of $10,000,000 shall be rendered
against any Loan Party and either (i) enforcement proceedings shall have been
commenced by any creditor upon such judgment or order or (ii) there shall be
any period of 60 consecutive days during which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall not be in
effect;
<PAGE> 93
89
provided, however, that any such judgment or order shall not be an Event of
Default under this Section 6.01(g) if and for so long as (i) the amount of such
judgment or order is covered by a valid and binding policy of insurance between
the defendant and the insurer covering payment thereof and (ii) such insurer,
which shall be rated at least "A" by A.M. Best Company at the time such
insurance policy is issued to such Loan Party, has been notified of, and has
not disputed the claim made for payment of, the amount of such judgment or
order; or
(h) any non-monetary judgment or order shall be rendered
against any Loan Party that would reasonably be likely to have a Material
Adverse Effect, and there shall be any period of 60 consecutive days during
which a stay of enforcement of such judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect; or
(i) any provision of any Loan Document after delivery thereof
pursuant to Section 3.01 or 5.01(j) shall for any reason cease to be valid and
binding on or enforceable against any Loan Party party to it in any material
respect, or any such Loan Party shall so state in writing; or
(j) the Pledge Agreement shall for any reason (other than
pursuant to the terms thereof) cease to constitute a valid and perfected first
priority Lien on the Collateral purported to be covered thereby; or
(k) a Change of Control shall occur; or
(l) any ERISA Event shall have occurred with respect to a
Plan and the sum (determined as of the date of occurrence of such ERISA Event)
of the Insufficiency of such Plan and the Insufficiency of any and all other
Plans with respect to which an ERISA Event shall have occurred and then exist
(or the liability of the Loan Parties and the ERISA Affiliates related to such
ERISA Event) exceeds $10,000,000; or
(m) any Loan Party or any ERISA Affiliate shall have been
notified by the sponsor of a Multiemployer Plan that it has incurred Withdrawal
Liability to such Multiemployer Plan in an amount that, when aggregated with
all other amounts required to be paid to Multiemployer Plans by the Loan
Parties and the ERISA Affiliates as Withdrawal Liability (determined as of the
date of such notification), exceeds $10,000,000 or requires payments exceeding
$2,500,000 per annum; or
(n) any Loan Party or any ERISA Affiliate shall have been
notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is
in reorganization or is being terminated, within the meaning of Title IV of
ERISA, and as a result of such reorganization or termination the aggregate
annual contributions of the Loan Parties and the ERISA Affiliates to all
Multiemployer Plans that are then in reorganization or being terminated have
been or will be
<PAGE> 94
90
increased over the amounts contributed to such Multiemployer Plans for the plan
years of such Multiemployer Plans immediately preceding the plan year in which
such reorganization or termination occurs by an amount exceeding $2,500,000; or
(o) the Borrower shall cancel or terminate or amend or
consent to or accept any cancellation or termination or amendment of the
Partnership Agreement or there shall be a cancellation, termination of, or any
amendment to, the MLP Agreement in any manner that has a material adverse
effect on (i) the business, operations, affairs, financial condition, assets or
properties of the Borrower and its Subsidiaries taken as a whole, (ii) the
rights and remedies of the Agents or the Lender Parties under the Loan
Documents, or (iii) the ability of the Loan Parties to perform their respective
payment and other material obligations under the Loan Documents; or
(p) an assertion shall be made by any Person in any court
proceeding or by any governmental authority or agency against any Loan Party or
any of its Subsidiaries, of any claims or liabilities, whether accrued,
absolute or contingent, based on or arising under any Environmental Law that is
reasonably likely to be determined adversely to such Loan Party or any of its
Subsidiaries, and the amount thereof (either individually or in the aggregate)
is reasonably likely to have a Material Adverse Effect (insofar as such amount
is payable by such Loan Party or any of its Subsidiaries but after deducting
any portion thereof that is reasonably expected to be paid by other
creditworthy Persons jointly and severally liable therefor);
(q) commencing with any Fiscal Year ending after December 31,
1999, the Borrower shall fail to maintain a period of 30 consecutive days in
such Fiscal Year during which the average principal amount of Working Capital
Advances outstanding during such 30 day period does not exceed $5,000,000.
then, and in any such event, the Paying Agent (i) shall at the request, or may
with the consent, of the Required Lenders, by notice to the Borrower, declare
the Commitments of each Lender Party and the obligation of each Lender Party to
make Advances (other than Swing Line Advances by a Revolving Credit Lender
pursuant to Section 2.02(b)) to be terminated, whereupon the same shall
forthwith terminate, and (ii) shall at the request, or may with the consent, of
the Required Lenders, (A) by notice to the Borrower, declare the Notes, all
interest thereon and all other amounts payable under this Agreement and the
other Loan Documents to be forthwith due and payable, whereupon the Notes, all
such interest and all such amounts shall become and be forthwith due and
payable, without presentment, demand, protest or further notice of any kind,
all of which are hereby expressly waived by the Borrower; provided, however,
that in the event of an actual or deemed entry of an order for relief with
respect to the Borrower under the Federal Bankruptcy Code, (x) the Commitments
of each Lender Party and the obligation of each Lender Party to make Advances
(other than Swing Line Advances by a Revolving Credit Lender pursuant to
Section 2.02(b)) shall automatically be terminated and (y) the Notes, all such
interest
<PAGE> 95
91
and all such amounts shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by the Borrower.
ARTICLE VII
THE AGENTS
SECTION 7.01. Authorization and Action. Each Lender Party (in
its capacities as a Lender and a Swing Line Bank (if applicable)) hereby
appoints and authorizes each Agent to take such action as agent on its behalf
and to exercise such powers and discretion under this Agreement and the other
Loan Documents as are delegated to such Agent by the terms hereof and thereof,
together with such powers and discretion as are reasonably incidental thereto.
As to any matters not expressly provided for by the Loan Documents (including,
without limitation, enforcement or collection of the Notes), no Agent shall be
required to exercise any discretion or take any action, but shall be required
to act or to refrain from acting (and shall be fully protected in so acting or
refraining from acting) upon the instructions of the Required Lenders, and such
instructions shall be binding upon all Lender Parties and all other holders of
Notes; provided, however, that no Agent shall be required to take any action
that exposes such Agent to personal liability or that is contrary to this
Agreement or applicable law. Each Agent agrees to give to each Lender Party
prompt notice of each notice given to it by the Borrower pursuant to the terms
of this Agreement.
SECTION 7.02. Agents' Reliance, Etc. Neither any Agent nor
any of its directors, officers, agents or employees shall be liable for any
action taken or omitted to be taken by it or them under or in connection with
the Loan Documents, except for its or their own gross negligence or willful
misconduct. Without limitation of the generality of the foregoing, each Agent:
(a) may treat the payee of any Note as the holder thereof until, in the case of
the Paying Agent, the Paying Agent receives and accepts an Assignment and
Acceptance entered into by the Lender Party that is the payee of such Note, as
assignor, and an Eligible Assignee, as assignee, or, in the case of any other
Agent, such Agent has received notice from the Paying Agent that it has
received and accepted such Assignment and Acceptance, in each case as provided
in Section 8.07; (b) may consult with legal counsel (including counsel for any
Loan Party), independent public accountants and other experts selected by it
and shall not be liable for any action taken or omitted to be taken in good
faith by it in accordance with the advice of such counsel, accountants or
experts; (c) makes no warranty or representation to any Lender Party and shall
not be responsible to any Lender Party for any statements, warranties or
representations (whether written or oral) made in or in connection with the
Loan Documents; (d) shall not have any duty to ascertain or to inquire as to
the performance or observance of any of the terms, covenants or conditions of
any Loan Document on the part of any Loan Party or to inspect the
<PAGE> 96
92
property (including the books and records) of any Loan Party; (e) shall not be
responsible to any Lender Party for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of, or the perfection or
priority of any lien or security interest created or purported to be created
under or in connection with, any Loan Document or any other instrument or
document furnished pursuant thereto; and (f) shall incur no liability under or
in respect of any Loan Document by acting upon any notice, consent, certificate
or other instrument or writing (which may be by telecopier) reasonably believed
by it to be genuine and signed or sent by the proper party or parties.
SECTION 7.03. Chase, Citicorp and Affiliates. With respect to
its Commitments, the Advances made by it and the Notes issued to it, Chase and
Citicorp shall have the same rights and powers under the Loan Documents as any
other Lender Party and may exercise the same as though it were not an Agent;
and the term "Lender Party" or "Lender Parties" shall, unless otherwise
expressly indicated, include Chase and Citicorp in their respective individual
capacities. Chase and Citicorp and their respective affiliates may accept
deposits from, lend money to, act as trustee under indentures of, accept
investment banking engagements from and generally engage in any kind of
business with, any Loan Party, any of its Subsidiaries and any Person that may
do business with or own securities of any Loan Party or any such Subsidiary,
all as if Chase and Citicorp were not Agents and without any duty to account
therefor to the Lender Parties.
SECTION 7.04. Lender Party Credit Decision. Each Lender Party
acknowledges that it has, independently and without reliance upon any Agent or
any other Lender Party and based on the financial statements referred to in
Section 4.01 and such other documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this
Agreement. Each Lender Party also acknowledges that it will, independently and
without reliance upon any Agent or any other Lender Party and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under this
Agreement.
SECTION 7.05. Indemnification. (a) Each Lender Party
severally agrees to indemnify each Agent (to the extent not promptly reimbursed
by the Borrower) from and against such Lender Party's ratable share (determined
as provided below) of any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever that may be imposed on, incurred by, or asserted
against such Agent in any way relating to or arising out of the Loan Documents
or any action taken or omitted by such Agent under the Loan Documents;
provided, however, that no Lender Party shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from such Agent's gross
negligence or willful misconduct as found in a final, non-appealable judgment
by a court of competent jurisdiction. Without limitation of the foregoing, each
Lender Party agrees to
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reimburse each Agent promptly upon demand for its ratable share of any costs
and expenses (including, without limitation, fees and expenses of counsel)
payable by the Borrower under Section 8.04, to the extent that such Agent is
not promptly reimbursed for such costs and expenses by the Borrower.
(b) For purposes of this Section 7.05, the Lender Parties'
respective ratable shares of any amount shall be determined, at any time,
according to the sum of (i) the aggregate principal amount of the Advances
outstanding at such time and owing to the respective Lender Parties, (ii) the
aggregate unused portions of their Term Commitments at such time, (iii) their
respective Unused Working Capital Commitments at such time and (iv) their
respective Unused Revolving Credit Commitments at such time; provided that the
aggregate principal amount of Swing Line Advances owing to the Swing Line Bank
shall be considered to be owed to the Revolving Credit Lenders ratably in
accordance with their respective Revolving Credit Commitments. The failure of
any Lender Party to reimburse any Agent promptly upon demand for its ratable
share of any amount required to be paid by the Lender Parties to such Agent as
provided herein shall not relieve any other Lender Party of its obligation
hereunder to reimburse such Agent for its ratable share of such amount, but no
Lender Party shall be responsible for the failure of any other Lender Party to
reimburse such Agent for such other Lender Party's ratable share of such
amount. Without prejudice to the survival of any other agreement of any Lender
Party hereunder, the agreement and obligations of each Lender Party contained
in this Section 7.05 shall survive the payment in full of principal, interest
and all other amounts payable hereunder and under the other Loan Documents.
SECTION 7.06. Successor Agents. Any Agent may resign as to
any or all of the Facilities at any time by giving not less than 30 days' prior
written notice thereof to the Lender Parties and the Borrower and may be
removed as to all of the Facilities at any time with or without cause by the
Required Lenders. Upon any such resignation or removal, the Required Lenders
shall have the right to appoint a successor Agent as to such of the Facilities
as to which such Agent has resigned or been removed. If no successor Agent
with, so long as no Default shall have occurred and be continuing, the approval
of the Borrower (which approval shall not be unreasonably withheld or delayed)
shall have been so appointed by the Required Lenders, and shall have accepted
such appointment, within 30 days after the retiring Agent's giving of notice of
resignation or the Required Lenders' removal of the retiring Agent, then the
retiring Agent may, on behalf of the Lender Parties, appoint a successor Agent
with, so long as no Default shall have occurred and be continuing, the approval
of the Borrower (which approval shall not be unreasonably withheld or delayed),
which successor Agent shall be a commercial bank organized under the laws of
the United States or of any State thereof and having a combined capital and
surplus of at least $250,000,000. Upon the acceptance of any appointment as
Agent hereunder by a successor Agent as to less than all of the Facilities and,
in the case of a successor Paying Agent, upon the execution and filing or
recording of such financing statements, or amendments thereto, and such other
instruments or notices, as may be necessary or desirable, or as the
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Required Lenders may request, in order to continue the perfection of the Liens
granted or purported to be granted by the Pledge Agreement, such successor
Agent shall succeed to and become vested with all the rights, powers,
discretion, privileges and duties of the retiring Agent, and the retiring Agent
shall be discharged from its duties and obligations under the Loan Documents.
If within 45 days after written notice is given of the retiring Agent's
resignation or removal under this Section 7.06 no successor Agent shall have
been appointed and shall have accepted such appointment, then on such 45th day
(a) the retiring Agent's resignation or removal shall become effective, (b) the
retiring Agent shall thereupon be discharged from its duties and obligations
under the Loan Documents and (c) provided no Default has occurred and is
continuing, the Borrower may appoint a successor Agent or if no successor Agent
is appointed by the Borrower at such time, the Required Lenders shall
thereafter perform all duties of the retiring Agent under the Loan Documents
until such time, if any, as the Required Lenders appoint a successor Agent as
provided above. After any retiring Agent's resignation or removal hereunder as
Agent as to any or all of the Facilities shall have become effective, the
provisions of this Article VII shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Agent as to such Facilities
under this Agreement.
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ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc. Except as otherwise
contemplated by Section 8.07 and the Subsidiary Guaranty, no amendment or
waiver of any provision of this Agreement or the Notes or any other Loan
Document, nor consent to any departure by any Loan Party therefrom, shall in
any event be effective unless the same shall be in writing and signed (or, in
the case of the Pledge Agreement or the Subsidiary Guaranty, consented to) by
the Required Lenders, and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given;
provided, however, that (a) no amendment, waiver or consent shall, unless in
writing and signed by all of the Lenders (other than any Lender Party that is,
at such time, a Defaulting Lender), do any of the following at any time: (i)
waive any of the conditions specified in Section 3.01 or, in the case of the
Initial Extension of Credit, Section 3.02, (ii) change the number of Lenders or
the percentage of (x) the Commitments or (y) the aggregate unpaid principal
amount of the Advances, (iii) reduce or limit the obligations of any Subsidiary
Guarantor under Section 1 of the Subsidiary Guaranty issued by it or release
such Subsidiary Guarantor or otherwise limit such Subsidiary Guarantor's
liability with respect to the obligations owing to the Agents and the Lender
Parties, or (iv) amend Section 2.12 or this Section 8.01, and (b) no amendment,
waiver or consent shall, unless in writing and signed by the Required Lenders
and each Lender (other than any Lender that is, at such time, a Defaulting
Lender) that has a Commitment under the Term Facility, Revolving Credit
Facility or Working Capital Facility if such Lender is directly affected by
such amendment, waiver or consent, (i) increase the Commitments of such Lender,
(ii) reduce the principal of, or interest on, the Notes held by such Lender or
any fees or other amounts payable hereunder to such Lender, (iii) postpone any
date fixed for any payment of principal of, or interest on, the Notes held by
such Lender or any fees or other amounts payable hereunder to such Lender, (iv)
change the order of application of any prepayment set forth in Section 2.05 in
any manner that materially affects such Lender, (v) other than as permitted
under the Pledge Agreement, release all or substantially all of the Collateral
in any transaction or series of related transactions or permit the creation,
incurrence, assumption or existence of any Lien on the Collateral in any
transaction or series of related transactions to secure any obligations other
than obligations owing to the Secured Parties under the Loan Documents;
provided further that no amendment, waiver or consent shall, unless in writing
and signed by the Swing Line Bank in addition to the Lenders required above to
take such action, affect the rights or obligations of the Swing Line Bank under
this Agreement; and provided further that no amendment, waiver or consent
shall, unless in writing and signed by an Agent in addition to the Lenders
required above to take such action, affect the rights or duties of such Agent
under this Agreement or the other Loan Documents.
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SECTION 8.02. Notices, Etc. Except as otherwise provided in
Section 2.02, all notices and other communications provided for hereunder shall
be in writing (including telecopy communication confirmed by mail or delivery)
and mailed, telecopied, or delivered, if to the Borrower, at its address at
1717 South Boulder Avenue, Tulsa, Oklahoma 74119, Attention: Michael L.
Greenwood, telephone (918) 295-7622, telecopier (918) 295-7361; if to any
Initial Lender, at its Domestic Lending Office specified opposite its name on
Schedule I hereto; if to any other Lender at its Domestic Lending Office
specified in the Assignment and Acceptance pursuant to which it became a Lender
Party; if to Chase as Paying Agent or Co-Administrative Agent, at its address
at 270 Park Avenue, 23rd Floor, New York, New York 10017, Attention: Peter S.
Predun, telephone (212) 270-7005, telecopier (212) 270-4724; and if to Citicorp
as Co-Administrative Agent, at its address at 399 Park Avenue, 11th Floor, New
York, New York, 10022, Attention: Larry Farley, telephone (212) 559-1189,
telecopier (212) 583- 7185; or, as to any party, at such other telecopy number
or address as shall be designated by such party in a written notice to the
other parties. All such notices and other communications shall, when mailed,
telecopied or delivered, be effective when deposited in the mails, or
transmitted by telecopier, respectively, except that notices and communications
to any Agent pursuant to Article II, III or VII shall not be effective until
received by such Agent. Delivery by telecopier of an executed counterpart of
any amendment or waiver of any provision of this Agreement or the Notes or of
any Exhibit hereto to be executed and delivered hereunder shall be effective as
delivery of an original executed counterpart thereof.
SECTION 8.03. No Waiver; Remedies. No failure on the part of
any Lender Party or any Agent to exercise, and no delay in exercising, any
right hereunder or under any Note shall operate as a waiver thereof; nor shall
any single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
SECTION 8.04. Costs and Expenses. (a) The Borrower agrees to
pay on demand (i) all reasonable costs and expenses of each Agent, the Joint
Arrangers and their Affiliates in connection with the preparation, execution,
delivery, administration, modification and amendment of the Loan Documents
(including, without limitation, (A) all reasonable due diligence, collateral
review, syndication, transportation, computer, duplication, appraisal, audit,
insurance, consultant, search, filing and recording fees and expenses and (B)
the reasonable fees and expenses of one firm of counsel to the Agents with
respect thereto, with respect to advising such Agents as to their rights and
responsibilities, or the perfection, protection or preservation of rights or
interests, under the Loan Documents, with respect to negotiations with any Loan
Party or with other creditors of any Loan Party or any of its Subsidiaries
arising out of any Default or any events or circumstances that may give rise to
a Default and with respect to presenting claims in or otherwise participating
in or monitoring any bankruptcy, insolvency or other similar proceeding
involving creditors' rights generally and any proceeding ancillary thereto) and
(ii) all costs and expenses of each Agent and each Lender Party in connection
with the enforcement of
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the Loan Documents after an Event of Default, whether in any action, suit or
litigation, or any bankruptcy, insolvency or other similar proceeding affecting
creditors' rights generally (including, without limitation, the reasonable fees
and expenses of counsel for the Paying Agent and each Lender Party with respect
thereto). Notwithstanding anything to the contrary in the foregoing, the
Borrower will not be obligated to pay any allocated overhead costs of the
Agents, the Joint Arrangers, and their Affiliates.
(b) The Borrower agrees to indemnify, defend and save and
hold harmless SBHC, each Agent, each Joint Arranger, each Lender Party and each
of their Affiliates and their respective officers, directors, employees, agents
and advisors (each, an "INDEMNIFIED PARTY") from and against, and shall pay on
demand, any and all claims, damages, losses, liabilities and expenses
(including, without limitation, reasonable fees and expenses of counsel, but
excluding allocated overhead cost of SBHC, the Agents, the Joint Arrangers and
the Lender Parties and their Affiliates) that may be incurred by or asserted or
awarded against any Indemnified Party, in each case arising out of or in
connection with or by reason of (including, without limitation, in connection
with any investigation, litigation or proceeding or preparation of a defense in
connection therewith) (i) the Facilities, the actual or proposed use of the
proceeds of the Advances, the Transaction Documents or any of the transactions
contemplated thereby, or (ii) the actual or alleged presence of Hazardous
Materials on any property of any Loan Party or any of its Subsidiaries or any
Environmental Action relating in any way to any Loan Party or any of its
Subsidiaries, except to the extent such claim, damage, loss, liability or
expense is found in a final, non-appealable judgment by a court of competent
jurisdiction to have resulted from such Indemnified Party's gross negligence,
willful misconduct or unlawful acts. In the case of an investigation,
litigation or other proceeding to which the indemnity in this Section 8.04(b)
applies, such indemnity shall be effective whether or not such investigation,
litigation or proceeding is brought by any Loan Party, its directors,
shareholders or creditors or an Indemnified Party, whether or not any
Indemnified Party is otherwise a party thereto and whether or not the
Transaction is consummated. The Borrower also agrees not to assert any claim
against SBHC, any Agent, any Joint Arranger, any Lender Party or any of their
Affiliates, or any of their respective officers, directors, employees, agents
and advisors, on any theory of liability, for special, indirect, consequential
or punitive damages arising out of or otherwise relating to the Facilities, the
actual or proposed use of the proceeds of the Advances, the Transaction
Documents or any of the transactions contemplated by the Transaction Documents.
(c) (i) If any payment of principal of, or Conversion of, any
Eurodollar Rate Advance is made by the Borrower to or for the account of a
Lender Party other than on the last day of the Interest Period for such
Advance, as a result of (x) a payment or Conversion pursuant to Section 2.05,
2.08(b)(i) or 2.09(d), (y) acceleration of the maturity of the Notes pursuant
to Section 6.01 or for any other reason, or by an Eligible Assignee to a Lender
Party other than on the last day of the Interest Period for such Advance upon
an assignment of rights and obligations under this Agreement pursuant to
Section 8.07 as a result of a demand by the Borrower pursuant
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to Section 8.07(a), (z) if the Borrower fails to make any payment or prepayment
of an Advance for which a notice of prepayment has been given or that is
otherwise required to be made, whether pursuant to Section 2.03, 2.05 or 6.01
or otherwise, or (ii) the Borrower fails to fulfill the applicable conditions
set forth in Article III on or before the date specified in any Notice of
Borrowing for such Borrowing delivered pursuant to Section 2.02, the Borrower
shall, upon demand by such Lender Party (with a copy of such demand to the
Paying Agent), pay to the Paying Agent for the account of such Lender Party any
amounts required to compensate such Lender Party for any additional losses,
costs or expenses that it may reasonably incur as a result of such payment or
Conversion or such failure to pay or prepay or borrow, as the case may be,
including, without limitation, any loss (including loss of anticipated
profits), cost or expense incurred by reason of the liquidation or reemployment
of deposits or other funds acquired by any Lender Party to fund or maintain
such Advance, all of which losses, costs and expenses shall be an amount equal
to the excess, if any, of (A) the amount of interest that would have accrued on
the principal amount of such Advance had such event not occurred at the
Eurodollar Rate that would have been applicable to such Advance for the period
from the date of such event to the last day of the then current Interest Period
therefor (or, in the case of a failure to borrow or Convert, for the period
that would have been the Interest Period for such Loan), over (B) the amount of
interest that would accrue on such principal amount for such period at the
interest rate which such Lender would bid, were it to bid at the commencement
of such period, for dollar deposits of a comparable amount and period from
other banks in the eurodollar market. A certificate of any Lender setting forth
any amount or amounts that such Lender is entitled to receive pursuant to this
Section, and the basis therefor, shall be delivered to the Borrower and shall
be conclusive and binding for all purposes, absent manifest error.
(d) If any Loan Party fails to pay when due any costs,
expenses or other amounts payable by it under any Loan Document, including,
without limitation, reasonable fees and expenses of counsel and indemnities,
such amount may be paid on behalf of such Loan Party by the Paying Agent or any
Lender Party, in its sole discretion.
(e) Without prejudice to the survival of any other agreement
of any Loan Party hereunder or under any other Loan Document, the agreements
and obligations of the Borrower contained in Sections 2.09 and 2.11 and this
Section 8.04 shall survive the payment in full of principal, interest and all
other amounts payable hereunder and under any of the other Loan Documents.
SECTION 8.05. Right of Set-off. Upon (a) the occurrence and
during the continuance of any Event of Default and (b) the making of the
request or the granting of the consent specified by Section 6.01 to authorize
the Paying Agent to declare the Notes due and payable pursuant to the
provisions of Section 6.01, each Agent and each Lender Party and each of their
respective Affiliates is hereby authorized at any time and from time to time,
to the fullest extent permitted by law, to set off and otherwise apply any and
all deposits (general or special,
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time or demand, provisional or final) at any time held and other indebtedness
at any time owing by such Agent, such Lender Party or such Affiliate to or for
the credit or the account of the Borrower against any and all of the
obligations of the Borrower now or hereafter existing under the Loan Documents,
irrespective of whether such Agent or such Lender Party shall have made any
demand under this Agreement or such Note or Notes and although such obligations
may be unmatured. Each Agent and each Lender Party agrees promptly to notify
the Borrower after any such set-off and application; provided, however, that
the failure to give such notice shall not affect the validity of such set-off
and application. The rights of each Agent and each Lender Party and their
respective Affiliates under this Section are in addition to other rights and
remedies (including, without limitation, other rights of set-off) that such
Agent, such Lender Party and their respective Affiliates may have.
SECTION 8.06. Binding Effect. This Agreement shall become
effective when it shall have been executed by the Borrower and each Agent and
the Paying Agent shall have been notified by each Initial Lender that such
Initial Lender has executed it and thereafter shall be binding upon and inure
to the benefit of the Borrower, each Agent and each Lender Party and their
respective successors and assigns, except that the Borrower shall not have the
right to assign its rights hereunder or any interest herein without the prior
written consent of the Lender Parties.
SECTION 8.07. Assignments and Participations. (a) Any Lender
(i) may (and in the case of clause (B) below, shall) assign to one or more
Eligible Assignees all or a portion of its rights and obligations under this
Agreement (including, without limitation, all or a portion of its Commitment or
Commitments, the Advances owing to it and the Note or Notes held by it);
provided that (A) except, in the case of an assignment to an Eligible Assignee
that is an Affiliate of a Lender, each of the Borrower and the Paying Agent
must give their prior consent to such assignment (which consent shall not be
unreasonably withheld) and (B) if the assignment is demanded by the Borrower
pursuant to Section 2.16, no Event of Default shall have occurred and be
continuing at the time of such demand and such assignment and the Borrower
shall have given at least five Business Days' notice of such demand to the
applicable Lender and the Paying Agent; provided, however, that (i) each such
assignment shall be of a uniform, and not a varying, percentage of all rights
and obligations under and in respect of one or more of the Facilities, (ii)
except in the case of an assignment to a Person that, immediately prior to such
assignment, was a Lender or an Affiliate of any Lender or an assignment of all
of a Lender's rights and obligations under this Agreement, the aggregate amount
of the Commitments being assigned to such Eligible Assignee pursuant to such
assignment (determined as of the date of the Assignment and Acceptance with
respect to such assignment) shall in no event be less than the lesser of
$5,000,000 and 5% of the aggregate amount (or such lesser amount as shall be
approved by the Paying Agent and, so long as no Default shall have occurred and
be continuing at the time of effectiveness of such assignment, the Borrower) of
the Commitment being assigned, (iii) each such assignment shall be to an
Eligible Assignee, (iv) each such assignment made as a result of a demand by
the Borrower pursuant to Section 2.16 shall be arranged by the Borrower after
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consultation with the Paying Agent and shall be either an assignment of all of
the rights and obligations of the assigning Lender under this Agreement or an
assignment of a portion of such rights and obligations made concurrently with
another such assignment or other such assignments that together cover all of
the rights and obligations of the assigning Lender under this Agreement, (v) no
Lender shall be obligated to make any such assignment (whether as a result of a
demand by the Borrower pursuant to Section 2.16 or otherwise) unless and until
such Lender shall have received one or more payments from either the Borrower
or one or more Eligible Assignees in an aggregate amount at least equal to the
aggregate outstanding principal amount of the Advances owing to such Lender,
together with accrued interest thereon to the date of payment of such principal
amount and all other amounts payable to such Lender under this Agreement, and
(vi) the parties to each such assignment shall execute and deliver to the
Paying Agent, for its acceptance and recording in the Register, an Assignment
and Acceptance, together with any Note or Notes subject to such assignment and
a processing and recordation fee of $3,500; provided, however, the Borrower
shall have no liability for the payment of such fee except that for each such
assignment made as a result of a demand by the Borrower pursuant to Section
2.16, the Borrower shall pay to the Paying Agent the applicable processing and
recordation fee.
(b) Upon such execution, delivery, acceptance and recording,
from and after the effective date specified in such Assignment and Acceptance,
(i) the assignee thereunder shall be a party hereto and, to the extent that
rights and obligations hereunder have been assigned to it pursuant to such
Assignment and Acceptance, have the rights and obligations of a Lender
hereunder and (ii) the Lender assignor thereunder shall, to the extent that
rights and obligations hereunder have been assigned by it pursuant to such
Assignment and Acceptance, relinquish its rights (other than its rights under
Sections 2.09, 2.11 and 8.04 to the extent any claim thereunder relates to an
event arising prior to such assignment) and be released from its obligations
under this Agreement (and, in the case of an Assignment and Acceptance covering
all of the remaining portion of an assigning Lender's rights and obligations
under this Agreement, such Lender shall cease to be a party hereto).
(c) By executing and delivering an Assignment and Acceptance,
each Lender Party assignor thereunder and each assignee thereunder confirm to
and agree with each other and the other parties thereto and hereto as follows:
(i) other than as provided in such Assignment and Acceptance, such assigning
Lender Party makes no representation or warranty and assumes no responsibility
with respect to any statements, warranties or representations made in or in
connection with any Loan Document or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of, or the perfection or
priority of any Lien created or purported to be created under or in connection
with, any Loan Document or any other instrument or document furnished pursuant
thereto; (ii) such assigning Lender Party makes no representation or warranty
and assumes no responsibility with respect to the financial condition of any
Loan Party or the performance or observance by any Loan Party of any of its
obligations under any Loan
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Document or any other instrument or document furnished pursuant thereto; (iii)
such assignee confirms that it has received a copy of this Agreement, together
with copies of the financial statements referred to in Section 4.01 and such
other documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into such Assignment and Acceptance; (iv)
such assignee will, independently and without reliance upon any Agent, such
assigning Lender Party or any other Lender Party and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit decisions in taking or not taking action under this Agreement; (v)
such assignee confirms that it is an Eligible Assignee; (vi) such assignee
appoints and authorizes each Agent to take such action as agent on its behalf
and to exercise such powers and discretion under the Loan Documents as are
delegated to such Agent by the terms hereof and thereof, together with such
powers and discretion as are reasonably incidental thereto; and (vii) such
assignee agrees that it will perform in accordance with their terms all of the
obligations that by the terms of this Agreement are required to be performed by
it as a Lender.
(d) The Paying Agent shall maintain at its address referred
to in Section 8.02 a copy of each Assignment and Acceptance delivered to and
accepted by it and a register for the recordation of the names and addresses of
the Lender Parties and the Commitment under each Facility of, and principal
amount of the Advances owing under each Facility to, each Lender Party from
time to time (the "REGISTER"). The entries in the Register shall be conclusive
and binding for all purposes, absent manifest error, and the Borrower, the
Agents and the Lender Parties may treat each Person whose name is recorded in
the Register as a Lender Party hereunder for all purposes of this Agreement.
The Register shall be available for inspection by the Borrower or any Agent or
any Lender Party at any reasonable time and from time to time upon reasonable
prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed
by an assigning Lender Party and an assignee, together with any Note or Notes
subject to such assignment, the Paying Agent shall, if such Assignment and
Acceptance has been completed and is in substantially the form of Exhibit C
hereto, (i) accept such Assignment and Acceptance, (ii) record the information
contained therein in the Register and (iii) give prompt notice thereof to the
Borrower and each other Agent. In the case of any assignment by a Lender,
within five Business Days after its receipt of such notice, the Borrower, at
its own expense, shall, if new Notes are requested by the applicable assignee
and/or assignor, execute and deliver to the Paying Agent in exchange for the
surrendered Note or Notes a new Note to the order of such Eligible Assignee in
an amount equal to the Commitment assumed by it under each Facility pursuant to
such Assignment and Acceptance and, if any assigning Lender has retained a
Commitment hereunder under such Facility, a new Note to the order of such
assigning Lender in an amount equal to the Commitment retained by it hereunder.
Such new Note or Notes shall be in an aggregate principal amount equal to the
aggregate principal amount of such surrendered Note or
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Notes, shall be dated the effective date of such Assignment and Acceptance and
shall otherwise be in substantially the form of Exhibit A-1, A-2 or A-3 hereto,
as the case may be.
(f) Each Lender Party may sell participations to one or more
Persons (other than any Loan Party or any of its Affiliates) in or to all or a
portion of its rights and obligations under this Agreement (including, without
limitation, all or a portion of its Commitments, the Advances owing to it and
the Note or Notes (if any) held by it); provided, however, that (i) such Lender
Party's obligations under this Agreement (including, without limitation, its
Commitments) shall remain unchanged, (ii) such Lender Party shall remain solely
responsible to the other parties hereto for the performance of such
obligations, (iii) such Lender Party shall remain the holder of any such Note
for all purposes of this Agreement, (iv) the Borrower, the Agents and the other
Lender Parties shall continue to deal solely and directly with such Lender
Party in connection with such Lender Party's rights and obligations under this
Agreement and (v) no participant under any such participation shall have any
right to approve any amendment or waiver of any provision of any Loan Document,
or any consent to any departure by any Loan Party therefrom, except to the
extent that such amendment, waiver or consent would reduce the principal of, or
interest on, the Notes or any fees or other amounts payable hereunder, in each
case to the extent subject to such participation, postpone any date fixed for
any payment of principal of, or interest on, the Notes or any fees or other
amounts payable hereunder, in each case to the extent subject to such
participation, or release any Subsidiary Guarantor or all or substantially all
of the Collateral.
(g) Any Lender Party may, in connection with any assignment
or participation or proposed assignment or participation pursuant to this
Section 8.07, disclose to the assignee or participant or proposed assignee or
participant any information relating to the Borrower furnished to such Lender
Party by or on behalf of the Borrower; provided, however, that, prior to any
such disclosure, the assignee or participant or proposed assignee or
participant shall agree to preserve the confidentiality of any Confidential
Information received by it from such Lender Party.
(h) Notwithstanding any other provision set forth in this
Agreement, any Lender Party may at any time pledge or assign all or any portion
of its rights under this Agreement (including, without limitation, the Advances
owing to it and the Note or Notes held by it) in favor of any Federal Reserve
Bank in accordance with Regulation A of the Board of Governors of the Federal
Reserve System; provided that no such pledge or assignment shall release a
Lender Party from any of its obligations hereunder or substitute any such
pledgee or assignee for such Lender Party as a party hereto.
SECTION 8.08. Execution in Counterparts. This Agreement may
be executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall
<PAGE> 107
103
constitute one and the same agreement. Delivery of an executed counterpart of a
signature page to this Agreement by telecopier shall be effective as delivery
of an original executed counterpart of this Agreement.
SECTION 8.09. Confidentiality. Neither any Agent nor any
Lender Party shall disclose any Confidential Information to any Person without
the consent of the Borrower, other than (a) to such Agent's or such Lender
Party's Affiliates and their officers, directors, employees, agents and
advisors and to actual or prospective Eligible Assignees and participants, and
then only on a confidential basis, (b) as required by any law, rule or
regulation or judicial process, (c) as requested or required by any state,
Federal or foreign authority or examiner regulating such Lender Party and (d)
to any rating agency when required by it, provided that, prior to any such
disclosure, such rating agency shall undertake to preserve the confidentiality
of any Confidential Information relating to the Loan Parties received by it
from such Lender Party.
SECTION 8.10. Release of Collateral. Upon the sale, lease,
transfer or other disposition of any item of Collateral of any Loan Party in
accordance with the terms of the Loan Documents, the Collateral Agent will, at
the Borrower's expense, execute and deliver to such Loan Party such documents
as such Loan Party may reasonably request to evidence the release of such item
of Collateral from the assignment and security interest granted under the
Pledge Agreement in accordance with the terms of the Loan Documents.
SECTION 8.11. Jurisdiction, Etc. (a) Each of the parties
hereto hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York County, and
any appellate court from any thereof, in any action or proceeding arising out
of or relating to this Agreement or any of the other Loan Documents to which it
is a party, or for recognition or enforcement of any judgment, and each of the
parties hereto hereby irrevocably and unconditionally agrees that all claims in
respect of any such action or proceeding may be heard and determined in any
such New York State court or, to the fullest extent permitted by law, in such
Federal court. Each of the parties hereto agrees that a final judgment in any
such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Agreement shall affect any right that any party may otherwise
have to bring any action or proceeding relating to this Agreement or any of the
other Loan Documents in the courts of any jurisdiction.
(b) Each of the parties hereto irrevocably and
unconditionally waives, to the fullest extent it may legally and effectively do
so, any objection that it may now or hereafter have to the laying of venue of
any suit, action or proceeding arising out of or relating to this Agreement or
any of the other Loan Documents to which it is a party in any New York State or
Federal court. Each of the parties hereto hereby irrevocably waives, to the
fullest extent
<PAGE> 108
104
permitted by law, the defense of an inconvenient forum to the maintenance of
such action or proceeding in any such court.
SECTION 8.12. Governing Law. This Agreement and the Notes
shall be governed by, and construed in accordance with, the laws of the State
of New York.
SECTION 8.13. Non-Recourse to the General Partner and
Associated Persons. Upon the effectiveness of the Assumption Agreement, each
Agent and each Lender Party agrees on behalf of itself and its successors,
assigns and legal representatives, that neither the General Partner nor any
Person (other than the Loan Parties or the Special General Partner) which is a
partner, shareholder, member, owner, officer, director, supervisor, trustee or
other principal (collectively, "ASSOCIATED PERSONS") of the Borrower or of the
General Partner or of a Subsidiary Guarantor, or any of their respective
successors or assigns, shall have any personal liability for the payment or
performance of any of the Borrower s obligations hereunder or under any of the
Notes and no monetary or other judgment shall be sought or enforced against the
General Partner or any of such Associated Persons or any of their respective
successors or assigns. Notwithstanding the foregoing, neither any Agent nor any
Lender Party shall be deemed barred by this Section 8.13 from asserting any
claim against any Person based upon an allegation of fraud or
misrepresentation.
SECTION 8.14. Waiver of Jury Trial. Each of the Borrower, the
Agents and the Lender Parties irrevocably waives all right to trial by jury in
any action, proceeding or counterclaim (whether based on contract, tort or
otherwise) arising out of or relating to any of the Loan Documents, the
Advances or the actions of any Agent or any Lender Party in the negotiation,
administration, performance or enforcement thereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly
authorized, as of the date first above written.
ALLIANCE RESOURCE GP, LLC
By: ALLIANCE RESOURCE HOLDINGS, INC.,
its sole member
By
----------------------------------
Title:
THE CHASE MANHATTAN BANK,
as Paying Agent and Co-Administrative
Agent
By
----------------------------------
Title:
<PAGE> 109
105
CITICORP USA, INC.,
as Co-Administrative Agent
By
----------------------------------
Title:
INITIAL LENDERS
THE CHASE MANHATTAN BANK
By
----------------------------------
Title:
SALOMON BROTHERS HOLDING
COMPANY INC.
By
----------------------------------
Title:
<PAGE> 110
106
SCHEDULE I
COMMITMENTS AND APPLICABLE LENDING OFFICES
<TABLE>
<CAPTION>
Working Revolving Domestic Eurodollar
Term Capital Credit Lending Lending
Name of Initial Lender Commitment Commitment Commitment Office Office
<S> <C> <C> <C> <C> <C>
</TABLE>
<PAGE> 1
EXHIBIT 10.2
Draft dated August , 1999
---
================================================================================
ALLIANCE RESOURCE GP, LLC
---------------------------
NOTE PURCHASE AGREEMENT
---------------------------
DATED AS OF AUGUST 1, 1999
Re: $180,000,000 8.31% Senior Notes due August 1, 2014
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION HEADING PAGE
<S> <C> <C>
SECTION 1. AUTHORIZATION OF NOTES; GUARANTEE............................1
Section 1.1 Authorization of Notes.......................................1
Section 1.2 Guarantee of Notes...........................................1
SECTION 2. SALE AND PURCHASE OF NOTES...................................1
SECTION 3. CLOSING......................................................2
SECTION 4. CONDITIONS TO CLOSING........................................2
Section 4.1 Representations and Warranties...............................2
Section 4.2 Performance; No Default......................................2
Section 4.3 Compliance Certificates......................................3
Section 4.4 Opinion of Counsel...........................................3
Section 4.5 Original Subsidiary Guarantee Agreements.....................3
Section 4.6 Intercreditor Agreement......................................4
Section 4.7 Purchase Permitted by Applicable Law, Etc....................4
Section 4.8 Related Transactions. The Company shall.....................4
Section 4.9 Payment of Special Counsel Fees..............................5
Section 4.10 Private Placement Number.....................................5
Section 4.11 Changes in Structure.........................................5
Section 4.12 Rating.......................................................5
Section 4.13 Year 2000 Questionnaire......................................5
Section 4.14 Proceedings and Documents....................................5
SECTION 5. REPRESENTATIONS AND WARRANTIES OF
THE COMPANY..................................................5
Section 5.1 Formation; Power and Authority; Ownership....................5
Section 5.2 Authorization, Etc...........................................6
Section 5.3 Disclosure...................................................6
Section 5.4 Formation and Ownership of Subsidiaries; Affiliates..........7
Section 5.5 Financial Statements.........................................7
Section 5.6 Compliance with Laws, Other Instruments, Etc.................8
Section 5.7 Governmental Authorizations, Etc.............................8
Section 5.8 Litigation; Observance of Agreements, Statutes and Orders....8
Section 5.9 Taxes........................................................9
Section 5.10 Title to Property; Leases....................................9
Section 5.11 Licenses, Permits, Etc.......................................9
Section 5.12 Compliance with ERISA.......................................10
Section 5.13 Private Offering by the Company.............................11
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 5.14 Use of Proceeds; Margin Regulations.........................11
Section 5.15 Existing Debt; Future Liens.................................11
Section 5.16 Foreign Assets Control Regulations, Etc.....................12
Section 5.17 Status under Certain Statutes...............................12
Section 5.18 Environmental Matters.......................................12
Section 5.19 Pari Passu Ranking..........................................12
Section 5.20 Solvency....................................................12
Section 5.21 Year 2000...................................................13
SECTION 6. REPRESENTATIONS OF THE PURCHASER............................13
Section 6.1 Purchase for Investment.....................................13
Section 6.2 Source of Funds.............................................13
SECTION 7. INFORMATION AS TO COMPANY; STATUS OF
SUBSIDIARIES................................................15
Section 7.1 Financial and Business Information..........................15
Section 7.2 Officer's Certificate.......................................18
Section 7.3 Inspection..................................................19
Section 7.4 Change in Status of Subsidiaries............................19
SECTION 8. PREPAYMENT OF THE NOTES.....................................20
Section 8.1 Required Prepayments........................................20
Section 8.2 Optional Prepayments with Make-Whole Amount.................20
Section 8.3 Prepayment Out of Proceeds of Transfer......................20
Section 8.4 Allocation of Partial Prepayments...........................21
Section 8.5 Maturity; Surrender, Etc....................................21
Section 8.6 Purchase of Notes...........................................21
Section 8.7 Make-Whole Amount...........................................21
SECTION 9. AFFIRMATIVE COVENANTS.......................................23
Section 9.1 Compliance with Law.........................................23
Section 9.2 Insurance...................................................23
Section 9.3 Maintenance of Properties...................................23
Section 9.4 Payment of Taxes............................................24
Section 9.5 Existence, Etc..............................................24
Section 9.6 Ranking; Covenant to Secure Notes Equally...................24
SECTION 10. NEGATIVE COVENANTS..........................................25
Section 10.1 Incurrence of Debt, Transfer of Qualifying Securities.......25
Section 10.2 Priority Debt...............................................26
Section 10.3 Liens.......................................................27
Section 10.4 Restricted Payments.........................................28
Section 10.5 Restrictions on Dividends of Subsidiaries, Etc..............29
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 10.6 Mergers and Consolidations..................................29
Section 10.7 Transfer of Assets..........................................30
Section 10.8 Mining Restrictions.........................................32
Section 10.9 Restricted Investments......................................32
Section 10.10 Additional Subsidiary Guarantee Agreements..................32
Section 10.11 Nature of Business..........................................33
Section 10.12 Transactions with Affiliates................................33
SECTION 11. EVENTS OF DEFAULT...........................................33
SECTION 12. REMEDIES ON DEFAULT, ETC....................................36
Section 12.1 Acceleration................................................36
Section 12.2 Other Remedies..............................................37
Section 12.3 Rescission..................................................37
Section 12.4 No Waivers or Election of Remedies, Expenses, Etc...........37
SECTION 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES...............37
Section 13.1 Registration of Notes.......................................37
Section 13.2 Transfer and Exchange of Notes..............................38
Section 13.3 Replacement of Notes........................................38
Section 13.4 Name of Company.............................................38
SECTION 14. PAYMENTS ON NOTES...........................................39
Section 14.1 Place of Payment............................................39
Section 14.2 Home Office Payment.........................................39
SECTION 15. EXPENSES, ETC...............................................39
Section 15.1 Transaction Expenses........................................39
Section 15.2 Survival....................................................40
SECTION 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
ENTIRE AGREEMENT............................................40
SECTION 17. AMENDMENT AND WAIVER........................................40
Section 17.1 Requirements................................................40
Section 17.2 Solicitation of Holders of Notes............................41
Section 17.3 Binding Effect, Etc.........................................41
Section 17.4 Notes Held by Company, Etc..................................41
SECTION 18. NOTICES.....................................................42
SECTION 19. REPRODUCTION OF DOCUMENTS...................................42
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C>
SECTION 20. CONFIDENTIAL INFORMATION....................................43
SECTION 21. SUBSTITUTION OF PURCHASER...................................44
SECTION 22. MISCELLANEOUS...............................................44
Section 22.1 Successors and Assigns......................................44
Section 22.2 Payments Due on Non-Business Days...........................44
Section 22.3 Severability................................................44
Section 22.4 Construction................................................45
Section 22.5 Counterparts................................................45
Section 22.6 Governing Law...............................................45
Section 22.7 Recourse Only to the Company and the Subsidiary Guarantors;
Non-Recourse to the General Partner and Associated Persons..45
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Schedule A -- Information Relating To Purchasers
Schedule B -- Defined Terms
Schedule 4.7(d) -- Assumption Conditions
Schedule 5.1 -- Ownership of Company
Schedule 5.3 -- Disclosure Materials
Schedule 5.4 -- Subsidiaries of the Company and Ownership of Subsidiary Equity
Interest
Schedule 5.5 -- Financial Statements
Schedule 5.8 -- Certain Litigation
Schedule 5.11 -- Licenses, Permits, etc.
Schedule 5.14 -- Use of Proceeds
Schedule 5.15 -- Existing Indebtedness and Liens
Exhibit 1 -- Form of Note
Exhibit 4.4(a) -- Form of Opinion of Special Counsel for the Company
Exhibit 4.4(b) -- Form of Opinion of Special Counsel for the Original Subsidiary
Guarantors
Exhibit 4.4(c) -- Form of Opinion of Special Counsel for the Purchasers
Exhibit 4.5 -- Form of Subsidiary Guarantee Agreement
Exhibit 4.6 -- Form of Intercreditor Agreement
</TABLE>
<PAGE> 6
ALLIANCE RESOURCE GP, LLC
$180,000,000 8.31% Senior Notes due August 1, 2014
TO EACH OF THE PURCHASERS LISTED IN
THE ATTACHED SCHEDULE A:
Ladies and Gentlemen:
ALLIANCE RESOURCE GP, LLC, a Delaware limited liability company,
agrees with each of the Purchasers listed in the attached Schedule A as follows:
SECTION 1. AUTHORIZATION OF NOTES; GUARANTEE.
Section 1.1 Authorization of Notes. The Company (as defined in
Schedule B) will authorize the issue and sale of $180,000,000 aggregate
principal amount of its 8.31% Senior Notes due August 1, 2014 (the "Notes", such
term to include any such notes delivered in substitution or exchange therefor,
or in subsequent substitutions or exchanges, pursuant to Section 13 of this
Agreement). The Notes shall be substantially in the form set out in Exhibit 1,
with such changes therefrom, if any, as prescribed in Section 13.4 or as may be
approved by each Purchaser and the Company. Certain capitalized terms used in
this Agreement are defined in Schedule B; references to a "Schedule" or an
"Exhibit" are, unless otherwise specified, to a Schedule or an Exhibit attached
to this Agreement.
Section 1.2 Guarantee of Notes. The obligations of the Company under
and pursuant to this Agreement and the Notes are to be fully and unconditionally
guaranteed by each of the Subsidiary Guarantors pursuant to a Subsidiary
Guarantee Agreement.
SECTION 2. SALE AND PURCHASE OF NOTES.
Subject to the terms and conditions of this Agreement, the Company
will issue and sell to each purchaser listed in Schedule A (individually, a
"Purchaser" and collectively, the "Purchasers") and each Purchaser will purchase
from the Company, at the Closing provided for in Section 3, Notes in the
respective aggregate principal amount specified opposite such Purchaser's name
in Schedule A at the purchase price of 100% of the principal amount thereof. The
obligations of each Purchaser hereunder are several and not joint obligations
and each Purchaser shall have no obligation and no liability to any Person for
the performance or nonperformance by any other Purchaser hereunder.
1
<PAGE> 7
Alliance Resource GP, LLC Note Purchase Agreement
SECTION 3. CLOSING
The sale and purchase of the Notes to be purchased by each Purchaser
shall occur at the offices of Willkie Farr & Gallagher, 787 Seventh Avenue, New
York, NY 10019 (or at such other location in New York City acceptable to the
Purchasers and the Company) at 10:00 A.M. New York City time, at a closing (the
"Closing") on August -, 1999. At the Closing the Company will deliver to each
Purchaser the Notes to be purchased by such Purchaser in the form of a single
Note (or such greater number of Notes, in denominations of at least $1,000,000,
as such Purchaser may request and as shall be reflected in Schedule A) dated the
date of the Closing and registered in such Purchaser's name (or in the name of
such Purchaser's nominee, as so reflected), against delivery by such Purchaser
to the Company of immediately available funds in the amount of the purchase
price therefor by wire transfer of immediately available funds for the account
of the Company to account number _______________ at [INSERT name and address of
bank, ABA number for wire transfers and any other relevant wire transfer
information]. If at the Closing the Company shall fail to tender such Notes to
any Purchaser as provided above in this Section 3, or any of the conditions
specified in Section 4 shall not have been fulfilled to any Purchaser's
satisfaction, such Purchaser shall, at such Purchaser's election, be relieved of
all further obligations under this Agreement, without thereby waiving any rights
such Purchaser may have by reason of such failure or such nonfulfillment.
SECTION 4. CONDITIONS TO CLOSING.
The obligation of each Purchaser to purchase and pay for the Notes to
be sold to such Purchaser at the Closing is subject to the fulfillment to such
Purchaser's satisfaction, prior to or at the Closing, of the following
conditions:
Section 4.1 Representations and Warranties. The representations and
warranties of the Company in Section 5 of this Agreement, and the
representations and warranties of the Original Subsidiary Guarantors in the
Original Subsidiary Guarantee Agreements, shall be correct when made and at the
time of the Closing (except to the extent the same relate to an earlier date, in
which case they shall have been correct in all Material respects as of such
earlier date).
Section 4.2 Performance; No Default. The Company and the Original
Subsidiary Guarantors shall have performed and complied with all agreements and
conditions contained in this Agreement and in the Original Subsidiary Guarantee
Agreements required to be performed or complied with by them prior to or at the
Closing, and after giving effect to the issue and sale of the Notes (and the
application of the proceeds thereof as contemplated by Schedule 5.14), no
Default or Event of Default shall have occurred and be continuing. Except for
the Restructuring Transactions, neither the Company nor any Restricted
Subsidiary shall have entered into any transaction since the date of the
Memorandum that would have been prohibited by Section 10.1, 10.3, 10.6, 10.7 or
10.10 hereof had such Section applied since such date.
2
<PAGE> 8
Alliance Resource GP, LLC Note Purchase Agreement
Section 4.3 Compliance Certificates.
(a) Officer's Certificate. The Company shall have delivered to such
Purchaser an Officer's Certificate, dated the date of the Closing, certifying
that the conditions specified in Sections 4.1, 4.2, 4.11 and 4.12 have been
fulfilled.
(b) Secretarial Certificate. The Company shall have delivered to such
Purchaser a certificate by Alliance Coal Corporation, owner of the sole member
interest in the Company, certifying on behalf of the Company or the Original
Subsidiary Guarantors, as the case may be, as to the resolutions attached
thereto and other proceedings relating to the authorization, execution and
delivery of the Notes, this Agreement and the Original Subsidiary Guarantee
Agreements.
(c) ERISA Certificate. If such Purchaser shall have made any of the
written disclosures referred to in Section 6.2(b), (c) or (e), such Purchaser
shall have received the certificate from the Company described in the last
paragraph of Section 6.2 and such certificate shall state that (i) the Company
is neither a "party in interest" nor a "disqualified person" (as defined in
Section 4975(e)(2) of the Code), with respect to any plan identified pursuant to
Section 6.2(b) or (e) or (ii) with respect to any plan, identified pursuant to
Section 6.2(c), neither the Company nor any "affiliate" (as defined in Section
V(c) of the QPAM Exemption) has, at such time or during the immediately
preceding one year, exercised the authority to appoint or terminate the QPAM as
manager of the assets of any plan identified in writing pursuant to Section
6.2(c) or to negotiate the terms of said QPAM's management agreement on behalf
of any such identified plans.
Section 4.4 Opinion of Counsel. Such Purchaser shall have received
opinions in form and substance satisfactory to such Purchaser, dated the date of
the Closing (a) from Andrews & Kurth L.L.P., special counsel for the Company,
and from _______________, [General Counsel] for Alliance Coal Corporation, taken
together covering the matters set forth in Exhibit 4.4(a) and covering such
other matters incident to the transactions contemplated hereby as such Purchaser
or such Purchaser's special counsel may reasonably request (and the Company
hereby instructs its counsel to deliver such opinion to such Purchaser), (b)
from Andrews & Kurth L.L.P., special counsel for the Original Subsidiary
Guarantors, covering the matters set forth in Exhibit 4.4(b) and covering such
other matters incident to the issuance of the Original Subsidiary Guarantee
Agreements as such Purchaser or such Purchaser's special counsel may reasonably
request (and the Company hereby instructs such counsel to deliver such opinion
to such Purchaser) and (c) from Willkie Farr & Gallagher, the Purchasers'
special counsel in connection with such transactions, substantially in the form
set forth in Exhibit 4.4(c) and covering such other matters incident to such
transactions as such Purchaser may reasonably request.
Section 4.5 Original Subsidiary Guarantee Agreements. Such Purchaser
shall have received a counterpart original of a Subsidiary Guarantee Agreement,
duly executed and delivered by each Original Subsidiary Guarantor, in the form
of Exhibit 4.5 (collectively, the "Original
3
<PAGE> 9
Alliance Resource GP, LLC Note Purchase Agreement
Subsidiary Guarantee Agreements") and said Original Subsidiary Guarantee
Agreements shall be in full force and effect.
Section 4.6 Intercreditor Agreement. Such Purchaser shall have
received a counterpart original of the Intercreditor Agreement, duly executed
and delivered by each Purchasers, each Original Subsidiary Guarantor, the
Company and [Banks under Bank Facility] in the form of Exhibit 4.6 and said
Intercreditor Agreement shall be in full force and effect.
Section 4.7 Purchase Permitted by Applicable Law, Etc. On the date of
the Closing each purchase of Notes shall (a) be permitted by the laws and
regulations of each jurisdiction to which each Purchaser is subject, without
recourse to provisions (such as Section 1405(a)(8) of the New York Insurance
Law) permitting limited investments by insurance companies without restriction
as to the character of the particular investment, (b) not violate any applicable
law or regulation (including, without limitation, Regulation T, U or X of the
Board of Governors of the Federal Reserve System) and (c) not subject any
Purchaser to any tax, penalty or liability under or pursuant to any applicable
law or regulation, which law or regulation was not in effect on the date hereof.
If requested by any Purchaser, such Purchaser shall have received an Officer's
Certificate certifying as to such matters of fact as such Purchaser may
reasonably specify to enable such Purchaser to determine whether such purchase
is so permitted as specified in clause (a) of the preceding sentence.
Section 4.8 Related Transactions. The Company shall
(a) together with the Transferee Company, have completed each of the
transactions described in the Contribution Agreement (the "Contribution
Transactions") and no provision of the Contribution Agreement relating to the
consummation of the Contribution Transactions shall have been waived, modified
or supplemented without such Purchaser's consent;
(b) have executed and delivered the Bank Facility in the form of
Agreement previously furnished to such Purchaser providing for borrowings of not
less than [$ ] and the same shall be in full force and effect and no default
shall exist thereunder;
(c) have consummated the sale of the entire principal amount of the
Notes scheduled to be sold on the date of Closing pursuant to this Agreement;
(d) together with the Transferee Company, have fulfilled each of the
conditions described in Schedule 4.7(d) (the "Assumption Conditions"); and
(e) have made arrangements satisfactory to such Purchaser and its
special counsel for the satisfaction and discharge of the Liens listed on
Schedule 5.15 that are indicated on such Schedule as being released at the time
of Closing.
4
<PAGE> 10
Alliance Resource GP, LLC Note Purchase Agreement
Section 4.9 Payment of Special Counsel Fees. Without limiting the
provisions of Section 15.1, the Company shall have paid on or before the Closing
the fees, charges and disbursements of the Purchasers' special counsel referred
to in Section 4.4(c) to the extent reflected in a statement of such counsel
rendered to the Company at least one Business Day prior to the Closing.
Section 4.10 Private Placement Number. A Private Placement Number
issued by Standard & Poor's CUSIP Service Bureau (in cooperation with the
Securities Valuation Office of the National Association of Insurance
Commissioners) shall have been obtained for the Notes.
Section 4.11 Changes in Structure. Except for the Restructuring
Transactions, neither the Company nor either Original Subsidiary Guarantor shall
have changed its jurisdiction of formation, been a party to any merger or
consolidation or, except as contemplated by the Assumption Agreement, succeeded
to all or any substantial part of the liabilities of any other entity, at any
time since the date of the Memorandum.
Section 4.12 Rating. Prior to the date of Closing, the Notes shall
have received a rating of BBB- or better from either Fitch Investors Service,
Inc. or Duff & Phelps Credit Rating Co. and such rating shall remain in effect
at the time of Closing.
Section 4.13 Year 2000 Questionnaire. Such purchaser shall have
received a duly completed response to the Year 2000 Due Diligence Questionnaire
supplied by the Securities Valuation Office of the National Association of
insurance Commissioners.
Section 4.14 Proceedings and Documents. All proceedings in connection
with the transactions contemplated by this Agreement and all documents and
instruments incident to such transactions shall be satisfactory to such
Purchaser and such Purchaser's special counsel, and such Purchaser and such
Purchaser's special counsel shall have received all such counterpart originals
or certified or other copies of such documents as such Purchaser or such
Purchaser's special counsel may reasonably request.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to each Purchaser that:
Section 5.1 Formation; Power and Authority; Ownership. The Company is
a limited liability company duly formed and validly existing under the laws of
the State of Delaware, and is duly licensed or qualified as a foreign limited
liability company in each jurisdiction in which such qualification is required
by law, other than those jurisdictions as to which the failure to be so
qualified could not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect. The Company has the power and authority to own
or hold under lease the properties it purports to own or hold under lease, to
transact the business it transacts and proposes to transact, to execute and
deliver this Agreement and the Notes and to perform the provisions hereof and
5
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Alliance Resource GP, LLC Note Purchase Agreement
thereof. The name of each Person holding an equity interest in the Company
(including a description of the nature of such interest) is set forth on
Schedule 5. 1.
Section 5.2 Authorization, Etc.
(a) Authorization by the Company. This Agreement and the Notes have
been duly authorized by all necessary action on behalf of the Company, and this
Agreement constitutes, and upon execution and delivery thereof each Note will
constitute, a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as may be limited by
(i) applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally and (ii)
general principles of equity (regardless of whether considered in a proceeding
in equity or at law).
(b) Authorization by Original Subsidiary Guarantors. Each Original
Subsidiary Guarantee Agreement has been duly authorized by all necessary action
on behalf of the applicable Original Subsidiary Guarantor, and each Original
Subsidiary Guarantee Agreement constitutes a legal valid and binding obligation
of the applicable Original Subsidiary Guarantor enforceable against such
Original Subsidiary Guarantor in accordance with its terms, except as may be
limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally and
(ii) general principles of equity (regardless of whether considered in a
proceeding in equity or at law).
Section 5.3 Disclosure. The Company, through its agents, Salomon Smith
Barney Inc. and Lehman Brothers Inc., has delivered to each Purchaser a copy of
a Private Placement Memorandum, dated June 16, 1999 (collectively, including its
appendices and the Registration Statement, the "Memorandum"), relating to the
transactions contemplated hereby. The Memorandum describes, in all material
respects, the general nature of the business and principal properties of the
Company and its Restricted Subsidiaries. Except as disclosed in Schedule 5.3,
this Agreement, the Memorandum (other than the Pro Forma Financial Statements,
which are the subject of the representation in Section 5.5(b)) and the
documents, certificates or other writings delivered to each Purchaser by or on
behalf of the Company in connection with the transactions contemplated hereby
and the financial statements listed in Schedule 5.5, taken as a whole, do not
contain any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein not misleading in light of the
circumstances under which they were made. Except as disclosed in the Memorandum
or as expressly described in Schedule 4.7(d), Schedule 5.3, or in one of the
documents, certificates or other writings identified therein, or in the
financial statements listed in Schedule 5.5, since the date of the Memorandum,
there has been no change in the financial condition, operations, business,
properties or prospects of the Company or any of its Restricted Subsidiaries as
contemplated in the Pro Forma Financial Statements except changes that
individually or in the aggregate could not reasonably be expected to have a
Material Adverse Effect. There is no fact known to the Company that could
reasonably be expected to have a Material Adverse Effect that has not been set
forth herein or in the Memorandum or in the other documents, certificates and
other
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Alliance Resource GP, LLC Note Purchase Agreement
writings delivered to each Purchaser by or on behalf of the Company specifically
for use in connection with the transactions contemplated hereby.
Section 5.4 Formation and Ownership of Subsidiaries; Affiliates. (a)
Schedule 5.4 contains (except as noted therein) complete and correct lists (i)
of the Company's Subsidiaries, showing, as to each Subsidiary, its status
(whether a Restricted or Unrestricted Subsidiary), whether such Subsidiary is an
Original Subsidiary Guarantor, the correct name thereof, the jurisdiction of its
organization or formation, and the percentage of each class of its Capital Stock
outstanding owned by the Company and each other Subsidiary, and (ii) of the
Company's Affiliates, other than Subsidiaries.
(b) All of the outstanding shares of Capital Stock of each Subsidiary
shown in Schedule 5.4 as being owned by the Company and its Subsidiaries have
been validly issued, are fully paid and nonassessable and are owned by the
Company or another Subsidiary free and clear of any Lien (except as otherwise
disclosed in Schedule 5.4).
(c) Each Restricted Subsidiary identified in Schedule 5.4 is a limited
liability company or limited partnership duly formed and validly existing under
the laws of its jurisdiction of formation, and is duly qualified as a foreign
limited liability company or limited partnership in each jurisdiction in which
such qualification is required by law, other than those jurisdictions as to
which the failure to be so qualified could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. Each such
Restricted Subsidiary has the power and authority to own or hold under lease the
properties it purports to own or hold under lease and to transact the business
it transacts and proposes to transact.
(d) No Restricted Subsidiary is a party to, or otherwise subject to,
any legal restriction or any agreement (other than this Agreement, the
agreements listed on Schedule 5.4 and customary limitations imposed by
partnership or limited liability company law statutes) restricting the ability
of such Restricted Subsidiary to make any distributions of profits to the Note
Purchase Agreement Company or any of its Restricted Subsidiaries that owns
outstanding shares of Capital Stock or of such Restricted Subsidiary.
Section 5.5 Financial Statements. (a) The Company has delivered to
each Purchaser copies of the consolidated financial statements of the Company
and its Subsidiaries, and their predecessor entities, listed on Schedule 5.5.
All of said financial statements (including in each case the related schedules
and notes) fairly present in all material respects the consolidated financial
position of the entities being reported upon as of the respective dates
specified in such Schedule and the consolidated results of their operations and
cash flows for the respective periods so specified and have been prepared in
accordance with GAAP consistently applied throughout the periods involved except
as set forth in the notes thereto (subject, in the case of any interim financial
statements, to normal year-end adjustments).
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(b) The Pro Forma Financial Statements, consisting of the unaudited
pro forma financial statements of the MLP as of and for the three months ended
March 31, 1999 and for the year ended December 31, 1998 set forth in the
Registration Statement comply as to form in all material respects with the
applicable accounting requirements of the Securities Act and the published rules
and regulations thereunder and the assumptions on which the pro forma
adjustments reflected in such Pro Forma Financial Statements are based provide a
reasonable basis for presenting the significant effects of the transactions
contemplated by such Pro Forma Financial Statements and such pro forma
adjustments give appropriate effect to such assumptions and are property applied
in such Pro Forma Financial Statements.
Section 5.6 Compliance with Laws, Other Instruments, Etc. Neither the
execution, delivery and performance by the Company of this Agreement and the
Notes nor the execution, delivery and performance of the Original Subsidiary
Guarantee Agreements by the Original Subsidiary Guarantors will (a) contravene,
result in any breach of, or constitute a default under, or result in the
creation of any Lien in respect of any property of the Company or any Restricted
Subsidiary under, any indenture, mortgage, deed of trust, loan, purchase or
credit agreement, lease, articles of formation, partnership agreement, corporate
charter, by-laws, operating agreement or any other agreement or instrument to
which the Company or any Restricted Subsidiary is bound or by which the Company
or any Restricted Subsidiary or any of their respective properties may be bound
or affected, (b) conflict with or result in a breach of any of the terms,
conditions or provisions of any order, judgment, decree, or ruling of any court,
arbitrator or Governmental Authority applicable to the Company or any Restricted
Subsidiary or (c) violate any provision of any statute or other rule or
regulation of any Governmental Authority applicable to the Company or any
Restricted Subsidiary, except in the cases of clauses (a), (b) and (c) such
contraventions, breaches, defaults, conflicts and violations which could not
reasonably be expected to have a Material Adverse Effect.
Section 5.7 Governmental Authorizations, Etc. No consent, approval or
authorization of, or registration, filing or declaration with, any Governmental
Authority is required in connection with (a) the execution, delivery or
performance by the Company of this Agreement or the Notes (except as required by
law in connection with the offer, issue, sale and delivery by the MLP of its
limited partnership units ("MLP Unit Consents") all of which have been obtained
or completed except for such MLP Unit Consents the failure to obtain of which
could not reasonably be expected to have a Material Adverse Effect), or (b) the
execution, delivery or performance of the Original Subsidiary Guarantee
Agreements by the Original Subsidiary Guarantors.
Section 5.8 Litigation; Observance of Agreements, Statutes and Orders.
(a) Except as disclosed in Schedule 5.8, there are no actions, suits or
proceedings pending or, to the knowledge of the Company, threatened against or
affecting the Company or any Subsidiary or any property of the Company or any
Subsidiary in any court or before any arbitrator of any kind or before or by any
Governmental Authority that, individually or in the aggregate, could reasonably
be expected to have a Material Adverse Effect.
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(b) Neither the Company nor any Subsidiary is in default under any
term of any agreement or instrument to which it is a party or by which it is
bound, or any order, judgment, decree or ruling of any court, arbitrator or
Governmental Authority or is in violation of any applicable law, ordinance, rule
or regulation (including without limitation Environmental Laws) of any
Governmental Authority, which default or violation, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect.
Section 5.9 Taxes. The predecessor entities of the Company and its
Subsidiaries have filed all tax returns that are required to have been filed in
any jurisdiction, and have paid all taxes shown to be due and payable on such
returns and all other taxes and assessments levied upon them or their
properties, assets, income or franchises, to the extent such taxes and
assessments have become due and payable and before they have become delinquent,
except for any taxes and assessments (a) the amount of which is not individually
or in the aggregate Material or (b) the amount, applicability or validity of
which is currently being contested in good faith by appropriate proceedings and
with respect to which the Company or any such Subsidiary, as the case may be,
has established adequate reserves in accordance with GAAP. The Company knows of
no basis for any other tax or assessment that could reasonably be expected to
have a Material Adverse Effect. The charges, accruals and reserves on the books
of the Company and its Restricted Subsidiaries in respect of Federal, state or
other taxes for all fiscal periods are adequate.
Section 5.10 Title to Property; Leases. The Company and its Restricted
Subsidiaries have good and sufficient title to their respective properties that
individually or in the aggregate are Material, including all such properties
reflected in the balance sheet contained in the Pro Forma Financial Statements
or purported to have been acquired by the Company or any Restricted Subsidiary
after the date of said Pro Forma Financial Statements (except as sold or
otherwise disposed of in the ordinary course of business), in each case free and
clear of Liens that individually or in the aggregate would have a Material
Adverse Effect. All leases that individually or in the aggregate are Material
are valid and subsisting and are in full force and effect in all material
respects. All properties of the Company and its Restricted Subsidiaries (whether
owned with a freehold or leasehold interest) that are used in the conduct of
their respective businesses and that are individually or in the aggregate,
Material, are in a sufficient state of repair and condition to enable such
businesses, taken as a whole, to be carried on effectively.
Section 5.11 Licenses, Permits, Etc.
(a) The Company and its Restricted Subsidiaries own or possess all
licenses, permits, franchises, authorizations, patents, copyrights, service
marks, trademarks and trade names, or rights thereto, that individually or in
the aggregate are Material, without known conflict with the rights of others, or
the failure of ownership of which would not reasonably be expected to have a
Material Adverse Effect.
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(b) To the best knowledge of the Company, no product or practice of
the Company or any of its Restricted Subsidiaries infringes in any Material
respect any license, permit, franchise, authorization, patent, copyright,
service mark, trademark, trade name or other right owned by any other Person.
(c) To the best knowledge of the Company, there is no Material
violation by any Person of any right of the Company or any of its Restricted
Subsidiaries with respect to any patent, copyright, service mark, trademark,
trade name or other right owned or used by the Company or any of its Restricted
Subsidiaries.
Section 5.12 Compliance with ERISA. (a) The Company and each ERISA
Affiliate have operated and administered each Plan in compliance with all
applicable laws except for such instances of noncompliance as have not resulted
in and could not reasonably be expected to result in a Material Adverse Effect.
Neither the Company nor any ERISA Affiliate has incurred any liability pursuant
to Title I or IV of ERISA or the penalty or excise tax provisions of the Code
relating to employee benefit plans (as defined in Section 3 of ERISA), and no
event, transaction or condition has occurred or exists that could reasonably be
expected to result in the incurrence of any such liability by the Company or any
ERISA Affiliate, or in the imposition of any Lien on any of the rights,
properties or assets of the Company or any ERISA Affiliate, in either case
pursuant to Title I or IV of ERISA or to such penalty or excise tax provisions
or to Section 401(a)(29) or 412 of the Code, other than such liabilities or
Liens as would not be individually or in the aggregate Material.
(b) The present value of the aggregate benefit liabilities under each
of the Plans (other than Multiemployer Plans), determined as of the end of such
Plan's most recently ended plan year on the basis of the actuarial assumptions
specified for funding purposes in such Plan's most recent actuarial valuation
report, did not exceed the aggregate current value of the assets of such Plan
allocable to such benefit liabilities by more than $10,000,000 in the aggregate
for all Plans. The term "benefit liabilities" has the meaning specified in
Section 4001 of ERISA and the terms "current value" and "present value" have the
meanings specified in Section 3 of ERISA.
(c) The Company and its ERISA Affiliates have not incurred withdrawal
liabilities (and are not subject to contingent withdrawal liabilities) under
Section 4201 or 4204 of ERISA in respect of Multiemployer Plans that
individually or in the aggregate are Material.
(d) The expected post-retirement benefit obligation (determined as of
the last day of the Company's most recently ended fiscal year in accordance with
Financial Accounting Standards Board Statement No. 106, without regard to
liabilities attributable to continuation coverage mandated by Section 4980B of
the Code) of the Company and its Restricted Subsidiaries is not Material.
(e) The execution and delivery of this Agreement and the issuance and
sale of the Notes hereunder will not involve any transaction that is subject to
the prohibitions of Section 406 of
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Alliance Resource GP, LLC Note Purchase Agreement
ERISA or in connection with which a tax could be imposed pursuant to Section
4975(c)(1)(A)(D) of the Code. The representation by the Company in the first
sentence of this Section 5.12(e) is made in reliance upon and subject to the
accuracy of each Purchaser's representation in Section 6.2 as to the sources of
the funds to be used to pay the purchase price of the Notes to be purchased by
such Purchaser.
Section 5.13 Private Offering by the Company. Neither the Company nor
Salomon Smith Barney Inc. or Lehman Brothers Inc., the sole Persons acting on
its behalf in the offering of the Notes, has offered the Notes or any similar
securities for sale to, or solicited any offer to buy any of the same from, or
otherwise approached or negotiated in respect thereof with, any Person other
than the Purchasers and not more than other institutional investors, each of
which has been offered a portion of the Notes at a private sale for investment.
Neither the Company nor anyone authorized to act on its behalf has taken, or
will take, any action that would subject the issuance or sale of the Notes to
the registration requirements of Section 5 of the Securities Act. For purposes
of this Section 5.13 only, each reference to the Notes shall be deemed to
include a reference to the Original Subsidiary Guarantee Agreements.
Section 5.14 Use of Proceeds; Margin Regulations. The Company will
apply the proceeds of the sale of the Notes as set forth in Schedule 5.14. No
part of the proceeds from the sale of the Notes hereunder will be used, directly
or indirectly, for the purpose of buying or carrying any margin stock within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System
(12 CFR 221), or for the purpose of buying or carrying or trading in any
securities under such circumstances as to involve the Company in a violation of
Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a
violation of Regulation T of said Board (12 CFR 220). Margin stock does not
constitute more than 25% of the value of the consolidated assets of the Company
and its Restricted Subsidiaries and the Company does not have any present
intention that margin stock will constitute more than 25% of the value of such
assets. As used in this Section, the terms "margin stock" and "purpose of buying
or carrying" shall have the meanings assigned to them in said Regulation U.
Section 5.15 Existing Debt; Future Liens. (a) Schedule 5.15 sets forth
a complete and correct list of all outstanding Debt of the Company and its
Restricted Subsidiaries as of the date of Closing. Neither the Company nor any
Restricted Subsidiary is in default and no waiver of default is currently in
effect, in the payment of any principal or interest on any Debt of the Company
or such Restricted Subsidiary and no event or condition exists with respect to
any Debt of the Company or any Restricted Subsidiary that would permit (or that
with notice or the lapse of time, or both, would permit) one or more Persons to
cause such Debt to become due and payable before its stated maturity or before
its regularly scheduled dates of payment.
(b) Neither the Company nor any Restricted Subsidiary has agreed or
consented to cause or permit in the future (upon the happening of a contingency
or otherwise) any of its property, whether now owned or hereafter acquired, to
be subject to a Lien not permitted by Section 10.3.
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Section 5.16 Foreign Assets Control Regulations, Etc. Neither the sale
of the Notes by the Company hereunder nor its use of the proceeds thereof will
violate the Trading with the Enemy Act, as amended, or any of the foreign assets
control regulations of the United States Treasury Department (31 CFR, Subtitle
B, Chapter V, as amended) or any enabling legislation or executive order
relating thereto.
Section 5.17 Status under Certain Statutes. Neither the Company nor
any Restricted Subsidiary is an "investment company" registered or required to
be registered under the Investment Company Act of 1940, as amended, or is
subject to regulation under the Public Utility Holding Company Act of 1935, as
amended, or the Federal Power Act, as amended.
Section 5.18 Environmental Matters. Neither the Company nor any
Subsidiary has knowledge of any claim or has received any notice of any claim,
and no proceeding has been instituted raising any claim against the Company or
any of its Subsidiaries or any of their respective real properties now or
formerly owned, leased or operated by any of them or other assets, alleging any
damage to the environment or violation of any Environmental Laws, except, in
each case, such as could not reasonably be expected to result in a Material
Adverse Effect.
(a) Neither the Company nor any Restricted Subsidiary has knowledge of
any facts which would give rise to any claim, public or private, of violation of
Environmental Laws or damage to the environment emanating from, occurring on or
in any way related to real properties now or formerly owned, leased or operated
by any of them or to other assets or their use, except, in each case, such as
could not reasonably be expected to result in a Material Adverse Effect.
(b) Neither the Company nor any of its Restricted Subsidiaries has
stored any Hazardous Materials on real properties now or formerly owned, leased
or operated by any of them or has disposed of any Hazardous Materials in a
manner contrary to any Environmental Laws in each case in any manner that could
reasonably be expected to result in a Material Adverse Effect.
(c) All buildings on all real properties now owned, leased or operated
by the Company or any of its Restricted Subsidiaries are in compliance with
applicable Environmental Laws, except where failure to comply could not
reasonably be expected to result in a Material Adverse Effect.
Section 5.19 Pari Passu Ranking. The Company's obligations under the
Notes, and this Agreement, and each Original Subsidiary Guarantor's obligations
under its Subsidiary Guarantee Agreement, will, upon (a) issuance of the Notes
and the execution and delivery of such Subsidiary Guarantee Agreements,
respectively, and (b) the effectiveness of the Assumption Agreement, rank at
least pari passu, without preference or priority, with all of the outstanding
unsecured and unsubordinated Debt of the Company or of such Original Subsidiary
Guarantor, as the case may be.
Section 5.20 Solvency. The Company is not, and upon giving effect to
the issuance of the Notes, will not be, and the Original Subsidiary Guarantors
are not, and upon giving effect to the
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issuance of their respective Subsidiary Guarantee Agreements (including without
limitation the subrogation and contribution provisions thereof), will not be,
"insolvent" as said term is defined in the United States Bankruptcy Code 11,
U.S.C. ss. 101 (32) (A) or (B) (as applicable) and its obligations are not, and
will not be, in default as to "principal or interest", as said terms are used in
Section 1405(c) of the New York State Insurance Law.
Section 5.21 Year 2000. The Company has (i) initiated a review and
assessment of all areas within its and each of its Subsidiaries' business and
operations that could be adversely affected by the risk that computer
applications used by the Company or any of its Subsidiaries may be unable to
recognize and perform properly date-sensitive functions involving certain dates
prior to and any date after December 31, 1999 (the "Year 2000 Problem"), (ii)
distributed a questionnaire to each of its suppliers, vendors and customers
requesting such party's plans and timetable for addressing the Year 2000
Problem, (iii) developed a plan and timetable for addressing the Year 2000
Problem on a timely basis and no later than November 31, 1999 will have
completed such plan, and (iv) to date, implemented that plan in accordance with
such timetable. Based on the foregoing, the Company believes that all computer
applications that are material to its or any of its Subsidiaries' business and
operations are reasonably expected on a timely basis to be able to perform
properly date-sensitive functions for all dates before and after January 1, 2000
("Year 2000 Compliant"), except to the extent that a failure to do so could not
reasonably be expected to have a Material Adverse Effect.
SECTION 6. REPRESENTATIONS OF THE PURCHASER.
Section 6.1 Purchase for Investment. Each Purchaser represents that it
is purchasing the Notes for its own account or for one or more separate accounts
maintained by it or for the account of one or more pension or trust funds with
respect to which it has the requisite investment discretion and not with a view
to the distribution thereof, provided that the disposition of such Purchaser's
or such pension or trust funds' property shall at all times be within such
Purchaser's or such pension or trust funds' control. Each Purchaser understands
that the Notes have not been registered under the Securities Act and may be
resold only if registered pursuant to the provisions of the Securities Act or if
an exemption from registration is available, except under circumstances where
neither such registration nor such an exemption is required by law, and that the
Company is not required to so register the Notes or to qualify an indenture in
respect thereof under the Trust Indenture Act of 1939.
Section 6.2 Source of Funds. Each Purchaser represents that at least
one of the following statements is an accurate representation as to each source
of funds (a "Source") to be used by it to pay the purchase price of the Notes to
be purchased by it hereunder:
(a) the Source is an "insurance company general account" within
the meaning of Department of Labor Prohibited Transaction Exemption
("PTE") 95-60 (issued July 12, 1995) and there is no employee benefit
plan, treating as a single plan, all plans maintained by the same
employer or employee organization, with respect to which the amount of
the general account reserves and liabilities for all contracts held by
or on behalf of such plan,
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exceeds ten percent (10%) of the total reserves and liabilities of
such general account (exclusive of separate account liabilities) plus
surplus, as set forth in the NAIC Annual Statement for such Purchaser
most recently filed with such Purchaser's state of domicile; or
(b) the Source is either (i) an insurance company pooled separate
account, within the meaning of PTE 90-1 (issued January 29, 1990), or
(ii) a bank collective investment fund, within the meaning of the PTE
91-38 (issued July 12, 1991) and, except as such Purchaser has
disclosed to the Company in writing pursuant to this paragraph (b), no
employee benefit plan or group of plans maintained by the same
employer or employee organization beneficially owns more than 10% of
all assets allocated to such pooled separate account or collective
investment fund; or
(c) the Source constitutes assets of an "investment fund" (within
the meaning of Part V of the QPAM Exemption) managed by a "qualified
professional asset manager" or "QPAM" (within the meaning of Part V of
the QPAM Exemption), no employee benefit plan's assets that are
included in such investment fund, when combined with the assets of all
other employee benefit plans established or maintained by the same
employer or by an affiliate (within the meaning of Section V(c)(I) of
the QPAM Exemption) of such employer or by the same employee
organization and managed by such QPAM, exceed 20% of the total client
assets managed by such QPAM, the conditions of Part I(c) and (g) of
the QPAM Exemption are satisfied, neither the QPAM nor a person
controlling or controlled by the QPAM (applying the definition of
"control" in Section V(e) of the QPAM Exemption) owns a 5% or more
interest in the Company and (i) the identity of such QPAM and (ii) the
names of all employee benefit plans whose assets are included in such
investment fund have been disclosed to the Company in writing pursuant
to this paragraph (c); or
(d) the Source is a governmental plan; or
(e) the Source is one or more employee benefit plans, or a
separate account or trust fund comprised of one or more employee
benefit plans, each of which has been identified to the Company in
writing pursuant to this paragraph (e);
(f) the Source does not include assets of any employee benefit
plan, other than a plan exempt from the coverage of ERISA; or
(g) the Source is an insurance company separate account
maintained solely in connection with the fixed contractual obligations
of the insurance company under which the amounts payable, or credited,
to any employee benefit plan (or its related trust) and to any
participant or beneficiary of such plan (including any annuitant) are
not affected in any manner by the investment performance of the
separate account.
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Alliance Resource GP, LLC Note Purchase Agreement
If any Purchaser or any subsequent transferee of the Notes shall furnish to the
Company any written disclosure pursuant to paragraph (b), (c) or (e) above, the
Company shall deliver on the date of Closing or on the date of transfer, as
applicable, a certificate, which shall state whether (i) it is a party in
interest or a "disqualified person" (as defined in Section 4975(e)(2) of the
Code), with respect to any plan identified pursuant to paragraphs (b) or (e)
above, or (ii) with respect to any plan, identified pursuant to paragraph (c)
above, whether it or any "affiliate" (as defined in Section V(c) of the QPAM
Exemption) has at such time, and during the immediately preceding one year,
exercised the authority to appoint or terminate said QPAM as manager of any plan
identified in writing pursuant to paragraph (c) above or to negotiate the terms
of said QPAM's management agreement on behalf of any such identified plan. As
used in this Section 6.2, the terms "employee benefit plan", "governmental
plan", "party in interest" and "separate account" shall have the respective
meanings assigned to such terms in Section 3 of ERISA.
SECTION 7. INFORMATION AS TO COMPANY; STATUS OF SUBSIDIARIES.
Section 7.1 Financial and Business Information. The Company shall
deliver to each holder of Notes that is an Institutional Investor:
(a) Quarterly Statements - within 60 days after the end of each
quarterly fiscal period in each fiscal year of the Company (other than the last
quarterly fiscal period of each such fiscal year), duplicate copies of,
(i) an unaudited consolidated balance sheet of the Company and its
Restricted Subsidiaries as at the end of such quarter, and
(ii) unaudited consolidated statements of income, changes in
partners' equity and cash flows of the Company and its Restricted
Subsidiaries, for such quarter and (in the case of the second and
third quarters) for the portion of the fiscal year ending with such
quarter,
setting forth (commencing with the fiscal quarter ending December 31, 2000) in
each case in comparative form the figures for the corresponding periods in the
previous fiscal year, all in reasonable detail, prepared in accordance with GAAP
applicable to quarterly financial statements generally, and certified by a
Senior Financial Officer as fairly presenting, in all material respects, the
financial position of the entities being reported on and their results of
operations and cash flows, subject to changes resulting from normal, recurring
year-end adjustments, provided that delivery within the time period specified
above of copies of the MLP's Quarterly Report on Form 10-Q prepared in
compliance with the requirements therefor and filed with the Securities and
Exchange Commission shall, so long as the only material operating entity and
other assets held by the MLP are, and the only material liabilities of the MLP
are liabilities of, the Company (including for this purpose the Company's
Subsidiaries) be deemed to satisfy the requirements of this Section 7.1(a);
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(b) Annual Statements - within 120 days after the end of each fiscal
year of the Company, duplicate copies of,
(i) a consolidated balance sheet of the Company and its Restricted
Subsidiaries, as at the end of such year, and
(ii) consolidated statements of income, changes in partners'
equity and cash flows of the Company and its Restricted Subsidiaries,
for such year,
setting forth (commencing with the fiscal year ending December 31, 2001) in each
case in comparative form the figures for the previous fiscal year, all in
reasonable detail, prepared in accordance with GAAP, and accompanied by
(A) a report thereon of independent certified public accountants
of recognized national standing, which report shall state that such
financial statements present fairly, in all material respects, the
financial position of the entities being reported upon and their
results of operations and cash flows and have been prepared in
conformity with GAAP, and that the examination of such accountants in
connection with such financial statements has been made in accordance
with generally accepted auditing standards, and that such audit
provides a reasonable basis for such report in the circumstances, and
(B) a certificate of such accountants stating that they have
reviewed this Agreement and stating further whether, in making their
audit, they have become aware of any financial condition or event that
then constitutes a Default or an Event of Default, and, if they are
aware that any such condition or event then exists, specifying the
nature and period of the existence thereof (it being understood that
such accountants shall not be liable, directly or indirectly, for any
failure to obtain knowledge of any Default or Event of Default unless
such accountants should have obtained knowledge thereof in making an
audit in accordance with generally accepted auditing standards or did
not make such an audit),
provided that the delivery within the time period specified above of the MLP's
Annual Report on Form 10-K for such fiscal year (together with the Company's
annual report to shareholders, if any, prepared pursuant to Rule l4a-3 under the
Exchange Act) prepared in accordance with the requirements therefor and filed
with the Securities and Exchange Commission, together with the accountant's
certificate described in clause (B) above, shall, so long as the only material
operating entity and other assets held by the MLP are, and the only material
liabilities of the MLP are liabilities of, the Company (including for this
purpose the Company's Subsidiaries) be deemed to satisfy the requirements of
this Section 7.1(b);
(c) SEC and Other Reports - promptly upon their becoming available,
one copy of each regular or periodic report, each registration statement
(without exhibits except as expressly requested by such holder), and each
prospectus and all amendments thereto filed by the MLP, the Company
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Alliance Resource GP, LLC Note Purchase Agreement
or any Restricted Subsidiary with the Securities and Exchange Commission and of
all press releases and other statements made available generally by the MLP,
Company or any Restricted Subsidiary to unitholders of the MLP concerning
developments that are Material;
(d) Notice of Default or Event of Default - promptly, and in any event
within five Business Days after a Responsible Officer becoming aware of the
existence of any Default or Event of Default or that any Person has given any
notice or taken any action with respect to a claimed default hereunder or that
any Person has given any notice or taken any action with respect to a claimed
default of the type referred to in Section 11 (f), a written notice specifying
the nature and period of existence thereof and what action the Company is taking
or proposes to take with respect thereto;
(e) Actions, Proceedings - promptly after a Responsible Officer of the
Company becoming aware of the commencement thereof, notice of any action or
proceeding relating to the Company or any Restricted Subsidiary in any court or
before any Governmental Authority or arbitration board or tribunal as to which
there is a reasonable possibility of an adverse determination and that, if
adversely determined, could reasonably be expected to have a Material Adverse
Effect.
(f) ERISA Matters - promptly, and in any event within five Business
Days after a Responsible Officer becoming aware of any of the following, a
written notice setting forth the nature thereof and the action, if any, that the
Company or an ERISA Affiliate proposes to take with respect thereto:
(i) with respect to any Plan, any reportable event, as defined in
section 4043(b) of ERISA and the regulations thereunder, for which
notice thereof has not been waived pursuant to such regulations as in
effect on the date hereof, or
(ii) the taking by the PBGC of steps to institute, or the
threatening by the PBGC of the institution of, proceedings under
section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Plan, or the receipt by the Company or any
ERISA Affiliate of a notice from a Multiemployer Plan that such action
has been taken by the PBGC with respect to such Multiemployer Plan; or
(iii) any event, transaction or condition that could result in the
incurrence of any liability by the Company or any ERISA Affiliate
pursuant to Title I or IV of ERISA or the penalty or excise tax
provisions of the Code relating to employee benefit plans, or in the
imposition of any Lien on any of the rights, properties or assets of
the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA
or such penalty or excise tax provisions, if such liability or Lien,
taken together with any other such liabilities or Liens then existing,
could reasonably be expected to have a Material Adverse Effect;
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Alliance Resource GP, LLC Note Purchase Agreement
(g) Notices from Governmental Authority - promptly, and in any event
within 30 days of receipt thereof, copies of any notice to the Company or any
Subsidiary from any Federal or state Governmental Authority relating to any
order, ruling, statute or other law or regulation that could reasonably be
expected to have a Material Adverse Effect;
(h) Rule 144A - promptly upon the request of any holder of Notes, such
financial and other information as such holder may reasonably determine to be
necessary in order to permit compliance with the information requirements of
Rule 144A under the Securities Act in connection with the resale of Notes,
except at such times as the Company is subject to the reporting requirements of
section 13 or 15(d) of the Exchange Act;
(i) Year 2000 Compliance - promptly after the Company's discovery or
determination thereof, notice (in reasonable detail) that any computer
application that is material to its or to any of its Subsidiaries' business and
operations will not be Year 2000 Compliant (as defined in Section 5.21), except
to the extent that such failure could not reasonably be expected to have a
Material Adverse Effect; and
(j) Requested Information - with reasonable promptness, such other
data and information relating to the business, operations, affairs, financial
condition, assets or properties of the Company or any of its Subsidiaries
relating to the ability of the Company to perform its obligations hereunder and
under the Notes, or the ability of any Subsidiary Guarantor to perform its
obligations under the Subsidiary Guarantee Agreement, as from time to time may
be reasonably requested by any such holder of Notes.
Section 7.2 Officer's Certificate. Each set of financial statements
delivered to a holder of Notes pursuant to Section 7.1(a) or Section 7.1(b)
hereof shall be accompanied by a certificate of a Senior Financial Officer
setting forth:
(a) Covenant Compliance - any information (including detailed
calculations where applicable) required to establish whether the Company was in
compliance with the requirements of Section 10.1 through Section 10.9 hereof,
inclusive, during the quarterly or annual period covered by the statements then
being furnished (including with respect to each such Section, where applicable,
the calculations of the maximum or minimum amount, ratio or percentage, as the
case may be, permissible under the terms of such Sections, and the calculation
of the amount, ratio or percentage then in existence and specifying those
adjustments in any items abstracted from such financial statements necessary to
reflect the adjustments to GAAP provided for in this Agreement); and
(b) Event of Default - a statement that such officer has reviewed the
relevant terms hereof and has made, or caused to be made, under his or her
supervision, a review of the transactions and conditions of the Company and its
Restricted Subsidiaries from the beginning of the quarterly or annual period
covered by the statements then being furnished to the date of the certificate
and that
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Alliance Resource GP, LLC Note Purchase Agreement
such review has not disclosed the existence during such period of any condition
or event that constitutes a Default or an Event of Default or, if any such
condition or event existed or exists (including, without limitation, any such
event or condition resulting from the failure of the Company or any Restricted
Subsidiary to comply with any Environmental Law), specifying the nature and
period of existence thereof and what action, if any, shall have been taken or is
proposed to be taken with respect thereto.
Section 7.3 Inspection. The Company shall permit the representatives
of each holder of Notes that is an Institutional Investor:
(a) No Default - if no Default or Event of Default then exists, at the
expense of such holder and upon reasonable prior notice to the Company, to visit
the principal executive office of the Company, to discuss the affairs, finances
and accounts of the Company and its Restricted Subsidiaries with the Company's
officers, and (with the consent of the Company, which consent will not be
unreasonably withheld and with an opportunity for one or more Responsible
Officers to be present, it being understood that the failure of such Responsible
Officers to be present shall not preclude the representatives of such holder
from proceeding with such meeting) its independent public accountants, and (with
the consent of the Company, which consent will not be unreasonably withheld) to
visit the other offices and properties of the Company and each Restricted
Subsidiary, all at such reasonable times and as often as may be reasonably
requested in writing; and
(b) Default - if a Default or Event of Default then exists, at the
expense of the Company, to visit and inspect any of the offices or properties of
the Company or any Restricted Subsidiary, to examine all their respective books
of account, records, reports and other papers, to make copies and extracts
therefrom, and to discuss their respective affairs, finances and accounts with
their respective officers and independent public accountants (and by this
provision the Company authorizes said accountants to discuss the affairs,
finances and accounts of the Company and its Restricted Subsidiaries so long as
one or more Responsible Officers has an opportunity to be present, it being
understood that the failure of such Responsible Officers to be present shall not
preclude the representatives of such holder from proceeding with such meeting),
all at such times and as often as may be requested.
Section 7.4 Change in Status of Subsidiaries. (a) So long as no
Default or Event of Default shall have occurred and be continuing, the Company
may at any time and from time to time, upon not less than 30 days' prior written
notice given to each holder of a Note, designate a previously Restricted
Subsidiary as an Unrestricted Subsidiary or a previously Unrestricted Subsidiary
(including a new Subsidiary designated on the date of its formation or
acquisition) which satisfies the requirements of clauses (i), (ii) and (iii) of
the definition of "Restricted Subsidiary" as a Restricted Subsidiary, provided
that immediately after such designation and after giving effect thereto no
Default or Event of Default shall have occurred and be continuing, and the
Company would be permitted, pursuant to the provisions of Section 10.1(a) to
incur at least $1 of additional
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Alliance Resource GP, LLC Note Purchase Agreement
Debt owing to a Person other than a Restricted Subsidiary, and provided further
that after such designation the status of such Subsidiary had not been changed
more than twice.
(b) Any notice of designation pursuant to this Section 7.4 shall be
accompanied by a certificate signed by a Responsible Officer of the Company
stating that the provisions of this Section 7.4 have been complied with in
connection with such designation and setting forth the name of each other
Subsidiary (if any) which has or will become a Restricted Subsidiary or an
Unrestricted Subsidiary, as the case may be, as a result of such designation.
SECTION 8. PREPAYMENT OF THE NOTES.
Section 8.1 Required Prepayments. On August 1, 2005 and on each
August 1 thereafter to and including August 1, 2013, the Company will prepay
$18,000,000 principal amount (or such lesser principal amount as shall then be
outstanding) of the Notes at par and without payment of the Make-Whole Amount or
any premium, provided that upon any partial prepayment of the Notes pursuant to
Section 8.2 or Section 8.3 the principal amount of each required prepayment of
the Notes becoming due under this Section 8.1 on and after the date of such
prepayment or purchase shall be reduced in the same proportion as the aggregate
unpaid principal amount of the Notes is reduced as a result of such prepayment
or purchase.
Section 8.2 Optional Prepayments with Make-Whole Amount. The Company
may, at its option, upon notice as provided below, prepay at any time all, or
from time to time any part of, the Notes, at 100% of the principal amount so
prepaid, together with interest accrued thereon to the date of such prepayment,
plus any applicable Make-Whole Amount determined for the prepayment date with
respect to such principal amount. The Company will give each holder of Notes
written notice of each optional prepayment under this Section 8.2 not less than
30 days and not more than 60 days prior to the date fixed for such prepayment.
Each such notice shall specify such date, the aggregate principal amount of the
Notes to be prepaid on such date, the principal amount of each Note held by such
holder to be prepaid, and the interest to be paid on the prepayment date with
respect to such principal amount being prepaid, and shall be accompanied by a
certificate of a Senior Financial Officer as to the estimated Make-Whole Amount
due in connection with such prepayment (calculated as if the date of such notice
were the date of the prepayment), setting forth the details of such computation.
Two Business Days prior to such prepayment, the Company shall deliver to each
holder of Notes a certificate of a Senior Financial Officer specifying the
calculation of such Make-Whole Amount as of the specified prepayment date.
Section 8.3 Prepayment Out of Proceeds of Transfer. In the event that
the Company shall elect to apply all or any portion of the proceeds of any
Transfer of assets to the repayment or prepayment of unsubordinated Debt of the
Company or a Restricted Subsidiary as contemplated in Section 10.7(B)(ii), the
Company will give written notice ("Company Notice") of such election to all
holders of the Notes. The Company Notice shall (i) describe the facts and
circumstances of such sales, leases or other dispositions in reasonable detail,
(ii) set forth the aggregate principal amount
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Alliance Resource GP, LLC Note Purchase Agreement
of such proceeds (the "Designated Proceeds") which it intends to apply to the
prepayment or repayment of unsubordinated Debt (iii) contain an offer by the
Company to prepay on a stated date (the "Prepayment Date"), which shall be a
Business Day not more than 60 days and not less than 30 days after such Company
Notice, an amount equal to (x) the principal amount of the Notes held by each
holder which bears the same relationship to the aggregate amount of such
Designated Proceeds as the aggregate principal amount of all Notes held by such
holder bears to the aggregate principal amount of all then outstanding Debt
(including the Notes) with respect to which a portion of such Designated
Proceeds is to be applied, plus (y) interest on the principal amount of Notes to
be prepaid to the Prepayment Date, but without any Make-Whole Amount (showing in
such offer the amount of interest which would be paid on such Prepayment Date),
and (iv) request each holder to notify the Company in writing by a stated date,
which date shall be not less than 15 days after such holder's receipt of the
Company Notice, of its acceptance or rejection of such prepayment offer. If a
holder does not notify the Company as provided in subclause (iv) above, then
such holder shall be deemed to have rejected such offer.
Section 8.4 Allocation of Partial Prepayments. In the case of each
partial prepayment of the Notes pursuant to Section 8.1 or Section 8.2, the
principal amount of the Notes to be prepaid shall be allocated among all of the
Notes at the time outstanding in proportion, as nearly as practicable, to the
respective unpaid principal amounts thereof not theretofore called for
prepayment. Partial prepayments of the Notes pursuant to Section 8.3 shall be
allocated as therein provided.
Section 8.5 Maturity; Surrender, Etc.. In the case of each prepayment
of Notes pursuant to this Section 8, the principal amount of each Note to be
prepaid in full shall mature and become due and payable on the date fixed for
such prepayment, together with interest on such principal amount accrued to such
date and the applicable Make-Whole Amount, if any. From and after such date,
unless the Company shall fail to pay such principal amount when so due and
payable, together with the interest and Make-Whole Amount, if any, as aforesaid,
interest on such principal amount shall cease to accrue. Any Note paid or
prepaid in full shall be surrendered to the Company and canceled and shall not
be reissued, and no Note shall be issued in lieu of any prepaid principal amount
of any Note.
Section 8.6 Purchase of Notes. The Company will not and will not
permit any Subsidiary or Affiliate controlled by the Company or any Subsidiary
to purchase, redeem, prepay or otherwise acquire, directly or indirectly, any of
the outstanding Notes except upon the payment or prepayment of the Notes in
accordance with the terms of this Agreement. The Company will promptly cancel
all Notes acquired by it, any Subsidiary or any Affiliate controlled by the
Company or any Subsidiary and no Notes may be delivered in substitution or
exchange for any such Notes.
Section 8.7 Make-Whole Amount. The term "Make-Whole Amount" means,
with respect to any Note, an amount equal to the excess, if any, of the
Discounted Value of the Remaining Scheduled Payments with respect to the Called
Principal of such Note over the amount of such Called Principal, provided that
the Make-Whole Amount may in no event be less than zero. For the
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Alliance Resource GP, LLC Note Purchase Agreement
purposes of determining the Make-Whole Amount, the following terms have the
following meanings:
"Called Principal" means, with respect to any Note, the principal
of such Note that is to be prepaid pursuant to Section 8.2 or has
become or is declared to be immediately due and payable pursuant to
Section 12. 1, as the context requires.
"Discounted Value" means, with respect to the Called Principal of
any Note, the amount obtained by discounting all Remaining Scheduled
Payments with respect to such Called Principal from their respective
scheduled due dates to the Settlement Date with respect to such Called
Principal, in accordance with generally accepted financial practice
and at a discount factor (applied on the same periodic basis as that
on which interest on the Notes is payable) equal to the Reinvestment
Yield with respect to such Called Principal.
"Reinvestment Yield" means, with respect to the Called Principal
of any Note, 0.50% over the yield to maturity implied by (i) the
yields reported, as of 10:00 A.M. (New York City time) on the second
Business Day preceding the Settlement Date with respect to such Called
Principal, on the display designated as "Page 678" on the Telerate (or
such other display as may replace Page 678 on the Telerate) for
actively traded U.S. Treasury securities having a maturity equal to
the Remaining Average Life of such Called Principal as of such
Settlement Date, or (ii) if such yields are not reported as of such
time or the yields reported as of such time are not ascertainable, the
Treasury Constant Maturity Series Yields reported, for the latest day
for which such yields have been so reported as of the second Business
Day preceding the Settlement Date with respect to such Called
Principal, in Federal Reserve Statistical Release H. 15 (519) (or any
comparable successor publication) for actively traded U.S. Treasury
securities having a constant maturity equal to the Remaining Average
Life of such Called Principal as of such Settlement Date. Such implied
yield will be determined, if necessary, by (a) converting U.S.
Treasury bill quotations to bond-equivalent yields in accordance with
accepted financial practice and (b) interpolating linearly between (1)
the actively traded U.S. Treasury security with the maturity closest
to and greater than the Remaining Average Life and (2) the actively
traded U.S. Treasury security with the maturity closest to and less
than the Remaining Average Life.
"Remaining Average Life" means, with respect to any Called
Principal, the number of years (calculated to the nearest one-twelfth
year) obtained by dividing (i) such Note Purchase Agreement Called
Principal into (h) the sum of the products obtained by multiplying (a)
the principal component of each Remaining Scheduled Payment with
respect to such Called Principal by (b) the number of years
(calculated to the nearest one-twelfth year) that will elapse between
the Settlement Date with respect to such Called Principal and the
scheduled due date of such Remaining Scheduled Payment.
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Alliance Resource GP, LLC Note Purchase Agreement
"Remaining Scheduled Payments" means, with respect to the Called
Principal of any Note, all payments of such Called Principal and
interest thereon that would be due after the Settlement Date with
respect to such Called Principal if no payment of such Called
Principal were made prior to its scheduled due date, provided that if
such Settlement Date is not a date on which interest payments are due
to be made under the terms of the Notes, then the amount of the next
succeeding scheduled interest payment will be reduced by the amount of
interest accrued to such Settlement Date and required to be paid on
such Settlement Date pursuant to Section 8.2 or 12.1.
"Settlement Date" means, with respect to the Called Principal of
any Note, the date on which such Called Principal is to be prepaid
pursuant to Section 8.2 or has become or is declared to be immediately
due and payable pursuant to Section 12. 1, as the context requires.
SECTION 9. AFFIRMATIVE COVENANTS.
The Company covenants that so long as any of the Notes are
outstanding:
Section 9.1 Compliance with Law. The Company will, and will cause each
of its Subsidiaries to, comply with all laws, ordinances or governmental rules
or regulations to which each of them is subject, including, without limitation,
Environmental Laws, and will obtain and maintain in effect all licenses,
certificates, permits, franchises and other governmental authorizations
necessary to the ownership of their respective properties or to the conduct of
their respective businesses, in each case to the extent necessary to ensure that
non-compliance with such laws, ordinances or governmental rules or regulations
or failures to obtain or maintain in effect such licenses, certificates,
permits, franchises and other governmental authorizations could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
Section 9.2 Insurance. The Company will, and will cause each of its
Restricted Subsidiaries to, maintain, with financially sound and reputable
insurers, insurance with respect to their respective Material properties and
businesses against such casualties and contingencies, of such types, on such
terms and in such amounts (including deductibles, co-insurance and
selfinsurance, if adequate reserves are maintained with respect thereto) as is
customary (with respect to such types, terms, amounts and reserves) in the case
of entities of established reputations engaged in the same or a similar business
and similarly situated and consistent with the existing practices of the Company
and its Restricted Subsidiaries as of the date hereof.
Section 9.3 Maintenance of Properties. The Company will, and will
cause each of its Restricted Subsidiaries to, maintain and keep, or cause to be
maintained and kept, their respective properties in good repair, working order
and condition (other than ordinary wear and tear), so that the business carried
on in connection therewith may be properly conducted at all times, provided that
this Section shall not prevent the Company or any Restricted Subsidiary from
discontinuing the
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Alliance Resource GP, LLC Note Purchase Agreement
operation and the maintenance of any of its properties if such discontinuance is
desirable in the conduct of its business and the Company has concluded that such
discontinuance could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
Section 9.4 Payment of Taxes. The Company will, and will cause each of
its Subsidiaries to, file all tax returns required to be filed in any
jurisdiction and to pay and discharge all taxes shown to be due and payable on
such returns and all other taxes, assessments, governmental charges, or levies
imposed on them or any of their properties, assets, income or franchises, to the
extent such taxes and assessments have become due and payable and before they
have become delinquent and all claims for which sums have become due and payable
that have or might become a Lien on properties or assets of the Company or any
Subsidiary, provided that neither the Company nor any Subsidiary need pay any
such tax or assessment or claims if (i) the amount, applicability or validity
thereof is contested by the Company or such Subsidiary on a timely basis in good
faith and in appropriate proceedings, and the Company or a Subsidiary has
established adequate reserves therefor in accordance with GAAP on the books of
the Company or such Subsidiary or (ii) the nonpayment of all such taxes and
assessments in the aggregate could not reasonably be expected to have a Material
Adverse Effect.
Section 9.5 Existence, Etc. The Company will at all times preserve and
keep in full force and effect its existence as a limited liability company or
limited partnership, as the case may be. Subject to and except as permitted by
Sections 10.6 and 10.7, the Company will at all times preserve and keep in full
force and effect the corporate, limited liability company or partnership
existence, as the case may be, of each of its Restricted Subsidiaries and all
rights and franchises of the Company and its Restricted Subsidiaries unless, in
the good faith judgment of the Company, the termination of or failure to
preserve and keep in fun force and effect such existence, right or franchise
could not, individually or in the aggregate, have a Material Adverse Effect.
Section 9.6 Ranking; Covenant to Secure Notes Equally. The Company
will ensure that, at all times, all liabilities of the Company under the Notes
will rank in right of payment either pari passu or senior to all other Debt of
the Company except for Debt which is preferred as a result of being secured as
permitted by Section 10.3 (but then only to the extent of such security). The
Company will, if it or any Restricted Subsidiary shall create or assume any Lien
upon any of its property or assets, whether now owned or hereafter acquired,
other than Liens permitted by the provisions of Section 10.3 (unless prior,
written consent to the creation or assumption thereof shall have been obtained
pursuant to Section 17), make or cause to be made effective provision whereby
the Notes will be secured by such Lien equally and ratably with any and all
other Debt thereby secured so long as any such other Debt shall be so secured.
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Alliance Resource GP, LLC Note Purchase Agreement
SECTION 10. NEGATIVE COVENANTS.
The Company covenants that so long as any of the Notes are
outstanding:
Section 10.1 Incurrence of Debt, Transfer of Qualifying Securities.
The Company will not, and will not permit any Restricted Subsidiary to, directly
or indirectly, create, incur, assume, guarantee, or otherwise become directly or
indirectly liable with respect to, any Debt (other than Debt owing to the
Company, a Subsidiary Guarantor or a Wholly-Owned Restricted Subsidiary) other
than:
(a) Debt of the Company or any Restricted Subsidiary if, on the date
the Company or such Restricted Subsidiary becomes liable with respect to any
such Debt, and immediately after giving effect thereto and the concurrent
retirement of any other Debt (the "Determination Date"):
(i) no Default or Event of Default exists; and
(ii) any such Debt of a Restricted Subsidiary is permitted
pursuant to Section 10.2; and
(iii) if the Determination Date is prior to December 31, 1999, the
aggregate outstanding principal amount of Debt of the Company and its
Restricted Subsidiaries does not exceed $230,000,000; and
(iv) (A) if the Determination Date is on or after December 31,
1999 and prior to September 30, 2000, the ratio of Consolidated Cash
Flow for the period of such number of consecutive complete fiscal
quarters of the Company as shall have elapsed following Closing and
ending on, or most recently ended prior to, the Determination Date to
Consolidated Interest Expense for such period is not less than 2.25 to
1, or
(B) if the Determination Date is on or after September 30,
2000, the ratio of Consolidated Cash Flow for the period of four
consecutive fiscal quarters of the Company ending on, or most
recently ended prior to, the Determination Date to Consolidated
Interest Expense for such period is not less than 2.25 to 1; and
(v) (A) if the Determination Date is on or after December 31, 1999
and prior to September 30, 2000, the ratio of Consolidated Net Debt on
the Determination Date to Consolidated Cash Flow for the period of
such number of consecutive complete fiscal quarters of the Company as
shall have elapsed following Closing and ending on, or most recently
ended prior to, the Determination Date is not greater than 4 to 1, or
(B) if the Determination Date is on or after September 30,
2000, the ratio of Consolidated Net Debt on the Determination Date
to Consolidated Cash Flow for
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Alliance Resource GP, LLC Note Purchase Agreement
the period of four consecutive fiscal quarters of the Company
ending on, or most recently ended prior to, the Determination
Date is not greater than 4 to 1;
provided, however, that in making the calculations required by the foregoing
Sections 10.1(a)(iv)(A) and 10.1(a)(v)(A) with respect to any period ending
prior to September 30, 2000 and thus containing fewer than four consecutive
complete fiscal quarters, the applicable amounts of Consolidated Cash Flow and
Consolidated Interest Expense shall be determined by calculating the respective
amounts thereof for such period and multiplying the result so obtained by a
fraction whose numerator is 4 and whose denominator is the number of consecutive
complete fiscal quarters in such period); provided, further, that
notwithstanding the foregoing provisions of this Section 10.1, if any
Determination Date shall fall on or after the last day of any fiscal quarter of
the Company but prior to the earlier of the date on which financial statements
for the period in question are delivered or are required to be delivered as
specified in Section 7.1, then, (x) if the last day of such fiscal quarter is
December 31, 1999, Section 10.1(a)(iii) (and not Section 10.1(a)(iv) or (v))
shall apply, and (y) if the last day of such fiscal quarter is any subsequent
date, Sections 10.1(a)(iv) and (v) shall apply and computations shall be made
using financial information from the Company's fiscal quarter that ended on the
last day of the Company's then second most recently ended fiscal quarter; and
(b) Debt of the Company or any Restricted Subsidiary, in addition to
the Debt permitted pursuant to the provisions of clause (a) of this Section
10.1, (I) owing to the Company, or (II) subordinated to the Notes in a manner
satisfactory to the Required Holders and owing to a Subsidiary Guarantor or a
Wholly-Owned Restricted Subsidiary.
For the purposes of this Section 10.1,
(i) any Person becoming a Restricted Subsidiary after the date
hereof shall be deemed, at the time it becomes a Restricted
Subsidiary, to have incurred all of its then outstanding Debt, and any
Person Refinancing any Debt shall be deemed to have incurred such Debt
at the time of such Refinancing; and
(ii) any Transfer of any Qualifying Securities (other than the
Transfer thereof to the pledgee in satisfaction of the Debt secured
thereby) shall be deemed to constitute the incurrence of a principal
amount of Debt of the Company equal to the aggregate principal amount
of the Qualifying Securities so Transferred and the Company will not
permit such Transfer unless the Company would, on the date of such
Transfer, be permitted under the provisions of Section 10.1(a) to
incur at least $1 of additional Debt owing to a Person other than a
Restricted Subsidiary.
Section 10.2 Priority Debt. The Company will not at any time permit
the sum of (x) the aggregate unpaid principal amount of all Consolidated
Adjusted Restricted Subsidiary Debt, plus (y) the aggregate unpaid principal
amount of all Debt of the Company secured by Liens pursuant to
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Alliance Resource GP, LLC Note Purchase Agreement
the provisions of Section 10.4(k) to exceed 15% of Consolidated Total Assets
determined as of the end of the then most recently completed fiscal quarter of
the Company.
Section 10.3 Liens. The Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly create, incur, assume or
permit to exist (upon the happening of a contingency or otherwise) any Lien on
or with respect to any property or asset (including, without limitation, any
document or instrument in respect of goods or accounts receivable) of the
Company or any such Restricted Subsidiary, whether now owned or held or
hereafter acquired, or any income or profits therefrom, or assign or otherwise
convey any right to receive income or profits, except:
(a) Liens for property taxes, assessments or other governmental
charges which are not yet due and payable and delinquent or the validity of
which is being contested in good faith in compliance with Section 9.4;
(b) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, materialmen and other similar Liens, in each case, incurred in the
ordinary course of business for sums not yet due and payable or the amount,
applicability or validity thereof is being contested by the Company or such
Restricted Subsidiary on a timely basis in good faith and in appropriate
proceedings, and the Company or a Restricted Subsidiary has established adequate
reserves therefor in accordance with GAAP on the books of the Company or such
Restricted Subsidiary;
(c) Liens (other than any Lien imposed by ERISA) incurred or deposits
made in the ordinary course of business (i) in connection with workers'
compensation, unemployment insurance and other types of social security or
retirement benefits, or (ii) to secure (or to obtain letters of credit that
secure) the performance of tenders, statutory obligations, surety bonds, appeal
bonds, bids, leases (other than Capital Leases), performance bonds, purchase,
construction or sales contracts and other similar obligations, in each case not
incurred or made in connection with the borrowing of money, the obtaining of
advances or credit or the payment of the deferred purchase price of property;
(d) any attachment or judgment Lien for the payment of money in an
aggregate amount not to exceed $10,000,000, provided that the execution or other
enforcement of such Liens is effectively stayed and the claims secured thereby
are contested by the Company or such Restricted Subsidiary on a timely basis in
good faith and in appropriate proceedings, and the Company or a Restricted
Subsidiary has established adequate reserves therefor in accordance with GAAP on
the books of the Company or such Restricted Subsidiary;
(e) leases or subleases granted to others, zoning restrictions,
easements, licenses, reservations, provisions, covenants, conditions, waivers,
restrictions on the use of property or irregularities of title (and with respect
to leasehold interests, mortgages, obligations, liens and other encumbrances
incurred, created, assumed or permitted to exist and arising by, through or
under a landlord or owner of the leased property, with or without consent of the
lessee), and not interfering
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with, the ordinary conduct of the business of the Company or any of its
Restricted Subsidiaries, provided that such Liens do not, in the aggregate,
materially detract from the value of such property or impair the use of such
property;
(f) Liens on property or assets of the Company or any of its
Restricted Subsidiaries securing Debt owing to the Company or to a Wholly-Owned
Restricted Subsidiary or a Subsidiary Guarantor;
(g) Liens on personal property leased under leases (including
synthetic leases) entered into by the Company which are accounted for as
operating leases in accordance with GAAP;
(h) at any time before December 31, 2000, Liens on Qualifying
Securities securing that portion of Debt incurred to purchase or carry the
Qualifying Securities;
(i) easements, exceptions or reservations in any property of the
Company or any Restricted Subsidiary granted or reserved for the purpose of
pipelines, roads, the removal of oil, gas, coal or other minerals, and other
like purposes, or for the joint or common use of real property, facilities and
equipment, which are incidental to, and do not materially interfere with, the
ordinary conduct of the business of the Company or any of its Restricted
Subsidiaries;
(j) Liens on documents of title and the property covered thereby
securing obligations in respect of letters of credit that are commercial letters
of credit (i.e., obtained for the purpose of paying all or a portion of the
purchase price of such property);
(k) other Liens securing Debt not otherwise permitted by paragraphs
(a) through (j), provided that on the date any such Lien is created, incurred or
assumed and immediately after giving effect to the incurrence of any related
Debt and the concurrent retirement of any other Debt, the Company is in
compliance with the provisions of Section 10.2; and
(l) Liens reflected in Schedule 5.15 securing Debt of the Company and
its Restricted Subsidiaries on the date of Closing, but only until the time of
Closing in the case of Liens reflected in Part A of such Schedule.
For the purposes of this Section 10.3, any Person becoming a Restricted
Subsidiary after the date of this Agreement shall be deemed to have incurred all
of its then outstanding Liens at the time it becomes a Restricted Subsidiary.
Section 10.4 Restricted Payments.
(a) Limitation. The Company will not, and will not permit any of its
Restricted Subsidiaries to, at any time, declare or make, or incur any liability
to declare or make, any Restricted
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Payment; provided that, from and after the fulfillment of all of the Assumption
Conditions, the Company may make one Restricted Payment in each fiscal quarter
of the Company if:
(i) the amount of such Restricted Payment would not exceed the
Available Cash for the immediately preceding fiscal quarter of the
Company;
(ii) before and after giving effect to such Restricted Payment,
the ratio of Consolidated Net Debt on the date of declaration thereof
to Consolidated Cash Flow for the period of the lesser of (A) four
consecutive complete fiscal quarters of the Company most recently
ended or (B) such number of consecutive complete fiscal quarters of
the Company as shall have elapsed following Closing and ending on, or
most recently ended prior to, such declaration is not greater than
4.25 to 1; provided, however, that in making the calculations required
by the foregoing provisions of this Section 10.4(a)(ii) with respect
to any period ending prior to September 30, 2000 and thus containing
fewer than four consecutive complete fiscal quarters, the applicable
amounts of Consolidated Cash Flow and Consolidated Interest Expense
shall be determined by calculating the respective amounts thereof for
such period and multiplying the result so obtained by a fraction whose
numerator is 4 and whose denominator is the number of consecutive
complete fiscal quarters in such period; and
(iii) no Default or Event of Default would exist before or after
such Restricted Payment.
(b) Time of Payment. Each Restricted Payment shall be made within 60
days of declaration thereof, and, notwithstanding any other provision of this
Section 10.4 if the payment would have been permitted as of the date of such
declaration, such payment shall be permitted if made during such 60-day period.
Section 10.5 Restrictions on Dividends of Subsidiaries, Etc. The
Company will not, and will not permit any of its Restricted Subsidiaries to,
enter into any agreement which would restrict any Restricted Subsidiary's
ability or right to pay dividends to, or make advances to or Investments in, the
Company or, if such Restricted Subsidiary is not directly owned by the Company,
the "parent" Subsidiary of such Restricted Subsidiary.
Section 10.6 Mergers and Consolidations. The Company will not, and
will not permit any Restricted Subsidiary to, consolidate with or be a party to
a merger with any other Person or convey, transfer or lease substantially all of
its assets in a single transaction or series of transactions to any Person;
provided, however, that the Company or any Restricted Subsidiary may consolidate
or merge with, or convey, transfer or lease substantially all of its assets to,
any other Person so long as (i) the surviving entity (if not the Company or such
Restricted Subsidiary) or the transferee or lessee is a solvent partnership,
limited liability company or corporation organized and existing under the laws
of the United States of America or any State thereof, (ii) (a) in the case of
the Company, if the
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Company is not the surviving entity, or it shall convey, transfer or lease its
assets to another Person, the surviving entity, transferee or lessee expressly
assumes in writing the Company's obligations under the Notes and this Agreement,
and (b) in the case of a Restricted Subsidiary, if such Restricted Subsidiary is
not the surviving entity, or it shall convey, transfer or lease its assets to
another Person, the surviving entity, transferee or lessee shall be, or upon
consummation of such transaction, become, a Restricted Subsidiary with respect
to which the Company shall have at least the same degree of ownership and
control as it had with respect to such disappearing Restricted Subsidiary and,
in the case of a Restricted Subsidiary which is a Subsidiary Guarantor, such
surviving entity, transferee or lessee shall expressly assume, in writing, the
obligations of such disappearing Subsidiary Guarantor in respect of its
Subsidiary Guarantee Agreement, and (c) in the case of either clause (a) or (b)
above, the Company shall have caused to be delivered to each holder of Notes an
opinion of independent counsel satisfactory to such holders to the effect that
all agreements or instruments effecting such assumptions are enforceable in
accordance with their terms and comply with the terms thereof, (iii) at the time
of such consolidation, merger, conveyance, transfer or lease and after giving
effect thereto, no Default or Event of Default shall have occurred and be
continuing, and (iv) the Company or the surviving entity or transferee of a
transaction involving the Company would be permitted by the provisions of
Section 10.1 (a) to incur at least $1 of additional Debt owing to a Person other
than a Restricted Subsidiary. Upon consummation of any such conveyance or
transfer (other than by way of lease) of substantially all of the assets of the
Company or any successor Person, the transferor shall be released from its
obligations hereunder and under the Notes, but no such lease shall have the
effect of releasing the Company or any other Person that shall have become such
in the manner prescribed in this Section 10.6 from its liability hereunder or
under the Notes.
Section 10.7 Transfer of Assets. The Company will not, and will not
permit any Restricted Subsidiary to, Transfer assets (except assets Transferred
for Fair Market Value in the ordinary course of business); provided that the
foregoing restrictions do not apply to:
(1) the Transfer of assets (x) by the Company to a Wholly-Owned
Restricted Subsidiary, or (y) by a Restricted Subsidiary to the
Company or to another Restricted Subsidiary with respect to which the
Company shall have at least the same degree of ownership and control
as it had with respect to the transferring Restricted Subsidiary, or
(z) constituting Capital Stock of an Unrestricted Subsidiary; or
(2) the Transfer of assets for cash or other property to a Person
or Persons if all of the following conditions are met:
(i) such assets (valued at net book value at the time of such
Transfer) do not, together with all other assets of the Company and
its Restricted Subsidiaries previously Transferred (valued at net book
value at the time of their Transfer) (other than in the ordinary
course of business) within 365 days immediately preceding the date of
such Transfer, exceed
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10% of Consolidated Total Assets (determined as of the last day of the
fiscal year of the Company ending on, or most recently ended prior to,
such Transfer);
(ii) in the opinion of the board of directors of the Company, such
Transfer is for Fair Market Value and is in the best interests of the
Company; and
(iii) immediately after giving effect to such Transfer, and the
application of the proceeds thereof, no Default or Event of Default
would exist.
Computations under this Section 10.7 shall include all issues or sales
of any Capital Stock of any class (including as Capital Stock for the purposes
of this Section 10.7, any warrants, rights or options to purchase or otherwise
acquire shares or similar equity interests or other Securities exchangeable for
or convertible into shares or similar equity interests) of any Restricted
Subsidiary to any Person other than the Company or a Wholly-Owned Restricted
Subsidiary, except Capital Stock issued or sold for the purpose of qualifying
directors, or except Capital Stock issued or sold in satisfaction of the validly
pre-existing preemptive rights of minority shareholders or interest holders in
connection with the simultaneous issuance of shares to the Company and/or
Restricted Subsidiaries whereby the Company and/or such Restricted Subsidiaries
maintain their same proportionate interest in such Restricted Subsidiary.
Computations under this Section 10.7 shall not include any Transfer of
assets for Fair Market Value, to the extent that all or any portion of an amount
equal to such Fair Market Value is applied, within 365 days after the date of
such transaction, to:
(A) the purchase, acquisition or construction of similar assets
which are to be used in the business of the Company and its Restricted
Subsidiaries and are not subject to Liens not permitted pursuant to
Section 10.3; or
(B) the repayment or prepayment of Qualified Debt; provided that
the Company has, on or prior to the application of any such proceeds
to the repayment or prepayment of any other Qualified Debt, offered to
repay or prepay the Notes, pro rata with all other Qualified Debt then
being repaid or prepaid (with any such repayment or prepayment of the
Notes to be made in accordance with the terms of Section 8.3).
For purposes of this Section 10.7 the term "Qualified Debt" shall mean
unsubordinated Debt of the Company or a Restricted Subsidiary other than
(i) unsubordinated Debt owing to the Company or to any Affiliate
or Restricted Subsidiary; and
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(ii) unsubordinated Debt in respect of any revolving credit or
similar credit facility providing the Company or any Restricted
Subsidiary with the right to obtain loans or other extensions of
credit from time to time, except to the extent that in connection with
payment of such unsubordinated Debt the availability of credit under
such credit facility is permanently reduced by an amount not less than
the amount of the proceeds applied to the payment of such
unsubordinated Debt.
Section 10.8 Mining Restrictions. The Company will maintain a
controlled reserve base of sufficient mineable tonnage of coal such that the
ratio of aggregate controlled mineable tons of coal over current annual
production levels is greater than 125% of the remaining term of the Notes. For
purposes of this Section 10.7, a "controlled reserve base" of coal denotes the
aggregate of coal reserves which may be economically and legally mined by the
Company or a Restricted Subsidiary at the time of the reserve determination. In
making any determination of reserves for the purposes of this Section 10.8 the
Company may include properties ("Option Properties") which may be acquired by
the Company or a Restricted Subsidiary under a valid and enforceable option or
purchase contract which is subject to no conditions other than the payment of
the purchase price provided for under such option or contract (the "Contact
Price"), provided that to the extent and for as long as the Company shall elect
to include Option Properties in any such determination (x) an amount equal to
the Contact Price could then be incurred as Debt under the provisions of Section
10.1(a) ("Notional Debt") and (y) for all purposes of Sections 10.1(a) and
10.4(a)(ii) an amount equal to all such Notional Debt shall be considered to be
outstanding.
Section 10.9 Restricted Investments. The Company will not, and will
not permit any Restricted Subsidiary to, make any Investments other than
Permitted Investments.
In valuing any Investments for the purpose of applying the limitations
set forth in this Section 10.9 such Investments shall be taken at the original
cost thereof, without allowance for any subsequent write-offs or appreciation or
depreciation thereof, but less any amount repaid or recovered on account of
capital or principal.
For purposes of this Section 10.9, at any time when a Person becomes a
Restricted Subsidiary, all Investments of such Person at such time shall be
deemed to have been made by such Person, as a Restricted Subsidiary, at such
time.
Section 10.10 Additional Subsidiary Guarantee Agreements. The Company
will not permit any Restricted Subsidiary which is not at the time a Subsidiary
Guarantor to become obligated, subsequent to the date of Closing with respect to
any Guarantee of Debt of the Company (including Debt under the Bank Facility),
or a Restricted Subsidiary ("Other Subsidiary Guarantees") unless, concurrently
with, or prior to, becoming liable with respect to such Guarantee, such
Restricted Subsidiary shall have executed and delivered, to each holder of then
outstanding Notes, a Subsidiary Guarantee Agreement and provided to each of such
holders a legal opinion with respect thereto substantially in the form of the
opinion contemplated in Exhibit 4.4(b) with respect to such
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Restricted Subsidiary and the Subsidiary Guarantee Agreement delivered thereby.
All Other Subsidiary Guarantees will be in form and substance substantially
identical to the Subsidiary Guarantee Agreement (with only such changes as are
necessary to properly reflect the parties and Debt involved) and the
beneficiaries of such Other Subsidiary Guarantees shall have become parties to
the Intercreditor Agreement in the manner provided for therein.
Section 10.11 Nature of Business. Neither the Company nor any
Restricted Subsidiary will engage in any business if, as a result, the general
nature of the business in which the Company and its Restricted Subsidiaries,
taken as a whole, would then be engaged would be substantially changed from the
general nature of the business in which the Company and its Restricted
Subsidiaries, taken as a whole, are engaged on the date of Closing, as described
in the Memorandum.
Section 10.12 Transactions with Affiliates. Except as set forth in the
Prospectus contained in the Registration Statement under the headings "Certain
Relationships and Related Transactions" and "Conflicts of Interest and Fiduciary
Responsibilities", the Company will not and will not permit any Restricted
Subsidiary to enter into, directly or indirectly, any transaction or group of
related transactions (including without limitation the purchase, lease, sale or
exchange of properties of any kind or the rendering of any service) with any
Affiliate, except in the ordinary course and pursuant to the reasonable
requirements of the Company's or such Restricted Subsidiary's business and upon
fair and reasonable terms no less favorable (taken as a whole, as determined in
good faith by the Board of Directors of the General Partner) to the Company or
such Restricted Subsidiary than would be obtainable in a comparable arm's-length
transaction with a Person not an Affiliate.
SECTION 11. EVENTS OF DEFAULT.
An "Event of Default" shall exist if any of the following conditions
or events shall occur and be continuing:
(a) the Company defaults in the payment of any principal or Make-Whole
Amount, if any, on any Note when the same becomes due and payable, whether at
maturity or at a date fixed for prepayment or by declaration or otherwise; or
(b) the Company defaults in the payment of any interest on any Note
for more than five Business Days after the same becomes due and payable; or
(c) the Company defaults in the performance of, or compliance with,
any term contained in Section 7.1(d) or Section 10; or
(d) the Company defaults in the performance of, or compliance with,
any term contained herein (other than those referred to in paragraphs (a), (b)
and (c) of this Section 11) or in the Assumption Agreement and such default is
not remedied within 30 days after the earlier of (i) a Responsible Officer
obtaining actual knowledge of such default and (ii) the Company receiving
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written notice of such default from any holder of a Note (any such written
notice to be identified as a "notice of default" and to refer specifically to
this paragraph (d) of Section 11); or
(e) any representation or warranty made in writing by or on behalf of
the Company or the Transferee Company or any Original Subsidiary Guarantor or by
any officer of the General Partner, the Company, the Transferee Company or any
Original Subsidiary Guarantor in this Agreement, the Assumption Agreement, an
Original Subsidiary Guarantee Agreement or in any writing furnished in
connection with the transactions contemplated hereby (including, without
limitation, the assumption of all obligations of the Company under this
Agreement and the Notes by the Transferee Company), taken as a whole, proves to
have been false or incorrect in any material respect on the date as of which
made (except to the extent that any such representation or warranty relates to
any earlier date, in which case it shall have been false or incorrect in any
material respect as of such earlier date); or
(f) (i) the Company or any Restricted Subsidiary is in default (as
principal or as guarantor or other surety) in the payment of any principal of or
premium or makewhole amount or interest on any Debt that is outstanding in an
aggregate principal amount of at least $10,000,000 beyond any period of grace
provided with respect thereto, or (ii) the Company or any Restricted Subsidiary
is in default in the performance of or compliance with any term of any evidence
of any Debt of the Company or a Restricted Subsidiary in an aggregate
outstanding principal amount of at least $10,000,000 or of any mortgage,
indenture or other agreement relating thereto or any other condition exists, and
as a consequence of such default or condition such Debt has become, or has been
declared (or one more Persons are entitled to declare such Debt to be), due and
payable before its stated maturity or before its regularly scheduled dates of
payment, or (iii) as a consequence of the occurrence or continuation of any
event or condition (other than the passage of time or the right of the holder of
such Debt to convert such Debt into equity interests), (x) the Company or any
Restricted Subsidiary has become obligated to purchase or repay Debt before its
regular maturity or before its regularly scheduled dates of payment in an
aggregate outstanding principal amount of at least $10,000,000, or (y) one or
more Persons have the right to require the Company or any Restricted Subsidiary
so to purchase or repay such Debt; or
(g) the Company or the General Partner unless timely replaced by a new
General Partner to the extent permitted by the Company's Partnership Agreement
or any Restricted Subsidiary (i) is generally not paying, or admits in writing
its inability to pay, its debts as they become due, (ii) files, or consents by
answer or otherwise to the filing against it of, a petition for relief or
reorganization or arrangement or any other petition in bankruptcy, for
liquidation or to take advantage of any bankruptcy, insolvency, reorganization,
moratorium or other similar law of any jurisdiction, (iii) makes an assignment
for the benefit of its creditors, (iv) consents to the appointment of a
custodian, receiver, trustee or other officer with similar powers with respect
to it or with respect to any substantial part of its property, (v) is
adjudicated as insolvent or to be liquidated, or (vi) takes action for the
purpose of any of the foregoing; or
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(h) a court or governmental authority of competent jurisdiction enters
an order appointing, without consent by the Company or the General Partner or
any Restricted Subsidiary, a custodian, receiver, trustee or other officer with
similar powers with respect to it or with respect to any substantial part of its
property, or constituting an order for relief or approving a petition for relief
or reorganization or any other petition in bankruptcy or for liquidation or to
take advantage of any bankruptcy or insolvency law of any jurisdiction, or
ordering the dissolution, winding-up or liquidation of the Company or the
General Partner or any Restricted Subsidiary, or any such petition shall be
filed against the Company or the General Partner or any Restricted Subsidiary
and such petition shall not be dismissed or appointment discharged within 60
days unless, in the case of the General Partner, timely replaced by a new
General Partner to the extent permitted by the Company's Partnership Agreement;
or
(i) a final judgment or judgments for the payment of money aggregating
in excess of $10,000,000 are rendered against one or more of the Company and its
Restricted Subsidiaries and which judgments are not, within 60 days after entry
thereof, bonded, discharged or stayed pending appeal, or are not discharged
within 60 days after the expiration of such stay; or
(j) any Subsidiary Guarantee Agreement shall cease to be in full force
and effect in any material respect or shall be declared by a court or
Governmental Authority to be void, voidable or unenforceable against the
applicable Subsidiary Guarantor, or the Company, any Subsidiary or the MLP (or
any Person on behalf of any thereof) asserts any of the foregoing in writing or
before any court or Governmental Authority; or
(k) if (i) any Plan shall fail to satisfy the minimum funding
standards of ERISA or the Code for any plan year or part thereof or a waiver of
such standards or extension of any amortization period is sought or granted
under Section 412 of the Code, (ii) a notice of intent to terminate any Plan
shall have been or is reasonably expected to be filed with the PBGC or the PBGC
shall have instituted proceedings under Section 4042 of ERISA to terminate or
appoint a trustee to administer any Plan or the PBGC shall have notified the
Company or any ERISA Affiliate that a Plan may become a subject of any such
proceedings, (iii) the aggregate "amount of unfunded benefit liabilities"
(within the meaning of Section 4001(a)(18) of ERISA) under all Plans, determined
in accordance with Title IV of ERISA, shall exceed $10,000,000, (iv) the Company
or any ERISA Affiliate shall have incurred or is reasonably expected to incur
any liability pursuant to Title I or IV of ERISA or the penalty or excise tax
provisions of the Code relating to employee benefit plans, (v) the Company or
any ERISA Affiliate withdraws from any Multiemployer Plan, or (vi) the Company
or any Subsidiary establishes or amends any employee welfare benefit plan that
provides post-employment welfare benefits in a manner that would increase the
liability of the Company or any Restricted Subsidiary thereunder; and any such
event or events described in clauses (i) through (vi) above, either individually
or together with any other such event or events, could reasonably be expected to
have a Material Adverse Effect. As used in this Section 11(k) the terms
"employee benefit plan" and "employee welfare benefit plan" shall have the
respective meanings assigned to such terms in Section 3 of ERISA; or
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(l) if the Company's Partnership Agreement shall be amended,
supplemented or restated in any manner that is reasonably likely to result in a
Material Adverse Effect or which is otherwise materially adverse to the
interests of the holders of the Notes; or
(m) if the MLP Agreement shall be amended, supplemented or restated in
any manner that is reasonably likely to result in a Material Adverse Effect or
which is otherwise materially adverse to the interests of the holders of the
Notes; or
(n) if the MLP or any entity controlled by the MLP shall purchase or
otherwise acquire, directly or indirectly, any of the outstanding Notes except,
in the case of the Company, upon the payment or prepayment of the Notes in
accordance with the terms of this Agreement.
SECTION 12. REMEDIES ON DEFAULT, ETC.
Section 12.1 Acceleration. (a) If an Event of Default with respect to
the Company or the General Partner described in paragraph (g) or (h) of Section
11 (other than an Event of Default described in clause (i) of paragraph (g) or
described in clause (vi) of paragraph (g) by virtue of the fact that such clause
encompasses clause (i) of paragraph (g)) has occurred, all the Notes then
outstanding shall automatically become immediately due and payable.
(b) If any other Event of Default has occurred and is continuing, any
holder or holders of more than 50% in principal amount of the Notes at the time
outstanding may at any time at its or their option, by notice or notices to the
Company, declare all the Notes then outstanding to be immediately due and
payable.
(c) If any Event of Default described in paragraph (a) or (b) of
Section 11 has occurred and is continuing, any holder or holders of Notes at the
time outstanding affected by such Event of Default may at any time, at its or
their option, by notice or notices to the Company, declare all the Notes held by
it or them to be immediately due and payable.
Upon any Note's becoming due and payable under this Section 12.1,
whether automatically or by declaration, such Note will forthwith mature and the
entire unpaid principal amount of such Note, plus (i) all accrued and unpaid
interest thereon and (ii) the Make-Whole Amount determined in respect of such
principal amount (to the full extent permitted by applicable law), shall all be
immediately due and payable, in each and every case without presentment, demand,
protest or further notice, all of which are hereby waived. The Company
acknowledges, and the parties hereto agree, that each holder of a Note has the
right to maintain its investment in the Notes free from repayment by the Company
(except as herein specifically provided for) and that the provision for payment
of a Make-Whole Amount by the Company in the event that the Notes are prepaid or
are accelerated as a result of an Event of Default, is intended to provide
compensation for the deprivation of such right under such circumstances.
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Section 12.2 Other Remedies. If any Default or Event of Default has
occurred and is continuing, and irrespective of whether any Notes have become or
have been declared immediately due and payable under Section 12. 1, the holder
of any Note at the time outstanding may proceed to protect and enforce the
rights of such holder by an action at law, suit in equity or other appropriate
proceeding, whether for the specific performance of any agreement contained
herein or in any Note, or for an injunction against a violation of any of the
terms hereof or thereof, or in aid of the exercise of any power granted hereby
or thereby or by law or otherwise.
Section 12.3 Rescission. At any time after any Notes have been
declared due and payable pursuant to clause (b) or (c) of Section 12.1, the
holders of a majority in principal amount of the Notes then outstanding, by
written notice to the Company, may rescind and annul any such declaration and
its consequences if (a) the Company has paid all overdue interest on the Notes,
all principal of and Make-Whole Amount, if any, on any Notes that are due and
payable and are unpaid other than by reason of such declaration, and all
interest on such overdue principal and Make-Whole Amount, if any, and (to the
extent permitted by applicable law) any overdue interest in respect of the
Notes, at the Default Rate, (b) all Events of Default and Defaults, other than
non-payment of amounts that have become due solely by reason of such
declaration, have been cured or have been waived pursuant to Section 17, and (c)
no judgment or decree has been entered for the payment of any monies due
pursuant hereto or to the Notes. No rescission and annulment under this Section
12.3 will extend to or affect any subsequent Event of Default or Default or
impair any right consequent thereon.
Section 12.4 No Waivers or Election of Remedies, Expenses, Etc. No
course of dealing and no delay on the part of any holder of any Note in
exercising any right, power or remedy shall operate as a waiver thereof or
otherwise prejudice such holder's rights, powers or remedies. No right, power or
remedy conferred by this Agreement or by any Note upon any holder thereof shall
be exclusive of any other right, power or remedy referred to herein or therein
or now or hereafter available at law, in equity, by statute or otherwise.
Without limiting the obligations of the Company under Section 15, the Company
will pay to the holder of each Note on demand such further amount as shall be
sufficient to cover all costs and expenses of such holder incurred in any
enforcement or collection under this Section 12, including, without limitation,
reasonable attorneys' fees, expenses and disbursements.
SECTION 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.
Section 13.1 Registration of Notes. The Company shall keep at its
principal executive office a register for the registration and registration of
transfers of Notes. The name and address of each holder of one or more Notes,
each transfer thereof and the name and address of each transferee of one or more
Notes shall be registered in such register. Prior to due presentment for
registration of transfer, the Person in whose name any Note shall be registered
shall be deemed and treated as the owner and holder thereof for all purposes
hereof, and the Company shall not be affected by any notice or knowledge to the
contrary. The Company shall give to any holder of a Note that is an
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Institutional Investor promptly upon request therefor, a complete and correct
copy of the names and addresses of all registered holders of Notes.
Section 13.2 Transfer and Exchange of Notes. Upon surrender of any
Note at the principal executive office of the Company for registration of
transfer or exchange (and in the case of a surrender for registration of
transfer, duly endorsed or accompanied by a written instrument of transfer duly
executed by the registered holder of such Note or its attorney duly authorized
in writing and accompanied by the address for notices of each transferee of such
Note or part thereof), the Company shall execute and deliver, at the Company's
expense (except as provided below), one or more new Notes (as requested by the
holder thereof) in exchange therefor, in an aggregate principal amount equal to
the unpaid principal amount of the surrendered Note. Each such new Note shall be
payable to such Person as such holder may request and shall be substantially in
the form of Notes being surrendered as set forth in Exhibit 1. Each such new
Note shall be dated and bear interest from the date to which interest shall have
been paid on the surrendered Note or dated the date of the surrendered Note if
no interest shall have been paid thereon. The Company may require payment of a
sum sufficient to cover any stamp tax or governmental charge imposed in respect
of any such transfer of Notes. Notes shall not be transferred in denominations
of less than $1,000,000, provided that if necessary to enable the registration
of transfer by a holder of its entire holding of Notes, one Note may be in a
denomination of less than $1,000,000. Any transferee, by its acceptance of a
Note registered in its name (or the name of its nominee), shall be deemed to
have made the representation set forth in Section 6.2.
Section 13.3 Replacement of Notes. Upon receipt by the Company of
evidence reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of any Note (which evidence shall be, in the case of
an Institutional Investor, notice from such Institutional Investor of such
ownership and such loss, theft, destruction or mutilation), and
(a) in the case of loss, theft or destruction, of indemnity reasonably
satisfactory to it (provided that if the holder of such Note is, or is a nominee
for, an original Purchaser or another holder of a Note with a minimum net worth
of at least $200,000,000, such Person's own unsecured agreement of indemnity
shall be deemed to be satisfactory), or
(b) in the case of mutilation, upon surrender and cancellation
thereof,
the Company at its own expense shall execute and deliver, in lieu thereof, a new
Note, dated and bearing interest from the date to which interest shall have been
paid on such lost, stolen, destroyed or mutilated Note or dated the date of such
lost, stolen, destroyed or mutilated Note if no interest shall have been paid
thereon.
Section 13.4 Name of Company. Notes delivered pursuant to this Section
13 subsequent to the effectiveness of the Assumption Agreement shall be executed
by, and be issued in the name
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Alliance Resource GP, LLC Note Purchase Agreement
of, Alliance Resource Operating Partners, L.P., or its successor as obligor
under this Agreement and the Notes.
SECTION 14. PAYMENTS ON NOTES.
Section 14.1 Place of Payment. Subject to Section 14.2, payments of
principal, Make Whole Amount, if any, and interest becoming due and payable on
the Notes shall be made in New York City, New York at the principal office of
The Chase Manhattan Bank in such jurisdiction. The Company may at any time, by
notice to each holder of a Note, change the place of payment of the Notes so
long as such place of payment shall be either the principal office of the
Company in New York State or the principal office of a bank or trust company in
New York State.
Section 14.2 Home Office Payment. So long as any Purchaser or such
Purchaser's nominee shall be the holder of any Note, and notwithstanding
anything contained in Section 14.1 or in such Note to the contrary, the Company
will pay all sums becoming due on such Note for principal, Make-Whole Amount, if
any, and interest by the method and at the address specified for such purpose
for such Purchaser on Schedule A, or by such other method or at such other
address as such Purchaser shall have from time to time specified to the Company
in writing for such purpose, without the presentation or surrender of such Note
or the making of any notation thereon, except that upon written request of the
Company made concurrently with or reasonably promptly after payment or
prepayment in full of any Note, such Purchaser shall surrender such Note for
cancellation, reasonably promptly after any such request, to the Company at its
principal executive office or at the place of payment most recently designated
by the Company pursuant to Section 14.1. Prior to any sale or other disposition
of any Note held by any Purchaser or such Purchaser's nominee such Purchaser
will, at its election, either endorse thereon the amount of principal paid
thereon and the last date to which interest has been paid thereon or surrender
such Note to the Company in exchange for a new Note or Notes pursuant to Section
13.2. The Company will afford the benefits of this Section 14.2 to any
Institutional Investor that is the direct or indirect transferee of any Note
purchased by any Purchaser under this Agreement and that has made the same
agreement relating to such Note as such Purchaser has made in this Section 14.2.
SECTION 15. EXPENSES, ETC.
Section 15.1 Transaction Expenses. Whether or not the transactions
contemplated hereby are consummated, the Company will pay all costs and expenses
(including attorneys' fees of a special counsel and, if reasonably required,
local or other counsel) incurred by each Purchaser or holder of a Note in
connection with such transactions and in connection with any amendments, waivers
or consents under or in respect of this Agreement or the Notes (whether or not
such amendment, waiver or consent becomes effective), including, without
limitation: (a) the costs and expenses incurred in enforcing or defending (or
determining whether or how to enforce or defend) any rights under this Agreement
or the Notes or in responding to any subpoena or other legal process or informal
investigative demand issued in connection with this Agreement or the Notes, or
by
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Alliance Resource GP, LLC Note Purchase Agreement
reason of being a holder of any Note, and (b) the costs and expenses, including
financial advisors' fees, incurred in connection with the insolvency or
bankruptcy of the Company or any Subsidiary or in connection with any work-out
or restructuring of the transactions contemplated hereby and by the Notes. The
Company shall not, in connection with any of the matters described in this
Section 15.1, be liable for the costs and expenses of more than one separate
legal firm, and separate local counsel as reasonably required, unless a holder
of a Note reasonably determines that its interests as such a holder differ from
the interests of other holders of Notes so as to require separate legal advice.
The Company will pay, and will save each Purchaser and each other holder of a
Note harmless from, all claims in respect of any fees, costs or expenses if any,
of brokers and finders (other than those retained by such Purchaser or holder).
Section 15.2 Survival. The obligations of the Company under this
Section 15 will survive the payment or transfer of any Note, the enforcement,
amendment or waiver of any provision of this Agreement or the Notes, and the
termination of this Agreement.
SECTION 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.
All representations and warranties contained herein shall survive the
execution and delivery of this Agreement and the Notes, the purchase or transfer
by any Purchaser of any Note or portion thereof or interest therein and the
payment of any Note, and may be relied upon by any subsequent holder of a Note,
regardless of any investigation made at any time by or on behalf of such
Purchaser or any other holder of a Note. All statements contained in any
certificate or other instrument delivered by or on behalf of the Company
pursuant to this Agreement shall be deemed representations and warranties of the
Company under this Agreement. Subject to the preceding sentence, this Agreement
and the Notes embody the entire agreement and understanding between each
Purchaser and the Company and supersede all prior agreements and understandings
relating to the subject matter hereof.
SECTION 17. AMENDMENT AND WAIVER.
Section 17.1 Requirements. This Agreement and the Notes may be
amended, and the observance of any term hereof or of the Notes may be waived
(either retroactively or prospectively), with (and only with) the written
consent of the Company and the Required Holders, except that (a) no amendment or
waiver of any of the provisions of Section 1, 2, 3, 4, 5, 6 or 21 hereof, or any
defined term (as it is used therein), will be effective as to any Purchaser
unless consented to by such Purchaser in writing, and (b) no such amendment or
waiver may, without the written consent of the holder of each Note at the time
outstanding affected thereby, (i) subject to the provisions of Section 12
relating to acceleration or rescission, change the amount or time of any
prepayment or payment of principal of, or change the rate or change the time of
payment or method of computation of interest or of the Make-Whole Amount on, the
Notes, (ii) change the percentage of the principal
40
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Alliance Resource GP, LLC Note Purchase Agreement
amount of the Notes the holders of which are required to consent to any such
amendment or waiver, or (iii) amend any of Sections 8.11(a), 11(b), 12, 17 or
20.
Section 17.2 Solicitation of Holders of Notes.
(a) Solicitation. The Company will provide each holder of the Notes
(irrespective of the amount of Notes then owned by it) with sufficient
information, sufficiently far in advance of the date a decision is required, to
enable such holder to make an informed and considered decision with respect to
any proposed amendment, waiver or consent in respect of any of the provisions
hereof or of the Notes. The Company will deliver executed or true and correct
copies of each amendment, waiver or consent effected pursuant to the provisions
of this Section 17 to each holder of outstanding Notes promptly following the
date on which it is executed and delivered by, or receives the consent or
approval of, the requisite holders of Notes.
(b) Payment. The Company will not directly or indirectly pay or cause
to be paid any remuneration, whether by way of supplemental or additional
interest, fee or otherwise, or grant any security, to any holder of Notes as
consideration for or as an inducement to the entering into by any holder of
Notes of any waiver or amendment of any of the terms and provisions hereof or of
the Notes unless such remuneration is concurrently paid, or security is
concurrently granted, on the same terms, ratably to each holder of Notes then
outstanding even if such holder did not consent to such waiver or amendment.
Section 17.3 Binding Effect, Etc. Any amendment or waiver consented to
as provided in this Section 17 applies equally to all holders of Notes and is
binding upon them and upon each future holder of any Note and upon the Company
without regard to whether such Note has been marked to indicate such amendment
or waiver. No such amendment or waiver will extend to or affect any obligation,
covenant, agreement, Default or Event of Default not expressly amended or waived
or impair any right consequent thereon. No course of dealing between the Company
and the holder of any Note nor any delay in exercising any rights hereunder or
under any Note shall operate as a waiver of any rights of any holder of such
Note. As used herein, the term "this Agreement" and references thereto shall
mean this Agreement as it may from time to time be amended or supplemented.
Section 17.4 Notes Held by Company, Etc. Solely for the purpose of
determining whether the holders of the requisite percentage of the aggregate
principal amount of Notes then outstanding approved or consented to any
amendment, waiver or consent to be given under this Agreement or the Notes, or
have directed the taking of any action provided herein or in the Notes to be
taken upon the direction of the holders of a specified percentage of the
aggregate principal amount of Notes then outstanding, Notes directly or
indirectly owned by the Company or any of its Affiliates or Restricted
Subsidiaries shall be deemed not to be outstanding.
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Alliance Resource GP, LLC Note Purchase Agreement
SECTION 18. NOTICES.
All notices and communications provided for hereunder shall be in
writing and sent (a) by telefacsimile if the sender on the same day sends a
confirming copy of such notice by a recognized overnight delivery service
(charges prepaid), or (b) by registered or certified mail with return receipt
requested (postage prepaid), or (c) by a recognized overnight delivery service
(with charges prepaid). Any such notice must be sent:
(i) if to a Purchaser or such Purchaser's nominee, to such
Purchaser or such Purchaser's nominee at the address specified for
such communications for such Purchaser signature on Schedule A, or at
such other address as such Purchaser or such Purchaser's nominee shall
have specified to the Company in writing,
(ii) if to any other holder of any Note, to such holder at such
address as such other holder shall have specified to the Company in
writing, or
(iii) if to the Company, to the Company at
ALLIANCE RESOURCE GP, LLC
Attention:
, or at such other address as the Company shall have specified to the
holder of each Note in writing.
Notices under this Section 18 will be deemed given only when actually received.
SECTION 19. REPRODUCTION OF DOCUMENTS.
This Agreement and all documents relating thereto, including, without
limitation, (a) consents, waivers and modifications that may hereafter be
executed, (b) documents received by each Purchaser at the Closing (except the
Notes themselves), and (c) financial statements, certificates and other
information previously or hereafter furnished to each Purchaser, may be
reproduced by such Purchaser by any photographic, photostatic, microfilm,
microcard, miniature photographic or other similar process and such Purchaser
may destroy any original document so reproduced. The Company agrees and
stipulates that, to the extent permitted by applicable law, any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by such Purchaser in the
regular course of business) and any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence. This
Section 19 shall not prohibit the
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Alliance Resource GP, LLC Note Purchase Agreement
Company or any other holder of Notes from contesting any such reproduction to
the same extent that it could contest the original, or from introducing evidence
to demonstrate the inaccuracy of any such reproduction.
SECTION 20. CONFIDENTIAL INFORMATION.
For the purposes of this Section 20, "Confidential Information" means
information delivered to any Purchaser by or on behalf of the Company, any
Subsidiary, the MLP, the General Partner, the Special General Partner or
Alliance Coal Corporation in connection with the transactions contemplated by or
otherwise pursuant to this Agreement that is proprietary in nature and that was
clearly marked or labeled or otherwise adequately identified in writing when
received by such Purchaser as being confidential information of the Company,
such Subsidiary or such Affiliate, provided that such term does not include
information that (a) was publicly known or otherwise known to such Purchaser
prior to the time of such disclosure, (b) subsequently becomes publicly known
through no act or omission by such Purchaser or any Person acting on such
Purchaser's behalf, (c) otherwise becomes known to such Purchaser other than
through disclosure by the Company or any Subsidiary or (d) constitutes financial
statements delivered to such Purchaser under Section 7.1 that are otherwise
publicly available. Each Purchaser will maintain the confidentiality of such
Confidential Information in accordance with procedures adopted by such Purchaser
in good faith to protect confidential information of third parties delivered to
such Purchaser, provided that such Purchaser may deliver or disclose
Confidential Information to (i) such Purchaser's directors, trustees, officers,
employees, agents, attorneys and affiliates (to the extent such disclosure
reasonably relates to the administration of the investment represented by such
Purchaser's Notes), (ii) such Purchaser's financial advisors and other
professional advisors who agree to hold confidential the Confidential
Information substantially in accordance with the terms of this Section 20, (iii)
any other holder of any Note, (iv) any Institutional Investor to which such
Purchaser sells or offers to sell such Note or any part thereof or any
participation therein (if such Person has agreed with the Company in writing
prior to its receipt of such Confidential Information to be bound by the
provisions of this Section 20 by delivery of a letter substantially in the form
of Schedule 20 hereto), (v) any Person from which such Purchaser offers to
purchase any security of the Company (if such Person has agreed with the Company
in writing prior to its receipt of such Confidential Information to be bound by
the provisions of this Section 20 by delivery of a letter substantially in the
form of Schedule 20 hereto), (vi) any federal or state regulatory authority
having jurisdiction over such Purchaser, (vii) the National Association of
Insurance Commissioners or any similar organization, or any nationally
recognized rating agency that requires access to information about such
Purchaser's investment portfolio, or (viii) any other Person to which such
delivery or disclosure may be necessary or appropriate (w) to effect compliance
with any law, rule, regulation or order applicable to such Purchaser, (x) in
response to any subpoena or other legal process, (y) in connection with any
litigation to which such Purchaser is a party or (z) if an Event of Default has
occurred and is continuing, to the extent such Purchaser may reasonably
determine such delivery and disclosure to be necessary or appropriate in the
enforcement or for the protection of the rights and remedies under such
Purchaser's Notes and this Agreement. Each holder of a Note, by its acceptance
of a Note, will
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Alliance Resource GP, LLC Note Purchase Agreement
be deemed to have agreed to be bound as a "Purchaser" by and to be entitled as
such to the benefits of this Section 20 as though it were a party to this
Agreement. On reasonable request by the Company in connection with the delivery
to any holder of a Note of information required to be delivered to such holder
under this Agreement or requested by such holder (other than a holder that is a
party to this Agreement or its nominee), such holder will enter into an
agreement with the Company embodying the provisions of this Section 20.
SECTION 21. SUBSTITUTION OF PURCHASER.
Each Purchaser shall have the right to substitute any one of such
Purchaser's Affiliates as the purchaser of the Notes that such Purchaser has
agreed to purchase hereunder, by written notice to the Company, which notice
shall be signed by both such Purchaser and such Purchaser's Affiliate, shall
contain such Affiliate's agreement to be bound by this Agreement and shall
contain a confirmation by such Affiliate of the accuracy with respect to it of
the representations set forth in Section 6. Upon receipt of such notice,
wherever the word "Purchaser" is used in this Agreement (other than in this
Section 21), such word shall be deemed to refer to such Affiliate in lieu of
such Purchaser. In the event that such Affiliate is so substituted as a
purchaser hereunder and such Affiliate thereafter transfers to such Purchaser
all of the Notes then held by such Affiliate, upon receipt by the Company of
notice of such transfer, wherever the word "Purchaser" is used in this Agreement
(other than in this Section 21), such word shall no longer be deemed to refer to
such Affiliate, but shall refer to such Purchaser, and such Purchaser shall have
all the rights of an original holder of the Notes under this Agreement.
SECTION 22. MISCELLANEOUS.
Section 22.1 Successors and Assigns. All covenants and other
agreements contained in this Agreement by or on behalf of any of the parties
hereto bind and inure to the benefit of their respective successors and assigns
(including, without limitation, any subsequent holder of a Note) whether so
expressed or not.
Section 22.2 Payments Due on Non-Business Days. Anything in this
Agreement or the Notes to the contrary notwithstanding, any payment of principal
of, or Make-Whole Amount or interest on, any Note that is due on a date other
than a Business Day shall be made on the next succeeding Business Day without
including the additional days elapsed in the computation of the interest payable
on such next succeeding Business Day.
Section 22.3 Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall (to the full extent permitted by law)
not invalidate or render unenforceable such provision in any other jurisdiction.
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Alliance Resource GP, LLC Note Purchase Agreement
Section 22.4 Construction. Each covenant contained herein shall be
construed (absent express provision to the contrary) as being independent of
each other covenant contained herein, so that compliance with any one covenant
shall not (absent such an express contrary provision) be deemed to excuse
compliance with any other covenant. Where any provision herein refers to action
to be taken by any Person, or which such Person is prohibited from taking, such
provision shall be applicable whether such action is taken directly or
indirectly by such Person.
Section 22.5 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original but all of which
together shall constitute one instrument. Each counterpart may consist of a
number of copies hereof, each signed by less than all, but together signed by
all, of the parties hereto.
Section 22.6 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY,
THE LAW OF THE STATE OF NEW YORK.
Section 22.7 Recourse Only to the Company and the Subsidiary
Guarantors; Non-Recourse to the General Partner and Associated Persons. Upon the
Assumption Agreement becoming effective as provided in Section 6 thereof, each
Purchaser agrees on behalf of itself and its successors, assigns and legal
representatives, and each subsequent holder of any Note, by acceptance thereof
shall be deemed so to have agreed, that neither the General Partner nor any
Person (other than the Transferee Company or a Subsidiary Guarantor or the
Special General Partner) which is a partner, shareholder, member, owner,
officer, director, supervisor, trustee or other principal (collectively,
"Associated Persons") of the Transferee Company or of the General Partner or of
a Subsidiary Guarantor, or any of their respective successors or assigns (as
such), shall have any personal liability for the payment or performance of any
of the Company's obligations hereunder or under any of the Notes and no monetary
or other judgment shall be sought or enforced against the General Partner or any
of such Associated Persons or any of their respective successors or assigns (as
such). Notwithstanding the foregoing, no Purchaser shall be deemed barred by
this Section 22.7 from asserting any claim against any Person based upon an
allegation of fraud or misrepresentation.
* * * * *
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Alliance Resource GP, LLC Note Purchase Agreement
The execution hereof by the Purchasers shall constitute a contract
among the Company and the Purchasers for the uses and purposes hereinabove set
forth.
Very truly yours,
ALLIANCE RESOURCE GP, LLC
By: Alliance Coal Corporation, its sole
member
By
------------------------------------
Its
-----------------------------------
<PAGE> 52
Alliance Resource GP, LLC Note Purchase Agreement
Accepted as of August 1, 1999:
[VARIATION]
By
------------------------------------
Name:
Title:
<PAGE> 53
PRINCIPAL AMOUNT
OF NOTES TO BE
PURCHASED
NAME OF PURCHASER
SCHEDULE A
(TO NOTE PURCHASE AGREEMENT)
A-1
<PAGE> 54
DEFINED TERMS
GENERAL PROVISIONS
Where the character or amount of any asset or liability or item of
income or expense is required to be determined or any consolidation or other
accounting computation is required to be made for the purposes of this
Agreement, the same shall be done in accordance with GAAP, to the extent
applicable, except where such principles are inconsistent with the express
requirements of this Agreement. All express or implied references herein to "the
Company and the Restricted Subsidiaries" for the purposes of computing the
consolidated financial position, results of operations, or other balance sheet
or financial statement item (including, without limitation, Available Cash,
Consolidated Cash Flow, Consolidated Income Tax Expense, Consolidated Interest
Expense, Consolidated Net Income, Consolidated Non-Cash Charges and Consolidated
Total Assets) shall be deemed to include only the Company and the Restricted
Subsidiaries as separate legal entities (and for the purpose of such
computations all such Restricted Subsidiaries shall be treated as being
Wholly-Owned subsidiaries) and, unless otherwise expressly provided herein,
shall not include the financial position, results of operations, or other such
items, of any other Person (including, without limitation, an Unrestricted
Subsidiary), whether or not, in any particular instance, such accounting
treatment would be in accordance with GAAP.
DEFINITIONS
As used herein (including the Schedules hereto), the following terms
have the respective meanings set forth below or set forth in the Section hereof
following such term:
"Affiliate" means, at any time, and with respect to any Person, (a)
any other Person that at such time directly or indirectly through one or more
intermediaries Controls, or is Controlled by, or is under common Control with,
such first Person, (b) any Person beneficially owning or holding, directly or
indirectly, 10% or more of the Capital Stock of such first Person or any
subsidiary of such first Person or any corporation of which such first Person
and the subsidiaries of such first Person beneficially own or hold, in the
aggregate, directly or indirectly, 10% or more of the Capital Stock, and (c) any
officer or director of such first Person. As used in this definition, "Control"
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise. Unless the context
otherwise clearly requires, any reference to an "Affiliate" is a reference to an
Affiliate of the Company; provided, however, the Company shall not be an
Affiliate of any Restricted Subsidiary and no Restricted Subsidiary shall be an
Affiliate of the Company or any other Restricted Subsidiary.
SCHEDULE B
(TO NOTE PURCHASE AGREEMENT)
B-1
<PAGE> 55
"Asset Acquisition" means (a) an Investment by the Company or any
Restricted Subsidiary in any other Person pursuant to which such Person shall
become a Restricted Subsidiary or shall be merged with or into the Company or
any Restricted Subsidiary, (b) the acquisition by the Company or any Restricted
Subsidiary of the assets of any Person (other than a Restricted Subsidiary)
which constitute all or substantially all of the assets of such Person or (c)
the acquisition by the Company or any Restricted Subsidiary of any division or
line of business of any Person (other than a Restricted Subsidiary).
"Assumption Agreement" is defined in Schedule 4.7(d).
"Assumption Conditions" is defined in Section 4.7(d).
"Available Cash" means, with respect to any fiscal quarter ending
prior to the Liquidation Date,
(a) the sum of (i) all cash and cash equivalents of the
Partnership Group on hand at the end of such fiscal quarter, and (ii)
all additional cash and cash equivalents of the Partnership Group on
hand on the date of determination of Available Cash with respect to
such fiscal quarter resulting from Working Capital Borrowings made
subsequent to the end of such fiscal quarter, less
(b) the amount of any cash reserves that is necessary or
appropriate in the reasonable discretion of the General Partner to (i)
provide for the proper conduct of the business of the Partnership
Group (including reserves for future capital expenditures and for
anticipated future credit needs of the Partnership Group) subsequent
to such fiscal quarter, (ii) comply with applicable law or any loan
agreement, security agreement, mortgage, debt installment or other
agreement or obligation to which any Group Member is a party or by
which it is bound or its assets are subject or (iii) provide funds for
distributions under Section 6.4 or 6.5 of the MLP Agreement in respect
of any one or more of the next four fiscal quarters; provided,
however, that the General Partner may not establish cash reserves
pursuant to (iii) above if the effect of such reserves would be that
the MLP is unable to distribute the Minimum Quarterly Distribution on
all Common Units, plus any Cumulative Common Unit Arrearage on all
Common Units, with respect to such fiscal quarter, and provided
further that disbursements made by a Group Member or cash reserves
established, increased or reduced after the end of such fiscal quarter
but on or before the date of determination of Available Cash with
respect to such fiscal quarter shall be deemed to have been made,
established, increased or reduced, for purposes of determining
Available Cash, within such fiscal quarter if the General Partner so
determines.
Notwithstanding the foregoing, "Available Cash" with respect to the
fiscal quarter in which the Liquidation Date occurs and any subsequent Quarter
shall equal zero.
B-2
<PAGE> 56
For purposes of the definition of "Available Cash", the following
terms shall have the following meanings:
"Common Unit" has the meaning assigned to such term in the MLP
Agreement.
"Cumulative Common Unit Arrearage" has the meaning assigned to
such term in the MLP Agreement.
"Group Member" means a member of the Partnership Group.
"Liquidation Date" means (a) in the case of an event giving rise
to the dissolution of the Transferee Company of the type described in
clauses (a) and (b) of the first sentence of Section 12.2 of the
Partnership Agreement, the date on which the applicable time period
during which the partners of the Transferee Company have the right to
elect to reconstitute the Transferee Company and continue its business
has expired without such an election being made, and (b) in the case
of any other event giving rise to the dissolution of the Transferee
Company, the date on which such event occurs.
"Minimum Quarterly Distribution" has the meaning assigned to such
term in the MLP Agreement.
"MLP Agreement" means the Amended and Restated Agreement of
Limited Partnership of the MLP, as it may be amended, supplemented or
restated from time to time without causing an Event of Default under
Section 11(l).
"Partnership Agreement" means the Agreement of Limited
Partnership of the Transferee Company, as it may be amended,
supplemented or restated from time to time without causing an Event of
Default under Section 11(m).
"Partnership Group" means the Transferee Company and all
Subsidiaries, treated as a single consolidated entity.
"Working Capital Borrowings" means borrowings under the Bank
Facility giving rise to Debt incurred for working capital purposes and
for the purpose of making distributions to the MLP.
"Bank Facility" means the Debt facility made available to the company
for (i) the purchase of Qualifying Securities and/or (ii) for the provision of
working capital, and/or (iii) the provision of additional funds for general
partnership purposes, all pursuant to the [Credit Agreement] dated __________,
1999 between Alliance Resource GP, LLC and the banks named therein, as from time
to time amended, supplemented or refinanced and any other credit agreements from
time to time entered into by the Company for the purchase of Qualifying
Securities and/or the provision of working capital and/or the provision of
additional funds for general partnership purposes.
B-3
<PAGE> 57
"Business Day" means (a) for the purposes of Section 8.7 only, any day
other than a Saturday, a Sunday or a day on which commercial banks in New York
City are required or authorized to be closed, and (b) for the purposes of any
other provisions of this Agreement, any day other than a Saturday, a Sunday or a
day on which commercial banks in Tulsa, Oklahoma or New York City are required
or authorized to be closed.
"Capital Lease" means, at any time, a lease with respect to which the
lessee is required concurrently to recognize the acquisition of an asset and the
incurrence of a liability in accordance with GAAP.
"Capital Lease Obligation" means, with respect to any Person and a
Capital Lease, the amount of the obligation of such Person as the lessee under
such Capital Lease which would, in accordance with GAAP, appear as a liability
on a balance sheet of such Person.
"Capital Stock" shall mean, with respect to any Person, any and all
shares, units representing interests, participations, rights in or other
equivalents (however designated) of such Person's capital stock, including, (x)
with respect to partnerships, partnership interests (whether general or limited)
and any other interest or participation that confers upon a Person the right to
receive a share of the profits and losses of, or distributions of assets of,
such partnership, (y) with respect to limited liability companies, member
interests, and (z) with respect to any Person, any rights (other than debt
securities convertible into capital stock), warrants or options exchangeable for
or convertible into such capital stock.
"Closing" is defined in Section 3.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, and the rules and regulations promulgated thereunder from time to time.
"Company" means Alliance Resource GP, LLC, a Delaware limited
liability company, subject however to the provisions of Section 1(b) of the
Assumption Agreement from and after the time at which the same becomes effective
in accordance with Section 6 thereof and the provisions of Section 10.6.
"Company Notice" is defined in Section 8.3.
"Confidential Information" is defined in Section 20.
"Consolidated Adjusted Restricted Subsidiary Debt" means all Debt of
Restricted Subsidiaries other than
(i) Debt owing to the Company or to a Restricted Subsidiary with
respect to which the Company shall have at least the same degree of
ownership and control as it does with respect to the indebted
Restricted Subsidiary; and
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(ii) Debt consisting of Guaranties by Subsidiary Guarantors of
Debt of the Company or of other Restricted Subsidiaries which are
executed and remain outstanding in conformity with the provisions of
Section 10.10.
"Consolidated Cash Flow" means, as of any date of determination for
any applicable period, the excess, if any, of (a) the sum of, without
duplication, the amounts for such period, taken as a single accounting period,
of (i) Consolidated Net Income for such period, plus (ii) to the extent deducted
in the determination of Consolidated Net Income for such period, without
duplication, (A) Consolidated Non-Cash Charges, (B) Consolidated Interest
Expense and (C) Consolidated Income Tax Expense, over (b) any non-cash items
increasing Consolidated Net Income for such period to the extent that such items
constitute reversals of Consolidated Non-Cash Charges for a previous period and
which were included in the computation of Consolidated Cash Flow for such
previous period pursuant to the provisions of the preceding clause (a), provided
that in calculating Consolidated Cash Flow for any such period, (1) full effect
shall be given to the proviso to the definition of "Consolidated Interest
Expense" set forth below and (2) Consolidated Cash Flow shall be calculated
after giving effect on a pro forma basis for such period, in all respects in
accordance with GAAP, to any Transfer or Asset Acquisitions (including, without
limitation any Asset Acquisition by the Company or any Restricted Subsidiary
giving rise to the need to determine Consolidated Cash Flow as a result of the
Company or one of its Restricted Subsidiaries (including any Person that becomes
a Restricted Subsidiary as result of any such Asset Acquisition) incurring,
assuming or otherwise becoming liable for any Debt) occurring during the period
commencing on the first day of such period to and including the date of the
transaction, as if such Transfer or Asset Acquisition occurred on the first day
of such period.
"Consolidated Income Tax Expense" means, with respect to any period,
all provisions for Federal, state, local and foreign income taxes of the Company
and its Restricted Subsidiaries for such period as determined on a consolidated
basis in accordance with GAAP.
"Consolidated Interest Expense" means, as of the date of any
determination for any applicable period, the sum (without duplication) of the
following (in each case, eliminating all offsetting debits and credits between
the Company and its Restricted Subsidiaries and all other items required to be
eliminated in the course of the preparation of consolidated financial statements
of the Company and its Restricted Subsidiaries in accordance with GAAP): (a) all
interest in respect of Debt of the Company and its Restricted Subsidiaries
whether earned or accrued (including non-cash interest payments and imputed
interest on Capital Lease Obligations) deducted in determining Consolidated Net
Income for such period, and (b) all debt discount (but not expense) amortized or
required to be amortized in the determination of Consolidated Net Income for
such period, less (c) all interest earned or accrued with respect to Qualifying
Securities during such period; provided that for purposes of making any
computation pursuant to Section 10.1(a)(iii), (iv) or (v) or Section 10.4(ii)
(including any calculation of Consolidated Cash Flow relating thereto),
Consolidated Interest Expense (A) shall be determined on a pro forma basis
giving effect to the incurrence of all Debt (and the application of proceeds
thereof) which either (x) is the subject of such computation, or (y) was issued
after the end of such period and prior to such date of computation, as if all of
such Debt had
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been incurred (and the proceeds thereof applied) on the first day of such
period, and (B) shall not be reduced by the amount of any interest earned or
accrued with respect to transferred Qualifying Securities during such period for
the purposes of any computation then being made under clause (ii) of the last
sentence of Section 10.1. In computing Consolidated Interest Expense for any
period prior to the end of the first four fiscal quarters ending after the date
of Closing, Consolidated Interest Expense of the Company and the Restricted
Subsidiaries shall be determined with respect to the principal amount of Debt
actually outstanding from time to time but on the basis of interest accruing at
a rate equal to the weighted average interest rate payable on the date of
determination with respect to Debt outstanding under the Notes and the Bank
Facility, rather than the rates of interest actually applicable to the Debt
refinanced thereby.
"Consolidated Net Debt" means, as of any date of determination, the
aggregate outstanding principal amount of all Debt of the Company and its
Restricted Subsidiaries outstanding on such date, after eliminating all
offsetting debits and credits between the Company and its Restricted
Subsidiaries and all other items required to be eliminated in the course of the
preparation of consolidated financial statements of the Company and its
Restricted Subsidiaries in accordance with GAAP; less the principal amount of
all Qualifying Securities held by the Company and its Restricted Subsidiaries.
"Consolidated Net Income" means, with reference to any period, the net
income (or loss) of the Company and its Restricted Subsidiaries for such period
(taken as a cumulative whole), as determined in accordance with GAAP, provided
that there shall be excluded:
(a) the income (or loss) of any Person accrued prior to the date
it becomes a Subsidiary or is merged into or consolidated with the
Company or a Subsidiary, and the income (or loss) of any Person,
substantially all of the assets of which have been acquired in any
manner, realized by such other Person prior to the date of
acquisition,
(b) the income (or loss) of any Person (other than a Restricted
Subsidiary) in which the Company or any Restricted Subsidiary has an
ownership interest, except to the extent that any such income has been
actually received by the Company or such Restricted Subsidiary in the
form of cash dividends or similar cash distributions,
(c) the undistributed earnings of any Restricted Subsidiary to
the extent that the declaration or payment of dividends or similar
distributions by such Restricted Subsidiary is not at the time
permitted by the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to such Restricted Subsidiary,
(d) any aggregate net gain or loss during such period arising
from the sale, conversion, exchange or other disposition of capital
assets (such term to include, without limitation, (i) all non-current
assets, and, without duplication, (ii) the following, whether or
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not current: all fixed assets, whether tangible or intangible, all
inventory sold in conjunction with the disposition of fixed assets,
and all Securities), and
(e) any net income or gain or loss during such period from (i) any
change in accounting principles in accordance with GAAP, (ii) any
prior period adjustments resulting from any change in accounting
principles in accordance with GAAP, or (iii) any extraordinary or
unusual items.
"Consolidated Non-Cash Charges" means, with respect to the Company and
its Restricted Subsidiaries for any period, the aggregate depreciation,
depletion and amortization (other than amortization of debt discount and
expense), the non-cash portion of advance royalties and any non-cash employee
compensation expenses for such period, in each case, reducing Consolidated Net
Income of the Company and its Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP.
"Consolidated Total Assets" means, at any time, the total assets and
properties of the Company and its Restricted Subsidiaries which would be shown
as assets on a consolidated balance sheet of the Company and its Restricted
Subsidiaries as of such time prepared in accordance with GAAP.
"Contribution Agreement" means the Contribution Agreement dated as of
August 1, 1999 between the Company and the Transferee Company.
"Contribution Transactions" means the transactions referred to in the
initial recital of the Assumption Agreement and more fully described in and
occurring pursuant to the Contribution Agreement.
"Debt" means, with respect to any Person, without duplication,
(a) its liabilities for borrowed money;
(b) its liabilities for the deferred purchase price of property
acquired by such Person (excluding accounts payable arising in the
ordinary course of business but including, without limitation, all
liabilities created or arising under any conditional sale or other
title retention agreement with respect to any such property);
(c) its Capital Lease Obligations;
(d) all liabilities secured by any Lien with respect to any
property owned by such Person (whether or not it has assumed or
otherwise become liable for such liabilities);
(e) all its liabilities in respect of letters of credit or
instruments serving a similar function issued or accepted for its
account by banks or other financial institutions (whether
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or not representing obligations for borrowed money), other than any
thereof incurred in the ordinary course of business of such Person and
which are issued (i) to support such Person's obligations in respect
of workmen's compensation or unemployment insurance laws, the payment
of retirement benefits or performance guarantees relating to coal
deliveries or insurance deductibles and aggregating no more than
$10,000,000 at any time outstanding for all of the foregoing or (ii)
in respect of current trade payables of such Person.
(f) Swaps of such Person, to the extent required to be reflected
on a balance sheet of such Person prepared as of any date of
determination in accordance with GAAP;
(g) Preferred Stock of Restricted Subsidiaries owned by Persons
other than the Company, a Subsidiary Guarantor or a Wholly-Owned
Restricted Subsidiary); and
(h) any Guaranty of such Person with respect to liabilities of a
type described in any of clauses (a) through (g) hereof.
Debt of any Person shall include all obligations of such Person of the character
described in clauses (a) through (h) to the extent such Person remains legally
liable in respect thereof notwithstanding that any such obligation is deemed to
be extinguished under GAAP.
"Default" means an event or condition the occurrence or existence of
which would, with the lapse of time or the giving of notice or both, become an
Event of Default.
"Default Rate" means with respect to any Note that rate of interest
that is the greater of (i) 2% per annum above the rate of interest stated in
clause (a) of the first paragraph of such Note or (ii) the rate of interest
publicly announced by Citibank, N.A. as its "base" or "prime" rate.
"Designated Proceeds" is defined in Section 8.3.
"Distribution" means, in respect of any corporation, association or
other business entity:
(a) dividends or other distributions or payments on Capital Stock
of such corporation, association or other business entity (except
distributions in such stock or other equity interest); and
(b) the redemption, retirement, purchase or acquisition of such
stock or other equity interests or of warrants, rights or other
options to purchase such stock or other equity interests (except when
solely in exchange for such stock or other equity interests) unless
made, contemporaneously, from the net proceeds of a sale of such stock
or other equity interests.
"Environmental Laws" means any and all applicable Federal, state,
local, and foreign statutes, laws, regulations, ordinances, rules, judgments,
orders, decrees, permits, concessions,
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grants, franchises, licenses, agreements or governmental restrictions relating
to pollution and the protection of the environment or the release of any
materials into the environment, including but not limited to those related to
hazardous substances or wastes, air emissions and discharges to waste or public
systems.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the rules and regulations promulgated thereunder
from time to time in effect.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that is treated as a single employer together with the Company
under Section 414 of the Code.
"Event of Default" is defined in Section 11.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, at any time and with respect to any
property, the sale value of such property that would be realized in an
arm's-length sale at such time between an informed and willing buyer and an
informed and willing seller (neither being under a compulsion to buy or sell).
"GAAP" means generally accepted accounting principles as in effect
from time to time in the United States of America.
"General Partner" means, from and after the fulfillment of the
Assumption Conditions, Alliance Resource Management GP, LLC, a Delaware limited
liability company, and its successors and permitted assigns as the managing
general partner of the Transferee Company.
"Governmental Authority" means
(a) the government of
(i) the United States of America or any State or other
political subdivision thereof, or
(ii) any other jurisdiction in which the Company or any
Subsidiary conducts all or any part of its business, or which
asserts jurisdiction over any properties of the Company or any
Subsidiary, or
(b) any entity exercising executive, legislative, judicial,
regulatory or administrative functions of, or pertaining to, any such
government.
"Guaranty" and, with correlative meaning, "Guaranteed" means, with
respect to any Person, any obligation (except the endorsement in the ordinary
course of business of negotiable instruments for deposit or collection) of such
Person guaranteeing or in effect guaranteeing any Debt
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of any other Person in any manner, whether directly or indirectly, including
(without limitation) obligations incurred through an agreement, contingent or
otherwise, by such Person:
(a) to purchase such Debt or any property constituting security
therefor;
(b) to advance or supply funds (i) for the purchase or payment of
such Debt, or (ii) to maintain any working capital or other balance
sheet condition or any income statement condition of any other Person
or otherwise to advance or make available funds for the purchase or
payment of such Debt;
(c) to lease properties or to purchase properties or services
primarily for the purpose of assuring the owner of such Debt of the
ability of any other Person to make payment of the Debt; or
(d) otherwise to assure the owner of such Debt against loss in
respect thereof
In any computation of the Debt of the obligor under any Guaranty, the Debt that
is the subject of such Guaranty shall be assumed to be a direct obligation of
such obligor. The amount of any Guaranty shall be equal to the outstanding
amount of the Debt guaranteed, or such lessor amount to which the maximum
exposure of such Person shall have been specifically limited.
"Hazardous Material" means any and all pollutants, toxic or hazardous
wastes or any other substances that might pose a hazard to health or safety, the
removal of which may be required or the generation, manufacture, refining,
production, processing, treatment, storage, handling, transportation, transfer,
use, disposal, release, discharge, spillage, seepage, or filtration of which is
or shall be restricted, prohibited or penalized by any applicable law
(including, without limitation, asbestos, urea formaldehyde foam insulation and
polychlorinated biphenyls).
"Holder" or "holder" means, with respect to any Note, the Person in
whose name such Note is registered in the register maintained by the Company
pursuant to Section 13. 1.
"Institutional Investor" means (a) any original purchaser of a Note,
(b) any holder of a Note holding more than 5% of the aggregate principal amount
of the Notes then outstanding, and (c) any bank, trust company, savings and loan
association or other financial institution, any pension plan, any investment
company, any insurance company, any broker or dealer, or any other similar
financial institution or entity, regardless of legal form.
"Intercreditor Agreement" means an agreement substantially in the form
of the Intercreditor Agreement attached hereto as Exhibit 4.6, as the same may
be amended and be from time to time in effect.
"Investment" means any investment, made in cash or by delivery of
property, by the Company or any of its Restricted Subsidiaries (i) in any
Person, whether by acquisition of stock, debt
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or other obligations or Security, or by loan, guaranty of any debt, advance,
capital contribution or otherwise, or (ii) in any property.
"Lien" means, with respect to any Person, any mortgage, lien, pledge,
charge, security interest, production payment or other encumbrance, or any
interest or title of any vendor, lessor, lender or other secured party to or of
such Person under any conditional sale or other title retention agreement or
Capital Lease, upon or with respect to any property or asset of such Person
(including in the case of stock, stockholder agreements, voting trust agreements
and all similar arrangements); provided, however, "Lien" shall not include any
negative pledge.
"MLP" means Alliance Resource Partners, L.P., a Delaware limited
partnership.
"Make- Whole Amount" is defined in Section 8.6.
"Material" means material in relation to the business, operations,
affairs, financial condition, assets, properties or prospects of the Company and
its Restricted Subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on (a) the
business, operations, affairs, financial condition, assets or properties of the
Company and its Restricted Subsidiaries taken as a whole, (b) the ability of the
Company to perform its payment obligations, its obligations under Sections 9 or
10 or any other material obligations under this Agreement and the Notes, (c) the
ability of a Subsidiary Guarantor to perform its payment obligations, its
obligations under [Sections __ or__ ]of its Subsidiary Guarantee Agreement or
other material obligations under its Subsidiary Guarantee Agreement, or (d) the
validity or enforceability of this Agreement, the Notes or a Subsidiary
Guarantee Agreement.
"Memorandum" is defined in Section 5.3.
"Multiemployer Plan" means any Plan that is a "multiemployer plan" (as
such term is defined in Section 4001(a)(3) of ERISA).
"Notes" is defined in Section 1.
"Officer's Certificate" means a certificate of a Senior Financial
Officer or of any other officer of Alliance Coal Corporation whose
responsibilities extend to the subject matter of such certificate.
"Original Subsidiary Guarantee Agreement" is defined in Section 4.5.
"Original Subsidiary Guarantor" means a Restricted Subsidiary which is
identified as an Original Subsidiary Guarantor in Schedule 5.4.
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"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA or any successor thereto.
"Permitted Investments" means, at any time, all of the following:
(a) Investments in property to be used in the ordinary course of
business of the Company and its Restricted Subsidiaries;
(b) Investments in current assets arising from the sales of goods
and services in the ordinary course of business of the Company and its
Restricted Subsidiaries;
(c) Investments in one or more Restricted Subsidiaries or any
Person that concurrently with such Investment becomes a Restricted
Subsidiary;
(d) Investments in United States Governmental Securities maturing
within one year (or, in the case of Qualifying Securities, two years)
from the date of acquisition;
(e) Investments in certificates of deposit, banker's acceptances
or other bank instruments maturing within one year (or, in the case of
Qualifying Securities, two years) from the date of acquisition
thereof, issued by Acceptable Banks;
(f) Investments in Repurchase Agreements;
(g) Investments in obligations of any state of the United States
of America, or any municipality of any such state, in each case rated
"AA" or better by S&P, "Aa2" or better by Moody's or an equivalent
rating by any other credit rating agency of recognized national
standing, provided that such obligations mature within one year from
the date of acquisition thereof;
(h) Investments in commercial paper maturing in 270 days or less
from the date of issuance which, at the time of acquisition by the
Company or any Restricted Subsidiary, is rated Al or better by S&P or
P1 or better by Moody's or an equivalent rating by any other credit
rating agency of recognized national standing; and
(i) Other Investments, provided that the aggregate of all such
other Investments would not exceed 10% of Consolidated Total Assets.
As used in this definition of "Permitted Investments":
"Acceptable Bank" means (i) any bank or trust company (a) which
is organized under the laws of the United States of America or any
State thereof, (b) which has capital, surplus and undivided profits
aggregating at least $500,000,000, and (iii) whose long-term unsecured
debt obligations (or the long-term unsecured debt obligations of the
holding company
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owning all of the capital stock of such bank or trust company) shall
have been given a rating of "AA-"or better by S&P, "Aa3" or better by
Moody's or an equivalent rating by any other credit rating agency of
recognized national standing or (2) the commercial paper or other
short-term unsecured debt obligations of which (or the short-term
unsecured debt obligations of the holding company owning all of the
capital stock of such bank or trust company) shall have been given a
rating of "Al" or better by S&P or "Prime 1" or better by Moody's or
an equivalent rating by any other credit rating agency of recognized
national standing or (ii) any bank party to the Bank Facility..
"Acceptable Broker-Dealer" means any Person other than a natural
person (i) which is registered as a broker or dealer pursuant to the
Exchange Act and (ii) whose long-term unsecured debt obligations shall
have been given a rating of "AA-" or better by S&P, "Aa3" or better by
Moody's or an equivalent rating by any other credit rating agency of
recognized national standing.
"Moody's" means Moody's Investors Service, Inc.
"Repurchase Agreement" means any written agreement.
(a) that provides for (i) the transfer of one or more United
States Governmental Securities in an aggregate principal amount at
least equal to the amount of the Transfer Price (defined below) to the
Company or any of its Restricted Subsidiaries from an Acceptable Bank
or an Acceptable Broker-Dealer against a transfer of funds (the
"Transfer Price") by the Company or such Restricted Subsidiary to such
Acceptable Bank or Acceptable Broker-Dealer, and (ii) a simultaneous
agreement by the Company or such Restricted Subsidiary, in connection
with such transfer of funds, to transfer to such Acceptable Bank or
Acceptable Broker-Dealer the same or substantially similar United
States Governmental Securities for a price not less than the Transfer
Price plus a reasonable return thereon at a date certain not later
than 365 days after such transfer of funds,
(b) in respect of which the Company or such Restricted Subsidiary
shall have the right, whether by contract or pursuant to applicable
law, to liquidate such agreement upon the occurrence of any default
thereunder, and
(c) in connection with the Company or such Restricted Subsidiary,
or an agent thereof, shall have taken all action required by
applicable law or regulations to perfect a Lien in such United States
Governmental Securities.
"S&P" means Standard & Poor's Ratings Group, a division of
McGraw-Hill, Inc.
"United States Governmental Security" means any direct obligation
of, or obligation guaranteed by, the United States of America, or any
agency controlled or supervised by or acting as an instrumentality of
the United States of America pursuant to authority granted
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by the Congress of the United States of America, so long as such
obligation or guarantee shall have the benefit of the full faith and
credit of the United States of America which shall have been pledged
pursuant to authority granted by the Congress of the United States of
America.
"Person" means an individual, partnership, joint venture, corporation,
limited liability company, association, trust, unincorporated organization, or a
government or agency or political subdivision thereof.
"Plan" means an "employee benefit plan" (as defined in Section 3(3) of
ERISA) that is or, within the preceding five years, has been established or
maintained, or to which contributions are or, within the preceding five years,
have been made or required to be made, by the Company or any ERISA Affiliate or
with respect to which the Company or any ERISA Affiliate may have any liability.
"Prepayment Date" is defined in Section 8.3.
"Preferred Stock" of any Person means any class of Capital Stock of
such Person that is preferred over any other class of Capital Stock of such
Person as to the payment of dividends or the payment of any amount upon
liquidation or dissolution of such Person.
"Pro Forma Financial Statements" means the financial statements of the
Company and its Restricted Subsidiaries contained in the Registration Statement
and giving effect, on a pro forma basis, to the completion of the Restructuring
Transactions, all as more specifically described in Section 5.5(b).
"property" or "properties" means, unless otherwise specifically
limited, real or personal property of any kind, tangible or intangible, choate
or inchoate.
"Purchaser" and "Purchasers" are defined in Section 2.
"QPAM Exemption" means Prohibited Transaction Class Exemption 84-14
issued by the United States Department of Labor.
"Qualified Debt" is defined in Section 10.7.
"Qualifying Securities" means Investments of the Company or any
Restricted Subsidiary of the type described in clauses (d) through (h) of the
definition of the term "Permitted Investments" but only to the extent that (x)
such Investments have been purchased with the proceeds of Debt (not exceeding
$50,000,000 in aggregate principal amount at any time outstanding) and have been
pledged to secure the payment thereof and (y) the acquisition of such
Investments and the incurrence of such Debt shall be effected only in connection
with maintenance or expansion capital expenditures to be made by the Company and
its Restricted Subsidiaries; provided, that, solely for
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purposes of this definition, Investments described in clauses (d) and (e) of the
definition of the term "Permitted Investments" may have a maturity of up to two
years from their date of acquisition by the Company or a Restricted Subsidiary.
"Registration Statement" shall mean the Registration Statement on Form
S-1 of Alliance Resource Partners L.P. (Registration No. 33-78845) filed with
the Securities and Exchange Commission on May 20, 1999, as amended by Amendment
No. 1, filed with the Securities and Exchange Commission on June 30, 1999,
Amendment No. 2, filed with the Securities and Exchange Commission on
__________, 1999, and Amendment No. 3, filed with the Securities and Exchange
Commission on __________, 1999 in the form when declared effective by the
Commission and as amended on or prior to the date of this Agreement.
"Required Holders" means, at any time, the holders of at least 51% in
principal amount of the Notes at the time outstanding (exclusive of Notes then
owned by the Company or any of its Affiliates).
"Responsible Officer" means any Senior Financial Officer and any other
officer of the General Partner with responsibility for the administration of the
relevant portion of this Agreement or a Subsidiary Guarantee Agreement, as
applicable.
"Restricted Payment" means any Distribution in respect of the Company
or a Restricted Subsidiary (other than, in the case of a Restricted Subsidiary,
a Distribution made to the Company or another Restricted Subsidiary or a
Distribution constituting or resulting in a Permitted Investment), including,
without limitation, any Distribution resulting in the acquisition by the Company
of securities that would constitute treasury stock. For purposes of this
Agreement, the amount of any Restricted Payment made in property shall be the
greater of (x) the Fair Market Value of such property (as determined in good
faith by the board of directors (or equivalent governing body) of the Person
making such Restricted Payment) and (y) the net book value thereof on the books
of such Person, in each case determined as of the date on which such Restricted
Payment is made.
"Restricted Subsidiary" means any Subsidiary (i) of which more than
50% (by number of votes) of each class of (x) Voting Stock, and (y) all other
securities convertible into, exchangeable for or representing the right to
purchase, Voting Stock is beneficially owned, directly or indirectly, by the
Company, (ii) which is organized under the laws of the United States or any
State thereof, (iii) which maintains substantially all of its assets and
conducts substantially all of its business within the United States, and (iv)
which is properly designated as such by the Company in the most recent notice
(or, prior to any such notice, on Schedule 5.4, including MAPCO Coal LLC and MC
Mining LLC with respect to such Subsidiary given by the Company pursuant to and
in accordance with the provisions of Section 7.4.
"Restructuring Transactions" shall mean the Contribution Transactions
and the transactions described in clauses 1, 2, 4, 5 and 6 of Schedule 4.7(d).
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"Securities Act" means the Securities Act of 1933, as amended from
time to time.
"Security" has the meaning set forth in section 2(a)(1) of the
Securities Act.
"Senior Financial Officer" means the chief financial officer,
principal accounting officer, treasurer or controller of the General Partner.
"Special General Partner" means Alliance Resource GP, LLC, a Delaware
limited liability company, and its successors and permitted assigns as a special
general partner of the Transferee Company.
"Subsidiary" shall mean, with respect to any Person, any corporation,
limited liability company, partnership, joint venture, association, trust or
other entity of which (or in which) more than 50% of (a) the issued and
outstanding Capital Stock having ordinary voting power to elect a majority of
the board of directors of such corporation (irrespective of whether at the time
Capital Stock of any other class or classes of such corporation shall or might
have voting power upon the occurrence of any contingency), (b) the interests in
the capital or profits of such partnership, limited liability company, joint
venture or association with ordinary voting power to elect a majority of the
board of directors (or Persons performing similar functions) of such
partnership, limited liability company, joint venture or association, or (c) the
beneficial interests in such trust or other entity with ordinary voting power to
elect a majority of the board of trustees (or Persons performing similar
functions) of such trust or other entity, is at the time directly or indirectly
owned or controlled by such Person, by such Person and one or more of its
Subsidiaries, or by one or more of such Person's other Subsidiaries.
"Subsidiary Guarantee Agreement" means an agreement substantially in
the form of the Subsidiary Guarantee Agreement attached hereto as Exhibit 4.5,
as the same may be amended and be from time to time in effect.
"Subsidiary Guarantor" means an Original Subsidiary Guarantor or
another Restricted Subsidiary which, subsequent to the date of Closing, executes
and delivers a Subsidiary Guarantee Agreement pursuant to the provisions of
Section 10.10, in each case so long as the Subsidiary Guarantee Agreement of
such Person and the Intercreditor Agreement, as it relates to such Subsidiary,
remains in full force and effect.
"Swaps" means, with respect to any Person, payment obligations with
respect to interest rate swaps, currency swaps and similar obligations
obligating such Person to make payments, whether periodically or upon the
happening of a contingency. For the purposes of this Agreement, the amount of
the obligation under any Swap shall be the amount determined in respect thereof
as of the end of the then most recently ended fiscal quarter of such Person,
based on the assumption that such Swap had terminated at the end of such fiscal
quarter, and in making such determination, if any agreement relating to such
Swap provides for the netting of amounts payable by and to such Person
thereunder or if any such agreement provides for the simultaneous
B-16
<PAGE> 70
payment of amounts by and to such Person, then in each such case, the amount of
such obligation shall be the net amount so determined.
"Transfer" means, with respect to any Person, any transaction in which
such Person sells, conveys, abandons, transfers, leases (as lessor), or
otherwise disposes of any of its assets; provided, however, that "Transfer"
shall not include (i) the granting of any Liens permitted to be granted pursuant
to this Agreement, (ii) any transfer of assets permitted pursuant to Section
10.6 or (iii) the making of any Restricted Payment permitted pursuant to Section
10.4.
"Transferee Company" means Alliance Resource Operating Partners, L.P.,
a Delaware limited partnership.
"Unrestricted Subsidiary" means a Subsidiary which is not a Restricted
Subsidiary.
"Voting Stock" means, (i) Securities of any class of classes, the
holders of which are ordinarily, in the absence of contingencies, entitled to
elect a majority of the directors (or Persons performing similar functions) or
(ii) in the case of a partnership, limited liability company or joint venture,
interests in the profits or capital thereof entitling the holders of such
interests to approve major business actions.
"Wholly-Owned Restricted Subsidiary" means, at any time, any
Restricted Subsidiary at least ninety-eight percent (98%) of all of the equity
interests (except directors' qualifying shares) and voting interests of which
are owned by any one or more of the Company and the Company's other Wholly-Owned
Restricted Subsidiaries at such time.
B-17
<PAGE> 71
ASSUMPTION CONDITIONS
1. The Company shall have transferred to the Transferee Company a 99.999%
interest in each of (x) MAPCO Coal LLC, a Delaware limited liability company,
and (y) MC Mining LLC, a Delaware limited liability company.
2. The Transferee Company shall have authorized, executed and delivered an
agreement substantially in the form of the Assumption Agreement attached to this
Schedule as Annex I (the "Assumption Agreement").
3. The General Partner of the Transferee Company shall have delivered to
each Purchaser a certificate certifying as to the resolutions attached thereto
and other proceedings relating to the authorization, execution and delivery of
the Assumption Agreement on behalf of the Transferee Company by Alliance Coal
Corporation, owner of the sole member interest in the Company, which is the
owner of the sole general partner interest in the Transferee Company.
4. All obligations of the Company under the Bank Facility shall have been
assumed by the Transferee Company; all rights of the Company under said Bank
Facility shall have accrued to the Transferee Company; and such Bank Facility
shall be in full force and effect.
5. The MLP shall have issued and sold limited partnership units to the
public for an aggregate net sale price of at least [$182,300,0001.
6. The MLP shall have contributed [$__________] net cash proceeds from the
sale of its limited partnership units to the Transferee Company in exchange for
a limited partnership interest in the Transferee Company.
7. Each Purchaser shall have received an opinion from Andrews & Kurth
L.L.P., special counsel for the Transferee Company, in form and substance
satisfactory to such Purchaser, dated the date of Closing, covering the matters
set forth in Annex II to this Schedule and covering such other matters incident
to the Transferee Company's assumption of the obligations of the Company under
the Note Purchase Agreement and the Notes and the other transactions
contemplated herein as such Purchaser or such Purchaser's counsel may reasonably
request.
SCHEDULE 4.7(d)
(TO NOTE PURCHASE AGREEMENT)
BB-1
<PAGE> 72
FORM OF ASSUMPTION AGREEMENT
ASSUMPTION AGREEMENT dated as of August 1, 1999 made by ALLIANCE
RESOURCE OPERATING PARTNERS, L.P., a Delaware limited partnership (the
"Transferee Company'), in favor of the persons or entities listed on Schedule A
attached hereto (the "Noteholders"), each of which is a party to that certain
Note Purchase Agreement dated as of August 1, 1999 (the "Note Purchase
Agreement") of Alliance Resource GP, LLC, a Delaware limited liability company
that is the special general partner of the Transferee Company (the "Company").
Capitalized terms used herein without definition shall have the meanings
assigned to such terms in the Note Purchase Agreement.
WITNESSETH:
WHEREAS, pursuant to the Contribution Agreement dated as of August 1,
1999, between the Company and the Transferee Company, the Company has conveyed a
99.999% interest in (i) MAPCO Coal LLC, a Delaware limited liability company,
and (ii) MC Mining LLC, a Delaware limited liability company, to the Transferee
Company in exchange for a .001% general partner interest and a limited partner
interest in the Transferee Company and the assumption by the Transferee Company
all of the rights, duties, liabilities and obligations of the Company,
including, without limitation, all of the rights, duties, liabilities and
obligations of the Company under the Note Purchase Agreement and the Notes (the
"Transaction"); and
WHEREAS, the Transferee Company, as the transferee of such assets of
the Company pursuant to the Transaction, shall receive direct and indirect
benefits by reason of the investments made by the Noteholders under the Note
Purchase Agreement (which benefits are hereby acknowledged); and
WHEREAS, the Note Purchase Agreement requires, as a condition
precedent to the issuance and sale of the Notes, that the Transferee Company
execute and deliver this Agreement;
Now THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Transferee Company hereby agrees as follows:
1. Assumption. (a) The Transferee Company, as the transferee of
the above described assets of the Company pursuant to the Transaction,
hereby unconditionally and expressly assumes, confirms and agrees to
perform and observe each and every one of the covenants, rights,
promises, agreements, terms, conditions, obligations, duties and
liabilities of the Company under the Note Purchase Agreement and the
Notes and under any documents, instruments or agreements executed and
delivered or furnished by the Company in connection therewith.
ANNEX I
(TO SCHEDULE 4.7(d) TO NOTE PURCHASE AGREEMENT)
-1-
<PAGE> 73
(b) From and after the effectiveness of this Agreement (as
provided in Section 6 hereof), unless the context clearly otherwise
requires, all references to "the Company" in the Note Purchase
Agreement or any Note or any other document, instrument or agreement
(other than this Agreement) executed and delivered or furnished, or to
be executed and delivered or furnished, in connection therewith shall
be deemed to be references to the Transferee Company, except that
references to the Company as at any time prior to the consummation of
the initial issuance, sale and delivery of the Notes under the Note
Purchase Agreement and satisfaction of all conditions precedent
thereto shall continue as references to the Company.
2. Representations and Warranties. The Transferee Company hereby
accepts and assumes all obligations and liabilities of the Company related to
each representation or warranty made by the Company in the Note Purchase
Agreement or any other document, instrument or agreement executed and delivered
or furnished in connection therewith. In addition, the Transferee Company
further represents, warrants and affirms for the benefit of the Noteholders
that, after giving effect to the Assumption Conditions:
(a) Organization; Power and Authority; Ownership. The Transferee
Company is a limited partnership duly formed and validly existing
under the laws of the State of Delaware, and is duly licensed or
qualified as a foreign limited partnership in each jurisdiction in
which such qualification is required by law, other than those
jurisdictions as to which the failure to be so qualified or in good
standing could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. The Transferee Company has
the power and authority to own or hold under lease the properties it
purports to own or hold under lease, to transact the business it
transacts and proposes to transact, to execute and deliver this
Agreement and to perform the provisions hereof.
(b) Authorization, Etc. This Agreement has been duly authorized by
all necessary action on the part of the Board of Directors of Alliance
Coal Corporation, a Delaware corporation, which is the sole general
partner of the Transferee Company, and this Agreement constitutes, and
upon execution and delivery thereof each Note will constitute, a
legal, valid and binding obligation of the Transferee Company
enforceable against the Transferee Company in accordance with its
terms, except as such enforceability may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforcement of creditors' rights generally and (ii)
general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(c) Compliance with Laws, Other Instruments, Etc. The execution,
delivery and performance by the Transferee Company of this Agreement
will not (i) contravene, result in any breach of, or constitute a
default under, or result in the creation of any Lien in respect of any
property of the Transferee Company or any Restricted Subsidiary under,
any indenture, mortgage, deed of trust, loan, purchase or credit
agreement, lease, articles of formation, partnership agreement,
operating agreement or other agreement or instrument to
-2-
<PAGE> 74
which the Transferee Company or any Restricted Subsidiary is bound or
by which the Transferee Company or any Restricted Subsidiary or any of
their respective properties may be bound or affected, (ii) result in a
breach of any of the terms, conditions or provisions of any Material
order, judgment, decree, or ruling of any court, arbitrator or
Governmental Authority applicable to the Transferee Company or any
Restricted Subsidiary or (iii) violate any provision of any statute or
other rule or regulation of any Governmental Authority applicable to
the Transferee Company or any Restricted Subsidiary.
(d) Governmental Authorizations, Etc. No consent, approval or
authorization of, or registration, filing or declaration with, any
Governmental Authority is required in connection with the execution,
delivery or performance by the Transferee Company of this Agreement.
(e) Pari Passu Ranking. The Transferee Company's obligations
under the Notes, and the Note Purchase Agreement will rank at least
pari passu, without preference or priority with all of the outstanding
unsecured and unsubordinated Debt of the Transferee Company.
(f) Default. No Default or Event of Default has occurred and is
continuing under the Note Purchase Agreement.
3. Further Assurances. At any time and from time to time, upon any
Noteholder's request and at the sole expense of the Transferee Company, the
Transferee Company will promptly execute and deliver any and all further
instruments and documents and will take such further action as such Noteholder
may reasonably deem necessary to effect the purposes of this Agreement.
4. Amendment, Etc. No amendment or waiver of any provision of this
Agreement shall be effective, unless the same be in writing and executed in
accordance with the provisions of the Note Purchase Agreement.
5. Notices Under Section 18(iii) of Note Purchase Agreement. From and
after the effectiveness of this Agreement (as provided in Section 6 hereof), all
notices and communications to the Company under the Note Purchase Agreement
shall be sent to:
Alliance Resource Operating Partners, L.P.
------------------------------------------
------------------------------------------
Attention:
--------------------------------
6. Binding Effect; Assignment; Effectiveness. This Agreement shall be
binding upon the Transferee Company, and shall inure to the benefit of the
Noteholders and their respective successors and assigns. This Agreement shall
take effect as of a moment in time one nanosecond following the initial
issuance, sale and delivery of the Notes by the Company pursuant to the Note
Purchase Agreement.
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<PAGE> 75
7. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the undersigned has caused this Agreement to be
duly executed and delivered by its duly authorized officer on the date first
above written.
ALLIANCE RESOURCE OPERATING PARTNERS, L.P.
By: Alliance Resource Management GP, LLC,
its Managing General Partner
By: Alliance Coal Corporation, its sole
member
By:
---------------------------------------
Name:
Title:
Agreed and consented to as of
the date first above written
ALLIANCE RESOURCE GP, LLC
By: Alliance Coal Corporation, its sole member
By:
---------------------------------------
Name:
Title:
-4-
<PAGE> 76
FORM OF OPINION OF SPECIAL COUNSEL
FOR THE TRANSFEREE COMPANY
[A draft will be provided by Andrews & Kurth L.L.P.]
ANNEX II
(TO SCHEDULE 4.7(d) TO NOTE PURCHASE AGREEMENT)
<PAGE> 77
OWNERSHIP OF COMPANY
[To be provided by Company]
SCHEDULE 5.1
(TO NOTE PURCHASE AGREEMENT)
<PAGE> 78
DISCLOSURE MATERIALS
[To be provided by Company]
SCHEDULE 5.3
(TO NOTE PURCHASE AGREEMENT)
<PAGE> 79
SUBSIDIARIES OF COMPANY AND OWNERSHIP
OF SUBSIDIARIES CAPITAL STOCK
[To be provided by Company]
SCHEDULE 5.4
(TO NOTE PURCHASE AGREEMENT)
<PAGE> 80
FINANCIAL STATEMENTS
[To be provided by Company]
SCHEDULE 5.5
(TO NOTE PURCHASE AGREEMENT)
<PAGE> 81
CERTAIN LITIGATION
[To be provided by Company]
SCHEDULE 5.8
(TO NOTE PURCHASE AGREEMENT)
<PAGE> 82
LICENSES, PERMITS, ETC.
[To be provided by Company]
SCHEDULE 5.11
(TO NOTE PURCHASE AGREEMENT)
<PAGE> 83
USE OF PROCEEDS
[The proceeds from the issuance and sale of the Notes will be used to
repay certain of the Company's existing Debt and for general corporate
purposes.]
SCHEDULE 5.14
(TO NOTE PURCHASE AGREEMENT)
<PAGE> 84
EXISTING DEBT AND LIENS
[To be provided by Company]
SCHEDULE 5.15
(TO NOTE PURCHASE AGREEMENT)
<PAGE> 85
[FORM OF NOTE]
ALLIANCE RESOURCE GP, LLC
8.31% SENIOR NOTE, DUE AUGUST 1, 2014
No. [R- ] [Date]
--
$[ ] PPN
---------- ---------
FOR VALUE RECEIVED, the undersigned, ALLIANCE RESOURCE GP, LLC (herein
called the "Company"), a limited liability company organized and existing under
the laws of the State of [Delaware], hereby promises to pay to [____________] or
registered assigns, the principal sum of [__________] DOLLARS on August 1, 2014
with interest (computed on the basis of a 360-day year of twelve 30-day months)
(a) on the unpaid balance thereof at the rate of 8.31% per annum. from the date
hereof, payable semiannually, on the first day of February and August in each
year, commencing with the February or August next succeeding the date hereof,
until the principal hereof shall have become due and payable, and (b) to the
extent permitted by law, on any overdue payment (including any overdue
prepayment) of principal, any overdue payment of interest and any overdue
payment of any Make-Whole Amount (as defined in the Note Purchase Agreement
referred to below), payable semiannually as aforesaid (or, at the option of the
registered holder hereof, on demand), at a rate per annum. from time to time
equal to the greater of (i) 10.31% or (i) the rate of interest publicly
announced by The Chase Manhattan Bank from time to time as its "base" or "prime"
rate.
Payments of principal of, interest on and any Make-Whole Amount with
respect to this Note are to be made in lawful money of the United States of
America at the principal office of The Chase Manhattan Bank in New York City or
at such other place as provided in the Note Purchase Agreement referred to
below.
This Note is one of the 8.31% Senior Notes (herein called the
"Notes"), issued pursuant to the Note Purchase Agreement, dated as of August 1,
1999 (as from time to time amended, the "Note Purchase Agreement"), between the
Company and the Purchasers named therein and is entitled to the benefits
thereof. Each holder of this Note will be deemed, by its acceptance hereof, (i)
to have agreed to the confidentiality provisions set forth in Section 20 of the
Note Purchase Agreement and (ii) to have made the applicable representation set
forth in Section 6.2 of the Note Purchase Agreement, and (iii) to have made the
agreement contained in Section 22.7 of the Note Purchase Agreement. The Notes
are entitled to the benefits of a Subsidiary Guarantee Agreement and an
Intercreditor Agreement (each as defined in the Note Purchase Agreement).
EXHIBIT 1
(TO NOTE PURCHASE AGREEMENT)
1-1
<PAGE> 86
This Note is a registered Note and, as provided in the Note Purchase
Agreement, upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and
registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Note is registered as the owner hereof for the purpose of receiving payment and
for all other purposes, and the Company will not be affected by any notice to
the contrary.
The Company will make required prepayments of principal on the dates
and in the amounts specified in the Note Purchase Agreement. This Note is also
subject to prepayment, in whole or from time to time in part, at the times and
on the terms specified in the Note Purchase Agreement, but not otherwise.
If an Event of Default, as defined in the Note Purchase Agreement,
occurs and is continuing, the principal of this Note may be declared or
otherwise become due and payable in the manner, at the price (including any
applicable Make-Whole Amount) and with the effect provided in the Note Purchase
Agreement.
This Note shall be construed and enforced in accordance with, and the
rights of the issuer and holder hereof shall be governed by, the law of the
State of New York.
ALLIANCE RESOURCE GP, LLC
By: Alliance Coal Corporation, its sole member
-------------------------------------------
By:
-------------------------------------------
Its
-------------------------------------------
1-2
<PAGE> 87
FORM OF OPINION OF SPECIAL COUNSEL FOR THE COMPANY
The closing opinion of Andrews & Kurth L.L.P., special counsel for the
Company, which is called for by Section 4.4(a) of the Note Purchase Agreement
shall be dated the date of the Closing and addressed to the Purchasers, shall be
satisfactory in scope and form to the Purchasers and shall be to the effect
that:
[To come]
EXHIBIT 4.4(a)
(TO NOTE PURCHASE AGREEMENT)
<PAGE> 88
FORM OF OPINION OF SPECIAL COUNSEL
FOR THE ORIGINAL SUBSIDIARY GUARANTORS
The closing opinion of Andrews & Kurth L.L.P., special counsel for the
Original Subsidiary Guarantors, which is called for by Section 4.4(b) of the
Note Purchase Agreement, shall be dated the date of the Closing and addressed to
the Purchasers, shall be satisfactory in scope and form to the Purchasers and
shall be to the effect that:
[To come]
EXHIBIT 4.4(b)
(TO NOTE PURCHASE AGREEMENT)
<PAGE> 89
FORM OF OPINION OF SPECIAL COUNSEL
FOR THE PURCHASERS
The closing opinion of Willkie Farr & Gallagher, special counsel for
the Purchasers, called for by Section 4.4(b) of the Note Purchase Agreement,
shall be dated the date of the Closing and addressed to the Purchasers, shall be
satisfactory in form and substance to the Purchasers and shall be to the effect
that:
1. The Company is a limited liability company, validly existing and in
good standing under the laws of the State of Delaware and has the power and the
authority to execute and deliver the Note Purchase Agreement and to issue the
Notes.
2. The Note Purchase Agreement has been duly authorized by all
necessary action on behalf of the Company, has been duly executed and delivered
on behalf of the Company and constitutes the legal, valid and binding contract
of the Company enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent conveyance and similar laws affecting creditors' rights
generally, and general principles of equity (regardless of whether the
application of such principles is considered in a proceeding in equity or at
law).
3. The Notes have been duly authorized by all necessary action on
behalf of the Company, and the Notes being delivered on the date hereof have
been duly executed and delivered on behalf of the Company and constitute the
legal, valid and binding obligations of the Company enforceable in accordance
with their terms, subject to bankruptcy, insolvency, fraudulent conveyance and
similar laws affecting creditors' rights generally, and general principles of
equity (regardless of whether the application of such principles is considered
in a proceeding in equity or at law).
4. The issuance, sale and delivery of the Notes under the
circumstances contemplated by the Note Purchase Agreement do not, under existing
law, require the registration of the Notes under the Securities Act of 1933, as
amended, or the qualification of an indenture under the Trust Indenture Act of
1939, as amended.
The opinion of Willkie Farr & Gallagher shall also state that the
opinions of Andrews & Kurth L.L.P., special counsel for the Company and the
Original Subsidiary Guarantors are satisfactory in scope and form to Willkie
Farr & Gallagher and that, in their opinion, the Purchasers are justified in
relying thereon.
In rendering the opinion set forth in paragraph 1 above, Willkie Farr
& Gallagher may rely, as to matters referred to in paragraph 1, solely upon an
examination of the Articles of Formation certified by, the Secretary of State of
the State of Delaware, and the operating agreement of the
EXHIBIT 4.4(c)
(TO NOTE PURCHASE AGREEMENT)
<PAGE> 90
Company. The opinion of Willkie Farr & Gallagher shall be limited to the laws of
the State of New York, the Delaware limited liability company law and the
Federal laws of the United States.
With respect to matters of fact upon which such opinion is based,
Willkie Farr & Gallagher may rely on appropriate certificates of public
officials, appropriate certificates delivered on behalf of the Company,
representations made on behalf of the Company and representations of the
Purchasers delivered in connection with the issuance and sale of the Notes.
<PAGE> 91
FORM OF SUBSIDIARY GUARANTEE AGREEMENT
[To be based on Subsidiary Guarantee Agreement used by Banks with
respect to the Bank Facility]
EXHIBIT 4.5
(TO NOTE PURCHASE AGREEMENT)
<PAGE> 1
EXHIBIT 10.3
CONTRIBUTION AND ASSUMPTION AGREEMENT
THIS CONTRIBUTION AND ASSUMPTION AGREEMENT dated as of August
________, 1999 (this "Agreement"), is entered into by and among ALLIANCE
RESOURCE HOLDINGS, INC., a Delaware corporation (formerly known as Alliance
Coal Corporation) ("Alliance Holdings"); ALLIANCE RESOURCE MANAGEMENT GP, LLC,
a Delaware limited liability company ("MGP"); ALLIANCE RESOURCE GP, LLC, a
Delaware limited liability company ("SGP"); ALLIANCE RESOURCE PARTNERS, L.P., a
Delaware limited partnership (the "Partnership"); ALLIANCE RESOURCE OPERATING
PARTNERS, L.P., a Delaware limited partnership (the "Operating
Partnership"); ALLIANCE COAL, LLC, a Delaware limited liability company
("Alliance Coal"); MC MINING, LLC, a Delaware limited liability company ("MC
Mining"); GIBSON COUNTY COAL, LLC, a Delaware limited liability company
("Gibson County"); TOPTIKI COAL, LLC, a Delaware limited liability company
("Toptiki Coal"); PONTIKI COAL, LLC, a Delaware limited liability company
("Pontiki Coal"); ALLIANCE PROPERTIES, LLC, a Delaware limited liability
company ("Alliance Properties"); BACKBONE MOUNTAIN, LLC, a Delaware limited
liability company ("Backbone Mountain"); WHITE COUNTY COAL, LLC, a Delaware
limited liability company ("White County"); MT. VERNON TRANSFER TERMINAL, LLC,
a Delaware limited liability company ("Mt. Vernon"); WEBSTER COUNTY COAL, LLC,
a Delaware limited liability company ("Webster County"); METTIKI COAL, LLC, a
Delaware limited liability company ("Mettiki Coal"); METTIKI COAL (WV), LLC, a
Delaware limited liability company ("MCWV"); ALLIANCE LAND, LLC, a Delaware
limited liability company ("Alliance Land"); HOPKINS COUNTY COAL, LLC, a
Delaware limited liability
<PAGE> 2
company ("Hopkins County"); and EXCEL MINING, LLC, a Delaware limited liability
company ("Excel Mining") (MC Mining, Gibson County, Toptiki Coal, Pontiki Coal,
Alliance Properties, Backbone Mountain, White County, Mt. Vernon, Webster
County, Mettiki Coal, MCWV, Alliance Land, Hopkins County and Excel Mining are
sometimes collectively referred to in this Agreement as the "Alliance Coal
Subsidiaries")
RECITALS
WHEREAS, SGP and Thomas L. Pearson (the "Organizational Limited
Partner") have heretofore formed the Partnership pursuant to the Delaware
Revised Uniform Limited Partnership (the "Delaware Act") for the purpose of
serving as a limited partner of the Operating Partnership; and
WHEREAS, SGP contributed $10.00 to the capital of the Partnership and
received a 1% general partner interest therein, and the Organizational Limited
Partner contributed $990.00 to the capital of the Partnership and received a
99% limited partner interest therein; and
WHEREAS, SGP and the Organizational Limited Partner have heretofore
formed the Operating Partnership pursuant to the Delaware Act for the purpose
of acquiring membership interests in Alliance Coal; and
WHEREAS, SGP contributed $10.00 to the capital of the Operating
Partnership and received a 1% general partner interest therein, and the
Organizational Limited Partner contributed $990.00 to the capital of the
Operating Partnership and received a 99% limited partner interest therein; and
-2-
<PAGE> 3
WHEREAS, Alliance Holdings has formed and owns all of the membership
interest in Alliance Coal; and
WHEREAS, the Initial Transactions have occurred; and
WHEREAS, SGP has entered into a note purchase agreement (the "Note
Purchase Agreement") with certain institutional investors providing for the
issuance by SGP of $180 million of ___% senior notes due 2014; and
WHEREAS, SGP has entered into a bank credit agreement (the "Bank
Credit Agreement") providing for a term loan facility of up to $50 million, a
$25 million working capital facility and a $25 million revolving credit
facility; and
WHEREAS, concurrently with the consummation of the transactions
contemplated by this Agreement, MGP, SGP and the Partnership have entered into
that certain First Amended and Restated Agreement of Limited Partnership of the
Operating Partnership (the "Operating Partnership Agreement"); and
WHEREAS, concurrently with the consummation of the transactions
contemplated by this Agreement, MGP, SGP and the Organizational Limited Partner
have entered into that certain First Amended and Restated Agreement of Limited
Partnership of the Partnership (the "Partnership Agreement");
NOW, THEREFORE, in consideration of their mutual undertakings and
agreements hereunder, the parties to this Agreement undertake and agree as
follows:
-3-
<PAGE> 4
ARTICLE I
DEFINITIONS; INITIAL TRANSACTIONS
1.1 Definitions. The following capitalized terms shall have the meanings
given below.
"Agreement" means this Contribution and Assumption Agreement.
"Alliance Coal" has the meaning assigned to such term in the opening
paragraph of this Agreement.
"Alliance Coal Subsidiaries" has the meaning assigned to such term in
the opening paragraph of this Agreement.
"Alliance Entities" means MGP, SGP, the Partnership, the Operating
Partnership, Alliance Coal and the Alliance Coal Subsidiaries.
"Alliance Holdings" has the meaning assigned to such term in the
opening paragraph of this Agreement.
"Alliance Land" has the meaning assigned to such term in the opening
paragraph of this Agreement.
"Alliance Properties" has the meaning assigned to such term in the
opening paragraph of this Agreement.
"Backbone Mountain" has the meaning assigned to such term in the
opening paragraph of this Agreement.
"Bank Credit Agreement" has the meaning assigned to such term in the
Recitals to this Agreement.
-4-
<PAGE> 5
"Common Units" means common limited partner interests in the
Partnership.
"Delaware Act" has the meaning assigned to such term in the Recitals
to this Agreement.
"Effective Time" means 12:01 a.m. Eastern Standard Time on August __,
1999.
"Environmental Laws" shall mean any federal, state and local law,
rule, regulation or enforceable order, as in effect as of the date of this
Agreement, that regulates or imposes liability with respect to the health,
environment, ecology or work place.
"Excel Mining" has the meaning assigned to such term in the opening
paragraph of this Agreement.
"Existing Indebtedness" means indebtedness, liabilities and
obligations of SGP under (i) the Note Purchase Agreement and (ii) the Bank
Credit Agreement.
"Gibson County" has the meaning assigned to such term in the opening
paragraph of this Agreement.
"Hazardous Materials" shall mean those materials in any way regulated
by any Environmental Law.
"Hopkins County" has the meaning assigned to such term in the opening
paragraph of this Agreement.
"Initial Transactions" has the meaning assigned to such term in
Section 1.2.
"Laws" means any and all laws, statutes, ordinances, rules or
regulations promulgated by a governmental authority, orders of a governmental
authority, judicial decisions, decisions of arbitrators or determinations of
any governmental authority or court.
-5-
<PAGE> 6
"Liabilities" means obligations, responsibilities and liabilities
(whether based in common law or statute or arising under written contract or
otherwise, known or unknown, fixed or contingent, real or potential, tangible
or intangible, now existing or hereafter arising), including, without
limitation, liabilities for violations of Environmental Laws and the disposal,
release, spill, leakage, migration or transportation of Hazardous Materials.
"MC Mining" has the meaning assigned to such term in the opening
paragraph of this Agreement.
"MCWV" has the meaning assigned to such term in the opening paragraph
of this Agreement.
"Mettiki Coal" has the meaning assigned to such term in the opening
paragraph of this Agreement.
"MGP" has the meaning assigned to such term in the opening paragraph
of this Agreement.
"Mt. Vernon" has the meaning assigned to such term in the opening
paragraph of this Agreement.
"Note Purchase Agreement" has the meaning assigned to such term in
the Recitals to this Agreement.
"Operating Partnership" has the meaning assigned to such term in the
opening paragraph of this Agreement.
"Operating Partnership Agreement" has the meaning assigned to such
term in the Recitals to this Agreement.
-6-
<PAGE> 7
"Organizational Limited Partner" has the meaning assigned to such
term in the Recitals to this Agreement.
"Partnership" has the meaning assigned to such term in the opening
paragraph of this Agreement.
"Partnership Agreement" has the meaning assigned to such term in the
Recitals to this Agreement.
"Pontiki Coal" has the meaning assigned to such term in the opening
paragraph of this Agreement.
"Retained Liabilities" means (i) all Liabilities related to the
assets and businesses of Alliance Holdings and its affiliates that are either
retained by Alliance Holdings and its affiliates (other than the Alliance
Entities) after the Effective Time [or that were disposed of by Alliance
Holdings or any of its affiliates or predecessors prior to the Effective Time]
and (ii) all federal, state and local income tax liabilities attributable to
operation of the assets and business of Alliance Holdings and its affiliates
prior to the Effective Time, including any such income tax liabilities that may
result from the consummation of the transactions contemplated by this
Agreement.
"SGP" has the meaning assigned to such term in the opening paragraph
of this Agreement.
"SGP OLP Interest" has the meaning assigned to such term in Section
2.1.
"Subordinated Units" means subordinated limited partner interests in
the Partnership.
"Webster County" has the meaning assigned to such term in the opening
paragraph of this Agreement.
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<PAGE> 8
"White County" has the meaning assigned to such term in the opening
paragraph of this Agreement.
1.2 Initial Transactions. The following transactions have occurred prior
to the date hereof (the "Initial Transactions"):
(a) REP Sales Inc. merged into MAPCO Coal Inc.
[(b) Permac Inc., Raven Coal Company, Inc., Race Fork Coal
Corporation and South Atlantic Coal Company, Inc. merged into South Atlantic
Coal LLC.]
(c) Scotts Branch Company and MC Mining, Inc. merged into MC Mining.
(d) Alliance Coal Corporation contributed its 100% member interest in
MC Mining to MAPCO Coal Inc.
(e) Posey County Coal Corporation and Gibson County Coal Corporation
merged into Gibson County.
(f) Toptiki Coal Corporation merged into Toptiki Coal.
(g) Pontiki Coal Corporation merged into Pontiki Coal.
(h) MAPCO Coal Land Corporation and MAPCO Coal Land & Development
Corporation merged into Alliance Properties.
[(i) Cari International Mining Corporation was liquidated.]
(j) Garrett County Coal Corporation merged into Backbone Mountain.
(k) White County Coal Corporation merged into White County.
(l) Mt. Vernon Coal Transfer Company merged into Mt. Vernon.
(m) Webster County Coal Corporation merged into Webster County.
(n) Mettiki Coal Corporation merged into Mettiki Coal.
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<PAGE> 9
(o) Mettiki Coal Corporation (West Virginia) merged into MCWV.
(p) MLDC Corporation merged into Alliance Land.
(q) Alliance Power Corporation merged into Alliance Power, LLC.
(r) MAPCO Coal International was dissolved.
(s) MAPCO Coal Inc. merged into Alliance Coal.
(t) Alliance Coal distributed the stock of South Atlantic Coal, LLC
to Alliance Coal Corporation.
(u) Alliance Coal Corporation changed its name to Alliance Resource
Holdings, Inc.
1.3. Concurrent Transactions.
(a) Alliance Holdings has previously formed SGP and Alliance Holdings
hereby contributes all of the member interests in Alliance Coal to SGP in
exchange for all of the member interests in SGP.
(b) SGP and the Operating Partnership agree that upon completion of
the public offering by the Partnership as set forth in Section 2.1 below, SGP
will contribute its 100% interest in Alliance Coal to the Operating Partnership
in exchange for certain partnership interests, debt assumption and cash as more
fully set forth below, and SGP will contribute its limited partner interest in
the Operating Partnership to the Partnership in exchange for Partnership
interests as more fully set forth below.
[(c) Certain members of Alliance Holdings management and certain
funds affiliated with The Beacon Group, LP purchase all the member interests in
MGP for [$6.3 million]].
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<PAGE> 10
(d) The Subsidiaries distribute [$___ million of] working capital
assets to Alliance Coal and Alliance Coal distributes such working capital
assets to SGP.
(e) SGP borrows $180 million under the Note Purchase Agreement and
[$48.6 million] under the term loan facility of the Bank Credit Agreement.
ARTICLE II
PUBLIC OFFERING AND CASH CONTRIBUTIONS
2.1 Public Cash Contribution. The parties to this Agreement acknowledge a
cash contribution to the Partnership of [$179.4 million] from the public in
exchange for [8,969,335] Common Units.
2.2 MGP Cash Contribution to Partnership. MGP hereby contributes [$3.1
million] in cash to the Partnership in exchange for a .99% managing general
partner interest and incentive distribution rights in the Partnership and the
Partnership hereby accepts such cash contribution as a contribution to the
capital of the Partnership.
2.3 Partnership Cash Contribution. The Partnership hereby contributes cash
in the amount of [$179.4 million] to the Operating Partnership in exchange for
a limited partner interest in the Operating Partnership and the Operating
Partnership hereby accepts such cash contribution as a contribution to the
capital of the Operating Partnership.
2.4 MGP Cash Contribution to Operating Partnership. MGP hereby contributes
$3.1 million in cash to the Operating Partnership in exchange for a 1.0001%
managing general partner interest in the Operating Partnership and the
Operating Partnership hereby accepts such cash contribution as a contribution
to the capital of the Operating Partnership.
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<PAGE> 11
ARTICLE III
ADDITIONAL CLOSING TRANSACTIONS
3.1 Contribution by SGP to the Operating Partnership. SGP hereby
contributes to the Operating Partnership a 100% member interest in Alliance
Coal in exchange for (a) a .01% special general partner interest in the
Operating Partnership, (b) a limited partner interest (such limited partner
interest, the "SGP OLP Interest") in the Operating Partnership and (c) the
assumption by the Operating Partnership of the indebtedness, liabilities and
obligations of SGP under the Existing Indebtedness, and the Operating
Partnership hereby accepts such interests from SGP, as a contribution to the
capital of the Operating Partnership.
3.2 Contribution by SGP to the Partnership. SGP hereby contributes to the
Partnership the SGP OLP Interest in exchange for (a) a .01% special general
partner interest in the Partnership and (b) [6,413,075] Subordinated Units and
the Partnership hereby accepts the SGP OLP Interest as a contribution to the
capital of the Partnership.
3.3 Operating Partnership Use of Proceeds. The parties to this Agreement
acknowledge that the Operating Partnership has used the cash received as set
forth in Article II above as follows: (a) reimbursement to SGP for certain
capital expenditures in the amount of [$81.1 million]; (b) payment of certain
transaction expenses in the aggregate amount of [$19.4 million] including,
without limitation, all of the syndication costs incurred by the Partnership in
connection with the public offering of the Common Units; (c) distribution of
cash in the aggregate amount of [$36.5 million] to Alliance Coal to replenish
the working capital previously distributed by Alliance Coal to SGP; and (d)
purchase of U.S. treasury notes in the aggregate amount of [$48.6 million]
which
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<PAGE> 12
have been collaterally assigned by the Operating Partnership to the lenders
under the Bank Credit Agreement.
3.4 Alliance Coal Cash Contribution to Alliance Coal Subsidiaries.
Alliance Coal hereby distributes cash to the Alliance Coal Subsidiaries in an
amount sufficient to replenish the working capital of such Alliance Coal
Subsidiaries.
3.5 MGP Contribution to Alliance Coal. MGP hereby contributes to Alliance
Coal [$3,139] in cash in exchange for a .001% managing member interest in
Alliance Coal and Alliance Coal hereby accepts such cash contribution as a
contribution to the capital of Alliance Coal.
3.6 SGP Distribution to Alliance Holdings. SGP hereby distributes [$314.2
million] to Alliance Holdings.
ARTICLE IV
ASSUMPTION OF EXISTING INDEBTEDNESS
4.1. Assumption of Existing Indebtedness by the Operating Partnership. In
connection with the transactions contemplated by Section 3.1 hereof, the
Operating Partnership hereby assumes and agrees to duly and timely pay, perform
and discharge the Existing Indebtedness, to the full extent that SGP has been
heretofore or would have been in the future, were it not for the execution and
delivery of this Agreement, obligated to pay, perform and discharge the
Existing Indebtedness; provided, however, that said assumption and agreement to
duly and timely pay, perform and discharge the Existing Indebtedness shall not
(i) increase the obligation of the Operating Partnership with respect to the
Existing Indebtedness beyond that of SGP, (ii) waive any valid defense that was
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<PAGE> 13
available to SGP with respect to the Existing Indebtedness or (iii) enlarge any
rights or remedies of any lender under, or holder of, the Existing Indebtedness
or any portion thereof.
ARTICLE V
INDEMNIFICATION
5.1. Indemnification With Respect to Existing Indebtedness. The Operating
Partnership shall indemnify, defend and hold harmless SGP, its officers and
directors, its successors and assigns from and against any and all claims,
demands, costs, Liabilities and expenses (including court costs and reasonable
attorneys' fees) of every kind, character and description, arising from or
relating to the Existing Indebtedness.
5.2 Indemnification with Respect to Retained Liabilities. Alliance
Holdings shall indemnify, defend and hold harmless the Alliance Entities, their
respective officers and directors and their respective successors and assigns
from and against any and all claims, demands, costs, Liabilities (including,
without limitation, Liabilities arising by way of active and passive
negligence) and expenses (including court costs and reasonable attorneys' fees)
of every kind, character and description, whether known or unknown, accrued or
contingent, and whether or not reflected on the books and records of Alliance
Holdings as of the Effective Time, arising from or relating to the Retained
Liabilities.
ARTICLE VI
FURTHER ASSURANCES
6.1. Further Assurances. From time to time after the date hereof, and
without any further consideration, each party upon request from another shall
execute, acknowledge and deliver all such additional instruments, notices and
other documents, and will do all such other acts and things, all
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<PAGE> 14
in accordance with applicable law, as may be reasonably necessary or
appropriate to more fully and effectively carry out the purposes and intent of
this Agreement.
ARTICLE VII
MISCELLANEOUS
7.1. Order of Completion of Transactions; Effective Time. The transactions
provided for in Articles I, II, III and IV of this Agreement shall be completed
on the date of this Agreement in the following order:
First, the transactions provided for in Article I shall be
completed; Second, the transactions provided for in Article
II shall be completed; Third, the transactions provided for
in Article III shall be completed; and Fourth, the
transactions provided for in Article IV shall be completed.
7.2. Costs. The Operating Partnership shall pay all sales, use and similar
taxes arising out of the contributions and deliveries to be made hereunder, and
shall pay all documentary, filing, recording, transfer, deed, and conveyance
taxes and fees required in connection therewith, if any.
7.3. Headings: References: Interpretation. All Article and Section
headings in this Agreement are for convenience only and shall not be deemed to
control or affect the meaning or construction of any of the provisions hereof.
The words "hereof," "herein" and "hereunder" and words of similar import, when
used in this Agreement, shall refer to this Agreement as a whole, including,
without limitation, all Schedules and Exhibits attached hereto, and not to any
particular provision of this Agreement. All references herein to Articles,
Sections, Schedules and Exhibits, if any, shall, unless the context requires a
different construction, be deemed to be references to the Articles and Sections
of this Agreement and the Schedules and Exhibits attached hereto, and all such
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<PAGE> 15
Schedules and Exhibits attached hereto are hereby incorporated herein and made
a part hereof for all purposes. All personal pronouns used in this Agreement,
whether used in the masculine, feminine or neuter gender, shall include all
other genders, and the singular shall include the plural and vice versa. The
use herein of the word "including" following any general statement, term or
matter shall not be construed to limit such statement, term or matter to the
specific items or matters set forth immediately following such word or to
similar items or matters, whether or not non-limiting language (such as
"without limitation," "but not limited to," or words of similar import) is used
with reference thereto, but rather shall be deemed to refer to all other items
or matters that could reasonably fall within the broadest possible scope of
such general statement, term or matter.
7.4. Successors and Assigns. The Agreement shall be binding upon and inure
to the benefit of the parties signatory hereto and their respective successors
and assigns.
7.5. No Third Party Rights. The provisions of this Agreement are intended
to bind the parties signatory hereto as to each other and are not intended to
and do not create rights in any other person or confer upon any other person
any benefits, rights or remedies and no person is or is intended to be a third
party beneficiary of any of the provisions of this Agreement.
7.6. Counterparts. This Agreement may be executed in any number of
counterparts, all of which together shall constitute one agreement binding on
the parties hereto.
7.7. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York applicable to contracts made
and to be performed wholly within such state without giving effect to conflict
of law principles thereof.
7.8. Severability. If any of the provisions of this Agreement are held by
any court of competent jurisdiction to contravene, or to be invalid under, the
laws of any political body having
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<PAGE> 16
jurisdiction over the subject matter hereof, such contravention or invalidity
shall not invalidate the entire Agreement. Instead, this Agreement shall be
construed as if it did not contain the particular provision or provisions held
to be invalid, and an equitable adjustment shall be made and necessary
provision added so as to give effect to the intention of the parties as
expressed in this Agreement at the time of execution of this Agreement.
7.9. Amendment or Modification. This Agreement may be amended or modified
from time to time only by the written agreement of all the parties hereto.
7.10 Integration. This Agreement supersedes all previous understandings or
agreements between the parties, whether oral or written, with respect to its
subject matter. This document is an integrated agreement which contains the
entire understanding of the parties. No understanding, representation, promise
or agreement, whether oral or written, is intended to be or shall be included
in or form part of this Agreement unless it is contained in a written amendment
hereto executed by the parties hereto after the date of this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 17
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of the date first above written.
ALLIANCE RESOURCE HOLDINGS, INC.,
a Delaware corporation
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
ALLIANCE RESOURCE MANAGEMENT GP,
LLC, a Delaware limited liability company
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
ALLIANCE RESOURCE GP, LLC,
a Delaware limited liability company
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
ALLIANCE RESOURCE PARTNERS, L.P.
a Delaware limited partnership
By: Alliance Resource GP, LLC,
its general partner
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
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<PAGE> 18
ALLIANCE RESOURCE OPERATING
PARTNERS, L.P., a Delaware limited partnership
By: Alliance Resource GP, LLC,
its general partner
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
ALLIANCE COAL, LLC,
a Delaware limited liability company
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
MC MINING, LLC,
a Delaware limited liability company
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
GIBSON COUNTY COAL, LLC,
a Delaware limited liability company
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
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<PAGE> 19
TOPTIKI COAL, LLC
a Delaware limited liability company
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
PONTIKI COAL, LLC,
a Delaware limited liability company
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
ALLIANCE PROPERTIES, LLC,
a Delaware limited liability company
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
BACKBONE MOUNTAIN, LLC,
a Delaware limited liability company
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
WHITE COUNTY COAL, LLC,
a Delaware limited liability company
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
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<PAGE> 20
MT. VERNON TRANSFER TERMINAL, LLC,
a Delaware limited liability company
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
WEBSTER COUNTY COAL, LLC,
a Delaware limited liability company
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
METTIKI COAL, LLC,
a Delaware limited liability company
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
METTIKI COAL (WV), LLC,
a Delaware limited liability company
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
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<PAGE> 21
ALLIANCE LAND, LLC,
a Delaware limited liability company
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
HOPKINS COUNTY COAL, LLC,
a Delaware limited liability company
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
EXCEL MINING, LLC,
a Delaware limited liability company
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
-21-
<PAGE> 1
EXHIBIT 10.4
ALLIANCE RESOURCE MANAGEMENT GP, LLC
LONG-TERM INCENTIVE PLAN
SECTION 1. Purpose of the Plan.
The Alliance Resource Management GP, LLC Long-Term Incentive Plan (the
"Plan") is intended to promote the interests of Alliance Resource Partners,
L.P., a Delaware limited partnership (the "Partnership"), by providing to
employees and directors of Alliance Resource Management GP, LLC (the "Company")
and its Affiliates who perform services for the Partnership incentive
compensation awards for superior performance that are based on Units. The Plan
is also contemplated to enhance the ability of the Company and its Affiliates to
attract and retain the services of individuals who are essential for the growth
and profitability of the Partnership and to encourage them to devote their best
efforts to the business of the Partnership, thereby advancing the interests of
the Partnership and its partners.
SECTION 2. Definitions.
As used in the Plan, the following terms shall have the meanings set
forth below:
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly through one or more intermediaries controls, is
controlled by or is under common control with, the Person in question. As used
herein, the term "control" means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of a
Person, whether through ownership of voting securities, by contract or
otherwise.
"Award" means an Option or Restricted Unit granted under the Plan, and
shall include any tandem DERs granted with respect to such Award.
"Board" means the Board of Directors of the Company.
"Change in Control" means, and shall be deemed to have occurred if, (i)
The Beacon Group LLC or its affiliates including any funds under its management
("Beacon") no longer directly or indirectly owns a controlling interest in the
Company, or (ii) if the Company has sold a significant portion of the assets of
the Partnership under its control.
"Committee" means the Compensation Committee of the Board or such other
committee of the Board appointed to administer the Plan.
<PAGE> 2
"DER" means a contingent right, granted in tandem with a specific
Restricted Unit, to receive an amount in cash equal to the cash distributions
made by the Partnership with respect to a Unit during the period such Restricted
Unit is outstanding.
"Director" means a "non-employee director" of the Company, as defined
in Rule 16b-3.
"Employee" means any employee of the Company or an Affiliate, as
determined by the Committee.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means the closing sales price of a Unit on the
applicable date (or if there is no trading in the Units on such date, on the
next preceding date on which there was trading) as reported in The Wall Street
Journal (or other reporting service approved by the Committee). In the event
Units are not publicly traded at the time a determination of fair market value
is required to be made hereunder, the determination of fair market value shall
be made in good faith by the Committee.
"Option" means an option to purchase Units granted under the Plan.
"Participant" means any Employee or Director granted an Award under the
Plan.
"Partnership Agreement" means the Amended and Restated Agreement of
Limited Partnership of Alliance Resource Partners, L.P.
"Person" means an individual or a corporation, limited liability
company, partnership, joint venture, trust, unincorporated organization,
association, government agency or political subdivision thereof or other entity.
"Restricted Period" means the period established by the Committee with
respect to an Award during which the Award either remains subject to forfeiture
or is not exercisable by or payable to the Participant.
"Restricted Unit" means a phantom unit granted under the Plan which
upon or following vesting entitles the Participant to receive a Unit.
"Rule 16b-3" means Rule 16b-3 promulgated by the SEC under the Exchange
Act, or any successor rule or regulation thereto as in effect from time to time.
"SEC" means the Securities and Exchange Commission, or any successor
thereto.
"Unit" means a Common Unit of the Partnership.
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<PAGE> 3
SECTION 3. Administration.
The Plan shall be administered by the Committee. A majority of the
Committee shall constitute a quorum, and the acts of the members of the
Committee who are present at any meeting thereof at which a quorum is present,
or acts unanimously approved by the members of the Committee in writing, shall
be the acts of the Committee. Subject to the following, the Committee, in its
sole discretion, may delegate any or all of its powers and duties under the
Plan, including the power to grant Awards under the Plan, to the Chief Executive
Officer of the Company, subject to such limitations on such delegated powers and
duties as the Committee may impose. Upon any such delegation all references in
the Plan to the "Committee", other than in Section 7, shall be deemed to include
the Chief Executive Officer; provided, however, that such delegation shall not
limit the Chief Executive Officer's right to receive Awards under the Plan.
Notwithstanding the foregoing, the Chief Executive Officer may not grant Awards
to, or take any action with respect to any Award previously granted to, a person
who is an officer subject to Rule 16b-3 or a member of the Board. Subject to the
terms of the Plan and applicable law, and in addition to other express powers
and authorizations conferred on the Committee by the Plan, the Committee shall
have full power and authority to: (i) designate Participants; (ii) determine the
type or types of Awards to be granted to a Participant; (iii) determine the
number of Units to be covered by Awards; (iv) determine the terms and conditions
of any Award; (v) determine whether, to what extent, and under what
circumstances Awards may be settled, exercised, canceled, or forfeited; (vi)
interpret and administer the Plan and any instrument or agreement relating to an
Award made under the Plan; (vii) establish, amend, suspend, or waive such rules
and regulations and appoint such agents as it shall deem appropriate for the
proper administration of the Plan; and (viii) make any other determination and
take any other action that the Committee deems necessary or desirable for the
administration of the Plan. Unless otherwise expressly provided in the Plan, all
designations, determinations, interpretations, and other decisions under or with
respect to the Plan or any Award shall be within the sole discretion of the
Committee, may be made at any time and shall be final, conclusive, and binding
upon all Persons, including the Company, the Partnership, any Affiliate, any
Participant, and any beneficiary of any Award.
SECTION 4. Units
(a) Units Available. Subject to adjustment as provided in Section 4(c),
the number of Units with respect to which Options and Restricted Units may be
granted under the Plan is 600,000. If any Option or Restricted Unit is forfeited
or otherwise terminates or is canceled without the delivery of Units, then the
Units covered by such Award, to the extent of such forfeiture, termination or
cancellation, shall again be Units with respect to which Options or Restricted
Units may be granted.
(b) Sources of Units Deliverable Under Awards. Any Units delivered
pursuant to an Award shall consist, in whole or in part, of Units acquired in
the open market, from any Affiliate, the Partnership or any other Person, or any
combination of the foregoing, as determined by the Committee in its discretion.
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<PAGE> 4
(c) Adjustments. In the event that the Committee determines that any
distribution (whether in the form of cash, Units, other securities, or other
property), recapitalization, split, reverse split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase, or exchange of Units
or other securities of the Partnership, issuance of warrants or other rights to
purchase Units or other securities of the Partnership, or other similar
transaction or event affects the Units such that an adjustment is determined by
the Committee to be appropriate in order to prevent dilution or enlargement of
the benefits or potential benefits intended to be made available under the Plan,
then the Committee shall, in such manner as it may deem equitable, adjust any or
all of (i) the number and type of Units (or other securities or property) with
respect to which Awards may be granted, (ii) the number and type of Units (or
other securities or property) subject to outstanding Awards, and (iii) the grant
or exercise price with respect to any Award or, if deemed appropriate, make
provision for a cash payment to the holder of an outstanding Award; provided,
that the number of Units subject to any Award shall always be a whole number.
SECTION 5. Eligibility.
Any Employee or Director shall be eligible to be designated a
Participant and receive an Award under the Plan.
SECTION 6. Awards.
(a) Options. The Committee shall have the authority to determine the
Employees and Directors to whom Options shall be granted, the number of Units to
be covered by each Option, the purchase price therefor and the conditions and
limitations applicable to the exercise of the Option, including the following
terms and conditions and such additional terms and conditions, as the Committee
shall determine, that are not inconsistent with the provisions of the Plan.
(i) Exercise Price. The purchase price per Unit purchasable under an
Option shall be determined by the Committee at the time the Option is
granted and may be more or less than its Fair Market Value as of the
date of grant.
(ii) Time and Method of Exercise. The Committee shall determine the
Restricted Period, i.e., the time or times at which an Option may be
exercised in whole or in part, and the method or methods by which
payment of the exercise price with respect thereto may be made or
deemed to have been made which may include, without limitation, cash,
check acceptable to the Company, a "cashless-broker" exercise through
procedures approved by the Company, other securities or other property,
a note from the Participant in a form acceptable to the Company, or any
combination thereof, having a Fair Market Value on the exercise date
equal to the relevant exercise price.
(iii) Term. Subject to earlier termination as provided in the grant
agreement or the Plan, each Option shall expire on the 10th anniversary
of its date of grant.
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<PAGE> 5
(iv) Forfeiture. Except as otherwise provided in the terms of the
Option grant, upon termination of a Participant's employment with the
Company and its Affiliates or membership on the Board, whichever is
applicable, for any reason during the applicable Restricted Period, all
Options shall be forfeited by the Participant. The Committee may, in
its discretion, waive in whole or in part such forfeiture with respect
to a Participant's Options.
(b) Restricted Units. The Committee shall have the authority to
determine the Employees and Directors to whom Restricted Units shall be granted,
the number of Restricted Units to be granted to each such Participant, the
duration of the Restricted Period (if any), the conditions under which the
Restricted Units may become vested (which may be immediate upon grant) or
forfeited, and such other terms and conditions as the Committee may establish
with respect to such Awards, including whether DERs are granted with respect to
such Restricted Units.
(i) DERs. To the extent provided by the Committee, in its
discretion, a grant of Restricted Units may include a tandem DER grant,
which may provide that such DERs shall be paid directly to the
Participant, be credited to a bookkeeping account (with or without
interest in the discretion of the Committee) subject to the same
vesting restrictions as the tandem Award, or be subject to such other
provisions or restrictions as determined by the Committee in its
discretion.
(ii) Forfeiture. Except as otherwise provided in the terms of the
Restricted Units grant, upon termination of a Participant's employment
with the Company and its Affiliates or membership on the Board,
whichever is applicable, for any reason during the applicable
Restricted Period, all Restricted Units shall be forfeited by the
Participant. The Committee may, in its discretion, waive in whole or in
part such forfeiture with respect to a Participant's Restricted Units.
(iii) Lapse of Restrictions. Upon or following the vesting of each
Restricted Unit, the Participant shall be entitled to receive from the
Company one Unit, subject to the provisions of Section 8(b).
(c) General.
(i) Awards May Be Granted Separately or Together. Awards may, in the
discretion of the Committee, be granted either alone or in addition to,
in tandem with, or in substitution for any other Award granted under
the Plan or any award granted under any other plan of the Company or
any Affiliate. Awards granted in addition to or in tandem with other
Awards or awards granted under any other plan of the Company or any
Affiliate may be granted either at the same time as or at a different
time from the grant of such other Awards or awards.
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<PAGE> 6
(ii) Limits on Transfer of Awards.
(A) Except as provided in (C) below, each Option shall be
exercisable only by the Participant during the Participant's
lifetime, or by the person to whom the Participant's rights shall
pass by will or the laws of descent and distribution.
(B) Except as provided in (C) below, no Award and no right
under any such Award may be assigned, alienated, pledged, attached,
sold or otherwise transferred or encumbered by a Participant and any
such purported assignment, alienation, pledge, attachment, sale,
transfer or encumbrance shall be void and unenforceable against the
Company or any Affiliate.
(C) To the extent specifically provided by the Committee with
respect to an Option grant, an Option may be transferred by a
Participant without consideration to immediate family members or
related family trusts, limited partnerships or similar entities or
on such terms and conditions as the Committee may from time to time
establish. In addition, Awards may be transferred by will and the
laws of descent and distribution.
(iii) Term of Awards. The term of each Award shall be for such
period as may be determined by the Committee.
(iv) Unit Certificates. All certificates for Units or other
securities of the Partnership delivered under the Plan pursuant to any
Award or the exercise thereof shall be subject to such stop transfer
orders and other restrictions as the Committee may deem advisable under
the Plan or the rules, regulations, and other requirements of the SEC,
any stock exchange upon which such Units or other securities are then
listed, and any applicable federal or state laws, and the Committee may
cause a legend or legends to be put on any such certificates to make
appropriate reference to such restrictions.
(v) Consideration for Grants. Awards may be granted for no cash
consideration or for such consideration as the Committee determines.
(vi) Delivery of Units or other Securities and Payment by
Participant of Consideration. Notwithstanding anything in the Plan or
any grant agreement to the contrary, delivery of Units pursuant to the
exercise or vesting of an Award may be deferred for any period during
which, in the good faith determination of the Committee, the Company is
not reasonably able to obtain Units to deliver pursuant to such Award
without violating the rules or regulations of any applicable law or
securities exchange. No Units or other securities shall be delivered
pursuant to any Award until payment in full of any amount required to
be paid pursuant to the Plan or the applicable Award grant agreement
(including, without limitation, any exercise price or tax withholding)
is received by the Company. Such payment may be made by such method or
methods and in such form or forms as the Committee shall
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<PAGE> 7
determine, including, without limitation, cash, other Awards,
withholding of Units, cashless- broker exercises with simultaneous
sale, or any combination thereof; provided that the combined value, as
determined by the Committee, of all cash and cash equivalents and the
Fair Market Value of any such Units or other property so tendered to
the Company, as of the date of such tender, is at least equal to the
full amount required to be paid to the Company pursuant to the Plan or
the applicable Award agreement.
(vii) Change in Control. Upon a Change in Control, all Awards shall
automatically vest and become payable or exercisable, as the case may
be, in full. In this regard, all Restricted Periods shall terminate and
all performance criteria, if any, shall be deemed to have been achieved
at the maximum level.
SECTION 7. Amendment and Termination.
Except to the extent prohibited by applicable law and unless otherwise
expressly provided in an Award agreement or in the Plan:
(a) Amendments to the Plan. Except as required by applicable law or
the rules of the principal securities exchange on which the Units are
traded and subject to Section 7(b) below, the Board or the Committee
may amend, alter, suspend, discontinue, or terminate the Plan in any
manner, including increasing the number of Units available for Awards
under the Plan, without the consent of any partner, Participant, other
holder or beneficiary of an Award, or other Person.
(b) Amendments to Awards. The Committee may waive any conditions or
rights under, amend any terms of, or alter any Award theretofore
granted, provided no change, other than pursuant to Section 7(c), in
any Award shall materially reduce the benefit to Participant without
the consent of such Participant.
(c) Adjustment of Awards Upon the Occurrence of Certain Unusual or
Nonrecurring Events. The Committee is hereby authorized to make
adjustments in the terms and conditions of, and the criteria included
in, Awards in recognition of unusual or nonrecurring events (including,
without limitation, the events described in Section 4(c) of the Plan)
affecting the Partnership or the financial statements of the
Partnership, or of changes in applicable laws, regulations, or
accounting principles, whenever the Committee determines that such
adjustments are appropriate in order to prevent dilution or enlargement
of the benefits or potential benefits intended to be made available
under the Plan.
SECTION 8. General Provisions.
(a) No Rights to Award. No Person shall have any claim to be granted
any Award under the Plan, and there is no obligation for uniformity of treatment
of participants. The terms and conditions of awards need not be the same with
respect to each recipient.
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<PAGE> 8
(b) Withholding. The Company or any Affiliate is authorized to withhold
from any Award, from any payment due or transfer made under any Award or from
any compensation or other amount owing to a Participant the amount (in cash,
Units, other securities, Units that would otherwise be issued pursuant to such
Award or other property) of any applicable taxes payable in respect of the grant
of an Award, its exercise, the lapse of restrictions thereon, or any payment or
transfer under an Award or under the Plan and to take such other action as may
be necessary in the opinion of the Company to satisfy all obligations for the
payment of such taxes.
(c) No Right to Employment. The grant of an Award shall not be
construed as giving a Participant the right to be retained in the employ of the
company or any Affiliate or to remain on the Board, as applicable. Further, the
Company or an Affiliate may at any time dismiss a Participant from employment,
free from any liability or any claim under the Plan, unless otherwise expressly
provided in the Plan or in any Award agreement.
(d) Governing Law. The validity, construction, and effect of the Plan
and any rules and regulations relating to the Plan shall be determined in
accordance with the laws of the State of Delaware and applicable federal law.
(e) Severability. If any provision of the Plan or any award is or
becomes or is deemed to be invalid, illegal, or unenforceable in any
jurisdiction or as to any person or award, or would disqualify the Plan or any
award under any law deemed applicable by the Compensation Committee, such
provision shall be construed or deemed amended to conform to the applicable
laws, or if it cannot be construed or deemed amended without, in the
determination of the Compensation Committee, materially altering the intent of
the Plan or the award, such provision shall be stricken as to such jurisdiction,
person or award and the remainder of the Plan and any such award shall remain in
full force and effect.
(f) Other Laws. The Committee may refuse to issue or transfer any Units
or other consideration under an Award if, in its sole discretion, it determines
that the issuance or transfer or such Units or such other consideration might
violate any applicable law or regulation, the rules of the principal securities
exchange on which the Units are then traded, or entitle the Partnership or an
Affiliate to recover the same under Section 16(b) of the Exchange Act, and any
payment tendered to the Company by a Participant, other holder or beneficiary in
connection with the exercise of such Award shall be promptly refunded to the
relevant Participant, holder or beneficiary.
(g) No Trust or Fund Created. Neither the Plan nor any award shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any participating affiliate and a
participant or any other person. To the extent that any person acquires a right
to receive payments from the Company or any participating affiliate pursuant to
an award, such right shall be no greater than the right of any general unsecured
creditor of the Company or any participating affiliate.
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<PAGE> 9
(h) No Fractional Units. No fractional Units shall be issued or
delivered pursuant to the Plan or any Award, and the Committee shall determine
whether cash, other securities, or other property shall be paid or transferred
in lieu of any fractional Units or whether such fractional Units or any rights
thereto shall be canceled, terminated, or otherwise eliminated.
(i) Headings. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.
(j) Facility Payment. Any amounts payable hereunder to any person under
legal disability or who, in the judgment of the Committee, is unable to properly
manage his financial affairs, may be paid to the legal representative of such
person, or may be applied for the benefit of such person in any manner which the
Committee may select, and the Company shall be relieved of any further liability
for payment of such amounts.
(k) Gender and Number. Words in the masculine gender shall include the
feminine gender, the plural shall include the singular and the singular shall
include the plural.
SECTION 9. Term of the Plan.
The Plan shall be effective on the date of its approval by the Board
and shall continue until the date terminated by the Board or Units are no longer
available for grants of Awards under the Plan, whichever occurs first. However,
unless otherwise expressly provided in the Plan or in an applicable Award
Agreement, any Award granted prior to such termination, and the authority of the
Board or the Committee to amend, alter, adjust, suspend, discontinue, or
terminate any such Award or to waive any conditions or rights under such Award,
shall extend beyond such termination date.
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<PAGE> 1
EXHIBIT 10.5
ALLIANCE RESOURCE MANAGEMENT GP, LLC
SHORT-TERM INCENTIVE PLAN
1. INTENT.
The purpose of the Short-Term Incentive Plan (the "Plan") is to motivate
the employees of Alliance Resource Management GP, LLC (the "Company") and its
affiliates who perform services for Alliance Resource Partners, L.P., a Delaware
limited partnership, and its subsidiaries (the "Partnership") to collectively
produce outstanding results, encourage superior performance, increase
productivity, and aid in the retention of key employees.
2. PLAN GUIDELINES.
The administration of the Plan and any potential financial renumeration
to come as a result of its implementation is subject to the determination by the
Company's Board of Directors and/or its Compensation Committee (collectively,
the "Compensation Committee") that the performance goals for the applicable
period have been achieved. The Plan is an additional compensation program
designated to encourage Plan Participants (designated by the Company's
Compensation Committee) to exceed specified projected performance levels for
designated periods. The Plan's pay-out pool will be approved by the Company's
Compensation Committee after reviewing the Partnership's performance results for
the designated period.
3. PERFORMANCE TARGETS.
3.1 Designation of Performance Targets. The Compensation Committee shall
determine the "performance measure" and "standard performance target" to be used
for each calendar/fiscal year (a "Plan Year") for determining the pool of
dollars to be distributed as a result of this Plan. Satisfactory results as
determined by the Compensation Committee in its sole discretion must be achieved
in order for a performance pay-out distribution to occur under the Plan.
3.2 Equitable Adjustment to Performance Targets. The performance criteria
for a Plan Year shall be subject to equitable adjustment at the sole discretion
of the Compensation Committee to reflect the occurrence of any significant
events during the Plan Year.
4. PARTICIPANTS.
Designated employees of the Company and its affiliates are eligible to
participate in the Plan to share in the rewards of outstanding performance as it
is linked to individual performance, as determined by the Compensation
Committee, in consultation with the Company's President and Chief Executive
officer ("CEO").
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<PAGE> 2
5. PERFORMANCE PAY.
The size of any performance pay-out distribution pool and a Participant's
designated level of participation in such pool will be determined under criteria
established or approved by the Compensation Committee for that Plan Year.
6. PROCESS FOR PERFORMANCE PAY-OUT.
6.1 Procedure. After the aggregate performance pay-out distribution pool
for the Plan Year has been determined, the Company's CEO may allocate a portion
of the aggregate performance pay-out pool to each of the Company's and/or
participating affiliates' senior vice presidents, vice presidents and/or
department heads. Such individual's responsibility will be to further allocate,
subject to the CEO's review and approval, the apportioned performance pay-out
distribution pool to Participants assigned within such individual's area of
responsibility based upon the Participant's individual performance during the
Plan Year.
6.2 Communication to Participants. Care will be used in communicating to
any Participant his individual level assignment and potential performance
pay-out distribution amount. Each Participant may or may not receive the
allocated performance pay-out distribution amount depending upon the Company's
performance, department or regional performance, and discretionary allocations
from the Company's Compensation Committee, or its designee(s).
7. DISCRETIONARY PAYMENTS OUTSIDE THE PLAN.
In the event that any Participant's exceptional individual performance is
demonstrated to substantially exceed standard expectations and responsibilities,
the Company's CEO (or his designee(s)) may award and distribute a discretionary
bonus to a Participant. The Company's CEO shall have the authority to make such
discretionary bonus pay-outs; provided, however, if a discretionary bonus is to
be paid to a Participant who also participates in the Company's Long-Term
Incentive Plan such pay-out must be approved in advance by the Compensation
Committee unless and to the extent such advance approval requirement has been
waived by the Compensation Committee.
8. TERMINATION OF EMPLOYMENT.
Termination of employment of a Participant for any reason prior to a
performance pay-out distribution will result in the Participant's forfeiture of
any right, title or interest in a performance pay-out distribution under the
Plan, unless and to the extent waived by the Compensation Committee in its
discretion.
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<PAGE> 3
9. AMENDMENT AND TERMINATION.
The Company's Compensation Committee, at its sole discretion, reserves
the right to amend the Plan and to terminate the Plan at any time.
10. ADMINISTRATION OF PLAN.
10.1 Administration. The Compensation Committee may delegate the
responsibility for the day-to-day administration and operation of the Plan to
the CEO (or his designee(s)) of the Company or any participating affiliate. The
Compensation Committee (or the entity or individual to which administrative
authority has been delegated) shall have the authority to interpret and construe
any and all provisions of the Plan. Any determination made by the Compensation
Committee (or the entity or individual to which administrative authority has
been delegated) shall be final and conclusive.
10.2 Indemnification. Neither the Company, any participating affiliate,
nor the Board of Directors, or any member or any committee thereof, of the
Company or any participating affiliate, nor any employee of the Company or any
participating affiliate shall be liable for any act, omission, interpretation,
construction or determination made in connection with the Plan in good faith;
and the members of the Company's Board of Directors, the Compensation Committee
and/or the employees of the Company or any participating affiliate shall be
entitled to indemnification and reimbursement by the Company to the maximum
extent permitted by law in respect of any claim, loss, damage or expense
(including counsel's fees) arising from their acts, omission and conduct in
their official capacity with respect to the Plan.
11. GENERAL PROVISIONS.
11.1 Non-Guarantee of Employment. Nothing contained in this Plan shall be
construed as a contract of employment between the Company and/or a participating
affiliate and a Participant, and nothing in this Plan shall confer upon any
Participant any right to continued employment with the Company or a
participating affiliate, or to interfere with the right of the Company or a
participating affiliate to discharge a Participant, with or without cause.
11.2 Interests Not Transferable. Except as to withholding of any tax
under the laws of the United States or any state or locality, no benefits under
the Plan shall be subject in any manner to alienation, sale, transfer,
assignment, pledge, attachment or other legal process, or encumbrance of any
kind, and any attempt to do so shall be void.
11.3 Facility Payment. Any amounts payable hereunder to any person under
legal disability or who, in the judgment of the Company's Board of Directors
and/or the Compensation Committee, is unable to properly manage his financial
affairs, may be paid to the legal representative of such person, or may be
applied for the benefit of such person in any manner which the Company's
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<PAGE> 4
Board of Directors and/or the Compensation Committee may select, and each
participating affiliate shall be relieved of any further liability for payment
of such amounts.
11.4 Tax Withholding. The Company and/or any participating affiliate may
deduct from any payments otherwise due under this Plan to a Participant (or
beneficiary) amounts required by law to be withheld for purposes of federal,
state or local taxes.
11.5 Gender and Number. Words in the masculine gender shall include the
feminine gender, the plural shall include the singular and the singular shall
include the plural.
11.6 Controlling Law. To the extent not superseded by federal law, the
law of the State of Delaware shall be controlling in all matters relating to the
Plan.
11.7 No Rights to Award. No person shall have any claim to be granted any
award under the Plan, and there is no obligation for uniformity of treatment of
participants. The terms and conditions of awards need not be the same with
respect to each recipient.
11.8 Severability. If any provision of the Plan or any award is or
becomes or is deemed to be invalid, illegal, or unenforceable in any
jurisdiction or as to any person or award, or would disqualify the Plan or any
award under the law deemed applicable by the Compensation Committee, such
provision shall be construed or deemed amended to conform to the applicable
laws, or if it cannot be construed or deemed amended without, in the
determination of the Compensation Committee, materially altering the intent of
the Plan or the award, such provision shall be stricken as to such jurisdiction,
person or award and the remainder of the Plan and any such award shall remain in
full force and effect.
11.9 No Trust or Fund Created. Neither the Plan nor any award shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any participating affiliate and a
participant or any other person. To the extent that any person acquires a right
to receive payments from the Company or any participating affiliate pursuant to
an award, such right shall be no greater than the right of any general unsecured
creditor of the Company or any participating affiliate.
11.10 Headings. Headings are given to the Sections of the Plan solely as
a convenience to facilitate reference. Such headings shall not be deemed in any
way material or relevant to the construction or interpretation of the Plan or
any provision thereof.
IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the
foregoing instrument compromising the Plan, the Company has caused these
presents to be duly executed in its name and behalf by its proper officer
thereunder authorized this ____________________, 1999.
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ALLIANCE RESOURCE MANAGEMENT GP, LLC
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
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<PAGE> 1
EXHIBIT 10.6
ALLIANCE RESOURCE MANAGEMENT GP, LLC
EMPLOYMENT AGREEMENT
AGREEMENT, effective as of the date of closing of the initial public
offering of Alliance Resource Partners, L.P. (the "Effective Date"), among
Alliance Resource Partners, L.P. ("Alliance"), Alliance Resource Holdings, Inc.
("Alliance Holdings"); and
Alliance Resource Management GP, LLC (the "Managing General Partner")
(reference below to the "Company" shall include either or all of Alliance,
Alliance Holdings and the Managing General Partner), and [ ] (the
"Executive").
WHEREAS, the Company wishes to obtain the continued services of the
Executive; WHEREAS, the Executive is willing to commit to continued employment
with the Company on the terms herein provided;
WHEREAS, both the Executive and the Company desire that this Agreement
shall supercede and render invalid any previous employment agreement between
the Executive and Alliance Coal Corporation or its successors;
NOW, THEREFORE, in consideration of the premises and mutual covenants
and agreements of the parties herein contained, the parties hereto agree as
follows:
1. Term.
(a) General. Subject to the provisions for earlier termination
hereinafter provided, the Executive's employment hereunder shall be for a term
commencing on the Effective Date and ending on December 31, 2001 (the
"Agreement Expiration Date"); provided, however, that the Agreement Expiration
Date shall be automatically extended for successive one year periods beginning
on January 1, 2002, and each January 1 thereafter unless the Board of Directors
of the Company (the
<PAGE> 2
"Board") or the Executive shall give contrary written notice to the other party
pursuant to the terms of Section 10 below at least twelve (12) months prior to
the date on which the Agreement would otherwise renew.
(b) Non-Renewal by the Company. In the event the Company gives written
notice that it shall not extend the Agreement ("Non-Renewal"), on the earlier
of the Agreement Expiration Date or the last day of employment of the Executive
(unless terminated for Cause as defined below), the Executive shall receive a
payment equal to 135% of the Base Salary as in effect on the payment date (the
"Non-Renewal Payment").
(c) Change in Control. Notwithstanding the foregoing, in the event a
Change in Control of the Company occurs during the Employment Term, the
Employment Term shall continue to the later of the then Agreement Expiration
Date or the end of the twenty-fourth (24th) full calendar month following the
date of the Change in Control. For purposes of this Agreement, a "Change in
Control" of the Company shall be deemed to have occurred if (i)The Beacon Group
LLC or its affiliates, including any funds under its management ("Beacon"), no
longer directly or indirectly owns a controlling interest in the Managing
General Partner or (ii) if the Managing General Partner has sold a significant
portion of the assets of Alliance under its control.
In the event a Non-Renewal notice has been given and thereafter a
Change in Control should occur within one hundred eighty (180) days of the
earlier of the Agreement Expiration Date or the Executive's last day of
employment with the Company (other than a termination for Cause, death or
disability), then the Executive shall receive the payments described in Section
4(d)(v) below, less the Non-Renewal Payment described above, if already paid
out.
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<PAGE> 3
2. Positions and Duties.
During the Employment Term the Executive shall serve as [ ] and
shall perform such employment duties, consistent with his position, as
specified by the Board of Directors of the Company (the "Board") and the Chief
Executive Officer. The Executive shall devote his full productive time, energy
and ability to the proper and efficient conduct of the Company's business. The
Executive may participate as a passive investor in other business enterprises
and engage in such community activities as shall not interfere with the
performance of his obligations hereunder and as are approved in advance by the
Board or the Chief Executive Officer. The Executive shall observe and comply
with all lawful and reasonable rules of conduct set by the Board for executives
of the Company, and shall endeavor to promote the business, reputation and
interests of the Company.
3. Compensation.
(a) Salary. During the Employment Term the Company shall pay the
Executive a base salary of [ ] dollars ($[ ]) per annum, subject to review
annually for such increases as the Board in its sole discretion may determine
(such amount, as so increased in the Board's discretion, being hereinafter
referred to as the "Base Salary"). The Base Salary shall be paid in accordance
with the Company's normal payroll practices.
(b) Other Compensation.
(i) Short-Term Incentive Plan. The Executive shall be entitled to
participate in the Short-term Incentive Plan of the Company (the "SIP") on the
same basis as other similarly situated executives of the Company. The Company
may equitably adjust the SIP in the event of an acquisition by the Company of
ten million dollars ($10,000,000) or more in order to reflect appropriate
changes in earnings before interest, taxes, depreciation and amortization or
other targets.
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(ii) Long-Term Incentive Plan. The Executive shall be entitled to
participate in the Long-term Incentive (the "LTIP") on the same basis as other
similarly situated executives of the Company.
(iii) Changes to Plans. It is understood that the Company may,
from time to time, amend the SIP, the LTIP and any other of its incentive,
compensation and benefit plans and programs (a "Compensation Plan"). However,
the Company shall maintain, with respect to the Executive, plans or programs
relating to annual short-term incentive, long-term incentive and supplemental
pension which provide, in the aggregate, a compensation opportunity equivalent
to the aggregate opportunity currently provided by the SIP, the LTIP and the
Company's Supplemental Executive Retirement Plan (the "SERP").
(c) Expenses. The Executive shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by him in the course of his
employment by the Company hereunder, as per Company policies currently in
effect, provided that the Executive properly accounts therefor.
(d) Other Benefits.
(i) The Executive shall be entitled to participate in or receive
benefits on the same basis as other executive officers of the Company under the
Company's employee benefit plans and arrangements for senior management and
their dependents, as applicable, including life insurance plans, pension and
profit-sharing plans (including the SERP), medical and health plans or other
employee welfare benefit plans, annual paid vacation, sick leave, sick pay and
short-term and long-term disability benefits and holidays, as in effect from
time to time.
(ii) Without limiting the generality of the foregoing, the
Executive shall be entitled to reimbursement for expenses of personal financial
advice (including tax preparation, legal
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and estate planning) up to a maximum of three thousand dollars ($3,000) per
year and annual physical examination expenses.
4. Termination.
The Executive's employment by the Company pursuant hereto is subject
to termination during the Employment Term as follows:
(a) Death. The Executive's employment hereunder shall terminate upon
his death. In such event, the Executive's Base Salary shall be paid through the
date of death, and eligibility for all other benefits shall be determined by
the terms of the applicable plan or program.
(b) Disability. The Company may, by written notice to the Executive,
terminate the Executive's employment if, as a result of the Executive's
incapacity due to physical or mental illness, the Executive shall have been
absent from his duties hereunder on a full time basis for six (6) months (the
"Disability Period"). The Executive's Base Salary shall continue to be paid
during the Disability Period and subsequently in accordance with Company
disability policies, and eligibility for all other benefits shall be determined
by the terms of any applicable plan or program.
(c) Termination by the Company for Cause or Executive's Voluntary
Termination. The Company shall be entitled to terminate the Executive's
employment at any time under this Section 4(c), by written notice to the
Executive delivered pursuant to Section 10, if it has "Cause", which shall
mean:
(i) fraud or embezzlement on the part of the Executive;
(ii) conviction of or the entry of a plea of nolo contendere by
the Executive to any felony;
(iii) gross insubordination or a material breach of, or the
willful failure or refusal by the Executive to perform and discharge his
duties, responsibilities or
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obligations under this Agreement (other than by reason of disability or death)
that is not corrected within thirty (30) days following written notice thereof
to the Executive by the Company, such notice to state with specificity the
nature of the breach, failure or refusal; or
(iv) any act of willful misconduct by the Executive which (A) is
intended to result in substantial personal enrichment of the Executive at the
expense of the Company and its affiliates or (B) has a material adverse impact
on the business or reputation of the Company and its affiliates (such
determination to be made by the Board in the good faith exercise of its
reasonable judgment).
In addition, the Executive may terminate employment hereunder
voluntarily at any time by written notice to the Company. In the event of
termination for Cause or by the Executive's voluntary termination, the
Executive's Base Salary and other benefits shall be paid through the Date of
Termination (as hereafter defined), and the Executive shall have no further
rights to compensation or benefits other than as determined by the terms of any
applicable plan or program.
(d) Without Cause. The Company may terminate the Executive's
employment at any time by giving written notice to the Executive of its intent
to terminate this Agreement without Cause. In such event:
(i) the Executive shall be paid Base Salary and other benefits to
which the Executive is entitled through the Date of Termination;
(ii) the Executive shall be paid continuation of Base Salary for a
period of eighteen (18) months, plus a lump sum payment, payable at the end of
the salary continuation period, equal to one hundred fifty percent (150%) of
the highest award of
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incentive compensation paid pursuant to the SIP in the current or three (3)
prior years (which for this purpose shall include payments made by Alliance
Coal Corporation);
(iii) all awards held by the Executive under the LTIP (options and
restricted units) shall become immediately payable and exercisable and any
restrictions on the sale of units shall be lifted.
(iv) the Executive shall be provided, at a cost to the Executive
not greater than the cost prior to termination, the same or equivalent group
health, accident, disability and life insurance coverage as in effect for the
Executive immediately prior to the Date of Termination, until the earlier of
(A) eighteen (18) months following the Date of Termination or (B) the date the
Executive has commenced new employment and has thereby become eligible for
similar benefits; and
(v) Notwithstanding the foregoing, in the event a Change in
Control occurs during the Employment Term or within one hundred eighty (180)
days following the Date of Termination, (i) the payments described in Section
4(d)(ii) above shall be for a period of twenty-four (24) months instead of
eighteen (18) months, for Base Salary and two hundred percent (200%) instead of
one hundred fifty (150%) for incentive compensation (and, at the election of
the Executive within ten (10) days of receipt of the notice of the termination
of his employment (which election shall govern any additional payments due if a
Change in Control occurs after such election), he may receive a lump sum
payment in respect of the Base Salary and incentive compensation payments
discounted at the average interest rate charged on the Company's debt at the
time of such election, such payment to be made within thirty (30) days of the
Date of Termination). Any non-vested restricted units and options previously
granted to the Executive shall be immediately vested and
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<PAGE> 8
exercisable (and if already forfeited, such awards shall be reinstated as
vested awards or the Company, in its discretion, may pay the Executive such
awards in common units or cash) and all restricted units (whether vested or
unvested) held by the Executive under any LTIP shall become immediately payable
by the Company and any restrictions on the sale of such vested units shall be
lifted.
(vi) the Executive shall have such other rights in respect of any
incentive or other compensation plan as may be set forth in such plan.
(e) Good Reason. The Executive shall be entitled to terminate his
employment at any time under this Section 4(e), by written notice to the
Company delivered pursuant to Section 10, if he has "Good Reason", which shall
mean:
(i) reduction in his Base Salary;
(ii) the Company's failure to pay him any compensation due under
this Agreement;
(iii) the Company's failure to continue to provide benefits
substantially similar to those then enjoyed by the Executive unless the Company
provides aggregate benefits equivalent to those then in effect;
(iv) the Company's failure to continue a Compensation Plan or to
continue the Executive's participation in a plan on a basis not materially less
favorable to the Executive, subject to the power of the Board to amend such
plans as provided in Section 3(b)(iii) herein;
(v) the Company's failure, no less than five (5) days prior to any
transaction in which any person is to become a successor to the Company, to
obtain the
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written agreement of such successor to perform this Agreement from and after
such transaction;
(vi) the Company's purported termination of the Executive's
employment for Cause or disability not pursuant to a procedure indicating the
specific provision of this Agreement relied upon by the Company as the basis
for such termination of employment;
(vii) an action whereby Beacon conveys, or agrees to convey
pursuant to a binding agreement, voting control (as contrasted with a
"controlling interest" in Section 1(c)) of the Company to a Strategic
Competitor. For the purposes of this agreement, a "Strategic Competitor" shall
mean any person who directly or indirectly controls or operates a coal mining
business which is in competition with the Company; or
(viii) the receipt of written notice from the Company to not
extend the Employment Term pursuant to Section 1(a) hereof; provided however,
in such event the Executive's remedies shall be limited to those set forth in
Section 1(b) or 1(c) hereof.
The Executive may not terminate for Good Reason unless he has
given written notice delivered pursuant to Section 10 hereof to the Company of
the action or inaction giving rise to Good Reason, and if such action or
inaction is not corrected within thirty (30) days thereafter, such notice to
state with specificity the nature of the breach, failure or refusal.
In the event of termination for Good Reason, except pursuant to
Section 4(e)(viii), the Executive's compensation and other rights shall be the
same as applicable in the event of a termination by the Company without Cause
as described in Section 4(d) above.
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<PAGE> 10
(f) Date of Termination. The date on which a termination pursuant to
this Section 4 becomes effective (the "Date of Termination" or "Termination
Date") shall be:
(i) in the case of a termination pursuant to Sections 4(b), 4(d)
or 4(e) hereof, the date on which the party terminating this Agreement gives
the other party written notice thereof in accordance with Section 10 hereof;
(ii) in the case of a termination pursuant to Section 4(a) hereof,
the date of death of the Executive; or
(iii) in the case of a termination pursuant to Section 4(c), the
later of the date on which written notice is given in accordance with Section
10 hereof or the end of the thirty (30) day "cure" period.
5. Confidential Information.
(a) The Executive recognizes that the services to be performed by him
hereunder are special, unique and extraordinary and that, by reason of his
employment with the Company, he may acquire Confidential Information (as
hereinafter defined) concerning the operation of the Company, the use or
disclosure of which would cause the Company substantial loss and damage which
could not be readily calculated and for which no remedy at law would be
adequate. Accordingly, the Executive agrees that he will not (directly or
indirectly) at any time, whether during or after the Employment Term:
(i) knowingly use for an improper personal benefit any
Confidential Information that he may learn or has learned by reason of his
employment with the Company; or
(ii) disclose any such Confidential Information to any person
except (A) in the performance of his obligations to the Company hereunder, (B)
in connection with the
10
<PAGE> 11
enforcement of his rights under this Employment Agreement or (C) with the prior
consent of the Board.
As used herein "Confidential Information" includes information
with respect to the Company's facilities and methods, trade secrets and other
intellectual property, systems, patents and patent applications, procedures,
manuals, confidential reports, financial information, business plans, prospects
or opportunities, personnel information or lists of customers and suppliers;
provided, however, that such term shall not include any information that (x) is
or becomes generally known or available publicly other than as a result of
disclosure by the Executive which is not permitted as described in clause (ii)
above, or (y) the Company discloses to others without obtaining an agreement of
confidentiality.
(b) The Executive confirms that all Confidential Information is the
exclusive property of the Company. All business records, papers and documents
and electronic materials kept or made by the Executive relating to the business
of the Company which comprise Confidential Information shall be and remain the
property of the Company during the Employment Term and all times thereafter.
Upon the termination of his employment with the Company or upon the request of
the Company at any time, the Executive shall promptly deliver to the Company,
and shall retain no copies of, any written or electronic materials, records and
documents made by the Executive or coming into his possession concerning the
business or affairs of the Company and which comprise Confidential Information.
(c) The Executive shall keep the terms of this Agreement strictly
confidential, other than as may be necessary to enforce his rights hereunder or
as otherwise required by
11
<PAGE> 12
law and except for estate planning or personal financial reasons; however, the
parties acknowledge that a copy of this Agreement (or a form of executive
agreement) may become public as required by applicable securities laws.
6. Non-Competition.
(a) In the event of termination of the Executive's employment by the
Company without Cause or by the Executive for Good Reason and for a period
equal to the number of months of Base Salary paid pursuant to Section 4(d)(ii)
or Section 4(d)(v) herein (whether or not a lump sum is elected), whichever is
applicable, (the "Restricted Period"), the Executive shall not (i) directly or
indirectly, for his own account or for the account of others, as an officer,
director, stockholder, owner, partner, employee, promoter, consultant, manager
or otherwise participate in the promotion, financing, ownership, operation, or
management of, or assist in or carry on through a proprietorship, corporation,
partnership or other form of business entity or otherwise the, location
development, mining and processing of coal (the "Business"), within the United
States or any other country in which the Company is conducting or is actively
planning to conduct Business as of the date of such termination, or (ii)
solicit or contact in an effort to do business with any person who was a
customer of the Company during the term of this Agreement, or any affiliate of
any such person, if such solicitation or contact is in competition with the
Company. Provided, however, that the Executive may, after the Termination Date,
elect not to be subject to the restrictions of the previous sentence by
delivering written notice to the Company, delivered as provided in Section 10,
irrevocably waiving his right to any future payment of amounts otherwise owing
to him under Sections 4(d)(ii) or Section 4(d)(v) whichever is applicable. Any
violation of the provisions of the first sentence hereof shall cause the
Executive to
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<PAGE> 13
forfeit all right to further compensation under Section 4(d)(ii) or 4(d)(v)
above as applicable. Nothing in this Section 6 shall prohibit the Executive
from acquiring or holding any issue of stock or securities of any person that
has any securities registered under Section 12 of the Securities Exchange Act
of 1934 as amended, listed on a national securities exchange or quoted on the
automated quotation system of the National Association of Securities Dealers,
Inc. so long as (x) the Executive is not deemed to be an "affiliate" of such
person as such term is used in paragraphs (c) and (d) of Rule 145 under the
Securities Act of 1933, as amended, and (y) the Executive, members of his
immediate family or persons under his control do not own or hold more than five
percent (5%) of any voting securities of any such person. The provisions of
clause (i) of this Section 6(a) shall not be effective as to any termination
that occurs as a result of and within one hundred eighty (180) days of a Change
in Control.
(b) During the period of his employment and for one year thereafter,
the Executive shall not, whether for his own account or for the account of any
other person (excluding the Company), solicit or induce any of the Company's
employees to leave their employment with the Company or accept employment with
anyone else or hire any such employees.
(c) The Executive has carefully read and considered the provisions of
this Section 6 and, having done so, agrees that the restrictions set forth in
this Section 6 (including the Restricted Period, scope of activity to be
restrained and the geographical scope) are fair and reasonable and are
reasonably required for the protection of the interests of the Company, its
officers, directors, employees, creditors and shareholders. The Executive
understands that the restrictions contained in this Section 6 may limit his
ability
13
<PAGE> 14
to engage in a business similar to the Company's business, but acknowledges
that he will receive sufficiently high remuneration and other benefits from the
Company hereunder to justify such restrictions.
7. Breach of Section 5 and Section 6.
The Executive acknowledges that a breach of any of the covenants
contained in Section 5 and Section 6 hereof may result in material, irreparable
injury to the Company for which there is no adequate remedy at law, that it
will not be possible to measure damages for such injuries precisely and that,
in the event of such a breach, any payments remaining under the terms of this
Agreement shall cease and the Company shall be entitled to obtain a temporary
restraining order and a preliminary or permanent injunction restraining the
Executive from engaging in activities prohibited by Section 5 or Section 6
hereof or such other relief as may be required to enforce any of the covenants
contained in Section 5 or Section 6 hereof.
8. Indemnification.
The Company agrees to indemnify the Executive to the fullest
extent permitted by law and shall maintain directors and officers insurance at
levels reasonably satisfactory to the Board.
9. Successors; Binding Agreement.
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption
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<PAGE> 15
and agreement prior to the effectiveness of any such succession shall be a
material breach of this Agreement. As used in this Employment Agreement,
"Company" shall mean the Company as defined above and any successor to its
business and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amount would still be payable to him hereunder if he had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Executive's devisee,
legatee or other designee or, if there is no such designee, to the Executive's
estate. This Agreement is personal to the Executive and may not be assigned by
him.
10. Notice.
For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered by hand or mailed by United
States overnight express mail, or nationally recognized private delivery
service on an overnight basis, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive:
[ ]
[ ]
[ ]
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<PAGE> 16
If to the Company:
Alliance Resource Management GP, LLC
1717 South Boulder Street
Tulsa, OK 74119
Attn: President and Chief Executive Officer
Notices may also be sent to such other address as either party may
have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon receipt.
11. Withholding.
Anything to the contrary notwithstanding, all payments required to
be made by the Company hereunder to the Executive, his spouse, his estate or
beneficiaries, shall be subject to withholding of such amounts relating to
taxes as the Company may reasonably determine it should withhold pursuant to
any applicable law or regulation. In lieu of withholding such amounts in whole
or in part, the Company may, in its sole discretion, accept other provisions
for payment of taxes as required by law, provided it is satisfied that all
requirements of law affecting its responsibilities to withhold such taxes have
been satisfied.
12. Miscellaneous.
No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in
writing and signed by the Executive and such officer of the Company as may be
specifically designated by the Board. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the
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<PAGE> 17
same or at any prior or subsequent time. No agreements or representations, oral
or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not expressly set forth in this
Agreement. This Agreement, upon its Effective Date, shall supercede and render
invalid any prior agreement between the Executive and the Company, Alliance
Coal Corporation or its successors. The validity, interpretation, construction
and performance of this Agreement shall be governed by the laws of the State of
New York
13. Arbitration.
Any controversy or claim arising out of or relating to this
Agreement or the breach thereof, excepting any controversy or claim arising out
of or relating to Sections 5 or 6 of this Agreement or any breach thereof,
shall be settled by arbitration before a panel of three arbitrators
administered by the American Arbitration Association under its Commercial
Arbitration Rules, and judgment on the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. In any such arbitration, the
arbitrator shall not have the power to reform or modify this Agreement in any
way and to that extent their powers are so limited. Neither party shall resort
to litigation except to enforce or appeal from such arbitration or to enforce
Sections 5 and 6 of this Agreement.
14. Validity.
The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
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<PAGE> 18
15. Counterparts.
This Agreement may be executed in several counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date and year first above written.
ALLIANCE RESOURCE PARTNERS, L.P.
By: Date:
------------------------------------------ --------------------------
Name:
----------------------------------------
Title:
---------------------------------------
ALLIANCE RESOURCE MANAGEMENT GP, LLC
By: Date:
------------------------------------------ --------------------------
Name:
----------------------------------------
Title:
---------------------------------------
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<PAGE> 19
ALLIANCE RESOURCE HOLDINGS, INC.
By: Date:
------------------------------------------ --------------------------
Name:
----------------------------------------
Title:
---------------------------------------
EXECUTIVE:
By: Date:
------------------------------------------ --------------------------
Name:
----------------------------------------
Title:
---------------------------------------
19
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES
First Tier Subsidiary:
Alliance Resource Operating Partners, L.P. ("AROP") (98.9999% limited partner
interest)
Second Tier Subsidiary:
Alliance Coal, LLC ("ALLC") (AROP holds a 99.999% non-managing
membership interest)
Third Tier Subsidiaries: (ALLC holds a 100% membership interest in each of
the third-tier subsidiaries)
Alliance Land, LLC
Alliance Properties, LLC
Backbone Mountain, LLC
Excel Mining, LLC
Gibson County Coal, LLC
Hopkins County Coal, LLC
MC Mining, LLC
Mettiki Coal, LLC
Mettiki Coal (WV), LLC
Mt. Vernon Transfer Terminal, LLC
Pontiki Coal, LLC
Toptiki Coal, LLC
Webster County Coal, LLC
White County Coal, LLC
All of the above entities are formed under the laws of the state of Delaware.
<PAGE> 1
EXHIBIT 23.1
Independent Auditors' Consent
We consent to the use in this Amendment No. 4 to Registration Statement
No.333-78845 of Alliance Resource Partners, L.P. on Form S-1 of our report
dated May 14, 1999 relating to the combined financial statements of Alliance
Resource Group which expresses an unqualified opinion and includes an
explanatory paragraph relating to the non-comparability of predecessor and
successor financial statements due to the business combination on August 1,
1996 and the resulting application of purchase accounting and of our reports
dated May 17, 1999 relating to the balance sheets of Alliance Resource
Partners, L.P. and Alliance Resource GP, LLC and of our report dated July 20,
1999 relating to the balance sheet of Alliance Resource Management GP, LLC
which express unqualified opinions appearing in the Prospectus, which is
part of such Registration Statement, and the reference to us under the
heading "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Tulsa, Oklahoma
August 9, 1999
<PAGE> 1
EXHIBIT 23.4
[RESOURCE DATA INTERNATIONAL LETTERHEAD]
June 29, 1999
Thomas L. Pearson, Esq.
Alliance Coal Corporation
1717 South Border Avenue
Tulsa, OK 74119
Re: Securities and Exchange Commission
Alliance Coal Partners, L.P. Registration Statement on Form S-1
(Registration No. 333-78845)
Gentlemen:
Resource Data International consents to the including of certain
statistical coal industry information compiled by us in the Registration
Statement on Form S-1 of Alliance Resource Partners, L.P. (Registration No.
333-78845) and to reference to our company in such registration statement.
Resource Data International has no interests in Alliance Resource
Partners, L.P. or any of its affiliated companies of subsidiaries and is not to
receive any such interest as payment for such reports and has no directors,
officer, or employee, or otherwise, connected with Alliance Resource Partners,
L.P. We are not employed by Alliance Resource Partners, L.P.
Yours very truly,
RESOURCE DATA INTERNATIONAL
/s/ RONALD L. McMAHAN
Ronald L. McMahan
Chief Executive Officer
<PAGE> 1
EXHIBIT 23.5
[NATIONAL MINING ASSOCIATION LETTERHEAD]
June 29, 1999
Thomas L. Pearson, Esq.
Alliance Resource Partners, L.P.
1717 South Boulevard
P.O. Box 22027
Tulsa, Oklahoma 74121-2027
Re: Securities and Exchange Commission
Alliance Coal Partners, L.P. Registration Statement on Form S-1
(Registration No. 333-78845)
Dear Mr. Pearson:
National Mining Association consents to the including of certain
statistical coal industry information compiled by us in the Registration
Statement on Form S-1 of Alliance Resource Partners, L.P. (Registration No.
333-78845) and to reference to our company in such registration statement.
National Mining Association has no interests in Alliance Resource
Partners, L.P. or any of its affiliated companies or subsidiaries and is not to
receive any such interest as payments for such reports and has no directors,
officer, or employee, or otherwise, connected with Alliance Resource Partners,
L.P. We are not employed by Alliance Resource Partners, L.P.
Yours very truly,
NATIONAL MINING ASSOCIATION
By: /s/ HAROLD P. QUINN, JR.
--------------------------------------
Harold P. Quinn, Jr.
Sr. Vice President, General Counsel
and Secretary
