<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 30, 1999
REGISTRATION NO. 333-78845
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1 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)
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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>
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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. [ ]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED PRICE(1)(2) REGISTRATION FEE(3)
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Common Units representing limited partners
interests..................................... $223,625,136 $62,168
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</TABLE>
(1) Includes Common Units issuable upon exercise of the Underwriters'
over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o).
(3) Of this amount, $61,252 was paid with the original filing.
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 JUNE 30, 1999
PROSPECTUS
9,259,840 COMMON UNITS
ALLIANCE RESOURCE PARTNERS, L.P.
REPRESENTING LIMITED PARTNER INTERESTS
$ PER UNIT
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Alliance Resource Partners, L.P. is selling 9,259,840 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
1,388,976 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
June 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 and will apply to have the common units listed on
the New York Stock Exchange under the symbol "ARP".
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INVESTING IN THE COMMON UNITS INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 18.
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.
- A trading market may not develop for the units or you may not be able to
resell your units at the initial offering price.
- 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.
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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>
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GUIDE TO READING THIS PROSPECTUS................. (iii)
PROSPECTUS SUMMARY............................... 1
Alliance Resource Partners..................... 1
Partnership Structure and Management........... 4
The Offering................................... 6
Summary Historical and Pro Forma Financial and
Operating Data of Alliance Resource
Partners..................................... 8
Summary of Risk Factors........................ 10
The Transactions............................... 12
Summary of Conflicts of Interest and Fiduciary
Responsibilities............................. 13
Distributions and Payments to the General
Partners and their Affiliates................ 14
Summary of Tax Considerations.................. 16
RISK FACTORS..................................... 18
Risks Inherent in an Investment in Alliance
Resource Partners............................ 18
Risks Inherent in Our Business................. 21
Regulatory Risks............................... 29
Tax Risks to Common Unitholders................ 33
USE OF PROCEEDS.................................. 36
CAPITALIZATION................................... 37
DILUTION......................................... 38
CASH DISTRIBUTION POLICY......................... 39
Quarterly Distributions of Available Cash...... 39
Available Cash................................. 39
Operating Surplus and Capital Surplus.......... 39
Maintenance and Expansion Capital
Expenditures................................. 40
Distributions of Available Cash from Operating
Surplus During the Subordination Period...... 41
Distributions of Available Cash from Operating
Surplus After the Subordination Period....... 41
Subordination Period; Conversion of
Subordinated Units........................... 41
Incentive Distribution Rights.................. 42
Distributions from Capital Surplus............. 44
Adjustment of Minimum Quarterly Distribution
and Target Distribution Levels............... 45
Distributions of Cash Upon Liquidation......... 45
CASH AVAILABLE FOR DISTRIBUTION.................. 48
SELECTED HISTORICAL AND PRO FORMA FINANCIAL AND
OPERATING DATA OF ALLIANCE RESOURCE PARTNERS... 50
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............ 52
Results of Operations.......................... 54
Liquidity and Capital Resources................ 57
Inflation...................................... 60
Impact of Year 2000 Issue...................... 60
Recent Accounting Pronouncements............... 62
COAL INDUSTRY OVERVIEW........................... 63
Demand for Coal................................ 63
Generation of Electricity...................... 64
Coal Imports and Exports....................... 65
Coal Production................................ 66
Coal Types..................................... 66
Coal Qualities................................. 67
Coal Regions................................... 68
Mining Methods................................. 69
Coal Preparation............................... 70
Coal Prices.................................... 70
Transportation................................. 71
Deregulation of the Electric Utility
Industry..................................... 71
BUSINESS......................................... 73
Business Strategy.............................. 73
Competitive Strengths.......................... 74
Coal Reserves.................................. 75
Mining Methods................................. 76
Mining Operations and Production............... 76
Other Operations............................... 78
Coal Transportation............................ 79
Customers...................................... 79
Coal Contracts................................. 80
Employees and Labor Relations.................. 81
Competition.................................... 81
Legal Proceedings.............................. 82
Regulation..................................... 82
Other Environmental, Health and Safety
Regulation................................... 89
MANAGEMENT....................................... 90
The Managing General Partner Will Manage
Alliance Resource Partners................... 90
Directors and Executive Officers of the
Managing General Partner..................... 90
Reimbursement of Expenses of the Managing
General Partner.............................. 92
Executive Compensation......................... 92
Compensation of Directors...................... 93
Employment Agreements.......................... 93
Long-Term Incentive Plan....................... 93
Short-Term Incentive Plan...................... 94
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND
MANAGEMENT..................................... 95
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS... 97
Agreements Governing the Transactions.......... 97
Relationship with Alliance Resource Holdings... 97
CONFLICTS OF INTEREST AND FIDUCIARY
RESPONSIBILITIES............................... 98
</TABLE>
(i)
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<TABLE>
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Conflicts of Interest.......................... 98
Fiduciary Duties Owed to Unitholders by the
General Partners are Prescribed by Law and
the Partnership Agreement.................... 100
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......... 109
Merger, Sale or Other Disposition of Assets.... 111
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............................ 118
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>
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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, approximately 84% is committed to electric utilities
with investment grade credit ratings.
- WE POSSESS SUBSTANTIAL LONG-LIVED RESERVES WITH ADJACENT EXPANSION
OPPORTUNITIES. Our total 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
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 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.
- NATURAL GAS PRICES ARE HIGHER AND MORE VOLATILE THAN COAL 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
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. Our managing general partner is owned % by management
and % by funds managed by The Beacon Group and its affiliates. 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."
3
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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 each of Alliance Coal, LLC and MC Mining,
LLC;
- 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
each of Alliance Coal, LLC and MC Mining, LLC.
The general partners, therefore, will own a combined 2% general
partner/managing interest in Alliance Resource Partners, the intermediate
partnership and the subsidiaries 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 subsidiaries
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 subsidiaries individually and not on a combined
basis, unlike the other presentations in this prospectus.
4
<PAGE> 10
Organizational chart depicting the following organizational and ownership
information.
Ownership of Alliance Resource GP, LLC (the General Partner)
Percentage Interest Interest Held By
- ------------------- ----------------
100% Alliance Coal Corporation
Ownership of Alliance Resource Partners, L.P.
(the Partnership)
<TABLE>
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Percentage/Type of Interest Held Number/Type of Units Rights Interest Held By
- -------------------------------- --------------------------- ----------------
1% general partner incentive distribution rights Alliance Resource GP, LLC
41.3% limited partner 6,523,168 subordinated units Alliance Resource GP, LLC
57.7% limited partner 9,123,311 common units public unitholders
</TABLE>
Ownership of Alliance Operating Partners, L.P.
(the Intermediate Partnership)
Percentage Interest Interest Held By
- ------------------- ----------------
1.0101% general partner Alliance Resource GP, LLC
98.9899% limited partner Alliance Resource Partners, L.P.
Ownership of Each of MAPCO Coal, LLC and MC Mining, LLC
(each an Operating Subsidiary)
Percentage Interest Interest Held By
- ------------------- ----------------
.001% managing Alliance Resource GP, LLC
99.999% non-managing Alliance Operating Partners, L.P.
Effective Aggregate Ownership of Alliance
Resource Partners and the Operating Subsidiaries
Public common unitholders ........................... 57.1%
Alliance Resource GP, LLC's subordinated units ...... 40.9%
General partner interest ............................ 2.0%
5
<PAGE> 11
THE OFFERING
Common units offered....... 9,259,840 common units.
10,648,816 common units if the underwriters'
over-allotment option is exercised in full.
Units outstanding after
this offering.............. 9,259,840 common units and 6,620,786 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:
- 1,388,976 additional common units will be issued
and 694,488 subordinated units will be redeemed;
and
- 10,648,816 common units and 5,926,298
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 48 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
6
<PAGE> 12
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 the minimum quarterly distribution
on the common units and a minimal 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 June 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 June 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 4,629,920 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.
NYSE listing............... We intend to apply to list the common units on the
New York Stock Exchange under the symbol "ARP".
7
<PAGE> 13
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 17.9 -- -- 4.5
Unusual item(1)....................... -- 5.2 5.2 -- -- --
------ ------ ------ ------ ------ ------
Total operating expenses...... 296.3 349.3 367.0 83.6 78.8 83.3
------ ------ ------ ------ ------ ------
Income (loss) from operations........... 17.5 12.6 (5.1) 4.7 4.3 (0.2)
Other income (expense).................. 0.5 (0.1) 2.5 0.1 0.5 1.2
------ ------ ------ ------ ------ ------
Income (loss) before income taxes....... 18.0 12.5 (2.6) 4.8 4.8 1.0
Income tax expense (benefit)............ 4.3 3.8 -- 1.5 1.5 --
------ ------ ------ ------ ------ ------
Net income (loss)....................... $ 13.7 $ 8.7 $ (2.6) $ 3.3 $ 3.3 $ 1.0
====== ====== ====== ====== ====== ======
Pro forma net income (loss) per unit.... $(0.16) $ 0.06
====== ======
BALANCE SHEET DATA:
Working capital(2)...................... $ 10.3 $ 7.1 $ 19.5 $ 13.5 $ 61.6
Total assets............................ 245.8 261.1 281.7 264.8 316.4
Long-term debt.......................... 1.9 1.7 1.9 1.7 229.9
Total liabilities....................... 87.0 108.3 110.3 109.6 334.3
Net parent investment................... 158.8 152.8 171.4 155.2 --
Pro forma partners' equity (deficit).... -- -- -- -- (17.9)
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(3).................... $21.18 $20.14 $20.14 $20.47 $19.14 $19.14
OTHER FINANCIAL DATA:
EBITDA(4)............................... $ 51.7 $ 52.5 $ 52.5 $ 14.7 $ 14.7 $ 14.7
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(5)..... 15.2 17.2 17.2 4.8 5.0 5.0
Expansion and other capital
expenditures(5)....................... 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>
8
<PAGE> 14
- ---------------
(1) Represents the net loss incurred during the temporary closing of one of our
mining complexes in the second half of 1998.
(2) Excludes accounts receivable from affiliates.
(3) Cost per ton sold is based on the total of operating expenses, outside
purchases and general and administrative expenses divided by tons sold.
(4) EBITDA is defined as income (loss) before interest expense, income taxes and
depreciation, depletion and amortization. EBITDA does not include interest
income and has not been adjusted to add back unusual items. Pro forma other
income (expense) for the year ended December 31, 1998 and the quarter ended
March 31, 1999 includes $2.6 million and $0.7 million of interest income,
substantially all of which is attributable to U.S. Treasury notes. 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.
(5) 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."
9
<PAGE> 15
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.
- Our assumptions concerning future operations may not be realized.
- 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 managing general partner may be
substantial and could reduce our cash available for distribution.
- A trading market may not develop for the units or you may not be able to
resell your units at the initial offering price.
- 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 these consumption patterns by utilities away from the
use of coal could affect our ability to sell the coal we produce.
- Our customers may not 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.
- Some of our long-term contracts contain provisions allowing our customers
to suspend or terminate purchases under some circumstances.
- 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.
- 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 our coal.
If these providers' services were no longer available, our ability to
produce and sell coal would be adversely affected.
10
<PAGE> 16
- 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 in 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 and the establishment of financial reserves.
- 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 surety bonds to secure our
reclamation 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.
- Investors, other than individuals who are U.S. residents, may have
adverse tax consequences from owning units.
11
<PAGE> 17
- 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.
THE TRANSACTIONS
Concurrently with the closing of the offering of the common units, the
special general partner will:
- issue $180 million principal amount of % 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 $48.2 million under the term loan facility.
We do not anticipate that any amounts will be drawn 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).................................. $173.4
Senior notes private placement............................ 180.0
Term loan................................................. 48.2
------
$401.6
======
Uses of Funds:
Amounts retained by the special general partner(2)........ $228.2
Distribution to the special general partner(2)............ $ 81.1
Purchase of U.S. Treasury Notes........................... 48.2
Payment of expenses....................................... 5.9
Working capital and general corporate purposes............ 38.2
------
$401.6
======
</TABLE>
- ---------------
(1) After deducting underwriting discounts and commissions and placement fees,
but before deducting our other transaction expenses.
(2) Represents a reimbursement of the special general partner for capital
expenditures. The special general partner will, in turn, distribute all of
these amounts to Alliance Resource Holdings.
(3) Includes expenses associated with the senior notes private placement.
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.
12
<PAGE> 18
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. Except as provided in the preceding sentence, 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.
13
<PAGE> 19
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............. - 6,620,786 subordinated units;
- an aggregate 2% general partner interest in
Alliance Resource Partners, the intermediate
partnership and the subsidiaries on a combined
basis;
- the incentive distribution rights;
- $309.3 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. 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
Cash 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. If distributions exceed
the target levels, our managing general partner
will be entitled to increasing percentages of the
distributions, up to 50% of the distributions above
the highest target level.
On a pro forma basis, for the year ended December
31, 1998, our general partners would have received
distributions of approximately $0.6 million on the
combined 2% general partner interest and the
special general partner would have received a
distribution of approximately $13.2 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 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.
14
<PAGE> 20
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.
15
<PAGE> 21
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 PERCENT
We estimate that if you purchase common units in this offering and hold
them through December 31, 2001, you will be allocated an amount of federal
taxable income for that period which is less than % of the cash distributed
for that period. We anticipate that for taxable years beginning after December
31, 2001, 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.
16
<PAGE> 22
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.
17
<PAGE> 23
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. 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. 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. If our managing general partner is removed under
circumstances where cause does not exist and units held by our 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 the payment of the minimum quarterly
distribution on the common units will be extinguished; and
(3) our 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.
Cause for removal of the managing general partner exists only if a court of
competent jurisdiction has entered a final non-appealable judgment finding the
managing general partner liable for actual fraud, gross negligence or willful or
wanton misconduct in its capacity as managing general partner. 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. Further, if any person or
group other than our general partners or their affiliates, or a direct
transferee of our general partners or their affiliates, acquires beneficial
ownership of 20% or more of any class of units then outstanding, that person or
group will lose voting rights with respect to all of its units. As a result, the
holders of common units will have limited influence on matters affecting our
operations, and third parties may find it difficult to attempt to gain control
of us or influence our activities. These provisions may diminish the price at
which the common units will trade under some circumstances. See "The Partnership
Agreement -- Withdrawal or Removal of the General Partners" and "-- Change of
Management Provisions."
OUR ASSUMPTIONS CONCERNING FUTURE OPERATIONS MAY NOT BE REALIZED.
In establishing the terms of the offering, including the number and initial
offering price of the common units, the number of subordinated units to be
received by the special general partner and the
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amount of the minimum quarterly distribution, we have relied on specific
assumptions concerning our future operations. Whether the assumptions are
realized is not, in many cases, within our control and cannot be predicted with
any degree of certainty. If our assumptions are not realized, the actual amount
of cash available for distribution could be substantially less than that
currently expected and may be less in any quarter than that required to make the
minimum quarterly distribution. See "Cash Available for Distribution."
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 $(1.10) per unit. You will incur immediate
and substantial dilution of $21.10 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 the following
circumstances:
- upon exercise of the underwriters' over-allotment option;
- upon conversion of the subordinated units;
- in connection with Alliance Resource Partners' making acquisitions or
capital improvements that are accretive to our cash flow on a per-unit
basis;
- under employee benefit plans;
- upon conversion of the general partner interests and incentive
distribution rights into common units as a result of the withdrawal of
our general partners; or
- up to 4,629,920 additional common units for any reason.
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.
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, in which case
1,388,976 additional common units will be issued and 694,488 subordinated
units will be retired;
- 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.
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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 MANAGING GENERAL PARTNER MAY BE SUBSTANTIAL
AND COULD REDUCE OUR CASH AVAILABLE FOR DISTRIBUTION.
Prior to making any distribution on the common units, we will reimburse the
managing general partner and its affiliates, including officers and directors of
the managing general partner, 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 managing general
partner and its affiliates may provide us services for which we will be charged
reasonable fees as determined by the managing general partner.
A TRADING MARKET MAY NOT DEVELOP FOR THE UNITS OR YOU MAY NOT BE ABLE TO
RESELL YOUR UNITS AT THE INITIAL OFFERING PRICE.
Prior to the offering, there has been no public market for the common
units. We will apply to list the common units for trading on the NYSE. We do not
know the extent to which investor interest will lead to the development of a
trading market or how liquid that market might be. The initial public offering
price for the common units will be determined through negotiations between our
managing general partner and the representatives of the underwriters. Investors
may not be able to resell their common units at or above the initial public
offering price. See "Underwriting."
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.
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.
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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.
OUR CUSTOMERS MAY NOT EXTEND EXISTING OR ENTER INTO NEW LONG-TERM
CONTRACTS. THIS COULD AFFECT THE STABILITY AND PROFITABILITY OF OUR OPERATIONS.
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". We cannot assure you that we will continue to be able to obtain new
long-term sales contracts with reliable customers as existing contracts expire.
Long-term sales contracts have historically provided a relatively secure market
for the amount of production committed under the terms of the contract. 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. Current 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
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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.
Some of our long-term contracts contain price reopener provisions, giving
the purchaser the ability to negotiate better terms under some conditions. 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 CONTAIN PROVISIONS ALLOWING OUR CUSTOMERS
TO SUSPEND OR TERMINATE PURCHASES UNDER SOME CIRCUMSTANCES.
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. Some of these events
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 purchaser'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.
One of our contracts is an "above-market" requirements contract under which
the customer is obligated to purchase only the amount of coal that it needs for
its operations. This customer has already significantly reduced its purchases
under this contract. We cannot assure you that it will not further reduce its
purchases or cease purchasing altogether. If any of our long-term sales
contracts are terminated or their requirements are substantially reduced, we
could be affected adversely to the extent that we cannot find alternative
customers at the same price and volume levels. 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 regulates the amount of sulfur dioxide (SO(2)) emitted
from coal-fired power plants, which has affected demand and prices for our
high-sulfur coal. The amount of SO(2) produced by a power plant depends on the
chemical composition and sulfur content of the coal burned as fuel. The
amendments to the Clean Air Act implemented 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. 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. Currently, most of our
high-sulfur coal production is dedicated under long-term contracts to utility
customers with scrubbers installed in generating units at their power plants.
Our ability 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
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utility customers, or potential utility customers in our market areas, choose
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 in the
following risk factor, 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.
Other types of litigation with our key customers also may arise from time
to time. 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. This action was
filed in the federal court for the Southern District of Indiana in December of
1998. We have filed an answer and a counterclaim and Seminole has moved to
dismiss the counterclaim. Discovery is proceeding.
Seminole has admitted in a filing with the trial court that its actions are
in breach of the contract and that we are entitled to net profits that will be
lost as a result of this failure to use the terminal. However, we believe we are
entitled to damages under the contract and that the amount of damages Seminole
claims it owes us is inconsistent with the terms of 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, 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 already 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.
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,
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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 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.
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ANY SIGNIFICANT INCREASE IN TRANSPORTATION COSTS OR DISRUPTION IN 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. As a result,
the cost of delivery is a critical factor in a customer's purchasing decision,
and transportation costs can affect significantly a coal producer's competitive
position and profitability. 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, 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.
We are dependent upon rail, barge, vessels and truck transport to deliver
coal to our customers. All of these modes of transportation are subject to
disruptions from time to time from labor stoppages, operator errors, mechanical
breakdowns, severe weather or other circumstances. 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. In recent years, some mergers and combinations among rail
companies have led to problems in integrating rail lines, which have resulted in
interruptions in service. We cannot assure you that we will not be affected
adversely by interruptions in service resulting from mergers or combinations of
rail companies in the future.
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 future growth could be limited if we are unable 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:
- general economic or industry conditions will be conducive to our
acquisition strategy;
- we will be able to identify and acquire any of these assets or businesses
on economically acceptable terms;
- any acquisitions will not be dilutive to earnings and distributions to
unitholders; or
- 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 acquisition strategy involves numerous risks,
including:
- difficulties inherent in the integration of operations and systems;
- the diversion of management's attention from other business concerns; and
- the potential loss of key employees of acquired businesses.
In addition, future acquisitions also may involve the expenditure of
significant funds. Depending upon the nature, size and timing of future
acquisitions, we may be required to secure additional financing. We cannot
assure you that we will be able to obtain additional financing on acceptable
terms.
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, except to the extent that we locate
additional reserves as we develop our existing reserve base or acquire
properties containing additional reserves. To increase reserves in production,
we must continue our development and acquisition
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activities or undertake other replacement activities. For economic and other
operational reasons, a portion of our reserves may be mined only after the
construction of additional mining facilities. Our current strategy includes
increasing our reserves through acquisitions of complementary properties and by
continuing to exploit our existing properties. We cannot assure you, however,
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.
In addition, in some areas the presence of wetlands or prime farm lands
could make it difficult to secure regulatory approval for expanding production
from our reserves. Also, legal title issues could impede expansion. We conduct
most of our mining operations on properties we lease. Because we do not
thoroughly verify title to most of our leased properties and mineral rights
until we apply for a permit to mine the property, defects in title or boundaries
can affect adversely our right to mine some of our reserves. We cannot assure
you that we can negotiate successfully new leases or mining contracts for
properties containing additional reserves or maintain our leasehold interest in
properties on which we do not begin mining operations during the term of the
lease.
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. 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 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 AND THE ESTABLISHMENT OF FINANCIAL RESERVES.
Because distributions on the common units are dependent on the amount of
cash generated, distributions may fluctuate based on our performance. We cannot
guarantee that the minimum quarterly
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distributions will be paid each quarter. The actual amount of cash that is
available to be distributed each quarter will depend upon numerous factors,
including:
- availability of markets for our coal;
- adequacy of and adjustments to our coal reserves;
- realized prices, production volumes and operating costs of our
operations;
- required principal and interest payments on our current and future debt
instruments;
- the cost of reserve replacement and other future acquisitions;
- future issuances of debt and equity securities;
- fluctuations in our working capital;
- changes in our operating costs;
- the level of our capital expenditures;
- prevailing economic conditions; and
- general financial and industry-related factors.
Some of these factors are beyond our control and the control of our
managing general partner. 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 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.
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 $20.5 million. 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. This
amount would have been sufficient to allow us to pay the minimum quarterly
distribution on the common units and a minimal 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 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;
- subtract the $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
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- 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 $19.2 million. This amount would have been sufficient to allow us
to pay the minimum quarterly distribution on the common units but would have
been insufficient to make payments 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 $6.3 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 expected
to be appropriate for the first quarter of 1999, our pro forma Available Cash
from Operating Surplus would have been $5.4 million, which 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. See "Cash Available for Distribution" for an explanation of
this shortfall. For the calculation of pro forma available cash from operating
surplus, see Appendix D.
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 $229.9 million, consisting of $180
million principal amount of % senior unsecured notes outstanding and
approximately $48.2 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;
- 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.
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
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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. Although many of our critical financial and production application
systems, hardware and software are now year 2000 compliant, some systems and
equipment are not converted. We do not expect the cost to make these
modifications and replacements to be material. However, if these modifications
and replacements are not made, are not made properly or are not completed in a
timely manner, the Year 2000 issue may have a material adverse effect on our
business, results of operations and financial condition.
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.
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;
- plant and wildlife protection;
- reclamation and restoration of mining properties after mining is
completed;
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- 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.
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.
The possibility also exists that new legislation or regulations and orders
may be adopted which could materially adversely affect our mining operations,
cost structure or customers' ability to use coal. 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."
In recent years, legislation on black lung benefits reform has been
introduced but not enacted in Congress. If any of the proposals included in this
or similar legislation is reintroduced and passed, the number of claimants
entitled to benefits could significantly increase. The U.S. Department of Labor
has issued proposed amendments to the regulations implementing the federal black
lung benefits laws. Any changes in black lung benefits legislation or any
amendments or regulations, if approved, could have a material adverse affect on
our business, financial condition and results of operations.
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
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emission controls under the Clean Air Act. If we fail to secure new contracts
for our higher sulfur coal 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. 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. Although these standards have recently been remanded to
the Environmental Protection Agency, the impact of the current ozone and
particulate matter standards, and the new standards if they withstand legal
challenge, on the coal industry will depend on the policies and control
strategies implemented by the Environmental Protection Agency and the states
under the Clean Air Act. The Environmental Protection Agency recently announced
a proposal that would require 22 eastern states to reduce nitrogen oxide
emissions substantially by the year 2003. Installation of reasonably available
control technology and additional control measures required under this
Environmental Protection Agency proposal (assuming this requirement is upheld by
the courts) will make it more costly to operate coal-fired utility power plants
and could make coal a less attractive fuel alternative in the planning and
building of utility power plants in the future. 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. Among the
more significant of these uncertainties are the impact of future federal and
state rules to:
- control hazardous air pollutants, such as mercury, nickel and dioxin from
new and existing coal-fired electric generation plants;
- improve visibility in national parks and wilderness areas by reducing
emissions from existing coal-fired electric generation plants and
severely restricting emissions from new and modified coal-fired electric
generation plants; and
- impose other stringent emissions standards and permit requirements on new
and modified coal-fired electricity generation plants, including plants
which may have been modified in the past and become subject to
enforcement action for failing to have secured required permit approval
prior to the modification.
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.
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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 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 these high-volume wastes, including utility fly
ash and scrubber sludge, lose their existing exemption from federal regulations.
Some of our mines currently receive these high-volume wastes from their utility
customers and use these wastes as mine fill to control acid mine drainage.
Statutory or regulatory changes that would prohibit this practice would be
disruptive to the operations of these mines and to their customers. Separate
federal and state environmental laws and regulations impose requirements
regarding:
- the proper management and disposal of hazardous and solid wastes and used
oil; and
- the proper management of underground and above ground storage tanks.
Items which may require investigation include underground hazardous waste
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.
From time to time, we have been the subject of administrative proceedings,
litigation and investigations relating to environmental matters. We cannot
assure you that we will not become involved in future proceedings, litigation or
investigations or that these liabilities will not be material.
While we do not believe that the costs likely to be incurred for these
environmental matters will have a material adverse effect upon our business,
financial condition and results of operations, the total cost and liabilities
for these environmental matters may increase in the future. The magnitude of the
liability and
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the cost of complying with these environmental laws cannot be predicted with
certainty. This uncertainty is due to:
- the lack of specific information available with respect to many sites;
- the potential for new or changed laws and regulations and for the
development of new remediation technologies; and
- the uncertainty regarding the timing of work with respect to particular
sites.
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.
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.
We have not requested, and do not plan to request, a ruling from the IRS on this
or any other matter affecting us. We have, however, received an opinion from
counsel that we will be classified as a partnership for federal income tax
purposes. Opinions of counsel are based on specified factual assumptions and are
not binding on the IRS or any court.
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 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
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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.
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
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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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USE OF PROCEEDS
We estimate that the net proceeds we will receive from this offering of
common units will be approximately $173.4 million. We anticipate using the net
proceeds of this offering, together with the gross proceeds of the private
placement of the senior notes, which are estimated to be approximately $180.0
million, and the $48.2 million of term loan borrowings under the senior credit
facility, to:
- pay $5.9 million in fees and expenses incurred in connection with this
offering and the related transactions;
- purchase $48.2 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 $38.2 million available to fund future capital
expenditures and for working capital and other general corporate
purposes.
The balance of the proceeds, approximately $228.2 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. 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.
36
<PAGE> 42
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 % 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.............. $ -- $ 86,332
======== =========
Long-term debt:
Term loan facility........................................ $ -- $ 48,158
Working capital facility.................................. -- --
Revolving credit facility................................. -- --
% senior notes due 2014................................. -- 180,000
Other debt................................................ 1,727 1,727
-------- ---------
Total long-term debt.............................. 1,727 229,885
-------- ---------
Total net parent investment/partners' capital (deficit):
Net parent investment..................................... 155,185 --
Common unitholders........................................ -- 170,891
Subordinated unitholders.................................. -- 147,943
General partner........................................... -- (336,734)
-------- ---------
Total net parent investment/partners' capital
(deficit)....................................... 155,185 (17,900)
-------- ---------
Total capitalization.............................. $156,912 $ 211,985
======== =========
</TABLE>
37
<PAGE> 43
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 $(17.9) million, or $(1.10) 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)..................................... (1.10)
------
Immediate dilution in tangible net book value per common
unit to new investors..................................... $21.10
======
</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).......... 6,944,880 42.9% $(188.8)
New Investors........................................ 9,259,840 57.1 170.9
---------- ----- -------
Total...................................... 16,204,720 100.0% $ (17.9)
========== ===== =======
</TABLE>
- ---------------
(1) Determined by dividing the total number of units (9,259,840 common units,
6,620,786 subordinated units and the combined 2% general partner interest,
which has a dilutive effect equivalent to 324,094 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 6,620,786 subordinated
units and our general partners will own a 2% general partner interest in
Alliance Resource Partners having a dilutive effect equivalent to 324,094
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.................................................. $ 155.2
Less receivables and income taxes retained by Alliance
Resource Holdings......................................... (34.7)
Less distribution of a portion of the net proceeds from the
sale of common units and private placement of senior
notes..................................................... (309.3)
-------
Total consideration............................... $(188.8)
=======
</TABLE>
38
<PAGE> 44
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 June 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.
39
<PAGE> 45
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.
40
<PAGE> 46
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.
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 their 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 June 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
41
<PAGE> 47
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 3,310,393 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 June 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
42
<PAGE> 48
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 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 9,259,840 common units and the 6,620,786 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 $31.8 98% $0.6 2% $32.4
First Target Distribution......... 0.55 34.9 98 0.7 2 35.6
Second Target Distribution........ 0.625 39.1 85 1.4 15 40.5
Third Target Distribution......... 0.75 45.1 75 3.5 25 48.6
Thereafter........................ above $0.75 50 50
</TABLE>
43
<PAGE> 49
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
distributable on both the common units and the subordinated units. Assuming the
special general partner continues to own 6,620,786 subordinated units and other
persons own 9,259,840 common units, the general partners and their affiliates
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.
44
<PAGE> 50
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 or the subsidiaries 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 or the subsidiaries 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
45
<PAGE> 51
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 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,
46
<PAGE> 52
pro rata, 2% to the general partners, pro rata, and 13% to the managing
general partner for each quarter of our existence;
- 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.
47
<PAGE> 53
CASH AVAILABLE FOR DISTRIBUTION
We believe that, following completion of the offering, we will generate
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............................................. $4,630 $18,520
Subordinated units....................................... 3,310 13,242
Combined 2% general partner interest..................... 162 648
------ -------
Total.......................................... $8,102 $32,410
====== =======
</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 $20.5 million. This amount would have
been sufficient to allow us to pay the minimum quarterly distribution on the
common units and a minimal 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
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.
48
<PAGE> 54
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;
- 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 $19.2 million. This amount would have been sufficient to allow us
to pay the minimum quarterly distribution on the common units but would have
been insufficient to make payments 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 $6.3 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 expected
to be appropriate for the quarter, our pro forma Available Cash from Operating
Surplus for the first quarter of 1999 would have been $5.4 million, which 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.
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.
49
<PAGE> 55
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 THREE MONTHS
YEAR ENDED MONTHS MONTHS YEAR ENDED PRO FORMA ENDED
DECEMBER 31, ENDED ENDED DECEMBER 31, YEAR ENDED MARCH 31,
--------------- JULY 31, DECEMBER 31, --------------- DECEMBER 31, ---------------
1994 1995 1996 1996 1997 1998 1998 1998 1999
------ ------ -------- ------------ ------ ------ ------------ ------ ------
<S> <C> <C> <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 $ 87.2 $ 82.8
Other sales and
operating revenues... 4.5 16.4 7.5 4.4 8.5 4.5 4.5 1.1 0.3
------ ------ ------ ------ ------ ------ ------ ------ ------
Total revenues... 283.1 311.0 191.6 138.3 313.8 361.9 361.9 88.3 83.1
------ ------ ------ ------ ------ ------ ------ ------ ------
Expenses
Operating expenses..... 183.4 173.1 110.7 79.2 197.4 237.6 237.6 58.5 56.8
Outside purchases...... 43.5 69.7 45.7 34.7 49.8 51.2 51.2 11.0 8.5
General and
administrative....... 10.5 10.9 7.3 5.9 15.4 15.3 15.3 4.2 3.6
Depreciation, depletion
and amortization..... 25.7 24.8 7.7 11.9 33.7 39.8 39.8 9.9 9.9
Interest expense....... -- -- -- -- -- 0.2 17.9 -- --
Unusual items(1)....... -- 107.5 -- -- -- 5.2 5.2 -- --
------ ------ ------ ------ ------ ------ ------ ------ ------
Total expenses... 263.1 386.0 171.4 131.7 296.3 349.3 367.0 83.6 78.8
------ ------ ------ ------ ------ ------ ------ ------ ------
Income (loss) from
operations............. 20.0 (75.0) 20.2 6.6 17.5 12.6 (5.1) 4.7 4.3
Other income (expense)... -- -- -- 0.3 0.5 (0.1) 2.5 0.1 0.5
------ ------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before
income taxes........... 20.0 (75.0) 20.2 6.9 18.0 12.5 (2.6) 4.8 4.8
Income tax expense
(benefit).............. 3.5 (32.2) 5.5 (0.9) 4.3 3.8 -- 1.5 1.5
------ ------ ------ ------ ------ ------ ------ ------ ------
Net income (loss)........ $ 16.5 $(42.8) $ 14.7 $ 7.8 $ 13.7 $ 8.7 $ (2.6) $ 3.3 $ 3.3
====== ====== ====== ====== ====== ====== ====== ====== ======
Pro forma net income
(loss)
per unit............... $(0.16)
======
<CAPTION>
SUCCESSOR
------------
PRO FORMA
THREE
MONTHS
ENDED
MARCH 31,
1999
------------
<S> <C>
STATEMENT OF OPERATIONS:
Sales and operating
revenues
Coal sales............. $ 82.8
Other sales and
operating revenues... 0.3
------
Total revenues... 83.1
------
Expenses
Operating expenses..... 56.8
Outside purchases...... 8.5
General and
administrative....... 3.6
Depreciation, depletion
and amortization..... 9.9
Interest expense....... 4.5
Unusual items(1)....... --
------
Total expenses... 83.3
------
Income (loss) from
operations............. (0.2)
Other income (expense)... 1.2
------
Income (loss) before
income taxes........... 1.0
Income tax expense
(benefit).............. --
------
Net income (loss)........ $ 1.0
======
Pro forma net income
(loss)
per unit............... $ 0.06
======
</TABLE>
50
<PAGE> 56
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
-------------------------- ---------------------------------------------------------------
SEVEN FIVE THREE MONTHS
YEAR ENDED MONTHS MONTHS YEAR ENDED PRO FORMA ENDED
DECEMBER 31, ENDED ENDED DECEMBER 31, YEAR ENDED MARCH 31,
--------------- JULY 31, DECEMBER 31, --------------- DECEMBER 31, ---------------
1994 1995 1996 1996 1997 1998 1998 1998 1999
------ ------ -------- ------------ ------ ------ ------------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital(2)....... $ 22.9 $ 32.4 $ 24.6 $ 15.9 $ 10.3 $ 7.1 $ 19.5 $ 13.5
Total assets............. 326.4 254.9 270.7 262.0 245.8 261.1 281.7 264.8
Long-term debt........... -- -- -- -- 1.9 1.7 1.9 1.7
Total liabilities........ 114.7 83.9 85.0 85.8 87.0 108.3 110.3 109.6
Net Parent investment.... 211.7 171.0 185.7 176.2 158.8 152.8 171.4 155.2
Partners' equity
(deficit).............. -- -- -- -- -- -- -- -- --
OTHER OPERATING DATA:
Tons sold................ 10.0 10.9 6.9 5.1 12.4 15.1 15.1 3.6 3.6
Tons produced............ 8.5 8.8 5.3 3.9 10.9 13.4 13.4 3.5 3.6
Revenues per ton sold.... $28.31 $28.53 $27.77 $27.12 $25.31 $23.97 $23.97 $24.53 $23.08
Cost per ton sold(3)..... $23.74 $23.28 $23.72 $23.49 $21.18 $20.14 $20.14 $20.47 $19.14
OTHER FINANCIAL DATA:
EBITDA(4)................ $ 45.7 $(50.2) $ 27.9 $ 18.8 $ 51.7 $ 52.5 $ 52.5 $ 14.7 $ 14.7
Net cash provided by
operating activities... 37.9 16.0 16.7 23.0 53.2 50.5 4.1 6.3
Net cash used in
investing activities... (16.4) (17.7) (16.7) (13.0) (22.4) (35.6) (13.3) (5.4)
Net cash provided by
(used in) financing
activities............. (21.5) 1.7 -- (10.0) (30.8) (14.9) 9.2 (0.9)
Maintenance capital
expenditures(5)........ 16.3 14.9 10.8 2.7 15.2 17.2 17.2 4.8 5.0
Expansion and other
capital
expenditures(5)........ 1.2 2.9 5.9 10.3 7.2 18.6 18.6 8.5 0.7
Total capital
expenditures........... 17.5 17.8 16.7 13.0 22.4 35.8 35.8 13.3 5.7
<CAPTION>
SUCCESSOR
------------
PRO FORMA
THREE
MONTHS
ENDED
MARCH 31,
1999
------------
<S> <C>
BALANCE SHEET DATA:
Working capital(2)....... $ 61.6
Total assets............. 316.4
Long-term debt........... 229.9
Total liabilities........ 334.3
Net Parent investment.... --
Partners' equity
(deficit).............. (17.9)
OTHER OPERATING DATA:
Tons sold................ 3.6
Tons produced............ 3.6
Revenues per ton sold.... $23.08
Cost per ton sold(3)..... $19.14
OTHER FINANCIAL DATA:
EBITDA(4)................ $ 14.7
Net cash provided by
operating activities...
Net cash used in
investing activities...
Net cash provided by
(used in) financing
activities.............
Maintenance capital
expenditures(5)........ 5.0
Expansion and other
capital
expenditures(5)........ 0.7
Total capital
expenditures........... 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) Excludes accounts receivable from affiliates for the predecessor company.
The successor company did not have any of these receivables.
(3) Cost per ton is based on the total of operating expenses, outside purchases
and general and administrative expenses divided by tons sold.
(4) EBITDA is defined as income (loss) before interest expense, income taxes and
depreciation, depletion and amortization. EBITDA does not include interest
income and has not been adjusted to add back unusual items. Pro forma other
income (expense) for the year ended December 31, 1998 and the quarter ended
March 31, 1999 includes $2.6 million and $0.7 million of interest income,
substantially all of which is attributable to the U.S. Treasury Notes.
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.
(5) 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."
51
<PAGE> 57
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 demonstrated 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, 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 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.
52
<PAGE> 58
The following table sets forth production data and reserve information
about each of our mining complexes.
<TABLE>
<CAPTION>
TOTAL YEAR
1998 DEMONSTRATED 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 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 majority of the payments associated with the
workers' compensation accruals are expected to be made during the next 10
years, with some payments extending up to 30 years. 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
53
<PAGE> 59
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.
Although we currently are not handling any coal shipments for Seminole under the
contract, we began recognizing $0.5 million of other income under the contract
each quarter beginning with the quarter ended March 31, 1999. This amount
represents the estimated minimum amount of other income we ultimately expect to
realize under the contract. 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. At a minimum, we believe the damages recovered from Seminole will be
in excess of the net 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.
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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.
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.
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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.
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.
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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 our subsidiaries 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 agreement is unsecured and non-
recourse to the general partners. The senior notes will mature in 2014 and will
carry a fixed interest rate determined on the date of the sale of the senior
notes. That rate will be a negotiated spread over the prevailing U.S. Treasury
yields corresponding to the average life of the notes. 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 payments of $18 million of
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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 funded debt, unless, for the period of four
fiscal quarters most recently ended and giving effect to the debt to be
incurred, consolidated cash flow would be greater than 225% of our
consolidated interest expense and our total debt would be not greater
than 400% of consolidated cash flow;
- borrowing under the working capital facility, if that facility is not
reduced to a specific level for 30 days in each 12-month period, in
excess of the amounts of debt which are permitted under the funded debt
tests described immediately above;
- incurrence of debt that is senior to the notes in an amount greater than
10% of total assets;
- 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.
Under the note purchase agreement, the intermediate partnership is
permitted to make cash distributions so long as no default or event of default,
as defined in the note purchase agreement, exists. 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
days of when due;
- failure to perform or otherwise comply with 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;
- 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.
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 Salomon Brothers Holding Company
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.
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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 $48.2 million will be drawn under the term loan facility at
closing and used to purchase approximately $48.2 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 or to the extent that their
market value exceeds the outstanding principal amount of the term loan. 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 general partners. The obligations of the
intermediate partnership under the senior credit facility will be guaranteed by
its subsidiaries.
The term loan facility will amortize in accordance with a schedule to be
determined. 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 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. We 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;
- 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.
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
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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 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.
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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 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-
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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.
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 on May 18, 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 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.
- Natural gas prices are higher and more volatile than coal 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;
- by 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 to
reduce emissions, which will allow power plant operators 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.
[MAP OF MAJOR U.S. COAL PRODUCING REGIONS]
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 at a second mining complex.
- 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 these successful
relationships, we believe we will have the opportunity to supply our
utility customers with an increasing portion of their aggregate coal
requirements.
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<PAGE> 79
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, approximately 84.0% 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 demonstrated 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 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.
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<PAGE> 80
- 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 "demonstrated" reserves. Demonstrated 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 this term 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 ---------------------------------
PRODUCTION HEAT
(MILLIONS CONTENT SULFUR ASH
OPERATIONS LOCATION OF TONS) (BTUS PER POUND) (%) (%)
- ---------- -------- ---------- ---------------- ------- ----
<S> <C> <C> <C> <C> <C>
Illinois Basin
Dotiki Webster County, KY 3.5 12,500 2.9 8.1
Pattiki White County, IL 2.1 11,700 3.0 7.9
Hopkins County Coal Hopkins County, KY 2.3 11,300 3.2 12.4
Gibson County (North) Gibson County, IN -- 11,600 1.0 7.0
Gibson County (South) Gibson County, IN -- 11,600 2.1 NA
----
Region Total 7.9
----
East Kentucky
Pontiki/Excel Martin County, KY 1.6 12,800 0.7 6.7
MC Mining Pike County, KY 0.9 12,800 0.7 7.2
----
Region Total 2.5
----
Maryland
Mettiki Garrett County,
MD, 3.0 13,000 1.6 10.0
Grant County, WV
and Tucker County,
----
Total 13.4
====
% of Total
<CAPTION>
DEMONSTRATED 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%
</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 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
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<PAGE> 81
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.
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 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
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<PAGE> 82
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 27 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 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,
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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, Inc., 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 250 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 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
scrubbed 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.
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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.
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.
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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......................... 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.
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 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
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<PAGE> 86
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............. Medium sulfur 0.5 June 2001
Owensboro Municipal............ High sulfur 0.3 December 2001
Cogentrix of Virginia.......... Low sulfur 0.3(4) October 2002
Cogentrix of North Carolina.... Low sulfur 0.3(5) 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 an estimate of 80,000 tons annually through the term of the
contract. This requirements contract obligates Cogentrix of Virginia to
purchase an amount of coal from us equal to the amount burned at the
Hopewell Station power plant. In 1998, Cogentrix purchased approximately
126,000 tons pursuant to this agreement.
(5) 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 purchased
approximately 104,000 tons pursuant to this agreement.
EMPLOYEES AND LABOR RELATIONS
We have approximately 1,340 employees, including 100 corporate employees
and 1,240 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.
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.
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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 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. 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 have filed an answer and a counterclaim and
Seminole has moved to dismiss the counterclaim. Discovery is proceeding.
Seminole has admitted in a filing with the trial court that its actions are
in breach of the contract and that we are entitled to net profits that will be
lost as a result of the cessation of use of the terminal facility. However, we
believe we are entitled to damages under the contract and that the amount of
damages Seminole claims it owes us is inconsistent with the terms of the
contract. 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 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;
- 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;
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- 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.
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.
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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 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
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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, 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
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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. 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
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. The Environmental Protection Agency expects these states will
achieve these 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
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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 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. The
Comprehensive Environmental Response, Compensation and Liability Act 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 the
Comprehensive Environmental Response, Compensation and Liability Act, 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-
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risk wastes, it generally does not regard those wastes to constitute a hazardous
substances for the purposes of the Comprehensive Environmental Response,
Compensation and Liability Act. However, some products used by coal companies in
operations, such as chemicals, and the disposal of their products, 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 the Comprehensive Environmental Response, Compensation and
Liability Act 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.
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.
Resource Conservation Recovery Act. The federal Resource Conservation
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 Recovery Act by statute, the Environmental Protection
Agency may consider the possibility of expanding regulation of mining wastes
under the Resource Conservation 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.
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." 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
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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 will be liable, as a general partner,
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 it.
However, whenever possible, the managing general partner intends 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 conflict 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 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 currently have employment agreements in place with
Alliance Resource Holdings. We will reimburse Alliance Resource Holdings for the
compensation to be paid under these agreements. A copy of each of these
employment agreements is filed as an exhibit to the registration statement as to
which this prospectus is a part.
The employment agreements will have initial terms of five years and will
include confidentiality provisions. The employment agreements will provide for
annual base salaries, subject to annual review for increases as the Board may
determine. Additionally, the executives will participate in the long-term
incentive plan and the short-term incentive plan of the managing general partner
as described below. The executives will also be entitled to participate in other
benefit plans and programs as the managing general partner may provide other
executive officers or senior management.
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 and is qualified in its
entirety by reference to the long-term incentive plan, which has been filed as
an exhibit to the registration statement of which this prospectus is a part. The
long-term incentive plan consists of two components, a restricted unit plan and
a unit option plan. The long-term incentive plan currently is intended to permit
the grant of restricted units and unit options covering an aggregate of
common units, although no grants will initially be made under the unit
option plan. The plan will be administered by the compensation committee of the
managing general partner's board of directors.
Restricted Unit Plan. A restricted unit is a "phantom" unit that entitles
the grantee to receive a common unit upon the vesting of the phantom unit. The
compensation committee may, in the future, determine to make additional grants
under the restricted unit plan to employees and directors containing terms as
determined by the compensation committee. In general, restricted units granted
to employees during the subordination period will be released for sale only
upon, and in the same proportions as, the conversion of the subordinated units
to common units. Grants made to non-employee directors of the managing general
partner will be eligible to vest prior to termination of the subordination
period.
If a grantee terminates employment or membership on the Board for any
reason, the grantee's restricted units will be automatically forfeited unless,
and to the extent, the compensation committee provides otherwise. Common units
to be delivered upon the "vesting" of rights may be common units acquired by the
managing general partner in the open market, common units already owned by the
managing general partner, common units acquired by the managing general partner
directly from us or any other person, 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. If we issue new common units upon
vesting of the restricted units, the total number of common units outstanding
will increase. Following
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the subordination period, the compensation committee, in its discretion, may
grant tandem distribution equivalent rights with respect to restricted 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 Option Plan. The unit option plan currently permits the grant of
options covering common units. No grants will initially be made under the unit
option plan. The compensation committee may, in the future, determine to make
grants under this plan to employees and directors containing the specific terms
that the Committee shall determine.
Unit options will have an exercise price equal to fair market value on the
date of grant. Unit options granted during the subordination period will become
exercisable automatically upon, and in the same proportions as, the conversion
of the subordinated units to common units, unless a later vesting date is
provided.
Upon exercise of a unit option, the managing general partner will acquire
common units 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 us or any other person, or use common 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
difference between the cost incurred by the managing general partner in
acquiring the common units and the proceeds received by the managing general
partner from an optionee at the time of exercise. Thus, we will bear the cost of
the unit options. If we issue new common units upon exercise of the unit
options, the total number of common units outstanding will increase, and the
managing general partner will remit the proceeds it received from the optionee
upon exercise of the unit option to Alliance Resource Partners. The unit option
plan has been designed to furnish additional compensation to employees and
directors and to align their economic interests with those of common
unitholders.
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, including
increasing the number of common units with respect to which awards may be
granted; 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.
SHORT-TERM INCENTIVE PLAN
The managing general partner intends to adopt the short-term incentive plan
for management and other salaried employees. The short-term incentive plan is
designed to enhance the financial performance of the managing general partner's
salaried employees by rewarding them with cash awards for achieving quarterly
and/or annual financial performance objectives. The short-term incentive plan
will be administered by the compensation committee. Individual participants and
payments, if any, for each fiscal quarter and year will be determined by and in
the discretion of the compensation committee. Any incentive payments will be at
the discretion of the compensation committee, and the managing general partner
will be able to amend or change the short-term incentive plan at any time. The
managing general partner will be entitled to reimbursement by us for payments
and costs incurred under the 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 5,926,298 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
Holdings(1)(2).................. -- -- 6,620,786 100%
Joseph W. Craft, III(1)........... -- --
Thomas L. Pearson(1).............. -- --
Michael L. Greenwood(1)........... -- --
Charles R. Wesley(1).............. -- --
Gary J. Rathburn(1)............... -- --
John J. MacWilliams(3)............ -- --
Preston R. Miller, Jr.(3)......... -- --
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) MPC Partners, LP may 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) 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 our managing
general partner and 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.
<TABLE>
<CAPTION>
MANAGING GENERAL ALLIANCE RESOURCE
PARTNER HOLDINGS
---------------- ----------------------
PERCENTAGE SHARES PERCENT
MEMBERSHIP BENEFICIALLY OF
NAME OF BENEFICIAL OWNER INTERESTS OWNED CLASS
------------------------ ---------------- ------------ -------
<S> <C> <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 6,620,786
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 6,620,786
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
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."
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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 have fiduciary duties to manage the managing general
partner in a manner beneficial to its owners. At the same time, the managing
general partner has 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 partners 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 managing general partner's 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 the managing
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
Alliance Resource Partners 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. 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 in the preceding sentence,
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.
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
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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, 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.
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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
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 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;
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(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 reviewed 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 June 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 3,310,393 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 June 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 interests 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 and the forms of limited liability company
agreement for each of MC Mining, LLC and Alliance Coal, LLC are included as
exhibits 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 these other three agreements, 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 subsidiaries 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 4,629,920 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 underwriter's 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; or
(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.
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 subsidiaries. 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.
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
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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 the general partners or
any of their affiliates without their consent, which may be given or
withheld in their 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 subsidiaries 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 general partner is
necessary or advisable for the authorization of additional limited or
general partner interests;
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(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 subsidiaries 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.
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
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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 either of the subsidiaries 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 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.
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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 each of
the subsidiaries prior to June 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 June
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 each of the subsidiaries.
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 each of the subsidiaries
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 each of the subsidiaries to another person prior to June
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 each of the subsidiaries and
agree to be bound by the provisions of the limited liability company agreements
of the subsidiaries. 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
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consolidation with or into, or sale of all or substantially all of its assets
to, that person without the prior approval of the unitholders; provided that, in
each case, the transferee agrees to be bound by the provisions of the
partnership agreement. Prior to June 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 June 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
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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 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
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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 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.
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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;
(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 6,620,786 (or 5,926,298 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 4,629,920 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 4,629,920 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
subsidiaries.
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
subsidiaries 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
subsidiaries.
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 subsidiaries 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 subsidiaries 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 subsidiaries 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 subsidiaries will be operated in accordance with
(1) all applicable limited liability company statutes,
(2) the applicable limited liability company agreement, and
(3) their 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 % 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 any of the
subsidiaries 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 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 subsidiaries 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, 2001, will be allocated an amount
of federal taxable income for that period that will be less than % of the cash
distributed with respect to that period. We anticipate that after the taxable
year ending December 31, 2001, 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 marginal 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 subsidiaries 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 subsidiaries. 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%.
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<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, Virginia 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.................................................. 9,259,840
=========
</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
1,388,976 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.
Alliance Resource Partners intends to apply to have the common stock listed
on the NYSE under the symbol "ARP."
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 NYSE 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.
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. Salomon
Brothers Holding Company Inc., an affiliate of Salomon Smith Barney, Inc., or
one of its affiliates, including Citibank, N.A., will be a lender under the
senior credit facility to be entered into by the special general partner and
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.
141
<PAGE> 147
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 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 upon their authority as experts in accounting and auditing.
The reserve report and estimates of our demonstrated 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 June , 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................................. $ 185,197(A) $ 38,174
180,000(B)
48,158(C)
(48,158)(C)
(17,731)(D)
(309,292)(E)
U.S. Treasury Notes....................................... 48,158(C) 48,158
Trade receivables......................................... $ 37,666 (37,666)(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................................ 63,882 112,040
-------- --------
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 3,425(D) 3,425
Coal supply agreements, net............................... 23,163 23,163
Other long-term assets.................................... 1,866 1,866
-------- --------
$264,798 $316,381
======== ========
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) 229,885
48,158(C)
Deferred income taxes..................................... 3,490 (3,490)(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................................... 109,613 334,281
-------- --------
EQUITY
Net Parent Investment..................................... 155,185 (155,185)(G) --
Common units (9,259,840 common units)..................... -- 185,197(A) 170,891
(14,306)(D)
Subordinated units (6,620,786 subordinated units)......... -- 147,943(G) 147,943
General partner interest.................................. -- 7,242(G) (336,734)
(309,292)(E)
(34,684)(F)
-------- --------
Total equity (deficit).............................. 155,185 (17,900)
-------- --------
$264,798 $316,381
======== ========
</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 $17,801(H,I) 17,970
Unusual item........................................ 5,211 5,211
-------- -----------
Total operating expenses.................... 349,246 367,047
-------- -----------
INCOME (LOSS) FROM OPERATIONS......................... 12,647 (5,154)
OTHER INCOME (EXPENSE)................................ (113) 2,629(J) 2,516
-------- -----------
INCOME (LOSS) BEFORE INCOME TAXES..................... 12,534 (2,638)
INCOME TAX EXPENSE.................................... 3,866 (3,866)(K,L) --
-------- -----------
NET INCOME (LOSS)..................................... $ 8,668 $ (2,638)
========
GENERAL PARTNER'S INTEREST IN NET INCOME (LOSS)....... (53)
-----------
LIMITED PARTNERS' INTEREST IN NET INCOME (LOSS)....... $ (2,585)
===========
NET INCOME (LOSS) PER UNIT............................ $ (0.16)
===========
WEIGHTED AVERAGE LIMITED PARTNERS' UNITS
OUTSTANDING(M)...................................... 15,880,626
===========
</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 $ 4,450(H,I) 4,490
------- -----------
Total operating expenses...................... 78,829 83,279
------- -----------
INCOME (LOSS) FROM OPERATIONS........................... 4,233 (217)
OTHER INCOME............................................ 541 657(J) 1,198
------- -----------
INCOME BEFORE INCOME TAXES.............................. 4,774 981
INCOME TAX EXPENSE...................................... 1,480 (1,480)(K,L) --
------- -----------
NET INCOME.............................................. $ 3,294 981
=======
GENERAL PARTNER'S INTEREST IN NET INCOME................ 20
-----------
LIMITED PARTNERS' INTEREST IN NET INCOME................ $ 961
===========
NET INCOME PER UNIT..................................... $ 0.06
===========
WEIGHTED AVERAGE LIMITED PARTNERS' UNITS
OUTSTANDING(M)........................................ 15,880,626
===========
</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
$37,666,000 of trade receivables, $508,000 of income tax receivable, and
$3,490,000 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
9,259,840 Common Units at the initial public offering price of $20.00 per Common
Unit resulting in aggregate gross proceeds to Alliance Resource Partners of
$185,197,000, (ii) the issuance by Alliance Resource Partners of 6,620,786
Subordinated Units to Alliance Resource GP, LLC, the special general partner of
Alliance Resource Partners, (iii) the issuance by Alliance Resource Partners of
an aggregate 2% general partner interest to the general partners, (iv) the
assumption by a subsidiary of Alliance Resource Partners of $180,000,000 of
senior unsecured notes (the "Notes") from the special general partner, (v) the
assumption by a subsidiary of Alliance Resource Partners from the special
general partner of $100,000,000 of bank credit facilities, of which $48,158,000
will be drawn down under the term loan facility, (vi) the purchase by Alliance
Resource Partners of $48,158,000 of U.S. Treasury Notes, (vii) receipt by the
special general partner of and ultimate distribution to Alliance Resource
Holdings of approximately $309,292,000, representing both amounts borrowed and
retained by the special general partner as well as a distribution from Alliance
Resource Partners, and (viii) the payment of underwriting fees and commissions,
and other fees and expenses associated with the transactions, expected to be
approximately $17,731,000.
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 $185,197,000 from
the issuance and sale of 9,259,840 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 8.0%.
(C) Reflects the proceeds from the term loan facility of $48,158,000 and the
corresponding purchase of U.S. Treasury Notes of $48,158,000.
(D) Reflects the payment of debt financing and underwriting commissions and
fees of $3,425,000 and $14,306,000, 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 $309,292,000,
representing both amounts borrowed and retained by the special general
partner as well as a distribution from Alliance Resource Partners.
(F) Represents the retention by Alliance Resource Holdings of trade
receivables of $37,666,000, an income tax receivable of $508,000, and
deferred income taxes of $3,490,000.
(G) Represents the allocation of the net assets of the Group of $155,185,000,
of which $147,943,000 is allocated to the subordinated unitholders and
$7,242,000 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 8.0%.................................. $14,400 $3,600
Bank Debt ($48,158 principal drawn under term loan
facility) at an assumed annual interest rate of
5.75%.................................................. 2,769 692
Fee on the unused portion of the working capital facility
and revolving credit facility ($50,000 unused portion)
at an assumed annual rate of 0.50%..................... 250 63
------- ------
Pro Forma Interest Expense................................ $17,419 $4,355
</TABLE>
(I) Reflects the amortization of deferred debt offering fees and expenses for
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 deferred
F-7
<PAGE> 156
ALLIANCE RESOURCE PARTNERS, L.P.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
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 $2,275 deferred financing fees over 15
year term for the senior unsecured notes............... $152 $38
Amortization of $1,150 deferred financing fees over 5 year
term for the bank debt................................. 230 58
---- ---
Pro Forma Amortization Expense............................ $382 $95
</TABLE>
(J) Reflects interest income for the year ended December 31, 1998 and the
three months ended March 31, 1999 as if the U.S. Treasury Notes were
purchased on January 1, 1998. The pro forma interest income 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 Income
One year U.S. Treasury Notes -- $8,050 bearing interest at
an assumed annual rate of 5.06%........................ $ 407 $102
Two year U.S. Treasury Notes -- $40,108 bearing interest
at an assumed annual rate of 5.54%..................... 2,222 555
------ ----
Pro Forma Interest Income................................. $2,629 $657
</TABLE>
(K) Represents the retention by Alliance Resource Holdings of income taxes of
$3,866,000 for the year ended December 31, 1998, and $1,480,000 for the
three months ended March 31, 1999.
(L) 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.
(M) 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.
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......................................... $ 37,666
Income tax receivable..................................... 508
Inventories............................................... 22,322
Advance royalties......................................... 2,499
Prepaid expenses and other assets......................... 887
--------
Total current assets.............................. 63,882
--------
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
--------
$264,798
========
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..................................... 3,490
Accrued pneumoconiosis benefits........................... 22,456
Workers' compensation..................................... 13,480
Reclamation and mine closing.............................. 12,824
Other liabilities......................................... 5,255
--------
Total liabilities................................. 109,613
COMMITMENTS AND CONTINGENCIES
NET PARENT INVESTMENT....................................... 155,185
--------
$264,798
========
</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................................................ 112 541
------- -------
INCOME BEFORE INCOME TAXES.................................. 4,818 4,774
INCOME TAX EXPENSE.......................................... 1,494 1,480
------- -------
NET INCOME.................................................. $ 3,324 $ 3,294
======= =======
</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 $ 3,294
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation, depletion and amortization............... 9,857 9,933
Deferred income taxes.................................. (437) (415)
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) (6,398)
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 2,969
-------- -------
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 Group
believes the amount of damages Seminole owes is an amount sufficient to offset
the loss of income from the contract, but Seminole believes this is inconsistent
with the terms of the contract.
In response to Seminole's actions, the Group has ceased transloading any
coal shipments to Seminole 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.
Included in other income for the quarter ended March 31, 1999 is $500,000
which the Group has accrued as the estimated minimum amount of other income to
be recognized as damages under the contract on a quarterly basis. Although the
outcome is currently not determinable, 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 are expensed as incurred.
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>
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.
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.
F-24
<PAGE> 173
ALLIANCE RESOURCE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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 Group
believes the amount of liquidated damages Seminole owes is an amount sufficient
to offset the loss of other income from the contract, but Seminole believes this
is inconsistent with the terms of the contract.
In response to Seminole's actions, the Group has ceased transloading any
coal shipments to Seminole 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 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>
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.
F-25
<PAGE> 174
ALLIANCE RESOURCE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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 June , 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 June , 1999 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Tulsa, Oklahoma
June , 1999
The above Independent Auditors' Report for Alliance Resource Management GP, LLC
is in the form which will be signed by Deloitte & Touche LLP upon completion of
the organization and capitalization of this entity assuming that no material
events have occurred which would affect the balance sheet and related footnote.
Deloitte & Touche LLP
Tulsa, Oklahoma
June 29, 1999
F-28
<PAGE> 177
ALLIANCE RESOURCE MANAGEMENT GP, LLC
BALANCE SHEET
JUNE , 1999
ASSETS
<TABLE>
<S> <C>
CURRENT ASSET:
Cash...................................................... $ 991
INVESTMENT IN ALLIANCE RESOURCE PARTNERS, L.P............... 9
------
Total Assets...................................... $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
JUNE , 1999
1. NATURE OF OPERATIONS
Alliance Resource Management GP, LLC is a Delaware limited liability
company that was formed June , 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 MAPCO Coal, LLC
and MC Mining, LLC, which are Delaware limited liability companies 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 MAPCO
Coal, LLC and MC Mining, LLC, which are Delaware limited liability companies
engaged primarily in the mining and sale of coal.
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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
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ALLIANCE RESOURCE PARTNERS, L.P.
BALANCE SHEET
MAY 17, 1999
ASSET
<TABLE>
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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.
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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
MAPCO Coal, LLC and MC Mining, LLC which are Delaware limited liability
companies engaged in the mining and sale of coal. The Partnership's general
partners are Alliance Resource Management GP, LLC and Alliance Resource GP, LLC.
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APPENDIX A
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
ALLIANCE RESOURCE PARTNERS, L.P.
<PAGE> 186
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
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SECTION 1.1 Definitions.................................................
SECTION 1.2 Construction................................................
ARTICLE II
ORGANIZATION
SECTION 2.1 Formation...................................................
SECTION 2.2 Name........................................................
SECTION 2.3 Registered Office; Registered Agent; Principal Office; Other
Offices...................................................
SECTION 2.4 Purpose and Business........................................
SECTION 2.5 Powers......................................................
SECTION 2.6 Power of Attorney...........................................
SECTION 2.7 Term........................................................
SECTION 2.8 Title to Partnership Assets.................................
ARTICLE III
RIGHTS OF LIMITED PARTNERS
SECTION 3.1 Limitation of Liability.....................................
SECTION 3.2 Management of Business......................................
SECTION 3.3 Outside Activities of the Limited Partners..................
SECTION 3.4 Rights of Limited Partners..................................
ARTICLE IV
CERTIFICATES; RECORD HOLDERS; TRANSFER OF PARTNERSHIP INTERESTS;
REDEMPTION OF PARTNERSHIP INTERESTS
SECTION 4.1 Certificates................................................
SECTION 4.2 Mutilated, Destroyed, Lost or Stolen Certificates...........
SECTION 4.3 Record Holders..............................................
SECTION 4.4 Transfer Generally..........................................
SECTION 4.5 Registration and Transfer of Limited Partner Interests......
SECTION 4.6 Transfer of the General Partner's General Partner
Interest..................................................
SECTION 4.7 Transfer of Incentive Distribution Rights...................
SECTION 4.8 Restrictions on Transfers...................................
SECTION 4.9 Citizenship Certificates; Non-citizen Assignees.............
SECTION 4.10 Redemption of Partnership Interests of Non-citizen
Assignees.................................................
ARTICLE V
CAPITAL CONTRIBUTIONS AND ISSUANCE OF PARTNERSHIP INTERESTS
SECTION 5.1 Organizational Contributions................................
SECTION 5.2 Contributions by the General Partner and its Affiliates.....
SECTION 5.3 Contributions by Initial Limited Partners and Reimbursement
of the General Partner....................................
SECTION 5.4 Interest and Withdrawal.....................................
SECTION 5.5 Capital Accounts............................................
</TABLE>
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<TABLE>
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SECTION 5.6 Issuances of Additional Partnership Securities..............
SECTION 5.7 Limitations on Issuance of Additional Partnership
Securities................................................
SECTION 5.8 Conversion of Subordinated Units............................
SECTION 5.9 Limited Preemptive Right....................................
SECTION 5.10 Splits and Combination......................................
SECTION 5.11 Fully Paid and Non-Assessable Nature of Limited Partner
Interests.................................................
ARTICLE VI
ALLOCATIONS AND DISTRIBUTIONS
SECTION 6.1 Allocations for Capital Account Purposes....................
SECTION 6.2 Allocations for Tax Purposes................................
SECTION 6.3 Requirement and Characterization of Distributions;
Distributions to Record Holders...........................
SECTION 6.4 Distributions of Available Cash from Operating Surplus......
SECTION 6.5 Distributions of Available Cash from Capital Surplus........
SECTION 6.6 Adjustment of Minimum Quarterly Distribution and Target
Distribution Levels.......................................
SECTION 6.7 Special Provisions Relating to the Holders of Subordinated
Units.....................................................
SECTION 6.8 Special Provisions Relating to the Holders of Incentive
Distribution Rights.......................................
SECTION 6.9 Entity-Level Taxation.......................................
ARTICLE VII
MANAGEMENT AND OPERATION OF BUSINESS
SECTION 7.1 Management..................................................
SECTION 7.2 Certificate of Limited Partnership..........................
SECTION 7.3 Restrictions on General Partner's Authority.................
SECTION 7.4 Reimbursement of the General Partner........................
SECTION 7.5 Outside Activities..........................................
SECTION 7.6 Loans from the General Partner; Loans or Contributions from
the Partnership; Contracts with Affiliates; Certain
Restrictions on the General Partner.......................
SECTION 7.7 Indemnification.............................................
SECTION 7.8 Liability of Indemnitees....................................
SECTION 7.9 Resolution of Conflicts of Interest.........................
SECTION 7.10 Other Matters Concerning the General Partner................
SECTION 7.11 Purchase or Sale of Partnership Securities..................
SECTION 7.12 Registration Rights of the General Partner and its
Affiliates................................................
SECTION 7.13 Reliance by Third Parties...................................
ARTICLE VIII
BOOKS, RECORDS, ACCOUNTING AND REPORTS
SECTION 8.1 Records and Accounting......................................
SECTION 8.2 Fiscal Year.................................................
SECTION 8.3 Reports.....................................................
ARTICLE IX
TAX MATTERS
SECTION 9.1 Tax Returns and Information.................................
SECTION 9.2 Tax Elections...............................................
SECTION 9.3 Tax Controversies...........................................
SECTION 9.4 Withholding.................................................
</TABLE>
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<TABLE>
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ARTICLE X
ADMISSION OF PARTNERS
SECTION 10.1 Admission of Initial Limited Partners.......................
SECTION 10.2 Admission of Substituted Limited Partner....................
SECTION 10.3 Admission of Successor General Partner......................
SECTION 10.4 Admission of Additional Limited Partners....................
SECTION 10.5 Amendment of Agreement and Certificate of Limited
Partnership...............................................
ARTICLE XI
WITHDRAWAL OR REMOVAL OF PARTNERS
SECTION 11.1 Withdrawal of the General Partner...........................
SECTION 11.2 Removal of the General Partner..............................
SECTION 11.3 Interest of Departing Partner and Successor General
Partner...................................................
SECTION 11.4 Termination of Subordination Period, Conversion of
Subordinated Units and Extinguishment of Cumulative Common
Unit Arrearages...........................................
SECTION 11.5 Withdrawal of Limited Partners..............................
ARTICLE XII
DISSOLUTION AND LIQUIDATION
SECTION 12.1 Dissolution.................................................
SECTION 12.2 Continuation of the Business of the Partnership After
Dissolution...............................................
SECTION 12.3 Liquidator..................................................
SECTION 12.4 Liquidation.................................................
SECTION 12.5 Cancellation of Certificate of Limited Partnership..........
SECTION 12.6 Return of Contributions.....................................
SECTION 12.7 Waiver of Partition.........................................
SECTION 12.8 Capital Account Restoration.................................
ARTICLE XIII
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS; RECORD DATE
SECTION 13.1 Amendment to be Adopted Solely by the General Partner.......
SECTION 13.2 Amendment Procedures........................................
SECTION 13.3 Amendment Requirements......................................
SECTION 13.4 Special Meetings............................................
SECTION 13.5 Notice of a Meeting.........................................
SECTION 13.6 Record Date.................................................
SECTION 13.7 Adjournment.................................................
SECTION 13.8 Waiver of Notice; Approval of Meeting; Approval of
Minutes...................................................
SECTION 13.9 Quorum......................................................
SECTION 13.10 Conduct of a Meeting........................................
SECTION 13.11 Action Without a Meeting....................................
SECTION 13.12 Voting and Other Rights.....................................
</TABLE>
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<TABLE>
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ARTICLE XIV
MERGER
SECTION 14.1 Authority...................................................
SECTION 14.2 Procedure for Merger or Consolidation.......................
SECTION 14.3 Approval by Limited Partners of Merger or Consolidation.....
SECTION 14.4 Certificate of Merger.......................................
SECTION 14.5 Effect of Merger............................................
ARTICLE XV
RIGHT TO ACQUIRE LIMITED PARTNER INTERESTS
SECTION 15.1 Right to Acquire Limited Partner Interests..................
ARTICLE XVI
GENERAL PROVISIONS
SECTION 16.1 Addresses and Notices.......................................
SECTION 16.2 Further Action..............................................
SECTION 16.3 Binding Effect..............................................
SECTION 16.4 Integration.................................................
SECTION 16.5 Creditors...................................................
SECTION 16.6 Waiver......................................................
SECTION 16.7 Counterparts................................................
SECTION 16.8 Applicable Law..............................................
SECTION 16.9 Invalidity of Provisions....................................
SECTION 16.10 Consent of Partners.........................................
</TABLE>
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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 GP, LLC, a Delaware limited
liability company, as the 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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"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 General Partner using such reasonable method of valuation as it may
adopt. The 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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"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,
(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 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 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 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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"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 and Conveyance 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 General
Partner.
"Cause" means a court of competent jurisdiction has entered a final,
non-appealable judgment finding the General Partner liable for actual fraud,
gross negligence or willful or wanton misconduct in its capacity as 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 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 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 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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"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 Partner (exclusive of its interest as a holder of the General Partner
Interest and 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
General Partner composed entirely of two or more directors who are neither
security holders, officers nor employees of the General Partner nor officers,
directors or employees of any Affiliate of the 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 and Conveyance Agreement" means that certain Contribution,
Conveyance and Assumption Agreement, dated as of the Closing Date, among the
General Partner, the Partnership, the Intermediate Partnership, the Operating
Subsidiaries 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 or 11.2.
"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).
"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
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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 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 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 $0.55 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 $0.55 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 Partner" means Alliance Resource GP, LLC and its successors and
permitted assigns as general partner of the Partnership.
"General Partner Interest" means the ownership interest of the 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 the General Partner is entitled as
provided in this Agreement, together with all obligations of the 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 General Partner in connection with the transfer of all of its
limited partner interest in the Intermediate Partnership to the Partnership and
substantially all of its member interests in the Operating Subsidiaries 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.
"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).
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"Indemnitee" means (a) the General Partner, (b) any Departing Partner, (c)
any Person who is or was an Affiliate of the 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, the General Partner or any
Departing Partner or any Affiliate of any Group Member, the General Partner or
any Departing Partner, and (e) any Person who is or was serving at the request
of the General Partner or any Departing Partner or any Affiliate of the 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 Partner (with respect to the
Subordinated Units and the Incentive Distribution Rights received by it 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 General Partner, in each case adjusted as the
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 its withdrawal from the Partnership,
each Initial Limited Partner, each Substituted Limited Partner, each Additional
Limited Partner and any Partner upon the change of its status from 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.
"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
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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 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.
"Merger Agreement" has the meaning assigned to such term in Section 14.1.
"Minimum Quarterly Distribution" means $0.50 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 $0.50 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
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
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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 General Partner has
determined in its discretion does not constitute an Eligible Citizen and as to
whose Partnership Interest the 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
expenditures (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, the General Partner, the Partnership,
the Intermediate Partnership and each Operating Subsidiary.
"Operating Expenditures" means all Partnership Group expenditures,
including, but not limited to, taxes, reimbursements of the 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.
"Operating Subsidiaries" means Mapco Coal LLC, a Delaware limited liability
company, MC Mining LLC, a Delaware limited liability company, and any successors
thereto.
"Operating Subsidiary Agreement" means the Limited Liability Company
Agreement of each of the Operating Subsidiaries, as each may be amended,
supplemented or restated from time to time.
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"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 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 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 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 the General Partner or any of its Affiliates)
acceptable to the 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 Partner or its 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 Partner or its 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 Partner 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.
"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).
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"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 Partner 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 Subsidiaries 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 Interest 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
General Partner (with respect to its General Partner Interest), an aggregate
1.0%, (b) as to any Unitholder or Assignee holding Units, the product obtained
by multiplying (i) 99% less the percentage applicable to paragraph (c) 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 (c)
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 Partner or any Affiliate of the 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 Partners and Assignees, apportioned among all
Partners and Assignees in accordance with their relative Percentage Interests
and (c) 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 General Partner as the
date for purchase of all Outstanding Units of a certain class (other than Units
owned by the General Partner and its Affiliates) pursuant to Article XV.
"Quarter" means, unless the context requires otherwise, a fiscal quarter of
the Partnership.
"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 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
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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 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 Partner (as holder of the
General Partner Interest), the excess of (a) the Net Positive Adjustments of the
General Partner as of the end of such period over (b) the sum of the General
Partner's Share of Additional Book Basis Derivative Items with respect to the
General Partner Interest 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 $0.625 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 $0.625 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 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 Partner (as holder of the General Partner
Interest), the amount that bears the same ratio to
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such additional Book Basis Derivative Items as the General Partner's 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.
"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 June 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 Interest in the Partnership and on the general partner
interest in the Intermediate Partnership and on the managing member
interest in each Operating Subsidiary, during such periods and (ii) there
are no Cumulative Common Unit Arrearages; and
(b) the date on which the 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 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 Expenditure 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.
"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
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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 $0.75 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 $0.75 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 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 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).
"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,
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adjusted as the 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 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 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 General Partner in its sole discretion,
including the name of the 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 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 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 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 General Partner deems necessary
or appropriate. The address of the General Partner shall be 1717 South Boulder
Avenue, Tulsa, Oklahoma 74119 or such other place as the General Partner may
from time to time designate by notice to the Limited Partners.
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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
Subsidiaries are permitted to engage in by the Operating Subsidiary Agreements,
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 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 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 an 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 General Partner has no obligation
or duty to the Partnership, the Limited Partners, 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 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 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
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 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 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,
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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 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 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
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 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 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
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
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 General Partner or the Liquidator deems necessary to effectuate this
Agreement and the purposes of the Partnership.
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 General Partner, one or more of its Affiliates or one or more nominees, as
the General Partner may determine. The General Partner hereby declares and
warrants that any Partnership assets for which record title is held in the name
of the General Partner or one or more of its Affiliates or one or more nominees
shall be held by the 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 General Partner shall use reasonable
efforts to cause record title to such assets (other than those assets in respect
of which the General Partner determines that the expense and difficulty of
conveyancing makes transfer of record title to the Partnership
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impracticable) to be vested in the Partnership as soon as reasonably
practicable; provided, further, that, prior to the withdrawal or removal of the
General Partner or as soon thereafter as practicable, the 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 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 the General Partner or any officer, director,
employee, member, general partner, agent or trustee of the 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 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
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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 General Partner may keep confidential from the Limited Partners and
Assignees, for such period of time as the General Partner deems reasonable, (i)
any information that the General Partner reasonably believes to be in the nature
of trade secrets or (ii) other information the disclosure of which the 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 the 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 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 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 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 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.
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(b) The appropriate officers of the 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 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 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 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 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 the
General Partner assigns its General Partner Interest to another Person who
becomes the 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.
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(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 the General Partner of any or all of the
issued and outstanding stock of the 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 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 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 Partner and its 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 Partner's General Partner Interest.
(a) Subject to Section 4.6(c) below, prior to June 30, 2009, the 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
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(excluding Common Units held by the General Partner and its Affiliates) or (ii)
is of all, but not less than all, of its General Partner Interest to (A) an
Affiliate of the General Partner or (B) another Person in connection with the
merger or consolidation of the General Partner with or into another Person or
the transfer by the General Partner of all or substantially all of its assets to
another Person.
(b) Subject to Section 4.6(c) below, on or after June 30, 2009, the 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 the
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 the General Partner under this Agreement and the general partner
under the Intermediate Partnership Agreement and the managing member under the
Operating Subsidiary Agreements and to be bound by the provisions of this
Agreement, the Intermediate Partnership Agreement and the Operating Subsidiary
Agreements, (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 Subsidiaries or cause the Partnership, the Intermediate
Partnership or the Operating Subsidiaries 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) and (iii)
such transferee also agrees to purchase all (or the appropriate portion thereof,
if applicable) of the partnership interest of the General Partner as the general
partner or managing member of each other Group Member. 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 June 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 substantially all of its assets to such other
Person. Any other transfer of the Incentive Distribution Rights prior to June
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 Partner
and its Affiliates). On or after June 30, 2009, the 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 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 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 either Operating Subsidiary under the laws of
the jurisdiction of its formation, or (iii) cause the Partnership or either
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 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
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the Partnership or either 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
General Partner may determine to be necessary or appropriate to impose such
restrictions; provided, however, that any amendment that the 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 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
General Partner may request any Limited Partner or Assignee to furnish to the
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 General Partner may request. If a
Limited Partner or Assignee fails to furnish to the General Partner within the
aforementioned 30-day period such Citizenship Certification or other requested
information or if upon receipt of such Citizenship Certification or other
requested information the 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 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 General Partner
shall be substituted for such Non-citizen Assignee as the Limited Partner in
respect of his Limited Partner Interests.
(b) The 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 Partner) 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 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 General
Partner shall cease to be deemed to be the Limited Partner in respect of the
Non-citizen Assignee's Limited Partner Interests.
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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 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 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
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 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 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% 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 General Partner shall withdraw the notice of
redemption, provided the transferee of such Limited Partner Interest certifies
to the satisfaction of the 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.
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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 General Partner made an initial Capital Contribution to the Partnership in
the amount of $999.00, for a certain interest in the Partnership and has been
admitted as the 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 and Conveyance 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 General Partner.
SECTION 5.2 Contributions by the General Partner and its Affiliates.
(a) On the Closing Date and pursuant to the Contribution and Conveyance
Agreement, (i) the General Partner shall contribute to the Intermediate
Partnership all but .001% of its member interest in Mapco Coal, LLC and all but
.001% of its member interest in MC Mining LLC in exchange for (A) a 1.010%
General Partner interest in the Intermediate Partnership, (B) the limited
partner interests in the Intermediate Partnership and (C) the Intermediate
Partnership's assumption of the General Partner's obligations under $180 million
of senior notes and a $48.2 million credit facility and (ii) the General Partner
shall contribute to the Partnership, as a Capital Contribution, all of its
limited partner interest in the Intermediate Partnership in exchange for (A) the
continuation of its General Partner Interest, subject to all of the rights,
privileges and duties of the General Partner under this Agreement, (B) 6,620,786
Subordinated Units and (C) the Incentive Distribution Rights.
(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 General Partner shall be required to
make additional Capital Contributions equal to 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 Partner 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
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, $80,000 of the proceeds
received by the Partnership from the issuance of Common Units pursuant to
Section 5.3(a) will be distributed to the General Partner. Such distribution
shall be a reimbursement for certain capital expenditures incurred by the
General Partner within two years preceding the Closing Date with respect to
assets contributed to the Partnership Group.
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(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
General Partner or its Affiliates that number of Common Units held by the
General Partner or its Affiliates equal to one-half of the number of
Subordinated Units 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 9,123,311, (ii) the "Additional Units"
as such term is used in the Underwriting Agreement in an aggregate number up to
1,368,497 issuable upon exercise of the Over-Allotment Option pursuant to
subparagraph (c) hereof, (iii) the Subordinated Units issuable to the 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 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 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
General Partner based upon the provisions of the Intermediate Partnership
Agreement and the Operating Subsidiary Agreements) of all property owned
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by the Intermediate Partnership, the Operating Subsidiaries 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 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 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 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
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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 the 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 General Partner
using such reasonable method of valuation as it may adopt; provided, however,
that the 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 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.
(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 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 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;
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(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 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 the General Partner Interest and 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 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 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 the General Partner Interest and 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.
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 the 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 4,561,656 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 the General Partner Interest and Incentive Distribution
Rights pursuant to Section 11.3(b), (D) pursuant to the employee benefit
plans of the 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
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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 $ 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 Interest in the
Partnership and the Operating Subsidiary in 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 3,310,393 of the Outstanding Subordinated Units 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 June 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
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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
Interest in the Partnership, the general partner interest in the
Intermediate Partnership and the member interest in the Operating
Subsidiaries, 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.
(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(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 Expenditure used in the determination of Adjusted
Operating Surplus in Section 5(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 Partner shall have the right, which it may from
time to time assign in whole or in part to any of its 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 Partner and its Affiliates, to the extent necessary to maintain the
Percentage Interests of the General Partner and its 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.
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(b) Whenever such a distribution, subdivision or combination of Partnership
Securities is declared, the 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
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 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 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 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 Partner in an amount equal to the
aggregate Net Losses allocated to the General Partner pursuant to
Section 6.1(b)(iii) for all previous taxable years until the aggregate
Net Income allocated to the General Partner 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 Partner
pursuant to Section 6.1(b)(iii) for all previous taxable years;
(ii) Second, 1% to the General Partner in an amount equal to the
aggregate Net Losses allocated to the General Partner 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
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(iii) Third, 1% to the General Partner 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 Partner 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 Partner 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);
(iii) Third, the balance, if any, 100% to the General Partner.
(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 Partner 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 Partner 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
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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 Partner 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");
(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 Partner 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 Partner 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 Partner.
(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 Partner 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 Partner 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 Partner.
(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
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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 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 Partner shall be allocated
gross income 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).
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(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 General Partner determines in
its good faith discretion that the Partnership's Nonrecourse Deductions
must be allocated in a different ratio to satisfy the safe harbor
requirements of the Treasury Regulations promulgated under Section
704(b) of the Code, the 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 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 Partner and
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its 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
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
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 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 General Partner reasonably determines that such
allocations are likely to be offset by subsequent Required
Allocations.
(B) The 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 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 Partner, or additional items of deduction and loss away
from the Unitholders and the General Partner to the holders of
Incentive Distribution Rights, to the extent that the Additional Book
Basis Derivative Items allocated to the Unitholders or the General
Partner exceed their Share of Additional Book Basis Derivative Items.
For this purpose, the Unitholders and the General Partner 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 Partner 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,
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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 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 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).
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 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 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 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
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Outstanding or the Partnership, and if such allocations are consistent with the
principles of Section 704 of the Code.
(d) The 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 General
Partner determines that such reporting position cannot reasonably be taken, the
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 General Partner chooses not to utilize such aggregate method, the 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 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 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 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
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Partnership to the Partners as of the Record Date selected by the 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.
(c) The 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 Partner 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 Partner 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 Partner 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
Partner 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 Partner 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 Partner 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
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(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 Partner;
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 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
Partner 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
Partner 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 Partner 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 Partner 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 Partner;
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 Partner 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 Partner 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
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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 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 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 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 an Operating Subsidiary to be treated as an
association taxable as a corporation or otherwise subjects the Partnership, the
Intermediate Partnership or an Operating Subsidiary to entity-level taxation for
federal income tax
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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 such Operating Subsidiary for the taxable year of the
Partnership, the Intermediate Partnership or such 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 Intermediate Partnership or such 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 such
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 such 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 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 General Partner, and no 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 General Partner under any other provision of this Agreement, the 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 Subsidiaries); 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 Partner or its assets other than its
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 Subsidiaries 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 Agreements, 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 Agreements, the
Intermediate Partnership Agreement, the Underwriting Agreement, [the Omnibus
Agreement,] the Contribution and Conveyance 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 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 Partner, 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 General Partner or any Affiliate of the General
Partner of the rights accorded pursuant to Article XV), shall not constitute a
breach by the General Partner of any duty that the General Partner 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 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 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
General Partner in its sole discretion to be reasonable and necessary or
appropriate, the 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 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 Partner's Authority.
(a) The General Partner 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
general partner of the Partnership.
(b) Except as provided in Articles XII and XIV, the General Partner may not
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 Subsidiaries, 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 Partner's 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 Subsidiaries and shall not apply
to any forced sale of any or all of the assets of the Partnership or Operating
Subsidiaries pursuant to the foreclosure of, or other realization upon, any such
encumbrance. Without the approval of holders of a Unit Majority, the General
Partner shall not, on behalf of the Partnership, (i) consent to any amendment to
the Intermediate Partnership Agreement or either 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 an
Operating Subsidiary, in either case, that would have a material adverse effect
on the Partnership as a member of an 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 an
Operating Subsidiary.
SECTION 7.4 Reimbursement of the General Partner.
(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 Partner shall not be compensated for its services as general partner
or managing member of any Group Member.
(b) The General Partner shall be reimbursed on a monthly basis, or such
other reasonable basis as the General Partner may determine in its sole
discretion, for (i) all direct and indirect expenses it incurs
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or payments it makes on behalf of the Partnership (including salary, bonus,
incentive compensation and other amounts paid to any Person including Affiliates
of the General Partner to perform services for the Partnership or for the
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 the General Partner in connection with
operating the Partnership's business (including expenses allocated to the
General Partner by its Affiliates). The General Partner shall determine the
expenses that are allocable to the Partnership in any reasonable manner
determined by the General Partner in its sole discretion. Reimbursements
pursuant to this Section 7.4 shall be in addition to any reimbursement to the
General Partner as a result of indemnification pursuant to Section 7.7.
(c) Subject to Section 5.7, the 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 the
General Partner or any of its Affiliates, in each case for the benefit of
employees of the General Partner, 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 Partner or any of its Affiliates any Partnership Securities that the
General Partner or such Affiliate is obligated to provide to any employees
pursuant to any such employee benefit plans, employee programs or employee
practices. Expenses incurred by the General Partner in connection with any such
plans, programs and practices (including the net cost to the General Partner or
such Affiliate of Partnership Securities purchased by the General Partner or
such Affiliate 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 Partner under any employee
benefit plans, employee programs or employee practices adopted by the General
Partner as permitted by this Section 7.4(c) shall constitute obligations of the
General Partner hereunder and shall be assumed by any successor General Partner
approved pursuant to Section 11.1 or 11.2 or the transferee of or successor to
all of the General Partner's General Partner Interest pursuant to Section 4.6.
SECTION 7.5 Outside Activities.
(a) After the Closing Date, the General Partner, for so long as it is the
General Partner of the Partnership (i) agrees that its sole business will be to
act as the general partner or managing member, as the case may be, of the
Partnership, the Intermediate Partnership, each Operating Subsidiary, and any
other partnership or limited liability company of which the Partnership, the
Intermediate Partnership or an 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 has entered into the Omnibus Agreement with
the Partnership, the Intermediate Partnership and the Operating Subsidiaries,
which agreement sets forth certain restrictions on the ability of Alliance
Resource Holdings and its Affiliates to engage in Restricted Businesses.
(c) Except as specifically restricted by Section 7.5(a) and the Omnibus
Agreement, each Indemnitee (other than the 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
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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, either 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 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 Partner's fiduciary duty or
any other obligation of any type whatsoever of the General Partner for the
Indemnitees (other than the 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 Partner and
the Indemnities shall have no obligation to present business opportunities to
the Partnership.
(e) The General Partner and any of its 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 the 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 Partner 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 Partner 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 Partner has complied with its
fiduciary duties in connection with determinations made by it under this Section
7.5.
SECTION 7.6 Loans from the General Partner; Loans or Contributions from the
Partnership; Contracts with Affiliates; Certain Restrictions on the
General Partner.
(a) The General Partner or its Affiliates may lend to any Group Member, and
any Group Member may borrow from the 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 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 the 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 General Partner; provided, however,
that the Partnership may not charge the Group Member interest at a rate less
than the rate that would be charged to the Group Member (without reference to
the General Partner's financial abilities or guarantees) by unrelated lenders on
comparable loans. The foregoing authority shall be exercised by the General
Partner in its sole discretion and shall not create any right or benefit in
favor of any Group Member or any other Person.
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(c) The General Partner may itself, or may enter into an agreement with any
of its Affiliates to, render services to a Group Member or to the General
Partner in the discharge of its duties as general partner of the Partnership.
Any services rendered to a Group Member by the General Partner or any of its
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 the General Partner nor any of its 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 and
Conveyance 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 Partner and its Affiliates will have no obligation to
permit any Group Member to use any facilities or assets of the General Partner
and its 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 Partner or its 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 manner that such Indemnitee reasonably believed to be in, or
(in the case of a Person other than the General Partner) 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 Partner with respect to its
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obligations incurred pursuant to the Underwriting Agreement or the Contribution
and Conveyance Agreement (other than obligations incurred by the General Partner
on behalf of the Partnership or any 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 Partner 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
Partner or its Affiliates for the cost of) insurance, on behalf of the General
Partner, its Affiliates and such other Persons as the 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 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.
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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 General Partner set forth in
Section 7.1(a), the 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 General Partner shall not be
responsible for any misconduct or negligence on the part of any such agent
appointed by the 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 Partner 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 Partner, and the Partnership's and General Partner's 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 an Operating Subsidiary Agreement, whenever a potential
conflict of interest exists or arises between the General Partner or any of its
Affiliates, on the one hand, and the Partnership, the Intermediate Partnership,
an Operating Subsidiary, any Partner or any Assignee, on the other, any
resolution or course of action by the 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 any 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
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 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
General Partner may also adopt a resolution or course of action that has not
received Special Approval. The 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
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additional factors as the 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 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 General Partner, the resolution,
action or terms so made, taken or provided by the 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 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
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, any 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 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, any
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 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 General
Partner to the Partnership or the Limited Partners. The 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 General Partner
shall be deemed to constitute a breach of any duty of the 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 Partner or its 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 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 General Partner pursuant to this Section 7.9.
SECTION 7.10 Other Matters Concerning the General Partner.
(a) The 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, 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) The 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 the 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.
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(c) The 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
Partner 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 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 General Partner may cause the Partnership to purchase or otherwise
acquire Partnership Securities; provided that, except as permitted pursuant to
Section 4.10, the 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 Partner or any Affiliate of the General Partner may also purchase or
otherwise acquire and sell or otherwise dispose of Partnership Securities for
its own account, subject to the provisions of Articles IV and X.
SECTION 7.12 Registration Rights of the General Partner and its Affiliates.
(a) If (i) the General Partner or any Affiliate of the General Partner
(including for purposes of this Section 7.12, any Person that is an Affiliate of
the General Partner at the date hereof notwithstanding that it may later cease
to be an Affiliate of the General Partner) 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 the 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 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.
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(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 Partner (and any of the General Partner's
Affiliates) after it ceases to be a Partner 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 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
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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 General
Partner and any officer of the General Partner authorized by the 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 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 General Partner or any such officer in
connection with any such dealing. In no event shall any Person dealing with the
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 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 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 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.
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 General Partner shall cause to
be mailed or made available to each Record Holder of a Unit as of a date
selected by the 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 General Partner.
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(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 General
Partner shall cause to be mailed or made available to each Record Holder of a
Unit, as of a date selected by the 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 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 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 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 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 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 professional services and costs associated therewith. Each Partner
agrees to cooperate with the General Partner and to do or refrain from doing any
or all things reasonably required by the General Partner to conduct such
proceedings.
SECTION 9.4 Withholding.
Notwithstanding any other provision of this Agreement, the 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 each 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
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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 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 Partner as described in Section
5.2, the General Partner shall be deemed to have been admitted to the
Partnership as a Limited Partner in respect of the Common Units, Subordinated
Units and 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 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 General Partner consents thereto, which consent may be given or
withheld in the 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 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 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 Partner.
A successor General Partner approved pursuant to Section 11.1 or 11.2 or
the transferee of or successor to all of the 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 General Partner, effective
immediately prior to the withdrawal or removal of the predecessor or
transferring General Partner pursuant to Section 11.1 or 11.2 or the transfer of
the 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
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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 the 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 General
Partner (i) evidence of acceptance in form satisfactory to the 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 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 General Partner, which consent may be given or withheld in the 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 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 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 General Partner shall prepare and file an amendment to
the Certificate of Limited Partnership, and the 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 General Partner.
(a) The 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 General Partner voluntarily withdraws from the Partnership by
giving written notice to the other Partners (and it shall be deemed that
the General Partner has withdrawn pursuant to this Section 11.1(a)(i) if
the General Partner voluntarily withdraws (A) as general partner of the
Intermediate Partnership or (B) as managing member of an Operating
Subsidiary);
(ii) The General Partner transfers all of its rights as General
Partner pursuant to Section 4.6;
(iii) The General Partner is removed pursuant to Section 11.2;
(iv) The 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 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 General Partner or of
all or any substantial part of its properties;
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(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 General Partner; or
(vi) (A) in the event the General Partner is a corporation, a
certificate of dissolution or its equivalent is filed for the General
Partner, or 90 days expire after the date of notice to the 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 General
Partner is a partnership or a limited liability company, the dissolution
and commencement of winding up of the General Partner; (C) in the event the
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 General Partner
is a natural person, his death or adjudication of incompetency; and (E)
otherwise in the event of the termination of the 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 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 General Partner from the Partnership.
(b) Withdrawal of the 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 June 30, 2009, the 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 Partner and
its Affiliates) and the General Partner delivers to the Partnership an Opinion
of Counsel ("Withdrawal Opinion of Counsel") that such withdrawal (following the
selection of the successor 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 an Operating Subsidiary or cause the
Partnership or the Intermediate Partnership or an 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 June
30, 2009, the 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 General Partner ceases to
be the 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 General Partner voluntarily withdraws by giving at least 90 days'
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
Partner and its Affiliates) own beneficially or of record or control at least
50% of the Outstanding Units. The withdrawal of the General Partner from the
Partnership upon the occurrence of an Event of Withdrawal shall also constitute
the withdrawal of the General Partner as general partner or managing member, as
the case may be, of the other Group Members. If the 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
General Partner. The Person so elected as successor 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 General Partner is a
general partner or a managing member. If, prior to the effective date of the
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 General Partner elected in accordance with the terms of this Section
11.1 shall be subject to the provisions of Section 10.3.
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SECTION 11.2 Removal of the General Partner.
The General Partner may be removed if such removal is approved by the
Unitholders holding at least 66 % of the Outstanding Units (including Units held
by the General Partner and its Affiliates). Any such action by such holders for
removal of the General Partner must also provide for the election of a successor
General Partner by the Unitholders holding a Unit Majority (including Units held
by the General Partner and its Affiliates). Such removal shall be effective
immediately following the admission of a successor General Partner pursuant to
Section 10.3. The removal of the General Partner shall also automatically
constitute the removal of the General Partner as general partner or managing
member, as the case may be, of the other Group Members of which the General
Partner is a general partner or a managing member. If a Person is elected as a
successor 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 General Partner is a general partner or a managing
member. The right of the holders of Outstanding Units to remove the 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 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 Partner.
(a) In the event of (i) withdrawal of the General Partner under
circumstances where such withdrawal does not violate this Agreement or (ii)
removal of the 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 or 11.2, 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 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 General
Partner is removed by the Unitholders under circumstances where Cause exists or
if the General Partner withdraws under circumstances where such withdrawal
violates this Agreement, the Intermediate Partnership Agreement or an Operating
Subsidiary Agreement, and if a successor General Partner is elected in
accordance with the terms of Section 11.1 or 11.2, 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. In either event, the Departing Partner shall be
entitled 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 General 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 the 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. 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.
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(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 to Common Units will be characterized as if
the General 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 or 11.2 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 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 1% of all Partnership
allocations and distributions. The successor General Partner shall cause this
Agreement to be amended to reflect that, from and after the date of such
successor General Partner's admission, the successor General Partner's interest
in all Partnership distributions and allocations shall be 1%.
SECTION 11.4 Termination of Subordination Period, Conversion of Subordinated
Units and Extinguishment of Cumulative Common Unit Arrearages.
Notwithstanding any provision of this Agreement, if the General Partner is
removed as general partner of the Partnership under circumstances where Cause
does not exist and Units held by the General Partner and its 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.
Section 11.5 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 General Partner in accordance with the terms of this Agreement. Upon
the removal or withdrawal of the General Partner, if a successor General Partner
is elected pursuant to Section 11.1 or 11.2, the Partnership shall not be
dissolved and such successor 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 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;
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(c) an election to dissolve the Partnership by the 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 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 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 General Partner is not the former General
Partner, then the interest of the former General Partner shall be treated
in the manner provided in Section 11.3; and
(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 general partner may for this purpose exercise the powers
of attorney granted the General Partner pursuant to Section 2.6; provided,
that the right of the holders of a Unit Majority to approve a successor
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 an 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 General Partner shall select one or more Persons to act as
Liquidator. The Liquidator (if other than the 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 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
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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
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.
(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.
The General Partner shall not 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.
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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. The 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 General Partner.
Each Partner agrees that the 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;
(b) admission, substitution, withdrawal or removal of Partners in
accordance with this Agreement;
(c) a change that, in the sole discretion of the 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
Subsidiaries 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 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 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 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 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 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 the General Partner or its directors, officers,
trustees or agents from in any manner being subjected to
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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 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 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 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 with the consent of the
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 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 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 Partner) 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, the General Partner or any
of its 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 General Partner's authority to adopt amendments to
this Agreement as contemplated in Section 13.1,
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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 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 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 General Partner shall send a notice of the
meeting to the Limited Partners either directly or indirectly through the
Transfer Agent. A meeting shall be held at a time and place determined by the
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 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 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
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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 Partner) 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 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 Partner). 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 Partner) 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 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 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 General Partner. The 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
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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 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
Partner) 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
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 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 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 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 delivered to the 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.
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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 General Partner. If the General Partner shall
determine, in the exercise of its discretion, to consent to the merger or
consolidation, the 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 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 General
Partner.
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SECTION 14.3 Approval by Limited Partners of Merger or Consolidation.
(a) Except as provided in Section 14.3(d), the 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 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 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 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 provide the Limited Partners
and the General Partner with the same rights and obligations as are herein
contained.
SECTION 14.4 Certificate of Merger.
Upon the required approval by the 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
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(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 Partner and its
Affiliates, the 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 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 Partner and its 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 the 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 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 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 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 General Partner, any Affiliate of the General Partner or the
Partnership elects to exercise the right to purchase Limited Partner Interests
granted pursuant to Section 15.1(a), the 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 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
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<PAGE> 260
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 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 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
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 General Partner
or any Affiliate of the 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 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 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
A-71
<PAGE> 261
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 General Partner at
the principal office of the Partnership designated pursuant to Section 2.3. The
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.
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.
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<PAGE> 262
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.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
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
General Partner.
ALLIANCE RESOURCE GP, LLC
By:
----------------------------------
Name:
---------------------------------
Title:
---------------------------------
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<PAGE> 263
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 GP, LLC, its
General Partner
- ----------------------------------------------------- By: -------------------------------------------------
as Transfer Agent and Registrar
Name: ---------------------------------------------
By: ------------------------------------------------- By: -------------------------------------------------
Authorized Signature Secretary
</TABLE>
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<PAGE> 264
[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:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship and not as tenants in
common
UNIF GIFT/TRANSFERS MIN ACT
- --------------------- Custodian
- --------------------
(Cust) (Minor)
under Uniform Gifts/Transfers to Minors Act
- ------------------------------------------------------
(State)
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.
A-75
<PAGE> 265
FOR VALUE RECEIVED, HEREBY ASSIGNS, CONVEYS, SELLS AND TRANSFERS UNTO
<TABLE>
<S> <C>
- ----------------------------------------------------- -----------------------------------------------------
(Please print or typewrite name and address of (Please insert Social Security or other identifying
Assignee) 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>
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 OF SECURITIES DEALERS, INC. (Signature)
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.
A-76
<PAGE> 266
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.
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).
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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<PAGE> 267
B. Partnership, Corporation or Other Interestholder
<TABLE>
<S> <C>
1. is not a foreign corporation, foreign partnership,
- ------------------------------------ foreign
(Name of Interestholder)
trust or foreign estate (as those terms are 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.
A-78
<PAGE> 268
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).
B-1
<PAGE> 269
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.
B-2
<PAGE> 270
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 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 general partner may not establish cash
reserves for distributions to the subordinated units unless the 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,
C-1
<PAGE> 271
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 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 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 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.
Demonstrated Reserves: The sum of coal tonnage classified as measured and
indicated which Alliance Resource Partners controls by lease, ownership or
option to lease or purchase. Measured (or proved) reserves are 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. Indicated (or probable) reserves are coal tonnages
computed by projection of data from available seam measurements for a distance
beyond coal classified as measured. The assurance, although lower than for
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
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moderate degree of geologic assurance. Further exploration is necessary to place
these reserves in the measured category.
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 general partner (with the concurrence of the
conflicts committee of the board of directors of the 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 general
partner may make the estimate in any manner it determines is 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. 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 (other than 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%.
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Metallurgical Coal: The various grades of coal suitable for carbonization
to make coke for 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
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.
(b) Operating Expenditures shall not include Expansion Capital
Expenditures or actual Maintenance Capital Expenditures but shall include
Estimated Maintenance Capital Expenditures. Where capital expenditures are
made in part to maintain the long-term operating capacity of the assets of
Alliance Resource Partners and in part to increase the long-term operating
capacity of the assets of Alliance Resource Partners, the good faith
allocation by the board of directors of the general partner (with the
concurrence of the conflicts committee of the board of directors of the
general partner) between Maintenance Capital Expenditures and Expansion
Capital Expenditures shall be conclusive.
(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 general partner to provide funds for
future Operating Expenditures.
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.
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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. Also known as
continuous mining.
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 June 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 subsidiaries 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 general partner is removed as 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 partner and its 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 June 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 subsidiaries 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 (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 general partner
determines in good faith that the amount of Estimated Maintenance Capital
Expenditure 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.
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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 income (loss)............................... $ (2,640) $ 981
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)..................................... $ 20,482 $ 6,258
======== =======
Add: Unusual item(f)..................................... $ 5,211 $ --
Less: Additional maintenance capital expenditures(g)...... (5,500) (625)
Less: Additional administrative expenses(h)............... (1,000) (250)
-------- -------
Pro forma Available Cash from Operating Surplus, as
adjusted(i)(j)(k)................................... $ 19,193 $ 5,383
======== =======
</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............................................. $18,520 $ 4,630
Subordinated units....................................... 13,242 3,310
Combined 2% general partner interest..................... 648 162
------- -------
Total.......................................... $32,410 $ 8,102
======= =======
</TABLE>
(d) Our pro forma Available Cash from Operating Surplus generated during 1998
would have been sufficient to allow us to pay the minimum quarterly
distribution on the common units, but would have been insufficient by $11.9
million to pay the minimum quarterly distribution on the subordinated units
and the related distribution on the general partner interest.
(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
minimum quarterly distribution on the common units, but would have been
insufficient by $1.8 million to allow us to pay the minimum quarterly
distribution on the subordinated units and the related distribution on the
general partner interest.
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(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) 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.
(h) 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.
(i) Our pro forma Available Cash from Operating Surplus as adjusted generated
during 1998 would have been sufficient to allow us to pay the minimum
quarterly distribution on the common units but would have been insufficient
to make payments on the subordinated units and the related distribution on
the general partner interest.
(j) Our pro forma Available Cash from Operating Surplus, for the first quarter
of 1999, as adjusted, would have been sufficient to allow us to pay the
minimum quarterly distribution on the common units but would have been
insufficient by $2.7 million to allow us to pay the minimum quarterly
distribution on the subordinated units.
(k) 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.
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[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 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 coal reserve base, 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 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 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 coal reserve estimates,
it is our professional opinion that:
1. 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.
2. As of March 31, 1999, MAPCO controlled by lease, ownership, or option an
estimated 407 million recoverable product tons of demonstrated coal
reserves as summarized as follows:
<TABLE>
<CAPTION>
DEMONSTRATED
RESERVE BASE
RECOVERABLE PRODUCT
MINE/PROPERTY LOCATION MINING METHOD TONS (000)
------------- -------- ------------- -------------------
<S> <C> <C> <C>
Mettiki Mine.................... Garret 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, Kentucky Underground 72,659
Gibson County................... Gibson County, Indiana Underground 142,038
Hopkins County.................. Hopkins County, Kentucky Underground 24,820
Surface 14,849
-------
Total Demonstrated Recoverable Product Tons.............................. 407,471
=======
</TABLE>
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Alliance Resource Holdings
May 18, 1999
Page 2
In addition, MAPCO's available coal resources include tonnage in excess of the
demonstrated tons that may be mined in the future following potential
improvements in mining equipment and techniques. For economic and other
operational reasons, a portion of MAPCO's reserves described above may be mined
only after the construction of additional mining facilities and additional
capital investment.
B. DEFINITIONS RELATING TO COAL RESERVE AUDIT
Definitions of terms and criteria applied in our summary study are as follows:
Reserve Base: Defined as that portion of the resource that meets specified
minimum physical and analytical criteria related to certain explanation
standards and demonstrated mining and production practices. A reserve base
may include tonnages which are economic and marginally economic. The terms
reserve base and reserve are used interchangeably in this report. Economic
viability of any reserve is directly related to current market conditions
or sales commitments, location, geologic conditions, transportation, and
the mining operator's technical and managerial capabilities.
Reserve Classification: Refers to the reliability or accuracy of the
reserve estimate and is defined in three categories: measured, indicated,
and inferred (in descending order of geologic assurance).
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.
Indicated: Coal tonnages computed by projection of data from available seam
measurements for a distance beyond coal classified as measured. The
assurance, although lower than for 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.
Demonstrated: The sum of coal tonnage classified as measured and indicated.
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.
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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
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- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
9,259,840 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> 283
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
NYSE listing fee............................................ *
Printing and engraving expenses............................. *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Transfer agent and registrar fees........................... *
Miscellaneous............................................... *
-------
TOTAL............................................. $ *
=======
</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 Limited Liability Company
Agreement of Alliance Resource GP, LLC
3.3 -- Form of Agreement of Limited Partnership of Alliance
Resource Operating Partners, L.P.
3.4 -- Form of Limited Liability Company Agreement of MAPCO
Coal, LLC
3.5 -- Form of Limited Liability Company Agreement of MC Mining,
LLC
+3.6 -- Certificate of Limited Partnership of Alliance Resource
Partners, L.P.
+3.7 -- Certificate of Formation of Alliance Resource GP, LLC
3.8 -- Certificate of Limited Partnership of Alliance Resource
Operating Partners, L.P.
3.9 -- Certificate of Formation of Alliance Coal, LLC
3.10 -- Certificate of Formation of MC Mining, LLC
3.11 -- Form of Amended and Restated Limited Liability Company
Agreement of Alliance Resource Management GP, LLC
</TABLE>
II-1
<PAGE> 284
<TABLE>
<C> <S>
3.12 -- Certificate of Formation of Alliance Resource Management GP, LLC
*5.1 -- Form of Opinion of Andrews & Kurth L.L.P. as to the legality of the securities being
registered
*8.1 -- Form of Opinion of Andrews & Kurth L.L.P. relating to tax matters
10.1 -- Form of Term Loan Facility
10.2 -- Form of Working Capital Facility
10.3 -- Form of Revolving Credit Facility
10.4 -- Form of Note Purchase Agreement
10.5 -- Form of Contribution, Conveyance and Assumption Agreement
10.6 -- Form of Alliance Resource GP, LLC Long-term Incentive Plan
10.7 -- Form of Alliance Resource GP, LLC Short-term Incentive Plan
10.8 -- Form of Employment Agreement
21.1 -- List of subsidiaries of Alliance Resource Partners
*23.1 -- Consent of Deloitte & Touche LLP (with respect to Alliance Resource Partners, L.P.)
+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 Deloitte & Touche LLP (with respect to Alliance Resource Management GP, LLC)
+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.
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-2
<PAGE> 285
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 June 29, 1999.
ALLIANCE RESOURCE PARTNERS
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 June 29, 1999
- ----------------------------------------------------- and Director (Principal
Joseph W. Craft, III Executive Officer)
* Senior Vice President and Chief June 29, 1999
- ----------------------------------------------------- Financial Officer (Principal
Michael L. Greenwood Financial Officer and Principal
Accounting Officer)
* Director June 29, 1999
- -----------------------------------------------------
John P. Neafsey
* Director June 29, 1999
- -----------------------------------------------------
Preston R. Miller, Jr.
* Director June 29, 1999
- -----------------------------------------------------
John J. MacWilliams
*By: /s/ THOMAS L. PEARSON
------------------------------------------------
as Power of Attorney
</TABLE>
II-3
<PAGE> 286
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 Limited Liability Company
Agreement of Alliance Resource GP, LLC
3.3 -- Form of Agreement of Limited Partnership of Alliance
Resource Operating Partners, L.P.
3.4 -- Form of Limited Liability Company Agreement of MAPCO
Coal, LLC
3.5 -- Form of Limited Liability Company Agreement of MC Mining,
LLC
+3.6 -- Certificate of Limited Partnership of Alliance Resource
Partners, L.P.
+3.7 -- Certificate of Formation of Alliance Resource GP, LLC
3.8 -- Certificate of Limited Partnership of Alliance Resource
Operating Partners, L.P.
3.9 -- Certificate of Formation of Alliance Coal, LLC
3.10 -- Certificate of Formation of MC Mining, LLC
3.11 -- Form of Amended and Restated Limited Liability Company
Agreement of Alliance Resource Management GP, LLC
3.12 -- Certificate of Formation of Alliance Resource Management
GP, LLC
*5.1 -- Form of Opinion of Andrews & Kurth L.L.P. as to the
legality of the securities being registered
*8.1 -- Form of Opinion of Andrews & Kurth L.L.P. relating to tax
matters
10.1 -- Form of Term Loan Facility
10.2 -- Form of Working Capital Facility
10.3 -- Form of Revolving Credit Facility
10.4 -- Form of Note Purchase Agreement
10.5 -- Form of Contribution, Conveyance and Assumption Agreement
10.6 -- Form of Alliance Resource GP, LLC Long-term Incentive
Plan
10.7 -- Form of Alliance Resource GP, LLC Short-term Incentive
Plan
10.8 -- Form of Employment Agreement
21.1 -- List of subsidiaries of Alliance Resource Partners
*23.1 -- Consent of Deloitte & Touche LLP (with respect to
Alliance Resource Partners, L.P.)
+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 Deloitte & Touche LLP (with respect to
Alliance Resource Management GP, LLC)
+24.1 -- Powers of Attorney (included on the signature page)
+27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* Filed herewith.
+ Previously filed.
<PAGE> 1
EXHIBIT 1.1
ALLIANCE RESOURCE PARTNERS, L.P.
[9,123,311] COMMON UNITS
REPRESENTING LIMITED PARTNER INTERESTS
UNDERWRITING AGREEMENT
__________________, 1999
SALOMON SMITH BARNEY INC.
MORGAN STANLEY & CO. INCORPORATED
A. G. EDWARDS & SONS, INC.
LEHMAN BROTHERS INC.
c/o SALOMON SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
Alliance Resource Partners, L.P., a Delaware limited partnership (the
"Partnership"), proposes to issue and sell (the "Offering") an aggregate of
[9,123,311] common units (the "Firm Units") representing limited partner
interests in the Partnership (the "Common Units") to the several underwriters
named in Schedule I hereto (the "Underwriters"), upon the terms and conditions
set forth in Section 2 hereof. The Partnership also proposes to sell to the
Underwriters, upon the terms and conditions set forth in Section 2 hereof, up to
an additional [1,368,497] Common Units (the "Additional Units"). The Firm Units
and the Additional Units are hereinafter collectively referred to as the
"Units."
It is understood and agreed to by all parties that the Partnership was
formed to acquire, own and operate the business and assets of Alliance Coal
Corporation, a Delaware corporation ("Alliance"), other than Alliance Power LLC
and South Atlantic Coal LLC. Alliance Resource GP, LLC, a Delaware limited
liability company, will serve as the general partner (the "General Partner") of
each of the Partnership and Alliance Operating Partners, L.P., a Delaware
limited partnership (the "Intermediate Partnership"), and as managing member of
each of MAPCO Coal, LLC, a Delaware limited liability company ("MAPCO Coal
LLC"), and MC Mining, LLC, a Delaware limited liability company ("MC Mining
LLC") (MAPCO Coal LLC and MC Mining LLC are collectively referred to herein as
the "Operating Companies").
Prior to the date hereof, the following transactions occurred:
(a) Scotts Branch Company, a Delaware corporation, and MC Mining,
Inc., a Delaware corporation, merged with and into MC Mining LLC;
<PAGE> 2
(b) Posey County Coal Corporation, a Delaware corporation, and Gibson
County Coal Corporation, a Delaware corporation, merged with and into Gibson
County Coal LLC, a Delaware limited liability company;
(c) Toptiki Coal Corporation, a Delaware corporation, and Pontiki Coal
Corporation, a Delaware corporation, merged with and into Pontiki Coal LLC, a
Delaware limited liability company;
(d) Mapco Coal Land Corporation, a Delaware corporation, and Mapco Coal
Land & Development Corporation, a Delaware corporation, merged with and into
Mapco Land & Development LLC, a Delaware limited liability company;
(e) Mapco Coal International, Inc., a __________ corporation, and Mapco
Coal Inc., a Delaware corporation, merged with and into Mapco Coal LLC;
(f) Backbone Mountain Inc, a _______ corporation, merged with and into
Backbone Mountain LLC, a Delaware limited liability company;
(g) White County Coal Corporation, a Delaware corporation, merged with
and into White County Coal LLC, a Delaware limited liability company;
(h) Mount Vernon Coal Transfer Company, a Delaware corporation, merged
with and into Mt. Vernon Transfer Terminal LLC, a Delaware limited liability
company;
(i) Webster County Coal Corporation, a Kentucky corporation, merged
with and into Webster County Coal LLC, a Delaware limited liability company;
(j) Mettiki Coal Corporation, a Delaware corporation, merged with and
into Mettiki Coal LLC, a Delaware limited liability company;
(k) Mettiki Coal Corporation (West Virginia), a Delaware corporation,
merged with and into Mettiki Coal (West Virginia) LLC, a Delaware limited
liability company; and
(l) MLDC Corporation, a Delaware corporation, merged with and into MLDC
LLC, a Delaware limited liability company.
The mergers described in clauses (a)-(l) above are referred to herein as the
"Mergers." Each of Hopkins County Coal LLC, Excel Mining LLC, Gibson County Coal
LLC, Pontiki Coal LLC, MAPCO Land & Development LLC, Backbone Mountain LLC,
White County Coal LLC, Mt. Vernon Transfer Terminal LLC, Webster County Coal
LLC, Mettiki Coal LLC, Mettiki Coal (West Virginia) LLC and MLDC LLC is referred
to herein, individually, as a "Subsidiary" and, collectively, as the
"Subsidiaries". The Partnership, the General Partner, the Intermediate
Partnership, the Operating Companies and the Subsidiaries are collectively
referred to herein as the "Alliance Entities."
-2-
<PAGE> 3
As of the date hereof, the General Partner will enter into (a) a bank
credit agreement (the "Bank Credit Agreement") providing for a $50 million term
loan facility, a $25 million working capital facility for working capital
purposes and distributions to partners and a $25 million revolving credit
facility for acquisitions and capital improvements and (b) a note purchase
agreement (the "Note Purchase Agreement") with certain institutional investors
providing for the issuance by the General Partner of $200 million of _% senior
notes due 2014 (the "Notes").
On the Closing Date (as defined in Section 4), the Partnership, the
General Partner, the Intermediate Partnership, the Operating Companies, the
Subsidiaries and Alliance will enter into a Contribution, Conveyance and
Assumption Agreement (the "Contribution and Conveyance Agreement") pursuant to
which the following transactions will occur on the Closing Date:
(a) the Subsidiaries will distribute certain working capital assets to
Mapco Coal LLC;
(b) Mapco Coal LLC and MC Mining LLC will distribute certain working
capital assets to the General Partner;
(c) the General Partner will (i) issue the Notes and (ii) borrow
approximately [$45.7] million under the term loan facility of the Bank Credit
Agreement (the "Term Loan");
(d) the General Partner will contribute 99.999% of its member interest
in each of the Operating Companies to the Intermediate Partnership in exchange
for (i) a 1.0101% general partner interest in the Intermediate Partnership, (ii)
a limited partner interest in the Intermediate Partnership and (iii) and the
assumption by the Intermediate Partnership of the General Partner's obligations
under the Notes and the Bank Credit Agreement;
(e) the General Partner will contribute its limited partner interest in
the Intermediate Partnership to the Partnership in exchange for (i) a 1% general
partner interest in the Partnership, (ii) [6,523,168] subordinated limited
partner interests of the Partnership (the "Subordinated Units") and (iii) the
Incentive Distribution Rights (as defined in the Agreement of Limited
Partnership of the Partnership (as the same may be amended or restated at or
prior to the Closing Date, the "Partnership Agreement") between the General
Partner and Thomas L. Pearson, as the organizational limited partner (the
"Organizational Limited Partner"));
(f) the public offering of the Firm Units contemplated hereby will be
consummated;
(g) the Partnership will contribute the net proceeds received from the
sale of the Units to the Intermediate Partnership;
(h) the Intermediate Partnership will use the cash received upon sale
of the Units and the Notes and the borrowing under the Term Loan to (i) pay the
expenses of the offering of the Units and related transactions, (ii) purchase
[$45.7 million] of U.S. Treasury Notes, which will be assigned as collateral to
the lenders under the Term Loan, (iii) contribute $__ million in cash to the
Operating
-3-
<PAGE> 4
Companies to replenish working capital and (iv) distribute $__ million in cash
to the General Partner; and
(i) the General Partner will distribute $___ million in cash to
Alliance.
The transactions described above in clauses (a) through (i),
collectively with the Mergers, are referred to as the "Transactions." In
connection with the consummation of the Transactions, the Partnership, the
Intermediate Partnership, the Operating Companies, the Subsidiaries, the General
Partner and Alliance have entered into or will enter into (a) merger agreements
and certificates of merger in connection with the Mergers (the "Merger
Documents") and (b) various bills of sale, conveyances, deeds and other
assignments (collectively with the Contribution and Conveyance Agreement, the
"Conveyance Documents"). The Merger Documents and the Conveyance Documents are
collectively referred to herein as the "Merger and Conveyance Documents."
The Partnership, the General Partner, the Intermediate Partnership, the
Operating Companies and Alliance (the "Alliance Parties") wish to confirm as
follows their agreement with you in connection with the several purchases of the
Units by the Underwriters.
1. Registration Statement and Prospectus. The Partnership has prepared
and filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"Act"), a registration statement on Form S-1 under the Act (Commission File No.
333-78845) (the "registration statement"), including a prospectus subject to
completion relating to the Units. The term "Registration Statement" as used in
this Agreement means the registration statement (including all financial
schedules and exhibits), as amended at the time it becomes effective, or, if the
registration statement became effective prior to the execution of this
Agreement, as supplemented or amended prior to the execution of this Agreement.
If it is contemplated, at the time this Agreement is executed, that a
post-effective amendment to the registration statement will be filed and must be
declared effective before the offering of the Units may commence, the term
"Registration Statement" as used in this Agreement means the registration
statement as amended by said post-effective amendment. If it is contemplated, at
the time this Agreement is executed, that a registration statement or a
post-effective amendment will be filed pursuant to Rule 462(b) or Rule 462(d)
under the Act before the offering of the Units may commence, the term
"Registration Statement" as used in this Agreement includes such registration
statement. The term "Prospectus" as used in this Agreement means the prospectus
in the form included in the Registration Statement, or, if the prospectus
included in the Registration Statement omits information in reliance on Rule
430A under the Act and such information is included in a prospectus filed with
the Commission pursuant to Rule 424(b) under the Act, the term "Prospectus" as
used in this Agreement means the prospectus in the form included in the
Registration Statement as supplemented by the addition of the Rule 430A
information contained in the prospectus filed with the Commission pursuant to
Rule 424(b). The term "Prepricing Prospectus" as used in this Agreement means
the preliminary prospectus dated __________, 1999, relating to the Common Units
as such preliminary prospectus shall have been amended from time to time prior
to the date of the Prospectus.
-4-
<PAGE> 5
2. Agreements to Sell and Purchase. The Partnership hereby agrees,
subject to all the terms and conditions set forth herein, to issue and sell to
each Underwriter and, upon the basis of the representations, warranties and
agreements of the Alliance Parties herein contained and subject to all the terms
and conditions set forth herein, each Underwriter agrees, severally and not
jointly, to purchase from the Partnership, at a purchase price of $_____ per
Unit (the "purchase price per Unit"), the number of Firm Units set forth
opposite the name of such Underwriter in Schedule I hereto (or such number of
Firm Units increased as set forth in Section 10 hereof).
The Partnership also agrees, subject to all the terms and conditions
set forth herein, to sell to the Underwriters, and, upon the basis of the
representations, warranties and agreements of the Alliance Parties herein
contained and subject to all the terms and conditions set forth herein, the
Underwriters shall have the right to purchase from the Partnership, at the
purchase price per Unit, pursuant to an option (the "over-allotment option")
which may be exercised at any time and from time to time prior to 7:00 p.m., New
York City time, on the 30th day after the date of the Prospectus (or, if such
30th day shall be a Saturday or Sunday or a holiday, on the next business day
thereafter when the New York Stock Exchange is open for trading), up to an
aggregate of [1,368,497] Additional Units. Such option is granted solely for the
purpose of covering over-allotments in the sale of Firm Units. Upon an exercise
of the over-allotment option, each Underwriter, severally and not jointly,
agrees to purchase from the Partnership the number of Additional Units (subject
to such adjustments as you may determine in order to avoid fractional Units)
which bears the same proportion to the number of Additional Units to be
purchased by the Underwriters as the number of Firm Units set forth opposite the
name of such Underwriter in Schedule I hereto (or such number of Firm Units
increased as set forth in Section 10 hereof) bears to the aggregate number of
Firm Units.
3. Terms of Public Offering. The Partnership has been advised by you
that the Underwriters propose to make a public offering of their respective
portions of the Units as soon after the Registration Statement and this
Agreement have become effective as in your judgment is advisable and initially
to offer the Units upon the terms set forth in the Prospectus.
4. Delivery of the Units and Payment Therefor. Delivery to the
Underwriters of and payment for the Firm Units shall be made at 10:00 a.m., New
York City time, on ___________, 1999 (the "Closing Date"). The place of closing
and payment for the Firm Units and the Closing Date may be varied by agreement
between you and the Partnership.
Delivery to the Underwriters of and payment for any Additional Units to
be purchased by the Underwriters shall be made at such time on such date (the
"Option Closing Date"), which may be the same as the Closing Date but shall in
no event be earlier than the Closing Date nor earlier than two nor later than
ten business days after the giving of the notice hereinafter referred to, as
shall be specified in a written notice from you on behalf of the Underwriters to
the Partnership of the Underwriters' determination to purchase a number,
specified in such notice, of Additional Units. The place of closing and payment
for any Additional Units and the Option Closing Date for such Units may be
varied by agreement between you and the Partnership.
-5-
<PAGE> 6
Delivery of the Firm Units and the Additional Units shall be made to
the Underwriters for the respective accounts of the Underwriters against payment
by the Underwriters of the purchase price thereof to or upon the order of the
Partnership by wire transfer payable in same-day funds to an account specified
by the Partnership. Delivery of the Firm Units and the Additional Units shall be
made through the facilities of The Depository Trust Company unless the
Underwriters shall otherwise instruct.
5. Agreements of the Alliance Parties. Each of the Alliance Parties,
jointly and severally, agrees with the Underwriters as follows:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the Registration Statement or a post-effective amendment thereto
to be declared effective before the offering of the Units may commence, the
Partnership and the General Partner will endeavor to cause the Registration
Statement or such post-effective amendment to become effective as soon as
possible and will advise you promptly and, if requested by you, will confirm
such advice in writing when the Registration Statement or such post-effective
amendment has become effective.
(b) The Partnership will advise you promptly and, if requested by
you, will confirm such advice in writing: (i) of any request by the Commission
for amendment of or a supplement to the Registration Statement, any Prepricing
Prospectus or the Prospectus or for additional information; (ii) of the issuance
by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the suspension of qualification of the Units for
offering or sale in any jurisdiction or the initiation of any proceeding for
such purpose; and (iii) within the period of time referred to in paragraph (f)
below, of any change in the condition (financial or other), business, prospects,
properties, net worth or results of operations of the Alliance Entities, taken
as a whole, or of the happening of any event which makes any statement of a
material fact made in the Registration Statement or the Prospectus (as then
amended or supplemented) untrue or which requires the making of any additions to
or changes in the Registration Statement or the Prospectus (as then amended or
supplemented) in order to state a material fact required by the Act or the
regulations thereunder to be stated therein or necessary in order to make the
statements therein not misleading, or of the necessity to amend or supplement
the Prospectus (as then amended or supplemented) to comply with the Act or any
other applicable law. If at any time the Commission shall issue any stop order
suspending the effectiveness of the Registration Statement, the Partnership and
the General Partner will make every commercially reasonable effort to obtain the
withdrawal of such order at the earliest possible time.
(c) The Partnership will furnish to you, without charge, (i) two
EDGAR versions of the registration statement as originally filed with the
Commission and of each amendment thereto, including financial statements and all
exhibits to the registration statement, (ii) two manually signed copies of the
registration statement corresponding to the EDGAR version filed with the
Commission and of each amendment thereto, including financial statements and all
exhibits to the registration statement, and (iii) such number of conformed
copies of the registration statement as originally filed and of each amendment
thereto, but without exhibits, as you or your counsel may reasonably request.
-6-
<PAGE> 7
(d) The Partnership will not (i) file any amendment to the
Registration Statement or make any amendment or supplement to the Prospectus of
which you shall not previously have been advised or to which you or your counsel
shall reasonably object in writing after being so advised unless the Partnership
shall have determined based on the advice of counsel that such amendment or
supplement is required by law or (ii) so long as, in the opinion of counsel for
the Underwriters, a Prospectus is required to be delivered in connection with
sales by any Underwriter or dealer, file any information, documents or reports
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), without delivering a copy of such information, documents or reports to
you, prior to or concurrently with such filing.
(e) Prior to the execution and delivery of this Agreement, the
Partnership has delivered to you, without charge, in such quantities as you have
reasonably requested, copies of each form of the Prepricing Prospectus. The
Partnership consents to the use, in accordance with the provisions of the Act
and with the securities or Blue Sky laws of the jurisdictions in which the Units
are offered by the Underwriters and by dealers, prior to the date of the
Prospectus, of each Prepricing Prospectus so furnished by the Partnership.
(f) As soon after the execution and delivery of this Agreement as
possible and thereafter from time to time for such period as in the opinion of
counsel for the Underwriters a prospectus is required by the Act to be delivered
in connection with sales by any Underwriter or dealer, the Partnership will
expeditiously deliver to each Underwriter and each dealer that you may specify,
without charge, as many copies of the Prospectus (and of any amendment or
supplement thereto) as you may reasonably request. At any time after nine months
after the time of issuance of the Prospectus, upon request, but at your expense,
the Partnership will deliver as many copies of an amended or supplemented
Prospectus complying with Section 10(a)(3) of the Act as you may reasonably
request, provided that a prospectus is required by the Act to be delivered in
connection with sales of Units by any Underwriter or dealer. The Partnership
consents to the use of the Prospectus (and of any amendment or supplement
thereto) in accordance with the provisions of the Act and with the securities or
Blue Sky laws of the jurisdictions in which the Units are offered by the
Underwriters and by all dealers to whom Units may be sold, both in connection
with the offering and sale of the Units and for such period of time thereafter
as the Prospectus is required by the Act to be delivered in connection with
sales by any Underwriter or dealer. If during such period of time any event
shall occur that in the judgment of the Partnership or in the opinion of counsel
for the Underwriters and the Partnership is required to be set forth in the
Prospectus (as then amended or supplemented) or should be set forth therein in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if it is necessary to supplement or
amend the Prospectus to comply with the Act or any other law, the Partnership
will forthwith prepare and, subject to the provisions of paragraph (d) above,
file with the Commission an appropriate supplement or amendment thereto, and
will expeditiously furnish to the Underwriters and dealers a reasonable number
of copies thereof; provided that, if any such event necessitating a supplement
or amendment to the Prospectus occurs at any time after nine months after the
time of issuance of the Prospectus, such supplement or amendment shall be
prepared at your expense. In the event that the Partnership and you agree that
the Prospectus should be amended or supplemented, the Partnership, if requested
by you, will promptly issue a press release announcing or disclosing the
-7-
<PAGE> 8
matters to be covered by the proposed amendment or supplement unless the
Partnership shall have determined, based on the advice of counsel, that the
issuance of such press release would not be required by law.
(g) The Partnership and the General Partner will cooperate with you
and with counsel for the Underwriters in connection with the registration or
qualification of the Units for offering and sale by the Underwriters and by
dealers under the securities or Blue Sky laws of such jurisdictions as you may
reasonably designate and will file such consents to service of process or other
documents reasonably necessary or appropriate in order to effect such
registration or qualification; provided that in no event shall any Alliance
Entity be obligated to qualify to do business in any jurisdiction where it is
not now so qualified or to take any action which would subject it to service of
process in suits, other than those arising out of the offering or sale of the
Units, in any jurisdiction where it is not now so subject.
(h) The Partnership will make generally available to its security
holders a consolidated earnings statement, which need not be audited, covering a
twelve-month period commencing after the effective date of the Registration
Statement and ending not later than 15 months thereafter, as soon as practicable
after the end of such period, which consolidated earnings statement shall
satisfy the provisions of Section 11(a) of the Act.
(i) During the period of two years hereafter, the Partnership will
furnish to you (i) as soon as publicly available, a copy of each report of the
Partnership mailed to unitholders or filed with the Commission or the principal
national securities exchange or automated quotation system upon which the Units
may be listed, and (ii) from time to time such other information concerning the
Partnership as you may reasonably request.
(j) If this Agreement shall terminate or shall be terminated after
execution pursuant to any provisions hereof (otherwise than pursuant to the
second paragraph of Section 10 hereof or by notice given by you terminating this
Agreement pursuant to Section 10 or Section 11 hereof) or if this Agreement
shall be terminated by the Underwriters because of any failure or refusal on the
part of any of the Alliance Parties to comply with the terms or fulfill any of
the conditions of this Agreement, the Alliance Parties, jointly and severally,
agree to reimburse the Underwriters for all reasonable out-of-pocket expenses
(including reasonable fees and expenses of counsel for the Underwriters)
incurred by you in connection herewith.
(k) The Partnership will apply the net proceeds from the sale of the
Units and the net proceeds from the sale of the Notes and any amount borrowed
under the Bank Credit Agreement at the Closing in accordance with the
description set forth under the caption "Use of Proceeds" in the Prospectus.
(l) If Rule 430A of the Act is employed, the Partnership will timely
file the Prospectus pursuant to Rule 424(b) under the Act and will advise you of
the time and manner of such filing.
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(m) Except as provided in this Agreement, the Alliance Parties will
not, for a period of 180 days after the date of the Prospectus without the prior
written consent of Salomon Smith Barney Inc., (i) dispose of or hedge any Common
Units or Subordinated Units, 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 Common Units, or (ii)
grant any options or warrants to purchase Common Units or Subordinated Units,
other than the grant of Unit Options or Restricted Units pursuant to the
Alliance Resource GP, LLC 1999 Long- Term Incentive Plan and other than the
redemption of Subordinated Units upon the exercise of the underwriters'
over-allotment option.
(n) Except as stated in this Agreement and in the Prepricing
Prospectus and Prospectus, the Alliance Entities have not taken, and will not
take, directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of the
Common Units to facilitate the sale or resale of the Units.
(o) Each of the Alliance Entities will take such steps as shall be
necessary to ensure that none of them shall become an "investment company"
within the meaning of such term under the Investment Company Act of 1940, as
amended, and the rules and regulations of the Commission thereunder.
(p) The Partnership shall timely complete all required filings and
otherwise fully comply in a timely manner with all provisions of the Exchange
Act, including the rules and regulations thereunder, in connection with the
registration of the Units thereunder.
(q) Each of the Alliance Entities and Alliance will cause to be
accomplished or obtained as soon as practicable all consents, recordings and
filings necessary to perfect, preserve and protect the title of the Operating
Companies and the Subsidiaries to the properties and assets owned by each of
them as a result of the Transactions.
6. Representations and Warranties of the Alliance Entities. The
Alliance Entities, jointly and severally, represent and warrant to each
Underwriter that:
(a) Any Prepricing Prospectus, at the date of filing thereof with
the Commission, complied in all material respects with the requirements of the
Act and did not contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The Commission has not issued any order preventing or
suspending the use of any Prepricing Prospectus. The Registration Statement in
the form in which it became or becomes effective and also in such form as it may
be when any post-effective amendment thereto shall become effective and the
Prospectus and any supplement or amendment thereto when filed with the
Commission under Rule 424(b) under the Act complied or will comply in all
material respects with the provisions of the Act and did not or will not at any
such times contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading. Each of the statements made by the Partnership in such
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documents within the coverage of Rule 175(b) of the rules and regulations under
the Act, including (but not limited to) any statements with respect to future
available cash or future cash distributions of the Partnership or the
anticipated ratio of taxable income to distributions was made or will be made
with a reasonable basis and in good faith. Notwithstanding the foregoing, no
representation or warranty is made as to statements in or omissions from the
Registration Statement, the Prospectus or any Prepricing Prospectus made in
reliance upon and in conformity with information furnished to the Partnership in
writing by or on behalf of any Underwriter through you expressly for use
therein.
(b) Each of the Partnership and the Intermediate Partnership has
been duly formed and is validly existing in good standing as a limited
partnership under the Delaware Revised Uniform Limited Partnership Act (the
"Delaware LP Act") with full partnership power and authority to own or lease its
properties to be owned or leased at the Closing Date, to assume the liabilities
being assumed by it pursuant to the Merger and Conveyance Documents and to
conduct its business to be conducted at the Closing Date, in each case in all
material respects as described in the Registration Statement and the Prospectus.
Each of the Partnership and the Intermediate Partnership is, or at the Closing
Date will be, duly registered or qualified as a foreign limited partnership for
the transaction of business under the laws of each jurisdiction in which the
character of the business conducted by it or the nature or location of the
properties owned or leased by it makes such registration or qualification
necessary, except where the failure so to register or qualify would not (i) have
a material adverse effect on the condition (financial or other), business,
prospects, properties, net worth or results of operations of the Alliance
Entities, taken as a whole, or (ii) subject the limited partners of the
Partnership to any material liability or disability.
(c) Each Operating Company and Subsidiary has been duly formed and
is validly existing in good standing as a limited liability company under the
Delaware Limited Liability Company Act (the "Delaware LLC Act") with full
limited liability company power and authority to own or lease its properties to
be owned or leased at the Closing Date, to assume the liabilities being assumed
by it pursuant to the Merger and Conveyance Documents and to conduct its
business to be conducted at the Closing Date, in each case in all material
respects as described in the Registration Statement and the Prospectus. Each
Operating Company and Subsidiary is duly registered or qualified as a foreign
limited liability company for the transaction of business under the laws of each
jurisdiction in which the character of the business conducted by it or the
nature or location of the properties owned or leased by it makes such
registration or qualification necessary, except where the failure so to register
or qualify would not (i) have a material adverse effect on the condition
(financial or other), business, prospects, properties, net worth or results of
operations of the Alliance Entities, taken as a whole, or (ii) subject the
limited partners of the Partnership to any material liability or disability.
(d) The General Partner has been duly formed and is validly existing
in good standing as a limited liability company under the Delaware LLC Act with
full limited liability company power and authority to own or lease its
properties to be owned or leased at the Closing Date, to conduct its business to
be conducted at the Closing Date and to act as general partner of the
Partnership and the Intermediate Partnership and the managing member of the
Operating Companies,
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<PAGE> 11
in each case in all material respects as described in the Registration Statement
and the Prospectus. The General Partner is duly registered or qualified as a
foreign limited liability company for the transaction of business under the laws
of each jurisdiction in which the character of the business conducted by it or
the nature or location of the properties owned or leased by it makes such
registration or qualification necessary, except where the failure so to register
or qualify would not (i) have a material adverse effect on the condition
(financial or other), business, prospects, properties, net worth or results of
operations of the Alliance Parties, taken as a whole, or (ii) subject the
limited partners of the Partnership to any material liability or disability.
(e) Alliance has been duly incorporated and is validly existing in
good standing under the laws of the State of Delaware with full corporate power
and authority to own or lease its properties to be owned or leased at the
Closing Date and to conduct its business to be conducted at the Closing Date, in
each case in all material respects as described in the Registration Statement
and the Prospectus. Alliance is duly registered or qualified as a foreign
corporation for the transaction of business under the laws of each jurisdiction
in which the character of the business conducted by it or the nature or location
of the properties owned or leased by it makes such registration or qualification
necessary, except where the failure so to register or qualify would not (i) have
a material adverse effect on the condition (financial or other), business,
prospects, properties, net worth or results of operations of the Alliance
Entities, taken as a whole, or on Alliance or (ii) subject the limited partners
of the Partnership to any material liability or disability.
(f) At the Closing Date and the Option Closing Date, after giving
effect to the Transactions, the General Partner will be the sole general partner
of the Partnership with a 1% general partner interest in the Partnership; such
general partner interest will be duly authorized and validly issued in
accordance with the Partnership Agreement; and the General Partner will own such
general partner interest free and clear of all liens, encumbrances, security
interests, equities, charges or claims.
(g) At the Closing Date, after giving effect to the Transactions,
the General Partner will own [6,523,168] Subordinated Units and all of the
Incentive Distribution Rights; all of such Subordinated Units and Incentive
Distribution Rights and the limited partner interests represented thereby will
be duly authorized and validly issued in accordance with the Partnership
Agreement, and will be fully paid (to the extent required under the Partnership
Agreement) and nonassessable (except as such nonassessability may be affected by
matters described in the Prospectus under the caption "The Partnership
Agreement--Limited Liability"); and the General Partner will own such
Subordinated Units and Incentive Distribution Rights free and clear of all
liens, encumbrances, security interests, equities, charges or claims.
(h) At the Closing Date, there will be issued to the Underwriters
the Firm Units (assuming no purchase by the Underwriters of Additional Units);
at the Closing Date or the Option Closing Date, as the case may be, the Firm
Units or the Additional Units, as the case may be, and the limited partner
interests represented thereby will be duly authorized by the Partnership
Agreement and, when issued and delivered to the Underwriters against payment
therefor in accordance with the terms hereof, will be validly issued, fully paid
(to the extent required under the
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Partnership Agreement) and nonassessable (except as such nonassessability may be
affected by matters described in the Prospectus under the caption "The
Partnership Agreement--Limited Liability"); and other than the Subordinated
Units and the Incentive Distribution Rights owned by the General Partner, the
Units will be the only limited partner interests of the Partnership issued and
outstanding at the Closing Date or the Option Closing Date.
(i) At the Closing Date and the Option Closing Date, after giving
effect to the Transactions, the General Partner will be the sole general partner
of the Intermediate Partnership with a 1.0101% general partner interest in the
Intermediate Partnership; such general partner interest will be duly authorized
and validly issued in accordance with the Agreement of Limited Partnership of
the Intermediate Partnership (as the same may be amended and restated at or
prior to the Closing Date, the "Intermediate Partnership Agreement"); and the
General Partner will own such general partner interest free and clear of all
liens, encumbrances, security interests, equities, charges or claims.
(j) At the Closing Date and the Option Closing Date, after giving
effect to the Transactions, the Partnership will be the sole limited partner of
the Intermediate Partnership with a 98.9899% limited partner interest in the
Intermediate Partnership; such limited partner interest will have been duly
authorized and validly issued in accordance with the Intermediate Partnership
Agreement and will be fully paid (to the extent required under the Intermediate
Partnership Agreement) and nonassessable (except as such nonassessability may be
affected by matters described in the Prospectus under the caption "The
Partnership Agreement -- Limited Liability"); and the Partnership will own such
interest free and clear of all liens, encumbrances, security interests,
equities, charges or claims.
(k) At the Closing Date and the Option Closing Date, after giving
effect to the Transactions, the General Partner will be the sole manager of each
Operating Company with a .001% managing interest in each Operating Company; the
managing interest in MAPCO Coal LLC will have been duly authorized and validly
issued in accordance with the Limited Liability Company Agreement of MAPCO Coal
LLC (as the same may be amended and restated at or prior to the Closing Date,
the "MAPCO Coal LLC Agreement"); the managing interest in MC Mining LLC will
have been duly authorized and validly issued in accordance with the Limited
Liability Company Agreement of MC Mining LLC (as the same may be amended and
restated at or prior to the Closing Date, the "MC Mining LLC Agreement" and,
collectively with the MAPCO Coal LLC Agreement the "Operating Company LLC
Agreements"); and the General Partner will own such managing interests free and
clear of all liens, encumbrances, security interests, equities, charges or
claims.
(l) At the Closing Date and the Option Closing Date, after giving
effect to the Transactions, the Intermediate Partnership will own a 99.999%
non-managing interest in each Operating Company; such interest will have been
duly authorized and validly issued in accordance with the Operating Company LLC
Agreements and will be fully paid (to the extent required under the Operating
Company LLC Agreements) and nonassessable (except as such nonassessability may
be affected by Section 18-607 of the Delaware LLC Act); and the Intermediate
Partnership will own such interests free and clear of all liens, encumbrances,
security interests, equities, charges or claims.
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(m) At the Closing Date, after giving effect to the Transactions,
MAPCO Coal LLC will own a 100% interest in each of the Subsidiaries; such
interests will have been duly authorized and validly issued in accordance with
the limited liability company agreements of the Subsidiaries, as the same may be
amended and restated at or prior to the Closing Date (the "Subsidiary LLC
Agreements") and will be fully paid (to the extent required under the Subsidiary
LLC Agreements) and nonassessable (except as such nonassessability may be
affected by Section 18-607 of the Delaware LLC Act); and MAPCO Coal LLC will own
such member interests free and clear of all liens, encumbrances, security
interests, equities, charges or claims.
(n) At the Closing Date, after giving effect to the Transactions,
Alliance will own a 100% interest in the General Partner; such interest will
have been duly authorized and validly issued in accordance with the Limited
Liability Company Agreement of the General Partner (as the same may be amended
and restated at or prior to the Closing Date, the "General Partner LLC
Agreement" and together with the Partnership Agreement, the Intermediate
Partnership Agreement, the Operating Company LLC Agreements and the Subsidiary
LLC Agreements, the "Organization Agreements") and will be fully paid (to the
extent required under the General Partner LLC Agreement) and nonassessable
(except as such nonassessability may be affected by Section 18-607 of the
Delaware LLC Act); and Alliance will own such member interest free and clear of
all liens, encumbrances, security interest, equities, charges or claims.
(o) None of the General Partner, the Partnership, the Intermediate
Partnership, the Operating Companies or the Subsidiaries has any subsidiaries
(other than the Partnership, the Intermediate Partnership, the Operating
Companies or the Subsidiaries themselves which, individually or considered as a
whole, would be deemed to be a significant subsidiary (as such term is defined
in Section 1-02(w) of Regulation S-X of the Act).
(p) Except as described in the Prospectus, there are no preemptive
rights or other rights to subscribe for or to purchase, nor any restriction upon
the voting or transfer of, any limited partner interests in the Partnership or
any interest in the Alliance Entities pursuant to the Organization Agreements,
or any agreement or other instrument to which any Alliance Entity is a party or
by which any one of them may be bound. Neither the filing of the Registration
Statement nor the offering or sale of the Units as contemplated by this
Agreement gives rise to any rights for or relating to the registration of any
Units or other securities of the Alliance Entities. Except as described in the
Prospectus, there are no outstanding options or warrants to purchase (i) any
Common Units or Subordinated Units or other partnership interests in the
Partnership or (ii) any interests in the other Alliance Entities. The Units,
when issued and delivered against payment therefor as provided herein, the
Subordinated Units and the Incentive Distribution Rights, when issued and
delivered in accordance with the terms of the Partnership Agreement, and the
Notes, when issued and delivered in accordance with the terms of the Note
Purchase Agreement, will conform in all material respects to the description
thereof contained in the Prospectus. The Partnership has all requisite power and
authority to issue, sell and deliver (i) the Units, in accordance with and upon
the terms and conditions set forth in this Agreement, the Partnership Agreement
and the Registration Statement and Prospectus and (ii) the Subordinated Units
and Incentive Distribution Rights, in accordance with the terms and conditions
set forth in the Partnership Agreement. The
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<PAGE> 14
General Partner has all requisite power and authority to issue, sell and deliver
the Notes, in accordance with and upon the terms and conditions set forth in the
Note Purchase Agreement. The Intermediate Partnership has all requisite power
and authority to assume the General Partner's obligations under the Notes in
accordance with and upon the terms and conditions set forth in the Note Purchase
Agreement and the Contribution and Conveyance Agreement. At the Closing Date and
the Option Closing Date, all corporate, partnership and limited liability
company action, as the case may be, required to be taken by the Alliance
Entities or any of their shareholders, members or partners for the
authorization, issuance, sale and delivery of the Units, the Subordinated Units
and Incentive Distribution Rights, the execution and delivery of the Operative
Agreements (as defined in Section 6(r)) and the consummation of the transactions
(including the Transactions) contemplated by this Agreement and the Operative
Agreements, shall have been validly taken.
(q) The execution and delivery of, and the performance by each of
the Alliance Parties of their respective obligations under, this Agreement have
been duly and validly authorized by each of the Alliance Parties, and this
Agreement has been duly executed and delivered by each of the Alliance Parties,
and constitutes the valid and legally binding agreement of each of the Alliance
Parties, enforceable against each of the Alliance Parties in accordance with its
terms, provided that the enforceability thereof may be limited by bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws
relating to or affecting creditors' rights generally and by general principles
of equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law) and except as rights to indemnity and
contribution hereunder may be limited by federal or state securities laws.
(r) At or before the Closing Date, the Partnership Agreement will
have been duly authorized, executed and delivered by the General Partner and the
Organizational Limited Partner and will be a valid and legally binding agreement
of the General Partner and the Organizational Limited Partner, enforceable
against the General Partner and the Organizational Limited Partner in accordance
with its terms; at or before the Closing Date, the General Partner LLC Agreement
will have been duly authorized, executed and delivered by Alliance and will be a
valid and legally binding agreement of Alliance, enforceable against Alliance in
accordance with its terms; at or before the Closing Date, the Intermediate
Partnership Agreement will have been duly authorized, executed and delivered by
the General Partner and the Partnership and will be a valid and legally binding
agreement of the General Partner and the Partnership, enforceable against the
General Partner and the Partnership in accordance with its terms; at or before
the Closing Date, the Operating Company LLC Agreements will have been duly
authorized, executed and delivered by each of the General Partner and the
Intermediate Partnership and will be valid and legally binding agreements of the
General Partner and the Intermediate Partnership, enforceable against each of
them in accordance with their respective terms; at or before the Closing Date,
the Subsidiary LLC Agreements will have been duly authorized, executed and
delivered by the Intermediate Partnership and will be valid and legally binding
agreements of the Intermediate Partnership enforceable against it in accordance
with their respective terms; at or before the Closing Date, the Notes and the
Note Purchase Agreement will have been duly authorized, executed and delivered
by the General Partner and will be valid and legally binding agreements of the
General Partner enforceable against the General Partner in accordance with their
respective terms, and upon assumption of the Notes and the
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<PAGE> 15
Note Purchase Agreement by the Intermediate Partnership pursuant to the Note
Purchase Agreement and the Contribution and Conveyance Agreement, will be valid
and legally binding agreements of the Intermediate Partnership enforceable
against the Intermediate Partnership in accordance with their respective terms;
at or before the Closing Date, each of Merger and the Conveyance Documents will
have been duly authorized, executed and delivered by the parties thereto and
will be valid and legally binding agreements of the parties thereto enforceable
against such parties in accordance with their respective terms; at or before the
Closing Date, an omnibus agreement (the "Omnibus Agreement") will have been duly
authorized, executed and delivered by each of the Partnership, the Intermediate
Partnership, the Operating Companies, the General Partner and Alliance and will
be a valid and legally binding agreement of each of them enforceable against
each of them in accordance with its terms; at or before the Closing Date, the
Bank Credit Agreement will have been duly authorized, executed and delivered by
the General Partner and will be a valid and legally binding agreement of the
General Partner enforceable against the General Partner in accordance with its
terms, and upon assumption of the Bank Credit Agreement by the Intermediate
Partnership pursuant to the Bank Credit Agreement and the Contribution and
Conveyance Agreement, will be a valid and legally binding agreement of the
Intermediate Partnership enforceable against the Intermediate Partnership in
accordance with its terms; provided that, with respect to each agreement
described in this Section 6(r), the enforceability thereof may be limited by
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws relating to or affecting creditors' rights generally and by general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law); and provided, further, that the indemnity,
contribution and exoneration provisions contained in any of such agreements may
be limited by applicable laws and public policy. The Organization Agreements,
the Note Purchase Agreement, the Notes, the Merger and Conveyance Documents, the
Omnibus Agreement and the Bank Credit Agreement are herein collectively referred
to as the "Operative Agreements."
(s) None of the offering, issuance and sale by the Partnership of
the Units, the offering, issuance and sale by the General Partner of the Notes,
the execution, delivery and performance of this Agreement or the Operative
Agreements by the Alliance Entities which are parties thereto, or the
consummation of the transactions contemplated hereby and thereby (including the
Transactions) (i) conflicts or will conflict with or constitutes or will
constitute a violation of the agreement of limited partnership, limited
liability company agreement, certificate or articles of incorporation or bylaws
or other organizational documents of any of the Alliance Entities or Alliance,
(ii) conflicts or will conflict with or constitutes or will constitute a breach
or violation of, or a default under (or an event which, with notice or lapse of
time or both, would constitute such an event), any indenture, mortgage, deed of
trust, loan agreement, lease or other agreement or instrument to which any of
the Alliance Entities or Alliance is a party or by which any of them or any of
their respective properties may be bound, (iii) violates or will violate any
statute, law or regulation or any order, judgment, decree or injunction of any
court or governmental agency or body directed to any of the Alliance Entities or
Alliance or any of their properties in a proceeding to which any of them or
their property is a party or (iv) will result in the creation or imposition of
any lien, charge or encumbrance upon any property or assets of any of the
Alliance Entities or Alliance, in the case of clauses (ii), (iii) or (iv), which
conflicts, breaches, violations or defaults would have a
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<PAGE> 16
material adverse effect upon the condition (financial or other), business,
prospects, properties, net worth or results of operations of the Alliance
Entities, taken as a whole.
(t) No permit, consent, approval, authorization, order,
registration, filing or qualification of or with any court, governmental agency
or body is required in connection with the execution and delivery of, or the
consummation by the Alliance Entities of the transactions contemplated by, this
Agreement or the Operative Agreements (including the Transactions), except (i)
for such permits, consents, approvals and similar authorizations required under
the Securities Act, the Exchange Act and state securities or "Blue Sky" laws,
(ii) for such permits, consents, approvals, certificates and similar
authorizations which have been, or prior to the Closing Date will be, obtained
and (iii) for such permits, consents, approvals, certificates and similar
authorizations which, if not obtained, would not, individually or in the
aggregate, have a material adverse effect upon the condition (financial or
other), business, prospects, properties, net worth or results of operations of
the Alliance Parties, taken as a whole.
(u) None of the Alliance Entities or Alliance is in (i) violation of
its agreement of limited partnership, limited liability company agreement,
certificate or articles of incorporation or bylaws or other organizational
documents, or of any law, statute, ordinance, administrative or governmental
rule or regulation applicable to it or of any decree of any court or
governmental agency or body having jurisdiction over it or (ii) breach, default
(or an event which, with notice or lapse of time or both, would constitute such
an event) or violation in the performance of any obligation, agreement or
condition contained in any bond, debenture, note or any other evidence of
indebtedness or in any agreement, indenture, lease or other instrument to which
it is a party or by which it or any of its properties may be bound, which
breach, default or violation would, if continued, have a material adverse effect
on the condition (financial or other), business, prospects, properties, net
worth or results of operations of the Alliance Entities, taken as a whole, or
could materially impair the ability of any of the Alliance Parties to perform
their obligations under this Agreement or the Operative Agreements. To the
knowledge of the Alliance Parties, no third party to any indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument to which any of
the Alliance Entities is a party or by which any of them is bound or to which
any of their properties are subject, is in default under any such agreement,
which breach, default or violation would, if continued, have a material adverse
effect on the condition (financial or other), business, prospects, properties,
net worth or results of operations of the Alliance Entities, taken as a whole.
(v) The accountants, Deloitte & Touche LLP, who have certified or
shall certify the audited financial statements included in the Registration
Statement, any Prepricing Prospectus and the Prospectus (or any amendment or
supplement thereto), are independent public accountants with respect to the
Alliance Entities as required by the Act and the applicable published rules and
regulations thereunder.
(w) At March 31, 1999, the Partnership would have had, on the
consolidated pro forma basis indicated in the Prospectus (and any amendment or
supplement thereto), a capitalization as set forth therein. The financial
statements (including the related notes and supporting schedules) included in
the Registration Statement, the Prepricing Prospectus dated __________, 1999 and
the
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Prospectus (and any amendment or supplement thereto) present fairly in all
material respects the financial position, results of operations and cash flows
of the entities purported to be shown thereby on the basis stated therein at the
respective dates or for the respective periods which have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved, except to the extent disclosed therein. The
selected historical and pro forma information set forth in the Registration
Statement, the Prepricing Prospectus dated __________, 1999 and the Prospectus
(and any amendment or supplement thereto) under the caption "Selected Historical
and Pro Forma Financial and Operating Data" is accurately presented in all
material respects and prepared on a basis consistent with the audited and
unaudited historical consolidated financial statements and pro forma financial
statements from which it has been derived. The pro forma financial statements of
the Partnership included in the Registration Statement, the Prepricing
Prospectus dated __________, 1999 and the Prospectus (and any amendment or
supplement thereto) have been prepared in all material respects in accordance
with the applicable accounting requirements of Article 11 of Regulation S-X of
the Commission; the assumptions used in the preparation of such pro forma
financial statements are, in the opinion of the management of the Alliance
Entities and Alliance, reasonable; and the pro forma adjustments reflected in
such pro forma financial statements have been properly applied to the historical
amounts in compilation of such pro forma financial statements.
(x) Except as disclosed in the Registration Statement, the
Prepricing Prospectus dated __________, 1999 and the Prospectus (or any
amendment or supplement thereto), subsequent to the respective dates as of which
such information is given in the Registration Statement, the Prepricing
Prospectus dated __________, 1999 and the Prospectus (or any amendment or
supplement thereto), (i) none of the Alliance Entities has incurred any
liability or obligation, indirect, direct or contingent, or entered into any
transactions, not in the ordinary course of business, that, singly or in the
aggregate, is material to the Alliance Entities, taken as a whole, (ii) there
has not been any material change in the capitalization, or material increase in
the short-term debt or long-term debt, of the Alliance Entities and (iii) there
has not been any material adverse change, or any development involving or which
may reasonably be expected to involve, singly or in the aggregate, a prospective
material adverse change in the condition (financial or other), business,
prospects, properties, net worth or results of operations of the Alliance
Entities, taken as a whole.
(y) There are no legal or governmental proceedings pending or, to
the knowledge of the Alliance Parties, threatened, against any of the Alliance
Entities, or to which any of the Alliance Entities is a party, or to which any
of their respective properties is subject, that are required to be described in
the Registration Statement or the Prospectus but are not described as required,
and there are no agreements, contracts, indentures, leases or other instruments
that are required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration Statement that are
not described or filed as required by the Act.
(z) Upon consummation of the Transactions on the Closing Date, the
Operating Companies and the Subsidiaries will have good and indefeasible title
to all real property and good title to all personal property described in the
Prospectus to be owned by the Operating Companies and the Subsidiaries, free and
clear of all liens, claims, security interests or other encumbrances
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except (i) as described in the Prospectus and (ii) such as do not materially
interfere with the use of such properties taken as a whole as they have been
used in the past and are proposed to be used in the future as described in the
Prospectus; and all real property and buildings held under lease by the
Operating Companies and the Subsidiaries upon consummation of the Transactions
on the Closing Date will be held by the Operating Companies and the Subsidiaries
under valid and subsisting and enforceable leases with such exceptions as do not
materially interfere with the use of such properties taken as a whole as they
have been used in the past and are proposed to be used in the future as
described in the Prospectus. The Merger and Conveyance Documents were, or as of
the Closing Date will be, legally sufficient to transfer or convey to the
Operating Companies and the Subsidiaries all properties not already held by them
that are, individually or in the aggregate, required to enable the Operating
Companies and the Subsidiaries to conduct their operations (in all material
respects as contemplated by the Prospectus), subject to the conditions,
reservations and limitations contained in the Merger and Conveyance Documents
and those set forth in the Prospectus. The Operating Companies and the
Subsidiaries will, upon execution and delivery of the Merger and Conveyance
Documents, succeed in all material respects to the business, assets, properties,
liabilities and operations reflected by the pro forma financial statements of
the Partnership, except as disclosed in the Prospectus and the Merger and
Conveyance Documents.
(aa) The Partnership has not distributed and, prior to the later to
occur of (i) the Closing Date and (ii) completion of the distribution of the
Units, will not distribute, any prospectus (as defined under the Act) in
connection with the offering and sale of the Units other than the Registration
Statement, any Prepricing Prospectus, the Prospectus or other materials, if any,
permitted by the Act, including Rule 134 of the general rules and regulations
thereunder.
(bb) Each of the Alliance Entities has, or at the Closing Date will
have, such permits, consents, licenses, franchises, certificates and
authorizations of governmental or regulatory authorities ("permits") as are
necessary to own its properties and to conduct its business in the manner
described in the Prospectus, subject to such qualifications as may be set forth
in the Prospectus and except for such permits which, if not obtained, would not
have, individually or in the aggregate, a material adverse effect upon the
ability of the Alliance Entities considered as a whole to conduct their
businesses in all material respects as currently conducted and as contemplated
by the Prospectus to be conducted; each of the Alliance Entities has, or at the
Closing Date will have, fulfilled and performed all its material obligations
with respect to such permits and no event has occurred which allows, or after
notice or lapse of time would allow, revocation or termination thereof or
results in any impairment of the rights of the holder of any such permit, except
for such revocations, terminations and impairments that would not have a
material adverse effect upon the ability of the Alliance Entities considered as
a whole to conduct their businesses in all material respects as currently
conducted and as contemplated by the Prospectus to be conducted, subject in each
case to such qualification as may be set forth in the Prospectus; and, except as
described in the Prospectus, none of such permits contains any restriction that
is materially burdensome to the Alliance Entities considered as a whole.
(cc) Each of the Alliance Entities has, or at the Closing Date will
have, such consents, easements, rights-of-way or licenses from any person
("rights-of-way") as are necessary
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<PAGE> 19
to conduct its business in the manner described in the Prospectus, subject to
such qualifications as may be set forth in the Prospectus and except for such
rights-of-way which, if not obtained, would not have, individually or in the
aggregate, a material adverse effect upon the ability of the Alliance Entities
considered as a whole to conduct their businesses in all material respects as
currently conducted and as contemplated by the Prospectus to be conducted; each
of the Alliance Entities has, or at the Closing Date will have, fulfilled and
performed all its material obligations with respect to such rights-of-way and no
event has occurred which allows, or after notice or lapse of time would allow,
revocation or termination thereof or would result in any impairment of the
rights of the holder of any such rights-of-way, except for such revocations,
terminations and impairments that would not have a material adverse effect upon
the ability of the Alliance Entities considered as a whole to conduct their
businesses in all material respects as currently conducted and as contemplated
by the Prospectus to be conducted, subject in each case to such qualification as
may be set forth in the Prospectus; and, except as described in the Prospectus,
none of such rights-of-way contains any restriction that is materially
burdensome to the Alliance Entities considered as a whole.
(dd) The Partnership (i) makes and keeps books, records and
accounts, which, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of assets and (ii) maintains systems of internal
accounting controls sufficient to provide reasonable assurances that (A)
transactions are executed in accordance with management's general or specific
authorization; (B) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (C) access to assets is
permitted only in accordance with management's general or specific
authorization; and (D) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(ee) Each of the Alliance Entities and Alliance has filed (or has
obtained extensions with respect to) all material tax returns required to be
filed through the date hereof, which returns are complete and correct in all
material respects, and has timely paid all taxes shown to be due pursuant to
such returns, other than those (i) which, if not paid, would not have a material
adverse effect on the condition (financial or other), business, prospects,
properties, net worth or results of operations of the Alliance Entities, taken
as a whole, or (ii) which are being contested in good faith.
(ff) None of the Alliance Entities is now, and after sale of the
Units to be sold by the Partnership hereunder and application of the net
proceeds from such sale as described in the Prospectus under the caption "Use of
Proceeds," none of the Alliance Entities will be, (i) an "investment company" or
a company "controlled by" an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, or (ii) a "public utility company,"
"holding company" or a "subsidiary company" of a "holding company" or an
"affiliate" thereof, under the Public Utility Holding Company Act of 1935, as
amended.
(gg) None of the Alliance Entities has sustained since the date of
the latest audited financial statements included in the Prospectus any material
loss or interference with its business from fire, explosion, flood or other
calamity whether or not covered by insurance, or from any labor
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<PAGE> 20
dispute or court or governmental action, investigation, order or decree,
otherwise than as set forth or contemplated in the Prospectus.
(hh) None of the Alliance Entities or Alliance has violated any
environmental, safety, health or similar law or regulation applicable to its
business relating to the protection of human health and safety, the environment
or hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), or lacks any permits, licenses or other approvals
required of them under applicable Environmental Laws to own, lease or operate
their properties and conduct their business as described in the Prospectus or is
violating any terms and conditions of any such permit, license or approval,
which in each case would have a material adverse effect on the condition
(financial or other), business, prospects, properties, net worth or results of
operations of the Alliance Entities, taken as a whole.
(ii) Except as described in or contemplated by the Prospectus, no
material labor dispute with the employees of any of the Alliance Entities exists
or, to the knowledge of any of the Alliance Parties, is imminent.
(jj) The Alliance Entities maintain insurance covering their
properties, operations, personnel and businesses against such losses and risks
as are reasonably adequate to protect them and their businesses in a manner
consistent with other businesses similarly situated. None of the Alliance
Entities or Alliance has received notice from any insurer or agent of such
insurer that substantial capital improvements or other expenditures will have to
be made in order to continue such insurance, and all such insurance is
outstanding and duly in force on the date hereof and will be outstanding and
duly in force on the Closing Date.
(kk) Except as described in the Prospectus, there is (i) no action,
suit or proceeding before or by any court, arbitrator or governmental agency,
body or official, domestic or foreign, now pending or, to the knowledge of the
Alliance Parties, threatened, to which any of the Alliance Entities or Alliance,
or any of their respective subsidiaries, is or may be a party or to which the
business or property of any of the Alliance Entities or Alliance, or any of
their respective subsidiaries, is or may be subject, (ii) no statute, rule,
regulation or order that has been enacted, adopted or issued by any governmental
agency or that has been proposed by any governmental body and (iii) no
injunction, restraining order or order of any nature issued by a federal or
state court or foreign court of competent jurisdiction to which any of the
Alliance Entities or Alliance, or any of their respective subsidiaries, is or
may be subject, that, in the case of clauses (i), (ii) and (iii) above, is
reasonably expected to (A) singly or in the aggregate have a material adverse
effect on the condition (financial or other), business, prospects, properties,
net worth or results of operations of the Alliance Entities, taken as a whole,
(B) prevent or result in the suspension of the offering and issuance of the
Units or the Notes, or (C) in any manner draw into question the validity of this
Agreement or any Operative Agreement.
(ll) The sale and issuance of the Subordinated Units and the
Incentive Distribution Rights to the General Partner pursuant to the Partnership
Agreement and the sale and issuance of the Notes pursuant to the Note Purchase
Agreement are exempt from the registration requirements of
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<PAGE> 21
the Act and the securities laws of any state having jurisdiction with respect
thereto, and none of the Alliance Entities or Alliance has taken or will take
any action that would cause the loss of such exemption.
(mm) The Units have been approved for listing on the New York Stock
Exchange ("NYSE"), subject only to official notice of issuance.
7. Indemnification and Contribution. (a) Each of the Alliance Parties,
jointly and severally, agrees to indemnify and hold harmless each of you and
each other Underwriter and each person, if any, who controls any Underwriter
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act
from and against any and all losses, claims, damages, liabilities and expenses
(including reasonable costs of investigation) arising out of or based upon any
untrue statement or alleged untrue statement of a material fact contained in any
Prepricing Prospectus or in the Registration Statement or the Prospectus or in
any amendment or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or expenses arise
out of or are based upon any untrue statement or omission or alleged untrue
statement or omission which has been made therein or omitted therefrom in
reliance upon and in conformity with the information furnished in writing to the
Partnership or the General Partner by or on behalf of any Underwriter through
you expressly for use in connection therewith; provided, however, that the
indemnification contained in this paragraph (a) with respect to any Prepricing
Prospectus shall not inure to the benefit of any Underwriter (or to the benefit
of any person controlling such Underwriter) on account of any such loss, claim,
damage, liability or expense arising from the sale of the Units by such
Underwriter to any person if a copy of the Prospectus shall not have been
delivered or sent to such person within the time required by the Act and the
regulations thereunder, and the untrue statement or alleged untrue statement or
omission or alleged omission of a material fact contained in such Prepricing
Prospectus was corrected in the Prospectus, provided that the Partnership has
delivered the Prospectus to the several Underwriters in requisite quantity and
on a timely basis to permit such delivery or sending. The foregoing indemnity
agreement shall be in addition to any liability which any Alliance Party may
otherwise have.
(b) If any action, suit or proceeding shall be brought against any
Underwriter or any person controlling any Underwriter in respect of which
indemnity may be sought against an Alliance Party, such Underwriter or such
controlling person shall promptly notify the Alliance Parties in writing, and
the Partnership shall assume the defense thereof, including the employment of
counsel and payment of all reasonable fees and expenses. The failure to notify
the indemnifying party shall not relieve it from liability which it may have to
an indemnified party unless the indemnifying party is foreclosed by reason of
such delay from asserting a defense otherwise available to it. Such Underwriter
or any such controlling person shall have the right to employ separate counsel
in any such action, suit or proceeding and to participate in (but not control)
the defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Underwriter or such controlling person unless (i) an Alliance
Party has agreed in writing to pay such fees and expenses, (ii) the Alliance
Parties have failed to assume the defense and employ counsel
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or (iii) the named parties to any such action, suit or proceeding (including any
impleaded parties) include both such Underwriter or such controlling person and
an Alliance Party, and such Underwriter or such controlling person shall have
been advised by its counsel that representation of such indemnified party and
such Alliance Party by the same counsel would be inappropriate under applicable
standards of professional conduct (whether or not such representation by the
same counsel has been proposed) due to actual or potential differing interests
between them (in which case the Alliance Parties shall not have the right to
assume the defense of such action, suit or proceeding on behalf of such
Underwriter or such controlling person). It is understood, however, that the
Alliance Parties shall, in connection with any one such action, suit or
proceeding or separate but substantially similar or related actions, suits or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the reasonable fees and expenses of only one
separate firm of attorneys (in addition to any local counsel) at any time for
all such Underwriters and controlling persons not having actual or potential
differing interests with you or among themselves, which firm shall be designated
in writing by Salomon Smith Barney Inc., and that all such fees and expenses
shall be reimbursed as they are incurred. None of the Alliance Parties shall be
liable for any settlement of any such action, suit or proceeding effected
without its written consent, but if settled with such written consent, or if
there be a final judgment for the plaintiff in any such action, suit or
proceeding, the Alliance Parties agree, jointly and severally, to indemnify and
hold harmless any Underwriter, to the extent provided in the preceding
paragraph, and any such controlling person from and against any loss, claim,
damage, liability or expense by reason of such settlement or judgment.
(c) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Alliance Parties, their respective directors and officers
who sign the Registration Statement, and any person who controls the Alliance
Parties within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, to the same extent as the foregoing indemnity from the Alliance
Parties to each Underwriter, but only with respect to information furnished in
writing by or on behalf of such Underwriter through you expressly for use in the
Registration Statement, the Prospectus or any Prepricing Prospectus, or any
amendment or supplement thereto. If any action, suit or proceeding shall be
brought against an Alliance Party, any of such directors and officers or any
such controlling person based on the Registration Statement, the Prospectus or
any Prepricing Prospectus, or any amendment or supplement thereto, and in
respect of which indemnity may be sought against any Underwriter pursuant to
this paragraph (c), such Underwriter shall have the rights and duties given to
the Alliance Entities by paragraph (b) above (except that if an Alliance Party
shall have assumed the defense thereof such Underwriter shall not be required to
do so, but may employ separate counsel therein and participate in (but not
control) the defense thereof, but the fees and expenses of such counsel shall be
at such Underwriter's expense), and the Alliance Parties, any of such directors
and officers and any such controlling person shall have the rights and duties
given to the Underwriters by paragraph (b) above. The foregoing indemnity
agreement shall be in addition to any liability which the Underwriters may
otherwise have.
(d) If the indemnification provided for in this Section 7 is
unavailable to an indemnified party under paragraph (a) or (c) hereof in respect
of any losses, claims, damages, liabilities or expenses referred to therein,
then an indemnifying party, in lieu of indemnifying such
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<PAGE> 23
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses (i) in such proportion as is appropriate to reflect the relative
benefits received by the Alliance Entities and Alliance and its affiliates on
the one hand and the Underwriters on the other hand from the offering of the
Units, or (ii) if the allocation provided by clause (i) above is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Alliance Parties on the one hand and the Underwriters on the other in
connection with the statements or omissions that resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Alliance
Entities and Alliance and its affiliates on the one hand and the Underwriters on
the other shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Alliance Entities
and Alliance and its affiliates bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus. The relative fault of the Alliance Parties
on the one hand, and the Underwriters on the other hand shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Alliance Entities or any other affiliate
of the Alliance Parties on the one hand, or by the Underwriters on the other
hand, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
(e) The Alliance Parties and the Underwriters agree that it would
not be just and equitable if contribution pursuant to this Section 7 were
determined by a pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation that does not
take account of the equitable considerations referred to in paragraph (d) above.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities and expenses referred to in paragraph (d) above
shall be deemed to include, subject to the limitations set forth above, any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating any claim or defending any such action, suit or
proceeding. Notwithstanding the provisions of this Section 7, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price of the Units underwritten by it and distributed to the public
exceeds the amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute pursuant to this Section 7 are several
in proportion to the respective numbers of Firm Units set forth opposite their
names in Schedule I hereto (or such numbers of Firm Units increased as set forth
in Section 10 hereof) and not joint.
(f) No indemnifying party shall, without the prior written consent
of the indemnified party, effect any settlement of any pending or threatened
action, suit or proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional
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<PAGE> 24
release of such indemnified party from all liability on claims that are the
subject matter of such action, suit or proceeding.
(g) Any losses, claims, damages, liabilities or expenses for which
an indemnified party is entitled to indemnification or contribution under this
Section 7 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 7 and the
representations and warranties of the Alliance Parties set forth in this
Agreement shall remain operative and in full force and effect, regardless of (i)
any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Alliance Parties or any of their respective
directors or officers or any person controlling the Alliance Parties, (ii)
acceptance of any Units and payment therefor in accordance with the terms of
this Agreement, and (iii) any termination of this Agreement. A successor to any
Underwriter or any person controlling any Underwriter, or to the Alliance
Parties or any of their respective directors or officers or any person
controlling an Alliance Party shall be entitled to the benefits of the
indemnity, contribution and reimbursement agreements contained in this Section
7.
8. Conditions of Underwriters' Obligations. The several obligations of
the Underwriters to purchase the Firm Units hereunder are subject to the
following conditions:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the registration statement or a post-effective amendment thereto
to be declared effective before the offering of the Units may commence, the
registration statement or such post-effective amendment shall have become
effective not later than 5:30 p.m., New York City time, on the date hereof, or
at such later date and time as shall be consented to in writing by Salomon Smith
Barney Inc., and all filings, if any, required by Rules 424 and 430A under the
Act shall be or have been timely made, as the case may be; no stop order
suspending the effectiveness of the registration statement shall have been
issued and no proceeding for that purpose shall have been instituted or, to the
knowledge of the Alliance Parties or any Underwriter, threatened by the
Commission and any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus or otherwise) shall
have been complied with to your reasonable satisfaction.
(b) Subsequent to the effective date of this Agreement, there
shall not have occurred (i) any change, or any development involving a
prospective change, in or affecting the condition (financial or other),
business, prospects, properties, net worth or results of operations of any of
the Alliance Entities not contemplated by the Prospectus, which in your opinion,
would materially adversely affect the market for the Units, or (ii) any event or
development relating to or involving any of the Alliance Entities or any
executive officer or director of any of such entities which makes any statement
made in the Prospectus untrue or which, in the opinion of the Partnership and
its counsel or the Underwriters and their counsel, requires the making of any
addition to or change in the Prospectus in order to state a material fact
required by the Act or any other law to be stated therein or necessary in order
to make the statements therein not misleading, if amending or supplementing the
Prospectus to reflect such event or development would, in your opinion,
materially adversely affect the market for the Units.
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<PAGE> 25
(c) You shall have received on the Closing Date, an opinion of
Andrews & Kurth L.L.P., special counsel for the Alliance Entities, dated the
Closing Date and addressed to you, to the effect that:
(i) Each of the Partnership and the Intermediate Partnership has
been duly formed and is validly existing in good standing as a limited
partnership under the Delaware LP Act with all necessary partnership
power and authority to own or lease its properties, assume the
liabilities being assumed by it pursuant to the Merger and Conveyance
Documents and conduct its business, in each case in all material
respects as described in the Registration Statement and the Prospectus.
(ii) Each of the Partnership and the Intermediate Partnership is
duly registered or qualified as a foreign limited partnership for the
transaction of business under the laws of the States set forth on
Exhibit A to this opinion; and, to such counsel's knowledge, such
jurisdictions are the only jurisdictions in which the character of the
business conducted by the Partnership and the Intermediate Partnership
or the nature or location of the properties owned or leased by it make
such registration or qualification necessary (except where the failure
to so register or so qualify would not (A) have a material adverse
effect on the condition (financial or other), business or results of
operations of the Alliance Entities, taken as a whole, or (B) subject
the limited partners of the Partnership to any material liability or
disability).
(iii) Each Operating Company has been duly formed and is validly
existing in good standing as a limited liability company under the
Delaware LLC Act with all necessary limited liability company power and
authority to own or lease its properties, assume the liabilities being
assumed by it pursuant to the Merger and Conveyance Documents and
conduct its business, in each case in all material respects as
described in the Registration Statement and the Prospectus.
(iv) Each Operating Company is duly registered or qualified as a
foreign limited liability company for the transaction of business under
the laws of the States set forth on Exhibit A to this opinion; and, to
such counsel's knowledge, such jurisdictions are the only jurisdictions
in which the character of the business conducted by each Operating
Company or the nature or location of the properties owned or leased by
it make such registration or qualification necessary (except where the
failure to so register or so qualify would not (A) have a material
adverse effect on the condition (financial or other), business or
results of operations of the Alliance Entities, taken as a whole, or
(B) subject the limited partners of the Partnership to any material
liability or disability).
(v) The General Partner has been duly formed and is validly
existing in good standing as a limited liability company under the
Delaware LLC Act, with all necessary limited liability company power
and authority to own or lease its properties, conduct its business and
act as general partner of the Partnership and the Intermediate
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<PAGE> 26
Partnership and managing member of each of the Operating Companies, in
each case in all material respects as described in the Registration
Statement and the Prospectus.
(vi) The General Partner is duly registered or qualified as a
foreign limited liability company for the transaction of business under
the laws of the States set forth on Exhibit A to this opinion; and to
such counsel's knowledge, such jurisdictions are the only jurisdictions
in which the character of the business conducted by the General Partner
or the nature or location of the properties owned or leased by it make
such registration or qualification necessary (except where the failure
to so register or so qualify would not (A) have a material adverse
effect on the condition (financial or other), business or results of
operations of the Alliance Parties, taken as a whole, or (B) subject
the limited partners of the Partnership to any material liability or
disability).
(vii) The General Partner is the sole general partner of the
Partnership, with a 1% general partner interest in the Partnership;
such general partner interest has been duly authorized and validly
issued in accordance with the Partnership Agreement; and the General
Partner owns such general partner interest free and clear of all liens,
encumbrances, security interests, charges or claims (A) in respect of
which a financing statement under the Uniform Commercial Code of the
State of Delaware naming the General Partner as debtor is on file in
the office of the Secretary of State of the State of Delaware or (B)
otherwise known to such counsel, without independent investigation,
other than those created by or arising under the Delaware LP Act.
(viii) The Subordinated Units, the Incentive Distribution Rights
and the limited partner interests represented thereby have been duly
authorized and validly issued in accordance with the Partnership
Agreement and are fully paid (to the extent required under the
Partnership Agreement) and nonassessable (except as such
nonassessability may be affected by matters described in the Prospectus
under "The Partnership Agreement--Limited Liability"); after giving
effect to the Transactions, the General Partner will own [6,523,168]
Subordinated Units and all the Incentive Distribution Rights free and
clear of all liens, encumbrances, security interests, charges or claims
(A) in respect of which a financing statement under the Uniform
Commercial Code of the State of Delaware naming the General Partner as
debtor is on file in the office of the Secretary of State of the State
of Delaware or (B) otherwise known to such counsel, without independent
investigation, other than those created by or arising under the
Delaware LP Act.
(ix) The [9,123,311] Common Units to be issued and sold to the
Underwriters by the Partnership pursuant to this Agreement and the
limited partner interests represented thereby have been duly authorized
by the Partnership Agreement and, when issued and delivered against
payment therefor as provided in this Agreement, will be validly issued,
fully paid (to the extent required under the Partnership Agreement) and
nonassessable (except as such nonassessability may be affected by
matters described in the Prospectus under the caption "The Partnership
Agreement--Limited Liability"); other than the Subordinated Units and
the Incentive Distribution Rights owned by the General Partner, the
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<PAGE> 27
Units will be the only limited partner interests of the Partnership
issued and outstanding at the Closing Date.
(x) The General Partner is the sole general partner of the
Intermediate Partnership, with a 1.0101% general partner interest in
the Intermediate Partnership; such general partner interest has been
duly authorized and validly issued in accordance with the Intermediate
Partnership Agreement; and the General Partner owns such general
partner interest free and clear of all liens, encumbrances, security
interests, charges or claims (A) in respect of which a financing
statement under the Uniform Commercial Code of the State of Delaware
naming the General Partner as debtor is on file in the office of the
Secretary of State of the State of Delaware or (B) otherwise known to
such counsel, without independent investigation, other than those
created by or arising under the Delaware LP Act.
(xi) The Partnership owns a 98.9899% limited partner interest in
the Intermediate Partnership; such interest has been duly authorized
and validly issued in accordance with the Intermediate Partnership
Agreement and is fully paid (to the extent required under the
Intermediate Partnership Agreement) and nonassessable (except as such
nonassessability may be affected by matters described in the Prospectus
under the caption "The Partnership Agreement -- Limited Liability");
and the Partnership owns such interest free and clear of all liens,
encumbrances, security interests, charges or claims (A) in respect of
which a financing statement under the Uniform Commercial Code of the
State of Delaware naming the Partnership as debtor is on file in the
office of the Secretary of State of the State of Delaware or (B)
otherwise known to such counsel, without independent investigation,
other than those created by or arising under the Delaware LP Act.
(xii) The General Partner is the sole manager of each Operating
Company with a .001% managing interest in each Operating Company; such
managing interests have been duly authorized and validly issued in
accordance with the Operating Company LLC Agreements; and the General
Partner owns such managing interests free and clear of all liens,
encumbrances, security interests, charges or claims (A) in respect of
which a financing statement under the Uniform Commercial Code of the
State of Delaware naming the General Partner as debtor is on file in
the office of the Secretary of State of the State of Delaware or (B)
otherwise known to such counsel, without independent investigation,
other than those created by or arising under the Delaware LLC Act.
(xiii) The Intermediate Partnership owns a 99.999% non-managing
interest in each Operating Company; such interests have been duly
authorized and validly issued in accordance with the Operating Company
LLC Agreements and are fully paid (to the extent required under the
Operating Company LLC Agreements) and nonassessable (except as such
nonassessability may be affected by Section 18-607 of the Delaware LLC
Act); and the Intermediate Partnership owns such interests free and
clear of all liens, encumbrances, security interests, charges or claims
(A) in respect of which a financing statement under the Uniform
Commercial Code of the State of Delaware naming the Intermediate
Partnership as debtor is on file in the office of the Secretary of
State of the State
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of Delaware, or (B) otherwise known to such counsel, without
independent investigation, other than those created by or arising under
the Delaware LLC Act.
(xiv) Alliance owns a 100% interest in the General Partner; such
interest has been duly authorized and validly issued in accordance with
the General Partner LLC Agreement and is fully paid (to the extent
required under the General Partner LLC Agreement) and nonassessable
(except as such nonassessability may be affected by Section 18-607 of
the Delaware LLC Act); and Alliance owns such interest free and clear
of all liens, encumbrances, security interests, charges or claims (A)
in respect of which a financing statement under the Uniform Commercial
Code of the State of Delaware naming Alliance as debtor is on file in
the office of the Secretary of State of the State of Delaware or (B)
otherwise known to such counsel, without independent investigation,
other than those created by or arising under the Delaware LLC Act.
(xv) Except as described in the Prospectus, there are no
preemptive rights or other rights to subscribe for or to purchase, nor
any restriction upon the voting or transfer of, any limited partner
interests in the Alliance Entities pursuant to the Organization
Agreements, or any other agreement or instrument known to such counsel
to which an Alliance Entity is a party or by which any one of them may
be bound. To such counsel's knowledge, neither the filing of the
Registration Statement nor the offering or sale of the Units as
contemplated by this Agreement gives rise to any rights for or relating
to the registration of any Units or other securities of the Alliance
Entities. To such counsel's knowledge, except as described in the
Prospectus, there are no outstanding options or warrants to purchase
(A) any Common Units or Subordinated Units or other partnership
interests in the Partnership or (B) any interests in the other Alliance
Entities. The Partnership has all requisite power and authority to
issue, sell and deliver (A) the Units, in accordance with and upon the
terms and conditions set forth in this Agreement, the Partnership
Agreement and the Registration Statement and Prospectus, and (B) the
Subordinated Units and Incentive Distribution Rights, in accordance
with the terms and conditions set forth in the Partnership Agreement.
The General Partner has all requisite power and authority to issue,
sell and deliver the Notes, in accordance with and upon the terms and
conditions set forth in the Note Purchase Agreement. The Intermediate
Partnership has all requisite power and authority to assume the General
Partner's obligations under the Notes in accordance with and upon the
terms and conditions set forth in the Note Purchase Agreement and the
Contribution and Conveyance Agreement.
(xvi) This Agreement has been duly authorized and validly
executed and delivered by each of the Alliance Parties.
(xvii) Each of the Operative Agreements (other than the
Subsidiary LLC Agreements and the Merger Documents) to which any of the
Alliance Entities is a party has been duly authorized and validly
executed and delivered by each of the Alliance Entities parties
thereto. Each of the Operative Agreements (other than the Subsidiary
LLC Agreements and the Merger Documents) constitutes a valid and
binding obligation of each
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of the Alliance Entities parties thereto, enforceable against each such
party in accordance with its respective terms, subject to (A)
applicable bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium or similar laws from time to time in effect affecting
creditors' rights and remedies generally and general principles of
equity (regardless of whether such principles are considered in a
proceeding at law or in equity) and (B) public policy, applicable law
relating to fiduciary duties and indemnification and an implied
covenant of good faith and fair dealing.
(xviii) None of the offering, issuance and sale by the
Partnership of the Units, the issuance and sale by the General Partner
of the Notes, the execution, delivery and performance of this Agreement
or the Operative Agreements by the Alliance Entities which are parties
thereto, or the consummation of the transactions contemplated hereby
and thereby (including the Transactions) (A) constitutes or will
constitute a violation of the Organization Agreements or the
certificate or articles of incorporation or bylaws or other
organizational documents of any of the Alliance Entities or Alliance,
(B) constitutes or will constitute a breach or violation of, or a
default under (or an event which, with notice or lapse of time or both,
would constitute such an event), any bond, debenture, note or any other
evidence of indebtedness or any agreement, indenture, lease or other
instrument known to such counsel to which any of the Alliance Entities
or Alliance or any of their properties may be bound, (C) results or
will result in any violation of the Delaware LP Act, the Delaware LLC
Act, the DGCL, or federal law, or (D) results or will result in the
creation or imposition of any lien, charge or encumbrance upon any
property or assets of any of the Alliance Entities or Alliance, which
in the case of clauses (B), (C) or (D) would reasonably be expected to
have a material adverse effect on the financial condition, business or
results of operations of the Alliance Entities, taken as a whole.
(xix) No permit, consent, approval, authorization, order,
registration, filing or qualification of or with any federal or
Delaware court, governmental agency or body having jurisdiction over
the Alliance Entities or any of their respective properties is required
for the offering, issuance and sale by the Partnership of the Units,
the execution, delivery and performance of this Agreement or the
Operative Agreements by the Alliance Entities party thereto or the
consummation of the transactions (including the Transactions)
contemplated by this Agreement and the Operative Agreements, except (A)
as may be required under state securities or "Blue Sky" laws, as to
which such counsel need not express any opinion, (B) for such permits,
consents, approvals, and similar authorizations which have been
obtained, (C) for such permits, consents, approvals, and similar
authorizations which (i) are of a routine or administrative nature,
(ii) are not customarily obtained or made prior to the consummation of
transactions such as those contemplated by this Agreement and (iii) are
expected in the reasonable judgment of the General Partner to be
obtained in the ordinary course of business subsequent to the
consummation of the Transactions, (D) for such permits, consents,
approvals and similar authorizations which, if not obtained, would not,
individually or in the aggregate, have a material adverse effect upon
the condition (financial or other), business, prospects, properties,
net worth or results of operations conducted or to
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be conducted as described in the Prospectus by the Alliance Parties,
taken as a whole or (E) as disclosed in the Prospectus.
(xx) The statements in the Registration Statement and Prospectus
under the captions "The Transactions," "Cash Distribution Policy,"
"Management's Discussion and Analysis of Financial Condition and
Results of Operation--The Partnership--Capital Resources, Liquidity and
Financial Condition," "Business--Regulation," "Business-- Environmental
Regulation," "Certain Relationships and Related Transactions,"
"Conflicts of Interest and Fiduciary Responsibilities," "Description of
the Common Units," "Description of the Subordinated Units" and "The
Partnership Agreement," insofar as they constitute descriptions of the
Operative Agreements or refer to statements of law or legal
conclusions, are accurate and complete in all material respects, and
the Units, the Common Units, the Subordinated Units and the Incentive
Distribution Rights and the Notes conform in all material respects to
the descriptions thereof contained in the Registration Statement and
Prospectus under the captions "Prospectus Summary--The Offering," "Cash
Distribution Policy," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Description of the
Common Units," "Description of the Subordinated Units" and "The
Partnership Agreement."
(xxi) The opinion of Andrews & Kurth L.L.P. that is filed as
Exhibit 8.1 to the Registration Statement is confirmed and the
Underwriters may rely upon such opinion as if it were addressed to
them.
(xxii) The Registration Statement was declared effective under
the Act on ___________, 1999; to the knowledge of such counsel, no stop
order suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose have been instituted or
threatened by the Commission; and any required filing of the Prospectus
pursuant to Rule 424(b) has been made in the manner and within the time
period required by such Rule.
(xxiii) The Registration Statement and the Prospectus (except
for the financial statements and the notes and the schedules thereto
and the other financial, statistical and accounting data included in
the Registration Statement or the Prospectus, as to which such counsel
need not express any opinion) comply as to form in all material
respects with the requirements of the Act and the rules and regulations
promulgated thereunder.
(xxiv) To the knowledge of such counsel, (A) there is no legal
or governmental proceeding pending or threatened to which any of the
Alliance Entities is a party or to which any of their respective
properties is subject that is required to be disclosed in the
Prospectus and is not so disclosed and (B) there are no agreements,
contracts or other documents to which any of the Alliance Entities is a
party that are required to be described in the Registration Statement
or the Prospectus or to be filed as exhibits to the Registration
Statement that are not described or filed as required.
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(xxv) None of the Alliance Parties is an "investment company" as
such term is defined in the Investment Company Act of 1940, as amended.
(xxvi) Upon delivery to the Underwriters of certificates
evidencing the Units issued in the name of the Underwriters and payment
by the Underwriters of the purchase price for the Units, the
Underwriters will acquire the Units free of any adverse claim (as such
term is defined in Section 8-302 of the New York Uniform Commercial
Code), assuming that the Underwriters are acting in good faith and
without notice of any adverse claim.
(xxvii) The Common Units have been approved for listing on the
NYSE, subject only to official notice of issuance and evidence of
satisfactory distribution.
(xxviii) The offer, sale and issuance of the Subordinated Units
and the Incentive Distribution Rights to the General Partner pursuant
to the Partnership Agreement, and the offer, sale and issuance of the
Notes pursuant to the Note Purchase Agreement are exempt from the
registration requirements of the Act and the securities laws of any
state having jurisdiction with respect thereto.
In addition, such counsel shall state that they have participated in
conferences with officers and other representatives of the Alliance Entities and
the independent public accountants of the Partnership and your representatives,
at which the contents of the Registration Statement and the Prospectus and
related matters were discussed, and although such counsel has not independently
verified, is not passing on, and is not assuming any responsibility for the
accuracy, completeness or fairness of the statements contained in, the
Registration Statement and the Prospectus (except to the extent specified in the
foregoing opinion), no facts have come to such counsel's attention that lead
such counsel to believe that the Registration Statement (other than (i) the
financial statements included therein, including the notes and schedules thereto
and the auditors' reports thereon, (ii) the other historical, pro forma and
projected financial information and the statistical and accounting information
included therein and (iii) the exhibits thereto, as to which such counsel need
not comment), as of its effective date contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or that the
Prospectus (other than (i) the financial statements included therein, including
the notes and schedules thereto and the auditors' reports thereon and (ii) the
other historical, pro forma and projected financial information and the
statistical and accounting information included therein, as to which such
counsel need not comment), as of its issue date and the Closing Date contained
an untrue statement of a material fact or omitted to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
In rendering such opinion, such counsel may (A) rely in respect of
matters of fact upon certificates of officers and employees of the Alliance
Entities and upon information obtained from public officials, (B) assume that
all documents submitted to them as originals are authentic, that all copies
submitted to them conform to the originals thereof, and that the signatures on
all documents examined by them are genuine, (C) state that their opinion is
limited to federal laws, the
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Delaware LP Act, the Delaware LLC Act, the DGCL and the laws of the State of New
York, (D) with respect to the opinions expressed in paragraphs (ii), (iv), (vi),
(viii) and (x) above as to the due qualification or registration as a foreign
limited partnership, corporation or limited liability company, as the case may
be, of each of the Alliance Entities, state that such opinions are based upon
the opinions of ______________________ provided pursuant to (f) below and upon
certificates of foreign qualification or registration provided by the Secretary
of State of the States of Indiana, Illinois, Kentucky, Maryland, Oklahoma and
West Virginia (each of which shall be dated as of a date not more than fourteen
days prior to the Closing Date and shall be provided to you), (E) state that
they express no opinion with respect to the title of any of the Alliance
Entities to any of their respective real or personal property, and (F) state
that they express no opinion with respect to state or local taxes or tax
statutes to which any of the limited partners of the Partnership or any of the
Alliance Entities may be subject.
You shall also have received on the Closing Date, a copy of the
opinions of Andrews & Kurth L.L.P. delivered pursuant to the Note Purchase
Agreement and the Bank Credit Agreement, substantially in the forms provided for
therein, accompanied by a letter dated the Closing Date and addressed to you
from such counsel stating that you are entitled to rely on such opinion as if it
were addressed to you.
(d) You shall have received on the Closing Date an opinion of
Crowell & Moring LLP, counsel for the Alliance Entities, dated the Closing Date
and addressed to you, to the effect that:
(i) Each Subsidiary has been duly formed and is validly existing
in good standing under the Delaware LLC Act, with all necessary limited
liability company power and authority to own or lease its properties,
assume the liabilities being assumed by it pursuant to the Merger and
Conveyance Documents and conduct its business, in each case in all
material respect as described in the Registration Statement and the
Prospectus.
(ii) [specify Subsidiaries as applicable] is duly registered or
qualified as a foreign limited liability company for the transaction of
business under the laws of the State of ________; and to such counsel's
knowledge, such jurisdiction is the only jurisdiction in which the
character of the business conducted by [specify Subsidiaries as
applicable] or the nature or location of the properties owned or leased
by it makes such registration or qualification necessary (except where
the failure to so register or so qualify would not (A) have a material
adverse effect on the condition (financial or other), business or
results of operations of the Alliance Entities, taken as a whole, or
(B) subject the limited partners of the Partnership to any material
liability or disability).
(iii) MAPCO Coal LLC owns a 100% interest in each of the
Subsidiaries; such interests have been duly authorized and validly
issued in accordance with the Subsidiary LLC Agreements and is fully
paid (to the extent required under the Subsidiary LLC Agreements) and
nonassessable (except as such nonassessability may be affected by
Section 18-607 of the Delaware LLC Act); MAPCO Coal LLC owns such
interests free and
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clear of all liens, encumbrances, security interests, charges or claims
(A) in respect of which a financing statement under the Uniform
Commercial Code of the State of Delaware naming MAPCO Coal LLC as
debtor is on file in the office of the Secretary of State of the State
of Delaware or (B) otherwise known to such counsel, without independent
investigation, other than those created by or arising under the
Delaware LLC Act.
(iv) Each of the Subsidiary LLC Agreements and the Merger
Documents to which any of the Alliance Entities is a party has been
duly authorized and validly executed and delivered by each of the
Alliance Entities parties thereto. Each of the Subsidiary Agreements
and the Merger Documents constitutes a valid and binding obligation of
each of the Alliance Entities parties thereto, enforceable against each
such party in accordance with its respective terms, subject to (A)
applicable bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium or similar laws from time to time in effect affecting
creditors' rights and remedies generally and general principles of
equity (regardless of whether such principles are considered in a
proceeding at law or in equity) and (B) public policy, applicable law
relating to fiduciary duties and indemnification and an implied
covenant of good faith and fair dealing.
(v) Each of the Mergers became effective under the Delaware LLC
Act on ___, 1999.
In rendering such opinion, such counsel may (A) rely in respect of
matters of fact upon certificates of officers and employees of the Alliance
Entities and upon information obtained from public officials, (B) assume that
all documents submitted to them as originals are authentic, that all copies
submitted to them conform to the originals thereof, and that the signatures on
all documents examined by them are genuine, and (C) state that such opinions are
limited to federal laws and the laws of the states of Delaware.
In rendering such opinion, such counsel shall state that such
opinion letter may be relied upon only by the Underwriters and its counsel in
connection with the Transactions and no other use or distribution of this
opinion letter may be made without such counsel's prior written consent.
(e) You shall have received on the Closing Date an opinion of Thomas
L. Pearson, Vice President Law and Administration of Alliance, dated the Closing
Date and addressed to you, to the effect that:
(i) Alliance has been duly incorporated and is validly existing
in good standing under the laws of the State of Delaware, with all
necessary corporate power and authority to own or lease its properties
and conduct its business, in each case and all material respects as
described in the Registration Statement and the Prospectus.
(ii) Alliance is duly registered or qualified as a foreign
corporation for the transaction of business under the laws of the
States set forth on Exhibit A to this opinion;
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and, to such counsel's knowledge, such jurisdictions are the only
jurisdictions in which the character of the business conducted by
Alliance or the nature or location of the properties owned or leased by
it make such registration or qualification necessary (except where the
failure to so register or so qualify would not (A) have a material
adverse effect on the condition (financial or other), business or
results of operations of the Alliance Parties, taken as a whole, or (B)
subject the limited partners of the Partnership to any material
liability or disability.
(iii) To the knowledge of such counsel, none of the Alliance
Entities or Alliance is in (A) breach or violation of the provisions of
its agreement of limited partnership, limited liability company
operating agreement, certificate or articles of incorporation or bylaws
or other organizational documents or (B) default (and no event has
occurred which, with notice or lapse of time or both, would constitute
such a default) or violation in the performance of any obligation,
agreement or condition contained in any bond, debenture, note or any
other evidence of indebtedness or in any agreement, indenture, lease or
other instrument to which it is a party or by which it or any of its
properties may be bound, which breach, default or violation would, if
continued, have a material adverse effect on the financial condition,
business or results of operations of the Alliance Entities, taken as a
whole, or could materially impair the ability of any of the Alliance
Entities to perform their obligations under this Agreement or the
Operative Agreements.
(iv) To the knowledge of such counsel, each of the Alliance
Entities has such permits, consents, licenses, franchises and
authorizations ("permits") issued by the appropriate federal, state or
local governmental or regulatory authorities as are necessary to own or
lease its properties and to conduct its business in the manner
described in the Prospectus, subject to such qualifications as may be
set forth in the Prospectus, and except for such permits which, if not
obtained would not reasonably be expected to have, individually or in
the aggregate, a material adverse effect upon the operations conducted
by the Alliance Entities, taken as a whole; and, to the knowledge of
such counsel, none of the Alliance Entities has received any notice of
proceedings relating to the revocation or modification of any such
permits which, individually or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would reasonably be expected
to have a material adverse effect upon the operations conducted by the
Alliance Entities, taken as a whole.
(v) Except as described in the Prospectus, to the knowledge of
such counsel, there is no litigation, proceeding or governmental
investigation pending or threatened against any of the Alliance
Entities or Alliance which, if adversely determined to such Alliance
Entities or Alliance, is reasonably likely to have a material adverse
effect on the financial condition, business, properties, or results of
operations of the Alliance Entities, taken as a whole.
In addition, such counsel shall state that he has participated in
conferences with officers and other representatives of the Alliance Entities and
the independent public accountants of the Partnership and your representatives,
at which the contents of the Registration Statement and the
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Prospectus and related matters were discussed, and although such counsel has not
independently verified, is not passing on, and is not assuming any
responsibility for the accuracy, completeness or fairness of the statements
contained in, the Registration Statement and the Prospectus, no facts have come
to such counsel's attention that lead such counsel to believe that the
Registration Statement (other than (i) the financial statements included
therein, including the notes and schedules thereto and the auditors' reports
thereon, (ii) the other historical, pro forma and projected financial
information and the statistical and accounting information included therein, and
(iii) the exhibits thereto, as to which such counsel need not comment), as of
its effective date contained an untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus (other than (i) the
financial statements included therein, including the notes and schedules thereto
and the auditors' reports thereon and (ii) the other historical, pro forma and
projected financial information and the statistical and accounting information
included therein, as to which such counsel need not comment), as of its issue
date and the Closing Date contained an untrue statement of a material fact or
omitted to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
In rendering such opinion, such counsel may (A) rely in respect of
matters of fact upon certificates of officers and employees of the Alliance
Entities and upon information obtained from public officials, (B) assume that
all documents submitted to him as originals are authentic, that all copies
submitted to him conform to the originals thereof, and that the signatures on
all documents examined by him are genuine, (C) state that such opinions are
limited to federal laws and the Delaware LP Act, the Delaware LLC Act and the
DGCL and the laws of the State [of ________] and (D) state that he expresses no
opinion with respect to state or local taxes or tax statutes.
(f) You shall have received on the Closing Date, an opinion of each
of (i) ___________________ with respect to the State of Indiana, (ii)
__________________ with respect to the State of Illinois, (iii)
_________________ with respect to the State of Kentucky, and (iv)
___________________ with respect to the State of Maryland and (v)
__________________ with respect to the State of West Virginia, each of which is
acting as special local counsel for the Alliance Entities, dated the Closing
Date and addressed to you, to the effect that:
(i) Each Alliance Entity [as applicable] has been duly qualified
or registered as a foreign limited liability company or a foreign
limited partnership, as the case may be, for the transaction of
business under the laws of [insert applicable state].
(ii) Each Alliance Entity [as applicable] has all requisite
power and authority as a limited liability company or limited
partnership under the laws of the State of [insert applicable state] to
own or lease its properties and to conduct its business in the State of
[insert applicable state]; and upon the consummation of the
Transactions (assuming that the Partnership will not be liable under
the laws of the State of Delaware for the liabilities of the
Intermediate Partnership, the Operating Companies and the Subsidiaries
and assuming that the Unitholders will not be liable under the laws of
the State of Delaware for liabilities of the Partnership, the
Intermediate Partnership, the Operating Companies and the
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Subsidiaries), the Partnership will not be liable under the laws of the
State of [insert applicable state] for the liabilities of the
Intermediate Partnership, the Operating Companies and the Subsidiaries,
and the Unitholders will not be liable under the laws of the State of
[insert applicable state] for the liabilities of the Partnership, the
Intermediate Partnership, the Operating Companies and the Subsidiaries
except in each case to the same extent as under the laws of the State
of Delaware.
(iii) The execution, delivery and performance of the Conveyance
Agreements relating to the transfer of property in the State of [insert
applicable state] did not or will not violate any statute of the State
of [insert applicable state] or any rule, regulation or, to the
knowledge of such counsel, any order of any agency of the State of
[insert applicable state] having jurisdiction over any of the Alliance
Entities or any of their respective properties, except for any such
violations which, individually or in the aggregate, would not have a
material adverse effect upon the Unitholders or the operations
conducted in the State of [insert applicable state] by the Alliance
Entities taken as a whole.
(iv) Assuming that the Mergers are legally sufficient under
applicable Delaware law to vest in the Alliance Entities [as
applicable] the assets of the parties to the Mergers, then the Mergers
are legally sufficient, under the law of the State of [insert
applicable state], to so vest in the Alliance Entities [as applicable]
the assets of the parties to the Mergers located in the State of
[insert applicable state].
(v) The transfer of property in the State of [insert applicable
state] occurring by operation of law as a result of the Mergers does
not constitute an assignment or transfer of such property by the
parties to the Mergers under the laws of the State of [insert
applicable state] for purposes of contractual restrictions against
assignment or transfer of the rights of such parties to the Mergers
which do not specifically purport to cover transfers by merger or by
operation of law.
(vi) Each of the Conveyance Documents relating to the transfer
of property in the State of [insert applicable state], assuming the due
authorization, execution and delivery thereof by the parties thereto,
to the extent it is a valid and legally binding agreement under the
applicable law as stated therein and that such law applies thereto, is
a valid and legally binding agreement of the parties thereto under the
laws of the State of [insert applicable state], enforceable in
accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of
general application relating to or affecting creditors' rights
generally and to general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law);
each of the Conveyance Documents is in a form legally sufficient as
between the parties thereto to convey to the transferee thereunder all
of the right, title and interest of the transferor stated therein in
and to the properties located in the State of [insert applicable
state], as described in the Conveyance Documents, subject to the
conditions, reservations and limitations contained in the Conveyance
Documents, except motor vehicles or other property
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requiring conveyance of certificated title as to which the Conveyance
Documents are legally sufficient to compel delivery of such
certificated title.
(vii) Each of the assignments contained in the Conveyance
Documents (including, without limitation, the form of the exhibits and
schedules thereto) is in a form legally sufficient for recordation in
the appropriate public offices of the State of [insert applicable
state], to the extent such recordation is required, and, upon proper
recordation of any of such assignments in the State of [insert
applicable state], will constitute notice to all third parties under
the recordation statutes of the State of [insert applicable state]
concerning record title to the assets transferred thereby; recordation
in the office of the County Clerk for each county in which either of
the Operating Companies or any of the Subsidiaries owns property is the
appropriate public office in the State of [insert applicable state] for
the recordation of assignments of interests in real property located in
such county.
(viii) No permit, consent, approval, authorization, order,
registration, filing or qualification of or with any court,
governmental agency or body of the State of [insert applicable state]
having jurisdiction over the Alliance Entities or any of their
respective properties is required for the issuance and sale of the
Units by the Partnership, except (A) as may be required under state
securities or "Blue Sky" laws, as to which such counsel need not
express any opinion, (B) for such permits, consents, approvals and
similar authorizations which have been obtained, and (C) for such
permits, consents, approvals and similar authorizations which, if not
obtained, would not, individually or in the aggregate, have a material
adverse effect upon the condition (financial or other), business,
prospects, properties, net worth or results of operations conducted in
the State of [insert applicable state] by the Alliance Entities, taken
as a whole.
(ix) To the knowledge of such counsel, each of the Alliance
Entities has such permits, consents, licenses, franchises and
authorizations ("permits") issued by the appropriate [insert applicable
state] governmental or regulatory authorities as are necessary to own
or lease its properties and to conduct its business in the manner
described in the Prospectus, subject to such qualifications as may be
set forth in the Prospectus, and except for such permits which, if not
obtained would not reasonably be expected to have, individually or in
the aggregate, a material adverse effect upon the operations conducted
in the State of [insert applicable state] by the Alliance Entities,
taken as a whole; and, to the knowledge of such counsel, none of the
Alliance Entities has received any notice of proceedings relating to
the revocation or modification of any such permits which, individually
or in the aggregate, if the subject of an unfavorable decision, ruling
or finding, would reasonably be expected to have a material adverse
effect upon the operations conducted in the State of [insert applicable
state] by the Alliance Entities, taken as a whole.
In rendering such opinion, such counsel may (A) rely in respect of
matters of fact upon certificates of officers and employees of the Alliance
Entities and upon information obtained from public officials, (B) assume that
all documents submitted to them as originals are authentic, that all copies
submitted to them conform to the originals thereof, and that the signatures on
all documents
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<PAGE> 38
examined by them are genuine, (C) state that such opinions are limited to
federal laws and the laws of the State of [insert applicable state], excepting
therefrom municipal and local ordinances and regulations, (D) state that they
express no opinion with respect to the title of any of the real or personal
property purported to be transferred by the Conveyance Documents and express no
opinion regarding the accuracy of descriptions or references to real or personal
property, and (E) state that they express no opinion with respect to state or
local taxes or tax statutes to which any of the limited partners of the
Partnership or any of the Alliance Entities may be subject.
In rendering such opinion, such counsel shall state that (A) Andrews &
Kurth L.L.P., Crowell & Moring, LLP and Thomas L. Pearson are hereby authorized
to rely upon such opinion letter in connection with the Transactions as if such
opinion letter were addressed and delivered to them on the date hereof and (B)
subject to the foregoing, such opinion letter may be relied upon only by the
Underwriters and its counsel in connection with the Transactions and no other
use or distribution of this opinion letter may be made without such counsel's
prior written consent.
(g) You shall have received on the Closing Date an opinion of Baker
& Botts, L.L.P., counsel for the Underwriters, dated the Closing Date and
addressed to you, with respect to the issuance and sale of the Units, the
Registration Statement and the Prospectus (together with any supplement or
amendment thereto) and other related matters as the Underwriters may reasonably
require.
(h) You shall have received a letter addressed to you and dated on
or prior to the date hereof from Weir Intentional Mining Consultants
substantially in the form heretofore approved by you.
(i) You shall have received letters addressed to you, and dated the
date hereof and the Closing Date from Deloitte & Touche LLP, independent public
accountants, substantially in the forms heretofore approved by you.
(j) (i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or taken or, to the knowledge of the
Partnership and the General Partner, shall be threatened by the Commission at or
prior to the Closing Date; (ii) there shall not have been any change in the
capitalization of any of the Alliance Entities, nor any material increase in the
short-term or the long-term debt of any of the Alliance Entities (other than in
the ordinary course of business) from that set forth or contemplated in the
Registration Statement or the Prospectus (or any amendment or supplement
thereto); (iii) there shall not have been, since the respective dates as of
which information is given in the Registration Statement and the Prospectus (or
any amendment or supplement thereto), except as may otherwise be stated in the
Registration Statement and the Prospectus (or any amendment or supplement
thereto), any material adverse change in or affecting the condition (financial
or other), business, prospects, properties, net worth or results of operations
of the Alliance Entities, taken as a whole; (iv) the Alliance Entities shall not
have any liabilities or obligations, direct or contingent (whether or not in the
ordinary course of business), that are material to the Alliance Entities taken
as a whole other than those reflected in the Registration Statement or the
Prospectus (or any
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<PAGE> 39
amendment or supplement thereto); and (v) all the representations and warranties
of the Alliance Parties contained in this Agreement shall be true and correct on
and as of the date hereof and on and as of the Closing Date as if made on and as
of the Closing Date.
(k) The Alliance Parties shall not have failed at or prior to the
Closing Date to have performed or complied in all material respects with any of
their agreements herein contained and required to be performed or complied with
by them hereunder at or prior to the Closing Date.
(l) The NYSE shall have approved the Units for listing, subject only
to official notice of issuance and evidence of satisfactory distribution.
(m) The Alliance Entities shall have furnished or caused to be
furnished to you such further certificates and documents as you shall have
reasonably requested.
(n) Prior to or simultaneously with the sale of the Units on the
Closing Date, the closings under the Note Purchase Agreement and the Bank Credit
Agreement shall have occurred on substantially the terms described in the
Prospectus.
(o) There shall have been furnished to you at the Closing Date a
certificate reasonably satisfactory to you, signed on behalf of the Partnership
by the General Partner by the President or the Executive Vice President and the
Chief Financial Officer thereof to the effect that: (A) the representations and
warranties of each of the Alliance Parties (other than Alliance) contained in
this Agreement are true and correct at and as of the Closing Date as though made
at and as of the Closing Date; (B) each of the Alliance Parties (other than
Alliance) has in all material respects performed all obligations required to be
performed by it pursuant to the terms of this Agreement at or prior to the
Closing Date; (C) no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceeding for that purpose has been instituted
or taken or, to the knowledge of any of the Alliance Parties (other than
Alliance), threatened by the Commission, and all requests for additional
information on the part of the Commission have been complied with or otherwise
satisfied; (D) the Common Units have been duly approved for listing, subject to
official notice of issuance and evidence of a satisfactory distribution, on the
NYSE; and (E) no event contemplated by subsection (j) of this Section 8 in
respect of the Alliance Parties (other than Alliance) shall have occurred.
(p) There shall have been furnished to you at the Closing Date, a
certificate reasonably satisfactory to you, signed on behalf of Alliance by the
President or a Vice President thereof, respectively, to the effect that (A) the
representations and warranties of Alliance contained in this Agreement are true
and correct at and as of the Closing Date as though made at and as of the
Closing Date and (B) Alliance has in all material respects performed all
obligations required to be performed by it pursuant to the terms of this
Agreement at or prior to the Closing Date.
(q) On or prior to the date hereof, the Partnership shall have
furnished to you a letter substantially in the form of Exhibit B hereto from
each officer and each director of the General Partner.
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<PAGE> 40
All such opinions, certificates, letters and other documents referred
to in this Section 8 will be in compliance with the provisions hereof only if
they are reasonably satisfactory in form and substance to you and your counsel.
The Partnership shall furnish to the Underwriters conformed copies of such
opinions, certificates, letters and other documents in such number as they shall
reasonably request.
The several obligations of the Underwriters to purchase Additional
Units hereunder are subject to the satisfaction on and as of any Option Closing
Date of the conditions set forth in this Section 8, except that, if the Option
Closing Date is other than the Closing Date, the certificates, opinions and
letters referred to in paragraphs (c) through (i), (m), (o) and (p) shall be
dated the Option Closing Date in question and the opinions called for by
paragraphs (c), (d), (e) and (g), as applicable, shall be revised to reflect the
sale of Additional Units.
9. Expenses. The Partnership agrees to pay the following costs and
expenses and all other costs and expenses incident to the performance by it of
its obligations hereunder: (i) the preparation, printing or reproduction, and
filing with the Commission of the Registration Statement (including financial
statements and exhibits thereto), each Prepricing Prospectus, the Prospectus,
and each amendment or supplement to any of them; (ii) the printing (or
reproduction) and delivery (including postage, air freight charges and charges
for counting and packaging) of such copies of the Registration Statement, each
Prepricing Prospectus, the Prospectus, and all amendments or supplements to any
of them as may be reasonably requested for use in connection with the offering
and sale of the Units; (iii) the preparation, printing, authentication, issuance
and delivery of certificates for the Units, including any stamp taxes in
connection with the original issuance and sale of the Units; (iv) the printing
(or reproduction) and delivery of this Agreement, the preliminary and
supplemental Blue Sky Memoranda, and all other agreements or documents printed
(or reproduced) and delivered in connection with the offering of the Units; (v)
the registration of the Common Units under the Exchange Act and the listing of
the Common Units on the NYSE; (vi) the registration or qualification of the
Units for offer and sale under the securities or Blue Sky laws of the several
states as provided in Section 5(g) hereof (including the reasonable fees,
expenses and disbursements of counsel for the Underwriters relating to the
preparation, printing or reproduction, and delivery of the preliminary and
supplemental Blue Sky Memoranda and such registration and qualification); (vii)
the filing fees in connection with any filings required to be made with the
National Association of Securities Dealers, Inc.; (viii) the transportation and
other expenses incurred by or on behalf of officers and employees of the
Partnership in connection with presentations to prospective purchasers of the
Units; and (ix) the fees and expenses of the Partnership's accountants and the
fees and expenses of counsel (including local and special counsel) for the
Partnership.
It is understood, however, that except as otherwise provided in this
Section 9 and Section 5(j) hereof, the Underwriters will pay all of their own
costs and expenses, including the fees of their counsel, transfer taxes on any
resale of the Units by any Underwriter, any advertising expenses connected with
any offers they may make and the transportation and other expenses incurred by
the Underwriters on their own behalf in connection with presentations to
prospective purchasers of the Units.
-40-
<PAGE> 41
10. Effective Date of Agreement. This Agreement shall become effective:
(i) upon the execution and delivery hereof by the parties hereto or (ii) if, at
the time this Agreement is executed and delivered, it is necessary for the
Registration Statement or a post-effective amendment thereto to be declared
effective before the offering of the Units may commence, when notification of
the effectiveness of the Registration Statement or such post-effective amendment
has been released by the Commission. Until such time as this Agreement shall
have become effective, it may be terminated by the Partnership by notifying you,
or by you, by notifying the Partnership.
If any one or more of the Underwriters shall fail or refuse to purchase
Units which it or they are obligated to purchase hereunder on the Closing Date,
and the aggregate number of Units which such defaulting Underwriter or
Underwriters are obligated but fail or refuse to purchase is not more than
one-tenth of the aggregate number of the Units which the Underwriters are
obligated to purchase on the Closing Date, each non-defaulting Underwriter shall
be obligated, severally, in the proportion which the number of Firm Units set
forth opposite its name in Schedule I hereto bears to the aggregate number of
Firm Units set forth opposite the names of all non-defaulting Underwriters or in
such other proportion as you may specify in accordance with Section 20 of the
Master Agreement Among Underwriters of Salomon Smith Barney Inc., to purchase
the Units which such defaulting Underwriter or Underwriters are obligated, but
fail or refuse, to purchase. If any one or more of the Underwriters shall fail
or refuse to purchase Units which it or they are obligated to purchase on the
Closing Date and the aggregate number of Units with respect to which such
default occurs is more than one-tenth of the aggregate number of Units which the
Underwriters are obligated to purchase on the Closing Date and arrangements
satisfactory to you and the Partnership for the purchase of such Units by one or
more non-defaulting Underwriters or other party or parties approved by you and
the Partnership are not made within 36 hours after such default, this Agreement
will terminate without liability on the part of any party hereto (other than the
defaulting Underwriter). In any such case which does not result in termination
of this Agreement, either you or the Partnership shall have the right to
postpone the Closing Date, but in no event for longer than seven days, in order
that the required changes, if any, in the Registration Statement and the
Prospectus or any other documents or arrangements may be effected. If any one or
more of the Underwriters shall fail or refuse to purchase Additional Units which
it or they are obligated to purchase hereunder on the Option Closing Date, each
non-defaulting Underwriter shall be obligated, severally, in the proportion
which the number of Firm Units set forth opposite its name in Schedule I hereto
bears to the aggregate number of Firm Units set forth opposite the names of all
non-defaulting Underwriters or in such other proportion as you may specify in
accordance with Section 20 of the Master Agreement Among Underwriters of Salomon
Smith Barney Inc., to purchase the Additional Units which such defaulting
Underwriter or Underwriters are obligated, but fail or refuse, to purchase. Any
action taken under this paragraph shall not relieve any defaulting Underwriter
from liability in respect of any such default of any such Underwriter under this
Agreement. The term "Underwriter" as used in this Agreement includes, for all
purposes of this Agreement, any party not listed in Schedule I hereto who, with
your approval and the approval of the Partnership, purchases Units which a
defaulting Underwriter is obligated, but fails or refuses, to purchase.
Any notice under this Section 10 may be given by telegram, telecopy or
telephone but shall be subsequently confirmed by letter.
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<PAGE> 42
11. Termination of Agreement. This Agreement shall be subject to
termination in your absolute discretion, without liability on the part of any
Underwriter to any Alliance Entity, by notice to the Partnership, if prior to
the Closing Date or any Option Closing Date (if different from the Closing Date
and then only as to the Additional Units), as the case may be, (i) trading in
securities generally on the New York Stock Exchange, the American Stock Exchange
or the Nasdaq National Market shall have been suspended or materially limited,
(ii) a general moratorium on commercial banking activities in New York shall
have been declared by either federal or state authorities, or (iii) there shall
have occurred any outbreak or escalation of hostilities or other international
or domestic calamity, crisis or change in political, financial or economic
conditions, the effect of which on the financial markets of the United States is
such as to make it, in your judgment, impracticable or inadvisable to commence
or continue the offering of the Units at the offering price to the public set
forth on the cover page of the Prospectus or to enforce contracts for the resale
of the Units by the Underwriters. Notice of such termination may be given to the
Partnership by telegram, telecopy or telephone and shall be subsequently
confirmed by letter.
12. Information Furnished by the Underwriters. The statements set forth
in the last paragraph on the cover page, and the statements in the first, third,
ninth, tenth, twelfth and fourteenth paragraphs and the third sentence of the
sixth paragraph under the caption "Underwriting" in any Prepricing Prospectus
and in the Prospectus, constitute the only information furnished by or on behalf
of the Underwriters through you as such information is referred to in Sections
6(a) and 7 hereof.
13. Miscellaneous. Except as otherwise provided in Sections 5, 10 and
11 hereof, notice given pursuant to any provision of this Agreement shall be in
writing and shall be delivered (i) if to any of the Alliance Entities, at the
office of the Partnership at 1717 South Boulder Avenue, P.O. Box 22027, Tulsa,
Oklahoma 74121-2027, Attention: Thomas L. Pearson, or (ii) if to you, care of
Salomon Smith Barney Inc., 388 Greenwich Street, New York, New York 10013,
Attention: Manager, Investment Banking Division.
This Agreement has been and is made solely for the benefit of the
several Underwriters, the Alliance Parties, their directors and officers, and
the other controlling persons referred to in Section 7 hereof and their
respective successors and assigns, to the extent provided herein, and no other
person shall acquire or have any right under or by virtue of this Agreement.
Neither the term "successor" nor the term "successors and assigns" as used in
this Agreement shall include a purchaser from any Underwriter of any of the
Units in his status as such purchaser.
14. Applicable Law; Counterparts. 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 within the State of New York.
This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
-42-
<PAGE> 43
Please confirm that the foregoing correctly sets forth the agreement
among the Alliance Parties and the Underwriters.
Very truly yours,
Alliance Resource Partners, L.P.
By: Alliance Resource GP, LLC
its General Partner
By:
----------------------------------
Name:
Title:
Alliance Operating Partners, L.P.
By:
----------------------------------
Name:
Title:
MAPCO Coal, LLC
By:
----------------------------------
Name:
Title:
MC Mining, LLC
By:
----------------------------------
Name:
Title:
Alliance Resource GP, LLC
By: Alliance Coal Corporation
its Sole Member
By:
----------------------------------
Name:
Title:
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<PAGE> 44
Alliance Coal Corporation
By:
----------------------------------
Name:
Title:
Confirmed as of the date first
above mentioned on behalf of
the Underwriters named in Schedule I
hereto.
SALOMON SMITH BARNEY INC.
MORGAN STANLEY & CO. INCORPORATED
A.G. EDWARDS & SONS, INC.
LEHMAN BROTHERS INC.
By: SALOMON SMITH BARNEY INC.
By:
-------------------------------
Managing Director
-44-
<PAGE> 45
SCHEDULE I
Alliance Resource Partners, L.P.
<TABLE>
<CAPTION>
Number of Firm Units
Underwriter to be Purchased
----------- --------------------
<S> <C>
Salomon Smith Barney Inc. .................................
Morgan Stanley & Co. Incorporated...........................
A. G. Edwards & Sons, Inc...................................
Lehman Brothers Inc.........................................
-----------
Total [9,123,311]
=========
</TABLE>
<PAGE> 46
EXHIBIT A
<TABLE>
<CAPTION>
Entity Jurisdiction in which registered or qualified
------ ---------------------------------------------
<S> <C>
Alliance Resource Partners, L.P. Oklahoma
MAPCO Coal, LLC Indiana, Illinois, Kentucky, Maryland, West Virginia
MC Mining, LLC Kentucky
Alliance Resources GP, LLC Indiana, Illinois, Kentucky, Maryland, West Virginia,
Oklahoma
Alliance Operating Partners, LP Indiana, Illinois, Kentucky, Maryland, West Virginia,
Oklahoma
Alliance Coal Corporation Indiana, Illinois, Kentucky, Maryland, West Virginia,
Oklahoma
Hopkins County Coal LLC Kentucky
Excel Mining LLC Kentucky
Gibson County Coal LLC Kentucky
Pontiki Coal LLC Kentucky
MAPCO Land & Development LLC Indiana, Illinois, Kentucky, Maryland, West Virginia
Backbone Mountain LLC Maryland, West Virginia
White County Coal LLC Illinois
Mt. Vernon Transfer Terminal LLC Indiana
Webster County Coal LLC Kentucky
Mettiki Coal LLC Maryland, West Virginia
Mettiki Coal (West Virginia) LLC Maryland, West Virginia
MLDC LLC Indiana, Illinois, Kentucky, Maryland, West Virginia
</TABLE>
-1-
<PAGE> 47
EXHIBIT B
[Letterhead of officer, director or holder of Common Units or
Subordinated Units]
Alliance Resource Partners, L.P.
Public Offering of Common Units
-------------------------------
Salomon Smith Barney Inc.
Morgan Stanley & Co. Incorporated
A. G. Edwards & Sons, Inc.
Lehman Brothers, Inc.
c/o Salomon Smith Barney, Inc.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
This letter is being delivered to you in connection with the proposed
Underwriting Agreement (the "Underwriting Agreement") among Alliance Resource
Partners, L.P., a Delaware limited partnership (the "Partnership"), Alliance
Operating Partnership, L.P., MAPCO Coal, LLC, MC Mining, LLC, Alliance Resource
GP, LLC, Alliance Coal Corporation, Salomon Smith Barney Inc., Morgan Stanley &
Co. Incorporated, A. G. Edwards & Sons, Inc. and Lehman Brothers Inc., relating
to an underwritten public offering of common units representing limited partner
interests (the "Common Units") of the Partnership.
To induce you to enter into the Underwriting Agreement, the undersigned
agrees that it will not, for a period of 180 days after the date of the
Prospectus (as defined in the Underwriting Agreement) without the prior written
consent of Salomon Smith Barney Inc., dispose of or hedge any Common Units or
Subordinated Units (as defined in the Underwriting Agreement), 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 Common Units, or grant any options or warrants to purchase Common
Units or Subordinated Units, other than the grant of Unit Options (as defined in
the Underwriting Agreement) or Restricted Units (as defined in the Underwriting
Agreement) pursuant to the Alliance Resource GP, LLC 1999 Long-Term Incentive
Plan and other than the redemption of Subordinated Units upon exercise of the
underwriters' over-allotment option.
-1-
<PAGE> 48
If for any reason the Underwriting Agreement is terminated before the
Closing Date (as defined in the Underwriting Agreement), the agreement set forth
above shall likewise be terminated.
Yours very truly,
[Signature of officer, director or common Unitholder]
[Name and address of officer, director or common
Unitholder]
-2-
<PAGE> 1
EXHIBIT 5.1
June 29, 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, 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 10,648,816 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.
June , 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,
<PAGE> 1
EXHIBIT 8.1
June 29, 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 9,259,840 common
units (10,648,816 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,
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 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 financial statements of Alliance Resource Partners, L.P.
and Alliance Resource 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
June 28, 1999
<PAGE> 1
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-78845 of Alliance Resource Management GP, LLC, on Form S-1 of our report
dated June __, 1999, relating to the balance sheet of Alliance Resource
Management GP, LLC, which expresses an unqualified opinion appearing in the
Prospectus, which is part of such Registration statement, and the reference to
us under the heading "Experts" in such Prospectus.
Deloitte & Touche LLP
Tulsa, Oklahoma
June __, 1999
The above Independent Auditors' Consent for Alliance Resource Management GP,
LLC, is in the form which will be signed by Deloitte & Touche LLP upon
completion of the organization and capitalization of this entity assuming that
no material events have occurred which would affect the balance sheet and
related footnote.
Deloitte & Touche LLP
Tulsa, Oklahoma
June 29, 1999
