EXHIBIT 3.66
LIMITED PARTNERSHIP AGREEMENT
OF
PATRIOT COAL COMPANY, L.P.
Amended and Restated
as of May 19, 1995
INDEX
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ARTICLE I ORGANIZATION, NAME AND PURPOSES............................ 2
ARTICLE II EFFECTIVE DATE AND TERM.................................... 4
ARTICLE III FINANCIAL RESPONSIBILITIES................................. 4
ARTICLE IV VENTURE MANAGEMENT......................................... 9
ARTICLE V ACCOUNTING AND FISCAL PROCEDURES........................... 14
ARTICLE VI PARTNERSHIP DISTRIBUTIONS ELECTIONS AND.................... 15
ARTICLE VII TERMINATION................................................ 29
ARTICLE VIII REPRESENTATIONS AND WARRANTIES............................. 31
ARTICLE IX GENERAL.................................................... 36
LIMITED PARTNERSHIP AGREEMENT
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OF
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PATRIOT COAL COMPANY, L.P.
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This Limited Partnership Agreement ("Agreement"), amended and restated as
of the 19 day of May, 1995, by and between BLUEGRASS COAL COMPANY ("Bluegrass"),
a Delaware corporation and qualified to do business in Kentucky and SENTRY
MINING COMPANY (~Sentry"), a Delaware corporation and qualified to do business
in Kentucky, the parties sometimes hereinafter being referred to collectively as
the "Venturers", and the joint venture shall be referred to as the "Venture";
WITNESSETH:
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein made, Bluegrass and Sentry hereby agree as follows:
ARTICLE I
ORGANIZATION, NAME AND PURPOSES
Sec. 1.1 Organization.
(a) The Venturers hereby adopt this Agreement as the Articles of Venture
of the Venture and hereby agree that the Venture shall be continued for the
limited purposes and scope set forth herein.
(b) Except to the extent otherwise provided herein, the rights and
liabilities of the Venturers and the conduct and termination of the Venture
shall continue to be governed by the
Delaware Revised Uniform Limited Partnership Act (Delaware Revised Statute
(S)17-101 et seq.).
(c) The Venturers will promptly execute all certificates and other
documents, and make all such filings and recordings and perform such other acts
as may now or hereafter be necessary or desirable, to comply with the
requirements of Delaware law for the carrying on of the business of the Venture.
(d) Sentry shall be the general partner in the Venture and Sentry's
ownership interest in the Venture shall be 51% and Bluegrass shall be a limited
partner in the Venture and Bluegrass' ownership interest in the Venture shall be
49%.
(e) All real and other property including permits and licenses owned by or
granted to or held by the Venture shall continue to be deemed to be owned by or
granted to or held by the Venture as an entity, and no Venturer, individually,
shall have any ownership of, or right to use, any such property, except as
provided in this Agreement.
Section 1.2 Name. The name of the Venture shall be Patriot Coal Company,
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L.P. ("Patriot").
Section 1.3 Purposes. The purposes of the Venture are:
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(a) To acquire, develop and conduct coal mining operations at the Patriot
Mine, ▇▇▇▇▇▇▇▇▇ County, Kentucky (the "Patriot Mine") or such other operations
as the Management Committee may elect;
(b) To sell to such customers and markets as can be found all economically
recoverable coal from the Patriot Mine or other operations;
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(c) To acquire by purchase, lease or otherwise, all of the machinery,
equipment and facilities necessary to develop and conduct such coal mining and
sales operations; and
(d) To carry on such other activities as are necessary or incidental to
the foregoing purposes.
Sec. 1.4 Other Activities. The Venture shall not engage in any other
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business or activity without the written agreement of the Venturers.
ARTICLE II
EFFECTIVE DATE AND TERM
Sec. 2.1 Effective Date and Term. This Agreement shall be effective as of
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the satisfactory completion of the following conditions precedent (the
"Effective Date") and shall continue in existence until terminated as
hereinafter provided:
(a) Approval of each Venturer's shareholders and directors;
ARTICLE III
FINANCIAL RESPONSIBILITIES
Sec. 3.1 Contributions to the Venture. As and when the Venture determines
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by unanimous consent from time to time that it requires cash, each Venturer
hereby agrees that it shall make cash contributions to the Venture in an amount
equal to such Venturers respective interest in the Venture of each such cash
requirement.
Sec. 3.2 Initial Capital Contributions. The initial capital of the Venture
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shall be $18,367,346. Sentry shall be credited with contributions of $9,367,346
and Bluegrass shall be credited
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with contributions of $9,000,000. Attached hereto and made a part hereof, as
Schedule 3.2, is the listing of assets which have been previously contributed to
the Venture by Sentry's predecessor.
Sec. 3.3 Future Property Acquisitions. It is the intention of the
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Venturers that the Venture shall undertake to acquire for its own account and in
its own name any coal reserves or other interests adjacent to the Patriot Mine
which would be necessary or helpful to the conduct of the Venture's business.
Sec. 3.4 Capital Accounts.
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(a) Initial Balance. Each Venturer will have a capital account (a
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"Capital Account") which shall initially be equal to (a) the initial Carrying
Value (as hereinafter defined) of the assets contributed to the Venture by such
Venturer, plus (b) the amount of any cash so contributed by such Venturer.
(b) Subsequent Adjustments. Each Venturer's Capital Account generally
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shall be maintained and adjusted in accordance with Section 1.704-l(b) of the
Treasury Regulations. There shall be credited to each Venturer's Capital Account
(a) the amount of any cash, and the initial Carrying Value of any assets other
than cash, subsequently contributed by such Venturer to the capital of the
Venture, (b) such Venturer's share of Venture income (as determined in
accordance with Section 6.1), and (c) any items of gross income or gain
allocated to such Venturer pursuant to Section b .4, and there shall be charged
against each Venturer's Capital Account (w) the amount of all cash distributions
to such Venturer, (x) the fair market value of any property distributed to such
Venturer by the Venture (net of any liability secured by such property that the
Venturer is considered to assume or take
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subject to under section 752 of the Internal Revenue Code of 1986, as amended
(the "Code")), (y) such Venturer's share of Venture loss (as determined in
accordance with Section 6.1), and (z) any items of deduction, loss or Section
705 (a)(2)(B) Expenditure (as hereinafter defined) allocated to such Partner
pursuant to Section 6.4.
(c) In-Kind Distributions. If the Venture at any time distributes any of
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its assets to any Venturer in kind, the Capital Accounts of the Venturers shall
be adjusted to account for the Venturer's allocable shares (as determined, in
each case, in accordance with Article 6) of the revenue, expense, income or loss
that would have been realized by the Venture had the distributed assets been
sold for their respective fair market values (taking into account Section
7701(g) of the Code) immediately prior to such distribution.
(d) Section 754 Elections. In the event that the Venture makes an
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election under Section 754 of the Code, the amount of any adjustments to the
basis (or Carrying Values) of the assets of the Venture made pursuant to Section
743 of the Code shall not be reflected in the Capital Accounts of the Venturers,
but the amounts of any adjustments to the bases (or Carrying Values) of the
assets of the Venture made pursuant to Section 734 of the Code as a result of
the distribution of property by the Venture to the Venturer (to the extent that
such adjustments have not previously been reflected in the Venturers' Capital
Accounts) shall (a) be reflected in the Capital Accounts of the Venturer
receiving such distribution in the case of a distribution in liquidation of such
Venturer's interest in the
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Venture and (b) otherwise be reflected in the Capital Accounts of the Venture in
the manner in which the unrealized income and gain that is displaced by such
adjustments would have been shared had the property been sold at its Carrying
Value immediately prior to such adjustments.
(e) Transferee's Capital Accounts. In the event any interest in the
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Venture is transferred in accordance with the terms of this Agreement, the
transferee shall succeed to the Capital Account of the transferor to the extent
related to the transferred interest.
(f) Determinations. Except as otherwise provided in this Agreement,
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whenever it is necessary to determine the Capital Account of any Venturer, the
Capital Account of such Venturer shall be determined after giving effect to all
allocations pursuant to Article 6 with respect to transactions effected, and all
distributions made, prior to the date and time as of which such determination is
to be made.
(g) Negative Balances. No Venturer with a negative balance in its Capital
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Account shall have any obligation to the Venture or any other Venturer to
restore such negative balance.
Sec. 3.5 Venture Assets and Expenses. The Venture shall purchase,
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construct, lease or otherwise acquire all other property and assets required to
carry on the Venture's business and shall pay all of the Venture's expenses.
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ARTICLE IV
VENTURE MANAGEMENT
Sec. 4.1 Venture Organization. The management organization of the Venture
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shall consist of a Management Committee (the "Committee") and a Managing General
Partner.
Sec. 4.2 Management Committee.
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(a) Except as provided in Section 4.3, all action and decisions in
the management of the business of the Venture shall be taken by the
Management Committee. Agreement on behalf of either Venturer pursuant to
this Agreement shall be communicated through the Venturer's representatives
on the Management Committee.
(b) Each Venturer, by notice to the other Venturer, has appointed a
number of representatives to the Management Committee in conjunction with
such Venturer's interest in the Venture, which shall consist of at least
three members. The initial Management Committee shall consist of two
representatives appointed by Sentry and one representative appointed by
Bluegrass. At least one of the representatives of each Venturer shall be an
officer with the authority to act on behalf of the Venturer he represents.
The Management Committee may be increased in size by mutual consent, but
shall always consist of a number of members appointed by each Venturer in
proportion to such Venturer's interest in the Venture. At any time and from
time to time, either Venturer may remove and appoint a replacement for any
of its representatives by notice to the other Venturer. The salaries,
benefits and expenses of Committee members, while
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performing Committee functions, shall be borne by their respective
employers.
(c) Meetings of the Management Committee may be held at such
intervals and at such places as the Committee shall determine, but at least
every calendar quarter.
(d) The following actions shall require in every event the written
consent of each Venturer, executed by an officer thereof duly authorized
"hereunto;
(i) The liquidation or dissolution of the Venture;
(ii) The sale of all or substantially all of the assets of the
Venture;
(iii) Any merger or consolidation of the Venture into or with any
other entity, or any transfer, assignment, or encumbrance of a Venturer's
interest;
(iv) Any amendment, modification, change or variation in or to this
Agreement;
(v) Approval of the annual capital and operating budgets of the
Venture;
(vi) Approval of any coal supply agreement, regardless of term
including modifications of existing agreements. (e) The Management
Committee is authorized to elect an Executive Manager, Deputy Executive
Managers, and a Secretary, all to serve without payment. The Executive
Manager and the Deputy Executive Managers shall be authorized to execute.
on behalf of the Venture, legal instruments of all types, including
applications for permits, contracts and any and all documents and papers of
any type relating thereto. The Secretary shall keep correct minutes of any
and all meetings
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or determinations of the Management Committee and shall be authorized to
provide certified copies of any resolutions of the Venture.
Sec. 4.3 Managing General Partner. (a) Bluegrass shall act as Managing
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General Partner and in that capacity shall have responsibility for the
development, construction and operation of the mines and all related activities
to the Venture, including but not limited to, the following:
(1) Providing or arranging for and supervising all construction and
general engineering services, including any necessary coal reserve
drilling;
(2) Purchasing of all repair parts and supplies;
(3) Providing or arranging for all administration, general
supervision, management and technical services; and
(4) Providing or arranging for financial and accounting services as
described in Articles V and VI herein.
(b) All production and supervisory personnel required for the operations
of coal mines, including maintenance of equipment and facilities, shall be
exclusively employees of shall not be employees of the Venture. It is expressly
agreed between the Venturers that the Venture, or any Venturer, shall not
control the hiring of employees of the third parties and shall not direct the
actions of the workforce. The workforce will be hired and directed by such third
parties exclusively, and the Managing General Partner shall direct and control
any third parties retained for the operations of coal mines. The Executive
Manager shall have the day to day responsibility of administering any
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third party production contracts, but shall, under no circumstances, undertake
responsibility for the hiring of such third party's workforce.
(c) The Venture shall employ, from time to time, employees to assist in
the administration of the Venture ("Administrative Employees"). Decisions
regarding the total number of Administrative Employees of the Venture, shall be
subject to annual budget reviews of the Venture.
ARTICLE V
ACCOUNTING AND FISCAL PROCEDURES
Sec. 5.1 Books and Records. Complete books and records accounting for the
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results of operations of the Venture shall be kept and maintained by the Venture
and each Venturer shall have the right to inspect and examine such books or
records at all reasonable times.
Sec. 5.2 Method of Accounting. The books of account of the Venture shall
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be maintained on the accrual basis and in accordance with generally accepted
accounting principles which, having been adopted, shall not be changed without
unanimous Committee approval. Accounting for financial and tax purposes shall be
in accordance with Article VI hereof, except as determined by unanimous vote of
the Committee.
Sec. 5.3 Fiscal Year. The fiscal year of the Venture for both financial
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and tax reporting purposes shall be from October 1 through September 30.
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Sec. 5.4 Auditors. The independent auditors of the Venture shall be the
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accounting firm of Ernst and Young and shall not be removed without the
unanimous vote of the Venturers.
Sec. 5.5 Borrowing. The Venture shall only borrow money upon the unanimous
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consent of the Venturers.
ARTICLE VI
PARTNERSHIP DISTRIBUTIONS, ELECTIONS AND ALLOCATIONS
Sec. 6.1 Division of Venture Income or Loss. All items of the Venture's
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annual revenue, expense, income or loss, as shown by the certified statement of
income for the year, shall be divided between the parties as follows:
Sentry 51%
Bluegrass 49%
Sec. 6.2 Tax Allocation Provisions.
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(a) Certain Definitions.
1. "Carrying Value" means, with respect to any asset, the
asset's adjusted basis for federal income tax purposes, except as follows:
(i) the initial Carrying Value of any asset contributed to
the Venture shall be such asset's gross fair market value at the
time of such contribution;
(ii) if the Venture elects to adjust the Capital Account
balances of the Venturers to reflect the fair market value of the
Venture's assets in accordance with Treasury Regulation Section
1.704-1(b)(2)(iv)(f), the Carrying Values
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of all Venture assets shall be adjusted to equal their respective
gross fair market values at the time of such election; and
(iii) if the Carrying Value of an asset has been determined
pursuant to clause (i) or (ii) of this Section 6.2(a), and if the
asset's adjusted tax basis for federal income tax purposes
differs from the Carrying Value at such time, such Carrying Value
shall thereafter be adjusted in the same manner as would the
asset's adjusted basis for federal income tax purposes.
2. "Excess Depletion" means percentage depletion with respect to
depletable property which exceeds the adjusted tax basis of such property.
3. "Section 705(a)(2)(B) Expenditure" means any expenditure of
the Venture described in Section 705(a)(2)(B) of the Code and any expenditure
considered to be an expenditure described in Section 705(a)(1)(B) of the Code
pursuant to Treasury Regulations under Section 704(b) of the Code.
(b) In General. For income tax purposes, all items of gross income,
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gain, loss, deduction and Section 705(a)(2)(B) Expenditure for a fiscal year
(other than items allocated pursuant to Section 6.2(c) or Section 6.2(d)) hereof
shall be allocated to the Venturers in the same manner as is the Venture's
income or loss for such year; provided, however, that, if the Carrying Value of
any property of the Venture differs from is adjusted basis for federal income
tax purposes, then items of gain, loss and deduction the amount of which is
affected by such
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adjusted basis (other than items allocated pursuant to Section 6.2(c)) shall be
allocated among the Venturers in a manner that takes account of the variation
between the adjusted basis of the property for tax purposes and its Carrying
Value in the manner provided for under Section 704(c)(1)(A) of the Code and the
Treasury Regulations thereunder.
(c) Excess Depletion. Excess Depletion, if any, for a fiscal year
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shall, pursuant to Treasury Regulation Section 1.704-1(b)(4)(iii), be allocated
in accordance with the allocation of gross income for such year.
(d) Special Allocations. Allocations pursuant to Section 6.4 of
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items of gross income, gain, loss, deduction and Section 705(a)(2)(B)
Expenditure of the Venture shall, except as otherwise required by Treasury
Regulations under Section 704(b) of the Code, consist of a pro rata portion of
each item of gross income, gain, loss, deduction, and Section 705(a)(2)(B)
Expenditure of the Venture, as appropriate, for such fiscal year.
Sec. 6.3 Other Tax Matters.
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(a) Designation of Tax Matters Partner.
1. Sentry shall be the tax matters partner (the "TMP") of the
Venture within the meaning of Section 6231(a)(7) of the Code. The TMP shall not
extend the statute of limitations on behalf of the Venture, select the Venture's
choice of litigation forum in a tax controversy or take any other action in its
capacity as TMP without the consent of the other Venturers. The TMP shall keep
the other Venturers fully advised of the progress of any audit and shall supply
the other Venturers with copies of any written communications received from the
Internal Revenue
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Service or other taxing authority relating to any audit within ten days after
receipt thereof, and shall at least five business days prior to submitting any
materials to the Internal Revenue Service, or other taxing authority, provide
such materials to the other Venturers. Any settlement with the Internal Revenue
Service shall be agreed upon by all Venturers. The TMP shall be reimbursed by
the Venture for any reasonable expenses incurred in its capacity as TMP.
2. Nothing in this Section 6.3(a) is intended to authorize the
TMP to take any action that is left to the determination of a Venturer under
Sections 6222 through 6233 of the Code.
(b) This Venture is -intended to and shall constitute a partnership
for income tax purposes.
(c) Except as hereinafter specified, the unanimous vote of the
Committee shall determine any partnership elections to be made by or on behalf
of the Venture for tax purposes.
(d) The Managing General Partner shall be responsible for preparing
or causing to be prepared and the filing of any
required federal and state income tax returns.
(e) Compliance with Treasury Regulated. The provisions of this
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Article VI and-the other provisions of this Agreement relating to the
maintenance of Capital Accounts are intended to comply with Treasury Regulation
Section 1.704-1(b), and shall be interpreted and applied in a manner consistent
with such Treasury Regulations.
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6.4 Special Allocation Provisions.
(a) Certain Definitions.
1. "Minimum Gain" for the Venture means the amount determined by
computing with respect to each non-recourse liability of the Venture the amount
of income, if any, that would be realized by the Venture if it disposed of the
property securing such liability in full satisfaction thereof, and by then
aggregating the amounts so computed.
2. "Share of Minimum ▇▇▇▇" means, for each Venturer, the excess,
if any, of (i) the sum of the aggregate Non-Recourse Deductions allocated to
such Venturer (and such Venturer's predecessors in interest), cumulatively from
the inception of the Venture, and the aggregate distributions to such Venturer
(and such Venturer's predecessors in interest), cumulatively from the inception
of the Venture,- of proceeds of a non-recourse liability that are allocable~to
an increase in Venture Minimum Gain, over (ii) the sum of such Venturer's (and
such Venturer's predecessors') aggregate share (determined as described below)
of any net decreases in Venture Minimum Gain, cumulatively from the inception of
the Venture. For purposes of the Section 6.4: (a) a deduction shall constitute a
"Non-Recourse Deduction" if, and to the extent that, at the time such item was
incurred it increased the amount of the Venture's Minimum Gain; (b) a Venturer's
share of the net decrease in Venture Minimum Gain during a taxable year shall be
an amount that bears the same relation to the tenth decrease in Minimum Gain
during such year as such Venturer's Share of Minimum Gain at the end of the
prior taxable year (or if later at the time immediately following the
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last time that the Capital Accounts of the Venturers are increase pursuant to
Treasury Regulation Section 1.704-1(b)(2)(iv)(f) or (r) to reflect the
revaluation of Venture property subject to one or more non-recourse liabilities
of the Venture) bears to he amount of Minimum Gain at the end of such prior
taxable year (or such later date); (c) a Venturer's share of any decrease in
Venture Minimum Gain resulting from a revaluation of Venture property equals the
amount of the increase in such Venturer's Capital Account attributable to such
revaluation to the extent of the reduction in Minimum Gain caused by such
revaluation; (d) in determining the net increase or decrease in Venture Minimum
Gain during any Venture taxable year in which the Capital Accounts of the
Venturers are increased pursuant to a revaluation of Venture property subject to
one or more non-recourse liabilities of the Venture, any decrease in Venture
Minimum Gain attributable to each such revaluation shall be added back to the
net decrease or increase otherwise determined; and (e) a distribution to a
venturer by the Venture that is allocable to the proceeds of any non-recourse
liability of the Venture is allocable to an increase in the Venture Minimum Gain
to the extent of the amount of the net increase, if any, in Venture Minimum Gain
for such taxable year that is allocated to such non-recourse liability under
Treasury Regulation Section 1.704-2(h).
3. "Partner Minimum Gain" means Minimum Gain that would result
if all partner non-recourse debt, as defined in Treasury Regulation Section
1.704-2(b)(4) ("Partner non-Recourse Debt"), were treated as non-recourse
liabilities of the Venture and the Venture had no other non-recourse
liabilities.
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4. "Share of Partner Minimum Gain" means, for each Venturer,
such Venturer's Share of Minimum Gain that would result if all Partner non-
Recourse Debt were treated as non-recourse liabilities of the Venture and the
Venture had no other non-recourse liabilities.
(b) Minimum Gain Chargeback. Notwithstanding any other provisions in
this Agreement to the contrary, if in any fiscal year there is a net decrease in
the amount of the Venturers Minimum Gain or in the amount of the Partner Minimum
Gain, each Venturer shall be allocated income and gain (including gross income)
for such year or other period (and, if necessary, for subsequent years) in
proportion to, and to the extent of, an amount equal to the greater of (i) the
portion of such venturer Is share of the net decrease in Minimum Gain or Partner
Minimum Gain during such year or period that is allocable to the disposition of
the Venture property subject to one or more non-recourse liabilities of the
Venture (including Partner Non-Recourse Debt), or (ii) the negative balances
(computed with the adjustments described below) in such Venturer's Capital
Account at the end of such year (prior to any allocation pursuant to Section
6.1, Section 6.4(c), the last sentence of Section 6.4(d) or the last sentence of
Section 6.4(e). In determining a Venturer's negative Capital Account balance for
purposes of this Section 6.4(b), a Venturer's Capital Account balance shall be
increased by the amount, if any, that such Venturer is obligated to restore to
the Venture upon liquidation and shall be decreased by the amounts of any net
allocations, distributions or other items specified in the first sentence of
Section 6.4(c) that, as
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of the end of the taxable year, are reasonably expected to be made to such
Venturer. For purposes of this Section 6.4(b) and Section 6.4(c), the amount
that a Venturer may be obligated to contribute to the Venture upon liquidation
shall be considered to include: (a) such Venturer's allocable share (as
determined under Section 752 of the Code, of any recourse indebtedness of the
Venture which could not be repaid out of the Venture's assets if all such assets
were sold at their respective Carrying Values; (b) any unconditional obligation
of such Venturer to contribute additional amounts to the capital of the Venture
in the future (to the extent not previously taken into account in determining
such Venturers share of recourse liabilities of the Venture); (c! such
Venturer's Share of Minimum Gain; and (d) such Venturers Share of Venture
Minimum Gain. In the event any items of income and gain (including gross income)
of the Venture are reallocated to a Venturer pursuant to the first sentence of
this Section 6.4(b), subsequent items of loss, deduction, or Section
705(a)(2)(B) Expenditure of the Venture shall be allocated (prior to any
allocation pursuant to Section 6.1, but subject to Section 6.4(d)) to the
Venturers in a manner designed to result in each Venturer having a Capital
Account balance equal to what it would have been had the reallocation of items
of income and gain (including gross income) pursuant to the first sentence of
this Section 6.4(b) not occurred. Allocations of income and gain (including
gross income) made pursuant to this Section 6.4(b) shall be made with respect to
Venture Minimum Gain prior to any allocation made pursuant to this Section
6.4(b) with respect to Partner Minimum Gain.
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(c) Qualified Income Offset. Notwithstanding any other provision in
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this Agreement (other than Section 6.4(b)), if (i) during any fiscal year a
Venturer (a) is allocated pursuant to Section 706(d) of the Code or Treasury
Regulation Section 1.751-l(b)(2)(ii) any items of loss, deduction or Section
705(a)(2)(B) Expenditure, (b) is distributed any cash or property from the
Venture to the extent such distributions exceed offsetting increases to such
Venturer's Capital Account that are reasonably expected to occur during such
year, or (c) receives any other adjustment, allocation or distribution described
in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6) and, as a
result of such adjustment, allocation or distribution, such Venturer has a
Qualified Income Offset Amount, then (ii) items of income and gain (including
gross income) for such fiscal year (and, if necessary, subsequent years), shall
(prior to any allocation pursuant to Section 6.1, the last sentence of Section
6.4(d) or the last sentence of Section 6.4(e), but subsequent to any allocation
pursuant to Section 6.4(b)) be allocated to such Venturer in an amount equal to
his Qualified Income Offset Amount. As used herein, the term "Qualified Income
Offset Amount" for a Venturer means the excess, if any, of (x) the negative
balance in a Venturer's Capital Account immediately after the adjustment,
allocation or distribution described in clause (i) of the preceding sentence
(but without regard to any allocation pursuant to clause (ii) of the preceding
sentence), over (y) the maximum amount that such Venturer may be obligated to
contribute to the Venture upon liquidation as determined pursuant to the third
sentence of Section 6.4(b). In the event any items of
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income and gain (including gross income) of the Venture are reallocated to a
Venturer pursuant to the first sentence of this Section 6.4(c), subsequent items
of loss, deduction or Section 705(a)(2)(B) Expenditure of the Venture shall be
allocated (prior to any allocation pursuant to Section 6.1, but subject to
Sections 6.4(d) and 6.4(e)) to the Venturers in a manner designed to result in
each Venturer having a Capital Account balance equal to what it would have been
had the reallocation of items of income and gain (including gross income)
pursuant to the first sentence of this Section 6.4(c) not occurred.
(d) Limitations on Loss Allocation. Notwithstanding the provisions
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of Section 6.1, in no event shall net loss (or items thereof) of the Venture be
allocated to a Venturer if such allocation would result in such Venturer having
a Qualified Income Offset Amount. Any allocation to a Venturer which is
prevented by the operation of the preceding sentence shall be reallocated in
accordance with Section 6.1, subject to the subsequent provisions of this
Section 6.4(d). For purposes of this Section 6.4(d), the determination of
whether an allocation of net loss (or items thereof) would produce a Qualified
Income Offset Amount for a Venturer shall be made after reducing the Venturer's
Capital Account by the amounts of any adjustment, allocation or distribution
described in clause (i) of the first sentence of Section 6.4(c) that, as of the
end of the fiscal year, are reasonably expected to be made to the Venturer. In
the event any net loss of the Venture is reallocated from a Venturer pursuant to
the first sentence of this Section 6.4(d), subsequent items of income and gain
(including gross income) will first be
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allocated (subject to Sections 6.4(b) and 6.4(c)) to the Venturers in a manner
designed to result in each Venturer having a Capital Account balance equal to
what it would have been had the reallocation pursuant to the first sentence of
this Section 6.4(d) not occurred.
(e) Allocation of Partner Non-Recourse Deductions. Items of loss,
---------------------------------------------
deduction and Section 705(a)(2)(B) Expenditures attributable, under Treasury
Regulation Section 1.704-2(i), to Partner Non-Recourse Debt shall (prior to any
allocation pursuant to Section 6.1, but subject to the provisions of Section
6.4(d)) be allocated, as provided in Treasury Regulation Section 1.704 2(i), to
the Venturers in accordance with the ratios in which they bear the economic risk
of loss for such debt. In the event any items of loss, deduction and Section
705(a)(2)(B) Expenditure of the Venture are allocated pursuant to the first
sentence of this Section 6.4(e), subsequent items of income and gain (including
gross income) shall (prior to any allocation pursuant to Section 6.1, and
subject to Sections 6.4(b) and 6.4(c)) be allocated to the Venturers in a manner
designed to result in each Venturer having a Capital Account balance equal to
what it would have been had the reallocation pursuant to the first sentence of
this Section 6.4(e) not occurred.
Sec. 6.5 Cash Calls and Distributions. Cash contributions and cash
-------- ----------------------------
distributions shall be made to or by the Venturers at such times and in such
amounts as shall be determined by the Committee. The Venture shall make cash
distributions only in excess of the 'Free Cash Flow" of the Venture. "Free Cash
Flow" shall be defined as the amount of cash generated by the Venture,
21
determined on a monthly basis, in excess of the foreseeable cash requirements of
the Venture over the subsequent 30-day period following the date of such
determination.
ARTICLE VII
TERMINATION
Sec. 7.1 Events of Termination. The Venture shall terminate upon the
-------- ---------------------
occurrence of the earliest of the following events:
(a) Exhaustion of the Venture's economically recoverable coal reserves
heretofore or hereafter acquired;
(b) Bankruptcy of either Sentry or Bluegrass; or
(c) As otherwise provided by law.
Sec. 7.2 Termination Procedure. Upon termination of the Venture, a final
-------- ---------------------
audit shall be made and the following procedure shall govern:
(a) All assets, other than cash, shall be sold or collected and
turned into cash, provided, however, that if termination is other than as a
result of the bankruptcy of one of the Venturers that the other Venturer shall
have the right, at its option, to buy all (but not less than all) of the assets
of the Venture for an amount equal to their then fair market value. In the event
such Venturer elects to purchase such assets, the Venturers shall agree upon the
fair market value of such assets. If the Venturers cannot agree upon the fair
market value of such assets, such value shall be determined by an appraisal made
by an independent mining consultant having broad experience in the art of coal
mining to be agreed upon by the Venturers within thirty (30) days of their
failure to reach agreement on such value. If
22
the Venturers cannot agree upon an independent mining consultant, the selection
thereof shall be submitted to arbitration pursuant to Sec. 8.11 hereof;
(b) All of the Venture's debts and obligations, including loans or
advances from either Venturer, shall be paid in full; and
(c) The remaining cash, if any, shall be distributed
to the Venturers in proportion to their respective Capital
Accounts.
No Venturer shall be obligated to restore any negative
balance in its Capital Account.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES
The Venturers hereby represent and warrant to each other, as more
specifically provided herein, as follows:
(a) Authority. Each Venturer is a corporation duly organized, validly
---------
existing and in good standing under the laws of the State of their incorporation
and qualified to transact business within the State of Kentucky. All corporate
acts and other proceedings required to be taken to authorize the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby have been duly and properly taken.
(b) Title to Property. The Venturers have good and valid title to any
-----------------
property to be contributed to the Venture, free and clear of any liens, claims
and encumbrances of any kind.
23
(c) Governmental Approvals. Each Venturer possesses all governmental
----------------------
franchisees, licenses, permits, authorizations and approvals necessary
(including, without limitation, all authorizations and bonds posted in
connection therewith, whether pertaining to health or safety, the environment or
otherwise) to enable it to use its corporate name and to own, lease or otherwise
hold its properties and assets and to carry on its business as presently
conducted.
(d) Litigation. Neither Venturer is a party to any lawsuit, claim,
----------
proceeding or investigation, and to the best knowledge of each Venturer, no such
lawsuit, claim, proceeding or investigation is threatened, as of the date of
this Agreement, by or against or affecting any Venturer or any of its
properties, assets, operations or businesses other than as set forth on Schedule
8(d) hereto. Neither Venturer is subject to or in default under any judgment,
order or decree of any court, administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, applicable to it
or any of its properties, assets, operations or businesses.
(e) Absence of Changes or Events. Except as disclosed on Schedule 8 (e)
----------------------------
hereto, or otherwise expressly permitted by the terms of this Agreement, there
has not been any material adverse change in the business, assets, conditions or
results of operations of either Venturer since May 19, 1995.
(f) Absence of Certain Liabilities. Bluegrass warrants and indemnifies
------------------------------
Sentry against any claim or cause of action arising out of the operation of the
Patriot Mine prior to the Effective Date of this Agreement. All accounts
receivable and accounts
24
payable and any other liabilities arising out-of the operation of the Patriot
Mine prior to the Effective Date of this Agreement shall remain the property of
and the responsibility of Bluegrass.
(g) Environmental Matters. Except as disclosed on Schedule 8 (g) hereto:
---------------------
(i) Bluegrass warrants that no environmental condition exists, which
would have a material adverse effect on the Patriot Mine, nor any Hazardous
Substance (as defined herein) has been released, discharged, deposited, emitted,
leaked, spilled, poured, emptied, injected, dumped, disposed or otherwise placed
or located on, in or under the real property owned or leased at the Patriot
Mine. For purposes of this Agreement, "Hazardous Substance" means any "hazardous
substance" as that term is defined in 42 U.S.C. (S)11049 (3), or any other
material regulated under any environmental law, statute, regulation, code,
permit or order of the United States, any state, or any other governing body,
authority or agency. All Hazardous Substances that have been removed from the
Patriot Mine have been handled, transported, stored, treated and disposed of in
compliance with all Environmental Laws. For purposes of this Agreement
"Environmental Laws" shall mean the Surface Mining Control and Reclamation Act
of 1977 (30 U.S.C., Section 1201, et seq.), as amended, and its state
counterpart; the Federal Water Pollution Control Act (33 U.S.C., Section 1251,
et seq.) as amended, and its state counterpart; the Clean Air Act (42 U.S.C.,
Section 7401, et seq.), as amended, and its state counterpart; the Federal Mine
Safety and Health Act of 1977 (30 U.S.C. Section 801 et seq.) as amended, and
its state counterpart; the Toxic
25
Substances Control Act (14 U.S.C. Section 2601, et seq.) as amended, and its
state counterpart; the Resource Conservation and Recovery Act of 1976 (42
U.S.C., Section 6901, et seq.) as amended, and its state counterpart; the
Comprehensive Environmental Response, Compensation and Liability Act (92 U.S.C.
Section 9601, et seq.) as amended by the Superfund Amendments and
Reauthorization Act, and its state counterpart; and other laws or regulations
pursuant to which the Patriot Mine has an existing Permit.
(ii) Bluegrass warrants that there are no threatened or pending
investigations, citations, Quits or notices of violation resulting from or
connected with, the Patriot Mine, relating to the use, storage, disposal,
transportation, release, discharge or emission of any Hazardous Substance.
(iii) Bluegrass warrants that all permits, licenses, consents and
authorizations necessary for full compliance of the Patriot Mine with all
applicable environmental laws have been obtained and are valid and in full force
and effect.
(iv) Bluegrass warrants that the Patriot Mine complies with all
Environmental Laws.
(h) Applicant Violator System. Each Venturer warrants that the Venturer,
-------------------------
its officers, shareholders, subsidiaries, affiliates and any other entity that
can be attributed to it under the "ownership and control" regulations issued by
the Office of Surface Mining are not currently "permit blocked" pursuant to the
Surface Mining Reclamation and Control Act of 1977 ("SMCRA"). Bluegrass warrants
that no unabated violation of SMCRA or its state counterpart exists at the
Patriot Mine on the
26
Effective Date that would cause either or both of the Venturers to be "permit
blocked".
ARTICLE IX
GENERAL
Sec. 9.1 Governing Law. This Agreement shall be construed in accordance
-------- -------------
with the laws of the State of Delaware, including the provisions of the Revised
Uniform Limited Partnership Act thereof.
Sec. 9.2 Sole and Only Agreement. This Agreement, including any schedules
-------- -----------------------
hereto, represents the full understanding and agreement between the parties and
supersedes all previous correspondence, memoranda, and drafts of agreements
exchanged by the parties. It is intended that there shall be no conflict between
this Agreement and the schedules attached hereto but if such conflict shall be
found to exist, this Agreement shall prevail. This Agreement may not be changed,
modified, altered or amended except by an agreement in writing signed by the
Venturers. The failure of any Venturer at any time or times to require
performance of any provision hereof shall in no manner affect the right to later
enforce such rights. No waiver by any Venturer of any condition, or of the
breach of any term, provision, covenant, representation or warranty contained in
this Agreement or in the Schedules hereto or in connection with the transactions
contemplated hereby, whether by conduct or otherwise, in any one or more
instances, shall be deemed to be or construed as a further or continuing waiver
of any such condition
27
or of the breach of any other term, provision, covenant, representation or
warranty.
Sec. 9.3 Partial Invalidity. If any term or provision of this Agreement
-------- ------------------
shall be rendered invalid, illegal or unenforceable, the remaining terms and
provisions of this Agreement shall be unaffected thereby and shall continue in
full force and effect.
Sec. 9.4 Amendments. This Agreement and the schedules hereto may be
-------- ----------
amended only by an instrument in writing signed by the parties.
Sec. 9.5 Title to Venture Property. Title to all Venture real or personal
-------- -------------------------
property shall be taken and held in the name of the Venture or in such other
name or manner as the Committee may from time to time determine or as may be
required by applicable law.
Sec. 9.6 Further Assurances. Each Venturer shall execute all documents
-------- ------------------
and take all action as may reasonably be required to effectuate the purposes and
intent of this Agreement, including compliance with all applicable laws and
regulations.
Sec. 9.7 Inspection. Each Venturer or its authorized representatives may
-------- ----------
examine any of the mines or equipment, at any reasonable time, and without
notice.
Sec. 9.8 Insurance. The Venture shall self insure all property of the
-------- ---------
Venture against loss by casualty and liability arising from its operations (and
ensure any contract miner maintains acceptable insurance coverage on its
operations)and activities.
28
Sec. 9.9 Execution of Venture Documents. Contracts, leases, evidences of
-------- ------------------------------
indebtedness and other instruments and documents to which the Venture is a party
shall be executed in the name and on behalf of the Venture by such person or
persons as shall be authorized by the Managing General Partner or by the
Committee pursuant to Section 4 herein.
Sec. 9.10 Assignment. Neither party may sell, assign or otherwise
--------- ----------
transfer all or any part of its interest in this Agreement or the Venture
created thereby without the prior written consent of the other party.
Sec. 9.11 Arbitration. Any unresolved controversy between the parties,
--------- -----------
including inability to agree upon any matter subject to Joint Agreement, other
than as expressly provided herein, and claims by one party against the other
shall, at the written request of either party, be submitted to arbitration and
shall be determined under the Rules of the American Arbitration Association and
judgment upon the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof. Each Venturer shall select one arbitrator and
each arbitrator shall select a neutral third arbitrator and in the event of
their inability to do so, the party who requested arbitration may apply to the
United States District for the district in which the Patriot Mine is located to
appoint a third arbitrator. Within thirty (30) days after the appointment of
three arbitrators, notice shall be given by the arbitration tribunal to the
parties regarding the time and place of hearing which in no event shall be later
than sixty (60) days after selection of the arbitrators. After hearing, a
majority of the
29
arbitrators shall decide the controversy and render an award in writing to the
parties setting forth the issues adjudicated, the resolution thereof and the
reasons for the award. All arbitrators shall be disinterested persons familiar
with the business of mining coal.
Sec 9.12 Defaults. No waiver by either Venturer for any one or more
-------- --------
defaults by the other in the performance of any provisions of this Agreement
shall operate or be construed as a waiver of any future default or defaults,
whether of a like or of a different character. In the event of any dispute under
this Agreement, the parties hereto shall, notwithstanding the pendency of such
dispute, diligently proceed with the performance of this Agreement without
prejudice to the rights of the other party. A default of either party in the
performance of any of its covenants or obligations under this Agreement, which,
except for this provision, would be the legal basis for an action for breach of
contract or termination of this Agreement by the other party, shall not give or
result in such a right unless and until the party committing such default shall
fail to either (1) correct the default within sixty (60) days after written
notice of claim of such default and a statement setting forth the nature thereof
is given to such defaulting party by the party claiming such default, except for
defaults occurring due to the nonpayment of amounts due hereunder, or (2) give
notice within said period of the submission of the validity of the claim of
default to arbitration pursuant to Sec. 8.11. Notwithstanding the foregoing, in
the event a "permit block" occurs due to the action or inaction of either
Venturer, the other Venturer may, upon three
30
days notice giving such Venturer the opportunity to cure the permit block,
declare the other Venturer in default under this Agreement and this Agreement
would be terminated in accordance with Article VII hereto.
Sec. 9.13 Notices. All notices required to be given hereunder shall be
--------- -------
considered as properly given when delivered by hand or sent by first class or
certified mail to the parties at the following addresses, provided that the
person to whom notices are to be given hereunder may be changed by notice in
writing from one party to the other:
Sentry: President
Sentry Mining Company
▇▇▇ ▇▇▇▇▇▇ ▇▇., ▇▇▇▇▇ ▇▇▇
▇▇. ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Bluegrass: President
Bluegrass Coal Company
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇. ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Sec. 9.14 Effect of Other Agreements. General rights granted to and
--------- --------------------------
obligations undertaken by the Venture and/or the Venturers hereunder shall be
subject to specific rights granted or obligations undertaken pursuant to
agreements between the Venture and third parties.
Sec. 9.15 Confidentiality. Except as required by law or by any financing
--------- ---------------
institution with respect to financing made or to be made available by it, the
Venturers agree that they shall each keep confidential the terms and provisions
of this Agreement, and no party shall release any publicity with respect to this
Agreement except following consultation with and obtaining the prior written
approval of the other party, which shall not be unreasonably withheld.
31
Sec. 9.16 Interpretation. In this Agreement, unless the context otherwise
--------- --------------
requires:
(a) words importing the singular include the plural and vice versa and
words of one gender include every other gender;
(b) headings are for convenience only and do not affect interpretation of
this Agreement;
(c) references to any party to this Agreement or any other agreement or
instrument include the party's successors and permitted assigns;
(d) a reference to a document includes an amendment or supplement to, or
replacement of that document;
(e) where a word or expression is defined, other, grammatical forms have a
corresponding meaning.
Sec. 9.17 Counterparts. This Agreement may be executed in one or more
--------- ------------
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their proper officers as of the day and year first above
written, intending to be legally bound thereby.
ATTEST: SENTRY MINING COMPANY
[Executed] /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------- ----------------------
Secretary President
ATTEST: BLUEGRASS COAL COMPANY
[Executed] [Executed]
----------------------- ----------------------
Secretary President
32
Schedule 3.2
REAL AND PERSONAL PROPERTY CONTRIBUTED TO THE VENTURE
I. Leased and Owned Mining Equipment - See attached Schedule 1
II. Coal Mining Leases
a. Coal Mining Lease dated September 28, 1984, as amended by and between
▇▇▇▇▇▇▇▇ Metals Company and DEW Resources, Inc.
b. Coal Mining Sublease dated November 27, 1985 by and between DEW
Resources, Inc. and Pyramid Mining, Inc.
c. Lease dated November 11, 1985, as amended, by and between ▇▇▇▇▇▇ ▇.
▇▇▇▇▇ and ▇▇▇▇ ▇. ▇▇▇▇▇, his wife, and Pyramid Mining, Inc.
d. Contingent Benefit Agreement, dated as of May 13, 1988, by and between
(1) ▇. ▇. ▇▇▇▇, ▇▇., (2) ▇. ▇. ▇▇▇▇▇▇, (3) W. N. ▇▇▇▇▇▇▇▇▇▇, (4) ▇▇▇▇▇▇ ▇▇▇▇ and
Pyramid Mining, Inc.
e. Contingent Interest Agreement, dated as of May 13, 1988, by and between
(I) ▇. ▇. ▇▇▇▇, ▇▇., (2) ▇. ▇. ▇▇▇▇▇▇, (3) W. N. ▇▇▇▇▇▇▇▇▇▇ (4) ▇▇▇▇▇▇ ▇▇▇▇ and
Pyramid Mining, Inc.
f. Proceeds of a certain Settlement Agreement and Contingent Interest
Agreement, dated October 5, 1988 by and between Green Construction of Indiana,
Inc. d/b/a Green Coal Company and Dew Resources, Inc.
III. Coal Supply Agreements
a. Fuel Purchase Order No. ▇▇-▇▇-▇▇-▇▇▇ dated November 15, 1993 by and
between Indiana Michigan Power Company and Pyramid Mining, Inc. for the Tanners
Creek Plant #4.
b. Coal Marketing and Sales Agreement, dated April 17, 1990 by and between
Coal Network, Inc. and Pyramid Mining, Inc.
c. Coal Purchase Agreement, BST 493C, dated March 17, 1993 by and between
Tampa Electric Company and Pyramid Mining, Inc.
IV. Real Property Improvements
a. Patriot Dock, ▇▇▇▇▇▇▇▇▇ County, Kentucky
b. Patriot Preparation Plant, Henderson County, Kentucky
c. Office Trailer and Office Furniture, Fixtures and Equipment
d. Truck Scales located at the Patriot Mine, ▇▇▇▇▇▇▇▇▇ County, Kentucky
33
e. Structure purchased from ▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ on June 4, 1986
located in ▇▇▇▇▇▇▇▇▇ County, Kentucky
V. Miscellaneous
a. All Utility Deposits associated with the Patriot Mine, ▇▇▇▇▇▇▇▇▇
County, Kentucky
b. All Licenses and Permits associated with the Patriot Mine, ▇▇▇▇▇▇▇▇▇
County, Kentucky
c. Miscellaneous Equipment, Tools, Supplies, Fuel, Scrap, etc. located at
the Patriot Mine, ▇▇▇▇▇▇▇▇▇ County, Kentucky as of the Closing Date.
d. All coal stockpiles existing at the Patriot Mine at Closing.
34
