As filed with
the Securities and Exchange Commission on June 8,
2010
Registration
No. 333-165662
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
AMENDMENT NO. 3
to
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF
1933
Oxford Resource Partners,
LP
(Exact Name of Registrant as
Specified in Its Charter)
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Delaware
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1221
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77-10695453
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(State or Other Jurisdiction
of
Incorporation or Organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer Identification
Number)
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41 South High Street,
Suite 3450
Columbus, OH 43215
Phone:
(614) 643-0314
(Address, Including Zip Code,
and Telephone Number,
Including Area Code, of
Registrants Principal Executive Offices)
Jeffrey M. Gutman
Senior Vice President,
Chief Financial Officer and
Treasurer
41 South High Street,
Suite 3450
Columbus, OH 43215
Phone:
(614) 643-0314
(Name, Address, Including Zip
Code, and Telephone Number,
Including Area Code, of Agent
for Service)
Copies to:
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William N. Finnegan IV
Brett E. Braden
Latham & Watkins LLP
717 Texas Avenue, Suite 1600
Houston, Texas 77002
(713)
546-5400
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G. Michael OLeary
William J. Cooper
Andrews Kurth LLP
600 Travis, Suite 4200
Houston, Texas 77002
(713) 220-4200
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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, check the
following
box.
o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) 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.
o
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.
o
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.
o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated
filer
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Accelerated
filer
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Non-accelerated
filer
þ
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Smaller reporting
company
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(Do not check if a smaller
reporting company)
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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 Securities
and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
The
information in this preliminary 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 preliminary 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.
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Subject to Completion, dated June 8, 2010
PROSPECTUS
Oxford
Resource Partners, LP
8,750,000 Common Units
Representing Limited Partner Interests
This is the initial
public offering of our common units. We are offering 8,750,000
common units in this offering. No public market currently exists
for our common units.
We have applied to
list our common units on the New York Stock Exchange under the
symbol OXF.
We anticipate the
initial public offering price to be between $19.00 and $21.00
per common unit.
Investing in our
common units involves risks. See Risk Factors
beginning on page 23 of this prospectus.
These risks include
the following:
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We may not have
sufficient cash to enable us to pay the minimum quarterly
distribution on our common units following the establishment of
cash reserves by our general partner and the payment of costs
and expenses, including reimbursement of expenses to our general
partner.
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For the year ended
December 31, 2009 and the twelve months ended
March 31, 2010, we would not have generated sufficient
available cash from operating surplus to pay the full minimum
quarterly distribution on our common units or any distributions
on our subordinated units during those periods.
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Our general partner
and its affiliates have conflicts of interest with us, and their
limited fiduciary duties to our unitholders may permit them to
favor their own interests to the detriment of our unitholders.
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Decreases in demand
for electricity and changes in coal consumption patterns of
U.S. electric power generators could adversely affect our
business.
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New regulatory
requirements limiting greenhouse gas emissions could adversely
affect coal-fired power generation and reduce the demand for
coal as a fuel source, which could cause the price and quantity
of the coal we sell to decline materially.
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Existing and future
regulatory requirements relating to sulfur dioxide and other air
emissions could affect our customers and could reduce the demand
for the high-sulfur coal we produce and cause coal prices and
sales of our high-sulfur coal to decline materially.
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Competition within
the coal industry may materially and adversely affect our
ability to sell coal at an acceptable price.
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We depend on a
limited number of customers for a significant portion of our
revenues, and the loss of, or significant reduction in,
purchases by any of them could adversely affect our results of
operations and cash available for distribution to our
unitholders.
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Our inability to
acquire additional coal reserves that are economically
recoverable may have a material adverse effect on our future
profitability.
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Our unitholders have
limited voting rights and are not entitled to elect our general
partner or its directors or initially to remove our general
partner without its consent.
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Our
unitholders share of our income will be taxable to them
for U.S. federal income tax purposes even if they do not
receive any cash distributions from us.
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Per Common
Unit
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Total
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Public Offering Price
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$
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$
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Underwriting
Discount
(1)
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$
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$
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Proceeds to us (before expenses)
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$
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$
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(1)
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Excludes
a structuring fee equal to an aggregate of 0.5% of the gross
proceeds from this offering payable to Barclays Capital Inc. and
Citigroup Global Markets Inc.
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We have granted the
underwriters a
30-day
option to purchase up to an additional 1,312,500 common units on
the same terms and conditions set forth above if the
underwriters sell more than 8,750,000 common units in this
offering.
Neither the
Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or
passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
Barclays Capital, on
behalf of the underwriters, expects to deliver the common units
on or
about ,
2010.
Prospectus
dated ,
2010
TABLE OF
CONTENTS
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vi
You should rely only on the information contained in this
prospectus, any free writing prospectus prepared by or on behalf
of us or any other information to which we have referred you in
connection with this offering. We have not, and the underwriters
have not, authorized any other person to provide you with
information different from that contained in this prospectus.
Neither the delivery of this prospectus nor the sale of common
units means that information contained in this prospectus is
correct after the date of this prospectus. This prospectus is
not an offer to sell or the solicitation of an offer to buy the
common units in any circumstances under which the offer or
solicitation is unlawful.
vii
SUMMARY
This summary highlights information contained elsewhere in
this prospectus. You should read the entire prospectus
carefully, including the historical and pro forma consolidated
financial statements and the notes to those financial
statements, before purchasing our common units. The information
presented in this prospectus assumes that the underwriters
option to purchase additional common units is not exercised
unless otherwise noted. You should read Risk Factors
beginning on page 23 for information about important risks
that you should consider before purchasing our common units.
Market and industry data and certain other statistical data
used throughout this prospectus are based on independent
industry publications, government publications and other
published independent sources. In this prospectus, we refer to
information regarding the coal industry in the United States and
internationally that was obtained from the U.S. Department
of Energys Energy Information Administration, or the EIA,
John T. Boyd Company and the U.S. Mine Safety and Health
Administration, or MSHA. These organizations are not affiliated
with us.
References in this prospectus to Oxford Resource
Partners, LP, we, our,
us or like terms refer to Oxford Resource Partners,
LP and its subsidiaries, including our wholly owned subsidiary,
Oxford Mining Company, LLC, which is also our accounting
predecessor. References to Oxford Resources GP or
our general partner refer to Oxford Resources GP,
LLC. We have included a glossary of some of the terms used in
this prospectus as
Appendix B
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Oxford
Resource Partners, LP
We are a low cost producer of high value steam coal, and we are
the largest producer of surface mined coal in Ohio. We focus on
acquiring steam coal reserves that we can efficiently mine with
our modern, large scale equipment. Our reserves and operations
are strategically located in Northern Appalachia and the
Illinois Basin to serve our primary market area of Illinois,
Indiana, Kentucky, Ohio, Pennsylvania and West Virginia. We
market our coal primarily to large utilities with coal-fired,
base-load scrubbed power plants under long-term coal sales
contracts. We believe that we will experience increased demand
for our high-sulfur coal from power plants that have or will
install scrubbers. Currently, there is over 54,500 megawatts of
scrubbed base-load electric generating capacity in our primary
market area and plans have been announced to add over 18,400
megawatts of additional scrubbed capacity by the end of 2017. We
also believe that we will experience increased demand for our
coal from power plants that use coal from Central Appalachia as
production in that region continues to decline.
We currently have 18 active surface mines that are managed as
eight mining complexes. During the first quarter of 2010, our
largest mine represented 12.6% of our coal production. This
diversity reduces the risk that operational issues at any one
mine will have a material impact on our business or our results
of operations. Consistent coal quality across many of our mines
and the mobility of our equipment fleet allows us to reliably
serve our customers from multiple mining complexes while
optimizing our mining plan. Our operations also include two
river terminals, strategically located in eastern Ohio and
western Kentucky, that further enhance our ability to supply
coal to our customers with river access from multiple mines.
During 2009 and the first quarter of 2010, we produced
5.8 million tons and 1.8 million tons of coal,
respectively. During each of the last two quarters, we produced
0.4 million tons from the reserves we acquired in western
Kentucky from Phoenix Coal on September 30, 2009. Based on
our coal production for the first quarter of 2010, our
annualized coal production for 2010 would be 7.2 million
tons. During 2009 and the first quarter of 2010, we sold
6.3 million tons and 2.0 million tons of coal,
respectively, including 0.5 million tons and
0.3 million tons of purchased coal, respectively. We
currently have long-term coal sales contracts in place for 2010,
2011, 2012 and 2013 that represent 97.6%, 101.5%, 71.3% and
40.9%, respectively, of our 2010 estimated coal sales of
8.2 million tons. Members of our senior management team
have long-standing relationships within our industry, and we
believe those relationships will allow us to continue to obtain
long-term contracts for our coal production that will continue
to provide us with a reliable and stable revenue base.
1
As of December 31, 2009, we controlled 91.6 million
tons of proven and probable coal reserves, of which
68.6 million tons were associated with our surface mining
operations and the remaining 23.0 million tons consisted of
underground coal reserves that we have subleased to a third
party in exchange for an overriding royalty. Historically, we
have been successful at replacing the reserves depleted by our
annual production and growing our reserve base by acquiring
reserves with low operational, geologic and regulatory risks and
that were located near our mining operations or that otherwise
had the potential to serve our primary market area. Over the
last five years, we have produced 23.6 million tons of coal
and acquired 52.9 million tons of proven and probable coal
reserves, including 24.6 million tons of coal reserves that
we acquired in connection with the Phoenix Coal acquisition. We
believe that our existing relationships with owners of large
reserve blocks and our position as the largest producer of
surface mined coal in Ohio will allow us to continue to acquire
reserves in the future.
For the year ended December 31, 2009 and the first quarter
of 2010, we generated revenues of approximately
$293.8 million and $88.1 million, respectively, net
income (loss) attributable to our unitholders of approximately
$23.5 million and $(0.3) million, respectively, and
Adjusted EBITDA of approximately $50.8 million and
$10.0 million, respectively. Please read Selected
Historical and Pro Forma Consolidated Financial and Operating
Data for our definition of Adjusted EBITDA and a
reconciliation of Adjusted EBITDA to net income (loss)
attributable to our unitholders. The following table summarizes
our mining complexes, our coal production for the year ended
December 31, 2009 and the first quarter of 2010 and our
coal reserves as of December 31, 2009:
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As of December 31, 2009
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Production for
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Production for
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Total
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the Year Ended
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the Quarter
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Proven &
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Average
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Average
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Primary
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December 31,
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Ended
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Proven
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Probable
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Heat
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Sulfur
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Transportation
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Mining Complexes
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2009
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March 31, 2010
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Reserves
(1)
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Reserves
(1)
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Reserves
(1)
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Value
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Content
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Methods
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(in million tons)
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(Btu/lb)
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(%)
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Surface Mining Operations:
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Northern Appalachia (principally Ohio)
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Cadiz
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1.1
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0.3
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12.4
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12.2
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0.2
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11,520
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3.3
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Barge, Rail
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Tuscarawas County
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0.9
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0.3
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8.8
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8.8
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0.0
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11,570
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3.7
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Truck
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Belmont County
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1.3
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0.3
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6.6
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6.3
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0.3
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11,510
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3.7
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Barge
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Plainfield
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0.5
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0.1
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6.4
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6.4
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0.0
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11,350
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4.4
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Truck
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New Lexington
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0.6
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0.1
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4.9
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4.0
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0.9
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11,260
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4.0
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Rail
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Harrison
(2)
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0.7
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0.2
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2.8
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2.8
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0.0
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12,040
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1.8
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Barge, Rail, Truck
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Noble County
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0.3
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0.1
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2.5
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2.4
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0.1
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11,230
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4.7
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Barge, Truck
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Illinois Basin (Kentucky)
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Muhlenberg County
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0.4
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(3)
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0.4
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24.2
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23.5
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0.7
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11,295
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3.6
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Barge, Truck
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Total Surface Mining Operations
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5.8
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1.8
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68.6
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66.4
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2.2
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Underground Coal Reserves:
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Northern Appalachia (Ohio)
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Tusky
(4)
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23.0
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18.6
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4.4
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12,900
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2.1
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Total Underground Coal Reserves
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23.0
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18.6
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4.4
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Total
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91.6
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85.0
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6.6
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(1)
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Reported as recoverable coal reserves, which is the portion of
the coal that could be economically and legally extracted or
produced at the time of the reserve determination, taking into
account mining recovery and preparation plant yield. For
definitions of proven coal reserves, probable coal reserves and
recoverable coal reserves, please read
Business Coal Reserves.
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(2)
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The Harrison mining complex is owned by Harrison Resources, LLC,
our joint venture with CONSOL Energy, Inc. We own 51% of
Harrison Resources and CONSOL Energy owns the remaining 49%
through one of its subsidiaries. Because the results of
operations of Harrison Resources are included in our
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2
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consolidated financial statements for the year ended
December 31, 2009 and the first quarter of 2010 as required
by U.S. generally accepted accounting principles, or GAAP, coal
production and proven and probable coal reserves attributable to
the Harrison mining complex are presented on a gross basis
assuming we owned 100% of Harrison Resources. Please read
Business Mining Operations
Northern Appalachia Harrison Mining Complex.
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(3)
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Acquired from Phoenix Coal on September 30, 2009. As a
result, production data for 2009 represents production from the
date of acquisition through December 31, 2009.
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(4)
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Please read Business Coal Reserves
Underground Coal Reserves for more information about our
underground coal reserves at the Tusky mining complex, which we
have subleased to a third party mining company in exchange for
an overriding royalty. We received royalty payments on
0.6 million tons and 0.1 million tons of coal produced
from the Tusky mining complex during 2009 and the first quarter
of 2010, respectively.
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Business
Strategies
Our primary business objective is to maintain and, over time,
increase our cash available for distribution by executing the
following strategies:
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Increasing coal sales to large utilities with coal-fired,
base-load scrubbed power plants in our primary market
area.
In 2009, approximately 69% of the total
electricity generated in our primary market area was generated
by coal-fired power plants, compared to approximately 38% for
the rest of the United States. We intend to continue to focus on
marketing coal to large utilities with coal-fired, base-load
scrubbed power plants in our primary market area of Illinois,
Indiana, Kentucky, Ohio, Pennsylvania and West Virginia.
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Maximizing profitability by maintaining highly efficient,
diverse and low cost surface mining
operations.
We intend to focus on lowering costs
and improving the productivity of our operations. We believe our
focus on efficient surface mining practices results in our cash
costs being among the lowest of our peers in Northern
Appalachia, which we believe will allow us to compete
effectively, especially during periods of declining coal prices.
We are in the process of implementing the same mining practices
that we currently use in Ohio at the mines that we recently
acquired as a part of the Phoenix Coal acquisition.
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Generating stable revenue by entering into long-term coal
sales contracts.
We intend to continue to enter
into long-term coal sales contracts for substantially all of our
annual coal production, which will reduce our exposure to
fluctuations in market prices.
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Continuing to grow our reserve base and production
capacity.
We intend to continue to grow our
reserve base by acquiring reserves with low operational,
geologic and regulatory risks that we can mine economically and
that are located near our mining operations or otherwise have
the potential to serve our primary market area. We intend to
continue to grow our production capacity by expanding our fleet
of large scale equipment and opening new mines as our sales
commitments increase over time. Please read Cash
Distribution Policy and Restrictions on
Distributions General Our Ability to
Grow is Dependent on Our Ability to Access External Expansion
Capital for additional details on how we intend to grow
our reserve base and production capacity and the limitations we
face in implementing this strategy.
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Competitive
Strengths
We believe the following competitive strengths will enable us to
execute our business strategies successfully:
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We have an attractive portfolio of long-term coal sales
contracts.
We believe our long-term coal sales
contracts provide us with a reliable and stable revenue base. We
currently have long-term coal
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3
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sales contracts in place for 2010, 2011, 2012 and 2013 that
represent 97.6%, 101.5%, 71.3% and 40.9%, respectively, of our
2010 estimated coal sales of 8.2 million tons.
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We have a successful history of growing our reserve base and
production capacity.
Historically, we have been
successful at replacing the reserves depleted by our annual
production and growing our reserve base by acquiring reserves
with low operational, geologic and regulatory risks and that are
located near our mining operations or that otherwise have the
potential to serve our primary market area. We have also been
successful in growing our production capacity by expanding our
fleet of large scale equipment and opening new mines to meet our
sales commitments. Over the last five years, we have produced
23.6 million tons of coal and acquired 52.9 million
tons of proven and probable coal reserves, including
24.6 million tons of coal reserves that we acquired in
connection with the Phoenix Coal acquisition.
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Our mining operations are flexible and
diverse.
During the first quarter of 2010, our
largest mine represented 12.6% of our coal production. We
currently have 18 active surface mines that are managed as eight
mining complexes. Consistent coal quality across many of our
mines and the mobility of our equipment fleet allows us to
reliably serve our customers from multiple mining complexes
while optimizing our mining plan.
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We are a low cost producer of coal.
We use
efficient mining practices that take advantage of economies of
scale and reduce our operating costs per ton. Our use of large
scale equipment, our good labor relations with our non-union
workforce, the expertise of our general partners employees
and their knowledge of our mining practices, our low level of
legacy liabilities and our history of acquiring reserves without
large up-front capital investments have positioned us as one of
the lowest cash cost coal producers in Northern Appalachia.
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Both production of, and demand for, the coal we produce are
expected to increase in our primary market
area.
According to the EIA, production of coal in
Northern Appalachia and the Illinois Basin is expected to
increase by 29.2% and 33.1%, respectively, through 2015. This
expected increase is attributable to anticipated increases in
demand for high-sulfur coal from scrubbed power plants and from
consumers of Central Appalachia coal as production in that
region continues to decline.
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Our general partners senior management team and key
operational employees have extensive industry
experience.
The members of our general
partners senior management team have, on average,
24 years of experience in the coal industry and have a
track record of acquiring, building and operating businesses
profitably and safely.
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We have a strong safety and environmental
record.
We operate some of the industrys
safest mines. From 2006 through 2009, our MSHA reportable
incident rate was on average 14.4% lower than the rate for all
surface coal mines in the United States. We have won numerous
awards for our strong safety and environmental record.
|
Recent
Coal Market Conditions and Trends
Coal consumption and production in the United States have been
driven in recent periods by several market dynamics and trends.
The recent global economic downturn has negatively impacted coal
demand in the short-term, but long-term projections for coal
demand remain positive.
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Favorable long-term outlook for U.S. steam coal
market.
Although domestic coal consumption
declined in 2009 due to the global economic downturn, the EIA
forecasts that domestic coal consumption will increase by 14.4%
through 2015 and by 32.2% through 2035, primarily due to the
projected continued growth in coal-fired electric power
generation demand.
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Increase in coal production in Northern Appalachia and in the
Illinois Basin.
According to the EIA, coal
production in Northern Appalachia and the Illinois Basin is
expected to grow by 29.2% and 33.1%, respectively, through 2015
and by 35.7% and 42.8%, respectively, through 2035.
|
4
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Decline in coal production in Central
Appalachia.
The EIA forecasts that coal
production in Central Appalachia, the nations second
largest coal production area, will decline by 34.5% through 2015
and by 54.1% through 2035. This decline will be offset by
production from other U.S. regions, including Northern
Appalachia and the Illinois Basin.
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Expected near-term increases in international demand for
U.S. coal exports.
Although down from the
previous year, U.S. exports began to increase in the second
half of 2009, supported by recovering global economies and
continued rapid growth in electric power generation and steel
production capacity in Asia, particularly in China and India.
Also, increased international demand for higher priced
metallurgical coal has resulted in certain coal from Central
Appalachia and Northern Appalachia, which can serve as either
metallurgical or steam coal, being drawn into the metallurgical
coal export market, which further reduces supplies of steam coal
from this region for domestic consumption.
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Development of new coal-related technologies will lead to
increased demand for coal.
The EIA projects that
new
coal-to-liquids
plants will account for 32 million tons of annual coal
demand in ten years and that amount will more than double to
68 million tons by 2035. In addition, through the American
Recovery and Reinstatement Act, or ARRA, the
U.S. government has targeted over $1.5 billion to
carbon capture and sequestration, or CCS, research and another
$800 million for the Clean Coal Power Initiative, a
ten-year program supporting commercial application of CCS
technology.
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Increasingly stringent air quality legislation will continue
to impact the demand for coal.
A series of more
stringent requirements related to particulate matter, ozone,
mercury, sulfur dioxide, nitrogen oxide, carbon dioxide and
other air emissions have been proposed or enacted by federal or
state regulatory authorities in recent years. Considerable
uncertainty is associated with these air quality regulations,
some of which have been the subject of legal challenges in
courts, and the actual timing of implementation remains
uncertain.
|
Our
History
We are a Delaware limited partnership that was formed in August
2007 by American Infrastructure MLP Fund, L.P. and our founders,
Charles C. Ungurean, the President and Chief Executive Officer
of our general partner and a member of the board of directors of
our general partner, and Thomas T. Ungurean, the Senior Vice
President, Equipment, Procurement and Maintenance of our general
partner. Each of our two founders has over 37 years of
experience in the coal mining industry. In connection with our
formation, our founders contributed all of their interests in
Oxford Mining Company to us.
Our founders formed Oxford Mining Company in 1985 to provide
contract mining services to a mining division of a major oil
company. In 1989, our founders transitioned Oxford Mining
Company from a contract miner into a producer of its own coal
reserves. In January 2007, Oxford Mining Company entered into a
joint venture, Harrison Resources, with a subsidiary of CONSOL
Energy to mine surface coal reserves purchased from CONSOL
Energy.
In September 2009, we completed the acquisition of Phoenix
Coals active surface mining operations. The Phoenix Coal
acquisition provided us with an entry into the Illinois Basin in
western Kentucky and included one mining complex comprised of
four mines as well as the Island river terminal on the Green
River in western Kentucky. In connection with this acquisition,
we increased our total proven and probable coal reserves by
24.6 million tons.
Our
Sponsors
American Infrastructure MLP Fund, L.P., together with its
subsidiaries and affiliates, or AIM, is a private investment
firm specializing in natural resources, infrastructure and real
property. AIM, along with certain of the funds that AIM advises,
indirectly owns all of the ownership interests in AIM Oxford
Holdings, LLC, or
5
AIM Oxford. Brian D. Barlow, Matthew P. Carbone and George E.
McCown serve on the board of directors of our general partner
and are principals of AIM and have ownership interests in AIM.
After completion of this offering, AIM Oxford will continue to
hold 66.3% of the ownership interests in our general partner and
will hold 9.0% of our common units and 66.3% of our subordinated
units (36.9% of our total units).
C&T Coal, Inc., or C&T Coal, is owned by our founders,
Charles C. Ungurean and Thomas T. Ungurean. After completion of
this offering, C&T Coal will continue to hold 33.7% of the
ownership interests in our general partner and will hold 4.6% of
our common units and 33.7% of our subordinated units (18.8% of
our total units).
In connection with the contribution of Oxford Mining Company to
us in August 2007, C&T Coal, Charles C. Ungurean and Thomas
T. Ungurean agreed that they would not compete with us in the
coal mining business in Illinois, Kentucky, Ohio, Pennsylvania,
West Virginia and Virginia. This non-compete agreement is in
effect until August 24, 2014.
Summary
of Risk Factors
An investment in our common units involves risks associated with
our business, our partnership structure and the tax
characteristics of our common units. The following is a summary
of our risk factors. Please read Risk Factors
beginning on page 23 carefully for a more thorough
description of these risks.
Risks
Related to Our Business
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We may not have sufficient cash to enable us to pay the minimum
quarterly distribution on our common units following the
establishment of cash reserves by our general partner and the
payment of costs and expenses, including reimbursement of
expenses to our general partner.
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For the year ended December 31, 2009 and the twelve months
ended March 31, 2010, we would not have generated
sufficient available cash from operating surplus to pay the full
minimum quarterly distribution on our common units or any
distributions on our subordinated units during those periods.
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The assumptions underlying the forecast of cash available for
distribution that we include in Cash Distribution Policy
and Restrictions on Distributions are inherently uncertain
and subject to significant risks that could cause actual results
to differ materially from those forecasted.
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Decreases in demand for electricity and changes in coal
consumption patterns of U.S. electric power generators
could adversely affect our business.
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Our long-term coal sales contracts subject us to renewal risks.
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Our inability to acquire additional coal reserves that are
economically recoverable may have a material adverse effect on
our future profitability.
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Competition within the coal industry may materially and
adversely affect our ability to sell coal at an acceptable price.
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We depend on a limited number of customers for a significant
portion of our revenues, and the loss of, or significant
reduction in, purchases by any of them could adversely affect
our results of operations and cash available for distribution to
our unitholders.
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New regulatory requirements limiting greenhouse gas emissions
could adversely affect coal-fired power generation and reduce
the demand for coal as a fuel source, which could cause the
price and quantity of the coal we sell to decline materially.
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Existing and future regulatory requirements relating to sulfur
dioxide and other air emissions could affect our customers and
could reduce the demand for the high-sulfur coal we produce and
cause coal prices and sales of our high-sulfur coal to decline
materially.
|
6
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Our coal mining operations are subject to operating risks, which
could result in materially increased operating expenses and
decreased production levels and could have a material adverse
effect on our business, financial condition or results of
operations.
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In the future, we may not receive cash distributions from
Harrison Resources, and Harrison Resources may not be able to
acquire additional reserves on economical terms from CONSOL
Energy.
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A significant portion of the cash available for distribution to
our unitholders is derived from royalty payments we receive on
our underground coal reserves, which we do not operate.
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Increases in the cost of diesel fuel and explosives, or the
inability to obtain a sufficient quantity of those supplies,
could increase our operating expenses, disrupt or delay our
production and have a material adverse effect on our
profitability.
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Extensive environmental laws and regulations impose significant
costs on our mining operations, and future laws and regulations
could materially increase those costs or limit our ability to
produce and sell coal.
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We may be unable to obtain, maintain or renew permits necessary
for our operations, which would materially reduce our
production, cash flows and profitability.
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If the assumptions underlying our reclamation and mine closure
obligations are materially inaccurate, our costs could be
significantly greater than anticipated.
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Debt we incur in the future may limit our flexibility to obtain
financing and to pursue other business opportunities.
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Restrictions in our new credit facility could adversely affect
our business, financial condition, results of operations,
ability to make distributions to unitholders and value of our
common units.
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Our operations may impact the environment or cause environmental
contamination, which could result in material liabilities to us.
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Our ability to operate our business effectively could be
impaired if we fail to attract and retain key management
personnel.
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A shortage of skilled labor in the mining industry could reduce
labor productivity and increase costs, which could have a
material adverse effect on our business and results of
operations.
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Our work force could become unionized in the future, which could
adversely affect the stability of our production and materially
reduce our profitability.
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Inaccuracies in our estimates of our coal reserves could result
in lower than expected revenues or higher than expected costs.
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Our ability to collect payments from our customers could be
impaired if their creditworthiness deteriorates.
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Failure to obtain, maintain or renew our security arrangements,
such as surety bonds or letters of credit, in a timely manner
and on acceptable terms could have an adverse effect on our cash
available for distribution to our unitholders.
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The amount of estimated reserve replacement expenditures our
general partner is required to deduct from operating surplus
each quarter is based on our current estimates and could
increase in the future, resulting in a decrease in available
cash from operating surplus that could be distributed to our
unitholders.
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Our management team does not have experience managing our
business as a stand-alone publicly traded partnership, and if
they are unable to manage our business as a publicly traded
partnership our business may be affected.
|
7
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We will be required by Section 404 of the Sarbanes-Oxley
Act to evaluate the effectiveness of our internal controls. If
we are unable to establish and maintain effective internal
controls, our financial condition and operating results could be
adversely affected.
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Terrorist attacks and threats, escalation of military activity
in response to these attacks or acts of war could have a
material adverse effect on our business, financial condition or
results of operations.
|
Risks
Inherent in an Investment in Us
|
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Our partnership agreement limits our general partners
fiduciary duties to our unitholders and restricts the remedies
available to our unitholders for actions taken by our general
partner that might otherwise constitute breaches of fiduciary
duty.
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Our general partner and its affiliates have conflicts of
interest with us, and their limited fiduciary duties to our
unitholders may permit them to favor their own interests to the
detriment of our unitholders.
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Our unitholders have limited voting rights and are not entitled
to elect our general partner or its directors or initially to
remove our general partner without its consent.
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Our unitholders will experience immediate and substantial
dilution of $14.39 per common unit.
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The control of our general partner may be transferred to a third
party without unitholder consent.
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The incentive distribution rights of our general partner may be
transferred to a third party without unitholder consent.
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Our general partner has a limited call right that may require
our unitholders to sell their common units at an undesirable
time or price.
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We may issue additional units without unitholder approval, which
would dilute unitholder interests.
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Our general partner may, without unitholder approval, elect to
cause us to issue common units and general partner units to it
in connection with a resetting of the target distribution levels
related to its incentive distribution rights. This could result
in lower distributions to holders of our common units.
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Cost reimbursements due to our general partner and its
affiliates will reduce cash available for distribution to our
unitholders.
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There is no existing market for our common units, and a trading
market that will provide you with adequate liquidity may not
develop. The price of our common units may fluctuate
significantly, and our unitholders could lose all or part of
their investment.
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We will incur increased costs as a result of being a publicly
traded partnership.
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Our unitholders who fail to furnish certain information
requested by our general partner or who our general partner,
upon receipt of such information, determines are not eligible
citizens will not be entitled to receive distributions or
allocations of income or loss on their common units and their
common units will be subject to redemption.
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Our unitholders may have liability to repay distributions.
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Tax
Risks
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Our tax treatment depends on our status as a partnership for
federal income tax purposes. If the IRS were to treat us as a
corporation for federal income tax purposes, which would subject
us to entity-level taxation, then our cash available for
distribution to our unitholders would be substantially reduced.
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If we were subjected to a material amount of additional
entity-level taxation by individual states, it would reduce our
cash available for distribution to our unitholders.
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8
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The tax treatment of publicly traded partnerships or an
investment in our common units could be subject to potential
legislative, judicial or administrative changes and differing
interpretations, possibly on a retroactive basis.
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Certain federal income tax preferences currently available with
respect to coal exploration and development may be eliminated in
future legislation.
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Our unitholders share of our income will be taxable to
them for U.S. federal income tax purposes even if they do
not receive any cash distributions from us.
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If the IRS contests the federal income tax positions we take,
the market for our common units may be adversely impacted and
the cost of any IRS contest will reduce our cash available for
distribution to our unitholders.
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Tax gain or loss on the disposition of our common units could be
more or less than expected.
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Tax-exempt entities and
non-U.S. persons
face unique tax issues from owning our common units that may
result in adverse tax consequences to them.
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We will treat each purchaser of our common units as having the
same tax benefits without regard to the actual common units
purchased. The IRS may challenge this treatment, which could
adversely affect the value of our common units.
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We prorate our items of income, gain, loss and deduction for
U.S. federal income tax purposes between transferors and
transferees of our units each month based upon the ownership of
our units on the first day of each month, instead of on the
basis of the date a particular unit is transferred. The IRS may
challenge this treatment, which could change the allocation of
items of income, gain, loss and deduction among our unitholders.
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A unitholder whose common units are loaned to a short
seller to cover a short sale of common units may be
considered as having disposed of those common units. If so, such
unitholder would no longer be treated for federal income tax
purposes as a partner with respect to those common units during
the period of the loan and may recognize gain or loss from the
disposition.
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We will adopt certain valuation methodologies and monthly
conventions for U.S. federal income tax purposes that may result
in a shift of income, gain, loss and deduction between our
general partner and our unitholders. The IRS may challenge this
treatment, which could adversely affect the value of our common
units.
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The sale or exchange of 50% or more of our capital and profits
interests during any twelve-month period will result in the
termination of our partnership for federal income tax purposes.
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As a result of investing in our common units, you may become
subject to state and local taxes and return filing requirements
in jurisdictions where we operate or own or acquire properties.
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9
The
Transactions
Immediately prior to the closing of this offering:
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we will distribute pro rata, in accordance with their respective
interests in us, $21.0 million of accounts receivable to
our general partner, C&T Coal, AIM Oxford and the
participants in the Oxford Resource Partners, LP Long-Term
Incentive Plan, or our LTIP, that hold our common units;
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each general partner unit held by our general partner will
automatically split into 1.82 general partner units, resulting
in the ownership by our general partner of an aggregate of
244,607 general partner units, representing a 2.0% general
partner interest in us;
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each common unit held by participants in our LTIP will
automatically split into 1.82 common units, resulting in their
ownership of an aggregate of 126,577 common units, representing
an aggregate 1.0% limited partner interest in us;
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each Class B common unit held by C&T Coal will
automatically split into 1.82 Class B common units,
resulting in C&T Coals ownership of an aggregate of
3,999,696 Class B common units, representing an aggregate
32.7% limited partner interest in us; and
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each Class B common unit held by AIM Oxford will
automatically split into 1.82 Class B common units,
resulting in AIM Oxfords ownership of an aggregate of
7,859,487 Class B common units, representing an aggregate
64.3% limited partner interest in us.
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In connection with the closing of this offering, the following
will occur:
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all of our Class B common units held by C&T Coal will
automatically convert into: (i) 532,476 common units and
(ii) 3,467,220 subordinated units;
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all of our Class B common units held by AIM Oxford will
automatically convert into: (i) 1,046,327 common units and (ii)
6,813,160 subordinated units;
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we will issue 8,750,000 common units to the public in this
offering;
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C&T Coal and AIM Oxford will contribute 59,022 common units
and 115,978 common units, respectively, to our general partner
as a capital contribution;
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our general partner will contribute the common units contributed
to it by C&T Coal and AIM Oxford to us in exchange for
175,000 general partner units in order to maintain its 2.0%
general partner interest in us;
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we will use the net proceeds from this offering for the purposes
set forth in Use of Proceeds;
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we will enter into a new credit facility; and
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we will use the net proceeds from borrowings under our new
credit facility for the purposes set forth in Use of
Proceeds.
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10
Organizational
Structure
The following is a simplified diagram of our ownership structure
after giving effect to this offering and the related
transactions.
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Public common units
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41.7
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%
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Interests of C&T Coal, AIM Oxford and Oxford Resources GP:
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Common units held by C&T Coal
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2.3
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%
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Common units held by AIM Oxford
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4.4
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%
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Subordinated units held by C&T Coal
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16.5
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%
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Subordinated units held by AIM Oxford
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32.5
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%
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General partner units held by Oxford Resources GP
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2.0
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%
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Common units held by participants in our LTIP
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0.6
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%
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100
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%
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11
Management
and Ownership
We are managed and operated by the board of directors and
executive officers of our general partner, Oxford Resources GP.
Currently, and upon the consummation of this offering, C&T
Coal and AIM Oxford will own all of the ownership interests in
our general partner. Our unitholders will not be entitled to
elect our general partner or its directors or otherwise directly
participate in our management or operation. Charles C. Ungurean,
the President and Chief Executive Officer of our general partner
and a member of the board of directors of our general partner,
and Thomas T. Ungurean, the Senior Vice President, Equipment,
Procurement and Maintenance of our general partner, own all of
the equity interests in C&T Coal. In addition, Brian D.
Barlow, Matthew P. Carbone and George E. McCown serve on the
board of directors of our general partner and are principals of
AIM and have ownership interests in AIM. For information about
the executive officers and directors of our general partner,
please read Management. Our general partner will be
liable, as 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 nonrecourse to it.
Whenever possible, our general partner intends to cause us to
incur indebtedness or other obligations that are nonrecourse
to it.
In order to maintain operational flexibility, our operations
will be conducted through, and our operating assets will be
owned by, Oxford Mining Company and its subsidiaries. However,
we, Oxford Mining Company and its subsidiaries do not have any
employees. All of the employees that conduct our business are
employed by our general partner, but we sometimes refer to these
individuals in this prospectus as our employees.
Following the consummation of this offering, our general partner
and its affiliates will not receive any management fee or other
compensation in connection with our general partners
management of our business, but will be reimbursed for expenses
incurred on our behalf. These expenses include the costs of
officer and director and other employee compensation and
benefits properly allocable to us, and all other expenses
necessary or appropriate for the conduct of our business and
allocable to us. Our partnership agreement provides that our
general partner will determine in good faith the expenses that
are allocable to us.
Our general partner owns general partner units representing a
2.0% general partner interest in us, which entitles it to
receive 2.0% of all the distributions we make. Our general
partner also owns all of our incentive distribution rights,
which will entitle it to increasing percentages, up to a maximum
of 48.0%, of the cash we distribute in excess of $0.5031 per
unit per quarter, after the closing of our initial public
offering. Please read Certain Relationships and Related
Party Transactions.
Principal
Executive Offices
Our principal executive offices are located at 41 South High
Street, Suite 3450, Columbus, Ohio 43215. Our phone number
is
(614) 643-0314.
Following the completion of this offering, our website will be
located at
http://www.oxfordresources.com.
We expect to make our periodic reports and other information
filed with or furnished to the SEC available, free of charge,
through our website, as soon as reasonably practicable after
those reports and other information are electronically filed
with or furnished to the SEC. Information on our website or any
other website is not incorporated by reference into this
prospectus and does not constitute a part of this prospectus.
Summary
of Conflicts of Interest and Fiduciary Duties
General.
Our general partner and its directors
and officers have a legal duty to manage us in a manner
beneficial to our unitholders. This legal duty originates under
state law in statutes and judicial decisions and is commonly
referred to as a fiduciary duty. However, because
our general partner is owned by C&T Coal and AIM Oxford,
the directors and officers of our general partner also have
fiduciary duties to manage the business of our general partner
in a manner beneficial to C&T Coal and AIM Oxford. As a
result, conflicts of interest may arise in the future between us
and our unitholders, on the one hand, and our general partner
and its affiliates, on the other hand. For a more detailed
description of the conflicts of interest and fiduciary duties of
our general partner, please read Conflicts of Interest and
Fiduciary Duties.
12
Partnership Agreement Modifications of Fiduciary
Duties.
Delaware law provides that Delaware
limited partnerships may, in their partnership agreements,
restrict or expand the fiduciary duties owed by the general
partner to limited partners and the partnership. Our partnership
agreement limits the liability of, and reduces the fiduciary
duties owed by, our general partner and the directors and
officers of our general partner to us and our unitholders. Our
partnership agreement also restricts the remedies available to
our unitholders for actions that might otherwise constitute
breaches of fiduciary duty by our general partner and its
directors and officers. By purchasing a common unit, our
unitholders 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 law. Please read
Conflicts of Interest and Fiduciary Duties
Fiduciary Duties for a description of the fiduciary duties
imposed on our general partner and its directors and officers by
Delaware law, the material modifications of these duties
contained in our partnership agreement and certain legal rights
and remedies available to our unitholders.
For a description of our other relationships with our
affiliates, please read Certain Relationships and Related
Party Transactions.
13
The
Offering
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Common units offered to the public
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8,750,000 common units.
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10,062,500 common units if the underwriters exercise their
option to purchase additional common units in full.
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Units outstanding after this offering
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10,280,380 common units representing a 49.0% limited partner
interest in us and 10,280,380 subordinated units representing a
49.0% limited partner interest in us.
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Our general partner will own 419,607 general partner units,
representing a 2.0% general partner interest in us.
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Use of proceeds
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We intend to use the net proceeds from this offering of
approximately $162.8 million (based on the mid-point of the
price range set forth on the cover page of this prospectus),
after deducting underwriting discounts and commissions but
before paying offering expenses, to (i) repay in full the
outstanding balance under our existing credit facility,
(ii) distribute approximately $22.3 million to
C&T Coal, (iii) distribute approximately
$0.7 million to the participants in our LTIP that hold our
common units, (iv) terminate our advisory services
agreement with affiliates of AIM for a payment of approximately
$2.5 million, (v) pay offering expenses of
approximately $3.2 million, (vi) purchase major mining
equipment for approximately $22.1 million and
(vii) replenish approximately $15.5 million of our
working capital.
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We will use the proceeds from borrowings of approximately
$85.0 million under our new credit facility to
(i) distribute approximately $43.8 million to AIM
Oxford, (ii) pay fees and expenses relating to our new
credit facility of approximately $4.6 million,
(iii) distribute approximately $1.3 million to our
general partner in respect of its general partner interest,
(iv) replenish approximately $3.2 million of our
working capital that we distributed to our partners immediately
prior to the closing of this offering and (v) purchase
major mining equipment that we currently lease for approximately
$32.1 million.
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If the underwriters option to purchase additional common
units is exercised in full, we will use the net proceeds to
redeem from C&T Coal and AIM Oxford a number of common
units equal to the number of common units issued upon such
exercise, at a price per common unit equal to the proceeds per
common unit before expenses but after deducting underwriting
discounts and commissions.
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For more information about our use of the proceeds of this
offering, including a tabular summary, please read Use of
Proceeds.
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Cash distributions
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We intend to pay a minimum quarterly distribution of
$0.4375 per common unit (or $1.75 per common unit on
an annualized basis) to the extent we have sufficient cash after
the establishment of cash reserves by our general partner and
the payment of our costs and
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expenses, including reimbursement of expenses to our general
partner and its affiliates.
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Our ability to pay cash distributions at this minimum quarterly
distribution rate is subject to various restrictions and other
factors described in more detail under Cash Distribution
Policy and Restrictions on Distributions.
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We will adjust the minimum quarterly distribution for the period
from the closing of this offering through June 30, 2010
based on the actual length of the period.
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Our partnership agreement requires us to distribute all of our
cash on hand at the end of each quarter after the payment of
costs and expenses, less reserves established by our general
partner. We refer to this cash as available cash,
and we define its meaning in our partnership agreement, in
How We Make Cash Distributions Distributions
of Available Cash Definition of Available Cash
and in the glossary of terms attached as
Appendix B
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In general, we will pay any cash distributions we make each
quarter in the following manner:
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first
, 98.0% to the holders
of common units and 2.0% to our general partner, until each
common unit has received a minimum quarterly distribution of
$0.4375 plus any arrearages from prior quarters;
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second
, 98.0% to the
holders of subordinated units and 2.0% to our general partner,
until each subordinated unit has received a minimum quarterly
distribution of $0.4375; and
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third
, 98.0% to all
unitholders, pro rata, and 2.0% to our general partner, until
each unit has received a distribution of $0.5031.
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If cash distributions to our unitholders exceed $0.5031 per
common and subordinated unit in any quarter, our unitholders and
our general partner will receive distributions according to the
following percentage allocations:
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Marginal Percentage Interest
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Total Quarterly Distribution
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in Distributions
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Target Amount
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Unitholders
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General Partner
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above $0.5031 up to $0.5469
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85%
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15%
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above $0.5469 up to $0.6563
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75%
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25%
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above $0.6563
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50%
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50%
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Please read How We Make Cash Distribution
General Partner Interest and Incentive Distribution
Rights.
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Our historical cash available for distribution generated during
the year ended December 31, 2009 and the twelve months
ended March 31, 2010 was $16.2 million and
$10.9 million, respectively. The amount of available cash
we need to pay the minimum quarterly distribution for four
quarters on our common units, subordinated units and general
partner units to be outstanding immediately after this offering
is approximately $36.7 million (or
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an average of $9.2 million per quarter). As a result, for
the year ended December 31, 2009 and the twelve months
ended March 31, 2010 we would have generated aggregate
available cash sufficient to pay only 88.3% and 59.3%,
respectively, of the aggregate minimum quarterly distribution on
our common units during those periods, and we would not have
been able to pay any distributions on our subordinated units in
those periods. We have not used
quarter-by-quarter
estimates for each quarter in the year ended December 31,
2009 and the twelve months ended March 31, 2010 to
determine if we would have generated available cash sufficient
to pay the minimum quarterly distribution for each quarter
during those periods.
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Please read Cash Distribution Policy and Restrictions on
Distributions Historical and Forecasted Results of
Operations and Cash Available for Distribution.
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We have included a forecast of our cash available for
distribution for the twelve months ending June 30, 2011 in
Cash Distribution Policy and Restrictions on
Distributions Historical and Forecasted Results of
Operations and Cash Available for Distribution. We
believe, based on our financial forecast and related
assumptions, that we will have sufficient available cash to
enable us to pay the full minimum quarterly distribution of
$0.4375 on all of our common units and subordinated units and
the corresponding distribution on our general partners
2.0% general partner interest for the four quarters ending
June 30, 2011. Based on our financial forecast and related
assumptions, we forecast that our cash available for
distribution for the twelve months ending June 30, 2011
will be approximately $44.1 million. Although we believe we
will have available cash sufficient to pay the minimum quarterly
distribution on all of our units for each quarter in the
forecast period, we do not provide a quarterly forecast for each
quarter in the forecast period due to the uncertainty
surrounding the precise timing of certain anticipated capital
expenditures during the latter part of the forecast period.
During the quarter ending September 30, 2010, we expect
that cash generated from operations will be approximately
$6.9 million, or approximately $2.3 million less than
the amount of cash needed to pay the entire minimum quarterly
distribution on all of our outstanding units. As a result,
during that period we expect to generate cash from operations
sufficient to pay the entire minimum quarterly distribution on
our common units, but only 52.9% of the minimum quarterly
distribution on our subordinated units. We expect to fund the
additional $2.3 million distribution on our subordinated
units with cash on-hand or working capital borrowings.
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Although we do not anticipate any distributions out of capital
surplus, as opposed to operating surplus, any such distributions
would constitute a return of capital to our unitholders and
would result in a reduction in the minimum quarterly
distribution and target distribution levels. For a further
description of the treatment of distributions from capital
surplus, please read How We Make Cash
Distributions Distributions from Capital
Surplus Effect of a Distribution from Capital
Surplus.
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Subordinated units
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C&T Coal and AIM Oxford will initially own all of our
subordinated units. The principal difference between our common
units and subordinated units is that, in any quarter during the
subordination period, the subordinated units are not entitled to
receive any distributions of available cash until the common
units have received the minimum quarterly distribution plus any
arrearages in the payment of the minimum quarterly distribution
from prior quarters. Subordinated units will not accrue
arrearages.
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Conversion of subordinated units
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The subordination period will end on the first business day
after we have earned and paid from operating surplus generated
in the applicable period at least (i) $1.75 (the minimum
quarterly distribution on an annualized basis) on each
outstanding common and subordinated unit and the corresponding
distribution on our general partner units for each of three
consecutive, non-overlapping four quarter periods ending on or
after September 30, 2013 or (ii) $0.65625 per quarter
(150.0% of the minimum quarterly distribution, which is $2.625
on an annualized basis) on each outstanding common and
subordinated unit and the corresponding distributions on our
general partner units for any four quarter period ending on or
after September 30, 2011, in each case provided there are
no arrearages on our common units at that time.
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In addition, the subordination period will end upon the removal
of our general partner other than for cause if the units held by
our general partner and its affiliates are not voted in favor of
such removal.
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When the subordination period ends, all subordinated units will
convert into common units on a
one-for-one
basis, and the common units will no longer be entitled to
arrearages. Please read How We Make Cash
Distributions Subordination Period.
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General partners right to reset the target distribution
levels
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Our general partner has the right, at a time when there are no
subordinated units outstanding and it has received incentive
distributions at the highest level to which it is entitled (48%)
for each of the prior four consecutive fiscal quarters, to reset
the initial cash target distribution levels at higher levels
based on the distribution at the time of the exercise of the
reset election. Following a reset election by our general
partner, the minimum quarterly distribution will be adjusted to
equal the reset minimum quarterly distribution, and the target
distribution levels will be reset to correspondingly higher
levels based on the same percentage increases above the reset
minimum quarterly distribution.
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If our general partner elects to reset the target distribution
levels, it will be entitled to receive common units and
additional general partner units. The number of common units to
be issued to our general partner will be equal to the number of
common units that would have entitled their holder to an
aggregate quarterly cash distribution equal to the average of
the distributions to our general partner on the incentive
distribution rights in the prior two quarters, assuming a per
unit distribution equal to the average of the distribution for
the prior two quarters. Our general partner will be
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issued the number of general partner units necessary to maintain
its general partner interest in us immediately prior to the
reset election. Please read How We Make Cash
Distributions General Partners Right to Reset
Incentive Distribution Levels.
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Issuance of additional units
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Our partnership agreement authorizes us to issue an unlimited
number of additional units without the approval of our
unitholders. Please read Units Eligible for Future
Sale and The Partnership Agreement
Issuance of Additional Securities.
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Limited voting rights
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Our general partner will manage and operate us. Unlike the
holders of common stock in a corporation, our unitholders will
have only limited voting rights on matters affecting our
business. Our unitholders will have no right to elect our
general partner or its directors on an annual or other
continuing basis. Our general partner may not be removed except
by a vote of the holders of at least 80% of the outstanding
units, including any units owned by our general partner and its
affiliates, voting together as a single class. Upon consummation
of this offering, our general partner and its affiliates will
own an aggregate of 57.1% of our common and subordinated units.
This will give our general partner the ability to prevent its
involuntary removal. Please read The Partnership
Agreement Voting Rights.
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Limited call right
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If at any time our general partner and its affiliates own more
than 80% of the outstanding common units, our general partner
has the right, but not the obligation, to purchase all of the
remaining common units at a price not less than the then-current
market price of the common units. Please read The
Partnership Agreement Limited Call Right.
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Estimated ratio of taxable income to distributions
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|
We estimate that if you own the common units you purchase in
this offering through the record date for distributions for the
period ending December 31, 2013, you will be allocated, on
a cumulative basis, an amount of federal taxable income for that
period that will be % or less of
the cash distributed with respect to that period. For example,
if you receive an annual distribution of
$ per unit, we estimate that your
average allocable federal taxable income per year will be no
more than $ per unit. Please read
Material Federal Income Tax Consequences Tax
Consequences of Unit Ownership Ratio of Taxable
Income to Distributions for the basis of this estimate.
|
|
|
|
Directed unit program
|
|
At our request, the underwriters have established a directed
unit program under which they have reserved for sale at the
initial public offering price up to 1,000,000 common units
offered by this prospectus for our officers, directors and
employees of our general partner and certain friends and family
of our sponsors, and the officers, directors and employees of
our general partner. The number of common units available for
sale to the public will be reduced by the number of directed
common units purchased by participants in the program. Any
directed common units not so purchased will be offered by the
underwriters to the public on the
|
18
|
|
|
|
|
same basis as the other common units offered by this prospectus.
Please read Underwriting Directed Unit
Program.
|
|
Material federal income tax consequences
|
|
For a discussion of the material federal income tax consequences
that may be relevant to prospective unitholders who are
individual citizens or residents of the United States, please
read Material Federal Income Tax Consequences.
|
|
Exchange listing
|
|
We have applied to list our common units on the New York Stock
Exchange under the symbol OXF.
|
19
Summary
Historical and Pro Forma Consolidated Financial and Operating
Data
The following table presents our summary historical consolidated
financial and operating data, as well as that of our accounting
predecessor and wholly owned subsidiary, Oxford Mining Company,
as of the dates and for the periods indicated. The following
table also presents our summary pro forma consolidated financial
and operating data as of the dates and for the periods indicated.
The summary historical consolidated financial data presented as
of August 23, 2007 and for the period from January 1,
2007 to August 23, 2007 are derived from the audited
historical consolidated financial statements of Oxford Mining
Company that are included elsewhere in this prospectus. The
summary historical consolidated financial data presented as of
December 31, 2007, for the period from August 24, 2007
to December 31, 2007 and as of and for the years ended
December 31, 2008 and 2009 are derived from our audited
historical consolidated financial statements included elsewhere
in this prospectus. The summary historical consolidated
financial data presented as of and for the quarters ended
March 31, 2009 and 2010 are derived from our unaudited
historical condensed consolidated financial statements included
elsewhere in this prospectus.
The summary pro forma consolidated financial data presented for
the year ended December 31, 2009 and as of and for the
quarter ended March 31, 2010 are derived from our unaudited
pro forma consolidated financial statements included elsewhere
in this prospectus. Our unaudited pro forma consolidated
financial statements give pro forma effect to (i) the
Phoenix Coal acquisition and (ii) this offering and the
transactions related to this offering described in
Summary The Transactions and the
application of the net proceeds from this offering described in
Use of Proceeds. The unaudited pro forma
consolidated balance sheet as of March 31, 2010 assumes
this offering occurred as of March 31, 2010. The unaudited
pro forma consolidated statements of operations for the year
ended December 31, 2009 and the quarter ended
March 31, 2010 assume the Phoenix Coal acquisition, this
offering and the transactions related to this offering occurred
as of January 1, 2009. We have not given pro forma effect
to incremental selling, general and administrative expenses of
approximately $3.0 million that we expect to incur as a
result of being a publicly traded partnership.
For a detailed discussion of the following table, please read
Managements Discussion and Analysis of Financial
Condition and Results of Operations. The following table
should also be read in conjunction with
Summary The Transactions, Use of
Proceeds, Business Our History,
the historical consolidated financial statements of Oxford
Mining Company, the historical combined financial statements for
the carved-out surface mining operations of Phoenix Coal and our
unaudited pro forma consolidated financial statements and
audited consolidated financial statements included elsewhere in
this prospectus. Among other things, those historical and pro
forma consolidated financial statements include more detailed
information regarding the basis of presentation for the
information in the following table.
The following table presents a non-GAAP financial measure,
Adjusted EBITDA, which we use in our business as it is an
important supplemental measure of our performance. Adjusted
EBITDA represents net income (loss) attributable to our
unitholders before interest, taxes, depreciation, depletion and
amortization, gain from purchase of a business, amortization of
below-market coal sales contracts and non-cash equity
compensation expense. This measure is not calculated or
presented in accordance with GAAP. We explain this measure below
and reconcile it to its most directly comparable financial
measure calculated and presented in accordance with GAAP.
20
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oxford
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mining
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma Oxford
|
|
|
|
Company
|
|
|
|
Oxford Resource Partners, LP
|
|
|
|
Resource Partners, LP
|
|
|
|
(Predecessor)
|
|
|
|
(Successor)
|
|
|
|
(Successor)
|
|
|
|
Period from
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
|
August 24,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
|
|
2007 to
|
|
|
|
2007 to
|
|
|
Year Ended
|
|
|
Quarter Ended
|
|
|
|
Year Ended
|
|
|
Ended
|
|
|
|
August 23,
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2007
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per ton amounts)
|
|
|
|
(unaudited)
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal sales
|
|
$
|
96,799
|
|
|
|
$
|
61,324
|
|
|
$
|
193,699
|
|
|
$
|
254,171
|
|
|
$
|
67,377
|
|
|
$
|
76,756
|
|
|
|
$
|
312,490
|
|
|
$
|
76,756
|
|
Transportation revenue
|
|
|
18,083
|
|
|
|
|
10,204
|
|
|
|
31,839
|
|
|
|
32,490
|
|
|
|
8,660
|
|
|
|
9,530
|
|
|
|
|
37,221
|
|
|
|
9,530
|
|
Royalty and non-coal revenue
|
|
|
3,267
|
|
|
|
|
1,407
|
|
|
|
4,951
|
|
|
|
7,183
|
|
|
|
2,402
|
|
|
|
1,774
|
|
|
|
|
7,183
|
|
|
|
1,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
118,149
|
|
|
|
|
72,935
|
|
|
|
230,489
|
|
|
|
293,844
|
|
|
|
78,439
|
|
|
|
88,060
|
|
|
|
|
356,894
|
|
|
|
88,060
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of coal sales (excluding DD&A, shown separately)
|
|
|
70,415
|
|
|
|
|
40,721
|
|
|
|
151,421
|
|
|
|
170,698
|
|
|
|
40,825
|
|
|
|
55,186
|
|
|
|
|
208,574
|
|
|
|
53,254
|
|
Cost of purchased coal
|
|
|
17,494
|
|
|
|
|
9,468
|
|
|
|
12,925
|
|
|
|
19,487
|
|
|
|
8,505
|
|
|
|
7,859
|
|
|
|
|
29,792
|
|
|
|
7,859
|
|
Cost of transportation
|
|
|
18,083
|
|
|
|
|
10,204
|
|
|
|
31,839
|
|
|
|
32,490
|
|
|
|
8,660
|
|
|
|
9,530
|
|
|
|
|
37,221
|
|
|
|
9,530
|
|
Depreciation, depletion, and amortization
|
|
|
9,025
|
|
|
|
|
4,926
|
|
|
|
16,660
|
|
|
|
25,902
|
|
|
|
5,688
|
|
|
|
8,777
|
|
|
|
|
41,369
|
|
|
|
11,270
|
|
Selling, general and administrative expenses
|
|
|
3,643
|
|
|
|
|
2,114
|
|
|
|
9,577
|
|
|
|
13,242
|
|
|
|
3,101
|
|
|
|
3,535
|
|
|
|
|
25,735
|
|
|
|
3,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
118,660
|
|
|
|
|
67,433
|
|
|
|
222,422
|
|
|
|
261,819
|
|
|
|
66,779
|
|
|
|
84,887
|
|
|
|
|
342,691
|
|
|
|
85,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(511
|
)
|
|
|
|
5,502
|
|
|
|
8,067
|
|
|
|
32,025
|
|
|
|
11,660
|
|
|
|
3,173
|
|
|
|
|
14,203
|
|
|
|
2,689
|
|
Interest income
|
|
|
26
|
|
|
|
|
55
|
|
|
|
62
|
|
|
|
35
|
|
|
|
11
|
|
|
|
1
|
|
|
|
|
39
|
|
|
|
1
|
|
Interest expense
|
|
|
(2,386
|
)
|
|
|
|
(3,498
|
)
|
|
|
(7,720
|
)
|
|
|
(6,484
|
)
|
|
|
(1,123
|
)
|
|
|
(1,833
|
)
|
|
|
|
(7,392
|
)
|
|
|
(1,886
|
)
|
Gain from purchase of
business
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,823
|
|
|
|
|
|
|
|
|
|
|
|
|
3,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(2,871
|
)
|
|
|
|
2,059
|
|
|
|
409
|
|
|
|
29,399
|
|
|
|
10,548
|
|
|
|
1,341
|
|
|
|
|
10,673
|
|
|
|
804
|
|
Less: Net income attributable to noncontrolling interest
|
|
|
(682
|
)
|
|
|
|
(537
|
)
|
|
|
(2,891
|
)
|
|
|
(5,895
|
)
|
|
|
(1,165
|
)
|
|
|
(1,628
|
)
|
|
|
|
(5,895
|
)
|
|
|
(1,628
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Oxford Resource Partners,
LP unitholders
|
|
$
|
(3,553
|
)
|
|
|
$
|
1,522
|
|
|
$
|
(2,482
|
)
|
|
$
|
23,504
|
|
|
$
|
9,383
|
|
|
$
|
(287
|
)
|
|
|
$
|
4,778
|
|
|
$
|
(824
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Cash Flows Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
17,634
|
|
|
|
$
|
(8,519
|
)
|
|
$
|
33,992
|
|
|
$
|
37,183
|
|
|
$
|
10,502
|
|
|
$
|
8,341
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
(16,619
|
)
|
|
|
|
(98,745
|
)
|
|
|
(23,942
|
)
|
|
|
(49,528
|
)
|
|
|
(7,482
|
)
|
|
|
(10,280
|
)
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
(234
|
)
|
|
|
|
106,724
|
|
|
|
4,494
|
|
|
|
532
|
|
|
|
2,442
|
|
|
|
(137
|
)
|
|
|
|
|
|
|
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA
(2)
|
|
$
|
7,832
|
|
|
|
$
|
7,961
|
|
|
$
|
21,533
|
|
|
$
|
50,799
|
|
|
$
|
16,292
|
|
|
$
|
10,001
|
|
|
|
$
|
43,888
|
|
|
$
|
12,010
|
|
Reserve replacement
expenditures
(3)
|
|
|
1,297
|
|
|
|
|
163
|
|
|
|
2,526
|
|
|
|
3,077
|
|
|
|
61
|
|
|
|
528
|
|
|
|
|
3,077
|
|
|
|
528
|
|
Other maintenance capital
expenditures
(3)
|
|
|
11,305
|
|
|
|
|
4,421
|
|
|
|
25,321
|
|
|
|
25,542
|
|
|
|
6,715
|
|
|
|
4,995
|
|
|
|
|
25,542
|
|
|
|
4,995
|
|
Distributions
|
|
|
|
|
|
|
|
|
|
|
|
12,503
|
|
|
|
13,407
|
|
|
|
2,523
|
|
|
|
2,818
|
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Balance Sheet Data (at period end):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,175
|
|
|
|
$
|
635
|
|
|
$
|
15,179
|
|
|
$
|
3,366
|
|
|
$
|
20,641
|
|
|
$
|
1,290
|
|
|
|
|
|
|
|
$
|
23,004
|
|
Trade accounts receivable
|
|
|
18,396
|
|
|
|
|
17,547
|
|
|
|
21,528
|
|
|
|
24,403
|
|
|
|
23,196
|
|
|
|
29,838
|
|
|
|
|
|
|
|
|
8,838
|
|
Inventory
|
|
|
4,824
|
|
|
|
|
4,655
|
|
|
|
5,134
|
|
|
|
8,801
|
|
|
|
6,584
|
|
|
|
10,390
|
|
|
|
|
|
|
|
|
10,390
|
|
Property, plant and equipment, net
|
|
|
54,510
|
|
|
|
|
106,408
|
|
|
|
112,446
|
|
|
|
149,461
|
|
|
|
117,031
|
|
|
|
147,949
|
|
|
|
|
|
|
|
|
202,118
|
|
Total assets
|
|
|
90,893
|
|
|
|
|
146,774
|
|
|
|
171,297
|
|
|
|
203,363
|
|
|
|
184,982
|
|
|
|
212,917
|
|
|
|
|
|
|
|
|
268,812
|
|
Total debt (current and long-term)
|
|
|
43,165
|
|
|
|
|
75,529
|
|
|
|
83,977
|
|
|
|
95,711
|
|
|
|
91,799
|
|
|
|
98,432
|
|
|
|
|
|
|
|
|
89,915
|
|
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tons of coal produced
|
|
|
2,693
|
|
|
|
|
1,634
|
|
|
|
5,089
|
|
|
|
5,846
|
|
|
|
1,396
|
|
|
|
1,806
|
|
|
|
|
7,221
|
|
|
|
1,806
|
|
Tons of coal purchased
|
|
|
641
|
|
|
|
|
305
|
|
|
|
434
|
|
|
|
530
|
|
|
|
192
|
|
|
|
258
|
|
|
|
|
885
|
|
|
|
258
|
|
Tons of coal sold
|
|
|
3,333
|
|
|
|
|
1,938
|
|
|
|
5,528
|
|
|
|
6,311
|
|
|
|
1,559
|
|
|
|
2,036
|
|
|
|
|
8,051
|
|
|
|
2,036
|
|
Average sales price per
ton
(4)
|
|
$
|
29.04
|
|
|
|
$
|
31.64
|
|
|
$
|
35.04
|
|
|
$
|
40.27
|
|
|
$
|
43.23
|
|
|
$
|
37.71
|
|
|
|
$
|
38.81
|
|
|
$
|
37.71
|
|
Cost of coal sales per ton
produced
(5)
|
|
$
|
26.15
|
|
|
|
$
|
24.92
|
|
|
$
|
29.75
|
|
|
$
|
29.20
|
|
|
$
|
29.25
|
|
|
$
|
30.56
|
|
|
|
$
|
29.56
|
|
|
$
|
30.56
|
|
Cost of purchased coal per
ton
(6)
|
|
$
|
27.29
|
|
|
|
$
|
31.08
|
|
|
$
|
29.81
|
|
|
$
|
36.79
|
|
|
$
|
44.32
|
|
|
$
|
30.51
|
|
|
|
$
|
33.66
|
|
|
$
|
30.51
|
|
|
|
|
(1)
|
|
On September 30, 2009, we acquired all of the active
surfacing mining operations of Phoenix Coal. The purchase price
of this acquisition was less than the fair value of the net
assets and liabilities we acquired. We recorded this difference
as a gain of $3.8 million for the year ended
December 31, 2009.
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|
(2)
|
|
See Selected Historical and Pro Forma Consolidated
Financial and Operating Data for our definition of
Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net
income attributable to our unitholders.
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21
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|
|
(3)
|
|
Maintenance capital expenditures are cash expenditures made to
maintain or replace, including over the long term, our operating
capacity, asset base or operating income. Our partnership
agreement divides maintenance capital expenditures into two
categories reserve replacement expenditures and
other maintenance capital expenditures. Examples of reserve
replacement expenditures include capital expenditures associated
with the replacement of coal reserves, whether through the
expansion of an existing mine or the acquisition or development
of new reserves, to the extent such expenditures are made to
maintain our operating capacity, asset base or operating income.
Examples of other maintenance capital expenditures include
capital expenditures associated with the repair, refurbishment
or replacement of equipment. Historically, we have not made a
distinction between maintenance capital expenditures and other
capital expenditures. For purposes of this presentation,
however, we have evaluated our historical capital expenditures
to estimate which of them would have been reserve replacement
expenditures and which of them would have been other maintenance
capital expenditures had we classified them as such at the time
they were made. The amounts shown reflect our estimates based on
that evaluation.
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|
|
|
(4)
|
|
Represents our coal sales divided by total tons of coal sold.
|
|
(5)
|
|
Represents our cost of coal sales (excluding DD&A) divided
by the tons of coal we produce.
|
|
(6)
|
|
Represents the cost of purchased coal divided by the tons of
coal we purchase.
|
22
RISK
FACTORS
Limited partner interests are inherently different from the
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 our common units.
If any of the following risks were to occur, our business,
financial condition, results of operations and cash available
for distribution could be materially adversely affected. In that
case, we might not be able to make distributions on our common
units, the trading price of our common units could decline and
you could lose all or part of your investment.
Risks
Related to Our Business
We may not have sufficient cash each quarter to pay the minimum
quarterly distribution. The amount of cash we can distribute on
our common and subordinated units principally depends upon the
amount of cash we generate from our operations, which will
fluctuate from quarter to quarter based on, among other things:
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the level of our production and coal sales and the amount of
revenue we generate;
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the level of our operating costs, including reimbursement of
expenses to our general partner;
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changes in governmental regulation of the mining industry or the
electric power industry and the increased costs of complying
with those changes;
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our ability to obtain, renew and maintain permits on a timely
basis;
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prevailing economic and market conditions; and
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difficulties in collecting our receivables because of credit or
financial problems of major customers.
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In addition, the actual amount of cash we will have available
for distribution will depend on other factors, such as:
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|
the level of capital expenditures we make;
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the restrictions contained in our credit agreement and our debt
service requirements;
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the cost of acquisitions;
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fluctuations in our working capital needs;
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our ability to borrow funds and access capital markets; and
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the amount of cash reserves established by our general partner.
|
For a description of additional restrictions and factors that
may affect our ability to make cash distributions, please read
Cash Distribution Policy and Restrictions on
Distributions.
We must generate approximately $36.7 million (or an average
of $9.2 million per quarter) of available cash to pay the
minimum quarterly distribution for four quarters on all of our
common units, subordinated units and general partner units that
will be outstanding immediately after this offering. We did not
generate an aggregate of $36.7 million of available cash
from operating surplus during the year ended December 31,
2009 and the twelve months ended March 31, 2010. The
aggregate amounts we generated with respect to those periods
were $16.2 million and $10.9 million, respectively. As
a result, for those periods we would have
23
generated aggregate available cash sufficient to pay only 88.3%
and 59.3%, respectively, of the aggregate minimum quarterly
distribution on our common units during those periods, and we
would not have been able to pay any distributions on our
subordinated units during those periods. We have not used
quarter-by-quarter
estimates for each quarter in the year ended December 31,
2009 and the twelve months ended March 31, 2010 to
determine if we would have generated available cash sufficient
to pay the minimum quarterly distribution for each quarter
during those periods.
The forecast of cash available for distribution set forth in
Cash Distribution Policy and Restrictions on
Distributions includes our forecast of our results of
operations and cash available for distribution for the twelve
months ending June 30, 2011. The financial forecast has
been prepared by management, and we have neither received nor
requested an opinion or report on it from our or any other
independent auditor. The assumptions underlying the forecast are
inherently uncertain and are subject to significant business,
economic, regulatory and competitive risks, including those
discussed below, that could cause actual results to differ
materially from those forecasted. If we do not achieve the
forecasted results, we may not be able to pay the minimum
quarterly distribution or any amount on our common units or
subordinated units and the market price of our common units may
decline materially. For a forecast of our ability to pay the
full minimum quarterly distribution on our common units,
subordinated units and general partner units for the twelve
months ending June 30, 2011, please read Cash
Distribution Policy and Restrictions on Distributions.
Our business is closely linked to domestic demand for
electricity and any changes in coal consumption by
U.S. electric power generators would likely impact our
business over the long term. In 2009 we sold approximately 89%
of our coal to domestic electric power generators, and we have
long-term contracts in place with these electric power
generators for a significant portion of our future production.
The amount of coal consumed by electric power generation is
affected by, among other things:
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|
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general economic conditions, particularly those affecting
industrial electric power demand, such as the recent downturn in
the U.S. economy and financial markets;
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|
|
|
indirect competition from alternative fuel sources for power
generation, such as natural gas, fuel oil, nuclear,
hydroelectric, wind and solar power, and the location,
availability, quality and price of those alternative fuel
sources;
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|
|
environmental and other governmental regulations, including
those impacting coal-fired power plants; and
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|
energy conservation efforts and related governmental policies.
|
According to the EIA, total electricity consumption in the
United States fell by approximately 3.8% during 2009 compared
with 2008, primarily because of the effect of the economic
downturn on industrial electricity demand, and
U.S. electric generation from coal fell by approximately
11.0% in 2009 compared with 2008. Further decreases in the
demand for electricity, such as decreases that could be caused
by a worsening of current economic conditions, a prolonged
economic recession or other similar events, could have a
material adverse effect on the demand for coal and on our
business over the long term.
Changes in the coal industry that affect our customers, such as
those caused by decreased electricity demand and increased
competition, could also adversely affect our business. Indirect
competition from gas-fired plants that are cheaper to construct
and easier to permit has the most potential to displace a
significant amount of coal-fired generation in the near term,
particularly older, less efficient coal-powered generators. In
addition, uncertainty caused by federal and state regulations
could cause coal customers to be uncertain of their coal
requirements in future years, which could adversely affect our
ability to sell coal to our customers under long-term coal sales
contracts.
24
We sell most of the coal we produce under long-term coal sales
contracts, which we define as contracts with terms greater than
one year. As a result, our results of operations are dependent
upon the prices we receive for the coal we sell under these
contracts. To the extent we are not successful in renewing,
extending or renegotiating our long-term contracts on favorable
terms, we may have to accept lower prices for the coal we sell
or sell reduced quantities of coal in order to secure new sales
contracts for our coal. Prices and quantities under our
long-term coal sales contracts are generally based on
expectations of future coal prices at the time the contract is
entered into, renewed, extended or re-opened. The expectation of
future prices for coal depends upon factors beyond our control,
including the following:
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|
|
|
|
domestic and foreign supply and demand for coal;
|
|
|
|
domestic demand for electricity, which tends to follow changes
in general economic activity;
|
|
|
|
domestic and foreign economic conditions;
|
|
|
|
the price, quantity and quality of other coal available to our
customers;
|
|
|
|
competition for production of electricity from non-coal sources,
including the price and availability of alternative fuels and
other sources, such as natural gas, fuel oil, nuclear,
hydroelectric, wind and solar power, and the effects of
technological developments related to these non-coal energy
sources;
|
|
|
|
domestic air emission standards for coal-fired power plants, and
the ability of coal-fired power plants to meet these standards
by installing scrubbers, purchasing emissions allowances or
other means; and
|
|
|
|
legislative and judicial developments, regulatory changes, or
changes in energy policy and energy conservation measures that
would adversely affect the coal industry.
|
For more information regarding our long-term coal sales
contracts, please read Business
Customers Long-Term Coal Sales Contracts.
Our profitability depends substantially on our ability to mine,
in a cost-effective manner, coal reserves that possess the
quality characteristics our customers desire. Because our
reserves decline as we mine our coal, our future profitability
depends upon our ability to acquire additional coal reserves
that are economically recoverable to replace the reserves we
produce. If we fail to acquire or develop sufficient additional
reserves to replace the reserves depleted by our production, our
existing reserves will eventually be depleted. Please read
Business Coal Reserves.
We compete for domestic sales with numerous other coal producers
in Northern Appalachia and the Illinois Basin and in other coal
producing regions of the United States, primarily Central
Appalachia and the Powder River Basin, or the PRB. The most
important factors on which we compete are delivered price (i.e.,
the cost of coal delivered to the customer, including
transportation costs, which are generally paid by our customers
either directly or indirectly), coal quality characteristics
(primarily heat, sulfur, ash and moisture content) and
reliability of supply. Our competitors may have, among other
things, greater liquidity, greater access to credit and other
financial resources, newer or more efficient equipment, lower
cost structures (like our competitors in the PRB), partnerships
with transportation companies or more effective risk management
policies and procedures. Our failure to compete successfully
could have a material adverse effect on our business, financial
condition or results of operations.
25
We derived 77% and 72% of our revenues from coal sales to our
five largest customers for the year ended December 31, 2009
and the first quarter of 2010, respectively, and as of
June 4, 2010, we had long-term coal sales contracts in
place with these same customers for 84% of our estimated coal
production from operations for the year ending December 31,
2010. We expect to continue to derive a substantial amount of
our total revenues from a small number of customers in the
future. However, we may be unsuccessful in renewing long-term
coal sales contracts with our largest customers, and those
customers may discontinue or reduce purchasing coal from us. If
any of our largest customers significantly reduces the
quantities of coal it purchases from us and if we are unable to
sell such excess coal to our other customers on terms
substantially similar to the terms under our current long-term
coal sales contracts, our business, our results of operations
and our ability to make distributions to our unitholders could
be adversely affected.
One major by-product of burning coal is carbon dioxide, which is
a greenhouse gas and a source of concern with respect to global
warming, also known as climate change. Climate change continues
to attract government, public and scientific attention,
especially on ways to reduce greenhouse gas emissions, including
from coal-fired power plants. Various international, federal,
regional and state regulatory proposals are being considered to
limit emissions of greenhouse gases, including possible future
U.S. treaty commitments, new federal or state legislation
that may establish a
cap-and-trade,
and regulation under existing environmental laws by the
U.S. Environmental Protection Agency, or the EPA. Future
regulation of greenhouse gas emissions may require additional
controls on, or the closure of, coal-fired power plants and
industrial boilers and may restrict the construction of new
coal-fired power plants.
The permitting of new coal-fired power plants has also recently
been contested by state regulators and environmental advocacy
organizations due to concerns related to greenhouse gas
emissions. In addition, a federal appeals courts has allowed a
lawsuit pursuing federal common law claims to proceed against
certain utilities on the basis that they may have created a
public nuisance due to their emissions of carbon dioxide, while
a second federal appeals court dismissed such a case on
procedural grounds. Future regulation, litigation and permitting
related to greenhouse gas emissions may cause some users of coal
to switch from coal to a lower-carbon fuel, or otherwise reduce
the use of and demand for fossil fuels, particularly coal, which
could have a material adverse effect on our business, financial
condition or results of operations. For a more detailed
discussion of potential climate change impact, please read
Business Regulation and Laws
Climate Change.
Coal-fired power plants are subject to extensive environmental
regulation, particularly with respect to air emissions. In
addition, the EPA recently issued a new stricter national
ambient air quality standard or NAAQS for sulfur dioxide
emissions based on a one hour standard to minimize health-based
risks. For example, the Clean Air Act Amendments of 1990, or the
CAAA, and similar state and local laws place annual limits on
emissions of sulfur dioxide, particulate matter, nitrogen
oxides, mercury and other compounds, including emissions by
electric power generators, which are the largest end-users of
our coal. The ability of coal-fired power plants to burn the
high-sulfur coal we produce may be limited without the use of
costly pollution control devices such as scrubbers, the purchase
of emission allowances or the blending of our high-sulfur coal
with low-sulfur coal.
Projected demand growth for high-sulfur coal in our primary
market area is largely dependent on planned installations of
scrubbers at new and existing coal-fired power plants that use
or plan to use high-sulfur coal as
26
a fuel. The timing and amount of these scrubber installations
may be affected by, among other things, anticipated changes in
air quality regulations and the price and availability of sulfur
dioxide emissions allowances. To the extent that these scrubber
installations do not occur or are substantially delayed and
sufficient sulfur dioxide allowances are unavailable or are
prohibitively expensive, demand for our high-sulfur coal could
materially decrease, which could have a material adverse effect
on our business, financial condition or results of operations.
Our coal mining operations are subject to a number of operating
risks beyond our control. Because we maintain very limited
produced coal inventory, various conditions or events could
disrupt operations, adversely affect production and shipments
and materially increase the cost of mining and delay or halt
production at particular mines for varying lengths of time,
which could have a material adverse effect on our business,
financial condition or results of operations. These conditions
and events include, among others:
|
|
|
|
|
poor mining conditions resulting from geologic, hydrologic or
other conditions, which may cause instability of highwalls or
spoil-piles or cause damage to nearby infrastructure;
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|
|
adverse weather and natural disasters, such as heavy rains or
flooding;
|
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|
|
the unavailability of qualified labor and contractors;
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|
|
the unavailability or increased prices of equipment or other
critical supplies such as tires and explosives, fuel, lubricants
and other consumables;
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|
|
fluctuations in transportation costs and transportation delays
or interruptions, including those caused by river flooding and
lock closures for repairs;
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|
|
delays, challenges to, and difficulties in acquiring,
maintaining or renewing permits or mineral and surface rights;
|
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|
|
future health, safety and environmental regulations or changes
in the interpretation or enforcement of existing regulations;
|
|
|
|
mine accidents or other unforeseen casualty events, including
those involving injuries or fatalities;
|
|
|
|
increased or unexpected reclamation costs; and
|
|
|
|
the inability to monitor our operations due to failures of
information technology systems.
|
If any of the foregoing changes, conditions or events occurs and
is not excusable as a force majeure event, any resulting failure
on our part to deliver coal to the purchaser under a long-term
sales contracts could result in economic penalties, suspension
or cancellation of shipments or ultimately termination of the
agreement, any of which could have a material adverse effect on
our business, financial condition or results of operations. For
more information regarding our long-term coal sales contracts,
please read Business Customers
Long-Term Coal Sales Contracts.
We maintain insurance coverage for some but not all potential
risks we face. We generally do not carry business interruption
insurance and we may elect not to carry other types of insurance
in the future. In addition, it is not possible to insure fully
against safety, pollution and environmental risks. The
occurrence of a significant accident or other event that is not
fully covered by insurance could have a material adverse effect
on our business, financial condition or results of operations.
In January 2007, we entered into a joint venture, Harrison
Resources, with CONSOL Energy. Pursuant to its operating
agreement, all members of Harrison Resources must approve cash
distributions, other than tax distributions, to its members. The
members of Harrison Resources have consistently approved cash
27
distributions from Harrison Resources on a quarterly basis,
including an aggregate of $6.3 million in distributions to
us during 2009 and $1.5 million in distributions to us in
April 2010. In the future, however, there can be no assurance
that we will receive regular cash distributions from Harrison
Resources.
CONSOL Energy controls the vast majority of the additional
reserves in Harrison County, Ohio that could be acquired by
Harrison Resources in the future. However, CONSOL Energy has no
obligation to sell those reserves to Harrison Resources, and we
cannot assure you that Harrison Resources could acquire those
reserves from CONSOL Energy on acceptable terms. As a result,
the growth of, and therefore our ability to receive future
distributions from, Harrison Resources may be limited, which
could have a material adverse effect on our ability to make cash
distributions to our unitholders.
In June 2005, we sold our underground mining operations at the
Tusky mining complex to an independent coal producer and
subleased our underground coal reserves to this producer in
exchange for an overriding royalty equal to a percentage of the
sales price received for the coal produced and sold. For the
year ended December 31, 2009 and the first quarter of 2010,
we received royalty income on our underground coal reserves of
approximately $4.5 million and $0.9 million,
respectively, or approximately 8.9% and 9.1% of our Adjusted
EBITDA, respectively. The royalty payments we receive could be
adversely affected by any of the following:
|
|
|
|
|
a substantial and extended decline in the sales price for coal
produced from our underground coal reserves;
|
|
|
|
any decisions by our sublessee to reduce or discontinue
production or sales of coal produced from our underground coal
reserves;
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|
|
|
any failure by our sublessee to properly manage its operations;
|
|
|
|
our sublessees operational risks relating to our
underground coal reserves, which expose our sublessee to
operating conditions and events beyond its control, including
the inability to acquire necessary permits, changes or
variations in geologic conditions, changes in governmental
regulation of the coal industry or the electric power industry,
mining and processing equipment failures and unexpected
maintenance problems, interruptions due to transportation
delays, adverse weather and natural disasters, labor-related
interruptions and fires and explosions; and
|
|
|
|
a material decline in the creditworthiness of our sublessee,
including as a result of the current economic downturn.
|
If the royalty payments we receive from our sublessee are
reduced, our ability to make cash distributions to our
unitholders could be adversely affected.
We use considerable quantities of diesel fuel in our mining
operations. Even though we hedge a portion of our diesel fuel
needs, if the price of diesel fuel increases significantly, our
operating expenses will increase, which could have a material
adverse effect on our profitability. A significant amount of
explosives are used in our mining operations. We use third party
contractors to provide blasting services, and they generally
pass through to us the cost of explosives, which are subject to
fluctuations. Additionally, a limited number of suppliers exist
for explosives, and any of these suppliers may divert their
products to other buyers. Shortages in raw materials used in the
manufacturing of explosives or the cancellation of supply
contracts under which these raw materials are obtained, could
increase the prices and limit the ability of our contractors to
obtain these supplies.
28
The coal mining industry is subject to increasingly strict
federal, state and local environmental and mining safety laws
and regulations. The enforcement of laws and regulations
governing the coal mining industry has substantially increased,
due in part to recent accidents at certain underground mines.
Violations can result in administrative, civil and criminal
penalties and a range of other possible sanctions. The recent
fatal mining accident in West Virginia received national
attention and led to responses at the state and national levels
that may further increase mine safety regulation, reporting
requirements, inspection and enforcement, particularly
underground mining operations. New legislation or administrative
regulations or new judicial interpretations or administrative
enforcement of existing laws and regulations, including
proposals related to the protection of the environment that
would further regulate and tax the coal industry, may also
require us to change operations significantly or incur increased
costs and be subject to more adverse consequences for
non-compliance. Such changes could have a material adverse
effect on our business, financial condition or results of
operations. Please read Business Regulation
and Laws.
As is typical in the coal industry, our coal production is
dependent on our ability to obtain various federal and state
permits and approvals to mine our coal reserves within the
timeline specified in our surface mining plan. The permitting
rules, and the interpretations of these rules, are complex,
change frequently, and are often subject to discretionary
interpretations by regulators, which may increase the costs or
possibly preclude the continuance of ongoing mining operations
or the development of future mining operations. In addition, the
public, including non-governmental organizations, anti-mining
groups and individuals, have certain statutory rights to comment
upon and otherwise impact the permitting process, including
through court intervention. The slowing pace at which necessary
permits are issued or renewed for new and existing mines has
materially impacted coal production, especially in Central
Appalachia. Permitting by the Army Corps of Engineers, or the
Corps, the EPA and the Department of the Interior has become
subject to enhanced review under both the Surface
Mining Control and Reclamation Act of 1977, or SMCRA, and the
federal Clean Water Act, or CWA, to reduce the harmful
environmental consequences of mountain-top mining, especially in
the Appalachian region. Moreover, on April 1, 2010, the EPA
issued interim final guidance substantially revising the
environmental review of CWA permits by state and federal
agencies.
Based on our current surface mining plan, we have proven and
probable coal reserves with active permits that will allow us to
mine for approximately three years. Typically, we submit the
necessary permit applications 12 to 30 months before we
plan to mine a new area. Some of our required mining permits are
becoming increasingly difficult to obtain in a timely manner, or
at all, and in some instances we have had to abandon or
substantially delay the mining of coal in certain areas covered
by the application in order to obtain required permits and
approvals. For example, one of our permit applications that
covers 0.6 million tons of our coal reserves is currently
being reviewed by the EPA under its enhanced review procedures
even though the mining activities in question do not utilize
mountain-top mining, a method of mining we do not employ.
Additional permits could be delayed in the future if the EPA
continues its enhanced review of CWA applications. If the
required permits are not issued or renewed in a timely fashion
or at all, or if permits issued or renewed are conditioned in a
manner that restricts our ability to efficiently and
economically conduct our mining activities, we could suffer a
material reduction in our production, and our operations and
there could be a material adverse effect on our ability to make
cash distributions to our unitholders. Please read
Business Regulation and Laws.
SMCRA and counterpart state laws and regulations establish
reclamation and closure standards for surface mining. As of
December 31, 2009, we had accrued a reserve of
approximately $13.3 million for future reclamation and
mine-closure liabilities. The estimate of ultimate reclamation
liability is reviewed periodically
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by our management and engineers. Our estimated reclamation and
mine closure obligations could change significantly if actual
results change from our assumptions, which could have a material
adverse effect on our financial condition or results of
operations. Please read Note 2 to our historical
consolidated financial statements included elsewhere in this
prospectus under the heading Asset Retirement
Obligation for more information regarding our reclamation
and mine closure obligations.
Our future level of debt could have important consequences to
us, including the following:
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our ability to obtain additional financing, if necessary, for
working capital, capital expenditures, acquisitions or other
purposes may be impaired or such financing may not be available
on favorable terms;
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our funds available for operations, future business
opportunities and distributions to unitholders will be reduced
by that portion of our cash flow required to make interest
payments on our debt;
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we may be more vulnerable to competitive pressures or a downturn
in our business or the economy generally; and
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our flexibility in responding to changing business and economic
conditions may be limited.
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Our ability to service our debt will depend upon, among other
things, our future financial and operating performance, which
will be affected by prevailing economic conditions and
financial, business, regulatory and other factors, some of which
are beyond our control. If our operating results are not
sufficient to service our future indebtedness, we will be forced
to take actions such as reducing distributions, reducing or
delaying our business activities, acquisitions, investments or
capital expenditures, selling assets or seeking additional
equity capital. We may not be able to effect any of these
actions on satisfactory terms or at all.
We expect to enter into a new credit facility concurrently with
the closing of the offering. Our new credit facility is likely
to limit our ability to, among other things:
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incur additional debt;
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make distributions on or redeem or repurchase units;
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make certain investments and acquisitions;
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incur certain liens or permit them to exist;
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enter into certain types of transactions with affiliates;
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merge or consolidate with another company; and
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transfer or otherwise dispose of assets.
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Our new credit facility also will contain covenants requiring us
to maintain certain financial ratios. Please read
Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and
Capital Resources Credit Facility.
The provisions of our new credit facility may affect our ability
to obtain future financing and pursue attractive business
opportunities and our flexibility in planning for, and reacting
to, changes in business conditions. In addition, a failure to
comply with the provisions of our new credit facility could
result in a default or an event of default that could enable our
lenders to declare the outstanding principal of that debt,
together with accrued and unpaid interest, to be immediately due
and payable. If the payment of our debt is accelerated, our
assets may be insufficient to repay such debt in full, and our
unitholders could experience a partial or total loss of their
investment.
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Our operations use hazardous materials, generate limited
quantities of hazardous wastes and may affect runoff or drainage
water. In the event of environmental contamination or a release
of hazardous materials, we could become subject to claims for
toxic torts, natural resource damages and other damages and for
the investigation and clean up of soil, surface water,
groundwater, and other media, as well as abandoned and closed
mines located on property we operate. Such claims may arise out
of conditions at sites that we currently own or operate, as well
as at sites that we previously owned or operated, or may
acquire. Our liability for such claims may be joint and several,
so that we may be held responsible for more than our share of
the contamination or other damages, or even for the entire
share. These and other impacts that our operations may have on
the environment, as well as exposures to hazardous substances or
wastes associated with our operations, could result in costs and
liabilities that could have a material adverse effect on us.
Please read Business Regulation and Laws.
We maintain coal refuse areas and slurry impoundments at our
Tuscarawas County and Muhlenberg County mining complexes. Such
areas and impoundments are subject to extensive regulation. One
of those impoundments overlies a mined out area, which can pose
a heightened risk of structural failure and of damages arising
out of such failure. When a slurry impoundment experiences a
structural failure, it could release large volumes of coal
slurry into the surrounding environment, which in turn can
result in extensive damage to the environment and natural
resources, such as bodies of water. A failure may also result in
civil or criminal fines, penalties, personal injuries and
property damages, and damage to wildlife or natural resources.
Our ability to operate our business and implement our strategies
depends on the continued contributions of Charles C. Ungurean
and other executive officers and key employees of our general
partner. In particular, we depend significantly on
Mr. Ungureans long-standing relationships within our
industry. The loss of any of our senior executives, and
Mr. Ungurean in particular, could have a material adverse
effect on our business. In addition, we believe that our future
success will depend on our continued ability to attract and
retain highly skilled management personnel with coal industry
experience and competition for these persons in the coal
industry is intense. We may not be able to continue to employ
key personnel or attract and retain qualified personnel in the
future, and our failure to retain or attract key personnel could
have a material adverse effect on our ability to effectively
operate our business.
Efficient coal mining using modern techniques and equipment
requires skilled laborers in multiple disciplines such as
equipment operators, mechanics and engineers, among others. We
have from time to time encountered shortages for these types of
skilled labor. If we experience shortages of skilled labor in
the future, our labor and overall productivity or costs could be
materially and adversely affected. If coal prices decrease in
the future or our labor prices increase, or if we experience
materially increased health and benefit costs with respect to
our general partners employees, our results of operations
could be materially and adversely affected.
All of our mines are operated by non-union employees of our
general partner. Our employees have the right at any time under
the National Labor Relations Act to form or affiliate with a
union. If our employees choose to form or affiliate with a union
and the terms of a union collective bargaining agreement are
significantly different from our current compensation and job
assignment arrangements with our employees, these arrangements
could adversely affect the stability of our production and
materially reduce our profitability.
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Our future performance depends on, among other things, the
accuracy of the estimates of our proven and probable coal
reserves. Please read Business Coal
Reserves for more information on the preparation of our
reserves estimates. There are numerous factors and assumptions
inherent in estimating the quantities and qualities of, and
costs to mine, coal reserves, any one of which may vary
considerably from actual results. These factors and assumptions
include:
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quality of the coal;
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geologic and mining conditions, which may not be fully
identified by available exploration data or may differ from our
experiences in areas where we currently mine;
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the percentage of coal ultimately recoverable;
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the assumed effects of regulation, including the issuance of
required permits, and taxes, including severance and excise
taxes and royalties, and other payments to governmental agencies;
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assumptions concerning the timing for the development of
reserves; and
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assumptions concerning equipment and productivity, future coal
prices, operating costs, including for critical supplies such as
fuel, tires and explosives, capital expenditures and development
and reclamation costs.
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As a result, estimates of the quantities and qualities of
economically recoverable coal attributable to any particular
group of properties, classifications of reserves based on risk
of recovery, estimated cost of production, and estimates of
future net cash flows expected from these properties as prepared
by different engineers and accounting personnel, or by the same
engineers and accounting personnel at different times, may vary
materially due to changes in the above factors and assumptions.
Actual production recovered from identified reserve areas and
properties, and revenues and expenditures associated with our
mining operations, may vary materially from estimates. Any
inaccuracy in the estimates related to our reserves could have a
material adverse effect on our ability to make cash
distributions.
Our ability to receive payment for the coal we sell depends on
the continued creditworthiness of our customers. The current
economic volatility and tightening credit markets increase the
risk that we may not be able to collect payments from our
customers. A continuation or worsening of current economic
conditions or other prolonged global or U.S. recessions
could also impact the creditworthiness of our customers.
If the creditworthiness of a customer declines, this would
increase the risk that we may not be able to collect payment for
all of the coal we sell to that customer. If we determine that a
customer is not creditworthy, we may not be required to deliver
coal under the customers coal sales contract. If we are
able to withhold shipments, we may decide to sell the
customers coal on the spot market, which may be at prices
lower than the contract price, or we may be unable to sell the
coal at all. Furthermore, the bankruptcy of any of our customers
could have a material adverse effect on our financial position.
In addition, competition with other coal suppliers could force
us to extend credit to customers and on terms that could
increase the risk of payment default.
In addition, we sell some of our coal to coal brokers who may
resell our coal to end users, including utilities. These coal
brokers may have only limited assets, making them less
creditworthy than the end users. Under some of these
arrangements, we have contractual privity only with the brokers
and may not be able to pursue claims against the end users in
connection with these sales if we do not receive payment from
the broker. In 2009, approximately 12% of our sales were to coal
brokers, and we expect our sales through coal brokers to
increase in 2010.
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Federal and state laws require us to secure the performance of
certain long-term obligations, such as mine closure or
reclamation costs. The amount of these security arrangements is
substantial, with total amounts of surety bonds at
March 31, 2010 of approximately $32.4 million, which
were supported by letters of credit of $7.5 million.
Certain business transactions, such as coal leases and other
obligations, may also require bonding. Our bonding requirements
could increase in the future. We may have difficulty procuring
or maintaining our surety bonds. Our bond issuers may demand
higher fees, additional collateral, including putting up letters
of credit or posting cash collateral, or other terms less
favorable to us upon those renewals. Our ability to obtain or
renew our surety bonds could be impacted by a variety of other
factors including lack of availability, unfavorable market
terms, the exercise by third-party surety bond issuers of their
right to refuse to renew the surety bonds and restrictions on
availability of collateral for current and future third-party
surety bond issuers under the terms of any credit arrangements
then in place. Due to current economic conditions and the
volatility of the financial markets, surety bond providers may
be less willing to provide us with surety bonds or maintain
existing surety bonds and we may have greater difficulty
satisfying the liquidity requirements under our existing surety
bond contracts. If we do not maintain sufficient borrowing
capacity or have other resources to satisfy our surety and
bonding requirements, our operations and cash available for
distribution to our unitholders could be adversely affected.
Our partnership agreement requires our general partner to deduct
from operating surplus each quarter estimated reserve
replacement expenditures as opposed to actual reserve
replacement expenditures in order to reduce disparities in
operating surplus caused by fluctuating reserve replacement
costs. Our initial annual estimated reserve replacement
expenditures for purposes of calculating operating surplus will
be $5.6 million. This amount is based on our current
estimates of the amounts of expenditures we will be required to
make in future years to maintain our depleting reserve base,
which we believe to be reasonable. This amount has been taken
into consideration in calculating our forecast of cash available
for distribution in Cash Distribution Policy and
Restrictions on Distributions. In the future our estimated
reserve replacement expenditures may be more than our actual
reserve replacement expenditures, which will reduce the amount
of available cash from operating surplus that we would otherwise
have available for distribution to unitholders. The amount of
estimated reserve replacement expenditures deducted from
operating surplus is subject to review and change by the board
of directors of our general partner at least once a year.
Our management team does not have experience managing our
business as a publicly traded partnership. If we are unable to
manage and operate our partnership as a publicly traded
partnership, our business and results of operations will be
adversely affected.
We are in the process of evaluating our internal controls
systems to allow management to report on, and our independent
auditors to audit, our internal controls over financial
reporting. We are also in the process of performing the system
and process evaluation and testing (and any necessary
remediation) required to comply with the management
certification and auditor attestation requirements of
Section 404 of the Sarbanes-Oxley Act of 2002. We will be
required to comply with Section 404 for the year ending
December 31, 2011. However, we cannot be certain as to the
timing of completion of our evaluation, testing and remediation
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actions or the impact of the same on our operations.
Furthermore, upon completion of this process, we may identify
control deficiencies of varying degrees of severity under
applicable SEC and Public Company Accounting Oversight Board
rules and regulations that remain unremediated. As a public
company, we will be required to report, among other things,
control deficiencies that constitute a material
weakness or changes in internal controls that, or that are
reasonably likely to, materially affect internal controls over
financial reporting. A material weakness is a
deficiency or combination of deficiencies in internal controls
over financial reports that results in more than a remote
likelihood that a material misstatement of the annual or interim
consolidated financial statements will not be prevented or
detected. In connection with the audit of our financial
statements, a significant deficiency in our internal
controls was identified that related to 2008. This significant
deficiency related to the timeliness and thoroughness of our
account reconciliation and review procedures. Management has
taken steps to remediate this significant deficiency by
restructuring and refining its account reconciliation process
and tracking. However, we may have additional significant
deficiencies in the future. A significant deficiency
is a deficiency or combination of deficiencies that is less
severe than a material weakness.
If we fail to implement the requirements of Section 404 in
a timely manner, we might be subject to sanctions or
investigation by regulatory authorities such as the SEC. In
addition, failure to comply with Section 404 or the report
by us of a material weakness may cause investors to lose
confidence in our consolidated financial statements, and as a
result our unit price may be adversely affected. If we fail to
remedy any material weakness, our consolidated financial
statements may be inaccurate, we may face restricted access to
the capital markets and our unit price may be adversely affected.
Terrorist attacks and threats, escalation of military activity
or acts of war may have significant effects on general economic
conditions, fluctuations in consumer confidence and spending and
market liquidity, each of which could materially and adversely
affect our business. Future terrorist attacks, rumors or threats
of war, actual conflicts involving the United States or its
allies, or military or trade disruptions affecting our customers
may significantly affect our operations and those of our
customers. Strategic targets, such as energy-related assets and
transportation assets, may be at greater risk of future
terrorist attacks than other targets in the United States.
Disruption or significant increases in energy prices could
result in government-imposed price controls. It is possible that
any of these occurrences, or a combination of them, could have a
material adverse effect on our business, financial condition and
results of operations.
Risks
Inherent in an Investment in Us
Fiduciary duties owed to our unitholders by our general partner
are prescribed by law and the partnership agreement. The
Delaware Revised Uniform Limited Partnership Act, or the
Delaware Act, provides that Delaware limited partnerships may,
in their partnership agreements, restrict the fiduciary duties
owed by the general partner to limited partners and the
partnership. Our partnership agreement contains provisions that
reduce the standards to which our general partner would
otherwise be held by state fiduciary duty law. For example, our
partnership agreement:
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limits the liability and reduces the fiduciary duties of our
general partner, while also restricting the remedies available
to our unitholders for actions that, without these limitations,
might constitute breaches of fiduciary duty. As a result of
purchasing common units, our unitholders consent to some actions
and conflicts of interest that might otherwise constitute a
breach of fiduciary or other duties under applicable state law;
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permits our general partner to make a number of decisions in its
individual capacity, as opposed to in its capacity as our
general partner. This entitles our general partner to consider
only the interests and
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factors that it desires, and it has no duty or obligation to
give any consideration to any interest of, or factors affecting,
us, our affiliates or any limited partner. Examples include the
exercise of its limited call right, its voting rights with
respect to the units it owns, its registration rights and its
determination whether or not to consent to any merger or
consolidation of the partnership;
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provides that our general partner shall not have any liability
to us or our unitholders for decisions made in its capacity as
general partner so long as it acted in good faith, meaning our
general partner honestly believed that the decision was in the
best interests of the partnership;
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generally provides that affiliated transactions and resolutions
of conflicts of interest not approved by the conflicts committee
of the board of directors of our general partner, or the
Conflicts Committee, and not involving a vote of our unitholders
must be on terms no less favorable to us than those generally
being provided to or available from unrelated third parties or
be fair and reasonable to us and that, in
determining whether a transaction or resolution is fair
and reasonable, our general partner may consider the
totality of the relationships between the parties involved,
including other transactions that may be particularly
advantageous or beneficial to us; and
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provides that our general partner and its officers and directors
will not be liable for monetary damages to us or our limited
partners for any acts or omissions unless there has been a final
and non-appealable judgment entered by a court of competent
jurisdiction determining that our general partner or those other
persons acted in bad faith or engaged in fraud or willful
misconduct.
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By purchasing a common unit, a common unitholder will become
bound by the provisions of the partnership agreement, including
the provisions described above. Please read Description of
the Common Units Transfer of Common Units.
Following the offering, C&T Coal will own a 18.8% limited
partner interest in us (or a 16.7% limited partner interest in
us if the underwriters exercise their option to purchase
additional common units in full), AIM Oxford will own a 36.9%
limited partner interest in us (or a 32.8% limited partner
interest in us if the underwriters exercise their option to
purchase additional common units in full), and C&T Coal and
AIM Oxford will own and control our general partner and its 2.0%
general partner interest in us. Although our general partner has
certain fiduciary duties to manage us in a manner beneficial to
us and our unitholders, the executive officers and directors of
our general partner have a fiduciary duty to manage our general
partner in a manner beneficial to its owners. Furthermore, since
certain executive officers and directors of our general partner
are executive officers or directors of affiliates of our general
partner, conflicts of interest may arise between C&T Coal
and AIM Oxford and their affiliates, including our general
partner, on the one hand, and us and our unitholders, on the
other hand. As a result of these conflicts, our general partner
may favor its own interests and the interests of its affiliates
over the interests of our unitholders. Please read
Our partnership agreement limits our general
partners fiduciary duties to our unitholders and restricts
the remedies available to our unitholders for actions taken by
our general partner that might otherwise constitute breaches of
fiduciary duty. The risk to our unitholders due to such
conflicts may arise because of the following factors, among
others:
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our general partner is allowed to take into account the
interests of parties other than us, such as C&T Coal and
AIM Oxford, in resolving conflicts of interest, which has the
effect of limiting its fiduciary duty to our unitholders;
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neither our partnership agreement nor any other agreement
requires owners of our general partner to pursue a business
strategy that favors us. Executive officers and directors of our
general partners owners have a fiduciary duty to make
these decisions in the best interest of their owners, which may
be contrary to our interests;
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our general partner determines the amount and timing of asset
purchases and sales, capital expenditures, borrowings, issuances
of additional partnership securities and reserves, each of which
can affect the amount of cash that is available for distribution
to our unitholders;
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our general partner determines our estimated reserve replacement
expenditures, which reduce operating surplus, and that
determination can affect the amount of cash that is distributed
to our unitholders and the ability of the subordinated units to
convert to common units;
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in some instances, our general partner may cause us to borrow
funds in order to permit the payment of cash distributions, even
if the purpose or effect of the borrowing is to make a
distribution on the subordinated units, to make incentive
distributions or to accelerate the expiration of the
subordination periods;
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our general partner determines which costs incurred by it and
its affiliates are reimbursable by us;
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our partnership agreement does not restrict our general partner
from causing us to pay it or its affiliates for any services
rendered on terms that are fair and reasonable to us or entering
into additional contractual arrangements with any of these
entities on our behalf;
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our general partner intends to limit its liability regarding our
contractual and other obligations;
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our general partner may exercise its limited right to call and
purchase common units if it and its affiliates own more than
80.0% of the common units;
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our general partner controls the enforcement of obligations owed
to us by it and its affiliates; and
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our general partner decides whether to retain separate counsel,
accountants or others to perform services for us.
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In addition, AIM currently holds substantial interests in other
companies in the energy and natural resource sectors. Our
partnership agreement provides that our general partner will be
restricted from engaging in any business activities other than
acting as our general partner and those activities incidental to
its ownership interest in us. However, AIM and AIM Oxford are
not prohibited from engaging in other businesses or activities,
including those that might be in direct competition with us. As
a result, they could potentially compete with us for acquisition
opportunities and for new business or extensions of the existing
services provided by us. Please read Conflicts of Interest
and Fiduciary Duties Conflicts of
Interest AIM Oxford and AIM, affiliates of our
general partner, may compete with us.
Pursuant to the terms of our partnership agreement, the doctrine
of corporate opportunity, or any analogous doctrine, does not
apply to our general partner or any of its affiliates, including
its executive officers, directors and owners. Any such person or
entity that becomes aware of a potential transaction, agreement,
arrangement or other matter that may be an opportunity for us
will not have any duty to communicate or offer such opportunity
to us. Any such person or entity will not be liable to us or to
any limited partner for breach of any fiduciary duty or other
duty by reason of the fact that such person or entity pursues or
acquires such opportunity for itself, directs such opportunity
to another person or entity or does not communicate such
opportunity or information to us. This may create actual and
potential conflicts of interest between us and affiliates of our
general partner and result in less than favorable treatment of
us and our unitholders. Please read Conflicts of Interest
and Fiduciary Duties.
Unlike the holders of common stock in a corporation, our
unitholders have only limited voting rights on matters affecting
our business and, therefore, limited ability to influence
managements decisions regarding our business. Our
unitholders will have no right to elect our general partner or
its board of directors on an annual or other continuing basis.
The board of directors of our general partner is chosen entirely
by its members and not by our unitholders. Furthermore, if our
unitholders are dissatisfied with the performance of our general
partner, they will have limited ability to remove our general
partner.
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Our unitholders will be unable initially to remove our general
partner without its consent because affiliates of our general
partner will own sufficient units upon the consummation of this
offering to be able to prevent removal of our general partner.
The vote of the holders of at least 80.0% of all outstanding
common units and subordinated units voting together as a single
class is required to remove our general partner. Following the
closing of this offering, affiliates of our general partner will
own 57.1% of our common units and subordinated units (or 50.7%
of our common units and subordinated units, if the underwriters
exercise their option to purchase additional common units in
full). Also, if our general partner is removed without cause
during the subordination period and units held by our general
partner and its affiliates are not voted in favor of that
removal, all remaining subordinated units will automatically be
converted into common units and any existing arrearages on the
common units will be extinguished. A removal of our general
partner under these circumstances would adversely affect the
common units by prematurely eliminating their distribution and
liquidation preference over the subordinated units, which would
otherwise have continued until we had met certain distribution
and performance tests.
Cause is narrowly defined in our partnership agreement to mean
that a court of competent jurisdiction has entered a final,
non-appealable judgment finding our general partner liable for
actual fraud or willful misconduct in its capacity as our
general partner. Cause does not include most cases of charges of
poor management of the business, so the removal of our general
partner during the subordination period because of our
unitholders dissatisfaction with our general
partners performance in managing our partnership will most
likely result in the termination of the subordination period. As
a result of these limitations, the price at which the common
units will trade could be diminished because of the absence or
reduction of a takeover premium in the trading price.
The assumed initial public offering price of $20.00 per common
unit (based upon the mid-point of the price range set forth on
the cover page of this prospectus) exceeds pro forma net
tangible book value of $5.61 per common unit. As a result, our
unitholders will incur immediate and substantial dilution of
$14.39 per common unit. This dilution results primarily because
the assets contributed to us by affiliates of our general
partner are recorded at their historical cost and not their fair
value. Please read Dilution.
Our general partner may transfer its general partner interest in
us to a third party in a merger or in a sale of all or
substantially all of its assets without the consent of our
unitholders. Furthermore, there is no restriction in our
partnership agreement on the ability of the members of our
general partner to transfer their respective membership
interests in our general partner to a third party. The new
members of our general partner would then be in a position to
replace the board of directors and executive officers of our
general partner with their own choices and to control the
decisions and actions of the board of directors and executive
officers of our general partner.
Our general partner may transfer its incentive distribution
rights to a third party at any time without the consent of our
unitholders. If our general partner transfers its incentive
distribution rights to a third party but retains its general
partner interest, our general partner may not have the same
incentive to grow our partnership and increase quarterly
distributions to unitholders over time as it would if it had
retained ownership of its incentive distribution rights.
Upon consummation of this offering, C&T Coal and AIM Oxford
will own an aggregate of 56.8% of our common units and
subordinated units (or 50.4% of our common units and
subordinated units, if the underwriters exercise their option to
purchase additional common units in full). If at any time our
general partner and its affiliates own more than 80.0% of the
common units, our general partner will have the right,
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but not the obligation, which it may assign to any of its
affiliates or to us, to acquire all, but not less than all, of
the common units held by unaffiliated persons at a price not
less than the then-current market price. As a result, our
unitholders may be required to sell their common units at an
undesirable time or price and may not receive any return on
their investment. Our unitholders may also incur a tax liability
upon a sale of their common units. Our general partner is not
obligated to obtain a fairness opinion regarding the value of
the common units to be repurchased by it upon exercise of the
limited call right. There is no restriction in our partnership
agreement that prevents our general partner from issuing
additional common units and exercising its limited call right.
If our general partner exercised its limited call right, the
effect would be to take us private and, if the common units were
subsequently deregistered, we would no longer be subject to the
reporting requirements of the Securities Exchange Act of 1934,
or the Exchange Act. For additional information about the
limited call right, please read The Partnership
Agreement Limited Call Right.
At any time, we may issue an unlimited number of limited partner
interests of any type without the approval of our unitholders.
Further, our partnership agreement does not prohibit the
issuance of equity securities that may effectively rank senior
to our common units. The issuance by us of additional common
units or other equity securities of equal or senior rank will
have the following effects:
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our unitholders proportionate ownership interest in us
will decrease;
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the amount of cash available for distribution on each unit may
decrease;
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because a lower percentage of total outstanding units will be
subordinated units, the risk that a shortfall in the payment of
the minimum quarterly distribution will be borne by our common
unitholders will increase;
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the relative voting strength of each previously outstanding unit
may be diminished; and
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the market price of the common units may decline.
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Our general partner has the right, at any time when there are no
subordinated units outstanding and it has received distributions
on its incentive distribution rights at the highest level to
which it is entitled (48.0%) for each of the prior four
consecutive fiscal quarters, to reset the initial target
distribution levels at higher levels based on our distributions
at the time of the exercise of the reset election. Following a
reset election by our general partner, the minimum quarterly
distribution will be adjusted to equal the reset minimum
quarterly distribution and the target distribution levels will
be reset to correspondingly higher levels based on percentage
increases above the reset minimum quarterly distribution.
If our general partner elects to reset the target distribution
levels, it will be entitled to receive a number of common units
and general partner units. The number of common units to be
issued to our general partner will be equal to that number of
common units that would have entitled their holder to an average
aggregate quarterly cash distribution in the prior two quarters
equal to the average of the distributions to our general partner
on the incentive distribution rights in the prior two quarters.
Our general partner will be issued the number of general partner
units necessary to maintain our general partners interest
in us that existed immediately prior to the reset election. We
anticipate that our general partner would exercise this reset
right in order to facilitate acquisitions or internal growth
projects that would not be sufficiently accretive to cash
distributions per common unit without such conversion. It is
possible, however, that our general partner could exercise this
reset election at a time when it is experiencing, or expects to
experience, declines in the cash distributions it receives
related to its incentive distribution rights and may, therefore,
desire to be issued common units rather than retain the right to
receive distributions on its incentive distribution rights based
on the initial target distribution levels. As a result, a reset
election may cause our common unitholders to experience a
reduction in the amount of cash distributions that our common
unitholders would have otherwise received had we not issued new
common units and general partner units to our general partner in
connection
38
with resetting the target distribution levels. Please read
How We Make Cash Distributions General
Partners Right to Reset Incentive Distribution
Levels.
Prior to making any distribution on the common units, we will
reimburse our general partner and its affiliates for all
expenses they incur on our behalf, which will be determined by
our general partner in its sole discretion in accordance with
the terms of our partnership agreement. In determining the costs
and expenses allocable to us, our general partner is subject to
its fiduciary duty, as modified by our partnership agreement, to
the limited partners, which requires it to act in good faith.
These expenses will include all costs incurred by our general
partner and its affiliates in managing and operating us. We are
managed and operated by executive officers and directors of our
general partner. Please read Cash Distribution Policy and
Restrictions on Distributions, Certain Relationships
and Related Party Transactions and Conflicts of
Interest and Fiduciary Duties Conflicts of
Interest. The reimbursement of expenses and payment of
fees, if any, to our general partner and its affiliates will
reduce the amount of available cash for distribution to our
unitholders.
Prior to the offering, there has been no public market for the
common units. After the offering, there will be only 8,750,000
publicly traded common units (or 10,062,500 publicly traded
common units, if the underwriters exercise their option to
purchase additional common units in full). 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. Our
unitholders may not be able to resell their common units at or
above the initial public offering price. Additionally, the lack
of liquidity may result in wide bid-ask spreads, contribute to
significant fluctuations in the market price of the common units
and limit the number of investors who are able to buy the common
units. The initial public offering price for the common units
has been determined by negotiations between us and the
representative of the underwriters and may not be indicative of
the market price of the common units that will prevail in the
trading market. The market price of our common units may decline
below the initial public offering price. The market price of our
common units may also be influenced by many factors, some of
which are beyond our control, including:
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our quarterly distributions;
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our quarterly or annual earnings or those of other companies in
our industry;
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loss of a large customer;
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announcements by us or our competitors of significant contracts
or acquisitions;
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changes in accounting standards, policies, guidance,
interpretations or principles;
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changes in interest rates;
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general economic conditions;
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the failure of securities analysts to cover our common units
after this offering or changes in financial estimates by
analysts; and
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the other factors described in these Risk Factors.
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In addition, the market price of our common units could decline
as a result of sales of a large number of our common units in
the public markets after this offering. We, our subsidiaries,
our general partner and its affiliates, including C&T Coal
and AIM Oxford, and the directors and executive officers of our
general partner have entered into
lock-up
agreements with the underwriters, as described in the section
entitled Underwriting
Lock-Up
Agreements. The
lock-up
agreements cover 1,458,800 common units or 14.2% of the total
number of common units that will be outstanding upon completion
of this offering. The common units subject to these
lock-up
agreements will be restricted from immediate resale but may be
sold into the
39
market after those restrictions expire, which will be at least
180 days after the date of this prospectus. However,
Barclays Capital Inc., in its sole discretion, may release the
common units subject to the
lock-up
agreements in whole or in part at any time with or without
notice.
We have no history operating as a publicly traded partnership.
As a publicly traded partnership, we will incur significant
legal, accounting and other expenses that we did not incur as a
private company. We expect that complying with the rules and
regulations implemented by the SEC and the New York Stock
Exchange will increase our legal and financial compliance costs
and make activities more time-consuming and costly. For example,
as a result of becoming a publicly traded partnership, we are
required to have three independent directors, create additional
board committees and adopt policies regarding internal controls
and disclosure controls and procedures, including the
preparation of reports on internal controls over financial
reporting. In addition, we will incur additional costs
associated with our publicly traded partnership reporting
requirements.
Our general partner may require each limited partner to furnish
information about his nationality, citizenship or related
status. If a limited partner fails to furnish information about
his nationality, citizenship or other related status within
30 days after a request for the information or our general
partner determines after receipt of the information that the
limited partner is not an eligible citizen, the limited partner
may be treated as a non-citizen assignee. 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.
Furthermore, we have the right to redeem all of the common units
and subordinated units of any holder that is not an eligible
citizen or fails to furnish the requested information. The
redemption price will be paid in cash or by delivery of a
promissory note, as determined by our general partner. Please
read The Partnership Agreement Non-Citizen
Assignees; Redemption.
Under certain circumstances, our unitholders may have to repay
amounts wrongfully returned or distributed to them. Under
Section 17-607
of the Delaware Act, we may not make a distribution to our
unitholders if the distribution would cause our liabilities to
exceed the fair value of our assets. Delaware law provides that,
for a period of three years from the date of the impermissible
distribution, limited partners who received the distribution and
who knew at the time of the distribution that it violated
Delaware law will be liable to the limited partnership for the
distribution amount. Purchasers of units who become limited
partners are liable for the obligations of the transferring
limited partner to make contributions to the partnership that
are known to the purchaser of units at the time it became a
limited partner and for unknown obligations if the liabilities
could be determined from the partnership agreement. Liabilities
to partners on account of their partnership interests and
liabilities that are non-recourse to the partnership are not
counted for purposes of determining whether a distribution is
permitted.
Tax
Risks
In addition to reading the following risk factors, please read
Material Federal Income Tax Consequences for a more
complete discussion of the expected material federal income tax
consequences of owning and disposing of common units.
40
The anticipated after-tax economic 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 tax matter affecting us.
Despite the fact that we are a limited partnership under
Delaware law, it is possible in certain circumstances for a
partnership such as ours to be treated as a corporation for
federal income tax purposes. A change in our business or a
change in current law could cause us to be treated as a
corporation for federal income tax purposes or otherwise subject
us to taxation as an entity.
If we were treated as a corporation for federal income tax
purposes, we would pay federal income tax on our taxable income
at the corporate tax rate, which is currently a maximum of
35.0%, and would likely pay state and local income tax at
varying rates. Distributions would generally be taxed again as
corporate distributions (to the extent of our current and
accumulated earnings and profits), and no income, gains, losses,
deductions, or credits would flow through to you. Because a tax
would be imposed upon us as a corporation, our cash available
for distribution to you would be substantially reduced.
Therefore, if we were treated as a corporation for federal
income tax purposes there would be material reduction in the
anticipated cash flow and after-tax return to our unitholders,
likely causing a substantial reduction in the value of our
common units.
Our 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, the minimum quarterly distribution amount and the
target distribution amounts may be adjusted to reflect the
impact of that law on us.
Changes in current state law may subject us to additional
entity-level taxation by individual states. Because of
widespread state budget deficits and other reasons, several
states are evaluating ways to subject partnerships to
entity-level taxation through the imposition of state income,
franchise and other forms of taxation. Imposition of any such
taxes may substantially reduce the cash available for
distribution to you. Our partnership agreement provides that, if
a law is enacted or existing law is modified or interpreted in a
manner that subjects us to entity-level taxation, the minimum
quarterly distribution amount and the target distribution
amounts may be adjusted to reflect the impact of that law on us.
The present federal income tax treatment of publicly traded
partnerships, including us, or an investment in our common units
may be modified by administrative, legislative or judicial
interpretation at any time. Recently, members of the
U.S. Congress have considered substantive changes to the
existing federal income tax laws that affect certain publicly
traded partnerships, which, if enacted, may or may not be
applied retroactively. Any such changes could negatively impact
the value of an investment in our common units.
Among the changes contained in President Obamas Budget
Proposal for Fiscal Year 2011, or the Budget Proposal, is the
elimination of certain key U.S. federal income tax
preferences relating to coal exploration and development. The
Budget Proposal would (i) eliminate current deductions and
the
60-month
amortization for exploration and development costs relating to
coal and other hard mineral fossil fuels, (ii) repeal the
percentage depletion allowance with respect to coal properties,
(iii) repeal capital gains treatment of coal and lignite
royalties, and (iv) exclude from the definition of domestic
production gross receipts all gross receipts derived from the
sale, exchange, or other disposition of coal, other hard mineral
fossil fuels, or primary
41
products thereof. The passage of any legislation as a result of
the Budget Proposal or any other similar changes in
U.S. federal income tax laws could eliminate certain tax
deductions that are currently available with respect to coal
exploration and development, and any such change could increase
the taxable income allocable to our unitholders and negatively
impact the value of an investment in our common units.
Because a unitholder will be treated as a partner to whom we
will allocate taxable income which could be different in amount
than the cash we distribute, a unitholders allocable share
of our taxable income will be taxable to it, which may require
the payment of federal income taxes and, in some cases, state
and local income taxes on its share of our taxable income even
if it receives no cash distributions from us. Our unitholders
may not receive cash distributions from us equal to their share
of our taxable income or even equal to the actual tax liability
that results from that income.
We have not requested a ruling from the Internal Revenue
Service, or the IRS, with respect to our treatment as a
partnership for federal income tax purposes or any other matter
affecting us. The IRS may adopt positions that differ from the
conclusions of our counsel expressed in this prospectus or from
the positions we take, and the IRSs positions may
ultimately be sustained. It may be necessary to resort to
administrative or court proceedings to sustain some or all of
our counsels conclusions or the positions we take and such
positions may not ultimately be sustained. A court may not agree
with some or all of our counsels conclusions or the
positions we take. Any contest with the IRS, and the outcome of
any IRS contest, may have a materially adverse impact on the
market for our common units and the price at which they trade.
In addition, our costs of any contest with the IRS will be borne
indirectly by our unitholders and our general partner because
the costs will reduce our cash available for distribution.
If you sell your common units, you will recognize a gain or loss
for federal income tax purposes equal to the difference between
the amount realized and your tax basis in those common units.
Because distributions in excess of your allocable share of our
net taxable income decrease your tax basis in your common units,
the amount, if any, of such prior excess distributions with
respect to the common units you sell will, in effect, become
taxable income to you if you sell such common units at a price
greater than your tax basis in those common units, even if the
price you receive is less than your original cost. Furthermore,
a substantial portion of the amount realized on any sale of your
common units, whether or not representing gain, may be taxed as
ordinary income due to potential recapture items, including
depreciation recapture. In addition, because the amount realized
includes a unitholders share of our nonrecourse
liabilities, if you sell your common units, you may incur a tax
liability in excess of the amount of cash you receive from the
sale. Please read Material Federal Income Tax
Consequences Disposition of Common Units
Recognition of Gain or Loss for a further discussion of
the foregoing.
Investment in common units by tax-exempt entities, such as
employee benefit plans and individual retirement accounts (known
as IRAs), and
non-U.S. persons
raises issues unique to them. For example, virtually all of our
income allocated to organizations that are exempt from federal
income tax, including IRAs and other retirement plans, will be
unrelated business taxable income and will be taxable to them.
Distributions to
non-U.S. persons
will be reduced by withholding taxes at the highest applicable
effective tax rate, and
non-U.S. persons
will be required to file U.S. federal income tax returns
and pay tax on their share of our taxable income. If you are a
tax-exempt entity or a
non-U.S. person,
you should consult a tax advisor before investing in our common
units.
42
Because we cannot match transferors and transferees of common
units and because of other reasons, we will adopt depreciation
and amortization positions that may not conform to all aspects
of existing Treasury Regulations. A successful IRS challenge to
those positions could adversely affect the amount of tax
benefits available to you. Our counsel is unable to opine as to
the validity of such filing positions. 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 our common units or result in audit adjustments to your
tax returns. Please read Material Federal Income Tax
Consequences Tax Consequences of Unit
Ownership Section 754 Election for a
further discussion of the effect of the depreciation and
amortization positions we will adopt.
We will prorate our items of income, gain, loss and deduction
for U.S. federal income tax purposes between transferors
and transferees of our units each month based upon the ownership
of our units on the first day of each month, instead of on the
basis of the date a particular unit is transferred. The use of
this proration method may not be permitted under existing
Treasury Regulations, and, accordingly, our counsel is unable to
opine as to the validity of this method. If the IRS were to
challenge this method or new Treasury regulations were issued,
we may be required to change the allocation of items of income,
gain, loss and deduction among our unitholders. Please read
Material Federal Income Tax Consequences
Disposition of Common Units Allocations Between
Transferors and Transferees.
Because a unitholder whose common units are loaned to a
short seller to cover a short sale of common units
may be considered as having disposed of the loaned common units,
he may no longer be treated for federal income tax purposes as a
partner with respect to those common units during the period of
the loan to the short seller and the unitholder may recognize
gain or loss from such disposition. Moreover, during the period
of the loan to the short seller, any of our income, gain, loss
or deduction with respect to those common units may not be
reportable by the unitholder and any cash distributions received
by the unitholder as to those common units could be fully
taxable as ordinary income. Our counsel has not rendered an
opinion regarding the treatment of a unitholder where common
units are loaned to a short seller to cover a short sale of
common units; therefore, our unitholders desiring to assure
their status as partners and avoid the risk of gain recognition
from a loan to a short seller are urged to consult a tax advisor
to discuss whether it is advisable to modify any applicable
brokerage account agreements to prohibit their brokers from
loaning their common units.
When we issue additional units or engage in certain other
transactions, we will determine the fair market value of our
assets and allocate any unrealized gain or loss attributable to
our assets to the capital accounts of our unitholders and our
general partner. Our methodology may be viewed as understating
the value of our assets. In that case, there may be a shift of
income, gain, loss and deduction between certain unitholders and
our general partner, which may be unfavorable to such
unitholders. Moreover, under our valuation methods, subsequent
purchasers of common units may have a greater portion of their
Internal Revenue Code
43
Section 743(b) adjustment allocated to our tangible assets
and a lesser portion allocated to our intangible assets. The IRS
may challenge our valuation methods, or our allocation of the
Section 743(b) adjustment attributable to our tangible and
intangible assets, and allocations of taxable income, gain, loss
and deduction between our general partner and certain of our
unitholders.
A successful IRS challenge to these methods or allocations could
adversely affect the amount of taxable income or loss being
allocated to our unitholders. It also could affect the amount of
taxable gain from our unitholders sale of common units and
could have a negative impact on the value of the common units or
result in audit adjustments to our unitholders tax returns
without the benefit of additional deductions.
We will be considered to have technically terminated our
partnership for federal income tax purposes if there is a sale
or exchange of 50% or more of the total interests in our capital
and profits within a twelve-month period. For purposes of
determining whether the 50% threshold has been met, multiple
sales of the same interest will be counted only once. Our
technical termination would, among other things, result in the
closing of our taxable year for all unitholders, which would
result in us filing two tax returns (and our unitholders could
receive two Schedules K-1 if relief was not available, as
described below) for one fiscal year and could result in a
deferral of depreciation deductions allowable in computing our
taxable income. 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 also result in more than
twelve months of our taxable income or loss being includable in
his taxable income for the year of termination. Our termination
currently would not affect our classification as a partnership
for federal income tax purposes, but instead we would be treated
as a new partnership for tax purposes. If treated as a new
partnership, we must make new tax elections and could be subject
to penalties if we are unable to determine that a termination
occurred. The IRS has recently announced a publicly traded
partnership technical termination relief program whereby, if a
publicly traded partnership that technically terminated requests
publicly traded partnership technical termination relief and
such relief is granted by the IRS, among other things, the
partnership will only have to provide one
Schedule K-1
to unitholders for the year notwithstanding two partnership tax
years. Please read Material Federal Income Tax
Consequences Disposition of Common Units
Constructive Termination for a discussion of the
consequences of our termination for federal income tax purposes.
In addition to federal income taxes, our unitholders will likely
be subject to other taxes, including state and local taxes,
unincorporated business taxes and estate, inheritance or
intangible taxes that are imposed by the various jurisdictions
in which we conduct business or control property now or in the
future, even if they do not live in any of those jurisdictions.
Our unitholders will likely be required to file state and local
income tax returns and pay state and local income taxes in some
or all of these various jurisdictions. Further, our unitholders
may be subject to penalties for failure to comply with those
requirements. We initially expect to conduct business in
Indiana, Kentucky, Michigan, Ohio and Pennsylvania. Each of
these states currently imposes a personal income tax on
individuals. As we make acquisitions or expand our business, we
may control assets or conduct business in additional states that
impose a personal income tax. It is your responsibility to file
all U.S. federal, state and local tax returns. Our counsel
has not rendered an opinion on the state or local tax
consequences of an investment in our common units.
44
USE OF
PROCEEDS
We expect to receive net proceeds of approximately
$162.8 million, after deducting underwriting discounts and
commissions but before paying offering expenses, from the
issuance and sale of common units offered by this prospectus. We
will use the net proceeds from this offering to:
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repay in full the outstanding balance under our existing credit
facility, which was approximately $96.5 million at
June 4, 2010;
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distribute approximately $22.3 million to C&T Coal in
respect of its limited partner interest in us;
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distribute approximately $0.7 million to the participants
in our LTIP that hold our common units in respect of their
limited partner interests in us;
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terminate our advisory services agreement with affiliates of AIM
for a payment of approximately $2.5 million;
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pay offering expenses of approximately $3.2 million; and
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purchase major mining equipment for approximately
$22.1 million.
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We will retain the remaining net proceeds from this offering to
replenish approximately $15.5 million of our working
capital. Please read Summary The
Transactions.
The table below sets forth our anticipated use of the net
proceeds from this offering.
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Application of
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Net Proceeds of
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Percentage of
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this Offering
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Net Proceeds
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(in thousands)
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Repayment of our existing credit facility
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$
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96,517
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59.3
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%
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Distribution to C&T Coal
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22,271
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13.7
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Distribution to LTIP participants
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705
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0.4
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Termination of advisory services agreement
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2,500
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1.5
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Payment of offering expenses
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3,125
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1.9
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Purchase of major mining equipment
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22,100
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13.6
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Replenish working capital
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15,532
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9.6
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Total
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$
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162,750
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100.0
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%
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Immediately following the repayment of the outstanding balance
under our existing credit facility with the net proceeds of this
offering, we will enter into a new credit facility and borrow
approximately $85.0 million under that credit facility. We
will use the proceeds from that borrowing to:
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distribute approximately $43.8 million to AIM Oxford in
respect of its limited partner interest in us;
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pay fees and expenses relating to our new credit facility of
approximately $4.6 million;
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distribute approximately $1.3 million to our general
partner in respect of its general partner interest in us;
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replenish approximately $3.2 million of our working
capital; and
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purchase major mining equipment that we currently lease for
approximately $32.1 million.
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A portion of the amounts to be repaid under our existing credit
facility with the net proceeds of this offering were used to
finance our acquisition of the surface mining operations of
Phoenix Coal in September 2009. As of June 4, 2010, we had
approximately $96.5 million of indebtedness outstanding
under our existing credit facility. This indebtedness had a
weighted average interest rate of 6.74% as of June 4, 2010.
Our existing credit facility matures in August 2012.
45
The LTIP participants that will receive the approximately
$0.7 million described above consist of Gerald A. Tywoniuk,
one of our independent directors, our executive officers
(excluding Charles C. Ungurean and Thomas T. Ungurean) and
certain key employees.
Our estimates assume an initial public offering price of $20.00
per common unit (based upon the mid-point of the price range set
forth on the cover page of this prospectus) and no exercise of
the underwriters option to purchase additional common
units. An increase or decrease in the initial public offering
price of $1.00 per common unit would cause the net proceeds from
the offering, after deducting underwriting discounts, to
increase or decrease by approximately $8.1 million. If the
proceeds increase due to a higher initial public offering price,
we will use the additional proceeds, at our option, either for
general partnership purposes, which may include the funding of
additional working capital and funds to pay operating
expenditures, or for additional distributions to C&T Coal
and the LTIP participants that hold our common units and to
purchase some of the major mining equipment that would otherwise
be purchased with the initial borrowings under our new credit
facility. In the event we make such additional distributions,
the distribution of the net proceeds from the borrowings under
our new credit facility to our general partner and AIM Oxford
will be increased proportionally. If the proceeds decrease due
to a lower initial public offering price, the amount that we
will distribute to C&T Coal and the LTIP participants will
decrease by a corresponding amount. In the event of such a
decrease, we will also reduce our borrowings under our new
credit facility and the distribution to AIM Oxford will decrease
by a proportional amount.
The proceeds from any exercise of the underwriters option
to purchase additional common units will be used to redeem from
C&T Coal and AIM Oxford that number of common units that
corresponds to the number of common units issued upon such
exercise, at a price per common unit equal to the proceeds per
common unit before expenses but after underwriting discounts.
Affiliates of Citigroup Global Markets Inc. are lenders under
our existing credit facility and will receive their
proportionate share of the repayment of the outstanding balance
under our existing credit facility by us in connection with this
offering. Please read Underwriting
Relationships/FINRA Conduct Rules.
46
CAPITALIZATION
The following table shows:
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our historical capitalization, as of March 31, 2010; and
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our pro forma, as adjusted capitalization as of March 31,
2010, giving effect to:
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our entry into our new credit facility and the repayment of all
outstanding indebtedness under our existing credit facility;
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our receipt of net proceeds of $162.8 million from the
issuance and sale of 8,750,000 common units to the public
at an assumed initial offering price of $20.00 per unit (based
on the mid-point of the price range set forth on the cover page
of this prospectus);
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the application of the net proceeds from this offering in the
manner described in Use of Proceeds; and
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the other transactions described in Summary
The Transactions.
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We derived this table from and it should be read in conjunction
with and is qualified in its entirety by reference to the
unaudited historical and pro forma consolidated financial
statements and the accompanying notes included elsewhere in this
prospectus. You should also read this table in conjunction with
Managements Discussion and Analysis of Financial
Condition and Results of Operations.
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|
|
|
|
|
|
As of March 31, 2010
|
|
|
|
|
|
|
Pro Forma,
|
|
|
|
Actual
|
|
|
As Adjusted
|
|
|
|
(in thousands)
|
|
|
Cash and cash equivalents
|
|
$
|
1,290
|
|
|
$
|
23,004
(1
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt (including current maturities):
|
|
|
|
|
|
|
|
|
Existing credit
facility
(2)
|
|
|
93,517
|
|
|
|
|
|
New credit
facility
(3)
|
|
|
|
|
|
|
85,000
|
|
Other debt
|
|
|
4,915
|
|
|
|
4,915
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt (including current maturities)
|
|
$
|
98,432
|
|
|
$
|
89,915
|
|
|
|
|
|
|
|
|
|
|
Partners capital:
|
|
|
|
|
|
|
|
|
Limited partners:
|
|
|
|
|
|
|
|
|
Common unitholders public
|
|
|
|
|
|
|
157,482
|
|
Common unitholders LTIP
|
|
|
962
|
|
|
|
(420
|
)
|
Common unitholders sponsors
|
|
|
50,158
|
|
|
|
(4,766
|
)
|
Subordinated unitholders sponsors
|
|
|
|
|
|
|
(34,902
|
)
|
General partner
|
|
|
1,048
|
|
|
|
(814
|
)
|
|
|
|
|
|
|
|
|
|
Total Oxford Resource Partners, LP partners capital
|
|
|
52,168
|
|
|
|
116,580
|
|
Noncontrolling interest
|
|
|
3,695
|
|
|
|
3,695
|
|
|
|
|
|
|
|
|
|
|
Total partners capital
|
|
|
55,863
|
|
|
|
120,275
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
155,585
|
|
|
$
|
233,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
This amount includes cash retained from the transactions
described in Use of Proceeds to replenish working
capital. As described in note (2) below, subsequent to
March 31, 2010 we have made an additional $3.0 million
of borrowings under our existing credit facility as of
June 4, 2010. Because we will repay all outstanding
borrowings under our existing credit facility with the proceeds
of this offering, this $3.0 million increase in borrowings
as of June 4, 2010 would result in a corresponding decrease
in cash and cash equivalents of the same amount as of such date.
|
|
|
|
(2)
|
|
As of June 4, 2010, we had $96.5 million of borrowings
under our existing credit facility. This amount does not include
$8.2 million of letters of credit that were outstanding
under our existing credit facility as of June 4, 2010.
|
|
|
|
(3)
|
|
This amount does not include $6.9 million in outstanding
letters of credit that will be issued under our new credit
facility.
|
47
DILUTION
Dilution is the amount by which the offering price will exceed
the net tangible book value per unit after the offering.
Assuming an initial public offering price of $20.00 per common
unit (based upon the mid-point of the price range set forth on
the cover page of this prospectus), on a pro forma basis as of
March 31, 2010, after giving effect to our entry into our
new credit facility and repayment of all outstanding
indebtedness under our existing credit facility, the issuance
and sale of 8,750,000 common units, the other transactions
described in Summary The Transactions
and the application of the net proceeds from this offering in
the manner described in Use of Proceeds, our net
tangible book value was approximately $117.6 million, or
$5.61 per common unit. The pro forma tangible net book value
excludes $4.6 million of deferred financing costs.
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.
|
|
|
|
|
|
|
|
|
Assumed initial public offering price per common unit
|
|
|
|
|
|
$
|
20.00
|
|
Net tangible book value per common unit before the
offering
(1)
|
|
$
|
4.61
|
|
|
|
|
|
Increase in net tangible book value per common unit attributable
to purchasers in the offering
|
|
|
1.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Pro forma net tangible book value per common unit after
the
offering
(2)
|
|
|
|
|
|
|
5.61
|
|
|
|
|
|
|
|
|
|
|
Immediate dilution in net tangible book value per common unit to
purchasers in the
offering
(3)
|
|
|
|
|
|
$
|
14.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Determined by dividing the net tangible book value of the
contributed assets and liabilities by the number of units
(1,530,380 common units, 10,280,380 subordinated units
and the 2.0% general partner interest represented by 419,607
general partner units) held by our general partner and its
affiliates and the participants under our LTIP.
|
|
|
|
(2)
|
|
Determined by dividing our pro forma net tangible book value,
after giving effect to the use of the net proceeds from this
offering, by the total number of units (10,280,380 common
units, 10,280,380 subordinated units and the 2.0% general
partner interest represented by 419,607 general partner
units) to be outstanding after this offering.
|
|
|
|
(3)
|
|
If the initial public offering price were to increase or
decrease by $1.00 per common unit, immediate dilution in net
tangible book value per common unit would increase or decrease
by $1.00.
|
The following table sets forth the number of units that we will
issue and the total consideration contributed to us by our
general partner and its affiliates and the participants under
our LTIP in respect of their units and by the purchasers of
common units in this offering upon consummation of the
transactions contemplated by this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units Acquired
|
|
|
Total Consideration
|
|
|
|
Number
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
|
($ in millions)
|
|
|
General Partner and its affiliates, and LTIP
participants
(1)
|
|
|
12.2
|
|
|
|
58.3
|
%
|
|
$
|
52.2
|
|
|
|
23.0
|
%
|
New Investors
|
|
|
8.8
|
|
|
|
41.7
|
%
|
|
|
175.0
|
|
|
|
77.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
21.0
|
|
|
|
100.0
|
%
|
|
$
|
227.2
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Upon the consummation of the transactions contemplated by this
prospectus, our general partner and its affiliates, and the
participants under our LTIP, will own 1,530,380 common
units, 10,280,380 subordinated units and a 2.0% general
partner interest represented by 419,607 general partner
units.
|
48
CASH
DISTRIBUTION POLICY AND RESTRICTIONS ON DISTRIBUTIONS
You should read the following discussion of our cash
distribution policy in conjunction with the specific assumptions
included in this section. In addition, you should read
Forward-Looking Statements and Risk
Factors for information regarding statements that do not
relate strictly to historical or current facts and regarding
certain risks inherent in our business.
For additional information regarding our historical results
of operations, you should refer to our historical audited
consolidated financial statements as of and for the years ended
December 31, 2007, 2008 and 2009 and our historical
unaudited consolidated financial statements as of and for the
quarters ended March 31, 2009 and 2010 included elsewhere
in this prospectus.
General
Rationale
for Our Cash Distribution Policy
Our partnership agreement requires that we distribute all of our
available cash quarterly. Under our partnership agreement,
available cash is generally defined to mean, for each quarter,
cash generated from our business in excess of the amount of cash
reserves established by our general partner to provide for the
conduct of our business, to comply with applicable law, any of
our debt instruments or other agreements or to provide for
future distributions to our unitholders for any one or more of
the next four quarters. Our available cash may also include, if
our general partner so determines, all or any portion of the
cash on hand on the date of determination of available cash for
the quarter. Our cash distribution policy reflects a basic
judgment that our unitholders will be better served by
distributing our available cash rather than retaining it,
because, among other reasons, we believe we will generally
finance any expansion capital expenditures from external
financing sources. Because we are not subject to an entity-level
federal income tax, we expect to have more cash to distribute
than would be the case if we were subject to federal income tax.
Limitations
on Cash Distributions and Our Ability to Change Our Cash
Distribution Policy
There is no guarantee that we will distribute quarterly cash
distributions to our unitholders. Our cash distribution policy
is subject to certain restrictions and may be changed at any
time. The reasons for such uncertainties in our stated cash
distribution policy include the following factors:
|
|
|
|
|
Our cash distribution policy will be subject to restrictions on
cash distributions under our new credit facility. Specifically,
we expect our new credit facility to contain financial tests and
covenants that we must satisfy before quarterly cash
distributions can be paid. In addition, our ability to pay
quarterly cash distributions will be restricted if an event of
default has occurred under our new credit facility. The
financial tests, covenants and events of default are described
in Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and
Capital Resources Credit Facility. Should we
be unable to satisfy these restrictions included in our new
credit facility or if we are otherwise in default under our new
credit facility, we would be prohibited from making cash
distributions notwithstanding our cash distribution policy.
|
|
|
|
Our general partner will have the authority to establish cash
reserves for the prudent conduct of our business and for future
cash distributions to our unitholders, and the establishment of
or increase in those reserves could result in a reduction in
cash distributions from levels we currently anticipate pursuant
to our stated cash distribution policy.
|
|
|
|
While our partnership agreement requires us to distribute all of
our available cash, our partnership agreement, including the
provisions requiring us to make cash distributions contained
therein, may be amended. Our partnership agreement generally may
not be amended during the subordination period without the
approval of our public common unitholders other than in certain
limited circumstances where no unitholder approval is required.
However, after the subordination period has ended our
partnership agreement may be amended with the consent of our
general partner and the approval of a majority of the
outstanding common units (including common units held by
C&T Coal and AIM Oxford). At the closing of this offering,
C&T Coal and AIM Oxford will own our general partner,
|
49
approximately 6.7% of our outstanding common units and all of
our outstanding subordinated units. Please read The
Partnership Agreement Amendment of Our Partnership
Agreement.
|
|
|
|
|
Even if our cash distribution policy is not modified or revoked,
the amount of distributions we pay under our cash distribution
policy and the decision to make any distribution is determined
by our general partner, taking into consideration the terms of
our partnership agreement.
|
|
|
|
Under
Section 17-607
of the Delaware Act, we may not make a distribution if the
distribution would cause our liabilities to exceed the fair
value of our assets.
|
|
|
|
We may lack sufficient cash to pay distributions to our
unitholders due to reduced revenues or increases in our
operating costs, SG&A expenses, principal and interest
payments on our outstanding debt and working capital
requirements.
|
|
|
|
|
|
If we make distributions out of capital surplus, as opposed to
operating surplus, any such distributions would constitute a
return of capital and would result in a reduction in the minimum
quarterly distribution and the target distribution levels.
Please read How We Make Cash Distributions
Distributions from Capital Surplus. We do not anticipate
that we will make any distributions from capital surplus.
|
|
|
|
|
|
Our ability to make distributions to our unitholders depends on
the performance of our subsidiaries and their ability to
distribute cash to us, including cash distributions from
Harrison Resources, which requires the approval of the
noncontrolling interest holder. The ability of our subsidiaries
to make distributions to us may be restricted by, among other
things, the provisions of existing and future indebtedness,
applicable state partnership and limited liability company laws
and other laws and regulations.
|
We must generate approximately $36.7 million (or an average
of $9.2 million per quarter) of available cash to pay the
minimum quarterly distribution for four quarters on all of our
common units, subordinated units and general partner units that
will be outstanding immediately after this offering. We believe,
based on our financial forecast and related assumptions, that we
will have sufficient available cash to enable us to pay this
amount for the twelve months ending June 30, 2011. However,
we did not generate this amount of available cash from operating
surplus during the year ended December 31, 2009 and the
twelve months ended March 31, 2010. The amounts that we
generated with respect to those periods were $16.2 million
and $10.9 million, respectively. As a result, for the year
ended December 31, 2009 and the twelve months ended
March 31, 2010 we would have generated aggregate available
cash sufficient to pay only 88.3% and 59.3%, respectively, of
the aggregate minimum quarterly distribution on our common units
during those periods, and we would not have been able to pay any
distributions on our subordinated units during those periods. We
have not used
quarter-by-quarter
estimates for each quarter in the year ended December 31,
2009 and the twelve months ended March 31, 2010 to
determine if we would have generated available cash sufficient
to pay the minimum quarterly distribution for each quarter
during those periods.
Our
Ability to Grow is Dependent on Our Ability to Access External
Expansion Capital
We will distribute all of our available cash to our unitholders
on a quarterly basis. As a result, we expect that we will rely
primarily upon external financing sources, including commercial
bank borrowings and the issuance of debt and equity securities,
to fund any future expansion capital expenditures. To the extent
we are unable to finance growth externally, our cash
distribution policy will significantly impair our ability to
grow our asset base. In addition, because we will distribute all
of our available cash, our growth may not be as fast as
businesses that reinvest all of their available cash to expand
ongoing operations. To the extent we issue additional units, the
payment of distributions on those additional units may increase
the risk that we will be unable to maintain or increase our per
unit distribution level, which in turn may impact the available
cash that we have to distribute on each unit. There are no
limitations in our partnership agreement, and we do not
anticipate there being any limitations in our new credit
facility, on our ability to issue additional units, including
units ranking senior to the common units. The incurrence of
additional commercial borrowings or
50
other debt to finance our growth strategy would result in
increased interest expense, which in turn may impact the
available cash that we have to distribute to our unitholders.
Minimum
Quarterly Distribution Rate
Upon the consummation of this offering, the board of directors
of our general partner intends to establish a minimum quarterly
distribution of $0.4375 per unit for each complete quarter, or
$1.75 per unit on an annualized basis. Our ability to make cash
distributions at the minimum quarterly distribution rate will be
subject to the factors described above under
General Limitations on Cash
Distributions and Our Ability to Change Our Cash Distribution
Policy. Quarterly distributions, if any, will be paid
within 45 days after the end of each quarter. We will
adjust our first distribution for the period from the closing of
this offering through June 30, 2010 based on the actual
length of the period. The amount of available cash needed to pay
the minimum quarterly distribution on all of the common units,
subordinated units and general partner units to be outstanding
immediately after this offering for one quarter and for four
quarters is summarized in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Units
|
|
|
One Quarter
|
|
|
Four Quarters
|
|
|
Common units
|
|
|
10,280,380
|
|
|
$
|
4,497,666
|
|
|
$
|
17,990,665
|
|
Subordinated units
|
|
|
10,280,380
|
|
|
|
4,497,666
|
|
|
|
17,990,665
|
|
General partner units
|
|
|
419,607
|
|
|
|
183,579
|
|
|
|
734,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
20,980,367
|
|
|
$
|
9,178,911
|
|
|
$
|
36,715,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of the date of this offering, our general partner will be
entitled to 2.0% of all distributions that we make prior to our
liquidation. Our general partners initial 2.0% interest in
these distributions may be reduced if we issue additional units
in the future and our general partner does not contribute a
proportionate amount of capital to us in order to maintain its
initial 2.0% general partner interest. Our general partner will
also hold the incentive distribution rights, which entitle the
holder to increasing percentages, up to a maximum of 48.0%, of
the cash we distribute in excess of $0.6563 per unit per quarter.
During the subordination period, before we make any quarterly
distributions to our subordinated unitholders, our common
unitholders are entitled to receive payment of the full minimum
quarterly distribution plus any arrearages in distributions of
the minimum quarterly distribution from prior quarters. Please
read How We Make Cash Distributions
Subordination Period. We cannot guarantee, however, that
we will pay the minimum quarterly distribution on the common
units in any quarter.
We do not have a legal obligation to pay distributions at our
minimum quarterly distribution rate or at any other rate except
as provided in our partnership agreement. Our partnership
agreement requires that we distribute all of our available cash
quarterly. Under our partnership agreement, available cash is
generally defined to mean, for each quarter, cash generated from
our business in excess of the amount of cash reserves
established by our general partner to provide for the conduct of
our business, to comply with applicable law, any of our debt
instruments or other agreements or to provide for future
distributions to our unitholders for any one or more of the next
four quarters. Our available cash may also include, if our
general partner so determines, all or any portion of the cash on
hand on the date of determination of available cash for the
quarter.
Although holders of our common units may pursue judicial action
to enforce provisions of our partnership agreement, including
those related to requirements to make cash distributions as
described above, our partnership agreement provides that any
determination made by our general partner in its capacity as our
general partner must be made in good faith and that any such
determination will not be subject to any other standard imposed
by the Delaware Act or any other law, rule or regulation or at
equity. Our partnership agreement provides that, in order for a
determination by our general partner to be made in good
faith, our general partner must have an honest belief that
the determination is in our best interest. Please read
Conflicts of Interest and Fiduciary Duties.
51
Our cash distribution policy, as expressed in our partnership
agreement, may not be modified or repealed without amending our
partnership agreement; however, the actual amount of our cash
distributions for any quarter is subject to fluctuations based
on the amount of cash we generate from our business and the
amount of reserves our general partner establishes in accordance
with our partnership agreement as described above.
We will pay our distributions on or about the 15th day of
each of February, May, August and November to holders of record
on or about the 1st day of each such month. If the
distribution date does not fall on a business day, we will make
the distribution on the first business day immediately preceding
the indicated distribution date. We will adjust the quarterly
distribution for the period from the closing of this offering
through June 30, 2010 based on the actual length of the
period.
Historical
and Forecasted Results of Operations and Cash Available for
Distribution
In this section, we present in detail the basis for our belief
that we will be able to pay the minimum quarterly distribution
on all of our common units and subordinated units and make the
corresponding distribution on our general partners 2.0%
general partner interest for the twelve months ending
June 30, 2011, which is the first full four quarter period
that begins after the expected closing date of this offering. We
present a table below, consisting of historical results of
operations and cash available for distribution for the year
ended December 31, 2009 and the twelve months ended
March 31, 2010 and forecasted results of operations and
cash available for distribution for the twelve months ending
June 30, 2011. In the table, we show our historical results
of operations and the amount of cash available for distribution
we would have had for the year ended December 31, 2009 and
the twelve months ended March 31, 2010, based on our
historical consolidated statements of operations included
elsewhere in this prospectus and our forecasted results of
operations and the forecasted amount of cash available for
distribution for the twelve months ending June 30, 2011
based on our historical consolidated statements of operations
included elsewhere in this prospectus and the significant
assumptions upon which this forecast is based.
Our historical consolidated financial statements and the notes
to those statements included elsewhere in this prospectus should
be read together with Selected Historical and Pro Forma
Consolidated Financial and Operating Data and
Managements Discussion and Analysis of Financial
Condition and Results of Operations included elsewhere in
this prospectus.
We must generate approximately $36.7 million (or an average
of $9.2 million per quarter) of available cash to pay the
minimum quarterly distribution for four quarters on all of our
common units, subordinated units and general partner units that
will be outstanding immediately after this offering. We did not
generate this amount of available cash from operating surplus
during the year ended December 31, 2009 and the twelve
months ended March 31, 2010. The amounts that we generated
with respect to those periods were $16.2 million and
$10.9 million, respectively. As a result, for the year
ended December 31, 2009 and the twelve months ended
March 31, 2010 we would have generated aggregate available
cash sufficient to pay only 88.3% and 59.3%, respectively, of
the aggregate minimum quarterly distribution on our common units
during those periods, and we would not have been able to pay any
distributions on our subordinated units during those periods. We
have not used
quarter-by-quarter
estimates for each quarter in the year ended December 31,
2009 and the twelve months ended March 31, 2010 to
determine if we would have generated available cash sufficient
to pay the minimum quarterly distribution for each quarter
during those periods.
We forecast that our cash available for distribution generated
during the twelve months ending June 30, 2011 will be
approximately $44.1 million. This amount would be
sufficient to pay the full minimum quarterly distribution of
$0.4375 per unit on all of our common units and subordinated
units and the corresponding distribution on our general
partners 2.0% general partner interest for each quarter in
the twelve months ending June 30, 2011. Although we believe
that we will have available cash sufficient to pay the minimum
quarterly distribution on all of our units for each quarter in
the forecast period, we do not provide a quarterly forecast for
each quarter in the forecast period due to the uncertainty
surrounding the precise timing of certain anticipated capital
expenditures during the latter part of the forecast period.
However, we expect that cash generated from operations during
the quarter ending September 30, 2010 will be approximately
$6.9 million, or approximately $2.3 million less than
the amount of cash needed to pay the entire minimum quarterly
52
distribution on all of our outstanding units. As a result,
during the quarter ending September 30, 2010, we expect to
generate cash from operations sufficient to pay the entire
minimum quarterly distribution on our common units, but only
52.9% of the minimum quarterly distribution on our subordinated
units. We expect to fund the additional $2.3 million with
cash on hand or working capital borrowings. This expected
shortfall is primarily attributable to the volume of coal that
we expect to purchase from third parties during the quarter
ending September 30, 2010 and the timing of capital
expenditures during that period.
We are providing the financial forecast to supplement our
historical consolidated financial statements in support of our
belief that we will have sufficient cash available to allow us
to pay cash distributions on all of our outstanding common units
and subordinated units and the corresponding distributions on
our general partners 2.0% general partner interest for the
twelve months ending June 30, 2011 at the minimum quarterly
distribution rate. Please read Significant
Forecast Assumptions for further information as to the
assumptions we have made for the financial forecast. Please read
Managements Discussion and Analysis of Financial
Condition and Results of Operations Critical
Accounting Policies and Estimates for information as to
the accounting policies we have followed for the financial
forecast.
Our forecast is based on assumptions that we believe to be
reasonable with respect to the forecast period as a whole. We do
not believe, however, that all of these assumptions necessarily
lend themselves to an accurate accounting of precise
quarter-by-quarter
changes in projected operating results and cash flows. Providing
this level of detail would require us to make very specific
assumptions about the precise timing of each revenue and expense
item in our forecast that are beyond our ability to make with
the level of certainty and reasonableness appropriate for a
forecast. To the extent that there is a shortfall during any
quarter in the forecast period, we believe we would be able to
make working capital borrowings to pay distributions in such
quarter and would likely be able to repay such borrowings in a
subsequent quarter because we believe the total cash available
for distribution for the forecast period will be more than
sufficient to pay the aggregate minimum quarterly distribution
to all unitholders and the related distribution to our general
partner for the forecast period.
Our forecast reflects our judgment as of the date of this
prospectus of conditions we expect to exist and the course of
action we expect to take during the twelve months ending
June 30, 2011. We believe that our actual results of
operations will approximate those reflected in our forecast, but
we can give no assurance that our forecasted results will be
achieved. If our estimates are not achieved, we may not be able
to pay quarterly distributions on our common units and
subordinated units at the minimum quarterly distribution rate of
$0.4375 per unit (or $1.75 per unit on an annualized basis) or
any other rate. The assumptions and estimates underlying the
forecast are inherently uncertain and, though we consider them
reasonable as of the date of this prospectus, are subject to a
wide variety of significant business, economic and competitive
risks and uncertainties that could cause actual results to
differ materially from those contained in the forecast,
including, among others, risks and uncertainties contained in
Risk Factors. Accordingly, there can be no assurance
that the forecast is indicative of our future performance or
that actual results will not differ materially from those
presented in the forecast. Inclusion of the forecast in this
prospectus should not be regarded as a representation by any
person that the results contained in the forecast will be
achieved.
We do not, as a matter of course, make public forecasts as to
future sales, earnings or other results. However, we have
prepared the forecast set forth below to present the estimated
cash available for distribution to our unitholders and general
partner during the forecasted period. The accompanying forecast
was not prepared with a view toward complying with the
guidelines established by the American Institute of Certified
Public Accountants with respect to prospective financial
information, but, in our view, was prepared on a reasonable
basis, reflects the best currently available estimates and
judgments, and presents, to the best of managements
knowledge and belief, the expected course of action and our
expected future financial performance. However, this information
is not necessarily indicative of future results.
53
Neither our independent auditors, nor any other independent
accountants, have compiled, examined or performed any procedures
with respect to the forecast contained herein, nor have they
expressed any opinion or any other form of assurance on such
information or its achievability, and assume no responsibility
for, and disclaim any association with, the forecast. We do not
intend to update or otherwise revise the forecast to reflect
circumstances existing since its preparation or to reflect the
occurrence of unanticipated events, even if any or all of the
underlying assumptions are shown to be in error. Furthermore, we
do not intend to update or revise the forecast to reflect
changes in general economic or industry conditions.
54
Oxford
Resource Partners, LP
Cash Available for Distribution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
Forecasted
(1)
|
|
|
|
Year Ended
|
|
|
Twelve Months
|
|
|
Twelve Months
|
|
|
|
December 31,
|
|
|
Ended
|
|
|
Ending June 30,
|
|
|
|
2009
|
|
|
March 31, 2010
|
|
|
2011
|
|
|
|
(In thousands, except per unit and
|
|
|
|
per ton amounts)
|
|
|
Operating data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal produced in tons
|
|
|
5,846
|
|
|
|
6,256
|
|
|
|
7,890
|
|
Coal purchased in tons
|
|
|
530
|
|
|
|
595
|
|
|
|
670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal available for sale in tons
|
|
|
6,376
|
|
|
|
6,851
|
|
|
|
8,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal sold in tons
|
|
|
6,311
|
|
|
|
6,788
|
|
|
|
8,654
|
|
Increase in coal inventory in tons
|
|
|
65
|
|
|
|
63
|
|
|
|
(94
|
)
|
Coal sales in tons
sold/committed
(2)
|
|
|
6,311
|
|
|
|
6,788
|
|
|
|
8,202
|
|
Coal sales in tons uncommitted
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
452
|
|
Average sales price per ton
sold/committed
(2)
|
|
$
|
40.27
|
|
|
$
|
38.83
|
|
|
$
|
38.51
|
|
Average sales price per ton uncommitted
|
|
|
n/a
|
|
|
|
n/a
|
|
|
$
|
41.61
|
|
Selected financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal sales revenue
sold/committed
(2)
|
|
$
|
254,171
|
|
|
$
|
263,550
|
|
|
$
|
315,816
|
|
Coal sales revenue uncommitted
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
18,834
|
|
Transportation revenue
|
|
|
32,490
|
|
|
|
33,360
|
|
|
|
44,200
|
|
Royalty and non-coal
revenue
(3)
|
|
|
7,183
|
|
|
|
6,555
|
|
|
|
7,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
293,844
|
|
|
|
303,465
|
|
|
|
386,305
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of coal sales (excluding DD&A, shown separately)
|
|
|
170,698
|
|
|
|
185,059
|
|
|
|
217,218
|
|
Cost of purchased coal
|
|
|
19,487
|
|
|
|
18,841
|
|
|
|
20,813
|
|
Cost of transportation
|
|
|
32,490
|
|
|
|
33,360
|
|
|
|
44,200
|
|
Depreciation, depletion and amortization
|
|
|
25,902
|
|
|
|
28,991
|
|
|
|
49,535
|
|
Selling, general and administrative
expenses
(4)
|
|
|
13,242
|
|
|
|
13,676
|
|
|
|
15,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
261,819
|
|
|
|
279,927
|
|
|
|
346,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
32,025
|
|
|
|
23,538
|
|
|
|
39,347
|
|
Interest income
|
|
|
35
|
|
|
|
25
|
|
|
|
33
|
|
Interest expense
|
|
|
(6,484
|
)
|
|
|
(7,194
|
)
|
|
|
(7,259
|
)
|
Gain from purchase of
business
(5)
|
|
|
3,823
|
|
|
|
3,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
29,399
|
|
|
|
20,192
|
|
|
|
32,121
|
|
Less: income attributable to noncontrolling interest
|
|
|
(5,895
|
)
|
|
|
(6,358
|
)
|
|
|
(5,643
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Oxford Resource Partners, LP
unitholders
|
|
$
|
23,504
|
|
|
$
|
13,834
|
|
|
$
|
26,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plus:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization
|
|
|
25,902
|
|
|
|
28,991
|
|
|
|
49,535
|
|
Interest expense
|
|
|
6,484
|
|
|
|
7,194
|
|
|
|
7,259
|
|
Non-cash equity compensation expense
|
|
|
472
|
|
|
|
667
|
|
|
|
433
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Income
|
|
|
35
|
|
|
|
25
|
|
|
|
33
|
|
Gain from purchase of
business
(5)
|
|
|
3,823
|
|
|
|
3,823
|
|
|
|
|
|
Amortization of below-market coal sales contracts
|
|
|
1,705
|
|
|
|
2,330
|
|
|
|
2,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA
(6)
|
|
$
|
50,799
|
|
|
$
|
44,508
|
|
|
$
|
81,572
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash interest expense, net of interest income
|
|
|
5,970
|
|
|
|
6,248
|
|
|
|
5,656
|
|
Expansion capital expenditures
|
|
|
33,500
|
|
|
|
35,700
|
|
|
|
22,100
|
|
Reserve replacement
expenditures
(7)
|
|
|
3,077
|
|
|
|
3,545
|
|
|
|
5,682
|
|
Other maintenance capital
expenditures
(7)
|
|
|
25,542
|
|
|
|
23,822
|
|
|
|
26,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash on hand to fund expansion capital
expenditures
(8)
|
|
|
33,500
|
|
|
|
35,700
|
|
|
|
22,100
|
|
Cash available for distribution
|
|
$
|
16,210
|
|
|
$
|
10,893
|
|
|
$
|
44,059
|
|
Implied cash distributions at the minimum quarterly
distribution rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized minimum quarterly distribution per unit
|
|
$
|
1.75
|
|
|
$
|
1.75
|
|
|
$
|
1.75
|
|
Distributions to public common unitholders
|
|
$
|
15,313
|
|
|
$
|
15,313
|
|
|
$
|
15,313
|
|
Distributions to participants in LTIP
|
|
|
222
|
|
|
|
222
|
|
|
|
222
|
|
Distributions to C&T Coal and AIM Oxford common
units
|
|
|
2,456
|
|
|
|
2,456
|
|
|
|
2,456
|
|
Distributions to C&T Coal and AIM Oxford
subordinated units
|
|
|
17,991
|
|
|
|
17,991
|
|
|
|
17,991
|
|
Distributions to general partner
|
|
|
734
|
|
|
|
734
|
|
|
|
734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total distributions to unitholders and general
partner
(9)
|
|
|
36,716
|
|
|
|
36,716
|
|
|
|
36,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess (shortfall)
|
|
$
|
(20,506
|
)
|
|
$
|
(25,823
|
)
|
|
$
|
7,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
|
|
|
(1)
|
|
The forecasted column is based on the assumptions set forth in
Significant Forecast Assumptions below.
|
|
(2)
|
|
Represents coal sold for 2009 and the twelve months ended
March 31, 2010 on a historical basis and coal committed for
sale for the twelve months ending June 30, 2011. The
forecast period amount includes 0.2 million tons that are
subject to a price re-opener under a long-term coal sales
contract.
|
|
(3)
|
|
Consists of royalty payments we receive on our underground coal
reserves as well as limestone sales and other revenue.
|
|
(4)
|
|
Historical SG&A expenses for both the year ended
December 31, 2009 and the twelve months ended
March 31, 2010 include one-time expenses of
$1.6 million associated with the Phoenix Coal acquisition
and $1.0 million of legal fees incurred in renegotiating
our existing credit facility, but do not include incremental
SG&A expenses of approximately $3.0 million that we
expect to incur as a result of being a publicly traded
partnership. However, forecasted SG&A expenses for the
twelve months ending June 30, 2011 do include such
incremental SG&A expenses.
|
|
(5)
|
|
On September 30, 2009, we acquired all of the active
surfacing mining operations of Phoenix Coal. The purchase price
of this acquisition was less than the fair value of the net
assets and liabilities we acquired. We recorded this difference
as a gain of $3.8 million for both the year ended
December 31, 2009 and the twelve months ended
March 31, 2010.
|
|
(6)
|
|
This table presents a reconciliation of Adjusted EBITDA to net
income (loss) attributable to our unitholders for each of the
periods indicated. Adjusted EBITDA is a non-GAAP financial
measure, which we use in our business as it is an important
supplemental measure of our performance. Adjusted EBITDA
represents net income (loss) attributable to our unitholders
before interest, taxes, depreciation, depletion and
amortization, gain from purchase of a business, amortization of
below-market coal sales contracts and non-cash equity
compensation expense. This measure is not calculated or
presented in accordance with GAAP. We explain this measure below
and reconcile it to its most directly comparable financial
measures calculated and presented in accordance with GAAP.
|
|
|
|
Adjusted EBITDA is used as a supplemental financial measure by
management and by external users of our financial statements,
such as investors and lenders, to assess:
|
|
|
|
our financial performance without regard to
financing methods, capital structure or income taxes;
|
|
|
|
our ability to generate cash sufficient to pay
interest on our indebtedness and to make distributions to our
unitholders and our general partner;
|
|
|
|
our compliance with certain financial covenants
applicable to our credit facility; and
|
|
|
|
our ability to fund capital expenditure projects
from operating cash flows.
|
|
|
|
Adjusted EBITDA should not be considered an alternative to net
income (loss) attributable to our unitholders, income from
operations, cash flows from operating activities or any other
measure of performance presented in accordance with GAAP.
Adjusted EBITDA excludes some, but not all, items that affect
net income (loss) attributable to our unitholders, income from
operations and cash flows, and these measures may vary among
other companies. Therefore, Adjusted EBITDA as presented below
may not be comparable to similarly titled measures of other
companies.
|
|
(7)
|
|
Historically we have not made a distinction between maintenance
capital expenditures and other capital expenditures. Our
partnership agreement divides maintenance capital expenditures
into two categories reserve replacement expenditures
and other maintenance capital expenditures. For purposes of this
presentation, however, we have evaluated our capital
expenditures for both the year ended December 31, 2009 and
the twelve months ended March 31, 2010 to determine which
of them would have been classified as reserve replacement
expenditures and other maintenance capital expenditures,
respectively, in accordance with our partnership agreement at
the time they were made. Based on this evaluation, we estimate
that our reserve replacement expenditures and other maintenance
capital expenditures for the year ended December 31, 2009
would have been $3.1 million and $25.5 million,
respectively, and for the twelve months ended March 31,
2010 would have been $3.5 million and $23.8 million,
respectively. The amount of our actual reserve replacement
expenditures may differ substantially from period to period,
which could cause
|
56
|
|
|
|
|
similar fluctuations in the amounts of operating surplus,
adjusted operating surplus and cash available for distribution
to our unitholders, if we subtracted actual reserve replacement
expenditures from operating surplus. To eliminate these
fluctuations, our partnership agreement will require that an
estimate of the reserve replacement expenditures necessary to
maintain our asset base be subtracted from operating surplus
each quarter as opposed to amounts actually spent on reserve
replacement expenditures. The $5.7 million of reserve
replacement expenditures for the forecasted twelve months ending
June 30, 2011 represents estimated reserve replacement
expenditures as defined in our partnership agreement. The amount
of estimated reserve replacement expenditures deducted from
operating surplus must be determined by the board of directors
of our general partner at least once a year, subject to approval
by the Conflicts Committee. We expect our actual reserve
replacement expenditures during the forecast period to be
consistent with our estimated reserve replacement expenditures
for that period. Please read How We Make Cash
Distributions Operating Surplus and Capital
Surplus Definition of Operating Surplus for a
further discussion of the effects of our use of estimated
reserve replacement expenditures.
|
|
|
|
(8)
|
|
We expect to fund the $22.1 million of capital expenditures
incurred in the forecast period with the proceeds from this
offering.
|
|
|
|
(9)
|
|
Represents the amount that would be required to pay
distributions for four quarters at our minimum quarterly
distribution rate of $0.4375 per unit on all of the common and
subordinated units that will be outstanding immediately
following this offering and the corresponding distributions on
our general partners 2.0% general partner interest.
|
Significant
Forecast Assumptions
The forecast has been prepared by and is the responsibility of
management. Our forecast reflects our judgment as of the date of
this prospectus of conditions we expect to exist and the course
of action we expect to take during the twelve months ending
June 30, 2011. While the assumptions disclosed in this
prospectus are not all-inclusive, the assumptions listed below
are those that we believe are material to our forecasted results
of operations and any assumptions not discussed below were not
deemed to be material. We believe we have a reasonable objective
basis for these assumptions. We believe our actual results of
operations will approximate those reflected in our forecast, but
we can give no assurance that our forecasted results will be
achieved. There will likely be differences between our forecast
and the actual results and those differences could be material.
If the forecast is not achieved, we may not be able to pay cash
distributions on our common units at the minimum quarterly
distribution rate or at all.
Production and Revenues.
We forecast that our
total revenues for the twelve months ending June 30, 2011
will be approximately $386.3 million, as compared to
approximately $293.8 million for the year ended
December 31, 2009 and $303.5 million for the twelve
months ended March 31, 2010. Our forecast of total revenues
is based primarily on the following assumptions:
|
|
|
|
|
We estimate that we will produce approximately 7.9 million
tons of coal during the twelve months ending June 30, 2011,
as compared to approximately 5.8 million tons and
6.3 million tons we produced in the year ended
December 31, 2009 and the twelve months ended
March 31, 2010, respectively. This estimated volume
increase is primarily due to additional coal production from our
Muhlenberg County mining complex that we acquired in the Phoenix
Coal acquisition, as a result of a full year of production from
these properties being reflected in the forecast period as well
as our deployment of larger equipment and implementation of more
efficient mining practices at that complex. We expect to produce
an aggregate of approximately 2.0 million tons of coal from
our Muhlenberg County mining complex in the forecast period,
compared to 0.4 million tons of coal during the first
quarter of 2010 (or 1.6 million tons on an annualized
basis). We expect that our coal production during the forecast
period from our other mining complexes will increase 9% and 7%
compared to the year ended December 31, 2009 and the twelve
months ended March 31, 2010, respectively. These increases
are primarily attributable to increased production at our
Harrison County mining complex.
|
57
|
|
|
|
|
We estimate that we will sell approximately 8.7 million
tons of coal during the twelve months ending June 30, 2011,
as compared to approximately 6.3 million tons and
6.8 million tons we sold in the year ended
December 31, 2009 and the twelve months ended
March 31, 2010, respectively. We have committed to sell
approximately 8.2 million tons, of which 8.0 million
tons are priced and 0.2 million tons are subject to price
re-openers under a long-term coal sales contract. As described
below, we expect to purchase approximately 0.7 million tons
to balance our estimated sales volumes. Our estimates assume
that we will be successful in repricing these 0.2 million
tons at slightly higher prices. Our estimates also assume that
our customers with options to take delivery of additional tons
during the forecast period will not exercise their options. This
also assumes that we will reach agreement on an amendment to a
long-term coal sales contract that we are currently negotiating
with a major customer. This amendment will reduce the tons we
are committed to deliver to that customer from our Plainfield
mining complex during the forecast period. In exchange for this
amendment, we expect to enter into commitments to deliver
additional tons to that customer from other mining complexes
that can ship coal through our Bellaire river terminal.
|
|
|
|
|
|
We estimate that the average sales price per ton for committed
tons will be $38.51 for the twelve months ending June 30,
2011, as compared to $40.27 and $38.83 for the year ended
December 31, 2009 and the twelve months ended
March 31, 2010, respectively. This estimate takes into
account prices in our long-term coal sales contracts, including
our estimate of the amount of applicable cost pass through or
inflation adjustment provisions, and gives effect to the full
year impact of the lower priced coal sales contracts that we
assumed in connection with the Phoenix Coal acquisition, and the
expiration of a non-recurring price increase for 2009, which
contributed $13.25 million to revenues and Adjusted EBITDA
in 2009, that related to an amendment of a long-term coal sales
contract with a major customer. This estimate also assumes that
we will be successful in negotiating a price increase over the
forecast period for a long-term coal sales contract with a
customer that uses coal we produce at our Muhlenberg County
mining complex. In exchange for this price increase, we are
negotiating a long-term coal sales contract with this customer
that covers deliveries from 2012 through 2015.
|
|
|
|
|
|
We estimate that the average sales price per ton for uncommitted
tons will be $41.61 for the twelve months ending June 30,
2011. Our estimated average sales price for these tons assumes
that we will be successful in selling those uncommitted tons at
prices that reflect managements current estimates of
market conditions and pricing trends.
|
|
|
|
|
|
We estimate that our royalty and non-coal revenue, which
consists of royalty payments received on our underground coal
reserves as well as limestone sales and other sources of
revenue, will be $7.5 million for the twelve months ending
June 30, 2011, as compared to $7.2 million and
$6.6 million for the year ended December 31, 2009 and
the twelve months ended March 31, 2010, respectively. We
have assumed that the overriding royalty payments on our
underground coal reserves and all other non-coal revenues during
the forecast period will slightly increase compared to the
amounts we received for the year ended December 31, 2009
and the twelve months ended March 31, 2010.
|
Purchased Coal.
We estimate that we will
purchase approximately 0.7 million tons of coal from third
parties for the twelve months ending June 30, 2011, as
compared to approximately 0.5 million tons and
0.6 million tons we purchased for the year ended
December 31, 2009 and the twelve months ended
March 31, 2010, respectively. This increase is primarily
due to the full year impact of a long-term coal purchase
contract that we assumed in connection with the Phoenix Coal
acquisition under which we purchase approximately
0.4 million tons annually.
Cost of Coal Sales.
We estimate that our cost
of coal sales will be $217.2 million for the twelve months
ending June 30, 2011, compared to $170.7 million and
$185.1 million for the year ended December 31, 2009
and the twelve months ended March 31, 2010, respectively.
The increase in cost of coal sales for the forecast period as
compared to the year ended December 31, 2009 and the twelve
months ended March 31, 2010 is primarily attributable to
increased coal production, partially offset by a decrease in our
cost of coal sales per
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ton. We estimate that our cost of coal sales per ton for the
twelve months ending June 30, 2011 will be $27.53, compared
to $29.20 and $29.56 for the year ended December 31, 2009
and the twelve months ended March 31, 2010, respectively.
This projected decrease is primarily attributable to reduced
operating lease expense as a result of purchasing major mining
equipment that we currently lease and increased efficiency as a
result of the purchase of major mining equipment in connection
with the consummation of the transactions described in
Summary The Transactions. This decrease
is also attributable to a projected decrease in diesel fuel and
explosives costs on a per ton basis, partially offset by higher
non-commodity-related operating costs on a per ton basis due to
the Phoenix Coal acquisition.
Cost of Purchased Coal.
We forecast our cost
of purchased coal will be $20.8 million for the twelve
months ending June 30, 2011, compared to $19.5 million
and $18.8 million for the year ended December 31, 2009
and the twelve months ended March 31, 2010, respectively.
This increase is primarily attributable to slightly more tons of
coal being purchased in the forecast period as compared to the
year ended December 31, 2009 and the twelve months ended
March 31, 2010, partially offset by a decrease in the cost
per ton of purchased coal. We estimate that the cost per ton of
purchased coal will be $31.06 for the twelve months ending
June 30, 2011, compared to $36.79 and $31.65 for the year
ended December 31, 2009 and the twelve months ended
March 31, 2010, respectively. During the first quarter of
2009, we bought a higher percentage of our purchased coal on the
spot market in order to meet our coal sales obligations. Since
that time, due to a long-term coal purchase contract under which
we purchase approximately 0.4 million tons annually, our
need for spot market purchases has declined.
Depreciation, Depletion and Amortization.
We
forecast depreciation, depletion and amortization expense to be
approximately $49.5 million for the twelve months ending
June 30, 2011, compared to approximately $25.9 million
and $29.0 million for the year ended December 31, 2009
and the twelve months ended March 31, 2010, respectively.
This increase is primarily due to additional depreciation
expense as a result of purchasing major mining equipment in
connection with the consummation of the transactions described
in Summary The Transactions. This
increase is also due to the full year impact of increased
depletion as a result of the Phoenix Coal acquisition.
Selling, General and Administrative
Expenses.
We forecast SG&A expenses to be
approximately $15.1 million for the twelve months ending
June 30, 2011, compared to approximately $13.2 million
and $13.7 million for the year ended December 31, 2009
and the twelve months ended March 31, 2010, respectively.
This increase is primarily attributable to $3.0 million in
incremental SG&A expenses that we expect to incur as a
result of being a publicly traded partnership, partially offset
by a decrease in acquisition costs and legal fees, which were
higher in the year ended December 31, 2009 and the twelve
months ended March 31, 2010 due to $1.6 million of
non-recurring expenses associated with the Phoenix Coal
acquisition and $1.0 million of legal fees incurred in
renegotiating our existing credit facility in connection with
that acquisition.
Harrison Resources Distributions.
We estimate
that the aggregate cash distributions we will receive from
Harrison Resources for the twelve months ending June 30,
2011 will be $5.6 million, compared to the aggregate of
$6.4 million we received in the year ended
December 31, 2009 and the $4.8 million we received for
the twelve months ended March 31, 2010. In the forecast
period, we have assumed that the cash distributions we will
receive from Harrison Resources will constitute substantially
all of our Adjusted EBITDA attributable to Harrison Resources.
This assumption is consistent with the distributions we received
from, and the portion of our Adjusted EBITDA attributable to,
Harrison Resources in the year ended December 31, 2009 and
the twelve months ended March 31, 2010.
Financing.
We forecast interest expense of
approximately $7.3 million for the twelve months ending
June 30, 2011, compared to approximately $6.5 million
and $7.2 million for the year ended December 31, 2009
and the twelve months ended March 31, 2010, respectively.
Our interest expense for the twelve months ending June 30,
2011 is based on the following assumptions:
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we will repay in full the outstanding borrowings of
$96.5 million under our existing credit facility with a
portion of the proceeds from the offering;
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we will borrow approximately $85.0 million under our new
credit facility;
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for calculating our interest expense, we have assumed a weighted
average interest rate over the forecast period of 6.5% under our
new credit facility, which is lower than the weighted average
interest rate of 7.4% for the year ended December 31, 2009
and 7.0% for the twelve months ended March 31, 2010 under
our existing credit facility; and
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we will maintain a low cash balance.
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Capital Expenditures.
We forecast capital
expenditures for the twelve months ending June 30, 2011
based on the following assumptions:
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Our estimated reserve replacement expenditures for the forecast
period are $5.7 million for the twelve months ending
June 30, 2011, compared to approximately $3.1 million
and $3.5 million of actual reserve replacement expenditures
for the year ended December 31, 2009 and the twelve months
ended March 31, 2010, respectively. Our estimated
maintenance capital expenditures (other than estimated reserve
replacement expenditures) for the forecast period are
$26.2 million for the twelve months ending June 30,
2011, compared to approximately $25.5 million and
$23.8 million of actual other maintenance capital
expenditures for the year ended December 31, 2009 and the
twelve months ended March 31, 2010, respectively. These
increases are primarily due to a larger asset base, including
replacement of reserves, following the Phoenix Coal acquisition.
We expect to fund maintenance capital expenditures from cash
generated by our operations and from borrowings under our new
credit facility.
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Our expansion capital expenditures for the forecast period are
approximately $22.1 million as compared to approximately
$33.5 million and $35.7 million of actual capital
expenditures for the year ended December 31, 2009 and the
twelve months ended March 31, 2010, respectively, that we
would have classified as expansion capital expenditures if we
had distinguished between expansion capital expenditures and
other capital expenditures during those periods. Please read
How We Make Cash Distributions Operating
Surplus and Capital Surplus Capital
Expenditures for a further discussion of expansion capital
expenditures. Of the $33.5 million of expansion capital
expenditures for the year ended December 31, 2009,
approximately $28.7 million was attributable to the Phoenix
Coal acquisition and approximately $4.8 million was
attributable to the purchase of other additional coal reserves.
Of the $35.7 million of expansion capital expenditures for
the twelve months ended March 31, 2010, approximately
$28.7 million was attributable to the Phoenix Coal
acquisition and approximately $7.0 million was attributable
to the purchase of other additional coal reserves. The
forecasted expansion capital expenditures for the forecast
period consist of approximately $9.0 million for an
electric shovel and supporting fleet at our Muhlenberg County
complex, $6.1 million for a highwall miner at our Belmont
County complex and $7.0 million for large scale bulldozers
and will be funded with net proceeds from this offering. Please
read How We Make Cash Distributions Operating
Surplus and Capital Surplus Capital
Expenditures for a further discussion of expansion capital
expenditures.
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Regulatory, Industry and Economic Factors.
We
forecast for the twelve months ending June 30, 2011 based
on the following assumptions related to regulatory, industry and
economic factors:
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no material nonperformance or credit-related defaults by
suppliers, customers or vendors, or shortage of skilled labor;
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all supplies and commodities necessary for production and
sufficient transportation will be readily available;
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no new federal, state or local regulation of the portions of the
mining industry in which we operate or any interpretation of
existing regulation that in either case will be materially
adverse to our business;
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no material unforeseen geologic conditions or equipment problems
at our mining locations;
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no material accidents, weather-related incidents, unscheduled
downtime or similar unanticipated events;
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no major adverse change in the coal markets in which we operate
resulting from supply or production disruptions, reduced demand
for our coal or significant changes in the market prices of
coal; and
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no material changes in market, regulatory or overall economic
conditions.
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HOW WE
MAKE CASH DISTRIBUTIONS
Distributions
of Available Cash
General
Our partnership agreement requires that, within 45 days
after the end of each quarter, we distribute our available cash
to unitholders of record on the applicable record date. We will
adjust the minimum quarterly distribution for the period from
the closing of the offering through June 30, 2010 based on
the actual length of the period.
Definition
of Available Cash
Available cash generally means, for any quarter, all cash on
hand at the end of the quarter:
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less the amount of cash reserves established by our general
partner at the date of determination of available cash for the
quarter to:
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provide for the proper conduct of our business (including
reserves for our future capital expenditures and anticipated
future credit needs subsequent to that quarter);
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comply with applicable law, any of our debt instruments or other
agreements; and
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provide funds for distributions to our unitholders and to our
general partner for any one or more of the next four quarters;
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plus, if our general partner so determines, all or any portion
of the cash on hand on the date of determination of available
cash for the quarter resulting from working capital borrowings
made subsequent to such quarter.
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The purpose and effect of the last bullet point above is to
allow our general partner, if it so decides, to use cash from
working capital borrowings made after the end of the quarter but
on or before the date of determination of available cash for
that quarter to pay distributions to unitholders. Under our
partnership agreement, working capital borrowings are generally
borrowings that are made under a credit facility, commercial
paper facility or similar financing arrangement, and in all
cases are used solely to pay distributions to partners and with
the intent of the borrower to repay such borrowings within
12 months. If a working capital borrowing, which increases
operating surplus, is not repaid during the twelve-month period
following the borrowing, it will be deemed repaid at the end of
such period, thus decreasing operating surplus at such time.
When such working capital borrowing is in fact repaid, it will
not be treated as a further reduction in operating surplus
because operating surplus will have been previously reduced by
the deemed repayment.
Intent
to Distribute the Minimum Quarterly Distribution
We intend to make a minimum quarterly distribution to the
holders of our common units and subordinated units of $0.4375
per unit, or $1.75 on an annualized basis, to the extent we have
sufficient cash from our operations after the establishment of
cash reserves and the payment of costs and expenses, including
reimbursements of expenses to our general partner. However,
there is no guarantee that we will pay the minimum quarterly
distribution on our units in any quarter. Even if our cash
distribution policy is not modified or revoked, the amount of
distributions paid under our policy and the decision to make any
distribution is determined by our general partner, taking into
consideration the terms of our partnership agreement. Please
read Managements Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources Credit
Facility for a discussion of the restrictions to be
included in our new credit facility that may restrict Oxford
Mining Companys ability to make distributions to us.
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General
Partner Interest and Incentive Distribution Rights
As of the date of this offering, our general partner is entitled
to 2.0% of all quarterly distributions that we make prior to our
liquidation. This general partner interest will be represented
by 419,607 general partner units upon the completion of this
offering. Our general partner has the right, but not the
obligation, to contribute a proportionate amount of capital to
us in order to maintain its current general partner interest.
Our general partners initial 2.0% interest in our
distributions may be reduced if we issue additional limited
partner units in the future and our general partner does not
contribute a proportionate amount of capital to us in order to
maintain its 2.0% general partner interest.
Our general partner also currently holds incentive distribution
rights that entitle it to receive increasing percentages, up to
a maximum of 50.0%, of the cash we distribute from operating
surplus (as defined below) in excess of $0.5031 per unit per
quarter. The maximum distribution of 50.0% includes
distributions paid to our general partner on its 2.0% general
partner interest and assumes that our general partner maintains
its general partner interest at 2.0%. The maximum distribution
of 50.0% does not include any distributions that our general
partner may receive on common units or subordinated units that
it owns. Please read General Partner Interest
and Incentive Distribution Rights for additional
information.
Operating
Surplus and Capital Surplus
Overview
All cash distributed to unitholders will be characterized as
either being paid from operating surplus or
capital surplus. We treat distributions of available
cash from operating surplus differently than distributions of
available cash from capital surplus.
Definition
of Operating Surplus
We define operating surplus as:
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$35.0 million (as described below); plus
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an amount equal to the amount of accounts receivable that we
distributed to our general partner, C&T Coal, AIM Oxford
and the participants in our LTIP that hold our common units,
immediately prior to the closing of this offering; plus
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all of our cash receipts after the closing of this offering,
excluding cash from interim capital transactions (as defined
below); plus
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working capital borrowings made after the end of a quarter but
on or before the date of determination of operating surplus for
that quarter; plus
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cash distributions paid on equity issued (including incremental
distributions on incentive distribution rights), other than
equity issued on the closing date of this offering, to finance
all or a portion of expansion capital expenditures in respect of
the period from such financing until the earlier to occur of the
date the capital asset commences commercial service and the date
that it is abandoned or disposed of; plus
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cash distributions paid on equity issued by us (including
incremental distributions on incentive distribution rights) to
pay the interest on debt incurred, or to pay distributions on
equity issued, to finance the expansion capital expenditures
referred to above, in each case in respect of the period from
such financing until the earlier to occur of the date the
capital asset commences commercial service and the date that it
is abandoned or disposed of; less
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all of our operating expenditures (as defined below) after the
closing of this offering and the completion of the transactions
described in Summary The Transactions;
less
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the amount of cash reserves established by our general partner
prior to the date of determination of available cash to provide
funds for future operating expenditures; less
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all working capital borrowings not repaid within 12 months
after having been incurred; less
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any cash loss realized on disposition of an investment capital
expenditure.
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As described above, operating surplus does not reflect actual
cash on hand that is available for distribution to our
unitholders. For example, it includes a provision that will
enable us, if we choose, to distribute as operating surplus up
to $35.0 million of cash we receive in the future from
non-operating sources such as asset sales, issuances of
securities and long-term borrowings that would otherwise be
distributed as capital surplus.
We define interim capital transactions as (i) borrowings,
refinancings or refundings of indebtedness other than working
capital borrowings, (ii) sales of equity securities,
(iii) sales or other dispositions of assets outside the
ordinary course of business, (iv) capital contributions
received, (v) corporate reorganizations or restructurings
and (vi) the termination of interest rate hedge contracts
or commodity hedge contracts prior to the termination date
specified therein (provided that cash receipts from any such
termination will be included in operating surplus in equal
quarterly installments over the remaining scheduled life of the
contract).
We define operating expenditures as the sum of
(a) estimated reserve replacement expenditures and
(b) all of our cash expenditures, including, but not
limited to, taxes, employee and director compensation,
reimbursements of expenses to our general partner, repayments of
working capital borrowings, debt service payments, reclamation
expenses, payments made in the ordinary course of business under
interest rate hedge contracts and commodity hedge contracts and
actual maintenance capital expenditures other than actual
reserve replacement expenditures (as discussed in further detail
below), provided that operating expenditures will not include:
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repayments of working capital borrowings where such borrowings
have previously been deemed to have been repaid (as described
above);
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payments (including prepayments and prepayment penalties) of
principal of and premium on indebtedness other than working
capital borrowings;
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expansion capital expenditures;
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investment capital expenditures;
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payment of transaction expenses (including taxes) relating to
interim capital transactions;
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distributions to partners;
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actual reserve replacement expenditures;
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non-pro rata repurchases of partnership interests made with the
proceeds of an interim capital transaction; or
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any other payments made in connection with this offering that
are described under Use of Proceeds.
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Capital
Expenditures
Maintenance capital expenditures are cash expenditures
(including expenditures for the addition or improvement to, or
the replacement of, our capital assets or for the acquisition of
existing, or the construction of new, capital assets) made to
maintain, including over the long term, our operating capacity,
asset base or operating income. Our partnership agreement
divides maintenance capital expenditures into two
categories reserve replacement expenditures and
other maintenance capital expenditures. Examples of reserve
replacement expenditures include capital expenditures associated
with the replacement of coal reserves, whether through the
expansion of an existing mine or the acquisition or development
of new reserves, to the extent such expenditures are made to
maintain our operating capacity, asset base or operating income.
Examples of other maintenance capital expenditures include
capital expenditures associated with the repair, refurbishment
or replacement of equipment.
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Because our reserve replacement expenditures can be irregular,
the amount of our actual reserve replacement expenditures may
differ substantially from period to period, which could cause
similar fluctuations in the amounts of operating surplus,
adjusted operating surplus and cash available for distribution
to our unitholders if we subtracted actual reserve replacement
expenditures from operating surplus.
Our partnership agreement requires that an estimate of the
average quarterly reserve replacement expenditures and the
actual amount of other maintenance capital expenditures be
subtracted from operating surplus each quarter. The amount of
estimated reserve replacement expenditures deducted from
operating surplus for those periods will be determined by the
board of directors of our general partner at least once a year,
subject to approval by the Conflicts Committee. The estimate
will be made annually and whenever an event occurs that is
likely to result in a material adjustment to the amount of our
reserve replacement expenditures on a long-term basis. For
purposes of calculating operating surplus (other than when used
to determine whether the subordination period has ended), any
adjustment to this estimate will be prospective only. For a
discussion of the amounts we have allocated toward reserve
replacement expenditures and other maintenance capital
expenditures for the forecast period ending June 30, 2011,
please read Cash Distribution Policy and Restrictions on
Distributions.
The use of estimated reserve replacement expenditures in
calculating operating surplus will have the following effects:
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it will reduce the risk that reserve replacement expenditures in
any one quarter will be large enough to render operating surplus
less than the minimum quarterly distribution to be paid on all
the units for the quarter and subsequent quarters;
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it will increase our ability to distribute as operating surplus
cash we receive from non-operating sources;
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it will be more difficult for us to raise our distribution above
the minimum quarterly distribution and pay incentive
distributions on the incentive distribution rights held by our
general partner; and
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it will reduce the likelihood that a large reserve replacement
expenditure in a period will prevent our general partners
affiliates from being able to convert some or all of their
subordinated units into common units since the effect of an
estimate is to spread the expected expense over several periods,
thereby mitigating the effect of the actual payment of the
expenditure on any single period.
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Expansion capital expenditures are cash expenditures incurred
for acquisitions or capital improvements and shall not include
maintenance capital expenditures or investment capital
expenditures. Expansion capital expenditures include interest
payments (and related fees) on debt incurred to finance the
construction, acquisition or development of an improvement to
our capital assets and paid in respect of the period beginning
on the date that we enter into a binding obligation to commence
construction, acquisition or development of the capital
improvement and ending on the earlier to occur of the date that
such capital improvement commences commercial service and the
date that such capital improvement is abandoned or disposed of.
Examples of expansion capital expenditures include the
acquisition of reserves, equipment or a new mine or the
expansion of an existing mine, to the extent such capital
expenditures are expected to expand our long-term operating
capacity, asset base or operating income.
Investment capital expenditures are those capital expenditures
that are neither maintenance capital expenditures nor expansion
capital expenditures. Investment capital expenditures largely
will consist of capital expenditures made for investment
purposes. Examples of investment capital expenditures include
traditional capital expenditures for investment purposes, such
as purchases of securities, as well as other capital
expenditures that might be made in lieu of such traditional
investment capital expenditures, such as the acquisition of a
capital asset for investment purposes or development of
facilities that are in excess of the maintenance of our existing
operating capacity or operating income, but which are not
expected to expand, for more than the short term, our operating
capacity or operating income.
Capital expenditures that are made in part for two or more
purposes consisting of maintenance capital purposes, investment
capital purposes
and/or
expansion capital purposes will be allocated as maintenance
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capital expenditures, investment capital expenditures and/or
expansion capital expenditure by our general partner.
Subordination
Period
General
Our partnership agreement provides that, during the
subordination period (which we define below), the common units
will have the right to receive distributions of available cash
from operating surplus each quarter in an amount equal to
$0.4375 per common unit, which amount is defined in our
partnership agreement as the minimum quarterly distribution,
plus any arrearages in the payment of the minimum quarterly
distribution on the common units from prior quarters, before any
distributions of available cash from operating surplus may be
made on the subordinated units. These units are deemed
subordinated because for a period of time, referred
to as the subordination period, the subordinated units will not
be entitled to receive any distributions until the common units
have received the minimum quarterly distribution plus any
arrearages from prior quarters. Furthermore, no arrearages will
be paid on the subordinated units. The practical effect of the
subordinated units is to increase the likelihood that during the
subordination period there will be available cash to be
distributed on the common units.
Definition
of Subordination Period
The subordination period will begin upon the date of this
offering and will extend until the first business day of any
quarter beginning after September 30, 2013 that each of the
following tests are met:
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distributions of available cash from operating surplus on each
of the outstanding common units, subordinated units and general
partner units equaled or exceeded the minimum quarterly
distribution for each of the three consecutive, non-overlapping
four-quarter periods immediately preceding that date;
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the adjusted operating surplus (as defined below)
generated during each of the three consecutive, non-overlapping
four-quarter periods immediately preceding that date equaled or
exceeded the sum of the minimum quarterly distributions on all
of the outstanding common units, subordinated units and general
partner units on a fully diluted basis during those periods; and
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there are no arrearages in payment of the minimum quarterly
distribution on the common units.
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For purposes of determining whether sufficient adjusted
operating surplus has been generated under the above conversion
test, the Conflicts Committee may adjust operating surplus
upwards or downwards if it determines in good faith that the
amount of estimated reserve replacement expenditures used in the
determination of adjusted operating surplus was materially
incorrect, based on the circumstances prevailing at the time of
the original estimate, for any one or more of the preceding two
four-quarter periods.
Early
Termination of Subordination Period
Notwithstanding the foregoing, the subordination period will
automatically terminate and all of the subordinated units will
convert into common units on a
one-for-one
basis if each of the following occurs on or after
September 30, 2011:
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distributions of available cash from operating surplus on each
of the outstanding common units, subordinated units and general
partner units equaled or exceeded $2.625 (150.0% of the
annualized minimum quarterly distribution) for the immediately
preceding four-quarter period;
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the adjusted operating surplus (as defined below) generated
during the immediately preceding four-quarter period equaled or
exceeded the sum of $2.625 (150.0% of the annualized minimum
quarterly distribution) on each of the outstanding common units,
subordinated units and general partner units during that period
on a fully diluted basis; and
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there are no arrearages in payment of the minimum quarterly
distributions on the common units.
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Expiration
of the Subordination Period
When the subordination period ends, each outstanding
subordinated unit will convert into one common unit and will
thereafter participate pro rata with the other common units in
distributions of available cash. In addition, if the unitholders
remove our general partner other than for cause and no units
held by our general partner and its affiliates are voted in
favor of such removal:
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the subordination period will end and each subordinated unit
will immediately convert into one common unit;
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any existing arrearages in payment of the minimum quarterly
distribution on the common units will be extinguished; and
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our 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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Definition
of Adjusted Operating Surplus
Adjusted operating surplus is intended to reflect the cash
generated from operations during a particular period and
therefore excludes net drawdowns of reserves of cash generated
in prior periods. Adjusted operating surplus for a period
consists of:
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operating surplus (excluding the first bullet of the definition
and including the second bullet of the definition, but only to
the extent such accounts receivable are collected in cash)
generated with respect to that period; less
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any net increase in working capital borrowings with respect to
such period; less
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any net decrease in cash reserves for operating expenditures
with respect to that period not relating to an operating
expenditure made with respect to that period; plus
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any net decrease in working capital borrowings with respect to
such period; plus
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any net decrease made in subsequent periods to cash reserves for
operating expenditures initially established with respect to
such period to the extent such decrease results in a reduction
in adjusted operating surplus in subsequent periods; plus
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any net increase in cash reserves for operating expenditures
with respect to that period required by any debt instrument for
the repayment of principal, interest or premium.
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Distributions
of Available Cash from Operating Surplus during the
Subordination Period
We will make distributions of available cash from operating
surplus for any quarter during the subordination period in the
following manner:
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first
, 98.0% to the common unitholders, pro rata, and
2.0% to our general partner, until we distribute for each
outstanding common unit an amount equal to the minimum quarterly
distribution for that quarter;
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second
, 98.0% to the common unitholders, pro rata, and
2.0% to our general partner, until we distribute 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
, 98.0% to the subordinated unitholders, pro rata,
and 2.0% to our general partner, until we distribute for each
subordinated unit an amount equal to the minimum quarterly
distribution for that quarter; and
|
|
|
|
|
|
thereafter
, in the manner described in
General Partner Interest and Incentive
Distribution Rights below.
|
67
The preceding discussion is based on the assumptions that our
general partner maintains its 2.0% general partner interest and
that we do not issue additional classes of equity securities.
Distributions
of Available Cash from Operating Surplus after the Subordination
Period
We will make distributions of available cash from operating
surplus for any quarter after the subordination period in the
following manner:
|
|
|
|
|
first
, 98.0% to all unitholders, pro rata, and 2.0% to
our general partner, until we distribute for each outstanding
unit an amount equal to the minimum quarterly distribution for
that quarter; and
|
|
|
|
|
|
thereafter
, in the manner described in
General Partner Interest and Incentive
Distribution Rights below.
|
The preceding discussion is based on the assumptions that our
general partner maintains its 2.0% general partner interest and
that we do not issue additional classes of equity securities.
General
Partner Interest and Incentive Distribution Rights
Our partnership agreement provides that our general partner
initially will be entitled to 2.0% of all distributions that we
make prior to our liquidation. Our general partner has the
right, but not the obligation, to contribute a proportionate
amount of capital to us in order to maintain its 2.0% general
partner interest if we issue additional units. Our general
partners 2.0% interest, and the percentage of our cash
distributions to which it is entitled from such 2.0% interest,
will be proportionately reduced if we issue additional units in
the future and our general partner does not contribute a
proportionate amount of capital to us in order to maintain its
2.0% general partner interest.
Incentive distribution rights represent the right to receive an
increasing percentage (13.0%, 23.0% and 48.0%) of quarterly
distributions of available cash from operating surplus after the
minimum quarterly distribution and the target distribution
levels have been achieved. Our general partner currently holds
the incentive distribution rights, but may transfer these rights
separately from its general partner interest, subject to
restrictions in our partnership agreement.
The following discussion assumes that our general partner
maintains its 2.0% general partner interest, that there are no
arrearages on common units and that our general partner
continues to own the incentive distribution rights.
If for any quarter:
|
|
|
|
|
we have distributed available cash from operating surplus to the
unitholders in an amount equal to the minimum quarterly
distribution; and
|
|
|
|
we have distributed available cash from operating surplus on
outstanding common units and the general partner interest in an
amount necessary to eliminate any cumulative arrearages in
payment of the minimum quarterly distribution to the common
unitholders;
|
then, we will distribute any additional available cash from
operating surplus for that quarter among the unitholders and our
general partner in the following manner:
|
|
|
|
|
first
, 98.0% to all unitholders, pro rata, and 2.0% to
our general partner, until each unitholder receives a total of
$0.5031 per unit for that quarter (the first target
distribution);
|
|
|
|
|
|
second
, 85.0% to all unitholders, pro rata, and 15.0% to
our general partner, until each unitholder receives a total of
$0.5469 per unit for that quarter (the second target
distribution);
|
|
|
|
|
|
third
, 75.0% to all unitholders, pro rata, and 25.0% to
our general partner, until each unitholder receives a total of
$0.6563 per unit for that quarter (the third target
distribution); and
|
|
|
|
|
|
thereafter
, 50.0% to all unitholders, pro rata, and 50.0%
to our general partner.
|
68
Percentage
Allocations of Available Cash from Operating Surplus
The following table illustrates the percentage allocations of
available cash from operating surplus between the unitholders
and our general partner based on the specified target
distribution levels. The amounts set forth under Marginal
Percentage Interest in Distributions are the percentage
interests of our general partner and the unitholders in any
available cash from operating surplus we distribute up to and
including the corresponding amount in the column Total
Quarterly Distribution Per Unit Target Amount. The
percentage interests shown for our unitholders and our general
partner for the minimum quarterly distribution are also
applicable to quarterly distribution amounts that are less than
the minimum quarterly distribution. The percentage interests set
forth below for our general partner include its 2.0% general
partner interest and assume that there are no arrearages on
common units, our general partner has contributed any additional
capital necessary to maintain its 2.0% general partner interest
and our general partner has not transferred its incentive
distribution rights.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marginal Percentage Interest
|
|
|
Total Quarterly Distribution
|
|
in Distributions
|
|
|
Per Unit Target Amount
|
|
Unitholders
|
|
General Partner
|
|
Minimum Quarterly Distribution
|
|
$
|
0.4375
|
|
|
|
|
|
98
|
%
|
|
|
2
|
%
|
First Target Distribution
|
|
above $
|
0.4375
|
|
|
up to $0.5031
|
|
|
98
|
%
|
|
|
2
|
%
|
Second Target Distribution
|
|
above $
|
0.5031
|
|
|
up to $0.5469
|
|
|
85
|
%
|
|
|
15
|
%
|
Third Target Distribution
|
|
above $
|
0.5469
|
|
|
up to $0.6563
|
|
|
75
|
%
|
|
|
25
|
%
|
Thereafter
|
|
above $
|
0.6563
|
|
|
|
|
|
50
|
%
|
|
|
50
|
%
|
General
Partners Right to Reset Incentive Distribution
Levels
Our general partner, as the initial holder of our incentive
distribution rights, has the right under our partnership
agreement to elect to relinquish the right to receive incentive
distribution payments based on the initial cash target
distribution levels and to reset, at higher levels, the minimum
quarterly distribution amount and cash target distribution
levels upon which the incentive distribution payments to our
general partner would be set. If our general partner transfers
all or a portion of our incentive distribution rights in the
future, then the holder or holders of a majority of our
incentive distribution rights will be entitled to exercise this
right. The following discussion assumes that our general partner
holds all of the incentive distribution rights at the time that
a reset election is made. The right to reset the minimum
quarterly distribution amount and the target distribution levels
upon which the incentive distributions are based may be
exercised, without approval of our unitholders or the Conflicts
Committee, at any time when there are no subordinated units
outstanding and we have made cash distributions to the holders
of the incentive distribution rights at the highest level of
incentive distribution for each of the prior four consecutive
fiscal quarters. If our general partner and its affiliates are
not the holders of a majority of the incentive distribution
rights at the time an election is made to reset the minimum
quarterly distribution amount and the target distribution
levels, then the proposed reset shall be subject to the prior
written concurrence of the general partner that the conditions
described above have been satisfied. The reset minimum quarterly
distribution amount and target distribution levels will be
higher than the minimum quarterly distribution amount and the
target distribution levels prior to the reset such that there
will be no incentive distributions paid under the reset target
distribution levels until cash distributions per unit following
this event increase as described below. We anticipate that our
general partner would exercise this reset right in order to
facilitate acquisitions or internal growth projects that would
otherwise not be sufficiently accretive to cash distributions
per common unit, taking into account the existing levels of
incentive distribution payments being made to our general
partner.
In connection with the resetting of the minimum quarterly
distribution amount and the target distribution levels and the
corresponding relinquishment by our general partner of incentive
distribution payments based on the target cash distributions
prior to the reset, our general partner will be entitled to
receive a number of newly issued common units and general
partner units based on a predetermined formula described below
that takes into account the cash parity value of the
average cash distributions related to the incentive distribution
rights received by our general partner for the two quarters
prior to the reset event as compared to the average cash
distributions per common unit during that two-quarter period.
Our general partner will be issued the number of
69
general partner units necessary to maintain our general
partners interest in us immediately prior to the reset
election.
The number of common units that our general partner would be
entitled to receive from us in connection with a resetting of
the minimum quarterly distribution amount and the target
distribution levels then in effect would be equal to the
quotient determined by dividing (x) the average aggregate
amount of cash distributions received by our general partner in
respect of its incentive distribution rights during the two
consecutive fiscal quarters ended immediately prior to the date
of such reset election by (y) the average of the amount of
cash distributed per common unit during each quarter in that
two-quarter period.
Following a reset election, the minimum quarterly distribution
amount will be reset to an amount equal to the average cash
distribution amount per unit for the two fiscal quarters
immediately preceding the reset election (which amount we refer
to as the reset minimum quarterly distribution) and
the target distribution levels will be reset to be
correspondingly higher such that we would distribute all of our
available cash from operating surplus for each quarter
thereafter as follows:
|
|
|
|
|
first
, 98.0% to all unitholders, pro rata, and 2.0% to
our general partner, until each unitholder receives an amount
equal to 115.0% of the reset minimum quarterly distribution for
that quarter;
|
|
|
|
second
, 85.0% to all unitholders, pro rata, and 15.0% to
our general partner, until each unitholder receives an amount
per unit equal to 125.0% of the reset minimum quarterly
distribution for the quarter;
|
|
|
|
third
, 75.0% to all unitholders, pro rata, and 25.0% to
our general partner, until each unitholder receives an amount
per unit equal to 150.0% of the reset minimum quarterly
distribution for the quarter; and
|
|
|
|
thereafter
, 50.0% to all unitholders, pro rata, and 50.0%
to our general partner.
|
The following table illustrates the percentage allocation of
available cash from operating surplus between the unitholders
and our general partner at various cash distribution levels
(i) pursuant to the cash distribution provisions of our
partnership agreement in effect at the closing of this offering,
as well as (ii) following a hypothetical reset of the
minimum quarterly distribution and target distribution levels
based on the assumption that the average quarterly cash
distribution amount per common unit during the two fiscal
quarters immediately preceding the reset election was $0.70.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marginal Percentage
|
|
|
|
|
|
|
|
|
|
|
Interest in Distributions
|
|
|
|
|
|
|
|
|
|
|
2.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
General
|
|
Incentive
|
|
|
|
|
|
|
Quarterly Distribution
|
|
|
|
Partner
|
|
Distribution
|
|
Quarterly Distribution Per Unit
|
|
|
Per Unit Prior to Reset
|
|
Unitholders
|
|
Interest
|
|
Rights
|
|
Following Hypothetical Reset
|
|
Minimum Quarterly Distribution
|
|
|
|
$0.4375
|
|
|
98
|
%
|
|
|
2.0
|
%
|
|
|
|
|
|
|
|
|
|
|
$ 0.70
|
|
First Target Distribution
|
|
above $0.4375
|
|
up to $0.5031
|
|
|
98
|
%
|
|
|
2.0
|
%
|
|
|
|
|
|
|
|
|
|
|
up to $0.805
|
(1)
|
Second Target Distribution
|
|
above $0.5031
|
|
up to $0.5469
|
|
|
85
|
%
|
|
|
2.0
|
%
|
|
|
13.0
|
%
|
|
above $
|
0.805
(1
|
)
|
|
|
up to $0.875
|
(2)
|
Third Target Distribution
|
|
above $0.5469
|
|
up to $0.6563
|
|
|
75
|
%
|
|
|
2.0
|
%
|
|
|
23.0
|
%
|
|
above $
|
0.875
(2
|
)
|
|
|
up to $ 1.05
|
(3)
|
Thereafter
|
|
|
|
above $0.6563
|
|
|
50
|
%
|
|
|
2.0
|
%
|
|
|
48.0
|
%
|
|
|
|
|
|
|
above $ 1.05
|
(3)
|
|
|
|
(1)
|
|
This amount is 115.0% of the hypothetical reset minimum
quarterly distribution.
|
|
(2)
|
|
This amount is 125.0% of the hypothetical reset minimum
quarterly distribution.
|
|
(3)
|
|
This amount is 150.0% of the hypothetical reset minimum
quarterly distribution.
|
The following table illustrates the total amount of available
cash from operating surplus that would be distributed to the
unitholders and our general partner, including in respect of
incentive distribution rights, or IDRs, based on an average of
the amounts distributed each quarter for the two quarters
immediately prior to the reset. The table assumes that
immediately prior to the reset there would be 20,560,760 common
units
70
outstanding, our general partner has maintained its 2.0%
general partner interest, and the average distribution to each
common unit would be $0.70 for the two quarters prior to the
reset.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Distributions to General
|
|
|
|
|
|
|
|
|
Cash
|
|
|
Partner Prior to Reset
|
|
|
|
|
|
|
|
|
Distributions to
|
|
|
|
|
|
2.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly
|
|
Common
|
|
|
|
|
|
General
|
|
|
Incentive
|
|
|
|
|
|
|
|
|
|
Distribution Per
|
|
Unitholders
|
|
|
Common
|
|
|
Partner
|
|
|
Distribution
|
|
|
|
|
|
Total
|
|
|
|
Unit Prior to Reset
|
|
Prior to Reset
|
|
|
Units
|
|
|
Interest
|
|
|
Rights
|
|
|
Total
|
|
|
Distributions
|
|
|
Minimum Quarterly Distribution
|
|
|
|
$0.4375
|
|
$
|
8,995,332
|
|
|
$
|
|
|
|
$
|
183,579
|
|
|
$
|
|
|
|
$
|
183,579
|
|
|
$
|
9,178,911
|
|
First Target Distribution
|
|
above $0.4375
|
|
up to $0.5031
|
|
|
1,348,786
|
|
|
|
|
|
|
|
27,526
|
|
|
|
|
|
|
|
27,526
|
|
|
|
1,376,312
|
|
Second Target Distribution
|
|
above $0.5031
|
|
up to $0.5469
|
|
|
900,561
|
|
|
|
|
|
|
|
18,379
|
|
|
|
137,313
|
|
|
|
155,692
|
|
|
|
1,056,253
|
|
Third Target Distribution
|
|
above $0.5469
|
|
up to $0.6563
|
|
|
2,249,347
|
|
|
|
|
|
|
|
45,905
|
|
|
|
685,595
|
|
|
|
731,500
|
|
|
|
2,980,847
|
|
Thereafter
|
|
|
|
above $0.6563
|
|
|
898,505
|
|
|
|
|
|
|
|
18,337
|
|
|
|
846,316
|
|
|
|
864,653
|
|
|
|
1,763,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,392,531
|
|
|
$
|
|
|
|
$
|
293,726
|
|
|
$
|
1,669,224
|
|
|
$
|
1,962,950
|
|
|
$
|
16,355,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table illustrates the total amount of available
cash from operating surplus that would be distributed to the
unitholders and our general partner, including in respect of
IDRs, with respect to the quarter in which the reset occurs. The
table reflects that as a result of the reset there would be
22,945,365 common units outstanding, our general partners
2.0% interest has been maintained, and the average distribution
to each common unit would be $0.70. The number of common units
to be issued to our general partner upon the reset was
calculated by dividing (i) the average of the amounts
received by our general partner in respect of its IDRs for the
two quarters prior to the reset as shown in the table above, or
$1,669,224, by (ii) the average available cash distributed
on each common unit for the two quarters prior to the reset as
shown in the table above, or $0.70.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
Cash Distributions to General
|
|
|
|
|
|
|
|
|
Distributions
|
|
|
Partner After Reset
|
|
|
|
|
|
|
|
|
to
|
|
|
|
|
|
2.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly
|
|
Common
|
|
|
|
|
|
General
|
|
|
Incentive
|
|
|
|
|
|
|
|
|
|
Distribution Per
|
|
Unitholders
|
|
|
Common
|
|
|
Partner
|
|
|
Distribution
|
|
|
|
|
|
Total
|
|
|
|
Unit After Reset
|
|
After Reset
|
|
|
Units
|
|
|
Interest
|
|
|
Rights
|
|
|
Total
|
|
|
Distributions
|
|
|
Minimum Quarterly Distribution
|
|
|
|
$ 0.70
|
|
$
|
14,392,531
|
|
|
$
|
1,669,224
|
|
|
$
|
293,726
|
|
|
$
|
|
|
|
$
|
1,962,950
|
|
|
$
|
16,355,481
|
|
First Target Distribution
|
|
above $0.70
|
|
up to $0.805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Target Distribution
|
|
above $0.805
|
|
up to $0.875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Target Distribution
|
|
above $0.875
|
|
up to $ 1.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thereafter
|
|
|
|
above $ 1.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,392,531
|
|
|
$
|
1,669,224
|
|
|
$
|
293,726
|
|
|
$
|
|
|
|
$
|
1,962,950
|
|
|
$
|
16,355,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our general partner will be entitled to cause the minimum
quarterly distribution amount and the target distribution levels
to be reset on more than one occasion, provided that it may not
make a reset election except at a time when it has received
incentive distributions for the prior four consecutive fiscal
quarters based on the highest level of incentive distributions
that it is entitled to receive under our partnership agreement.
Distributions
from Capital Surplus
How
Distributions from Capital Surplus Will Be Made
We will make distributions of available cash from capital
surplus, if any, in the following manner:
|
|
|
|
|
first
, 98.0% to all unitholders, pro rata, and 2.0% to
our general partner, until we distribute 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
in this offering;
|
|
|
|
|
|
second
, 98.0% to all unitholders, pro rata, and 2.0% to
our general partner, until we distribute for each common unit,
an amount of available cash from capital surplus equal to any
unpaid arrearages in payment of the minimum quarterly
distribution on the outstanding common units; and
|
|
|
|
|
|
thereafter
, as if they were from operating surplus.
|
71
The preceding discussion is based on the assumptions that our
general partner maintains its 2.0% general partner interest and
that we do not issue additional classes of equity securities.
Effect
of a Distribution from Capital Surplus
Our partnership agreement treats a distribution of capital
surplus as the repayment of the initial unit price from this
initial public offering, which is a return of capital. The
initial public offering price less any distributions of capital
surplus per unit is referred to as the unrecovered initial
unit price. Each time a distribution of capital surplus is
made, the minimum quarterly distribution and the target
distribution levels will be reduced in the same proportion as
the corresponding reduction in the unrecovered initial unit
price. Because distributions of capital surplus will reduce the
minimum quarterly distribution, after any of these distributions
are made, it may be easier for our general partner to receive
incentive distributions and for the subordinated units to
convert into common units. However, any distribution of capital
surplus before the unrecovered initial unit price is reduced to
zero cannot be applied to the payment of the minimum quarterly
distribution or any arrearages.
Once we distribute capital surplus on a unit issued in this
offering in an amount equal to the initial unit price, we will
reduce the minimum quarterly distribution and the target
distribution levels to zero. We will then make all future
distributions from operating surplus, with 50% being paid to the
unitholders, pro rata, and 50% to our general partner. The
percentage interests shown for our general partner include its
2.0% general partner interest and assume that our general
partner has not transferred the incentive distribution rights.
Adjustment
to the Minimum Quarterly Distribution and Target Distribution
Levels
In addition to adjusting the minimum quarterly distribution and
target distribution levels to reflect a distribution of capital
surplus, if we combine our units into fewer units or subdivide
our units into a greater number of units, we will
proportionately adjust:
|
|
|
|
|
the minimum quarterly distribution;
|
|
|
|
the number of common units into which a subordinated unit is
convertible;
|
|
|
|
target distribution levels; and
|
|
|
|
the unrecovered initial unit price.
|
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, and each subordinated unit would be convertible into two
common units. We will not make any adjustment by reason of the
issuance of additional units for cash or property.
In addition, if legislation is enacted or if existing law is
modified or interpreted by a governmental authority, so that we
become taxable as a corporation or otherwise subject to taxation
as an entity for federal, state or local income tax purposes,
our partnership agreement specifies that the minimum quarterly
distribution and the target distribution levels for each quarter
may be reduced by multiplying each distribution level by a
fraction, the numerator of which is available cash for that
quarter and the denominator of which is the sum of available
cash for that quarter plus our general partners estimate
of our aggregate liability for the quarter for such income taxes
payable by reason of such legislation or interpretation. To the
extent that the actual tax liability differs from the estimated
tax liability for any quarter, the difference will be accounted
for in subsequent quarters.
Distributions
of Cash Upon Liquidation
General
If we dissolve in accordance with our partnership agreement, we
will sell or otherwise dispose of our assets in a process called
liquidation. We will first apply the proceeds of liquidation to
the payment of our creditors. We will distribute any remaining
proceeds to the unitholders and our general partner, in
accordance
72
with their capital account balances, as adjusted to reflect any
gain or loss upon the sale or other disposition of our assets in
liquidation.
The allocations of gain and loss 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 our liquidation, to the extent required
to permit common unitholders to receive their unrecovered
initial unit price plus the minimum quarterly distribution for
the quarter during which liquidation occurs plus any unpaid
arrearages in payment of the minimum quarterly distribution on
the common units. However, there may not be sufficient gain upon
our liquidation 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 recognized upon liquidation will be
allocated in a manner that takes into account the incentive
distribution rights of our general partner.
Manner
of Adjustments for Gain
The manner of the adjustment for gain is set forth in our
partnership agreement. If our liquidation occurs before the end
of the subordination period, we will allocate any gain to our
partners in the following manner:
|
|
|
|
|
first
, to our general partner 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
, 98.0% to the common unitholders, pro rata, and
2.0% to our general partner, until the capital account for each
common unit is equal to the sum of:
|
(1) the unrecovered initial unit price;
(2) the amount of the minimum quarterly distribution for
the quarter during which our liquidation occurs; and
(3) any unpaid arrearages in payment of the minimum
quarterly distribution;
|
|
|
|
|
third
, 98.0% to the subordinated unitholders, pro rata,
and 2.0% to our general partner, until the capital account for
each subordinated unit is equal to the sum of:
|
(1) the unrecovered initial unit price; and
(2) the amount of the minimum quarterly distribution for
the quarter during which our liquidation occurs;
|
|
|
|
|
fourth
, 98.0% to all unitholders, pro rata, and 2.0% to
our general partner, until we allocate 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 we distributed 98.0% to the
unitholders, pro rata, and 2.0% to our general partner, for each
quarter of our existence;
|
|
|
|
|
fifth
, 85.0% to all unitholders, pro rata, and 15.0% to
our general partner, until we allocate 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 we distributed 85.0% to the
unitholders, pro rata, and 15.0% to our general partner for each
quarter of our existence;
73
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|
|
sixth
, 75.0% to all unitholders, pro rata, and 25.0% to
our general partner, until we allocate 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 we distributed 75.0% to the
unitholders, pro rata, and 25.0% to our general partner for each
quarter of our existence;
|
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|
|
|
thereafter
, 50.0% to all unitholders, pro rata, and 50.0%
to our general partner.
|
The percentages set forth above are based on the assumption that
our general partner has not transferred its incentive
distribution rights and that we do not issue additional classes
of equity securities.
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
bullet point above and all of the third bullet point above will
no longer be applicable.
Manner
of Adjustments for Losses
If our liquidation occurs before the end of the subordination
period, after making allocations of loss to the general partner
and the unitholders in a manner intended to offset in reverse
order the allocations of gains that have previously been
allocated, we will generally allocate any loss to our general
partner and unitholders in the following manner:
|
|
|
|
|
first
, 98.0% to holders of subordinated units in
proportion to the positive balances in their capital accounts
and 2.0% to our general partner, until the capital accounts of
the subordinated unitholders have been reduced to zero;
|
|
|
|
|
|
second
, 98.0% to the holders of common units in
proportion to the positive balances in their capital accounts
and 2.0% to our general partner, until the capital accounts of
the common unitholders have been reduced to zero; and
|
|
|
|
|
|
thereafter
, 100.0% to our 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 all of the first bullet point
above will no longer be applicable.
Adjustments
to Capital Accounts
Our partnership agreement requires that we make adjustments to
capital accounts upon the issuance of additional units. In this
regard, our partnership agreement specifies that we allocate any
unrealized and, for tax purposes, unrecognized gain resulting
from the adjustments to the unitholders and the general partner
in the same manner as we allocate gain upon liquidation. In the
event that we make positive adjustments to the capital accounts
upon the issuance of additional units as a result of such gain,
our partnership agreement requires that we generally allocate
any later negative adjustments to the capital accounts resulting
from the issuance of additional units or upon our liquidation in
a manner which results, to the extent possible, in the
partners capital account balances equaling the amount
which they would have been if no earlier positive adjustments to
the capital accounts had been made. By contrast to the
allocations of gain, and except as provided above, we generally
will allocate any unrealized and unrecognized loss resulting
from the adjustments to capital accounts upon the issuance of
additional units to the unitholders and our general partner
based on their respective percentage ownership of us. In this
manner, prior to the end of the subordination period, we
generally will allocate any such loss equally with respect to
our common and subordinated units. In the event we make negative
adjustments to the capital accounts as a result of such loss,
future positive adjustments resulting from the issuance of
additional units will be allocated in a manner designed to
reverse the prior negative adjustments, and special allocations
will be made upon liquidation in a manner designed to result, to
the extent possible, in our unitholders capital account
balances equaling the amounts they would have been if no earlier
adjustments for loss had been made.
74
SELECTED
HISTORICAL AND PRO FORMA CONSOLIDATED
FINANCIAL AND OPERATING DATA
The following table presents our selected historical
consolidated financial and operating data, as well as that of
our accounting predecessor and wholly owned subsidiary, Oxford
Mining Company, as of the dates and for the periods indicated.
The following table also presents our selected pro forma
consolidated financial and operating data as of the dates and
for the periods indicated.
The selected financial data for the year ended December 31,
2005 are derived from the audited historical consolidated
balance sheet of Oxford Mining Company that is not included in
this prospectus. The selected historical consolidated financial
data presented as of and for the year ended December 31,
2006 are derived from the audited historical consolidated
financial statements of Oxford Mining Company that are not
included in this prospectus. The selected historical
consolidated financial data presented as of August 23, 2007
and for the period from January 1, 2007 to August 23,
2007 are derived from the audited historical consolidated
financial statements of Oxford Mining Company that are included
elsewhere in this prospectus. The selected historical
consolidated financial data presented as of December 31,
2007 for the period from August 24, 2007 to
December 31, 2007 and as of and for the years ended
December 31, 2008 and 2009 are derived from our audited
historical consolidated financial statements included elsewhere
in this prospectus. The selected historical consolidated
financial data presented as of and for the quarters ended
March 31, 2009 and 2010 are derived from our unaudited
condensed historical consolidated financial statements included
elsewhere in this prospectus.
The selected pro forma consolidated financial data presented as
of and for the year ended December 31, 2009 and as of and
for the quarter ended March 31, 2010 are derived from our
unaudited pro forma consolidated financial statements included
elsewhere in this prospectus. Our unaudited pro forma
consolidated statement of operations and consolidated balance
sheet give pro forma effect to this offering and the
transactions related to this offering described in
Summary The Transactions and Use
of Proceeds. The unaudited pro forma consolidated
statement of operations also gives pro forma effect to the
Phoenix Coal acquisition. The unaudited pro forma consolidated
balance sheet assumes this offering and the transactions related
to this offering occurred as of March 31, 2010. The
unaudited pro forma consolidated statements of operations for
the year ended December 31, 2009 assume the Phoenix Coal
acquisition, this offering and the transactions related to this
offering occurred as of January 1, 2009. The unaudited pro
forma consolidated statements of operations for the quarter
ended March 31, 2010 assume this offering and the
transactions related to this offering occurred as of
January 1, 2009. We have not given pro forma effect to
incremental selling, general and administrative expenses of
approximately $3.0 million that we expect to incur as a
result of being a publicly traded partnership.
For a detailed discussion of the following table, please read
Managements Discussion and Analysis of Financial
Condition and Results of Operations. The following table
should also be read in conjunction with
Summary The Transactions, Use of
Proceeds, Business Our History,
the historical consolidated financial statements of Oxford
Mining Company and our unaudited pro forma consolidated
financial statements and audited consolidated financial
statements included elsewhere in this prospectus. Among other
things, those historical and pro forma consolidated financial
statements include more detailed information regarding the basis
of presentation for the information in the following table.
The following table presents a non-GAAP financial measure,
Adjusted EBITDA, which we use in our business as it is an
important supplemental measure of our performance. Adjusted
EBITDA represents net income (loss) attributable to our
unitholders before interest, taxes, depreciation, depletion and
amortization, gain from purchase of a business, amortization of
below-market coal sales contracts and non-cash equity
compensation expense. This measure is not calculated or
presented in accordance with GAAP. We explain this measure below
and reconcile it to net income (loss) attributable to our
unitholders, its most directly comparable financial measure
calculated and presented in accordance with GAAP.
75
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|
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|
|
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
Pro Forma Oxford
|
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|
|
Oxford Mining Company
|
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|
Oxford Resource Partners, LP
|
|
|
|
Resource Partners, LP
|
|
|
|
(Predecessor)
|
|
|
|
(Successor)
|
|
|
|
(Successor)
|
|
|
|
|
|
|
|
|
|
Period
|
|
|
|
Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
from
|
|
|
|
from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
Year
|
|
|
January 1,
|
|
|
|
August 24,
|
|
|
Year
|
|
|
Year
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
Quarter
|
|
|
|
Ended
|
|
|
Ended
|
|
|
2007 to
|
|
|
|
2007 to
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
August 23,
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Quarter Ended March 31,
|
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
(unaudited)
|
|
|
|
(in thousands, except per ton amounts)
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal sales
|
|
|
|
|
|
$
|
141,440
|
|
|
$
|
96,799
|
|
|
|
$
|
61,324
|
|
|
$
|
193,699
|
|
|
$
|
254,171
|
|
|
$
|
67,377
|
|
|
$
|
76,756
|
|
|
|
$
|
312,490
|
|
|
$
|
76,756
|
|
Transportation revenue
|
|
|
|
|
|
|
27,771
|
|
|
|
18,083
|
|
|
|
|
10,204
|
|
|
|
31,839
|
|
|
|
32,490
|
|
|
|
8,660
|
|
|
|
9,530
|
|
|
|
|
37,221
|
|
|
|
9,530
|
|
Royalty and non-coal revenue
|
|
|
|
|
|
|
6,643
|
|
|
|
3,267
|
|
|
|
|
1,407
|
|
|
|
4,951
|
|
|
|
7,183
|
|
|
|
2,402
|
|
|
|
1,774
|
|
|
|
|
7,183
|
|
|
|
1,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
|
|
|
|
175,854
|
|
|
|
118,149
|
|
|
|
|
72,935
|
|
|
|
230,489
|
|
|
|
293,844
|
|
|
|
78,439
|
|
|
|
88,060
|
|
|
|
|
356,894
|
|
|
|
88,060
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of coal sales (excluding DD&A, shown separately)
|
|
|
|
|
|
|
106,657
|
|
|
|
70,415
|
|
|
|
|
40,721
|
|
|
|
151,421
|
|
|
|
170,698
|
|
|
|
40,825
|
|
|
|
55,186
|
|
|
|
|
208,574
|
|
|
|
53,254
|
|
Cost of purchased coal
|
|
|
|
|
|
|
22,159
|
|
|
|
17,494
|
|
|
|
|
9,468
|
|
|
|
12,925
|
|
|
|
19,487
|
|
|
|
8,505
|
|
|
|
7,859
|
|
|
|
|
29,792
|
|
|
|
7,859
|
|
Cost of transportation
|
|
|
|
|
|
|
27,771
|
|
|
|
18,083
|
|
|
|
|
10,204
|
|
|
|
31,839
|
|
|
|
32,490
|
|
|
|
8,660
|
|
|
|
9,530
|
|
|
|
|
37,221
|
|
|
|
9,530
|
|
Depreciation, depletion, and amortization
|
|
|
|
|
|
|
12,396
|
|
|
|
9,025
|
|
|
|
|
4,926
|
|
|
|
16,660
|
|
|
|
25,902
|
|
|
|
5,688
|
|
|
|
8,777
|
|
|
|
|
41,369
|
|
|
|
11,270
|
|
Selling, general and administrative expenses
|
|
|
|
|
|
|
2,097
|
|
|
|
3,643
|
|
|
|
|
2,114
|
|
|
|
9,577
|
|
|
|
13,242
|
|
|
|
3,101
|
|
|
|
3,535
|
|
|
|
|
25,735
|
|
|
|
3,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
|
|
|
|
171,080
|
|
|
|
118,660
|
|
|
|
|
67,433
|
|
|
|
222,422
|
|
|
|
261,819
|
|
|
|
66,779
|
|
|
|
84,887
|
|
|
|
|
342,691
|
|
|
|
85,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
|
|
|
|
4,774
|
|
|
|
(511
|
)
|
|
|
|
5,502
|
|
|
|
8,067
|
|
|
|
32,025
|
|
|
|
11,660
|
|
|
|
3,173
|
|
|
|
|
14,203
|
|
|
|
2,689
|
|
Interest income
|
|
|
|
|
|
|
30
|
|
|
|
26
|
|
|
|
|
55
|
|
|
|
62
|
|
|
|
35
|
|
|
|
11
|
|
|
|
1
|
|
|
|
|
39
|
|
|
|
1
|
|
Interest expense
|
|
|
|
|
|
|
(3,672
|
)
|
|
|
(2,386
|
)
|
|
|
|
(3,498
|
)
|
|
|
(7,720
|
)
|
|
|
(6,484
|
)
|
|
|
(1,123
|
)
|
|
|
(1,833
|
)
|
|
|
|
(7,392
|
)
|
|
|
(1,886
|
)
|
Gain from purchase of
business
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,823
|
|
|
|
|
|
|
|
|
|
|
|
|
3,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
1,132
|
|
|
|
(2,871
|
)
|
|
|
|
2,059
|
|
|
|
409
|
|
|
|
29,399
|
|
|
|
10,548
|
|
|
|
1,341
|
|
|
|
|
10,673
|
|
|
|
804
|
|
Less: Net income attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
(682
|
)
|
|
|
|
(537
|
)
|
|
|
(2,891
|
)
|
|
|
(5,895
|
)
|
|
|
(1,165
|
)
|
|
|
(1,628
|
)
|
|
|
|
(5,895
|
)
|
|
|
(1,628
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Oxford Resource Partners, LP
unitholders
|
|
|
|
|
|
$
|
1,132
|
|
|
$
|
(3,553
|
)
|
|
|
$
|
1,522
|
|
|
$
|
(2,482
|
)
|
|
$
|
23,504
|
|
|
$
|
9,383
|
|
|
$
|
(287
|
)
|
|
|
$
|
4,778
|
|
|
$
|
(824
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Cash Flows Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
$
|
16,236
|
|
|
$
|
17,634
|
|
|
|
$
|
(8,519
|
)
|
|
$
|
33,992
|
|
|
$
|
37,183
|
|
|
$
|
10,502
|
|
|
$
|
8,341
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
(13,547
|
)
|
|
|
(16,619
|
)
|
|
|
|
(98,745
|
)
|
|
|
(23,942
|
)
|
|
|
(49,528
|
)
|
|
|
(7,482
|
)
|
|
|
(10,280
|
)
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
(2,548
|
)
|
|
|
(234
|
)
|
|
|
|
106,724
|
|
|
|
4,494
|
|
|
|
532
|
|
|
|
2,442
|
|
|
|
(137
|
)
|
|
|
|
|
|
|
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA
(2)
|
|
|
|
|
|
$
|
17,170
|
|
|
$
|
7,832
|
|
|
|
$
|
7,961
|
|
|
$
|
21,533
|
|
|
$
|
50,799
|
|
|
$
|
16,292
|
|
|
$
|
10,001
|
|
|
|
$
|
43,888
|
|
|
$
|
12,010
|
|
Reserve replacement
expenditures
(3)
|
|
|
|
|
|
|
3,881
|
|
|
|
1,297
|
|
|
|
|
163
|
|
|
|
2,526
|
|
|
|
3,077
|
|
|
|
61
|
|
|
|
528
|
|
|
|
|
3,077
|
|
|
|
528
|
|
Other maintenance capital
expenditures
(3)
|
|
|
|
|
|
|
9,665
|
|
|
|
11,305
|
|
|
|
|
4,421
|
|
|
|
25,321
|
|
|
|
25,542
|
|
|
|
6,715
|
|
|
|
4,995
|
|
|
|
|
25,542
|
|
|
|
4,995
|
|
Distributions
|
|
|
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
12,503
|
|
|
|
13,407
|
|
|
|
2,523
|
|
|
|
2,818
|
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Balance Sheet Data (at period
end):
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
252
|
|
|
$
|
392
|
|
|
$
|
1,175
|
|
|
|
$
|
635
|
|
|
$
|
15,179
|
|
|
$
|
3,366
|
|
|
$
|
20,641
|
|
|
$
|
1,290
|
|
|
|
|
|
|
|
$
|
23,004
|
|
Trade accounts receivable
|
|
|
21,979
|
|
|
|
16,826
|
|
|
|
18,396
|
|
|
|
|
17,547
|
|
|
|
21,528
|
|
|
|
24,403
|
|
|
|
23,196
|
|
|
|
29,838
|
|
|
|
|
|
|
|
|
8,838
|
|
Inventory
|
|
|
3,884
|
|
|
|
3,977
|
|
|
|
4,824
|
|
|
|
|
4,655
|
|
|
|
5,134
|
|
|
|
8,801
|
|
|
|
6,584
|
|
|
|
10,390
|
|
|
|
|
|
|
|
|
10,390
|
|
Property, plant and equipment, net
|
|
|
47,428
|
|
|
|
48,001
|
|
|
|
54,510
|
|
|
|
|
106,408
|
|
|
|
112,446
|
|
|
|
149,461
|
|
|
|
117,031
|
|
|
|
147,949
|
|
|
|
|
|
|
|
|
202,118
|
|
Total assets
|
|
|
85,099
|
|
|
|
80,533
|
|
|
|
90,893
|
|
|
|
|
146,774
|
|
|
|
171,297
|
|
|
|
203,363
|
|
|
|
184,982
|
|
|
|
212,917
|
|
|
|
|
|
|
|
|
268,812
|
|
Total debt (current and long-term)
|
|
|
46,091
|
|
|
|
43,697
|
|
|
|
43,165
|
|
|
|
|
75,529
|
|
|
|
83,977
|
|
|
|
95,711
|
|
|
|
91,799
|
|
|
|
98,432
|
|
|
|
|
|
|
|
|
89,915
|
|
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tons of coal produced
|
|
|
|
|
|
|
3,913
|
|
|
|
2,693
|
|
|
|
|
1,634
|
|
|
|
5,089
|
|
|
|
5,846
|
|
|
|
1,396
|
|
|
|
1,806
|
|
|
|
|
7,221
|
|
|
|
1,806
|
|
Tons of coal purchased
|
|
|
|
|
|
|
962
|
|
|
|
641
|
|
|
|
|
305
|
|
|
|
434
|
|
|
|
530
|
|
|
|
192
|
|
|
|
258
|
|
|
|
|
885
|
|
|
|
258
|
|
Tons of coal sold
|
|
|
|
|
|
|
4,872
|
|
|
|
3,333
|
|
|
|
|
1,938
|
|
|
|
5,528
|
|
|
|
6,311
|
|
|
|
1,559
|
|
|
|
2,036
|
|
|
|
|
8,051
|
|
|
|
2,036
|
|
Average sales price per
ton
(5)
|
|
|
|
|
|
$
|
29.03
|
|
|
$
|
29.04
|
|
|
|
$
|
31.64
|
|
|
$
|
35.04
|
|
|
$
|
40.27
|
|
|
$
|
43.23
|
|
|
$
|
37.71
|
|
|
|
$
|
38.81
|
|
|
$
|
37.71
|
|
Cost of coal sales per ton
produced
(6)
|
|
|
|
|
|
$
|
27.26
|
|
|
$
|
26.15
|
|
|
|
$
|
24.92
|
|
|
$
|
29.75
|
|
|
$
|
29.20
|
|
|
$
|
29.25
|
|
|
$
|
30.56
|
|
|
|
$
|
29.56
|
|
|
$
|
30.56
|
|
Cost of purchased coal per
ton
(7)
|
|
|
|
|
|
$
|
23.03
|
|
|
$
|
27.29
|
|
|
|
$
|
31.08
|
|
|
$
|
29.81
|
|
|
$
|
36.79
|
|
|
$
|
44.32
|
|
|
$
|
30.51
|
|
|
|
$
|
33.66
|
|
|
$
|
30.51
|
|
|
|
|
(1)
|
|
On September 30, 2009, we
acquired all of the active surfacing mining operations of
Phoenix Coal. The purchase price of this acquisition was less
than the fair value of the net assets and liabilities we
acquired. We recorded this difference as a gain of
$3.8 million for the year ended December 31, 2009.
|
76
|
|
|
(2)
|
|
Adjusted EBITDA is used as a
supplemental financial measure by management and by external
users of our financial statements, such as investors and
lenders, to assess:
|
|
|
|
|
|
our financial performance without
regard to financing methods, capital structure or income taxes;
|
|
|
|
our ability to generate cash
sufficient to pay interest on our indebtedness and to make
distributions to our unitholders and our general partner;
|
|
|
|
our compliance with certain
financial covenants applicable to our credit facility; and
|
|
|
|
our ability to fund capital
expenditure projects from operating cash flow.
|
|
|
|
|
|
Adjusted EBITDA should not be
considered an alternative to net income (loss) attributable to
our unitholders, income from operations, cash flows from
operating activities or any other measure of performance
presented in accordance with GAAP. Adjusted EBITDA excludes
some, but not all, items that affect net income (loss)
attributable to our unitholders, income from operations and cash
flows, and these measures may vary among other companies.
Therefore, Adjusted EBITDA as presented below may not be
comparable to similarly titled measures of other companies.
|
|
|
|
The following table presents a
reconciliation of Adjusted EBITDA to net income (loss)
attributable to our unitholders for each of the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma Oxford
|
|
|
|
Oxford Mining Company
|
|
|
|
Oxford Resource Partners, LP
|
|
|
|
Resource Partners, LP
|
|
|
|
(Predecessor)
|
|
|
|
(Successor)
|
|
|
|
(Successor)
|
|
|
|
|
|
|
Period
|
|
|
|
Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
from
|
|
|
|
from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
|
August 24,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
2007 to
|
|
|
|
2007 to
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Quarter Ended
|
|
|
|
December 31,
|
|
|
August 23,
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Quarter Ended March 31,
|
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
(unaudited)
|
|
|
|
(in thousands)
|
|
Reconciliation of Adjusted EBITDA to net income (loss)
attributable to Oxford Resource Partners, LP unitholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Oxford Resource Partners, LP
unitholders
|
|
$
|
1,132
|
|
|
$
|
(3,553
|
)
|
|
|
$
|
1,522
|
|
|
$
|
(2,482
|
)
|
|
$
|
23,504
|
|
|
$
|
9,383
|
|
|
$
|
(287
|
)
|
|
|
$
|
4,778
|
|
|
$
|
(824
|
)
|
PLUS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization
|
|
|
12,396
|
|
|
|
9,025
|
|
|
|
|
4,926
|
|
|
|
16,660
|
|
|
|
25,902
|
|
|
|
5,688
|
|
|
|
8,777
|
|
|
|
|
41,369
|
|
|
|
11,270
|
|
Interest expense
|
|
|
3,672
|
|
|
|
2,386
|
|
|
|
|
3,498
|
|
|
|
7,720
|
|
|
|
6,484
|
|
|
|
1,123
|
|
|
|
1,833
|
|
|
|
|
7,392
|
|
|
|
1,886
|
|
Non-cash equity compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
|
|
468
|
|
|
|
472
|
|
|
|
109
|
|
|
|
304
|
|
|
|
|
472
|
|
|
|
304
|
|
LESS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
30
|
|
|
|
26
|
|
|
|
|
55
|
|
|
|
62
|
|
|
|
35
|
|
|
|
11
|
|
|
|
1
|
|
|
|
|
39
|
|
|
|
1
|
|
Amortization of below-market coal sales contracts
|
|
|
|
|
|
|
|
|
|
|
|
1,955
|
|
|
|
771
|
|
|
|
1,705
|
|
|
|
|
|
|
|
625
|
|
|
|
|
6,261
|
|
|
|
625
|
|
Gain from purchase of business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,823
|
|
|
|
|
|
|
|
|
|
|
|
|
3,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
17,170
|
|
|
$
|
7,832
|
|
|
|
$
|
7,961
|
|
|
$
|
21,533
|
|
|
$
|
50,799
|
|
|
$
|
16,292
|
|
|
$
|
10,001
|
|
|
|
$
|
43,888
|
|
|
$
|
12,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3)
|
|
Maintenance capital expenditures
are cash expenditures made to maintain or replace, including
over the long term, our operating capacity, asset base or
operating income. Our partnership agreement divides maintenance
capital expenditures into two categories reserve
replacement expenditures and other maintenance capital
expenditures. Examples of reserve replacement expenditures
include capital expenditures associated with the replacement of
coal reserves, whether through the expansion of an existing mine
or the acquisition or development of new reserves, to the extent
such expenditures are incurred to maintain our operating
capacity, asset base or operating income. Examples of other
maintenance capital expenditures include capital expenditures
associated with the repair, refurbishment or replacement of
equipment. Historically, we have not made a distinction between
maintenance capital expenditures and other capital expenditures.
For purposes of this presentation, however, we have evaluated
our historical capital expenditures to estimate which of them
would have been classified as reserve replacement expenditures
and which of them would have been classified as other
maintenance capital expenditures in accordance with our
partnership agreement at the time they were made. The amounts
shown reflect our estimates based on that evaluation.
|
|
|
|
(4)
|
|
The selected financial data for the
year ended December 31, 2005 are derived from the audited
historical consolidated balance sheet of our accounting
predecessor and wholly owned subsidiary, Oxford Mining Company,
that is not included in this prospectus. All other financial
data for 2005 that would be comparable to the selected financial
data for the years ended December 31, 2006, 2007, 2008 and
2009 is not available because we adopted new accounting policies
in 2006 after electronic data for 2005 was purged to conserve
limited electronic data resources. The manual accounting data
that we retained is incomplete and we cannot prepare the
comparable selected historical financial data for 2005 without
unreasonable time, expense and delay. In addition, significant
assumptions would be required to reclassify the operations of
certain non-core businesses that we disposed of in 2005. These
non-core businesses were a small percentage of our 2005
revenues. Due to the significant assumptions needed to
reclassify discontinued
|
77
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|
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|
|
operations, the similarity in
business operations and the age of this information, we believe
that the inclusion of this information would not be materially
additive to an investors understanding of our current
business.
|
|
(5)
|
|
Represents our coal sales divided
by total tons of coal sold.
|
|
(6)
|
|
Represents our cost of coal sales
(excluding DD&A) divided by the tons of coal we produce.
|
|
(7)
|
|
Represents the cost of purchased
coal divided by the tons of coal purchased.
|
78
MANAGEMENTS
DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion of the financial
condition and results of operations of Oxford Resource Partners,
LP and its subsidiaries in conjunction with the historical
consolidated financial statements of Oxford Resource Partners,
LP, the historical consolidated financial statements of our
accounting predecessor and wholly owned subsidiary, Oxford
Mining Company, and the unaudited pro forma consolidated
financial statements of Oxford Resource Partners, LP included
elsewhere in this prospectus. Among other things, those
historical and pro forma consolidated financial statements and
the notes related to those statements include more detailed
information regarding the basis of presentation for the
following information.
Overview
We are a low cost producer of high value steam coal, and we are
the largest producer of surface mined coal in Ohio. Our reserves
and operations are strategically located in Northern Appalachia
and the Illinois Basin to serve our primary market area of
Illinois, Indiana, Kentucky, Ohio, Pennsylvania and West
Virginia. We market our coal primarily to large utilities with
coal-fired, base-load scrubbed power plants under long-term coal
sales contracts. We currently have long-term coal sales
contracts in place for 2010, 2011, 2012 and 2013 that represent
97.6%, 101.5%, 71.3% and 40.9%, respectively, of our 2010
estimated coal sales of 8.2 million tons.
We currently have 18 active surface mines that are managed as
eight mining complexes. During the first quarter of 2010, our
largest mine represented 12.6% of our coal production. This
diversity reduces the risk that operational issues at any one
mine will have a material impact on our business or our results
of operations. Consistent coal quality across many of our mines
and the mobility of our equipment fleet allows us to reliably
serve our customers from multiple mining complexes while
optimizing our mining plan. Our operations also include two
river terminals, strategically located in eastern Ohio and
western Kentucky, that further enhance our ability to supply
coal to our customers with river access from multiple mines.
During 2009 and the first quarter of 2010, we produced
5.8 million tons and 1.8 million tons of coal,
respectively. During each of the last two quarters, we produced
0.4 million tons of coal from the reserves we acquired in
western Kentucky from Phoenix Coal on September 30, 2009.
Based on our coal production for the first quarter of 2010, our
annualized coal production for 2010 would be 7.2 million
tons. During 2009 and the first quarter of 2010, we sold
6.3 million tons and 2.0 million tons of coal,
respectively, including 0.5 million tons and
0.3 million tons of purchased coal, respectively. We
purchase coal in the open market and under contracts to satisfy
a portion of our sales commitments.
As of December 31, 2009, we controlled 91.6 million
tons of proven and probable coal reserves, of which
68.6 million tons were associated with our surface mining
operations and the remaining 23.0 million tons consisted of
underground coal reserves that we have subleased to a third
party in exchange for an overriding royalty. Historically, we
have been successful at replacing the reserves depleted by our
annual production and growing our reserve base by acquiring
reserves with low operational, geologic and regulatory risks and
that were located near our mining operations or that otherwise
had the potential to serve our primary market area. Over the
last five years, we have produced 23.6 million tons of coal
and acquired 52.9 million tons of proven and probable coal
reserves, including 24.6 million tons of coal reserves that
we acquired in connection with the Phoenix Coal acquisition.
For the year ended December 31, 2009 and the first quarter
of 2010, we generated revenues of approximately
$293.8 million and $88.1 million, respectively, net
income (loss) attributable to our unitholders of approximately
$23.5 million and $(0.3) million, respectively, and
Adjusted EBITDA of approximately $50.8 million and
$10.0 million, respectively. Please read Selected
Historical and Pro Forma Consolidated Financial and Operating
Data for our definition of Adjusted EBITDA and a
reconciliation of Adjusted EBITDA to net income (loss)
attributable to our unitholders.
79
Evaluating
Our Results of Operations
We evaluate our results of operations based on several key
measures:
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our coal production, sales volume and average sales prices,
which drive our coal sales revenue;
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our cost of coal sales;
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our cost of purchased coal; and
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our Adjusted EBITDA, a non-GAAP financial measure.
|
Coal
Production, Sales Volume and Sales Prices
We evaluate our operations based on the volume of coal we
produce, the volume of coal we sell and the prices we receive
for our coal. Because we sell substantially all of our coal
under long-term coal sales contracts, our coal production, sales
volume and sales prices are largely dependent upon the terms of
those contracts. The volume of coal we sell is also a function
of the productive capacity of our mining complexes, the amount
of coal we purchase and changes in inventory levels. Please read
Cost of Purchased Coal for more
information regarding our purchased coal.
Our long-term coal sales contracts typically provide for a fixed
price, or a schedule of fixed prices, over the contract term.
Two of our long-term coal sales contracts have price re-openers
that provide for a market-based adjustment to the initial price
every three years. These contracts will terminate if we cannot
agree upon a market-based price with the customer. In addition,
most of our long-term coal sales contracts have full or partial
cost pass through or inflation adjustment provisions. Cost pass
through provisions typically provide for increases in our sales
prices in rising operating cost environments and for decreases
in declining operating cost environments. Inflation adjustment
provisions typically provide some protection in rising operating
cost environments.
We evaluate the price we receive for our coal on an average
sales price per ton basis. Our average sales price per ton
represents our coal sales revenue divided by total tons of coal
sold. The following table provides operational data with respect
to our coal production, coal sales volume and average sales
prices per ton for the periods indicated:
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|
|
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|
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|
|
|
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Oxford Mining
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|
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|
Company
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Oxford Resource Partners, LP
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(Predecessor)
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|
|
(Successor)
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|
|
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|
|
Period
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|
|
|
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|
|
from
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|
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Period from
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August 24,
|
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Year
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|
Year
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|
Quarter
|
|
Quarter
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|
|
January 1,
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2007 to
|
|
Ended
|
|
Ended
|
|
Ended
|
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Ended
|
|
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2007 to August 23,
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December 31,
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December 31,
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December 31,
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|
March 31,
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|
March 31,
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|
|
2007
|
|
|
2007
|
|
2008
|
|
2009
|
|
2009
|
|
2010
|
|
|
(tons in thousands)
|
Tons of coal produced
|
|
|
2,693
|
|
|
|
|
1,634
|
|
|
|
5,089
|
|
|
|
5,846
|
|
|
|
1,396
|
|
|
|
1,806
|
|
Tons of coal purchased
|
|
|
641
|
|
|
|
|
305
|
|
|
|
434
|
|
|
|
530
|
|
|
|
192
|
|
|
|
258
|
|
Tons of coal sold
|
|
|
3,333
|
|
|
|
|
1,938
|
|
|
|
5,528
|
|
|
|
6,311
|
|
|
|
1,559
|
|
|
|
2,036
|
|
Tons sold under long-term
|
|
|
96.6
|
%
|
|
|
|
98.9
|
%
|
|
|
93.8
|
%
|
|
|
97.8
|
%
|
|
|
92.8
|
%
|
|
|
96.3
|
%
|
contracts
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average sales price per ton
|
|
$
|
29.04
|
|
|
|
$
|
31.64
|
|
|
$
|
35.04
|
|
|
$
|
40.27
|
|
|
$
|
43.23
|
|
|
$
|
37.71
|
|
|
|
|
(1)
|
|
Represents the percentage of the tons of coal we sold that were
delivered under long-term coal sales contracts.
|
80
Cost
of Coal Sales
We evaluate our cost of coal sales, which excludes the cost of
purchased coal, on a cost per ton basis. Our cost of coal sales
per ton produced represents our production costs divided by the
tons of coal we produce. Our production costs include labor,
fuel, oil, explosives, operating lease expenses, repairs and
maintenance and all other costs that are directly related to our
mining operations other than the cost of purchased coal, cost of
transportation and depreciation, depletion and amortization, or
DD&A. Our production costs also exclude any indirect costs,
such as SG&A expenses. Our production costs do not take
into account the effects of any of the inflation adjustment or
cost pass through provisions in our long-term coal sales
contracts, as those provisions result in an adjustment to our
coal sales price.
The following table provides summary information for the dates
indicated relating to our cost of coal sales per ton produced:
|
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|
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|
|
|
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|
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|
|
|
|
|
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|
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|
|
|
|
|
|
|
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|
|
Oxford Mining
|
|
|
|
|
|
Company
|
|
|
Oxford Resource Partners, LP
|
|
|
(Predecessor)
|
|
|
(Successor)
|
|
|
Period from
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
August 24,
|
|
|
|
|
|
|
|
|
|
|
2007 to
|
|
|
2007 to
|
|
Year Ended
|
|
Year Ended
|
|
Quarter Ended
|
|
Quarter Ended
|
|
|
August 23,
|
|
|
December 31,
|
|
December 31,
|
|
December 31,
|
|
March 31,
|
|
March 31,
|
|
|
2007
|
|
|
2007
|
|
2008
|
|
2009
|
|
2009
|
|
2010
|
|
|
(tons in thousands)
|
Average sales price per ton
|
|
$
|
29.04
|
|
|
|
$
|
31.64
|
|
|
$
|
35.04
|
|
|
$
|
40.27
|
|
|
$
|
43.23
|
|
|
$
|
37.71
|
|
Cost of coal sales per ton
|
|
$
|
26.15
|
|
|
|
$
|
24.92
|
|
|
$
|
29.75
|
|
|
$
|
29.20
|
|
|
$
|
29.25
|
|
|
$
|
30.56
|
|
Tons of coal produced
|
|
|
2,693
|
|
|
|
|
1,634
|
|
|
|
5,089
|
|
|
|
5,846
|
|
|
|
1,396
|
|
|
|
1,806
|
|
We use a substantial amount of diesel fuel in our mining
operations. To mitigate our exposure to fluctuations in the
price for diesel fuel we have entered into fixed price forward
contracts for future delivery of diesel fuel for a portion of
our requirements. During 2009, 54.4% of the 16.7 million
gallons of diesel fuel we purchased was delivered under fixed
price forward contracts. During the first quarter of 2010, 37.4%
of the 5.5 million gallons of diesel fuel we purchased was
delivered under fixed price forward contracts. In addition,
approximately 61.4% and 67.5% of the tons we delivered under our
long-term coal sales contracts during 2009 and the first quarter
of 2010, respectively, were subject to full or partial cost pass
through provisions for diesel fuel which provide additional
protection for a portion of the increase in fuel costs.
Cost
of Purchased Coal
We purchase coal from third parties to fulfill a small portion
of our obligations under our long-term coal sales contracts and,
in certain cases, to meet customer specifications. In connection
with the Phoenix Coal acquisition, we assumed a long-term coal
purchase contract that had favorable pricing terms relative to
our production costs. Under this contract we are obligated to
purchase 0.6 million tons of coal in 2010 and
0.4 million tons of coal each year thereafter until the
coal reserves covered by the contract are depleted. Based on the
proven and probable coal reserves in place at December 31,
2009, we expect this contract to continue beyond five years.
81
We evaluate our cost of purchased coal on a per ton basis. For
the year ended December 31, 2009 and the first quarter of
2010, we sold 0.5 million tons and 0.3 million tons of
purchased coal, respectively. The following table provides
summary information for the dates indicated for our cost of
purchased coal per ton and the tons of purchased coal:
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Oxford Mining
|
|
|
|
|
|
Company
|
|
|
Oxford Resource Partners, LP
|
|
|
(Predecessor)
|
|
|
(Successor)
|
|
|
Period from
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
August 24,
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 to
|
|
|
2007 to
|
|
Year Ended
|
|
Year Ended
|
|
Quarter Ended
|
|
Quarter Ended
|
|
|
|
|
August 23,
|
|
|
December 31,
|
|
December 31,
|
|
December 31,
|
|
March 31,
|
|
March 31,
|
|
|
|
|
2007
|
|
|
2007
|
|
2008
|
|
2009
|
|
2009
|
|
2010
|
|
|
|
|
(tons in thousands)
|
Average sales price per ton
|
|
$
|
29.04
|
|
|
|
$
|
31.64
|
|
|
$
|
35.04
|
|
|
$
|
40.27
|
|
|
$
|
43.23
|
|
|
$
|
37.71
|
|
|
|
|
|
Cost of purchased coal per ton
|
|
$
|
27.29
|
|
|
|
$
|
31.08
|
|
|
$
|
29.81
|
|
|
$
|
36.79
|
|
|
$
|
44.32
|
|
|
$
|
30.51
|
|
|
|
|
|
Tons of coal purchased
|
|
|
641
|
|
|
|
|
305
|
|
|
|
434
|
|
|
|
530
|
|
|
|
192
|
|
|
|
258
|
|
|
|
|
|
Adjusted
EBITDA
Adjusted EBITDA represents net income (loss) attributable to our
unitholders before interest, taxes, DD&A, gain from
purchase of a business, amortization of below-market coal sales
contracts and non-cash equity compensation expense. Although
Adjusted EBITDA is not a measure of performance calculated in
accordance with GAAP, our management believes that it is useful
in evaluating our financial performance and our compliance with
our existing credit facility. Because not all companies
calculate Adjusted EBITDA identically, our calculation may not
be comparable to similarly titled measures of other companies.
Please read Summary for reconciliations
of Adjusted EBITDA to net income (loss) attributable to our
unitholders for each of the periods indicated.
Factors
that Impact Our Business
For the past three years over 90.0% of our coal sales were made
under long-term coal sales contracts and we intend to continue
to enter into long-term coal sales contracts for substantially
all of our annual coal production. We believe our long-term coal
sales contracts reduce our exposure to fluctuations in the spot
price for coal and provide us with a reliable and stable revenue
base. Our long-term coal sales contracts also allow us to
partially mitigate our exposure to rising costs to the extent
those contracts have full or partial cost pass through
provisions or inflation adjustment provisions.
For 2010, 2011, 2012 and 2013, we currently have long-term coal
sales contracts that represent 97.6%, 101.5%, 71.3% and 40.9%,
respectively, of our 2010 estimated coal sales of
8.2 million tons. During 2010, 2011, 2012 and 2013, we have
committed to deliver 8.0 million tons, 8.3 million
tons, 5.9 million tons and 3.4 million tons of coal,
respectively, under long-term coal sales contracts. These
amounts include contracts with re-openers as described below.
One of our long-term coal sales contracts that ends in 2012 can
be extended for two additional three year terms by the customer
if the customer gives us six months advance notice of its
election to extend the contract. If this customer elects to
extend this contract, we will be committed to deliver an
additional 2.0 million tons in 2013, and our 2013 coal
sales under long-term coal sales contracts, as a percentage of
2010 estimated coal sales, would increase to 65.3%.
The terms of our coal sales contracts result from competitive
bidding and negotiations with customers. As a result, the terms
of these agreements including price re-openers, coal
quality requirements, quantity parameters, permitted sources of
supply, effects of future regulatory changes, extension options,
force majeure, termination and assignment provisions
vary by customer. However, most of our long-term coal sales
contracts have full or partial cost pass through provisions or
inflation adjustment provisions. For 2010, 2011, 2012 and 2013,
62%, 74%, 90% and 100.0% of the coal, respectively, that we have
committed to deliver under our long-term coal sales contracts
are subject to full or partial cost pass through or inflation
adjustment provisions. Cost pass through provisions increase or
decrease our coal sales price for all or a specified
82
percentage of changes in the cost of fuel, explosives and, in
certain cases, labor. Inflation adjustment provisions adjust the
initial contract price over the term of the contract either by a
specific percentage or a percentage determined by reference to
various inflation related indices.
Certain of our long-term coal sales contracts contain option
provisions that give the customer the right to elect to purchase
additional tons of coal each month during the contract term at a
fixed price provided for in the contract. Our long-term coal
sales contracts that provide for these option tons typically
require the customer to provide us with six months advance
notice of an election to take these option tons. For 2010, 2011
and 2012, we have outstanding option tons of 0.7 million,
1.0 million and 0.7 million, respectively. If our
customers do elect to receive these option tons, we believe we
will have the operating flexibility to meet these requirements
through increased production at our mining complexes.
Two of our long-term coal sales contracts contain provisions
that provide for price re-openers. These price-reopeners provide
for market-based adjustments to the initial contract price every
three years. These contracts will terminate if we cannot agree
upon a market-based price with the customer. For 2011, 2012 and
2013, 0.4 million tons, 0.4 million tons and
0.6 million tons of coal, respectively, that we have
committed to deliver under our long-term coal sales contracts
are subject to price re-opener provisions.
We believe the other key factors that influence our business
are: (i) demand for coal, (ii) demand for electricity,
(iii) economic conditions, (iv) the quantity and
quality of coal available from competitors, (v) competition
for production of electricity from non-coal sources,
(vi) domestic air emission standards and the ability of
coal-fired power plants to meet these standards,
(vii) legislative, regulatory and judicial developments,
including delays, challenges to, and difficulties in acquiring,
maintaining or renewing necessary permits or mineral or surface
rights, (viii) market price fluctuations for sulfur dioxide
emission allowances and (ix) our ability to meet
governmental financial security requirements associated with
mining and reclamation activities.
For additional information regarding some of the risks and
uncertainties that affect our business and the industry in which
we operate, please read Risk Factors.
Recent
Trends and Economic Factors Affecting the Coal
Industry
Coal consumption and production in the United States have been
driven in recent periods by several market dynamics and trends.
The recent global economic downturn has negatively impacted coal
demand in the short-term, but long-term projections for coal
demand remain positive. Please read The Coal
Industry Industry Trends for the recent trends
and economic factors affecting the coal industry.
Results
of Operations
Factors
Affecting the Comparability of Our Results of
Operations
The comparability of our results of operations is impacted by
(i) the Phoenix Coal acquisition, (ii) an amendment to
a long-term coal sales contract with a major customer in
December 2008 and (iii) the application of purchase
accounting to our accounting predecessors financial
statements in August 2007.
We acquired all of Phoenix Coals active surface mining
operations on September 30, 2009. This acquisition
increased our coal production for the first quarter of 2010 by
29.0%, or 0.4 million tons (1.6 million tons on an
annualized basis), compared to the first quarter of 2009.
In December 2008, we and one of our major customers agreed to
amend a long-term coal sales contract. As part of this
amendment, we agreed to give this customer two additional
three-year term extension options with market-based price
adjustments for each extension. In exchange, we received a
substantial one-time increase in the price per ton of coal for
2009 along with inflation adjusters and certain cost pass
through provisions for the complete term of the contract, which
expires at the end of 2012. This price increase contributed
$13.25 million to revenues and Adjusted EBITDA in 2009.
Oxford Mining Company, our wholly owned subsidiary, was
contributed to us on August 24, 2007. Because Oxford Mining
Company is our accounting predecessor, the financial statements
we have presented
83
for the periods that ended before August 24, 2007 are the
financial statements of Oxford Mining Company. In addition,
because Oxford Mining Company is now our wholly owned
subsidiary, our financial statements that begin on or after
August 24, 2007 include Oxford Mining Company on a
consolidated basis, as required by GAAP. The contribution of
Oxford Mining Company to us on August 24, 2007 resulted in
a change of control that triggered a new fair-value basis of
accounting for Oxford Mining Company on that date. We have
analyzed the impact of that transaction on our consolidated
statements of operations and those of our accounting predecessor.
The operations of the predecessor and successor in 2007 were
substantially the same as all assets and liabilities were
contributed with the exception of the predecessors debt,
which was paid in full, and certain equipment operating leases,
which were paid off. Therefore, the change in control had a
limited impact on the comparability of our 2007 results of
operations. The most notable changes that resulted from the
change in control are set forth below.
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As part of the contribution, we bought out several equipment
operating leases, which had the impact of reducing lease expense
within cost of coal sales and increasing depreciation expense
during the periods after the change in control.
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The fair value basis of accounting had the effect of increasing
the asset value of certain property, plant and equipment as well
as coal reserves, which further increased DD&A expenses
during the periods after the change in control.
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In connection with the contribution, Oxford Mining Company
entered into an advisory services agreement with certain
affiliates of AIM Oxford, which resulted in higher SG&A
expenses during the periods after the change in control.
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As a result of the contribution, total borrowings increased,
which resulted in higher interest charges and amortization of
deferred financing fees within interest expense during the
periods after the change in control.
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As part of the accounting for the contribution, we established a
provision for below-market coal sales contracts, which increased
our revenues during the periods after the change in control.
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Based on our analysis, we concluded that the results of our
predecessors operations for the period from
January 1, 2007 to August 23, 2007, which we refer to
as the 2007 Predecessor Period, and our operating results for
the period from August 24, 2007 to December 31, 2007,
which we refer to as the 2007 Successor Period, are comparable
to our results of operations for the year ended
December 31, 2008, except to the extent noted above.
Summary
The following table presents certain of our historical
consolidated financial data and that of our accounting
predecessor, Oxford Mining Company, for the periods indicated.
The following table should be read in conjunction with
Selected Historical and Pro Forma Consolidated Financial
and Operating Data.
Adjusted EBITDA is a non-GAAP financial measure that we use in
analyzing the financial performance of our business as it is an
important supplemental measure of our performance. Adjusted
EBITDA represents net income (loss) attributable to our
unitholders before interest, taxes, DD&A, gain from
purchase of a business, amortization of below-market coal sales
contracts and non-cash equity compensation expense. This measure
is not calculated or presented in accordance with GAAP. We
explain this measure below and reconcile it to net income (loss)
attributable to our unitholders, its most comparable measure
established in accordance with GAAP.
84
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Oxford Mining
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Company
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Oxford Resource Partners, LP
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(Predecessor)
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(Successor)
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Period from
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Period from
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January 1,
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August 24,
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2007 to
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2007 to
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Year Ended
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Year Ended
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Quarter Ended
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Quarter Ended
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August 23,
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December 31,
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December 31,
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December 31,
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March 31,
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March 31,
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2007
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2007
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2008
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2009
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2009
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2010
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(in thousands)
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Statement of Operations Data:
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Revenues:
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Coal sales
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$
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96,799
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$
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61,324
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$
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193,699
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$
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254,171
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$
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67,377
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$
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76,756
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Transportation revenue
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18,083
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10,204
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31,839
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32,490
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8,660
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9,530
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Royalty and non-coal revenue
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3,267
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1,407
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4,951
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7,183
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2,402
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1,774
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Total revenues
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118,149
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72,935
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230,489
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293,844
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78,439
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88,060
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Costs and expenses:
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Cost of coal sales (excluding DD&A, shown separately)
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70,415
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40,721
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151,421
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170,698
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40,825
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55,186
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Cost of purchased coal
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17,494
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9,468
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12,925
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19,487
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8,505
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7,859
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Cost of transportation
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18,083
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10,204
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31,839
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32,490
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8,660
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9,530
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Depreciation, depletion, and amortization
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9,025
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4,926
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16,660
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25,902
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5,688
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8,777
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Selling, general and administrative expenses
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3,643
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2,114
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9,577
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13,242
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3,101
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3,535
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Total costs and expenses
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118,660
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67,433
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222,422
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261,819
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66,779
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84,887
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Income from operations
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(511
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)
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5,502
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8,067
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32,025
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11,660
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|
3,173
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Interest income
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|
26
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55
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62
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35
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11
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1
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Interest expense
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(2,386
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)
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(3,498
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)
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(7,720
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)
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(6,484
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)
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(1,123
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)
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(1,833
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)
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Gain from purchase of
business
(1)
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3,823
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Net income (loss)
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(2,871
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)
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2,059
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409
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29,399
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10,548
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1,341
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Net income attributable to noncontrolling interest
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(682
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)
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|
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(537
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)
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(2,891
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)
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(5,895
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)
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(1,165
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)
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(1,628
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)
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Net income (loss) attributable to Oxford Resource Partners, LP
unitholders
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$
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(3,553
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)
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$
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1,522
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$
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(2,482
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)
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$
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23,504
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$
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9,383
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$
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(287
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)
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Other Financial Data:
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Adjusted
EBITDA
(2)
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$
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7,832
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$
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7,961
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$
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21,533
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$
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50,799
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$
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16,292
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$
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10,001
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(1)
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On September 30, 2009, we acquired all of the active
western Kentucky surface mining operations of Phoenix Coal. The
purchase price of this acquisition was less than the fair value
of the net assets and liabilities we acquired. We recorded this
difference as a gain of $3.8 million for the year ended
December 31, 2009.
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(2)
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Adjusted EBITDA is used as a supplemental financial measure by
management and by external users of our financial statements,
such as investors and lenders, to assess:
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our financial performance without regard to
financing methods, capital structure or income taxes;
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our ability to generate cash sufficient to pay
interest on our indebtedness and to make distributions to our
unitholders and our general partner;
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our compliance with certain financial covenants
included in our existing credit facility; and
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our ability to fund capital expenditure projects
from operating cash flow.
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85
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Adjusted EBITDA should not be considered an alternative to net
income (loss) attributable to our unitholders, income from
operations, cash flows from operating activities or any other
measure of performance presented in accordance with GAAP.
Adjusted EBITDA excludes some, but not all, items that affect
net income (loss) attributable to our unitholders, income from
operations and cash flows, and these measures may vary among
other companies. Therefore, Adjusted EBITDA as presented below
may not be comparable to similarly titled measures of other
companies. The following table presents a reconciliation of
Adjusted EBITDA to net income (loss) attributable to our
unitholders for each of the periods indicated:
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Oxford Mining
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Company
|
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Oxford Resource Partners, LP
|
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(Predecessor)
|
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(Successor)
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Period from
|
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Period from
|
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|
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|
|
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|
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January 1,
|
|
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August 24,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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2007 to
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2007 to
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Year Ended
|
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|
Year Ended
|
|
|
Quarter Ended
|
|
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Quarter Ended
|
|
|
|
August 23,
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
March 31,
|
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|
|
2007
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
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2009
|
|
|
2010
|
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(in thousands)
|
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Reconciliation of Adjusted EBITDA to net income (loss)
attributable to Oxford Resource Partners, LP unitholders:
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
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Net income (loss) attributable to Oxford Resource Partners, LP
unitholders
|
|
$
|
(3,553
|
)
|
|
|
$
|
1,522
|
|
|
$
|
(2,482
|
)
|
|
$
|
23,504
|
|
|
$
|
9,383
|
|
|
$
|
(287
|
)
|
PLUS:
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|
|
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|
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|
|
|
|
|
|
|
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|
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|
|
|
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Depreciation, depletion, and amortization
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|
|
9,025
|
|
|
|
|
4,926
|
|
|
|
16,660
|
|
|
|
25,902
|
|
|
|
5,688
|
|
|
|
8,777
|
|
Interest expense
|
|
|
2,386
|
|
|
|
|
3,498
|
|
|
|
7,720
|
|
|
|
6,484
|
|
|
|
1,123
|
|
|
|
1,833
|
|
Non-cash equity compensation expense
|
|
|
|
|
|
|
|
25
|
|
|
|
468
|
|
|
|
472
|
|
|
|
109
|
|
|
|
304
|
|
LESS:
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|
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|
|
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|
|
|
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Interest income
|
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|
26
|
|
|
|
|
55
|
|
|
|
62
|
|
|
|
35
|
|
|
|
11
|
|
|
|
1
|
|
Amortization of below-market coal sales contracts
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|
|
|
|
|
|
1,955
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|
|
|
771
|
|
|
|
1,705
|
|
|
|
|
|
|
|
625
|
|
Gain from purchase of business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Adjusted EBITDA
|
|
$
|
7,832
|
|
|
|
$
|
7,961
|
|
|
$
|
21,533
|
|
|
$
|
50,799
|
|
|
$
|
16,292
|
|
|
$
|
10,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Quarter
Ended March 31, 2010 Compared to Quarter Ended
March 31, 2009
Overview.
Our coal production increased 29.4%
to 1.8 million tons in the first quarter of 2010 compared
to 1.4 million tons in the first quarter of 2009. Our tons
sold increased 30.6% to 2.0 million tons in the first
quarter of 2010 compared to 1.6 million tons in the first
quarter of 2009. Although our tons sold increased, our average
sales price per ton in the first quarter of 2010 decreased
12.8%, or $5.52 per ton, compared to the first quarter of 2009.
Our total revenues increased 12.3% to $88.1 million in the
first quarter of 2010 compared to $78.4 million for the
first quarter of 2009. We generated a net loss attributable to
our unitholders in the first quarter of 2010 of
$0.3 million compared to net income attributable to our
unitholders of $9.4 million in the first quarter of 2009.
Our Adjusted EBITDA decreased 38.6% to $10.0 million in the
first quarter of 2010 from $16.3 million in the first
quarter of 2009. As a result of a non-recurring price increase
in 2009 from a major customer, our Adjusted EBITDA for 2009
increased by $4.3 million. Excluding this price increase,
our Adjusted EBITDA for the first quarter of 2010 would have
decreased by 20% compared to the first quarter of 2009.
Coal Production.
Our tons of coal produced
increased 29.4% to 1.8 million tons in the first quarter of
2010 from 1.4 million tons in the first quarter of 2009.
This increase was primarily due to the inclusion of coal we
produced in the first quarter of 2010 from our Muhlenberg County
complex that we acquired from Phoenix Coal on September 30,
2009.
86
Sales Volume.
Our tons of coal sold increased
30.6% to 2.0 million tons in the first quarter of 2010 from
1.6 million tons in the first quarter of 2009. This
increase was primarily attributable to the 0.6 million tons
of coal we sold in the first quarter of 2010 at our Muhlenberg
County complex that we acquired from Phoenix Coal on
September 30, 2009, partially offset by a 0.1 million
ton reduction in coal sales to our industrial customers.
Average Sales Price Per Ton.
Our average sales
price per ton decreased 12.8% to $37.71 in the first quarter of
2010 from $43.23 in the first quarter of 2009. This $5.52 per
ton decrease was primarily the result of a non-recurring price
increase during 2009 from a major customer. In December of 2008,
we agreed to amend a long term coal sales contract with a major
customer that resulted in a one year price increase. The
expiration of this non-recurring price increase accounts for
$2.79 of the $5.52 per ton price decrease that we
experienced between the first quarter of 2009 and the first
quarter of 2010. The balance of this decrease was due to the
effect of the lower priced legacy coal sales contracts that we
assumed in the Phoenix Coal acquisition.
Coal Sales Revenue.
Our coal sales revenue for
the first quarter of 2010 increased by $9.4 million, or
13.9%, compared to the first quarter of 2009. This increase is
primarily attributable to coal sales from our Muhlenberg County
complex that we acquired in the Phoenix Coal acquisition.
However, this increase was partially offset by lower coal sales
to our industrial customers during the first quarter of 2010 and
the inclusion in the first quarter of 2009 of $4.3 million
of revenue relating to the non-recurring price increase
discussed above.
Royalty and Non-Coal Revenue.
In June 2005, we
sold our underground mining operations at the Tusky mining
complex and subleased our related underground coal reserves to
the purchaser in exchange for an overriding royalty. Our
overriding royalty is equal to a percentage of the sales price
our sublessee receives for the coal produced from our
underground coal reserves. Our sublessee is also obligated to
pay the tonnage based royalty that we owe to the lessor of our
underground coal reserves. Our royalty and non-coal revenue
includes our overriding royalty revenue from our Tusky mining
complex, revenue from the sale of limestone that we recover in
connection with our coal mining operations and various fees we
receive for performing services for others. Our royalty and
non-coal revenue declined to $1.8 million in the first
quarter of 2010 from $2.4 million during the first quarter
of 2009. This decline was primarily attributable to a decrease
of $0.9 million in the royalty revenue in the first quarter
of 2010 partially offset by an increase in service fees for
providing earth moving services. The decrease in royalty revenue
was due to lower sales prices and volumes associated with our
underground coal reserves that are mined by a third party.
Cost of Coal Sales (Excluding DD&A).
Cost
of coal sales (excluding DD&A) increased 35.2% to
$55.2 million in the first quarter of 2010 from
$40.8 million in the first quarter of 2009. This increase
was primarily attributable to the increase of 29.4% in our tons
produced and higher costs per ton at our Muhlenberg County
complex that we acquired in the Phoenix Coal acquisition. Our
average cost of coal sales per ton increased by 4.5% to $30.56
in the first quarter of 2010 compared to $29.25 per ton in the
first quarter of 2009. Excluding our Muhlenberg County complex,
our cost of coal sales per ton would have decreased by
approximately 2.2% from the prior year primarily as a result of
lower fuel costs and lower repair and maintenance expenses. With
respect to our newly acquired Muhlenberg County complex, we
began implementing plans late in the fourth quarter of 2009 to
lower our production costs. However, in the first quarter of
2010 we experienced difficult mining conditions at our Schoate
mine, which resulted in higher than anticipated costs. As a
result, we have redeployed equipment and personnel to a new area
at this mine that we can extract more efficiently.
Cost of Purchased Coal.
Cost of purchased coal
declined 7.6% to $7.9 million in the first quarter of 2010
from $8.5 million in the first quarter of 2009. This
decrease is primarily attributable to a $13.81 per ton decline
in the average cost per ton of purchased coal, partially offset
by an increase in volumes purchased of 0.1 million tons.
Our average cost of purchased coal per ton decreased by 31.2% to
$30.51 per ton in the first quarter of 2010 compared to the
first quarter of 2009 due to a significant portion of our
purchases in that quarter being supplied under lower priced
purchase agreements that we assumed in the Phoenix Coal
87
acquisition compared to a higher percentage of higher-priced
spot market purchases in the first quarter of 2009.
Depreciation, Depletion and Amortization
(DD&A).
DD&A expense in the first
quarter of 2010 was $8.8 million compared to
$5.7 million in the first quarter of 2009, an increase of
$3.1 million. Approximately $1.9 million of this
increase relates to higher depreciation expense associated with
the assets we acquired in the Phoenix Coal acquisition and the
remaining increase of $1.2 million relates primarily to
equipment placed in service in late 2009 and the first quarter
of 2010.
Selling, General and Administrative Expenses
(SG&A).
SG&A expenses for the first
quarter of 2010 were $3.5 million compared to
$3.1 million for the first quarter of 2009, an increase of
$0.4 million. This increase is due primarily to
$0.3 million of additional administrative expenses related
to our Muhlenberg County complex that we acquired from Phoenix
Coal on September 30, 2009.
Transportation Revenue and Expenses.
Our
transportation expenses represent the cost to transport our coal
by truck or rail from our mines to our river terminals, our rail
loading facilities and our customers. Our long-term coal sales
contracts have these transportation costs built into the price
of our coal. Our transportation revenue reflects the portion of
our total revenues that is attributable to reimbursements for
transportation expenses. Our transportation revenue fluctuates
based on a number of factors, including the volume of coal we
transport by truck or rail under those contracts and the related
transportation costs. Our transportation revenues and expenses
for the first quarter of 2010 increased 10.0% compared to the
first quarter of 2009 due to higher coal sales volumes.
Interest Expense.
Interest expense for the
first quarter of 2010 was $1.8 million compared to
$1.1 million for the first quarter of 2009, an increase of
$0.7 million. This increase was primarily attributable to
higher effective interest rates in the first quarter of 2010 as
a result of an amendment to our existing credit facility in
September 2009, coupled with higher borrowings outstanding
during the first quarter of 2010 due to the debt that we
incurred to acquire the Phoenix Coal assets.
Net Income Attributable to Noncontrolling
Interest.
In 2007, we entered into a joint
venture, Harrison Resources, with CONSOL Energy to mine surface
coal reserves purchased from CONSOL Energy. We own 51.0% of
Harrison Resources and CONSOL Energy owns the remaining 49.0%
indirectly through one of its subsidiaries. We manage all of the
operations of, and perform all of the contract mining and
marketing services for, Harrison Resources. Net income
attributable to noncontrolling interest relates to the 49.0% of
Harrison Resources that we do not own. For the first quarter of
2010, net income attributable to the noncontrolling interest was
$1.6 million compared to $1.2 million for the first
quarter of 2009. This increase of $0.4 million is primarily
attributable to an increase of 62.0% in tons of coal sold by
Harrison Resources in the first quarter of 2010 compared to the
first quarter of 2009, partially offset by a decline in sales
prices.
Adjusted EBITDA.
For the first quarter of
2010, Adjusted EBITDA was $10.0 million compared to
$16.3 million in the first quarter of 2009. This decrease
was primarily attributable to a one-time price increase for 2009
from a major customer and a combination of lower priced legacy
coal contracts that we acquired in the Phoenix Coal acquisition
and lower royalty revenues during the first quarter 2010. These
impacts were partially offset by favorable cost of coal sales
per ton for our Ohio operations and the benefit of lower cost
per ton for purchased coal in the first quarter of 2010 compared
to the first quarter of 2009.
Year
Ended December 31, 2009 Compared to Year Ended
December 31, 2008
Overview.
Our coal production increased 14.9%
to 5.8 million tons in 2009 compared to 5.1 million
tons in 2008. We sold 6.3 million tons of coal in 2009, an
increase of 14.2% when compared to the 5.5 million tons we
sold in 2008. Our average sales price per ton increased 14.9%,
or $5.23 per ton, in 2009 when compared with 2008. Our total
revenues for 2009 increased 27.5% to $293.8 million from
$230.5 million in 2008. We generated net income
attributable to our unitholders of approximately
$23.5 million during 2009 compared to net loss attributable
to our unitholders of $2.5 million for 2008. Our Adjusted
EBITDA increased 135.9% in 2009 to $50.8 million from
$21.5 million in 2008.
88
Coal Production.
Our tons of coal produced
increased 14.9% to 5.8 million tons in 2009 from
5.1 million tons in 2008. This increase was primarily the
result of increased coal production in the fourth quarter of
2009 due to the Phoenix Coal acquisition of 0.4 million
tons and higher production at certain of our other mining
complexes. We increased our coal production for 2009 to match
the increase in the tons that we were committed to deliver under
our long-term coal sales contracts during 2009.
Sales Volume.
Our tons of coal sold increased
14.2% to 6.3 million tons in 2009 from 5.5 million
tons in 2008. The increase in the tons sold in 2009 was
primarily attributable to the 0.6 million tons of coal we
sold during the fourth quarter of 2009 as a result of the
Phoenix Coal acquisition and an increase in the tons we were
committed to deliver under our long-term coal sales contracts in
2009 as compared with 2008.
Average Sales Price Per Ton.
Our average sales
price per ton increased 14.9% to $40.27 in 2009 from $35.04 in
2008. This increase was primarily attributable to the amendment
of a long-term coal sales contract with a major customer in
December 2008. As part of this amendment, we received a
one-time
increase in the price per ton in 2009, which added revenue of
$13.25 million.
Coal Sales Revenue.
Our coal sales for 2009
increased by $60.5 million, or 31.2%, over 2008. The
majority of the increase, or $33.5 million, was
attributable to the 14.9% improvement in our average sales price
per ton for 2009 compared to 2008, of which $13.25 million
related to the one-time price increase in 2009 from a major
customer. In addition, $26.9 million of this increase was
attributable to the 14.2% increase in our tons sold for 2009
compared to 2008.
Royalty and Non-Coal Revenue.
Our royalty and
non-coal revenue increased to $7.2 million in 2009 from
$5.0 million in 2008. This increase was primarily
attributable to increases in our royalty revenue from our
underground coal reserves of $3.2 million partially offset
by decreases in other revenue of $1.0 million. During 2009,
our royalty revenue from our underground coal reserves increased
to $4.5 million from $1.3 million in 2008. This
increase was attributable to significant increases in coal
production and sales to third parties by the sublessee of our
underground coal reserves. In 2009, our sublessee sold its
underground coal production to third parties for the full year
compared to 2008 when it sold its production to third parties
for approximately six months.
Cost of Coal Sales (Excluding DD&A).
Cost
of coal sales (excluding DD&A) increased 12.7% in 2009 to
$170.7 million from $151.4 million in 2008. This
increase was primarily attributable to the increase in our tons
of coal produced, partially offset by lower operating costs per
ton. During 2009, our cost of coal sales per ton produced
decreased 1.9% primarily as a result of lower fuel, oil and
explosives prices partially offset by higher operating lease
expenses and higher contract labor costs. Our diesel fuel cost
per ton of coal produced decreased from $8.47 per ton in 2008 to
$6.56 per ton in 2009. Our motor and hydraulic oil cost per ton
decreased from $1.17 per ton in 2008 to $0.85 per ton in 2009,
and our explosives cost per ton decreased from $3.44 per ton in
2008 to $3.24 per ton in 2009. Our operating lease expenses per
ton increased to $0.79 per ton in 2009 from $0.31 per ton in
2008 as we expanded our fleet of large equipment at our Cadiz
and Harrison mining complexes. In addition, our contract labor
costs per ton increased to $1.44 per ton in 2009 from $0.62 per
ton in 2008 as a result of a full year of the costs associated
with a highwall mining contractor that we retained in July 2008.
Cost of Purchased Coal.
Cost of purchased coal
increased 50.8% in 2009 to $19.5 million from
$12.9 million in 2008. This increase was primarily
attributable to a $6.98 per ton increase in the average cost of
purchased coal per ton and a 0.1 million ton increase in
the volume of coal purchased during 2009 as compared to 2008.
Our average cost of purchased coal per ton increased by 23.4% to
$36.79 per ton in 2009 from $29.81 per ton in 2008. During the
first quarter of 2009, we purchased a higher percentage of our
purchased coal on the spot market in order to meet our coal
sales obligations. For the fourth quarter of 2009, we purchased
a higher percentage of our purchased coal under a long-term coal
purchase contract. During 2009 the volume of coal we purchased
increased by 0.1 million tons over 2008 primarily as a
result of one quarter of coal purchases under the long-term coal
purchase contract that we assumed in connection with the Phoenix
Coal acquisition.
89
Depreciation, Depletion and
Amortization.
DD&A expense for 2009 was
$25.9 million compared to $16.7 million for 2008, an
increase of $9.2 million. Depreciation expense attributable
to equipment upgrades that occurred during 2009 accounted for
$7.6 million of this increase and the assets we acquired in
the Phoenix Coal acquisition increased our depreciation expense
by $1.8 million.
Selling, General and Administrative
Expenses.
SG&A expenses for 2009 were
$13.2 million compared to $9.6 million for 2008, an
increase of $3.6 million. The increase in SG&A
expenses was primarily due to increased headcount and expenses
in our accounting and administrative departments in anticipation
of becoming a publicly traded partnership, as well as one-time
costs of $1.6 million associated with the Phoenix Coal
acquisition and $1.0 million of legal fees incurred in
renegotiating our existing credit facility.
Transportation Revenue and Expenses.
The 2.0%
increase in transportation revenue in 2009 compared to 2008 was
a function of the increase in tons of coal sold partially offset
by lower trucking rates.
Interest Expense.
Interest expense for 2009
was $6.5 million compared to $7.7 million for 2008, a
decrease of $1.2 million or 16.0%. The decrease in interest
expense was primarily attributable to lower effective weighted
average interest rates in 2009 under our existing credit
facility compared to 2008 and a gain of $1.7 million on our
interest rate swap in 2009. These decreases were partially
offset by an increase of $1.3 million in interest expense
due to the write off of capitalized financing costs as a result
of an amendment in 2009 to our existing credit facility.
Gain from Purchase of Business.
On
September 30, 2009, we acquired all of the active surface
mining operations of Phoenix Coal. The purchase price of this
acquisition was less than the fair value of the net assets and
liabilities we acquired. We recorded this difference as a
one-time gain of $3.8 million for 2009.
Net Income Attributable to Noncontrolling
Interest.
For the year ended December 31,
2009, net income attributable to the noncontrolling interest was
$5.9 million compared to $2.9 million for 2008. This
increase of $3.0 million was primarily attributable to an
increase of 63.7% in tons of coal sold by Harrison Resources in
2009 compared to 2008, as well as to increased sales prices.
Adjusted EBITDA.
For 2009, Adjusted EBITDA was
$50.8 million compared to $21.5 million for 2008. This
increase was due primarily to a 14.2% increase in tons sold, a
one-time price increase for 2009 from a major customer that
contributed $13.25 million, higher royalty revenues and
lower costs of coal sold per ton, partially offset by higher
costs of purchased coal, increased SG&A expenses and higher
net income attributable to noncontrolling interest.
Year
Ended December 31, 2008 Compared to the 2007 Predecessor
Period and the 2007 Successor Period
Overview.
We produced 5.1 million tons of
coal in 2008 compared to 2.7 million tons and
1.6 million tons in the 2007 Predecessor Period and the
2007 Successor Period, respectively. We sold 5.5 million
tons of coal in 2008 compared to 3.3 million tons and
1.9 million tons in the 2007 Predecessor Period and the
2007 Successor Period, respectively. Our average sales price per
ton in 2008 increased 20.7%, or $6.00 per ton, when compared
with the 2007 Predecessor Period and 10.7%, or $3.40 per ton,
when compared with the 2007 Successor Period. Our total revenues
for 2008 were $230.5 million compared to
$118.1 million and $72.9 million in the 2007
Predecessor Period and the 2007 Successor Period, respectively.
We had a net loss attributable to our unitholders of
approximately $2.5 million during 2008 compared to a net
loss attributable to our unitholders of $3.6 million for
the 2007 Predecessor Period and net income attributable to our
unitholders of approximately $1.5 million for the 2007
Successor Period. Our Adjusted EBITDA for 2008 was
$21.5 million compared to $7.8 million and
$8.0 million for the 2007 Predecessor Period and the 2007
Successor Period, respectively.
Coal Production.
We produced 5.1 million
tons of coal in 2008 compared to 2.7 million tons and
1.6 million tons during the 2007 Predecessor Period and the
2007 Successor Period, respectively. We benefited from higher
production in 2008 from reserves acquired during 2007 at our
Belmont and Cadiz mining complexes and the additional reserves
acquired by Harrison Resources from CONSOL during 2008. We
90
increased our production in 2008 to meet the requirements of a
new long-term coal sales contract which took effect in 2008.
Sales Volume.
We sold 5.5 million tons of
coal in 2008 compared to 3.3 million tons and
1.9 million tons in the 2007 Predecessor Period and the
2007 Successor Period, respectively. Our sales volume for 2008
benefited from the increase in our coal production during 2008,
but was partially offset by a decrease in tons of purchased coal.
Average Sales Price Per Ton.
Our average sales
price per ton in 2008 increased 20.7%, or $6.00 per ton, when
compared with the 2007 Predecessor Period and 10.7%, or $3.40
per ton, when compared with the 2007 Successor Period. These
increases were due to the replacement of expiring long-term coal
sales contracts with higher priced long-term coal sales
contracts.
Coal Sales Revenue.
Our coal sales for 2008
were $193.7 million compared to $96.8 million and
$61.3 million for the 2007 Predecessor Period and the 2007
Successor Period, respectively. The majority of the increase for
2008, or $27.9 million, was attributable to the increase in
our average sales price per ton for 2008. In addition,
$7.7 million of the 2008 increase was attributable to the
increase in our tons of coal sold for 2008.
Royalty and Non-Coal Revenue.
We began
receiving royalty revenues on our underground coal reserves in
June 2008 as the sublessee began selling coal produced from our
underground coal reserves directly to third parties. Before June
2008 we purchased, processed and sold all of the coal produced
by our sublessee from our underground coal reserves and, as a
result, we did not receive an overriding royalty.
Cost of Coal Sales (Excluding DD&A).
Cost
of coal sales (excluding DD&A) was $151.4 million in
2008 compared to $70.4 million and $40.7 million for
the 2007 Predecessor Period and the 2007 Successor Period,
respectively. The increase for 2008 was primarily attributable
to the increase in our tons of coal produced and higher
operating costs. During 2008, our cost of coal sales per ton
produced increased 13.8% and 19.4% when compared to the 2007
Predecessor Period and the 2007 Successor Period, respectively.
These increases were primarily a result of higher fuel costs.
Cost of Purchased Coal.
Cost of purchased coal
was $12.9 million in 2008 compared to $17.5 million
and $9.5 million in the 2007 Predecessor Period and the
2007 Successor Period, respectively. The decrease for 2008 was
primarily attributable to a 0.5 million ton decrease in the
volume of coal we purchased during 2008 and a decrease in the
average cost of purchased coal per ton in 2008 partially offset
by an increase in the average cost of purchased coal per ton in
2008. The decrease in the volume of purchased coal was primarily
due to the discontinuation of coal purchases from the sublessee
of our underground coal reserves in June 2008. Our average cost
of purchased coal per ton was $29.81 in 2008 compared to $27.29
and $31.08 in the 2007 Predecessor Period and the 2007 Successor
Period, respectively.
Depreciation, Depletion and
Amortization.
DD&A expense for 2008 was
$16.7 million compared to $9.0 million and
$4.9 million for the 2007 Predecessor Period and the 2007
Successor Period, respectively. The increase for 2008 was
primarily the result of a full year of depreciation on the
higher asset values that resulted from the new asset basis for
Oxford Mining Company due to the change of control that occurred
on August 24, 2007. Because a new asset basis can inhibit
meaningful comparison of historical results before and after the
change of control, DD&A expense for 2008 and the 2007
Successor Period are not comparable to DD&A expense for the
2007 Predecessor Period.
Selling, General and Administrative
Expenses.
SG&A expenses for 2008 were
$9.6 million compared to $3.6 million and
$2.1 million for the 2007 Predecessor Period and the 2007
Successor Period, respectively. The increase for 2008 was
primarily due to increases in accounting and administrative
personnel expenses of $1.3 million, increases in
professional fees of $1.5 million and the one-time write
off of costs associated with an acquisition that we did not
complete of $0.4 million.
Transportation Revenue and
Expenses.
Transportation revenue and expenses
increased in 2008 due to an increase in tons of coal sold and
higher trucking costs due to increased fuel prices in 2008.
91
Interest Expense.
Interest expense for 2008
was $7.7 million compared to $2.4 million and
$3.5 million for the 2007 Predecessor Period and the 2007
Successor Period, respectively. The increase for 2008 was
primarily attributable to an increase in our weighted average
interest rates and average outstanding balances under our
existing credit facility during 2008.
Net Income Attributable to Noncontrolling
Interest.
Net income attributable to the
noncontrolling interest was $2.9 million for 2008 compared
to $0.7 million and $0.5 million for the 2007
Predecessor Period and the 2007 Successor Period, respectively.
The increase in net income attributable to the noncontrolling
interest during 2008 was primarily attributable to an increase
in tons sold by Harrison Resources in 2008 as well as increases
in Harrisons average sales prices.
Adjusted EBITDA.
For 2008, Adjusted EBITDA was
$21.5 million compared to $7.8 million and
$8.0 million for the 2007 Predecessor Period and 2007
Successor Period, respectively. Our 2008 Adjusted EBITDA was
attributable to higher revenues reflecting an increase in
average sales price per ton and higher royalties, partially
offset by higher costs of coal sold per ton, increased SG&A
expenses and higher net income attributable to noncontrolling
interest.
Liquidity
and Capital Resources
Liquidity
Our business is capital intensive and requires substantial
capital expenditures for purchasing, upgrading and maintaining
equipment used in mining our reserves, as well as complying with
applicable environmental laws and regulations. Our principal
liquidity requirements are to finance current operations, fund
capital expenditures, including acquisitions from time to time,
service our debt and pay cash distributions to our unitholders.
Our primary sources of liquidity to meet these needs have been
cash generated by our operations, borrowings under our existing
credit facility and contributions from our partners.
The principal indicators of our liquidity are our cash on hand
and availability under our existing credit facility. As of
March 31, 2010, our available liquidity was
$4.9 million, including cash on hand of $1.3 million
and $3.6 million available under our existing credit
facility.
Following the completion of this offering, we expect our sources
of liquidity to include:
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our working capital;
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cash generated from operations;
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borrowing capacity under our new credit facility;
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issuances of additional partnership units; and
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debt offerings.
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We believe that cash generated from these sources will be
sufficient to meet our liquidity needs over the next
12 months, including operating expenditures, debt service
obligations, contingencies and anticipated capital expenditures,
and to fund our quarterly distributions to unitholders.
Please read Capital Expenditures for a
further discussion on the impact of capital expenditures on
liquidity.
92
Cash
Flows
The following table reflects cash flows for the applicable
periods:
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Oxford Mining
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Company
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Oxford Resource Partners, LP
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(Predecessor)
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(Successor)
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January 1,
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August 24,
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2007 to
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2007 to
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August 23,
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December 31,
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Year Ended December 31,
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Quarter Ended March 31,
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2007
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2007
(1)
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2008
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2009
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2009
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2010
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(in thousands)
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Net cash provided by (used in):
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Operating activities
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$
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17,634
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$
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(8,519
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)
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$
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33,992
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$
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37,183
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$
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10,502
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$
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8,341
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Investing activities
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$
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(16,619
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)
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$
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(98,745
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)
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$
|
(23,942
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)
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$
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(49,528
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)
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$
|
(7,482
|
)
|
|
$
|
(10,280
|
)
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Financing activities
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|
$
|
(234
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)
|
|
|
$
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106,724
|
|
|
$
|
4,494
|
|
|
$
|
532
|
|
|
$
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2,442
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|
|
$
|
(137
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)
|
|
|
|
(1)
|
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Please read Note 1 to our historical consolidated financial
statements included elsewhere in this prospectus.
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Quarter Ended March 31, 2010 Compared to Quarter Ended
March 31, 2009.
Net cash provided by
operating activities was $8.3 million for the first quarter
of 2010, a decrease of $2.2 million from net cash provided
by operating activities of $10.5 million for the first
quarter of 2010. Our lower net income attributable to our
unitholders was offset by non-cash adjustments and favorable
changes in assets and liabilities for the first quarter of 2010.
As part of the amendment to a long term contract for one of our
major customers, we received an advance payment of
$13.25 million in December 2008. This advance payment
resulted in reducing cash provided by changes in assets and
liabilities during 2009, thus offsetting the majority of the
impact of the price increase upon our net income attributable to
our unit holders and cash provided from operations in 2009. The
net impact of the prepayment upon the first quarter of 2010 was
to provide an additional $1.5 million in cash from changes
in assets and liabilities as compared to the first quarter of
2009.
Net cash used in investing activities was $10.3 million for
the first quarter of 2010 compared to $7.5 million for the
first quarter of 2009. This $2.8 million increase was
primarily attributable to increased acquisitions of coal
reserves in the first quarter of 2010 and an increase in
restricted undistributed cash of $3.1 million relating to
Harrison Resources, of which $3.0 million was distributed
in early April, compared to the first quarter of 2009 when
Harrison Resources made a distribution from restricted cash to
its owners of $3.0 million.
Net cash used in financing activities was $0.1 million for
the first quarter of 2010 compared to net cash provided by
financing activities of $2.4 million for the first quarter
of 2009. This change was primarily attributable to higher net
borrowings in the first quarter of 2009 of $3.8 million,
partially offset by a distribution to the noncontrolling
interest holder in Harrison Resources in the first quarter of
2009 of $1.5 million.
Year Ended December 31, 2009 Compared to Year Ended
December 31, 2008.
Net cash provided by
operating activities was $37.2 million for 2009 compared to
$34.0 million for 2008. This $3.2 million increase was
primarily due to the combined effects of the $26.0 million
increase in net income (loss) attributable to our unitholders,
the $9.2 million impact from the increase in DD&A
expense, as well as higher other non-cash adjustments of
$1.3 million, partially offset by a decrease in the cash
provided by changes in assets and liabilities of
$33.5 million. One of the major contributors to this
decrease in cash provided by changes in assets and liabilities
was a $13.25 million advance payment by one of our major
customers in December 2008 for committed deliveries of coal in
2009, of which $11.2 million was offset against outstanding
receivables in 2009.
93
Net cash used in investing activities was $49.5 million in
2009 compared to $23.9 million for 2008. This
$25.6 million increase was primarily attributable to the
$18.3 million we spent in connection with the Phoenix Coal
acquisition as well as increased purchases of coal properties in
2009 as compared to 2008.
Net cash provided by financing activities was $0.5 million
for 2009 compared to $4.5 million for 2008. This
$4.0 million decrease was primarily attributable to
increased distributions to the noncontrolling interest holder in
Harrison Resources during 2009 compared to 2008.
Year Ended December 31, 2008 Compared to the 2007
Predecessor Period and the 2007 Successor
Period.
Net cash provided by operating activities
was $34.0 million for 2008 compared to $17.6 million
for the 2007 Predecessor Period and net cash used in operating
activities of $8.5 million for the 2007 Successor Period.
This change was primarily due to an increase in cash provided by
changes in assets and liabilities of which $13.25 million
was an advance payment by one of our major customers in December
2008 for committed deliveries of coal in 2009 and an increase
associated with higher DD&A expense.
Our net cash provided by (used in) investing activities and
financing activities for 2007 includes the impact of the
transactions relating to the contribution of Oxford Mining
Company to us in August 2007. Please read
Results of Operations Factors
Affecting the Comparability of our Results of Operations,
and Note 1 to our historical consolidated financial
statements included elsewhere in this prospectus.
Credit
Facility
In connection with our initial public offering, we will pay off
our existing credit facility and enter into a new credit
facility that will include (i) a $100 million revolver
and (ii) a $50 million term loan. The revolver and
term loan will mature in 2013 and 2014, respectively, and
borrowings will bear interest, at a variable rate per annum
equal to, at our option, LIBOR or the Base Rate, as the case may
be, plus the Applicable Margin (LIBOR, Base Rate and Applicable
Margin will each be defined in the credit agreement that
evidences our new credit facility). Borrowings made under our
new credit facility in connection with the closing of the
transactions described in Summary The
Transactions will be used for the purposes described in
Use of Proceeds. We expect that borrowings under our
new credit facility that are made after the closing of those
transactions may be used for (i) the refinancing and
repayment of certain existing indebtedness, (ii) working
capital and other general partnership purposes and
(iii) capital expenditures. Borrowings under our new credit
facility will be secured by a first-priority lien on and
security interest in substantially all of our assets. The credit
agreement that evidences our new credit facility will contain
customary covenants, including restrictions on our ability to
incur additional indebtedness, make certain investments, loans
or advances, make distributions to our unitholders, make
dispositions or enter into sales and leasebacks, or enter into a
merger or sale of our property or assets, including the sale or
transfer of interests in our subsidiaries. The credit agreement
will also require compliance with certain financial covenant
ratios, including limiting our leverage ratio (ratio of
consolidated indebtedness to Adjusted EBITDA) to no greater than
2.75x and limiting our interest coverage ratio (ratio of
Adjusted EBITDA to consolidated interest expense) to no less
than 4.0x. In addition, we will not be permitted under the
credit agreement to fund capital expenditures in any fiscal year
in excess of certain specified amounts.
The events that constitute an event of default under our new
credit agreement are expected to include, among other things,
the failure to pay principal and interest when due, breach of
representations and warranties, failure to comply with
covenants, voluntary bankruptcy or liquidation or a change of
control.
94
Contractual
Obligations
We have contractual obligations that are required to be settled
in cash. The amounts of our contractual obligations as of
December 31, 2009 were as follows:
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Payments Due by Period
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Less than
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More than
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Total
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1 Year
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1-3 Years
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4-5 Years
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5 Years
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(in thousands)
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Long-term debt
obligations
(1)
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$
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105,507
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$
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5,591
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$
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99,916
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$
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$
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Other long-term
debt
(2)
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5,435
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3,642
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1,783
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10
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Operating lease obligations
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18,425
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6,289
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12,013
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123
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Fixed price diesel fuel purchase contracts
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9,446
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9,446
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Long-term coal purchase
contract
(3)
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83,627
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14,103
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29,796
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19,864
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19,864
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Total
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$
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222,440
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$
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39,071
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$
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143,508
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$
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19,997
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$
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19,864
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(1)
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Amounts relate to our existing credit facility that will be
repaid in full in connection with this offering. Please read
Use of Proceeds. Assumes a current LIBOR of 1.0%
plus the applicable margin, which remains constant for all
periods.
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(2)
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Represents various notes payable with interest rates ranging
from 4.6% to 9.25%.
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(3)
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We assumed a long-term coal purchase contract as a result of the
Phoenix Coal acquisition. Please read Note 17 to our
historical financial statements included elsewhere in this
prospectus.
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Capital
Expenditures
Our mining operations require investments to expand, upgrade or
enhance existing operations and to comply with environmental
regulations. Our capital requirements primarily consist of
maintenance capital expenditures and expansion capital
expenditures. Maintenance capital expenditures are those capital
expenditures required to maintain or replace, including over the
long term, our operating capacity, asset base or operating
income. Expansion capital expenditures are those capital
expenditures made to increase our long-term operating capacity,
asset base or operating income. Our partnership agreement
divides maintenance capital expenditures into two
categories reserve replacement expenditures and
other maintenance capital expenditures. Examples of reserve
replacement expenditures include the replacement of coal
reserves, whether through the expansion of an existing mine or
the acquisition (by lease or otherwise) of new reserves, to the
extent such expenditures are incurred to maintain or replace our
operating capacity, asset base or operating income. Examples of
other maintenance capital expenditures include capital
expenditures associated with the repair, refurbishment or
replacement of equipment. Examples of expansion capital
expenditures include the acquisition (by lease or otherwise) of
reserves, equipment or a new mine or the expansion of an
existing mine, to the extent such expenditures are incurred to
increase our long-term operating capacity, asset base or
operating income.
For the year ending December 31, 2010, we expect to incur
$5.2 million in reserve replacement expenditures and
$26.7 million in other maintenance capital expenditures. We
expect to fund maintenance capital expenditures primarily from
cash generated by our operations. To the extent we incur
expansion capital expenditures, we expect to fund those
expenditures with the proceeds of borrowings under our new
credit facility, issuance of debt and equity securities or other
external sources of financings.
Off-Balance
Sheet Arrangements
In the normal course of business, we are a party to certain
off-balance sheet arrangements. These arrangements include
guarantees and financial instruments with off-balance sheet
risk, such as bank letters of credit, surety bonds, performance
bonds and road bonds. No liabilities related to these
arrangements are
95
reflected in our consolidated balance sheet, and we do not
expect any material adverse effects on our financial condition,
results of operations or cash flows to result from these
off-balance sheet arrangements.
Federal and state laws require us to secure certain long-term
obligations such as mine closure and reclamation costs and other
obligations. We typically secure these obligations by using
surety bonds, an off-balance sheet instrument. The use of surety
bonds is less expensive for us than the alternative of posting a
100% cash bond and we typically use bank letters of credit to
secure our surety bonding obligations. To the extent that surety
bonds become unavailable, we would seek to secure our
reclamation obligations with letters of credit, cash deposits or
other suitable forms of collateral. We also post performance
bonds to secure our performance of various contractual
obligations and road bonds to secure our obligations to repair
local roads.
As of March 31, 2010, we had approximately
$32.4 million in surety bonds outstanding to secure the
performance of our reclamation obligations, which were supported
by approximately $7.5 million in letters of credit. As of
March 31, 2010, we had approximately $12.3 million of
performance bonds outstanding and $0.6 million of road
bonds outstanding, none of which were secured by letters of
credit.
Critical
Accounting Policies and Estimates
Our preparation of financial statements in conformity with GAAP
requires that we make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and
accompanying notes. We base our judgments, estimates and
assumptions on historical information and other known factors
that we deem relevant. Estimates are inherently subjective as
significant management judgment is required regarding the
assumptions utilized to calculate accounting estimates. The most
significant areas requiring the use of management estimates and
assumptions relate to
units-of-production
amortization calculations, asset retirement obligations, useful
lives for depreciation of fixed assets and estimates of fair
values for asset impairment purposes. Our significant accounting
policies are more fully described in Note 2 to our
historical consolidated financial statements included elsewhere
in this prospectus. This section describes those accounting
policies and estimates that we believe are critical to
understanding our historical consolidated financial statements
and that we believe will be critical to understanding our
consolidated financial statements subsequent to this offering.
Inventory
Inventory consists of coal that has been completely uncovered or
that has been removed from the pit and stockpiled for crushing,
washing or shipment to customers. Inventory also consists of
supplies, primarily spare parts and fuel. Inventory is valued at
the lower of average cost or market. The cost of coal inventory
includes labor, equipment operating expenses and certain
transportation and operating overhead. The stripping costs
incurred in the production phase of a mine are variable
production costs included in the costs of the inventory produced
during the period that the stripping costs were incurred.
Property,
Plant and Equipment
Property, plant and equipment are recorded at cost. Expenditures
that extend the useful lives of existing plant and equipment are
capitalized. Maintenance and repairs that do not extend the
useful life or increase productivity are charged to operating
expense as incurred. Plant and equipment are depreciated
principally on the straight-line method over the estimated
useful lives of the assets based on the following schedule:
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Buildings and tipple
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25 39 years
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Machinery and equipment
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7 12 years
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Vehicles
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5 7 years
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Furniture and fixtures
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3 7 years
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Railroad siding
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7 years
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We acquire our reserves through purchases or leases of coal
reserves. Coal reserves are recorded at fair value under
purchase accounting at our formation date of August 24,
2007, or as part of the Phoenix Coal acquisition. We deplete our
reserves using the
units-of-production
method, without residual value, on the basis of tonnage mined in
relation to estimated recoverable tonnage. At December 31,
2009 and 2008, all of our reserves
96
were attributed to mine complexes engaged in mining operations
or leased to third parties. We believe that the carrying value
of these reserves will be recovered. Residual surface values are
classified as land and not depleted.
Exploration expenditures are charged to operating expense as
incurred, including costs related to locating coal deposits and
drilling and evaluation costs incurred to assess the economic
viability of such deposits.
Costs incurred in areas outside the boundary of known coal
deposits and areas with insufficient drilling spacing to qualify
as proven and probable reserves are also expensed as exploration
costs. Once management determines there is sufficient evidence
that the expenditure will result in the future economic benefit
to the Partnership, the costs are capitalized as mine
development costs. Capitalization of mine development costs
continues until more than a de minimis amount of saleable coal
is extracted from the mine. Amortization of these mine
development costs is then initiated using the
units-of-production
method based upon the estimated recoverable tonnage.
Advance
Royalties
A substantial portion of our reserves are leased. Advance
royalties are advance payments made to lessors under terms of
mineral lease agreements that are recoupable through a reduction
in royalties payable on future production. Amortization of
leased coal interests is computed using the
units-of-production
method over estimated recoverable tonnage.
Long-Lived
Assets
We follow authoritative guidance that requires projected future
cash flows from use and disposition of assets to be compared
with the carrying amounts of those assets when impairment
indicators are present. When the sum of projected cash flows is
less than the carrying amount, impairment losses are indicated.
If the fair value of the assets is less than the carrying amount
of the assets, an impairment loss is recognized. In determining
such impairment losses, discounted cash flows or asset
appraisals are utilized to determine the fair value of the
assets being evaluated. Also, in certain situations, expected
mine lives are shortened because of changes to planned
operations. When that occurs and it is determined that the
mines underlying costs are not recoverable in the future,
reclamation and mine closure obligations are accelerated. To the
extent it is determined that an assets carrying value will
not be recoverable during a shorter mine life, the asset is
written down to its recoverable value. No impairment triggers
occurred and therefore no impairment losses were recognized
during any of the years or periods presented.
Identifiable
Intangible Assets
Identifiable intangible assets are recorded in other assets in
the accompanying consolidated balance sheets. We capitalize
costs incurred in connection with borrowings or the
establishment of credit facilities. These costs are amortized as
an adjustment to interest expense over the life of the borrowing
or term of the credit facility using the interest method.
We also have recorded intangible assets and liabilities at fair
value associated with certain customer relationships and
below-market coal sales contracts, respectively. These balances
arose from the use of purchase accounting for business
combinations and so the assets and liabilities were adjusted to
fair value. These intangible assets are being amortized over
their expected useful lives.
Asset
Retirement Obligation
Our asset retirement obligations, or AROs, arise from the SMCRA
and similar state statutes, which require that mine property be
restored in accordance with specified standards and an approved
reclamation plan. Our AROs are recorded initially at fair value.
It has been our practice, and we anticipate that it will
continue to be our practice, to perform a substantial portion of
the reclamation work using internal resources. Hence, the
estimated costs used in determining the carrying amount of our
AROs may exceed the amounts that are eventually paid for
reclamation costs if the reclamation work was performed using
internal resources.
97
To determine the fair value of our AROs, we calculate on a mine
by mine basis the present value of estimated reclamation cash
flows. This process requires us to estimate the current
disturbed acreage subject to reclamation, estimates of future
reclamation costs and assumptions regarding the mines
productivity. These cash flows are discounted at the
credit-adjusted, risk free interest rate based on
U.S. Treasury bonds with a maturity similar to the expected
lives of our mines.
When the liability is initially recorded for the costs to open a
new mine site, the offset is recorded to the producing mine
asset. Over time, the ARO liability is accreted to its present
value, and the capitalized cost is depreciated over the
units-of-production
for the related mine. The liability is also increased as
additional land is disturbed during the mining process. The
timeline between digging the mining pit and extracting the coal
is relatively short; therefore, much of the liability created
for active mining is expensed within a month or so of
establishment because the related coal has been extracted. If
the assumptions used to estimate the ARO do not materialize as
expected or regulatory changes occur, reclamation costs or
obligations to perform reclamation and mine closure activities
could be materially different than currently estimated. We
review our entire reclamation liability at least annually and
make necessary adjustments for permit changes as granted by
state authorities, additional costs resulting from revisions to
cost estimates and the quantity of disturbed acreage during the
current year.
Income
Taxes
As a limited partnership, we are not a taxable entity for
federal or state income tax purposes; the tax effect of our
activities passes through to our unitholders. Therefore, no
provision or liability for federal or state income taxes is
included in our financial statements. Net income for financial
statement purposes may differ significantly from taxable income
reportable to our unitholders as a result of timing or permanent
differences between financial reporting under GAAP and the
regulations promulgated by the IRS.
Revenue
Recognition
Revenue from coal sales is recognized and recorded when shipment
or delivery to the customer has occurred, prices are fixed or
determinable and the title or risk of loss has passed in
accordance with the terms of the sales contract. Under the
typical terms of these contracts, risk of loss transfers to the
customers at the mine or port when the coal is loaded on the
rail, barge or truck.
Freight and handling costs paid to third-party carriers and
invoiced to customers are recorded as cost of transportation and
transportation revenue, respectively.
Royalty and non-coal revenue consists of coal royalty income,
service fees for providing land-fill earth moving services,
commissions that we receive from a third party who sells
limestone that we recover during our coal mining process,
service fees for operating a coal unloading facility for a third
party and fees that we receive for trucking ash for two
municipal utility customers. Revenues are recognized when
earned, or when the services are performed. Royalty revenue
relates to the overriding royalty we receive on our underground
coal reserves that we sublease to a third party mining company.
By June 2008, our sublessee had completed the installation of
its processing infrastructure and began to sell its coal
production to other third parties.
Coal
Sales Contracts
Our below-market coal sales contracts that were acquired through
the Phoenix Coal acquisition and in connection with our
acquisition of Oxford Mining Company in 2007 are contracts for
which the prevailing market price was in excess of the contract
price. The fair value was based on discounted cash flows
resulting from the difference between the below-market contract
price and the prevailing market price at the date of
acquisition. The difference between the below-market
contracts cash flows and the cash flows at the prevailing
market price is amortized into coal sales on the basis of tons
shipped over the term of the respective contract.
Unit-Based
Compensation
We account for unit-based awards in accordance with applicable
guidance, which establishes standards of accounting for
transactions in which an entity exchanges its equity instruments
for goods or services. Unit-based compensation expense is
recorded based upon the fair value of the award at the grant
date. Such costs are recognized as expense on a straight-line
basis over the corresponding vesting period. The fair value of
our
98
LTIP units is determined based on the sale price of our limited
partner units in arms length transactions. The unit price
fair value was increased in September 2009 in connection with
the Phoenix Coal acquisition where additional units were
purchased by C&T Coal and AIM Oxford disproportionately to
their respective ownership interests to help fund the
acquisition. This resulted in C&T Coals previous
ownership interest being diluted. We verified the reasonableness
of the new valuation of our units using traditional valuation
techniques for publicly traded partnerships.
New
Accounting Standards Issued and Adopted
In June 2009, the FASB issued a new standard establishing the
FASB Accounting Standards Codification
(Codification) as the sole source of authoritative
generally accepted accounting principles. The Codification
reorganized existing U.S. accounting and reporting
standards issued by the FASB and other related private sector
standard setters into a single source of authoritative
accounting principles arranged by topic. The Codification
supersedes all existing U.S. accounting standards; all
other accounting literature not included in the Codification
(other than SEC guidance for publicly traded companies) is
considered non-authoritative. This standard is effective for
interim and annual reporting periods ending after
September 15, 2009. The Codification does not change
existing GAAP.
In September 2009, the FASB issued Accounting Standards Update
(ASU)
2009-06,
Implementation Guidance on Accounting for Uncertainty in
Income Taxes and Disclosure Amendments for Nonpublic
Entities
. This update addresses the need for additional
implementation guidance on accounting for uncertainty in income
taxes for all entities. The update clarifies that an
entitys tax status as a pass through or tax-exempt
not-for-profit
entity is a tax position subject to recognition requirements of
the standard and therefore must use the recognition and
measurement guidance when assessing their tax positions. The ASU
2009-06
updates are effective for interim and annual periods ending
after September 15, 2009. The adoption of the guidance in
ASU
2009-06
during the third quarter of 2009 did not have a material impact
on our consolidated financial statements.
In May 2009, the FASB issued new guidance for accounting for
subsequent events that established the accounting for and
disclosure of events that occur subsequent to the balance sheet
date but before financial statements are issued or are available
to be issued. The standard provides guidance on
managements assessment of subsequent events and
incorporates this guidance into accounting literature. The
standard is effective prospectively for interim and annual
periods ending after June 15, 2009. We adopted this
standard for the year ended December 31, 2009 and the
adoption did not impact our consolidated financial statements.
In December 2007, the FASB issued revised guidance on business
combinations. This new guidance establishes principles and
requirements for the acquirer of a business to recognize and
measure in its financial statements. This amendment applies to
all business combinations and establishes guidance for
recognizing and measuring identifiable assets, liabilities,
noncontrolling interests in the acquiree and goodwill. Most of
these items are recognized at their full fair value on the
acquisition date, including acquisitions where the acquirer
obtains control but less than 100% ownership in the acquiree.
The amendment also requires expensing acquisition-related costs
as incurred and establishes disclosure requirements to enable
the evaluation of the nature and financial effects of the
business combination. This guidance is effective for business
combinations with an acquisition date in fiscal years beginning
after December 15, 2008. We have recorded the acquisition
of the surface coal mining assets of Phoenix Coal dated
September 30, 2009 under this revised guidance. The impact
of adoption was to expense $379,000 of previously capitalized
acquisition costs as of January 1, 2009.
In December 2007, the FASB issued new guidance on the accounting
for noncontrolling ownership interests in a subsidiary and for
the deconsolidation of a subsidiary. The guidance requires that
noncontrolling ownership interests in consolidated subsidiaries
be presented in the consolidated balance sheet within
partners capital as a separate component from the
parents equity as opposed to mezzanine equity.
Consolidated net income will now be disclosed as the amount
attributable to both the parent and the noncontrolling
interests. The guidance also provides for changes in the
parents ownership interest in a subsidiary, including
transactions where control is retained and where control is
relinquished; it also requires expanded disclosures in the
consolidated financial statements that clearly identify and
distinguish between the interests of the parent owners and the
interests of the noncontrolling owners of a subsidiary. This
guidance requires retrospective application to all periods
presented, as included in our consolidated financial statements.
99
New
Accounting Standards Issued and Not Yet Adopted
In August 2009, the FASB issued ASU
2009-05,
Measuring Liabilities at Fair Value. The amendment provides
clarification that in circumstances in which a quoted price in
an active market for the identical liability is not available, a
reporting entity is required to measure fair value using one or
more of the alternative valuation methods outlined in the
guidance. It also clarifies that restrictions preventing the
transfer of a liability should not be considered as a separate
input or adjustment in the measurement of its fair value. This
amendment was effective as of the beginning of interim and
annual reporting periods that begin after August 27, 2009.
The adoption of this guidance did not impact our consolidated
financial statements.
In June 2009, the FASB amended guidance for the consolidation of
a variable interest entity (VIE). This guidance
updated the determination of whether an enterprise is the
primary beneficiary of a VIE, and is, therefore, required to
consolidate an entity, by requiring a qualitative analysis
rather than a quantitative analysis. This standard also requires
continuous reassessments of whether an enterprise is the primary
beneficiary of a VIE. Previously, reconsideration was required
only when specific events had occurred. This guidance also
requires enhanced disclosure about an enterprises
involvement with a VIE. The provisions of these updates are
effective as of the beginning of interim and annual reporting
periods that begin after November 15, 2009. We do not
believe that this standard will have a material impact on our
consolidated financial statements.
Quantitative
and Qualitative Disclosures about Market Risk
We define market risk as the risk of economic loss as a
consequence of the adverse movement of market rates and prices.
We believe our principal market risks are commodity price risks
and interest rate risk.
Commodity
Price Risk
Historically, we have principally managed the commodity price
risks from our coal sales through the use of long-term coal
sales contracts of varying terms and durations, rather than
through the use of derivative instruments. Please read
Factors that Impact our Business for
more information about our long-term coal sales contracts.
We believe that the price risk associated with diesel fuel is
significant because of possible price volatility. Taking into
account full or partial diesel fuel cost pass through provisions
in our long-term coal sales contracts and our fixed price
forward contracts for delivery of diesel fuel, we estimate that
a hypothetical increase of $0.10 per gallon for diesel fuel
would have reduced net income attributable to our unitholders by
$0.3 million for the year ended December 31, 2009 and
by $0.1 million for the first quarter of 2010.
Interest
Rate Risk
We have exposure to changes in interest rates on our
indebtedness associated with our credit facility. On
September 11, 2009, we entered into an interest rate cap
agreement to hedge our exposure to rising interest rates during
2010. This agreement, which has an effective date of
January 4, 2010 and a notional amount of
$50.0 million, provides for a LIBOR interest rate cap of
2.0% using three-month LIBOR. LIBOR was 0.268% as of
March 31, 2010. We paid a fixed fee of $85,000 for this
agreement which has quarterly settlement dates and matures on
December 31, 2010. At December 31, 2009 and
March 31, 2010, the value of the interest rate cap was
$34,000 and $1,000, respectively. These values are recorded in
other assets and the
mark-to-market
decreases in value of $51,000 and $33,000 are recorded to
interest expense in our consolidated statements of operations
for the year ended December 31, 2009 and the first quarter
of 2010, respectively.
A hypothetical increase or decrease in interest rates by 1.0%
would have changed our interest expense by $0.3 million for
the year ended December 31, 2009, which reflects the impact
of an interest rate swap that terminated in August 2009, and by
$0.1 million for the first quarter of 2010.
Seasonality
Our business has historically experienced only limited
variability in its results due to the effect of seasons. Demand
for coal-fired power can increase due to unusually hot or cold
weather as power consumers use more air conditioning or heating.
Conversely, mild weather can result in softer demand for our
coal. Adverse weather conditions, such as blizzards or floods,
can impact our ability to mine and ship our coal and our
customers ability to take delivery of coal.
100
THE COAL
INDUSTRY
Introduction
Coal is an abundant natural resource that is used primarily as
an efficient and affordable fuel for the generation of electric
power. According to the most recent estimate of the EIA, there
are approximately 929.3 billion tons of worldwide
recoverable coal reserves. Approximately 262.7 billion
tons, or 28.3%, of those reserves are located in the United
States, more than in any other country. U.S. coal reserves
represent over 200 years of domestic supply based on
current production rates. Coal is also the most abundant
domestic fossil fuel, accounting for approximately 94.0% of the
nations fossil energy reserves.
Coal is ranked by heat content, with bituminous,
sub-bituminous
and lignite coal representing the highest to lowest heat
ranking, respectively. Coal is also categorized as either steam
coal or metallurgical coal. Steam coal is used by utilities and
independent power producers to generate electricity and
metallurgical coal is used by steel companies to produce
metallurgical coke for use in blast furnaces. Steam coal
comprises the vast majority of total coal resources, accounting
for approximately 87.0% and 95.0% of the total global and
U.S. coal production, respectively. Please read
Special Note Regarding the EIAs Market
Data and Projections below.
Industry
Trends
Coal consumption and production in the United States have been
driven in recent periods by several market dynamics and trends.
The recent global economic downturn has negatively impacted coal
demand in the short-term, but long-term projections for coal
demand remain positive. These market dynamics and trends include
the following:
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Favorable long-term outlook for U.S. steam coal
market.
Although domestic coal consumption
declined in 2009 due to the global economic downturn, the EIA
forecasts that domestic coal consumption will increase by 14.4%
through 2015 and by 32.2% through 2035, primarily due to the
projected continued growth in coal-fired electric power
generation demand. The EIA also forecasts that coal-fired
electric power generation will increase by 13.0% through 2015
and by 27.0% through 2035, with coal remaining the dominant fuel
source in the future.
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Increasing demand for coal produced in Northern Appalachia
and the Illinois Basin.
Coal production in
Northern Appalachia and, to a greater extent the Illinois Basin
began to decline after the adoption of the CAAA, which among
other things, limited sulfur dioxide emissions from coal-fired
electric power plants. According to the EIA, coal production in
Northern Appalachia and the Illinois Basin is expected to grow
by 29.2% and 33.1%, respectively, through 2015 and by 35.7% and
42.8%, respectively, through 2035. We believe that this
projected increase will be driven by a combination of the
continued decline in coal production in Central Appalachia and
the new scrubber installations at coal-fired power plants in our
primary market area. According to public announcements,
approximately 18,400 megawatts of additional scrubbed generating
capacity are expected to come online in our primary market area
by 2017, including 4,750 megawatts in Ohio in the next three
years.
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Decline in coal production in Central
Appalachia.
Although Central Appalachia is
currently the nations second largest coal production area
after the PRB, the EIA forecasts that coal production in Central
Appalachia will decline by 34.5% through 2015 and by 54.1%
through 2035. This decline will be offset by production from
other U.S. regions, including Northern Appalachia and the
Illinois Basin. The combination of reserve depletion and
increasing regulatory enforcement, mining costs and geologic
complexity in Central Appalachia is expected to lead to
substantial production declines over the long term.
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Expected near-term increases in international demand for
U.S. coal exports.
Although down from the
previous year, U.S. exports began to increase in the second
half of 2009, supported by recovering global economies and
continued rapid growth in electric power generation and steel
production
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101
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capacity in Asia, particularly in China and India. In addition,
traditional coal exporting countries such as Australia,
Indonesia, Colombia and South Africa have been unable to
increase exports rapidly enough for a variety of reasons,
including geologic and logistical issues and increased domestic
consumption. Furthermore, increased international demand for
higher priced metallurgical coal has resulted in certain coal
from Central Appalachia and Northern Appalachia, which can serve
as either metallurgical or steam coal, being drawn into the
metallurgical coal export market, which further reduces supplies
of steam coal from this region for domestic consumption. Because
of these trends, the United States is expected to continue to be
an increasingly important swing supplier of coal to the global
marketplace in the near term.
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Development of new coal-related technologies will lead to
increased demand for coal.
The EIA projects that
new
coal-to-liquids
plants will account for 32 million tons of annual coal
demand in ten years with that amount more than doubling to
68 million tons by 2035. In addition, through the ARRA the
federal government has targeted over $1.5 billion to CCS
research and another $800 million for the Clean Coal Power
Initiative, a ten-year program supporting commercial application
of CCS technology.
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Increasingly stringent air quality legislation will continue
to impact the demand for coal.
A series of more
stringent requirements related to particulate matter, ozone,
mercury, sulfur dioxide, nitrogen oxides, carbon dioxide and
other air emissions have been proposed or enacted by federal or
state regulatory authorities in recent years. Considerable
uncertainty is associated with these air quality regulations,
some of which have been the subject of legal challenges in
courts, and the actual timing of implementation remains
uncertain. However, we believe that it is likely that additional
air quality regulations ultimately will be adopted in some form
at the federal or state level. While it is currently not
possible to determine the impact of any such regulatory
initiatives on future demand for coal, it may be materially
adverse. See Risk Factors Risks Related to Our
Business Existing and future regulatory requirements
relating to sulfur dioxide and other air emissions could affect
our customers and could reduce the demand for the high-sulfur
coal we produce and cause coal prices and sales of our
high-sulfur coal to decline materially.
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Coal
Consumption and Demand
The majority of coal consumed in the United States is used to
generate electricity, with the balance used by a variety of
industrial users to heat and power foundries, cement plants,
paper mills, chemical plants and other manufacturing and
processing facilities. Metallurgical coal is predominately
consumed in the production of metallurgical coke used in
steelmaking blast furnaces. In 2009, coal-fired power plants
produced approximately 45.0% of all electric power generation,
more than natural gas and nuclear, the two next largest domestic
fuel sources, combined. Steam coal used by utilities and
independent power producers to generate electricity, accounted
for 92.0% of total coal consumption in 2009.
In 2009, total coal consumption in the United States decreased
by approximately 11.0% from 2008 levels, reflecting the effects
of the economic recession. The drop in coal consumption was
driven primarily by the reduction in electric power demand and
the steep decline in natural gas prices that encouraged coal to
natural gas switching among electric utilities. The decreased
electric power demand was particularly apparent in the
industrial sector where demand fell by an estimated 18.3% in
2009. Unusually cool summer temperatures in some areas of the
country where coal is the predominant source of electric power
generation also resulted in lower coal consumption.
Going forward, the EIA forecasts that total U.S. coal
consumption will increase in 2010 by over 3.0% due to
anticipated increases in electricity demand resulting from
increased economic activity and higher natural gas prices. In
addition, over the long term, the EIA forecasts in its 2010
reference case that total coal consumption will grow by 14.0%
through 2015 and 32.0% through 2035, primarily due to gradual
increases in coal-fired electric power generation and the
introduction of
coal-to-liquids
plants.
102
The following table sets forth actual coal consumption for 2008,
estimated consumption for 2009 and 2010 and the EIAs
projected coal consumption by sector through 2035 for the
periods indicated.
U.S. Coal
Consumption by Sector
(tons in millions)
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Total
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Total
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Actual
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Estimate
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Estimate
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Forecast
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Growth
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Forecast
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Growth
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2008
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2009
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2010
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2015
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2009-2015
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2035
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2009-2035
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Electric Power
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1,042
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934
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961
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1,044
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11.7
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%
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1,183
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26.7
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%
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Other Industrial
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54
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44
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43
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54
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19.1
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%
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51
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14.6
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%
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Coke Plants
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22
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16
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22
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20
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28.2
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%
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14
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(10.3
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)%
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Residential/ Commercial
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4
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3
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3
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3
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%
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3
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%
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Coal-to-Liquids
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20
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n/m
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68
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n/m
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Total U.S. Consumption
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1,122
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997
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1,029
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1,141
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14.4
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%
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1,319
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32.2
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%
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Source: EIA.
In the United States, the reliance on coal-fired generation is
attributable to the abundance and low cost of coal. According to
the EIA, coal is expected to remain the dominant energy source
for electric power generation for the foreseeable future.
U.S.
Scrubber Market
The CAAA imposed increasingly stringent regulations regarding
the emissions of sulfur dioxide and nitrogen oxides. In response
to these regulations, emission control technologies such as flue
gas desulfurizers, also known as scrubbers, were developed to
reduce emissions of sulfur dioxide. The use of scrubbers has
addressed a wide array of technological and economic challenges
and has become the predominant sulfur dioxide emissions control
technology used by U.S. coal-fired power plants. Scrubbers
have the additional benefit of being able to reduce mercury
emissions. This widespread installation of scrubbers is expected
to significantly increase demand for higher sulfur coal,
particularly in our primary market area.
Nationwide, there are currently over 148,000 megawatts of
scrubbed electric generating capacity, including 18,900
megawatts that were added in 2009. According to public
announcements, we expect 76,200 megawatts of additional scrubbed
electric generating capacity to be added by 2017. Currently, in
our primary market area there are over 54,500 megawatts of
scrubbed electric generating capacity. According to public
announcements, we expect approximately 18,400 megawatts of
additional scrubbed electric generating capacity in our primary
market area to come online by 2017, including 4,750 megawatts in
Ohio in the next three years. This additional scrubbed capacity
represents approximately 24.0% of the total scrubbed capacity to
be added nationwide during that period.
103
The following map of the United States shows coal-fired power
plants with existing or announced scrubbers:
Coal
Consumption in Our Primary Market Area
Coal is the dominant fuel source for electric power generation
in our primary market area and is expected to remain so for the
foreseeable future. As shown in the table below, 69.1% of the
electricity in our market area is generated by coal-fired power
plants as compared to 38.2% for the rest of the United States.
In addition, approximately 27.7% of coal consumption nationwide
is burned by coal-fired power plants in our primary market area.
2009
Coal-Fired Electricity Generation
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Total
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Electricity
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Coal-Fired Electricity
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Generation
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Generation
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GWh
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GWh
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% of total
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Ohio
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135,949
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113,824
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83.7
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%
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Indiana
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116,668
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108,591
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93.1
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%
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Pennsylvania
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218,377
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104,927
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48.0
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%
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Illinois
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193,214
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90,949
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47.1
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%
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Kentucky
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90,988
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84,380
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92.7
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%
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West Virginia
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70,774
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68,136
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96.3
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%
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Total Our Primary Market Area
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825,970
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570,807
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69.1
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%
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Total United States (excluding our Primary Market
Area)
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3,125,137
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1,193,679
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38.2
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%
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Total United States
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3,951,107
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1,764,486
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44.7
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%
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Source: EIA.
104
U.S. Coal
Production
Estimated total U.S. coal production in 2009 was
1.1 billion tons, a decrease of 7.7% from 2008. This
decrease is due to the global economic downturn, which
significantly reduced domestic demand for coal-fired electric
power and led to a decline in exports. The EIA has forecasted a
6.7% increase in coal production through 2015 and an 18.7%
increase through to 2035.
The following table sets forth historical and forecasted
production statistics in each of the major U.S. coal
producing regions for the periods indicated based on the
EIAs data and projections.
U.S. Coal
Production
Source: EIA.
Coal
Producing Regions
Coal is mined in over half of the states in the United States,
but domestic coal production is primarily attributed to one of
three coal producing regions: Appalachia, the Interior and the
Western region. Within those three regions, the major producing
centers are Northern and Central Appalachia, the Illinois Basin
in the Interior region and the PRB in the Western region. The
type, quality and characteristics of coal vary by, and within
each, region.
Northern Appalachia.
Northern Appalachia
includes Ohio, Pennsylvania, Maryland and northern West
Virginia. The area includes reserves of bituminous coal with
mid-to-high
heat content (generally ranging from 10,300 to 13,000 Btu/lb)
and
mid-to-high
sulfur content (typically ranging from 1.0% to 4.0%). Coal
produced in Northern Appalachia is marketed primarily to
electric utilities, industrial consumers and the export market,
with some metallurgical coal marketed to steelmakers. The
widespread installation of scrubbers by electric utilities is
expected to significantly increase demand for high-sulfur coal
from Northern Appalachia, providing a positive outlook for the
area.
Estimated coal production in Northern Appalachia for 2009 was
121.5 million tons, a decline of 10.5% from 2008. In 2010,
the EIA forecasts that coal production in Northern Appalachia
will increase slightly to 122.1 million tons. The EIA
forecasts that coal production in Northern Appalachia will
increase by 29.2% through 2015 and by 35.7% through 2035.
Central Appalachia.
Central Appalachia
includes eastern Kentucky, southern West Virginia, Virginia and
northern Tennessee. The area includes reserves of bituminous
coal with a high heat content (typically 12,000 Btu/lb or
greater) and relatively low sulfur content (typically ranging
from 0.5% to 1.5%). Coal produced in Central Appalachia is
marketed primarily to electric utilities, with metallurgical
coal marketed to steelmakers. The combination of reserve
depletion and increasing regulatory enforcement, mining costs
and geologic complexity in Central Appalachia is expected to
lead to substantial production declines over the long term. In
105
addition, the widespread installation of scrubbers is expected
to enable higher sulfur coal from Northern Appalachia and the
Illinois Basin to replace coal from Central Appalachia.
Estimated coal production in Central Appalachia for 2009 was
215.5 million tons, a decline of 8.0% from 2008. In 2010,
the EIA estimates that production in Central Appalachia will
decline by another 13.9%. The EIA forecasts that coal production
in Central Appalachia will decline by 34.5% through 2015,
causing total production in Central Appalachia to fall below
forecasted production levels for Northern Appalachia. The EIA
forecasts the coal production in Central Appalachia will decline
by more than half through 2015.
The following map of the United States shows electric power
plants that receive coal shipments from Central Appalachia:
Illinois Basin.
The Illinois Basin includes
western Kentucky, Illinois and Indiana. The area includes
reserves of bituminous coal with a mid-level heat content
(typically ranging from 10,100 to 12,600 Btu/lb) and
mid-to-high
sulfur content (typically ranging from 1.0% to 4.3%). Illinois
Basin coal also can have high ash and chlorine content. Most of
the coal produced in the Illinois Basin is used to produce
electricity, with small amounts used in industrial applications.
The EIA forecasts that production of high sulfur coal in the
Illinois Basin, which has trended down since the early 1990s
when many coal-fired plants switched to lower sulfur coal to
reduce sulfur dioxide emissions after the passage of the CAAA,
will rebound as existing coal-fired capacity is retrofitted with
scrubbers and new coal-fired capacity with scrubbers is added.
In addition, planned
coal-to-liquids
facilities, which are backed by state support and incentives and
are indifferent to the sulfur content of coal, are poised to
become substantial new consumers of Illinois Basin coal.
Estimated coal production in the Illinois Basin was
93.4 million tons for 2009, a decrease of 5.9% from 2008.
In 2010, the EIA forecasts that coal production in the Illinois
Basin will increase slightly to 97.3 million tons. The EIA
forecasts that coal production in the Illinois Basin will
increase by 33.1% through 2015 and by 42.8% through 2035.
Powder River Basin.
The PRB is located in
Wyoming and Montana. In terms of production, the PRB is the
dominant coal producing region in the world, with its coal-seam
geology allowing for high volume, low
106
cost surface mining. The PRB produces
sub-bituminous
coal with low sulfur content (typically ranging from 0.2% to
0.9%) and low level heat content (typically ranging from 8,000
to 9,500 Btu). After strong growth in production over the past
20 years, growth in demand for PRB coal is expected to
moderate in the future due to the slowing demand for low sulfur,
low Btu coal as scrubbers proliferate and concerns about
increases in rail transportation rates and rising operating
costs grow.
Estimated coal production in the PRB was 417.7 million tons
for 2009, a decrease of 7.5% from 2008. In 2010, the EIA
forecasts that coal production in the PRB will increase to
434.9 million tons. The EIA forecasts that coal production
in the PRB will increase by 12.6% through 2015 and by 31.9%
through 2035.
Coal
Imports and Exports
Almost all of the coal consumed in the United States is produced
from domestic sources. Coal imports represent a small portion of
domestic coal consumption, averaging only about 2% of total
U.S. coal consumption. Coal is imported into the United
States primarily from Colombia, Indonesia and Venezuela.
Imported coal generally serves coastal states along the Gulf of
Mexico and the eastern seaboard. We do not expect U.S. coal
imports to increase significantly in the near term due to rising
demand in Asia and infrastructure limitations in the United
States.
Although down from the previous year, U.S. exports began to
increase in the second half of 2009, supported by recovering
global economies and continued rapid growth in electric power
generation and steel production capacity in Asia, particularly
in China and India. In addition, traditional coal exporting
countries such as Australia, Indonesia, Colombia and South
Africa have been unable to increase exports rapidly enough for a
variety of reasons, including geologic and logistical issues and
increased domestic consumption. Furthermore, increased
international demand for higher priced metallurgical coal has
resulted in certain coal from Central Appalachia and Northern
Appalachia, which can serve as either metallurgical or steam
coal, being drawn into the metallurgical coal export market,
which further reduces supplies of steam coal from this region
for domestic consumption. Because of these trends, the United
States is expected to continue to be an increasingly important
swing supplier of coal to the global marketplace in the near
term.
Coal
Mining Methods
Coal is mined using two primary methods, underground mining and
surface mining.
Surface
Mining
Surface mining is generally used when coal is found relatively
close to the surface, when multiple seams in close vertical
proximity are being mined or when conditions otherwise warrant.
Surface mining involves removing the overburden (earth and rock
covering the coal) with heavy earth moving equipment and
explosives, loading out the coal, replacing the overburden and
topsoil after the coal has been excavated and reestablishing
vegetation and plant life. There are four primary surface mining
methods in use in Northern Appalachia and the Illinois Basin:
area, contour, auger and highwall.
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Area Mining.
Area mining removes coal from
broad areas where the land is relatively flat. An initial cut of
overburden is removed and placed in a location that will
facilitate final reclamation. After the coal is removed from the
initial cut, a second cut of overburden is removed and placed in
the initial cut, exposing the coal for removal in the second
mine cut. This process is repeated until the mining cuts have
advanced through the reserve area.
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Contour Mining.
Contour mining removes coal
from more hilly terrain. Contour mining is characterized by mine
cuts that follow the contour of the hill and are generally
smaller than the mine cuts common in area mining. A wedge of
overburden is removed along the coal outcrop on the side of a
hill, forming a bench at the level of the coal. After the coal
is removed, overburden from subsequent mine cuts is placed back
on the bench to return the hill to its natural slope.
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Auger Mining.
Auger mining recovers coal that
is uneconomic to mine by the area and contour mining methods due
to the large amount of overburden overlying the coal. The auger
is placed at the
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exposed coal face and bores into the coal seam. Pillars of
undisturbed coal are left in place to support the overlying
overburden.
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Highwall Mining.
Highwall mining is similar to
auger mining. A highwall miner consists of a launch vehicle,
push beams and a continuous miner head. This system utilizes the
continuous miner to cut into the exposed coal face. The push
beams contain augers or conveyor belts that transport the coal
back to the launch vehicle as the continuous miner advances. The
launch vehicle applies hydraulic pressure on the push beams to
push the continuous miner against the face as it advances into
the coal seam. As in the auger mining method, pillars of
undisturbed coal are left in place to support the overburden.
Both the auger and highwall mining methods allow recovery of
coal that would otherwise have been lost due to the depth of the
coal seam below the surface.
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Surface mining produces the majority of U.S. coal output,
accounting for nearly 70% of U.S. production in 2009, with
large surface mines (mines producing greater than
10 million tons per annum) contributing over 40% of the
total. Productivity for surface mines in the eastern United
States in 2009 averaged 3.64 tons per employee per hour.
Underground
Mining
Underground mining is generally used when the coal seam is too
deep to permit surface mining. There are two principal
underground mining methods: room and pillar and longwall.
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Room and Pillar Mining.
In room and pillar
mining, rooms are cut into the coal bed leaving a series of
pillars, or columns of coal, to help support the mine roof and
control the flow of air. Continuous mining equipment is used to
cut the coal from the mining face. The room and pillar method is
often used to mine smaller coal blocks or thin seams.
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Longwall Mining.
The other underground mining
method commonly used in the United States is the longwall mining
method. In longwall mining, a rotating drum is trammed
mechanically across the face of coal, and a hydraulic system
supports the roof of the mine while it advances through the
coal. Chain conveyors then move the loosened coal to an
underground mine conveyor system for delivery to the surface.
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Productivity for underground mines in the eastern United States
in 2009 averaged 3.02 tons per employee per hour.
Coal
Quality Characteristics
Coal quality is differentiated primarily by its heat content as
measured in British thermal units per pound (Btu/lb). In
general, coal with low moisture and ash content has high heat
content. Coal with higher heat content commands higher prices
because less coal is needed to generate a given quantity of
electric power.
Coal quality is also differentiated by sulfur content. When coal
is burned sulfur dioxide and other air emissions are released.
Sub-bituminous
coal (e.g., PRB coal) typically has lower sulfur content than
bituminous coal. Coal in southern West Virginia, eastern
Kentucky, Colorado and Utah, however, also generally has low
sulfur content. A coals sulfur content can be further
classified as compliance or non-compliance. Compliance coal is a
term used in the United States to describe coal that, when
burned, emits less than 1.2 lbs of sulfur dioxide per million
Btu and complies with the requirements of the CAAA without the
use of scrubbers. The primary reserves of compliance coal are
found in both the PRB and Central Appalachia.
High sulfur coal can be burned in electric utility plants
equipped with sulfur-reduction technology, such as scrubbers,
which can reduce sulfur dioxide emissions by more than 90%.
Plants without scrubbers can burn high sulfur coal by blending
it with lower sulfur coal, or by purchasing emission allowances
on the open market.
Coal ash and chlorine content also can influence the
marketability of a particular coal. Ash is the inorganic residue
remaining after the combustion of coal. As with sulfur content,
ash content varies from seam to seam. Ash content is also an
important characteristic of coal because electric generating
plants must handle
108
and dispose of ash following combustion. The chlorine content of
coal is important to generating station operators since high
levels can adversely impact boiler performance directly by both
high and low temperature corrosion and indirectly by reacting
with other coal impurities to cause ash fouling. Coal found in
the central Illinois Basin (primarily within the state of
Illinois) typically exhibits higher chlorine concentrations than
the coal found in western Kentucky and Indiana.
Transportation
The U.S. coal industry is dependent on the availability of
a consistent and responsive transportation network connecting
the various supply regions to the domestic and international
markets. Railroads and barges comprise the foundation of the
domestic coal distribution system, collectively handling about
three-quarters of all coal shipments. Truck and conveyor systems
typically move coal over shorter distances.
Although the purchaser typically pays the freight,
transportation costs are still important to coal mining
companies because the purchaser may choose a supplier largely
based on the total delivered cost of coal, which includes the
cost of transportation. Coal used for domestic consumption is
generally sold
free-on-board
at the mine, or FOB mine, which means the purchaser normally
bears the transportation costs. Transportation can be a large
component of a purchasers total cost.
While coal can sometimes be moved by one transportation method
to market, it is common for two or more modes to be used to ship
coal (i.e., inter-modal movements). The method of transportation
and the delivery distance greatly impact the total cost of coal
delivered to the consumer.
Special
Note Regarding the EIAs Market Data and
Projections
Coal industry market data and projections referred to in this
section and elsewhere in this prospectus and prepared by the EIA
reflect statements of what might happen in the coal industry
given the assumptions and methodologies used by the EIA.
Industry projections of the EIA are subject to numerous
assumptions and methodologies chosen by the EIA. In addition,
these projections assume that the laws and regulations in effect
at the time of the projections remain unchanged and that no
pending or proposed federal or state carbon emissions
legislation has been enacted and that additional coal-fired
power plants will be built during the period. Therefore, the
EIAs projections do not take into account potential
regulation of greenhouse gas emissions pursuant to proposed or
future U.S. treaty obligations, statutory or regulatory
changes under the Clean Air Act, or federal or additional state
adoption of a greenhouse gas regulatory scheme or reductions in
greenhouse gas emissions mandated by courts or through other
legally enforceable mechanisms. The EIAs projections with
respect to the demand for coal may not be met, absent other
factors, if comprehensive carbon emissions legislation is
enacted. In addition, these projections may assume certain
general economic conditions or industry conditions and commodity
prices for alternative energy sources at the time of the
projection that may or may not reflect actual economic or
industry conditions during the forecast period, including with
respect to planned and unplanned additional electricity
generating capacity. The economic conditions accounted for in
the EIAs industry projections reflect existing and
projected economic conditions at the time the projections were
made and do not necessarily reflect current economic conditions
or any subsequent deterioration of economic conditions. Actual
results may differ from those results projected by the EIA,
including projections related to the demand for additional
electricity generating capacity, because of changes in economic
conditions, laws or regulations, pricing for other energy
sources, unanticipated production cuts, or because of other
factors not anticipated in the EIAs projections.
109
BUSINESS
Overview
We are a low cost producer of high value steam coal, and we are
the largest producer of surface mined coal in Ohio. We focus on
acquiring steam coal reserves that we can efficiently mine with
our modern, large scale equipment. Our reserves and operations
are strategically located in Northern Appalachia and the
Illinois Basin to serve our primary market area of Illinois,
Indiana, Kentucky, Ohio, Pennsylvania and West Virginia. We
market our coal primarily to large utilities with coal-fired,
base-load scrubbed power plants under long-term coal sales
contracts. We believe that we will experience increased demand
for our high-sulfur coal from power plants that have or will
install scrubbers. Currently, there is over 54,500 megawatts of
scrubbed base-load electric generating capacity in our primary
market area and plans have been announced to add over 18,400
megawatts of additional scrubbed capacity by the end of 2017. We
also believe that we will experience increased demand for our
coal from power plants that use coal from Central Appalachia as
production in that region continues to decline.
We currently have 18 active surface mines that are managed as
eight mining complexes. During the first quarter of 2010, our
largest mine represented 12.6% of our coal production. This
diversity reduces the risk that operational issues at any one
mine will have a material impact on our business or our results
of operations. Consistent coal quality across many of our mines
and the mobility of our equipment fleet allows us to reliably
serve our customers from multiple mining complexes while
optimizing our mining plan. Our operations also include two
river terminals, strategically located in eastern Ohio and
western Kentucky, that further enhance our ability to supply
coal to our customers with river access from multiple mines.
During 2009 and the first quarter of 2010, we produced
5.8 million tons and 1.8 million tons of coal,
respectively. During each of the last two quarters, we produced
0.4 million tons of coal from the reserves we acquired in
western Kentucky from Phoenix Coal on September 30, 2009.
Based on our coal production for the first quarter of 2010, our
annualized coal production for 2010 would be 7.2 million
tons. During 2009 and the first quarter of 2010, we sold
6.3 million tons and 2.0 million tons of coal,
respectively, including 0.5 million tons and
0.3 million tons of purchased coal, respectively. We
currently have long-term coal sales contracts in place for 2010,
2011, 2012 and 2013 that represent 97.6%, 101.5%, 71.3% and
40.9%, respectively, of our 2010 estimated coal sales of
8.2 million tons. Members of our senior management team
have long-standing relationships within our industry, and we
believe those relationships will allow us to continue to obtain
long-term contracts for our coal production that will continue
to provide us with a reliable and stable revenue base.
As of December 31, 2009, we controlled 91.6 million
tons of proven and probable coal reserves, of which
68.6 million tons were associated with our surface mining
operations and the remaining 23.0 million tons consisted of
underground coal reserves that we have subleased to a third
party in exchange for an overriding royalty. Historically, we
have been successful at replacing the reserves depleted by our
annual production and growing our reserve base by acquiring
reserves with low operational, geologic and regulatory risks and
that were located near our mining operations or that otherwise
had the potential to serve our primary market area. Over the
last five years, we have produced 23.6 million tons of coal
and acquired 52.9 million tons of proven and probable coal
reserves, including 24.6 million tons of coal reserves that
we acquired in connection with the Phoenix Coal acquisition. We
believe that our existing relationships with owners of large
reserve blocks and our position as the largest producer of
surface mined coal in Ohio will allow us to continue to acquire
reserves in the future.
For the year ended December 31, 2009 and the first quarter
of 2010, we generated revenues of approximately
$293.8 million and $88.1 million, respectively, net
income (loss) attributable to our unitholders of approximately
$23.5 million and $(0.3) million, respectively, and
Adjusted EBITDA of approximately $50.8 million and
$10.0 million, respectively. Please read Selected
Historical and Pro Forma Consolidated Financial and Operating
Data for our definition of Adjusted EBITDA and a
reconciliation of Adjusted EBITDA to net income (loss)
attributable to our unitholders. The following table summarizes
our mining
110
complexes, our coal production for the year ended
December 31, 2009 and the first quarter of 2010 and our
coal reserves as of December 31, 2009:
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As of December 31, 2009
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Production for
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Production for
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Total
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the Year Ended
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the Quarter Ended
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Proven &
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Average
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Average
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Primary
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December 31,
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March 31,
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Probable
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Proven
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Probable
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Heat
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Sulfur
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Transportation
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Mining Complexes
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2009
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2010
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Reserves
(1)
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Reserves
(1)
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Reserves
(1)
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Value
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Content
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Methods
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(in million tons)
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(Btu/lb)
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(%)
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Surface Mining Operations:
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Northern Appalachia (principally Ohio)
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Cadiz
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1.1
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0.3
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12.4
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12.2
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0.2
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11,520
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3.3
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Barge, Rail
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Tuscarawas County
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0.9
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0.3
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8.8
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8.8
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0.0
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11,570
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3.7
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Truck
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Belmont County
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1.3
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0.3
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6.6
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6.3
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0.3
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11,510
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3.7
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Barge
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Plainfield
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0.5
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0.1
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6.4
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6.4
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0.0
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11,350
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4.4
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Truck
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New Lexington
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0.6
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0.1
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4.9
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4.0
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0.9
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11,260
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4.0
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Rail
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Harrison
(2)
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0.7
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0.2
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2.8
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2.8
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0.0
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12,040
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1.8
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Barge, Rail, Truck
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Noble County
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0.3
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0.1
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2.5
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2.4
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0.1
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11,230
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4.7
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Barge, Truck
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Illinois Basin (Kentucky)
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Muhlenberg County
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0.4
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(3)
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0.4
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24.2
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23.5
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0.7
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11,295
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3.6
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Barge, Truck
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Total Surface Mining Operations
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5.8
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1.8
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68.6
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66.4
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2.2
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Underground Coal Reserves:
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Northern Appalachia (Ohio)
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Tusky
(4)
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23.0
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18.6
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4.4
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12,900
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2.1
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Total Underground Coal Reserves
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23.0
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18.6
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4.4
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Total
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91.6
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85.0
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6.6
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(1)
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Reported as recoverable coal reserves, which is the portion of
the coal that could be economically and legally extracted or
produced at the time of the reserve determination, taking into
account mining recovery and preparation plant yield. For
definitions of proven coal reserves, probable coal reserves and
recoverable coal reserves, please read Coal
Reserves.
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(2)
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The Harrison mining complex is owned by Harrison Resources, our
joint venture with CONSOL Energy. We own 51.0% of Harrison
Resources and CONSOL Energy owns the remaining 49.0% through one
of its subsidiaries. Because the results of operations of
Harrison Resources are included in our consolidated financial
statements for the year ended December 31, 2009 and the
first quarter of 2010 as required by GAAP, coal production and
proven and probable coal reserves attributable to the Harrison
mining complex are presented on a gross basis assuming we owned
100.0% of Harrison Resources. Please read
Mining Operations Northern
Appalachia Harrison Mining Complex.
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(3)
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Acquired from Phoenix Coal on September 30, 2009. As a
result, production data for 2009 represents production from the
date of acquisition through December 31, 2009.
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(4)
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Please read Coal Reserves
Underground Coal Reserves for more information about our
underground coal reserves at the Tusky mining complex, which we
have subleased to a third party in exchange for an overriding
royalty. We received royalty payments on 0.6 million tons
and 0.1 million tons of coal produced from the Tusky mining
complex during 2009 and the first quarter of 2010, respectively.
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111
The following map shows the locations of our mining complexes
and terminals and the locations of current and planned
coal-fired power plants in our immediate market area.
Business
Strategies
Our primary business objective is to maintain and, over time,
increase our cash available for distribution by executing the
following strategies:
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Increasing coal sales to large utilities with coal-fired,
base-load scrubbed power plants in our primary market
area.
In 2009, approximately 69% of the total
electricity generated in our primary market area was generated
by coal-fired power plants, compared to approximately 38% for
the rest of the United States. We intend to continue to focus on
marketing coal to large utilities with coal-fired, base-load
scrubbed power plants in our primary market area of Illinois,
Indiana, Kentucky, Ohio, Pennsylvania and West Virginia. We
believe that we will experience increased demand for our
high-sulfur coal from power plants that have or will install
scrubbers. Currently, there is over 54,500 megawatts of scrubbed
base-load electric generating capacity in our primary market
area and plans have been announced to add over 18,400 megawatts
of additional scrubbed capacity by the end of 2017. We also
believe that we will experience increased demand for our coal
from power plants that use coal from Central Appalachia as
production in that region continues to decline.
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Maximizing profitability by maintaining highly efficient,
diverse and low cost surface mining
operations
. We intend to focus on lowering costs
and improving the productivity of our operations. We utilize
surface mining methods that allow us to leverage our large scale
mobile equipment and experienced work force to minimize our
mining costs while balancing our production with near-term coal
sales commitments without incurring large start up costs. We
believe our focus on efficient surface mining practices results
in our cash costs being among the lowest of our peers in
Northern Appalachia, which we believe will allow us to compete
effectively, especially during periods of declining coal prices.
We are in the process of implementing the same mining practices
that we
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112
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currently use in Ohio at the mines that we recently acquired as
part of the Phoenix Coal acquisition. We currently have 18
active surface mines that are managed as eight mining complexes,
with our largest mine comprising 12.6% of our coal production
during the first quarter of 2010. This diversity and focus on
reserves with low regulatory risks reduce the likelihood that
operational or permitting issues at any one mine will have a
material impact on our business or our results of operations.
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Generating stable revenue by entering into long-term coal
sales contracts
. We intend to continue to enter
into long-term coal sales contracts for substantially all of our
annual coal production, which will reduce our exposure to
fluctuations in the market prices. We believe our senior
managements longstanding relationships within our industry
will allow us to continue to obtain long-term contracts for
substantially all of our production. We believe our long-term
coal sales contracts provide us with a reliable and stable
revenue base, and we intend to seek cost pass through or
inflation adjustment provisions in our long-term coal sales
contracts to mitigate our exposure to rising costs.
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Continuing to grow our reserve base and production
capacity
. We intend to continue to grow our
reserve base by acquiring reserves with low operational,
geologic and regulatory risks that we can mine economically and
that are located near our mining operations or otherwise have
the potential to serve our primary market area. We are focused
primarily on acquisitions that are consistent with our target
customer base in terms of location and coal quality. We believe
this strategy will allow us to expand our presence in our
primary market area, target new customers and increase our
annual coal production. We believe that our existing
relationships with owners of large reserve blocks and our
position as the largest producer of surfaced mined coal in Ohio
will allow us to acquire additional reserves in the future. We
intend to continue to grow our production capacity by expanding
our fleet of large scale equipment and opening new mines as our
sales commitments increase over time. Please read Cash
Distribution Policy and Restrictions on
Distributions General Our Ability to
Grow is Dependent on Our Ability to Access External Expansion
Capital for additional details on how we intend to grow
our reserve base and production capacity and the limitations we
face in implementing this strategy.
|
Competitive
Strengths
We believe the following competitive strengths will enable us to
execute our business strategies successfully:
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We have an attractive portfolio of long-term coal sales
contracts
. We believe our long-term coal sales
contracts provide us with a reliable and stable revenue base. We
currently have long-term coal sales contracts in place for 2010,
2011, 2012 and 2013 that represent 97.6%, 101.5%, 71.3% and
40.9%, respectively, of our 2010 estimated coal sales of
8.2 million tons. A majority of our estimated annual coal
production for 2010 will be delivered to utilities that are
investment grade. Our long-term coal sales contracts typically
contain full or partial cost pass through or inflation
adjustment provisions that provide some protection in rising
operating cost environments. Members of our senior management
team have long-standing relationships within our industry, and
we believe those relationships will allow us to continue to
obtain long-term contracts for substantially all of our
production.
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We have a successful history of growing our reserve base and
production capacity
. Historically, we have been
successful at replacing the reserves depleted by our annual
production and growing our reserve base by acquiring reserves
with low operational, geologic and regulatory risks and that are
located near our mining operations or that otherwise have the
potential to serve our primary market area. We have also been
successful in growing our production capacity by expanding our
fleet of large scale equipment and opening new mines to meet our
sales commitments. Over the last five years, we have produced
23.6 million tons of coal and acquired 52.9 million
tons of proven and probable coal reserves, including
24.6 million tons of coal reserves that we acquired in
connection with the Phoenix Coal acquisition. As a result of the
Phoenix Coal acquisition and production increases in Ohio, our
coal production for the first quarter of 2010 on an annualized
basis was 7.2 million tons, an increase of 24% over our
actual 2009 production.
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Our mining operations are flexible and
diverse
. During the first quarter of 2010, our
largest mine represented 12.6% of our coal production. We
currently have 18 active surface mines that are managed
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113
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as eight mining complexes. This diversity reduces the risk that
operational or production issues at any one mine will have a
material impact on our business or our results of operations.
Consistent coal quality across many of our mines and the
mobility of our equipment fleet allows us to reliably serve our
customers from multiple mining complexes while optimizing our
mining plan. Additionally, we have the flexibility to add mining
hours to our work week, which allows us to respond to increasing
customer demand and to compensate for unexpected disruptions at
any one mine by increasing the production at other mines. Our
operations also include two river terminals, strategically
located in eastern Ohio and western Kentucky, that enhance our
ability to supply coal to our customers with river access from
multiple mines. Our river terminals also give us access to power
plants in our primary market area that receive coal by barge,
which is the lowest cost coal transportation alternative.
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We are a low cost producer of coal
. We use
efficient mining practices that take advantage of economies of
scale and reduce operating costs per ton. For example, in
Northern Appalachia we operate some of the largest mobile
equipment in use east of the Mississippi River. The productive
capacity of this equipment helps us to maintain low overburden
removal costs and allows us to mine coal reserves that are not
efficiently mineable with smaller equipment. Our use of large
scale equipment, our good labor relations with our non-union
workforce, the expertise of our general partners employees
and their knowledge of our mining practices, our low level of
legacy liabilities and our history of acquiring reserves without
large up-front capital investments have positioned us as one of
the lowest cash cost coal producers in Northern Appalachia. In
addition, we are in the process of deploying the same mining
practices that we currently use in Ohio at the mines that we
acquired as part of the Phoenix Coal acquisition.
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Both production of, and demand for, the coal we produce are
expected to increase in our primary market
area
. According to the EIA, production of coal in
Northern Appalachia and the Illinois Basin is expected to
increase by 29.2% and 33.1%, respectively, through 2015. This
compares to an expected increase in total coal production in the
United States of 6.7% over the same period. According to the
EIA, this expected increase in coal production in Northern
Appalachia and the Illinois Basin is attributable to anticipated
increases in demand for high-sulfur coal from scrubbed power
plants. The EIA also forecasts increased demand from consumers
of Central Appalachia coal as coal production in that region
continues to decline.
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Our general partners senior management team and key
operational employees have extensive industry
experience
. The members of our general
partners senior management team have, on average,
24 years of experience in the coal industry and have a
track record of acquiring, building and operating businesses
profitably and safely. In addition, our general partners
key operational employees have extensive mining experience and
have been with us for an average of 22 years. We believe
our general partners operational employees are one of the
key strengths to our business because their knowledge and skills
allow us to operate our mines in a safe and efficient manner.
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We have a strong safety and environmental
record
. We operate some of the industrys
safest mines. Over the last four years, our MSHA reportable
incident rate was on average 14.4% lower than the rate for all
surface coal mines in the United States. In addition, we are
committed to maintaining a system that controls and reduces the
environmental impacts of mining operations. We have won numerous
awards for our strong safety and environmental record. In
January 2010, the West Virginia Coal Association awarded us
their Surface Mine North Award for our past reclamation efforts
in West Virginia. In addition, in 2008 the Appalachian Regional
Reforestation Initiative awarded us their Regional Award for
Excellence in Reforestation for exemplary performance using the
forestry reclamation approach for reclaiming coal mined lands.
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Our
History
We are a Delaware limited partnership that was formed in August
2007 by AIM and our founders, Charles C. Ungurean, the President
and Chief Executive Officer of our general partner and a member
of the board of directors of our general partner, and Thomas T.
Ungurean, the Senior Vice President, Equipment, Procurement and
Maintenance of our general partner. Each of our two founders has
over 37 years of
114
experience in the coal mining industry. In connection with our
formation, our founders contributed all of their interests in
Oxford Mining Company to us.
Our founders formed Oxford Mining Company in 1985 to provide
contract mining services to a mining division of a major oil
company. In 1989, our founders transitioned Oxford Mining
Company from a contract miner into a producer of its own coal
reserves. In January 2007, Oxford Mining Company entered into a
joint venture, Harrison Resources, with a subsidiary of CONSOL
Energy to mine surface coal reserves purchased from CONSOL
Energy.
In September 2009, we completed the acquisition of Phoenix
Coals active surface mining operations. The Phoenix Coal
acquisition provided us with an entry into the Illinois Basin in
western Kentucky and included one mining complex comprised of
four mines as well as the Island river terminal on the Green
River in western Kentucky. In connection with this acquisition,
we increased our total proven and probable coal reserves by
24.6 million tons.
Our
Sponsors
AIM is a private investment firm specializing in natural
resources, infrastructure and real property. AIM, along with
certain of the funds that AIM advises, indirectly owns all of
the ownership interests in AIM Oxford. Brian D. Barlow, Matthew
P. Carbone and George E. McCown serve on the board of directors
of our general partner and are principals of AIM and have
ownership interests in AIM. After completion of this offering,
AIM Oxford will continue to hold 66.3% of the ownership
interests in our general partner and will hold 9.0% of our
common units and 66.3% of our subordinated units (36.9% of our
total units).
C&T Coal is owned by our founders, Charles C. Ungurean and
Thomas T. Ungurean. After completion of this offering, C&T
Coal will continue to hold 33.7% of the ownership interests in
our general partner and will hold 4.6% of our common units and
33.7% of our subordinated units (18.8% of our total units).
In connection with the contribution of Oxford Mining Company to
us in August 2007, C&T Coal, Charles C. Ungurean and Thomas
T. Ungurean agreed that they would not compete with us in the
coal mining business in Illinois, Kentucky, Ohio, Pennsylvania,
West Virginia and Virginia. This non-compete agreement is in
effect until August 24, 2014.
Mining
Operations
We currently have 18 active surface mines that are managed as
eight mining complexes. We define a mining complex as a group of
mines that are located in close proximity to each other or that
routinely sell coal to the same customer. Our transportation
facilities include two river terminals and two rail loading
facilities. Our mining facilities include two wash plants, six
blending facilities and nine crushing facilities.
Our surface mining operations use area, contour, auger and
highwall mining methods. Our area mining operations use
truck/shovel and truck/loader equipment fleets along with large
dozers. Our contour mining operations use truck/loader equipment
fleets and large dozers. We own and operate seven augers and
move these machines between mining complexes as needed. We
currently own and utilize one Superior highwall miner at our
Tuscarawas County mining complex, and a third party contractor
operates one Superior highwall miner at our Belmont County
mining complex. Both highwall miners are mobile and are moved
among our mining complexes as necessary.
In Northern Appalachia we operate large electric and hydraulic
shovels matched with a fleet of 240-ton haul trucks and 200-ton
haul trucks, which are some of the largest in use east of the
Mississippi River. We also deploy a fleet of over 65 large
Caterpillar D-11 and similar class dozers. We employ preventive
maintenance and rebuild programs to ensure that our equipment is
well-maintained. The rebuild programs are performed by
third-party contractors. We assess the equipment utilized in our
mining operations on an ongoing basis and replace it with new,
more efficient units on an as-needed basis.
Our transportation facilities include our Bellaire river
terminal that is located on the Ohio River in eastern Ohio, our
Cadiz rail loadout facility located on the Ohio Central Railroad
near Cadiz, Ohio, our New Lexington rail facility located on the
Ohio Central Railroad in Perry County, Ohio and our Island river
terminal and transloading facility located on the Green River in
western Kentucky. Our Bellaire river terminal, which is located
on the Ohio River in Bellaire, Ohio, has an annual throughput
capacity of over 4 million tons with a sustainable barge
loading rate of 2,000 tons per hour. The barge harbor for this
terminal can simultaneously hold up to 25 loaded barges and
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30 empty barges. We control our Bellaire river terminal through
a long-term lease agreement with a third party. In May 2010, we
signed a new five year lease, effective January 1, 2010,
with three subsequent five year renewable terms at our option
for a total of up to 20 years. We own our Island river terminal
and transloading facility that is located on the Green River in
western Kentucky. Our Island river terminal has an annual
throughput capacity of approximately 3 million tons with a
sustainable barge loading rate of 1,500 tons per hour.
Depending on coal quality and customer requirements, in most
cases our coal is crushed and shipped directly from our mines to
our customers. However, blending different types or grades of
coal may be required from time to time to meet the coal quality
and specifications of our customers. Coal of various sulfur and
ash contents can be mixed or blended to meet the
specific combustion and environmental needs of customers.
Blending is typically done at one of our six blending facilities:
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our Barb Tipple blending and coal crushing facility that is
adjacent to one of our customers power plants near
Coshocton, Ohio;
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our Strasburg wash plant near Strasburg, Ohio;
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our Bellaire river terminal on the Ohio River;
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our Island river terminal on the Green River in western Kentucky;
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our Stonecreek coal crushing facility located in Tuscarawas
County, Ohio; and
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our Schoate wash plant located in Muhlenberg County, Kentucky.
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The following map shows the locations of our Ohio mining
operations and coal reserves and related transportation
infrastructure.
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The following map shows the locations of our western Kentucky
mining operations and coal reserves and related transportation
infrastructure.
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Northern
Appalachia
We operate seven surface mining complexes in Northern
Appalachia, substantially all of which are located in eastern
Ohio. For the year ended December 31, 2009, our mining
complexes in Northern Appalachia produced an aggregate of
5.4 million tons of steam coal and, for the first quarter
of 2010, an aggregate of 1.4 million tons of steam coal.
The following table provides summary information regarding our
mining complexes in Northern Appalachia as of December 31,
2009 and March 31, 2010:
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Tons Produced for the
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Number
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Year Ended
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Transportation Facilities Utilized
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Transportation
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of Active
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December 31,
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Quarter Ended
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Mining Complex
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River Terminal
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Rail Loadout
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Method
(1)
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Mines
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2007
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2008
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2009
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March 31, 2010
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(in millions)
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Cadiz
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Bellaire
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Cadiz
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Barge, Rail
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2
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1.1
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1.4
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1.1
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0.3
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Tuscarawas County
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Truck
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4
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1.1
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1.0
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0.9
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0.3
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Belmont County
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Bellaire
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Barge
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4
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0.8
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0.9
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1.3
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0.3
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Plainfield
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Truck
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1
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0.3
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0.5
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0.5
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0.1
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New Lexington
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New Lexington
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Rail
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1
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0.6
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0.7
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0.6
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0.1
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Harrison
(2)
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Bellaire
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Cadiz
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Barge, Rail, Truck
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1
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0.2
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0.4
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0.7
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0.2
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Noble County
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Bellaire
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Barge, Truck
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2
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0.2
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0.2
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0.3
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0.1
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Total
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15
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4.3
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5.1
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5.4
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1.4
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(1)
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Barge means transported by truck to our Bellaire river terminal
and then transported to the customer by barge. Rail means
transported by truck to a rail facility and then transported to
the customer by rail. Truck means transported to the customer by
truck.
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(2)
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The Harrison mining complex is owned by Harrison Resources, our
joint venture with CONSOL Energy. We own 51.0% of Harrison
Resources and CONSOL Energy owns the remaining 49.0% through one
of its subsidiaries. Because the results of operations of
Harrison Resources are included in our consolidated financial
statements for the year ended December 31, 2009 and the
first quarter of 2010 as required by GAAP, coal production
attributable to the Harrison mining complex is presented on a
gross basis assuming we owned 100.0% of Harrison Resources.
Please read Harrison Mining Complex.
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Cadiz Mining Complex.
The Cadiz mining complex
is located in Harrison County, Ohio and includes reserves
located in Jefferson County, Ohio and Washington County,
Pennsylvania and consists of the Daron and County Road 29 mines.
We began our mining operations at this mining complex in 2000.
Operations at the Cadiz mining complex target the
Pittsburgh #8, Redstone #8A and Meigs Creek #9
coal seams. As of December 31, 2009, the Cadiz mining
complex included 12.4 million tons of proven and probable
coal reserves. The infrastructure at this mining complex
includes a coal crusher, a truck scale and the Cadiz rail
loadout. Coal produced from the Cadiz mining complex is trucked
either to our Bellaire river terminal on the Ohio River and then
transported by barge to the customer, or trucked to our Cadiz
rail loadout facility on the Ohio Central Railroad and then
transported by rail to the customer. This mining complex uses
area and auger methods of surface mining. This mining complex
produced 1.1 million tons and 0.3 million tons of coal
for the year ended December 31, 2009 and the first quarter
of 2010, respectively.
Tuscarawas County Mining Complex.
The
Tuscarawas County mining complex is located in Tuscarawas,
Columbiana and Stark Counties, Ohio, and consists of the
Stonecreek, Stillwater, Chumney and Strasburg mines. We began
our mining operations at this mining complex in 2003. Operations
at this mining complex target the Brookville #4, Lower
Kittanning #5, Middle Kittanning #6, Upper
Freeport #7 and Mahoning #7A coal seams. As of
December 31, 2009, the Tuscarawas County mining complex
included 8.8 million tons of proven and probable coal
reserves. The infrastructure at this mining complex includes two
coal crushers with truck scales and the Strasburg wash plant.
Coal produced from the Tuscarawas County mining complex is
trucked directly to our customers, our Barb Tipple blending and
coal crushing facility or our Strasburg wash plant. Coal trucked
to our Barb Tipple blending and coal crushing facility or our
Strasburg wash plant is then transported by truck to the
customer after processing is completed. This mining complex
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uses the area, contour, auger and highwall miner methods of
surface mining. This mining complex produced 0.9 million
tons and 0.3 million tons of coal for the year ended
December 31, 2009 and the first quarter of 2010,
respectively.
Belmont County Mining Complex.
The Belmont
County mining complex is located in Belmont County, Ohio, and
consists of the Lafferty, Boswell, Flushing and Wheeling Valley
mines. We began our mining operations at this mining complex in
1999. Operations at the Belmont County mining complex target the
Pittsburgh #8 and Meigs Creek #9 coal seams. As of
December 31, 2009, the Belmont County mining complex
included 6.6 million tons of proven and probable coal
reserves. Coal produced from the Belmont County mining complex
is primarily transported by truck to our Bellaire river terminal
on the Ohio River. Coal produced from this mining complex is
crushed and blended at the Bellaire river terminal before it is
loaded onto barges for shipment to our customers on the Ohio
River. This mining complex uses area, contour, auger and
highwall miner methods of surface mining. This mining complex
produced 1.3 million tons and 0.3 million tons of coal
for the year ended December 31, 2009 and the first quarter
of 2010, respectively.
Plainfield Mining Complex.
The Plainfield
mining complex is located in Muskingum, Guernsey and Coshocton
Counties, Ohio, and consists of the Plainfield mine. We began
our mining operations at this mining complex in 1990. Operations
at the Plainfield mining complex target the Middle
Kittanning #6 coal seam. As of December 31, 2009, the
Plainfield mining complex included 6.4 million tons of
proven and probable coal reserves. The infrastructure at this
mining complex includes our Barb Tipple blending and coal
crushing facility. Substantially all of the coal we produce from
the Plainfield mining complex is sold to AEP. The majority of
the coal produced from the Plainfield mining complex is trucked
to our Barb Tipple facility for crushing and blending or
directly to AEPs Conesville generating station. Coal
trucked to our Barb Tipple facility is transported by truck to
AEP after processing is completed. Some of the coal production
from this mining complex is trucked to our Strasburg wash plant
and then transported by truck to the customer. This mining
complex uses contour, auger and highwall miner methods of
surface mining. This mining complex produced 0.5 million
tons and 0.1 million tons of coal for the year ended
December 31, 2009 and the first quarter of 2010,
respectively.
New Lexington Mining Complex.
The New
Lexington mining complex is located in Perry, Athens and Morgan
Counties, Ohio, and consists of the New Lexington mine. We began
our mining operations at this mining complex in 1993. Operations
at the New Lexington mining complex target the Lower
Kittanning #5 and Middle Kittanning #6 coal seams. As
of December 31, 2009, the New Lexington mining complex
included 4.9 million tons of proven and probable coal
reserves. The infrastructure at this mining complex includes a
coal crusher, a truck scale and the New Lexington rail loadout.
Coal produced from the New Lexington mining complex is delivered
via-off highway trucks to our New Lexington rail loadout
facility on the Ohio Central Railroad where it is then
transported by rail to the customer. This mining complex uses
the area method of surface mining. This mining complex produced
0.6 million tons and 0.1 million tons of coal for the
year ended December 31, 2009 and the first quarter of 2010,
respectively.
Harrison Mining Complex.
The Harrison mining
complex is located in Harrison County, Ohio, and consists of the
Harrison mine. Mining operations at this mining complex began in
2007. The Harrison mining complex is owned by Harrison
Resources. We own 51.0% of Harrison Resources and CONSOL Energy
owns the remaining 49.0% indirectly through one of its
subsidiaries. We entered into this joint venture in 2007 to mine
coal reserves purchased from CONSOL Energy. We manage all of the
operations of, and perform all of the contract mining and
marketing services for, Harrison Resources. Because the results
of operations of Harrison Resources are included in our
consolidated financial statements for the year ended
December 31, 2009 and the first quarter of 2010 as required
by GAAP, coal production and proven and probable coal reserves
attributable to the Harrison mining complex are presented on a
gross basis assuming we owned 100.0% of Harrison Resources.
Since its formation in 2007, Harrison Resources has acquired
3.5 million tons of proven and probable coal reserves from
CONSOL Energy. We believe that CONSOL Energy controls additional
reserves in Harrison County, Ohio, that could be acquired by
Harrison Resources in the future. However, CONSOL Energy has no
obligation to sell those reserves to Harrison Resources, and we
cannot assure you that Harrison Resources could acquire those
reserves from CONSOL Energy on acceptable terms.
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Operations at the Harrison mining complex target the
Pittsburgh #8, Redstone #8A and Meigs Creek #9
coal seams. As of December 31, 2009, the Harrison mining
complex included 2.8 million tons of proven and probable
coal reserves. The infrastructure at this mining complex
includes a coal crusher and a truck scale. Coal produced from
the Harrison mining complex is trucked to our Bellaire river
terminal, our Cadiz rail loadout facility or directly to
customers. Coal trucked to our Bellaire river terminal is
transported to the customer by barge and coal trucked to our
Cadiz rail loadout facility is transported to the customer by
rail. This mining complex uses the area method of surface
mining. This mining complex produced 0.7 million tons and
0.2 million tons of coal for the year ended
December 31, 2009 and the first quarter of 2010,
respectively.
Noble County Mining Complex.
The Noble County
mining complex is located in Noble and Guernsey Counties, Ohio,
and consists of the Long-Sears and Halls Knob mines. We
began our mining operations at this mining complex in 2006.
Operations at the Noble County mining complex target the
Pittsburgh #8 and Meigs Creek #9 coal seams. As of
December 31, 2009, the Noble County mining complex included
2.5 million tons of proven and probable coal reserves. Coal
produced from the Noble County mining complex is trucked to our
Bellaire river terminal on the Ohio River or to our Barb Tipple
facility. Coal trucked to our Bellaire river terminal is then
transported by barge to the customer. Coal trucked to our Barb
Tipple blending and coal crushing facility is transported by
truck to the customer after processing is completed. This mining
complex uses the area, contour and auger methods of surface
mining. This mining complex produced 0.3 million tons and
0.1 million tons of coal for the year ended
December 31, 2009 and the first quarter of 2010,
respectively.
Illinois
Basin
We operate one surface mining complex in the Illinois Basin,
which is located in western Kentucky. We acquired this operation
from Phoenix Coal on September 30, 2009. For the three
months that began on October 1, 2009 and ended on
December 31, 2009, this mining complex produced an
aggregate of 0.4 million tons of steam coal and, for the
first quarter of 2010, an aggregate of 0.4 million tons of
steam coal. The following table provides summary information
regarding our mining complex in the Illinois Basin as of
December 31, 2009 and March 31, 2010:
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Transportation
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Tons Produced for
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Facilities Utilized
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the Year Ended
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Tons Produced for
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River
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Rail
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Transportation
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Number of
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December 31,
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the Quarter Ended
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Mining Complex
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Terminal
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Loadout
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Method
(1)
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Active Mines
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2009
(2)
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March 31, 2010
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Muhlenberg County
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Island
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Barge, Truck
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3
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0.4
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0.4
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(1)
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Barge means transported by truck to our Island river terminal
and then transported to the customer by barge. Truck means
transported to customer by truck.
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(2)
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Acquired in the Phoenix Coal acquisition that occurred on
September 30, 2009. As a result, production data is limited
to the fourth quarter of 2009.
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Muhlenberg County Mining Complex.
The
Muhlenberg County mining complex is located in Muhlenberg and
McClean Counties, which is in western Kentucky, and consists of
the Schoate, Highway 431 and KO mines. We began our mining
operations at this mining complex in October 2009. Operations at
the Muhlenberg County mining complex target
the #5, #6, #9, #10, #11, #12
and #13 coal seams of the Illinois Basin. As of
December 31, 2009, the Muhlenberg County mining complex
included 24.2 million tons of proven and probable coal
reserves. The infrastructure at this mining complex includes the
Schoate wash plant, the KO coal crusher and our Island river
terminal. Coal produced from this mining complex is usually
crushed at the mine site and then trucked to our Island river
terminal on the Green River or directly to the customer. Coal
trucked to our Island river terminal is then transported to the
customer by barge. Some of the production from this mining
complex is washed at our Schoate wash plant prior to being
transported either by truck directly to the customer, or by
truck to our Island river terminal and then transported by barge
to the customer. This mining complex uses the area method of
surface mining. This mining complex produced 0.4 million
tons and 0.4 million tons of steam coal during the quarters
ended December 31, 2009 and March 31, 2010,
respectively.
121
Coal
Reserves
The estimates of our proven and probable reserves associated
with our surface mining operations in Ohio are derived from our
internal estimates, which estimates were audited by John T. Boyd
Company, an independent mining and geological consulting firm.
The estimates of our proven and probable reserves associated
with our surface mining operations in the Illinois Basin and our
proven and probable underground coal reserves are derived from
reserve reports prepared by John T. Boyd Company. These
estimates are based on geologic data, economic data such as cost
of production and projected sale prices and assumptions
concerning permitability and advances in mining technology. Our
coal reserves are reported as recoverable coal
reserves, which is the portion of the coal that could be
economically and legally extracted or produced at the time of
the reserve determination, taking into account mining recovery
and preparation plant yield. These estimates are periodically
updated to reflect past coal production, new drilling
information and other geologic or mining data. Acquisitions or
dispositions of coal properties will also change these
estimates. Changes in mining methods may increase or decrease
the recovery basis for a coal seam, as will changes in
preparation plant processes. We maintain reserve information in
secure computerized databases, as well as in hard copy. The
ability to update or modify the estimates of our coal reserves
is restricted to our engineering group and the modifications are
documented.
Reserves
are defined by SEC Industry Guide 7
as that part of a mineral deposit which could be economically
and legally extracted or produced at the time of the reserve
determination. Industry Guide 7 divides reserves between
proven (measured) reserves and probable
(indicated) reserves, which are defined as follows:
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Proven (Measured) Reserves.
Reserves for
which (a) quantity is computed from dimensions revealed in
outcrops, trenches, workings or drill holes; and grade
and/or
quality are computed from the results of detailed sampling and
(b) the sites for inspection, sampling and measurement are
spaced so closely and the geologic character is so well defined
that size, shape, depth and mineral content of reserves are
well-established.
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Probable (Indicated) Reserves.
Reserves for
which quantity and grade
and/or
quality are computed from information similar to that used for
proven (measured) reserves, but the sites for inspection,
sampling, and measurement are farther apart or are otherwise
less adequately spaced. The degree of assurance, although lower
than that for proven (measured) reserves, is high enough to
assume continuity between points of observation.
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As of December 31, 2009, all of our proven and probable
coal reserves were assigned reserves, which are coal
reserves that can be mined without a significant capital
expenditure for mine development.
As of December 31, 2009, we owned 17.4% of our coal
reserves and leased 82.6% of our coal reserves from various
third-party landowners. The majority of our leases have terms
denominated in years and we believe that the term of years will
allow the recoverable coal reserves to be fully extracted in
accordance with our projected mining plan. Some of our leases
have an initial term denominated in years but also provide for
the term of the lease to continue until exhaustion of the
mineable and merchantable coal in the lease area so
long as we comply with the terms of the lease.
It generally takes us from 12 to 30 months to obtain a
SMCRA permit. Permits are issued for an initial five year term
and must be renewed if mining is to continue after the end of
the term. We submit and obtain new mining permits on a
continuing basis to replace existing permits as they are
depleted. Based on our current surface mining plan, we have
proven and probable coal reserves with active permits that will
allow us to mine for approximately the next three years. We do
not expect to have any material delays in obtaining or renewing
permits on our remaining coal reserves associated with our
mining operations.
122
The following table provides information as of December 31,
2009 on the location of our operations and the amount and
ownership of our coal reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Tons of Proven and
|
|
|
Probable Coal
Reserves
(1)
|
Mining Complex
|
|
Total
|
|
Owned
|
|
Leased
|
|
|
(in million tons)
|
|
Surface Mining Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Northern Appalachia (principally Ohio)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cadiz
|
|
|
12.4
|
|
|
|
7.5
|
|
|
|
4.9
|
|
Tuscarawas
|
|
|
8.8
|
|
|
|
0.1
|
|
|
|
8.7
|
|
Belmont County
|
|
|
6.6
|
|
|
|
1.9
|
|
|
|
4.7
|
|
Plainfield
|
|
|
6.4
|
|
|
|
0.7
|
|
|
|
5.7
|
|
New Lexington
|
|
|
4.9
|
|
|
|
2.8
|
|
|
|
2.1
|
|
Harrison
(2)
|
|
|
2.8
|
|
|
|
2.8
|
|
|
|
|
|
Noble County
|
|
|
2.5
|
|
|
|
0.1
|
|
|
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Northern Appalachia
|
|
|
44.4
|
|
|
|
15.9
|
|
|
|
28.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Illinois Basin (Kentucky)
|
|
|
|
|
|
|
|
|
|
|
|
|
Muhlenberg County
|
|
|
24.2
|
|
|
|
|
|
|
|
24.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Illinois Basin
|
|
|
24.2
|
|
|
|
|
|
|
|
24.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Surface Mining Operations
|
|
|
68.6
|
|
|
|
15.9
|
|
|
|
52.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underground Coal Reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tusky
(3)
|
|
|
23.0
|
|
|
|
|
|
|
|
23.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Underground Coal Reserves
|
|
|
23.0
|
|
|
|
|
|
|
|
23.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
91.6
|
|
|
|
15.9
|
|
|
|
75.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Total
|
|
|
100
|
%
|
|
|
17.4
|
%
|
|
|
82.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Reported as recoverable coal reserves. All proven and probable
coal reserves are assigned coal reserves, which are
coal reserves that can be mined without a significant capital
expenditure for mine development.
|
|
|
|
(2)
|
|
The Harrison mining complex is owned by Harrison Resources. We
own 51.0% of Harrison Resources and CONSOL Energy owns the
remaining 49.0% through one of its subsidiaries. Because the
results of operations of Harrison Resources are included in our
consolidated financial statements for the year ended
December 31, 2009 and the first quarter of 2010 as required
by GAAP, proven and probable coal reserves attributable to the
Harrison mining complex are presented on a gross basis assuming
we owned 100.0% of Harrison Resources. Please read
Mining Operations Northern
Appalachia Harrison Mining Complex.
|
|
|
|
(3)
|
|
Please read Underground Coal Reserves
for more information about our underground coal reserves at the
Tusky mining complex, which we have leased to a third party in
exchange for royalty payments. We received royalty payments on
0.6 million tons and 0.1 million tons of coal produced
from the Tusky mining complex during 2009 and the first quarter
of 2010, respectively.
|
123
The following table provides information on particular
characteristics of our coal reserves as of December 31,
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As received
Basis
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
# of
|
|
Proven and Probable Coal Reserves
|
|
|
|
|
|
|
|
|
SO2/mm
|
|
Sulfur
Content
(1)
|
Mining Complex
|
|
% Ash
|
|
% Sulfur
|
|
Btu/lb.
|
|
Btu
|
|
Total
|
|
<2%
|
|
2-4%
|
|
>4%
|
|
|
|
|
|
|
|
|
|
|
|
|
(in million tons)
|
|
Surface Mining Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northern Appalachia (principally Ohio)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cadiz
|
|
|
11.6
|
|
|
|
3.3
|
|
|
|
11,520
|
|
|
|
5.7
|
|
|
|
12.4
|
|
|
|
1.1
|
|
|
|
6.1
|
|
|
|
5.2
|
|
Tuscarawas County
|
|
|
10.5
|
|
|
|
3.7
|
|
|
|
11,570
|
|
|
|
6.3
|
|
|
|
8.8
|
|
|
|
1.6
|
|
|
|
3.5
|
|
|
|
3.7
|
|
Belmont County
|
|
|
12.6
|
|
|
|
3.7
|
|
|
|
11,510
|
|
|
|
6.4
|
|
|
|
6.6
|
|
|
|
|
|
|
|
4.6
|
|
|
|
2.0
|
|
Plainfield
|
|
|
10.7
|
|
|
|
4.4
|
|
|
|
11,350
|
|
|
|
7.7
|
|
|
|
6.4
|
|
|
|
|
|
|
|
0.7
|
|
|
|
5.7
|
|
New Lexington
|
|
|
11.1
|
|
|
|
4.0
|
|
|
|
11,260
|
|
|
|
7.1
|
|
|
|
4.9
|
|
|
|
|
|
|
|
2.0
|
|
|
|
2.9
|
|
Harrison
(2)
|
|
|
11.9
|
|
|
|
1.8
|
|
|
|
12,040
|
|
|
|
3.0
|
|
|
|
2.8
|
|
|
|
2.1
|
|
|
|
0.7
|
|
|
|
|
|
Noble County
|
|
|
13.2
|
|
|
|
4.7
|
|
|
|
11,230
|
|
|
|
8.4
|
|
|
|
2.5
|
|
|
|
|
|
|
|
0.3
|
|
|
|
2.2
|
|
Illinois Basin (Kentucky)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Muhlenberg County
|
|
|
11.2
|
|
|
|
3.6
|
|
|
|
11,295
|
|
|
|
6.4
|
|
|
|
24.2
|
|
|
|
|
|
|
|
23.0
|
|
|
|
1.2
|
|
Underground Coal Reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tusky
(3)
|
|
|
5.4
|
|
|
|
2.1
|
|
|
|
12,900
|
|
|
|
3.3
|
|
|
|
23.0
|
|
|
|
3.8
|
|
|
|
19.2
|
|
|
|
|
|
|
|
|
(1)
|
|
As received represents an analysis of a sample as received at a
laboratory operated by a third party.
|
|
|
|
(2)
|
|
The Harrison mining complex is owned by Harrison Resources. We
own 51.0% of Harrison Resources and CONSOL Energy Inc owns the
remaining 49.0% through one of its subsidiaries. Because the
results of operations of Harrison Resources are included in our
consolidated financial statements for the year ended
December 31, 2009 and the first quarter of 2010 as required
by U.S. generally accepted accounting principles, proven and
probable coal reserves attributable to the Harrison mining
complex are presented on a gross basis assuming we owned 100.0%
of Harrison Resources. Please read Mining
Operations Northern Appalachia Harrison
Mining Complex.
|
|
|
|
(3)
|
|
Please read Underground Coal Reserves
for more information about our underground coal reserves at the
Tusky mining complex, which we have leased to a third party in
exchange for royalty payments. We received royalty payments on
0.6 million tons and 0.1 million tons of coal produced
from the Tusky mining complex during 2009 and the first quarter
of 2010, respectively.
|
Underground
Coal Reserves
We originally leased our underground coal reserves from a third
party in 2003 in exchange for a royalty based on tonnage sold.
We began our underground mining operation in late 2003. In June
2005, we sold the Tusky mining complex, and we subleased our
underground coal reserves associated with that complex to the
purchaser in exchange for an overriding royalty. Our overriding
royalty is equal to a percentage of the sales price received by
our sublessee for the coal produced from our underground coal
reserves. In addition, our sublessee is obligated to pay the
royalty we owe to our lessor. We have at least 15 years
remaining on the lease for our underground coal reserves, and
our sublessee has at least 15 years remaining on its
sublease from us.
Reclamation
We are committed to minimizing our environmental impact during
the mining process. However, there is always some degree of
impact. To minimize the long-term environmental impact of our
mining activities, we plan and monitor each phase of our mining
projects as well as our post-mining reclamation efforts. As of
March 31, 2010, we had approximately $32.4 million in
surety bonds outstanding to secure the performance of our
reclamation obligations, which were supported by approximately
$7.5 million in letters of credit. In addition to providing
surety bonds, we have also made a significant investment to
complete the required reclamation activities in a timely and
professional manner to cause our surety bonds to be released. We
have
124
historically performed, and expect to continue to perform,
reclamation activities on a continuous basis as our mining
activities progress.
Over 95% of our active surface mining permits are associated
with reserves that were mined by other coal producers prior to
the implementation of SMCRA. We are able to economically mine
these reserves due to increased coal pricing and improved mining
technologies compared to the pre-SMCRA period. Reclamation
standards prior to SMCRA were considerably lower than
todays standards. These pre-SMCRA mining areas have
unreclaimed highwalls and often have water quality or vegetation
deficiencies. Our mining activities not only recover coal that
was left behind by previous operators, but also significantly
reduce the environmental and safety hazards created by their
mining activities. Although we have reclamation obligations with
respect to these pre-SMCRA mining areas, these obligations are
typically no greater than the reclamation obligations for newly
mined reserves.
Surface or groundwater that comes in contact with materials
resulting from mining activities can become acidic and contain
elevated levels of dissolved metals, a condition referred to as
Acid Mine Drainage, or AMD. We have seven mining permits that
are identified on Ohios Inventory of Long-Term AMD sites.
Only one of these sites, associated with the Strasburg wash
plant, requires continuous AMD treatment, for which we have
estimated the present value of the projected annual treatment
cost at less than $10,000 per year. While we anticipate that AMD
treatment will not be required once reclamation is completed, it
is possible that AMD treatment will be required for some time
and current AMD treatment costs could escalate due to changes in
flow or water quality. One site on the AMD Inventory List has
been recommended by Ohio for removal from the AMD Inventory List
and the remaining sites are being monitored to assess long-term
AMD treatment issues. Moreover, we anticipate that one of these
sites being monitored will receive final surety bond release in
2010 and will be removed from the AMD Inventory List.
Limestone
At our Cadiz mining complex, we remove limestone in order to
mine the underlying coal. We sell this limestone to a third
party that crushes and processes the limestone before it is sold
to local governmental authorities, construction companies and
individuals. The third party pays us for this limestone based on
a percentage of the revenue it receives from sales of this
limestone. Our revenues for the year ended December 31,
2009 and the first quarter of 2010 include $1.4 million and
$0.3 million in limestone sales, respectively.
During 2009 and the first quarter of 2010, we produced
0.4 million tons and 0.1 million tons of limestone,
respectively. Based on estimates from our internal engineers,
our Cadiz mining complex includes 8.0 million tons of
proven and probable limestone reserves as of December 31,
2009. All of these limestone reserves were assigned reserves,
which are limestone reserves that can be recovered without a
significant capital expenditure for mine development.
Other
Operations
During 2009 and the first quarter of 2010, we generated
$1.3 million and $0.5 million of revenue,
respectively, from a variety of services we perform in
connection with our surface mining operations. This revenue
included the following:
|
|
|
|
|
services fees we earn for operating a transloader for a third
party that offloads coal from railcars on the Ohio Central
Railroad at one of our customers power plants;
|
|
|
|
service fees we earn for providing earth-moving services for
Tunnel Hill Partners, LP, an entity owned by our sponsors that
owns a landfill; and
|
|
|
|
service fees we earn for hauling and disposing of ash at a third
party landfill for two municipal utilities.
|
For more information regarding our relationships and our
sponsors relationships with Tunnel Hill Partners, please
read Certain Relationships and Related Party
Transactions.
125
Customers
General
We market the majority of the coal we produce to base-load power
plants in our six-state market area under long-term coal sales
contracts. Our primary customers are major electric utilities,
municipalities and cooperatives and industrial customers. For
the year ended December 31, 2009, we derived 70% of our
revenues from coal sales to electric utilities (including sales
through brokers), 19% from coal sales to municipalities and
cooperatives, 9% from coal sales to industrial customers and the
remaining 2% from a mixture of sales of non-coal material such
as limestone, royalty payments on our underground coal reserves
and fees for services we perform for third parties. For the
first quarter of 2010, we derived 78.7% of our revenues from
coal sales to electric utilities (including sales through
brokers), 14.9% from coal sales to municipalities and
cooperatives, 4.5% from coal sales to industrial customers and
the remaining 1.9% from a mixture of sales of non-coal material
such as limestone, royalty payments on our underground coal
reserves and fees for services we perform for third parties.
Long-Term
Coal Sales Contracts
For the year ended December 31, 2009 and the first quarter
of 2010, we generated approximately 95.8% and 96.3%,
respectively, of our revenues from coal delivered under our
long-term coal sales contracts, and we expect to continue
selling a significant portion of our coal under long-term coal
sales contracts in the future. We define long-term contracts as
those with a term of one year or longer and our long-term coal
sales contracts typically have terms ranging from one to eight
years. For 2010, 2011, 2012 and 2013, we currently have
long-term coal sales contracts that represent 97.6%, 101.5%,
71.3% and 40.9%, respectively, of our 2010 estimated coal sales
of 8.2 million tons. During 2010, 2011, 2012 and 2013, we
have committed to deliver 8.0 million tons,
8.3 million tons, 5.9 million tons and
3.4 million tons of coal, respectively, under long-term
coal sales contracts. These amounts include contracts with
re-openers as described below.
One of our long-term coal sales contracts that ends in 2012 can
be extended for two additional three year terms by the customer
if the customer gives us six months advance notice of its
election to extend the contract. If this customer elects to
extend this contract, we will be committed to deliver an
additional 2.0 million tons in 2013, and our 2013 coal
sales under long-term coal sales contracts, as a percentage of
2010 estimated coal sales, would increase to 65.3%.
The terms of our coal sales contracts result from competitive
bidding and negotiations with customers. As a result, the terms
of these agreements including price re-openers, coal
quality requirements, quantity parameters, permitted sources of
supply, effects of future regulatory changes, extension options,
force majeure, termination and assignment provisions
vary by customer. However, most of our long-term coal sales
contracts have full or partial cost pass through provisions or
inflation adjustment provisions. For 2010, 2011, 2012 and 2013,
62%, 74%, 90% and 100% of the coal, respectively, that we have
committed to deliver under our long-term coal sales contracts
are subject to full or partial cost pass through or inflation
adjustment provisions. Cost pass through provisions increase or
decrease our coal sales price for all or a specified percentage
of changes in the cost of fuel, explosives and, in certain
cases, labor. Inflation adjustment provisions adjust the initial
contract price over the term of the contract either by a
specific percentage or a percentage determined by reference to
various inflation related indices.
Certain of our long-term coal sales contracts contain option
provisions that give the customer the right to elect to purchase
additional tons of coal each month during the contract term at a
fixed price provided for in the contract. Our long-term coal
sales contracts that provide for these option tons typically
require the customer to provide us with six months advance
notice of an election to take these option tons. For 2010, 2011
and 2012, we have outstanding option tons of 0.7 million,
1.0 million and 0.7 million, respectively. If our
customers do elect to receive these option tons, we believe we
will have the operating flexibility to meet these requirements
through increased production at our mining complexes.
Two of our long-term coal sales contracts contain provisions
that provide for price re-openers. These price-reopeners provide
for market-based adjustments to the initial contract price every
three years. These contracts will terminate if we cannot agree
upon a market-based price with the customer. For 2011, 2012 and
126
2013, 0.4 million tons, 0.4 million tons and
0.6 million tons of coal, respectively, that we have
committed to deliver under our long-term coal sales contracts
are subject to price re-opener provisions.
Quality and volumes for the coal are stipulated in our coal
sales contracts, and in some instances our customers have the
option to vary annual or monthly volumes. Most of our coal sales
contracts contain provisions requiring us to deliver coal within
certain ranges for specific coal characteristics such as heat
content, sulfur, ash, hardness and ash fusion temperature. Some
of our coal sales contracts specify approved locations from
which coal must be sourced. Failure to meet these specifications
can result in economic penalties, suspension or cancellation of
shipments or ultimately termination of the agreements. Some of
our contracts set out mechanisms for temporary reductions or
delays in coal volumes in the event of a force majeure,
including events such as strikes, adverse mining conditions,
mine closures, or transportation disruptions that affect us as
well as unanticipated customer plant outages that may affect our
customers ability to receive coal deliveries.
Customer
Concentration
We derived 90% and 94% of our total revenues from coal sales to
our ten largest customers for the year ended December 31,
2009 and the first quarter of 2010, respectively, with our top
five customers accounting for 77% and 72% of our total revenues,
respectively. In addition, for the year ended December 31,
2009, we derived 34.7%, 14.7% and 14.6% of our revenues from
AEP, East Kentucky Power Cooperative and Duke Energy,
respectively. For the first quarter of 2010, we derived 31.9%,
10.0% and 11.2% of our revenues from AEP, East Kentucky Power
Cooperative and Duke Energy, respectively.
Transportation
Our coal is delivered to our customers by barge, truck or rail.
Over 55% and 63% of the coal we shipped during 2009 and the
first quarter of 2010, respectively, was transported to our
customers by barge, which is generally cheaper than transporting
coal by truck or rail. We operate river terminals on the Ohio
River in eastern Ohio and the Green River in western Kentucky,
which have annual throughput capacities of approximately
4 million tons and 3 million tons, respectively. We
also use third-party trucking to transport coal to our
customers. In addition, certain of our mines are located near
rail lines. On April 1, 2006, we entered into a long-term
transportation contract for rail services, which has been
amended and extended through March 31, 2011. Our customers
typically pay the transportation costs to their location when
coal is shipped by barge. We typically pay for the cost to
transport coal to our customers by truck and rail and to our
river terminals and rail loadout facilities. However, our sales
contracts typically have these transportation costs built into
the price. For the year ended December 31, 2009, 55.0%,
42.0% and 3.0% of our coal sales tonnage was shipped by barge,
truck and rail, respectively. For the first quarter of 2010,
63%, 33% and 4% of our coal sales tonnage was shipped by barge,
truck and rail, respectively.
We believe that we have good relationships with rail carriers
and truck companies due, in part, to our modern coal-loading
facilities and the working relationships and experience of our
general partners transportation and distribution employees.
Suppliers
For the year ended December 31, 2009 and the first quarter
of 2010, expenses we incurred to obtain goods and services in
support of our mining operations were $97.8 million and
$31.0 million, respectively, excluding capital
expenditures. Principal supplies and services used in our
business include diesel fuel, oil, explosives, maintenance and
repair parts and services, and tires and lubricants. For the
year ended December 31, 2009 and the first quarter of 2010,
we hedged 54.4% and 37.4%, respectively, of our diesel fuel
usage using fixed priced forward contracts that provide for
physical delivery. These fixed priced forward contracts have
terms ranging from six months to one year and generally do not
have collateral requirements.
We use third-party suppliers for a significant portion of our
equipment rebuilds and repairs and for blasting services. We
also use a third party contractor for highwall mining services.
We use bidding processes to promote competition between
suppliers and we seek to develop relationships with those
suppliers whose focus is on lowering our costs. We seek
suppliers that identify and concentrate on implementing
continuous improvement opportunities within their area of
expertise.
127
Competition
The coal industry is highly competitive. There are numerous
large and small producers in all coal producing regions of the
United States, and we compete with many of these producers. Our
main competitors include Alliance Resource Partners, L.P., Alpha
Natural Resources, Inc., Armstrong Coal Company, Buckingham Coal
Co., Inc., The Cline Group, CONSOL Energy, Massey Energy
Company, Murray Energy Corporation, Patriot Coal Corp., Peabody
Energy, Inc. and Rhino Mining Inc.
The most important factors on which we compete are coal price,
coal quality and characteristics, transportation costs and
reliability of supply. Demand for coal and the prices that we
will be able to obtain for our coal are closely linked to coal
consumption patterns of the domestic electric generation
industry and international consumers. These coal consumption
patterns are influenced by factors beyond our control, including
demand for electricity, which is significantly dependent upon
economic activity and summer and winter temperatures in the
United States, government regulation, technological developments
and the location, quality, price and availability of competing
sources of fuel such as natural gas, oil and nuclear sources,
and alternative energy sources such as hydroelectric power and
wind.
Our
Safety and Environmental Programs and Procedures
We operate some of the industrys safest mines. Over the
last four years, our MSHA reportable incident rate was, on
average, 1.8 compared to the national surface mine average of
2.1, or 14.4% lower than the national surface coal mine incident
rate. Our safety record can be attributed to our extensive
safety program, which includes, among other things,
(i) employing two full-time safety professionals,
(ii) implementing policies and procedures to protect
employees and visitors at our mines, (iii) utilizing
experienced third-party blasting professionals to conduct our
blasting activities, (iv) requiring a certified surface
mine foreman to be in charge of the activities at each mine and
(v) ensuring that each employee undergoes the required
safety, hazard and task training.
We have been awarded numerous awards for our strong safety and
environmental record since our predecessors founding in
1985. For example, in January 2010, the West Virginia Coal
Association awarded us its Surface Mine North Award for our past
reclamation efforts in West Virginia. In addition, in 2008, the
Appalachian Regional Reforestation Initiative awarded us its
Regional Award for Excellence in Reforestation for exemplary
performance using the forestry reclamation approach for
reclaiming previously mined lands.
In addition, we remain committed to maintaining a system that
seeks to control and reduce the environmental impacts of our
mining operations. These controls include, among other things,
(i) installing sumps or double walled tanks to contain any
spillage of fuel or lubricants at our mines and facilities,
(ii) evacuating used oil from equipment and placing it in
storage tanks before removing it for proper disposal,
(iii) employing four full-time environmental compliance
professionals and (iv) utilizing experienced in-house
personnel and contractors to conduct extensive pre-mining
sampling and studies to comply with environmental regulations.
Regulation
and Laws
Federal, state and local authorities regulate the U.S. coal
mining industry with respect to environmental, health and safety
matters such as employee health and safety, permitting and
licensing requirements, air and water pollution, plant and
wildlife protection, and the reclamation and restoration of
mining properties after mining has been completed. These laws
and regulations have had, and will continue to have, a
significant effect on production costs and may impact our
competitive advantages. Future laws, regulations or orders, as
well as future interpretations and more rigorous enforcement of
existing laws, regulations or orders, may substantially increase
operating costs, result in delays and disrupt operations, the
extent of which cannot be predicted with any degree of
certainty. Future laws, regulations or orders may also cause
coal to become a less attractive source of energy, thereby
reducing its market share as fuel used to generate electricity.
Thus, future laws, regulations or enforcement priorities may
adversely affect our mining operations, cost structure or the
demand for coal.
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We endeavor to conduct our mining operations in compliance with
all applicable federal, state and local laws and regulations.
However, due in part to the complexity, extent and nature of the
various regulatory requirements, violations can and do occur
from time to time. We cannot assure complete compliance at all
times with all applicable laws and regulations.
Mining
Permits and Approvals
Numerous federal, state or local governmental permits or
approvals are required to conduct coal mining and reclamation
operations. When we apply for these permits and approvals, we
are required to prepare and present data to governmental
authorities pertaining to the effect or impact that any proposed
production or processing of coal may have upon the natural or
human environment. The authorization and permitting requirements
imposed by governmental authorities are costly and increasingly
take more time to obtain and may delay commencement or
continuation of mining operations.
In order to obtain mining permits and approvals from federal and
state regulatory authorities, mine operators or applicants must
submit a reclamation plan for restoring the mined land to its
prior productive or other approved use. Typically, we submit the
necessary permit applications 12 to 30 months before we
plan to mine a new area. Some required mining permits are
becoming increasingly difficult to obtain in a timely manner, or
at all and, in some instances, we have had to abandon coal in
certain areas of the application in order to obtain permit
approvals. The application review process takes longer to
complete and is increasingly being challenged by
environmentalists and other advocacy groups, although we are not
aware of any such challenges to any of our pending permit
applications.
Violations of federal, state and local laws, regulations or any
permit or approval issued under such authorization can result in
substantial fines and penalties, including revocation or
suspension of mining permits. In certain circumstances, criminal
sanctions may be imposed for failure to comply with these laws
in addition to fines and civil penalties.
Surface
Mining Control and Reclamation Act
SMCRA establishes mining, reclamation and environmental
protection standards for all aspects of surface coal mining,
including the surface effects of underground coal mining. Mining
operators must obtain SMCRA permits and permit renewals from the
Office of Surface Mining, or the OSM, or from the applicable
state agency if the state has obtained primacy. A state may
achieve primacy if it develops a regulatory program that is no
less stringent than the federal program and is approved by OSM.
Our mines are located in Ohio, Pennsylvania, West Virginia and
Kentucky, which have primacy to administer the SMCRA program.
SMCRA permit provisions include a complex set of requirements,
which include, among other things, coal exploration, mine plan
development, topsoil or a topsoil removal alternative, storage
and replacement, selective handling of overburden materials,
mine pit backfilling and grading, disposal of excess spoil,
protection of the hydrologic balance, surface runoff and
drainage control, establishment of suitable post mining land
uses and re-vegetation. The process of preparing a mining permit
application begins by collecting baseline data to adequately
characterize the pre-mining environmental conditions of the
permit area. This work is typically conducted by third-party
consultants with specialized expertise and typically includes
surveys or assessments of the following: cultural and historical
resources, geology, soils, vegetation, aquatic organisms,
wildlife, potential for threatened, endangered or other special
status species, surface and groundwater hydrology, climatology,
riverine and riparian habitat and wetlands. The geologic data
and information derived from the other surveys or assessments
are used to develop the mining and reclamation plans presented
in the permit application. The mining and reclamation plans
address the provisions and performance standards of the
states equivalent SMCRA regulatory program, and are also
used to support applications for other authorizations or permits
required to conduct coal mining activities. Also included in the
permit application is information used for documenting surface
and mineral ownership, variance requests, public road use,
bonding information, mining methods, mining phases, other
agreements that may relate to coal, other minerals, oil and gas
rights, water rights, permitted areas, and ownership and control
information required to determine
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compliance with OSMs Applicant Violator System, including
the mining and compliance history of officers, directors and
principal owners of the entity.
Once a permit application is prepared and submitted to the
regulatory agency, it goes through a completeness and technical
review. Also, before a SMCRA permit is issued, a mine operator
must submit a bond or otherwise secure the performance of all
reclamation obligations. After the application is submitted,
public notice or advertisement of the proposed permit action is
required, which is followed by a public comment period. It is
not uncommon for this process to take from 12 to 30 months
for a SMCRA mine permit application. This variability in time
frame for permitting is a function of the discretion vested in
the various regulatory authorities handling of comments
and objections relating to the project received from the
governmental agencies involved and the general public. The
public also has the right to comment on and otherwise engage in
the administrative process including at the public hearing and
through judicial challenges to an issued permit.
Federal laws and regulations also provide that a mining permit
or modification can be delayed, refused or revoked if owners of
specific percentages of ownership interests or controllers
(i.e., officers and directors or other entities) of the
applicant have, or are affiliated with another entity that has
outstanding violations of SMCRA or state or tribal programs
authorized by SMCRA. This condition is often referred to as
being permit blocked under the federal Applicant
Violator Systems, or AVS. Thus, non-compliance with SMCRA can
provide the bases to deny the issuance of new mining permits or
modifications of existing mining permits, although we know of no
basis to be and are not permit-blocked.
We have subleased our underground coal reserves at the Tusky
mining complex to a third party in exchange for an overriding
royalty. Under our sublease, our sublessee is contractually
obligated to comply with all federal, state and local laws,
including the reclamation and restoration of the mined areas by
grading, shaping and reseeding the soil as required under SMCRA.
Regulatory authorities may attempt to assign the SMCRA
liabilities of our sublessee to us if it is not financially
capable of fulfilling those obligations and it is determined
that we own or control the
sublessees mining operation. To our knowledge, no such
claims have been asserted against us to date. If such claims are
ever asserted against us, we will contest them vigorously on the
basis that, among other things, receiving an overriding royalty
under a sublease does not alone meet the legal or regulatory
test of ownership or control so as to
subject us to the SMCRA liabilities of our sublessee.
We maintain coal refuse areas and slurry impoundments at our
Tuscarawas County and Muhlenberg County mining complexes. Such
areas and impoundments are subject to extensive regulation under
SMCRA and other federal and state regulations. One of those
impoundments overlies a mined out area, which can pose a
heightened risk of structural failure and of damages arising out
of such failure. When a slurry impoundment experiences a
structural failure, it could release large volumes of coal
slurry into the surrounding environment, which in turn can
result in extensive damage to the environment and natural
resources, such as bodies of water. A failure may also result in
civil or criminal fines, penalties, personal injuries and
property damages, and damage to wildlife or natural resources.
In 1983, the OSM adopted the stream buffer zone
rule, or SBZ Rule, which prohibited mining disturbances
within 100 feet of streams if there would be a negative
effect on water quality. In December 2008, the OSM finalized a
revised SBZ Rule, which purported to clarify certain aspects of
the 1983 SBZ Rule. Several organizations challenged the 2008
revision to the SBZ Rule in two related actions filed in the
U.S. District Court for the District of Columbia. In June
2009, the Interior Department and the U.S. Army entered
into a memorandum of understanding on how to protect waterways
from degradation if the revised SBZ Rule were vacated due to the
litigation. In August 2009, the District Court concluded that
the revised SBZ Rule could not be vacated without following the
Administrative Procedure Act and other related requirements. On
November 30, 2009, the OSM published an advanced notice of
proposed rulemaking to further revise the SBZ Rule. In a March
2010 settlement with litigation parties, OSM agreed to use its
best efforts to adopt a proposed rule by February 28, 2011
and a final rule by June 29, 2012. The requirements of the
revised SBZ Rule, when adopted, will likely be stricter than the
prior SBZ Rule to further protect streams from the impacts of
surface mining, and may adversely affect our business and
operations. In addition,
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Congress has proposed legislation in the past and may propose
legislation in the future to restrict the placement of mining
material in streams. Such legislation could also have an adverse
impact on our business.
In addition to the bond requirement for an active or proposed
permit, the Abandoned Mine Land Fund, which was created by
SMCRA, imposes a fee on all coal produced. The proceeds of the
fee are used to restore mines closed or abandoned prior to
SMCRAs adoption in 1977. The current fee is $0.315 per ton
of coal produced from surface mines. In 2009, we recorded
$1.7 million of expense related to these reclamation fees.
Surety
Bonds
State laws require a mine operator to secure the performance of
its reclamation obligations required under SMCRA through the use
of surety bonds or other approved forms of performance security
to cover the costs the state would incur if the mine operator
were unable to fulfill its obligations. The cost of surety bonds
have fluctuated in recent years, and the market terms of these
bonds have generally become more unfavorable to mine operators.
These changes in the terms of the bonds have been accompanied at
times by a decrease in the number of companies willing to issue
surety bonds. Some mine operators have therefore used letters of
credit to secure the performance of a portion of our reclamation
obligations.
As of March 31, 2010, we had approximately
$32.4 million in surety bonds outstanding to secure the
performance of our reclamation obligations, which were supported
by approximately $7.5 million in letters of credit.
Mine
Safety and Health
Stringent health and safety standards have been in effect since
Congress enacted the Coal Mine Health and Safety Act of 1969.
The Federal Mine Safety and Health Act of 1977, or the Mine Act,
significantly expanded the enforcement of safety and health
standards and imposed safety and health standards on all aspects
of mining operations. In addition to federal regulatory
programs, all of the states in which we operate have state
programs for mine safety and health regulation and enforcement.
Collectively, federal and state safety and health regulation in
the coal mining industry is among the most comprehensive systems
for protection of employee health and safety affecting any
segment of U.S. industry. The Mine Act requires mandatory
inspections of surface and underground coal mines and requires
the issuance of citations or orders for the violation of a
mandatory health and safety standard. A civil penalty must be
assessed for each citation or order issued. Serious violations
of mandatory health and safety standards may result in the
issuance of an order requiring the immediate withdrawal of
miners from the mine or shutting down a mine or any section of a
mine or any piece of mine equipment. The Mine Act also imposes
criminal liability for corporate operators who knowingly or
willfully violate a mandatory health and safety standard, or
order and provides that civil and criminal penalties may be
assessed against individual agents, officers and directors who
knowingly or willfully violate a mandatory health and safety
standard or order. In addition, criminal liability may be
imposed against any person for knowingly falsifying records
required to be kept under the Mine Act and standards.
In 2006, in response to underground mine accidents, Congress
enacted the Mine Improvement and New Emergency Response Act, or
MINER Act, which imposed additional burdens on coal operators,
including, among other matters, (i) obligations related to
(a) the development of new emergency response plans that
address post-accident communications, tracking of miners,
breathable air, lifelines, training and communication with local
emergency response personnel, (b) establishing additional
requirements for mine rescue teams, and (c) promptly
notifying federal authorities of incidents that pose a
reasonable risk of death and (ii) increased penalties for
violations of the applicable federal laws and regulations.
Various states also have enacted their own new laws and
regulations addressing many of these same subjects. In the wake
of several recent underground mine accidents, enforcement
scrutiny has also increased, including more inspection hours at
mine sites, increased numbers of inspections and increased
issuance of the number and the severity of enforcement actions.
Additional state and federal legislation related to mine safety
and health is currently
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under consideration. Our compliance with these or any new mine
health and safety regulations could increase our mining costs.
Under the Black Lung Benefits Revenue Act of 1977 and the Black
Lung Benefits Reform Act of 1977, as amended in 1981, each coal
mine operator must pay federal black lung benefits to claimants
who are current and former employees and also make payments to a
trust fund for the payment of benefits and medical expenses to
claimants who last worked in the coal industry prior to
January 1, 1970. The trust fund is funded by an excise tax
on production of up to $1.10 per ton for deep-mined coal and up
to $0.55 per ton for surface-mined coal, neither amount to
exceed 4.4% of the gross sales price. The excise tax does not
apply to coal shipped outside the United States. During 2009 and
the first quarter of 2010, we recorded $3.1 million and
$0.9 million, respectively, of expense related to this
excise tax. The Affordable Health Choices Act currently being
debated in the U.S. Congress proposes potentially
significant changes to the federal black lung program, including
provisions, retroactive to 2005, which would (i) provide an
automatic survivor benefit paid upon the death of a miner with
an awarded black lung claim, without requiring proof that the
death was due to pneumoconiosis and (ii) establish a
rebuttable presumption with regard to pneumoconiosis among
miners with 15 or more years of coal mine employment that are
totally disabled by a respiratory condition. These or similar
proposed changes, if enacted, could have a material impact on
our costs expended in association with the federal Black Lung
program. In addition, we are liable under various state statutes
for black lung claims.
Clean
Air Act
The federal Clean Air Act and the amendments thereto and state
laws that regulate air emissions affect coal mining operations
both directly and indirectly. Direct impacts on coal mining and
processing operations include Clean Air Act permitting
requirements and control requirements for particulate matter,
which includes fugitive dust from roadways, parking lots, and
equipment such as conveyors and storage piles. The Clean Air Act
indirectly affects coal mining operations by extensively
regulating the emissions of particulate matter, sulfur dioxide,
nitrogen oxides, carbon monoxide, ozone, mercury and other
compounds emitted by coal-fired power plants. In addition to
greenhouse gas emissions discussed below, air emission control
programs that affect our operations, directly or indirectly,
include, but are not limited to, the following:
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Acid Rain.
Title IV of the Clean Air Act
was added through the CAAA and requires reductions of sulfur
dioxide emissions by electric utilities regulated under the Acid
Rain Program, or ARP. The ARP was designed to reduce the
electric power sector emissions of sulfur dioxide and nitrous
oxides. Sulfur dioxide emissions were controlled through the
development of a national market-based
cap-and-trade
system. Under the ARP, a cap is established and then EPA issues
allowances to regulated entities up to the cap using defined
formulas. A small percentage of the allowances are retained for
auctions. Each power plant must have enough allowances to cover
all its annual SO2 emissions or pay penalties. The electric
power plant can choose to reduce emissions and sell or bank the
surplus allowances or purchase allowances. Though the CAAA
created flexibility by allowing power plants to choose to emit
or control emissions, emission reductions are encouraged by
requiring an allowance to be retired every year for each ton of
SO2 emitted. Affected power plants have sought to reduce sulfur
dioxide emissions by switching to lower sulfur fuels, installing
pollution control devices, reducing electricity generating
levels or purchasing or trading sulfur dioxide emissions
allowances. These efforts will make it more costly to operate
coal-fired power plants and could make coal a less attractive
fuel alternative in the planning and building of power plants in
the future.
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SO2.
On June 3, 2010, the EPA issued a
stricter NAAQS for SO2 emissions which establishes a new
1-hour
standard at a level of 75 parts per billion or ppb to protect
against short-term exposure and minimize health-based risks. EPA
indicated that it would abolish the previous annual standard for
SO2. Under the new rule, monitors must be set up by 2013 in the
areas of the highest concentrations of SO2. The rule also
provides for modeling to determine compliance. States with areas
that do not meet the standard will have to submit plans no later
than August 2017 showing how they will come into compliance. As
a result, coal-fired power plants, which are the largest end
users
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of our coal, may be required to install additional emissions
control equipment or take other steps to lower SO2 emissions.
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Particulate Matter.
The Clean Air Act requires
the EPA to set standards, referred to as National Ambient Air
Quality Standards, or NAAQS, for certain pollutants. Areas that
are not in compliance (referred to as non-attainment
areas) with these standards must take steps to reduce
emissions levels. Although our operations are not currently
located in non-attainment areas, should any of the areas in
which we operate be designated as non-attainment areas for
particulate matter, our mining operations may be directly
affected by any NAAQS implementation.
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Ozone.
The EPA issued revised ozone NAAQS
imposing more stringent limits that took effect in May 2008.
Nitrogen oxides, which are a by-product of coal combustion, are
classified as an ozone precursor. Under the revised ozone NAAQS,
significant additional emissions control expenditures may be
required at coal-fired power plants. Attainment dates for the
new standards range between 2013 and 2030, depending on the
severity of the non-attainment. In July 2009, the
U.S. Court of Appeals for the District of Columbia vacated
part of a rule implementing the ozone NAAQS and remanded certain
other aspects of the rule to the EPA for further consideration.
Notwithstanding the decision, we expect that additional
emissions control requirements may be imposed on new and
expanded coal-fired power plants and industrial boilers in the
years ahead. The combination of these actions may impact demand
for coal nationally, the impact of which we are unable to
predict to any reasonable degree of certainty.
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NOx, or Nitrogen Oxides State Implementation Plan, or SIP
Call
. The NOx SIP Call program was established by
the EPA in October 1998 to reduce the transport of nitrogen
oxide and ozone on prevailing winds from the Midwest and South
to states in the Northeast that alleged they could not meet
federal air quality standards because of NOx emissions. The
program is designed to reduce NOx emissions by one million tons
per year in 22 eastern states, including the six states in our
primary market area, and the District of Columbia. As a result
of this program, many power plants have been or will be required
to install additional emission control measures, such as
selective catalytic reduction, or SCR, devices. Installation of
additional emission control measures will make it more costly to
operate coal-fired power plants, which could make coal a less
competitive fuel.
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Clean Air Interstate Rule.
The EPAs CAIR
calls for power plants in 28 eastern states and the District of
Columbia to reduce emission levels of sulfur dioxide and
nitrogen oxide pursuant to a cap and trade program similar to
the system now in effect for acid rain. In July 2008, the
U.S. Court of Appeals for the District of Columbia Circuit
vacated the EPAs CAIR in its entirety and directed the EPA
to commence new rule-making. After a petition for rehearing, the
court ruled in December 2008 that to completely vacate CAIR
would sacrifice public health and environmental benefits and
that CAIR should remain in effect while the EPA modifies the
rule. It is uncertain how the EPA will proceed to modify CAIR,
although the EPA has indicated that it intends to propose a
replacement rule in 2010 and to issue a final rule by early
2011. Under CAIR and any replacement rule, some coal-fired power
plants might be required to install additional pollution control
equipment, such as scrubbers
and/or
SCR
equipment that could lead plants with these controls to become
less sensitive to the sulfur-content of coal and more sensitive
to delivered price, thereby making our high sulfur coal more
competitive.
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Mercury.
In February 2008, the U.S. Court
of Appeals for the District of Columbia Circuit vacated the
EPAs Clean Air Mercury Rule, or CAMR, which had
established a cap and trade program to reduce mercury emissions
from power plants. At present, there are no federal regulations
that require monitoring and reducing of mercury emissions at
existing power plants. As a result of the decision to vacate the
CAMR, EPA is under a court deadline to issue a final rule by
November 2011, and has stated that it would regulate mercury
emissions by issuing Maximum Achievable Control Technology
standards, or MACT, that will likely impose stricter limitations
on mercury emissions from power plants than the vacated CAMR. In
conjunction with these efforts, on December 24, 2009, EPA
approved an Information Collection Request (ICR) requiring all
US power plants with coal-or oil-
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fired electric generating units to submit emissions information
for use in developing air toxic emissions standards. EPA has
stated that it intends to propose air toxic emissions standards
for coal- and oil-fired electric generating units by
March 10, 2011. In the meantime,
case-by-case
MACT determinations for mercury may be required for new and
reconstructed coal-fired power plants. Apart from CAMR, several
states have enacted or proposed regulations requiring reductions
in mercury emissions from coal-fired power plants, and federal
legislation to reduce mercury emissions from power plants has
been proposed. In addition, on April 30, 2010, EPA proposed
new MACT for several classes of boilers and process heaters,
including large coal-fired boilers and process heaters, which
would require significant reductions in the emission of
particulate matter, carbon monoxide, hydrogen chloride, dioxins
and mercury. The Obama Administration has also indicated a
desire to negotiate an international treaty to reduce mercury
pollution. More stringent regulation of mercury emissions by the
EPA, states, Congress, or pursuant to an international treaty
may decrease the future demand for coal, but we are unable to
predict the magnitude of any such impact with any reasonable
degree of certainty.
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There are lawsuits pending or threatened legal actions that have
named coal producers as defendants for personal injury and
property damage resulting from mercury emissions from coal-fired
plants (e.g. by entering human pathways of exposure).
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Regional Haze.
The EPA has initiated a
regional haze program designed to protect and improve visibility
at and around national parks, national wilderness areas and
international parks. This program may result in additional
emissions restrictions from new coal-fired power plants whose
operation may impair visibility at and near such federally
protected areas. This program may also require certain existing
coal-fired power plants to install additional control measures
designed to limit haze-causing emissions, such as sulfur
dioxide, nitrogen oxides, ozone and particulate matter. These
limitations could also affect the future market for coal, to the
extent of which we are unable to predict with any reasonable
degree of certainty.
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New Source Review, or NSR.
A number of pending
regulatory changes and court actions will affect the scope of
the EPAs NSR program, which requires, among other emission
sources, new coal-fired power plants and certain modifications
to existing coal-fired power plants to install the same air
emissions control equipment as new plants. The changes to the
NSR program may impact demand for coal nationally, but we are
unable to predict the magnitude of any such impact with any
reasonable degree of certainty.
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Climate
Change
Carbon dioxide is a greenhouse gas, the man-made
emissions of which are of major concern under any regulatory
framework intended to control climate change or prevent global
warming. Carbon dioxide is a by-product of the combustion
process, a primary source of which are coal-fired power plants.
In 2005, the Kyoto Protocol to the 1992 United Nations Framework
Convention on Climate Change, which establishes a binding set of
emission targets for greenhouse gases, became binding on all
those countries that had ratified it. To date, the U.S. has
not ratified the Kyoto Protocol, which expires in 2012. The
United States is participating in international discussions
currently underway to develop a treaty to replace the Kyoto
Protocol after its expiration in 2012. Any replacement treaty or
other international arrangement requiring additional reductions
in greenhouse gas emissions will have a potentially significant
impact on the demand for coal if the United States were to adopt
such requirements.
Future regulation of greenhouse gases in the United States could
occur pursuant to future U.S. treaty commitments, new
domestic legislation that may impose a carbon emissions tax, a
cap-and-trade
program or other programs aimed at carbon reduction, or by
regulatory programs that may be established by the EPA under its
existing authority. Congress has actively considered various
proposals to reduce greenhouse gas emissions, mandate
electricity suppliers to use renewable energy sources to
generate a certain percentage of power, promote the use of clean
energy and require energy efficiency measures. In June 2009, the
House of Representatives passed a comprehensive climate change
and energy bill, the American Clean Energy and
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Security Act, and the Senate has considered similar legislation
that would, among other things, impose a nationwide cap on
greenhouse gas emissions and require major sources, including
coal-fired power plants, to obtain allowances to
meet that cap. In May 2010, Senators Kerry and Lieberman
introduced a draft bill, the American Power Act, which is
similar to the House bill, and would seek to reduce greenhouse
gas emissions to 17% below 2005 levels by 2020, and 80% below
those levels by 2050. Passage of such comprehensive climate
change and energy legislation could impact the demand for coal.
Any reduction in the amount of coal consumed by North American
electric power generators could reduce the price of coal that we
mine and sell, thereby reducing our revenues and have a material
adverse affect on our business and the results of our operations.
Even in the absence of new federal legislation, greenhouse gas
emissions may be regulated in the future by the EPA pursuant to
the Clean Air Act. In response to the 2007 U.S. Supreme
Court ruling
Massachusetts v. EPA
that the EPA has
authority to regulate carbon dioxide emissions under the Clean
Air Act, the EPA has taken several steps towards implementing
regulations regarding the emission of greenhouse gases. In
December 2009, the EPA issued a finding that carbon dioxide and
certain other greenhouse gases emitted by motor vehicles
endanger public health and the environment. This finding allows
the EPA to begin regulating greenhouse gas emissions under
existing provisions of the Clean Air Act. In May 2010, the EPA
issued a final tailoring rule that determines which
stationary sources of greenhouse emissions need to obtain a
construction or operating permit, and install best available
control technology for greenhouse gas emissions, under the Clean
Air Acts Prevention of Significant Deterioration or
Title V programs when such facilities are built or
significantly modified. Prior to this rule, permits would have
been required for stationary sources with emissions that exceed
either 100 or 250 tons per year (depending on the type of
source). The tailoring rule increases this threshold for
greenhouse gas emissions to 75,000 tons per year on
January 1, 2011 with the intent to tailor the requirement
to initially apply only to large stationary sources such as
coal-fired power plants and large industrial plants. The rule
will further modify the threshold after July 1, 2011. In
addition, the tailoring rule requires the EPA to undertake
another rulemaking by no later than July 1, 2012 to, among
other things, consider expanding permitting requirements to
sources with greenhouse gas emissions greater than 50,000 tons
per year. Lawsuits challenging the tailoring rule have already
been brought. The final outcome of federal legislative action on
greenhouse gas emissions may change one or more of the foregoing
final or proposed EPA findings and regulations. Moreover, in
October 2009, the EPA published a final rule requiring certain
emitters of greenhouse gases, including coal-fired power plants,
to monitor and report their greenhouse gas emissions to the EPA
beginning in 2011 for emissions occurring in 2010. If the EPA
were to set emission limits or impose additional permitting
requirements for carbon dioxide from electric utilities, the
amount of coal our customers purchase from us could decrease.
Many states and regions have adopted greenhouse gas initiatives
and certain governmental bodies have or are considering the
imposition of fees or taxes based on the emission of greenhouse
gases by certain facilities. In December 2005, seven
northeastern states (Connecticut, Delaware, Maine, New
Hampshire, New Jersey, New York, and Vermont) signed the
Regional Greenhouse Gas Initiative agreement, or RGGI, calling
for implementation of a cap and trade program by 2009 aimed at
reducing carbon dioxide emissions from power plants in the
participating states. The RGGI program calls for signatory
states to stabilize carbon dioxide emissions to current levels
from 2009 to 2015, followed by a 2.5% reduction each year from
2015 through 2018. Since its inception, several additional
northeastern states and Canadian provinces have joined as
participants or observers. RGGI has begun holding quarterly
carbon dioxide allowance auctions for its initial three-year
compliance period from January 1, 2009 to December 31,
2011 to allow utilities to buy allowances to cover their carbon
dioxide emissions.
Midwestern states and Canadian provinces have also adopted
initiatives to reduce and monitor greenhouse gas emissions. In
November 2007, Illinois, Indiana, Iowa, Kansas, Michigan,
Minnesota, Ohio, South Dakota and Wisconsin and Manitoba signed
the Midwestern Greenhouse Gas Reduction Accord to develop and
implement steps to reduce greenhouse gas emissions. The draft
recommendations, released in June 2009, call for a 20% reduction
below 2005 emissions levels by 2020 and additional reductions to
80% below 2005 emissions levels by 2080. Climate change
initiatives are also being considered or enacted in some western
states.
135
Also, a federal appeals courts has allowed a lawsuit pursuing
federal common law claims to proceed against certain utilities
on the basis that they may have created a public nuisance due to
their emissions of carbon dioxide, while a second federal
appeals court dismissed such a case on procedural grounds.
In addition to direct regulation of greenhouse gases, over
30 states have adopted mandatory renewable portfolio
standards, including Illinois, Ohio and Pennsylvania,
which require electric utilities to obtain a certain percentage
of their electric generation portfolio from renewable resources
by a certain date. These standards range generally from 10% to
30%, over time periods that generally extend from the present
until between 2020 and 2030. An additional five states have
renewable portfolio standard goals that are not yet legal
requirements. Other states may adopt similar requirements, and
federal legislation is a possibility in this area. To the extent
these requirements affect our current and prospective customers,
they may reduce the demand for coal-fired power, and may affect
long-term demand for our coal.
These and other current or future climate change rules, court
orders or other legally enforceable mechanisms may in the future
require, additional controls on coal-fired power plants and
industrial boilers and may even cause some users of coal to
switch from coal to a lower carbon dioxide emitting fuels or
shut-down coal-fired power plants. There can be no assurance at
this time that a carbon dioxide cap and trade program, a carbon
tax or other regulatory regime, if implemented by the states in
which our customers operate or at the federal level, or future
court orders or other legally enforceable mechanisms, will not
affect the future market for coal in those regions. The
permitting of new coal-fired power plants has also recently been
contested by some state regulators and environmental
organizations based on concerns relating to greenhouse gas
emissions. Increased efforts to control greenhouse gas emissions
could result in reduced demand for coal. If mandatory
restrictions on carbon dioxide emissions are imposed, the
ability to capture and store large volumes of carbon dioxide
emissions from coal-fired power plants may be a key mitigation
technology to achieve emissions reductions while meeting
projected energy demands. A number of recent legislative and
regulatory initiatives to encourage the development and use of
carbon capture and storage technology have been proposed or
enacted. For example, the U.S. Department of Energy
announced in May 2009 that it would provide $2.4 billion of
federal stimulus funds under the ARRA to expand and accelerate
the commercial deployment of large-scaled CCS technology.
However, there can be no assurances that cost-effective CCS
capture and storage technology will become commercially feasible
in the near future.
Clean
Water Act
The CWA and corresponding state and local laws and regulations
affect coal mining operations by restricting the discharge of
pollutants, including the discharge of dredged or fill
materials, into waters of the United States. The CWA provisions
and associated state and federal regulations are complex and
subject to amendments, legal challenges and changes in
implementation. Legislation that seeks to clarify the scope of
CWA jurisdiction is under consideration by Congress. Recent
court decisions, regulatory actions and proposed legislation
have created uncertainty over CWA jurisdiction and permitting
requirements that could either increase or decrease the cost and
time we expend on CWA compliance.
CWA requirements that may directly or indirectly affect our
operations include the following:
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Wastewater Discharge.
Section 402 of the
CWA regulates the discharge of pollutants into
navigable waters of the United States. The National Pollutant
Discharge Elimination System, or NPDES, requires a permit for
any such discharges and entails regular monitoring, reporting
and compliance with performance standards that govern
discharges. Failures to comply with the CWA or the NPDES permits
can lead to the imposition of penalties, compliance costs and
delays in coal production.
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The CWA and corresponding state laws also protect waters that
states have designated for special protections including those
designated as: impaired (i.e., as not meeting present water
quality standards) through Total Maximum Daily Load, or TMDL,
regulations; and high quality/exceptional use
streams through anti-degradation regulations which restrict or
prohibit discharges which result in degradation. Other
requirements require the treatment of discharges from coal
mining properties for non-traditional pollutants, such as
chlorides, selenium and dissolved solids; and
protecting
136
streams, wetlands, other regulated water sources and associated
riparian lands from surface mining
and/or
the
surface impacts of underground mining. Individually and
collectively, these requirements may cause us to incur
significant additional costs that could adversely affect our
operating results, financial condition and cash flows.
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Dredge and Fill Permits.
Many mining
activities, including the development of settling ponds and
other impoundments, may require a Section 404 permit from
the Corps, prior to conducting such mining activities where they
involve discharges of fill into navigable waters of
the United States. The Corps is empowered to issue
nationwide permits for specific categories of
filling activities that are determined to have minimal
environmental adverse effects in order to save the cost and time
of issuing individual permits under Section 404 of the
Clean Water Act. Using this authority, the Corps issued NWP 21,
which authorizes the disposal of
dredge-and-fill
material from mining activities into the waters of the United
States. Individual Section 404 permits are required for
activities determined to have more significant impacts to waters
of the United States.
|
Since 2003, environmental groups have pursued litigation
primarily in West Virginia and Kentucky challenging the validity
of NWP 21 and various individual Section 404 permits
authorizing valley fills associated with surface coal mining
operations (primarily mountain-top removal operations). This
litigation has resulted in delays in obtaining these permits and
has increased permitting costs. The most recent major decision
in this line of litigation is the opinion of the U.S. Court
of Appeals for the Fourth Circuit in
Ohio Valley
Environmental Council v. Aracoma Coal Company
, 556 F.3d
177 (2009) (
Aracoma
), issued on February 13, 2009.
In
Aracoma
the Court rejected all of the substantive
challenges to the Section 404 permits involved in the case
primarily by deferring to the expertise of the Corps in review
of the permit applications. We currently have only one pending
NWP 21 authorization, and we do not anticipate seeking NWP 21
authorizations in the future. As a result, we do not believe the
outcome of this case will be material to us. However, the
U.S. Supreme Court granted certiorari for this case on
August 26, 2009, and it remains pending. If reversed, such
a result could have an adverse effect on the surface mining
industry.
After this decision was published, however, the EPA undertook
several initiatives to address the issuance of Section 404
permits for coal mining activities in the Eastern
U.S. First, the EPA began to comment on Section 404
permit applications pending before the Corps raising many of the
same issues decided in favor of the coal industry in
Aracoma
. Many of the EPAs comment letters were
submitted long after the end of the EPAs comment period
based on what the EPA contended was new information
on the impacts of valley fills on stream water quality
immediately downstream of valley fills. These letters have
created regulatory uncertainty regarding the issuance of
Section 404 permits for coal mining operations and have
substantially expanded the time required for issuance of these
permits.
In June 2009, the Corps, the EPA and the Department of the
Interior announced an interagency action plan for an
enhanced review of any project that requires both a
SMCRA and a CWA permit designed to reduce the harmful
environmental consequences of mountain-top mining in the
Appalachian region. As part of this interagency memorandum of
understanding, the Corps proposed to suspend and modify NWP 21
in the Appalachian region of Kentucky, Ohio, Pennsylvania,
Tennessee, Virginia and West Virginia to prohibit its use to
authorize discharges of fill material into waters of the United
States for mountain-top mining. One of our permit applications
is currently being reviewed by EPA under this enhanced review
procedure even though the mining activities in question do not
utilize mountain-top mining, a method of mining we do not
employ. The permit covered by this application covers
0.6 million tons of our proven and probable coal reserves.
The EPA is also taking a more active role in its review of NPDES
permit applications for coal mining operations in Appalachia,
and announced in September 2009 that it was delaying the
issuance of 74 Section 404 permits in central Appalachia.
This is especially true in West Virginia, where the EPA plans to
review all applications for NPDES permits even though the State
of West Virginia is authorized to issue NPDES permits in West
Virginia. These initiatives have extended the time
137
required to obtain permits for coal mining and we anticipate
further delays in obtaining permits and that the costs
associated with obtaining and complying with those permits will
increase substantially. Additionally, while it is unknown
precisely what other future changes will be implemented as a
result of the interagency action plan, any future changes could
further restrict our ability to obtain other new permits or to
maintain existing permits. Moreover, on April 1, 2010, the
EPA issued interim final guidance substantially revising the
environmental review of CWA permits by state and federal
agencies.
Resource
Conservation and Recovery Act
The Resource Conservation and Recovery Act, or RCRA, was enacted
in 1976 to establish requirements for the management of
hazardous wastes from the point of generation through treatment
of disposal. RCRA does not apply to most of the wastes generated
at coal mines, overburden and coal cleaning wastes, because they
are not considered hazardous wastes as EPA applies that term.
Only a small portion of the total amount of wastes generated at
a mine are regulated as hazardous wastes.
Although this act has the potential to apply to wastes from the
combustion of coal, the EPA determined that coal combustion
wastes do not warrant regulation as hazardous wastes under RCRA
in May 2000. Most state solid waste laws also regulate coal
combustion wastes as non-hazardous wastes. The EPA is currently
considering whether national non-hazardous waste regulations
under RCRA are warranted for certain wastes generated from coal
combustion, such as coal ash, when used as mine-fill.
Comprehensive
Environmental Response, Compensation and Liability
Act
The Comprehensive Environmental Response, Compensation and
Liability Act, CERCLA or Superfund, and similar state laws
affect coal mining operations by, among other things, imposing
cleanup requirements for threatened or actual releases of
hazardous substances. Under CERCLA and similar state laws, joint
and several liability may be imposed on waste generators, site
owners, lessees and others regardless of fault or the legality
of the original disposal activity. Although the EPA excludes
most wastes generated by coal mining and processing operations
from the hazardous waste laws, such wastes can, in certain
circumstances, constitute hazardous substances for the purposes
of CERCLA. In addition, the disposal, release or spilling of
some products used by coal companies in operations, such as
chemicals, could trigger the liability provisions of CERCLA or
similar state laws. Thus, we may be subject to liability under
CERCLA and similar state laws for coal mines that we currently
own, lease or operate or that we or our predecessors have
previously owned, leased or operated, and sites to which we or
our predecessors sent waste materials. This includes the Tusky
mining complex where we have subleased our underground coal
reserves to a third party in exchange for an overriding royalty.
We may be liable under CERCLA or similar state laws for the
cleanup of hazardous substance contamination and natural
resource damages at sites where we own surface rights.
Endangered
Species Act
The federal Endangered Species Act, or ESA, and counterpart
state legislation protect species threatened with possible
extinction. The U.S. Fish and Wildlife Service, or USFWS,
works closely with the OSM and state regulatory agencies to
ensure that species subject to the ESA are protected from
mining-related impacts. A number of species indigenous to the
areas in which we operate, specifically the Indiana bat, are
protected under the ESA, and compliance with ESA requirements
could have the effect of prohibiting or delaying us from
obtaining mining permits. These requirements may also include
restrictions on timber harvesting, road building and other
mining or agricultural activities in areas containing the
affected species or their habitats. Should more stringent
protective measures be applied, this could result in increased
operating costs, heightened difficulty in obtaining future
mining permits, or the need to implement additional mitigation
measures.
138
Use of
Explosives
We use third party contractors for blasting services and our
surface mining operations are subject to numerous regulations
relating to blasting activities. Pursuant to these regulations,
we incur costs to design and implement blast schedules and to
conduct pre-blast surveys and blast monitoring. In addition, the
storage of explosives is subject to regulatory requirements. We
presently do not engage in blasting activities. All of our
blasting activities are conducted by independent contractors
that use certified blasters.
Other
Environmental Laws and Matters
We are required to comply with numerous other federal, state and
local environmental laws and regulations in addition to those
previously discussed. These additional laws include, for
example, the Safe Drinking Water Act, the Toxic Substance
Control Act and the Emergency Planning and Community
Right-to-Know
Act.
Office
Facilities
We lease and own office space in Columbus, Ohio and Coshocton,
Ohio, respectively, that is used by our general partners
executive and administrative employees. Our lease expires in
2015.
Employees
To carry out our operations, our general partner employed over
815 full-time employees as of March 31, 2010. None of
these employees are subject to collective bargaining agreements
or are members of any unions. We believe that we have good
relations with these employees, and we continually seek their
input with respect to our operations. Since our inception, we
have had no history of work stoppages or union organizing
campaigns.
Legal
Proceedings
Although we are, from time to time, involved in litigation and
claims arising out of our operations in the normal course of
business, we do not believe that we are a party to any
litigation that will have a material adverse impact on our
financial condition or results of operations. We are not aware
of any significant legal or governmental proceedings against us,
or contemplated to be brought against us. We maintain such
insurance policies with insurers in amounts and with coverage
and deductibles as our general partner believes are reasonable
and prudent. However, we cannot assure you that this insurance
will be adequate to protect us from all material expenses
related to potential future claims for personal and property
damage or that these levels of insurance will be available in
the future at economical prices.
139
MANAGEMENT
We are managed and operated by the directors and executive
officers of our general partner, Oxford Resources GP, LLC. Our
general partner is not elected by our unitholders and will not
be subject to re-election in the future. C&T Coal owns
33.7% of the ownership interests in our general partner and AIM
Oxford owns the remaining 66.3% of the ownership interests in
our general partner. Oxford Resources GP has a board of
directors, and our unitholders are not entitled to elect the
directors or directly or indirectly participate in our
management or operations. Charles C. Ungurean, the President and
Chief Executive Officer of our general partner and a member of
the board of directors of our general partner, and Thomas T.
Ungurean, the Senior Vice President, Equipment, Procurement and
Maintenance of our general partner, own all of the equity
interests in C&T Coal. In addition, Brian D. Barlow,
Matthew P. Carbone and George E. McCown serve on the board of
directors of our general partner and are principals of AIM and
have ownership interests in AIM. Our general partner owes
certain fiduciary duties to our unitholders as well as a
fiduciary duty to its owners. Our general partner will be
liable, as 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 nonrecourse to it.
Whenever possible, we intend to incur indebtedness that is
nonrecourse to our general partner.
Our partnership agreement provides for the Conflicts Committee,
as circumstances warrant, to review conflicts of interest
between us and our general partner or between us and affiliates
of our general partner. The Conflicts Committee, which will
consist solely of independent directors, will determine if the
resolution of a conflict of interest that has been presented to
it by our general partner is fair and reasonable to us. The
members of the Conflicts Committee may not be executive officers
or employees of our general partner or directors, executive
officers or employees of its affiliates. In addition, the
members of the Conflicts Committee must meet the independence
and experience standards established by the New York Stock
Exchange and the Exchange Act. 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 our general partner of any duties it may owe us or our
unitholders. In addition, we will have an audit committee, or
Audit Committee, that complies with the New York Stock Exchange
requirements, and we will have a compensation committee, or
Compensation Committee.
Even though most companies listed on the New York Stock Exchange
are required to have a majority of independent directors serving
on the board of directors of the listed company, the New York
Stock Exchange does not require a listed limited partnership
like us to have a majority of independent directors on the board
of directors of its general partner.
Gerald A. Tywoniuk, Peter B. Lilly and one other independent
board member, who will be appointed within one year of the
closing of this offering, will serve as the members of the Audit
Committee. Mr. Tywoniuk serves as the chairman of the Audit
Committee. In compliance with the rules of the New York Stock
Exchange, the members of the board of directors will appoint one
additional independent member to the board of directors within
twelve months of this offering, and that director will also be
appointed to serve on the Audit Committee. Thereafter, our
general partner is generally required to have at least three
independent directors serving on its board at all times.
Brian D. Barlow, Matthew P. Carbone and Gerald A. Tywoniuk serve
as the members of the Compensation Committee. Mr. Barlow
serves as the chairman of the Compensation Committee.
Directors are appointed for a term of one year and hold office
until their successors have been elected or qualified or until
the earlier of their death, resignation, removal or
disqualification. Officers serve at the
140
discretion of the board. The following table shows information
for the directors and executive officers of our general partner.
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Name
|
|
Age
|
|
Position
|
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George E. McCown
|
|
|
74
|
|
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Chairman of the Board
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Charles C. Ungurean
|
|
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60
|
|
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Director, President and Chief Executive Officer
|
Jeffrey M. Gutman
|
|
|
44
|
|
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Senior Vice President, Chief Financial Officer and Treasurer
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Gregory J. Honish
|
|
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53
|
|
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Senior Vice President, Operations
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Thomas T. Ungurean
|
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58
|
|
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Senior Vice President, Equipment, Procurement and Maintenance
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Michael B. Gardner
|
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55
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|
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Secretary and General Counsel
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Denise M. Maksimoski
|
|
|
35
|
|
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Senior Director of Accounting
|
Brian D. Barlow
|
|
|
40
|
|
|
Director
|
Matthew P. Carbone
|
|
|
44
|
|
|
Director
|
Gerald A. Tywoniuk
|
|
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48
|
|
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Director
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Peter B. Lilly
|
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61
|
|
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Director
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George E. McCown
was elected Chairman of the board of
directors of our general partner in August 2007. Mr. McCown
has been a Managing Director of AIM since he co-founded AIM in
July 2006. Additionally, Mr. McCown has been a Managing
Director of McCown De Leeuw & Co., or MDC, a private
equity firm based in Foster City, California that specializes in
buying and building industry-leading middle-market companies in
partnership with management, since he co-founded MDC in 1983.
Mr. McCown is Chairman of the board of directors of the
general partner of Tunnel Hill Partners, an affiliate of AIM and
C&T Coal. Mr. McCown received an MBA from Harvard
University and a B.S. in mechanical engineering from Stanford
University, where he served as a trustee from 1980 to 1985 and
chaired the Finance Committee and Investment Policy Subcommittee
of Stanfords board of trustees.
Mr. McCowns over 40 years of experience in
buying and building companies, as well as his in-depth knowledge
of the coal industry generally and our partnership in
particular, provide him with the necessary skills to be a member
of the board of directors of our general partner.
Charles C. Ungurean
was elected President and Chief
Executive Officer and a member of the board of directors of our
general partner in August 2007. In 1985, Mr. Ungurean
co-founded our predecessor and wholly owned subsidiary, Oxford
Mining Company. He served as President and Treasurer of our
predecessor from 1985 to August 2007. He has served as the
President and Chief Executive Officer of our general partner
since its formation in August 2007. Mr. Ungurean currently
serves on the board of directors of the National Mining
Association. In addition, Mr. Ungurean served as Chairman
of the Ohio Coal Association from July 2002 to July 2004.
Mr. Ungurean is the brother of Thomas T. Ungurean, the
Senior Vice President, Equipment, Procurement and Maintenance of
our general partner. Mr. Ungurean received a B.A. in
general studies from Ohio University and is a Certified Surface
Mine Foreman in Ohio.
Mr. Ungureans 37 years of experience in the coal
industry, over 25 of which have been spent running our
operations or the operations of our predecessor and wholly owned
subsidiary, Oxford Mining Company, provide him with the
necessary skills to be a member of the board of directors of our
general partner.
Jeffrey M. Gutman
has served as Senior Vice President,
Chief Financial Officer and Treasurer of our general partner
since April 2008. Prior to joining us, from 1991 to March 2008,
Mr. Gutman served in a number of positions with The
Williams Companies, Inc., an integrated natural gas company
based in Tulsa, Oklahoma. His positions at the Williams
Companies included Director of Capital Services from February
1998 to April 2000, Director of Structured Finance from April
2000 to December 2002, Chief Financial Officer of Gulf Liquids,
a wholly-owned subsidiary of the Williams Companies, from
December 2002 to December 2005, Director of Planning &
Market Analysis from April 2005 to February 2008, and Commercial
Development from December 2005 until joining our general partner
in April 2008. Prior to joining the Williams Companies,
Mr. Gutman was with Deloitte & Touche, LLP in
their Tulsa office. Mr. Gutman is a certified public
accountant in Oklahoma and holds a B.S. in Business
Administration in Accounting from Oklahoma State University.
141
Gregory J. Honish
has served as Senior Vice President,
Operations of our general partner since March 2009.
Mr. Honish has served in other capacities with us and our
predecessor since January 1999, including Vice President, Mining
and Business Development from September 2007 to March 2009 and
Senior Mining Engineer from January 1999 to September 2007.
Mr. Honish has held a balanced spectrum of engineering,
operations and management positions in the coal mining industry
during his 30 year professional career at mines in Northern
Appalachia, Central Appalachia, the Illinois Basin and the PRB.
He is a Licensed Professional Engineer in Ohio and West Virginia
and a Certified Surface Mine Foreman in Ohio and Wyoming.
Mr. Honish holds a B.S. in Mining Engineering from the
University of Wisconsin.
Thomas T. Ungurean
has served as Senior Vice President,
Equipment, Procurement and Maintenance of our general partner
since March 2010, prior to which he was Vice President of
Equipment from August 2007 to February 2010. In 1985,
Mr. Ungurean co-founded our predecessor and wholly owned
subsidiary, Oxford Mining Company. Since then he has served in
various capacities with our predecessor, including Vice
President and Secretary from September 2000 to August 2007.
Mr. Ungurean is a Certified Surface Mine Foreman in Ohio.
Mr. Ungurean is the brother of Charles C. Ungurean, the
President and Chief Executive Officer and a member of the board
of directors of our general partner.
Michael B. Gardner
has served as Secretary and General
Counsel of our general partner since September 2007. Prior to
joining us, from June 2004 until May 2007, Mr. Gardner
served as Associate General Counsel of Murray Energy
Corporation, the largest privately-owned coal mining company in
the United States. While at Murray Energy, Mr. Gardner
served as an officer of several Murray Energy subsidiaries,
including Vice President of UMCO Energy, Inc. and Secretary of
UMCO Energy, Inc., Maple Creek Mining, Inc., Maple Creek
Processing, Inc., The Ohio Valley Coal Company, The Ohio Valley
Transloading Company, Ohio Valley Resources, Inc., and Sunburst
Resources, Inc., and represented these entities in a variety of
corporate, financial, real property, labor, litigation,
environmental, health, safety, governmental affairs and public
relations matters. Mr. Gardner is a licensed attorney in
Ohio with more than 30 years of experience in the coal
industry and in environmental regulatory compliance management.
He is an alternate member of the Board of Directors of the Ohio
Coal Association. Mr. Gardner received a J.D. from Case
Western Reserve University, an MBA from Ashland University and a
B.S. in Environmental Biology from Ohio University.
Denise M. Maksimoski
has served as Senior Director of
Accounting of our general partner since December 2009, prior to
which she was Director, Financial Reporting and General
Accounting from August 2008 to December 2009. Prior to joining
us, from 1997 to 2008 Ms. Maksimoski was with
Deloitte & Touche, LLP in Washington, D.C. and
Columbus, Ohio in various positions including most recently as
an Audit Senior Manager from August 2005 to August 2008 and as
an Audit Manager from August 2003 to August 2005. While at
Deloitte, Ms. Maksimoski gained extensive SEC reporting
experience through leading large audit teams on public clients
primarily in the energy and financial services industries.
Ms. Maksimoski is a certified public accountant in the
states of Ohio, Maryland and Virginia and in the District of
Columbia. She received a B.A. degree in Accounting and Actuarial
Studies from Thiel College.
Brian D. Barlow
was elected as a member of the board of
directors of our general partner in August 2007. Mr. Barlow
has been a Principal with AIM since January 2007. Prior to
joining AIM, he was a Senior Securities Analyst for Scion
Capital, a private investment partnership located in Cupertino,
California, from August 2004 to August 2006 and was
self-employed from August 2006 to January 2007. Mr. Barlow
has 18 years of investing experience in both the public and
private equity markets; and while at Scion, he focused on public
and private investments in the energy and natural resources
sectors. He received an MBA from Columbia Business School and a
B.A. from the University of Washington.
Mr. Barlows 18 years of investing experience, as
well as his in-depth knowledge of the coal industry generally
and our partnership in particular, provide him with the
necessary skills to be a member of the board of directors of our
general partner and chairman of the Compensation Committee.
Matthew P. Carbone
was elected as a member of the board
of directors of our general partner in August 2007.
Mr. Carbone has been a Managing Director of AIM since he
co-founded AIM in July 2006. Prior to co-founding AIM, from
January 2005 until July 2006, Mr. Carbone was a Managing
Director of MDC. Mr. Carbone has spent nearly 20 years
in private equity and investment banking. Prior to MDC, he led
Wit
142
Capital Groups West Coast operations and worked in the
investment banking divisions of Morgan Stanley, First Boston
Corporation and Smith Barney. Mr. Carbone is a member of
the board of directors of the general partner of Tunnel Hill
Partners, an affiliate of AIM and C&T Coal.
Mr. Carbone is also a member of the board of directors of
the general partner of American Midstream Partners, LP. He
received an MBA from Harvard Business School and a B.A. in
Neuroscience from Amherst College.
Mr. Carbones nearly 20 years of experience in
corporate finance, as well as his in-depth knowledge of the coal
industry generally and our partnership in particular, provide
him with the necessary skills to be a member of the board of
directors of our general partner and the Compensation Committee.
Gerald A. Tywoniuk
was elected as a member of the board
of directors of our general partner in January 2009. In May
2010, he was appointed interim Senior Vice President, Finance of
CIBER, Inc., a global information technology services company.
Mr. Tywoniuk continues to act on a part-time consulting
basis as the Chief Financial Officer and acting Chief Executive
Officer of Pacific Energy Resources Ltd., an oil and gas
acquisition, exploitation and development company.
Mr. Tywoniuk joined Pacific Energy Resources Ltd. in June
2008 as Senior Vice President, he was appointed Chief Financial
Officer in August 2008 and he was appointed acting Chief
Executive Officer in September 2009. He held these positions as
an employee until May 2010. Prior to joining Pacific Energy
Resources Ltd., Mr. Tywoniuk acted as an independent
consultant in accounting and finance from March 2007 to June
2008. From December 2002 through November 2006,
Mr. Tywoniuk was Senior Vice President and Chief Financial
Officer of Pacific Energy Partners, LP. From November 2006 to
March 2007, Mr. Tywoniuk assisted with the integration of
Pacific Energy Partners, LP after it was acquired by Plains All
American Pipeline, L.P. Mr. Tywoniuk holds a Bachelor of
Commerce degree from The University of Alberta, Canada, and is a
Canadian chartered accountant.
Mr. Tywoniuk joined Pacific Energy Resources Ltd. in June
2008 as Senior Vice President, Finance to help the management
team work through the companys financially distressed
situation. In August 2008, he was appointed as the
companys Chief Financial Officer. The board of the company
elected to file for Chapter 11 protection in March 2009
and, in September 2009, following the departure of the CEO and
the President, Mr. Tywoniuk assumed the role of acting CEO.
In December 2009, the company completed the sale of its assets,
and is now working through the remaining steps of liquidation.
Mr. Tywoniuk has 28 years of experience in accounting
and finance, including 12 years as the Chief Financial
Officer of three public companies and Controller of a fourth
public company. Mr. Tywoniuks extensive accounting,
financial and executive management experience, as well as his
in-depth knowledge of the mining industry generally and our
partnership in particular, and his prior experience with
publicly traded partnerships, provide him with the necessary
skills to be a member of the board of directors of our general
partner, a member of the Compensation Committee and a member and
the chairman of the Audit Committee. With respect to the Audit
Committee, he also qualifies as an audit committee
financial expert.
Peter B. Lilly
was elected as a member of the board of
directors of our general partner in June 2010. Prior to joining
the board of directors of our general partner, Mr. Lilly
was an executive officer with CONSOL Energy Inc., the largest
producer of
high-Btu
bituminous coal in the United States. Mr. Lilly joined
CONSOL Energy Inc. in October 2002 as Chief Operating Officer
and served as President Coal Group from February
2007 until his retirement in January 2009. Prior to joining
CONSOL Energy Inc., Mr. Lilly served as President and Chief
Executive Officer of Triton Coal Company LLC and Vulcan Coal
Holdings LLC from 1998 to 2002. Between 1991 and 1998,
Mr. Lilly was with Peabody Holding Company, Inc., where he
served as President and Chief Operating Officer from 1995 to
1998, Executive Vice President from 1994 to 1995 and President
of Eastern Associated Coal Corporation from 1991 to 1994. He is
a former board member of the National Coal Association, the
American Mining Congress, the World Coal Institute and the
National Mining Association. Mr. Lilly is also a member of
Harm Group, LLC, which serves as a consultant to financial
analysts on issues related to the coal industry.
Mr. Lilly received a B.S. in General Engineering and
Applied Science from the U.S. Military Academy at West
Point in 1970 and served in the U.S. Army until 1975. He
then obtained an MBA from Harvard Business School in 1977.
143
Mr. Lillys 30 years of experience in the coal
industry, much of it in significant executive management
positions, provide him with the necessary skills to serve as a
member of the board of directors of our general partner and a
member of the Audit Committee.
Compensation
Discussion and Analysis
The following is a discussion of the compensation policies and
decisions of the board of directors of our general partner, or
the Board, and the Compensation Committee with respect to the
following individuals, who are executive officers of our general
partner and referred to as the named executive
officers:
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Charles C. Ungurean, President and Chief Executive Officer;
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Jeffrey M. Gutman, Senior Vice President, Chief Financial
Officer and Treasurer;
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Thomas T. Ungurean, Senior Vice President, Equipment,
Procurement and Maintenance;
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Gregory J. Honish, Senior Vice President, Operations; and
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Michael B. Gardner, Secretary and General Counsel.
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Our compensation program is designed to recruit and retain as
executive officers individuals with the highest capacity to
develop, grow and manage our business, and to align their
compensation with our short-term and long-term goals. To do
this, our compensation program for executive officers is made up
of the following components: (i) base salary, designed to
compensate our executive officers for work performed during the
fiscal year; (ii) short-term incentive programs, designed
to reward our executive officers for our yearly performance and
for their individual performances during the fiscal year; and
(iii) equity-based awards, meant to align our executive
officers interests with our long-term performance.
Role
of the Board, the Compensation Committee and
Management
Our general partner, under the direction of the Board, is
responsible for the management of our operations and employs all
of the employees that operate our business. Historically, from
our formation in August 2007 through compensation decisions made
in early 2010, decisions with respect to the compensation of
executive officers were made by the Board, based primarily on
negotiations between our management group and the directors on
our Board who were not employees of our general partner, or the
Non-employee Directors. In connection with this offering, we
have revised certain policies and practices with respect to
executive compensation. In particular, the Board has appointed
the Compensation Committee to help the Board administer certain
aspects of the compensation policies and programs for our
executive officers and certain other employees and to make
recommendations to the Board relating to the compensation of the
directors and executive officers of our general partner. The
Compensation Committee and the Board are charged with, among
other things, the responsibility of reviewing executive officer
compensation policies and practices to ensure (i) adherence
to our compensation philosophies and (ii) that the total
compensation paid to our executive officers is fair, reasonable
and competitive.
The compensation programs for our executive officers consist of
base salaries, annual incentive bonuses and awards under the
Oxford Resource Partners, LP Long-Term Incentive Plan, which we
refer to as our LTIP, in the form of equity-based phantom units,
as well as other customary employment benefits. We expect that
total compensation of our executive officers and the components
and relative emphasis among components of their annual
compensation will be reviewed on at least an annual basis by the
Compensation Committee with any proposed changes recommended to
the Board for final approval.
During 2009, the Board discussed compensation issues at several
meetings. The Compensation Committee has held and expects to
continue to hold compensation-related meetings for 2010 and in
future years. Topics discussed and to be discussed at these
meetings included and will include, among other things,
(i) assessing the performance of the Chief Executive
Officer, or the CEO, and our other executive officers with
respect to our results for the prior year, (ii) reviewing
and assessing the personal performance of our executive officers
for the preceding year and (iii) determining the amount of
the bonus pool to be approved by the Board and paid to our
executive officers for a given year after taking into account
the target bonus levels established
144
for those executive officers at the outset of the year. In
addition, at these meetings, and after taking into account the
recommendations of our CEO with respect to executive officers
other than our CEO, base salary levels and target bonus levels
(representing the bonus that may be awarded expressed as a
percentage of base salary or as a dollar amount for the year)
for our executive officers to be recommended to the Board will
be established by the Compensation Committee. In addition, the
Compensation Committee will make its recommendations to the
Board with respect to any awards under the LTIP.
Compensation
Objectives and Methodology
The principal objective of our executive compensation program is
to attract and retain individuals of demonstrated competence,
experience and leadership who share our business aspirations,
values, ethics and culture. A further objective is to provide
incentives to and reward our executive officers and other key
employees for positive contributions to our business and
operations, and to align their interests with our
unitholders interests.
In setting our compensation programs, we consider the following
objectives:
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to create unitholder value through sustainable earnings and cash
available for distribution;
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to provide a significant percentage of total compensation that
is at-risk or variable;
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to encourage significant equity holdings to align the interests
of executive officers and other key employees with those of
unitholders;
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to provide competitive, performance-based compensation programs
that allow us to attract and retain superior talent; and
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to develop a strong linkage between business performance,
safety, environmental stewardship, cooperation and executive
compensation.
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Taking account of the foregoing objectives, we structure total
compensation for our executives to provide a guaranteed amount
of cash compensation in the form of competitive base salaries,
while also providing a meaningful amount of annual cash
compensation that is at risk and dependent on our performance
and individual performance of the executives, in the form of
discretionary annual bonuses. We also seek to provide a portion
of total compensation in the form of equity-based awards under
our LTIP, in order to align the interests of executives and
other key employees with those of our unitholders and for
retention purposes. Historically, we have not made regular
annual grants of awards under our LTIP. Instead, such awards
have typically been made in connection with our formation, upon
commencement of employment for executives who joined us after
our formation, and in discrete circumstances to reward service
or performance. Going forward, we expect that equity-based
awards will be made more regularly and that equity-based awards
will become more prominent in our annual compensation
decision-making process.
Compensation decisions for individual executive officers are the
result of the subjective analysis of a number of factors,
including the individual executive officers experience,
skills or tenure with us and changes to the individual executive
officers position. In measuring the contributions of
executive officers and our performance, a variety of financial
measures are considered, including non-GAAP financial measures
used by management to assess our financial performance.
Historically, the Board has used the amount of cash
distributions made to our equityholders as the primary measure
of our operating performance. For a discussion of cash
distributions and related matters, please read Cash
Distribution Policy and Restrictions on Distributions. In
addition, an evaluation of the individual performance of each of
the executive officers is taken into consideration.
In making individual compensation decisions, the Board
historically has not relied on pre-determined performance goals
or targets. Instead, determinations regarding compensation have
been and are expected to continue to be the result of the
exercise of judgment based on all reasonably available
information and, to that extent, are discretionary. Each
executive officers current and prior compensation is
considered in setting future compensation. The amount of each
executive officers current compensation is considered as a
base against which determinations are made as to whether
increases are appropriate to retain the executive officer
145
in light of competition or in order to provide continuing
performance incentives. The Board has discretion to adjust any
of the components of compensation to achieve our goal of
recruiting, promoting and retaining as executive officers
individuals with the skills necessary to execute our business
strategy and develop, grow and manage our business.
Prior to 2010, we did not review executive compensation against
a specific group of comparable companies. Rather, the Board has
historically relied upon the judgment and industry experience of
its non-employee directors in making decisions with respect to
total compensation and with respect to the allocation of total
compensation among our three main components of compensation.
Going forward, we expect that the Compensation Committee will
make compensation recommendations to the Board based upon trends
occurring within our industry, including from a peer group of
companies that our Compensation Committee has recently
identified, which includes the following coal companies and
similar-sized publicly traded partnerships: Alliance Resource
Partners, L.P., National Coal Corp., Westmoreland Coal Co.,
James River Coal Co., International Coal Group, Inc., Patriot
Coal Corporation, Vanguard Natural Resources, LLC, Global
Partners LP, Legacy Reserves LP, Copano Energy LLC, Suburban
Propane Partners LP and Crosstex Energy Inc.
Elements
of the Compensation Programs
Overall, our executive officer compensation programs are
designed to be consistent with the philosophy and objectives set
forth above. The principal elements of our executive officer
compensation programs are summarized in the table below,
followed by a more detailed discussion of each compensation
element.
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Element
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Characteristics
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Purpose
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Base Salaries
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Fixed annual cash compensation. Our executive officers are
eligible for periodic increases in base salaries. Increases may
be based on performance or such other factors as the Board or
the Compensation Committee may determine.
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Keep our annual compensation competitive with the defined market
for skills and experience necessary to execute our business
strategy.
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Annual Incentive Bonuses
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Performance-related annual cash incentives earned based on our
objectives and individual performance of the executive officers.
Beginning in 2010, trends for our peer group will be taken into
account in setting future annual cash incentive awards for our
executive officers.
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Align annual compensation with our financial performance and
reward our executive officers for individual performance during
the year and for contributing to our financial success. Amounts
provided as incentive bonuses are also designed to provide
competitive total direct compensation; potential for awards
above or below target amounts are intended to motivate our
executive officers to achieve greater levels of performance.
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Element
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Characteristics
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Purpose
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Equity-Based Awards
(phantom-units)
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Performance-related, equity-based awards granted at the
discretion of the Board. Awards are based on our performance
and, beginning in 2010, will be based on competitive practices
at peer companies. Grants typically vest ratably over four years
and will be settled upon vesting with either a net cash payment
or an issuance of common units, at the discretion of the Board.
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Align interests of our executive officers with unitholders and
motivate and reward our executive officers to increase
unitholder value over the long term. Ratable vesting over a
four-year period is designed to facilitate retention of our
executive officers.
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Retirement Plan
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Qualified retirement plan benefits are available for our
executive officers and all other regular full-time employees.
Through 2009, we maintained a defined contribution money
purchase pension plan to which we made contributions for the
benefit of the participants. Effective with 2010, we have
adopted and are maintaining a 401(k) plan in which all eligible
employees can elect to contribute compensation for retirement up
to IRS imposed limits, either on a tax deferred or after-tax
basis. The 401(k) plan permits us to make annual discretionary
contributions to the plan, even if the participants do not
contribute, as a percentage of the eligible compensation of
participants in the plan. Annual contributions of 3% or more of
such eligible compensation will maintain safe harbor
tax-qualified status for the plan, and while it is
discretionary, we intend generally to make annual contributions
at that level or higher. For 2010, we have committed to make an
employer discretionary contribution of 4% of such eligible
compensation.
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Provide our executive officers and other employees with the
opportunity to save for their future retirement.
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Health and Welfare Benefits
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Health and welfare benefits (medical, dental, vision, disability
insurance and life insurance) are available for our executive
officers and all other regular full-time employees.
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Provide benefits to meet the health and wellness needs of our
executive officers and other employees and their families.
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Base
Salaries
Design.
Base salaries for our executive
officers are determined annually by an assessment of our overall
financial and operating performance, each executive
officers performance evaluation and changes in executive
officer responsibilities. While many aspects of performance can
be measured in financial terms, senior management is also
evaluated in areas of performance that are more subjective.
These areas include the development and execution of strategic
plans, the exercise of leadership in the development of
management and other employees, innovation and improvement in
our business activities and each executive officers
involvement in industry groups and in the communities that we
serve. We seek to compensate executive officers for their
performance throughout the year with annual base salaries that
are fair and competitive within our marketplace. We believe that
executive officer base salaries should be competitive with
salaries for executive officers in similar positions and with
similar responsibilities in our marketplace and adjusted for
financial and operating performance and each executive
officers performance evaluation, length of service with us
and previous work experience. Individual salaries have
historically been established by the Board based on the general
industry knowledge and experience of the directors on our Board
that were not employees of our general partner, in alignment
with these considerations and with reference to industry survey
data, to ensure the attraction, development and retention of
superior talent. Going forward, we expect that determinations
will continue to focus on the above considerations and will also
be made based upon relevant market data, including data from our
peer group.
Base salaries are reviewed annually to ensure continuing
consistency with market levels and our level of financial
performance during the previous year. Future adjustments to base
salaries and salary ranges will reflect average movement in the
competitive market as well as individual performance. Annual
base salary adjustments, if any, for the CEO have been
determined by the Non-employee Directors. After this offering,
annual base salary adjustments for the CEO will be approved by
the Non-employee Directors based upon recommendations from the
Compensation Committee. Annual base salary adjustments, if any,
for the other executive officers have been determined by the
Board taking into account input from the CEO. After this
offering, annual base salary adjustments for the other executive
officers will be approved by the Board based upon
recommendations from the Compensation Committee, which
recommendations may take into account input from the CEO.
Actions Taken With Respect to Base Salaries in
2009.
Effective May 1, 2009 (except
effective March 30, 2009 in the case of Gregory J. Honish),
the Board provided base salary increases to each of the named
executive officers as provided in the table below. These base
salary increases were provided as merit increases
based on the Boards subjective assessment of each named
executive officers performance in 2008 and early 2009,
considering a variety of factors, none of which was individually
material to such assessment, and to ensure that the base
salaries for the named executive officers remained competitive
with other companies in our industry. In addition, for Gregory
J. Honish, the increase reflected in part his promotion to
Senior Vice President, Operations.
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Base Salary
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Base Salary at
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Increase
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2009 Base Salary
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Name
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Start of 2009
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in 2009
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Following Increase
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Charles C. Ungurean
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$
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300,000
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$
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75,000
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$
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375,000
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Jeffrey M. Gutman
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250,000
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10,000
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260,000
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Thomas T. Ungurean
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200,000
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25,000
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225,000
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Gregory J. Honish
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110,000
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40,000
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150,000
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Michael B. Gardner
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133,000
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12,000
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145,000
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Annual
Incentive Bonuses
Design.
As one way of accomplishing
compensation objectives, our executive officers are rewarded for
their contribution to our financial and operational success
through the award of discretionary annual cash incentive
bonuses. Annual incentive awards, if any, for the CEO have been
determined by the Non-employee Directors. After this offering,
annual incentive awards, if any, for the CEO will be approved by
the Non-
148
employee Directors based upon recommendations from the
Compensation Committee. Annual incentive awards, if any, for the
other executive officers have been determined by the Board
taking into account input from the CEO. After this offering,
annual incentive awards for the other executive officers will be
approved by the Board based upon recommendations from the
Compensation Committee, which recommendations may take into
account input from the CEO.
While target bonuses for our executive officers are initially
set at percentages or dollar amounts that are 50% to 75% of
their base salaries, the Board has broad discretion to maintain,
reduce or increase the award amounts when making its final bonus
determinations. For our executive officers other than Charles C.
Ungurean and Thomas T. Ungurean, certain target bonus amounts
were individually negotiated with the executive officers and are
set forth in their existing employment agreements, which are
discussed in more detail under Employment and
Severance Agreements below. Although the employment
agreements that were in effect for 2009 for Charles C. Ungurean
and Thomas T. Ungurean provided that these executives were not
eligible to receive annual incentive bonuses, the Board, acting
independent of these executives, has historically paid annual
bonuses to these executive officers and expected to, and did in
fact, pay bonuses to these executives for 2009. These bonus
payments, which were initiated by our Non-employee Directors,
have been made because prior to 2009, our Non-employee Directors
determined that these executives would not otherwise be
sufficiently motivated to achieve high levels of performance and
that the total compensation for their services would not be
competitive with compensation paid by other companies in our
industry unless they were paid annual bonuses. In connection
with this offering, we will enter into new employment agreements
with Messrs. Charles C. Ungurean and Thomas T. Ungurean, which
will provide for their eligibility to receive annual incentive
bonuses on a basis similar to our other named executive
officers, in an amount up to 66.6% of their annual base
salaries, or such other greater percentage as may be approved by
the Non-employee Directors (in the case of Mr. Charles C.
Ungurean) or the Board, based on the recommendations of the
Compensation Committee (in the case of our other named executive
officers).
The annual incentive bonus award for each executive officer is
contingent on the executive officers continued employment
with our general partner at the time of the award. Further,
bonuses (similar to other elements of the compensation provided
to executive officers) are not based on a prescribed formula but
rather have been determined on a discretionary basis and
generally have been based on a subjective evaluation of
individual, company-wide and industry performances. The Board
and the Compensation Committee believe that this approach to
assessing performance results in a more comprehensive evaluation
for compensation decisions. The Board has recognized, and the
Compensation Committee will recognize, the following factors in
making discretionary annual bonus recommendations and
determinations:
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a subjective performance evaluation based on company-wide
financial and individual qualitative performance, as determined
in the Boards discretion; and
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the scope, level of expertise and experience required for the
executive officers position.
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These factors were selected as the most appropriate measures
upon which to base the annual incentive cash bonus decisions
because our Board believes that they help to align individual
compensation with competency and contribution. With respect to
its evaluation of company-wide financial performance, although
no official numerical goals are established for purposes of our
bonus decisions, the Boards general practice historically
has been to pay annual bonuses based on our achieving our
company-wide budgeted goals with respect to cash distributions
made to our equityholders for the applicable year. For 2009, the
Board determined to make bonus payments based on our achieving
our budgeted cash distribution target for the year of $1.68 per
unit (which amount does not take into account the unit split
described in Summary The Transactions). Our
budgeted cash distribution target did not change for 2010, and
we expect that the Compensation Committee will make annual bonus
decisions for 2010 based on actual cash distributions made as
compared to this budgeted target for the period from
January 1, 2010 to the closing of this offering, and
following the closing of this offering, based on our making cash
distributions at or in excess of the minimum quarterly
distribution rate, as described under Cash Distribution
Policy and Restrictions on Distributions.
Notwithstanding the achievement of our cash distribution target,
as described above, the Board retained, and going forward we
expect that the Board and the Compensation Committee will
retain, broad discretion
149
with respect to the amount of each named executive
officers annual bonus award, in order to provide total
cash compensation for the year that is competitive and
consistent with total cash compensation provided by other
companies in our industry, as determined by the Non-employee
Directors and based on their industry knowledge and experience,
and to address the Boards assessment of each named
executive officers individual performance and
contributions to our overall success. Based on these
considerations, the Board determined to award the incentive
bonus amounts set forth in the table below to our named
executive officers for performance in 2009. For the named
executive officers with target bonus amounts set forth in their
employment agreements, these awards represented approximately
85%-90% of the applicable target bonus amounts. The Board
determined each individual amount based on its assessment of
what was fair and competitive total cash compensation for each
named executive officer in light of our achievement of our cash
distribution target for 2009, the individual named executive
officers level of responsibility within our organization
and the Boards view of each named executive officers
contributions to our success for 2009.
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Name
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2009
Bonus
(1)
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Charles C. Ungurean
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$
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225,000
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Jeffrey M. Gutman
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112,500
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Thomas T. Ungurean
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175,000
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Gregory J. Honish
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63,750
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Michael B. Gardner
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61,625
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(1)
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Amounts shown in this column do not include vacation pay amounts
included in bonus amounts in the Summary Compensation Table for
2009 below.
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Beginning in 2010, the Compensation Committee expects that it
will base annual incentive compensation award recommendations on
additional company-wide criteria as well as industry criteria,
recognizing the following factors as part of its determination
of annual incentive bonuses (without assigning any particular
weighting to any factor):
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financial performance for the prior fiscal year, including the
level of achievement of our budgeted cash distribution target
for the year as discussed above;
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distribution performance for the prior fiscal year compared to
the peer group;
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unitholder total return for the prior fiscal year compared to
the peer group; and
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competitive compensation data for executive officers in the peer
group.
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These factors were selected as the most appropriate measures
upon which to base the annual cash incentive bonus decisions
going forward because the Compensation Committee believes that
they will most directly correlate to increases in long-term
value for our unitholders.
Equity-Based
Awards
Design.
The LTIP was adopted in 2007 in
connection with our formation and amended and restated prior to
the closing of this offering. In adopting the LTIP, the Board
recognized that it needed a source of equity to attract new
members to and retain members of the management team, as well as
to provide an equity incentive to other key employees. We
believe the LTIP promotes a long-term focus on results and
aligns executive and unitholder interests.
The LTIP is designed to encourage responsible and profitable
growth while taking into account non-routine factors that may be
integral to our success. Long-term incentive compensation in the
form of equity-based grants are used to incentivize performance
that leads to enhanced unitholder value, encourage retention and
closely align the executive officers and key
employees interests with unitholders interests.
Equity-based grants provide a vital link between the long-term
results achieved for our unitholders and the rewards provided to
executive officers and other key employees. The equity-based
grants we made upon adoption of the LTIP were designed to be
comparable with long-term incentive plans of other coal
production companies and coal
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master limited partnerships, based upon the industry knowledge
and experience of the Non-employee Directors, and on individual
negotiations with the named executive officers.
Phantom Units.
The only awards made under the
LTIP since its adoption have been phantom units. A phantom unit
is a notional unit granted under the LTIP that entitles the
holder to receive an amount of cash equal to the fair market
value of one common unit upon vesting of the phantom unit,
unless the Board elects to pay such vested phantom unit with a
common unit in lieu of cash. Unvested phantom units are
forfeited at the time the holder terminates employment, except
for a termination due to death or disability, which results in
vesting acceleration. In general, phantom units awarded to
executive officers under our LTIP vest as to 25% of the award on
the initial vesting date established at the time of the award
and on each of the first three anniversaries of that initial
vesting date. Mr. Gutmans LTIP awards will vest in
full upon a change of control of us or our general partner.
Equity-Based Award Policies.
Prior to 2010,
equity-based awards were granted by the Board and were limited
to the grants at our formation in 2007 (or for executives who
joined us after our formation, upon or in connection with their
commencement of employment) and grants that were made in certain
limited circumstances to reward individual service and
performance. In early 2010, the Board delegated a portion of its
duties and responsibilities under the LTIP to the Compensation
Committee. Going forward, we expect that equity-based awards
will be awarded more regularly, as part of the ongoing total
annual compensation package for executive officers, rather than
only in such discrete circumstances. After this offering, annual
equity compensation grants, if any, for the CEO will be approved
by the Non-employee Directors based upon recommendations from
the Compensation Committee. Equity compensation grants, if any,
for the other executive officers have been determined by the
Board taking into account input from the CEO. After this
offering, annual equity compensation grants for the other
executive officers will be approved by the Board based upon
recommendations from the Compensation Committee, which
recommendations may take into account input from the CEO.
Equity-Based Awards for 2009.
None of our
named executive officers received any equity-based awards under
the LTIP in 2009. However, in January 2010, Jeffrey M. Gutman
received an award of 14,984 phantom units in recognition of his
performance in connection with a restructuring of certain of our
indebtedness and the completion of the Phoenix Coal acquisition
in September 2009. In making this award, the Board also took
into account its determination that the initial equity-based
awards granted to Mr. Gutman in connection with his
commencement of employment in 2008 were, in the Boards
view based on its general industry knowledge and experience,
below the level of equity participation granted to similarly
situated executives at many other companies in our industry.
Deferred
Compensation
Tax-deferred retirement plans are a common way that companies
assist employees in preparing for retirement. Through 2009, we
maintained a defined contribution money purchase pension plan to
which we made contributions for the benefit of the participants,
including named executive officers. Effective beginning in 2010,
we provide our eligible executive officers and other employees
with an opportunity to participate in our 401(k) savings plan.
The plan allows executive officers and other employees to
contribute compensation for retirement up to IRS imposed limits
(for 2010, $16,500 for participants age 49 and under and
$22,000 for participants age 50 and over), either on a tax
deferred or after-tax basis. The 401(k) plan permits us to make
annual discretionary contributions to the plan as a percentage
of the eligible compensation of participants in the plan. Annual
contributions of 3% or more of such eligible compensation will
maintain safe harbor tax-qualified status for the
plan and, while such contributions are discretionary, we intend
generally to make annual contributions at that level or higher,
subject to applicable IRS limits. For 2010, we have committed to
make an employer discretionary contribution of 4% of such
eligible compensation. Decisions regarding this element of
compensation do not impact any other element of compensation.
151
Perquisites
and Other Benefits
Although perquisites are not a significant factor in our
compensation programs, we provide certain limited perquisite and
personal benefits to certain of the named executive officers,
including the use primarily for business purposes (with personal
usage being limited to usage for commuting purposes) of
company-owned automobiles for Charles C. Ungurean and Thomas T.
Ungurean. We provide these benefits to assist the executive
officers in performing their services for us and they are not
factored into the Boards determinations with respect to
other elements of total compensation. In addition, under our
company-wide policy in effect through 2009, we maintained for
all salaried employees including the executive officers a
vacation program that provided additional annual payments to
each of such employees in the amount of his or her base salary
over a period equal to the vacation time allotted to him or her.
This payment was in addition to continuing the payment of base
salaries for all salaried employees including the executive
officers during periods when they were on vacation. Effective in
2010, the vacation policy was changed so that no such additional
payments are made but base salaries will continue to be paid to
the salaried employees including the executive officers while
they are on vacation. The additional vacation-related payments
made to the named executive officers for 2009 are included in
bonus amounts and set forth in a footnote to the Summary
Compensation Table for 2009 below.
Recoupment
Policy
We currently do not have a recoupment policy applicable to
annual incentive bonuses or equity awards. The Compensation
Committee expects to continue to evaluate the need to adopt such
a policy, in light of current legislative policies as well as
economic and market conditions.
Employment
and Severance Arrangements
The Board and the Compensation Committee consider the
maintenance of a sound management team to be essential to
protecting and enhancing our best interests. To that end, we
recognize that the uncertainty that may exist among management
with respect to their at-will employment with our
general partner may result in the departure or distraction of
management personnel to our detriment. Accordingly, our general
partner previously entered into employment agreements with each
of our named executive officers, which employment agreements
contain severance arrangements that we believe are appropriate
to encourage the continued attention and dedication of members
of our management. Our general partner has entered into new
employment agreements with our executive officers that will
become effective upon the closing of this offering and that will
replace and supersede the named executive officers prior
employment agreements. These agreements will have two year
terms, new base salary and target bonus amounts for each named
executive officer and, in the case of Charles C. Ungurean and
Thomas T. Ungurean, their eligibility to receive future awards
under our LTIP will be specified. The following table sets forth
information regarding the expected annual base salary and annual
target bonus for each of our named executive officers under
these agreements.
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Target Annual
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Bonus
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Annual
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as a % of
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Name
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Base Salary
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|
Annual Salary
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Charles C. Ungurean
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$
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500,000
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|
|
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66.6
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%
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Jeffrey M. Gutman
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270,000
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|
|
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50.0
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%
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Thomas T. Ungurean
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|
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275,000
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|
|
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66.6
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%
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Gregory J. Honish
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185,000
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|
|
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50.0
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%
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Michael B. Gardner
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|
|
165,000
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|
|
|
50.0
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%
|
The employment agreements with our executive officers are
described more fully below under Potential
Payment Upon Termination or Change in Control
Employment Agreements with Named Executive Officers.
152
Summary
Compensation Table for 2009
The following table sets forth certain information with respect
to the compensation paid to the named executive officers for the
year ended December 31, 2009.
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All Other
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Compensation
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|
Name and Principal Position
|
|
Salary
($)
(1)
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|
Bonus
($)
(2)
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|
($)
(3)
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|
Total ($)
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Charles C. Ungurean
President and Chief Executive Officer
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$
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375,002
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$
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248,077
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$
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17,702
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$
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640,781
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|
Jeffrey M. Gutman
Senior Vice President, Chief Financial Officer and Treasurer
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|
|
261,385
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|
|
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125,481
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|
|
|
15,370
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|
|
|
402,236
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|
Thomas T. Ungurean
Senior Vice President, Equipment, Procurement and Maintenance
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|
|
233,333
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190,385
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16,079
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|
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439,797
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Gregory J. Honish
Senior Vice President, Operations
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142,116
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70,096
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12,771
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224,983
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Michael B. Gardner
Secretary and General Counsel
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152,083
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75,567
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|
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13,560
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|
|
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241,210
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|
|
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(1)
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|
Amounts shown in this column represent base salaries paid to the
named executive officers in 2009 and include pro-rated amounts
based on the increases in base salaries that occurred in 2009.
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(2)
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The bonus amounts for the named executive officers reflect
bonuses paid in late 2009 and early 2010 that relate to services
performed in 2009, in the following amounts for each of the
named executive officers: Charles C. Ungurean: $225,000; Jeffrey
M. Gutman: $112,500; Thomas T. Ungurean: $175,000; Gregory J.
Honish: $63,750; and Michael B. Gardner: $61,625. The bonus
amounts also include vacation payments in 2009 (including in the
case of Michael B. Gardner an additional payment in early 2010
with respect to cancelled vacation time in late 2009 during
which he performed services for us), as follows: Charles C.
Ungurean: $23,077; Jeffrey M. Gutman: $12,981; Thomas T.
Ungurean: $15,385; Gregory J. Honish: $6,346; and Michael B.
Gardner: $13,942.
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(3)
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Amounts shown in this column include contributions being made to
our defined contribution money purchase pension plan for each of
the named executive officers with respect to services performed
in 2009, payments made in 2009 with respect to life insurance
benefits provided to each of the named executive officers and a
holiday-related allowance paid in 2009 to each of the named
executive officers. For each of Charles C. Ungurean and Thomas
T. Ungurean, who are provided company-owned automobiles
primarily for business use (with personal use being limited to
usage for commuting purposes), the amount shown also includes
the cost to us of providing an automobile to them for their use
for the estimated personal usage portion thereof for commuting
purposes (20% of the total cost in the case of Charles C.
Ungurean and 5% of the total cost in the case of Thomas T.
Ungurean) in the amount of $2,248 and $660, respectively.
|
Grants of
Plan-Based Awards for 2009
The named executive officers received no grants of plan-based
awards during the year ended December 31, 2009.
153
Outstanding
Equity-Based Awards at December 31, 2009
The following table provides information regarding outstanding
equity-based awards held by the named executive officers as of
December 31, 2009. All such equity-based awards consist of
phantom units granted under the LTIP. Neither Charles C.
Ungurean nor Thomas T. Ungurean held any outstanding
equity-based awards at December 31, 2009. None of the named
executive officers hold outstanding option awards.
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Unit Awards
|
|
|
Number of
|
|
Market Value of
|
|
|
Phantom Units
|
|
Phantom Units
|
|
|
That Have Not
|
|
That Have Not
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Name
|
|
Vested
(1)(2)
|
|
Vested
($)
(3)
|
|
Jeffrey M. Gutman
Senior Vice President, Chief Financial Officer and Treasurer
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|
|
14,848
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$
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258,801
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|
Gregory J. Honish
Senior Vice President, Operations
|
|
|
5,128
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|
|
$
|
89,381
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|
Michael B. Gardner
Secretary and General Counsel
|
|
|
3,204
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|
$
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55,846
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|
|
|
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(1)
|
|
Represents the number of units that were awarded prior to the
unit split described under Summary The
Transactions.
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(2)
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|
On March 31, 2010, 7,425 of Mr. Gutmans units
vested and the remaining unvested units will vest on
March 31, 2011. Messrs. Honishs and
Gardners remaining unvested units, which were granted in
2007, will vest 50% on December 1, 2010 and 50% on
December 1, 2011.
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|
|
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(3)
|
|
Based on the fair market value of our common units of $17.43 on
December 31, 2009.
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Units
Vested in 2009
The following table shows the phantom unit awards that vested
during 2009. Charles C. Ungurean and Thomas T. Ungurean did not
hold or vest in any phantom unit awards in 2009 and none of the
named executive officers held or exercised any stock options in
2009.
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|
|
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Number of
|
|
Value
|
|
|
Units Acquired
|
|
Realized on
|
Name
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on
Vesting (#)
(3)
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Vesting ($)
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Jeffrey M. Gutman
Senior Vice President, Chief Financial Officer and
Treasurer
(1)
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7,425
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$
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83,160
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Gregory J. Honish
Senior Vice President,
Operations
(2)
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2,564
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$
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44,691
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Michael B. Gardner
Secretary and General
Counsel
(2)
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|
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1,603
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$
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27,940
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|
|
|
|
(1)
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|
Mr. Gutmans units vested on March 31, 2009, and
the value realized amount reflects a unit value of $11.20 per
unit, the fair market value on such vesting date.
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|
(2)
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|
Units vested on December 1, 2009, and the value realized
amounts reflect a unit value of $17.43 per unit, the fair market
value on such vesting date.
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|
|
|
(3)
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|
Represents the number of units that were awarded prior to the
unit split described under Summary The
Transactions.
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Pension
Benefits
The named executive officers do not participate in any pension
plans and received no pension benefits (other than with respect
to our defined contribution money purchase pension plan) during
the year ended December 31, 2009.
154
Nonqualified
Deferred Compensation
The named executive officers do not participate in any
nonqualified deferred compensation plans and received no
nonqualified deferred compensation during the year ended
December 31, 2009.
Potential
Payment Upon Termination or Change in Control
Employment
Agreements with Named Executive Officers
Our general partner has entered into new employment agreements
with each of Messrs. Charles C. Ungurean, Gutman, Thomas T.
Ungurean, Honish and Gardner, which will become effective upon
the closing of this offering, and which will replace and
supersede our named executive officers existing employment
agreements that were entered into prior to 2009. Each of these
new employment agreements has an initial term of two years.
These employment agreements are each automatically extended for
successive one-year periods unless and until either party elects
to terminate the agreement by giving at least 90 days
written notice prior to the commencement of the next succeeding
one-year period. These agreements establish customary employment
terms including base salaries, bonuses and other incentive
compensation and other benefits. For information regarding the
base salaries and other compensation to be provided under the
new employment agreements, please refer to the discussion above
under Compensation Discussion and Analysis
Employment and Severance Arrangements.
These employment agreements also provide for, among other
things, the payment of severance benefits and in some cases the
continuation of certain benefits following certain terminations
of employment by our general partner or the termination of
employment for Good Reason (as defined in each of
the employment agreements) by the executive officer. Under these
agreements, if the executives employment is terminated by
the general partner without Cause (as defined in the
employment agreements) or the executive resigns for Good Reason,
in each case, during the term of the agreement the executive
will have the right to a lump sum cash payment by our general
partner equal to one times (two times with respect to Charles C.
Ungurean and Thomas T. Ungurean) the executives annual
base salary on the date of such termination, which will be
subject to reimbursement by us to our general partner. In
addition, for Messrs. Charles C. Ungurean and Thomas T.
Ungurean, in the event of a termination due to death or
disability (as such term is defined in the employment
agreements), or by our general partner without Cause, the
executive and his dependents will be entitled to continued
participation in our general partners employee benefit
plans and insurance arrangements providing medical and dental
benefits in which they are enrolled at the time of such
termination for the remainder of the employment term, provided
that the continuation is permitted at the time of termination
under the terms of our general partners employee benefit
plans and insurance arrangements. Under these new employment
agreements, if our general partner chooses to terminate a named
executive officers employment without cause or the
executive resigns for good reason, in each case within
12 months after the expiration of the agreement following
notice by our general partner that it is not renewing the term
of the agreement, the named executive officer would be entitled
to a lump sum payment equal to six months of the named executive
officers base salary. All of the foregoing severance
benefits are conditioned on the executive executing a release of
claims in favor of our general partner and its affiliates
including us.
Cause is defined in each employment agreement as the
executive having (i) engaged in gross negligence, gross
incompetence or willful misconduct in the performance of the
duties required of him under the employment agreement,
(ii) refused without proper reason to perform the duties
and responsibilities required of him under the employment
agreement, (iii) willfully engaged in conduct that is
materially injurious to our general partner or its affiliates
including us (monetarily or otherwise), (iv) committed an
act of fraud, embezzlement or willful breach of fiduciary duty
to our general partner or an affiliate including us (including
the unauthorized disclosure of confidential or proprietary
material information of our general partner or an affiliate
including us or, in the case of Mr. Gutmans
employment agreement only, including instead the unauthorized
disclosure of information that is, and is known or reasonably
should have been known to the executive to be, confidential or
proprietary information of our general partner or an affiliate
including us) or (v) been convicted of (or pleaded no
contest to) a crime involving fraud, dishonesty or moral
turpitude or any felony. Good Reason is defined in
each employment agreement as a termination by the
155
executive in connection with or based upon (i) a material
diminution in the executives responsibilities, duties or
authority, (ii) a material diminution in the
executives base compensation or (iii) a material
breach by us of any material provision of the employment
agreement (and, in the case of Mr. Gutmans employment
agreement, a breach of obligations with respect to his LTIP
award granted on March 31, 2008).
Each employment agreement also contains certain confidentiality
covenants prohibiting each executive officer from, among other
things, disclosing confidential information relating to our
general partner or any of its affiliates including us. The
employment agreements also contain non-competition and
non-solicitation restrictions. For Messrs. Charles C.
Ungurean and Thomas T. Ungurean, those provisions apply during
the term of their respective agreements and continue for a
period of two years following termination of employment for any
reason. In addition, in connection with the contribution of
Oxford Mining Company to us in August 2007, Messrs. Charles
C. Ungurean and Thomas T. Ungurean agreed that they would not
compete with us in the coal mining business in Illinois,
Kentucky, Ohio, Pennsylvania, West Virginia and Virginia until
August 24, 2014. In the cases of Messrs. Honish,
Gardner and Gutman, those provisions apply during the term of
their respective employment with our general partner and
continue for a period of 12 months following termination of
employment for any reason if such termination occurs during the
term of the employment agreement and not in connection with the
expiration of the employment agreement.
The following table shows the value of the severance benefits
and other benefits for the named executive officers under the
new employment agreements, assuming each named executive officer
had terminated employment immediately following the closing of
this offering and the effectiveness of the new employment
agreements.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Death or
|
|
|
Termination
|
|
|
Resignation for
|
|
|
|
|
|
Disability
|
|
|
Without Cause
|
|
|
Good Reason
|
|
Name
|
|
Payment Type
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
Charles C. Ungurean
|
|
Cash severance
|
|
|
|
|
|
$
|
1,000,000
|
|
|
$
|
1,000,000
|
|
|
|
Benefit continuation
|
|
$
|
10,769
|
|
|
|
10,769
|
|
|
|
|
|
|
|
Total
|
|
|
10,769
|
|
|
|
1,010,769
|
|
|
|
1,000,000
|
|
Thomas T. Ungurean
|
|
Cash severance
|
|
|
|
|
|
|
550,000
|
|
|
|
550,000
|
|
|
|
Benefit continuation
|
|
|
9,212
|
|
|
|
9,212
|
|
|
|
|
|
|
|
Total
|
|
|
9,212
|
|
|
|
559,212
|
|
|
|
550,000
|
|
Jeffrey M. Gutman
|
|
Cash severance
|
|
|
|
|
|
|
270,000
|
|
|
|
270,000
|
|
Gregory J. Honish
|
|
Cash severance
|
|
|
|
|
|
|
185,000
|
|
|
|
185,000
|
|
Michael B. Gardner
|
|
Cash severance
|
|
|
|
|
|
|
165,000
|
|
|
|
165,000
|
|
If the named executive officers had terminated employment on
December 31, 2009, they would have been entitled to
severance payments under their prior employment agreements, each
of which was in effect on December 31, 2009. The prior
employment agreements provided for severance payments upon a
termination of the executives employment without cause or
for good reason during the term of those agreements, based upon
the same multiples of base salary as provided in the employment
agreements that will become effective upon the closing of this
offering. If the named executive officers had incurred a
termination of employment without cause or for good reason on
December 31, 2009, their severance payments would have been
determined based on their base salaries in effect at that time.
For additional information regarding the named executive
officers base salaries in 2009, please refer above to
Compensation Discussion and
Analysis-Elements
of Compensation Programs-Base Salaries.
Our named executive officers other than Mr. Gutman are not
entitled to any additional payments or benefits upon the
occurrence of a change in control with respect to us or our
general partner. Mr. Gutmans prior employment
agreement provided, and his new employment agreement continues
to provide, that, upon the occurrence of a change in control
with respect to us or our general partner, all of the awards
granted to Mr. Gutman under our LTIP that have not vested
as of the date of the change in control will immediately vest.
Assuming that a change in control with respect to us or our
general partner had occurred on December 31, 2009,
Mr. Gutman would have been entitled to accelerated vesting
with respect to 14,848 phantom units that he held as of such
date, having an aggregate fair market value as of such date of
$258,801. In addition,
156
pursuant to a provision in Mr. Gutmans prior
employment agreement, in connection with the closing of this
offering, Mr. Gutman will receive a 0.5% profits
participation interest in our general partner. The interest will
vest over the four-year period following the closing of this
offering and will be subject to accelerated vesting upon a
change in control with respect to us or our general partner.
Long-Term
Incentive Plan
The board of directors of our general partner has adopted our
LTIP for employees, consultants and directors of our general
partner and affiliates who perform services for us. Prior to the
closing of this offering, we will adopt an amended and restated
LTIP, which will allow for awards of options, phantom units,
restricted units, unit awards, other unit-based awards and unit
appreciation rights. Distribution equivalent rights may be
granted in tandem with phantom units. The amended and restated
LTIP will limit the number of units that may be delivered
pursuant to awards under the LTIP to a number of units equal to
10% of the number of issued and outstanding common and
subordinated units immediately following the closing of this
offering. However, units that are forfeited (including units
forfeited in net issuances) or units that are subject to awards
that are cancelled without the issuance of units are available
for new awards under the LTIP. The LTIP provides that it is to
be administered by the board of directors of our general
partner, provided that the board may delegate authority to
administer the LTIP to a committee of non-employee directors.
The LTIP may be terminated or amended at any time with respect
to any units for which a grant has not yet been made. The LTIP
or any part thereof may also be altered or amended from time to
time, including increasing the number of units that may be
granted, subject to unitholder approval as required by the
exchange upon which the common units are listed at that time.
However, no change in any outstanding grant may be made that
would materially reduce the vested benefits of the participant
without the consent of the participant. The plan will expire
when units are no longer available under the plan for grants,
upon its termination by the plan administrator or upon the tenth
anniversary of the date that the LTIPs amendment and
restatement was approved by our partners.
Retirement
Plan
We provide qualified retirement plan benefits to our executive
officers and all other eligible employees. Through 2009, we
maintained a defined contribution money purchase pension plan to
which we made contributions for the benefit of the participants.
Effective with 2010, we adopted a 401(k) plan in which all
eligible employees can elect to contribute compensation for
retirement, either on a tax deferred or after-tax basis. We use
the 401(k) plan to assist our eligible employees in saving for
retirement on a tax-deferred or after-tax basis. The 401(k) plan
permits all eligible employees to make voluntary pre-tax
contributions to the plan, subject to applicable tax
limitations. Employee contributions are subject to annual dollar
limitations (for 2010, $16,500 for participants age 49 and
under and $22,000 for participants age 50 and over), which
are periodically adjusted for inflation. The 401(k) plan is
intended to be tax-qualified under section 401(a) of the
Internal Revenue Code so that contributions to the plan (other
than after-tax contributions), and income earned on plan
contributions, are not taxable to employees until withdrawn from
the plan and so that tax-deferred contributions, if any, will be
deductible when made. The plan permits us to make annual
discretionary contributions to the plan as a percentage of the
eligible compensation of participants in the plan. Annual
contributions of 3% or more of such eligible compensation will
maintain safe harbor tax-qualified status for the
plan, and while it is discretionary we intend generally to make
annual contributions at that level or higher. For 2010, we have
committed to make an employer discretionary contribution of 4%
of such eligible compensation.
Compensation
of Directors
Our general partners non-employee directors are
compensated for their service as directors under our general
partners Non-Employee Director Compensation Plan. Our
non-employee directors are directors that (i) are not an
officer or employee of our general partner or any of its
subsidiaries or affiliates, (ii) are not affiliated with or
related to any party that receives compensation from our general
partner or any of its subsidiaries and affiliates, and
(iii) have not entered into an arrangement with our general
partner or any of its
157
subsidiaries and affiliates to receive compensation from any
such entity other than in respect of his services as a member of
the Board. In addition, other members of the Board that are not
employees of our general partner can be approved by the Board
for participation in such plan, effective as of January 1 of the
calendar year following such approval.
Each non-employee director covered by the plan will receive an
annual compensation package consisting of the following:
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|
|
|
|
a $50,000 cash retainer;
|
|
|
|
a $50,000 annual unit grant; and
|
|
|
|
where applicable, a committee chair retainer of $10,000 for each
committee chaired.
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In addition, each non-employee director will receive per meeting
fees of:
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$1,000 for Board meetings attended in person;
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where applicable, $500 for Board committee meetings attended in
person; and
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$500 for telephonic Board meetings and committee meetings
greater than one hour in length.
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In addition, upon the closing of this offering, or, for
non-employee directors who join us after the closing of this
offering, upon their joining the Board, the Board may determine
that such non-employee directors will receive a one-time grant
of unrestricted common units. Furthermore, for 2011 and
thereafter, each non-employee director may elect to receive the
cash components of their compensation under the plan, as
outlined above, in the form of unrestricted common units granted
under the LTIP representing an equivalent value at the date of
issuance. Such elections must be made in advance of the year in
which the compensation is earned or at the directors
initial appointment for years beginning after 2010. The annual
compensation package is paid to each non-employee director based
on his or her service on the Board for the period beginning upon
the date of his or her appointment to the Board. If a
non-employee directors service on the Board commences
after the first day of a calendar year, such non-employee
director will receive a prorated annual compensation package for
such year. The annual Board membership retainer and, if
applicable, committee chair retainer are paid in quarterly
installments. For calendar year 2011 and thereafter, the annual
unit grants will also be paid in quarterly installments of units
having equivalent fair market value on the date of issuance to
one fourth of the total annual grant value described above. If
board membership or committee chairmanship terminates during the
year, amounts due on subsequent quarterly payment dates would
not be paid. Units awarded to non-employee directors under the
annual compensation package or upon first election to the Board,
and any units issued upon a non-employee directors
election to receive units in lieu of cash compensation, are
granted under the LTIP and vest on the date of grant. Cash
distributions will be paid on these units from and after the
time of their issuance. Each non-employee director is also
reimbursed for
out-of-pocket
expenses in connection with attending meetings of the Board or
its committees. Each director will be indemnified by us for
actions associated with being a director of our general partner
to the fullest extent permitted under Delaware law.
Director
Compensation Table for 2009
The following table sets forth the compensation paid to our
non-employee directors for the year ended December 31,
2009, as described above. None of our non-employee directors
held any unvested units as of December 31, 2009.
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Fees Earned or
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Name
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Paid in Cash ($)
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Unit Awards
($)
(1)
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Total ($)
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Gerald A. Tywoniuk
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$
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30,000
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$
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20,010
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$
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50,010
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(1)
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The amount in this column represents unit awards made to
directors under the LTIP in 2009. These awards were granted and
vested on December 1, 2009 and had a fair market value of
$17.43 per unit on such date.
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158
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of units following the consummation of this
offering and the related transactions by:
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each person who is known to us to beneficially own 5% or more of
such units to be outstanding;
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each of the directors and named executive officers of our
general partner; and
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all of the directors and executive officers of our general
partner as a group.
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All information with respect to beneficial ownership has been
furnished by the respective directors, officers or 5% or more
unitholders as the case may be.
Our general partner is owned 33.7% by C&T Coal and 66.3% by
AIM Oxford (both of which are reflected as 5% or more
unitholders in the table below). C&T Coal is owned by
Charles C. Ungurean and Thomas T. Ungurean, each a member of our
management team, and AIM Oxford is owned by AIM Coal LLC and
certain investment partnerships affiliated with AIM.
The amounts and percentage of units beneficially owned are
reported on the basis of regulations of the SEC governing the
determination of beneficial ownership of securities. Under the
rules of the SEC, a person is deemed to be a beneficial
owner of a security if that person has or shares
voting power, which includes the power to vote or to
direct the voting of such security, or investment
power, which includes the power to dispose of or to direct
the disposition of such security. In computing the number of
common units beneficially owned by a person and the percentage
ownership of that person, common units subject to options or
warrants held by that person that are currently exercisable or
exercisable within 60 days of May 17, 2010, if any,
are deemed outstanding, but are not deemed outstanding for
computing the percentage ownership of any other person. Except
as indicated by footnote, the persons named in the table below
have sole voting and investment power with respect to all units
shown as beneficially owned by them, subject to community
property laws where applicable.
The percentage of units beneficially owned is based on a total
of 10,280,380 common units and 10,280,380 subordinated units
outstanding immediately following this offering.
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Percentage of
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Percentage of
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Total Common
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Percentage of
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Subordinated
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Subordinated
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and Subordinated
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Common Units
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Common Units
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Units to be
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Units to be
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Units to be
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to be Beneficially
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to be Beneficially
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Beneficially
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Beneficially
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Beneficially
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Name of Beneficial Owner
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Owned
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Owned
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Owned
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Owned
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Owned
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AIM Oxford Holdings,
LLC
(1)(2)
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930,349
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9.0
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%
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6,813,160
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66.3
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%
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37.7
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%
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C&T Coal,
Inc.
(3)
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473,454
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4.6
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%
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3,467,220
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33.7
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%
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19.2
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%
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George E.
McCown
(1)(2)
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930,349
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9.0
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%
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6,813,160
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66.3
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%
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37.7
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%
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Brian D.
Barlow
(2)
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%
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%
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%
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Matthew P.
Carbone
(1)(2)
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930,349
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9.0
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%
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6,813,160
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66.3
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%
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37.7
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%
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Gerald A.
Tywoniuk
(3)
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2,090
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*
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%
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%
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*
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%
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Peter B. Lilly
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%
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%
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%
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Charles C.
Ungurean
(3)(4)
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473,454
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4.6
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%
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3,467,220
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33.7
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%
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19.2
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%
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Thomas T.
Ungurean
(3)(4)
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473,454
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4.6
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%
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3,467,220
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33.7
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%
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19.2
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%
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Jeffrey M.
Gutman
(3)
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31,769
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*
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%
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%
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*
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%
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Gregory J.
Honish
(3)
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9,338
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*
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%
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%
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*
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%
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Michael B.
Gardner
(3)
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5,510
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*
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%
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%
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*
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%
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Denise M.
Maksimoski
(3)
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6,290
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*
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%
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%
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*
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%
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All directors and executive officers as a group (consisting of
10 persons)
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1,458,800
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14.2
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%
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10,280,380
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100.0
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%
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57.1
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%
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*
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An asterisk indicates that the person or entity owns less than
one percent.
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159
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(1)
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AIM Oxford Holdings, LLC is governed by its sole manager, AIM
Coal Management, LLC, a Delaware limited liability company. AIM
Coal Management, LLCs members consist of George E. McCown
and Matthew P. Carbone, both directors of our general partner,
and Robert B. Hellman, Jr. Messrs. McCown, Carbone and
Hellman, in their capacity as members of AIM Coal Management,
LLC, share voting and investment power with respect to the
common and subordinated units owned by AIM Oxford Holdings, LLC.
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(2)
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The address for this person or entity is 950 Tower Lane,
Suite 800, Foster City, California 94404.
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(3)
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The address for this person or entity is 41 South High Street,
Suite 3450, Columbus, Ohio 43215.
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(4)
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Charles C. Ungurean and Thomas T. Ungurean, as the shareholders
of C&T Coal, Inc., share voting and investment power with
respect to the common and subordinated units owned by C&T
Coal, Inc.
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160
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Immediately following the closing of this offering, C&T
Coal will own 473,454 common units and 3,467,220 subordinated
units representing a combined 18.8% limited partner interest in
us (or 30,793 common units and 3,467,220 subordinated units
representing a combined 16.7% limited partner interest in us, if
the underwriters exercise their option to purchase additional
common units in full), and AIM Oxford will own 930,349 common
units and 6,813,160 subordinated units representing a combined
36.9% limited partner interest in us (or 60,510 common units and
6,813,160 subordinated units representing a combined 32.8%
limited partner interest in us, if the underwriters exercise
their option to purchase additional common units in full).
C&T Coal and AIM Oxford will own and control our general
partner which owns a 2.0% general partner interest in us and all
of our incentive distribution rights.
Distributions
and Payments to Our General Partner and Its Affiliates
The following table summarizes the distributions and payments to
be made by us to our general partner and its affiliates in
connection with the formation, ongoing operation and liquidation
of Oxford Resource Partners, LP. These distributions and
payments were determined by and among affiliated entities and,
consequently, are not the result of arms-length
negotiations.
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The consideration received by our general partner and its
affiliates prior to or in connection with this offering
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1,403,803 common units;
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10,280,380 subordinated units;
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all of our incentive distribution
rights;
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2.0% general partner interest; and
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approximately $89.1 million
in cash and accounts receivable.
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Distributions of available cash to our general partner and its
affiliates
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We will initially make cash distributions 98.0% to the
unitholders, including affiliates of our general partner, as the
holders of an aggregate of 1,403,803 common units and all of the
subordinated units and 2.0% to our general partner. If
distributions exceed the minimum quarterly distribution and
target distribution levels, our general partner will be entitled
to increasing percentages of the distributions, up to 48.0% of
the distributions above the highest target distribution level.
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Assuming we have sufficient available cash to pay the full
minimum quarterly distribution on all of our outstanding units
for four quarters, our general partner and its affiliates would
receive an annual distribution of approximately
$0.7 million on the 2.0% general partner interest and
approximately $20.5 million on their common units and
subordinated units.
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Payments to our general partner and its affiliates
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|
Our general partner will not receive a management fee or other
compensation for its management of Oxford Resource Partners, LP.
Our general partner and its affiliates will be reimbursed for
expenses incurred on our behalf. Our partnership agreement
provides that our general partner will determine the amount of
these expenses.
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161
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Withdrawal or removal of our general partner
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If our general partner withdraws or is removed, its general
partner interest and 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. Please read The
Partnership Agreement Withdrawal or Removal of Our
General Partner.
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Liquidation Stage
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Liquidation
|
|
Upon our liquidation, the partners, including our general
partner, will be entitled to receive liquidating distributions
according to their particular capital account balances.
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Ownership
Interests of Certain Executive Officers and Directors of Our
General Partner
Upon the closing of this offering, C&T Coal and AIM Oxford
will continue to own 100.0% of our general partner. Charles C.
Ungurean, the President and Chief Executive Officer of our
general partner, and Thomas T. Ungurean, the Senior Vice
President, Equipment, Procurement and Maintenance of our general
partner, own all of the equity interests in C&T Coal. In
addition, Brian D. Barlow, Matthew P. Carbone and George E.
McCown serve on the board of directors of our general partner
and are principals of AIM and have ownership interests in AIM.
In addition to the 2.0% general partner interest in us, our
general partner owns the incentive distribution rights, which
entitle the holder to increasing percentages, up to a maximum of
48.0%, of the cash we distribute in excess of $0.6563 per
quarter, after the closing of our initial public offering. Upon
the closing of this offering, C&T Coal will own 473,454
common units and 3,467,220 subordinated units, and AIM Oxford
will own 930,349 common units and 6,813,160 subordinated
units.
Advisory
Services Agreement
Upon our formation in August 2007, Oxford Mining Company entered
into an advisory services agreement with American Infrastructure
MLP Management, L.L.C. and American Infrastructure MLP PE
Management, L.L.C., which are affiliates of AIM, AIM Oxford and
certain directors of our general partner. Our advisors performed
financial and advisory services to us under this agreement,
which will be terminated in connection with this offering in
exchange for a one-time, non-recurring payment to our advisors
of $2.5 million. Our advisors received annual compensation
in the amount of $250,000 plus a fee determined by a formula,
taking into account the increase in our gross revenue over the
prior year. During the year ended December 31, 2009 and the
first quarter of 2010, we paid our advisors in excess of
$307,000 and $77,000, respectively, for these services, as well
as $1.0 million during the year ended December 31,
2009 in fees for services relating to an amendment to our
existing credit facility. During 2008 we paid our advisors
$225,000 for these services, and we did not pay our advisors for
these services in 2007. We were also obligated to reimburse our
advisors for expenses incurred by them in the performance of
their services to us.
Administrative
and Operational Services Agreement
On August 24, 2007, we entered into an administrative and
operational services agreement with Oxford Mining Company and
our general partner. Under the terms of the agreement, our
general partner provides services to us and is reimbursed for
all related costs incurred on our behalf. The services that our
general partner provides include, among other things, general
administrative and management services, human resources,
information technology, finance and accounting, corporate
development, real property, marketing, engineering, operations
(including mining operations), geologic services, risk
management and insurance services. During the first quarter of
2010 and the years ended December 31, 2009, 2008 and 2007,
we paid our general partner approximately $15.2 million,
$46.5 million, $25.4 million and $139,000,
respectively, for services, primarily related to payroll,
performed under the agreement. Any party may terminate the
162
administrative and operational services agreement by providing
at least 30 days written notice to the other parties
of its intention to terminate the agreement.
Contribution
Agreements
In August 2007 we entered into a contribution and sale agreement
with our general partner, C&T Coal, AIM Oxford, Charles C.
Ungurean and Thomas C. Ungurean. Pursuant to the contribution
and sale agreement, each of C&T Coal, Charles C. Ungurean
and Thomas T. Ungurean (and any of their related parties) agreed
not to directly or indirectly compete with us or to disseminate
confidential information or trade secrets regarding us and our
subsidiaries.
In March 2008 we entered into a contribution agreement with our
general partner and AIM Oxford. Pursuant to this contribution
agreement, we received a contribution of $8,820,000 from AIM
Oxford as consideration for the issuance to AIM Oxford of
787,500 Class B common units. We also received a
contribution of $180,000 from our general partner as
consideration for the issuance to our general partner of
approximately 16,071 general partner units.
In September 2008 we entered into a contribution agreement with
our general partner, C&T Coal and AIM Oxford. Pursuant to
this contribution agreement, we received a contribution of
$686,000 from C&T Coal and a contribution of $1,274,000
from AIM Oxford as consideration for the issuance to C&T
Coal and AIM Oxford of 61,250 Class B common units and
113,750 Class B common units, respectively. We also
received a contribution of $40,000 from our general partner as
consideration for the issuance to our general partner of
approximately 3,571 general partner units.
In August 2009 we entered into a contribution agreement with
C&T Coal and AIM Oxford. Pursuant to this contribution
agreement, we received a contribution of $1,050,000 from
C&T Coal and $1,950,000 from AIM Oxford as consideration
for the issuance to C&T Coal and AIM Oxford of 35 deferred
participation units and 65 deferred participation units,
respectively.
In September 2009 we entered into a contribution and conversion
agreement with our general partner, C&T Coal and AIM
Oxford. Pursuant to the contribution and conversion agreement,
we received a contribution of $1,469,993.91 from C&T Coal
and $6,860,012.25 from AIM Oxford as consideration for the
issuance to C&T Coal and AIM Oxford of 84,337 Class B
common units and 393,575 Class B common units,
respectively. We also received a contribution of $231,224.62
from our general partner as consideration for the issuance to
our general partner of approximately 13,266 general partner
units. In connection with the execution of the contribution and
conversion agreement, C&T Coal and AIM Oxford elected to
convert their deferred participation units into approximately
60,241 Class B common units and approximately 111,876
Class B common units, respectively.
Investors
Rights Agreement
We entered into an investors rights agreement on
August 24, 2007 with our general partner, C&T Coal,
AIM Oxford, Charles C. Ungurean and Thomas C. Ungurean. Pursuant
to such agreement and subject to certain restrictions, C&T
Coal was granted certain demand and piggyback
registration rights. Pursuant to the terms of the agreement,
C&T Coal has the right to require us to file a registration
statement for the public sale of all of the common and
subordinated units it owns at any time after the offering. In
addition and subject to certain restrictions, if we sell any
common units in a registered underwritten offering, C&T
Coal will have the right to include its common units in that
offering; provided, however, that the managing underwriter or
underwriters of any such offering will have the right to limit
the number of common units to be included in such sale. We will
pay all expenses relating to any demand or piggyback
registration, except for fees and disbursements of any counsel
retained by C&T Coal and any underwriter or brokers
commission or discounts.
In addition, the investors rights agreement gives C&T
Coal the right to designate a number of directors to the board
of directors of our general partner proportionate to its
percentage share of the total outstanding membership interests
in our general partner. AIM Oxford has the right to designate
the remaining members of the board of directors of our general
partner. However, the number of directors C&T Coal has the
right to
163
appoint will be reduced in the event that the number of
directors appointed by C&T Coal and the number of
independent directors (as defined in our partnership agreement)
are less than fifty percent of the members of the board.
C&T Coals right to designate members of the board of
directors of our general partner will terminate upon C&T
Coal, Charles C. Ungurean and Thomas T. Ungurean ceasing to own
in the aggregate at least 5% of our common units and
subordinated units.
Furthermore, the investors rights agreement gives C&T
Coal, Charles C. Ungurean and Thomas T. Ungurean tag-along
rights to sell their limited partner interests in us in any case
where AIM Oxford requires C&T Coal, Charles C. Ungurean and
Thomas T. Ungurean, pursuant to the investors rights
agreement, to sell their interest in our general partner in
connection with the sale by AIM Oxford of all of its interests
in us and our general partner to a non-affiliated third party.
All of the other rights provided for in the investors
rights agreement related to dispositions of interests in us by
AIM Oxford or C&T Coal, Charles C. Ungurean and Thomas T.
Ungurean will terminate upon the completion of this offering.
Tunnel
Hill Partners, LP
The vast majority of the ownership interest in Tunnel Hill
Partners, LP is directly or indirectly owned by T&C Holdco,
LLC and AIM Tunnel Hill Holdings II, LLC. T&C Holdco is
wholly-owned by Charles C. Ungurean and Thomas T. Ungurean. AIM
Tunnel Hill Holdings II, LLC is indirectly owned by AIM.
We are a party to an environmental services agreement with
Tunnell Hill Reclamation LLC, a wholly owned subsidiary of
Tunnel Hill Partners, LP, pursuant to which we provide certain
landfill operational services. Receipts for these services for
the first quarter of 2010 and the years ended December 31,
2009 and 2008 were approximately $0.2 million,
$0.7 million and $1.1 million, respectively. We had no
such receipts for 2007.
In addition, pursuant to a mining agreement, Tunnell Hill
Reclamation LLC has granted us access to certain properties for
the purpose of conducting mining operations. As consideration
for such access, we have authorized the construction by Tunnell
Hill Reclamation LLC of future landfills or other waste disposal
facilities on such properties.
Procedures
for Review, Approval and Ratification of Related Person
Transactions
The board of directors of our general partner has adopted a code
of business conduct and ethics in connection with the closing of
this offering that will provide that the board of directors of
our general partner or its authorized committee will
periodically review all related person transactions that are
required to be disclosed under SEC rules and, when appropriate,
initially authorize or ratify all such transactions. In the
event that the board of directors of our general partner or its
authorized committee considers ratification of a related person
transaction and determines not to so ratify, the code of
business conduct and ethics will provide that our management
will make all reasonable efforts to cancel or annul the
transaction.
The code of business conduct and ethics will provide that, in
determining whether or not to recommend the initial approval or
ratification of a related person transaction, the board of
directors of our general partner or its authorized committee
should consider all of the relevant facts and circumstances
available, including (if applicable) but not limited to:
(i) whether there is an appropriate business justification
for the transaction; (ii) the benefits that accrue to us as
a result of the transaction; (iii) the terms available to
unrelated third parties entering into similar transactions;
(iv) the impact of the transaction on a directors
independence (in the event the related person is a director, an
immediate family member of a director or an entity in which a
director or an immediately family member of a director is a
partner, shareholder, member or executive officer); (v) the
availability of other sources for comparable products or
services; (vi) whether it is a single transaction or a
series of ongoing, related transactions; and (vii) whether
entering into the transaction would be consistent with the code
of business conduct and ethics.
The code of business conduct and ethics described above will be
adopted in connection with the closing of this offering, and as
a result the transactions described above were not reviewed
under such policy.
164
CONFLICTS
OF INTEREST AND FIDUCIARY DUTIES
Conflicts
of Interest
Conflicts of interest exist and may arise in the future as a
result of the relationships between our general partner and its
affiliates (including C&T Coal and AIM Oxford), on the one
hand, and us and our unaffiliated limited partners, on the other
hand. The directors and executive officers of our general
partner have fiduciary duties to manage our general partner in a
manner beneficial to its owners. At the same time, our general
partner has a fiduciary duty to manage us in a manner beneficial
to us and our unitholders.
Whenever a conflict arises between our general partner or its
affiliates, on the one hand, and us and our limited partners, on
the other hand, our general partner will resolve that conflict.
Our partnership agreement contains provisions that modify and
limit our general partners fiduciary duties to the
unitholders. Our partnership agreement also restricts the
remedies available to unitholders for actions taken by our
general partner that, without those limitations, might
constitute breaches of its fiduciary duty.
Our general partner will not be in breach of its obligations
under the partnership agreement or its fiduciary duties to us or
our unitholders if the resolution of the conflict is:
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approved by the Conflicts Committee, although our general
partner is not obligated to seek such approval;
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approved by the vote of a majority of the outstanding common
units, excluding any common units owned by our general partner
or any of its affiliates;
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on terms no less favorable to us than those generally being
provided to or available from unrelated third parties; or
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fair and reasonable to us, taking into account the totality of
the relationships between the parties involved, including other
transactions that may be particularly favorable or advantageous
to us.
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Our general partner may, but is not required to, seek the
approval of such resolution from the Conflicts Committee. In
connection with a situation involving a conflict of interest,
any determination by our general partner involving the
resolution of the conflict of interest must be made in good
faith, provided that, if our general partner does not seek
approval from the Conflicts Committee and its board of directors
determines that the resolution or course of action taken with
respect to the conflict of interest satisfies either of the
standards set forth in the third and fourth bullet points above,
then it will be presumed that, in making its decision, the board
of directors acted in good faith, and in any proceeding brought
by or on behalf of any limited partner or the Partnership, the
person bringing or prosecuting such proceeding will have the
burden of overcoming such presumption. Unless the resolution of
a conflict is specifically provided for in our partnership
agreement, our general partner or the Conflicts Committee may
consider any factors it determines in good faith to consider
when resolving a conflict. When our partnership agreement
requires someone to act in good faith, it requires that person
to have an honest belief that he is acting in the best interests
of the partnership.
Conflicts of interest could arise in the situations described
below, among others.
AIM
Oxford and AIM, affiliates of our general partner, may compete
with us.
Our partnership agreement provides that our general partner will
be restricted from engaging in any business activities other
than acting as our general partner (or as general partner of
another company of which we are a partner or member) or those
activities incidental to its ownership of interests in us. In
addition, C&T Coal and its affiliates are prohibited from
competing with us in Illinois, Kentucky, Ohio, Pennsylvania,
West Virginia and Virginia until August 2014. However, certain
affiliates of our general partner, including AIM Oxford and AIM
and its investment funds, are not prohibited from engaging in
other businesses or activities, including those that might be in
direct competition with us. Additionally, AIM, through its
investment funds and managed accounts, makes investments and
purchases entities in various areas of the energy sector,
including the coal industry. These investments and acquisitions
may include entities or assets that we would have been
interested in acquiring.
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Pursuant to the terms of our partnership agreement, the doctrine
of corporate opportunity, or any analogous doctrine, will not
apply to our general partner or any of its affiliates, including
its executive officers, directors, C&T Coal and AIM Oxford.
Any such person or entity that becomes aware of a potential
transaction, agreement, arrangement or other matter that may be
an opportunity for us will not have any duty to communicate or
offer such opportunity to us. Any such person or entity will not
be liable to us or to any limited partner for breach of any
fiduciary duty or other duty by reason of the fact that such
person or entity pursues or acquires such opportunity for
itself, directs such opportunity to another person or entity or
does not communicate such opportunity or information to us.
Therefore, AIM Oxford may compete with us for investment
opportunities and may own an interest in entities that compete
with us. Until August 2014, C&T Coal and its affiliates may
only compete with us outside the six states referred to above.
Our
general partner is allowed to take into account the interests of
parties other than us, such as C&T Coal and AIM Oxford, in
resolving conflicts.
Our partnership agreement contains provisions that reduce the
fiduciary standards to which our general partner would otherwise
be held by state fiduciary duty law. For example, our
partnership agreement permits our general partner to make a
number of decisions in its individual capacity, as opposed to in
its capacity as our general partner. This entitles our general
partner to consider only the interests and factors that it
desires, and it has no duty or obligation to give any
consideration to any interest of, or factors affecting, us, our
affiliates or any limited partner. Examples include the exercise
of our general partners limited call right, its voting
rights with respect to the units it owns, its registration
rights and its determination whether or not to consent to any
merger or consolidation of the partnership.
Our
partnership agreement limits the liability and reduces the
fiduciary duties owed by our general partner, and also restricts
the remedies available to our unitholders for actions that,
without those limitations, might constitute breaches of its
fiduciary duty.
In addition to the provisions described above, our partnership
agreement contains provisions that restrict the remedies
available to our unitholders for actions that might otherwise
constitute breaches of our general partners fiduciary
duty. For example, our partnership agreement:
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provides that our general partner shall not have any liability
to us or our unitholders for decisions made in its capacity as
general partner so long as such decisions are made in good faith
and with the honest belief that the decision was in our best
interest;
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provides generally that affiliated transactions and resolutions
of conflicts of interest not approved by the Conflicts Committee
and not involving a vote of unitholders must either be
(1) on terms no less favorable to us than those generally
being provided to or available from unrelated third parties or
(2) fair and reasonable to us, as determined by
our general partner in good faith, provided that, in determining
whether a transaction or resolution is fair and
reasonable, our general partner may consider the totality
of the relationships between the parties involved, including
other transactions that may be particularly advantageous or
beneficial to us; and
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provides that our general partner and its executive officers and
directors will not be liable for monetary damages to us or our
limited partners resulting from any act or omission unless there
has been a final and non-appealable judgment entered by a court
of competent jurisdiction determining that our general partner
or its executive officers or directors acted in bad faith or
engaged in fraud or willful misconduct or, in the case of a
criminal matter, acted with knowledge that their conduct was
criminal.
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Except
in limited circumstances, our general partner has the power and
authority to conduct our business without unitholder
approval
Under our partnership agreement, our general partner has full
power and authority to do all things, other than those items
that require unitholder approval or with respect to which our
general partner has sought
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Conflicts Committee approval, on such terms as it determines to
be necessary or appropriate to conduct our business including,
but not limited to, the following:
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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
our securities, and the incurring of any other obligations;
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the purchase, sale or other acquisition or disposition of our
securities, or the issuance of additional options, rights,
warrants and appreciation rights relating to our securities;
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the mortgage, pledge, encumbrance, hypothecation or exchange of
any or all of our assets;
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the negotiation, execution and performance of any contracts,
conveyances or other instruments;
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the distribution of our cash;
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the selection and dismissal of employees and agents, outside
attorneys, accountants, consultants and contractors and the
determination of their compensation and other terms of
employment or hiring;
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the maintenance of insurance for our benefit and the benefit of
our partners;
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the formation of, or acquisition of an interest in, the
contribution of property to, and the making of loans to, any
limited or general partnership, joint venture, corporation,
limited liability company or other entity;
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the control of any matters affecting our rights and obligations,
including the bringing and defending of actions at law or in
equity, otherwise engaging in the conduct of litigation,
arbitration or mediation and the incurring of legal expense, the
settlement of claims and litigation;
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the indemnification of any person against liabilities and
contingencies to the extent permitted by law;
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the making of tax, regulatory and other filings, or the
rendering of periodic or other reports to governmental or other
agencies having jurisdiction over our business or assets; and
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the entering into of agreements with any of its affiliates to
render services to us or to itself in the discharge of its
duties as our general partner.
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Our partnership agreement provides that our general partner must
act in good faith when making decisions on our
behalf, and our partnership agreement further provides that in
order for a determination to be made in good faith,
our general partner must have an honest belief that the
determination is in our best interests. Please read The
Partnership Agreement Voting Rights for
information regarding matters that require unitholder approval.
Actions
taken by our 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 our general partner
regarding such matters as:
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the amount and timing of asset purchases and sales;
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cash expenditures and the amount of estimated reserve
replacement expenditures;
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borrowings;
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the issuance of additional units; and
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the creation, reduction or increase of reserves in any quarter.
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Our general partner determines the amount and timing of any
capital expenditures and whether a capital expenditure is
classified as a maintenance capital expenditure, which reduces
operating surplus, or an expansion capital expenditure, which
does not reduce operating surplus. This determination can affect
the
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amount of cash that is distributed to our unitholders and to our
general partner and the ability of the subordinated units to
convert into common units.
In addition, our general partner may use an amount, initially
equal to $35.0 million, which would not otherwise
constitute available cash from operating surplus, in order to
permit the payment of cash distributions on its units and
incentive distribution rights. All of these actions may affect
the amount of cash distributed to our unitholders and our
general partner and may facilitate the conversion of
subordinated units into common units. Please read How We
Make Cash Distributions.
In addition, borrowings by us and our affiliates do not
constitute a breach of any duty owed by our general partner to
our unitholders, including borrowings that have the purpose or
effect of:
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enabling our general partner or its affiliates to receive
distributions on any subordinated units held by them or the
incentive distribution rights; or
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hastening the expiration of the subordination period.
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For example, in the event we have not generated sufficient cash
from our operations to pay the minimum quarterly distribution on
our common units and our subordinated units, our partnership
agreement permits us to borrow funds, which would enable us to
make this distribution on all outstanding units. Please read
How We Make Cash Distributions Subordination
Period.
Our partnership agreement provides that we and our subsidiaries
may borrow funds from our general partner and its affiliates.
Our general partner and its affiliates may not borrow funds from
us, or our operating company and its operating subsidiaries.
We
will reimburse our general partner and its affiliates for
expenses.
We will reimburse our general partner and its affiliates for
costs incurred in managing and operating us. Our partnership
agreement provides that our general partner will determine the
expenses that are allocable to us in good faith, and it will
charge on a fully allocated cost basis for services provided to
us. The fully allocated basis charged by our general partner
does not include a profit component. Please read Certain
Relationships and Related Party Transactions.
Contracts
between us, on the one hand, and our general partner and its
affiliates, on the other, will not be the result of
arms-length negotiations.
Our partnership agreement allows our general partner to
determine, in good faith, any amounts to pay itself or its
affiliates for any services rendered to us. Our general partner
may also enter into additional contractual arrangements with any
of its affiliates on our behalf. Neither our partnership
agreement nor any of the other agreements, contracts, and
arrangements between us and our general partner and its
affiliates are or will be the result of arms-length
negotiations. Similarly, agreements, contracts or arrangements
between us and our general partner and its affiliates that are
entered into following the closing of this offering will not be
required to be negotiated on an arms-length basis,
although, in some circumstances, our general partner may
determine that the Conflicts Committee may make a determination
on our behalf with respect to such arrangements.
Our general partner will determine, in good faith, the terms of
any of these transactions entered into after the close of this
offering.
Our general partner and its affiliates will have no obligation
to permit us to use any facilities or assets of our general
partner and its affiliates, except as may be provided in
contracts entered into specifically for such use. There is no
obligation of our general partner and its affiliates to enter
into any contracts of this kind.
Our
general partner intends to limit its liability regarding our
obligations.
Our general partner intends to limit its liability under
contractual arrangements so that counterparties to such
agreements have recourse only against our assets and not against
our general partner or its assets or any
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affiliate of our general partner or its assets. Our partnership
agreement provides that any action taken by our general partner
to limit its liability is not a breach of our general
partners fiduciary duties, even if we could have obtained
terms that are more favorable without the limitation on
liability.
Common
units are subject to our general partners limited call
right.
Our general partner may exercise its right to call and purchase
common units, as provided in our partnership agreement, or may
assign this right to one of its affiliates or to us. Our general
partner may use its own discretion, free of fiduciary duty
restrictions, in determining whether to exercise this right. As
a result, a common unitholder may have to sell his common units
at an undesirable time or price. Please read The
Partnership Agreement Limited Call Right.
Common
unitholders will have no right to enforce obligations of our
general partner and its affiliates under agreements with
us.
Any agreements between us, on the one hand, and our general
partner and its affiliates, on the other, will not grant to the
unitholders, separate and apart from us, the right to enforce
the obligations of our general partner and its affiliates in our
favor.
Our
general partner decides whether to retain separate counsel,
accountants or others to perform services for us.
The attorneys, independent accountants and others who perform
services for us have been retained by our general partner.
Attorneys, independent accountants and others who perform
services for us are selected by our general partner or the
Conflicts Committee and may perform services for our general
partner and its affiliates. We may retain separate counsel for
ourselves or the holders of common units in the event of a
conflict of interest between our general partner and its
affiliates, on the one hand, and us or the holders of common
units, on the other, depending on the nature of the conflict. We
do not intend to do so in most cases.
Our
general partner may elect to cause us to issue common units to
it in connection with a resetting of the target distribution
levels related to our general partners incentive
distribution rights without the approval of the Conflicts
Committee or our unitholders. This election may result in lower
distributions to our common unitholders in certain
situations.
Our general partner has the right, at any time when there are no
subordinated units outstanding and it has received incentive
distributions at the highest level to which it is entitled
(48.0%) for each of the prior four consecutive fiscal quarters,
to reset the initial target distribution levels at higher levels
based on our cash distribution at the time of the exercise of
the reset election. Following a reset election by our general
partner, the minimum quarterly distribution will be reset to an
amount equal to the average cash distribution per common unit
for the two fiscal quarters immediately preceding the reset
election (such amount is referred to as the reset minimum
quarterly distribution), and the target distribution
levels will be reset to correspondingly higher levels based on
percentage increases above the reset minimum quarterly
distribution.
We anticipate that our general partner would exercise this reset
right in order to facilitate acquisitions or internal growth
projects that would not be sufficiently accretive to cash
distributions per common unit without such conversion; however,
it is possible that our general partner could exercise this
reset election at a time when we are experiencing declines in
our aggregate cash distributions or at a time when our general
partner expects that we will experience declines in our
aggregate cash distributions in the foreseeable future. In such
situations, our general partner may be experiencing, or may
expect to experience, declines in the cash distributions it
receives related to its incentive distribution rights and may
therefore desire to be issued our common units, which are
entitled to specified priorities with respect to our
distributions and which therefore may be more advantageous for
the general partner to own in lieu of the right to receive
incentive distribution payments based on target distribution
levels that are less certain to be achieved in the then current
business environment. As a result, a reset election may cause
our common unitholders to experience dilution in the amount of
cash distributions that they would have otherwise received had
we not issued new common units to
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our general partner in connection with resetting the target
distribution levels related to our general partners
incentive distribution rights. Please read How We Make
Cash Distributions Distributions of Available
Cash General Partner Interest and Incentive
Distribution Rights.
Fiduciary
Duties
Our general partner is accountable to us and our unitholders as
a fiduciary. Fiduciary duties owed to unitholders by our general
partner are prescribed by law and the partnership agreement. The
Delaware Act provides that Delaware limited partnerships may, in
their partnership agreements, modify or eliminate, except for
the contractual covenant of good faith and fair dealing, the
fiduciary duties owed by the general partner to limited partners
and the partnership.
Our partnership agreement contains various provisions
restricting the fiduciary duties that might otherwise be owed by
our general partner. We have adopted these provisions to allow
our general partner or its affiliates to engage in transactions
with us that would otherwise be prohibited by state-law
fiduciary standards and to take into account the interests of
other parties in addition to our interests when resolving
conflicts of interest. Without such modifications, such
transactions could result in violations of our general
partners state-law fiduciary duty standards. We believe
this is appropriate and necessary because the board of directors
of our general partner has fiduciary duties to manage our
general partner in a manner beneficial both to its owners, as
well as to our unitholders. Without these modifications, our
general partners ability to make decisions involving
conflicts of interest would be restricted. The modifications to
the fiduciary standards enable our general partner to take into
consideration the interests of all parties involved, so long as
the resolution is fair and reasonable to us. These modifications
also enable our general partner to attract and retain
experienced and capable directors. These modifications
disadvantage the common unitholders because they restrict the
rights and remedies that would otherwise be available to
unitholders for actions that, without those limitations, might
constitute breaches of fiduciary duty, as described below, and
permit our general partner to take into account the interests of
third parties in addition to our interests when resolving
conflicts of interest. The following is a summary of the
material restrictions of the fiduciary duties owed by our
general partner to the limited partners:
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State law fiduciary duty standards
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Fiduciary duties are generally considered to include an
obligation to act in good faith and 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 his 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.
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Partnership agreement modified standards
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Our partnership agreement contains provisions that waive or
consent to conduct by our general partner and its affiliates
that might otherwise raise issues as to compliance with
fiduciary duties or applicable law. For example, our partnership
agreement provides that when our general partner is acting in
its capacity as our general partner, as opposed to in its
individual capacity, it must act in good faith and
will not be subject to any other standard under applicable law.
In addition, when our general partner is acting in its
individual capacity, as opposed to in its capacity as our
general partner, it may act without any fiduciary obligation to
us or our limited partners whatsoever. These standards reduce
the obligations to which our general partner would otherwise be
held.
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Our partnership agreement generally provides that affiliated
transactions and resolutions of conflicts of interest not
involving a vote of unitholders or that are not approved by the
Conflicts Committee must be:
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on terms no less favorable to us
than those generally being provided to or available from
unrelated third parties; or
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fair and reasonable to
us, taking into account the totality of the relationships
between the parties involved (including other transactions that
may be particularly favorable or advantageous to us).
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If our general partner does not seek approval from the Conflicts
Committee and its board of directors determines that the
resolution or course of action taken with respect to the
conflict of interest satisfies either of the standards set forth
in the bullet points above, then it will be presumed that, in
making its decision, the board of directors, which may include
board members affected by the conflict of interest, acted in
good faith, and in any proceeding brought by or on behalf of any
limited partner or the partnership, the person bringing or
prosecuting such proceeding will have the burden of overcoming
such presumption. These standards reduce the obligations to
which our general partner would otherwise be held.
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In addition to the other more specific provisions limiting the
obligations of our general partner, our partnership agreement
further provides that our general partner and its officers and
directors will not be liable for monetary damages to us or our
limited partners for errors of judgment or for any acts or
omissions unless there has been a final and non-appealable
judgment by a court of competent jurisdiction determining that
our general partner or its officers and directors acted in bad
faith or engaged in fraud or willful misconduct or, in the case
of a criminal matter, acted with knowledge that the conduct was
unlawful.
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Rights and remedies of unitholders
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The Delaware Act generally provides that a limited partner may
institute legal action on behalf of the partnership 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. These actions include
actions against a general partner for breach of its fiduciary
duties or of the partnership agreement. 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.
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By purchasing our common units, each common unitholder
automatically agrees to be bound by the provisions in our
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 to sign a partnership agreement does not render
the partnership agreement unenforceable against that person.
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Under our partnership agreement, we must indemnify our general
partner and its officers, directors and managers, to the fullest
extent permitted by law, against liabilities, costs and expenses
incurred by our general partner or these other persons. We must
provide this indemnification unless there has been a final and
non-appealable judgment by a court of competent jurisdiction
determining that these persons acted in bad faith or engaged in
fraud or willful misconduct or, in the case of a criminal
matter, acted with knowledge that the conduct was unlawful. We
also must provide this indemnification for criminal proceedings
when our general partner or these other persons acted with no
knowledge that their conduct was unlawful. Thus, our general
partner could be indemnified for its negligent acts if it met
the requirements set forth above. To the extent that these
provisions purport to include indemnification for liabilities
arising under the Securities Act of 1933, or the Securities Act,
in the opinion of the SEC, such indemnification is contrary to
public policy and therefore unenforceable. Please read The
Partnership Agreement Indemnification.
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DESCRIPTION
OF THE COMMON UNITS
The
Units
The common units represent limited partner interests in us. The
holders of common units, along with the holders of subordinated
units, are entitled to participate in partnership distributions
and are entitled to exercise the rights and privileges available
to limited partners under our partnership agreement. For a
description of the relative rights and preferences of holders of
common units and subordinated units and our general partner in
and to partnership distributions, please read this section and
How We Make Cash Distributions. For a description of
the rights and privileges of limited partners under our
partnership agreement, including voting rights, please read
The Partnership Agreement.
Transfer
Agent and Registrar
Duties
American Stock Transfer & Trust Company, LLC will serve as
registrar and transfer agent for the common units. We pay all
fees charged by the transfer agent for transfers of common
units, except the following that must be paid by our unitholders:
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surety bond premiums to replace lost or stolen certificates, or
to cover taxes and other governmental charges in connection
therewith;
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special charges for services requested by a holder of a common
unit; and
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other similar fees or charges.
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There is no charge to our unitholders for disbursements of our
cash distributions. We will indemnify the transfer agent, its
agents and each of their respective stockholders, 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 such person or entity.
Resignation
or Removal
The transfer agent may resign, by notice to us, or be removed by
us. The resignation or removal of the transfer agent will become
effective upon our appointment of a successor transfer agent and
registrar and its acceptance of the appointment. If no successor
has been appointed and has accepted the appointment within
30 days after notice of the resignation or removal, our
general partner may act as the transfer agent and registrar
until a successor is appointed.
Transfer
of Common Units
By transfer of common units in accordance with our partnership
agreement, each transferee of common units shall be admitted as
a limited partner with respect to the common units transferred
when such transfer and admission are reflected in our books and
records. Each transferee:
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automatically agrees to be bound by the terms and conditions of,
and is deemed to have executed, our partnership agreement;
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represents that such transferee has the capacity, power and
authority to enter into the partnership agreement; and
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gives the consents, covenants, representations and approvals
contained in our partnership agreement, such as the approval of
all transactions and agreements we are entering into in
connection with this offering.
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Our general partner will cause any transfers to be recorded on
our books and records from time to time as necessary to
accurately reflect the transfers.
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We may, at our discretion, 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 become a substituted limited partner in
our partnership for the transferred common units.
Until common units have been transferred on our books, we and
the transfer agent may treat the record holder of such common
units as the absolute owner for all purposes, except as
otherwise required by law or stock exchange regulations.
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THE
PARTNERSHIP AGREEMENT
The following is a summary of the material provisions of our
partnership agreement. The form of our partnership agreement is
included in this prospectus as
Appendix A.
We will
provide prospective investors with a copy of this agreement upon
request at no charge.
We summarize the following provisions of our partnership
agreement elsewhere in this prospectus:
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with regard to certain actions taken prior to, or in connection
with, the closing of this offering, please read
Summary The Transactions;
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with regard to distributions of available cash, please read
How We Make Cash Distributions;
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with regard to the fiduciary duties of our general partner,
please read Conflicts of Interest and Fiduciary
Duties;
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with regard to the transfer of common units, please read
Description of the Common Units Transfer of
Common Units; and
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with regard to allocations of taxable income and taxable loss,
please read Material Federal Income Tax Consequences.
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Organization
and Duration
We were organized in August 2007 and have a perpetual existence.
Purpose
Our purpose under the partnership agreement is limited to any
business activities that are approved by our general partner and
in any event that lawfully may be conducted by a limited
partnership organized under Delaware law; provided that our
general partner may not cause us to engage, directly or
indirectly, in any business activity that our general partner
determines would cause us to be treated as an association
taxable as a corporation or otherwise taxable as an entity for
federal income tax purposes.
Although our general partner has the power to cause us, our
operating company and its subsidiaries to engage in activities
other than coal mining and marketing, our general partner may
decline to do so free of any fiduciary duty or obligation
whatsoever to us or the limited partners, including any duty to
act in good faith or in the best interests of us or the limited
partners. However, any decision by our general partner to cause
us or our subsidiaries to invest in activities will be subject
to its fiduciary duties as modified by our partnership
agreement. In general, our general partner is authorized to
perform all acts it determines to be necessary or appropriate to
carry out our purposes and to conduct our business.
Capital
Contributions
Unitholders are not obligated to make additional capital
contributions, except as described below under
Limited Liability.
Voting
Rights
The following matters require the limited partner vote specified
below. Various matters require the approval of a unit
majority, which means:
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during the subordination period, the approval of a majority of
the outstanding common units, excluding those common units held
by our general partner and its affiliates, and a majority of the
outstanding subordinated units, each voting as a separate class;
and
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after the subordination period, the approval of a majority of
the outstanding common units.
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By virtue of the exclusion of those common units held by our
general partner and its affiliates from the required vote, and
by their ownership of all of the subordinated units, during the
subordination period our
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general partner and its affiliates do not have the ability to
ensure passage of, but do have the ability to ensure defeat of,
any amendment that requires a unit majority.
In voting their common and subordinated units, our general
partner and its affiliates will have no fiduciary duty or
obligation whatsoever to us or our limited partners, including
any duty to act in good faith or in the best interests of us and
our limited partners.
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Issuance of additional units
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No approval rights.
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Amendment of our partnership agreement
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Certain amendments may be made by our general partner without
the approval of our limited partners. Other amendments generally
require the approval of a unit majority. Please read
Amendment of Our Partnership Agreement.
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Merger of our partnership or the sale of all or substantially
all of our assets
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Unit majority in certain circumstances. Please read
Merger, Sale or Other Disposition of
Assets.
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Continuation of our partnership upon dissolution
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Unit majority. Please read Termination and
Dissolution.
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Withdrawal of our general partner
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No approval rights. Please read Withdrawal or
Removal of Our General Partner.
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Removal of our general partner
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Not less than 80.0% of the outstanding common units and
subordinated units, voting as a single class, including common
units and subordinated units held by our general partner and its
affiliates. Please read Withdrawal or Removal
of Our General Partner.
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Transfer of our general partner interest
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After June 30, 2020, our general partner may transfer all
or any of its general partner interest in us without approval.
Prior to such date, the approval of a majority of the
outstanding common units, excluding common units held by our
general partner and its affiliates, is required for a transfer
of the general partner interest. Please read
Transfer of General Partner Interest.
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Transfer of incentive distribution rights
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No approval rights. Please read Transfer of
Incentive Distribution Rights.
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Transfer of ownership interests in our general partner
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No approval required at any time. Please read
Transfer of Ownership Interests in Our General
Partner.
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Limited
Liability
Assuming that a limited partner does not participate in the
control of our business within the meaning of the Delaware Act
and that it otherwise acts in conformity with the provisions of
our partnership agreement, its liability under the Delaware Act
will be limited, subject to possible exceptions, to the amount
of capital they are obligated to contribute to us for their
common units plus their share of any undistributed profits and
assets. If it were determined, however, that the right of, or
exercise of the right by, the limited partners as a group:
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to remove or replace our general partner;
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to approve some amendments to our partnership agreement; or
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to take other action under our partnership agreement;
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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 our general
partner. This liability would extend to persons who transact
business with us who reasonably believe that a limited partner
is a general partner. Neither our partnership agreement nor the
Delaware Act specifically provides for legal recourse against
our general partner if a limited partner were to lose limited
liability through any fault of our general partner. While this
does not mean that a limited partner could not seek legal
recourse, we know of no precedent for such 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, would 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, a substituted limited partner of a
limited partnership is liable for the obligations of its
assignor to make contributions to the partnership, except that
such person is not obligated for liabilities unknown to him at
the time he became a limited partner and that could not be
ascertained from the partnership agreement.
Our subsidiaries conduct business in Kentucky and Ohio. Our
subsidiaries may conduct business in other states in the future.
Maintenance of our limited liability as a member of our
operating company may require compliance with legal requirements
in the jurisdictions in which our operating company conducts
business, including qualifying our subsidiaries to do business
there.
Limitations on the liability of limited partners for the
obligations of a limited partnership have not been clearly
established in many jurisdictions. If, by virtue of our
membership interest in our operating company or otherwise, it
were determined that we were 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 our general partner, to approve some amendments to our
partnership agreement, or to take other action under our
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 the general partner under the
circumstances. We will operate in a manner that our general
partner considers reasonable and necessary or appropriate to
preserve the limited liability of the limited partners.
Issuance
of Additional Securities
Our partnership agreement authorizes us to issue an unlimited
number of additional partnership securities for the
consideration and on the terms and conditions determined by our
general partner without the approval of our limited partners.
It is possible that we will fund acquisitions through the
issuance of additional common units, subordinated units or other
partnership 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 common
units or other partnership securities 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 our
partnership agreement, we may also issue additional partnership
securities that, as determined by our general partner, may have
rights to distributions or special voting rights to which the
common units are not entitled. In addition, our partnership
agreement does not prohibit the issuance by our subsidiaries of
equity securities, which may effectively rank senior to the
common units.
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Our general partners 2.0% general partner interest is
subject to dilution. If we issue additional partnership
securities in the future, our general partner must either make
additional capital contributions to us to maintain its 2.0%
general partner interest or its interests will be effectively
diluted. Our general partner can choose to contribute capital by
foregoing its right to receive future distributions in an amount
equal to the capital to be contributed. Our general partner will
also have the option to make a capital contribution in order to
maintain its 2.0% general partner interest by contributing to us
common units with a current market value equal to the capital to
be contributed. In addition, our general partner will have the
right, which it may from time to time assign in whole or in part
to any of its affiliates, to purchase common units, subordinated
units or other partnership securities to the extent necessary to
maintain its and its affiliates limited partner percentage
interest in us, whenever, and on the same terms that, we issue
those securities to persons other than our general partner and
its affiliates. The holders of common units will not have
preemptive rights to acquire additional common units or other
partnership securities.
Amendment
of Our Partnership Agreement
General
Amendments to our partnership agreement may be proposed only by
our general partner. However, our general partner will have no
duty or obligation to propose any amendment and may decline to
do so free of any fiduciary duty or obligation whatsoever to us
or our limited partners, including any duty to act in good faith
or in the best interests of us or our limited partners. In order
to adopt a proposed amendment, other than the amendments
discussed below, our general partner must 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,
an amendment must be approved by a unit majority.
Prohibited
Amendments
No amendment may:
(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; or
(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 us to our
general partner or any of its affiliates without the consent of
our general partner, which may be given or withheld at its
option.
The provision of our partnership agreement preventing the
amendments having the effects described in clauses (1) and
(2) above can be amended upon the approval of the holders
of at least 90.0% of the outstanding units voting together as a
single class (including units owned by our general partner and
its affiliates). Upon the consummation of this offering,
affiliates of our general partner will own 57.1% of the
outstanding common and subordinated units as a single class (or
50.7% of the outstanding common and subordinated units as a
single class, if the underwriters exercise their option to
purchase additional common units in full).
No
Unitholder Approval
Our general partner may generally make amendments to the
partnership agreement without the approval of any limited
partner to reflect:
(1) a change in our name, the location of our principal
place of business, our registered agent or our registered office;
(2) the admission, substitution, withdrawal or removal of
partners in accordance with our partnership agreement;
(3) a change that our general partner determines to be
necessary or appropriate for us to qualify or to continue our
qualification 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 neither we, our operating company,
nor
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its subsidiaries will be treated as an association taxable as a
corporation or otherwise taxed as an entity for federal income
tax purposes;
(4) a change in our fiscal year or taxable year and related
changes;
(5) an amendment that is necessary, in the opinion of our
counsel, to prevent us or our 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 (ERISA), whether or not
substantially similar to plan asset regulations currently
applied or proposed;
(6) an amendment that our general partner determines to be
necessary or appropriate for the authorization of additional
partnership securities or rights to acquire partnership
securities;
(7) any amendment expressly permitted in our partnership
agreement to be made by our general partner acting alone;
(8) an amendment effected, necessitated, or contemplated by
a merger agreement that has been approved under the terms of our
partnership agreement;
(9) any amendment that our general partner determines to be
necessary or appropriate for the formation by us of, or our
investment in, any corporation, partnership, joint venture,
limited liability company or other entity, as otherwise
permitted by our partnership agreement;
(10) mergers with, conveyances to or conversions to another
limited liability entity that is newly formed and has no assets,
liabilities or operations at the time of the merger, conveyance
or conversion other than those it receives by way of the merger,
conveyance or conversion; or
(11) any other amendments substantially similar to any of
the matters described above.
In addition, our general partner may make amendments to the
partnership agreement without the approval of any limited
partner if our general partner determines that those amendments:
(1) do not adversely affect in any material respect the
limited partners considered as a whole or any particular class
of partnership interests as compared to other classes of
partnership interests;
(2) are necessary or appropriate 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 appropriate to facilitate the trading
of units or to comply with any rule, regulation, guideline, or
requirement of any securities exchange on which the units are or
will be listed for trading;
(4) are necessary or appropriate for any action taken by
our general partner relating to splits or combinations of units
under the provisions of our partnership agreement; or
(5) are required to effect the intent expressed in this
prospectus or the intent of the provisions of our partnership
agreement or are otherwise contemplated by our partnership
agreement.
Opinion
of Counsel and Limited Partner Approval
Our 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 our being treated
as an entity for federal income tax purposes in connection with
any of the amendments described above under No
Unitholder Approval. No other amendments to our
partnership agreement will become effective without the approval
of holders of at least 90.0% of the outstanding units voting as
a single class unless we first obtain an opinion of counsel to
the effect that the amendment will not affect the limited
liability under applicable law of any of our limited partners.
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In addition to the above restrictions, 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 must be approved by the affirmative vote of limited
partners whose aggregate outstanding units constitute not less
than the voting requirement sought to be reduced.
Merger,
Sale or Other Disposition of Assets
A merger or consolidation of us requires the prior consent of
our general partner. However, our general partner will have no
duty or obligation to consent to any merger or consolidation and
may decline to do so free of any fiduciary duty or obligation
whatsoever to us or the limited partners, including any duty to
act in good faith or in the best interest of us or our limited
partners.
In addition, our partnership agreement generally prohibits our
general partner, without the prior approval of the holders of a
unit majority, from causing us to, among other things, sell,
exchange, or otherwise dispose of all or substantially all of
our and our subsidiaries assets in a single transaction or
a series of related transactions, including by way of merger,
consolidation, other combination or sale of ownership interests
of our subsidiaries. Our general partner may, however, mortgage,
pledge, hypothecate, or grant a security interest in all or
substantially all of our and our subsidiaries assets
without that approval. Our general partner may also sell all or
substantially all of our and our subsidiaries assets under
a foreclosure or other realization upon those encumbrances
without that approval.
If the conditions specified in our partnership agreement are
satisfied, our general partner may convert us or any of our
subsidiaries into a new limited liability entity or merge us or
any of our subsidiaries into, or convey some or all of our
assets to, a newly formed entity if the sole purpose of that
merger or conveyance is to effect a mere change in our legal
form into another limited liability entity. The limited partners
are not entitled to dissenters rights of appraisal under
our partnership agreement or applicable Delaware law in the
event of a conversion, merger or consolidation, a sale of
substantially all of our assets, or any other transaction or
event.
Our general partner may consummate any merger or consolidation
without the approval of our limited partners if we are the
surviving entity in the transaction, the transaction would not
result in an amendment to our partnership agreement that the
general partner could not adopt unilaterally, each of our units
will be an identical unit of our partnership following the
transaction, the units to be issued do not exceed 20.0% of our
outstanding units immediately prior to the transaction and our
general partner has received an opinion of counsel regarding
certain limited liability and tax matters.
Termination
and Dissolution
We will continue as a limited partnership until terminated under
our partnership agreement. We will dissolve upon:
(1) the withdrawal or removal of our general partner or any
other event that results in its ceasing to be our general
partner other than by reason of a transfer of its general
partner interest in accordance with our partnership agreement or
withdrawal or removal following approval and admission of a
successor general partner;
(2) the election of our general partner to dissolve us, if
approved by the holders of a unit majority;
(3) the entry of a decree of judicial dissolution of our
partnership; or
(4) at any time there are no limited partners, unless the
partnership is continued without dissolution in accordance with
the Delaware Act.
Upon a dissolution under clause (1), the holders of a unit
majority may also elect, within specific time limitations, to
continue our business on the same terms and conditions described
in our partnership agreement
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and appoint as a successor general partner an entity approved by
the holders of a unit majority, subject to our receipt of an
opinion of counsel to the effect that:
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the action would not result in the loss of limited liability of
any limited partner; and
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neither our partnership nor any of our 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 (to the extent not already so
treated or taxed).
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Liquidation
and Distribution of Proceeds
Upon our dissolution, unless we are continued as a limited
partnership, the liquidator authorized to wind up our affairs
will, acting with all of the powers of our general partner that
are necessary or appropriate, liquidate our assets and apply the
proceeds of the liquidation as described in How We Make
Cash Distributions 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 our
partners.
Withdrawal
or Removal of Our General Partner
Except as described below, our general partner has agreed not to
withdraw voluntarily as our general partner prior to
June 30, 2020 without obtaining the approval of the holders
of at least a majority of the outstanding common units,
excluding common units held by the general partner and its
affiliates, and furnishing an opinion of counsel regarding
limited liability and tax matters. On or after June 30,
2020, our general partner may withdraw as general partner
without first obtaining approval of any unitholder by giving at
least 90 days advance notice, and that withdrawal
will not constitute a violation of our partnership agreement. In
addition, our partnership agreement permits our general partner
in some instances to sell or otherwise transfer all of its
general partner interest and incentive distribution rights in us
without the approval of the limited partners. Please read
Transfer of General Partner Interest and
Transfer of Incentive Distribution
Rights.
Upon a voluntary withdrawal of our general partner after giving
written notice to all partners, a unit majority may select a
successor to that withdrawing 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, we will be
dissolved, wound up, and liquidated, unless within a specified
period of time after that withdrawal, the holders of a unit
majority agree in writing to continue our business and to
appoint a successor general partner. Please read
Termination and Dissolution.
Our general partner may not be removed unless that removal is
approved by the vote of the holders of not less than 80.0% of
all outstanding units, voting together as a single class,
including units held by our general partner and its affiliates,
and we receive an opinion of counsel regarding limited liability
and tax matters. Any removal of our general partner is also
subject to the approval of a successor 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 more than 20.0% of the outstanding units by our
general partner and its affiliates would give them the practical
ability to prevent our general partners removal. At the
closing of this offering, affiliates of our general partner will
own 57.1% of the outstanding units (or 50.7% of the outstanding
units, if the underwriters exercise their option to purchase
additional common units in full).
Our partnership agreement also provides that if our general
partner is removed as our general partner without cause and no
units held by our general partner and its affiliates are voted
in favor of that removal:
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the subordination period will end and all outstanding
subordinated units will immediately convert into common units on
a
one-for-one
basis;
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any existing arrearages in payment of the minimum quarterly
distribution on the common units will be extinguished; and
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our 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
based on the fair market value of the interests at the time.
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In the event of removal of our general partner under
circumstances where cause exists or withdrawal of our general
partner where that withdrawal violates our partnership
agreement, a successor general partner will have the option to
purchase the general partner interest 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 our 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 interest of the departing general partner
and its incentive distribution rights for their 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 option described above is not exercised by either the
departing general partner or the successor general partner, the
departing general partners 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, we will be required to reimburse the departing
general partner for all amounts due to it, including, without
limitation, all employee-related liabilities, including
severance liabilities, incurred for the termination of any
employees employed by the departing general partner or its
affiliates for our benefit.
Transfer
of General Partner Interest
Prior to June 30, 2020, our general partner may not
transfer all or any part of its general partner interests in us
to another person. After June 30, 2020, our general partner
may transfer all or any part of its general partner interest in
us to another person without the approval of the unitholders. As
a condition of this transfer, the transferee must, among other
things, assume the rights and duties of our general partner,
agree to be bound by the provisions of our partnership
agreement, and furnish an opinion of counsel regarding limited
liability and tax matters.
Our general partner and its affiliates may at any time transfer
units to one or more persons, without unitholder approval,
except that they may not transfer subordinated units to us.
Transfer
of Ownership Interests in Our General Partner
At any time, the owners of our general partner may sell or
transfer all or part of their ownership interests in our general
partner to an affiliate or a third party without the approval of
our unitholders.
Transfer
of Incentive Distribution Rights
Our general partner or any other holder of incentive
distribution rights may transfer any or all of its incentive
distribution rights without unitholder approval.
Change of
Management Provisions
Our partnership agreement contains specific provisions that are
intended to discourage a person or group from attempting to
remove our general partner or otherwise change our management.
If any person or group other than our general partner and its
affiliates acquires beneficial ownership of 20.0% 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 partner
or its affiliates and any transferees of that
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person or group approved by our general partner or to any person
or group who acquires the units with the prior approval of the
board of directors of our general partner.
If our general partner is removed without cause and no units
held by our general partner and its affiliates are voted in
favor of that removal, our partnership agreement provides that,
among other things, (i) all outstanding subordinated units
will immediately convert into common units, (ii) any
existing arrearages in payment of the minimum quarterly
distribution on the common units will be extinguished and
(iii) our general partner will have the right to convert
its general partner interest and incentive distribution rights
into common units or receive cash in exchange for those
interests. Please read Withdrawal or Removal
of Our General Partner.
Limited
Call Right
If at any time our general partner and its affiliates own more
than 80.0% of the outstanding limited partner interests of any
class, our general partner will have the right, which it may
assign in whole or in part to any of its affiliates or to us, 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 our 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:
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the highest cash price paid by either of our general partner or
any of its affiliates for any partnership securities of the
class purchased within the 90 days preceding the date on
which our general partner first mails notice of its election to
purchase those partnership securities; and
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the current market price as of the date three days before the
date the notice is mailed.
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As a result of our general partners 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.
Please read Material Federal Income Tax
Consequences Disposition of Common Units.
Meetings;
Voting
Except as described below regarding a person or group owning
20.0% or more of any class of units then outstanding,
unitholders who are record holders of units on the record date
will be entitled to notice of, and to vote at, meetings of our
limited partners and to act upon matters for which approvals may
be solicited.
Our 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 necessary to
authorize or take that action at a meeting. Meetings of the
unitholders may be called by our general partner or by
unitholders owning at least 20.0% 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, will 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 will be the greater
percentage. The units representing the general partner interest
are units for distribution and allocation purposes, but do not
entitle our general partner to any vote other than its rights as
general partner under our partnership agreement, will not be
entitled to vote on any action required or permitted to be taken
by the unitholders and will not count toward or be considered
outstanding when calculating required votes, determining the
presence of a quorum, or for similar purposes.
Each record holder of a unit has a vote according to its
percentage interest in us, although additional limited partner
interests having special voting rights could be issued. Please
read Issuance of Additional Securities.
However, if at any time any person or group, other than our
general partner and its affiliates, or a direct or subsequently
approved transferee of our general partner or its affiliates,
acquires, in the aggregate, beneficial ownership of 20.0% or
more of any class of units then outstanding, that person or
group will lose
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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 its nominee
provides otherwise. Except as our partnership agreement
otherwise provides, 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 our partnership agreement will be delivered to the
record holder by us or by the transfer agent.
Status as
Limited Partner
By transfer of common units in accordance with our partnership
agreement, each transferee of common units will be admitted as a
limited partner with respect to the common units transferred
when such transfer and admission are reflected in our books and
records. Except as described above under
Limited Liability, the common units will
be fully paid, and unitholders will not be required to make
additional contributions.
Non-Citizen
Assignees; Redemption
If we are or become subject to federal, state, or local laws or
regulations that, in the determination of our general partner,
create a substantial risk of cancellation or forfeiture of any
property in which we have an interest in because of the
nationality, citizenship or other related status of any limited
partner, our general partner may require each limited partner to
furnish information about his nationality, citizenship or
related status. If a limited partner fails to furnish
information about his nationality, citizenship or other related
status within 30 days after a request for the information
or our general partner determines after receipt of the
information that the limited partner is not an eligible citizen,
the limited partner may be treated as a non-citizen assignee. 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.
Furthermore, we have the right to redeem all of the common and
subordinated units of any holder that our general partner
concludes is not an eligible citizen or fails to furnish the
information requested by our general partner. The redemption
price in the event of such redemption for each unit held by such
unitholder will be the lesser of (i) their current market
price and (ii) the price paid for each such unit by the
unitholder. The redemption price will be paid in cash or by
delivery of a promissory note, as determined by our general
partner. Any such promissory note will bear interest at the rate
of 5% annually and be payable in three equal annual installments
of principal and accrued interest, commencing one year after the
redemption date.
Indemnification
Under our partnership agreement, we will indemnify the following
persons in most circumstances, to the fullest extent permitted
by law, from and against all losses, claims, damages, or similar
events:
(1) our general partner;
(2) any departing general partner;
(3) any person who is or was an affiliate of our general
partner or any departing general partner;
(4) any person who is or was an officer, director, member,
partner, fiduciary or trustee of any entity described in (1),
(2) or (3) above or any of their subsidiaries;
(5) any person who is or was serving as a director,
officer, member, partner, fiduciary or trustee of another person
at the request of our general partner or any departing general
partner or any of their affiliates; and
(6) any person designated by our general partner.
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Any indemnification under these provisions will only be out of
our assets. Unless it otherwise agrees, our general partner will
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 may 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 our
partnership agreement.
Reimbursement
of Expenses
Our partnership agreement requires us to reimburse our general
partner for all direct and indirect expenses it incurs or
payments it makes on our behalf and all other expenses allocable
to us or otherwise incurred by our general partner in connection
with operating our business. These expenses include salary,
bonus, incentive compensation and other amounts paid to persons
who perform services for us or on our behalf and expenses
allocated to our general partner by its affiliates. Our general
partner is entitled to determine in good faith the expenses that
are allocable to us.
Books and
Reports
Our 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 fiscal and tax reporting purposes, we use the
calendar year.
We will furnish or make available (by posting on our website or
other reasonable means) 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 its federal and
state tax liability and filing its federal and state income tax
returns, regardless of whether he supplies us with information.
Right to
Inspect Our Books and Records
Our partnership agreement provides that a limited partner can,
for a purpose reasonably related to its interest as a limited
partner, upon reasonable demand and at its own expense, have
furnished to him:
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a current list of the name and last known address of each
partner;
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a copy of our tax returns;
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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;
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copies of our partnership agreement, the certificate of limited
partnership of the partnership, related amendments, and powers
of attorney under which they have been executed;
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information regarding the status of our business and financial
condition; and
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any other information regarding our affairs as is just and
reasonable.
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Our general partner may, and intends to, keep confidential from
the limited partners trade secrets or other information the
disclosure of which our general partner believes in good faith
is not in our best interests or that we are required by law or
by agreements with third parties to keep confidential.
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Registration
Rights
Under our 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 our general partner or any of
its 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 Oxford Resources GP as our general
partner. We are obligated to pay all expenses incidental to the
registration, excluding underwriting discounts and commissions.
Please read Units Eligible for Future Sale. C&T
Coal, Charles C. Ungurean and Thomas T. Ungurean have no
registration rights under our partnership agreement; however,
they have registration rights pursuant to the investors
rights agreement described in Certain Relationships and
Related Party Transactions Investors Rights
Agreement.
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UNITS
ELIGIBLE FOR FUTURE SALE
After the sale of the common units offered by this prospectus,
C&T Coal and AIM Oxford will hold an aggregate of 473,454
and 930,349 common units and 3,467,220 and 6,813,160
subordinated units, respectively (or 30,793 and 60,510 common
units and 3,467,220 and 6,813,160 subordinated units if the
underwriters exercise their option to purchase additional units
in full). All of the subordinated units will convert into common
units at the end of the subordination period. The sale of these
common and subordinated 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 this offering will generally be freely
transferable without restriction or further registration under
the Securities Act, except that any common units held by an
affiliate of ours 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:
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1% of the total number of the securities outstanding; or
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the average weekly reported trading volume of the common units
for the four weeks prior to the sale.
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Sales under Rule 144 are also subject to specific manner of
sale provisions, holding period requirements, notice
requirements and the availability of current public information
about us. A person who is not deemed to have been an affiliate
of ours at any time during the three months preceding a sale,
and who has beneficially owned his common units for at least six
months (provided we are in compliance with the current public
information requirement) or one year (regardless of whether we
are in compliance with the current public information
requirement), would be entitled to sell common units under
Rule 144 without regard to the rules public
information requirements, volume limitations, manner of sale
provisions and notice requirements.
Our partnership agreement provides that we may issue an
unlimited number of limited partner interests of any type
without a vote of the unitholders 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 us represented by, and could adversely affect the
cash distributions to and market price of, common units then
outstanding. Please read The Partnership
Agreement Issuance of Additional Securities.
Under our partnership agreement, our general partner and its
affiliates, excluding any individual who is an affiliate of our
general partner, have the right to cause us to register under
the Securities Act and applicable state securities laws the
offer and sale of any common units that they hold. Subject to
the terms and conditions of the partnership agreement, these
registration rights allow our general partner and its affiliates
or their assignees holding any common units to require
registration of any of these common units and to include any of
these common units in a registration by us of other common
units, including common units offered by us or by any
unitholder. Our general partner and its affiliates will continue
to have these registration rights for two years following the
withdrawal or removal of our general partner. In connection with
any registration of this kind, we 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 applicable state securities laws
arising from the registration statement or prospectus. We will
bear all costs and expenses incidental to any registration,
excluding any underwriting discounts and commissions. Except as
described below, our general partner and its affiliates may sell
their common units in private transactions at any time, subject
to compliance with applicable laws. C&T Coal, Charles C.
Ungurean and Thomas T. Ungurean do not have registration rights
under our partnership agreement; however, they have registration
rights pursuant to the investors rights agreement
described under Certain Relationships and Related Party
Transactions Investors Rights Agreement.
C&T Coal, AIM Oxford, our general partner and the executive
officers and directors of our general partner have agreed not to
sell any common units they beneficially own for a period of
180 days from the date of this prospectus. Please read
Underwriting for a description of these
lock-up
provisions.
187
MATERIAL
FEDERAL INCOME TAX CONSEQUENCES
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 U.S. and, unless
otherwise noted in the following discussion, is the opinion of
Latham & Watkins LLP, counsel to our general partner
and us, insofar as it relates to legal conclusions with respect
to matters of U.S. federal income tax law. This section is
based upon current provisions of the Internal Revenue Code of
1986, as amended (the Internal Revenue Code),
existing and proposed Treasury regulations promulgated under the
Internal Revenue Code (the Treasury 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 or
we are references to Oxford Resource Partners, LP
and our operating subsidiaries.
The following discussion does not comment on all federal income
tax matters affecting us or our unitholders. Moreover, the
discussion focuses on unitholders who are individual citizens or
residents of the U.S. and has only limited application to
corporations, estates, trusts, nonresident aliens or other
unitholders subject to specialized tax treatment, such as
tax-exempt institutions, foreign persons, IRAs, real estate
investment trusts (REITs) or mutual funds. In addition, the
discussion only comments, to a limited extent, on state, local,
and foreign tax consequences. Accordingly, we encourage each
prospective unitholder to consult, and depend on, his own tax
advisor in analyzing the federal, state, local and foreign tax
consequences particular to him of the ownership or disposition
of common units.
No ruling has been or will be requested from the IRS regarding
any matter affecting us or prospective unitholders. Instead, we
will rely on opinions of Latham & Watkins LLP. Unlike
a ruling, an opinion of counsel represents only that
counsels best legal judgment and does not bind the IRS or
the courts. Accordingly, the opinions and statements made herein
may not 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, principally legal, accounting and related fees, will
result in a reduction in cash available for distribution to our
unitholders and our general partner and thus will be borne
indirectly by our unitholders and our general partner.
Furthermore, the tax treatment of us, or of an investment in us,
may be significantly modified by future legislative or
administrative changes or court decisions. Any modifications may
or may not be retroactively applied.
All statements as to matters of federal income tax law and legal
conclusions with respect thereto, but not as to factual matters,
contained in this section, unless otherwise noted, are the
opinion of Latham & Watkins LLP and are based on the
accuracy of the representations made by us.
For the reasons described below, Latham & Watkins LLP
has not rendered an opinion with respect to the following
specific federal income tax issues: (i) the treatment of a
unitholder whose common units are loaned to a short seller to
cover a short sale of common units (please read
Tax Consequences of Unit Ownership
Treatment of Short Sales); (ii) whether our monthly
convention for allocating taxable income and losses is permitted
by existing Treasury Regulations (please read
Disposition of Common Units
Allocations Between Transferors and Transferees); and
(iii) whether our method for depreciating Section 743
adjustments is sustainable in certain cases (please read
Tax Consequences of Unit Ownership
Section 754 Election and Uniformity
of Units).
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 share of items of income,
gain, loss and deduction of the partnership in computing his
federal income tax liability, regardless of whether cash
distributions are made to him by the partnership. Distributions
by a partnership to a partner are generally not taxable to the
partnership or the partner unless the amount of cash distributed
to him is in excess of the partners adjusted basis in his
partnership interest.
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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 for every taxable year consists of qualifying
income. Qualifying income includes income and gains
derived from the mining, production, transportation, storage and
marketing of coal and certain other natural resources. Other
types of qualifying income include interest (other than from 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 gross 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 our general partner and a
review of the applicable legal authorities, Latham &
Watkins LLP is of the opinion that at least 90% of our current
gross income constitutes qualifying income. The portion of our
income that is qualifying income may change from time to time.
No ruling has been or will be sought from the IRS and the IRS
has made no determination as to our status or the status of our
operating subsidiaries for federal income tax purposes or
whether our operations generate qualifying income
under Section 7704 of the Internal Revenue Code. Instead,
we will rely on the opinion of Latham & Watkins LLP on
such matters. It is the opinion of Latham & Watkins
LLP that, based upon the Internal Revenue Code, its regulations,
published revenue rulings and court decisions and the
representations described below that:
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We will be classified as a partnership for federal income tax
purposes; and
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Each of our operating subsidiaries will be disregarded as an
entity separate from us or will be treated as a partnership for
federal income tax purposes.
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In rendering its opinion, Latham & Watkins LLP has
relied on factual representations made by us and our general
partner. The representations made by us and our general partner
upon which Latham & Watkins LLP has relied are:
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Neither we nor the operating subsidiaries has elected or will
elect to be treated as a corporation; and
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For each taxable year, more than 90% of our gross income has
been and will be income of the type that Latham &
Watkins LLP has opined or will opine is qualifying
income within the meaning of Section 7704(d) of the
Internal Revenue Code; and
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We believe that these representations have been true in the past
and expect that these representations will continue to be true
in the future.
If we fail to meet the Qualifying Income Exception, other than a
failure that is determined by the IRS to be inadvertent and that
is cured within a reasonable time after discovery (in which case
the IRS may also require us to make adjustments with respect to
our unitholders or pay other amounts), 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 unitholders in liquidation of their interests in us. This
deemed contribution and liquidation should be tax-free to
unitholders and us 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 we were taxed as a corporation in any taxable year, either as
a result of a failure to meet the Qualifying Income Exception or
otherwise, our items of income, gain, loss and deduction would
be reflected only on our tax return rather than being passed
through to our unitholders, and our net income would be taxed to
us at corporate rates. In addition, any distribution made to a
unitholder would be treated as taxable dividend income, to the
extent of our current and accumulated earnings and profits, or,
in the absence of earnings and profits, a nontaxable return of
capital, to the extent of the unitholders tax basis in his
common units, or taxable capital gain, after the
unitholders tax basis in his common units is reduced to
zero. Accordingly, taxation as a corporation would result in a
material reduction in a unitholders cash flow and
after-tax return and thus would likely result in a substantial
reduction of the value of the units.
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The discussion below is based on Latham & Watkins
LLPs opinion that we will be classified as a partnership
for federal income tax purposes.
Limited
Partner Status
Unitholders of Oxford Resource Partners, LP will be treated as
partners of Oxford Resource Partners, LP for federal income tax
purposes. Also, 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 Oxford Resource Partners, LP for federal income tax purposes.
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 status as a partner with respect to those
units for federal income tax purposes. Please read
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 appear to be fully taxable as ordinary income.
These holders are urged to consult their own tax advisors with
respect to their tax consequences of holding common units in
Oxford Resource Partners, LP. The references to
unitholders in the discussion that follows are to
persons who are treated as partners in Oxford Resource Partners,
LP for federal income tax purposes.
Tax
Consequences of Unit Ownership
Flow-Through of Taxable Income.
Subject to the
discussion below under
Entity-Level Collections, we will
not pay any federal income tax. Instead, each unitholder will be
required to report on his income tax return his share of our
income, gains, losses and deductions without regard to whether
we make cash distributions to him. Consequently, we may allocate
income to a unitholder even if he has not received a cash
distribution. Each unitholder will be required to include in
income his allocable share of our income, gains, losses and
deductions for our taxable year ending with or within his
taxable year. Our taxable year ends on December 31.
Treatment of Distributions.
Distributions by
us to a unitholder generally will not be taxable to the
unitholder for federal income tax purposes, except to the extent
the amount of any such cash distribution exceeds his tax basis
in his common units immediately before the distribution. Our
cash distributions in excess of a unitholders 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 unitholders share of
our liabilities for which no partner, including the general
partner, bears the economic risk of loss, known as
nonrecourse liabilities, will be treated as a
distribution by us of cash to that unitholder. To the extent our
distributions cause a unitholders at-risk
amount to be less than zero at the end of any taxable year, he
must recapture any losses deducted in previous years. Please
read Limitations on Deductibility of
Losses.
A decrease in a unitholders percentage interest in us
because of our issuance of additional common units will decrease
his share of our nonrecourse liabilities, and thus will result
in a corresponding deemed distribution of cash. This deemed
distribution may constitute a non-pro rata distribution. A
non-pro rata distribution of money or property may result in
ordinary income to a unitholder, regardless of his tax basis in
his common units, if the distribution reduces the
unitholders share of our unrealized
receivables, including depreciation recapture, depletion
recapture
and/or
substantially appreciated inventory items, each as
defined in the Internal Revenue Code, and collectively,
Section 751 Assets. To that extent, the
unitholder will be treated as having been distributed his
proportionate share of the Section 751 Assets and then
having exchanged those assets with us in return for the non-pro
rata portion of the actual distribution made to him. This latter
deemed exchange will generally result in the unitholders
realization of ordinary income, which will equal the excess of
(i) the non-pro rata portion of that distribution over
(ii) the unitholders tax basis (generally zero) for
the share of Section 751 Assets deemed relinquished in the
exchange.
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Ratio of Taxable Income to Distributions.
We
estimate that a purchaser of common units in this offering who
owns those common units from the date of closing of this
offering through the record date for distributions for the
period ending December 31, 2013, will be allocated, on a
cumulative basis, an amount of federal taxable income for that
period that will be % or less of
the cash distributed with respect to that period. Thereafter, we
anticipate that the ratio of allocable taxable income 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, net working capital
and anticipated cash distributions. These estimates and
assumptions are subject to, among other things, numerous
business, economic, regulatory, legislative, competitive and
political uncertainties beyond our control. Further, the
estimates are based on current tax law and tax reporting
positions that we will 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
than expected, and any differences could be material and could
materially affect the value of the common units. For example,
the ratio of allocable taxable income to cash distributions to a
purchaser of common units in this offering will be greater, and
perhaps substantially greater, than our estimate with respect to
the period described above if:
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gross income from operations exceeds the amount required to make
minimum quarterly distributions on all units, yet we only
distribute the minimum quarterly distributions on all units; or
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we make a future offering of common units and use the proceeds
of the offering in a manner that does not produce substantial
additional deductions during the period described above, such as
to repay indebtedness outstanding at the time of this offering
or to acquire property that is not eligible for depreciation or
amortization for federal income tax purposes or that is
depreciable or amortizable at a rate significantly slower than
the rate applicable to our assets at the time of this offering.
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Basis of Common Units.
A unitholders
initial tax basis for his common units will be the amount he
paid for the common units plus his share of our nonrecourse
liabilities. That basis will be increased by his share of our
income and by any increases in his share of our nonrecourse
liabilities. That basis will be decreased, but not below zero,
by distributions from us, by the unitholders share of our
losses, by any decreases in his share of our nonrecourse
liabilities and by his share of our expenditures that are not
deductible in computing taxable income and are not required to
be capitalized. A unitholder will have no share of our debt that
is recourse to our general partner, but will have a share,
generally based on his share of profits, of our nonrecourse
liabilities. Please read Disposition of Common
Units Recognition of Gain or Loss.
Limitations on Deductibility of Losses.
The
deduction by a unitholder of his share of our losses will be
limited to the tax basis in his units and, in the case of an
individual unitholder, estate, trust, or corporate unitholder
(if more than 50% of the value of the corporate
unitholders stock is owned directly or indirectly by or
for 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 tax basis. A common unitholder subject to these
limitations must recapture losses deducted in previous years to
the extent that distributions cause his 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 as a deduction to the
extent that his at-risk amount is subsequently increased,
provided such losses do not exceed such common unitholders
tax basis in his common units. 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 loss previously suspended by the at-risk
limitation in excess of that gain would no longer be utilizable.
In general, a unitholder will be at risk to the extent of the
tax basis of his units, excluding any portion of that basis
attributable to his share of our nonrecourse liabilities,
reduced by (i) any portion of that basis representing
amounts otherwise protected against loss because of a guarantee,
stop loss agreement or other similar arrangement and
(ii) any amount of money he borrows to acquire or hold his
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
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repayment. A unitholders at-risk amount will increase or
decrease as the tax basis of the unitholders units
increases or decreases, other than tax basis increases or
decreases attributable to increases or decreases in his share of
our nonrecourse liabilities.
In addition to the basis and at-risk limitations on the
deductibility of losses, 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 trade or business
activities in which the taxpayer does not materially
participate, only to the extent of the taxpayers 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 our investments or
a unitholders investments in other publicly traded
partnerships, or salary or active business income. Passive
losses that are not deductible because they exceed a
unitholders share of income we generate may be deducted in
full when he disposes of his entire investment in us in a fully
taxable transaction with an unrelated party. The passive loss
limitations are applied after other applicable limitations on
deductions, including the at-risk rules and the basis limitation.
A unitholders share of our net income may be offset by any
of our 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.
Limitations on Interest Deductions.
The
deductibility of a non-corporate taxpayers
investment interest expense is generally limited to
the amount of that taxpayers net investment
income. Investment interest expense includes:
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interest on indebtedness properly allocable to property held for
investment;
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our interest expense attributed to portfolio income; and
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the portion of interest expense incurred to purchase or carry an
interest in a passive activity to the extent attributable to
portfolio income.
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The computation of a unitholders 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 or qualified
dividend income. The IRS has indicated that the net passive
income earned by a publicly traded partnership will be treated
as investment income to its unitholders. In addition, the
unitholders share of our portfolio income will be treated
as investment income.
Entity-Level Collections.
If we are
required or elect under applicable law to pay any federal,
state, local or foreign income tax on behalf of any unitholder
or our general partner 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
unitholder 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 our 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 our 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 unitholder in which event the
unitholder would be required to file a claim in order to obtain
a 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 our general partner and the unitholders in accordance with
their percentage interests in us. At any time that distributions
are made to the common units in excess of distributions to the
subordinated units, or incentive distributions are made to our
general partner,
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gross income will be allocated to the recipients to the extent
of these distributions. If we have a net loss, that loss will be
allocated first to our general partner and the unitholders in
accordance with their percentage interests in us to the extent
of their positive capital accounts and, second, to our general
partner.
Specified items of our income, gain, loss and deduction will be
allocated to account for (i) any difference between the tax
basis and fair market value of our assets at the time of an
offering and (ii) any difference between the tax basis and
fair market value of any property contributed to us by the
general partner and its affiliates that exists at the time of
such contribution, together, referred to in this discussion as
the Contributed Property. The effect of these
allocations, referred to as Section 704(c) Allocations, to
a unitholder purchasing common units from us in this offering
will be essentially the same as if the tax bases of our assets
were equal to their fair market values at the time of this
offering. In the event we issue additional common units or
engage in certain other transactions in the future,
reverse Section 704(c) Allocations, similar to
the Section 704(c) Allocations described above, will be
made to the general partner and all of our unitholders
immediately prior to such issuance or other transactions to
account for the difference between the book basis
for purposes of maintaining capital accounts and the fair market
value of all property held by us at the time of such issuance or
future transaction. In addition, items of recapture income will
be allocated to the extent possible to the unitholder 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.
An allocation of items of our income, gain, loss or deduction,
other than an allocation required by the Internal Revenue Code
to eliminate the difference between a partners
book capital account, credited with the fair market
value of Contributed Property, and tax capital
account, credited with the tax basis of Contributed Property,
referred to in this discussion as the Book-Tax
Disparity, will generally be given effect for federal
income tax purposes in determining a partners share of an
item of income, gain, loss or deduction only if the allocation
has substantial economic effect. In any other case,
a partners share of an item will be determined on the
basis of his interest in us, which will be determined by taking
into account all the facts and circumstances, including:
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his relative contributions to us;
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the interests of all the partners in profits and losses;
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the interest of all the partners in cash flow; and
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the rights of all the partners to distributions of capital upon
liquidation.
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Latham & Watkins LLP is of the opinion that, with the
exception of the issues described in
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 partners
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 those
units. If so, he would no longer be treated for tax purposes as
a partner with respect to those units during the period of the
loan and may recognize gain or loss from the disposition. As a
result, during this period:
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any of our income, gain, loss or deduction with respect to those
units would not be reportable by the unitholder;
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any cash distributions received by the unitholder as to those
units would be fully taxable; and
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all of these distributions would appear to be ordinary income.
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Because there is no direct or indirect controlling authority on
the issue relating to partnership interests, Latham &
Watkins LLP has not rendered an opinion regarding the tax
treatment of a unitholder whose common units are loaned to a
short seller to cover a short sale of common units; therefore,
unitholders
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desiring to assure their status as partners and avoid the risk
of gain recognition from a loan to a short seller are urged to
modify any applicable brokerage account agreements to prohibit
their brokers from borrowing and loaning their units. The IRS
has previously announced that it is studying issues relating to
the tax treatment of short sales of partnership interests.
Please also read Disposition of Common
Units Recognition of Gain or Loss.
Alternative Minimum Tax.
Each unitholder will
be required to take into account his distributive share of any
items of our income, gain, loss or deduction for purposes of the
alternative minimum tax. The current 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 are urged to consult with their
tax advisors as to the impact of an investment in units on their
liability for the alternative minimum tax.
Tax Rates.
Under current law, the highest
marginal U.S. federal income tax rate applicable to
ordinary income of individuals is 35% and the highest marginal
U.S. federal income tax rate applicable to long-term
capital gains (generally, capital gains on certain assets held
for more than twelve months) of individuals is 15%. However,
absent new legislation extending the current rates, beginning
January 1, 2011, the highest marginal U.S. federal
income tax rate applicable to ordinary income and long-term
capital gains of individuals will increase to 39.6% and 20%,
respectively. Moreover, these rates are subject to change by new
legislation at any time.
The recently enacted Patient Protection and Affordable Care Act
of 2010, as amended by the Health Care and Education
Reconciliation Act of 2010 is scheduled to impose a 3.8%
Medicare tax on certain net investment income earned by
individuals, estates and trusts for taxable years beginning
after December 31, 2012. For these purposes, net investment
income generally includes a unitholders allocable share of
our income and gain realized by a unitholder from a sale of
units. In the case of an individual, the tax will be imposed on
the lesser of (i) the unitholders net investment
income or (ii) the amount by which the unitholders
modified adjusted gross income exceeds $250,000 (if the
unitholder is married and filing jointly or a surviving spouse),
$125,000 (if the unitholder is married and filing separately) or
$200,000 (in any other case). In the case of an estate or trust,
the tax will be imposed on the lesser of (i) undistributed
net investment income, or (ii) the excess adjusted gross
income over the dollar amount at which the highest income tax
bracket applicable to an estate or trust begins.
Section 754 Election.
We will make the
election permitted by Section 754 of the Internal Revenue
Code. That election is irrevocable without the consent of the
IRS unless there is a constructive termination of the
partnership. Please read Disposition of Common
Units Constructive Termination. The election
will generally permit us to adjust a common unit
purchasers tax basis in our assets (inside
basis) under Section 743(b) of the Internal Revenue
Code to reflect his purchase price. This election does not apply
with respect to a person who purchases common units directly
from us. The Section 743(b) adjustment belongs to the
purchaser and not to other unitholders. For purposes of this
discussion, the inside basis in our assets with respect to a
unitholder will be considered to have two components:
(i) his share of our tax basis in our assets (common
basis) and (ii) his Section 743(b) adjustment to
that basis.
We will adopt the remedial allocation method as to all our
properties. Where the remedial allocation method is adopted, the
Treasury Regulations under Section 743 of the Internal
Revenue Code require a portion of the Section 743(b)
adjustment that is attributable to recovery property that is
subject to depreciation under Section 168 of the Internal
Revenue Code and whose book basis is in excess of its tax basis
to be depreciated over the remaining cost recovery period for
the propertys unamortized Book-Tax Disparity. 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. Under our partnership agreement, our general partner is
authorized to take a position to preserve the uniformity of
units even if that position is not consistent with these and any
other Treasury Regulations. Please read
Uniformity of Units.
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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 propertys unamortized Book-Tax
Disparity, or treat that portion as
non-amortizable
to the extent attributable to property which is not amortizable.
This method is consistent with the methods employed by other
publicly traded partnerships but is arguably inconsistent with
Treasury Regulation Section
1.167(c)-1(a)(6),
which is not 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 take a depreciation or amortization position under which
all purchasers acquiring units in the same month would receive
depreciation or amortization, whether attributable to common
basis or a 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. Please read
Uniformity of Units. A unitholders
tax basis for his common units is reduced by his share of our
deductions (whether or not such deductions were claimed on an
individuals income tax return) so that any position we
take that understates deductions will overstate the common
unitholders basis in his common units, which may cause the
unitholder to understate gain or overstate loss on any sale of
such units. Please read Disposition of Common
Units Recognition of Gain or Loss.
Latham & Watkins LLP is unable to opine as to whether
our method for depreciating Section 743 adjustments is
sustainable for property subject to depreciation under
Section 167 of the Internal Revenue Code or if we use an
aggregate approach as described above, as there is no direct or
indirect controlling authority addressing the validity of these
positions. Moreover, the IRS may challenge our position with
respect to depreciating or amortizing the Section 743(b)
adjustment we take to preserve the uniformity of the units. If
such a challenge were sustained, the gain from the sale of units
might be increased without the benefit of additional deductions.
A Section 754 election is advantageous if the
transferees tax basis in his 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, among other items, a
greater amount of depreciation and depletion deductions and his
share of any gain or loss on a sale of our assets would be less.
Conversely, a Section 754 election is disadvantageous if
the transferees tax basis in his 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 unfavorably by
the election. A basis adjustment is required regardless of
whether a Section 754 election is made in the case of a
transfer of an interest in us if we have a substantial
built in loss immediately after the transfer, or if
we distribute property and have a substantial basis reduction.
Generally a built in loss or a basis reduction is
substantial if it exceeds $250,000.
The calculations involved in the Section 754 election are
complex and will be made on the basis of assumptions as to the
value of our assets and other matters. For example, 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 allocated by us to our tangible
assets to goodwill instead. Goodwill, as an intangible asset, is
generally nonamortizable or amortizable over a longer period of
time or under a less accelerated method than our tangible
assets. We cannot assure you that the determinations we make
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.
Tax
Treatment of Operations
Accounting Method and Taxable Year.
We use the
year ending December 31 as our taxable year and the accrual
method of accounting for federal income tax purposes. Each
unitholder will be required to include in income his share of
our income, gain, loss and deduction for our taxable year ending
within or with his
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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 units following the close of our taxable year but before
the close of his taxable year must include his share of our
income, gain, loss and deduction in income for his taxable year,
with the result that he will be required to include in income
for his taxable year his share of more than twelve months of our
income, gain, loss and deduction. Please read
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 our assets and their
tax basis immediately prior to (i) this offering will be
borne by our general partner and its affiliates, and
(ii) any other offering will be borne by our general
partner and all of our unitholders as of that time. Please read
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 subject
to these allowances are placed in service. Please read
Uniformity of Units. Property we
subsequently acquire or construct 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
unitholder who has taken cost recovery or depreciation
deductions with respect to property we own will likely be
required to recapture some or all of those deductions as
ordinary income upon a sale of his interest in us. Please read
Tax Consequences of Unit Ownership
Allocation of Income, Gain, Loss and Deduction and
Disposition of Common Units
Recognition of Gain or Loss.
The costs we incur in selling our units (called
syndication expenses) must be capitalized and cannot
be deducted currently, ratably or upon our termination. There
are uncertainties regarding the classification of costs as
organization expenses, which may be amortized by us, and as
syndication expenses, which may not be amortized by us. The
underwriting discounts and commissions we incur will be treated
as syndication expenses.
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 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 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 and incur interest and penalties with respect to
those adjustments.
Coal Income.
Section 631 of the Internal
Revenue Code provides special rules by which gains or losses on
the sale of coal may be treated, in whole or in part, as gains
or losses from the sale of property used in a trade or business
under Section 1231 of the Internal Revenue Code.
Specifically, Section 631(c) provides that if the owner of
coal held for more than one year disposes of that coal under a
contract by virtue of which the owner retains an economic
interest in the coal, the gain or loss realized will be treated
under Section 1231 of the Internal Revenue Code as gain or
loss from property used in a trade or business.
Section 1231 gains and losses may be treated as capital
gains and losses. Please read Sales of Coal
Reserves. In computing such gain or loss, the amount
realized is reduced by the adjusted depletion basis in the coal,
determined as described in Coal
Depletion. For purposes of Section 631(c), the coal
generally is deemed to be disposed of on the day on which the
coal is mined. Further, Treasury regulations promulgated under
Section 631 provide that advance royalty payments may also
be treated as proceeds from sales of coal to which
Section 631 applies and, therefore, such payment may be
treated as capital gain under Section 1231. However, if the
right to mine the related coal expires or terminates under the
contract that provides for the payment of advance royalty
payments or such right is abandoned before the coal has been
mined, we may, pursuant to the
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Treasury regulations, file an amended return that reflects the
payments attributable to unmined coal as ordinary income and not
as received from the sale of coal under Section 631.
Our royalties from coal leases generally will be treated as
proceeds from sales of coal to which Section 631 applies.
Accordingly, the difference between the royalties paid to us by
the lessees and the adjusted depletion basis in the extracted
coal generally will be treated as gain from the sale of property
used in a trade or business, which may be treated as capital
gain under Section 1231. Please read
Sales of Coal Reserves. Our royalties
that do not qualify under Section 631(c) generally will be
taxable as ordinary income in the year of sale.
Coal Depletion.
In general, we are entitled to
depletion deductions with respect to coal mined from the
underlying mineral property. We generally are entitled to the
greater of cost depletion limited to the basis of the property
or percentage depletion. The percentage depletion rate for coal
is 10%.
Depletion deductions we claim generally will reduce the tax
basis of the underlying mineral property. Depletion deductions
can, however, exceed the total tax basis of the mineral
property. The excess of our percentage depletion deductions over
the adjusted tax basis of the property at the end of the taxable
year is subject to tax preference treatment in computing the
alternative minimum tax. Please read 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 (discussed below), or the amount of gain
recognized upon the disposition, will be treated as ordinary
income to us. In addition, a corporate unitholders
allocable share of the amount allowable as a percentage
depletion deduction for any property will be reduced by 20% of
the excess, if any, of that partners allocable share of
the amount of the 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 generally elect to defer mine development expenses,
consisting of expenditures incurred in making coal accessible
for extraction, after the exploration process has disclosed the
existence of coal in commercially marketable quantities, and
deduct them on a ratable basis as the coal benefited by the
expenses is sold.
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.
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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 any coal reserves
are sold or otherwise disposed of 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 such disposition or to which such
property is subject) and the adjusted tax basis of the property
sold. Generally, the character of any gain or loss recognized
upon that disposition will depend upon whether our coal reserves
or the mined coal sold are held by us:
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for sale to customers in the ordinary course of business (i.e.,
we are a dealer with respect to that property);
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for use in a trade or business within the meaning of
Section 1231 of the Internal Revenue Code; or
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as a capital asset within the meaning of Section 1221 of
the Internal Revenue Code.
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In determining dealer status with respect to coal reserves and
other types of 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 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 our coal reserves for use in a trade or
business and achieving long-term capital appreciation. Although
our general partner may consider strategic sales of coal
reserves consistent with achieving long-term capital
appreciation, our general partner does not anticipate frequent
sales of coal reserves. Thus, the general partner does not
believe we will be viewed as a dealer. In light of the factual
nature of this question, however, there is no assurance that our
purposes for holding our properties will not change and that our
future activities will not cause us to be a dealer
in coal reserves.
If we are not a dealer with respect to our coal reserves and we
have held the disposed property for more than a one-year period
primarily for use in our trade or business, the character of any
gain or loss realized from a disposition of the property will be
determined under Section 1231 of the Internal Revenue Code.
If we have not held the property for more than one year at the
time of the sale, gain or loss from the sale will be taxable as
ordinary income.
A unitholders distributive share of any Section 1231
gain or loss generated by us will be aggregated with any other
gains and losses realized by that unitholder from the
disposition of property used in the trade or business, as
defined in Section 1231(b) of the Internal Revenue Code,
and from the involuntary conversion of such properties and of
capital assets held in connection with a trade or business or a
transaction entered into for profit for the requisite holding
period. If a net gain results, all such gains and losses will be
long-term capital gains and losses; if a net loss results, all
such gains and losses will be ordinary income and losses. Net
Section 1231 gains will be treated as ordinary income to
the extent of prior net Section 1231 losses of the taxpayer
or predecessor taxpayer for the five most recent prior taxable
years to the extent such losses have not previously been offset
against Section 1231 gains. Losses are deemed recaptured in
the chronological order in which they arose.
If we are not a dealer with respect to our coal reserves and
that property is not used in a trade or business, the property
will be a capital asset within the meaning of
Section 1221 of the Internal Revenue Code. Gain or loss
recognized from the disposition of that property will be taxable
as capital gain or loss, and the character of such capital gain
or loss as long-term or short-term will be based upon our
holding period of such property at the time of its sale. The
requisite holding period for long-term capital gain is more than
one year.
Upon a disposition of coal reserves, a portion of the gain, if
any, equal to the lesser of (1) the depletion deductions
that reduced the tax basis of the disposed mineral property plus
deductible development and
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mining exploration expenses or (2) the amount of gain
recognized on the disposition, will be treated as ordinary
income to us.
Deduction for U.S. Production
Activities.
Subject to the limitations on the
deductibility of losses discussed above and the limitation
discussed below, unitholders will be entitled to a deduction,
herein referred to as the Section 199 deduction, equal to a
specified percentage of our qualified production activities
income that is allocated to such unitholder. The percentage is
currently 9% for qualified production activities income.
Qualified production activities income is generally equal to
gross receipts from domestic production activities reduced by
cost of goods sold allocable to those receipts, other expenses
directly associated with those receipts, and a share of other
deductions, expenses and losses that are not directly allocable
to those receipts or another class of income. The products
produced must be manufactured, produced, grown or extracted in
whole or in significant part by the taxpayer in the United
States.
For a partnership, the Section 199 deduction is determined
at the partner level. To determine his Section 199
deduction, each unitholder will aggregate his share of the
qualified production activities income allocated to him from us
with the unitholders qualified production activities
income from other sources. Each unitholder must take into
account his distributive share of the expenses allocated to him
from our qualified production activities regardless of whether
we otherwise have taxable income. However, our expenses that
otherwise would be taken into account for purposes of computing
the Section 199 deduction are only taken into account if
and to the extent the unitholders share of losses and
deductions from all of our activities is not disallowed by the
basis rules, the at-risk rules or the passive activity loss
rules. Please read Tax Consequences of Unit
Ownership Limitations on Deductibility of
Losses.
The amount of a unitholders Section 199 deduction for
each year is limited to 50% of the IRS
Form W-2
wages actually or deemed paid by the unitholder during the
calendar year that are deducted in arriving at qualified
production activities income. Each unitholder is treated as
having been allocated IRS
Form W-2
wages from us equal to the unitholders allocable share of
our wages that are deducted in arriving at qualified production
activities income for that taxable year. It is not anticipated
that we or our subsidiaries will pay material wages that will be
allocated to our unitholders, and thus a unitholders
ability to claim the Section 199 deduction may be limited.
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 unitholders tax basis for the
units sold. A unitholders amount realized will be measured
by the sum of the cash or the fair market value of other
property received by him plus his share of our nonrecourse
liabilities. Because the amount realized includes a
unitholders 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 that in the aggregate were in excess
of cumulative net taxable income for a common unit and,
therefore, decreased a unitholders tax basis in that
common unit will, in effect, become taxable income if the common
unit is sold at a price greater than the unitholders tax
basis in that common unit, even if the price received is less
than his original cost.
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 will generally be taxable as capital gain or
loss. Capital gain recognized by an individual on the sale of
units held for more than twelve months will generally be taxed
at a maximum U.S. federal income tax rate of 15% through
December 31, 2010 and 20% thereafter (absent new
legislation extending or adjusting the current rate). However, a
portion of this gain or loss, which will likely be substantial,
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 we own. The term unrealized
receivables includes potential recapture items, including
depreciation and depletion recapture. Ordinary income
attributable to unrealized receivables, inventory items and
depreciation recapture may exceed net taxable gain realized upon
the sale of
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a unit and may be recognized even if there is a net taxable loss
realized on the sale of a unit. Thus, a unitholder may recognize
both ordinary income and a capital loss upon a sale of units.
Net capital losses may offset capital gains and no more than
$3,000 of ordinary income, in the case of individuals, and may
only be used to offset capital gains in the case of corporations.
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 for all those
interests. 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, which generally means that the tax
basis allocated to the interest sold equals an amount that bears
the same relation to the partners tax basis in his entire
interest in the partnership as the value of the interest sold
bears to the value of the partners entire interest in the
partnership. Treasury Regulations under Section 1223 of the
Internal Revenue Code allow a selling unitholder who can
identify common units transferred with an ascertainable holding
period to elect to use the actual holding period of the common
units transferred. Thus, according to the ruling discussed
above, a common unitholder will be unable to select high or low
basis common units to sell as would be the case with corporate
stock, but, according to the Treasury Regulations, he may
designate specific common units sold for purposes of determining
the holding period of units transferred. A unitholder electing
to use the actual holding period of common units transferred
must consistently use that identification method for all
subsequent sales or exchanges of common units. A unitholder
considering the purchase of additional units or a sale of common
units purchased in separate transactions is urged to consult his
tax advisor as to the possible consequences of this ruling and
application of the Treasury Regulations.
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:
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a short sale;
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an offsetting notional principal contract; or
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a futures or forward contract with respect to the partnership
interest or substantially identical property.
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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
the 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 applicable exchange on the
first business day of the month, which we refer to in this
prospectus as 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 may be allocated income, gain, loss and
deduction realized after the date of transfer.
Although simplifying conventions are contemplated by the
Internal Revenue Code and most publicly traded partnerships use
similar simplifying conventions, the use of this method may not
be permitted under existing Treasury Regulations as there is no
direct or indirect controlling authority on this issue.
Recently, the Department of the Treasury and the IRS issued
proposed Treasury Regulations that provide a safe harbor
pursuant to which a publicly traded partnership may use a
similar monthly simplifying convention to allocate tax items
among transferor and transferee unitholders, although such tax
items must be prorated on a daily basis. Existing publicly
traded partnerships are entitled to rely on these proposed
Treasury Regulations;
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however, they are not binding on the IRS and are subject to
change until final Treasury Regulations are issued. Accordingly,
Latham & Watkins LLP is unable to opine on the
validity of this method of allocating income and deductions
between transferor and transferee unitholders because the issue
has not been finally resolved by the IRS or the courts. If this
method is not allowed under the Treasury Regulations, or only
applies to transfers of less than all of the unitholders
interest, our taxable income or losses might be reallocated
among the unitholders. We are authorized to revise our method of
allocation between transferor and transferee unitholders, as
well as unitholders whose interests vary during a taxable year,
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 them 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 any of his units is generally required to notify us in
writing of that sale within 30 days after the sale (or, if
earlier, January 15 of the year following the sale). A purchaser
of units who purchases units from another unitholder is also
generally required to notify us in writing of that purchase
within 30 days after the purchase. Upon receiving such
notifications, we are required to notify the IRS of that
transaction and to furnish specified information to the
transferor and transferee. Failure to notify us of a purchase
may, in some cases, lead to the imposition of penalties.
However, these reporting requirements do not apply to a sale by
an individual who is a citizen of the U.S. and who effects
the sale or exchange through a broker who will satisfy such
requirements.
Constructive Termination.
We will be
considered to have been terminated for tax purposes if there are
sales or exchanges which, in the aggregate, constitute 50% or
more of the total interests in our capital and profits within a
twelve-month period. For purposes of measuring whether the 50%
threshold is reached, multiple sales of the same interest are
counted only once. A constructive termination results 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 twelve months of our taxable income or
loss being includable in his taxable income for the year of
termination. A constructive termination occurring on a date
other than December 31 will result in us filing two tax returns
(and unitholders could receive two Schedules K-1 if the relief
discussed below is not available) for one fiscal year and the
cost of the preparation of these returns will be borne by all
common unitholders. We would be required to make new tax
elections after a termination, including a new election under
Section 754 of the Internal Revenue Code, 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. The IRS has recently announced a relief procedure
whereby if a publicly traded partnership that has technically
terminated requests publicly traded partnership technical
termination relief and the IRS grants such relief, among other
things, the partnership will only have to provide one
Schedule K-1
to unitholders for the year notwithstanding two partnership tax
years.
Uniformity
of Units
Because we cannot match transferors and transferees of units, we
must maintain uniformity of the economic and tax characteristics
of the units to a purchaser of these units. In the absence of
uniformity, we may be unable to completely comply with a number
of federal income tax requirements, both statutory and
regulatory. A lack of uniformity can result from a literal
application of Treasury
Regulation Section 1.167(c)-1(a)(6).
Any non-uniformity could have a negative impact on the value of
the units. Please read 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, 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 propertys unamortized Book-Tax
Disparity, or treat that portion as nonamortizable, to the
extent attributable to property the common basis of which is not
amortizable, consistent with the regulations under
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Section 743 of the Internal Revenue Code, even though that
position may be inconsistent with Treasury
Regulation Section 1.167(c)-1(a)(6),
which is not expected to directly apply to a material portion of
our assets. Please read 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 position cannot reasonably be taken,
we may adopt a depreciation and amortization position under
which all purchasers acquiring units in the same month would
receive depreciation and amortization deductions, whether
attributable to common basis or a Section 743(b)
adjustment, based upon the same applicable rate as if they had
purchased a direct interest in our assets. If this position 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 position 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 method to preserve the uniformity of the intrinsic
tax characteristics of any units that would not have a material
adverse effect on the unitholders. In either case, and as stated
above under Tax Consequences of Unit
Ownership Section 754 Election,
Latham & Watkins LLP has not rendered an opinion with
respect to these methods. Moreover, the IRS may challenge any
method of depreciating the Section 743(b) adjustment
described in this paragraph. If this 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. Please read Disposition
of Common Units Recognition of Gain or Loss.
Tax-Exempt
Organizations and Other Investors
Ownership of units by employee benefit plans, other tax-exempt
organizations, non-resident aliens, foreign corporations and
other foreign persons raises issues unique to those investors
and, as described below to a limited extent, may have
substantially adverse tax consequences to them. If you are a
tax-exempt entity or a
non-U.S. person,
you should consult your tax advisor before investing in our
common units.
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 that is a tax-exempt organization will
be unrelated business taxable income and will be taxable to it.
Non-resident aliens and foreign corporations, trusts or estates
that own units will be considered to be engaged in business in
the U.S. because of the ownership of units. As a
consequence, they will be required to file federal tax returns
to report their share of our income, gain, loss or deduction and
pay federal income tax at regular rates on their share of our
net income or gain. Moreover, under rules applicable to publicly
traded partnerships, we will withhold at the highest applicable
effective tax rate from 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-8BEN
or applicable substitute form in order to obtain credit for
these withholding taxes. A change in applicable law may require
us to change these procedures.
In addition, because a foreign corporation that owns units will
be treated as engaged in a U.S. trade or business, that
corporation may be subject to the U.S. branch profits tax
at 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 corporations U.S. net equity,
which is effectively connected with the conduct of a
U.S. trade or business. That tax may be reduced or
eliminated by an income tax treaty between the U.S. and the
country in which the foreign corporate unitholder is a
qualified resident. In addition, this type of
unitholder is subject to special information reporting
requirements under Section 6038C of the Internal Revenue
Code.
A foreign unitholder who sells or otherwise disposes of a common
unit will be subject to U.S. federal income tax on gain
realized from the sale or disposition of that unit to the extent
the gain is effectively connected with a U.S. trade or
business of the foreign unitholder. Under a ruling published by
the IRS, interpreting the scope of effectively connected
income, a foreign unitholder would be considered to be
engaged in a trade or business in the U.S. by virtue of the
U.S. activities of the partnership, and part or all of
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that unitholders gain would be effectively connected with
that unitholders indirect U.S. trade or business.
Moreover, under the Foreign Investment in Real Property Tax Act,
a foreign common unitholder generally will be subject to
U.S. federal income tax upon the sale or disposition of a
common unit if (i) he owned (directly or constructively
applying certain attribution rules) more than 5% of our common
units at any time during the five-year period ending on the date
of such disposition and (ii) 50% or more of the fair market
value of all of our assets consisted of U.S. real property
interests at any time during the shorter of the period during
which such unitholder held the common units or the
5-year
period ending on the date of disposition. Currently, more than
50% of our assets consist of U.S. real property interests
and we do not expect that to change in the foreseeable future.
Therefore, foreign unitholders may be subject to federal income
tax on gain from the sale or disposition of their units.
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 his share of our income, gain, loss and
deduction for our preceding taxable year. In preparing this
information, which will not be reviewed by counsel, we will take
various accounting and reporting positions, some of which have
been mentioned earlier, to determine each unitholders
share of income, gain, loss and deduction. We cannot assure you
that those positions will yield a result that conforms to the
requirements of the Internal Revenue Code, Treasury Regulations
or administrative interpretations of the IRS. Neither we nor
Latham & Watkins LLP can assure prospective
unitholders that the IRS will not successfully contend in court
that those positions 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 an IRS audit may require each
unitholder to adjust a prior years tax liability, and
possibly may result in an audit of his return. Any audit of a
unitholders 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 requires that one partner be
designated as the Tax Matters Partner for these
purposes. Our partnership agreement names Oxford Resources GP,
LLC as our Tax Matters Partner.
The Tax Matters Partner has made and 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.
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 this consistency
requirement may subject a unitholder to substantial penalties.
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Nominee Reporting.
Persons who hold an
interest in us as a nominee for another person are required to
furnish to us:
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the name, address and taxpayer identification number of the
beneficial owner and the nominee;
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whether the beneficial owner is:
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a person that is not a U.S. person;
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a foreign government, an international organization or any
wholly owned agency or instrumentality of either of the
foregoing; or
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a tax-exempt entity;
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the amount and description of units held, acquired or
transferred for the beneficial owner; and
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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.
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Brokers and financial institutions are required to furnish
additional information, including whether they are
U.S. persons and specific information on units they
acquire, hold or transfer for their 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.
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.
For individuals, 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:
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for which there is, or was, substantial authority; or
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as to which there is a reasonable basis and the pertinent facts
of that position are disclosed on the return.
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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 and to
take other actions as may be appropriate to permit unitholders
to avoid liability for this penalty. More stringent rules apply
to tax shelters, which we do not believe includes
us, or any of our investments, plans or arrangements.
A substantial valuation misstatement exists if (a) the
value of any property, or the adjusted basis of any property,
claimed on a tax return is 150% or more of the amount determined
to be the correct amount of the valuation or adjusted basis,
(b) the price for any property or services (or for the use
of property) claimed on any such return with respect to any
transaction between persons described in Internal Revenue Code
Section 482 is 200% or more (or 50% or less) of the amount
determined under Section 482 to be the correct amount of
such price, or (c) the net Internal Revenue Code
Section 482 transfer price adjustment for the taxable year
exceeds the lesser of $5 million or 10% of the
taxpayers gross receipts.
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 200% or
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more than the correct valuation, the penalty imposed increases
to 40%. We do not anticipate making any valuation misstatements.
Reportable Transactions.
If we were to engage
in a reportable transaction, we (and possibly you
and others) would be required to make a detailed disclosure of
the transaction to the IRS. A transaction may be a reportable
transaction based upon any of several factors, including the
fact that it is a type of tax avoidance transaction publicly
identified by the IRS as a listed transaction or
that it produces certain kinds of losses for partnerships,
individuals, S corporations, and trusts in excess of
$2 million in any single year, or $4 million in any
combination of 6 successive tax years. Our participation in a
reportable transaction could increase the likelihood that our
federal income tax information return (and possibly your tax
return) would be audited by the IRS. Please read
Information Returns and Audit Procedures.
Moreover, if we were to participate in a reportable transaction
with a significant purpose to avoid or evade tax, or in any
listed transaction, you may be subject to the following
provisions of the American Jobs Creation Act of 2004:
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accuracy-related penalties with a broader scope, significantly
narrower exceptions, and potentially greater amounts than
described above at Accuracy-Related
Penalties;
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for those persons otherwise entitled to deduct interest on
federal tax deficiencies, nondeductibility of interest on any
resulting tax liability; and
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in the case of a listed transaction, an extended statute of
limitations.
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We do not expect to engage in any reportable
transactions.
Recent
Legislative Developments
The present federal income tax treatment of publicly traded
partnerships, including us, or an investment in our common units
may be modified by administrative, legislative or judicial
interpretation at any time. For example, the U.S. House of
Representatives recently passed legislation that would provide
for substantive changes to the definition of qualifying income
and the treatment of certain types of income earned from profits
interests in partnerships. It is possible that these legislative
efforts could result in changes to the existing federal income
tax laws that affect publicly traded partnerships. As previously
and currently proposed, we do not believe any such legislation
would affect our tax treatment as a partnership. However, the
proposed legislation could be modified in a way that could
affect us. We are unable to predict whether any of these
changes, or other proposals, will ultimately be enacted. Any
such changes could negatively impact the value of an investment
in our units.
On February 1, 2010, the White House released President
Obamas budget proposal for the fiscal year 2011 (the
Budget Proposal). Among the changes contained in the
Budget Proposal is the elimination of certain key
U.S. federal income tax preferences currently available to
coal exploration and development. The Budget Proposal would
(i) eliminate current deductions and the
60-month
amortization for exploration and development costs relating to
coal and other hard mineral fossil fuels, (ii) repeal the
percentage depletion allowance with respect to coal properties,
(iii) repeal capital gains treatment of coal and lignite
royalties, and (iv) exclude from the definition of domestic
production gross receipts all gross receipts derived from the
sale, exchange, or other disposition of coal, other hard mineral
fossil fuels, or primary products thereof.
Legislation has been introduced in the Senate and includes many
of the proposals outlined in the Budget Proposal. It is unclear
whether any such changes will actually be enacted or, if
enacted, how soon any such changes could become effective. The
passage of any legislation as a result of the Budget Proposal or
any other similar change in U.S. federal income tax law
could affect certain tax deductions that are currently available
with respect to coal exploration and development and could
negatively impact the value of an investment in our units.
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State,
Local, Foreign and Other Tax Considerations
In addition to federal income taxes, you likely will be subject
to other taxes, such as state, local and foreign 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 or in
which you are a resident. Although an analysis of those various
taxes is not presented here, each prospective unitholder should
consider their potential impact on his investment in us. We will
initially own property or do business in Illinois, Indiana,
Kentucky, Ohio, Pennsylvania and West Virginia. Each of these
states imposes a personal income tax on individuals. Most of
these states also impose an income tax on corporations and other
entities. We may also own property or do business in other
jurisdictions in the future. Although you may not be required to
file a return and pay taxes in some jurisdictions because your
income from that jurisdiction falls below the filing and payment
requirement, you will be required to file income tax returns and
to pay income taxes in many of these jurisdictions in which we
do business or own property and may be subject to penalties for
failure to comply with those requirements. In some
jurisdictions, tax losses may not produce a tax benefit in the
year incurred and may not be available to offset income in
subsequent taxable years. Some of the jurisdictions 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 jurisdiction. Withholding, the amount of which may be
greater or less than a particular unitholders income tax
liability to the jurisdiction, generally does not relieve a
nonresident unitholder from the obligation to file an income tax
return. Amounts withheld will be treated as if distributed to
unitholders for purposes of determining the amounts distributed
by us. Please read Tax Consequences of Unit
Ownership Entity-Level Collections. Based
on current law and our estimate of our future operations, our
general partner anticipates that any amounts required to be
withheld will not be material.
It is the responsibility of each unitholder to investigate
the legal and tax consequences, under the laws of pertinent
jurisdictions, of his investment in us. Accordingly, each
prospective unitholder is urged to consult, and depend upon, his
tax counsel or other advisor with regard to those matters.
Further, it is the responsibility of each unitholder to file all
state, local and foreign, as well as U.S. federal tax
returns, that may be required of him. Latham & Watkins
LLP has not rendered an opinion on the state, local or foreign
tax consequences of an investment in us.
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INVESTMENT
IN OXFORD RESOURCE PARTNERS, LP BY EMPLOYEE BENEFIT
PLANS
An investment in us 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 the restrictions imposed by
Section 4975 of the Internal Revenue Code and provisions
under any federal, state, local,
non-U.S. or
other laws or regulations that are similar to such provisions of
the Internal Revenue Code or ERISA (collectively, Similar
Laws). 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 or
annuities established or maintained by an employer or employee
organization, and entities whose underlying assets are
considered to include plan assets of such plans,
accounts and arrangements. Among other things, consideration
should be given to:
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whether the investment is prudent under
Section 404(a)(1)(B) of ERISA and any other applicable
Similar Laws;
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whether in making the investment, the plan will satisfy the
diversification requirements of Section 404(a)(1)(C) of
ERISA and any other applicable Similar Laws;
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whether the investment will result in recognition of unrelated
business taxable income by the plan and, if so, the potential
after-tax investment return. Please read Material Federal
Income Tax Consequences Tax-Exempt Organizations and
Other Investors; and
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whether making such an investment will comply with the
delegation of control and prohibited transaction provisions of
ERISA, the Internal Revenue Code and any other applicable
Similar Laws.
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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 us 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 prohibit employee benefit plans, and IRAs that are
not considered part of an employee benefit plan, from engaging
in specified transactions involving plan assets with
parties that, with respect to the plan, are parties in
interest under ERISA or disqualified persons
under the Internal Revenue Code unless an exemption is
available. A party in interest or disqualified person who
engages in a non-exempt prohibited transaction may be subject to
excise taxes and other penalties and liabilities under ERISA and
the Internal Revenue Code. In addition, the fiduciary of the
ERISA plan that engaged in such a non-exempt prohibited
transaction may be subject to penalties and liabilities under
ERISA and the Internal Revenue Code.
In addition to considering whether the purchase of common units
is a prohibited transaction, a fiduciary should consider whether
the plan will, by investing in us, be deemed to own an undivided
interest in our assets, with the result that our general partner
would also be a fiduciary of such plan and our operations 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, ERISA and any
other applicable Similar Laws.
The Department of Labor regulations and Section 3(42) of
ERISA provide guidance with respect to whether, in certain
circumstances, the assets of an entity in which employee benefit
plans acquire equity interests would be deemed plan
assets. Under these rules, an entitys assets would
not be considered to be plan assets if, among other
things:
(a) the equity interests acquired by the employee benefit
plan are publicly offered securities i.e., the
equity interests are widely held by 100 or more investors
independent of the issuer and each other, are freely
transferable and are registered under certain 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
207
(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 any such
interests held by our general partner, its affiliates and some
other persons, is held generally by the employee benefit plans
referred to above that are subject to ERISA and IRAs and other
similar vehicles that are subject to Section 4975 of the
Internal Revenue Code.
Our assets should not be considered plan assets
under these regulations because it is expected that the
investment will satisfy the requirements in (a) and
(b) above.
In light of the serious penalties imposed on persons who engage
in prohibited transactions or other violations, plan fiduciaries
contemplating a purchase of common units should consult with
their own counsel regarding the consequences under ERISA, the
Internal Revenue Code and other Similar Laws.
208
UNDERWRITING
Barclays Capital Inc. and Citigroup Global Markets Inc. are
acting as representatives of the underwriters and as joint
book-running managers of this offering. Under the terms of an
underwriting agreement, which will be filed as an exhibit to the
registration statement relating to this prospectus, each of the
underwriters named below has severally agreed to purchase from
us the respective number of common units shown opposite its name
below:
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Number of
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Underwriters
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Common Units
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Barclays Capital Inc.
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Total
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The underwriting agreement provides that the underwriters
obligation to purchase the common units depends on the
satisfaction of the conditions contained in the underwriting
agreement including:
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the obligation to purchase all of the common units offered
hereby (other than those common units covered by their option to
purchase additional common units as described below), if any of
the common units are purchased;
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the representations and warranties made by us to the
underwriters are true;
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there is no material change in our business or the financial
markets; and
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we deliver customary closing documents to the underwriters.
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Commissions
and Expenses
The following table summarizes the underwriting discounts and
commissions we will pay to the underwriters. These amounts are
shown assuming both no exercise and full exercise of the
underwriters option to purchase additional common units.
The underwriting fee is the difference between the initial price
to the public and the amount the underwriters pay to us for the
common units.
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No Exercise
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Full Exercise
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The representatives of the underwriters have advised us that the
underwriters propose to offer the common units directly to the
public at the public offering price on the cover of this
prospectus and to selected dealers, which may include the
underwriters, at such offering price less a selling concession
not in excess of $ per common
unit. After the offering, the representatives may change the
offering price and other selling terms.
In addition, we will pay Barclays Capital Inc. and Citigroup
Global Markets Inc. a structuring fee equal to an aggregate of
0.5% of the gross proceeds from this offering.
The expenses of the offering that are payable by us are
estimated to be $3.1 million (excluding underwriting discounts
and commissions).
Option to
Purchase Additional Common Units
We have granted the underwriters an option exercisable for
30 days after the date of the underwriting agreement, to
purchase, from time to time, in whole or in part, up to an
aggregate of 1,312,500 additional common units at the public
offering price less underwriting discounts and commissions. This
option may be exercised if the underwriters sell more than
8,750,000 common units in connection with this offering. To the
extent that this option is exercised, each underwriter will be
obligated, subject to certain conditions, to purchase its pro
rata portion of these additional common units based on the
underwriters underwriting commitment in the offering as
indicated in the table at the beginning of this Underwriting
section.
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Lock-Up
Agreements
We, our subsidiaries, our general partner and its affiliates,
including C&T Coal and AIM Oxford and the directors and
executive officers of our general partner, have agreed that
without the prior written consent of Barclays Capital Inc., we
and they will not directly or indirectly, (1) offer for
sale, sell, pledge, or otherwise dispose of (or enter into any
transaction or device that is designed to, or could be expected
to, result in the disposition by any person at any time in the
future of) any our common units (including, without limitation,
common units that may be deemed to be beneficially owned by us
or them in accordance with the rules and regulations of the
Securities and Exchange Commission and common units that may be
issued upon exercise of any options or warrants) or securities
convertible into or exercisable or exchangeable for common
units, (2) enter into any swap or other derivatives
transaction that transfers to another, in whole or in part, any
of the economic consequences of ownership of the common units,
(3) make any demand for or exercise any right or file or
cause to be filed a registration statement, including any
amendments thereto, with respect to the registration of any
common units or securities convertible, exercisable or
exchangeable into common units or any of our other securities,
or (4) publicly disclose the intention to do any of the
foregoing for a period of 180 days after the date of this
prospectus.
The
180-day
restricted period described in the preceding paragraph will be
extended if:
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during the last 17 days of the
180-day
restricted period we issue an earnings release or material news
or a material event relating to us occurs; or
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prior to the expiration of the
180-day
restricted period, we announce that we will release earnings
results during the
16-day
period beginning on the last day of the
180-day
period, in which case the restrictions described in the
preceding paragraph will continue to apply until the expiration
of the
18-day
period beginning on the issuance of the earnings release or the
announcement of the material news or occurrence of material
event unless such extension is waived in writing by Barclays
Capital Inc.
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Barclays Capital Inc., in its sole discretion, may release the
common units and other securities subject to the
lock-up
agreements described above in whole or in part at any time with
or without notice. When determining whether or not to release
common units and other securities from
lock-up
agreements, Barclays Capital Inc. will consider, among other
factors, the holders reasons for requesting the release,
the number of common units and other securities for which the
release is being requested and market conditions at the time.
Barclays Capital Inc. does not have any present intention,
agreements or understandings, implicit or explicit, to release
any of the common units or other securities subject to the
lock-up
agreements prior to the expiration of the
lock-up
period described above.
As described below under Directed Unit
Program, any participants in the Directed Unit Program
will be subject to a
180-day
lock
up with respect to any common units sold to them pursuant to
that program. This lock up will have similar restrictions and an
identical extension provision as the
lock-up
agreement described above. Any common units sold in the Directed
Unit Program to our general partners directors or officers
will be subject to the
lock-up
agreement described above.
Offering
Price Determination
Prior to this offering, there has been no public market for our
common units. The initial public offering price will be
negotiated between the representatives and us. In determining
the initial public offering price of our common units, the
representatives will consider:
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the history and prospects for the industry in which we compete;
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our financial information;
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the ability of our management and our business potential and
earning prospects;
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the prevailing securities markets at the time of this offering;
and
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the recent market prices of, and the demand for, publicly traded
common units of generally comparable companies.
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Indemnification
We have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act and
liabilities incurred in connection with the Directed Unit
Program referred to below, and to contribute to payments that
the underwriters may be required to make for these liabilities.
Directed
Unit Program
At our request, the underwriters have established a Directed
Unit Program under which they have reserved for sale at the
initial public offering price up to 1,000,000 common units
offered hereby for officers, directors, employees and certain
friends and family of our sponsors, officers, directors and
employees. The number of common units available for sale to the
general public will be reduced by the number of directed common
units purchased by participants in the program. Any directed
common units not so purchased will be offered by the
underwriters to the general public on the same basis as the
other common units offered hereby. Any participants in this
program will be prohibited from selling, pledging or assigning
any common units sold to them pursuant to this program for a
period of 180 days after the date of this prospectus. This
180-day
lock
up period will be extended with respect to our issuance of an
earnings release or if a material news or a material event
relating to us occurs, in the same manner as described above
under
Lock-Up
Agreements.
Stabilization,
Short Positions and Penalty Bids
The representatives may engage in stabilizing transactions,
short sales and purchases to cover positions created by short
sales, and penalty bids or purchases for the purpose of pegging,
fixing or maintaining the price of the common units, in
accordance with Regulation M under the Exchange Act:
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Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a
specified maximum.
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A short position involves a sale by the underwriters of common
units in excess of the number of common units the underwriters
are obligated to purchase in the offering, which creates the
syndicate short position. This short position may be either a
covered short position or a naked short position. In a covered
short position, the number of common units involved in the sales
made by the underwriters in excess of the number of common units
they are obligated to purchase is not greater than the number of
common units that they may purchase by exercising their option
to purchase additional common units. In a naked short position,
the number of common units involved is greater than the number
of common units in their option to purchase additional common
units. The underwriters may close out any short position by
either exercising their option to purchase additional common
units
and/or
purchasing common units in the open market. In determining the
source of common units to close out the short position, the
underwriters will consider, among other things, the price of
common units available for purchase in the open market as
compared to the price at which they may purchase common units
through their option to purchase additional common units. A
naked short position is more likely to be created if the
underwriters are concerned that there could be downward pressure
on the price of the common units in the open market after
pricing that could adversely affect investors who purchase in
the offering.
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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.
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Penalty bids permit the representatives to reclaim a selling
concession from a syndicate member when the common units
originally sold by the syndicate member are purchased in a
stabilizing or syndicate covering transaction to cover syndicate
short positions.
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These stabilizing transactions, syndicate covering transactions
and penalty bids may have the effect of raising or maintaining
the market price of our common units or preventing or retarding
a decline in the market
211
price of the common units. As a result, the price of the common
units may be higher than the price that might otherwise exist in
the open market. These transactions may be effected on the New
York Stock Exchange or otherwise and, if commenced, may be
discontinued at any time.
Neither we nor any of the underwriters make any representation
or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of
the common units. In addition, neither we nor any of the
underwriters make any representation that the representatives
will engage in these stabilizing transactions or that any
transaction, once commenced, will not be discontinued without
notice.
Electronic
Distribution
A prospectus in electronic format may be made available on the
Internet sites or through other online services maintained by
one or more of the underwriters
and/or
selling group members participating in this offering, or by
their affiliates. In those cases, prospective investors may view
offering terms online and, depending upon the particular
underwriter or selling group member, prospective investors may
be allowed to place orders online. The underwriters may agree
with us to allocate a specific number of common units for sale
to online brokerage account holders. Any such allocation for
online distributions will be made by the representatives on the
same basis as other allocations.
Other than the prospectus in electronic format, the information
on any underwriters or selling group members web
site and any information contained in any other web site
maintained by an underwriter or selling group member is not part
of the prospectus or the registration statement of which this
prospectus forms a part, has not been approved
and/or
endorsed by us or any underwriter or selling group member in its
capacity as underwriter or selling group member and should not
be relied upon by investors.
New York
Stock Exchange
We have applied to list our common units on the New York Stock
Exchange under the symbol OXF. The underwriters have
undertaken to sell the minimum number of common units to the
minimum number of beneficial owners necessary to meet the New
York Stock Exchange distribution requirements for trading.
Discretionary
Sales
The underwriters have informed us that they do not intend to
confirm sales to discretionary accounts that exceed 5% of the
total number of common units offered by them.
Stamp
Taxes
If you purchase common units offered by this prospectus, you may
be required to pay stamp taxes and other charges under the laws
and practices of the country of purchase, in addition to the
offering price listed on the cover page of this prospectus.
Relationships/FINRA
Conduct Rules
An affiliate of Citigroup Global Markets Inc. has performed
commercial banking services for us for which it has received
customary fees and expenses. The underwriters and their
affiliates may in the future perform investment banking,
commercial banking and advisory services for us from time to
time for which they may in the future receive customary fees and
expenses. Affiliates of Citigroup Global Markets Inc. and
Barclays Capital Inc. are lenders under our new credit facility.
An affiliate of Citigroup Global Markets Inc. is a lender under
our existing credit facility and will receive a portion of the
net proceeds from this offering pursuant to our repayment of the
outstanding balance under our existing credit facility.
Because the Financial Industry Regulatory Authority, Inc., or
FINRA, views the common units offered hereby as interests in a
direct participation program, there is no conflict of interest
between us and the underwriters under Rule 2720 of the
National Association of Securities Dealers, Inc., or NASD,
Conduct Rules and the offering is being made in compliance with
Rule 2310 of the FINRA Rules. Investor suitability
212
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.
Selling
Restrictions
Public
Offer Selling Restrictions Under the Prospectus
Directive
In relation to each member state of the European Economic Area
that has implemented the Prospectus Directive (each, a relevant
member state), with effect from and including the date on which
the Prospectus Directive is implemented in that relevant member
state (the relevant implementation date), an offer of securities
described in this prospectus may not be made to the public in
that relevant member state other than:
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to any legal entity that is authorized or regulated to operate
in the financial markets or, if not so authorized or regulated,
whose corporate purpose is solely to invest in securities;
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to any legal entity that has two or more of (1) an average
of at least 250 employees during the last financial year;
(2) a total balance sheet of more than 43,000,000;
and (3) an annual net turnover of more than
50,000,000, as shown in its last annual or consolidated
accounts;
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to fewer than 100 natural or legal persons (other than qualified
investors as defined in the Prospectus Directive) subject to
obtaining the prior consent of the representatives; or
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in any other circumstances that do not require the publication
of a prospectus pursuant to Article 3 of the Prospectus
Directive;
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provided that no such offer of securities shall require us or
any underwriter to publish a prospectus pursuant to
Article 3 of the Prospectus Directive.
For purposes of this provision, the expression an offer of
securities to the public in any relevant member state
means the communication in any form and by any means of
sufficient information on the terms of the offer and the
securities to be offered so as to enable an investor to decide
to purchase or subscribe for the securities, as the expression
may be varied in that member state by any measure implementing
the Prospectus Directive in that member state, and the
expression Prospectus Directive means Directive
2003/71/EC and includes any relevant implementing measure in
each relevant member state.
We have not authorized and do not authorize the making of any
offer of securities through any financial intermediary on their
behalf, other than offers made by the underwriters with a view
to the final placement of the securities as contemplated in this
prospectus. Accordingly, no purchaser of the securities, other
than the underwriters, is authorized to make any further offer
of the securities on behalf of us or the underwriters.
Selling
Restrictions Addressing Additional Security Laws in
Germany
This prospectus has not been prepared in accordance with the
requirements for a securities or sales prospectus under the
German Securities Prospectus Act
(
Wertpapierprospektgesetz
), the German Sales Prospectus
Act (
Verkaufsprospektgesetz
), or the German Investment
Act (
Investmentgesetz
). Neither the German Federal
Financial Services Supervisory Authority (
Bundesanstalt
für Finanzdienstleistungsaufsicht
- BaFin) nor any
other German authority has been notified of the intention to
distribute the common units in Germany. Consequently, the common
units may not be distributed in Germany by way of public
offering, public advertisement or in any similar manner and this
prospectus and any other document relating to this offering, as
well as information or statements contained therein, may not be
supplied to the public in Germany or used in connection with any
offer for subscription of the common units to the public in
Germany or any other means of public marketing. The common units
are being offered and sold in Germany only to qualified
investors which are referred to in Section 3,
paragraph 2 no. 1, in connection with Section 2,
no. 6, of the German Securities Prospectus Act,
Section 8f paragraph 2 no. 4 of the German Sales
Prospectus Act, and in Section 2 paragraph 11 sentence
2 no. 1 of the German Investment Act. This prospectus is
strictly for use of the person who has received it. It may not
be forwarded to other persons or published in Germany.
213
This offering of our common units does not constitute an offer
to buy or the solicitation or an offer to sell the common units
in any circumstances in which such offer or solicitation is
unlawful.
Selling
Restrictions Addressing Additional Security Laws in the
Netherlands
The common units may not be offered or sold, directly or
indirectly, in the Netherlands, other than to qualified
investors (
gekwalificeerde beleggers
) within the meaning
of Article 1:1 of the Dutch Financial Supervision Act
(
Wet op het financieel toezicht
).
Notice
to Prospective Investors in Switzerland
This prospectus is being communicated in Switzerland to a small
number of selected investors only. Each copy of this prospectus
is addressed to a specifically named recipient and may not be
copied, reproduced, distributed or passed on to third parties.
The common units are not being offered to the public in
Switzerland, and neither this prospectus, nor any other offering
materials relating to the common units may be distributed in
connection with any such public offering.
We have not been registered with the Swiss Financial Market
Supervisory Authority FINMA as a foreign collective investment
scheme pursuant to Article 120 of the Collective Investment
Schemes Act of June 23, 2006 (CISA).
Accordingly, the common units may not be offered to the public
in or from Switzerland, and neither this prospectus, nor any
other offering materials relating to the common units may be
made available through a public offering in or from Switzerland.
The common units may only be offered and this prospectus may
only be distributed in or from Switzerland by way of private
placement exclusively to qualified investors (as this term is
defined in the CISA and its implementing ordinance).
Selling
Restrictions Addressing Additional Security Laws in the United
Kingdom
We may constitute a collective investment scheme as
defined by section 235 of the Financial Services and
Markets Act 2000 ( FSMA) that is not a
recognised collective investment scheme for the
purposes of FSMA (CIS) and that has not been
authorised or otherwise approved. As an unregulated scheme, it
cannot be marketed in the United Kingdom to the general public,
except in accordance with FSMA. This prospectus is only being
distributed in the United Kingdom to, and is only directed at:
(i) if we are a CIS and are marketed by a person who is an
authorised person under FSMA, (a) investment professionals
falling within Article 14(5) of the Financial Services and
Markets Act 2000 (Promotion of Collective Investment Schemes)
Order 2001, as amended (the CIS Promotion Order) or
(b) high net worth companies and other persons falling
within Article 22(2)(a) to (d) of the CIS Promotion
Order; or
(ii) otherwise, if marketed by a person who is not an
authorised person under FSMA, (a) persons who fall within
Article 19(5) of the Financial Services and Markets Act
2000 (Financial Promotion) Order 2005, as amended (the
Financial Promotion Order) or
(b) Article 49(2)(a) to (d) of the Financial
Promotion Order; and
(iii) in both cases (i) and (ii) to any other
person to whom it may otherwise lawfully be made (all such
persons together being referred to as relevant
persons). The common units are only available to, and any
invitation, offer or agreement to subscribe, purchase or
otherwise acquire such common units will be engaged in only
with, relevant persons. Any person who is not a relevant person
should not act or rely on this prospectus or any of its contents.
An invitation or inducement to engage in investment activity
(within the meaning of Section 21 of FSMA) in connection
with the issue or sale of common units which are the subject of
the offering contemplated by this prospectus will only be
communicated or caused to be communicated in circumstances in
which Section 21(1) of FSMA does not apply to us.
214
VALIDITY
OF THE COMMON UNITS
The validity of the common units offered hereby will be passed
upon for us by Latham & Watkins LLP, Houston, Texas.
Certain legal matters in connection with the common units
offered hereby will be passed upon for the underwriters by
Andrews Kurth LLP, Houston, Texas.
EXPERTS
The consolidated financial statements of Oxford Resource
Partners, LP and subsidiaries for the years ended
December 31, 2009 and 2008, the period from August 24,
2007 to December 31, 2007 and of Oxford Mining Company and
subsidiaries (the predecessor) for the period from
January 1, 2007 to August 23, 2007 have been included
in this prospectus in reliance upon the report of Grant Thornton
LLP an independent registered public accounting firm, appearing
elsewhere herein and upon the authority of said firm as experts
in accounting and auditing in giving said reports.
The combined financial statements for the carved-out surface
mining operations of Phoenix Coal Inc. for the nine months ended
September 30, 2009 and the years ended December 31,
2008 and 2007 included in this prospectus have been audited by
Ernst & Young LLP, an independent registered public
accounting firm, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report
given on the authority of said firm as experts in accounting and
auditing.
The information included in this prospectus relating to the
estimates of our proven and probable reserves associated with
our surface mining operations in Ohio is derived from our
internal estimates, which estimates were audited by John T. Boyd
Company, an independent mining and geological consulting firm.
The information included in this prospectus relating to the
estimates of our proven and probable reserves associated with
our surface mining operations in the Illinois Basin and our
proven and probable underground coal reserves is derived from
reserve reports prepared by John T. Boyd Company. This
information is included in this prospectus upon the authority of
said firm as an expert.
WHERE YOU
CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on
Form S-1
regarding the common units. This prospectus does not contain all
of the information found in the registration statement. For
further information regarding us and the common units offered in
this prospectus, you may desire to review the full registration
statement, including the exhibits. The registration statement,
including the exhibits, may be inspected and copied at the
public reference facilities maintained by the SEC at
100 F Street, N.E., Room 1580,
Washington, D.C. 20549. Copies of this material can also be
obtained upon written request from the Public Reference Section
of the SEC at 100 F Street, N.E., Room 1580,
Washington, D.C. 20549 at prescribed rates or from the
SECs 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 with or furnish to the
SEC periodic reports and other information. These reports and
other information may be inspected and copied at the public
reference facilities maintained by the SEC or obtained from the
SECs website as provided above. Our website on the
Internet will be located at
http://www.oxfordresources.com,
and we expect to make our periodic reports and other information
filed with or furnished to the SEC available, free of charge,
through our website, as soon as reasonably practicable after
those reports and other information are electronically filed
with or furnished to the SEC. Information on our website or any
other website is not incorporated by reference into this
prospectus and does not constitute a part of this prospectus.
We intend to furnish or make available to our unitholders annual
reports containing our audited financial statements prepared in
accordance with GAAP. Our annual report will contain a detailed
statement of any transactions with our general partner or its
affiliates, and of fees, commissions, compensation and other
benefits paid, or accrued to our general partner or its
affiliates for the fiscal year completed, showing the amount
paid or accrued to each recipient and the services performed. We
also intend to furnish or make
215
available to our unitholders quarterly reports containing our
unaudited interim financial information, including the
information required by
Form 10-Q,
for the first three fiscal quarters of each fiscal year.
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
will, may, believe,
expect, anticipate,
estimate, continue, or other similar
words. These statements discuss future expectations, contain
projections of financial condition or of results of operations,
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.
216
INDEX TO
FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
F-2
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
|
|
|
F-8
|
|
|
|
|
F-11
|
|
|
|
|
F-12
|
|
|
|
|
F-13
|
|
|
|
|
F-14
|
|
|
|
|
F-15
|
|
|
|
|
F-26
|
|
|
|
|
F-27
|
|
|
|
|
F-28
|
|
|
|
|
F-29
|
|
|
|
|
F-30
|
|
|
|
|
F-31
|
|
|
|
|
|
|
Carved-Out Surface Mining Operations of Phoenix Coal Inc.
|
|
|
|
|
|
|
|
F-56
|
|
|
|
|
F-57
|
|
|
|
|
F-58
|
|
|
|
|
F-59
|
|
|
|
|
F-60
|
|
|
|
|
F-61
|
|
F-1
OXFORD
RESOURCE PARTNERS, LP
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Introduction
Set forth below are the unaudited pro forma consolidated balance
sheet of Oxford Resource Partners, LP as of March 31, 2010
and the unaudited pro forma consolidated statements of
operations of Oxford Resource Partners, LP for the year ended
December 31, 2009 and the three months ended March 31,
2010. References to we, us and
our mean Oxford Resource Partners, LP and its
consolidated subsidiaries, unless the context requires otherwise.
Our unaudited pro forma consolidated balance sheet, which
presents the pro forma effects of the transactions described
below under Pro Forma Consolidated Balance
Sheet (the Offering Transactions) as if such
transactions occurred on March 31, 2010, has been derived
from, and should be read in conjunction with, our unaudited
historical financial statements included elsewhere in this
prospectus. Our unaudited pro forma consolidated statements of
operations for the year ended December 31, 2009, which
present the pro forma effects of the Offering Transactions and
the Phoenix Coal acquisition described below under
Pro Forma Consolidated Statement of
Operations as if such transactions occurred on
January 1, 2009, have been derived from, and should be read
in conjunction with, our audited and unaudited historical
financial statements included elsewhere in this prospectus and
the audited combined statements of operations and comprehensive
loss for the carved-out surface mining operations of Phoenix
Coal Inc. included elsewhere in this prospectus. Our unaudited
pro forma consolidated statements of operations for the quarter
ended March 31, 2010 assume this offering and the
transactions related to this offering occurred as of
January 1, 2009. We have not made pro forma adjustments to
our unaudited historical consolidated balance sheet as of
March 31, 2010 for the Phoenix Coal acquisition because
that acquisition occurred on September 30, 2009, and,
therefore, the effects of that acquisition are already reflected
in our unaudited historical consolidated balance sheet as of
March 31, 2010.
Our unaudited pro forma consolidated financial statements are
based on certain assumptions and do not purport to be indicative
of the results that actually would have been achieved if the
Offering Transactions and the Phoenix Coal acquisition, as
applicable, had been completed on the dates set forth above.
Moreover, they do not project our financial position or results
of operations as of any future date or for any future period.
Pro Forma
Consolidated Balance Sheet
Our unaudited pro forma consolidated balance sheet is derived
from our unaudited historical condensed consolidated balance
sheet as of March 31, 2010. The Adjustments for
Offering Transactions column in our unaudited pro forma
consolidated balance sheet contains the adjustments that we
believe are appropriate to give effect to the Offering
Transactions that will occur in connection with our initial
public offering (the Offering) assuming a
March 31, 2010 offering date. Please read
Note 1. Pro Forma Consolidated Balance
Sheet Adjustments. The Offering Transactions include:
|
|
|
|
|
our distribution of approximately $21.0 million of accounts
receivable to Oxford Resources GP, LLC (our General
Partner), C&T Coal, Inc. (C&T Coal),
AIM Oxford Holdings, LLC (AIM Oxford), and the
participants in our Long-Term Incentive Plan (our
LTIP) that hold our common units pro rata;
|
|
|
|
|
|
the split of the general partner units held by our general
partner with our general partner receiving 1.82 general partner
units for each general partner unit it currently owns, resulting
in its ownership of 244,607 general partner units representing a
2.0% general partner interest in us;
|
|
|
|
|
|
the split of the common units held by participants in our LTIP
with those participants receiving 1.82 common units for each
common unit they currently own, resulting in their ownership of
126,577 common units representing an aggregate 1.0% limited
partner interest in us;
|
F-2
OXFORD
RESOURCE PARTNERS, LP
UNAUDITED
PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
the split of the Class B common units held by C&T Coal
with C&T Coal receiving 1.82 Class B common units for
each Class B common unit it currently owns, resulting in
its ownership of 3,999,696 Class B common units
representing an aggregate 32.7% limited partner interest
in us;
|
|
|
|
|
|
the split of the Class B common units held by AIM Oxford
with AIM Oxford receiving 1.82 Class B common units for
each Class B common unit it currently owns, resulting in
its ownership of 7,859,487 Class B common units
representing an aggregate 64.3% limited partner interest
in us;
|
|
|
|
|
|
the conversion of all of our Class B common units held by
C&T Coal into: (i) 532,476 common units and
(ii) 3,467,220 subordinated units;
|
|
|
|
|
|
the conversion of all of our Class B common units held by
AIM Oxford into: (i) 1,046,327 common units and
(ii) 6,813,160 subordinated units;
|
|
|
|
|
|
the capital contribution of 59,022 common units and 115,978
common units by C&T Coal and AIM Oxford, respectively, to
our general partner;
|
|
|
|
|
|
the contribution to us by our general partner of the common
units contributed to it by C&T Coal and AIM Oxford in
exchange for 175,000 general partner units in order to maintain
its 2.0% general partner interest in us;
|
|
|
|
|
|
our entry into a new credit facility;
|
|
|
|
|
|
the issuance by us to the public of 8,750,000 common units;
|
|
|
|
|
|
the use of the net proceeds from the Offering to:
|
|
|
|
|
|
repay in full the outstanding balance under our existing credit
facility;
|
|
|
|
|
|
distribute approximately $22.3 million to C&T Coal in
respect of its limited partner interest in us;
|
|
|
|
|
|
distribute approximately $0.7 million to the participants
in the LTIP that hold our common units in respect of their
limited partner interests in us;
|
|
|
|
|
|
terminate our advisory services agreement with affiliates of AIM
for a payment of approximately $2.5 million;
|
|
|
|
|
|
pay offering expenses of approximately $3.2 million;
|
|
|
|
|
|
fund capital expenditures of approximately $22.1 million to
purchase equipment to be used in our mining operations; and
|
|
|
|
|
|
replenish approximately $18.5 million of our working
capital; and
|
|
|
|
|
|
the use of the net proceeds from borrowings under our new credit
facility of approximately $85.0 to distribute approximately
$43.8 million to AIM Oxford in respect of its limited
partner interest in us, pay fees and expenses associated with
our new credit facility of approximately $4.6 million,
distribute approximately $1.3 million to our general
partner in respect of its general partner interest, replenish
approximately $3.2 million of our working capital that we
distributed to our partners immediately prior to the closing of
this offering and buyout certain operating leases for
$32.1 million.
|
Pro Forma
Consolidated Statement of Operations
On September 30, 2009, we acquired 100% of the active
surface mining coal operations of Phoenix Coal. Our unaudited
pro forma consolidated statements of operations are derived from
our audited historical consolidated statement of operations for
the year ended December 31, 2009, our unaudited condensed
F-3
OXFORD
RESOURCE PARTNERS, LP
UNAUDITED
PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
historical consolidated statement of operations for the three
months ended March 31, 2010 and the audited combined
statements of operations and comprehensive loss for the
carved-out surface mining operations of Phoenix Coal Inc. for
the nine-month period ended September 30, 2009.
The Pro Forma Adjustments column in our unaudited
pro forma consolidated statements of operations for the year
ended December 31, 2009 contains the adjustments that we
believe are appropriate to present the Phoenix Coal acquisition
on a pro forma basis assuming a January 1, 2009 acquisition
date. Please read Note 2. Pro Forma
Consolidated Statement of Operations Adjustments. These
adjustments include, among other things, the following:
|
|
|
|
|
increases in revenue as a result of the amortization of
below-market coal sales contracts during the period from
January 1, 2009 to September 30, 2009 (the Stub
Period);
|
|
|
|
adjustments in depreciation, depletion and amortization expense,
or DD&A expense, over the Stub Period due to a new fair
value basis of assets as a result of change in control
accounting and our leasing of equipment from a third party that
was previously owned by Phoenix Coal; and
|
|
|
|
various adjustments to apply our accounting policies to the
Phoenix Coal financial statements during the Stub Period.
|
The Adjustments for Offering Transactions column in
our unaudited pro forma consolidated statements of operations
contains the adjustments that we believe are appropriate to give
effect to the Offering Transactions that will occur in
connection with the Offering assuming a January 1, 2009
offering date. Please read Note 2. Pro
Forma Consolidated Statement of Operations Adjustments. We
have not made adjustments to give effect to the incremental
selling, general and administrative expenses of approximately
$3.0 million that we expect to incur as a result of being a
publicly traded partnership.
F-4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments for
|
|
|
|
|
|
|
|
|
|
Offering
|
|
|
|
|
|
|
Oxford Resource
|
|
|
Transactions
|
|
|
Pro Forma
|
|
|
|
Partners, LP
|
|
|
(Note 1)
|
|
|
As Adjusted
|
|
|
|
(in thousands)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,290
|
|
|
$
|
85,000
|
(a)
|
|
$
|
23,004
|
|
|
|
|
|
|
|
|
(4,625
|
)
(a)
|
|
|
|
|
|
|
|
|
|
|
|
(93,517
|
)
(a)
|
|
|
|
|
|
|
|
|
|
|
|
175,000
|
(b)
|
|
|
|
|
|
|
|
|
|
|
|
(15,375
|
)
(b)
|
|
|
|
|
|
|
|
|
|
|
|
(68,100
|
)
(b)
|
|
|
|
|
|
|
|
|
|
|
|
(32,069
|
)
(d)
|
|
|
|
|
|
|
|
|
|
|
|
(22,100
|
)
(e)
|
|
|
|
|
|
|
|
|
|
|
|
(2,500
|
)
(f)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
|
29,838
|
|
|
|
(21,000
|
)
(b)
|
|
|
8,838
|
|
Inventory
|
|
|
10,390
|
|
|
|
|
|
|
|
10,390
|
|
Advance royalties
|
|
|
1,839
|
|
|
|
|
|
|
|
1,839
|
|
Prepaid expenses and other current assets
|
|
|
4,797
|
|
|
|
1,321
|
(a)
|
|
|
3,975
|
|
|
|
|
|
|
|
|
(2,143
|
)
(h)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
48,154
|
|
|
|
(108
|
)
|
|
|
48,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
147,949
|
|
|
|
32,069
|
(d)
|
|
|
202,118
|
|
|
|
|
|
|
|
|
22,100
|
(e)
|
|
|
|
|
Advance royalties
|
|
|
6,832
|
|
|
|
|
|
|
|
6,832
|
|
Other long-term assets
|
|
|
9,982
|
|
|
|
3,304
|
(a)
|
|
|
11,816
|
|
|
|
|
|
|
|
|
(1,470
|
)
(g)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
212,917
|
|
|
$
|
55,895
|
|
|
$
|
268,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
|
4,115
|
|
|
|
(846
|
)
(a)
|
|
|
7,019
|
|
|
|
|
|
|
|
|
3,750
|
(a)
|
|
|
|
|
Accounts payable
|
|
|
33,216
|
|
|
|
|
|
|
|
33,216
|
|
Asset retirement obligation current portion
|
|
|
6,623
|
|
|
|
|
|
|
|
6,623
|
|
Deferred revenue current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued taxes other than income taxes
|
|
|
1,526
|
|
|
|
|
|
|
|
1,526
|
|
Accrued payroll and related expenses
|
|
|
1,617
|
|
|
|
|
|
|
|
1,617
|
|
Other current liabilities
|
|
|
4,391
|
|
|
|
|
|
|
|
4,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
51,488
|
|
|
|
2,904
|
|
|
|
54,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
94,317
|
|
|
|
(92,671
|
)
(a)
|
|
|
82,896
|
|
|
|
|
|
|
|
|
81,250
|
(a)
|
|
|
|
|
Asset retirement obligations
|
|
|
7,013
|
|
|
|
|
|
|
|
7,013
|
|
Other long-term liabilities
|
|
|
4,236
|
|
|
|
|
|
|
|
4,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
157,054
|
|
|
$
|
(8,517
|
)
|
|
$
|
148,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
PARTNERS CAPITAL
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited Partners
|
|
|
51,120
|
|
|
|
(1,440
|
)
(g)
|
|
|
152,296
|
|
|
|
|
|
|
|
|
(2,450
|
)
(f)
|
|
|
|
|
|
|
|
|
|
|
|
(20,580
|
)
(b)
|
|
|
|
|
|
|
|
|
|
|
|
(23,197
|
)
(c)
|
|
|
|
|
|
|
|
|
|
|
|
(5,258
|
)
(b)
|
|
|
|
|
|
|
|
|
|
|
|
(2,676
|
)
(b)
|
|
|
|
|
|
|
|
|
|
|
|
(705
|
)
(b)
|
|
|
|
|
|
|
|
|
|
|
|
175,000
|
(b)
|
|
|
|
|
|
|
|
|
|
|
|
(15,375
|
)
(b)
|
|
|
|
|
|
|
|
|
|
|
|
(2,143
|
)
(h)
|
|
|
|
|
Subordinated unitholders
|
|
|
|
|
|
|
23,197
|
(c)
|
|
|
(34,902
|
)
|
|
|
|
|
|
|
|
(38,504
|
)
(b)
|
|
|
|
|
|
|
|
|
|
|
|
(19,595
|
)
(b)
|
|
|
|
|
General partner
|
|
|
1,048
|
|
|
|
(30
|
)
(g)
|
|
|
(814
|
)
|
|
|
|
|
|
|
|
(50
|
)
(f)
|
|
|
|
|
|
|
|
|
|
|
|
(420
|
)
(b)
|
|
|
|
|
|
|
|
|
|
|
|
(1,362
|
)
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Oxford Resource Partners, LP partners capital
|
|
|
52,168
|
|
|
|
64,412
|
|
|
|
116,580
|
|
Noncontrolling interest
|
|
|
3,695
|
|
|
|
|
|
|
|
3,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total partners capital
|
|
|
55,863
|
|
|
|
64,412
|
|
|
|
120,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and partners capital
|
|
$
|
212,917
|
|
|
$
|
55,895
|
|
|
$
|
268,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited pro forma consolidated
financial statements.
F-5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments for
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
Offering
|
|
|
|
|
|
|
Oxford Resource
|
|
|
Phoenix
|
|
|
Adjustments
|
|
|
|
|
|
Transactions
|
|
|
Pro Forma as
|
|
|
|
Partners, LP
|
|
|
Coal
|
|
|
(Note 2)
|
|
|
Pro Forma
|
|
|
(Note 2)
|
|
|
Adjusted
|
|
|
|
(in thousands)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal sales
|
|
$
|
254,171
|
|
|
$
|
58,494
|
|
|
$
|
4,556
|
(i)
|
|
$
|
312,490
|
|
|
$
|
|
|
|
$
|
312,490
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,731
|
)
(j)
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation revenue
|
|
|
32,490
|
|
|
|
|
|
|
|
4,731
|
(j)
|
|
|
37,221
|
|
|
|
|
|
|
|
37,221
|
|
Royalty and non-coal revenue
|
|
|
7,183
|
|
|
|
|
|
|
|
|
|
|
|
7,183
|
|
|
|
|
|
|
|
7,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
293,844
|
|
|
|
58,494
|
|
|
|
4,556
|
|
|
|
356,894
|
|
|
|
|
|
|
|
356,894
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of coal sales (excluding DD&A, shown separately)
|
|
|
170,698
|
|
|
|
54,531
|
|
|
|
1,464
|
(k)
|
|
|
214,662
|
|
|
|
(6,088
|
)
(p)
|
|
|
208,574
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,031
|
)
(j)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000
|
(l)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of purchased coal
|
|
|
19,487
|
|
|
|
|
|
|
|
10,305
|
(j)
|
|
|
29,792
|
|
|
|
|
|
|
|
29,792
|
|
Cost of transportation
|
|
|
32,490
|
|
|
|
|
|
|
|
4,731
|
(j)
|
|
|
37,221
|
|
|
|
|
|
|
|
37,221
|
|
Depreciation, depletion and amortization
|
|
|
25,902
|
|
|
|
5,800
|
|
|
|
(278
|
)
(m)
|
|
|
31,424
|
|
|
|
9,945
|
(q)
|
|
|
41,369
|
|
Selling, general and administrative expenses
|
|
|
13,242
|
|
|
|
6,948
|
|
|
|
5,852
|
(i)
|
|
|
26,042
|
|
|
|
(307
|
)
(r)
|
|
|
25,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Phoenix Coal selling expense
|
|
|
|
|
|
|
5,852
|
|
|
|
(5,852
|
)
(j)
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales contract termination cost
|
|
|
|
|
|
|
3,000
|
|
|
|
(3,000
|
)
(l)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
261,819
|
|
|
|
76,131
|
|
|
|
1,191
|
|
|
|
339,141
|
|
|
|
3,550
|
|
|
|
342,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
32,025
|
|
|
|
(17,637
|
)
|
|
|
3,365
|
|
|
|
17,753
|
|
|
|
(3,550
|
)
|
|
|
14,203
|
|
Interest income
|
|
|
35
|
|
|
|
4
|
|
|
|
|
|
|
|
39
|
|
|
|
|
|
|
|
39
|
|
Interest expense
|
|
|
(6,484
|
)
|
|
|
(2,601
|
)
|
|
|
(156
|
)
(n)
|
|
|
(9,241
|
)
|
|
|
1,849
|
(s)
|
|
|
(7,392
|
)
|
Other income (expense)
|
|
|
|
|
|
|
(5
|
)
|
|
|
5
|
(j)
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain from purchase of business
|
|
|
3,823
|
|
|
|
|
|
|
|
|
|
|
|
3,823
|
|
|
|
|
|
|
|
3,823
|
|
Taxes
|
|
|
|
|
|
|
(16
|
)
|
|
|
16
|
(o)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
29,399
|
|
|
|
(20,255
|
)
|
|
|
3,230
|
|
|
|
12,374
|
|
|
|
(1,701
|
)
|
|
|
10,673
|
|
Less: net income attributable to noncontrolling interest
|
|
|
(5,895
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,895
|
)
|
|
|
|
|
|
|
(5,895
|
)
|
Net income (loss) attributable to Oxford Resource Partners,
LP unitholders
|
|
$
|
23,504
|
|
|
$
|
(20,255
|
)
|
|
$
|
3,230
|
|
|
$
|
6,479
|
|
|
$
|
(1,701
|
)
|
|
$
|
4,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited pro forma consolidated
financial statements.
F-6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments for
|
|
|
|
|
|
|
Oxford Resource
|
|
|
Pro Forma
|
|
|
|
|
|
Offering
|
|
|
Pro Forma as
|
|
|
|
Partners, LP
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
Transactions
|
|
|
Adjusted
|
|
|
|
(in thousands)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal sales
|
|
$
|
76,756
|
|
|
|
|
|
|
$
|
76,756
|
|
|
|
|
|
|
$
|
76,756
|
|
Transportation revenue
|
|
|
9,530
|
|
|
|
|
|
|
|
9,530
|
|
|
|
|
|
|
|
9,530
|
|
Royalty and non-coal revenue
|
|
|
1,774
|
|
|
|
|
|
|
|
1,774
|
|
|
|
|
|
|
|
1,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
88,060
|
|
|
|
|
|
|
|
88,060
|
|
|
|
|
|
|
|
88,060
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of coal sales (excluding DD&A, shown separately)
|
|
|
55,186
|
|
|
|
|
|
|
|
55,186
|
|
|
|
(1,932
|
)
(t)
|
|
|
53,254
|
|
Cost of purchased coal
|
|
|
7,859
|
|
|
|
|
|
|
|
7,859
|
|
|
|
|
|
|
|
7,859
|
|
Cost of transportation
|
|
|
9,530
|
|
|
|
|
|
|
|
9,530
|
|
|
|
|
|
|
|
9,530
|
|
Depreciation, depletion and amortization
|
|
|
8,777
|
|
|
|
|
|
|
|
8,777
|
|
|
|
2,493
|
(u)
|
|
|
11,270
|
|
Selling, general and administrative expenses
|
|
|
3,535
|
|
|
|
|
|
|
|
3,535
|
|
|
|
(77
|
)
(v)
|
|
|
3,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
84,887
|
|
|
|
|
|
|
|
84,887
|
|
|
|
484
|
|
|
|
85,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
3,173
|
|
|
|
|
|
|
|
3,173
|
|
|
|
(484
|
)
|
|
|
2,689
|
|
Interest income
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Interest expense
|
|
|
(1,833
|
)
|
|
|
|
|
|
|
(1,833
|
)
|
|
|
(53
|
)
(w)
|
|
|
(1,886
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
1,341
|
|
|
|
|
|
|
|
1,341
|
|
|
|
(537
|
)
|
|
|
804
|
|
Less: net income attributable to noncontrolling interest
|
|
|
(1,628
|
)
|
|
|
|
|
|
|
(1,628
|
)
|
|
|
|
|
|
|
(1,628
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Oxford Resource Partners,
LP unitholders
|
|
$
|
(287
|
)
|
|
$
|
|
|
|
$
|
(287
|
)
|
|
$
|
(537
|
)
|
|
$
|
(824
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited pro forma consolidated
financial statements.
F-7
OXFORD
RESOURCE PARTNERS, LP
|
|
NOTE 1.
|
PRO FORMA
CONSOLIDATED BALANCE SHEET ADJUSTMENTS
|
(a) Reflects adjustments relating to the repayment of our
existing credit facility and the entry into our new credit
facility based on an assumed March 31, 2010 transaction
date for the Offering Transactions. These adjustments are based
on the following assumptions:
|
|
|
|
|
the repayment of a total of $93.5 million in debt
outstanding under our existing credit facility;
|
|
|
|
|
|
total borrowings of $85.0 million under our new credit
facility; and
|
|
|
|
|
|
total fees relating to our new credit facility of
$4.6 million, which amount will be capitalized.
|
(b) Reflects adjustments for the Offering Transactions not
discussed in Note (a) above, based on an assumed
March 31, 2010 transaction date for the Offering
Transactions. These adjustments are based on the following
assumptions:
|
|
|
|
|
the distribution of $21.0 million in accounts receivable to
our General Partner, C&T Coal, AIM Oxford and the
participants in our LTIP, pro rata;
|
|
|
|
|
|
gross proceeds of $175 million from the issuance and sale
of 8,750,000 common units at an assumed initial offering price
of $20.00 per unit (the midpoint of the range set forth on
the cover page of this prospectus);
|
|
|
|
|
|
estimated underwriting fees and commissions and offering
expenses of $15.4 million at time of closing.
|
|
|
|
|
|
a total cash distribution of $68.1 million to our General
Partner, C&T Coal, AIM Oxford and the participants in our
LTIP, pro rata; and
|
|
|
|
|
|
replenishment of working capital with remaining cash proceeds of
$21.7 million.
|
(c) Reflects adjustments for the conversion of certain
common units of our sponsors into subordinated units.
(d) Reflects adjustments as of March 31, 2010 for the
purchase of major mining equipment that we currently finance
with operating leases with various financial institutions for
$32.1 million. We have firm commitments from these
financial institutions that are contingent upon the successful
completion of the Offering Transactions.
(e) Reflects adjustments for the purchase of major mining
equipment for $22.1 million with proceeds of the Offering.
These capital expenditures have been approved by the board and
are contingent upon the successful completion of the Offering
Transactions.
(f) Reflects adjustments for the payment to AIM Oxford for
terminating the Advisory Services Agreement of $2.5 million.
(g) Reflects adjustments to write off deferred financing
costs of $1.5 million that relate to our existing credit
facility.
(h) Reflects additional costs associated with the Offering
Transactions of $2.1 million which have already been paid
and will be charged to equity.
|
|
NOTE 2.
|
PRO FORMA
CONSOLIDATED STATEMENT OF OPERATIONS ADJUSTMENTS
|
(i) Reflects the benefit of amortization during the Stub
Period of the below-market coal sales contracts that we acquired
in the Phoenix Coal acquisition. The amount was calculated based
on the amortization we recognized in the fourth quarter of 2009
and the amount of coal shipped on these contracts during the
Stub Period as compared to the fourth quarter of 2009.
F-8
OXFORD
RESOURCE PARTNERS, LP
Notes to
Unaudited Pro Forma Consolidated Financial
Statements (Continued)
|
|
NOTE 2.
|
PRO FORMA
CONSOLIDATED STATEMENT OF OPERATIONS
ADJUSTMENTS (Continued)
|
(j) Reflects reclassifications to conform the statement of
operations of Phoenix Coal to our basis of presentation.
(k) Reflects additional lease expense we would have
incurred over the Stub Period as a result of our leasing, from a
third party, equipment that was previously owned by Phoenix
Coal. We executed this lease concurrently with the closing of
the Phoenix Coal acquisition.
(l) Reflects the reclassification of sales contract
termination costs incurred by Phoenix Coal into cost of coal
sales.
(m) Reflects the net effect of the elimination of DD&A
expense attributable to the operations we purchased from Phoenix
Coal and the addition of DD&A expense we would have
incurred based on a January 1, 2009 assumed acquisition
date. Our net adjustment to DD&A expense is a decrease of
$0.3 million and is attributable to the following:
|
|
|
|
|
a decrease in our depletion expense due to lower fair market
values assigned to coal reserves as compared to Phoenix
Coals carrying value, partially offset by
|
|
|
|
an increase in our depreciation expense due to higher fair
market values assigned to equipment purchased as compared to
Phoenix Coals carrying value.
|
(n) As a result of the Phoenix Coal acquisition, interest
expense increased $0.2 million over the Stub Period. This
increase would have been attributable to increased debt levels
and higher interest rates applicable to our existing credit
facility that we amended in connection with the acquisition. Our
amortization of deferred financing expenses also increased over
the Stub Period due to amendment fees paid to lenders as a
result of the amendment to our existing credit facility. These
items increased our interest expense by $2.8 million, which
was partially offset by the elimination of the historical
interest expense of Phoenix Coal of $2.6 million.
(o) Reflects the elimination of Phoenix Coals income
taxes that we would not have incurred because of our status as a
partnership that does not pay federal income taxes.
(p) Reflects the elimination of lease expense of
$6.1 million for major mining equipment that we currently
finance with operating leases as a result of the purchase of
this equipment and termination of the leases.
(q) Reflects the additional depreciation of
$7.6 million related to the major mining equipment acquired
as a result of the termination of certain operating leases and
$2.3 million related to the major mining equipment purchased
with certain proceeds of the Offering Transactions.
(r) Reflects the elimination of advisory fees of
$0.3 million paid to affiliates of AIM Oxford that would
not have been paid as the Advisory Services Agreement would have
been previously terminated.
(s) Reflects a decrease in interest expense of
$1.8 million to reflect a lower effective interest rate
associated with our new credit facility, partially offset by
higher amortization of deferred financing cost associated with
our new credit facility.
(t) Reflects the elimination of lease expense of
$1.9 million for major mining equipment that we currently
finance with operating leases as a result of the purchase of
this equipment and termination of the leases.
(u) Reflects the additional depreciation of
$1.9 million related to the purchase of major mining
equipment covered by operating leases and the termination of the
leases and $0.6 million related to the major mining equipment
purchased with certain proceeds of the Offering Transactions.
F-9
OXFORD
RESOURCE PARTNERS, LP
Notes to
Unaudited Pro Forma Consolidated Financial
Statements (Continued)
|
|
NOTE 2.
|
PRO FORMA
CONSOLIDATED STATEMENT OF OPERATIONS
ADJUSTMENTS (Continued)
|
(v) Reflects the elimination of advisory fees of
$0.1 million paid in during the three months ended
March 31, 2010 to affiliates of AIM Oxford that would not
have been paid as the Advisory Services Agreement would have
been previously terminated.
(w) Reflects an increase in interest expense of
$0.1 million to reflect higher amortization of deferred
financing cost associated with our new credit partially offset
by a lower effective interest rate associated with our new
credit facility.
F-10
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
1,290
|
|
|
$
|
3,366
|
|
Trade accounts receivable
|
|
|
29,838
|
|
|
|
24,403
|
|
Inventory
|
|
|
10,390
|
|
|
|
8,801
|
|
Advance royalties
|
|
|
1,839
|
|
|
|
1,674
|
|
Prepaid expenses and other current assets
|
|
|
4,797
|
|
|
|
1,424
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
48,154
|
|
|
|
39,668
|
|
Property, plant and equipment, net
|
|
|
147,949
|
|
|
|
149,461
|
|
Advance royalties
|
|
|
6,832
|
|
|
|
7,438
|
|
Other long-term assets
|
|
|
9,982
|
|
|
|
6,796
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
212,917
|
|
|
$
|
203,363
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
Current portion of long-term debt
|
|
$
|
4,115
|
|
|
$
|
4,113
|
|
Accounts payable
|
|
|
33,216
|
|
|
|
21,655
|
|
Asset retirement obligation current portion
|
|
|
6,623
|
|
|
|
7,377
|
|
Deferred revenue current portion
|
|
|
|
|
|
|
2,090
|
|
Accrued taxes other than income taxes
|
|
|
1,526
|
|
|
|
1,464
|
|
Accrued payroll and related expenses
|
|
|
1,617
|
|
|
|
2,045
|
|
Other current liabilities
|
|
|
4,391
|
|
|
|
5,714
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
51,488
|
|
|
|
44,458
|
|
Long-term debt
|
|
|
94,317
|
|
|
|
91,598
|
|
Asset retirement obligations
|
|
|
7,013
|
|
|
|
5,966
|
|
Other long-term liabilities
|
|
|
4,236
|
|
|
|
4,229
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
157,054
|
|
|
$
|
146,251
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PARTNERS CAPITAL
|
|
|
|
|
|
|
|
|
Limited Partners unitholders (6,582,039 and 6,570,396 units
outstanding as of March 31, 2010 and December 31,
2009, respectively)
|
|
|
51,120
|
|
|
|
53,960
|
|
General Partner unitholders (134,327 and 132,909 units
outstanding as of March 31, 2010 and December 31,
2009, respectively)
|
|
|
1,048
|
|
|
|
1,085
|
|
|
|
|
|
|
|
|
|
|
Total Oxford Resource Partners, LP Capital
|
|
|
52,168
|
|
|
|
55,045
|
|
Noncontrolling interest
|
|
|
3,695
|
|
|
|
2,067
|
|
|
|
|
|
|
|
|
|
|
Total partners capital
|
|
|
55,863
|
|
|
|
57,112
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and Partners capital
|
|
$
|
212,917
|
|
|
$
|
203,363
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-11
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
Coal sales
|
|
$
|
76,756
|
|
|
$
|
67,377
|
|
Transportation revenue
|
|
|
9,530
|
|
|
|
8,660
|
|
Royalty and non-coal revenue
|
|
|
1,774
|
|
|
|
2,402
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
88,060
|
|
|
|
78,439
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
Cost of coal sales (excluding of depreciation, depletion, and
amortization, shown separately)
|
|
|
55,186
|
|
|
|
40,825
|
|
Cost of purchased coal
|
|
|
7,859
|
|
|
|
8,505
|
|
Cost of transportation
|
|
|
9,530
|
|
|
|
8,660
|
|
Depreciation, depletion, and amortization
|
|
|
8,777
|
|
|
|
5,688
|
|
Selling, general and administrative expenses
|
|
|
3,535
|
|
|
|
3,101
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
84,887
|
|
|
|
66,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
3,173
|
|
|
|
11,660
|
|
Interest income
|
|
|
1
|
|
|
|
11
|
|
Interest expense
|
|
|
(1,833
|
)
|
|
|
(1,123
|
)
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
1,341
|
|
|
|
10,548
|
|
Less net income attributable to noncontrolling interest
|
|
|
(1,628
|
)
|
|
|
(1,165
|
)
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Oxford Resource Partners,
LP unitholders
|
|
$
|
(287
|
)
|
|
$
|
9,383
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income allocated to general partners
|
|
$
|
(6
|
)
|
|
$
|
187
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income allocated to limited partners
|
|
$
|
(281
|
)
|
|
$
|
9,196
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per limited partner unit
|
|
$
|
(0.04
|
)
|
|
$
|
1.56
|
|
|
|
|
|
|
|
|
|
|
Dilutive (loss) earnings per limited partner unit
|
|
$
|
(0.04
|
)
|
|
$
|
1.56
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of limited partner units outstanding
basic
|
|
|
6,575,259
|
|
|
|
5,889,539
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of limited partner units outstanding
diluted
|
|
|
6,575,259
|
|
|
|
5,900,217
|
|
|
|
|
|
|
|
|
|
|
Distributions paid per limited partner unit
|
|
$
|
0.42
|
|
|
$
|
0.42
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited
|
|
|
Limited
|
|
|
General
|
|
|
General
|
|
|
|
|
|
|
|
|
|
Partner
|
|
|
Partners
|
|
|
Partner
|
|
|
Partners
|
|
|
Noncontrolling
|
|
|
Total Partners
|
|
|
|
Units
|
|
|
Capital
|
|
|
Units
|
|
|
Capital
|
|
|
Interest
|
|
|
Capital
|
|
|
Balance at December 31, 2008
|
|
|
5,889,484
|
|
|
$
|
32,371
|
|
|
|
119,643
|
|
|
$
|
653
|
|
|
$
|
2,297
|
|
|
$
|
35,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
9,196
|
|
|
|
|
|
|
|
187
|
|
|
|
1,165
|
|
|
|
10,548
|
|
Partners contributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners distributions
|
|
|
|
|
|
|
(2,473
|
)
|
|
|
|
|
|
|
(50
|
)
|
|
|
(1,470
|
)
|
|
|
(3,993
|
)
|
Unit based compensation
|
|
|
|
|
|
|
109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109
|
|
Issuance of units to Long Term Incentive Plan participants upon
vesting
|
|
|
4,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2009
|
|
|
5,894,462
|
|
|
$
|
39,203
|
|
|
|
119,643
|
|
|
$
|
790
|
|
|
$
|
1,992
|
|
|
$
|
41,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
6,570,396
|
|
|
$
|
53,960
|
|
|
|
132,909
|
|
|
$
|
1,085
|
|
|
$
|
2,067
|
|
|
$
|
57,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
(281
|
)
|
|
|
|
|
|
|
(6
|
)
|
|
|
1,628
|
|
|
|
1,341
|
|
Partners contributions
|
|
|
|
|
|
|
|
|
|
|
1,418
|
|
|
|
25
|
|
|
|
|
|
|
|
25
|
|
Partners distributions
|
|
|
|
|
|
|
(2,762
|
)
|
|
|
|
|
|
|
(56
|
)
|
|
|
|
|
|
|
(2,818
|
)
|
Unit based compensation
|
|
|
|
|
|
|
304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
304
|
|
Issuance of units to Long Term Incentive Plan participants upon
vesting
|
|
|
11,643
|
|
|
|
(101
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(101
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2010
|
|
|
6,582,039
|
|
|
$
|
51,120
|
|
|
|
134,327
|
|
|
$
|
1,048
|
|
|
$
|
3,695
|
|
|
$
|
55,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-13
OXFORD
RESOURCE PARTNERS, LP AND SUBSIDIARIES
(in
thousands, except for unit information)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Oxford Resource Partners, LP
unitholders
|
|
$
|
(287
|
)
|
|
$
|
9,383
|
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization
|
|
|
8,777
|
|
|
|
5,688
|
|
Interest rate swap or rate cap adjustment to market
|
|
|
33
|
|
|
|
(466
|
)
|
Loan fee amortization
|
|
|
168
|
|
|
|
110
|
|
Non-cash compensation expense
|
|
|
304
|
|
|
|
109
|
|
Advanced royalty recoupment
|
|
|
600
|
|
|
|
263
|
|
Loss on disposal of property and equipment
|
|
|
175
|
|
|
|
216
|
|
Noncontrolling interest in subsidiary earnings
|
|
|
1,628
|
|
|
|
1,165
|
|
(Increase) in assets:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(5,435
|
)
|
|
|
(1,668
|
)
|
Inventory
|
|
|
(1,589
|
)
|
|
|
(1,450
|
)
|
Other assets
|
|
|
(3,068
|
)
|
|
|
(604
|
)
|
Increase (decrease) in liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and other liabilities
|
|
|
9,457
|
|
|
|
191
|
|
Asset retirement obligation
|
|
|
293
|
|
|
|
531
|
|
Provision for below-market contracts and deferred revenue
|
|
|
(2,715
|
)
|
|
|
(2,966
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
8,341
|
|
|
|
10,502
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase of mineral rights and land
|
|
|
(2,116
|
)
|
|
|
(20
|
)
|
Mine development costs
|
|
|
(775
|
)
|
|
|
(179
|
)
|
Royalty advances
|
|
|
(144
|
)
|
|
|
(149
|
)
|
Purchase of property and equipment
|
|
|
(4,995
|
)
|
|
|
(6,715
|
)
|
Proceeds from sale of property and equipment
|
|
|
1,248
|
|
|
|
21
|
|
Change in restricted cash
|
|
|
(3,498
|
)
|
|
|
(440
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(10,280
|
)
|
|
|
(7,482
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from borrowings
|
|
|
|
|
|
|
6,650
|
|
Payments on borrowings
|
|
|
(344
|
)
|
|
|
(215
|
)
|
Capital contributions from partners
|
|
|
25
|
|
|
|
|
|
Advances on line of credit
|
|
|
3,000
|
|
|
|
|
|
Distributions to noncontrolling interest
|
|
|
|
|
|
|
(1,470
|
)
|
Distributions to partners
|
|
|
(2,818
|
)
|
|
|
(2,523
|
)
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(137
|
)
|
|
|
2,442
|
|
Net increase/(decrease) in cash
|
|
|
(2,076
|
)
|
|
|
5,462
|
|
CASH AND CASH EQUIVALENTS, beginning of period
|
|
|
3,366
|
|
|
|
15,179
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, end of period
|
|
$
|
1,290
|
|
|
$
|
20,641
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-14
OXFORD
RESOURCE PARTNERS, LP AND SUBSIDIARIES
The accompanying interim unaudited condensed consolidated
financial statements reflect all adjustments (consisting of
normal recurring accruals) that, in the opinion of management,
are necessary for a fair presentation of the financial results.
All such adjustments reflected in the unaudited interim
condensed consolidated financial statements are considered to be
of a normal and recurring nature. The results of the operations
for the three-month period ended March 31, 2010 and 2009
are not necessarily indicative of the results to be expected for
the whole year. Accordingly, these unaudited condensed
consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto for
the year ended December 31, 2009 contained herein.
|
|
NOTE 1:
|
ORGANIZATION
AND PRESENTATION
|
Significant
Relationships Referenced in Notes to Consolidated Financial
Statements
|
|
|
|
|
We, us, our, or the
Partnership means the business and operations of
Oxford Resource Partners, LP, the parent entity, as well as its
consolidated subsidiaries.
|
|
|
|
ORLP means Oxford Resource Partners, LP,
individually as the parent entity, and not on a consolidated
basis.
|
|
|
|
Our GP means Oxford Resources GP, LLC, the general
partner of Oxford Resource Partners, LP.
|
Organization
We are a low cost producer of high value steam coal. We focus on
acquiring steam coal reserves that we can efficiently mine with
our modern, large scale equipment. Our reserves and operations
are strategically located in Northern Appalachia and the
Illinois Basin to serve our primary market area of Illinois,
Indiana, Kentucky, Ohio, Pennsylvania and West Virginia. These
coal reserves are mined by our subsidiaries, Oxford Mining
Company, LLC (Oxford Mining), Oxford Mining
Company-Kentucky, LLC and Harrison Resources, LLC
(Harrison Resources).
We are managed by our GP and all executives, officers and
employees who provide services to us are employees of our GP.
Charles Ungurean, the President and Chief Executive Officer of
our GP and a member of our GPs board of directors, and
Thomas Ungurean, the Senior Vice President, Equipment,
Procurement and Maintenance of our GP, are the co-owners of
C&T Coal, Inc. (C&T Coal). Prior to our
acquisition of Oxford, C&T Coal owned 100% of the
outstanding ownership interest in Oxford Mining Company
(Predecessor or Oxford).
We were formed in August 2007 to acquire all of the ownership
interests in Oxford. On August 24, 2007, a contribution
agreement was executed which resulted in C&T Coal and AIM
Oxford Holdings, LLC (AIM Oxford) holding a 34.3%
and 63.7% limited partner interest in ORLP, respectively, and
our GP owning a 2% general partner interest. Also at that time,
the members of our GP were AIM Oxford with a 65% ownership
interest and C&T Coal with a 35% ownership interest. After
taking into account their indirect ownership of ORLP through our
GP, AIM Oxford held a 65% total interest in ORLP and C&T
Coal held a 35% total interest in ORLP.
Subsequent to our formation, AIM Oxford and C&T Coal made
several capital contributions for various purposes including
purchasing property, plant and equipment and acquiring the
surface mining operations of Phoenix Coal Corporation
(Phoenix Coal). The capital contributions were not
all in direct proportion to AIM Oxfords and C&T
Coals initial limited partner interests in us. As a result
of the disproportionate capital contributions, AIM Oxfords
and C&T Coals ownership of the Partnership, as of
March 31, 2010, is 64.26% and 32.70%, respectively, with
2.00% and 1.04% interests being owned by our GP and participants
in the Partnerships Long-Term Incentive Plan
(LTIP), respectively. AIM Oxford and C&T Coal
own 66.27% and 33.73%, respectively, in the GP.
F-15
OXFORD
RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
|
|
NOTE 1:
|
ORGANIZATION
AND PRESENTATION (Continued)
|
Basis
of Presentation and Significant Accounting
Policies
The accompanying unaudited condensed consolidated financial
statements include the accounts and operations of the
Partnership and its consolidated subsidiaries and are prepared
in conformity with accounting principles generally accepted in
the United States of America (US GAAP) for interim
financial information and
Rule 10-01
of
Regulation S-X
under the Securities Exchange Act of 1934. We own a 51% interest
in Harrison Resources and are therefore deemed to have control.
As a result, we consolidate all of Harrison Resources
accounts with all material intercompany transactions and
balances being eliminated in our consolidated financial
statements. The 49% portion of Harrison Resources that we do not
own is reflected as Noncontrolling interest in the
consolidated balance sheet.
|
|
NOTE 2:
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Significant
Accounting Policies
Our significant accounting policies are discussed in the
Note 2 of the notes to our audited 2009 consolidated
financial statements located on
page F-33.
New
Accounting Standards Issued and Adopted
In August 2009, the FASB issued ASU
2009-05,
Measuring Liabilities at Fair Value. The amendment provides
clarification that in circumstances in which a quoted price in
an active market for the identical liability is not available, a
reporting entity is required to measure fair value using one or
more of the alternative valuation methods outlined in the
guidance. It also clarifies that restrictions preventing the
transfer of a liability should not be considered as a separate
input or adjustment in the measurement of its fair value. This
amendment was effective as of the beginning of interim and
annual reporting periods that begin after August 27, 2009.
The adoption of this guidance did not impact our consolidated
financial statements.
In June 2009, the FASB amended guidance for the consolidation of
a variable interest entity (VIE). This guidance
updated the determination of whether an enterprise is the
primary beneficiary of a VIE, and is, therefore, required to
consolidate an entity, by requiring a qualitative analysis
rather than a quantitative analysis. This standard also requires
continuous reassessments of whether an enterprise is the primary
beneficiary of a VIE. Previously, reconsideration was required
only when specific events had occurred. This guidance also
requires enhanced disclosure about an enterprises
involvement with a VIE. The provisions of these updates are
effective as of the beginning of interim and annual reporting
periods that begin after November 15, 2009. The adoption of
this standard did not impact our consolidated financial
statements.
In January 2010, the FASB issued guidance on improving
disclosures about fair value measurements. This guidance
requires reporting entities to make new disclosures about
recurring or nonrecurring fair-value measurements including
significant transfers into and out of Level 1 and
Level 2 fair value measurements and information on
purchases, sales, issuances, and settlements on a gross basis in
the reconciliation of Level 3 fair value measurements. We
adopted this guidance effective January 1, 2010 except for
Level 3 reconciliation disclosures which are effective for
annual periods beginning after December 15, 2010, and for
interim periods within those fiscal years. The adoption of this
guidance did not have a material effect on our consolidated
financial position, results of operations or cash flows and the
adoption of the level 3 reconciliation disclosures is not
expected to have a material effect on our consolidated financial
position, results of operations or cash flows.
F-16
OXFORD
RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
On September 30, 2009, we acquired 100% of the active
western Kentucky surface mining coal operations of Phoenix Coal.
This acquisition provided us an entry into the Illinois Basin
and consisted of four active surface coal mines and coal
reserves of 20 million tons, as well as mineral rights,
working capital and various coal sales and purchase contracts.
The application of purchase accounting requires that the total
purchase price be allocated to the fair value of assets acquired
and liabilities assumed based on the fair values of the assets
and the liabilities at the acquisition date. As part of the
acquisition agreement, we agreed to make additional payments of
up to $1,000,000 in two installments to Phoenix Coal if Phoenix
Coal secured specific surface and mineral rights by certain
dates, the last of which will expire on June 30, 2010.
During the fourth quarter of 2009, we paid $500,000 to Phoenix
Coal for obtaining the surface rights pertaining to certain coal
leases. The remaining $500,000 contingent payment was paid to
Phoenix Coal in January 2010 for achieving specified objectives
as to arrangements for additional coal leases in western
Kentucky.
In connection with the closing of our Phoenix Coal acquisition,
we entered into an escrow agreement with Phoenix Coal. The
purpose of the escrow agreement is to provide a source of
funding for any indemnification claims we make against Phoenix
Coal for breaches of covenants and warranties as the seller
under the terms of the acquisition agreement. To date, there
have been no indemnification claims against the escrow. The
escrow was funded with $3,300,000. The escrow agreement provides
for the release to Phoenix Coal of portions of the escrow fund
including earnings thereon at periodic intervals, with one-third
of the escrow fund amount being released to Phoenix Coal on
March 31, 2010, September 30, 2010, and March 31,
2011. All amounts are offset for any indemnification claims.
Pursuant to such release provisions, the escrow agent released
one-third of the then escrow fund amount, or $1,100,000, to
Phoenix Coal at the end of March 2010.
We also assumed a contract with a third party to pay a
contingent fee if the third party was able to arrange to lease
or purchase, on our behalf, a specified amount of coal reserves
by July 31, 2010. The contract called for a payment of
$1,000,000; however, we concluded that the fair value of the
contingent liability was $625,000 using a probability weighted
average of the likely outcomes. That amount was recorded as a
liability with a corresponding asset in the consolidated balance
sheet under the caption of Property, plant and equipment,
net.
The following unaudited pro forma financial information reflects
the consolidated results of operations as if the Phoenix Coal
acquisition had occurred at the beginning of 2009. The pro forma
information includes adjustments primarily for depreciation,
depletion and amortization based upon fair values of property,
plant and equipment and mineral rights, the lease of
$11.1 million of equipment, and interest expense for
acquisition debt and additional capital contributions. The pro
forma financial information is not necessarily indicative of
results that actually would have occurred if we had assumed
operation of these assets on the date indicated nor are they
indicative of future results.
|
|
|
|
|
|
|
For the Quarter Ended
|
|
|
March 31, 2009
|
|
|
(Unaudited)
|
|
Revenue
|
|
$
|
97,910,000
|
|
Net income attributable to Oxford Resource Partners, LP
unitholders
|
|
|
1,991,000
|
|
F-17
OXFORD
RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
Inventory consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010
|
|
|
December 31, 2009
|
|
|
Coal
|
|
$
|
5,874,000
|
|
|
$
|
4,759,000
|
|
Fuel
|
|
|
1,513,000
|
|
|
|
1,264,000
|
|
Supplies and spare parts
|
|
|
3,003,000
|
|
|
|
2,778,000
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,390,000
|
|
|
$
|
8,801,000
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 5:
|
PROPERTY,
PLANT AND EQUIPMENT, NET
|
Property, plant and equipment, net of accumulated depreciation,
depletion and amortization consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010
|
|
|
December 31, 2009
|
|
|
Property, plant and equipment, gross
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
3,374,000
|
|
|
$
|
3,374,000
|
|
Coal reserves
|
|
|
41,959,000
|
|
|
|
39,905,000
|
|
Mine development costs
|
|
|
9,381,000
|
|
|
|
8,606,000
|
|
|
|
|
|
|
|
|
|
|
Total Property
|
|
|
54,714,000
|
|
|
|
51,885,000
|
|
|
|
|
|
|
|
|
|
|
Buildings and tipple
|
|
|
2,042,000
|
|
|
|
2,025,000
|
|
Machinery and equipment
|
|
|
136,745,000
|
|
|
|
133,667,000
|
|
Vehicles
|
|
|
4,018,000
|
|
|
|
3,913,000
|
|
Furniture and fixtures
|
|
|
869,000
|
|
|
|
690,000
|
|
Railroad sidings
|
|
|
160,000
|
|
|
|
160,000
|
|
Total property, plant and equipment, gross
|
|
|
198,548,000
|
|
|
|
192,340,000
|
|
Less: accumulated depreciation, depletion and amortization
|
|
|
50,599,000
|
|
|
|
42,879,000
|
|
|
|
|
|
|
|
|
|
|
Total property, plant and equipment, net
|
|
$
|
147,949,000
|
|
|
$
|
149,461,000
|
|
|
|
|
|
|
|
|
|
|
The amounts of depreciation expense related to owned and leased
fixed assets, depletion expense related to owned and leased coal
reserves, and amortization expense related to mine development
costs for the respective periods are set forth below:
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Quarter Ended
|
|
|
March 31, 2010
|
|
March 31, 2009
|
|
Expense type:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
6,950,000
|
|
|
$
|
3,597,000
|
|
Depletion
|
|
|
1,329,000
|
|
|
|
1,571,000
|
|
Amortization
|
|
|
413,000
|
|
|
|
420,000
|
|
We lease certain equipment under non-cancelable lease agreements
that expire on various dates through 2015. Generally the lease
agreements are for a period of four years. As of March 31,
2010, aggregate lease
F-18
OXFORD
RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
|
|
NOTE 6:
|
OPERATING
LEASES (Continued)
|
payments that are required under operating leases that have
initial or remaining non-cancelable lease terms in excess of one
year are set forth below:
|
|
|
|
|
For the years ending December 31, 2010
|
|
$
|
6,270,000
|
|
2011
|
|
|
7,866,000
|
|
2012
|
|
|
6,283,000
|
|
2013
|
|
|
3,405,000
|
|
2014
|
|
|
1,206,000
|
|
Thereafter
|
|
|
121,000
|
|
For the quarters ended March 31, 2010 and 2009, we incurred
lease expenses of approximately $2,236,000 and $1,118,000
respectively.
We also entered into various coal reserve lease agreements under
which future royalty payments are due based on production. Such
payments are capitalized as advance royalties at the time of
payment, and amortized into royalty expense based on the stated
recoupment rate.
|
|
NOTE 7:
|
ASSET
RETIREMENT OBLIGATION
|
At March 31, 2010, we had recorded asset retirement
obligation liabilities of $13.6 million, including amounts
reported as current liabilities. While the precise amount of
these future costs cannot be determined with absolute certainty
as of March 31, 2010, we estimate that the aggregate
undiscounted cost of final mine closure is approximately
$15.2 million.
The following table presents the activity affecting the asset
retirement obligation for the respective periods:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010
|
|
|
December 31, 2009
|
|
|
Beginning balance
|
|
$
|
13,343,000
|
|
|
$
|
9,292,000
|
|
Accretion expense
|
|
|
233,000
|
|
|
|
650,000
|
|
Payments
|
|
|
(354,000
|
)
|
|
|
(3,358,000
|
)
|
Revisions in estimated cash flows
|
|
|
414,000
|
|
|
|
3,802,000
|
|
Additions due to acquisition
|
|
|
|
|
|
|
2,957,000
|
|
|
|
|
|
|
|
|
|
|
Total asset retirement obligation
|
|
$
|
13,636,000
|
|
|
$
|
13,343,000
|
|
Current portion
|
|
|
6,623,000
|
|
|
|
7,377,000
|
|
|
|
|
|
|
|
|
|
|
Noncurrent liability
|
|
$
|
7,013,000
|
|
|
$
|
5,966,000
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 8:
|
FAIR
VALUE OF FINANCIAL INSTRUMENTS
|
Fair value measures are classified into a three-tiered fair
value hierarchy, which prioritizes the inputs used in measuring
fair values as follows:
|
|
|
|
|
Level 1 Observable inputs such as quoted prices
in active markets.
|
|
|
|
Level 2 Inputs, other than quoted prices in
active markets, that are observable either directly or
indirectly.
|
|
|
|
Level 3 Unobservable inputs in which there is
little or no market data, which require a reporting entity to
develop its own assumptions.
|
F-19
OXFORD
RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
|
|
NOTE 8:
|
FAIR
VALUE OF FINANCIAL
INSTRUMENTS (Continued)
|
Assets and liabilities measured at fair value are based on one
or more of the following valuation techniques:
|
|
|
|
|
Market approach (Level 1) Prices and other
relevant information generated by market transactions involving
identical or comparable assets or liabilities.
|
|
|
|
Cost approach (Level 2) Amount that would be
required to replace the service capacity of an asset
(replacement cost).
|
|
|
|
Income approach (Level 3) Techniques to convert
future amounts to a single present amount based on market
expectations (including present-value techniques, option-pricing
and excess earning models).
|
The financial instruments measured at fair value on a recurring
basis are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at March 31, 2010
|
|
|
Quoted Prices in
|
|
|
|
Significant
|
|
|
Active Markets for
|
|
Significant Other
|
|
Unobservable
|
|
|
Identical Liabilities
|
|
Observable Inputs
|
|
Inputs
|
Description
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Interest rate cap agreement
|
|
$
|
|
|
|
$
|
1,000
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2009
|
|
|
Quoted Prices in
|
|
|
|
Significant
|
|
|
Active Markets for
|
|
Significant Other
|
|
Unobservable
|
|
|
Identical Liabilities
|
|
Observable Inputs
|
|
Inputs
|
Description
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Interest rate cap agreement
|
|
$
|
|
|
|
$
|
34,000
|
|
|
$
|
|
|
We estimated the fair value of the interest rate cap agreement
using calculations based on market rates.
The following methods and assumptions were used to estimate the
fair values of financial instruments for which the fair value
option was not elected:
Cash and cash equivalents, trade accounts receivable and
accounts payable:
The carrying amount reported in
the balance sheets for cash and cash equivalents, trade accounts
receivable and accounts payable approximates its fair value due
to the short maturity of these instruments.
Fixed rate debt:
The fair values of long-term
debt are estimated using discounted cash flow analyses, based on
current market rates for instruments with similar cash flows.
Variable rate debt:
The fair value of variable
rate debt is estimated using discounted cash flow analyses,
based on our best estimates of market rate for instruments with
similar cash flows.
The carrying amounts and fair values of financial instruments
for which the fair value option was not elected are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010
|
|
December 31, 2009
|
|
|
Carrying
|
|
|
|
Carrying
|
|
|
|
|
Amount
|
|
Fair Value
|
|
Amount
|
|
Fair Value
|
|
Fixed rate debt
|
|
$
|
4,914,000
|
|
|
$
|
4,980,000
|
|
|
$
|
4,982,000
|
|
|
$
|
4,952,000
|
|
Variable rate debt
|
|
$
|
93,518,000
|
|
|
$
|
93,518,000
|
|
|
$
|
90,729,000
|
|
|
$
|
90,729,000
|
|
F-20
OXFORD
RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
|
|
NOTE 9:
|
LONG-TERM
INCENTIVE PLAN
|
Under our LTIP, we recognize compensation expense over the
vesting period of the units, which is generally four years for
each award. For the quarters ended March 31, 2010 and 2009,
our gross LTIP expense was approximately $304,000 and $109,000,
respectively, which is included in selling, general and
administrative expenses in our consolidated statements of
operations. As of March 31, 2010 and December 31,
2009, approximately $1,185,000 and $840,000, respectively, of
cost remained unamortized which we expect to recognize over a
remaining weighted average period of one year.
The following table summarizes additional information concerning
our unvested LTIP units:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
Average
|
|
|
|
|
Grant
|
|
|
|
|
Date Fair
|
|
|
Units
|
|
Value
|
|
Unvested balance at December 31, 2009
|
|
|
79,050
|
|
|
$
|
11.79
|
|
Granted
|
|
|
37,221
|
|
|
|
17.43
|
|
Issued
|
|
|
(11,643
|
)
|
|
|
14.77
|
|
Surrendered
|
|
|
(5,087
|
)
|
|
|
14.21
|
|
|
|
|
|
|
|
|
|
|
Unvested balance at March 31, 2010
|
|
|
99,541
|
|
|
|
13.43
|
|
|
|
|
|
|
|
|
|
|
The value of LTIP units vested during the quarters ended
March 31, 2010 and 2009 was $244,000 and $83,000,
respectively.
|
|
NOTE 10:
|
EARNINGS
PER UNIT
|
For purposes of our earnings per unit calculation, we have
applied the two-class method. The classes of units are our
limited partner and general partner units. All outstanding units
share pro rata in income allocations and distributions and our
general partner has sole voting rights. Limited partner units
have been separated into Class A and Class B to
prepare for a potential transaction such as an initial public
offering.
Limited Partner Units:
Basic earnings per unit
are computed by dividing net income attributable to limited
partners by the weighted average units outstanding during the
reporting period. Diluted earnings per unit are computed similar
to basic earnings per unit except that the weighted average
units outstanding and net income attributable to limited
partners are increased to include phantom units that have not
yet vested and that will convert to LTIP units upon vesting. In
years of a loss, the phantom units are not included in the
earnings per unit calculation.
General Partner Units:
Basic earnings per unit
are computed by dividing net income attributable to our GP by
the weighted average units outstanding during the reporting
period. Diluted earnings per unit for our GP are computed
similar to basic earnings per unit except that the net income
attributable to the general partner units is adjusted for the
dilutive impact of the phantom units.
F-21
OXFORD
RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
|
|
NOTE 10:
|
EARNINGS
PER UNIT (Continued)
|
The computation of basic and diluted earnings per unit under the
two-class method for limited partner units and general partner
units is presented below:
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands
|
|
|
|
except unit amounts)
|
|
|
Limited partner units
|
|
|
|
|
|
|
|
|
Average units outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
6,575,259
|
|
|
|
5,889,539
|
|
Effect of unit-based awards
|
|
|
n/a
|
|
|
|
10,678
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
6,575,259
|
|
|
|
5,900,217
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to limited partners
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(281
|
)
|
|
$
|
9,196
|
|
Diluted
|
|
|
(281
|
)
|
|
|
9,197
|
|
Earnings per limited partner unit
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.04
|
)
|
|
$
|
1.56
|
|
Diluted
|
|
|
(0.04
|
)
|
|
|
1.56
|
|
General partner units
|
|
|
|
|
|
|
|
|
Average units outstanding:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
133,053
|
|
|
|
119,643
|
|
Net income attributable to general partner
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(6
|
)
|
|
$
|
187
|
|
Diluted
|
|
|
(6
|
)
|
|
|
186
|
|
Earnings per general partner unit
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.04
|
)
|
|
$
|
1.56
|
|
Diluted
|
|
|
(0.04
|
)
|
|
|
1.56
|
|
|
|
NOTE 11:
|
COMMITMENTS
AND CONTINGENCIES
|
Coal
Sales Contracts
We are committed under long-term contracts to sell coal that
meets certain quality requirements at specified prices. Most of
these prices are subject to pass through or inflation adjusters
that mitigate some risk from rising costs. Quantities sold under
some of these contracts may vary from year to year within
certain limits at the option of the customer or us. The
remaining life of our long-term contracts ranges from one to
nine years.
Purchase
Commitments
We use independent contractors to mine some of our coal at a few
of our mines. We also purchase coal from third parties in order
to meet quality or delivery requirements under our customer
agreements. We assumed one long-term purchase agreement as a
result of the Phoenix Coal acquisition. Under this agreement, we
are committed to purchase a certain volume of coal until the
coal reserves covered by the contract are depleted. Based on the
proven and probable coal reserves in place at March 31,
2010, we expect this contract to continue beyond five years.
Additionally, we buy coal on the spot market, and the cost of
that coal is
F-22
OXFORD
RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
|
|
NOTE 11:
|
COMMITMENTS
AND CONTINGENCIES (Continued)
|
dependent upon the market price and quality of the coal. Supply
disruptions could impair our ability to fill customer orders or
require us to purchase coal from other sources at a higher cost
to us in order to satisfy these orders.
Transportation
We depend upon barge, rail, and truck transportation systems to
deliver our coal to our customers. Disruption of these
transportation services due to weather-related problems,
mechanical difficulties, strikes, lockouts, bottlenecks, and
other events could temporarily impair our ability to supply coal
to our customers, resulting in decreased shipments. We entered
into a long-term transportation contract on April 1, 2006
for rail services, and that agreement has been amended and
extended through March 31, 2011.
Defined
Contribution Pension Plan and 401(k) Plan
At March 31, 2010, we had an obligation to pay our GP for
the purpose of funding our GPs commitments to the money
purchase pension plan and 401(k) plan in the amount of
$2,031,000. Of this amount, $1,522,000 relates to plan year 2009
and is expected to be paid by September 2010 with the remainder
relating to plan year 2010 that will be paid by September 2011.
Security
for Reclamation and Other Obligations
As of March 31, 2010, we had $32,359,000 in surety bonds
and $14,000 in cash bonds outstanding to secure certain
reclamation obligations. Additionally, as of March 31,
2010, we had letters of credit outstanding in support of these
surety bonds of $7,525,000 and also a letter of credit of
$1,320,000 guaranteeing an operating lease. Further, as of
March 31, 2010, we had certain road bonds of $645,000
outstanding and performance bonds outstanding of $12,330,000.
Our management believes these bonds and letters of credit will
expire without any claims or payments thereon and thus any
subrogation or other rights with respect thereto will not have a
material adverse effect on our financial position, liquidity or
operations.
Legal
We are involved, from time to time, in various legal proceedings
arising in the ordinary course of business. While the ultimate
results of these proceedings cannot be predicted with certainty,
our management believes these claims will not have a material
adverse effect on our financial position, liquidity or
operations.
Guarantees
Our GP and the Partnership guarantee certain obligations of our
subsidiaries. Our management believes that these guarantees will
expire without any liability to the guarantors, and therefore
any indemnification or subrogation commitments with respect
thereto will not have a material adverse effect on our financial
position, liquidity or operations.
|
|
NOTE 12:
|
CONCENTRATION
OF CREDIT RISK AND MAJOR CUSTOMERS
|
We have a credit policy that establishes procedures to determine
creditworthiness and credit limits for trade customers.
Generally, credit is extended based on an evaluation of the
customers financial condition. Collateral is not generally
required, unless credit cannot be established.
We market our coal principally to electric utilities,
municipalities and electric cooperatives and industrial
customers in Illinois, Indiana, Kentucky, Ohio, Pennsylvania and
West Virginia. As of March 31, 2010 and December 31,
2009, accounts receivable from electric utilities totaled
$23.4 million and $18.2 million or 78%
F-23
OXFORD
RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
|
|
NOTE 12:
|
CONCENTRATION
OF CREDIT RISK AND MAJOR
CUSTOMERS (Continued)
|
and 75% of total trade receivables, respectively. Four customers
individually accounted for greater than 10% of coal sales
(including sales through brokers) for the quarter ended
March 31, 2010 which, in the aggregate, represented
approximately 63% of coal sales for the quarter. Three customers
individually accounted for greater than 10% of coal sales which,
in the aggregate, represented approximately 69% of coal sales
(including sales through brokers) for the quarter ended
March 31, 2009. Accounts receivable attributable to four
customers totaled approximately 71% and 59% of consolidated
accounts receivable at March 31, 2010 and December 31,
2009, respectively.
|
|
NOTE 13:
|
RELATED
PARTY TRANSACTIONS
|
In connection with our formation in August 2007, the Partnership
and Oxford Mining entered into an administrative and operational
services agreement (Services Agreement) with our GP.
Under the terms of the Services Agreement, our GP provides
services through its employees to us and is reimbursed for all
related costs incurred on our behalf. Pursuant to the Services
Agreement, we reimbursed our GP for costs primarily related to
payroll for all the periods after August 24, 2007, of which
$4,260,000 and $2,504,000 were included in our accounts payable
at March 31, 2010 and December 31, 2009, respectively.
These amounts include amounts payable for funding the money
purchase pension plan and 401(k) plan for plan years 2009 and
2010, respectively.
Also in connection with our formation in August 2007, Oxford
Mining entered into an advisory services agreement
(Advisory Agreement) with certain affiliates of AIM
Oxford. The Advisory Agreement runs for a term of ten years
until August 2017, subject to earlier termination at any time by
the AIM Oxford affiliates. Under the terms of the Advisory
Agreement, the AIM Oxford affiliates have duties as financial
and management advisors to Oxford Mining, including providing
services in obtaining equity, debt, lease and acquisition
financing, as well as providing other financial, advisory and
consulting services for the operation and growth of Oxford
Mining. These services consist of advisory services of a type
customarily provided by sponsors of U.S. private equity
firms to companies in which they have substantial investments.
Such services are rendered at the reasonable request of Oxford
Mining. The basic annual fees under the Advisory Agreement were
$250,000 for 2008, and for 2009 and each year thereafter
increase based on the percentage increase in gross revenues.
Further fees are payable for additional significant services
requested. Pursuant to the Advisory Agreement, advisory fees
were paid to AIM Oxford affiliates of $77,000 and $63,000 for
the quarters ended March 31, 2010 and 2009, respectively.
Contract services were provided to Tunnell Hill Reclamation,
LLC, a company with common owners, in the amount of $206,000 and
$72,000 for the quarters ended March 31, 2010 and
March 31, 2009, respectively. Accounts receivable were
$87,000 and $70,000 from Tunnell Hill at March 31, 2010 and
December 31, 2009, respectively. We have concluded that
Tunnell Hill Reclamation, LLC does not represent a variable
interest entity.
We had no accounts receivable from employees and owners at
March 31, 2010 and $28,000 at December 31, 2009.
F-24
OXFORD
RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
|
|
NOTE 14:
|
SUPPLEMENTAL
CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarters Ended
|
|
|
March 31,
|
|
|
2010
|
|
2009
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
1,711,000
|
|
|
$
|
1,443,000
|
|
Noncash investing activities:
|
|
|
|
|
|
|
|
|
Purchases of mineral rights and land financed through accounts
payable
|
|
|
|
|
|
|
1,296,000
|
|
Mine development costs financed through accounts payable
|
|
|
|
|
|
|
225,000
|
|
Purchases of property and equipment financed through accounts
payable
|
|
|
3,074,000
|
|
|
|
3,637,000
|
|
Purchase of coal reserves by note payable
|
|
|
|
|
|
|
1,387,000
|
|
Noncash financing activities:
|
|
|
|
|
|
|
|
|
Market value of common units vested in LTIP
|
|
|
288,000
|
|
|
|
83,000
|
|
|
|
NOTE 15:
|
SEGMENT
INFORMATION
|
We operate in one business segment. We operate surface coal
mines in Northern Appalachia and the Illinois Basin and sell
high value steam coal to utilities, industrial customers or
other coal-related organizations primarily in the eastern United
States. Our operating and executive management reviews and bases
its decisions upon consolidated reports. All three of our
operating subsidiaries participate primarily in the business of
utilizing surface mining techniques to mine domestic coal and
prepare it for sale to our customers. The operating companies
share customers and a particular customer may receive coal from
any one of the operating subsidiaries.
|
|
NOTE 16:
|
SUBSEQUENT
EVENTS
|
The following represents material events that have occurred
subsequent to March 31, 2010 through May 17, 2010, the
date these financial statements were issued.
Our subsidiary Harrison, paid a $3,000,000 distribution in April
2010 of which we and the non-controlling interest holder
received $1,530,000 and $1,470,000, respectively.
We also made a quarterly distribution to our unitholders of
$2,834,000 in May 2010.
In May 2010 we borrowed $3,000,000 on the revolving credit
facility.
F-25
Report of
Independent Registered Public Accounting Firm
To the Board of Directors of Oxford Resources GP, LLC (which is
the General Partner of Oxford
Resource Partners, LP) and the General Partner and Limited
Partners of Oxford Resource Partners, LP:
We have audited the accompanying consolidated balance sheets of
Oxford Resource Partners, LP and subsidiaries (the
Partnership) as of December 31, 2009 and 2008,
and the related consolidated statements of operations,
partners capital and shareholders equity and cash
flows of Oxford Resource Partners, LP and subsidiaries for the
years ended December 31, 2009 and 2008 and the period from
August 24, 2007 (inception) to December 31, 2007 and
of Oxford Mining Company and subsidiaries (the
Predecessor) for the period from January 1,
2007 through August 23, 2007. These financial statements
are the responsibility of the Partnerships management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Partnership is not required
to have, nor were we engaged to perform an audit of its internal
control over financial reporting. Our audit included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Partnerships internal control
over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, and 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, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Oxford Resource Partners, LP and subsidiaries as of
December 31, 2009 and 2008, and the results of operations
and cash flows of Oxford Resource Partners, LP and subsidiaries
for the years ended December 31, 2009 and 2008, the period
from August 24, 2007 (inception) to December 31, 2007
and of the Predecessor for the period from January 1, 2007
through August 23, 2007 in conformity with accounting
principles generally accepted in the United States of America.
As discussed in Note 2, the Partnership changed its method
of accounting and reporting for noncontrolling interests in
subsidiaries in 2009 for all periods presented due to the
adoption of Statement of Financial Accounting Standards
No. 160,
Noncontrolling Interests in Consolidated
Financial Statements
, codified in FASB
ASC 810 Consolidation.
/s/ GRANT THORNTON LLP
Cleveland, Ohio
March 24, 2010
F-26
OXFORD
RESOURCE PARTNERS, LP AND SUBSIDIARIES
(in
thousands, except for unit information)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
3,366
|
|
|
$
|
15,179
|
|
Trade accounts receivable
|
|
|
24,403
|
|
|
|
21,528
|
|
Inventory
|
|
|
8,801
|
|
|
|
5,134
|
|
Advance royalties
|
|
|
1,674
|
|
|
|
1,509
|
|
Prepaid expenses and other current assets
|
|
|
1,424
|
|
|
|
787
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
39,668
|
|
|
|
44,137
|
|
Property, plant and equipment, net
|
|
|
149,461
|
|
|
|
112,446
|
|
Advance royalties
|
|
|
7,438
|
|
|
|
8,126
|
|
Other long-term assets
|
|
|
6,796
|
|
|
|
6,588
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
203,363
|
|
|
$
|
171,297
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
Current portion of long-term debt
|
|
$
|
4,113
|
|
|
$
|
2,535
|
|
Accounts payable
|
|
|
21,655
|
|
|
|
22,654
|
|
Asset retirement obligation current portion
|
|
|
7,377
|
|
|
|
4,749
|
|
Deferred revenue current portion
|
|
|
2,090
|
|
|
|
13,250
|
|
Accrued taxes other than income taxes
|
|
|
1,464
|
|
|
|
1,117
|
|
Accrued payroll and related expenses
|
|
|
2,045
|
|
|
|
326
|
|
Other current liabilities
|
|
|
5,714
|
|
|
|
3,360
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
44,458
|
|
|
|
47,991
|
|
Long-term debt
|
|
|
91,598
|
|
|
|
81,442
|
|
Asset retirement obligations
|
|
|
5,966
|
|
|
|
4,543
|
|
Other long-term liabilities
|
|
|
4,229
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
146,251
|
|
|
$
|
135,976
|
|
Commitments and Contingencies (Note 17)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PARTNERS CAPITAL
|
|
|
|
|
|
|
|
|
Limited partners (6,570,369 and 5,889,484 units outstanding
as of December 31, 2009 and 2008, respectively)
|
|
|
53,960
|
|
|
|
32,371
|
|
General partner (132,909 and 119,643 units outstanding as
of December 31, 2009 and 2008, respectively)
|
|
|
1,085
|
|
|
|
653
|
|
|
|
|
|
|
|
|
|
|
Total Oxford Resource Partners, LP partners capital
|
|
|
55,045
|
|
|
|
33,024
|
|
Noncontrolling interest
|
|
|
2,067
|
|
|
|
2,297
|
|
|
|
|
|
|
|
|
|
|
Total partners capital
|
|
|
57,112
|
|
|
|
35,321
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and partners capital
|
|
$
|
203,363
|
|
|
$
|
171,297
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-27
OXFORD
RESOURCE PARTNERS, LP AND SUBSIDIARIES
(in
thousands, except for unit information)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oxford Mining
|
|
|
|
Oxford Resource Partners, LP
|
|
|
Company
|
|
|
|
(Successor)
|
|
|
(Predecessor)
|
|
|
|
|
|
|
Period from
|
|
|
Period from
|
|
|
|
Years Ended
|
|
|
August 24
|
|
|
January 1
|
|
|
|
December 31,
|
|
|
to December 31,
|
|
|
to August 23,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal sales
|
|
$
|
254,171
|
|
|
$
|
193,699
|
|
|
$
|
61,324
|
|
|
$
|
96,799
|
|
Transportation revenue
|
|
|
32,490
|
|
|
|
31,839
|
|
|
|
10,204
|
|
|
|
18,083
|
|
Royalty and non-coal revenue
|
|
|
7,183
|
|
|
|
4,951
|
|
|
|
1,407
|
|
|
|
3,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
293,844
|
|
|
|
230,489
|
|
|
|
72,935
|
|
|
|
118,149
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of coal sales (excluding depreciation, depletion, and
amortization, shown separately)
|
|
|
170,698
|
|
|
|
151,421
|
|
|
|
40,721
|
|
|
|
70,415
|
|
Cost of purchased coal
|
|
|
19,487
|
|
|
|
12,925
|
|
|
|
9,468
|
|
|
|
17,494
|
|
Cost of transportation
|
|
|
32,490
|
|
|
|
31,839
|
|
|
|
10,204
|
|
|
|
18,083
|
|
Depreciation, depletion, and amortization
|
|
|
25,902
|
|
|
|
16,660
|
|
|
|
4,926
|
|
|
|
9,025
|
|
Selling, general and administrative expenses
|
|
|
13,242
|
|
|
|
9,577
|
|
|
|
2,114
|
|
|
|
3,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
261,819
|
|
|
|
222,422
|
|
|
|
67,433
|
|
|
|
118,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
32,025
|
|
|
|
8,067
|
|
|
|
5,502
|
|
|
|
(511
|
)
|
Interest income
|
|
|
35
|
|
|
|
62
|
|
|
|
55
|
|
|
|
26
|
|
Interest expense
|
|
|
(6,484
|
)
|
|
|
(7,720
|
)
|
|
|
(3,498
|
)
|
|
|
(2,386
|
)
|
Gain from purchase of business
|
|
|
3,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
29,399
|
|
|
|
409
|
|
|
|
2,059
|
|
|
|
(2,871
|
)
|
Less: net income attributable to noncontrolling interest
|
|
|
(5,895
|
)
|
|
|
(2,891
|
)
|
|
|
(537
|
)
|
|
|
(682
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Oxford Resource Partners,
LP unitholders
|
|
$
|
23,504
|
|
|
$
|
(2,482
|
)
|
|
$
|
1,522
|
|
|
$
|
(3,553
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) allocated to general partner
|
|
$
|
467
|
|
|
$
|
(50
|
)
|
|
$
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) allocated to limited partners
|
|
$
|
23,037
|
|
|
$
|
(2,432
|
)
|
|
$
|
1,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per limited partner unit
|
|
$
|
3.80
|
|
|
$
|
(0.44
|
)
|
|
$
|
0.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per limited partner unit
|
|
$
|
3.79
|
|
|
$
|
(0.44
|
)
|
|
$
|
0.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of limited partner units outstanding
basic
|
|
|
6,061,072
|
|
|
|
5,554,395
|
|
|
|
4,900,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of limited partner units outstanding
diluted
|
|
|
6,084,508
|
|
|
|
5,554,395
|
|
|
|
4,901,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions paid per limited partner unit
|
|
$
|
2.17
|
|
|
$
|
2.21
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital in
|
|
|
Retained
|
|
|
Common
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Excess of
|
|
|
Earnings
|
|
|
Stock In
|
|
|
Shareholders
|
|
|
Noncontrolling
|
|
|
Total
|
|
Predecessor
|
|
Stock
|
|
|
Par Value
|
|
|
(Deficit)
|
|
|
Treasury
|
|
|
Equity
|
|
|
Interest
|
|
|
Equity
|
|
|
Balance at December 31, 2006
|
|
$
|
2
|
|
|
$
|
44
|
|
|
$
|
10,252
|
|
|
$
|
(2,077
|
)
|
|
$
|
8,221
|
|
|
$
|
|
|
|
$
|
8,221
|
|
Proceeds from the sale of minority interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
980
|
|
|
|
980
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(3,553
|
)
|
|
|
|
|
|
|
(3,553
|
)
|
|
|
682
|
|
|
|
(2,871
|
)
|
Shareholders distributions
|
|
|
|
|
|
|
|
|
|
|
(16,339
|
)
|
|
|
|
|
|
|
(16,339
|
)
|
|
|
(343
|
)
|
|
|
(16,682
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at August 23, 2007
|
|
$
|
2
|
|
|
$
|
44
|
|
|
$
|
(9,640
|
)
|
|
$
|
(2,077
|
)
|
|
$
|
(11,671
|
)
|
|
$
|
1,319
|
|
|
$
|
(10,352
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited
|
|
|
Limited
|
|
|
General
|
|
|
General
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Partner
|
|
|
Partners
|
|
|
Partner
|
|
|
Partners
|
|
|
Total
|
|
|
Noncontrolling
|
|
|
Partners
|
|
Successor
|
|
Units
|
|
|
Capital
|
|
|
Units
|
|
|
Capital
|
|
|
Units
|
|
|
interest
|
|
|
Capital
|
|
|
Balance at August 24, 2007
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
Partners contributions
|
|
|
4,900,000
|
|
|
|
54,880
|
|
|
|
100,000
|
|
|
|
1,120
|
|
|
|
5,000,000
|
|
|
|
1,319
|
|
|
|
57,319
|
|
Predecessor basis adjustment
|
|
|
|
|
|
|
(20,465
|
)
|
|
|
|
|
|
|
(417
|
)
|
|
|
|
|
|
|
|
|
|
|
(20,882
|
)
|
Net income
|
|
|
|
|
|
|
1,492
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
537
|
|
|
|
2,059
|
|
Unit-based compensation
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
4,900,000
|
|
|
$
|
35,932
|
|
|
|
100,000
|
|
|
$
|
733
|
|
|
|
5,000,000
|
|
|
$
|
1,856
|
|
|
$
|
38,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
(2,432
|
)
|
|
|
|
|
|
|
(50
|
)
|
|
|
|
|
|
|
2,891
|
|
|
|
409
|
|
Partners contributions
|
|
|
962,500
|
|
|
|
10,780
|
|
|
|
19,643
|
|
|
|
220
|
|
|
|
982,143
|
|
|
|
|
|
|
|
11,000
|
|
Partners distributions
|
|
|
|
|
|
|
(12,253
|
)
|
|
|
|
|
|
|
(250
|
)
|
|
|
|
|
|
|
(2,450
|
)
|
|
|
(14,953
|
)
|
Unit-based compensation
|
|
|
|
|
|
|
468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
468
|
|
Issuance of units to LTIP participants
|
|
|
26,984
|
|
|
|
(124
|
)
|
|
|
|
|
|
|
|
|
|
|
26,984
|
|
|
|
|
|
|
|
(124
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
5,889,484
|
|
|
$
|
32,371
|
|
|
|
119,643
|
|
|
$
|
653
|
|
|
|
6,009,127
|
|
|
$
|
2,297
|
|
|
$
|
35,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
23,037
|
|
|
|
|
|
|
|
467
|
|
|
|
|
|
|
|
5,895
|
|
|
|
29,399
|
|
Partners contributions
|
|
|
650,029
|
|
|
|
11,329
|
|
|
|
13,266
|
|
|
|
231
|
|
|
|
663,295
|
|
|
|
|
|
|
|
11,560
|
|
Partners distributions
|
|
|
|
|
|
|
(13,141
|
)
|
|
|
|
|
|
|
(266
|
)
|
|
|
|
|
|
|
(6,125
|
)
|
|
|
(19,532
|
)
|
Unit-based compensation
|
|
|
|
|
|
|
472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
472
|
|
Issuance of units to LTIP participants
|
|
|
30,883
|
|
|
|
(108
|
)
|
|
|
|
|
|
|
|
|
|
|
30,883
|
|
|
|
|
|
|
|
(108
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
6,570,396
|
|
|
$
|
53,960
|
|
|
|
132,909
|
|
|
$
|
1,085
|
|
|
|
6,703,305
|
|
|
$
|
2,067
|
|
|
$
|
57,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-29
OXFORD
RESOURCE PARTNERS, LP AND SUBSIDIARIES
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oxford Mining
|
|
|
|
Oxford Resource Partners, LP
|
|
|
Company
|
|
|
|
(Successor)
|
|
|
(Predecessor)
|
|
|
|
|
|
|
Period from
|
|
|
Period from
|
|
|
|
Years Ended
|
|
|
August 24 to
|
|
|
January 1
|
|
|
|
December 31
|
|
|
December 31
|
|
|
to August 23
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Oxford Resource Partners, LP
unitholders
|
|
$
|
23,504
|
|
|
$
|
(2,482
|
)
|
|
$
|
1,522
|
|
|
$
|
(3,553
|
)
|
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion, and amortization
|
|
|
25,902
|
|
|
|
16,660
|
|
|
|
4,926
|
|
|
|
9,025
|
|
Interest rate swap adjustment to market
|
|
|
(1,681
|
)
|
|
|
574
|
|
|
|
1,107
|
|
|
|
|
|
Loan fee amortization
|
|
|
530
|
|
|
|
398
|
|
|
|
131
|
|
|
|
148
|
|
Loss on debt extinguishment
|
|
|
1,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash compensation expense
|
|
|
472
|
|
|
|
468
|
|
|
|
25
|
|
|
|
|
|
Advanced royalty recoupment
|
|
|
1,390
|
|
|
|
1,020
|
|
|
|
261
|
|
|
|
695
|
|
Loss (gain) on disposal of property and equipment
|
|
|
1,177
|
|
|
|
(1,407
|
)
|
|
|
(9
|
)
|
|
|
(25
|
)
|
(Gain) on acquisition
|
|
|
(3,823
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest in subsidiary earnings
|
|
|
5,895
|
|
|
|
2,891
|
|
|
|
537
|
|
|
|
682
|
|
(Increase) decrease in assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(2,875
|
)
|
|
|
(3,906
|
)
|
|
|
834
|
|
|
|
(1,785
|
)
|
Inventory
|
|
|
(2,062
|
)
|
|
|
(479
|
)
|
|
|
358
|
|
|
|
(847
|
)
|
Other assets
|
|
|
(2,807
|
)
|
|
|
(494
|
)
|
|
|
(4,368
|
)
|
|
|
(167
|
)
|
Increase (decrease) in liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and other liabilities
|
|
|
3,055
|
|
|
|
6,761
|
|
|
|
(11,388
|
)
|
|
|
10,386
|
|
Asset retirement obligation
|
|
|
1,094
|
|
|
|
1,509
|
|
|
|
(454
|
)
|
|
|
3,178
|
|
Provision for below-market contracts and deferred revenue
|
|
|
(13,840
|
)
|
|
|
12,479
|
|
|
|
(2,001
|
)
|
|
|
(103
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
37,183
|
|
|
|
33,992
|
|
|
|
(8,519
|
)
|
|
|
17,634
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Phoenix Coal acquisition
|
|
|
(18,275
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of mineral rights and land
|
|
|
(2,705
|
)
|
|
|
(197
|
)
|
|
|
(20,010
|
)
|
|
|
(1,919
|
)
|
Mine development costs
|
|
|
(2,346
|
)
|
|
|
(1,476
|
)
|
|
|
(312
|
)
|
|
|
(2,285
|
)
|
Royalty advances
|
|
|
(629
|
)
|
|
|
(853
|
)
|
|
|
(88
|
)
|
|
|
(1,201
|
)
|
Purchase of property and equipment
|
|
|
(25,657
|
)
|
|
|
(25,321
|
)
|
|
|
(77,114
|
)
|
|
|
(11,305
|
)
|
Proceeds from sale of property and equipment
|
|
|
88
|
|
|
|
3,972
|
|
|
|
|
|
|
|
|
|
Change in restricted cash
|
|
|
(4
|
)
|
|
|
(67
|
)
|
|
|
(1,221
|
)
|
|
|
|
|
Payments received notes receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(49,528
|
)
|
|
|
(23,942
|
)
|
|
|
(98,745
|
)
|
|
|
(16,619
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings
|
|
|
6,650
|
|
|
|
14,800
|
|
|
|
69,999
|
|
|
|
6,445
|
|
Payments on borrowings
|
|
|
(2,646
|
)
|
|
|
(5,853
|
)
|
|
|
(175
|
)
|
|
|
(6,964
|
)
|
Capital contributions from partners
|
|
|
11,560
|
|
|
|
11,000
|
|
|
|
36,400
|
|
|
|
|
|
Proceeds from sale of minority interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
980
|
|
Advances on line of credit
|
|
|
7,500
|
|
|
|
16,850
|
|
|
|
3,490
|
|
|
|
|
|
Payments on line of credit
|
|
|
(3,000
|
)
|
|
|
(17,350
|
)
|
|
|
(2,990
|
)
|
|
|
(13
|
)
|
Distributions to noncontrolling interest
|
|
|
(6,125
|
)
|
|
|
(2,450
|
)
|
|
|
|
|
|
|
(343
|
)
|
Distributions to partners
|
|
|
(13,407
|
)
|
|
|
(12,503
|
)
|
|
|
|
|
|
|
|
|
Payments to shareholders of predecessor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(339
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
532
|
|
|
|
4,494
|
|
|
|
106,724
|
|
|
|
(234
|
)
|
Net increase/(decrease) in cash
|
|
|
(11,813
|
)
|
|
|
14,544
|
|
|
|
(540
|
)
|
|
|
781
|
|
CASH AND CASH EQUIVALENTS, beginning of period
|
|
|
15,179
|
|
|
|
635
|
|
|
|
1,175
|
|
|
|
394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, end of period
|
|
$
|
3,366
|
|
|
$
|
15,179
|
|
|
$
|
635
|
|
|
$
|
1,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-30
OXFORD
RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
NOTE 1:
|
ORGANIZATION
AND PRESENTATION
|
Significant
Relationships Referenced in Notes to Consolidated Financial
Statements
|
|
|
|
|
We, us, our,
Successor or the Partnership means the
business and operations of Oxford Resource Partners, LP, the
parent entity, as well as its consolidated subsidiaries.
|
|
|
|
ORLP means Oxford Resource Partners, LP,
individually as the parent entity, and not on a consolidated
basis.
|
|
|
|
Our GP means Oxford Resources GP, LLC, the general
partner of Oxford Resource Partners, LP.
|
Organization
We are a low cost producer of high value steam coal. We focus on
acquiring steam coal reserves that we can efficiently mine with
our modern, large scale equipment. Our reserves and operations
are strategically located in Northern Appalachia and the
Illinois Basin to serve our primary market area of Illinois,
Indiana, Kentucky, Ohio, Pennsylvania and West Virginia. These
coal reserves are mined by our subsidiaries, Oxford Mining
Company, LLC (Oxford Mining), Oxford Mining
Company-Kentucky, LLC and Harrison Resources, LLC
(Harrison Resources).
We are managed by our GP and all executives, officers and
employees who provide services to us are employees of our GP.
Charles Ungurean, the President and Chief Executive Officer of
our GP and a member of our GPs board of directors, and
Thomas Ungurean, the Senior Vice President, Equipment,
Procurement and Maintenance of our GP, are the co-owners of
C&T Coal, Inc. (C&T Coal). Prior to our
acquisition of Oxford, C&T Coal owned 100% of the
outstanding ownership interest in Oxford Mining Company
(Predecessor or Oxford).
We were formed in August 2007 to acquire all of the ownership
interests in Oxford. On August 24, 2007, AIM Oxford
Holdings, LLC (AIM Oxford) contributed total
consideration to us of $36.4 million in cash, and C&T
Coal contributed 100% of its ownership interest in Oxford to us
for a distribution of $20.4 million in cash and
$16.0 million of working capital which was distributed
prior to this transaction and therefore is not reflected in the
table below. Contemporaneously, we entered into a credit
facility and the initial borrowings were used to pay in full
Oxfords existing debt and to pay transaction cost and
replenish working capital. The transaction costs were
$9.0 million.
The purchase consideration was comprised of the following:
|
|
|
|
|
AIM Oxford capital contributions
|
|
$
|
36,400,000
|
|
Long-term bank borrowing
|
|
|
70,000,000
|
|
Revolver borrowing
|
|
|
2,990,000
|
|
Deemed value of C&T Coals retained interest
|
|
|
19,600,000
|
|
|
|
|
|
|
Subtotal
|
|
|
128,990,000
|
|
|
|
|
|
|
Less:
|
|
|
|
|
Cash on hand
|
|
|
1,034,000
|
|
Distribution to C&T Coal
|
|
|
20,400,000
|
|
|
|
|
|
|
Net purchase consideration
|
|
$
|
107,556,000
|
|
|
|
|
|
|
At that time, C&T Coal and AIM Oxford held a 34.3% and
63.7% limited partner interest in ORLP, respectively, and our GP
owned a 2% general partner interest. Also at that time, the
members of our GP were AIM Oxford with a 65% ownership interest
and C&T Coal with a 35% ownership interest. After taking
into
F-31
OXFORD
RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 1:
|
ORGANIZATION
AND PRESENTATION (Continued)
|
account their indirect ownership of ORLP through our GP, AIM
Oxford held a 65% total interest in ORLP and C&T Coal held
a 35% total interest in ORLP.
The acquisition of Oxford was accounted for under the purchase
method of accounting as prescribed by Statement of Financial
Accounting Standards (SFAS) 141,
Business
Combinations,
and we have included all operating assets and
liabilities of Oxford except for bank debt that was paid in full
as part of the transaction. The purchase price was allocated to
the assets acquired and liabilities assumed based on their
estimated fair values at the transaction date. The estimated
fair values of long-lived tangible and intangible assets were
determined primarily through third-party appraisals. Due to
C&T Coals limited partner interest in the Partnership
and its ownership interest in our GP, the purchase accounting
fair value adjustments are limited to the newly acquired 65%
total interest purchased by AIM Oxford pursuant to Emerging
Issues Task Force Abstract (EITF)
88-16,
Basis in Leveraged Buyout Transactions
.
The following is a summary of the fair values of the assets
acquired and liabilities assumed as of the date of acquisition:
|
|
|
|
|
Net working capital
|
|
$
|
5,195,000
|
|
Property and equipment
|
|
|
77,617,000
|
|
Intangibles
|
|
|
4,976,000
|
|
Mineral rights
|
|
|
19,730,000
|
|
Coal sales contracts
|
|
|
(2,726,000
|
)
|
Other
|
|
|
2,764,000
|
|
|
|
|
|
|
Total
|
|
$
|
107,556,000
|
|
|
|
|
|
|
Subsequent to our formation, AIM Oxford and C&T Coal made
several capital contributions for various purposes including
purchasing property, plant and equipment and acquiring the
surface mining operations of Phoenix Coal Corporation
(Phoenix Coal). See Note 3. The capital
contributions were not all in direct proportion to AIM
Oxfords and C&T Coals initial limited partner
interests in us. As a result of the disproportionate capital
contributions, AIM Oxfords and C&T Coals
ownership of the Partnership, as of December 31, 2009, is
64.39% and 32.77%, respectively, with 1.98% and 0.86% interests
being owned by our GP and participants in the Partnerships
Long-Term Incentive Plan (LTIP), respectively. AIM
Oxford and C&T Coal own 66.27% and 33.73%, respectively, in
the GP.
Basis
of Presentation and Principles of Consolidation
The accompanying consolidated financial statements include the
accounts and operations of the Partnership and its consolidated
subsidiaries and are prepared in conformity with accounting
principles generally accepted in the United States of America
(US GAAP). We have included the accounts of our
Predecessor and its subsidiaries for the eight month period
ended August 23, 2007 in the consolidated statements of
operations, cash flows and shareholders equity.
We own a 51% interest in Harrison Resources and are therefore
deemed to have control. As a result, we consolidate all of
Harrison Resources accounts with all material intercompany
transactions and balances being eliminated in our consolidated
financial statements. The 49% portion of Harrison Resources that
we do not own is reflected as Noncontrolling
interest in the consolidated balance sheet. See
Note 16.
F-32
OXFORD
RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 2:
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Use of
Estimates
In order to prepare financial statements in conformity with US
GAAP, we are required to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the
disclosures of contingent assets and liabilities (if any) at the
date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. The most
significant areas requiring the use of management estimates and
assumptions relate to
units-of-production
amortization calculations, asset retirement obligations, useful
lives for depreciation of fixed assets and estimates of fair
values for asset impairment purposes. The estimates and
assumptions that we use are based upon our evaluation of the
relevant facts and circumstances as of the date of the financial
statements. Actual results could ultimately differ from those
estimates.
Cash
and Cash Equivalents
Cash and cash equivalents consist of all unrestricted cash
balances and highly liquid investments that have an original
maturity of three months or less. Financial instruments and
related items, which potentially subject us to concentrations of
credit risk, consist primarily of cash, cash equivalents and
trade receivables. We place our cash and temporary cash
investments with high credit quality institutions. At times,
such investments may be in excess of the FDIC insurance limit.
We have not experienced any losses in such accounts and believe
we are not exposed to any significant credit risk relating to
our cash and cash equivalents.
Restricted
Cash
We had restricted cash and cash equivalents related to Harrison
Resources of $1,877,000 and $1,873,000 at December 31, 2009
and 2008, respectively, which are included in the balance sheet
caption Other long-term assets due to their
anticipated release from restriction. Harrison Resources
cash, which is deemed to be restricted due to the limitations of
its use for Harrison Resources operations, primarily
relates to funds set aside for future reclamation obligations.
See Note 16.
Allowance
for Doubtful Accounts
We establish an allowance for losses on trade receivables when
it is probable that all or part of the outstanding balance will
not be collected. Our management regularly reviews the
probability that a receivable will be collected and establishes
or adjusts the allowance as necessary. There was no allowance
for doubtful accounts at December 31, 2009 and 2008.
Inventory
Inventory consists of coal that has been completely uncovered or
that has been removed from the pit and stockpiled for crushing,
washing, or shipment to customers. Inventory also consists of
supplies, spare parts and fuel. Inventory is valued at the lower
of average cost or market. The cost of coal inventory includes
certain operating expenses and operating overhead. The stripping
costs incurred in the production phase of a mine are variable
production costs included in the costs of the inventory produced
during the period that the stripping costs were incurred.
Property,
Plant and Equipment
Property, plant and equipment are recorded at cost. Expenditures
that extend the useful lives of existing plant and equipment are
capitalized. Maintenance and repairs that do not extend the
useful life or increase
F-33
OXFORD
RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 2:
|
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
|
productivity are charged to operating expense as incurred. Plant
and equipment are depreciated principally on the straight-line
method over the estimated useful lives of the assets based on
the following schedule:
|
|
|
Buildings and tipple
|
|
25-39 years
|
Machinery and equipment
|
|
7-12 years
|
Vehicles
|
|
5-7 years
|
Furniture and fixtures
|
|
3-7 years
|
Railroad siding
|
|
7 years
|
We acquire our reserves through purchases or leases of coal
reserves. Coal reserves are recorded at fair value under
purchase accounting at our formation date of August 24,
2007 or as part of the Phoenix Coal acquisition. See
Note 3. We deplete our reserves using the
units-of-production
method, without residual value, on the basis of tonnage mined in
relation to estimated recoverable tonnage. At December 31,
2009 and 2008, all of our reserves were attributed to mine
complexes engaged in mining operations or leased to third
parties. We believe that the carrying value of these reserves
will be recovered. Residual surface values are classified as
land and not depleted.
Exploration expenditures are charged to operating expense as
incurred and include costs related to locating coal deposits and
the drilling and evaluation costs incurred to assess the
economic viability of such deposits. Costs incurred in areas
outside the boundary of known coal deposits and areas with
insufficient drilling spacing to qualify as proven and probable
reserves are also expensed as exploration costs.
Once management determines there is sufficient evidence that the
expenditure will result in a future economic benefit to the
Partnership, the costs are capitalized as mine development
costs. Capitalization of mine development costs continues until
more than a de minimis amount of saleable coal is extracted from
the mine. Amortization of these mine development costs is then
initiated using the
units-of-production
method based upon the estimated recoverable tonnage.
Financial
Instruments and Derivative Financial Instruments
Our financial instruments include cash and cash equivalents,
accounts receivable, accounts payable, fixed rate debt, variable
rate debt, an interest rate swap agreement and an interest rate
cap agreement. We do not hold or issue financial instruments or
derivative financial instruments for trading purposes.
We used an interest rate swap agreement to partially reduce
risks related to floating rate financing agreements that are
subject to changes in the market rate of interest. Terms of the
interest rate swap agreement required us to receive a variable
interest rate and pay a fixed interest rate. Our interest rate
swap agreement and its variable rate financings were based upon
the three-month London Interbank Offered Rate
(LIBOR). We currently have an interest rate cap
agreement that sets an upper limit on LIBOR that we would have
to pay under the terms of our existing credit facility. We did
not elect hedge accounting for either agreement and so changes
in market value on these derivatives are included in interest
expense on the consolidated statements of operations.
We measure our derivatives (interest rate swap agreement or
interest rate cap agreement) at fair value on a recurring basis
using significant observable inputs, which are Level 2
inputs as defined in the fair value hierarchy. See Note 12.
Our risk management policy is to purchase up to 75% of our
diesel fuel gallons on fixed price forward contracts. These
contracts meet the normal purchases and sales exclusion and
therefore are not accounted for as derivatives. We take physical
delivery of all the fuel under these forward contracts and such
contracts have a term of one year or less.
F-34
OXFORD
RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 2:
|
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
|
Advance
Royalties
A substantial portion of our reserves are leased. Advance
royalties are advance payments made to lessors under terms of
mineral lease agreements that are recoupable through a reduction
in royalties payable on future production. Amortization of
leased coal interests is computed using the
units-of-production
method over estimated recoverable tonnage.
Long-Lived
Assets
We follow authoritative guidance that requires projected future
cash flows from use and disposition of assets to be compared
with the carrying amounts of those assets when impairment
indicators are present. When the sum of projected cash flows is
less than the carrying amount, impairment losses are indicated.
If the fair value of the assets is less than the carrying amount
of the assets, an impairment loss is recognized. In determining
such impairment losses, discounted cash flows or asset
appraisals are utilized to determine the fair value of the
assets being evaluated. Also, in certain situations, expected
mine lives are shortened because of changes to planned
operations. When that occurs and it is determined that the
mines underlying costs are not recoverable in the future,
reclamation and mine closure obligations are accelerated. To the
extent it is determined that an assets carrying value will
not be recoverable during a shorter mine life, the asset is
written down to its recoverable value. No impairment losses were
recognized during any of the years or periods presented.
Identifiable
Intangible Assets and Liabilities
Identifiable intangible assets are recorded in other assets in
the accompanying consolidated balance sheets. We capitalize
costs incurred in connection with borrowings or the
establishment of credit facilities. These costs are amortized as
an adjustment to interest expense over the life of the
borrowings or term of the credit facility using the interest
method.
We also have recorded intangible assets and liabilities at fair
value associated with certain customer relationships and
below-market coal sales contracts, respectively. These balances
arose from the use of purchase accounting for business
combinations and so the assets and liabilities were adjusted to
fair value. These intangible assets are being amortized over
their expected useful lives. See the Coal Sales
Contracts section of Note 2 and Note 7 for
further details.
Asset
Retirement Obligation
Our asset retirement obligations, or AROs, arise from the
Surface Mining Control and Reclamation Act of 1977 (SMCRA) and
similar state statutes, which require that mine property be
restored in accordance with specified standards and an approved
reclamation plan. Our AROs are recorded initially at fair value.
It has been our practice, and we anticipate that it will
continue to be our practice, to perform a substantial portion of
the reclamation work using internal resources. Hence the
estimated costs used in determining the carrying amount of our
AROs may exceed the amounts that are eventually paid for
reclamation costs if the reclamation work was performed using
internal resources.
To determine the fair value of our AROs, we calculate on a mine
by mine basis the present value of estimated reclamation cash
flows. This process requires us to estimate the current
disturbed acreage subject to reclamation, estimates of future
reclamation costs and assumptions regarding the mines
productivity. These cash flows are discounted at the
credit-adjusted, risk free interest rate based on
U.S. Treasury bonds with a maturity similar to the expected
lives of our mines.
F-35
OXFORD
RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 2:
|
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
|
When the liability is initially recorded for the costs to open a
new mine site, the offset is recorded to the producing mine
asset. Over time, the ARO liability is accreted to its present
value, and the capitalized cost is depreciated over the
units-of-production
for the related mine. The liability is also increased as
additional land is disturbed during the mining process. The
timeline between digging the mining pit and extracting the coal
is relatively short; therefore, much of the liability created
for active mining is expensed within a month or so of
establishment because the related coal has been extracted. If
the assumptions used to estimate the ARO do not materialize as
expected or regulatory changes occur, reclamation costs or
obligations to perform reclamation and mine closure activities
could be materially different than currently estimated. We
review our entire reclamation liability at least annually and
make necessary adjustments for permit changes as granted by
state authorities, additional costs resulting from revisions to
cost estimates and the quantity of disturbed acreage during the
current year. At December 31, 2009, we had recorded ARO
liabilities of $13.3 million, including amounts reported as
current liabilities. On an aggregate undiscounted basis, we
estimate the cost of final mine closure to be approximately
$15.5 million.
Income
Taxes
Prior to being contributed to us in August 2007, Oxford elected
to be recognized as an S Corporation under the
provisions of the Internal Revenue Code, which provides that, in
lieu of federal and state income taxes, the shareholders were
taxed on their proportionate share of Oxfords income,
deductions, losses and credits. Therefore, no provision or
liability for federal or state income taxes was presented in
Oxfords financial statements.
As a partnership, we are not a taxable entity for federal or
state income tax purposes; the tax effect of our activities
passes through to our unitholders. Therefore, no provision or
liability for federal or state income taxes is included in our
financial statements. Net income for financial statement
purposes may differ significantly from taxable income reportable
to our unitholders as a result of timing or permanent
differences between financial reporting under US GAAP and the
regulations promulgated by the Internal Revenue Service.
Authoritative accounting guidance on accounting for uncertainty
in income taxes establishes the criterion that an individual tax
position is required to meet for some or all of the benefits of
that position to be recognized in our financial statements. On
initial application, the uncertain tax position guidance has
been applied to all tax positions for which the statute of
limitations remains open. Only tax positions that meet the
more-likely-than-not recognition threshold at the adoption date
are recognized or will continue to be recognized.
Revenue
Recognition
Revenue from coal sales is recognized and recorded when shipment
or delivery to the customer has occurred, prices are fixed or
determinable and the title or risk of loss has passed in
accordance with the terms of the sales contract. Under the
typical terms of these contracts, risk of loss transfers to the
customers at the mine or port, when the coal is loaded on the
rail, barge, or truck.
On September 29, 2008, we executed and received a
prepayment from one of our customers of $13,250,000 toward its
future coal deliveries in 2009. This amount was classified as
deferred revenue and recognized as revenue as we delivered the
coal in accordance with the terms of the arrangement. As of
December 31, 2009, $2,090,000 of the prepayment remains on
our balance sheet as deferred revenue. We expect this balance
will be fully recognized as revenue in 2010.
Freight and handling costs paid to third-party carriers and
invoiced to customers are recorded as cost of transportation and
transportation revenue, respectively.
F-36
OXFORD
RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 2:
|
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
|
Royalty and non-coal revenue consists of coal royalty income,
service fees for providing landfill earth moving services,
commissions that we receive from a third party who sells
limestone that we recover during our coal mining process,
service fees for operating a coal unloading facility and fees
that we receive for trucking ash for two municipal utility
customers. Revenues are recognized when earned or when services
are performed. Royalty revenue relates to the overriding royalty
we receive on our underground coal reserves that we sublease to
a third party mining company. Prior to June 2008, we did not
receive any royalties because we had purchased the output of
this mine thus no royalty was due to us. Starting in June 2008,
our sublessee began selling the coal production for its own
account which entitled us to start receiving royalty revenue.
For the years ended 2009 and 2008, we received royalties of
$4,513,000 and $1,289,000, respectively.
Coal
Sales Contracts
Our below-market coal sales contracts were acquired through the
Phoenix Coal acquisition and in connection with our acquisition
of Oxford in 2007 for which the prevailing market price for coal
specified in the agreement was in excess of the agreement price.
The fair value was based on discounted cash flows resulting from
the difference between the below-market agreement price and the
prevailing market price at the date of acquisition. The
difference between the below-market agreements cash flows and
the cash flows at the prevailing market price is amortized into
coal sales on the basis of tons shipped over the term of the
respective contract.
Unit-Based
Compensation
We account for unit-based awards in accordance with applicable
guidance, which establishes standards of accounting for
transactions in which an entity exchanges its equity instruments
for goods or services. Unit-based compensation expense is
recorded based upon the fair value of the award at grant date.
Such costs are recognized as expense on a straight-line basis
over the corresponding vesting period. The fair value of our
LTIP units is determined based on the sale price of our limited
partner units in arms-length transactions. The unit price
fair value was increased in September 2009 in connection with
the Phoenix Coal acquisition where additional units were
purchased by C&T Coal and AIM Oxford disproportionately to
their respective ownership interests to help fund the
acquisition. This resulted in C&T Coals previous
ownership interest being diluted. We verified the reasonableness
of the new valuation of our units using traditional valuation
techniques for publicly traded partnerships. See Note 13.
Earnings
Per Unit
For purposes of our earnings per unit calculation, we have
applied the two class method. The classes of units are our
limited partner and general partner units. All outstanding units
share pro rata in income allocations and distributions and our
general partner has sole voting rights. Limited partner units
have been separated into Class A and Class B to
prepare for a potential transaction such as an initial public
offering.
Limited Partner Units:
Basic earnings per unit
are computed by dividing net income attributable to limited
partners by the weighted average units outstanding during the
reporting period. Diluted earnings per unit are computed similar
to basic earnings per unit except that the weighted average
units outstanding and net income attributable to limited
partners are increased to include phantom units that have not
yet vested and that will convert to LTIP units upon vesting. In
years of a loss, the phantom units are not included in the
earnings per unit calculation.
General Partner Units:
Basic earnings per unit
are computed by dividing net income attributable to our GP by
the weighted average units outstanding during the reporting
period. Diluted earnings per unit for our GP are computed
similar to basic earnings per unit except that the net income
attributable to the general partner units is adjusted for the
dilutive impact of the phantom units.
F-37
OXFORD
RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 2:
|
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
|
The computation of basic and diluted earnings per unit under the
two-class method for limited partner units and general partner
units is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oxford Resource Partners, LP
|
|
|
|
|
|
|
Period from
|
|
|
Years Ended December 31,
|
|
August 24 to
|
|
|
2009
|
|
2008
|
|
December 31, 2007
|
|
|
(in thousands except unit amounts)
|
|
Limited partner units
|
|
|
|
|
|
|
|
|
|
|
|
|
Average units outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
6,061,072
|
|
|
|
5,554,395
|
|
|
|
4,900,000
|
|
Effect of unit-based awards
|
|
|
23,436
|
|
|
|
n/a
|
|
|
|
1,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
6,084,508
|
|
|
|
5,554,395
|
|
|
|
4,901,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to limited partners
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
23,037
|
|
|
$
|
(2,432
|
)
|
|
$
|
1,492
|
|
Diluted
|
|
|
23,038
|
|
|
|
(2,432
|
)
|
|
|
1,492
|
|
Earnings per limited partner unit
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
3.80
|
|
|
$
|
(0.44
|
)
|
|
$
|
0.30
|
|
Diluted
|
|
|
3.79
|
|
|
|
(0.44
|
)
|
|
|
0.30
|
|
General partner units
|
|
|
|
|
|
|
|
|
|
|
|
|
Average units outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
123,023
|
|
|
|
113,241
|
|
|
|
100,000
|
|
Net income attributable to general partner
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
467
|
|
|
$
|
(50
|
)
|
|
$
|
30
|
|
Diluted
|
|
|
466
|
|
|
|
(50
|
)
|
|
|
30
|
|
Earnings per general partner unit
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
3.80
|
|
|
$
|
(0.44
|
)
|
|
$
|
0.30
|
|
Diluted
|
|
|
3.79
|
|
|
|
(0.44
|
)
|
|
|
0.30
|
|
New
Accounting Standards Issued and Adopted
In June 2009, the FASB issued a new standard establishing the
FASB Accounting Standards Codification
(Codification) as the sole source of authoritative
generally accepted accounting principles. The Codification
reorganized existing U.S. accounting and reporting
standards issued by the FASB and other related private sector
standard setters into a single source of authoritative
accounting principles arranged by topic. The Codification
supersedes all existing U.S. accounting standards; all
other accounting literature not included in the Codification
(other than Securities and Exchange Commission guidance for
publicly traded companies) is considered non- authoritative.
This standard is effective for interim and annual reporting
periods ending after September 15, 2009. The Codification
does not change existing US GAAP.
In September 2009, the FASB issued Accounting Standards Update
(ASU)
2009-06,
Implementation Guidance on Accounting for Uncertainty in Income
Taxes and Disclosure Amendments for Nonpublic Entities. This
update addresses the need for additional implementation guidance
on accounting for uncertainty in income taxes for all entities.
The update clarifies that an entitys tax status as a pass
through or tax-exempt
not-for-profit
entity is a tax position subject to recognition requirements of
the standard and therefore must use the recognition and
measurement guidance when assessing their tax positions. The ASU
2009-06
updates are effective for interim and annual periods ending
after September 15, 2009. The adoption of the guidance in
F-38
OXFORD
RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 2:
|
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
|
ASU
2009-06
during the third quarter of 2009 did not have a material impact
on our consolidated financial statements.
In May 2009, the FASB issued new guidance for accounting for
subsequent events that established the accounting for and
disclosure of events that occur subsequent to the balance sheet
date but before financial statements are issued or are available
to be issued. The standard provides guidance on
managements assessment of subsequent events and
incorporates this guidance into accounting literature. The
standard is effective prospectively for interim and annual
periods ending after June 15, 2009. We adopted this
standard for the year ended December 31, 2009 and the
adoption did not impact our consolidated financial statements.
See Note 22.
In December 2007, the FASB issued revised guidance on business
combinations. This new guidance establishes principles and
requirements for the acquirer of a business to recognize and
measure in its financial statements. This amendment applies to
all business combinations and establishes guidance for
recognizing and measuring identifiable assets, liabilities,
noncontrolling interests in the acquiree and goodwill. Most of
these items are recognized at their full fair value on the
acquisition date, including acquisitions where the acquirer
obtains control but less than 100% ownership in the acquiree.
The amendment also requires expensing acquisition-related costs
as incurred and establish disclosure requirements to enable the
evaluation of the nature and financial effects of the business
combination. This guidance is effective for business
combinations with an acquisition date in fiscal years beginning
after December 15, 2008. We have recorded the acquisition
of the surface coal mining assets of Phoenix Coal dated
September 30, 2009 under this revised guidance. See
Note 3. The impact of adoption was to expense $379,000 of
previously capitalized acquisition costs as of January 1,
2009.
In December 2007, the FASB issued new guidance on the accounting
for noncontrolling ownership interests in a subsidiary and for
the deconsolidation of a subsidiary. The guidance requires that
noncontrolling ownership interests in consolidated subsidiaries
be presented in the consolidated balance sheet within
partners capital as a separate component from the
parents equity as opposed to mezzanine equity.
Consolidated net income will now be disclosed as the amount
attributable to both the parent and the noncontrolling
interests. The guidance also provides for changes in the
parents ownership interest in a subsidiary, including
transactions where control is retained and where control is
relinquished; it also requires expanded disclosures in the
consolidated financial statements that clearly identify and
distinguish between the interests of the parent owners and the
interests of the noncontrolling owners of a subsidiary. This
guidance requires retrospective application to all periods
presented, as included in our consolidated financial statements.
New
Accounting Standards Issued and Not Yet Adopted
In August 2009, the FASB issued ASU
2009-05,
Measuring Liabilities at Fair Value. The amendment provides
clarification that in circumstances in which a quoted price in
an active market for the identical liability is not available, a
reporting entity is required to measure fair value using one or
more of the alternative valuation methods outlined in the
guidance. It also clarifies that restrictions preventing the
transfer of a liability should not be considered as a separate
input or adjustment in the measurement of its fair value. This
amendment was effective as of the beginning of interim and
annual reporting periods that begin after August 27, 2009.
The adoption of this guidance did not impact our consolidated
financial statements.
In June 2009, the FASB amended guidance for the consolidation of
a variable interest entity (VIE). This guidance
updated the determination of whether an enterprise is the
primary beneficiary of a VIE, and is, therefore, required to
consolidate an entity, by requiring a qualitative analysis
rather than a quantitative analysis. This standard also requires
continuous reassessments of whether an enterprise is the primary
beneficiary of a VIE. Previously, reconsideration was required
only when specific events had occurred. This
F-39
OXFORD
RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 2:
|
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
|
guidance also requires enhanced disclosure about an
enterprises involvement with a VIE. The provisions of
these updates are effective as of the beginning of interim and
annual reporting periods that begin after November 15,
2009. We do not believe that this standard will have a material
impact on our consolidated financial statements.
On September 30, 2009, we acquired 100% of the active
western Kentucky surface mining coal operations of Phoenix Coal.
This acquisition provided us an entry into the Illinois Basin
and consisted of four active surface coal mines and coal
reserves of 20 million tons, as well as mineral rights,
working capital and various coal sales and purchase contracts.
The application of purchase accounting requires that the total
purchase price be allocated to the fair value of assets acquired
and liabilities assumed based on the fair values of the assets
and the liabilities at the acquisition date. The following table
summarizes the fair values of the assets acquired and the
liabilities assumed at the date of acquisition:
|
|
|
|
|
Net working capital
|
|
$
|
1,594,000
|
|
Mineral rights and land
|
|
|
10,264,000
|
|
Property, plant and equipment, net
|
|
|
20,519,000
|
|
Other assets
|
|
|
404,000
|
|
Coal sales contracts
|
|
|
(6,600,000
|
)
|
Other liabilities
|
|
|
(4,083,000
|
)
|
|
|
|
|
|
Net assets acquired
|
|
$
|
22,098,000
|
|
|
|
|
|
|
The purchase price of $18,275,000 was less than the fair value
of the net assets acquired of $22,098,000, and as a result we
recorded a gain of $3,823,000 included in other operating income
in the consolidated statements of operations for the year ended
December 31, 2009. Phoenix Coals surface coal mining
operations had previously operated at a loss and its management
and board of directors elected to exit the surface mining
business to focus on maximizing the value of its underground
reserves.
As part of the acquisition agreement, we agreed to make
additional payments of up to $1,000,000 in two installments to
Phoenix Coal if Phoenix Coal secured specific surface and
mineral rights by certain dates, the last of which will expire
on June 30, 2010. During the fourth quarter of 2009, we
paid $500,000 to Phoenix Coal for obtaining the surface rights
pertaining to certain coal leases. The remaining $500,000
contingent payment was paid to Phoenix Coal in January 2010 for
obtaining the mineral rights and is discussed further in our
subsequent events Note 22. At the closing date, we
concluded that the fair value of the contingent liability was
$1,000,000 as the payment was deemed probable.
We also assumed a contract with a third party to pay a
contingent fee if the third party was able to arrange to lease
or purchase, on our behalf, a specified amount of coal reserves
by July 31, 2010. The contract called for a payment of
$1,000,000; however, we concluded that the fair value of the
contingent liability was $625,000 using a probability weighted
average of the likely outcomes. That amount was recorded as a
liability with a corresponding asset in the consolidated balance
sheet under the caption of Property, plant and equipment,
net.
For the fourth quarter of 2009, our surface coal mine operations
that we acquired from Phoenix Coal reported total revenue of
$22.5 million and a net loss from operations of
approximately $1.9 million. As a result of recording a gain
of $3.8 million relating to the acquisition, the net income
of these operations for the quarter was approximately
$1.9 million, excluding general and administrative overhead
expenses which are not allocated among subsidiaries.
F-40
OXFORD
RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 3:
|
ACQUISITION (Continued)
|
The following unaudited pro forma financial information reflects
the consolidated results of operations as if the Phoenix Coal
acquisition had occurred at the beginning of each year presented
below. The pro forma information includes adjustments primarily
for depreciation, depletion and amortization based upon fair
values of property, plant and equipment and mineral rights, the
lease of $11.1 million of equipment, and interest expense
for acquisition debt and additional capital contributions. The
pro forma financial information is not necessarily indicative of
results that actually would have occurred if we had assumed
operation of these assets on the date indicated nor is it
indicative of future results.
|
|
|
|
|
|
|
|
|
|
|
Pro Forma Results
|
|
|
for the Year Ended
|
|
|
December 31,
|
|
|
2009
|
|
2008
|
|
|
(Unaudited)
|
|
Revenue
|
|
$
|
356,894,000
|
|
|
$
|
313,118,000
|
|
Net income (loss) attributable to Oxford Resource Partners, LP
unitholders
|
|
|
6,479,000
|
|
|
|
(21,711,000
|
)
|
Inventory consisted of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Coal
|
|
$
|
4,759,000
|
|
|
$
|
2,462,000
|
|
Fuel
|
|
|
1,264,000
|
|
|
|
1,053,000
|
|
Supplies and spare parts
|
|
|
2,778,000
|
|
|
|
1,619,000
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,801,000
|
|
|
$
|
5,134,000
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 5:
|
PROPERTY,
PLANT AND EQUIPMENT, NET
|
Property, plant and equipment, net of accumulated depreciation,
depletion and amortization consisted of the following at
December 31:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Property, plant and equipment gross
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
3,374,000
|
|
|
$
|
2,475,000
|
|
Coal reserves
|
|
|
39,905,000
|
|
|
|
25,597,000
|
|
|
|
|
|
|
|
|
|
|
Land and mineral rights
|
|
|
43,279,000
|
|
|
|
28,072,000
|
|
|
|
|
|
|
|
|
|
|
Buildings and tipple
|
|
|
2,025,000
|
|
|
|
1,375,000
|
|
Machinery and equipment
|
|
|
133,667,000
|
|
|
|
93,908,000
|
|
Vehicles
|
|
|
3,913,000
|
|
|
|
3,005,000
|
|
Furniture and fixtures
|
|
|
690,000
|
|
|
|
594,000
|
|
Railroad sidings
|
|
|
160,000
|
|
|
|
160,000
|
|
Mine development costs
|
|
|
8,606,000
|
|
|
|
4,712,000
|
|
|
|
|
|
|
|
|
|
|
Total property, plant and equipment, gross
|
|
|
192,340,000
|
|
|
|
131,826,000
|
|
Less: accumulated depreciation, depletion and amortization
|
|
|
42,879,000
|
|
|
|
19,380,000
|
|
|
|
|
|
|
|
|
|
|
Total property, plant and equipment, net
|
|
$
|
149,461,000
|
|
|
$
|
112,446,000
|
|
|
|
|
|
|
|
|
|
|
F-41
OXFORD
RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 5:
|
PROPERTY,
PLANT AND EQUIPMENT, NET (Continued)
|
The amounts of depreciation expense related to owned and leased
fixed assets, depletion expense related to owned and leased coal
reserves, and amortization expense related to mine development
costs for the respective years are set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oxford Mining
|
|
|
Oxford Resource Partners, LP
|
|
Company
|
|
|
(Successor)
|
|
(Predecessor)
|
|
|
For the Years Ended
|
|
For the Period from
|
|
For the Period from
|
|
|
December 31,
|
|
Inception to
|
|
January 1, 2007
|
|
|
2009
|
|
2008
|
|
December 31, 2007
|
|
to August 23, 2007
|
|
Expense Type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
19,632,000
|
|
|
$
|
11,455,000
|
|
|
$
|
3,404,000
|
|
|
$
|
7,827,000
|
|
Depletion
|
|
|
4,672,000
|
|
|
|
3,226,000
|
|
|
|
1,030,000
|
|
|
|
216,000
|
|
Amortization
|
|
|
1,200,000
|
|
|
|
1,533,000
|
|
|
|
318,000
|
|
|
|
982,000
|
|
We lease certain equipment under non-cancelable lease agreements
that expire on various dates through 2014. Generally the lease
agreements are for a period of four years. As of
December 31, 2009, aggregate lease payments that are
required under operating leases that have initial or remaining
non-cancelable lease terms in excess of one year are set forth
below:
|
|
|
|
|
For the years ending December 31, 2010
|
|
$
|
6,289,000
|
|
2011
|
|
|
6,014,000
|
|
2012
|
|
|
4,429,000
|
|
2013
|
|
|
1,570,000
|
|
2014
|
|
|
123,000
|
|
For the years ended December 31, 2009 and 2008, the period
from inception to December 31, 2007 and the Predecessor
period from January 1, 2007 to August 23, 2007, we
incurred lease expenses of approximately $5,428,000, $2,267,000,
$260,000 and $1,775,000, respectively.
We also entered into various coal reserve lease agreements under
which future royalty payments are due based on production. Such
payments are capitalized as advance royalties at the time of
payment, and amortized into royalty expense based on the stated
recoupment rate.
|
|
NOTE 7:
|
INTANGIBLE
ASSETS AND LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
|
Life (years)
|
|
|
Cost
|
|
|
Amortization
|
|
|
Value
|
|
|
Intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
|
18
|
|
|
$
|
3,315,000
|
|
|
$
|
1,019,000
|
|
|
$
|
2,296,000
|
|
Deferred financing costs
|
|
|
3
|
|
|
|
1,811,000
|
|
|
|
174,000
|
|
|
|
1,637,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
|
|
|
|
$
|
5,126,000
|
|
|
$
|
1,193,000
|
|
|
$
|
3,933,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Below-market coal sales contracts
|
|
|
3
|
|
|
$
|
6,600,000
|
|
|
$
|
1,705,000
|
|
|
$
|
4,895,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-42
OXFORD
RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 7:
|
INTANGIBLE
ASSETS AND LIABILITIES (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
|
Life (years)
|
|
|
Cost
|
|
|
Amortization
|
|
|
Value
|
|
|
Intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
|
19
|
|
|
$
|
3,315,000
|
|
|
$
|
621,000
|
|
|
$
|
2,694,000
|
|
Deferred financing costs
|
|
|
4
|
|
|
|
1,786,000
|
|
|
|
528,000
|
|
|
|
1,258,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
|
|
|
|
$
|
5,101,000
|
|
|
$
|
1,149,000
|
|
|
$
|
3,952,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships represent intangible assets that were
recorded at fair value when we acquired Oxford on
August 24, 2007. We amortized these assets over the
expected life of the respective customer relationships. The
amount included in depreciation, depletion and amortization
related to customer relationships was $398,000, $446,000 and
$174,000 for the years ended December 31, 2009 and 2008 and
the period from inception to December 31, 2007,
respectively. Oxford did not have this type of intangible asset
prior to inception.
We capitalize costs incurred in connection with the
establishment of credit facilities. On September 30, 2009,
we amended and restated our credit agreement (the Restated
Credit Agreement). The Restated Credit Agreement was
determined to be substantially different from our prior credit
agreement, and therefore, we wrote off, to interest expense, the
remaining unamortized capitalized costs of $1,252,000 from our
prior credit agreement (the Original Credit
Agreement). We incurred costs of $1,811,000 associated
with the Restated Credit Agreement which we capitalized. These
costs are amortized to interest expense over the life of the
Restated Credit Agreement using the interest method.
Amortization of deferred financing costs included in interest
expense was $530,000, $398,000, $131,000 and $147,000 for the
years ended December 31, 2009 and 2008, the period from
inception to December 31, 2007 and the Predecessor period
from January 1, 2007 to August 23, 2007, respectively.
Expected amortization of identifiable intangible assets and
deferred loan costs for each of the next five years will be
approximately:
|
|
|
|
|
During the years ending December 31, 2010
|
|
$
|
984,000
|
|
2011
|
|
|
868,000
|
|
2012
|
|
|
639,000
|
|
2013
|
|
|
254,000
|
|
2014
|
|
|
227,000
|
|
Thereafter
|
|
|
961,000
|
|
We evaluate our intangible assets for impairment when indicators
of impairment exist. For the years ended December 31, 2009
and 2008, the period from inception through December 31,
2007 and the Predecessor period from January 1, 2007 to
August 23, 2007, there were no impairments related to
intangibles.
Based on expected shipments related to the below-market
contracts, we expect to record annual amortization income of:
|
|
|
|
|
During the years ending December 31, 2010
|
|
$
|
2,345,000
|
|
2011
|
|
|
1,919,000
|
|
2012
|
|
|
631,000
|
|
F-43
OXFORD
RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 8:
|
OTHER
CURRENT LIABILITIES
|
Other current liabilities consist of the following at December
31:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Below-market coal sales
contracts
(1)
|
|
$
|
2,345,000
|
|
|
$
|
|
|
Accrued interest and interest rate
swap
(2)
|
|
|
860,000
|
|
|
|
2,262,000
|
|
Contingent
liabilities
(1)
|
|
|
1,125,000
|
|
|
|
|
|
Other
|
|
|
1,384,000
|
|
|
|
1,098,000
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,714,000
|
|
|
$
|
3,360,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Below-market coal sales contracts and contingent liabilities
assumed with the Phoenix Coal acquisition. See Note 3.
|
|
(2)
|
|
The interest rate swap is discussed in Note 11.
|
|
|
NOTE 9:
|
ASSET
RETIREMENT OBLIGATION
|
Our asset retirement obligations arise from the SMCRA and
similar state statutes, which require that mine property be
restored in accordance with specified standards and an approved
reclamation plan. The required reclamation activities to be
performed are outlined in our mining permits. These activities
include reclaiming the pit and support acreage at surface mines.
We review our asset retirement obligations at least annually and
make necessary adjustments for permit changes as granted by
state authorities and for revisions of estimates of the amount
and timing of costs. When the liability is initially recorded
for the costs to open a new mine site, the offset is recorded to
the producing mine asset. Over time, the ARO liability is
accreted to its present value, and the capitalized cost is
depreciated over the
units-of-production
for the related mine. The liability is also increased as
additional land is disturbed during the mining process. The
timeline between digging the mining pit and extracting the coal
is relatively short; therefore, much of the liability created
for active mining is expensed within a month or so of
establishment because the related coal has been extracted.
At December 31, 2009, we had recorded asset retirement
obligation liabilities of $13.3 million, including amounts
reported as current liabilities. While the precise amount of
these future costs cannot be determined with absolute certainty
as of December 31, 2009, we estimate that the aggregate
undiscounted cost of final mine closure is approximately
$15.5 million.
The following table presents the activity affecting the asset
retirement obligation for the respective years:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Beginning balance
|
|
$
|
9,292,000
|
|
|
$
|
7,644,000
|
|
Accretion expense
|
|
|
650,000
|
|
|
|
459,000
|
|
Payments
|
|
|
(3,358,000
|
)
|
|
|
(2,594,000
|
)
|
Revisions in estimated cash flows
|
|
|
3,802,000
|
|
|
|
3,783,000
|
|
Additions due to acquisition
|
|
|
2,957,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total asset retirement obligation
|
|
$
|
13,343,000
|
|
|
$
|
9,292,000
|
|
Less current portion
|
|
|
(7,377,000
|
)
|
|
|
(4,749,000
|
)
|
|
|
|
|
|
|
|
|
|
Noncurrent liability
|
|
$
|
5,966,000
|
|
|
$
|
4,543,000
|
|
|
|
|
|
|
|
|
|
|
F-44
OXFORD
RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We had long-term debt as of December 31, 2009 and 2008
consisting of the following:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
FirstLight Funding I, Ltd.:
|
|
|
|
|
|
|
|
|
Term loans
|
|
$
|
64,925,000
|
|
|
$
|
65,625,000
|
|
Acquisition loans
|
|
|
21,304,000
|
|
|
|
14,800,000
|
|
Revolving loans
|
|
|
4,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FirstLight Funding I, Ltd. Loans
|
|
|
90,729,000
|
|
|
|
80,425,000
|
|
|
|
|
|
|
|
|
|
|
Note payable Peabody #1
|
|
|
228,000
|
|
|
|
436,000
|
|
Note payable Peabody #2
|
|
|
1,843,000
|
|
|
|
|
|
Note payable CONSOL #1
|
|
|
1,570,000
|
|
|
|
3,089,000
|
|
Note payable CONSOL #2
|
|
|
1,317,000
|
|
|
|
|
|
Note payable Other
|
|
|
24,000
|
|
|
|
27,000
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
95,711,000
|
|
|
|
83,977,000
|
|
Less current portion
|
|
|
(4,113,000
|
)
|
|
|
(2,535,000
|
)
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
91,598,000
|
|
|
$
|
81,442,000
|
|
|
|
|
|
|
|
|
|
|
FirstLight
Funding I, Ltd. Debt
Our Restated Credit Agreement is with a syndicate of lenders
with FirstLight Funding I, Ltd. (FirstLight)
acting as the Agent. The Restated Credit Agreement provides for
borrowings of up to $115,000,000 in the form of $70,000,000 of
term loans, acquisition loans of up to $25,000,000 and a
revolving credit facility of $20,000,000. The Restated Credit
Agreement includes the option of a Base Rate (as defined below)
or LIBOR interest rate plus an applicable margin depending upon
the type of borrowing. Base Rate is defined by the Restated
Credit Agreement as the highest of (a) the rate publicly
quoted from time to time by The Wall Street Journal as the
base rate on corporate loans posted by at least
seventy-five percent (75%) of the nations 30 largest
banks, (b) the sum of the Federal Funds Rate plus
one-half of one percentage point (0.50%), and (c) effective
September 30, 2009, 1.50%. The Restated Credit Agreement is
secured by pledging all of our assets and equity interests in
wholly-owned subsidiaries. The Restated Credit Agreement
requires us to meet various financial covenants and contains
financial and other covenants that limit our ability to, among
other things, effect acquisitions or dispositions and borrow
additional funds.
At December 31, 2009 and 2008, we had $90,729,000 and
$80,425,000, respectively, of borrowings outstanding and
$8,245,000 and $5,404,000, respectively, of letters of credit
outstanding. At December 31, 2009 and 2008, we had
available unused capacity for borrowings under the Restated
Credit Agreement and our original credit agreement
(Original Credit Agreement) of $7,255,000 and
$9,900,000, respectively. As of December 31, 2009 and 2008,
the Base Rate was 3.25% and LIBOR was 0.25% and 1.83%,
respectively.
In February 2009, we were notified by FirstLight that we failed
to provide an updated list of after-acquired properties within
the timeframe outlined in our Original Credit Agreement. This
administrative issue was satisfactorily resolved by the Third
Amendment and Waiver to the Original Credit Agreement that was
executed on February 23, 2009. The Third Amendment and
Waiver waived any potential defaults or potential events of
default due to this administrative oversight. As consideration
for the Third Amendment and Waiver, we paid and expensed
amendment fees totaling $350,000 and the applicable margin for
Term Loan 1, Acquisition Loan 1 and the Revolving Loans (as
defined in the Original Credit Agreement) was increased from
2.5% to 3.0% per annum for LIBOR advances and from 1.25% to
2.75% per annum on Base Rate
F-45
OXFORD
RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 10:
|
LONG-TERM
DEBT (Continued)
|
advances. The applicable margins for Term Loan 2 and Acquisition
Loan 2 (as defined in the Original Credit Agreement) were
increased from 5.5% to 6.5% per annum on LIBOR advances and from
4.25% to 6.25% per annum on Base Rate advances.
In order to facilitate the Phoenix Coal acquisition, it was
necessary to enter into negotiations with FirstLight that
resulted in another amendment to our Original Credit Agreement.
The parties agreed to incorporate this amendment and all prior
amendments directly into the Restated Credit Agreement. This
resulted in the Restated Credit Agreement, effective
September 30, 2009. This amendment allowed for the Phoenix
Coal acquisition, subject to certain financial limitations. As
consideration for the Restated Credit Agreement, we paid
amendment fees totaling $500,000 and the applicable margins for
all Term Loan 1, Acquisition Loan 1 and the Revolving Credit
Facility amounts outstanding or new borrowings was increased
from 3.0% to 4.5% per annum on LIBOR loans and from 2.75% to
4.25% per annum on Base Rate loans. The applicable margins for
all Term Loan 2 and Acquisition Loan 2 amounts outstanding
increased from 6.5% to 8.0% per annum on LIBOR advances and from
6.25% to 7.75% per annum on Base Rate advances. The amendment
also provided for a LIBOR interest rate floor of 1.0% per annum.
In addition, the Leverage Ratio covenant, defined as total debt
divided by the last twelve months EBITDA (as defined in
the Restated Credit Agreement), was reduced from 4.25 to 1.00 to
3.50 to 1.00 for the period September 30, 2009 through
December 31, 2010 and to 3.00 to 1.00 thereafter.
We were in compliance with all covenants under the terms of the
Restated Credit Agreement as of December 31, 2009.
Term
Loans
We had $64,925,000 of term loans outstanding as of
December 31, 2009 under the Restated Credit Agreement with
$43,625,000 representing Term Loan 1 borrowings and $21,300,000
representing Term Loan 2 borrowings. Term Loan 1 provided for
borrowings up to $48,000,000 and has a current stated interest
rate equal to Base Rate plus 4.25% per annum on advances or, at
the election of the borrower, LIBOR plus 4.5% per annum on
advances. We are obligated to make quarterly principal payments
of $175,000 on Term Loan 1 until maturity. During 2009, we made
principal repayments of $700,000. Term Loan 2 provided for
borrowings up to $22,000,000 and has a current stated interest
rate of Base Rate plus 7.75% per annum on advances or, at the
election of the borrower, LIBOR plus 8.0% per annum. No
principal repayments are required on Term Loan 2 until maturity.
Both obligations mature in August 2012 and any advances
requested by us were prorated between the two term loans.
Additional borrowings are not permitted under the terms of these
term loans.
Acquisition
Loans
We had $21,304,000 of acquisition loans outstanding as of
December 31, 2009 with $14,454,000 representing borrowings
under Acquisition Loan 1 and $6,850,000 representing Acquisition
Loan 2 borrowings. Acquisition Loan 1 provided for borrowings up
to $17,000,000 and, as of December 31, 2009, had stated
interest rates of Base Rate plus 4.25% per annum on advances or,
at the election of the borrower, LIBOR plus 4.50% per annum on
advances. Acquisition Loan 2 was for $8,000,000 and had a
current stated interest rate of Base Rate plus 7.75% per annum
on advances or, at the election of the borrower, LIBOR plus 8.0%
per annum on advances. Both obligations mature in August 2012
and any advances requested by us are prorated between the two
acquisition loans.
We had until March 30, 2009 to utilize these lines of
credit, after which time no additional borrowings were
permitted. Until March 30, 2009, we paid a commitment fee
of 0.50% per annum that was due quarterly on the unused portion
of these lines of credit. Beginning on March 30, 2009, we
were obligated to make
F-46
OXFORD
RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 10:
|
LONG-TERM
DEBT (Continued)
|
quarterly principal payments of $36,500 on Acquisition Loan 1
until maturity. During 2009, we made principal payments of
$146,000. No principal repayments are required on Acquisition
Loan 2 until maturity.
Revolving
Credit Facility
We have a revolving credit facility for Revolving Loans in the
amount of $20,000,000. As of December 31, 2009 and 2008, we
had $4,500,000 and $0, respectively, outstanding under the
revolving credit facility and $8,245,000 and $5,404,000,
respectively, of outstanding letters of credit. The revolving
credit facility has an August 2012 maturity and a current stated
interest rate of Base Rate plus 4.25% per annum on advances, or,
at the election of the borrower, LIBOR plus 4.5% per annum on
advances. Under the facility, letters of credit can be issued in
an aggregate amount not to exceed $12,000,000, which results in
a dollar for dollar reduction in the available capacity. As of
December 31, 2009, we had $7,255,000 available on the
revolving credit facility. The facility matures on
August 24, 2012 and, until that time, only interest
payments are required. For our outstanding letters of credit
issued under the revolving credit facility, we pay issuing fees
of 0.25% per annum on the stated amount of the letters of credit
when we issue a letter of credit and an applicable margin of
2.50% per annum to FirstLight, as the Agent, on behalf of the
lenders. Additionally, we pay a commitment fee of 0.50% per
annum that is due quarterly for any unused capacity under this
revolving credit facility.
Other
Notes Payable
Peabody #1
In July 2007, we
acquired coal reserves from Peabody Energy Corporation through
one of its subsidiaries in exchange for a note payable that is
due in three annual payments of $250,000 at no stated interest
rate. The obligation was secured by real property and mineral
rights and matures in June 2010. The difference between the face
amount and the imputed amount was recorded as a discount using
an imputed interest rate of 9.25% and is being amortized into
interest expense using the interest method.
Peabody #2
In December 2009, we
acquired coal reserves from Peabody Energy Corporation through
one of its subsidiaries in exchange for a down payment of
$1,000,000 and a note payable that is due in two annual payments
of $1,000,000 at no stated interest rate. The obligation was
secured by real property and mineral rights and matures in
December 2011. The difference between the face amount and the
imputed amount was recorded as a discount using an imputed
interest rate of 5.5% and is being amortized into interest
expense using the interest method.
CONSOL #1
In August 2007,
Harrison Resources acquired coal reserves from CONSOL Energy,
through one of its subsidiaries, in exchange for a note payable
that matures in August 2010. The note is payable in three equal
installments of $1,773,000 at no stated interest rate. The
difference between the face amount and the imputed amount was
recorded as a discount using an imputed interest rate of 8.25%
and is being amortized into interest expense using the interest
method.
CONSOL #2
In March 2009, we
acquired coal reserve leases from CONSOL Energy, through one of
its subsidiaries, in exchange for a down payment of $1,500,000
and a note payable that matures in March 2012 in an original
face amount of $1,500,000. The note is payable in monthly
installments based on
units-of-production
with a minimum of $500,000 due annually at no stated interest
rate. The difference between the face amount and the imputed
amount was recorded as a discount using an imputed interest rate
of 4.6% and is being amortized using the interest method.
Other Note Payable
We acquired coal
reserves from an individual with payments due of $5,000 per year
for ten years at no stated interest rate. The obligation matures
in April 2015. The difference between the face amount and the
imputed amount was recorded as a discount using an imputed
interest rate of 6.75% and is being amortized into interest
expense using the interest method.
F-47
OXFORD
RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 10:
|
LONG-TERM
DEBT (Continued)
|
Debt
Maturity Table
The total debt of the Partnership matures as follows:
|
|
|
|
|
During the years ending December 31, 2010
|
|
$
|
4,113,000
|
|
2011
|
|
|
2,268,000
|
|
2012
|
|
|
89,317,000
|
|
2013
|
|
|
4,000
|
|
2014
|
|
|
4,000
|
|
Thereafter
|
|
|
5,000
|
|
|
|
|
|
|
|
|
$
|
95,711,000
|
|
|
|
|
|
|
|
|
NOTE 11:
|
INTEREST
RATE CAP AND SWAP AGREEMENTS
|
On September 11, 2009, we entered into an interest rate cap
agreement to hedge our exposure to rising LIBOR interest rates
during 2010. This agreement, which has an effective date of
January 4, 2010 and a notional amount of $50,000,000,
provides for a LIBOR interest rate cap of 2% using three-month
LIBOR. LIBOR was 0.251% as of December 31, 2009. We paid a
fixed fee of $85,000 for this agreement which has quarterly
settlement dates and matures on December 31, 2010. At
December 31, 2009, the value of the interest rate cap was
$34,000 and was recorded in other assets and the
mark-to-market
decrease in value of $51,000 was recorded to interest expense in
the consolidated statement of operations for the year ended
December 31, 2009.
We entered into an interest rate swap agreement on
August 24, 2007 that had an original notional principal
amount of $67,500,000 and a maturity of August 2009. Under the
swap agreement, we paid interest at a fixed rate of 4.83% and
received interest at a variable rate equal to LIBOR (1.43% as of
December 31, 2008), based on the notional amount. The swap
agreement decreased interest expense by $1,681,000 for the year
ended December 31, 2009 and increased interest expense by
$574,000 and $1,107,000 for the year ended December 31,
2008 and the period from inception to December 31, 2007,
respectively. As of December 31, 2008, the fair value of
the swap agreement was a liability of approximately $1,681,000.
The swap agreement matured in August 2009.
|
|
NOTE 12:
|
FAIR
VALUE OF FINANCIAL INSTRUMENTS
|
Effective January 1, 2008, we adopted the provision for
fair value of financial assets and financial liabilities. We
utilized fair value measurement guidance that, among other
things, defines fair value, requires enhanced disclosures about
assets and liabilities carried at fair value and establishes a
hierarchal disclosure framework based upon the quality of inputs
used to measure fair value. We elected to defer the application
of the guidance to nonfinancial assets and liabilities until our
fiscal year 2009 and that application did not have a material
impact on our consolidated financial statements as of
December 31, 2009. As a result of the adoption, we have
elected not to measure any additional financial assets or
liabilities at fair value, other than those which were
previously recorded at fair value prior to the adoption.
The financial instruments measured at fair value on a recurring
basis are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2009
|
|
|
Quoted Prices in
|
|
|
|
Significant
|
|
|
Active Markets for
|
|
Significant Other
|
|
Unobservable
|
|
|
Identical Liabilities
|
|
Observable Inputs
|
|
Inputs
|
Description
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Interest rate cap agreement
|
|
$
|
|
|
|
$
|
34,000
|
|
|
$
|
|
|
F-48
OXFORD
RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 12:
|
FAIR
VALUE OF FINANCIAL
INSTRUMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2008
|
|
|
Quoted Prices in
|
|
|
|
Significant
|
|
|
Active Markets for
|
|
Significant Other
|
|
Unobservable
|
|
|
Identical Liabilities
|
|
Observable Inputs
|
|
Inputs
|
Description
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Interest rate swap agreement
|
|
$
|
|
|
|
$
|
1,681,000
|
|
|
$
|
|
|
The following methods and assumptions were used to estimate the
fair values of financial instruments for which the fair value
option was not elected:
Cash and cash equivalents, trade accounts receivable and
accounts payable:
The carrying amount reported in
the balance sheets for cash and cash equivalents, trade accounts
receivable and accounts payable approximates its fair value due
to the short maturity of these instruments.
Fixed rate debt:
The fair values of long-term
debt are estimated using discounted cash flow analyses, based on
current market rates for instruments with similar cash flows.
Variable rate debt:
The fair value of variable
rate debt is estimated using discounted cash flow analyses,
based on our best estimates of market rate for instruments with
similar cash flows.
The carrying amounts and fair values of financial instruments
for which the fair value option was not elected are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
December 31, 2008
|
|
|
Carrying
|
|
|
|
Carrying
|
|
|
|
|
Amount
|
|
Fair Value
|
|
Amount
|
|
Fair Value
|
|
Fixed rate debt
|
|
$
|
4,982,000
|
|
|
$
|
4,952,000
|
|
|
$
|
3,552,000
|
|
|
$
|
3,311,000
|
|
Variable rate debt
|
|
$
|
90,729,000
|
|
|
$
|
90,729,000
|
|
|
$
|
80,425,000
|
|
|
$
|
80,425,000
|
|
|
|
NOTE 13:
|
LONG-TERM
INCENTIVE PLAN
|
In November 2007, we implemented a Long-Term Incentive Plan, or
LTIP, whereby equity awards may be granted to executives,
officers, employees, directors, or consultants, as determined by
the Board of Directors Compensation Committee
(Compensation Committee), in the form of partnership
units, and may include distribution equivalent rights. Under
this program, we have granted phantom units that have no rights
until they are converted upon vesting. At our option, we can
issue cash or LTIP units upon vesting, although we do not intend
to settle these awards in cash. To date, we have always issued
units and those units have the right to an allocation of income
and to distributions but are not obligated to participate in any
capital calls. See Unit-Based Compensation section of
Note 2 for a further description of how we value our LTIP
units.
These units are subject to such conditions and restrictions as
our Compensation Committee may determine, including continued
employment or service or achievement of pre-established
performance goals and objectives. Currently, there are no
outstanding performance awards. Although we have the option to
repurchase these units upon employee termination, we currently
do not have the intent to do so. Generally, these units vest in
equal annual increments over four years with accelerated vesting
of the first increment in certain cases. The total number of
units authorized to distribute under the plan was 181,348 at
December 31, 2009. Unless amended by our Compensation
Committee, the LTIP will expire in November 2017.
Surrendered units were used to satisfy the individual tax
obligations of those LTIP participants electing a net issuance
whereby we pay the employees tax liability and the
employee surrenders a sufficient number of units equal to the
amount of tax liability assumed by us. After consideration of
the grant vesting during 2009, 44,431 units remain
available for issuance in the future.
F-49
OXFORD
RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 13:
|
LONG-TERM
INCENTIVE PLAN (Continued)
|
We recognize compensation expense over the vesting period of the
units, which is generally four years for each award. For the
years ended December 31, 2009 and 2008 and for the period
from inception to December 31, 2007, our gross LTIP expense
was approximately $472,000, $468,000 and $25,000, respectively,
which is included in selling, general and administrative
expenses (SG&A) in our consolidated statements of
operations. As of December 31, 2009 and 2008, approximately
$840,000 and $1,118,000, respectively, of cost remained
unamortized which we expect to recognize over a remaining
weighted average period of 2 years.
The following table summarizes additional information concerning
our unvested LTIP units:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Units
|
|
|
Fair Value
|
|
|
Unvested balance at December 31, 2007
|
|
|
106,410
|
|
|
$
|
11.20
|
|
Granted
|
|
|
43,172
|
|
|
|
11.20
|
|
Issued
|
|
|
(26,984
|
)
|
|
|
11.20
|
|
Surrendered
|
|
|
(8,825
|
)
|
|
|
11.20
|
|
Forfeited
|
|
|
(6,410
|
)
|
|
|
11.20
|
|
|
|
|
|
|
|
|
|
|
Unvested balance at December 31, 2008
|
|
|
107,363
|
|
|
$
|
11.20
|
|
Granted
|
|
|
11,148
|
|
|
|
17.43
|
|
Issued
|
|
|
(30,883
|
)
|
|
|
11.75
|
|
Surrendered
|
|
|
(8,578
|
)
|
|
|
11.88
|
|
|
|
|
|
|
|
|
|
|
Unvested balance at December 31, 2009
|
|
|
79,050
|
|
|
$
|
11.79
|
|
|
|
|
|
|
|
|
|
|
The value of LTIP units vested during the years ended
December 31, 2009 and 2008 and the period from inception to
December 31, 2007 was $465,000, $401,000 and $0,
respectively.
|
|
NOTE 14:
|
WORKERS
COMPENSATION AND BLACK LUNG
|
We have no liabilities under state statutes and the Federal Coal
Mine Health and Safety Act of 1969, as amended, to pay black
lung benefits to eligible employees, former employees and their
dependents. With regard to workers compensation, we
provide benefits to our employees by being insured through state
sponsored programs or an insurance carrier where there is no
state sponsored program.
We had a money purchase pension plan in which substantially all
full-time employees with more than six months of service
participated. Contributions were made annually at 4% of
qualified wages and an additional 4% was contributed on wages
over the FICA limit up to the maximum allowed under the Internal
Revenue Code. We incurred expense of $1,522,000, $1,083,000,
$379,000 and $496,000 for the years ended December 31, 2009
and 2008, the period from inception to December 31, 2007
and the Predecessor period from January 1, 2007 to
August 23, 2007, respectively.
Effective January 1, 2010, the money purchase pension plan
was replaced with a 401(k) plan.
|
|
NOTE 16:
|
NONCONTROLLING
INTEREST
|
Harrison Resources, a limited liability company, was formed in
March 2006 by Oxford to acquire coal properties, develop mine
sites, and mine coal for sale to customers. Effective
January 30, 2007, 49% of Harrison Resources was sold to
CONSOL Energy and its ownership interest is held by one of its
subsidiaries. Harrison Resources revenues which are
included in the consolidated statements of operations were
F-50
OXFORD
RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 16:
|
NONCONTROLLING
INTEREST (Continued)
|
$37,190,000, $20,605,000, $4,791,000, and $4,250,000 for the
years ended December 31, 2009 and 2008 and the periods from
inception to December 31, 2007 and from January 1,
2007 to August 23, 2007, respectively. Oxford Mining has a
contract mining agreement with Harrison Resources to operate the
mines for an
agreed-upon
per ton price and markets all the coal under a broker agreement
with Harrison Resources.
Harrison Resources cash, which is deemed to be restricted
due to the limitations of its use for Harrison Resources
operations and primarily relates to funds set aside for future
reclamation obligations, was $1,877,000 and $1,873,000 at
December 31, 2009 and 2008, respectively, and is included
in the balance sheet caption Other long-term assets. Harrison
Resources total net assets as of December 31, 2009
and 2008 were $4,218,000 and $4,688,000, respectively.
The noncontrolling interest represents the 49% of Harrison
Resources owned by CONSOL Energy, through one of its
subsidiaries, and consists of the following:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2009
|
|
|
2008
|
|
|
Beginning balance
|
|
$
|
2,297,000
|
|
|
$
|
1,856,000
|
|
Net income
|
|
|
5,895,000
|
|
|
|
2,891,000
|
|
Distributions to owners
|
|
|
(6,125,000
|
)
|
|
|
(2,450,000
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
2,067,000
|
|
|
$
|
2,297,000
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 17:
|
COMMITMENTS
AND CONTINGENCIES
|
Coal
Sales Contracts
We are committed under long-term contracts to sell coal that
meets certain quality requirements at specified prices. Most of
these prices are subject to pass through or inflation adjusters
that mitigate some risk from rising costs. Quantities sold under
some of these contracts may vary from year to year within
certain limits at the option of the customer or us. The
remaining life of our long-term contracts ranges from one to
nine years.
Purchase
Commitments
We use independent contractors to mine some of our coal at a few
of our mines. We also purchase coal from third parties in order
to meet quality or delivery requirements under our customer
agreements. We assumed one long-term purchase agreement as a
result of the Phoenix Coal acquisition. Under this agreement, we
are committed to purchase a certain volume of coal until the
coal reserves covered by the contract are depleted. Based on the
proven and probable coal reserves in place at December 31,
2009, we expect this contract to continue beyond five years.
Additionally, we bought coal on the spot market, and the cost of
that coal is dependent upon the market price and quality of the
coal. Supply disruptions could impair our ability to fill
customer orders or require us to purchase coal from other
sources at a higher cost to us in order to satisfy these orders.
Transportation
We depend upon barge, rail, and truck transportation systems to
deliver our coal to our customers. Disruption of these
transportation services due to weather-related problems,
mechanical difficulties, strikes, lockouts, bottlenecks, and
other events could temporarily impair our ability to supply coal
to our customers, resulting in decreased shipments. We entered
into a long-term transportation contract on April 1, 2006
for rail services, and that agreement has been amended and
extended through March 31, 2011.
F-51
OXFORD
RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 17:
|
COMMITMENTS
AND CONTINGENCIES (Continued)
|
Defined
Contribution Pension Plan
At December 31, 2009, we had an obligation to pay our GP
for the purpose of funding our GPs commitments to the
money purchase pension plan in the amount of $1,522,000. This
amount is expected to be paid by September 2010.
Security
for Reclamation and Other Obligations
As of December 31, 2009, we had $31,300,000 in surety bonds
and $14,000 in cash bonds outstanding to secure certain
reclamation obligations. Additionally, as of December 31,
2009, we had letters of credit outstanding in support of these
surety bonds of $6,900,000 and also a letter of credit of
$1,345,000 guaranteeing an operating lease. Further, as of
December 31, 2009, we had certain road bonds of $645,000
outstanding and performance bonds outstanding of $12,300,000.
Our management believes these bonds and letters of credit will
expire without any claims or payments thereon and thus any
subrogation or other rights with respect thereto will not have a
material adverse effect on our financial position, liquidity or
operations.
Legal
We are involved, from time to time, in various legal proceedings
arising in the ordinary course of business. While the ultimate
results of these proceedings cannot be predicted with certainty,
our management believes these claims will not have a material
adverse effect on our financial position, liquidity or
operations.
Guarantees
Our GP and the Partnership guarantee certain obligations of our
subsidiaries. Our management believes that these guarantees will
expire without any liability to the guarantors, and therefore
any indemnification or subrogation commitments with respect
thereto will not have a material adverse effect on our financial
position, liquidity or operations.
|
|
NOTE 18:
|
CONCENTRATION
OF CREDIT RISK AND MAJOR CUSTOMERS
|
We have a credit policy that establishes procedures to determine
creditworthiness and credit limits for trade customers.
Generally, credit is extended based on an evaluation of the
customers financial condition. Collateral is not generally
required, unless credit cannot be established.
We market our coal principally to electric utilities,
municipalities and electric cooperatives and industrial
customers in Illinois, Indiana, Kentucky, Ohio, Pennsylvania and
West Virginia. As of December 31, 2009 and 2008, accounts
receivable from electric utilities totaled $18.2 million
and $16.3 million or 75% and 76% of total trade
receivables, respectively. A small portion of these sales are
executed through coal brokers. Three customers individually
accounted for greater than 10% of coal sales for the year ended
December 31, 2009 which, in the aggregate, represented
approximately 64.1% of coal sales for the year. Two customers
individually accounted for greater than 10% of coal sales which,
in the aggregate, represented approximately 55.5%, 64.0% and
64.2% of coal sales for the year ended December 31, 2008,
the period from inception to December 31, 2007 and the
Predecessor period from January 1, 2007 to August 23,
2007, respectively. These same customers, in the aggregate,
represented approximately 58.5% and 51.5% of the outstanding
accounts receivable at December 31, 2009 and 2008,
respectively.
|
|
NOTE 19:
|
RELATED
PARTY TRANSACTIONS
|
In connection with our formation in August 2007, the Partnership
and Oxford Mining entered into an administrative and operational
services agreement (Services Agreement) with our GP.
The Services
F-52
OXFORD
RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 19:
|
RELATED
PARTY TRANSACTIONS (Continued)
|
Agreement is terminable by either party upon thirty days
written notice. Under the terms of the Services Agreement, our
GP provides services through its employees to us and is
reimbursed for all related costs incurred on our behalf. Our GP
provides us with services such as general administrative and
management services, human resources, information technology,
finance and accounting, corporate development, real property,
marketing, engineering, operations (including mining
operations), geological, risk management and insurance services.
Pursuant to the Services Agreement, we reimbursed our GP for
costs primarily related to payroll for all the periods after
August 24, 2007, of which $2,504,000 and $2,502,000 were
included in our accounts payable at December 31, 2009 and
2008, respectively.
Also in connection with our formation in August 2007, Oxford
Mining entered into an advisory services agreement
(Advisory Agreement) with certain affiliates of AIM
Oxford. The Advisory Agreement runs for a term of ten years
until August 2017, subject to earlier termination at any time by
the AIM Oxford affiliates. Under the terms of the Advisory
Agreement, the AIM Oxford affiliates have duties as financial
and management advisors to Oxford Mining, including providing
services in obtaining equity, debt, lease and acquisition
financing, as well as providing other financial, advisory and
consulting services for the operation and growth of Oxford
Mining. These services consist of advisory services of a type
customarily provided by sponsors of U.S. private equity
firms to companies in which they have substantial investments.
Such services are rendered at the reasonable request of Oxford
Mining. The basic annual fees under the Advisory Agreement were
$250,000 for 2008, and for 2009 and each year thereafter
increase based on the percentage increase in gross revenues.
Further fees are payable for additional significant services
requested. Pursuant to the Advisory Agreement, advisory fees
were paid to AIM Oxford affiliates of $1,307,000 and $225,000
for the years ended December 31, 2009 and 2008,
respectively. No advisory fees were paid for the period from
inception to December 31, 2007. The advisory fees paid for
2009 included a transaction fee of $1,000,000 paid to the AIM
Oxford affiliates for additional significant services in
connection with the Restated Credit Agreement and the fee is
included in deferred financing costs. See FirstLight
Funding I, Ltd. Debt section of Note 10.
We have debt with CONSOL Energy, the minority owner of Harrison
Resources, as described in Note 10. Also, coal was
purchased for resale from CONSOL Energy in the amount of
$1,089,000 and $4,780,000 during the period from inception to
December 31, 2007 and the Predecessor period from
January 1, 2007 to August 23, 2007, respectively. We
did not purchase coal from CONSOL Energy for resale during the
years ended December 31, 2009 and 2008.
Contract services were provided to Tunnell Hill Reclamation,
LLC, a company with common owners, in the amount of $695,000,
$1,050,000, $186,000 and $1,104,000 for the years ended
December 31, 2009 and 2008, the period from inception to
December 31, 2007 and the Predecessor period from
January 1, 2007 to August 23, 2007, respectively.
Accounts receivable were $70,000 and $0 from Tunnel Hill
Reclamation, LLC at December 31, 2009 and 2008,
respectively. We have concluded that Tunnell Hill Reclamation,
LLC does not represent a variable interest entity.
We had accounts receivable from employees and owners in the
amount of $28,000 and $6,000 at December 31, 2009 and 2008,
respectively, which have been collected in full subsequent to
year end.
|
|
NOTE 20:
|
SUPPLEMENTAL
CASH FLOW INFORMATION
|
The Partnership revised our cash flow statements for 2009, 2008,
and the period from August 24, 2007 to December 31,
2007 to correct the presentation of certain non-cash
transactions in the cash flow statement. Coal reserves purchased
with debt were previously disclosed as cash transactions
impacting the amounts reported in accounts payable and purchases
of property and equipment are now presented as non-cash
activities. We have also corrected the supplemental disclosures
to reflect the appropriate classifications of certain non-cash
transactions, and changed its presentation of the activity on
our revolving credit facility from
F-53
OXFORD
RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 20:
|
SUPPLEMENTAL
CASH FLOW INFORMATION (Continued)
|
net to gross. The following table presents the impact of the
reclassifications on our total operations, investing and
financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
|
|
|
|
|
|
As
|
|
|
|
|
|
|
Previously
|
|
|
|
As
|
|
Previously
|
|
|
|
As
|
|
|
Reported
|
|
Reclassifications
|
|
Revised
|
|
Reported
|
|
Reclassifications
|
|
Revised
|
|
Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
December 31, 2008
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
35,540
|
|
|
|
1,643
|
|
|
|
37,183
|
|
|
|
33,951
|
|
|
|
41
|
|
|
|
33,992
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(51,115
|
)
|
|
|
1,587
|
|
|
|
(49,528
|
)
|
|
|
(23,901
|
)
|
|
|
(41
|
)
|
|
|
(23,942
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
3,762
|
|
|
|
(3,230
|
)
|
|
|
532
|
|
|
|
4,494
|
|
|
|
|
|
|
|
4,494
|
|
|
|
|
|
|
|
|
Period from August 24
to December 31, 2007
|
|
Period from January 1
to August 23, 2007
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(8,478
|
)
|
|
|
(41
|
)
|
|
|
(8,519
|
)
|
|
|
17,634
|
|
|
|
|
|
|
|
17,634
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(103,336
|
)
|
|
|
4,591
|
|
|
|
(98,745
|
)
|
|
|
(16,619
|
)
|
|
|
|
|
|
|
(16,619
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
111,274
|
|
|
|
(4,550
|
)
|
|
|
106,724
|
|
|
|
(234
|
)
|
|
|
|
|
|
|
(234
|
)
|
F-54
OXFORD
RESOURCE PARTNERS, LP AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 20:
|
SUPPLEMENTAL
CASH FLOW INFORMATION (Continued)
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oxford Resource
|
|
Oxford Mining
|
|
|
Partners, LP
|
|
Company
|
|
|
(Successor)
|
|
(Predecessor)
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
|
|
|
For the
|
|
Period from
|
|
|
|
|
|
|
Period from
|
|
January 1,
|
|
|
For the Years Ended
|
|
Inception to
|
|
2007 to
|
|
|
December 31,
|
|
December 31,
|
|
August 23,
|
|
|
2009
|
|
2008
|
|
2007
|
|
2007
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
6,005,000
|
|
|
$
|
6,395,000
|
|
|
$
|
2,202,000
|
|
|
$
|
2,625,000
|
|
Non-cash activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value of common units vested in LTIP
|
|
|
363,000
|
|
|
|
302,000
|
|
|
|
|
|
|
|
|
|
Accounts payable for purchase of coal reserves as of December 31
|
|
|
62,000
|
|
|
|
87,000
|
|
|
|
|
|
|
|
|
|
Accounts payable for purchase of royalty advances as of
December 31
|
|
|
55,000
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
Accounts payable for purchase of property and equipment as of
December 31
|
|
|
2,049,000
|
|
|
|
3,161,000
|
|
|
|
983,000
|
|
|
|
4,924,000
|
|
Purchase of coal reserves with debt
|
|
|
3,230,000
|
|
|
|
|
|
|
|
4,550,000
|
|
|
|
|
|
|
|
NOTE 21:
|
SEGMENT
INFORMATION
|
We operate in one business segment. We operate surface coal
mines in Northern Appalachia and the Illinois Basin and sell
high value steam coal to utilities, industrial customers or
other coal-related organizations primarily in the eastern United
States. Our operating and executive management reviews and bases
its decisions upon consolidated reports. All three of our
operating subsidiaries participate primarily in the business of
utilizing surface mining techniques to mine domestic coal and
prepare it for sale to their customers. The operating companies
share customers and a particular customer may receive coal from
any one of the operating companies.
|
|
NOTE 22:
|
SUBSEQUENT
EVENTS
|
The following represents material events that have occurred
subsequent to December 31, 2009 through March 24,
2010, the date these financial statements were issued.
We paid Phoenix Coal $500,000 in January 2010 for achieving
specified objectives as to arrangements for additional coal
leases in western Kentucky.
We made a quarterly distribution to our unitholders of
$2,815,000 in February 2010.
We granted LTIP awards in January and February 2010 in the
amount of $649,000. Of those units, the first 25% vested in
January and March respectively with a remaining unvested value
of $487,000. The remaining grant vests ratably over the next
three years.
F-55
REPORT OF
INDEPENDENT AUDITORS
The Board of Directors of Phoenix Coal Inc.
We have audited the accompanying combined balance sheets of the
Carved-Out Surface Mining Operations of Phoenix Coal Inc. (the
Company) as described in Note 1, as of September 30,
2009 and December 31, 2008, and the related combined
statements of operations and comprehensive loss, group equity,
and cash flows for the nine months ended September 30, 2009
and for the years ended December 31, 2008 and 2007. These
financial statements are the responsibility of Phoenix Coal
Inc.s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. We were not engaged to perform an audit
of the Companys internal control over financial reporting.
Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the
Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the combined financial
position of the Company as described in Note 1, at
September 30, 2009 and December 31, 2008, and the
combined results of their operations and their cash flows for
the nine months ended September 30, 2009 and for the years
ended December 31, 2008 and 2007 in conformity with
U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Louisville, Kentucky
December 18, 2009
F-56
Carved-Out
Surface Mining Operations of Phoenix Coal Inc.
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
$
|
6,349,835
|
|
|
$
|
2,843,134
|
|
Coal inventories
|
|
|
252,357
|
|
|
|
452,558
|
|
Prepaid expenses and other current assets
|
|
|
591,957
|
|
|
|
400,886
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
7,194,149
|
|
|
|
3,696,578
|
|
Property, plant, and equipment, net
|
|
|
48,576,077
|
|
|
|
45,162,984
|
|
Restricted certificates of deposit
|
|
|
|
|
|
|
509,825
|
|
Mining rights, mine development costs and mineral reserves net
of accumulated amortization of $3,796,187 in 2009 and $3,888,082
in 2008
|
|
|
16,707,173
|
|
|
|
15,649,026
|
|
Prepaid royalties
|
|
|
188,602
|
|
|
|
216,147
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
72,666,001
|
|
|
$
|
65,234,560
|
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Trade accounts payable and accrued liabilities
|
|
$
|
8,839,064
|
|
|
$
|
6,449,019
|
|
Current portion of long-term debt
|
|
|
8,224,486
|
|
|
|
6,532,045
|
|
Current portion of asset retirement obligations
|
|
|
1,627,800
|
|
|
|
1,958,000
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
18,691,350
|
|
|
|
14,939,064
|
|
|
|
|
|
|
|
|
|
|
Asset retirement obligations, less current portion
|
|
|
2,898,278
|
|
|
|
2,366,000
|
|
Long-term debt, less current portion
|
|
|
13,080,972
|
|
|
|
14,641,745
|
|
Group equity
|
|
|
37,995,401
|
|
|
|
33,287,751
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
72,666,001
|
|
|
$
|
65,234,560
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-57
Carved-Out
Surface Mining Operations of Phoenix Coal Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
Year
|
|
|
Year
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenue
|
|
$
|
58,493,767
|
|
|
$
|
76,645,989
|
|
|
$
|
66,973,145
|
|
Cost and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales, exclusive of depreciation and amortization shown
separately
|
|
|
54,531,148
|
|
|
|
71,877,168
|
|
|
|
61,939,870
|
|
Selling expenses
|
|
|
5,851,821
|
|
|
|
8,188,945
|
|
|
|
7,746,824
|
|
General and administrative expenses
|
|
|
6,947,484
|
|
|
|
11,090,565
|
|
|
|
5,822,082
|
|
Depreciation and amortization
|
|
|
5,799,952
|
|
|
|
6,646,543
|
|
|
|
4,064,979
|
|
Sales contract termination cost
|
|
|
3,000,000
|
|
|
|
|
|
|
|
|
|
Asset impairment
|
|
|
|
|
|
|
|
|
|
|
2,873,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76,130,405
|
|
|
|
97,803,221
|
|
|
|
82,446,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(17,636,638
|
)
|
|
|
(21,157,232
|
)
|
|
|
(15,473,665
|
)
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(2,600,873
|
)
|
|
|
(1,811,280
|
)
|
|
|
(86,316
|
)
|
Interest income
|
|
|
3,900
|
|
|
|
6,302
|
|
|
|
8,292
|
|
Other, principally sale of assets
|
|
|
(5,142
|
)
|
|
|
(1,014,424
|
)
|
|
|
739,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,602,115
|
)
|
|
|
(2,819,402
|
)
|
|
|
661,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(20,238,753
|
)
|
|
|
(23,976,634
|
)
|
|
|
(14,812,196
|
)
|
Income taxes
|
|
|
16,081
|
|
|
|
37,838
|
|
|
|
70,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and comprehensive loss
|
|
$
|
(20,254,834
|
)
|
|
$
|
(24,014,472
|
)
|
|
$
|
(14,882,351
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-58
Carved-Out
Surface Mining Operations of Phoenix Coal Inc.
Combined Statements of Group Equity
For the Nine Months Ended September 30, 2009 and
the Years Ended December 31, 2008 and 2007
|
|
|
|
|
Group equity at December 31, 2006
|
|
$
|
18,800,282
|
|
Contribution from parent
|
|
|
21,670,486
|
|
Share-based compensation allocated from parent
|
|
|
813,454
|
|
Net loss
|
|
|
(14,882,351
|
)
|
|
|
|
|
|
Group equity at December 31, 2007
|
|
|
26,401,871
|
|
Contribution from parent
|
|
|
26,511,411
|
|
Share-based compensation allocated from parent
|
|
|
4,388,941
|
|
Net loss
|
|
|
(24,014,472
|
)
|
|
|
|
|
|
Group equity at December 31, 2008
|
|
|
33,287,751
|
|
Contribution from parent
|
|
|
22,703,615
|
|
Share-based compensation allocated from parent
|
|
|
2,258,869
|
|
Net loss
|
|
|
(20,254,834
|
)
|
|
|
|
|
|
Group equity at September 30, 2009
|
|
$
|
37,995,401
|
|
|
|
|
|
|
See accompanying notes.
F-59
Carved-Out
Surface Mining Operations of Phoenix Coal Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
Year
|
|
|
Year
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(20,254,834
|
)
|
|
$
|
(24,014,472
|
)
|
|
$
|
(14,882,351
|
)
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
5,799,952
|
|
|
|
6,646,543
|
|
|
|
4,064,979
|
|
Loss (gain) on sale of property and equipment
|
|
|
792
|
|
|
|
1,012,779
|
|
|
|
(742,086
|
)
|
Share-based compensation
|
|
|
2,258,869
|
|
|
|
4,388,941
|
|
|
|
813,454
|
|
Asset impairment write down
|
|
|
|
|
|
|
|
|
|
|
2,873,055
|
|
Asset retirement obligations
|
|
|
(644,217
|
)
|
|
|
(730,436
|
)
|
|
|
1,244,438
|
|
Changes in noncash operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(3,506,701
|
)
|
|
|
1,452,404
|
|
|
|
(2,541,574
|
)
|
Inventories
|
|
|
200,201
|
|
|
|
620,139
|
|
|
|
(816,314
|
)
|
Prepaid expenses and other current assets
|
|
|
(191,071
|
)
|
|
|
34,096
|
|
|
|
(235,371
|
)
|
Trade accounts payable and other accrued liabilities
|
|
|
2,390,045
|
|
|
|
(2,169,229
|
)
|
|
|
5,147,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(13,946,964
|
)
|
|
|
(12,759,235
|
)
|
|
|
(5,074,074
|
)
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted certificates of deposit
|
|
|
509,825
|
|
|
|
(509,825
|
)
|
|
|
|
|
Proceeds from sale of investments
|
|
|
|
|
|
|
|
|
|
|
216,477
|
|
Payments for other assets, principally mine development and
mining rights
|
|
|
(1,631,921
|
)
|
|
|
(3,194,375
|
)
|
|
|
(6,879,142
|
)
|
Proceeds from sale of property and equipment
|
|
|
210,000
|
|
|
|
683,912
|
|
|
|
1,582,346
|
|
Payments for property and equipment
|
|
|
(1,346,609
|
)
|
|
|
(3,187,274
|
)
|
|
|
(9,712,212
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(2,258,705
|
)
|
|
|
(6,207,562
|
)
|
|
|
(14,792,531
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions from parent
|
|
|
22,703,615
|
|
|
|
26,511,411
|
|
|
|
21,670,486
|
|
Principal payments on debt
|
|
|
(209,025
|
)
|
|
|
(1,058,336
|
)
|
|
|
(939,463
|
)
|
Payments on equipment financing
|
|
|
(6,288,921
|
)
|
|
|
(6,486,278
|
)
|
|
|
(1,007,250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
16,205,669
|
|
|
|
18,966,797
|
|
|
|
19,723,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
(142,832
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
|
|
|
|
|
|
|
|
142,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
1,237,268
|
|
|
$
|
1,055,688
|
|
|
$
|
245,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash investing and financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Vendor financing for equipment purchases
|
|
$
|
6,629,614
|
|
|
$
|
18,025,434
|
|
|
$
|
10,293,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-60
Carved-Out
Surface Mining Operations of Phoenix Coal Inc.
Notes to
Combined Financial Statements
September 30,
2009 and December 31, 2008
|
|
1.
|
Nature of
Operations and Significant Accounting Policies
|
Nature
of Operations and Basis of Presentation
Phoenix Coal Inc. (PCI) and Phoenix Coal Corporation, a wholly
owned subsidiary of PCI, (collectively, the Parent) are engaged
in the development, production, and sale of steam coal to
utilities and industrial fuel consumers. The Parent is also
engaged in the development of underground coal reserves. Mining
activities are currently limited to one reportable business
segment, which is the Illinois Basin. PCI is a publicly traded
entity listed on the Toronto Stock Exchange and is headquartered
in Madisonville, Kentucky, with corporate offices in Louisville,
Kentucky.
On September 30, 2009, the Parent sold substantially all of
its operating assets and operations associated with its surface
coal mining operations in western Kentucky to Oxford Mining
Company, LLC (Oxford). The assets acquired by Oxford were
utilized in the operation of multiple surface coal mining
locations and related support facilities (maintenance shop,
barge loading facility, and coal preparation plant)
(collectively, the Company). The assets transferred included
coal and supplies inventories, coal reserves and related prepaid
royalties, mining property, plant, and equipment, mining rights,
coal purchase contracts, and coal sales contracts.
These combined financial statements represent the carved-out
financial position, results of operations, changes in group
equity, and cash flows of the Company, combined from different
legal entities, all of which are wholly owned subsidiaries of
the Parent. The carved-out financial statements have been
prepared in accordance with SEC Financial Reporting Manual
section 2065
Acquisition of Selected Parts of an Entity
May Result in Less Than Full Financial Statements
and Staff
Accounting Bulletin (SAB) Topic 1.B.
Allocation of Expenses
and Related Disclosure in Financial Statements of Subsidiaries,
Divisions or Lesser Business Components of Another Entity
.
The carved-out financial statements include allocations of
certain Parent corporate expenses and intercompany interest
charges (see Note 2). Management believes that the
assumptions and estimates used in preparation of the carved-out
financial statements are reasonable. However, the carved-out
financial statements may not necessarily reflect the
Companys financial position, results of operations, or
cash flows in the future, or what its financial position,
results of operations, or cash flows would have been if the
Company had been a stand-alone entity during the periods
presented. Because of the nature of these carved-out financial
statements, the Parents net investment in the Company,
including amounts due to/from the Parent, is shown as
group equity.
The carved-out financial statements have been prepared in
accordance with accounting principles generally accepted in the
United States (GAAP). All monetary references expressed in these
notes are references to United States dollars. All intercompany
transactions between the Companys locations have been
eliminated.
Use of
Estimates
The preparation of the carved-out financial statements in
conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the carved-out financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from these estimates. The
assets and liabilities which require management to make
significant estimates and assumptions in determining carrying
values include, but are not limited to, coal inventories,
property, plant, and equipment, mining rights, mine development,
mineral reserves, prepaid royalties, provision for income taxes,
and asset retirement obligations.
F-61
Carved-Out
Surface Mining Operations of Phoenix Coal Inc.
Notes to
Combined Financial Statements
September 30,
2009 and December 31,
2008 (Continued)
|
|
1.
|
Nature of
Operations and Significant Accounting
Policies (Continued)
|
Parent
Sale of Surface Mining Operations
The Parent currently reports its consolidated financial results
in accordance with Canadian generally accepted accounting
principles. As these carved-out financial statements represent a
subset of the Parents financial activity and are prepared
under United States GAAP, the accounting treatment and related
materiality levels of certain transactions may differ from the
Parents separately reported consolidated financial
results. As previously noted, on September 30, 2009, the
Parent sold substantially all of its operating assets and
operations associated with its surface coal mining operations in
western Kentucky to Oxford. The consideration received under the
terms of the acquisition agreement included cash, payment by
Oxford of all debt associated with the equipment being sold and
the assumption of certain asset retirement obligations.
As of June 30, 2009, pursuant to the Canadian Institute of
Chartered Accountants Handbook Section 3475,
Disposal of Long-lived Assets and Discontinued Operations,
(a Canadian accounting standard that is consistent with
Financial Accounting Standards Board (FASB) Accounting Standards
Codification (ASC) 360,
Property, Plant, and Equipment
),
the Parent classified these surface mining operations as held
for sale and wrote down the related assets to the amount
expected to be realized on sale, resulting in a charge of
$38,920,000 to the Parents consolidated statement of
operations for the six months ended June 30, 2009.
Concurrent with the closing on September 30, 2009, the
Parent decreased this estimated loss by $2,680,000 and reported
a loss on the sale of these surface mining operations of
approximately $36,240,000 for the nine months ended
September 30, 2009. For purposes of these financial
statements, an impairment charge was not recorded in the
carved-out statement of operations as the surface mining assets
are, from the Companys perspective, classified as assets
held for use and therefore tested for impairment based on
estimated future undiscounted cash flows to be realized from the
use of the assets. Based on the Companys impairment
analysis, as of September 30, 2009 the estimated future
cash flows from the surface mining operations exceeded their
carrying value.
Cash
and Cash Equivalents, Including Restricted Cash
The Parent provides cash as needed to support the Companys
surface mining operations, including restricted cash used to
collateralize reclamation bonds. Any excess cash collected by
the Company at the end of each business day is transferred to
the Parents bank account. Consequently, the accompanying
balance sheets do not include any cash balances. Transfers of
cash between the Company and the Parent are classified as a
financing activity in the statement of cash flows. At
December 31, 2008, pending the transfer of mining permits
related to business acquisitions completed in July 2008,
restricted certificates of deposit totaling $509,825 were owned
by the Company and are included in the balance sheet at that
date.
Trade
Accounts Receivable
Trade accounts receivables are recorded at the invoiced amount
and do not bear interest. Customers are primarily investment
grade companies and quasi-governmental agencies. While the
Company is subject to credit risk from its trade accounts
receivable, the Company manages its risk by providing credit
terms on a case by case basis. As a result, the Company has not
experienced any instances of nonpayment and does not currently
require an allowance for doubtful accounts. Management monitors
customers closely and will record an allowance if trade account
balances become potentially uncollectible. Subsequent to
September 30, 2009 and December 31, 2008, the Company
has collected all of its trade accounts receivable at the
applicable reporting dates.
F-62
Carved-Out
Surface Mining Operations of Phoenix Coal Inc.
Notes to
Combined Financial Statements
September 30,
2009 and December 31,
2008 (Continued)
|
|
1.
|
Nature of
Operations and Significant Accounting
Policies (Continued)
|
Inventory
The Company accounts for coal inventories on a
first-in,
first-out basis and values these inventories at the lower of
cost and net realizable value with cost determined using average
cost per ton. Coal inventory values were $25.95 per ton at
September 30, 2009 and $22.62 per ton at December 31,
2008. At September 30, 2009 and December 31, 2008, the
coal inventory was valued at net realizable value.
The Company accounts for parts inventory using the original cost
on a
first-in,
first-out basis. Parts inventory is included in other current
assets and totaled $119,484 and $103,555 as of
September 30, 2009 and December 31, 2008, respectively.
Property,
Plant, and Equipment
Property, plant, and equipment are stated at cost. Depreciation
is calculated on the straight-line basis with useful lives that
range from 5 to 40 years. Depreciation expense for the nine
months ended September 30, 2009 and the years ended
December 31, 2008 and 2007 was $4,352,339, $4,362,179, and
$2,222,516, respectively.
The cost of assets sold, retired, or otherwise disposed of and
the related accumulated depreciation are eliminated from the
accounts and any resulting gain or loss is included in
operations. Expenditures for maintenance and repairs are charged
to expense as incurred.
Consistent with FASB ASC 360,
Property Plant, and
Equipment,
the Company evaluates long-lived assets for
impairment when events or changes in circumstances indicate that
their carrying amount may not be recoverable. This impairment
testing is based on estimated future undiscounted cash flows to
be realized from the use of the long-lived asset. These future
cash flows are developed using assumptions that reflect the
long-term operating plans given managements best estimate
of future economic conditions, such as revenues, production
costs, and reserve estimates. A change in these factors could
result in a modification of the impairment calculation.
Mine
Development Costs
Mine development costs represent the costs incurred to prepare
future mine sites for mining and are amortized on the
units-of-production
method. The net book value of mine development costs was
$2,650,129 and $529,112 at September 30, 2009 and
December 31, 2008, respectively. Accumulated amortization
of mine development costs was $471,125 and $505,902 at
September 30, 2009 and December 31, 2008,
respectively. Development costs amortized totaled $384,743,
$665,243, and $455,508 for the nine months ended
September 30, 2009 and the years ended December 31,
2008 and 2007, respectively.
Mining
Rights
Mining rights, which are rights to mine coal properties acquired
through coal leases, are recorded at cost. Mining rights are
amortized on the
units-of-production
method. The net book value of mining rights totaled $13,867,610
and $14,930,480 at September 30, 2009 and December 31,
2008, respectively. Accumulated amortization of mining rights
was $3,325,062 and $3,382,180 at September 30, 2009 and
December 31, 2008, respectively. Mining rights amortization
totaled $1,062,870, $1,619,121, and $1,386,955 for the nine
months ended September 30, 2009 and the years ended
December 31, 2008 and 2007, respectively.
In June 2007, the Crittenden County Coal mining operation was
closed due to uneconomical mining conditions. As a result of the
closing, the Company recorded an asset impairment write down
related to its mining rights of $2,873,055.
F-63
Carved-Out
Surface Mining Operations of Phoenix Coal Inc.
Notes to
Combined Financial Statements
September 30,
2009 and December 31,
2008 (Continued)
|
|
1.
|
Nature of
Operations and Significant Accounting
Policies (Continued)
|
Mineral
Reserves
Mineral reserves, which are coal properties for which the
Company owns the coal in place, are recorded at cost. At
September 30, 2009 and December 31, 2008, the net book
value of mineral reserves totaled $189,434 and was attributable
to properties where the Company was not currently engaged in
mining operations and, therefore, the assets were not currently
being depleted.
Prepaid
Royalties
Rights to leased coal lands are often acquired through royalty
payments. Where royalty payments represent prepayments
recoupable against production, they are recorded as a prepaid
asset. As mining occurs on these leases, the prepayment is
charged to cost of sales. Prepaid royalties were $188,602 and
$216,147 at September 30, 2009 and December 31, 2008,
respectively.
Asset
Retirement Obligations
FASB
ASC 410-20,
Asset Retirement Obligations
, addresses financial
accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated
asset retirement costs. The Companys asset retirement
obligation (ARO) liabilities primarily consist of spending
estimates related to reclaiming surface land and support
facilities in accordance with federal and state reclamation laws
as defined by each mining permit.
Revenue
Recognition
Revenue is recognized when all of the following criteria are
met: (1) persuasive evidence of an arrangement exists,
(2) delivery has occurred or services have been rendered,
(3) the sellers price to the buyer is fixed or
determinable, and (4) collectability is reasonably assured.
In the case of coal that is mined and sold, a specific sales
contract is negotiated with each customer, which includes a
fixed-price per ton, a delivery schedule, and terms of payment.
Royalty
Expense
The majority of the coal that the Company mines is owned by
other entities. The Company acquires the right to mine and sell
the coal through various leases. These leases require the
Company to pay a royalty to the owners of the land and the
minerals being mined. Royalty expense for the nine months ended
September 30, 2009 and for the years ended
December 31, 2008 and 2007 was $2,688,647, $3,778,642, and
$3,386,015, respectively, and is included in selling expenses in
the statements of operations and comprehensive loss.
Income
Taxes
The Company files consolidated federal and state income tax
returns with the Parent. Income tax expense for purposes of
these combined financial statements is calculated on a separate
return basis. Deferred income taxes are recorded by applying
statutory tax rates in effect at the date of the balance sheet
to differences between the book and tax basis of assets and
liabilities. Due to the significantly large tax losses generated
by the Company, management has recorded a valuation allowance
against its total net deferred tax assets as they do not believe
it is more-likely-than-not that these assets will be realized.
The Companys income tax expense for the nine months ended
September 30, 2009, and the years ended December 31,
2008 and 2007, consisted of state taxes.
F-64
Carved-Out
Surface Mining Operations of Phoenix Coal Inc.
Notes to
Combined Financial Statements
September 30,
2009 and December 31,
2008 (Continued)
|
|
1.
|
Nature of
Operations and Significant Accounting
Policies (Continued)
|
Share-Based
Compensation
The Parent uses the fair value method for options, warrants, and
restricted stock granted. The fair value of stock options and
warrants is determined by the Black-Scholes option pricing model
with assumptions for risk-free interest rates, dividend yields,
volatility factors of the expected market price of the
Parents common shares and an expected life of the options
and warrants. The fair value of the instruments granted is
amortized over their vesting period. The share-based
compensation expense recorded in these carved-out financial
statements has been allocated to the Company based on the
employees who have provided services to the Company during the
applicable reporting periods and recorded as an expense in the
statement of operations. The Parents cost of providing
these benefits is recorded as a contribution to the
Companys equity.
Fair
Value and Financial Instruments
FASB ASC 820 defines fair value as the price that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the
measurement date. At September 30, 2009 and
December 31, 2008, the fair values of restricted
certificates of deposit, trade accounts receivable, trade
accounts payable, and accrued liabilities approximated their
carrying values because of the short-term nature of these
financial instruments. At September 30, 2009, the fair
value of the Companys long-term debt, calculated using the
present value of the scheduled debt payments, and using a credit
adjusted risk free rate of 8.25%, was $20,843,900, compared to
its carrying value at that date of $21,305,458. At
December 31, 2008, the fair value of the Companys
long-term debt, calculated using the present value of the
scheduled debt payments, and using a credit adjusted risk free
rate of 6.75%, was $21,052,500, compared to its carrying value
at that date of $21,173,790.
New
Accounting Standards Issued and Adopted
In September 2009, the FASB issued Accounting Standards Update
(ASU)
2009-06,
Implementation Guidance on Accounting for Uncertainty in
Income Taxes and Disclosure Amendments for Nonpublic
Entities
. ASU
2009-06
amended guidance on certain aspects of FASB ASC 740,
Income Taxes
, including application to nonpublic
entities, as well as application guidance on the accounting for
income tax uncertainties for all entities. The amendments are
applicable to all entities that apply FASB ASC 740 as well
as those that historically had not, such as pass-through and
tax-exempt
not-for-profit
entities. The amendments clarify that an entitys tax
status as a pass-through or tax-exempt
not-for-profit
entity is a tax position subject to the recognition requirements
of FASB ASC 740 and therefore these entities must use the
recognition and measurement guidance in FASB ASC 740 when
assessing their tax positions. The ASU
2009-06
amendments are effective for interim and annual periods ending
after September 15, 2009. The adoption of the ASU
2009-06
amendments for the nine months ended September 30, 2009 did
not have a material impact on the Companys financial
statements.
For the financial statements for the September 30, 2009
reporting period, the Company adopted amendments to FASB
ASC 805,
Business Combinations
(SFAS No. 141R,
Business Combinations
),
issued by the FASB in December 2007. The FASB ASC 805
amendments apply to all business combinations and establish
guidance for recognizing and measuring identifiable assets
acquired, liabilities assumed, noncontrolling interests in the
acquiree and goodwill. Most of these items are recognized at
their full fair value on the acquisition date, including
acquisitions where the acquirer obtains control but less than
100% ownership in the acquiree. The FASB ASC 805 amendments
also require expensing restructuring and acquisition-related
costs as incurred and establish disclosure requirements to
enable the evaluation of the nature and financial effects of the
business combination. Per FASB ASC
805-10-65-1,
these amendments to FASB ASC 805 are effective for business
combinations with an acquisition date in fiscal years beginning
after
F-65
Carved-Out
Surface Mining Operations of Phoenix Coal Inc.
Notes to
Combined Financial Statements
September 30,
2009 and December 31,
2008 (Continued)
|
|
1.
|
Nature of
Operations and Significant Accounting
Policies (Continued)
|
December 15, 2008. The Company did not complete any
business acquisitions during the nine months ended
September 30, 2009.
For the financial statements for the September 30, 2009
reporting period, the Company adopted amendments to FASB
ASC 855,
Subsequent Events
(SFAS No. 165,
Subsequent Events
), issued by the FASB in May 2009. The
amendments to FASB ASC 855 establish the accounting for and
disclosure of events that occur after the balance sheet date but
before financial statements are issued or are available to be
issued. The amendments to FASB ASC 855 also require
disclosure of the date through which an entity has evaluated
subsequent events and the basis for that date, that is, whether
that date represents the date the financial statements were
issued or were available to be issued. The Company evaluated
subsequent events after the balance sheet date of
September 30, 2009 through December 18, 2009.
New
Accounting Standards Issued and Not Yet Adopted
In August 2009, the FASB issued ASU
2009-05,
Measuring Liabilities at Fair Value
. The ASU
2009-05
amendments provide additional guidance on measuring the fair
value of liabilities, as well as outline alternative valuation
methods and a hierarchy for their use. The amendments also
clarify that restrictions preventing the transfer of a liability
should not be considered as a separate input or adjustment in
the measurement of its fair value. The ASU
2006-05
amendments are effective as of the beginning of interim and
annual reporting periods that begin after August 26, 2009.
The Company does not anticipate these requirements will have a
material impact on its financial statements.
|
|
2.
|
Preparation
of Carved-Out Financial Statements
|
The following allocation policies have been used in the
preparation of these carved-out financial statements. Unless
otherwise noted, these policies have been consistently applied
in the financial statements. In the opinion of management, the
methods for allocating these costs are reasonable. It is not
practicable to estimate the costs that would have been incurred
by the Company if it had been operated on a stand-alone basis.
Specifically
Identified Expenses
Costs related specifically to the Company have been identified
and included in the statements of operations and comprehensive
loss. These expenses include labor and benefits, mining
supplies, equipment maintenance and reclamation costs. In
addition, any costs incurred by the Parent which were
specifically identifiable to a surface mining operation have
been charged to the Company.
Shared
Operating Expenses
Historically, the Company has not allocated corporate general
and administrative services to each operating division. These
shared services included executive management, accounting,
information services, engineering, and human resources. For the
purposes of these carved-out financial statements, these costs
have been allocated to the Company based primarily on a
percentage of revenue.
Debt
and Related Interest Expense
The Parent has funded the acquisition and operating activities
of the Company, as well as its other operations, through equity
offerings (including private placement, preferred stock
offerings, and public stock offerings) and bank and finance
company debt. Funds used by the Parent for acquisition of the
Company have been recorded by the Parent as an investment in the
Company. Funds subsequently provided to, or received
F-66
Carved-Out
Surface Mining Operations of Phoenix Coal Inc.
Notes to
Combined Financial Statements
September 30,
2009 and December 31,
2008 (Continued)
|
|
2.
|
Preparation
of Carved-Out Financial
Statements (Continued)
|
from, the Company after the initial acquisition of its assets
have been recorded by the Parent in an intercompany
account balance.
Historically, the Parent has not charged or credited the Company
for interest on funds provided to, or received from the Company.
For the purpose of these carved-out financial statements,
interest expense has been computed on the average intercompany
account balance at the Parents consolidated average
borrowing rate and included in the Companys statements of
operations and comprehensive loss. The intercompany balance has
been contributed by the Parent to the Company at the end of each
year and therefore has been included in the statement of group
equity. Average borrowing rates utilized in this calculation
were 6.9%, 8.4%, and 11.7% for the nine months ended
September 30, 2009 and the years ended December 31,
2008 and 2007, respectively.
Beginning in September 2007, the Company began executing debt
agreements directly with equipment finance companies. Interest
expense related to equipment financed debt has also been
included in the carved-out statements.
C&R
Coal Inc.
In July 2008, the Parent, through one of its surface mining
subsidiaries, purchased all of the outstanding common shares of
C&R Coal Inc. (C&R) for cash consideration of
$2,051,000. In addition, under the terms of the agreement, the
Company will pay the former owners a royalty of $0.60 per ton
for each ton of coal sold from the C&R mines. At the
acquisition date, the current mining area, Beech Creek and Beech
Creek South, contained approximately 450,000 reserve tons. The
Company also acquired other leases in the transaction from
C&R and R&G Leasing, LLC, a company that is
affiliated with C&R through common ownership. At the
acquisition date, the Company estimated the leases contained
approximately 1,500,000 tons of coal.
The cost of the C&R acquisition was allocated to the
following identifiable net assets:
|
|
|
|
|
Current assets and restricted certificates of deposit
|
|
$
|
1,281,000
|
|
Mining equipment
|
|
|
859,000
|
|
Mining rights and mine development costs
|
|
|
2,387,000
|
|
Assumed liabilities
|
|
|
(2,476,000
|
)
|
|
|
|
|
|
|
|
$
|
2,051,000
|
|
|
|
|
|
|
Prior to July 2008, the Parent operated and managed
C&Rs mines under a management and administrative
services agreement. Since the Parent did not own nor control
C&R, it did not consolidate its operating results prior to
July 2008, and recorded funds invested and services provided in
other assets and accounts receivable on its balance sheet.
Renfro
Equipment, Inc.
In July 2008, the Parent, on behalf of the Company, purchased
all of the outstanding common shares of Renfro Equipment, Inc.
(Renfro) for total cash consideration of $1,129,000.
Additionally, the Parent incurred $18,000 of closing costs. The
purchase included all assets and liabilities of Renfro, except
certain equipment and associated debt specifically excluded from
the purchase. Based on exploration completed by the Parent,
management estimated that Renfro controlled approximately
1.5 million tons of coal via lease at acquisition date.
Additionally, if by July 2010, the Company acquires at least
1.5 million reserve tons as defined by Canadian Securities
Administrators National Instrument
43-101
due
to the direct efforts of the sellers (the
F-67
Carved-Out
Surface Mining Operations of Phoenix Coal Inc.
Notes to
Combined Financial Statements
September 30,
2009 and December 31,
2008 (Continued)
|
|
3.
|
Acquisitions (Continued)
|
Additional Reserves), the Company will pay the sellers
$1,000,000 for the first 1.5 million tons of reserves, plus
$0.50 per ton for each reserve ton in excess of
1.5 million. The purchase agreement defines a specific
territory from which the Additional Reserves can be acquired.
The acquisition of the Additional Reserves is on terms and
conditions acceptable to the Company in its sole, reasonable
discretion.
The cost of the Renfro acquisition was allocated to the
following identifiable net assets:
|
|
|
|
|
Current assets and restricted certificates of deposit
|
|
$
|
334,000
|
|
Mining equipment
|
|
|
429,000
|
|
Mining rights and mine development costs
|
|
|
1,770,000
|
|
Assumed liabilities
|
|
|
(1,386,000
|
)
|
|
|
|
|
|
|
|
$
|
1,147,000
|
|
|
|
|
|
|
Charolais
Corporation
In January 2007, the Parent acquired assets and shares of the
Charolais Corporation and related entities. The purchase price
paid to the seller was $21,735,000. In addition, the Parent
incurred $189,000 of transaction costs related to the purchase
for total consideration of $21,924,000. Included in the
Charolais acquisition was the purchase of the Rock Crusher Fines
(RCF) operation, which was not purchased on behalf of the
Company. The RCF operation is not included in these carved-out
financial statements as it was a fine coal recovery operation
and all assets utilized at RCF were sold in 2007 and not
included in the Companys operations. The portion of the
Charolais purchase price attributed to the RCF operation was
$6,844,000.
The purchase price was allocated as follows:
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Charolais
|
|
|
|
Charolais
|
|
|
Acquisition
|
|
|
|
Acquisition
|
|
|
Allocation
|
|
|
|
Allocation
|
|
|
Excluding RCF
|
|
|
Real property
|
|
$
|
557,000
|
|
|
$
|
557,000
|
|
Plant and equipment
|
|
|
13,483,000
|
|
|
|
7,939,000
|
|
Mining rights and mineral reserves
|
|
|
8,705,000
|
|
|
|
7,405,000
|
|
Asset retirement obligations
|
|
|
(821,000
|
)
|
|
|
(821,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
21,924,000
|
|
|
$
|
15,080,000
|
|
|
|
|
|
|
|
|
|
|
F-68
Carved-Out
Surface Mining Operations of Phoenix Coal Inc.
Notes to
Combined Financial Statements
September 30,
2009 and December 31,
2008 (Continued)
|
|
4.
|
Property,
Plant, and Equipment, Net
|
Property, plant, and equipment consists of the following at
September 30, 2009 and December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Land
|
|
$
|
636,154
|
|
|
$
|
599,654
|
|
Building and improvements
|
|
|
480,885
|
|
|
|
25,424
|
|
Preparation plant
|
|
|
3,683,996
|
|
|
|
3,084,768
|
|
Mining equipment
|
|
|
52,483,183
|
|
|
|
45,886,694
|
|
Loading and marine transport equipment
|
|
|
1,775,000
|
|
|
|
1,775,000
|
|
Office equipment
|
|
|
355,557
|
|
|
|
370,450
|
|
Vehicles
|
|
|
65,965
|
|
|
|
65,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,480,740
|
|
|
|
51,807,955
|
|
Less accumulated depreciation and amortization
|
|
|
10,904,663
|
|
|
|
6,644,971
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
48,576,077
|
|
|
$
|
45,162,984
|
|
|
|
|
|
|
|
|
|
|
In 2008 and 2007, the Company sold several pieces of noncore
property and equipment, generating gross proceeds of $683,912
and $1,582,346, respectively. The Company recorded a loss of
$1,012,779 related to these sales in 2008, and a gain of
$742,086 in 2007. There were no significant sales of property
and equipment for the nine months ended September 30, 2009.
|
|
5.
|
Asset
Retirement Obligations
|
The Company estimates its ARO liabilities for final reclamation
and mine closure based upon detailed engineering calculations of
the amount and timing of the future cash spending for a third
party to perform the required work. Spending estimates are
escalated for inflation and then discounted at the
credit-adjusted risk-free rate, which ranged from 6.12% to 7.64%
at September 30, 2009 and December 31, 2008. Total
estimated undiscounted future cash spending related to the ARO
liabilities totaled $4,900,000 at September 30, 2009 with
spending estimated to occur from 2009 to 2016. Total estimated
undiscounted future cash spending related to the ARO liabilities
totaled $5,142,000 at December 31, 2008. The Company
records an ARO asset associated with the discounted liability
for final reclamation and mine closure as a mine development
cost. The obligation and corresponding asset are recognized in
the period in which the liability is incurred. The ARO asset is
amortized on the
units-of-production
method over its expected life and the ARO liability is accreted
to the projected spending date. As changes in estimates occur
(such as mine plan revisions, changes in estimated costs or
changes in timing of the performance of reclamation activities),
the revisions to the obligation and asset are recognized at the
appropriate credit-adjusted risk-free rate. The Company also
recognizes an obligation for contemporaneous reclamation
liabilities incurred as a result of surface mining.
Contemporaneous reclamation consists primarily of grading,
topsoil replacement, and revegetation of backfilled pit areas.
F-69
Carved-Out
Surface Mining Operations of Phoenix Coal Inc.
Notes to
Combined Financial Statements
September 30,
2009 and December 31,
2008 (Continued)
|
|
5.
|
Asset
Retirement Obligations (Continued)
|
A progression of the reclamation liability recorded on the
balance sheet is as follows:
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
|
|
|
Ended
|
|
|
Year Ended
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Balance at beginning of period
|
|
$
|
4,324,000
|
|
|
$
|
3,757,353
|
|
Liabilities acquired
|
|
|
|
|
|
|
1,131,000
|
|
Liabilities incurred
|
|
|
846,295
|
|
|
|
166,083
|
|
Accretion
|
|
|
188,719
|
|
|
|
189,132
|
|
Liabilities settled
|
|
|
(832,936
|
)
|
|
|
(919,568
|
)
|
|
|
|
|
|
|
|
|
|
Total asset retirement obligation
|
|
|
4,526,078
|
|
|
|
4,324,000
|
|
Less current portion
|
|
|
1,627,800
|
|
|
|
1,958,000
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,898,278
|
|
|
$
|
2,366,000
|
|
|
|
|
|
|
|
|
|
|
Long-term debt consists of the following at September 30,
2009 and December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Bank notes payable, interest at 5.50% to 8.90%. Payments are
made in monthly installments. The loans are collateralized by
various pieces of equipment and mature April 2010
|
|
$
|
47,643
|
|
|
$
|
105,109
|
|
Equipment notes payable, interest at 5.25% to 8.75%. Payments
are made in monthly installments. The loans are collateralized
by related assets with a net book value of $31,184,000 as of
September 30, 2009 and have maturity dates from August 2010
to March 2013
|
|
|
21,257,815
|
|
|
|
21,068,681
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
21,305,458
|
|
|
|
21,173,790
|
|
Less current portion
|
|
|
8,224,486
|
|
|
|
6,532,045
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,080,972
|
|
|
$
|
14,641,745
|
|
|
|
|
|
|
|
|
|
|
Expected maturities of notes payable based on years ending
December 31 are as follows:
|
|
|
|
|
2009 (remaining three months)
|
|
$
|
2,013,455
|
|
2010
|
|
|
8,147,660
|
|
2011
|
|
|
7,366,999
|
|
2012
|
|
|
3,604,101
|
|
2013
|
|
|
173,243
|
|
|
|
|
|
|
|
|
$
|
21,305,458
|
|
|
|
|
|
|
As previously discussed in Note 1, on September 30,
2009, the Parent sold substantially all of its operating assets
and operations associated with its surface coal mining
operations in western Kentucky to Oxford. In conjunction with
the transactions, Oxford paid off all the outstanding debt as of
September 30, 2009.
F-70
Carved-Out
Surface Mining Operations of Phoenix Coal Inc.
Notes to
Combined Financial Statements
September 30,
2009 and December 31,
2008 (Continued)
The components of income tax expense for the nine months ended
September 30, 2009 and the years ended December 31,
2008 and 2007 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
|
|
|
Ended
|
|
Year Ended
|
|
Year Ended
|
|
|
September 30,
|
|
December 31,
|
|
December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
Current
|
|
$
|
16,081
|
|
|
$
|
37,838
|
|
|
$
|
70,155
|
|
The expense for income taxes includes federal and state income
taxes currently payable or receivable and those deferred or
prepaid because of temporary differences between the financial
statement and the tax basis of assets and liabilities. The
Company records income taxes under the liability method. Under
this method, deferred income taxes are recognized for the
estimated deferred tax effects of differences between the tax
basis of assets and liabilities and their financial reporting
amounts based on enacted laws.
At September 30, 2009 and December 31, 2008, the
Company had deferred tax assets of approximately $28,862,000 and
$20,263,000 and deferred tax liabilities of $12,471,000 and
$10,761,000, respectively. The Companys deferred tax
assets consist principally of net operating loss carryforwards,
while deferred tax liabilities relate primarily to temporary
timing differences for amortization of mining rights and
depreciation. As a result of losses from operations, management
has recorded a valuation allowance against the total net
deferred tax asset as they do not believe it is
more-likely-than-not these assets will be realized.
For the nine months ended September 30, 2009 and the years
ended December 31, 2008 and 2007 the Companys
concentration of major customers was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
|
|
|
Ended
|
|
Year Ended
|
|
Year Ended
|
|
|
September 30,
|
|
December 31,
|
|
December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
Number of customers whose sales each exceeded 10% of total
revenue
|
|
|
4
|
|
|
|
3
|
|
|
|
3
|
|
Percentage of total revenue
|
|
|
98
|
%
|
|
|
86
|
%
|
|
|
83
|
%
|
Accounts receivable due at period end
|
|
$
|
6,349,485
|
|
|
$
|
2,410,395
|
|
|
$
|
2,285,240
|
|
The Company has never experienced nonpayment from any of these
customers. All amounts due from these customers at
September 30, 2009 have subsequently been collected.
|
|
9.
|
Commitments
and Contingent Liabilities
|
In the normal course of business, the Company makes various
commitments and incurs certain contingent liabilities, including
liabilities related to asset retirement obligations and
financial obligations in connection with mining permits that are
not reflected in the balance sheet. The Company does not
anticipate any material losses as a result of these
transactions. In accordance with Kentucky state law, the Company
is required to post reclamation bonds to assure that reclamation
work is completed. Outstanding reclamation bonds totaled
approximately $12 million at September 30, 2009 and
approximately $11 million at December 31, 2008. These
bonds are secured by letters of credit or certificates of
deposit issued by a bank equal to the amount of the outstanding
reclamation bonds, and are typically provided by the Parent.
However, at December 31, 2008, pending the transfer of
certain mining permits related to the C&R and Renfro
acquisitions, restricted certificates of deposit totaling
$509,825 were held by the Company and included in the balance
sheet.
F-71
Carved-Out
Surface Mining Operations of Phoenix Coal Inc.
Notes to
Combined Financial Statements
September 30,
2009 and December 31,
2008 (Continued)
|
|
9.
|
Commitments
and Contingent
Liabilities (Continued)
|
Subsequent to December 31, 2008 these restricted
certificates of deposit were replaced by letters of credit
provided by the Parent.
A significant amount of the Companys coal reserves are
controlled through leasing arrangements and noncancellable
royalty lease agreements under which future minimum lease
payments are due.
In the ordinary course of business, the Company enters into
contracts to purchase diesel fuel from local suppliers for
physical delivery at specified prices. Pursuant to these
contracts, the Company does not own a futures or options
position in the purchased fuel. As of September 30, 2009,
the Company had executed purchase contracts for a total of
1,890,000 gallons to be delivered in 2009 and 2010 at a total
cost of $4,206,048, or an average weighted price of $2.23 per
gallon.
In 2007, the Company entered into a master coal purchase and
sale agreement (the Master Agreement) to purchase coal fines
recovered and processed by Covol Fuels No. 2, LLC (Covol)
from two coal slurry reserve areas in Muhlenberg County,
Kentucky. On July 6, 2009, the Company executed an
amendment to the Master Agreement (the Amended Master Agreement)
revising the annual purchase and sale tonnage commitments. The
term of the Amended Master Agreement runs through the exhaustion
of the reserves (the Term). During the Term of the Amended
Master Agreement, by July 1 of each year, the Company and Covol
will agree to the annual tonnage commitment (the Commitment)
that Covol will produce and that the Company will purchase for
the next calendar year. For the calendar year 2010 the
Commitment cannot be less than 360,000 tons and for subsequent
years the Commitment cannot be less than 400,000 tons.
Additionally, the Company has the first right of refusal to
purchase any tons produced by Covol in excess of the Commitment,
but up to 720,000 tons annually.
In June 2009, the Company entered into a coal supply agreement
with an Illinois Basin producer to purchase 20,000 tons of coal
per month from July 2009 through December 2009. Upon mutual
agreement of the parties to the coal supply agreement, the term
of the agreement may be extended to December 31, 2010.
Subsequent to September 30, 2009, this agreement was
extended to June 30, 2010.
As part of the Renfro Equipment Inc. acquisition in July 2008,
the Company agreed that if, by July 31, 2010, it acquires
at least 1.5 million reserve tons as defined by Canadian
Securities Administrators National Instrument
43-101
(NI
43-101)
due
to the direct efforts of the sellers (Additional Reserves), the
Company will pay the sellers $1,000,000 for the first
1.5 million tons of reserves, plus $0.50 per ton for each
reserve ton in excess of 1.5 million. The acquisition
closing documents define a specific territory from which the
Additional Reserves can be acquired. The acquisition of the
Additional Reserves must be on terms and conditions acceptable
to the Company in its sole, reasonable discretion. As of
September 30, 2009, the sellers had provided several
mineral leases to the Company. However, the analysis and
drilling that is required to qualify these properties as reserve
tons under the definition of NI
43-101
is in
its early stages. Therefore, it is not yet probable that the
sellers will deliver 1.5 million reserve tons to the
Company, so no liability has been currently accrued on the
balance sheet to the sellers.
|
|
10.
|
Stock
Incentive Plans
|
PCI adopted a shareholder-approved stock option plan (the 2008
Plan) on May 20, 2008, which became effective in June 2008.
PCC had a stock incentive plan authorized by its Board of
Directors in 2004 (the 2004 Plan) to grant options to its
employees (including officers), directors, and consultants. In
June 2008, each stock option issued under the 2004 Plan was
cancelled and extinguished and the holder received a replacement
option to purchase that number of common shares of PCI equal to
the number of PCC common shares that the holder could purchase
under the 2004 Plan.
F-72
Carved-Out
Surface Mining Operations of Phoenix Coal Inc.
Notes to
Combined Financial Statements
September 30,
2009 and December 31,
2008 (Continued)
|
|
10.
|
Stock
Incentive Plans (Continued)
|
The 2008 Plan is designed to advance the interests of the
Company by encouraging employees, officers, directors, and
consultants to have equity participation in the Parent through
the acquisition of common shares. The 2008 Plan has been used to
grant options to the Companys employees, officers,
directors, and consultants. Options granted under the 2008 Plan
may be incentive stock options or nonqualified
stock options.
For options granted under the 2008 Plan, the exercise price per
common share is not to be less than the market price of the
common shares at the time of the grant. The exercise period for
each stock option is not to be more than ten years (five years
in the case of an incentive stock option granted to a person who
owns more than 10% of the issued and outstanding common shares
of the Parent). Options may be granted subject to vesting
requirements. Stock options granted under the 2004 Plan were
generally subject to vesting provisions of 25% at the end of
year one from the date of grant and then evenly over the
following 48 months. The options were granted at a price
equal to 100% of the fair value of the Companys common
shares on the date of grant and have a ten-year term.
Unless terminated earlier by the Parents Board of
Directors, the 2008 Plan will remain in effect until all options
granted under the 2008 Plan have been exercised or forfeited, or
have expired. However, no new options may be granted under the
2008 Plan more than ten years from the date the Plan was
originally adopted.
Compensation cost of stock option grants is recognized
straight-line over the options vesting periods.
Compensation expense related to stock options for the nine
months ended September 30, 2009 and the years ended
December 31, 2008 and 2007 was $2,258,869, $4,388,941, and
$813,454, respectively. Under the terms of the 2008 Plan, and as
approved by the Board of Directors of the Parent, the sale of
the surface mining assets to Oxford caused all options
outstanding under the 2008 Plan to become fully vested and all
remaining unrecognized compensation expense totaling
approximately $547,000 was charged to the statement of
operations and comprehensive loss in the third quarter 2009.
The options fair value was determined using the
Black-Scholes option-pricing model. Expected volatilities are
based on comparable company historical share price movement and
other factors. The cost relating to the stock-based compensation
plans is included in general and administrative expenses in the
accompanying combined statements of operations and comprehensive
loss.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
Options
|
|
Options
|
|
Options
|
|
Weighted-average fair value per share of options granted
|
|
$
|
0.08 per share
|
|
|
$
|
0.64 per share
|
|
|
$
|
0.73 per share
|
|
Assumptions (weighted-average):
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk free interest rate
|
|
|
2.75
|
%
|
|
|
3.98
|
%
|
|
|
4.37
|
%
|
Expected dividend yield
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
Expected volatility
|
|
|
0.40
|
|
|
|
0.40
|
|
|
|
0.40
|
|
Expected option life (in years)
|
|
|
10.00
|
|
|
|
10.00
|
|
|
|
10.00
|
|
|
|
11.
|
Sales
Contract Termination
|
On March 3, 2009, the Company entered into a mutual release
and settlement agreement with one of its customers to terminate
a coal supply agreement for delivery of coal in 2009 and 2010
(the 2009/2010 Supply Agreement). In consideration for
terminating the 2009/2010 Supply Agreement, the Company paid the
customer $3,000,000 in cash. The payment relieved the Company of
the obligation to deliver approximately
F-73
Carved-Out
Surface Mining Operations of Phoenix Coal Inc.
Notes to
Combined Financial Statements
September 30,
2009 and December 31,
2008 (Continued)
|
|
11.
|
Sales
Contract Termination (Continued)
|
970,000 tons of coal, 470,000 in 2009 and 500,000 in 2010. In
addition, the Company agreed to make up in 2009 approximately
170,000 tons of shipments that were not delivered in 2008 under
a separate coal supply agreement dated January 1, 2008 (the
2008 Supply Agreement). In return for fulfilling the 2008 Supply
Agreement, the customer agreed to change the guaranteed monthly
average BTU specification from 11,500 to 11,200. The $3,000,000
payment has been charged to the statement of operations and
comprehensive loss.
|
|
12.
|
Defined
Contribution Plan
|
The Company has a retirement savings trust plan in effect for
substantially all full-time employees. The Plan also contains a
deferred salary arrangement under IRC Section 401(k). Under
the deferred salary arrangement, employees can contribute up to
100% of their earnings and the Company may match a portion of
the employee contributions. The Company paid and charged to
operations Plan contributions of approximately $497,000,
$621,000, and $508,000 for the nine months ended
September 30, 2009 and the years ended December 31,
2008 and 2007, respectively.
|
|
13.
|
Related-Party
Transactions
|
The Company is wholly owned by the Parent and its subsidiaries.
The Parent has allocated certain overhead costs associated with
general and administrative services, including executive
management, accounting, information services, engineering, and
human resources support to the Company. These overhead costs
were allocated based primarily on a percentage of revenue, which
management believes is reasonable.
Historically, interest costs related to intercompany debt have
not been charged or credited to the Parent or the Company. For
the purpose of these carved-out financial statements, interest
expense has been computed on the average intercompany account
balance at the Parents consolidated average borrowing rate
and included in the carved-out statements.
Allocated overhead costs and interest expense on intercompany
debt included in the statement of operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
|
|
|
Ended
|
|
Year Ended
|
|
Year Ended
|
|
|
September 30,
|
|
December 31,
|
|
December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
Overhead costs
|
|
$
|
6,947,484
|
|
|
$
|
10,362,888
|
|
|
$
|
5,170,340
|
|
Interest expense
|
|
|
1,363,605
|
|
|
|
755,592
|
|
|
|
(159,577
|
)
|
On November 4, 2009, the Company received a state mining
permit from the Kentucky Department of Natural Resources for its
Highway 431 reserve. With this permit, the Company has secured
all of the necessary permits required to begin mining on the
Highway 431 property in Muhlenberg County, Kentucky.
F-74
APPENDIX A
Third Amended and Restated Agreement
of Limited Partnership of Oxford Resource Partners, LP
TABLE OF
CONTENTS
|
|
|
|
|
|
|
ARTICLE I DEFINITIONS
|
|
|
A-1
|
|
Section 1.1
|
|
Definitions
|
|
|
A-1
|
|
ARTICLE II ORGANIZATION
|
|
|
A-19
|
|
Section 2.1
|
|
Formation
|
|
|
A-19
|
|
Section 2.2
|
|
Name
|
|
|
A-19
|
|
Section 2.3
|
|
Registered Office;
Registered Agent; Principal Office; Other Offices
|
|
|
A-19
|
|
Section 2.4
|
|
Purpose and
Business
|
|
|
A-19
|
|
Section 2.5
|
|
Powers
|
|
|
A-20
|
|
Section 2.6
|
|
Term
|
|
|
A-20
|
|
Section 2.7
|
|
Title to Partnership
Assets
|
|
|
A-20
|
|
ARTICLE III RIGHTS OF
LIMITED PARTNERS
|
|
|
A-20
|
|
Section 3.1
|
|
Limitation of
Liability
|
|
|
A-20
|
|
Section 3.2
|
|
Management of
Business
|
|
|
A-20
|
|
Section 3.3
|
|
Outside Activities of
the Limited Partners
|
|
|
A-21
|
|
Section 3.4
|
|
Rights of Limited
Partners
|
|
|
A-21
|
|
ARTICLE IV CERTIFICATES;
RECORD HOLDERS; TRANSFER OF PARTNERSHIP INTERESTS;
REDEMPTION OF PARTNERSHIP INTERESTS
|
|
|
A-21
|
|
Section 4.1
|
|
Certificates
|
|
|
A-21
|
|
Section 4.2
|
|
Mutilated, Destroyed,
Lost or Stolen Certificates
|
|
|
A-22
|
|
Section 4.3
|
|
Record
Holders
|
|
|
A-22
|
|
Section 4.4
|
|
Transfer
Generally
|
|
|
A-23
|
|
Section 4.5
|
|
Registration and
Transfer of Limited Partner Interests
|
|
|
A-23
|
|
Section 4.6
|
|
Transfer of the
General Partners General Partner Interest
|
|
|
A-24
|
|
Section 4.7
|
|
Transfer of Incentive
Distribution Rights
|
|
|
A-24
|
|
Section 4.8
|
|
Restrictions on
Transfers
|
|
|
A-24
|
|
Section 4.9
|
|
Citizenship
Certificates; Non-citizen Assignees
|
|
|
A-25
|
|
Section 4.10
|
|
Redemption of
Partnership Interests of Non-citizen
|
|
|
A-26
|
|
ARTICLE V CAPITAL
CONTRIBUTIONS AND ISSUANCE OF PARTNERSHIP INTERESTS
|
|
|
A-27
|
|
Section 5.1
|
|
Intentionally
Omitted
|
|
|
A-27
|
|
Section 5.2
|
|
Contributions by the
General Partner and the Initial Limited Partners
|
|
|
A-27
|
|
Section 5.3
|
|
Contributions by
Limited Partners
|
|
|
A-27
|
|
Section 5.4
|
|
Interest and
Withdrawal of Capital Contributions
|
|
|
A-28
|
|
Section 5.5
|
|
Capital
Accounts
|
|
|
A-28
|
|
Section 5.6
|
|
Issuances of
Additional Partnership Securities
|
|
|
A-30
|
|
Section 5.7
|
|
Conversion of
Subordinated Units
|
|
|
A-31
|
|
Section 5.8
|
|
Limited Preemptive
Right
|
|
|
A-32
|
|
Section 5.9
|
|
Splits and
Combinations
|
|
|
A-32
|
|
Section 5.10
|
|
Fully Paid and
Non-Assessable Nature of Limited Partner Interests
|
|
|
A-32
|
|
Section 5.11
|
|
Issuance of Common
Units in Connection with Reset of Incentive Distribution
Rights
|
|
|
A-32
|
|
ARTICLE VI ALLOCATIONS
AND DISTRIBUTIONS
|
|
|
A-34
|
|
Section 6.1
|
|
Allocations for
Capital Account Purposes
|
|
|
A-34
|
|
Section 6.2
|
|
Allocations for Tax
Purposes
|
|
|
A-40
|
|
Section 6.3
|
|
Requirement and
Characterization of Distributions; Distributions to Record
Holders
|
|
|
A-42
|
|
A-i
|
|
|
|
|
|
|
Section 6.4
|
|
Distributions of IPO
Proceeds, Credit Facility Proceeds and Available Cash from
Operating Surplus
|
|
|
A-43
|
|
Section 6.5
|
|
Distributions of
Available Cash from Capital Surplus
|
|
|
A-44
|
|
Section 6.6
|
|
Adjustment of Minimum
Quarterly Distribution and Target Distribution Levels
|
|
|
A-45
|
|
Section 6.7
|
|
Special Provisions
Relating to the Holders of Subordinated Units
|
|
|
A-45
|
|
Section 6.8
|
|
Special Provisions
Relating to the Holders of Incentive Distribution
Rights
|
|
|
A-45
|
|
Section 6.9
|
|
Entity-Level Taxation
|
|
|
A-46
|
|
ARTICLE VII MANAGEMENT
AND OPERATION OF BUSINESS
|
|
|
A-46
|
|
Section 7.1
|
|
Management
|
|
|
A-46
|
|
Section 7.2
|
|
Certificate of Limited
Partnership
|
|
|
A-48
|
|
Section 7.3
|
|
Restrictions on the
General Partners Authority
|
|
|
A-48
|
|
Section 7.4
|
|
Reimbursement of the
General Partner
|
|
|
A-48
|
|
Section 7.5
|
|
Outside
Activities
|
|
|
A-49
|
|
Section 7.6
|
|
Loans from the General
Partner; Loans or Contributions from the Partnership or Group
Members
|
|
|
A-50
|
|
Section 7.7
|
|
Indemnification
|
|
|
A-50
|
|
Section 7.8
|
|
Liability of
Indemnitees
|
|
|
A-52
|
|
Section 7.9
|
|
Resolution of
Conflicts of Interest; Standards of Conduct and Modification of
Duties
|
|
|
A-52
|
|
Section 7.10
|
|
Other Matters
Concerning the General Partner
|
|
|
A-53
|
|
Section 7.11
|
|
Purchase or Sale of
Partnership Securities
|
|
|
A-54
|
|
Section 7.12
|
|
Registration Rights of
the General Partner and its Affiliates
|
|
|
A-54
|
|
Section 7.13
|
|
Reliance by Third
Parties
|
|
|
A-57
|
|
ARTICLE VIII BOOKS,
RECORDS, ACCOUNTING AND REPORTS
|
|
|
A-57
|
|
Section 8.1
|
|
Records and
Accounting
|
|
|
A-57
|
|
Section 8.2
|
|
Fiscal Year
|
|
|
A-57
|
|
Section 8.3
|
|
Reports
|
|
|
A-57
|
|
ARTICLE IX TAX MATTERS
|
|
|
A-58
|
|
Section 9.1
|
|
Tax Returns and
Information
|
|
|
A-58
|
|
Section 9.2
|
|
Tax
Elections
|
|
|
A-58
|
|
Section 9.3
|
|
Tax
Controversies
|
|
|
A-58
|
|
Section 9.4
|
|
Withholding
|
|
|
A-58
|
|
ARTICLE X ADMISSION OF
PARTNERS
|
|
|
A-59
|
|
Section 10.1
|
|
Admission of Limited
Partners
|
|
|
A-59
|
|
Section 10.2
|
|
Admission of Successor
or Additional General Partner
|
|
|
A-59
|
|
Section 10.3
|
|
Amendment of Agreement
and Certificate of Limited Partnership
|
|
|
A-60
|
|
ARTICLE XI WITHDRAWAL OR
REMOVAL OF PARTNERS
|
|
|
A-60
|
|
Section 11.1
|
|
Withdrawal of the
General Partner
|
|
|
A-60
|
|
Section 11.2
|
|
Removal of the General
Partner
|
|
|
A-61
|
|
Section 11.3
|
|
Interest of Departing
General Partner and Successor General Partner
|
|
|
A-61
|
|
Section 11.4
|
|
Termination of
Subordination Period, Conversion of Subordinated Units and
Extinguishment of Cumulative Common Unit Arrearages
|
|
|
A-63
|
|
Section 11.5
|
|
Withdrawal of Limited
Partners
|
|
|
A-63
|
|
ARTICLE XII DISSOLUTION
AND LIQUIDATION
|
|
|
A-63
|
|
Section 12.1
|
|
Dissolution
|
|
|
A-63
|
|
Section 12.2
|
|
Continuation of the
Business of the Partnership After Dissolution
|
|
|
A-63
|
|
A-ii
|
|
|
|
|
|
|
Section 12.3
|
|
Liquidator
|
|
|
A-64
|
|
Section 12.4
|
|
Liquidation
|
|
|
A-64
|
|
Section 12.5
|
|
Cancellation of
Certificate of Limited Partnership
|
|
|
A-65
|
|
Section 12.6
|
|
Return of
Contributions
|
|
|
A-65
|
|
Section 12.7
|
|
Waiver of
Partition
|
|
|
A-65
|
|
Section 12.8
|
|
Capital Account
Restoration
|
|
|
A-65
|
|
ARTICLE XIII AMENDMENT OF
PARTNERSHIP AGREEMENT; MEETINGS; RECORD DATE
|
|
|
A-65
|
|
Section 13.1
|
|
Amendments to be
Adopted Solely by the General Partner
|
|
|
A-65
|
|
Section 13.2
|
|
Amendment
Procedures
|
|
|
A-66
|
|
Section 13.3
|
|
Amendment
Requirements
|
|
|
A-67
|
|
Section 13.4
|
|
Special
Meetings
|
|
|
A-67
|
|
Section 13.5
|
|
Notice of a
Meeting
|
|
|
A-68
|
|
Section 13.6
|
|
Record Date
|
|
|
A-68
|
|
Section 13.7
|
|
Adjournment
|
|
|
A-68
|
|
Section 13.8
|
|
Waiver of Notice;
Approval of Meeting
|
|
|
A-68
|
|
Section 13.9
|
|
Quorum and
Voting
|
|
|
A-68
|
|
Section 13.10
|
|
Conduct of a
Meeting
|
|
|
A-69
|
|
Section 13.11
|
|
Action Without a
Meeting
|
|
|
A-69
|
|
Section 13.12
|
|
Right to Vote and
Related Matters
|
|
|
A-69
|
|
ARTICLE XIV MERGER,
CONSOLIDATION OR CONVERSION
|
|
|
A-70
|
|
Section 14.1
|
|
Authority
|
|
|
A-70
|
|
Section 14.2
|
|
Procedure for Merger,
Consolidation or Conversion
|
|
|
A-70
|
|
Section 14.3
|
|
Approval by Limited
Partners
|
|
|
A-71
|
|
Section 14.4
|
|
Certificate of
Merger
|
|
|
A-72
|
|
Section 14.5
|
|
Effect of Merger,
Consolidation or Conversion
|
|
|
A-72
|
|
ARTICLE XV RIGHT TO
ACQUIRE LIMITED PARTNER INTERESTS
|
|
|
A-73
|
|
Section 15.1
|
|
Right to Acquire
Limited Partner Interests
|
|
|
A-73
|
|
ARTICLE XVI GENERAL
PROVISIONS
|
|
|
A-74
|
|
Section 16.1
|
|
Addresses and Notices;
Written Communications
|
|
|
A-74
|
|
Section 16.2
|
|
Further
Action
|
|
|
A-75
|
|
Section 16.3
|
|
Binding
Effect
|
|
|
A-75
|
|
Section 16.4
|
|
Integration
|
|
|
A-75
|
|
Section 16.5
|
|
Creditors
|
|
|
A-75
|
|
Section 16.6
|
|
Waiver
|
|
|
A-75
|
|
Section 16.7
|
|
Third-Party
Beneficiaries
|
|
|
A-75
|
|
Section 16.8
|
|
Counterparts
|
|
|
A-75
|
|
Section 16.9
|
|
Applicable Law; Forum,
Venue and Jurisdiction
|
|
|
A-75
|
|
Section 16.10
|
|
Invalidity of
Provisions
|
|
|
A-76
|
|
Section 16.11
|
|
Consent of
Partners
|
|
|
A-76
|
|
Section 16.12
|
|
Facsimile
Signatures
|
|
|
A-76
|
|
Section 16.13
|
|
Provisions Regarding
Effective Time
|
|
|
A-76
|
|
ARTICLE XVII CERTAIN
TRANSACTIONS IN CONNECTION WITH THE INITIAL PUBLIC OFFERING
|
|
|
A-77
|
|
Section 17.1
|
|
Non-Pro Rata
Redemption of Common Units
|
|
|
A-77
|
|
A-iii
THIRD
AMENDED AND RESTATED AGREEMENT OF LIMITED
PARTNERSHIP OF OXFORD RESOURCE PARTNERS, LP
THIS THIRD AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF OXFORD RESOURCE PARTNERS, LP, dated as of
June [ ], 2010, is by and among Oxford Resources
GP, LLC, a Delaware limited liability company, as the General
Partner, and AIM Oxford, C&T Coal and any other Persons who
now are or hereafter become Partners in the Partnership or
parties hereto as provided herein.
WHEREAS, the General Partner, AIM Oxford and C&T Coal
entered into that certain First Amended and Restated Agreement
of Limited Partnership dated as of August 24, 2007 (the
First A/R Partnership Agreement);
WHEREAS, the General Partner approved that certain Second
Amended and Restated Agreement of Limited Partnership dated as
of August 28, 2009 (the Second A/R Partnership
Agreement) pursuant to Section 13.1(h) of the First
A/R Partnership Agreement;
WHEREAS, in connection with the Initial Public Offering by the
Partnership, the Board of Directors of the General Partner deems
it necessary and appropriate to amend and restate the Second A/R
Partnership Agreement to provide for certain amendments in
connection with the Initial Public Offering; and
WHEREAS, pursuant to Article XIII of the Second A/R
Partnership Agreement, the Second A/R Partnership Agreement has
been amended with the approval of the General Partner, the
holders of at least 90% of the Outstanding Units (as defined in
the Second A/R Partnership Agreement) voting as a single class,
a majority of the Class A Common Units (as defined in the
Second A/R Partnership Agreement) and a majority of the
Class B Common Units (as defined in the Second A/R
Partnership Agreement).
NOW, THEREFORE, the Second A/R Partnership Agreement is hereby
amended and restated to provide in its entirety 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 the long-term operating
capacity, asset base or operating income of the Partnership
Group from the operating capacity, asset base or operating
income 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:
(a) 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.
(b) 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
A-1
Partnerships Adjusted Property after such Book-Down Event
(determined without regard to the application of this
clause (b) 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 Partnerships 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. With respect to a Disposed of Adjusted Property, the
Additional Book Basis Derivative Items shall be the amount of
Additional Book Basis taken into account in computing gain or
loss from the disposition of such Disposed of Adjusted Property.
Additional Limited Partner
means a Person
admitted to the Partnership as a Limited Partner pursuant to
Section 10.1(b) and who is shown as such on the books and
records of the Partnership.
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 Partners 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 Unit, a Common Unit, a Subordinated Unit or an
Incentive Distribution Right or any other Partnership Interest
shall be the amount that such Adjusted Capital Account would be
if such General Partner Unit, 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 Unit, Common
Unit, Subordinated Unit, Incentive Distribution Right or other
Partnership Interest was first issued.
Adjusted Operating Surplus
means, with
respect to any period, Operating Surplus generated with respect
to such period, less (a)(i) any net increase in Working Capital
Borrowings with respect to such period and (ii) any net
decrease in cash reserves for Operating Expenditures with
respect to such period not relating to an Operating Expenditure
made with respect to such period, plus (b)(i) any net decrease
in Working Capital Borrowings with respect to such period,
(ii) any net decrease made in subsequent periods in cash
reserves for Operating Expenditures initially established with
respect to such period to the extent such decrease results in a
reduction in Adjusted Operating Surplus in subsequent periods
pursuant to clause (a)(ii) above and (iii) any net increase
in cash reserves for Operating Expenditures with respect to 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
Operating Surplus includes that portion of Operating Surplus in
clause (a)(ii) of the definition of Operating Surplus only to
the extent that cash is received by the Partnership Group.
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
A-2
direction of the management and policies of a Person, whether
through ownership of voting securities, by contract or otherwise.
Aggregate Quantity of IDR Reset Common Units
has the meaning assigned to such term in Section 5.11(a).
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 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 and, in the case of an
Adjusted Property, the fair market value of such Adjusted
Property on the date of the revaluation event described in
Section 5.5(d), in each case as determined by the General
Partner. In making such determination, the General Partner shall
use such method as it determines to be appropriate to allocate
the aggregate Agreed Value of each Contributed Property or
Adjusted Property 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 such Contributed
Property or Adjusted Property.
Agreement
means this Third Amended and
Restated Agreement of Limited Partnership of Oxford Resource
Partners, LP, as it may be amended, supplemented or restated
from time to time.
AIM Oxford
means AIM Oxford Holdings, LLC, a
Delaware limited liability company.
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 (or the Partnership Groups
proportionate share of cash and cash equivalents in the case of
Subsidiaries that are not wholly owned) on hand at the end of
such Quarter, (ii) if the General Partner so determines,
all or any portion of additional cash and cash equivalents of
the Partnership Group (or the Partnership Groups
proportionate share of cash and cash equivalents in the case of
Subsidiaries that are not wholly owned) on hand on the date of
determination of Available Cash with respect to such Quarter
resulting from Working Capital Borrowings made subsequent to
such Quarter and (iii) all cash and cash equivalents on
hand on the date of determination of Available Cash resulting
from cash distributions received after the end of such Quarter
from any Group Members equity interest in any Person
(other than a Subsidiary), which distributions are paid by such
Person in respect of operations conducted by such Person during
such Quarter, less
(b) the amount of any cash reserves (or the
Partnerships proportionate share of cash reserves in the
case of Subsidiaries that are not wholly owned) established by
the General Partner to (i) provide for the proper conduct
of the business of the Partnership Group (including reserves for
future capital expenditures and 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 establishing 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
A-3
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.
Board of Directors
means the board of
directors or board of managers of a corporation or limited
liability company or the board of directors or board of managers
of the general partner of a limited partnership, as applicable.
Book Basis Derivative Items
means any item of
income, deduction, gain or 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 that 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 Partners share of the Partnerships
Book-Tax Disparities in all of its Contributed Property and
Adjusted Property will be reflected by the difference between
such Partners Capital Account balance as maintained
pursuant to Section 5.5 and the hypothetical balance of
such Partners Capital Account computed as if it had been
maintained strictly in accordance with federal income tax
accounting principles.
Book-Up
Event
means an event that triggers a positive
adjustment to the Capital Accounts of the Partners pursuant to
Section 5.5(d).
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 State of Ohio
shall not be regarded as a Business Day.
C&T Coal
means C&T Coal, Inc., an
Ohio corporation.
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 Unit, a Common Unit, a Subordinated Unit, an Incentive
Distribution Right or any other Partnership Interest shall be
the amount that such Capital Account would be if such General
Partner Unit, 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 Unit, Common Unit,
Subordinated Unit, Incentive Distribution Right or other
Partnership Interest was first issued.
Capital Contribution
means (a) with
respect to any Partner, any cash, cash equivalents or the Net
Agreed Value of Contributed Property that a Partner contributes
to the Partnership (including, in the case of an underwritten
offering of Units, the amount of any underwriting discounts or
commissions) or (b) with respect to the General Partner
only, (i) distributions of cash that the General Partner is
entitled to receive but otherwise waives such that the
Partnership retains such cash or (ii) Common Units that the
General Partner contributes to the Partnership.
Capital Improvement
means any
(a) addition or improvement to the capital assets owned by
any Group Member, (b) acquisition of existing, or the
construction of new or the improvement or replacement of
existing, capital assets (including, without limitation, coal
mines and related assets) or (c) capital contributions by a
Group Member to a Person that is not a Subsidiary in which a
Group Member has an equity interest to fund such Group
Members pro rata share of the cost of the addition or
improvement to or the acquisition of existing, or the
construction of new, or the improvement or replacement of
existing, capital assets by such Person, in each case if such
addition, improvement, replacement, acquisition or construction
is made to
A-4
increase the long-term operating capacity, asset base or
operating income of the Partnership Group, in the case of
clauses (a) and (b), or such Person, in the case of clause
(c), from the operating capacity, asset base or operating income
of the Partnership Group or such Person, as the case may be,
existing immediately prior to such addition, improvement,
replacement, 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 or Adjusted Property, the Agreed Value of
such property reduced (but not below zero) by all depreciation,
amortization and cost recovery deductions charged to the
Partners 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;
provided,
that 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 or willful misconduct in its
capacity as a general partner of the Partnership.
Certificate
means (a) a certificate
(i) substantially in the form of Exhibit A to the
First A/R Partnership Agreement (if such certificate was issued
prior to August 28, 2009), substantially in the form of
Exhibit A to the Second A/R Partnership Agreement (if such
certificate was issued on or after August 28, 2009 and
prior to the date hereof) or substantially in the form of
Exhibit A to this Agreement (if such certificate is issued
on or after the date hereof), (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, issued by the Partnership evidencing ownership of one
or more Common Units or (b) a certificate, in such form as
may be adopted by the General Partner, 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 7.2, 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 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
(as used in Section 7.12(d)) has
the meaning assigned to such term in Section 7.12(d).
Closing Price
means, in respect of any class
of Limited Partner Interests, as of the date of determination,
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, as reported in the
principal consolidated transaction reporting system with respect
to securities listed on the principal National Securities
Exchange on which the respective Limited Partner Interests are
listed or admitted to trading or, if such Limited Partner
Interests are not listed or admitted to trading on any National
Securities Exchange, 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 primary reporting system then in use
in relation to such Limited Partner Interests of such class, 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 by the
General Partner.
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 any
successor law.
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Combined Interest
has the meaning assigned to
such term in Section 11.3(a).
Commences Commercial Service
means the date
on which a Capital Improvement is first placed into commercial
service following completion of construction, acquisition,
development and testing, as applicable.
Commission
means the United States Securities
and Exchange Commission or any successor agency having
jurisdiction under the Securities Act.
Commodity Hedge Contract
means any commodity
exchange, swap, forward, cap, floor, collar or other similar
agreement or arrangement entered into for the purpose of hedging
the Partnership Groups exposure to fluctuations in the
price of coal or other hydrocarbons in its operations and not
for speculative purposes.
Common Unit
means a Partnership Security
representing a fractional part of the Partnership Interests of
all Limited Partners and having the rights and obligations
specified with respect to a Common Unit in this Agreement. Prior
to the IPO Closing Date, the Common Units were designated as
Class A Common Units. Simultaneously with the
effectiveness of this Agreement, the Class A Common
Units are hereby redesignated as Common Units.
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(b)(i)(A).
Conflicts Committee
means any committee of
the Board of Directors of the General Partner that is designated
as a Conflicts Committee and that is composed
entirely of one or more Independent Directors.
Contributed Property
means each property or
other asset, in such form as may be permitted by the Delaware
Act, but excluding cash, contributed to the Partnership. Once
the Carrying Value of a Contributed Property is adjusted
pursuant to Section 5.5(d), such property shall no longer
constitute a Contributed Property, but shall be deemed an
Adjusted Property.
Contribution Agreement
means that certain
Contribution and Sale Agreement, dated as of the Contribution
Agreement Closing Date, among C&T Coal, the General
Partner, the Partnership, AIM Oxford, Charles C. Ungurean and
Thomas T. Ungurean, together with the additional conveyance
documents and instruments contemplated or referenced thereunder,
as such may be amended, supplemented or restated from time to
time.
Contribution Agreement Closing Date
means
August 24, 2007.
Credit Facility Proceeds
means the portion of
the net proceeds of the Partnerships borrowings made
simultaneously with the closing of the Initial Public Offering
under its new credit facility that, according to the disclosure
set forth in the section of the Registration Statement entitled
Use of Proceeds, are to be distributed to the
Non-Taxable Partners.
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 of 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(b)(i)(A) and Section 6.5(b) 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
means, in respect of any
class of Limited Partner Interests, as of the date of
determination, the average of the daily Closing Prices per
Limited Partner Interest of such class for the 20 consecutive
Trading Days immediately prior to such date.
Delaware Act
means the Delaware Revised
Uniform Limited Partnership Act, 6 Del C.
Section 17-101,
et seq., as amended, supplemented or restated from time to time,
and any successor to such statute.
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Departing General 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 Section 11.2.
Depositary
means, with respect to any Units
issued in global form, The Depository Trust Company and its
successors and permitted assigns.
Disposed of Adjusted Property
has the meaning
assigned to such term in Section 6.1(d)(xii)(B).
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 Limited Partner the General
Partner determines 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.
Employee/Director Unitholders
means the
employees and directors of the General Partner who hold Common
Units.
Estimated Incremental Quarterly Tax Amount
has the meaning assigned to such term in Section 6.9.
Estimated Reserve Replacement Expenditures
means an estimate made by the Board of Directors of the
General Partner (subject to Special Approval) of the average
quarterly Reserve Replacement Expenditures that the Partnership
Group will incur over the long term. In the case of Subsidiaries
that are not wholly owned by the Partnership, such estimate
shall include the Partnerships proportionate share of the
average quarterly Reserve Replacement Expenditures that such
Subsidiary will incur over the long term. Beginning after the
IPO Closing Date, the estimate will be made annually and
whenever an event occurs that is likely to result in a material
adjustment to the amount of Reserve Replacement Expenditures
over the long term. The Partnership shall disclose to its
Partners any change in the amount of Estimated Reserve
Replacement Expenditures in its reports made in accordance with
Section 8.3 to the extent not previously disclosed. Except
as provided in the definition of Subordination Period, any
adjustments to Estimated Reserve Replacement Expenditures shall
be prospective only.
Event of Withdrawal
has the meaning assigned
to such term in Section 11.1(a).
Excess Additional Book Basis
(as used in the
definition of Additional Book Basis Derivative Items) has the
meaning assigned to such term in the definition of Additional
Book Basis Derivative Items.
Expansion Capital Expenditures
means cash
expenditures for Acquisitions or Capital Improvements, and shall
not include Maintenance Capital Expenditures or Investment
Capital Expenditures. Expansion Capital Expenditures shall
include interest payments (and related fees) on debt incurred to
finance the construction, acquisition or development of a
Capital Improvement and paid in respect of the period beginning
on the date that a Group Member enters into a binding obligation
to commence construction, acquisition or development of a
Capital Improvement and ending on the earlier to occur of the
date that such Capital Improvement Commences Commercial Service
and the date that such Capital Improvement is abandoned or
disposed of. Debt incurred to fund such interest payments or to
fund distributions on equity issued (including incremental
Incentive Distributions related thereto) to fund the
construction, acquisition or development of a Capital
Improvement as described in clause (a)(v) of the definition of
Operating Surplus shall also be deemed to be debt incurred to
finance the construction, acquisition or development of a
Capital Improvement. Where capital expenditures are made in part
for Expansion Capital Expenditures and in part for other
purposes, the General Partner shall determine the allocation
between the amounts paid for each.
Final Subordinated Units
has the meaning
assigned to such term in Section 6.1(d)(x)(A).
First A/R Partnership Agreement
has the
meaning assigned to such term in the recitals to this Agreement.
First Liquidation Target Amount
has the
meaning assigned to such term in Section 6.1(c)(i)(D).
First Target Distribution
means $0.5031 per
Unit (or, with respect to the Quarter which includes the IPO
Closing Date, it means the product of $0.5031 multiplied by a
fraction of which the numerator is the
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number of days in such Quarter after the IPO Closing Date, and
of which the denominator is the total number of days in such
Quarter), subject to adjustment in accordance with
Sections 5.11, 6.6 and 6.9.
Fully Diluted Basis
means, when calculating
the number of Outstanding Units for any period, a basis that
includes, in addition to the Outstanding Units, all Partnership
Securities and options, rights, warrants and appreciation rights
relating to an equity interest in the Partnership (a) that
are convertible into or exercisable or exchangeable for Units
that are senior to or pari passu with the Subordinated Units,
(b) whose conversion, exercise or exchange price is less
than the Current Market Price on the date of such calculation,
(c) that may be converted into or exercised or exchanged
for such Units prior to or during the Quarter immediately
following the end of the period for which the calculation is
being made without the satisfaction of any contingency beyond
the control of the holder other than the payment of
consideration and the compliance with administrative mechanics
applicable to such conversion, exercise or exchange and
(d) that were not converted into or exercised or exchanged
for such Units during the period for which the calculation is
being made; provided, however, that for purposes of determining
the number of Outstanding Units on a Fully Diluted Basis when
calculating whether the Subordination Period has ended or
Subordinated Units are entitled to convert into Common Units
pursuant to Section 5.7, such Partnership Securities,
options, rights, warrants and appreciation rights shall be
deemed to have been Outstanding Units only for the four Quarters
that comprise the last four Quarters of the measurement period;
provided, further, that if consideration will be paid to any
Group Member in connection with such conversion, exercise or
exchange, the number of Units to be included in such calculation
shall be that number equal to the difference between
(i) the number of Units issuable upon such conversion,
exercise or exchange and (ii) the number of Units that such
consideration would purchase at the Current Market Price.
General Partner
means Oxford Resources GP,
and its successors and permitted assigns that are admitted to
the Partnership as general partner of the Partnership, in its
capacity as general partner of the Partnership (except as the
context otherwise requires).
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 is evidenced by General
Partner Units, 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.
General Partner Unit
means a fractional part
of the General Partner Interest having the rights and
obligations specified with respect to the General Partner
Interest. A General Partner Unit is not a Unit.
Gross Liability Value
means, with respect to
any Liability of the Partnership described in Treasury
Regulation Section 1.752-7(b)(3)(i),
the amount of cash that a willing assignor would pay to a
willing assignee to assume such Liability in an
arms-length transaction. The Gross Liability Value of each
Liability of the Partnership described in Treasury
Regulation Section 1.752-7(b)(3)(i)
shall be adjusted at such times as provided in this Agreement
for an adjustment to Carrying Values.
Group
means a Person that with or through any
of its Affiliates or Associates has any contract, arrangement,
understanding or relationship 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), exercising investment
power or disposing of any Partnership Interests with any other
Person that beneficially owns, or whose Affiliates or Associates
beneficially own, directly or indirectly, Partnership Interests.
Group Member
means a member of the
Partnership Group.
Group Member Agreement
means the partnership
agreement of any Group Member, other than the Partnership, that
is a limited or general partnership, the limited liability
company agreement of any Group Member that is a limited
liability company, the certificate of incorporation and bylaws
or similar organizational documents of any Group Member that is
a corporation, the joint venture agreement or similar governing
document of any Group Member that is a joint venture and the
governing or organizational or similar documents of any other
Group Member that is a Person other than a limited or general
partnership,
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limited liability company, corporation or joint venture, as
such may be amended, supplemented or restated from time to time.
Hedge Contract
means any Commodity Hedge
Contract or Interest Rate Hedge Contract.
Holder
as used in Section 7.12, has the
meaning assigned to such term in Section 7.12(a).
IDR Reset Common Unit
has the meaning
assigned to such term in Section 5.11(a).
IDR Reset Election
has the meaning assigned
to such term in Section 5.11(a).
Incentive Distribution Right
means a
non-voting Limited Partner Interest issued to Oxford Resources
GP, which Limited Partner 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(b)(i)(E), (F) and
(G) and 6.4(b)(ii)(C), (D) and (E).
Incremental Income Taxes
has the meaning
assigned to such term in Section 6.9.
Indemnified Persons
has the meaning assigned
to such term in Section 7.12(d).
Indemnitee
means (a) the General
Partner, (b) any Departing General Partner, (c) any
Person who is or was an Affiliate of the General Partner or any
Departing General Partner, (d) any Person who is or was a
member, partner, director, manager, officer, fiduciary or
trustee of any Group Member (other than any Person who is or was
a Limited Partner of the Partnership in such Persons
capacity as such), the general partner or any departing general
partner or any Affiliate of any Group Member, the General
Partner or any Departing General Partner, (e) any Person
who is or was serving at the request of the General Partner or
any Departing General Partner or any Affiliate of the General
Partner or any Departing General Partner as an officer,
director, manager, member, partner, 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, and
(f) any Person the General Partner designates as an
Indemnitee for purposes of this Agreement.
Independent Director
means any director that
(a) is not a security holder, officer or employee of the
General Partner, (b) is not an officer, director or
employee of any Affiliate of the General Partner, (c) is
not a holder of any ownership interest in the Partnership Group
other than Common Units and (d) meets the independence
standards required of directors who serve on an audit committee
of a board of directors established by the Securities Exchange
Act and the rules and regulations of the Commission thereunder
and by any National Securities Exchange on which the Common
Units are listed or admitted to trading.
Initial Common Unit
means a Common Unit
issued in the Initial Public Offering.
Initial Limited Partners
means each of AIM
Oxford, C&T Coal and Oxford Resources GP (with respect to
the Incentive Distribution Rights it holds).
Initial Public Offering
means the initial
public offering of Common Units by the Partnership, as described
in the Registration Statement, including any Common Units issued
pursuant to the exercise of the Over-Allotment Option.
Initial Unit Price
means (a) with
respect to the Common Units and the Subordinated Units, the IPO
Price, 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 issued 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.
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Interest Rate Hedge Contract
means any
interest rate exchange, swap, forward, cap, floor collar or
other similar agreement or arrangement entered into for the
purpose of reducing the exposure of the Partnership Group to
fluctuations in interest rates in their financing activities and
not for speculative purposes.
Interim Capital Transactions
means the
following transactions if they occur prior to the Liquidation
Date: (a) borrowings, refinancings or refundings of
indebtedness, (other than for (i) items purchased on open
account in the ordinary course of business or (ii) Working
Capital Borrowings) by any Group Member and sales of debt
securities of any Group Member; (b) sales of equity
interests of any Group Member; (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; (d) the
termination of Hedge Contracts prior to the termination date
specified therein; (e) capital contributions received; or
(f) corporate reorganizations or restructurings.
Investment Capital Expenditures
means capital
expenditures other than Maintenance Capital Expenditures and
Expansion Capital Expenditures.
Investors Rights Agreement
means the
Investors Rights Agreement, dated as of the Contribution
Agreement Closing Date, by and among the Partnership, the
General Partner, C&T Coal, Charles C. Ungurean and Thomas
T. Ungurean.
IPO Closing Date
means the closing date of
the sale of Common Units in the Initial Public Offering.
IPO Price
means the price per Common Unit at
which the Underwriters offer the Common Units for sale to the
public as set forth on the cover page of the final prospectus
filed pursuant to Rule 424(b) of the rules and regulations
of the Commission with respect to the Initial Public Offering.
IPO Proceeds
means the portion of the net
proceeds received by the Partnership from the issuance and sale
on the IPO Closing Date of Common Units in the Initial Public
Offering that, according to the disclosure set forth in the
section of the Registration Statement entitled Use of
Proceeds, are to be distributed to the Taxable Partners.
Liability
means any liability or obligation
of any nature, whether accrued, contingent or otherwise.
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 Additional Limited Partner and any
Departing General Partner upon the change of its status from
General Partner to Limited Partner pursuant to
Section 11.3, in each case, in such Persons capacity
as limited partner of the Partnership; provided, however, that
when the term Limited Partner is used herein in the
context of any vote or other approval, including
Articles XIII and XIV, such term shall not, solely for such
purpose, include any holder of an Incentive Distribution Right
(solely with respect to its Incentive Distribution Rights and
not with respect to any other Limited Partner Interest held by
such Person) except as may be required by law.
Limited Partner Interest
means the ownership
interest of a Limited Partner 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 is entitled as
provided in this Agreement, together with all obligations of
such Limited Partner 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
Articles XIII and XIV, such term shall not, solely for such
purpose, include any Incentive Distribution Right except as may
be required by law.
Limited Partner Unit
means each of the Common
Units, Subordinated Units and other Units representing
fractional parts of the Partnership Interests of all Limited
Partners.
Liquidation Date
means (a) in the case
of an event giving rise to the dissolution of the Partnership of
the type described in clause (d) of Section 12.1 or
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 (or other required
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Persons) have the right to elect to continue the business of
the Partnership 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 12.4 as liquidating trustee of the Partnership
within the meaning of the Delaware Act.
Maintenance Capital Expenditures
means cash
expenditures (including expenditures for the addition or
improvement to, or the replacement of, the capital assets owned
by any Group Member or for the acquisition of existing, or the
construction of new, capital assets) if such expenditures are
made to maintain, including over the long term, the operating
capacity, asset base or operating income of the Partnership
Group. Maintenance Capital Expenditures consist of Reserve
Replacement Expenditures and Other Maintenance Capital
Expenditures. Maintenance Capital Expenditures shall not include
Expansion Capital Expenditures or Investment Capital
Expenditures. Where Maintenance Capital Expenditures are made in
part for Reserve Replacement Expenditures and in part for Other
Maintenance Capital Expenditures, the General Partner shall
determine the allocation for amounts paid for each.
Merger Agreement
has the meaning assigned to
such term in Section 14.1.
Minimum Quarterly Distribution
means $0.4375
per Unit per Quarter (or with respect to the Quarter which
includes the IPO Closing Date, it means the product of $0.4375
multiplied by a fraction of which the numerator is the number of
days in such Quarter after the IPO Closing Date and of which the
denominator is the total number of days in such Quarter),
subject to adjustment in accordance with Section 5.11,
Section 6.6 and Section 6.9.
National Securities Exchange
means an
exchange registered with the Commission under Section 6(a)
of the Securities Exchange Act and any successor to such statute.
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, (b) in the case of any property distributed to
a Partner by the Partnership, the Partnerships Carrying
Value of such property (as adjusted pursuant to
Section 5.5(d)(ii)) at the time such property is
distributed, reduced by any Liabilities either assumed by such
Partner 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 and (c) in
the case of a contribution of Common Units by the General
Partner to the Partnership as a Capital Contribution, an amount
per Common Unit contributed equal to the Current Market Price
per Common Unit as of the date of the contribution.
Net Income
means, for any taxable year, the
excess, if any, of the Partnerships 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 Partnerships 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 Partnerships 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 Partnerships items of income
and gain (other than those items taken into account in the
computation of Net Termination Gain or Net Termination Loss) for
such taxable year. The items included in the calculation of Net
Loss shall be determined in accordance with Section 5.5(b)
and shall not include any items specially allocated under
Section 6.1(d); provided, that the determination of the
items that have been specially allocated under
Section 6.1(d) shall be made as if Section 6.1(d)(xii)
were not in this Agreement.
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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 that are (a) recognized by the Partnership
(i) after the Liquidation Date or (ii) upon the sale,
exchange or other disposition of all or substantially all of the
assets of the Partnership Group, taken as a whole, in a single
transaction or a series of related transactions (excluding any
disposition to a member of the Partnership Group), or
(b) deemed recognized by the Partnership pursuant to
Section 5.5(d). 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 that are (a) recognized by the Partnership
(i) after the Liquidation Date or (ii) upon the sale,
exchange or other disposition of all or substantially all of the
assets of the Partnership Group, taken as a whole, in a single
transaction or a series of related transactions (excluding any
disposition to a member of the Partnership Group), or
(b) deemed recognized by the Partnership pursuant to
Section 5.5(d). 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 does not constitute an Eligible
Citizen and as to whose Partnership Interest the General Partner
has become the substituted Limited Partner, all pursuant to
Section 4.9.
Nonrecourse Built-in Gain
means, with respect
to any Contributed Properties or Adjusted Properties that are
subject to a mortgage or pledge securing a Nonrecourse
Liability, the amount of any taxable gain that would be
allocated to the Partners pursuant to
Sections 6.2(b)(i)(A), 6.2(b)(ii)(A) and 6.2(b)(iii) if
such properties were disposed of in a taxable transaction in
full satisfaction of such liabilities and for no other
consideration.
Nonrecourse Deductions
means any and all
items of loss, deduction or expenditure (including 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).
Non-Taxable Partner
means each of AIM Oxford
and the General Partner.
Notice of Election to Purchase
has the
meaning assigned to such term in Section 15.1(b).
Operating Expenditures
means the sum of
(a) all Partnership Group Estimated Reserve Replacement
Expenditures and (b) all Partnership Group cash
expenditures (or the Partnership Groups proportionate
share of expenditures in the case of Subsidiaries that are not
wholly owned), including, but not limited to, taxes, employee
and director compensation, reimbursements of expenses of the
General Partner, repayments of Working Capital Borrowings, debt
service payments, reclamation expenses, payments made in the
ordinary course of business under Hedge Contracts (provided that
(i) with respect to amounts paid in connection with the
initial purchase of any Hedge Contract, such amounts shall be
amortized over the life of the Hedge Contract, and
(ii) payments made in connection with the termination of
any Hedge Contract prior to the expiration of its stipulated
settlement or termination date shall be included in equal
quarterly installments over the remaining scheduled life of such
Hedge Contract), Other Maintenance Capital Expenditures and
non-Pro Rata repurchases of Partnership Interests (other than
those made with the proceeds of an Interim Capital Transaction);
subject to the following:
(i) deemed repayments of Working Capital Borrowings
deducted from Operating Surplus under clause (b)(iii) of the
definition of Operating Surplus shall not constitute Operating
Expenditures when actually repaid;
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(ii) payments (including prepayments and prepayment
penalties) of principal of and premium on indebtedness other
than Working Capital Borrowings shall not constitute Operating
Expenditures; and
(iii) Operating Expenditures shall not include
(A) Expansion Capital Expenditures, (B) Investment
Capital Expenditures, (C) payment of transaction expenses
(including taxes) relating to Interim Capital Transactions,
(D) distributions to Partners (including any distributions
made pursuant to Section 6.4(a)), (E) actual Reserve
Replacement Expenditures, (F) Pro Rata repurchases of
Units, or reimbursement of expenses of the General Partner for
such repurchases, (G) non-Pro Rata repurchases of
Partnership Interests funded with the proceeds of an Interim
Capital Transaction, or reimbursement of expenses of the General
Partner for such repurchases, or (H) any other payments
made in connection with the Initial Public Offering that are
described under Use of Proceeds in the Registration
Statement.
Operating Surplus
means, with respect to any
period commencing on the IPO Closing Date and ending prior to
the Liquidation Date, on a cumulative basis and without
duplication,
(a) the sum of (i) $35 million, (ii) an
amount equal to the amount of accounts receivable distributed to
the Partners immediately prior to the closing of the Initial
Public Offering, (iii) all cash receipts of the Partnership
Group (or the Partnership Groups proportionate share of
cash receipts in the case of Subsidiaries that are not wholly
owned) for the period beginning on the IPO Closing Date and
ending on the last day of such period, but excluding cash
receipts from Interim Capital Transactions (except to the extent
specified in Section 6.5 and provided that cash receipts
from the termination of a Hedge Contract prior to the expiration
of its stipulated settlement or termination date shall be
included in Operating Surplus in equal quarterly installments
over the remaining scheduled life of such Hedge Contract),
(iv) 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 and (v) the amount of cash
distributions paid (including incremental Incentive
Distributions) on equity issued, other than equity issued on the
IPO Closing Date, to finance all or a portion of the
construction, acquisition or improvement of a Capital
Improvement or replacement of a capital asset and paid in
respect of the period beginning on the date that the Group
Member enters into a binding obligation to commence the
construction, acquisition or improvement of such Capital
Improvement or replacement of such capital asset and ending on
the earlier to occur of the date such Capital Improvement or
replacement capital asset Commences Commercial Service and the
date that it is abandoned or disposed of (equity issued, other
than equity issued on the IPO Closing Date, to fund interest
payments on debt incurred or distributions on equity issued, in
each case during the period described above in this clause (v),
to finance the construction, acquisition or improvement of a
Capital Improvement or replacement of a capital asset shall also
be deemed to be equity issued to finance the construction,
acquisition or improvement of such Capital Improvement or
replacement of such capital asset for purposes of this clause
(v)); less
(b) the sum of (i) Operating Expenditures for the
period beginning immediately after the IPO Closing Date and
ending on the last day of such period, (ii) the amount of
cash reserves (or the Partnership Groups proportionate
share of cash reserves in the case of Subsidiaries that are not
wholly owned) established by 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, (iii) all Working Capital Borrowings not repaid
within 12 months after having been incurred and
(iv) any cash loss realized on disposition of an Investment
Capital Expenditure.
Notwithstanding the foregoing, Operating Surplus
with respect to the Quarter in which the Liquidation Date occurs
and any subsequent Quarter shall equal zero. Cash receipts from
an Investment Capital Expenditure shall be treated as cash
receipts only to the extent they are a return on principal, but
in no event shall a return of principal be treated as cash
receipts.
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.
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Option Closing Date
means the date or dates
on which any Common Units are sold by the Partnership to the
Underwriters upon exercise of an Over-Allotment Option.
Organizational Limited Partner
means AIM
Oxford in its capacity as the organizational limited partner of
the Partnership pursuant to the original agreement of limited
partnership of the Partnership.
Other Maintenance Capital Expenditures
means
Maintenance Capital Expenditures other than Reserve Replacement
Capital Expenditures, such as expenditures for the repair,
refurbishment or replacement of equipment.
Outstanding
means, with respect to
Partnership Securities, all Partnership Securities that are
issued by the Partnership and reflected as outstanding on the
Partnerships 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 the 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 Units so owned shall
be considered to be Outstanding for purposes of
Section 14.3(e)(v) (such 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 to (i) any Person or
Group who acquired 20% or more of the Outstanding Partnership
Securities of any class then Outstanding directly from the
General Partner or its Affiliates, (ii) any Person or Group
who acquired 20% or more of the 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, or
(iii) any Person or Group who acquired 20% or more of any
Partnership Securities issued by the Partnership with the prior
approval of the Board of Directors of the General Partner.
Over-Allotment Option
means the
over-allotment option granted to the Underwriters by the
Partnership pursuant to the Underwriting Agreement.
Oxford Mining Company, LLC
means Oxford
Mining Company, LLC, a Delaware limited liability company.
Oxford Resources GP
means Oxford Resources
GP, LLC, a Delaware limited liability company.
Partner Nonrecourse Debt
has the meaning set
forth in Treasury
Regulation Section 1.704-2(b)(4).
Partner Nonrecourse Debt Minimum Gain
has the
meaning set forth in Treasury
Regulation Section 1.704-2(i)(2).
Partner Nonrecourse Deductions
means any and
all items of loss, deduction or expenditure (including 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 Oxford Resource Partners,
LP, a Delaware limited partnership.
Partnership Group
means the Partnership and
its Subsidiaries 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, restricted units and appreciation
rights relating to an equity interest in the
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Partnership), including Common Units, Subordinated Units,
General Partner Units and Incentive Distribution Rights.
Percentage Interest
means, as of any date of
determination, (a) as to the General Partner with respect
to General Partner Units and as to any Unitholder with respect
to Units (including the General Partner with respect to Units),
the product obtained by multiplying (i) 100% less the
percentage applicable to clause (b) below by (ii) the
quotient obtained by dividing (A) the number of General
Partner Units held by the General Partner or the number of Units
held by such Unitholder, as the case may be, by (B) the
total number of all Outstanding Units and General Partner Units
and (b) as to the holders of other 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,
firm, 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.
Plan of Conversion
has the meaning assigned
to such term in Section 14.1.
Pro Rata
means (a) when used with
respect to Units or any class thereof, apportioned equally among
all designated Units in accordance with their relative
Percentage Interests, (b) when used with respect to
Partners or Record Holders, apportioned among all Partners or
Record Holders in accordance with their relative Percentage
Interests and (c) when used with respect to holders of
Incentive Distribution Rights, apportioned equally among all
holders of such Incentive Distribution Rights in accordance with
the relative number or percentage of such 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
Limited Partner Interests of a certain class (other than Limited
Partner Interests 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 or, with respect
to the fiscal quarter of the Partnership that includes the IPO
Closing Date, the portion of such quarter after the IPO Closing
Date.
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 or otherwise in accordance with this Agreement
for determining (a) the identity of the Record Holders
entitled to notice of, or to vote at, any meeting of Limited
Partners or entitled to vote by ballot or give approval of
Partnership action in writing without a meeting or entitled to
exercise rights in respect of any lawful action of Limited
Partners or (b) the identity of Record Holders entitled to
receive any report or distribution or to participate in any
offer.
Record Holder
means (a) 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 (b) with respect to other Partnership
Interests, the Person in whose name any such other Partnership
Interest is registered on the books that 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
Partnerships Registration Statement on
Form S-1
(Registration
No. 333-165662)
as it has been or as it may be amended or supplemented from time
to time, filed by the
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Partnership with the Commission under the Securities Act to
register the offering and sale of the Common Units in the
Initial Public 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 Units), 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
Partners Share of Additional Book Basis Derivative Items
with respect to the General Partner Units 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
Section 6.1(c)(ii) and (b) any allocation of an item
of income, gain, loss or deduction pursuant to
Section 6.1(d)(i), Section 6.1(d)(ii),
Section 6.1(d)(iv), Section 6.1(d)(v),
Section 6.1(d)(vi), Section 6.1(d)(vii) or
Section 6.1(d)(ix).
Requisite Amendment Approval
has the meaning
assigned to such term in the recitals to this Agreement.
Reserve Replacement Expenditures
means
Maintenance Capital Expenditures that relate to the acquisition
(by purchase, lease or otherwise) of coal reserves or interests
in coal reserves. For the avoidance of doubt, Reserve
Replacement Expenditures shall not include reclamation expenses.
Reset MQD
has the meaning assigned to such
term in Section 5.11(e).
Reset Notice
has the meaning assigned to such
term in Section 5.11(b).
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 Section 6.2(b)(ii)(A),
respectively, to eliminate Book-Tax Disparities.
Retained Converted Subordinated Unit
has the
meaning assigned to such term in Section 5.5(c)(ii).
Second A/R Partnership Agreement
has the
meaning assigned to such term in the recitals to this Agreement.
Second Liquidation Target Amount
has the
meaning assigned to such term in Section 6.1(c)(i)(E).
Second Target Distribution
means $0.5469 per
Unit (or, with respect to the Quarter which includes the IPO
Closing Date, it means the product of $0.5469 multiplied by a
fraction of which the numerator is equal to the number of days
in such Quarter after the IPO Closing Date and of which the
denominator is the total number of days in such Quarter),
subject to adjustment in accordance with Section 5.11,
Section 6.6 and Section 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.
Securities Exchange Act
means the Securities
Exchange Act of 1934, as amended, supplemented or restated from
time to time and any successor to such statute.
Services Agreement
means the General and
Administrative Services Agreement, dated as of the Contribution
Agreement Closing Date, by and among the Partnership, the
General Partner and certain other members of the Partnership
Group.
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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 Units), the amount that bears the
same ratio to such Additional Book Basis Derivative Items as the
General Partners Remaining Net Positive Adjustments as of
the end of such period bears to the Aggregate Remaining Net
Positive Adjustment as of that time, and (iii) with respect
to the Partners holding Incentive Distribution Rights, the
amount that bears the same ratio to such Additional Book Basis
Derivative Items as the Remaining Net Positive Adjustments of
the Partners holding the Incentive Distribution Rights as of the
end of such period bears to the Aggregate Remaining Net Positive
Adjustments as of that time.
Special Approval
means approval by a majority
of the members of a Conflicts Committee.
Subordinated Unit
means a Partnership
Security representing a fractional part of the Partnership
Interests of all Limited Partners and having the rights and
obligations specified with respect to Subordinated Units in this
Agreement. The term Subordinated Unit does not
include a Common Unit. A Subordinated Unit that is convertible
into a Common Unit shall not constitute a Common Unit until such
conversion occurs.
Subordination Period
means the period
commencing on the IPO Closing Date and ending on the first to
occur of:
(a) the first date on which there are no longer outstanding
any Subordinated Units due to the conversion of Subordinated
Units into Common Units pursuant to Section 5.7 or
otherwise; 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.
Subsidiary
means, with respect to any Person,
(a) a corporation of which more than 50% of the voting
power of shares entitled (without regard to the occurrence of
any contingency) to vote in the election of directors or other
governing body of such corporation is owned, directly or
indirectly, at the date of determination, by such Person, by one
or more Subsidiaries of such Person or a combination thereof,
(b) a partnership (whether general or limited) in which
such Person or a Subsidiary of such Person is, at the date of
determination, a general or limited partner of such partnership,
but only if more than 50% of the partnership interests of such
partnership (considering all of the partnership interests of the
partnership as a single class) is owned, directly or indirectly,
at the date of determination, by such Person, by one or more
Subsidiaries of such Person, or a combination thereof or
(c) any other Person (other than a corporation or a
partnership) in which such Person, one or more Subsidiaries of
such Person, or a combination thereof, directly or indirectly,
at the date of determination, has (i) at least a majority
ownership interest or (ii) the power to elect or direct the
election of a majority of the directors or other governing body
of such Person.
Surviving Business Entity
has the meaning
assigned to such term in Section 14.2(b).
Target Distributions
means, collectively, the
First Target Distribution, Second Target Distribution and Third
Target Distribution.
Taxable Partner
means each of C&T Coal
and the Employee/Director Unitholders who hold Common Units
immediately prior to the closing of the Initial Public Offering.
Third Target Distribution
means $0.6563 per
Unit (or, with respect to the Quarter which includes the IPO
Closing Date, it means the product of $0.6563 multiplied by a
fraction of which the numerator is equal to the number of days
in such Quarter after the IPO Closing Date and of which the
denominator is the total number of days in such Quarter),
subject to adjustment in accordance with Sections 5.11, 6.6
and 6.9.
Trading Day
means, for the purpose of
determining the Current Market Price of any class of Limited
Partner Interests, a day on which the principal National
Securities Exchange on which such class of Limited
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Partner Interests are listed is open for the transaction of
business or, if Limited Partner Interests of a class are not
listed on any National Securities Exchange, a day on which
banking institutions in New York City generally are open.
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
General Partner 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.
Underwriters
means the underwriters in the
Initial Public Offering.
Underwriting Agreement
means the underwriting
agreement among the Underwriters and the Partnership, providing
for the purchase of Common Units by the Underwriters in
connection with the Initial Public Offering.
Unit
means a Partnership Security that is
designated as a Unit and shall include Common Units
and Subordinated Units but shall not include (i) General
Partner Units (or the General Partner Interest represented
thereby) or (ii) Incentive Distribution Rights.
Unitholders
means the holders of Units.
Unit Majority
means (a) during the
Subordination Period, at least a majority of the Outstanding
Common Units (excluding Common Units owned by the General
Partner and its Affiliates), voting as a separate class, and at
least a majority of the Outstanding Subordinated Units, voting
as a separate class, and (b) after the end of the
Subordination Period, at least a majority of the Outstanding
Common Units, voting as a single class.
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 Initial Unit Price
means, at any
time with respect to a Unit, the Initial Unit Price less the sum
of all distributions constituting Capital Surplus theretofore
made in respect of an Initial Common Unit and any distributions
of cash (or the Net Agreed Value of any distributions in kind)
in connection with the dissolution and liquidation of the
Partnership theretofore made in respect of an Initial Common
Unit, adjusted as the 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
incurred pursuant to a credit facility, commercial paper
facility or other similar financing arrangement that are used
solely to pay distributions to the Partners; provided that when
such borrowings are incurred it is the intent of the borrower to
repay such borrowings within 12 months from the date of
such borrowings other than from Working Capital Borrowings.
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
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include the plural and vice versa; (b) references to
Articles and Sections refer to Articles and Sections of this
Agreement; (c) the terms include,
includes, including or words of like
import shall be deemed to be followed by the words without
limitation; and (d) the terms hereof,
herein or hereunder refer to this
Agreement as a whole and not to any particular provision of this
Agreement. The table of contents and headings contained in this
Agreement are for reference purposes only, and shall not affect
in any way the meaning or interpretation of this Agreement.
ARTICLE II
ORGANIZATION
Section 2.1
Formation
.
The General Partner and the Organizational Limited Partner
previously formed the Partnership as a limited partnership
pursuant to the provisions of the Delaware Act, thereafter
amended and restated the original Agreement of Limited
Partnership of Oxford Resource Partners, LP in its entirety
pursuant to the First A/R Partnership Agreement and subsequent
thereto amended and restated the First A/R Partnership Agreement
in its entirety pursuant to the Second A/R Partnership
Agreement. This further amendment and restatement shall become
effective as of the date first set forth above. 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.
Section 2.2
Name
.
The name of the Partnership shall be Oxford Resource
Partners, LP. The Partnerships business may be
conducted under any other name or names as determined by the
General Partner, including the name of the General Partner. The
words Limited Partnership, LP,
Ltd. or similar words or letters shall be included
in the Partnerships name where necessary for the purpose
of complying with the laws of any jurisdiction that so requires.
The General Partner may change the name of the Partnership at
any time and from time to time without the consent or approval
of any Limited Partner 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 1209 Orange Street, Wilmington, New Castle County,
Delaware 19801, and the registered agent for service of process
on the Partnership in the State of Delaware at such registered
office shall be The Corporation Trust Company. The
principal office of the Partnership shall be located at 41 South
High Street, Suite 3450, Columbus, Ohio 43215, 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 shall determine
necessary or appropriate. The address of the General Partner
shall be 41 South High Street, Suite 3450, Columbus, Ohio
43215, or such other place as the General Partner may from time
to time designate by notice to the Limited Partners.
Section 2.4
Purpose
and Business
.
The purpose and nature of the business to be conducted by the
Partnership shall be to (a) engage directly in, or enter
into or form, hold and dispose of 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 that 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 and (b) do anything
necessary or appropriate to the foregoing, including the making
of capital contributions or loans to a Group Member; provided,
however, that the General Partner shall not cause the
Partnership to engage, directly or indirectly, in any business
activity that the General Partner determines would cause the
Partnership to be treated as an association taxable as a
corporation or otherwise taxable as an entity for federal income
tax purposes. To the fullest extent permitted
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by law, the General Partner shall have no duty or obligation to
propose or approve, and may decline to propose or approve, the
conduct by the Partnership of any business free of any fiduciary
duty or obligation whatsoever to the Partnership, any Limited
Partner and, in declining to so propose or approve, shall not be
required to act in good faith or pursuant to any other standard
imposed by this Agreement, any Group Member Agreement, any other
agreement contemplated hereby or under the Delaware Act or any
other law, rule or regulation or at equity.
Section 2.5
Powers
.
The Partnership shall be empowered to do any and all acts and
things necessary or appropriate 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
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
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 2.7
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, 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 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 any successor
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 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, in its capacity as such, shall participate
in the operation, management or control (within the meaning of
the Delaware Act) of the Partnerships business, transact
any business in the Partnerships 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, manager, member, general partner, agent or
trustee of the General Partner or any of its Affiliates, or any
officer, director, employee, manager, member, general partner,
agent or trustee of a Group Member, in its capacity as such,
shall not, to the fullest extent permitted by law, 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
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Act) and shall not affect, impair or eliminate the limitations
on the liability of the Limited Partners under this Agreement.
Section 3.3
Outside
Activities of the Limited Partners.
Subject to the provisions of Section 7.5, any Limited
Partner 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 shall have any rights
by virtue of this Agreement in any business ventures of any
Limited Partner.
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 Partners
interest as a Limited Partner in the Partnership, upon
reasonable written demand stating the purpose of such demand,
and at such Limited Partners own expense:
(i) to obtain true and full information regarding the
status of the business and financial condition of the
Partnership;
(ii) promptly after its becoming available, to obtain a
copy of the Partnerships federal, state and local income
tax returns for each year;
(iii) to obtain a current list of the name and last known
business, residence or mailing address of each Partner;
(iv) to obtain a copy of this Agreement and the Certificate
of Limited Partnership and all amendments thereto;
(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 that
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) To the fullest extent permitted by law, the General
Partner may keep confidential from the Limited Partners, 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 its business 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.
Notwithstanding anything to the contrary in this Agreement,
unless the General Partner shall determine otherwise in respect
of some or all of any or all classes of Partnership Interests,
Partnership Interests shall not be evidenced by physical
certificates. Certificates that may be issued shall be executed
on behalf of the Partnership by the Chairman of the Board, Chief
Executive Officer, President, Chief Financial Officer or any
Vice President and the Secretary, any Assistant Secretary, or
other authorized officer or director of the General Partner. If
a Transfer Agent has been appointed for a class of Partnership
Interests, no Certificate for such class of Partnership
Interests shall be valid for any purpose until it has been
countersigned by the Transfer
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Agent; provided, however, that, if the General Partner elects
to cause the Partnership to issue Partnership Interests of such
class in global form, the Certificate shall be valid upon
receipt of a certificate from the Transfer Agent certifying that
the Partnership Interests have been duly registered in
accordance with the directions of the Partnership. Subject to
the requirements of Section 6.7(b) and Section 6.7(c),
if Common Units are evidenced by Certificates, on or after the
date on which Subordinated Units are converted into Common Units
pursuant to the terms of Section 5.7, the Record Holders of
such Subordinated Units (i) if the Subordinated Units are
evidenced by Certificates, may exchange such Certificates for
Certificates evidencing Common Units, or (ii) if the
Subordinated Units are not evidenced by Certificates, shall be
issued Certificates evidencing Common Units. With respect to any
Units outstanding prior to the effectiveness of this Agreement
that are represented by physical certificates, the General
Partner may determine that such Units will no longer be
represented by physical certificates and may, upon written
notice to the holders of such Units and subject to applicable
law, take whatever actions it deems necessary or appropriate to
cause such Units to be registered in book entry or global form
and may cause such physical certificates to be cancelled or
deemed cancelled.
Section 4.2
Mutilated,
Destroyed, Lost or Stolen Certificates.
(a) If any mutilated Certificate is surrendered to the
Transfer Agent (for Common Units) or the General Partner (for
Partnership Securities other than Common Units), the appropriate
officers of the General Partner on behalf of the Partnership
shall execute, and the Transfer Agent (for Common Units) or the
General Partner (for Partnership Securities other than Common
Units) shall countersign and deliver in exchange therefor, a new
Certificate evidencing the same number and type of Partnership
Securities as the Certificate so surrendered.
(b) The appropriate officers of the General Partner on
behalf of the Partnership shall execute and deliver, and the
Transfer Agent (for Common Units) shall countersign, a new
Certificate in place of any Certificate previously issued, or
issue uncertificated Common Units, if the Record Holder of the
Certificate:
(i) makes proof by affidavit, in form and substance
satisfactory to the General Partner, that a previously issued
Certificate has been lost, destroyed or stolen;
(ii) requests the issuance of a new Certificate or the
issuance of uncertificated Units before the General Partner 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 General Partner, delivers to the
General Partner a bond, in form and substance satisfactory to
the General Partner, with surety or sureties and with fixed or
open penalty as the General Partner may direct 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 General Partner.
If a Limited Partner fails to notify the General Partner within
a reasonable period of 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
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 or uncertificated Units.
(c) As a condition to the issuance of any new Certificate
or uncertificated Units under this Section 4.2, the General
Partner 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 with respect to any Partnership Interest and,
accordingly, shall not be bound to recognize any equitable or
other claim to, or
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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 or admitted to 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 of record
and beneficially and (b) shall be bound by this Agreement
and shall have the rights and obligations of a Partner 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 (i) by which the General
Partner assigns its General Partner Units to another Person or
by which a holder of Incentive Distribution Rights assigns its
Incentive Distribution Rights to another Person, and includes a
sale, assignment, gift, pledge, encumbrance, hypothecation,
mortgage, exchange or any other disposition by law or otherwise
or (ii) by which the holder of a Limited Partner Interest
(other than an Incentive Distribution Right) assigns such
Limited Partner Interest to another Person who is or becomes a
Limited Partner, and includes a sale, assignment, gift, exchange
or any other disposition by law or otherwise, excluding a
pledge, encumbrance, hypothecation or mortgage but including any
transfer upon foreclosure of any pledge, encumbrance,
hypothecation or mortgage.
(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 prevent a
disposition by any stockholder, member, partner or other owner
of the General Partner of any or all of the shares of stock,
limited liability company interests, partnership interests or
other ownership interests in the General Partner.
Section 4.5
Registration
and Transfer of Limited Partner Interests.
(a) The General Partner 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 shall record
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.
(b) The Partnership shall not recognize any transfer of
Limited Partner Interests evidenced by Certificates until the
endorsed Certificates evidencing such Limited Partner Interests
are surrendered for registration of transfer. No charge shall be
imposed by the General Partner for such transfer; provided, that
as a condition to the issuance of any new Certificate under this
Section 4.5, the General Partner may require the payment of
a sum sufficient to cover any tax or other governmental charge
that may be imposed with respect thereto. Upon surrender of a
Certificate for registration of transfer of any Limited Partner
Interests evidenced by a Certificate, and subject to the
provisions hereof, the appropriate officers of the General
Partner on behalf of the Partnership shall execute and deliver,
and in the case of Certificates evidencing Limited Partner
Interests for which a Transfer Agent has been appointed the
Transfer Agent shall countersign and deliver, in the name of the
holder or the designated transferee or transferees, as required
pursuant to the holders 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.
(c) By acceptance of the transfer of a Limited Partner
Interest in accordance with this Section 4.5 and except as
otherwise provided in Section 4.9, each transferee of a
Limited Partner Interest (including any nominee holder or an
agent or representative acquiring such Limited Partner Interests
for the account of another Person) (i) shall be admitted to
the Partnership as a Limited Partner with respect to the Limited
Partner Interests so transferred to such Person when any such
transfer or admission is reflected in the books and records of
the Partnership and such Limited Partner becomes the Record
Holder of the Limited Partner
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Interests so transferred, (ii) shall become bound, and
shall be deemed to have agreed to be bound, by the terms of this
Agreement, (iii) represents that the transferee has the
capacity, power and authority to enter into this Agreement and
(iv) makes the consents, acknowledgments and waivers
contained in this Agreement, all with or without execution of
this Agreement by such Person. The transfer of any Limited
Partner Interests and the admission of any new Limited Partner
shall not constitute an amendment to this Agreement.
(d) Subject to (i) the foregoing provisions of this
Section 4.5, (ii) Section 4.3,
(iii) Section 4.8, (iv) with respect to any class
or series of Limited Partner Interests, the provisions of any
statement of designations or an amendment to this Agreement
establishing such class or series, (v) any contractual
provisions binding on any Limited Partner and
(vi) provisions of applicable law, including the Securities
Act, Limited Partner Interests shall be freely transferable.
(e) Subject to (i) the foregoing provisions of this
Section 4.5, (ii) Section 4.3,
(iii) Section 4.8, Section 6.7 and (v) the
provisions of applicable law, including the Securities Act, 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 Partners General Partner Interest.
(a) Subject to Section 4.6(c), prior to June 30,
2020, 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 (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 (other than an individual) or (B) another
Person (other than an individual) in connection with the merger
or consolidation of the General Partner with or into such other
Person or the transfer by the General Partner of all or
substantially all of its assets to such other Person.
(b) Subject to Section 4.6(c), on or after
June 30, 2020, 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 to be
bound by the provisions of this Agreement, (ii) the
Partnership receives an Opinion of Counsel that such transfer
would not result in the loss of limited liability of any Limited
Partner under the Delaware Act or cause the Partnership 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 or limited
liability company interest of the General Partner as the general
partner or managing member, if any, 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 Section 10.2, be
admitted to the Partnership as the General Partner immediately
prior to the transfer of the General Partner Interest, and the
business of the Partnership shall continue without dissolution.
Section 4.7
Transfer
of Incentive Distribution Rights.
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, (i) the transfer of Common
Units issued pursuant to Section 5.11 shall not be treated
as a transfer of all or any part of the Incentive Distribution
Rights and (ii) 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.
Section 4.8
Restrictions
on Transfers.
(a) Except as provided in Section 4.8(d), and
notwithstanding the other provisions of this Article IV, no
transfer of any Partnership Interests shall be made if such
transfer would (i) terminate the existence or qualification
of the Partnership under the laws of the jurisdiction of its
formation or (ii) cause the Partnership
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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 it receives an Opinion of
Counsel that such restrictions are necessary to avoid a
significant risk of the Partnership becoming taxable as a
corporation or otherwise becoming taxable as an entity for
federal income tax purposes. The General Partner may impose such
restrictions by amending this Agreement; provided, however, that
any amendment that would 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 listed or admitted to trading
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) and Section 6.7(c).
(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 or admitted to
trading.
(e) Each Certificate evidencing Partnership Interests shall
bear a conspicuous legend in substantially the form provided for
in Section 4.8(f) of the First A/R Partnership Agreement
(if such Certificate was issued prior to August 28, 2009),
Section 4.8(f) of the Second A/R Partnership Agreement (if
such Certificate was issued on or after August 28, 2009 and
prior to the date hereof) or in substantially the following form
(if such Certificate is issued on or after the date hereof):
THE HOLDER OF THIS SECURITY ACKNOWLEDGES FOR THE BENEFIT OF
OXFORD RESOURCE PARTNERS, LP (THE PARTNERSHIP) THAT
THIS SECURITY MAY NOT BE SOLD, OFFERED, RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED IF SUCH TRANSFER WOULD (A) VIOLATE
THE THEN APPLICABLE FEDERAL OR STATE SECURITIES LAWS OR RULES
AND REGULATIONS OF THE SECURITIES AND EXCHANGE COMMISSION, ANY
STATE SECURITIES COMMISSION OR ANY OTHER GOVERNMENTAL AUTHORITY
WITH JURISDICTION OVER SUCH TRANSFER, (B) TERMINATE THE
EXISTENCE OR QUALIFICATION OF THE PARTNERSHIP UNDER THE LAWS OF
THE STATE OF DELAWARE, (C) CAUSE THE PARTNERSHIP 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) OR (D) VIOLATE THE
TERMS AND CONDITIONS OF THE PARTNERSHIP AGREEMENT. THE GENERAL
PARTNER OF THE PARTNERSHIP MAY IMPOSE ADDITIONAL RESTRICTIONS ON
THE TRANSFER OF THIS SECURITY IF IT RECEIVES AN OPINION OF
COUNSEL THAT SUCH RESTRICTIONS ARE NECESSARY TO AVOID A
SIGNIFICANT RISK OF THE PARTNERSHIP BECOMING TAXABLE AS A
CORPORATION OR OTHERWISE BECOMING TAXABLE AS AN ENTITY FOR
FEDERAL INCOME TAX PURPOSES. THE RESTRICTIONS SET FORTH ABOVE
SHALL NOT PRECLUDE THE SETTLEMENT OF ANY TRANSACTIONS INVOLVING
THIS SECURITY ENTERED INTO THROUGH THE FACILITIES OF ANY
NATIONAL SECURITIES EXCHANGE ON WHICH THIS SECURITY IS LISTED OR
ADMITTED TO 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 the General
Partner determines would create 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, the General Partner
may request any Limited Partner 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 is a nominee holding for the account
of another Person, the nationality, citizenship or other related
status of such other Person) as the General Partner may request.
If a Limited Partner fails to furnish to the General Partner
within the
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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
that a Limited Partner is not an Eligible Citizen, the Limited
Partner Interests owned by such Limited Partner 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 Limited Partner 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 the Non-citizen Assignees
Limited Partner Interests and shall vote such Limited Partner
Interests in accordance with Section 4.9(d).
(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 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 Assignees
share of any 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 a Non-citizen Assignee 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 Limited Partner with respect to any Limited
Partner Interests of such Non-citizen Assignee not redeemed
pursuant to Section 4.10, and upon admission of such
Non-citizen Assignee pursuant to Section 10.1, the General
Partner shall cease to be deemed to be the Limited Partner in
respect of the Non-citizen Assignees Limited Partner
Interests.
Section 4.10
Redemption
of Partnership Interests of Non-citizen.
(a) If at any time a Limited Partner or transferee 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 transferee is not an Eligible Citizen, the
Partnership may, unless the Limited Partner or transferee
establishes to the satisfaction of the General Partner that such
Limited Partner or transferee 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 Limited Partner Interest of such
Limited Partner or transferee 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 transferee, 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 or, if
uncertificated, upon receipt of evidence satisfactory to the
General Partner of the ownership of 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 (if such
Redeemable Interests are certificated) and that on and after the
date fixed for redemption no further allocations or
distributions to which such person 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 lesser of (i) 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 and (ii) the price paid for
such Limited Partner Interests by the Limited Partner or
transferee. The redemption price shall be paid, as determined by
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 5% annually and payable
in three equal
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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 transferee, at the place specified in the notice of
redemption, of (x) if certificated, the Certificate
evidencing the Redeemable Interests, duly endorsed in blank or
accompanied by an assignment duly executed in blank, or
(y) if uncertificated, upon receipt of evidence
satisfactory to the General Partner of the ownership of the
Redeemable Interests, the Limited Partner or transferee 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 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 that he is an Eligible Citizen. If the
transferee fails to make such certification, such redemption
shall be effected from the transferee on the original redemption
date.
ARTICLE V
CAPITAL
CONTRIBUTIONS AND ISSUANCE OF PARTNERSHIP INTERESTS
Section 5.1
Intentionally
Omitted.
Section 5.2
Contributions
by the General Partner and the Initial Limited Partners.
(a) Prior to the IPO Closing Date, the General Partner,
C&T Coal and AIM Oxford made capital contributions in
exchange for Partnership Interests. Oxford Resources GP hereby
continues as general partner of the Partnership. Each Person who
was a limited partner of the Partnership immediately prior to
the effectiveness of this Agreement hereby continues as a
limited partner.
(b) The General Partner hereby waives its rights to any
distributions made on the IPO Closing Date in exchange for
(i) a continuation of its General Partner Interest equal to
a 2% Percentage Interest, subject to all of the rights,
privileges and duties of the General Partner under this
Agreement, and (ii) a continuation of the Incentive
Distribution Rights.
(c) Upon the issuance of additional Limited Partner
Interests by the Partnership (other than (i) any Common
Units issued upon conversion of Subordinated Units and
(ii) Common Units issued pursuant to Section 5.11),
the General Partner may, in exchange for a proportionate number
of General Partner Units, make additional Capital Contributions
in an amount equal to the product obtained by multiplying
(i) the quotient determined by dividing (A) the
General Partners Percentage Interest immediately prior to
the issuance of such additional Limited Partner Interests by the
Partnership by (B) 100% less the General Partners
Percentage Interest immediately prior to the issuance of such
additional Limited Partner Interests by the Partnership times
(ii) the amount contributed to the Partnership by the
Limited Partners in exchange for such additional Limited Partner
Interests. Except as set forth in Article XII, the General
Partner shall not be obligated to make any additional Capital
Contributions to the Partnership.
Section 5.3
Contributions
by Limited Partners
(a) On the IPO Closing Date and pursuant to the
Underwriting Agreement, each Underwriter shall contribute cash
to the Partnership in exchange for the issuance by the
Partnership of Common Units to each Underwriter, all as set
forth in the Underwriting Agreement.
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(b) Upon the exercise, if any, of the Over-Allotment
Option, each Underwriter shall contribute cash to the
Partnership in exchange for the issuance by the Partnership of
Common Units to each Underwriter, all as set forth in the
Underwriting Agreement.
(c) No Limited Partner will be required to make any
additional Capital Contribution to the Partnership pursuant to
this Agreement.
Section 5.4
Interest
and Withdrawal of Capital Contributions.
No interest shall be paid by the Partnership on Capital
Contributions. No Partner 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
dissolution 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 shall have priority over any other Partner 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 agree within the meaning of
Section 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) 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 and (ii) all items of
Partnership income and gain (including 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
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 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 applicable Group Member Agreement or
governing, organizational or similar documents) of all property
owned by any other Group Member that is classified as a
partnership for federal income tax purposes and (y) any
other partnership, limited liability company, unincorporated
business or other entity classified as a partnership for federal
income tax purposes of which a Group Member is, directly or
indirectly, a partner, member or other equityholder.
(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
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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 Partnerships
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 as if the
adjusted basis of such property were equal to the Carrying Value
of such property immediately following such adjustment.
(vi) If the Partnerships 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.
(vii) If the Gross Liability Value of any Liability of the
Partnership described in Treasury
Regulation Section 1.752-7(b)(3)(i)
is adjusted as required by this Agreement, the amount of such
adjustment shall be treated as an item of loss (if the
adjustment increases the Carrying Value of such Liability of the
Partnership) or an item of gain (if the adjustment decreases the
Carrying Value of such Liability of the Partnership) and shall
be taken into account for purposes of computing Net Income and
Net Loss.
(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) Subject to Section 6.7(c), immediately prior to
the transfer of a Subordinated Unit or of a Subordinated Unit
that has converted into a Common Unit pursuant to
Section 5.7 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 of whether it has retained any Subordinated Units or
converted Subordinated Units (Retained Converted
Subordinated Units). Following any such allocation, the
transferors Capital Account, if any, maintained with
respect to the retained Subordinated Units or Retained Converted
Subordinated Units, if any, will have a balance equal to the
amount allocated under clause (B) hereinabove, and the
transferees 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, the issuance of Partnership Interests as
consideration for the provision of services or the conversion of
the General Partners Combined Interest to Common Units
pursuant to Section 11.3(b), the Capital Account of each
Partner 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 for an amount equal to its fair market value
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immediately prior to such issuance and had been allocated to
the Partners at such time pursuant to Section 6.1(c) in the
same manner as any item of gain or loss actually recognized
following an event giving rise to the liquidation of the
Partnership 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 cash
or cash equivalents) immediately prior to the issuance of
additional Partnership Interests shall be determined by the
General Partner using such 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) 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(c) in the
same manner as any item of gain or loss actually recognized
following an event giving rise to the liquidation of the
Partnership 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 cash or
cash equivalents) immediately prior to a distribution shall
(A) in the case of an actual distribution that 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 method of
valuation as it may adopt.
Section 5.6
Issuances
of Additional Partnership Securities.
(a) The Partnership may issue additional Partnership
Securities and options, rights, warrants, restricted units 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 the General Partner shall determine, 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, including (i) the right to share in 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 or shall be required to redeem the Partnership
Security; (v) whether such Partnership Security is issued
with the privilege of conversion or exchange and, if so, the
terms and conditions of such conversion or exchange;
(vi) the terms and conditions upon which each Partnership
Security will be issued, evidenced by certificates and assigned
or transferred; (vii) the method for determining the
Percentage Interest as to such Partnership Security; and
(viii) 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 shall take all actions that it
determines to be 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 or
Section 7.4(c), (ii) the conversion of the General
Partner Interest (represented by General Partner Units) or any
Incentive Distribution Rights into Units pursuant to the terms
of this Agreement, (iii) the issuance of Common Units
pursuant to Section 5.11, (iv) the admission of
Additional Limited Partners and (v) all additional
issuances of Partnership Securities. The General Partner shall
determine 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
that it determines to be necessary or appropriate in connection
with any future issuance of Partnership Securities or in
connection with the conversion of the
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General Partner Interest or any 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 or admitted to trading.
(d) No fractional Units shall be issued by the Partnership.
Section 5.7
Conversion
of Subordinated Units.
(a) All outstanding Subordinated Units shall convert into
Common Units on a
one-for-one
basis on the first Business Day of any Quarter beginning after
September 30, 2013 in respect of which:
(i) distributions of Available Cash from Operating Surplus
on each of the Outstanding Common Units, Subordinated Units and
General Partner Units and any other Outstanding Units that are
senior or equal in right of distribution to the 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, Subordinated Units
and General Partner Units and any other Outstanding Units that
are senior or equal in right of distribution to the Subordinated
Units during such periods;
(ii) 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,
Subordinated Units and General Partner Units and any other Units
that are senior or equal in right of distribution to the
Subordinated Units that were Outstanding during such periods on
a Fully Diluted Basis; and
(iii) there are no Cumulative Common Unit Arrearages.
(b) Notwithstanding Section 5.7(a), the Subordination
Period shall terminate and all Outstanding Subordinated Units
shall convert into Common Units on a
one-for-one
basis on the first Business Day following the distribution of
Available Cash to Partners pursuant to Section 6.3(a) in
respect of any Quarter ending on or after September 30,
2011 in respect of which:
(i) distributions of Available Cash from Operating Surplus
under Section 6.4(b)(i) on each of the Outstanding Common
Units, Subordinated Units and General Partner Units and any
other Outstanding Units that are senior or equal in right of
distribution to the Subordinated Units with respect to the
four-Quarter period immediately preceding such date equaled or
exceeded the sum of the Third Target Distribution on all of the
Outstanding Common Units, Subordinated Units and General Partner
Units and any other Outstanding Units that are senior or equal
in right of distribution to the Subordinated Units during such
period;
(ii) the Adjusted Operating Surplus generated during the
four-Quarter period immediately preceding such date equaled or
exceeded the sum of the Third Target Distribution on all of the
Common Units, Subordinated Units and General Partner Units and
any other Outstanding Units that are senior or equal in right of
distribution to the Subordinated Units that were Outstanding
during such period on a Fully Diluted Basis; and
(iii) there are no Cumulative Common Unit Arrearages.
(c) Notwithstanding any other provision of this Agreement,
all of 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.
(d) A Subordinated Unit that has converted into a Common
Unit shall be subject to the provisions of Section 6.7(b)
and Section 6.7(c).
(e) For purposes of determining whether the test in
Section 5.7(a)(ii) above has been satisfied, Adjusted
Operating Surplus will be adjusted upwards or downwards if a
Conflicts Committee determines in good faith that the amount of
Estimated Reserve Replacement Expenditures used in the
determination of Adjusted
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Operating Surplus in Section 5.7(a)(ii) was materially
incorrect, based on circumstances prevailing at the time of
original determination of Estimated Reserve Replacement
Expenditures, for any one or more of the preceding two
four-Quarter periods.
Section 5.8
Limited
Preemptive Right.
Except as provided in this Section 5.8 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 any or all of those
Percentage Interests that existed immediately prior to the
issuance of such Partnership Securities.
Section 5.9
Splits
and Combinations.
(a) Subject to Section 5.9(d), Section 6.6 and
Section 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 are proportionately adjusted.
(b) Whenever such a Pro Rata distribution or 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 or
uncertificated Partnership Securities 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 that it determines to be necessary or 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 or uncertificated
Partnership Securities, 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
this Section 5.9(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 5.10
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
Sections 17-303,
17-607
and
17-804
of
the Delaware Act.
Section 5.11
Issuance
of Common Units in Connection with Reset of Incentive
Distribution Rights.
(a) Subject to the provisions of this Section 5.11,
the holder of the Incentive Distribution Rights (or, if there is
more than one holder of the Incentive Distribution Rights, the
holders of a majority in interest of the Incentive Distribution
Rights) shall have the right, at any time when there are no
Subordinated Units
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outstanding and the Partnership has made a distribution
pursuant to Section 6.4(b)(ii)(E) for each of the four most
recently completed Quarters and the amount of each such
distribution did not exceed Adjusted Operating Surplus for such
Quarter, to make an election (the IDR Reset
Election) to cause the Minimum Quarterly Distribution and
the Target Distributions to be reset in accordance with the
provisions of Section 5.11(e) and, in connection therewith,
the holder or holders of the Incentive Distribution Rights will
become entitled to receive their respective proportionate share
of a number of Common Units (the IDR Reset Common
Units) derived by dividing (i) the average of the
aggregate amount of cash distributions made by the Partnership
for each of the two full Quarters immediately preceding the
giving of the Reset Notice (as defined in Section 5.11(b))
in respect of the Incentive Distribution Rights by (ii) the
average cash distribution per Common Unit made by the
Partnership for each of the two full Quarters immediately
preceding the giving of the Reset Notice (the number of such
Common Units so determined by such quotient are referred to
herein as the Aggregate Quantity of IDR Reset Common
Units). If at the time of any IDR Reset Election the
General Partner and its Affiliates are not the holders of a
majority interest of the Incentive Distribution Rights, then the
IDR Reset Election shall be subject to the prior written
concurrence of the General Partner that the conditions described
in the immediately preceding sentence have been satisfied. Upon
the issuance of such IDR Reset Common Units, the Partnership
will issue to the General Partner that number of additional
General Partner Units equal to the product of (x) the
quotient obtained by dividing (A) the Percentage Interest
of the General Partner immediately prior to such issuance by
(B) a percentage equal to 100% less such Percentage
Interest and (y) the number of such IDR Reset Common Units,
and the General Partner shall not be obligated to make any
additional Capital Contribution to the Partnership in exchange
for such issuance. The making of the IDR Reset Election in the
manner specified in Section 5.11(b) shall cause the Minimum
Quarterly Distribution and the Target Distributions to be reset
in accordance with the provisions of Section 5.11(e) and,
in connection therewith, the holder or holders of the Incentive
Distribution Rights will become entitled to receive IDR Reset
Common Units and the General Partner will become entitled to
receive General Partner Units on the basis specified above,
without any further approval required by the General Partner or
the Unitholders, at the time specified in Section 5.11(c)
unless the IDR Reset Election is rescinded pursuant to
Section 5.11(d).
(b) To exercise the right specified in
Section 5.11(a), the holder of the Incentive Distribution
Rights (or, if there is more than one holder of the Incentive
Distribution Rights, the holders of a majority in interest of
the Incentive Distribution Rights) shall deliver a written
notice (the Reset Notice) to the Partnership. Within
10 Business Days after the receipt by the Partnership of such
Reset Notice, the Partnership shall deliver a written notice to
the holder or holders of the Incentive Distribution Rights of
the Partnerships determination of the aggregate number of
IDR Reset Common Units that each holder of Incentive
Distribution Rights will be entitled to receive.
(c) The holder or holders of the Incentive Distribution
Rights will be entitled to receive the Aggregate Quantity of IDR
Reset Common Units and the General Partner will become entitled
to receive related additional General Partner Units on the
fifteenth Business Day after receipt by the Partnership of the
Reset Notice; provided, however, that the issuance of the IDR
Reset Common Units to the holder or holders of the Incentive
Distribution Rights shall not occur prior to the approval of the
listing or admission for trading of such IDR Reset Common Units
by the principal National Securities Exchange upon which the
Common Units are then listed or admitted for trading if any such
approval is required pursuant to the rules and regulations of
such National Securities Exchange.
(d) If the principal National Securities Exchange upon
which the Common Units are then traded has not approved the
listing or admission for trading of the Aggregate Quantity of
IDR Reset Common Units on or before the 30th calendar day
following the Partnerships receipt of the Reset Notice and
such approval is required by the rules and regulations of such
National Securities Exchange, then the holder of the Incentive
Distribution Rights (or, if there is more than one holder of the
Incentive Distribution Rights, the holders of a majority in
interest of the Incentive Distribution Rights) shall have the
right to either rescind the IDR Reset Election or elect to
receive other Partnership Securities having such terms as the
General Partner may approve, with the approval of a Conflicts
Committee, that will provide (i) the same economic value,
in the aggregate, as the Aggregate Quantity of IDR Reset Common
Units would have had at the time of the Partnerships
receipt of the Reset Notice, as determined by the General
Partner, and (ii) for the subsequent conversion (on terms
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acceptable to the National Securities Exchange upon which the
Common Units are then traded) of such Partnership Securities
into Common Units within not more than 12 months following
the Partnerships receipt of the Reset Notice upon the
satisfaction of one or more conditions that are reasonably
acceptable to the holder of the Incentive Distribution Rights
(or, if there is more than one holder of the Incentive
Distribution Rights, the holders of a majority in interest of
the Incentive Distribution Rights).
(e) The Minimum Quarterly Distribution, First Target
Distribution, Second Target Distribution and Third Target
Distribution shall be adjusted at the time of the issuance of
Common Units or other Partnership Securities pursuant to this
Section 5.11 such that (i) the Minimum Quarterly
Distribution shall be reset to equal the average cash
distribution amount per Common Unit for the two Quarters
immediately prior to the Partnerships receipt of the Reset
Notice (the Reset MQD), (ii) the First Target
Distribution shall be reset to equal 115% of the Reset MQD,
(iii) the Second Target Distribution shall be reset to
equal 125% of the Reset MQD and (iv) the Third Target
Distribution shall be reset to equal 150% of the Reset MQD.
(f) Upon the issuance of IDR Reset Common Units pursuant to
Section 5.11(a), the Capital Account maintained with
respect to the Incentive Distribution Rights will
(i) first, be allocated to IDR Reset Common Units in an
amount equal to the product of (A) the Aggregate Quantity
of IDR Reset Common Units and (B) the Per Unit Capital
Amount for an Initial Common Unit, and (B) second, as to
any remaining balance in such Capital Account, will be retained
by the holder of the Incentive Distribution Rights. If there is
not sufficient capital associated with the Incentive
Distribution Rights to allocate the full Per Unit Capital Amount
for an Initial Common Unit to the IDR Reset Common Units in
accordance with clause (i) of this Section 5.11(f),
the IDR Reset Common Units shall be subject to
Sections 6.1(d)(x)(B) and (C).
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
Partnerships 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)(ii) 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)(ii) for all previous taxable years;
(ii) Second, the balance, if any, 100% to the General
Partner and the Unitholders, in accordance with their respective
Percentage Interests.
(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, 100% to the General Partner and the Unitholders,
in accordance with their respective Percentage Interests;
provided, that 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); and
(ii) Second, the balance, if any, 100% to the General
Partner.
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(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 manner set forth in
this Section 6.1(c). 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 Section 6.4 and Section 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) Except as set forth in Section 6.1(c)(iv), if a
Net Termination Gain is recognized, 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, (x) to the General Partner in accordance
with its Percentage Interest and (y) to all Unitholders
holding Common Units, Pro Rata, a percentage equal to 100% less
the percentage applicable to subclause (x) of this clause
(B), until the Capital Account in respect of each Common Unit
then Outstanding is equal to the sum of (1) its Unrecovered
Initial Unit Price, (2) the Minimum Quarterly Distribution
for the Quarter during which the Liquidation Date occurs,
reduced by any distribution pursuant to
Section 6.4(b)(i)(A) or Section 6.4(b)(ii)(A) with
respect to such Common Unit for such Quarter (the amount
determined pursuant to this clause (2) is hereinafter
defined as the Unpaid MQD) and (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 conversion of the last
Outstanding Subordinated Unit into a Common Unit, (x) to
the General Partner in accordance with its Percentage Interest
and (y) to all Unitholders holding Subordinated Units, Pro
Rata, a percentage equal to 100% less the percentage applicable
to subclause (x) of this clause (C), until the Capital
Account in respect of each Subordinated Unit then Outstanding
equals the sum of (1) its Unrecovered Initial Unit Price,
determined for the taxable year (or portion thereof) to which
this allocation of gain relates and (2) the Minimum
Quarterly Distribution for the Quarter during which the
Liquidation Date occurs, reduced by any distribution pursuant to
Section 6.4(b)(i)(C) with respect to such Subordinated Unit
for such Quarter;
(D) Fourth, 100% to the General Partner and all Unitholders
in accordance with their respective Percentage Interests, until
the Capital Account in respect of each Common Unit then
Outstanding is equal to the sum of (1) its Unrecovered
Initial Unit Price, (2) the Unpaid MQD, (3) any then
existing Cumulative Common Unit Arrearage, and (4) the
excess of (aa) the First Target Distribution less the Minimum
Quarterly Distribution for each Quarter that ends after the IPO
Closing Date over (bb) the cumulative per Unit amount of any
distributions of Available Cash that is deemed to be Operating
Surplus made pursuant to Section 6.4(b)(i)(D) and
Section 6.4(b)(ii)(B) (the sum of (1), (2), (3) and
(4) is defined as the First Liquidation Target
Amount);
(E) Fifth, (x) to the General Partner in accordance
with its Percentage Interest, (y) 13% to the holders of the
Incentive Distribution Rights, Pro Rata, and (z) to all
Unitholders, Pro Rata, a percentage equal to 100% less the sum
of the percentages applicable to subclauses (x) and
(y) of this clause (E), until the Capital Account in
respect of each Common Unit then Outstanding is equal to the sum
of (1) the First Liquidation Target Amount, and
(2) the excess of (aa) the Second Target Distribution less
the First Target Distribution for each Quarter that ends after
the IPO Closing Date over (bb) the cumulative per Unit amount of
any distributions of Available Cash that is deemed to be
Operating Surplus made pursuant to Section 6.4(b)(i)(E) and
Section 6.4(b)(ii)(C) (the sum of (1) and (2) is
defined as the Second Liquidation Target Amount);
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(F) Sixth, (x) to the General Partner in accordance
with its Percentage Interest, (y) 23% to the holders of the
Incentive Distribution Rights, Pro Rata, and (z) to all
Unitholders, Pro Rata, a percentage equal to 100% less the sum
of the percentages applicable to subclauses (x) and
(y) of this clause (F), until the Capital Account in
respect of each Common Unit then Outstanding is equal to the sum
of (1) the Second Liquidation Target Amount, and
(2) the excess of (aa) the Third Target Distribution less
the Second Target Distribution for each Quarter that ends after
the IPO Closing Date over (bb) the cumulative per Unit amount of
any distributions of Available Cash that is deemed to be
Operating Surplus made pursuant to Section 6.4(b)(i)(F) and
Section 6.4(b)(ii)(D); and
(G) Finally, (x) to the General Partner in accordance
with its Percentage Interest, (y) 48% to the holders of the
Incentive Distribution Rights, Pro Rata, and (z) to all
Unitholders, Pro Rata, a percentage equal to 100% less the sum
of the percentages applicable to subclauses (x) and
(y) of this clause (G).
(ii) Except as set forth in Section 6.1(c)(iii), if a
Net Termination Loss is recognized, such Net Termination Loss
shall be allocated among the Partners in the following manner:
(A) First, if such Net Termination Loss is recognized prior
to the conversion of the last Outstanding Subordinated Unit,
(x) to the General Partner in accordance with its
Percentage Interest and (y) to all Unitholders holding
Subordinated Units, Pro Rata, a percentage equal to 100% less
the percentage applicable to subclause (x) of this clause
(A), until the Capital Account in respect of each Subordinated
Unit then Outstanding has been reduced to zero;
(B) Second, (x) to the General Partner in accordance
with its Percentage Interest and (y) to all Unitholders,
Pro Rata, a percentage equal to 100% less the percentage
applicable to subclause (x) of this clause (B), until the
Capital Account in respect of each Unit then Outstanding has
been reduced to zero; and
(C) Third, the balance, if any, 100% to the General Partner.
(iii) Any Net Termination Loss deemed recognized pursuant
to Section 5.5(d) prior to the Liquidation Date shall be
allocated among the Partners in the following manner:
(A) First, 100% to the General Partner and the Unitholders
in accordance with their respective Percentage Interests until
the Capital Account in respect of each Unit then Outstanding has
been reduced to zero; and
(B) Second, the balance, if any, 100% to the General
Partner.
(iv) If a Net Termination Loss has been allocated pursuant
to Section 6.1(c)(iii), any subsequent Net Termination Gain
deemed recognized pursuant to Section 5.5(d) prior to the
Liquidation Date shall be allocated among the Partners in the
following manner:
(A) First, 100% to the General Partner until the aggregate
Net Termination Gain allocated to the General Partner pursuant
to this clause (A) is equal to the aggregate Net
Termination Loss previously allocated pursuant to
Section 6.1(c)(iii)(B);
(B) Second, 100% to the General Partner and the Unitholders
in accordance with their respective Percentage Interests until
the aggregate Net Termination Gain allocated pursuant to this
clause (B) is equal to the aggregate Net Termination Loss
previously allocated pursuant to
Section 6.1(c)(iii)(A); and
(C) Third, the balance, if any, pursuant to the provisions
of Section 6.1(c)(i).
(d) Special Allocations. Notwithstanding any other
provision of this Section 6.1, the following special
allocations shall be made for such taxable period:
(i) Partnership Minimum Gain Chargeback. Notwithstanding
any other provision of this Section 6.1, if there is a net
decrease in Partnership Minimum Gain during any Partnership
taxable period, each Partner shall be allocated items of
Partnership income and gain for such period (and, if necessary,
subsequent periods) in the manner and amounts provided in
Treasury
Regulation Sections 1.704-2(f)(6),
1.704-2(g)(2) and 1.704-2(j)(2)(i), or any successor provision.
For purposes of this Section 6.1(d), each
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Partners 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 Section 6.1(d)(vi) and
Section 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 Partners 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 Section 6.1(d)(vi) and
Section 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) there shall be allocated
gross income and gain to each Unitholder receiving such greater
cash or property distribution until the aggregate amount of such
items allocated pursuant to this Section 6.1(d)(iii)(A) for
the current taxable year and all previous taxable years is 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 and gain in an
aggregate amount equal to the product obtained by multiplying
(aa) the quotient determined by dividing (x) the General
Partners Percentage Interest at the time in which the
greater cash or property distribution occurs by (y) the sum
of 100 less the General Partners Percentage Interest at
the time in which the greater cash or property distribution
occurs times (bb) 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 (1) 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 Section 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 Contribution
Agreement Closing Date to a date 45 days after the end of
the current taxable year; and (2) to the General Partner an
amount equal to the product of (aa) an amount equal to the
quotient determined by dividing (x) the General
Partners Percentage Interest by (y) the sum of 100
less the General Partners Percentage Interest times (bb)
the sum of the amounts allocated in clause (1) above.
(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
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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 Section 6.1(d)(ii).
(v) Gross Income Allocations. In the event any Partner has
a deficit balance in its Capital Account at the end of any
Partnership taxable period in excess of the sum of (A) the
amount such Partner is required to restore pursuant to the
provisions of this Agreement and (B) the amount such
Partner is deemed obligated to restore pursuant to Treasury
Regulation Sections 1.704-2(g)
and 1.704-2(i)(5), such Partner shall be specially allocated
items of Partnership 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 that the Partnerships Nonrecourse
Deductions should 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(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 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.
(A) 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 that 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 its
Affiliates immediately prior to the conversion of such Final
Subordinated Units into Common Units. This allocation
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method for establishing such economic uniformity will be
available to the General Partner only 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.
(B) With respect to an event triggering an adjustment to
the Carrying Value of Partnership property pursuant to
Section 5.5(d) during any taxable period of the Partnership
ending upon, or after, the issuance of IDR Reset Common Units
pursuant to Section 5.11, after the application of
Section 6.1(d)(x)(A), any Unrealized Gains and Unrealized
Losses shall be allocated among the Partners in a manner that to
the nearest extent possible results in the Capital Accounts
maintained with respect to such IDR Reset Common Units equaling
the product of (A) the Aggregate Quantity of IDR Reset
Common Units and (B) the Per Unit Capital Amount for an
Initial Common Unit.
(C) With respect to any taxable period during which an IDR
Reset Common Unit is transferred to any Person who is not an
Affiliate of the transferor, all of a portion of the remaining
items of Partnership gross income or gain for such taxable
period shall be allocated 100% to the transferor Partner of such
transferred IDR Reset Common Unit until such transferor Partner
has been allocated an amount of gross income or gain that
increases the Capital Account maintained with respect to such
transferred IDR Reset Common Unit to an amount equal to the Per
Unit Capital Amount for an Initial Common Unit.
(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
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 determines that such allocations are likely to be offset
by subsequent Required Allocations.
(B) The General Partner shall, with respect to each taxable
period, (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 and Other 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) Except as provided in Section 6.1(d)(xii)(B), 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)) with respect to any Partnership
property, the General Partner shall allocate such Additional
Book Basis Derivative Items (1) to (aa) the holders of
Incentive Distribution Rights and (bb) the General Partner in
the same manner that the Unrealized Gain or Unrealized Loss
attributable to such property is allocated pursuant to
Section 5.5(d) and (2) to all Unitholders, Pro Rata,
to the extent that the Unrealized Gain or Unrealized Loss
attributable to such property is allocated to any Unitholders
pursuant to Section 5.5(d).
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(B) 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)) as a result of a sale
or other taxable disposition of any Partnership asset that is an
Adjusted Property (Disposed of Adjusted Property),
the General Partner shall allocate (1) additional items of
gross income and gain (aa) away from the holders of Incentive
Distribution Rights and (bb) to the Unitholders, or
(2) additional items of deduction and loss (aa) away from
the Unitholders and (bb) to the holders of Incentive
Distribution Rights, to the extent that the Additional Book
Basis Derivative Items allocated to the Unitholders exceed their
Share of Additional Book Basis Derivative Items with respect to
such Disposed of Adjusted Property. 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. Any allocation made pursuant to this
Section 6.1(d)(xii)(B) shall be made after all of the other
Agreed Allocations have been made as if this
Section 6.1(d)(xii) were not in this Agreement and, to the
extent necessary, shall require the reallocation of items that
have been allocated pursuant to such other Agreed Allocations.
(C) 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 determined by the General Partner, that to the extent
possible the aggregate Capital Accounts of the Partners will
equal the amount that 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).
(D) In making the allocations required under this
Section 6.1(d)(xii), the General Partner may apply whatever
conventions or other methodology it determines will satisfy the
purpose of this Section 6.1(d)(xii). Without limiting the
foregoing, if an Adjusted Property is contributed by the
Partnership to another entity classified or treated as a
partnership for federal income tax purposes (the
lower-tier partnership), the General Partner may
make allocations similar to those described in
Section 6.1(d)(xii)(A)-(C)
to the extent the General Partner determines such allocations
are necessary to account for the Partnerships allocable
share of income, gain, loss and deduction of the lower-tier
partnership that relates to the contributed Adjusted Property in
a manner that is consistent with the purpose of this
Section 6.1(d)(xii).
(xiii) Special Curative Allocation in the Event of
Liquidation Prior to the End of the Subordination Period.
Notwithstanding any other provisions of this Section 6.1
(other than the Required Allocations), if the Liquidation Date
occurs prior to the conversion of the last Outstanding
Subordinated Unit, then items of income, gain, loss and
deduction for the taxable year that includes the Liquidation
Date (and, if necessary, items arising in previous taxable
periods to the extent the General Partner determines such items
may be so allocated) shall be specially allocated among the
Partners in the manner determined appropriate by the General
Partner so as to cause, to the maximum extent possible, the
Capital Account in respect of each Common Unit to equal the
amount such Capital Account would have been if all prior
allocations of Net Termination Gain and Net Termination Loss had
been made pursuant to Section 6.1(c)(i) or
Section 6.1(c)(ii), as applicable.
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.
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(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 Section 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; and
(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 (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 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
Outstanding or the Partnership, and if such allocations are
consistent with the principles of Section 704 of the Code.
(d) The General Partner 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 unamortized Book-Tax Disparity of such property, despite any
inconsistency of such approach with Treasury
Regulation Section 1.167(c)-l(a)(6),
Treasury
Regulation Section 1.197-2(g)(3),
the legislative history to Section 743 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 Partnerships property.
If the General Partner chooses not to utilize such aggregate
method, the General Partner may use any other depreciation and
amortization conventions to preserve the uniformity of the
intrinsic tax characteristics of any Limited Partner Interests,
so long as such conventions 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) In accordance with Treasury
Regulation Sections 1.1245-1(e)
and 1.1250-1(f), 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
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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 that may be made by the
Partnership; provided, however, that such allocations, once
made, shall be adjusted (in the manner determined by the General
Partner) 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, for federal income tax purposes, shall be determined
on an annual basis and prorated on a monthly basis and shall be
allocated to the Partners as of the first Business Day of each
month; provided, however, that following the Initial Public
Offering such items for the period beginning on the IPO 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 National Securities Exchange on which the Common Units may
then be listed or admitted to trading 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 or any other extraordinary item of income or loss
realized and recognized other than in the ordinary course of
business, as determined by the General Partner, shall be
allocated to the Partners as of 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 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 determined by the General Partner.
Section 6.3
Requirement
and Characterization of Distributions; Distributions to Record
Holders.
(a) Within 45 days following the end of each Quarter,
an amount equal to 100% of Available Cash with respect to such
Quarter shall, subject to
Section 17-607
of the Delaware Act, be distributed in accordance with this
Article VI by the Partnership to the Partners as of the
Record Date selected by the General Partner. All amounts of
Available Cash distributed by the Partnership on any date
following the IPO Closing Date from any source shall be deemed
to be Operating Surplus until the sum of all amounts of
Available Cash distributed by the Partnership to the Partners
following the IPO Closing Date pursuant to Section 6.4(b)
equals the Operating Surplus from the IPO 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. Notwithstanding any
provision to the contrary contained in this Agreement, the
Partnership shall not make a distribution to any Partner on
account of its interest in the Partnership if such distribution
would violate the Delaware Act or any other applicable law.
(b) Notwithstanding the first three sentences of
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 shall be
applied and distributed solely in accordance with, and subject
to the terms and conditions of, Section 12.4.
(c) The General Partner may 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 Partnerships 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.
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Section 6.4
Distributions
of IPO Proceeds, Credit Facility Proceeds and Available Cash
from Operating Surplus
.
(a) Subject to
Section 17-607
of the Delaware Act, on the IPO Closing Date and immediately
prior to the commencement of the Subordination Period,
(i) the IPO Proceeds shall be distributed to the Taxable
Partners, pro rata, in accordance with their relative Percentage
Interests immediately prior to the closing of the Initial Public
Offering, and (ii) the Credit Facility Proceeds shall be
distributed to the Non-Taxable Partners, pro rata, in accordance
with their relative Percentage Interests immediately prior to
the closing of the Initial Public Offering;
(b) (i) Subject to
Section 17-607
of the Delaware Act and except as otherwise required in respect
of additional Partnership Securities issued pursuant to
Section 5.6, 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 be distributed as follows:
(A) First, (x) to the General Partner in accordance
with its Percentage Interest with respect to its General Partner
Units and (y) to the Unitholders holding Common Units, Pro
Rata, a percentage equal to 100% less the percentage applicable
to subclause (x) of this clause (A), until there has been
distributed in respect of each Common Unit then Outstanding an
amount equal to the Minimum Quarterly Distribution for such
Quarter;
(B) Second, (x) to the General Partner in accordance
with its Percentage Interest with respect to its General Partner
Units and (y) to the Unitholders holding Common Units, Pro
Rata, a percentage equal to 100% less the percentage applicable
to subclause (x) of this clause (B), 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 Common Unit;
(C) Third, (x) to the General Partner in accordance
with its Percentage Interest with respect to its General Partner
Units and (y) to the Unitholders holding Subordinated
Units, Pro Rata, a percentage equal to 100% less the percentage
applicable to subclause (x) of this clause (C), until there
has been distributed in respect of each Subordinated Unit then
Outstanding an amount equal to the Minimum Quarterly
Distribution for such Quarter;
(D) Fourth, to the General Partner and all Unitholders, in
accordance with their respective Percentage Interests, 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;
(E) Fifth, (x) to the General Partner in accordance
with its Percentage Interest with respect to its General Partner
Units, (y) 13% to the holders of the Incentive Distribution
Rights, Pro Rata, and (z) to all Unitholders, Pro Rata, a
percentage equal to 100% less the sum of the percentages
applicable to subclauses (x) and (y) of this clause
(E), 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;
(F) Sixth, (x) to the General Partner in accordance
with its Percentage Interest with respect to its General Partner
Units, (y) 23% to the holders of the Incentive Distribution
Rights, Pro Rata, and (z) to all Unitholders, Pro Rata, a
percentage equal to 100% less the sum of the percentages
applicable to subclauses (x) and (y) of this clause
(F), 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
(G) Thereafter, (x) to the General Partner in
accordance with its Percentage Interest with respect to its
General Partner Units, (y) 48% to the holders of the
Incentive Distribution Rights, Pro Rata, and (z) to all
Unitholders, Pro Rata, a percentage equal to 100% less the sum
of the percentages applicable to subclauses (x) and
(y) of this clause (G);
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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)(i)(G).
(ii) Subject to
Section 17-607
of the Delaware Act and except as otherwise required in respect
of additional Partnership Securities issued pursuant to
Section 5.6, 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
Section 6.5 shall be distributed as follows:
(A) First, 100% to the General Partner and the Unitholders,
Pro Rata, until there has been distributed in respect of each
Unit then Outstanding an amount equal to the Minimum Quarterly
Distribution for such Quarter;
(B) Second, 100% to the General Partner and the
Unitholders, Pro Rata, until there has been distributed in
respect of each Unit then Outstanding an amount equal to the
excess of the First Target Distribution over the Minimum
Quarterly Distribution for such Quarter;
(C) Third, (x) to the General Partner in accordance
with its Percentage Interest with respect to its General Partner
Units, (y) 13% to the holders of the Incentive Distribution
Rights, Pro Rata, and (z) to all Unitholders, Pro Rata, a
percentage equal to 100% less the sum of the percentages
applicable to subclauses (x) and (y) of this clause
(C), 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;
(D) Fourth, (x) to the General Partner in accordance
with its Percentage Interest with respect to its General Partner
Units, (y) 23% to the holders of the Incentive Distribution
Rights, Pro Rata, and (z) to all Unitholders, Pro Rata, a
percentage equal to 100% less the sum of the percentages
applicable to subclauses (x) and (y) of this clause
(D), 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
(E) Thereafter, (x) to the General Partner in
accordance with its Percentage Interest with respect to its
General Partner Units, (y) 48% to the holders of the
Incentive Distribution Rights, Pro Rata, and (z) to all
Unitholders, Pro Rata, a percentage equal to 100% less the sum
of the percentages applicable to subclauses (x) and
(y) of this clause (E);
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)(ii)(E).
Section 6.5
Distributions
of Available Cash from Capital Surplus.
Subject to
Section 17-607
of the Delaware Act, Available Cash with respect to any Quarter
ending on or after the IPO Closing Date that is deemed to be
Capital Surplus pursuant to the provisions of
Section 6.3(a) shall be distributed as follows, unless the
provisions of Section 6.3 require otherwise:
(a) First, 100% to the General Partner and the Unitholders,
Pro Rata, until a hypothetical holder of a Common Unit acquired
on the IPO Closing Date has received with respect to such Common
Unit, during the period since the IPO 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;
(b) Second, 100% (a) to the General Partner in
accordance with its Percentage Interest and (b) to the
Unitholders holding Common Units, Pro Rata, until there has been
distributed in respect of each Common Unit then Outstanding an
amount equal to the Cumulative Common Unit Arrearage; and
(c) Thereafter, 100% shall be distributed in accordance
with Section 6.4 as if it were Operating Surplus.
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Section 6.6
Adjustment
of Minimum Quarterly Distribution and Target Distribution
Levels.
(a) The Minimum Quarterly Distribution, First Target
Distribution, Second Target Distribution, Third Target
Distribution, Common Unit Arrearages and Cumulative Common Unit
Arrearages shall be proportionately adjusted in the event of any
distribution, combination or subdivision (whether effected by a
distribution payable in Units or otherwise) of Units or other
Partnership Securities in accordance with Section 5.9. 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 Initial
Unit Price of the Common Units immediately after giving effect
to such distribution and of which the denominator is the
Unrecovered Initial Unit Price 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 5.11 and 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 5.7, 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)(A), 6.7(b) and 6.7(c).
(b) A Unitholder shall not be permitted to transfer a
Subordinated Unit or a Subordinated Unit that has converted into
a Common Unit pursuant to Section 5.7 (other than a
transfer to an Affiliate) if the remaining balance in the
transferring Unitholders Capital Account with respect to
the retained Subordinated Units or Retained Converted
Subordinated Units would be negative after giving effect to the
allocation under Section 5.5(c)(ii)(B).
(c) A Unitholder holding a Common Unit that has resulted
from the conversion of a Subordinated Unit pursuant to
Section 5.7 shall not be permitted to transfer such Common
Unit to a Person that is not an Affiliate of the holder, until
such time as the General Partner determines, based on advice of
counsel, that each such Common 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(c), the General Partner may take whatever steps
are required to provide economic uniformity to such Common Units
in preparation for a transfer of such Common Units, including
the application of Sections 5.5(c)(ii), 6.1(d)(x) and
6.7(b); provided, however, that no such steps may be taken that
would have a material adverse effect on the other Unitholders
holding Common Units.
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 Article III and Article 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, except as provided by law, (ii) be entitled to any
distributions other than as provided in
Sections 6.4(b)(i)(E), (F) and (G),
Section 6.4(b)(ii)(C), (D) and
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(E) and Section 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 a governmental authority so that a Group
Member is treated as an association taxable as a corporation or
is otherwise subject to an entity-level tax for federal, state
or local income tax purposes, then the General Partner may
reduce the Minimum Quarterly Distribution, the First Target
Distribution, the Second Target Distribution and the Third
Target Distribution by the amount of income taxes that are
payable by reason of any such new legislation or interpretation
(the Incremental Income Taxes), or any portion
thereof selected by the General Partner, in the manner provided
in this Section 6.9. If the General Partner elects to
reduce the Minimum Quarterly Distribution, the First Target
Distribution, the Second Target Distribution and the Third
Target Distribution for any Quarter with respect to all or a
portion of any Incremental Income Taxes, the General Partner
shall estimate for such Quarter the Partnership Groups
aggregate liability (the Estimated Incremental Quarterly
Tax Amount) for all (or the relevant portion of) such
Incremental Income Taxes; provided that any difference between
such estimate and the actual tax liability for Incremental
Income Taxes (or the relevant portion thereof) for such Quarter
may, to the extent determined by the General Partner be taken
into account in determining the Estimated Incremental Quarterly
Tax Amount with respect to each Quarter in which any such
difference can be determined. For each such Quarter, the Minimum
Quarterly Distribution, First Target Distribution, Second Target
Distribution and Third Target Distribution, shall be the product
obtained by multiplying (a) the amounts therefor that are
set out herein prior to the application of this Section 6.9
times (b) the quotient obtained by dividing
(i) Available Cash with respect to such Quarter by
(ii) the sum of Available Cash with respect to such Quarter
and the Estimated Incremental Quarterly Tax Amount for such
Quarter, as determined by the General Partner. For purposes of
the foregoing, Available Cash with respect to a Quarter will be
deemed reduced by the Estimated Incremental Quarterly Tax Amount
for that Quarter.
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 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 that 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 determines to be 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 and
Article XIV);
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(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 other Group Members); the repayment or guarantee of
obligations of any Group Member; and the making of capital
contributions to any Group Member;
(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 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 insurance for the benefit of the
Partnership Group, the Partners and Indemnitees;
(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 Persons
(including the acquisition of interests in, and the
contributions of property to, any Group Member 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, arbitration or mediation 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) the purchase, sale or other acquisition or
disposition of Partnership Securities, or the issuance of
options, rights, warrants, appreciation rights and tracking and
phantom interests relating to Partnership Securities;
(xiv) the undertaking of any action in connection with the
Partnerships participation in any Group Member; and
(xv) the entering into of agreements with any of its
Affiliates to render services to a Group Member or to itself in
the discharge of its duties as General Partner of the
Partnership.
(b) Notwithstanding any other provision of this Agreement,
any Group Member Agreement, the Delaware Act or any applicable
law, rule or regulation, each of the Partners 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 this
Agreement and the Group Member Agreement of each other Group
Member, the Underwriting Agreement and the other agreements
described in or filed as exhibits to 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
Underwriting Agreement or described in or filed as exhibits to
the Registration Statement, in each case on behalf of the
Partnership without any further act, approval or vote of the
Partners or the other Persons who may acquire an interest in
Partnership Securities and (iii) agrees that the execution,
delivery or performance by
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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.
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. The General Partner
shall use all reasonable efforts to cause to be filed such other
certificates or documents that the General Partner determines to
be 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 the General Partner determines such action to be
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
Section 3.4(a), to the fullest extent permitted by law, 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 the General Partners Authority.
Except as provided in Article XII and Article XIV, the
General Partner may not sell, exchange or otherwise dispose of
all or substantially all of the assets of the Partnership Group,
taken as a whole, in a single transaction or a series of related
transactions (including by way of merger, consolidation, other
combination or sale of ownership interests of the
Partnerships Subsidiaries) without the approval of holders
of a Unit Majority; provided, however, that this provision shall
not preclude or limit the General Partners ability to
mortgage, pledge, hypothecate or grant a security interest in
all or substantially all of the assets of the Partnership Group
and shall not apply to any forced sale of any or all of the
assets of the Partnership Group 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, except as permitted
under Section 4.6, Section 11.1 and Section 11.2,
elect or cause the Partnership to elect a successor general
partner of the Partnership.
Section
7.4
Reimbursement
of the General Partner.
(a) Except as provided in this Section 7.4, elsewhere
in this Agreement, and in the Services Agreement, the General
Partner shall not be compensated for its services as a general
partner or managing member of any Group Member.
(b) The General Partner shall be reimbursed on a monthly
basis, or such other basis as the General Partner may determine,
for (i) all direct and indirect expenses it incurs or
payments it makes on behalf of the Partnership Group (including
salary, bonus, incentive compensation and other amounts paid to
any Person, including Affiliates of the General Partner to
perform services for the Partnership Group or for the General
Partner in the discharge of its duties to the Partnership
Group), and (ii) all other expenses allocable to the
Partnership Group or otherwise incurred by the General Partner
in connection with operating the Partnership Groups
business (including expenses allocated to the General Partner by
its Affiliates). The General Partner shall determine the
expenses that are allocable to the Partnership Group.
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 the applicable rules and regulations of the
National Securities Exchange on which the Common Units are
listed, the General Partner, without the approval of the Limited
Partners (who shall have no other right to vote in respect
thereof under this Agreement), may propose and adopt on behalf
of the
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Partnership employee benefit plans, employee programs and
employee practices (including plans, programs and practices
involving the issuance of Partnership Securities or options to
purchase or rights, warrants or appreciation rights or phantom
or tracking interests relating to 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, Group Member or any Affiliates in each case
for the benefit of employees and directors of the General
Partner or any of its Affiliates, 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 Affiliates are
obligated to provide to any employees and directors 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
Affiliates of Partnership Securities purchased by the General
Partner or such Affiliates from the Partnership to fulfill
options or awards under such plans, programs and practices)
shall be reimbursed in accordance with Section 7.4(b). Any
and all obligations of the General 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 Section 11.2 or the
transferee of or successor to all of the General Partners
General Partner Interest (represented by General Partner Units)
pursuant to Section 4.6.
Section
7.5
Outside
Activities
.
(a) 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 a general partner or managing member,
as the case may be, of the Partnership and any other partnership
or limited liability company of which the Partnership is,
directly or indirectly, a partner or member and to undertake
activities that are ancillary or related thereto (including
being a limited partner in the Partnership) and (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 or managing member,
if any, of one or more Group Members or (B) the acquiring,
owning or disposing of debt or equity securities in any Group
Member.
(b) Subject to the terms and conditions of any other
agreement to or by which an Indemnitee may be a party or bound,
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
Agreement or any duty expressed or implied by law or equity to
any Group Member or any Partner. None of any Group Member, any
Limited Partner or any other Person shall have any rights by
virtue of this Agreement, any Group Member Agreement, or the
partnership relationship established hereby in any business
ventures of any Indemnitee. Notwithstanding anything to the
contrary in this Agreement or any duty existing at law, in
equity or otherwise, but subject to the proviso set forth in the
last sentence of this Section 7.5(b) and subject to the
terms and conditions of any other agreement to or by which an
Indemnitee may be a party or bound, (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 any
fiduciary duty or any other obligation of any type whatsoever of
any Indemnitee 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) the Indemnitees shall have no obligation hereunder or
as a result of any duty expressed or implied by law to present
business opportunities to the Partnership. Notwithstanding
anything to the contrary in this Agreement, the doctrine of
corporate opportunity, or any analogous doctrine, shall not
apply to any Indemnitee (including the General Partner). Subject
to the terms and conditions of any other agreement to or by
which an Indemnitee may be a party or bound, no Indemnitee
(including the General Partner) who acquires knowledge of a
potential transaction, agreement, arrangement or other matter
that may be an opportunity for the
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Partnership shall have any duty to communicate or offer such
opportunity to the Partnership, and such Indemnitee (including
the General Partner) shall not be liable to the Partnership, to
any Limited Partner or any other Person bound by this Agreement
for breach of any fiduciary or other duty by reason of the fact
that such Indemnitee (including the General Partner) pursues or
acquires for itself, directs such opportunity to another Person
or does not communicate such opportunity or information to the
Partnership; provided such Indemnitee does not engage in such
business or activity as a result of or using confidential or
proprietary information provided by or on behalf of the
Partnership to such Indemnitee.
(c) The General Partner and each of its Affiliates may own
and acquire Units or other Partnership Securities and, except as
otherwise provided in this Agreement, shall be entitled to
exercise, at their option, all rights relating to all Units or
other Partnership Securities acquired by them. The term
Affiliates when used in this Section 7.5(c)
with respect to the General Partner shall not include any Group
Member.
(d) Notwithstanding anything to the contrary in this
Agreement, (i) to the extent that any provision of this
Agreement purports or is interpreted to have the effect of
restricting or eliminating 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 or elimination, such provisions
and the restriction or elimination of fiduciary duties are
hereby approved by the Partners, and (ii) nothing in this
Agreement shall limit or otherwise affect any separate
contractual obligations outside of this Agreement of any Person
to the Partnership or any of its Affiliates.
Section
7.6
Loans
from the General Partner; Loans or Contributions from the
Partnership or Group Members.
(a) The General Partner or any of 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 arms-length basis (without
reference to the lending partys financial abilities or
guarantees), all as determined by the General Partner. 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.
(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 determined by the General Partner.
(c) No borrowing by any Group Member or the approval
thereof by the General Partner shall be deemed to constitute a
breach of any duty, expressed or implied, of the General Partner
or its Affiliates to the Partnership or the Limited Partners
existing hereunder, or existing at law, in equity or otherwise
by reason of the fact that the purpose or effect of such
borrowing is directly or indirectly to (i) enable
distributions to the General Partner or its Affiliates
(including in their capacities as Limited Partners) to exceed
the General Partners Percentage Interest of the total
amount distributed to all partners or (ii) hasten the
expiration of the Subordination Period or the conversion of any
Subordinated Units into Common Units.
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 the Indemnitee shall not be indemnified and held harmless
if there has been a final and non-appealable judgment entered by
a court of competent jurisdiction determining that, in respect
of the
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matter for which the Indemnitee is seeking indemnification
pursuant to this Section 7.7, the Indemnitee acted in bad
faith or engaged in fraud, willful misconduct or, in the case of
a criminal matter, acted with knowledge that the
Indemnitees conduct was unlawful; provided, further, no
indemnification pursuant to this Section 7.7 shall be
available to the General Partner or its Affiliates (other than a
Group Member) with respect to its or their obligations incurred
pursuant to the Underwriting Agreement, or the Investors
Rights Agreement (other than obligations incurred by the General
Partner on behalf of the Partnership). 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 a determination
that the Indemnitee is not entitled to be indemnified 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 Indemnitees
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
Partnerships activities or such Persons 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 best interest of the participants and
beneficiaries of the plan shall be deemed to be for a purpose
that is in 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 or any other
Persons who have acquired Partnership Securities or are
otherwise bound by this Agreement, for losses sustained or
liabilities incurred as a result of any act or omission of an
Indemnitee unless there has been a final and non-appealable
judgment entered by a court of competent jurisdiction
determining that, in respect of the matter in question, the
Indemnitee acted in bad faith or engaged in fraud, willful
misconduct or, in the case of a criminal matter, acted with
knowledge that the Indemnitees conduct was criminal.
(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
Partnerships 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.
(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 of the Indemnitees 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; Standards of Conduct and Modification
of Duties.
(a) Unless otherwise expressly provided in this Agreement
or any Group Member 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, any Group
Member or any Partner, 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 any Group Member 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 in
respect of such conflict of interest is (i) approved by
Special Approval, (ii) approved by the vote of a majority
of the Outstanding Common Units (excluding Common Units owned by
the General Partner and its Affiliates), (iii) on terms no
less favorable to the Partnership than those generally being
provided to or available from unrelated third parties or
(iv) fair and reasonable 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 shall be authorized but not required in connection with
its resolution of such conflict of interest to seek Special
Approval of such resolution, and the General Partner may also
adopt a resolution or course of action that has not received
Special Approval. If Special Approval is sought, then,
notwithstanding any other provision of this Agreement or
applicable law, (A) any Conflicts Committee shall be
authorized in connection with its determination of whether to
provide Special Approval to consider any and all factors as it
determines to be relevant or appropriate under the
circumstances, and (B) it shall be presumed that, in making
its decision, a Conflicts Committee acted in good faith, and if
Special Approval is not sought and the Board of Directors of the
General Partner determines that the resolution or course of
action taken with respect to a conflict of interest satisfies
either of the standards set forth in clauses (iii) or
(iv) above, then it shall be presumed that, in making its
decision, the Board of Directors of the General Partner acted in
good faith, and in either case, in any proceeding brought by any
Limited Partner or by or on behalf of such Limited Partner or
any other Limited Partner or the Partnership challenging such
approval, the Person bringing or prosecuting such proceeding
shall have the burden of overcoming such presumption.
Notwithstanding anything to the contrary in this Agreement or
any duty otherwise existing at law or equity, the existence of
the conflicts of interest described in the Registration
Statement are hereby approved by all Partners and shall not
constitute a breach of this Agreement.
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(b) Whenever the General Partner makes a determination or
takes or declines to take any other action, or any of its
Affiliates causes it to do so, in its capacity as the general
partner of the Partnership as opposed to in its individual
capacity, whether under this Agreement, any Group Member
Agreement or any other agreement contemplated hereby or
otherwise, then, unless another express standard is provided for
in this Agreement, the General Partner, or such Affiliates
causing it to do so, shall make such determination or take or
decline to take such other action in good faith and shall not be
subject to any other or different standards imposed by this
Agreement, any Group Member Agreement, any other agreement
contemplated hereby or under the Delaware Act or any other law,
rule or regulation or at equity. Whenever any Conflicts
Committee makes a determination or takes or declines to take any
other action, unless another express standard is provided for in
this Agreement, it shall make such determination or take or
decline to take such other action in good faith and shall not be
subject to any other or different standards imposed by this
Agreement, any Group Member Agreement, any other agreement
contemplated hereby or under the Delaware Act or any other law,
rule or regulation or at equity. In order for a determination or
other action to be in good faith for purposes of
this Agreement, the Person or Persons making such determination
or taking or declining to take such other action must believe
that the determination or other action is in the best interests
of the Partnership.
(c) Whenever the General Partner makes a determination or
takes or declines to take any other action, or any of its
Affiliates causes it to do so, in its individual capacity as
opposed to in its capacity as the general partner of the
Partnership, whether under this Agreement, any Group Member
Agreement or any other agreement contemplated hereby or
otherwise, then the General Partner, or such Affiliates causing
it to do so, are entitled to make such determination or to take
or decline to take such other action free of any fiduciary duty
or obligation whatsoever to the Partnership, any Limited
Partner, any Record Holder or any other Person bound by this
Agreement, and, to the fullest extent permitted by law, the
General Partner, or such Affiliates causing it to do so, shall
not be required to act in good faith or pursuant to any other
standard imposed by this Agreement, any Group Member Agreement,
any other agreement contemplated hereby or under the Delaware
Act or any other law, rule or regulation or in equity. For the
avoidance of doubt, whenever the General Partner votes or
transfers its Partnership Interests, or refrains from voting or
transferring its Partnership Interests, it shall be acting in
its individual capacity.
(d) Notwithstanding anything to the contrary in this
Agreement, the General Partner and its Affiliates shall have no
duty or obligation, express or implied, to (i) sell or
otherwise dispose of any asset of the Partnership Group other
than in the ordinary course of business or (ii) 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. Any determination by the General Partner or any
of its Affiliates to enter into such contracts shall be at its
option.
(e) Except as expressly set forth in this Agreement,
neither the General Partner nor any other Indemnitee shall have
any duties or liabilities, including fiduciary duties, to the
Partnership or any Limited Partner and the provisions of this
Agreement, to the extent that they restrict, eliminate or
otherwise modify the duties and liabilities, including fiduciary
duties, of the General Partner or any other Indemnitee otherwise
existing at law or in equity, are agreed by the Partners to
replace such other duties and liabilities of the General Partner
or such other Indemnitee.
(f) The Unitholders hereby authorize the General Partner,
on behalf of the Partnership as a partner or member of a Group
Member, to approve of actions by the general partner or managing
member 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
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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 Persons
professional or expert competence shall be conclusively presumed
to have been done or omitted in good faith and in accordance
with such opinion.
(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 or any Group Member.
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. Such Partnership Securities
shall be held by the Partnership as treasury securities unless
they are expressly cancelled by action of an appropriate officer
of the General Partner. 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 IPO Closing Date notwithstanding that it
may later cease to be an Affiliate of the General Partner, but
excluding any individual who is an Affiliate of the General
Partner based on such individuals status as an officer,
director or employee of the General Partner or 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 at the
option and upon the request of the Holder, the Partnership shall
file with the Commission as promptly as practicable after
receiving such request, and use commercially 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 four
registrations in total pursuant to this Section 7.12(a) and
Section 7.12(b), no more than two of which shall be
required to be made at any time that the Partnership is not
eligible to use
Form S-3
(or a comparable form) for the registration under the Securities
Act of its securities; and provided further, however, that if a
Conflicts Committee determines in good faith that the requested
registration would be materially detrimental to the Partnership
and its Partners because such registration would
(x) materially interfere with a significant acquisition,
reorganization or other similar transaction involving the
Partnership, (y) require premature disclosure of material
information that the Partnership has a bona fide business
purpose for preserving as confidential or (z) render the
Partnership unable to comply with requirements under applicable
securities laws, then the Partnership shall have the right to
postpone such requested registration for a period of not more
than six months after receipt of the Holders request, such
right pursuant to this Section 7.12(a) or
Section 7.12(b) not to be utilized more than once in any
twelve-month period. In connection with any registration
pursuant to the first sentence of this Section 7.12(a), the
Partnership shall (i) promptly prepare and file
(A) 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 (B) 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
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reasonably request and (ii) do any and all other acts and
things that may be necessary or appropriate to enable the Holder
to consummate a public sale of such Partnership Securities in
such states. Except as set forth in Section 7.12(d), all
costs and expenses of any such registration and offering (other
than the underwriting discounts and commissions) shall be paid
by the Partnership, without reimbursement by the Holder.
(b) If any Holder holds Partnership Securities that it
desires to sell and 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 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 at the option and
upon the request of the Holder, the Partnership shall file with
the Commission as promptly as practicable after receiving such
request, and use commercially 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 shelf registration statement have been sold, a
shelf registration statement covering the
Partnership Securities specified by the Holder on an appropriate
form under Rule 415 under the Securities Act, or any
similar rule that may be adopted by the Commission; provided,
however, that the Partnership shall not be required to effect
more than four registrations pursuant to Section 7.12(a)
and this Section 7.12(b); and provided further, however,
that if a Conflicts Committee determines in good faith that any
offering under, or the use of any prospectus forming a part of,
the shelf registration statement would be materially detrimental
to the Partnership and its Partners because such offering or use
would (x) materially interfere with a significant
acquisition, reorganization or other similar transaction
involving the Partnership, (y) require premature disclosure
of material information that the Partnership has a bona fide
business purpose for preserving as confidential or
(z) render the Partnership unable to comply with
requirements under applicable securities laws, then the
Partnership shall have the right to suspend such offering or use
for a period of not more than six months after receipt of the
Holders request, such right pursuant to
Section 7.12(a) or this Section 7.12(b) not to be
utilized more than once in any twelve-month period. In
connection with any shelf registration pursuant to this
Section 7.12(b), the Partnership shall (i) promptly
prepare and file (A) such documents as may be necessary to
register or qualify the securities subject to such shelf
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 shelf
registration, and (B) such documents as may be necessary to
apply for listing or to list the Partnership Securities subject
to such shelf registration on such National Securities Exchange
as the Holder shall reasonably request, and (ii) do any and
all other acts and things that may be necessary or appropriate
to enable the Holder to consummate a public sale of such
Partnership Securities in such states. Except as set forth in
Section 7.12(d), all costs and expenses of any such shelf
registration and offering (other than the underwriting discounts
and commissions) shall be paid by the Partnership, without
reimbursement by the Holder.
(c) 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 notify each Holder that is an Affiliate of the
Partnership at that time of such proposal and use all reasonable
efforts to include such number or amount of securities held by
such Holder in such registration statement as it shall request;
provided, that the Partnership is not required to make any
effort or take any action to so include the securities of such
Holder once the registration statement is declared effective by
the Commission or otherwise becomes effective, including any
registration statement providing for the offering from time to
time of securities pursuant to Rule 415 of the Securities
Act. If the proposed offering pursuant to this
Section 7.12(c) shall be an underwritten offering, then, in
the event that the managing underwriter or managing underwriters
of such offering advise the Partnership and such Holder in
writing that in their opinion the inclusion of all or some of
the Holders Partnership Securities would have a material
adverse effect on the success of the offering, the Partnership
shall include in such offering only that number or amount, if
any, of securities held by such Holder that, in the opinion of
the managing underwriter or managing underwriters, will not have
a material adverse effect on the success of the offering. Except
as set forth in Section 7.12(d), 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 such Holder.
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(d) 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
Partnerships 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) 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 Indemnified Person may be involved, or is threatened
to be involved, as a party or otherwise, under the Securities
Act or otherwise (hereinafter referred to in this
Section 7.12(d) 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 any free writing 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 any free writing 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.
(e) The provisions of Section 7.12(a),
Section 7.12(b) and Section 7.12(c) shall continue to
be applicable with respect to the General Partner (and any of
the General Partners Affiliates) after it ceases to be a
general 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(d) shall continue in effect thereafter.
(f) The rights to cause the Partnership to register
Partnership Securities pursuant to this Section 7.12 may be
assigned (but only with all related obligations) by a Holder to
a transferee of such Partnership Securities, provided
(i) the Partnership is, within a reasonable time after such
transfer, furnished with written notice of the name and address
of such transferee and the Partnership Securities with respect
to which such registration rights are being assigned and
(ii) such transferee agrees in writing to be bound by and
subject to the terms set forth in this Section 7.12.
(g) 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 Persons present intent
to offer such Partnership Securities for distribution,
(iii) describe the nature or method of the proposed offer
and sale of Partnership Securities, and (iv) contain the
undertaking of such Person to provide all such information and
materials and take all action as may be required in order to
permit the Partnership to comply with all applicable
requirements in connection with the registration of such
Partnership Securities.
(h) C&T Coal, Charles C. Ungurean, and Thomas T.
Ungurean (and their respective successors and permitted assigns
under Exhibit B to the Investors Rights Agreement)
have only those registration rights set forth in Exhibit B
to the Investors Rights Agreement and are not entitled to
rely on the rights to cause the Partnership to register
Partnership Securities pursuant to this Section 7.12.
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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 Partnerships sole party in interest, both legally and
beneficially. Each Limited Partner hereby waives, to the fullest
extent permitted by law, 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
this 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 Partnerships 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 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, by any reasonable means (including posting on or
accessible through the Partnerships or the SECs
website) to each Record Holder of a Unit as of a date selected
by the General Partner, 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.
(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, by any reasonable means (including
posting on or accessible through the Partnerships or the
SECs website) to each Record Holder of a Unit, as of a
date selected by the General Partner, a report containing
unaudited financial statements of the Partnership and such other
information as may be required by applicable law, regulation or
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rule of any National Securities Exchange on which the Units are
listed or admitted to 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 the taxable year
or years that it is required by law to adopt, from time to time,
as determined by the General Partner. In the event the
Partnership is required to use a taxable year other than a year
ending on December 31, the General Partner shall use
reasonable efforts to change the taxable year of the Partnership
to a 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 Partnerships 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
Partners 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
listed or admitted to trading 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) 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 Partnerships expense) in connection with all
examinations of the Partnerships 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 may be
required to cause the Partnership and other Group Members to
comply with any withholding requirements established under the
Code or any other federal, state or local law including pursuant
to Sections 1441, 1442, 1445 and 1446 of the Code. To the
extent that the Partnership is required or elects to withhold
and pay over to any taxing authority any amount resulting from
the allocation or distribution of income to any Partner
(including by reason of Section 1446 of the Code), the
General Partner may treat the amount withheld as a distribution
of cash pursuant to Section 6.3 in the amount of such
withholding from such Partner.
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ARTICLE X
ADMISSION OF
PARTNERS
Section
10.1
Admission
of Limited Partners.
(a) AIM Oxford and C&T Coal were admitted to the
Partnership as Initial Limited Partners on August 24, 2007.
Additionally, from time to time prior to the IPO Closing Date,
all Employee/Director Unitholders who held Units prior to the
IPO Closing Date were admitted to the Partnership as Limited
Partners.
(b) From and after the IPO Closing Date, by acceptance of
the transfer of any Limited Partner Interests in accordance with
Article IV or the acceptance of any Limited Partner
Interests issued pursuant to Article V or pursuant to a
merger or consolidation or conversion pursuant to
Article XIV, and except as provided in Section 4.9,
each transferee of, or other such Person acquiring, Limited
Partner Interests (including any nominee holder or an agent or
representative acquiring such Limited Partner Interests for the
account of another Person) (i) shall be admitted to the
Partnership as a Limited Partner with respect to the Limited
Partner Interests so transferred or issued to such Person when
any such transfer or admission is reflected in the books and
records of the Partnership and such Limited Partner becomes the
Record Holder of the Limited Partner Interests so transferred,
(ii) shall become bound, and shall be deemed to have agreed
to be bound, by the terms of this Agreement,
(iii) represents that the transferee or other recipient has
the capacity, power and authority to enter into this Agreement
and (iv) makes the consents, acknowledgments and waivers
contained in this Agreement, all with or without execution of
this Agreement by such Person. The transfer of any Limited
Partner Interests and the admission of any new Limited Partner
shall not constitute an amendment to this Agreement. A Person
may become a Limited Partner or Record Holder of a Limited
Partner Interest without the consent or approval of any of the
Partners. A Person may not become a Limited Partner without
acquiring a Limited Partner Interest and until such Person is
reflected in the books and records of the Partnership as the
Record Holder of such Limited Partner Interest. The rights and
obligations of a Person who is a Non-Citizen Assignee shall be
determined in accordance with Section 4.9.
(c) The name and mailing address of each Limited Partner
shall be listed on the books and records of the Partnership
maintained for such purpose by the Partnership or the Transfer
Agent. The General Partner shall update the books and records of
the Partnership from time to time as necessary to reflect
accurately the information therein (or shall cause the Transfer
Agent to do so, as applicable). A Limited Partner Interest may
be represented by a Certificate, as provided in Section 4.1.
(d) Any transfer of a Limited Partner Interest shall not
entitle the transferee to share in the profits and losses, to
receive distributions, to receive allocations of income, gain,
loss, deduction or credit or any similar item or to any other
rights to which the transferor was entitled until the transferee
becomes a Limited Partner pursuant to Section 10.1(b).
Section
10.2
Admission
of Successor or Additional General Partner.
A successor General Partner approved pursuant to
Section 11.1 or Section 11.2 or the transferee of or
successor to all or part of the General Partner Interest
(represented by General Partner Units) pursuant to
Section 4.6 who is proposed to be admitted as a successor
General Partner shall be admitted to the Partnership as a
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 (represented by General Partner Units)
pursuant to Section 4.6, provided, however, that no such
Person shall be admitted to the Partnership as a successor or
additional General Partner until compliance with the terms of
Section 4.6 has occurred and such Person has executed and
delivered such other documents or instruments as may be required
to effect such admission, including a counterpart to this
Agreement. Any such successor or additional General Partner is
hereby authorized to, and shall, subject to the terms hereof,
carry on the business of the members of the Partnership Group
without dissolution.
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Section
10.3
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 or 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.
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;
(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;
(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) or (C) 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 IPO Closing Date and ending at 12:00 midnight Eastern
Time on June 30, 2020 that the General Partner voluntarily
withdraws by giving at least 90 days advance notice
to the Unitholders of its intention to withdraw; 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), such withdrawal to take
effect on
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the date specified in such notice and that, prior to the
effective date of such withdrawal, the General Partner delivers
to the Partnership an Opinion of Counsel (a 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 any
Group Member or cause any Group Member 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 so treated or taxed); (ii) any time after 12:00
midnight Eastern Time on June 30, 2020, 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 (provided that, prior to the
effective date of such withdrawal, the General Partner delivers
to the Partnership a Withdrawal Opinion of Counsel) or
(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. To the fullest extent
permitted by law, 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, if any, to the extent applicable, 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. To the fullest
extent permitted by law, the Person so elected as successor
General Partner shall automatically become the successor general
partner or managing member, to the extent applicable, 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 Partners 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 10.2.
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 80% of the Outstanding Units
(including Units held by the General Partner and its Affiliates)
voting as a single class. 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 majority of the outstanding Common Units voting as a
separate class and a majority of the outstanding Subordinated
Units (if any Subordinated Units are then Outstanding) voting as
a separate class (including, in each case, 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 10.2. To the fullest
extent permitted by law, the removal of the General Partner
shall also automatically constitute the removal of the General
Partner as general partner or managing member, to the extent
applicable, of the other Group Members of which the General
Partner is a general partner or a managing member. To the
fullest extent permitted by law, 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 10.2, automatically become a successor general
partner or managing member, to the extent applicable, 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 10.2.
Section
11.3
Interest
of Departing General 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 the successor General Partner is
elected in accordance with the terms of Section 11.1 or
Section 11.2, the Departing General Partner shall have the
option, exercisable prior to the effective date of the departure
of such Departing General Partner, to require its successor to
purchase its General Partner Interest (represented by General
Partner Units) and its general partner interest (or equivalent
interest), if any, 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
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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, and if a successor General Partner is elected in
accordance with the terms of Section 11.1 or
Section 11.2 (or if the business of the Partnership is
continued pursuant to Section 12.2 and the successor
General Partner is not the former General Partner), such
successor shall have the option, exercisable prior to the
effective date of the departure of such Departing General
Partner (or, in the event the business of the Partnership is
continued, prior to the date the business of the Partnership is
continued), to purchase the Combined Interest in exchange for an
amount in cash equal to the fair market value of such Combined
Interest of the Departing General Partner. In either event, the
Departing General Partner shall be entitled to receive all
reimbursements due such Departing General Partner pursuant to
Section 7.4, including any employee-related liabilities
(including severance liabilities), incurred in connection with
the termination of any employees employed by the Departing
General Partner or its Affiliates (other than any Group Member)
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 Departing General Partners Combined Interest shall
be determined by agreement between the Departing General Partner
and its successor or, failing agreement within 30 days
after the effective date of such Departing General
Partners departure, by an independent investment banking
firm or other independent expert selected by the Departing
General 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 General Partner shall designate an
independent investment banking firm or other independent expert,
the Departing General Partners successor shall designate
an independent investment banking firm or other independent
expert, and such firms or experts shall mutually select a third
independent investment banking firm or independent expert, which
third independent investment banking firm or other independent
expert shall determine the fair market value of the Combined
Interest of the Departing General Partner. In making its
determination, such third independent investment banking firm or
other independent expert may consider the then current trading
price of Units on any National Securities Exchange on which
Units are then listed or admitted to trading, the value of the
Partnerships assets, the rights and obligations of the
Departing General Partner and other factors it may deem relevant.
(b) If the Combined Interest is not purchased in the manner
set forth in Section 11.3(a), the Departing General 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 General Partner (or its transferee) as to all debts
and liabilities of the Partnership arising on or after the date
on which the Departing General Partner (or its transferee)
becomes a Limited Partner. For purposes of this Agreement,
conversion of the Combined Interest of the Departing General
Partner to Common Units will be characterized as if the
Departing 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 Section 11.2 (or if
the business of the Partnership is continued pursuant to
Section 12.2 and the successor General Partner is not the
former General Partner) 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 the product of
(x) the quotient obtained by dividing (A) the
Percentage Interest of the General Partner Interest of the
Departing General Partner by (B) a percentage equal to 100%
less the Percentage Interest of the General Partner Interest of
the Departing General Partner and (y) the Net Agreed Value
of the Partnerships assets on such date. In such event,
such successor General Partner shall, subject to the following
sentence, be entitled to its Percentage Interest of all
Partnership allocations and distributions to which the Departing
General Partner was entitled in respect of its General Partner
Interest. In addition, the successor General Partner shall cause
this Agreement to be amended to reflect
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that, from and after the date of such successor General
Partners admission, the successor General Partners
interest in all Partnership distributions and allocations shall
be its Percentage Interest.
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 (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(c)), (ii) all
Cumulative Common Unit Arrearages on the Common Units will be
extinguished and (iii) the General Partner will have the
right to convert its General Partner Interest (represented by
General Partner Units) and its Incentive Distribution Rights
into Common Units or to receive cash in exchange therefor in
accordance with Section 11.3.
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 Partners 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
additional Limited Partners or by the admission of a successor
or additional General Partner in accordance with the terms of
this Agreement. Upon the removal or other event of withdrawal of
the General Partner, if a successor General Partner is elected
pursuant to Section 11.1, Section 11.2 or
Section 12.2, the Partnership shall not be dissolved and
such successor General Partner is hereby authorized to, and
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) 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 10.2;
(b) an election to dissolve the Partnership by the General
Partner that is approved by the holders of a Unit Majority;
(c) the entry of a decree of judicial dissolution of the
Partnership pursuant to the provisions of the Delaware
Act; or
(d) at any time there are no Limited Partners, unless the
Partnership is continued without dissolution in accordance with
the Delaware Act.
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 General Partner pursuant to Section 11.1 or
Section 11.2, then, to the fullest extent permitted by law,
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 fullest extent permitted by law, within 180 days
thereafter, the holders of a Unit Majority may elect in writing
to continue the business of the Partnership on the same terms
and conditions set forth in this Agreement by appointing,
effective as of the date of the Event of Withdrawal, as a
successor General Partner a Person approved by the
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holders of a Unit Majority. Unless such an election is made
within the applicable time period as set forth above, the
Partnership shall dissolve and conduct only activities necessary
to wind up its affairs. If such an election is so made, then:
(i) the Partnership shall continue without dissolution
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) the successor General Partner shall be admitted to
the Partnership as General Partner, effective as of the Event of
Withdrawal, by agreeing in writing to be bound by this Agreement;
provided, that the right of the holders of a Unit Majority to
approve a successor General Partner 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 nor any Group Member 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 (to the extent not already so treated or
taxed).
Section
12.3
Liquidator.
Upon dissolution of the Partnership, the General Partner, or if
none, a Unit Majority, 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 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) necessary or appropriate to carry out the
duties and functions of the Liquidator hereunder for and during
the period of time required 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 determined by
the Liquidator, subject to
Section 17-804
of the Delaware Act and the following:
(a) 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 defer
liquidation or distribution of the Partnerships assets for
a reasonable time if it determines that an immediate sale or
distribution of all or some of the Partnerships assets
would be impractical or would cause undue loss to the Partners.
(b) The Liquidator shall first satisfy the liabilities of
the Partnership. Liabilities of the Partnership include amounts
owed to the Liquidator as compensation for serving in such
capacity (subject to the
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terms of Section 12.3) and amounts 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) 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 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 money or
property to the Partnership to enable it to effectuate, the
return of the Capital Contributions of the Limited Partners or
Unitholders, or any portion thereof, it being expressly
understood that any such return shall be made solely from
Partnership assets.
Section
12.7
Waiver
of Partition.
To the maximum extent permitted by law, each Partner hereby
waives any right to partition of the Partnership property.
Section
12.8
Capital
Account Restoration.
No Limited Partner shall have any obligation to restore any
negative balance in its Capital Account upon liquidation of the
Partnership. 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
Amendments
to be Adopted Solely by the General Partner.
Each Partner agrees that the General Partner, without the
approval of any Partner, 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 the General Partner determines to be
necessary or appropriate 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 Group Members
will not
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be treated as associations taxable as corporations or otherwise
taxed as entities for federal income tax purposes;
(d) a change that the General Partner determines,
(i) does not adversely affect in any material respect the
Limited Partners considered as a whole or any particular class
of Partnership Interests as compared to other classes of
Partnership Interests, (ii) to be necessary or appropriate
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 Units
(including the division of any class or classes of Outstanding
Units into different classes to facilitate uniformity of tax
consequences within such classes of Units) or comply with any
rule, regulation, guideline or requirement of any National
Securities Exchange on which the Units are or will be listed or
admitted to trading, (iii) to be necessary or appropriate
in connection with action taken by the General Partner pursuant
to Section 5.9 or (iv) is required to effect the
intent expressed in the registration statement for the Initial
Public Offering or this Agreement or is otherwise contemplated
by this Agreement;
(e) a change in the fiscal year or taxable year of the
Partnership and any other changes that the General Partner
determines to be necessary or appropriate 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 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) an amendment that the General Partner determines to be
necessary or appropriate in connection with the authorization of
issuance of any class or series of Partnership Securities
pursuant to Section 5.6, including any amendment that the
General Partner determines is necessary or appropriate in
connection with (i) the adjustments of the Minimum
Quarterly Distribution, First Target Distribution, Second Target
Distribution and Third Target Distribution pursuant to the
provisions of Section 5.11, (ii) the implementation of
the provisions of Section 5.11 or (iii) any
modifications to the Incentive Distribution Rights made in
connection with the issuance of Partnership Securities pursuant
to Section 5.6, provided that, with respect to this clause
(iii), the modifications to the Incentive Distribution Rights
and the related issuance of Partnership Securities have received
Special Approval;
(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 the General Partner determines to be
necessary or appropriate to reflect and account for 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
Section 2.4;
(k) a merger, conveyance or conversion 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 Section 13.1 and Section 13.3,
all amendments to this Agreement shall be made in accordance
with the requirements contained in this Section 13.2.
Amendments to this Agreement may be proposed only by the General
Partner; provided, however, to the full extent permitted by law,
that the General
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Partner shall have no duty or obligation to propose any
amendment to this Agreement and may decline to do so free of any
fiduciary duty or obligation whatsoever to the Partnership, any
Limited Partner and, in declining to propose an amendment, to
the fullest extent permitted by law shall not be required to act
in good faith or pursuant to any other standard imposed by this
Agreement, any Group Member Agreement, any other agreement
contemplated hereby or under the Delaware Act or any other law,
rule or regulation or at equity. A proposed amendment shall be
effective upon its approval by the General Partner and 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, in each case in
accordance with the other provisions of this Article XIII.
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 Section 13.1 and
Section 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 Section 13.1 and
Section 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), or (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 at its option.
(c) Except as provided in Section 14.3, and without
limitation of the General Partners authority to adopt
amendments to this Agreement without the approval of any
Partners as contemplated in Section 13.1, any amendment
that would have a material adverse effect on the rights or
preferences of any class of Partnership Interests in relation to
other classes of Partnership Interests must be approved by the
holders of not less than a majority of the Outstanding
Partnership Interests of the class so 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 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 Units 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
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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 time notice of the meeting is given as provided in
Section 16.1. 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 Units
for which a meeting is proposed in writing by mail or other
means of written communication in accordance with
Section 16.1 at least 10 days in advance of such
meeting. 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 Units are listed
or admitted to trading, in which case the rule, regulation,
guideline or requirement of such National Securities 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. If the General Partner does not set a Record Date,
then (a) the Record Date for determining the Limited
Partners entitled to notice of or to vote at a meeting of the
Limited Partners shall be the close of business on the day next
preceding the day on which notice is given and (b) the
Record Date for determining the Limited Partners entitled to
give approvals without a meeting shall be the date the first
written approval is deposited with the Partnership in care of
the General Partner in accordance with Section 13.11.
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
that might have been transacted at the original meeting. If the
adjournment is for more than 45 days or if a new Record
Date is fixed for the adjourned meeting, a notice of the
adjourned meeting shall be given in accordance with this
Article XIII.
Section 13.8
Waiver
of Notice; Approval of Meeting.
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.
Attendance of a Limited Partner at a meeting shall constitute a
waiver of notice of the meeting, except when the Limited Partner
attends the meeting for the express purpose of objecting, at the
beginning of the meeting, to 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
and Voting.
The holders of a majority of the Outstanding Units of the class
or classes for which a meeting has been called (including
Outstanding Units 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 Units, 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 Units that in the aggregate represent a
majority of the Outstanding Units 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
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is required with respect to such action under the provisions of
this Agreement, in which case the act of the Limited Partners
holding Outstanding Units 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 Units specified in this Agreement
(including Outstanding Units 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 Units
present and entitled to vote at such meeting (including
Outstanding Units 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 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 Units (including Units
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 Units are listed
or admitted to trading, in which case the rule, regulation,
guideline or requirement of such National Securities 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 Units held
by the Limited Partners, the Partnership shall be deemed to have
failed to receive a ballot for the Units 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
Right
to Vote and Related Matters.
(a) Only those Record Holders of the Units 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
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Outstanding Units 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 Units shall be deemed to be
references to the votes or acts of the Record Holders of such
Outstanding Units.
(b) With respect to Units that are held for a Persons
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 Units are registered, such other
Person shall, in exercising the voting rights in respect of such
Units on any matter, and unless the arrangement between such
Persons provides otherwise, vote such Units in favor of, and at
the direction of, the Person who is the beneficial owner, and
the Partnership shall be entitled to assume it is so acting
without further inquiry. The provisions of this
Section 13.12(b) (as well as all other provisions of this
Agreement) are subject to the provisions of Section 4.3.
ARTICLE XIV
MERGER,
CONSOLIDATION OR CONVERSION
Section 14.1
Authority.
The Partnership may merge or consolidate with or into one or
more corporations, limited liability companies, statutory trusts
or associations, real estate investment trusts, common law
trusts or unincorporated businesses, including a partnership
(whether general or limited (including a limited liability
partnership)) or convert into any such entity, whether such
entity is formed under the laws of the State of Delaware or any
other state of the United States of America, pursuant to a
written plan of merger or consolidation (Merger
Agreement) or a written plan of conversion (Plan of
Conversion), as the case may be, in accordance with this
Article XIV.
Section 14.2
Procedure
for Merger, Consolidation or Conversion.
(a) Merger, consolidation or conversion of the Partnership
pursuant to this Article XIV requires the prior consent of
the General Partner, provided, however, that, to the fullest
extent permitted by law, the General Partner shall have no duty
or obligation to consent to any merger, consolidation or
conversion of the Partnership and may decline to do so free of
any fiduciary duty or obligation whatsoever to the Partnership,
any Limited Partner and, in declining to consent to a merger,
consolidation or conversion, shall not be required to act in
good faith or pursuant to any other standard imposed by this
Agreement, any other agreement contemplated hereby or under the
Act or any other law, rule or regulation or at equity.
(b) If the General Partner shall determine to consent to
the merger or consolidation, the General Partner shall approve
the Merger Agreement, which shall set forth:
(i) the name and state of domicile of each of the business
entities proposing to merge or consolidate;
(ii) the name and state of domicile of the business entity
that is to survive the proposed merger or consolidation (the
Surviving Business Entity);
(iii) the terms and conditions of the proposed merger or
consolidation;
(iv) the manner and basis of exchanging or converting the
equity securities of each constituent business entity for, or
into, cash, property or interests, rights, securities or
obligations of the Surviving Business Entity and (A) 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 interests,
rights, securities or obligations of any general or limited
partnership, corporation, trust, limited liability company,
unincorporated business or other entity (other than the
Surviving Business Entity) that the holders of such general or
limited partner interests, securities or rights are to receive
in exchange for, or upon conversion of their interests,
securities or rights and (B) 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
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or limited partnership, corporation, trust, limited liability
company, unincorporated business or other entity (other than the
Surviving Business Entity), or evidences thereof, are to be
delivered;
(v) 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,
certificate of formation or limited liability company agreement,
operating agreement or other similar charter or governing
document) of the Surviving Business Entity to be effected by
such merger or consolidation;
(vi) 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 such certificate of merger, the effective time shall
be fixed at a date or time certain at or prior to the time of
the filing of such certificate of merger and stated
therein); and
(vii) such other provisions with respect to the proposed
merger or consolidation that the General Partner determines to
be necessary or appropriate.
(c) If the General Partner shall determine to consent to
the conversion, the General Partner shall approve the Plan of
Conversion, which shall set forth:
(i) the name of the converting entity and the converted
entity;
(ii) a statement that the Partnership is continuing its
existence in the organizational form of the converted entity;
(iii) a statement as to the type of entity that the
converted entity is to be and the state or country under the
laws of which the converted entity is to be incorporated, formed
or organized;
(iv) the manner and basis of exchanging or converting the
equity securities of each constituent business entity for, or
into, cash, property or interests, rights, securities or
obligations of the converted entity;
(v) in an attachment or exhibit, the certificate of limited
partnership of the Partnership;
(vi) in an attachment or exhibit, the certificate of
limited partnership, articles of incorporation, or other
organizational documents of the converted entity;
(vii) the effective time of the conversion, which may be
the date of the filing of the certificate of conversion or a
later date specified in or determinable in accordance with the
Plan of Conversion (provided, that if the effective time of the
conversion is to be later than the date of the filing of such
certificate of conversion, the effective time shall be fixed at
a date or time certain at or prior to the time of the filing of
such certificate of conversion and stated therein); and
(viii) such other provisions with respect to the proposed
conversion that the General Partner determines to be necessary
or appropriate.
Section 14.3
Approval
by Limited Partners.
(a) Except as provided in Sections 14.3(d) and
14.3(e), the General Partner, upon its approval of the Merger
Agreement or the Plan of Conversion, as the case may be, shall
direct that the Merger Agreement or the Plan of Conversion, as
applicable, 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 or the Plan of Conversion, as
the case may be, shall be included in or enclosed with the
notice of a special meeting or the written consent.
(b) Except as provided in Sections 14.3(d) and
14.3(e), the Merger Agreement or Plan of Conversion, as the case
may be, shall be approved upon receiving the affirmative vote or
consent of the holders of a Unit Majority.
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(c) Except as provided in Sections 14.3(d) and
14.3(e), after such approval by vote or consent of the Limited
Partners, and at any time prior to the filing of the certificate
of merger or certificate of conversion pursuant to
Section 14.4, the merger, consolidation or conversion may
be abandoned pursuant to provisions therefor, if any, set forth
in the Merger Agreement or Plan of Conversion, as the case may
be.
(d) Notwithstanding anything else contained in this
Article XIV or in this Agreement, the General Partner is
permitted, without Limited Partner approval, to convert the
Partnership or any Group Member into a new limited liability
entity, to merge the Partnership or any Group Member into, or
convey all of the Partnerships assets to, another limited
liability entity that shall be newly formed and shall have no
assets, liabilities or operations at the time of such
conversion, merger or conveyance 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
conversion, merger or conveyance, as the case may be, would not
result in the loss of the limited liability of any Limited
Partner or cause the Partnership 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 conversion,
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.
(e) Additionally, notwithstanding anything else contained
in this Article XIV or in this Agreement, the General
Partner is permitted, without Limited Partner approval, to merge
or consolidate the Partnership with or into another entity if
(i) the General Partner has received an Opinion of Counsel
that the merger or consolidation, as the case may be, would not
result in the loss of the limited liability of any Limited
Partner or cause the Partnership 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 merger or consolidation would
not result in an amendment to this Agreement, other than any
amendments that could be adopted pursuant to Section 13.1,
(iii) the Partnership is the Surviving Business Entity in
such merger or consolidation, (iv) each Unit outstanding
immediately prior to the effective date of the merger or
consolidation is to be a substantially identical Unit of the
Partnership after the effective date of the merger or
consolidation, and (v) the number of Partnership Securities
to be issued by the Partnership in such merger or consolidation
does not exceed 20% of the Partnership Securities Outstanding
immediately prior to the effective date of such merger or
consolidation.
(f) Pursuant to
Section 17-211(g)
of the Delaware Act, an agreement of merger or consolidation
approved in accordance with this Article XIV may
(a) effect any amendment to this Agreement or
(b) effect the adoption of a new partnership agreement for
the Partnership if it is the Surviving Business Entity. Any such
amendment or adoption made pursuant to this Section 14.3
shall be effective at the effective time or date of the merger
or consolidation.
Section 14.4
Certificate
of Merger.
Upon the required approval by the General Partner and the
Unitholders of a Merger Agreement or a Plan of Conversion, as
the case may be, a certificate of merger or certificate of
conversion, as applicable, 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, Consolidation or Conversion.
(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;
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(iii) all rights of creditors and all liens on or security
interests in property of any of those constituent business
entities shall be preserved unimpaired; and
(iv) all debts, liabilities and duties of those constituent
business entities shall attach to the Surviving Business Entity
and may be enforced against it to the same extent as if the
debts, liabilities and duties had been incurred or contracted
by it.
(b) At the effective time of the certificate of conversion:
(i) the Partnership shall continue to exist, without
interruption, but in the organizational form of the converted
entity rather than in its prior organizational form;
(ii) all rights, title, and interests to all real estate
and other property owned by the Partnership shall continue to be
owned by the converted entity in its new organizational form
without reversion or impairment, without further act or deed,
and without any transfer or assignment having occurred, but
subject to any existing liens or other encumbrances thereon;
(iii) all liabilities and obligations of the Partnership
shall continue to be liabilities and obligations of the
converted entity in its new organizational form without
impairment or diminution by reason of the conversion;
(iv) all rights of creditors or other parties with respect
to or against the prior interest holders or other owners of the
Partnership in their capacities as such in existence as of the
effective time of the conversion will continue in existence as
to those liabilities and obligations and may be pursued by such
creditors and obligees as if the conversion did not occur;
(v) a proceeding pending by or against the Partnership or
by or against any of Partners in their capacities as such may be
continued by or against the converted entity in its new
organizational form and by or against the prior partners without
any need for substitution of parties; and
(vi) the Partnership Units that are to be converted into
partnership interests, shares, evidences of ownership, or other
securities in the converted entity as provided in the Plan of
Conversion shall be so converted, and Partners shall be entitled
only to the rights provided in the Plan of Conversion.
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 from and after the IPO Closing Date the General
Partner and its Affiliates hold more than 80% of the total
Limited Partner Interests of any class then Outstanding, 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 at its option,
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.
(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 or classes (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
Manhattan, New York. The Notice of
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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. 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
Article IV, Article V, Article VI, and
Article 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 any
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 Article IV, Article V, Article VI and
Article 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 any
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; Written Communications.
(a) Any notice, demand, request, report or proxy materials
required or permitted to be given or made to a Partner 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 at the address described below. Any
notice, payment or report to be given or made to a Partner
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 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
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address) if they are available for the Partner 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. 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 or other Person if
believed by it to be genuine.
(b) The terms in writing, written
communications, written notice and words of
similar import shall be deemed satisfied under this Agreement by
use of
e-mail
and
other forms of electronic communication.
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
Third-Party
Beneficiaries.
Each Partner agrees that any Indemnitee shall be entitled to
assert rights and remedies hereunder as a third-party
beneficiary hereto with respect to those provisions of this
Agreement affording a right, benefit or privilege to such
Indemnitee.
Section 16.8
Counterparts.
This Agreement may be executed in counterparts, all of which
together shall constitute a single 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 (a) immediately upon
fixing its signature hereto, (b) in the case of the General
Partner and the holders of Limited Partner Interests outstanding
immediately prior to the closing of the Initial Public Offering,
immediately upon the closing of the Initial Public Offering,
without the execution hereof, or (c) in the case of a
Person acquiring Limited Partner Interests pursuant to
Section 10.1(b), immediately upon the acquisition of such
Limited Partner Interests, without execution hereof.
Section 16.9
Applicable
Law; Forum, Venue and Jurisdiction.
(a) 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.
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(b) To the fullest extent permitted by law, each of the
Partners and each Person holding any beneficial interest in the
Partnership (whether through a broker, dealer, bank, trust
company or clearing corporation or an agent of any of the
foregoing or otherwise):
(i) irrevocably agrees that any claims, suits, actions or
proceedings (A) arising out of or relating in any way to
this Agreement (including any claims, suits or actions to
interpret, apply or enforce the provisions of this Agreement or
the duties, obligations or liabilities among Partners or of
Partners to the Partnership, or the rights or powers of, or
restrictions on, the Partners or the Partnership),
(B) brought in a derivative manner on behalf of the
Partnership, (C) asserting a claim of breach of a fiduciary
duty owed by any director, officer, or other employee of the
Partnership or the General Partner, or owed by the General
Partner, to the Partnership or the Partners, (D) asserting
a claim arising pursuant to any provision of the Delaware Act or
(E) asserting a claim governed by the internal affairs
doctrine shall be exclusively brought in the Court of Chancery
of the State of Delaware, in each case regardless of whether
such claims, suits, actions or proceedings sound in contract,
tort, fraud or otherwise, are based on common law, statutory,
equitable, legal or other grounds, or are derivative or direct
claims;
(ii) irrevocably submits to the exclusive jurisdiction of
the Court of Chancery of the State of Delaware in connection
with any such claim, suit, action or proceeding;
(iii) agrees not to, and waives any right to, assert in any
such claim, suit, action or proceeding that (A) it is not
personally subject to the jurisdiction of the Court of Chancery
of the State of Delaware or of any other court to which
proceedings in the Court of Chancery of the State of Delaware
may be appealed, (B) such claim, suit, action or proceeding
is brought in an inconvenient forum, or (C) the venue of
such claim, suit, action or proceeding is improper;
(iv) expressly waives any requirement for the posting of a
bond by a party bringing such claim, suit, action or
proceeding; and
(v) consents to process being served in any such claim,
suit, action or proceeding by mailing, certified mail, return
receipt requested, a copy thereof to such party at the address
in effect for notices hereunder, and agrees that such services
shall constitute good and sufficient service of process and
notice thereof; provided, nothing in clause (v) hereof
shall affect or limit any right to serve process in any other
manner permitted by law.
Section 16.10
Invalidity
of Provisions.
If any provision of this Agreement is or becomes invalid,
illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein
shall not be affected thereby.
Section 16.11
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 (including any Amendment of this Agreement), 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 (including any Amendment of this Agreement).
Section 16.12
Facsimile
Signatures.
The use of facsimile signatures affixed in the name and on
behalf of the transfer agent and registrar of the Partnership on
Certificates evidencing ownership of Partnership Securities is
expressly permitted by this Agreement.
Section 16.13
Provisions
Regarding Effective Time.
This Agreement is to become effective upon the closing of the
Initial Public Offering, and accordingly in connection therewith
the following shall apply:
(a) This Agreement shall from and after its approval by the
Partners in accordance with the Second A/R Partnership Agreement
be an agreement binding upon and enforceable by the Partners
subject to the
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application of the provisions hereof generally being effective
upon the closing of the Initial Public Offering.
(b) The affairs of the Partnership shall continue to be
governed by the terms of the Second A/R Partnership Agreement
until the closing of the Initial Public Offering.
(c) In the event that the closing of the Initial Public
Offering does not occur on or before December 31, 2010,
this Agreement shall be null and void and of no force and effect
and the Second A/R Partnership Agreement shall continue in full
force and effect.
ARTICLE XVII
CERTAIN
TRANSACTIONS IN CONNECTION WITH THE INITIAL PUBLIC OFFERING
Section 17.1
Non-Pro
Rata Redemption of Common Units.
The General Partner is authorized to use the proceeds from any
exercise by the Underwriters of the Over-Allotment Option in the
Initial Public Offering to redeem from the Initial Limited
Partners, but not from other Partners, that number of Common
Units that corresponds to the number of Common Units issued to
the Underwriters upon such exercise at a price per Common Unit
equal to the price per Common Unit received by the Partnership
for the Common Units issued to the Underwriters upon such
exercise.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF
, the General Partner has executed this
Agreement as of the date first written above.
GENERAL PARTNER
OXFORD RESOURCES GP, LLC
Name: Charles C. Ungurean
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Title:
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President and Chief Executive Officer
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[Signature Page Third Amended and Restated
Agreement of Limited Partnership
of Oxford Resource Partners, LP]
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EXHIBIT A
to the
Third Amended and Restated
Agreement of Limited Partnership of
Oxford Resource Partners, LP
Certificate
Evidencing Common Units
Representing Limited Partner Interests in
Oxford Resource Partners, LP
Certificate
No.:[ ] Number of Common
Units:
In accordance with Section 4.1 of the Third Amended and
Restated Agreement of Limited Partnership of Oxford Resource
Partners, LP, as amended, supplemented or restated from time to
time (the Partnership Agreement), Oxford Resource
Partners, LP, a Delaware limited partnership (the
Partnership), hereby certifies
that (the
Holder) is the registered owner of the
above-designated number 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. 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 41 South High
Street, Suite 3450, Columbus, Ohio 43215. Capitalized terms
used herein but not defined herein shall have the meanings given
them in the Partnership Agreement.
THE HOLDER OF THIS SECURITY ACKNOWLEDGES FOR THE BENEFIT OF
OXFORD RESOURCE PARTNERS, LP (THE PARTNERSHIP) THAT
THIS SECURITY MAY NOT BE SOLD, OFFERED, RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED IF SUCH TRANSFER WOULD (A) VIOLATE
THE THEN APPLICABLE FEDERAL OR STATE SECURITIES LAWS OR
RULES AND REGULATIONS OF THE SECURITIES AND EXCHANGE
COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER
GOVERNMENTAL AUTHORITY WITH JURISDICTION OVER SUCH TRANSFER,
(B) TERMINATE THE EXISTENCE OR QUALIFICATION OF THE
PARTNERSHIP UNDER THE LAWS OF THE STATE OF DELAWARE,
(C) CAUSE THE PARTNERSHIP 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) OR (D) VIOLATE THE TERMS AND CONDITIONS
OF THE PARTNERSHIP AGREEMENT. THE GENERAL PARTNER OF THE
PARTNERSHIP MAY IMPOSE ADDITIONAL RESTRICTIONS ON THE TRANSFER
OF THIS SECURITY IF IT RECEIVES AN OPINION OF COUNSEL THAT SUCH
RESTRICTIONS ARE NECESSARY TO AVOID A SIGNIFICANT RISK OF THE
PARTNERSHIP BECOMING TAXABLE AS A CORPORATION OR OTHERWISE
BECOMING TAXABLE AS AN ENTITY FOR FEDERAL INCOME TAX PURPOSES.
THE RESTRICTIONS SET FORTH ABOVE SHALL NOT PRECLUDE THE
SETTLEMENT OF ANY TRANSACTIONS INVOLVING THIS SECURITY ENTERED
INTO THROUGH THE FACILITIES OF ANY NATIONAL SECURITIES EXCHANGE
ON WHICH THIS SECURITY IS LISTED OR ADMITTED TO TRADING.
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 and (iii) made the waivers and given
the consents and approvals contained in the Partnership
Agreement.
AA-1
This Certificate shall not be valid for any purpose unless it
has been countersigned and registered by the Transfer Agent and
Registrar. This Certificate shall be governed by and construed
in accordance with the laws of the State of Delaware.
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Dated:
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Oxford Resource Partners, LP
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Countersigned and Registered by:
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By: Oxford Resources GP, LLC,
its General Partner
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as Transfer Agent and Registrar
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By:
Name:
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By:
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By:
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Authorized Signature
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[Reverse
of Certificate]
ABBREVIATIONS
The following abbreviations, when used in the inscription on the
face of this Certificate, shall be construed as follows
according to applicable laws or regulations:
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TEN COM
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as tenants in common
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UNIF GIFT/TRANSFERS MIN ACT
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TEN ENT
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as tenants by the entireties
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Custodian
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(Cust) (Minor)
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JT TEN
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as joint tenants with right of survivorship and not as tenants
in common
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under Uniform Gifts/Transfers to CD Minors Act (State)
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Additional abbreviations, though not in the above list, may also
be used.
AA-3
ASSIGNMENT
OF COMMON UNITS OF
OXFORD RESOURCE PARTNERS, LP
FOR VALUE RECEIVED,
hereby assigns, conveys, sells and transfers unto
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(Please
print or typewrite name and address of assignee)
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(Please
insert Social Security or other identifying number of assignee)
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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 Oxford Resource Partners, LP
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Date:
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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.
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THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C.
RULE 17Ad-15
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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.
AA-4
APPENDIX B
Glossary of Terms
adjusted operating surplus:
Adjusted operating
surplus, with respect to any period, consists of:
(i) operating surplus generated with respect to that
period; less (ii) any net increase in working capital
borrowings with respect to such period; less (iii) any net
decrease in cash reserves for operating expenditures with
respect to that period not relating to an operating expenditure
made with respect to that period; plus (iv) any net
decrease in working capital borrowings with respect to such
period; plus (v) any net decrease made in subsequent
periods in cash reserves for operating expenditures initially
established with respect to that period to the extent such
decrease results in a reduction in adjusted operating surplus in
subsequent periods; plus (v) any net increase in cash
reserves for operating expenditures with respect to that period
required by any debt instrument for the repayment of principal,
interest or premium.
available cash:
Available cash generally
means, for any quarter, the sum of (i) all cash and cash
equivalents on hand at the end of the quarter; plus,
(ii) if our general partner so determines, all or any
portion of the cash on hand on the date of determination of
available cash for the quarter from working capital borrowings;
and (iii) all cash and cash equivalents on hand on the date
of determination of available cash resulting from cash
distributions received after the end of that quarter from any
equity interest we have in any person (other than a subsidiary),
which distributions are paid by such person in respect of
operations conducted by such person during that quarter; less
the amount of cash reserves established by our general partner
at the date of determination of available cash for the quarter
to (x) provide for the proper conduct of our business
(including reserves for our future capital expenditures and
anticipated future credit needs) subsequent to that quarter;
(y) comply with applicable law, any of our debt instruments
or other agreements; or (z) provide funds for distributions
to our unitholders and to our general partner for any one or
more of the next four quarters.
base-load power plants:
The electrical
generation facilities used to meet some or all of a given
regions continuous energy demand and produce energy at a
constant rate.
Btu:
British thermal unit, or Btu, is the
amount of heat required to raise the temperature of one pound of
water one degree Fahrenheit.
capital account:
The capital account
maintained for a partner under the partnership agreement. The
capital account in respect of a general partner unit, a common
unit, a subordinated unit, an incentive distribution right or
any other partnership interest will be the amount which that
capital account would be if that general partner unit, common
unit, subordinated unit, incentive distribution right or other
partnership interest was the only interest in Oxford Resource
Partners, LP held by a partner.
capital surplus:
All amounts of available cash
distributed by Oxford Resource Partners, LP on any date from any
source will be deemed to be operating surplus until the sum of
all amounts of available cash previously distributed to the
partners equals operating surplus from the closing date of this
offering through the close of the immediately preceding quarter.
Any remaining amounts of available cash distributed on such date
will be deemed capital surplus.
closing price:
For common units, 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, as reported in the principal consolidated
transaction reporting system for securities listed on the
principal national securities exchange on which the common units
are listed. If the common units are not listed 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 New York Stock Exchange or any other
system then in use. If on any day the common units 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 common units
selected by our general partner. If on that day no market maker
is making a market in the common units, the fair value of the
common units on that day as determined by our general partner.
common unit arrearage:
The amount by which the
minimum quarterly distribution for a quarter during the
subordination period exceeds the distribution of available cash
from operating surplus actually made for
B-1
that quarter on a common unit, cumulative for that quarter and
all prior quarters during the subordination period.
compliance coal:
A coal or a blend of coals
that meets sulfur dioxide emission standards for air quality
without the need for flue gas desulfurization.
current market price:
For any class of units
as of any date, the average of the daily closing prices for the
20 consecutive trading days immediately prior to that date.
dozer:
A large, powerful tractor having a
vertical blade at the front end for moving earth, rocks, etc.
GAAP:
Generally accepted accounting principles
in the United States.
highwall:
The unexcavated face of exposed
overburden and coal in a surface mine or in a face or bank on
the uphill side of a contour mine excavation.
incentive distribution right:
A non-voting
limited partner interest initially issued to the general
partner. An incentive distribution right will confer upon its
holder only the rights and obligations specifically provided in
the partnership agreement for incentive distribution rights.
incentive distributions:
The distributions of
available cash from operating surplus made to holders of the
incentive distribution rights.
industrial boilers:
Closed vessels that use a
fuel source to heat water or generate steam for industrial
heating and humidification applications.
interim capital transactions:
The following
transactions: (i) borrowings that are not working capital
borrowings, (ii) sales of equity and debt securities,
(iii) sales or other dispositions of assets outside the
ordinary course of business, (iv) capital contributions
received, (v) corporate reorganizations or restructurings
and (vi) the termination of interest rate hedge contracts
or commodity hedge contracts prior to the termination date
specified therein (provided that cash receipts from any such
termination will be included in operating surplus in equal
quarterly installments over the remaining scheduled life of such
contract).
limestone:
A rock predominantly composed of
the mineral calcite (calcium carbonate
(CaCO
2
)).
MSHA incident rate:
The number of injuries
that occurred for each 200,000
employee-hours
worked.
metallurgical coal:
The various grades of coal
suitable for carbonization to make coke for steel manufacture.
Its quality depends on four important criteria: volatility,
which affects coke yield; the level of impurities including
sulfur and ash, which affects coke quality; composition, which
affects coke strength; and basic characteristics, which affect
coke oven safety. Metallurgical coal typically has a
particularly high Btu but low ash and sulfur content.
operating expenditures:
All of our cash
expenditures (or our proportionate share of expenditures in the
case of subsidiaries that are not wholly owned), including, but
not limited to, taxes, employee and director compensation,
reimbursements of expenses to our general partner, repayments of
working capital borrowings, debt service payments, reclamation
expenses, payments made in the ordinary course of business under
interest rate hedge contracts and commodity hedge contracts,
estimated reserve replacement expenditures and actual
maintenance capital expenditures for all other items, provided
that operating expenditures will not include: repayments of
working capital borrowings, if such working capital borrowings
were outstanding for twelve months, not repaid, but deemed
repaid, thus decreasing operating surplus at such time; payments
(including prepayments and prepayment penalties) of principal of
and premium on indebtedness other than working capital
borrowings; expansion capital expenditures; investment capital
expenditures; actual reserve replacement expenditures; payment
of transaction expenses (including taxes) relating to interim
capital transactions;
non-pro
rata
repurchases of partnership interests made with the proceeds of
an interim capital transaction; any payments made in connection
with this offering that are described under Use of
Proceeds in this prospectus; or distributions to partners.
operating surplus:
The total of
$35.0 million; an amount equal to the amount of accounts
receivable that we distributed to our general partner, C&T
Coal, AIM Oxford and the participants in our LTIP that hold our
common units, immediately prior to the closing of this offering;
plus all of our cash receipts after the closing of this
offering, excluding cash from interim capital transactions; plus
working capital borrowings
B-2
made after the end of a quarter but on or before the date of
determination of operating surplus for the quarter; cash
distributions paid on equity issued (including incremental
distributions on incentive distribution rights) to finance all
or a portion of expansion capital expenditures in respect of the
period from such financing until the earlier to occur of the
date the capital asset commences commercial service and the date
that it is abandoned or disposed of; plus cash distributions
paid on equity issued by us (including incremental distributions
on incentive distribution rights) to pay the interest on debt
incurred, or to pay distributions on equity issued, to finance
the expansion capital expenditures referred to above, in each
case in respect of the period from such financing until the
earlier to occur of the date the capital asset commences
commercial service and the date that it is abandoned or disposed
of; less all of our operating expenditures after the closing of
this offering; less the amount of cash reserves established by
our general partner prior to the date of determination of
available cash to provide funds for future operating
expenditures; less all working capital borrowings not repaid
within 12 months after having been incurred; and less any
cash loss realized on disposition of an investment capital
expenditure.
probable (indicated) reserves:
Reserves for
which quantity and grade
and/or
quality are computed from information similar to that used for
proven (measured) reserves, but the sites for inspection,
sampling, and measurement are farther apart or are otherwise
less adequately spaced. The degree of assurance, although lower
than that for proven (measured) reserves, is high enough to
assume continuity between points of observation.
proven (measured) reserves:
Reserves for which
(i) quantity is computed from dimensions revealed in
outcrops, trenches, workings or drill holes; (ii) grade
and/or
quality are computed from the results of detailed sampling; and
(iii) the sites for inspection, sampling and measurement
are spaced so closely and the geologic character is so well
defined that size, shape, depth and mineral content of reserves
are well-established.
reclamation:
The restoration of mined land to
original contour, use or condition.
reserve:
That part of a mineral deposit that
could be economically and legally extracted or produced at the
time of the reserve determination.
scrubbed power plant:
A power plant that uses
scrubbers to clean the gases that pass through its smokestacks.
scrubbers:
Air pollution control devices that
can be used to remove some particulates and chemical compounds
from industrial exhaust streams.
selective catalytic reduction, or SCR,
device:
A means of converting nitrogen oxides,
also referred to as NOx, with the aid of a catalyst into
diatomic nitrogen, N2, and water, H2O.
spoil-piles:
Earth and rock removed from a
coal deposit and temporarily stored during excavation.
steam coal:
Coal used by power plants and
industrial steam boilers to produce electricity, steam or both.
subordination period:
The subordination period
will begin upon the date of this offering and will extend until
the first business day of any quarter beginning after
September 30, 2013, that each of the following tests are
met: (i) distributions of available cash from operating
surplus on each of the outstanding common units, subordinated
units and general partner units equaled or exceeded the minimum
quarterly distribution for each of the three consecutive,
non-overlapping four-quarter periods immediately preceding that
date; (ii) the adjusted operating surplus
generated during each of the three consecutive, non-overlapping
four-quarter periods immediately preceding that date equaled or
exceeded the sum of the minimum quarterly distributions on all
of the outstanding common units, subordinated units and general
partner units during those periods on a fully diluted basis; and
(iii) there are no arrearages in payment of the minimum
quarterly distribution on the common units. Notwithstanding the
foregoing, the subordination period shall terminate and all of
the subordinated units will convert into common units on a
one-for-one
basis on the first business day following any quarter ending on
or after September 30, 2011 in respect of which each of the
following occurs: (i) distributions of available cash from
operating surplus on each of the outstanding common units,
subordinated units and general partner units equaled or exceeded
150% of the minimum quarterly distribution for each calendar
quarter in the immediately preceding four-quarter period;
(ii) the adjusted operating surplus generated
during each calendar quarter in the immediately preceding
four-quarter period equaled or exceeded 150% of the minimum
quarterly distribution on each of the outstanding common units,
subordinated
B-3
units and general partner units during that period on a fully
diluted basis; and (iii) there are no arrearages in payment
of the minimum quarterly distributions on the common units.
tipple:
A structure where coal is cleaned and
loaded in railroad cars or trucks.
total maximum daily load:
A calculation of the
maximum amount of a pollutant that a body of water can receive
per day and still safely meet water quality standards.
units:
Refers to both common units and
subordinated units.
working capital borrowings:
are generally
borrowings that are made after the closings of the transactions
described under Summary The Transactions
under a credit facility, commercial paper facility or similar
financing arrangement that are used solely to pay distributions
to partners; provided that when such borrowings are incurred it
is the intent of the borrower to repay such borrowings within
12 months from the date of such borrowings other than from
working capital borrowings.
B-4
Oxford
Resource Partners, LP
8,750,000 Common
Units
Representing
Limited Partner Interests
Prospectus
,
2010
Barclays
Capital
Citi
Until ,
2010 (25 days after the date of this prospectus), all
dealers that buy, sell or trade our 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.
PART II
INFORMATION
NOT REQUIRED IN THE PROSPECTUS
|
|
Item 13.
|
Other
Expenses of Issuance and Distribution.
|
Set forth below are the expenses (other than the underwriting
discount) expected to be incurred in connection with the
issuance and distribution of the securities registered hereby.
With the exception of the SEC registration fee, the FINRA filing
fee and the NYSE listing fee, the amounts set forth below are
estimates.
|
|
|
|
|
SEC registration fee
|
|
$
|
17,825
|
|
FINRA filing fee
|
|
|
25,500
|
|
NYSE listing fee
|
|
|
125,000
|
|
Printing and engraving expenses
|
|
|
600,000
|
|
Fees and expenses of legal counsel
|
|
|
3,224,646
|
|
Accounting fees and expenses
|
|
|
1,084,034
|
|
Transfer agent fees
|
|
|
4,000
|
|
Miscellaneous
|
|
|
192,775
|
|
|
|
|
|
|
Total
|
|
$
|
5,273,780
|
|
|
|
|
|
|
|
|
|
*
|
|
To be provided by amendment.
|
|
|
Item 14.
|
Indemnification
of Directors and Officers.
|
The section of the prospectus entitled The Partnership
Agreement Indemnification discloses that we
will generally indemnify officers, directors and affiliates of
our general partner to the fullest extent permitted by the law
against all losses, claims, damages or similar events and is
incorporated herein by this reference. Reference is also made to
the underwriting agreement to be filed as an exhibit to this
registration statement, which provides for the indemnification
of Oxford Resource Partners, LP and our general partner, their
officers and directors, and any person who controls Oxford
Resource Partners, LP and our general partner, including
indemnification for liabilities under the Securities Act.
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. As of the consummation of this offering, the
general partner of the registrant will maintain directors and
officers liability insurance for the benefit of its directors
and officers.
|
|
Item 15.
|
Recent
Sales of Unregistered Securities.
|
On August 27, 2007, in connection with the formation of the
partnership, we received (1) a contribution of
approximately $35.7 million in cash from AIM Oxford in
exchange for the issuance of 3,185,000 Class B common units
to AIM Oxford, (2) a contribution of approximately
$19.2 million in equity in Oxford Mining Company from
C&T Coal in exchange for cash and the issuance of 1,715,000
Class B common units to C&T Coal and (3) a
contribution of approximately $1.1 million in cash from
Oxford Resources GP, LLC in exchange for the issuance to Oxford
Resources GP, LLC of 100,000 general partner units and the
incentive distribution rights, which rights will become
effective upon an initial public offering. These transactions
were exempt from registration under Section 4(2) of the
Securities Act of 1933. The number of units set forth above
reflect a 5,000 to 1 unit split that was authorized by our
general partner on October 23, 2007.
On March 27, 2008, we entered into a contribution agreement
with Oxford Resources GP, LLC and AIM Oxford. Pursuant to this
contribution agreement, we received a contribution of
approximately $8.8 million from AIM Oxford as consideration
for the issuance to AIM Oxford of 787,500 Class B common
units. We also received a contribution of approximately $180,000
from Oxford Resources GP, LLC as consideration for
II-1
the issuance to Oxford Resources GP, LLC of approximately 16,071
general partner units. These transactions were exempt from
registration under Section 4(2) of the Securities Act of
1933.
On September 26, 2008, we entered into a contribution
agreement with Oxford Resources GP, LLC, C&T Coal and AIM
Oxford. Pursuant to this contribution agreement, we received a
contribution of approximately $686,000 from C&T Coal and a
contribution of $1.3 million from AIM Oxford as
consideration for the issuance to C&T Coal and AIM Oxford
of 61,250 Class B common units and 113,750 Class B
common units, respectively. We also received a contribution of
approximately $40,000 from Oxford Resources GP, LLC as
consideration for the issuance to Oxford Resources GP, LLC of
approximately 3,571 general partner units. These transactions
were exempt from registration under Section 4(2) of the
Securities Act of 1933.
On August 28, 2009, we entered into a contribution
agreement with C&T Coal and AIM Oxford. Pursuant to this
contribution agreement, we received a contribution of
approximately $1.1 million from C&T Coal and a
contribution of approximately $2.0 million from AIM Oxford
as consideration for the issuance to C&T Coal and AIM
Oxford of 35 deferred participation units and 65 deferred
participation units, respectively. These transactions were
exempt from registration under Section 4(2) of the
Securities Act of 1933.
On September 28, 2009, we entered into a contribution and
conversion agreement with Oxford Resources GP, LLC, C&T
Coal and AIM Oxford. Pursuant to this contribution and
conversion agreement, we received a contribution of
approximately $1.5 million from C&T Coal and a
contribution of approximately $6.9 million from AIM Oxford
as consideration for the issuance to C&T Coal and AIM
Oxford of 84,337 Class B common units and 393,575
Class B common units, respectively. We also received a
contribution of approximately $231,224 from Oxford Resources GP,
LLC as consideration for the issuance to Oxford Resources GP,
LLC of approximately 13,266 general partner units. In connection
with the execution of this contribution and conversion
agreement, C&T Coal and AIM Oxford elected to convert their
deferred participation units into approximately 60,241
Class B common units and approximately 111,876 Class B
common units, respectively. These transactions were exempt from
registration under Section 4(2) of the Securities Act of
1933.
Since our formation in August 2007, we have issued 91,996
Class A common units to our employees upon the vesting of
phantom units granted under our Long-Term Incentive Plan. These
transactions were exempt from registration under
Section 4(2) of the Securities Act of 1933 or Rule 701
pursuant to compensatory benefit plans and contracts related to
compensation.
Oxford Resources GP, LLC, our general partner, has the right to
contribute a proportionate amount of capital to us to maintain
its 2.0% interest if we issue additional units. Pursuant to the
exercise of this right, on March 22 and 31, 2010, we received
contributions of approximately $22,346 and $2,379, respectively,
from Oxford Resources GP, LLC as consideration for the issuance
to Oxford Resources GP, LLC of approximately 1,282 and 137
general partner units, respectively. These transactions were
exempt from registration under Section 4(2) of the
Securities Act of 1933. In connection with this offering, our
general partner will contribute common units to us in order to
maintain its 2.0% general partner interest. Please read
Summary The Transactions.
|
|
Item 16.
|
Exhibits
and Financial Statement Schedules.
|
|
|
|
|
(a)
|
The following documents are filed as exhibits to this
registration statement:
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
|
|
Description
|
|
|
1
|
.1**
|
|
|
|
Form of Underwriting Agreement
|
|
3
|
.1*
|
|
|
|
Certificate of Limited Partnership of Oxford Resource Partners,
LP
|
|
3
|
.2
|
|
|
|
Form of Third Amended and Restated Agreement of Limited
Partnership of Oxford Resource Partners, LP (included as
Appendix A to the Prospectus)
|
|
3
|
.3*
|
|
|
|
Certificate of Formation of Oxford Resources GP, LLC
|
|
3
|
.4
|
|
|
|
Form of Second Amended and Restated Limited Liability Company
Agreement of Oxford Resources GP, LLC
|
|
5
|
.1**
|
|
|
|
Opinion of Latham & Watkins LLP as to the legality of the
securities being registered
|
II-2
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
|
|
Description
|
|
|
8
|
.1**
|
|
|
|
Opinion of Latham & Watkins LLP relating to tax matters
|
|
10
|
.1**
|
|
|
|
Form of Credit Agreement
|
|
10
|
.2
|
|
|
|
Investors Rights Agreement, dated August 24, 2007, by and
among Oxford Resource Partners, LP, Oxford Resources GP, LLC,
AIM Oxford Holdings, LLC, C&T Coal, Inc., Charles C.
Ungurean and Thomas T. Ungurean
|
|
10
|
.3#
|
|
|
|
Form of Employment Agreement between Oxford Resources GP, LLC
and Michael B. Gardner
|
|
10
|
.4#
|
|
|
|
Form of Employment Agreement between Oxford Resources GP, LLC
and Jeffrey M. Gutman
|
|
10
|
.5#
|
|
|
|
Form of Employment Agreement between Oxford Resources GP, LLC
and Gregory J. Honish
|
|
10
|
.6#
|
|
|
|
Form of Employment Agreement between Oxford Resources GP, LLC
and Charles C. Ungurean
|
|
10
|
.7#
|
|
|
|
Form of Employment Agreement between Oxford Resources GP, LLC
and Thomas T. Ungurean
|
|
10
|
.8*#
|
|
|
|
Employee Unitholder Agreement among Oxford Resource Partners,
LP, Oxford Resources GP, LLC and Michael B. Gardner
|
|
10
|
.9*#
|
|
|
|
Employee Unitholder Agreement among Oxford Resource Partners,
LP, Oxford Resources GP, LLC and Jeffrey M. Gutman
|
|
10
|
.10*#
|
|
|
|
Employee Unitholder Agreement among Oxford Resource Partners,
LP, Oxford Resources GP, LLC and Gregory J. Honish
|
|
10
|
.11*#
|
|
|
|
Employee Unitholder Agreement among Oxford Resource Partners,
LP, Oxford Resources GP, LLC and Denise M. Maksimoski
|
|
10
|
.12#
|
|
|
|
Form of Oxford Resource Partners, LP Long-Term Incentive Plan,
as amended
|
|
10
|
.13A#
|
|
|
|
Form of Long-Term Incentive Plan Grant Agreement
|
|
10
|
.13B#
|
|
|
|
Form of Long-Term Incentive Plan Grant Agreement between Oxford
Resources GP, LLC and Jeffrey M. Gutman
|
|
10
|
.14#
|
|
|
|
Form of Non-Employee Director Compensation Plan
|
|
10
|
.15A#
|
|
|
|
Form of Non-Employee Director Compensation Plan Grant Agreement
|
|
10
|
.15B*#
|
|
|
|
Director Unitholder Agreement, dated December 1, 2009, by and
among Oxford Resource Partners, LP, Oxford Resources GP, LLC and
Gerald A. Tywoniuk
|
|
10
|
.16*
|
|
|
|
Acquisition Agreement, dated August 14, 2009, by and among
Oxford Mining Company, LLC, Phoenix Coal Inc., Phoenix Coal
Corporation and Phoenix Newco, LLC
|
|
10
|
.17A*
|
|
|
|
Coal Purchase and Sale Agreement No. 10-62-04-900, dated May 21,
2004, by and between Oxford Mining Company, Inc. and American
Electric Power Service Corporation, agent for Columbus Southern
Power Company
|
|
10
|
.17B*
|
|
|
|
Amendment No. 2004-1 to Coal Purchase and Sale Agreement, dated
October 25, 2004
|
|
10
|
.17C*
|
|
|
|
Amendment No. 2005-1 to Coal Purchase and Sale Agreement, dated
April 8, 2005
|
|
10
|
.17D*
|
|
|
|
Amendment No. 2006-3 to Coal Purchase and Sale Agreement, dated
December 5, 2006
|
|
10
|
.17E*
|
|
|
|
Letter Agreement, dated December 5, 2006, by and between Oxford
Mining Company, Inc. and American Electric Power Service
Corporation
|
|
10
|
.17F*
|
|
|
|
Amendment No. 2008-6 to Coal Purchase and Sale Agreement, dated
December 29, 2008
|
|
10
|
.17G*
|
|
|
|
Amendment No. 2009-1 to Coal Purchase and Sale Agreement, dated
May 21, 2009
|
|
10
|
.17H*
|
|
|
|
Amendment No. 2009-3 to Coal Purchase and Sale Agreement, dated
December 15, 2009
|
|
10
|
.17I*
|
|
|
|
Amendment No. 2010-1 to Coal Purchase and Sale Agreement, dated
January 11, 2010
|
|
10
|
.17J*
|
|
|
|
Amendment No. 2010-2 to Coal Purchase and Sale Agreement, dated
February 4, 2010
|
|
10
|
.17K
|
|
|
|
Amendment No. 2010-3 to Coal Purchase and Sale Agreement, dated
April 16, 2010
|
|
10
|
.18
|
|
|
|
Non-Compete Agreement by and among Oxford Resource Partners, LP,
C&T Coal, Inc., Charles C. Ungurean, Thomas T. Ungurean and
Oxford Resources GP, LLC
|
|
10
|
.19*
|
|
|
|
Administrative and Operational Services Agreement, dated August
24, 2007, by and among Oxford Resource Partners, LP, Oxford
Mining Company, LLC and Oxford Resources GP, LLC
|
|
21
|
.1*
|
|
|
|
List of Subsidiaries of Oxford Resource Partners, LP
|
II-3
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
|
|
Description
|
|
|
23
|
.1
|
|
|
|
Consent of Grant Thornton LLP
|
|
23
|
.2
|
|
|
|
Consent of Ernst & Young LLP
|
|
23
|
.3
|
|
|
|
Consent of John T. Boyd Company
|
|
23
|
.4**
|
|
|
|
Consent of Latham & Watkins LLP (contained in Exhibit 5.1)
|
|
23
|
.5**
|
|
|
|
Consent of Latham & Watkins LLP (contained in Exhibit 8.1)
|
|
24
|
.1*
|
|
|
|
Powers of Attorney (included on the signature page to the
initial filing of this Registration Statement on March 24,
2010)
|
|
24
|
.2
|
|
|
|
Power of Attorney for Peter B. Lilly (included on the signature
page)
|
|
|
|
*
|
|
Previously filed.
|
|
**
|
|
To be filed by amendment.
|
|
#
|
|
Compensatory plan or arrangement.
|
|
|
|
Certain portions have been omitted pursuant to a confidential
treatment request. Omitted information has been filed separately
with the Securities and Exchange Commission.
|
|
|
|
|
(b)
|
Financial Statements Schedules.
|
The undersigned registrant hereby undertakes to provide to the
underwriters 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 of 1933 may be permitted to directors,
officers and persons controlling the registrant pursuant to the
foregoing provisions, the registrant has been informed that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director,
officer or controlling person of 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 of whether or not such
indemnification by it is against public policy as expressed in
the Securities Act of 1933 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 of 1933, 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 of 1933 shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, 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-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 3 to the
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Columbus,
State of Ohio, on June 8, 2010.
OXFORD RESOURCE PARTNERS, LP
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By:
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Oxford
Resources GP, LLC, its General Partner
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By:
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/s/ Jeffrey
M. Gutman
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Jeffrey M. Gutman
Senior Vice President,
Chief Financial Officer and Treasurer
Peter B. Lilly, whose signature appears below, appoints Michael
B. Gardner and Jeffrey M. Gutman, and each of them, either of
whom may act without the joinder of the other, as his true and
lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this
Registration Statement and any Registration Statement (including
any amendment thereto) for this offering that is to be effective
upon filing pursuant to Rule 462(b) under the Securities
Act of 1933 and to file the same, with all exhibits thereto, and
all other documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact
and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully
to all intents and purposes as he might or would do in person,
hereby ratifying and confirming all that said attorney-in-fact
and agents or either of them or their or his substitute and
substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following
persons in their indicated capacities, which are with the
general partner of the registrant, on June 8, 2010.
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Signature
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Title
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*
George
E. McCown
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Chairman of the Board
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*
Charles
C. Ungurean
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Director, President and Chief Executive Officer
(principal executive officer)
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/s/ Jeffrey
M. Gutman
Jeffrey
M. Gutman
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Senior Vice President, Chief Financial Officer and Treasurer
(principal financial officer)
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*
Denise
M. Maksimoski
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Senior Director of Accounting
(principal accounting officer)
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*
Brian
D. Barlow
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Director
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*
Matthew
P. Carbone
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Director
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II-5
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Signature
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Title
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*
Gerald
A. Tywoniuk
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Director
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/s/ Peter
B. Lilly
Peter
B. Lilly
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Director
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*By:
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/s/ Jeffrey
M. Gutman
Jeffrey
M. Gutman
Attorney-in-fact
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II-6
EXHIBIT INDEX
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Exhibit
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Number
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Description
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1
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.1**
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Form of Underwriting Agreement
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3
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.1*
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Certificate of Limited Partnership of Oxford Resource Partners,
LP
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3
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.2
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Form of Third Amended and Restated Agreement of Limited
Partnership of Oxford Resource Partners, LP (included as
Appendix A
to the Prospectus)
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3
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.3*
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Certificate of Formation of Oxford Resources GP, LLC
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3
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.4
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Form of Second Amended and Restated Limited Liability Company
Agreement of Oxford Resources GP, LLC
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5
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.1**
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Opinion of Latham & Watkins LLP as to the legality of the
securities being registered
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8
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.1**
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Opinion of Latham & Watkins LLP relating to tax matters
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10
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.1**
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Form of Credit Agreement
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10
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.2
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Investors Rights Agreement, dated August 24, 2007, by and
among Oxford Resource Partners, LP, Oxford Resources GP, LLC,
AIM Oxford Holdings, LLC, C&T Coal, Inc., Charles C.
Ungurean and Thomas T. Ungurean
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10
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.3#
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Form of Employment Agreement between Oxford Resources GP, LLC
and Michael B. Gardner
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10
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.4#
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Form of Employment Agreement between Oxford Resources GP, LLC
and Jeffrey M. Gutman
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10
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.5#
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Form of Employment Agreement between Oxford Resources GP, LLC
and Gregory J. Honish
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10
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.6#
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Form of Employment Agreement between Oxford Resources GP, LLC
and Charles C. Ungurean
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10
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.7#
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Form of Employment Agreement between Oxford Resources GP, LLC
and Thomas T. Ungurean
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10
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.8*#
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Employee Unitholder Agreement among Oxford Resource Partners,
LP, Oxford Resources GP, LLC and Michael B. Gardner
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10
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.9*#
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Employee Unitholder Agreement among Oxford Resource Partners,
LP, Oxford Resources GP, LLC and Jeffrey M. Gutman
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10
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.10*#
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Employee Unitholder Agreement among Oxford Resource Partners,
LP, Oxford Resources GP, LLC and Gregory J. Honish
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10
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.11*#
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Employee Unitholder Agreement among Oxford Resource Partners,
LP, Oxford Resources GP, LLC and Denise M. Maksimoski
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10
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.12#
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Form of Oxford Resource Partners, LP Amended and Restated
Long-Term Incentive Plan
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10
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.13A#
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Form of Long-Term Incentive Plan Grant Agreement
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10
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.13B#
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Form of Long-Term Incentive Plan Grant Agreement between Oxford
Resources GP, LLC and Jeffrey M. Gutman
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10
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.14#
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Form of Non-Employee Director Compensation Plan
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10
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.15A#
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Form of Non-Employee Director Compensation Plan Grant Agreement
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10
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.15B*#
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Director Unitholder Agreement, dated December 1, 2009, by and
among Oxford Resource Partners, LP, Oxford Resources GP, LLC and
Gerald A. Tywoniuk
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10
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.16*
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Acquisition Agreement, dated August 14, 2009, by and among
Oxford Mining Company, LLC, Phoenix Coal Inc., Phoenix Coal
Corporation and Phoenix Newco, LLC
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10
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.17A*
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Coal Purchase and Sale Agreement No. 10-62-04-900, dated May 21,
2004, by and between Oxford Mining Company, Inc. and American
Electric Power Service Corporation, agent for Columbus Southern
Power Company
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10
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.17B*
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Amendment No. 2004-1 to Coal Purchase and Sale Agreement, dated
October 25, 2004
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10
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.17C*
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Amendment No. 2005-1 to Coal Purchase and Sale Agreement, dated
April 8, 2005
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10
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.17D*
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Amendment No. 2006-3 to Coal Purchase and Sale Agreement, dated
December 5, 2006
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10
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.17E*
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Letter Agreement, dated December 5, 2006, by and between Oxford
Mining Company, Inc. and American Electric Power Service
Corporation
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10
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.17F*
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Amendment No. 2008-6 to Coal Purchase and Sale Agreement, dated
December 29, 2008
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II-7
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Exhibit
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Number
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Description
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10
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.17G*
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Amendment No. 2009-1 to Coal Purchase and Sale Agreement, dated
May 21, 2009
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10
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.17H*
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Amendment No. 2009-3 to Coal Purchase and Sale Agreement, dated
December 15, 2009
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10
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.17I*
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Amendment No. 2010-1 to Coal Purchase and Sale Agreement, dated
January 11, 2010
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10
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.17J*
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Amendment No. 2010-2 to Coal Purchase and Sale Agreement, dated
February 4, 2010
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10
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.17K
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Amendment No. 2010-3 to Coal Purchase and Sale Agreement, dated
April 16, 2010
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10
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.18
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Non-Compete Agreement by and among Oxford Resource Partners, LP,
C&T Coal, Inc., Charles C. Ungurean, Thomas T. Ungurean and
Oxford Resources GP, LLC
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10
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.19*
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Administrative and Operational Services Agreement, dated August
24, 2007, by and among Oxford Resource Partners, LP, Oxford
Mining Company, LLC and Oxford Resources GP, LLC
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21
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.1*
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List of Subsidiaries of Oxford Resource Partners, LP
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23
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.1
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Consent of Grant Thornton LLP
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23
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.2
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Consent of Ernst & Young LLP
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23
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.3
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Consent of John T. Boyd Company
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23
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.4**
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Consent of Latham & Watkins LLP (contained in Exhibit 5.1)
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23
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.5**
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Consent of Latham & Watkins LLP (contained in Exhibit 8.1)
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24
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.1*
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Powers of Attorney (included on the signature page to the
initial filing of this Registration Statement on March 24,
2010)
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24
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.2
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Power of Attorney for Peter B. Lilly (included on the signature
page)
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*
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Previously filed.
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**
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To be filed by amendment.
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#
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Compensatory plan or arrangement.
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Certain portions have been omitted pursuant to a confidential
treatment request. Omitted information has been filed separately
with the Securities and Exchange Commission.
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II-8