jrcc_s4-082611.htm
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 26, 2011
REGISTRATION NO. 333-             
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
 
JAMES RIVER COAL COMPANY
(Exact name of registrant as specified in its charter)
 
Virginia
(State or other jurisdiction of
incorporation or organization)
1221
(Primary Standard Industrial
Classification Code Number)
54-1602012
(I.R.S. Employer
Identification Number)
 
(For Co-Registrants, see “Table of Co-Registrants” on the following page)
 
901 E. Byrd Street, Suite 1600
Richmond, Virginia 23219
(804) 780-3000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
 
Peter T. Socha
President and Chief Executive Officer
James River Coal Company
901 E. Byrd Street, Suite 1600
Richmond, Virginia 23219
(804) 780-3000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
 
Copies to:
David A. Stockton
Kilpatrick Townsend & Stockton LLP
1100 Peachtree Street
Atlanta, Georgia 30309
(404) 815-6500
 
Approximate date of commencement of proposed sale to the public:  As soon as practicable after this registration statement becomes effective.
 
If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, 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(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.
Large accelerated filer  o
Accelerated filer  x
Non-accelerated filer    o   (Do not check if a smaller reporting company)
Smaller reporting company  o
 
If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:
Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)  o
Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)  o
 
CALCULATION OF REGISTRATION FEE
 
 
Title of each class of
securities to be registered
 
Amount to be
 Registered
Proposed Maximu
m Offering Price
 per Unit (1)
Proposed Maximum
Aggregate Offering
Price
 
Amount of
registration fee
7.875 % Senior Notes, Due 2019
$275,000,000
100%
$275,000,000
$31,927.50
Subsidiary Guarantees of 7.875 % Senior Notes, Due 2019
(2)
(2)
(2)
(2)
 
(1)
Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(f).
(2)
Pursuant to Rule 457(n), no registration fee is required for guarantees.
 

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 this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 
 

 



TABLE OF SUBSIDIARY CO-REGISTRANTS
 
Exact name of Subsidiary Co-Registrant
as specified in its charter (1)(2)
State or other jurisdiction of
incorporation or organization
I.R.S. Employer
Identification Number
BDCC Holding Company, Inc.
Delaware
62-0133200
Bell County Coal Corporation
Delaware
61-0880806
Bledsoe Coal Corporation
Kentucky
61-0894821
Bledsoe Coal Leasing Company
Delaware
52-1186654
Blue Diamond Coal Company
Delaware
52-2313812
Buck Branch Resources LLC
Kentucky
90-0531459
Chafin Branch Coal Company, LLC
West Virginia
55-0327873
Eolia Resources, Inc.
North Carolina
56-0890587
Hampden Coal Company, LLC
West Virginia
55-0674334
International Resource Partners LP
Delaware
20-8698669
International Resources, LLC
West Virginia
20-8962522
International Resources Holdings I LLC
Delaware
26-0189838
International Resources Holdings II LLC
Delaware
55-0681567
IRP GP Holdco LLC
Delaware
45-2075380
IRP Kentucky LLC
Kentucky
90-0531454
IRP LP Holdco Inc.
Delaware
45-2075380
IRP WV Corp.
Delaware
26-0316050
James River Coal Sales, Inc.
Delaware
74-2233417
James River Coal Service Company
Kentucky
61-0712577
James River Escrow Inc.
Delaware
45-1140314
Johns Creek Coal Company
Tennessee
62-1059412
Johns Creek Elkhorn Coal Corporation
Delaware
61-0729199
Johns Creek Processing Company
Delaware
52-2274021
Laurel Mountain Resources LLC
Kentucky
90-0531458
Leeco, Inc.
Kentucky
61-0734176
Logan & Kanawha Coal Co., LLC
West Virginia
31-0805716
McCoy Elkhorn Coal Corporation
Kentucky
61-0718373
Rockhouse Creek Development LLC
West Virginia
55-0739583
Shamrock Coal Company, Incorporated
Delaware
62-0421843
Snap Creek Mining, LLC
West Virginia
55-0746858
Triad Mining Inc.
Indiana
71-1189005
Triad Underground Mining, LLC
Indiana
35-2149041
____________________
 
(1)
The address, including zip code, and telephone number, including area code, of the principal executive offices of each subsidiary co-registrant is:
 
901 E. Byrd Street, Suite 1600
Richmond, Virginia 23219
(804) 780-3000
 
(2)
The Primary Standard Industrial Classification Code Number for each subsidiary co-registrant is 1221.

 
 

 

 

 
 
Information in this prospectus is not complete and may be changed.  These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is declared effective.  This prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
 
 
 

SUBJECT TO COMPLETION, DATED AUGUST 26, 2011
 
PROSPECTUS
 
Offer To Exchange Up to
$275,000,000 principal amount
outstanding 7.875% Senior Notes due 2019
for
newly-issued 7.875% Senior Notes due 2019
which have been registered under the Securities Act of 1933
 
The Exchange Offer
 
·
The notes offered by this prospectus, or “exchange notes,” have been registered under the Securities Act of 1933, as amended, and are being offered in exchange for the outstanding, unregistered notes, or “original notes,” that were originally issued on March 29, 2011.
 
·
We will exchange all original notes that are validly tendered and not withdrawn prior to the expiration of the exchange offer for an equal principal amount of exchange notes.
 
·
To tender, you must submit a signed letter of transmittal and your original notes to U.S. Bank National Association, our exchange agent.  Special procedures apply in some cases.
 
·
The exchange offer will expire at 5:00 p.m., New York City time, on              , 2011, unless extended by us.
 
·
You may withdraw tendered outstanding original notes at any time prior to the expiration of the exchange offer.
 
·
The exchange of outstanding original notes for exchange notes pursuant to the exchange offer generally will not be a taxable event for U.S. federal income tax purposes.
 
·
We will not receive any proceeds from the exchange offer.  We have agreed to pay the expenses associated with this exchange offer.
 
The Exchange Notes
 
·
The terms of the exchange notes will be substantially identical to the terms of the original notes, except that the exchange notes are registered under the Securities Act, and the transfer restrictions, registration rights and additional interest terms applicable to the original notes will not apply to the exchange notes.
 
·
The exchange notes will mature on April 1, 2019.  We will pay interest on the exchange notes semi-annually in cash in arrears on April 1 and October 1 of each year.
 
·
The exchange notes will be guaranteed on a senior unsecured basis by each of our existing and future restricted subsidiaries, other than certain future excluded subsidiaries, if any.
 
·
We do not intend to list the exchange notes on any securities exchange.

 
INVESTING IN THE EXCHANGE NOTES INVOLVES A HIGH DEGREE OF RISK.  SEE THE SECTION ENTITLED “RISK FACTORS” BEGINNING ON PAGE 9, AND THE SECTIONS ENTITLED “RISK FACTORS” IN OUR MOST RECENT ANNUAL REPORT ON FORM 10-K AND OUR RECENT QUARTERLY REPORTS ON FORM 10-Q, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, AND WHICH ARE INCORPORATED HEREIN BY REFERENCE.

 
NEITHER THE SECURITIES AND EXCHANGE COMMITTION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS.  ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The date of this prospectus is August 26, 2011.


 
 

 


TABLE OF CONTENTS

 
Page
Summary
1
Forward-Looking Statements
8
Market and Other Data
8
Risk Factors
10
Use of Proceeds
28
Ratio of Earnings to Fixed Charges
29
Capitalization
29
Unaudited Pro Forma Condensed Consolidated Financial Information
30
Selected Historical Consolidated Financial Data
34
The Exchange Offer
36
Description of Exchange Notes
45
Description of Other Indebtedness
79
Plan of Distribution
81
U.S. Federal Income Tax Considerations
83
ERISA Considerations
87
Legal Matters
87
Experts
87
Where You Can Find Additional Information
88
 




 
i

 

 

 
 
SUMMARY
 
This summary contains basic information about us and the exchange offer. Because it is a summary, it does not contain all of the information that you should consider before participating in the exchange offer. You should carefully read this entire prospectus, including the section entitled “Risk Factors,” and the documents we have incorporated by reference herein, including our consolidated financial statements and accompanying notes, before making an investment decision..
 
Unless otherwise indicated or required by the context, references in this prospectus to “we,” “us,” “our,” “James River” and “JRCC” mean James River Coal Company and its consolidated subsidiaries as of the date of such reference.
 
James River Coal Company
 
We mine, process and sell thermal and metallurgical coal through eight active mining complexes located throughout eastern Kentucky, southern West Virginia and southern Indiana. The majority of our metallurgical coal was obtained in the April 18, 2011 acquisition (the “IRP Acquisition”) of International Resource Partners LP and its subsidiary companies (which we refer to collectively as IRP).  We have two reportable business segments based on the coal basins in which we operate (Central Appalachia (which we refer to as CAPP) and the Midwest (which we refer to as the Midwest)).  IRP is included in our CAPP segment.  We derived 59% of our total revenues for the six months ended June 30, 2011 from coal sales to electric utility customers and the remaining 41% from coal sales (including metallurgical coal) to industrial and other customers.  For the six months ended June 30, 2011, our mines produced 4.8 million tons of coal (including 0.3 million tons of contract coal) and we purchased another 0.6 million tons for resale.  Of the 4.8 million tons produced from Company mines, approximately 62% came from underground mines, while the remaining 38% came from surface mines. For the six months ended June 30, 2011, we generated total revenues of $516.6 million and a net loss of $6.8 million.
 
 
In 2010, we produced approximately 8.8 million tons of coal (including 0.1 million tons of coal produced in our mines that are operated by contract mine operators) and we purchased another 0.1 million tons for resale. Of the 8.8 million tons we produced from company-operated mines, approximately 65% came from underground mines, while the remaining 35% came from surface mines. In 2010, we generated revenues of $701.1 million and net income of $78.2 million. Approximately 88% of our 2010 revenues were generated from coal sales to electric utility companies and the remainder came from coal sales to industrial and other companies.  As of December 31, 2010, we believe we controlled approximately 271.3 million tons of proven and probably coal reserves.
 
In 2010, IRP produced approximately 1.9 million tons of coal, including 1.2 million tons of metallurgical coal and 0.7 million tons of steam coal. Total 2010 shipments, including coal purchased for blending purposes, were 3.7 million tons. These tons included 2.6 million tons of metallurgical coal and 1.1 million tons of steam coal. IRP generated revenues of $490.3 million and income before taxes at the partnership level of $51.3 million in 2010.  IRP’s coal reserves and resources are located in West Virginia and Kentucky. As of December 31, 2010, IRP controlled approximately 136 million tons of coal reserves and resources, consisting of approximately 61 million tons of metallurgical coal and an estimated 75 million tons of steam coal. The coal reserves and resources acquired from IRP include 85.5 million of proven and probable reserves. IRP leases a substantial portion of its coal reserves and resources from various third-party landowners.
 
We were incorporated in the Commonwealth of Virginia in June 1991.  The address of our principal executive office is 900 E. Byrd Street, Suite 1600, Richmond, Virginia 23219, and our telephone number at that address is (804) 780-3000.  Our website address is www.jamesrivercoal.com.  We do not incorporate the information on our website into this registration statement and prospectus, and you should not consider information on our website as part of this registration statement and prospectus.
 
A more detailed discussion of our business is included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010, which discussion is incorporated herein by reference.
 
 
 
1

 

 
 
The Exchange Offer
 
In March 2011, JRCC formed James River Escrow Inc., or “JR Escrow,” a Delaware corporation and wholly-owned subsidiary of JRCC, solely for the purpose of issuing the 7.875% Senior Notes due 2019, which we refer to as the “original notes.”  On March 29, 2011, JR Escrow completed the offering of $275,000,000 aggregate principal amount of original notes, and the gross proceeds of the offering, together with certain additional amounts, were deposited into a segregated escrow account.  On April 18, 2011, upon the satisfaction of the escrow conditions, JRCC assumed JR Escrow’s obligations and agreements under the original notes, the indenture governing the original notes and the related registration rights agreement, and the proceeds of the original notes were disbursed from the escrow account and used, together with the proceeds of the concurrent offerings of 3.125% convertible senior notes due 2018 (the “2018 convertible senior notes”) and common stock (together with the offering of the original notes, the “Concurrent Offerings”), to fund the IRP Acquisition, to redeem $150.0 million of senior notes due June 1, 2012 (the “2012 senior notes”), and for general corporate purposes.
 
The Exchange Offer
We are offering to exchange up to $275,000,000 in principal amount of our 7.875% Senior Notes due 2019, which have been registered under the Securities Act and which we refer to as the “exchange notes,” for up to $275,000,000 in principal amount of our outstanding, unregistered original notes.  Original notes must be tendered for exchange in $1,000 multiples.  Unless we specify otherwise or the context indicates otherwise, we refer to the exchange notes and the original notes together as the “notes.”
   
Resale of Exchange Notes
Based on interpretations by the staff of the Securities and Exchange Commission, or “SEC,” in no-action letters issued to third parties with respect to other transactions, we believe that the exchange notes issued in the exchange offer may be offered for resale, resold or otherwise transferred by you without compliance with the registration and prospectus delivery requirements of the Securities Act as long as:
 
  you are acquiring the exchange notes in the ordinary course of your business;
     
  you have no arrangement or understanding with any person to participate in a distribution (within the meaning of the Securities Act) of the exchange notes to be received in the exchange offer;
     
  you are not our affiliate within the meaning of Rule 405 under the Securities Act, which defines “affiliate” as a person that, directly or indirectly, controls or is controlled by, or is under common control with, a specified person; and
     
 
if you are not a broker-dealer, you are not engaged in and you do not intend to engage ina distribution of the exchange notes.
   
 
If you do not satisfy the foregoing conditions, in the absence of an exemption, you must comply with the registration and prospectus delivery requirements of the Securities Act in connection with the resale of the exchange notes. If you fail to comply with these requirements, you may incur liabilities under the Securities Act, and we will not indemnify you for such liabilities.
 
Each broker-dealer that receives exchange notes for its own account in exchange for original notes that were acquired as a result of market-making activities or other trading activities must acknowledge that it will comply with the registration and prospectus delivery requirements of the Securities Act in connection with any offer to resell, resale or other transfer of the exchange notes issued in the exchange offer.  We have agreed in a registration rights agreement that, for a period of 90 days or such longer period if extended pursuant to the registration rights agreement, we will make this prospectus, as amended or supplemented, available for use in connection with any such resale.  For additional information, see “Plan of Distribution.”
 
 

 
2

 


   
Expiration Date; Withdrawal of Tender
The exchange offer will expire at 5:00 p.m., New York City time, on                , 2011, unless we extend the offer.  Until the offer expires, you may withdraw any original notes that you previously tendered.  If we do not accept your original notes for exchange for any reason, we will return them to you at our cost, promptly after the exchange offer.
   
Conditions to the Exchange Offer
The exchange offer is subject to customary conditions, which we may waive in our sole discretion, subject to applicable law.  For additional information, see “The Exchange Offer—Conditions to the Exchange Offer.”  The exchange offer is not conditioned upon the exchange of any minimum principal amount of original notes.
   
Procedures for Tendering Original Notes
If you hold original notes and wish to accept the exchange offer, you must:
complete, sign and date the letter of transmittal that is included with this prospectus, and
 
  ●  complete, sign and date the letter of transmittal that is included with this prospectus, and
     
 
mail or deliver the letter of transmittal, together with the original notes and any other required documents, to U.S. Bank National Association, our exchange agent, at the address set forth in the letter of transmittal.
 
If you are a broker, dealer, commercial bank, trust company or other nominee and you hold original notes through The Depository Trust Company, or “DTC,” and wish to accept the exchange offer, you must do so pursuant to DTC’s procedures.  For additional information, see “The Exchange Offer—Procedures for Tendering.”
   
 
By executing the letter of transmittal, you will represent to us that, among other things:
   
 
you will acquire the exchange notes in the ordinary course of your business,
     
 
you are not engaging in or intending to engage in a distribution of the exchange notes,
     
 
you have no arrangement with any person to participate in the distribution of the exchange notes, and
     
 
you are not our “affiliate”, as defined in Rule 405 of the Securities Act.
     
Special Procedures for Beneficial Owners
If you are a beneficial owner whose original notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and you wish to tender your original notes in the exchange offer, please contact the person or entity in whose name your original notes are registered and instruct that person or entity to tender those notes on your behalf.  If you wish to tender original notes in the exchange offer on your own behalf, you must, prior to completing and executing the letter of transmittal and delivering your original notes, either re-register the original notes in your name or obtain a properly completed bond power from the registered holder.  You may not be able to re-register your original notes in time to participate in the exchange offer.
   
Guaranteed Delivery Procedures
If you wish to tender your original notes, but they are not immediately available or you cannot deliver your original notes, the letter of transmittal, or any other required documents to the exchange agent (or comply with the procedures for book-entry transfer) prior to the expiration date, you must tender your original notes using the guaranteed delivery procedures described in “The Exchange Offer—Guaranteed Delivery Procedures.”
 

 
3

 


 
 
Registration Requirements
 
 
We will use our commercially reasonable best efforts to complete the registered exchange offer to allow you an opportunity to exchange your original notes for the exchange notes.  In the event that applicable interpretations of the staff of the SEC do not permit us to effect the exchange offer or in certain other circumstances, we have agreed to file a shelf registration statement covering resales of the original notes.  In such event, we will use our commercially reasonable best efforts to cause the shelf registration statement to be declared effective under the Securities Act and, subject to certain exceptions, to keep the shelf registration statement effective until the first anniversary of its original effective date, unless all the notes are sold under the shelf registration statement in a shorter timeframe.
   
U.S. Federal Income Tax Considerations
 
We discuss certain U.S. federal income tax considerations relating to the exchange notes in “U.S. Federal Income Tax Considerations.”
   
Use of Proceeds
We will not receive any proceeds from the exchange of notes in this exchange offer.  The proceeds we received from the sale of the original notes were applied as described in connection with that offering.  See “Use of Proceeds.”
   
Exchange Agent
U.S. Bank National Association is serving as the exchange agent in connection with the exchange offering.  Its address, telephone number and facsimile transmission number are listed in “The Exchange Offer—Exchange Agent.”
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


 
4

 

 
The Exchange Notes
 
The terms of the exchange notes and the original notes are identical in all material respects, except that the exchange notes are registered under the Securities Act and the transfer restrictions, registration rights and related additional interest terms applicable to the original notes will not apply to the exchange notes.  The exchange notes will evidence the same indebtedness as the original notes which they will replace and will be governed by the same indenture as the original notes.  The following is a brief summary of some of the terms of the exchange notes.  For a more complete description of the exchange notes, see “Description of Exchange Notes” on page 45.
 
Issuer
James River Coal Company
   
Exchange Notes Offered
$275.0 million aggregate principal amount of 7.875% Senior Notes due 2019.
   
Maturity Date
April 1, 2019.
   
Interest Rate
Interest on the exchange notes will be payable in cash and will accrue at a rate of 7.875% per annum.
   
Interest Payment Dates
April 1 and October 1 of each year, beginning on October 1, 2011.
   
Guarantees
The exchange notes will be guaranteed on a senior unsecured basis by each of our existing and future domestic restricted subsidiaries. All of our existing subsidiaries will be guarantors of the exchange notes.
   
Ranking
The exchange notes will be the general senior unsecured obligations of JRCC and will rank equally in right of payment with all of JRCC’s existing and future senior unsecured indebtedness, including our existing 4.5% convertible senior notes due 2015 (the “2015 convertible senior notes”), and the 2018 convertible senior notes (together with the 2015 convertible senior notes, the “existing convertible senior notes”). The exchange notes will rank senior in right of payment to all of JRCC’s future subordinated indebtedness. The exchange notes will be effectively subordinated in right of payment to all of JRCC’s existing and future secured obligations, including obligations under our revolving credit facility, to the extent of the value of the collateral securing such obligations. The exchange notes will be structurally subordinated to all existing and future indebtedness and liabilities, including trade payables, of our subsidiaries that are not subsidiary guarantors.
 
 
The guarantee of the exchange notes by each subsidiary guarantor will be the general senior unsecured obligation of that subsidiary guarantor and will rank equally in right of payment with all of such subsidiary guarantor’s existing and future senior indebtedness. The guarantee of each subsidiary guarantor will rank senior in right of payment to all of such subsidiary guarantor’s future subordinated indebtedness, and will be effectively subordinated in right of payment to all of such subsidiary guarantor’s existing and future secured obligations, including its guarantees of our revolving credit facility, to the extent of the value of the collateral securing such obligations.
 
 
 
 
 
 
 

 
5

 


   
 
As of June 30, 2011, JRCC and the subsidiary guarantors had no secured indebtedness outstanding, and had approximately $575.2 million of total long term debt outstanding (net of a $102.3 million discount and excluding intercompany indebtedness), including $275.0 million in aggregate principal amount of senior notes and $300.2 million in aggregate principal amount of existing convertible senior notes. Approximately $63.6 million of letters of credit were outstanding under our revolving credit facility as of June 30, 2011.
   
Optional Redemption
We may redeem some or all of the exchange notes, at any time on or after April 1, 2015, at the redemption prices described in this prospectus, together with accrued and unpaid interest, if any, to, but excluding, the redemption date.
 
Before April 1, 2014, we may redeem up to 35% of the aggregate principal amount of the exchange notes at a redemption price (expressed as a percentage of principal amount) equal to 107.875% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, with the net cash proceeds of one or more equity offerings, provided that at least 65% of the principal amount of the exchange notes must remain outstanding immediately after giving effect to such redemption. For additional information about the optional redemption provisions of the exchange notes, see “Description of Exchange Notes—Optional Redemption.”
   
Mandatory Offers to Purchase
If we experience certain kinds of changes of control, we must offer to repurchase the exchange notes at 101% of their principal amount, plus accrued and unpaid interest. See “Description of Exchange Notes—Repurchase of Exchange Notes Upon a Change of Control” for additional information.
If we sell certain of our assets and do not apply the net proceeds to repay other unsubordinated indebtedness or to reinvest in our business, we must offer to purchase the exchange notes (and any other indebtedness that is pari passu with the exchange notes, if required by the terms of such indebtedness) at 100% of their principal amount, plus accrued and unpaid interest. For additional information about the mandatory offers to purchase provisions of the exchange notes, see “Description of Exchange Notes—Covenants—Limitation on Asset Sales.”
   
Certain Covenants
The indenture that will govern the exchange notes contains covenants that, among other things, limit our ability and the ability of our restricted subsidiaries to:
   
  ● 
incur additional debt and issue preferred stock;
     
  ● 
pay dividends, acquire shares of capital stock, make payments on subordinated debt or make investments;
     
  ● 
place limitations on distributions from our subsidiaries;
     
 
issue or sell capital stock of our subsidiaries;
     
 
issue guarantees;
     
 
sell or exchange assets;
     
 
enter into transactions with shareholders and affiliates;
     
 
create liens;
     
 
engage in sale and leaseback transactions;
     
 
engage in unrelated businesses; and
     

 
6

 


     
     
 
effect mergers.
   
 
All of the covenants are subject to a number of important qualifications and exceptions that are described under “Description of Exchange Notes.”
   
Risk Factors
See “Risk Factors” and the other information contained or incorporated by reference in this prospectus for a discussion of factors you should carefully consider before deciding to invest in the exchange notes.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


 
7

 


 
FORWARD-LOOKING STATEMENTS
 
In this prospectus, and from time to time in reports and statements, we make certain comments or disclosures which may be forward-looking in nature. These statements are known as “forward-looking statements,” as that term is used in Section 27A of the Securities Act, and Section 21E of the Exchange Act.  Examples include statements related to our future outlook, anticipated capital expenditures, future cash flows and borrowings, and sources of funding. These forward-looking statements could also involve, among other things, statements regarding our intent, belief, or expectation with respect to: our cash flows, results of operation or financial condition; the consummation of acquisitions, disposition or financing transactions and the effect thereof on our business; governmental policies and regulatory actions; legal and administrative proceedings, settlements, investigations and claims; weather conditions or catastrophic weather-related damage; our production capabilities; availability of transportation; market demand for coal, electricity and steel; competition; our relationships with, and other conditions affecting, our customers; employee workforce factors; our assumptions concerning economically recoverable coal reserve estimates; future economic or capital market conditions; and our plans and objectives for future operations and expansion or consolidation.
 
Any forward-looking statements are subject to the risks and uncertainties that could cause actual cash flows, results of operations, financial condition, cost reductions, acquisitions, dispositions, financing transactions, operations, expansion, consolidation and other events to differ materially from those expressed or implied in such forward-looking statements. Any forward-looking statements are also subject to a number of assumptions regarding, among other things, future economic, competitive and market conditions generally. These assumptions would be based on facts and conditions as they exist at the time such statements are made as well as predictions as to future facts and conditions, the accurate prediction of which may be difficult and involve the assessment of events beyond our control.
 
We wish to caution readers that forward-looking statements, including disclosures which use words such as “believe,” “intend,” “expect,” “may,” “should,” “anticipate,” “could,” “estimate,” “plan,” “predict,” “project,” or their negatives, and similar statements, are subject to certain risks and uncertainties which could cause actual results to differ materially from expectations. These risks and uncertainties include, but are not limited to, the following:
 
 
·
a change in the demand for coal by electric utility customers;
 
 
·
the loss of one or more of our largest customers;
 
 
·
inability to secure new coal supply agreements or to extend existing coal supply agreements at market prices;
 
 
·
our dependency on one railroad for transportation of a large percentage of our products;
 
 
·
failure to exploit additional coal reserves;
 
 
·
the risk that reserve estimates are inadequate;
 
 
·
failure to diversify our operations;
 
 
·
increased capital expenditures;
 
 
·
encountering difficult mining conditions;
 
 
·
increased costs of complying with mine health and safety regulations;
 
 
·
bottlenecks or other difficulties in transporting coal to our customers;
 
 
·
delays in the development of new mining projects;
 
 
·
increased costs of raw materials;
 
 
·
the effects of litigation, regulation and competition;
 
 
·
lack of availability of financing sources;
 
 
·
our compliance with debt covenants;
 
 
·
the risk that we are unable to successfully integrate acquired assets into our business;
 
 
·
our cash flows, results of operation or financial condition;
 
 
·
the consummation of acquisition, disposition or financing transactions and the effect thereof on our business;

 
8

 

 

 
 
·
governmental policies and regulatory actions;
 
 
·
legal and administrative proceedings, settlements, investigations and claims;
 
 
·
weather conditions or catastrophic weather-related damage;
 
 
·
our production capabilities;
 
 
·
availability of transportation;
 
 
·
market demand for coal, electricity and steel;
 
 
·
competition;
 
 
·
our relationships with, and other conditions affecting, our customers;
 
 
·
employee workforce factors;
 
 
·
our assumptions concerning economically recoverable coal reserve estimates;
 
 
·
future economic or capital market conditions;
 
 
·
our plans and objectives for future operations and expansion or consolidation;
 
 
·
our ability to integrate successfully operations that we have or may acquire or develop in the future, including those of IRP, or the risk that any such integration could be more difficult, time-consuming or costly than expected;
 
 
·
the consummation of financing transactions, acquisitions or dispositions and the related effects on our business;
 
 
·
uncertainty of our expected financial performance following completion of the IRP Acquisition;
 
 
·
disruption from the IRP Acquisition making it more difficult to maintain relationships with customers, employees or suppliers; and
 
 
·
the other risk factors set forth in this prospectus under the heading “Risk Factors.”
 
Those are representative of factors that could affect the outcome of the forward-looking statements. These and the other factors discussed elsewhere in this prospectus are not necessarily all of the important factors that could cause our results to differ materially from those expressed in our forward-looking statements. Forward-looking statements speak only as of the date they are made and we undertake no obligation to update them.
 
MARKET AND OTHER DATA
 
The industry and market data and other statistical information used throughout this prospectus are based on independent industry publications, government publications, reports by market research firms or other published independent sources. Some data is also based on our good faith estimates. Although we believe these sources are reliable, we have not independently verified the information and cannot guarantee its accuracy and completeness.
 
 
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RISK FACTORS
 
Investing in the exchange notes involves a high degree of risk. In addition to the other information included and incorporated by reference in this prospectus, you should carefully consider the risks described below before participating in the exchange offer. If any of the following risks actually occurs, our business, results of operations and financial condition will likely suffer. As a result, the trading price of the exchange notes may decline, and you might lose part or all of your investment.
 
Risks Relating to the Exchange Notes and the Exchange Offer
 
Our leverage could adversely harm our financial condition and results of operations.
 
As of June 30, 2011, our total long term debt was approximately $575.2 million (net of discounts on our outstanding convertible notes of $102.3 million).  Our level of indebtedness could have important consequences to you, because:
 
 
·
it could effect our ability to satisfy our outstanding obligations, including those relating to the exchange notes;
 
 
·
a substantial portion of our cash flows from operations will have to be dedicated to interest and principal payments and may not be available for operations, working capital, capital expenditures, expansion, acquisitions or general corporate or other purposes;
 
 
·
it may impair our ability to obtain additional financing in the future;
 
 
·
it may limit our ability to refinance all or a portion of our indebtedness on or before maturity;
 
 
·
it may limit our flexibility in planning for, or reacting to, changes in our business and industry; and
 
 
·
it may make us more vulnerable to downturns in our business, our industry or the economy in general.
 
Our operations may not generate sufficient cash to enable us to service our debt. If we fail to make a payment on the exchange notes, we could be in default on the exchange notes, and this default could cause us to be in default on our other outstanding indebtedness. Conversely, a default on our other outstanding indebtedness may cause a default under the exchange notes. In addition, we may incur additional indebtedness in the future, and, as a result, the related risks that we now face, including those described above, could intensify.
 
The exchange notes and the subsidiary guarantees are unsecured and are effectively subordinated to all of our existing and future secured indebtedness (to the extent of the assets securing such indebtedness), including our revolving credit facility.
 
The exchange notes and the subsidiary guarantees are unsecured and are effectively subordinated to all of our existing and future secured indebtedness (to the extent of the assets securing such indebtedness), including our revolving credit facility. Loans under our revolving credit facility are secured by a security interest in substantially all of our and our subsidiaries’ assets. Under the indenture governing the exchange notes, we are permitted to allow liens securing certain additional indebtedness. If we become insolvent or are liquidated, or if payment under our revolving credit facility or in respect of any other future secured indebtedness is accelerated, the lenders under such credit facility or holders of other future secured indebtedness will be entitled to exercise the remedies available to a secured lender under applicable law (in addition to any remedies that may be available under documents pertaining to such credit facility or such other secured debt). If we are unable to pay our obligations to our secured lenders, they could proceed against any or all of the collateral securing our indebtedness to them. In addition, a breach of the restrictions or covenants contained in the credit agreement governing our revolving credit facility or acceleration by our secured lenders of our obligations to them would cause a default under the exchange notes. We may not have, or be able to obtain, sufficient funds to repay the exchange notes in full upon acceleration after we pay our secured lenders to the extent of their collateral. As of June 30, 2011, we had no secured indebtedness outstanding and we had approximately $575.2 million of total long term debt outstanding, net of a $102.3 million discount and excluding intercompany indebtedness. Our $100.0 million revolving credit facility is secured, and there were $63.6 million letters of credit outstanding thereunder as of June 30, 2011. As of June 30, 2011, our subsidiaries did not have any outstanding indebtedness, excluding intercompany indebtedness. In the event of our insolvency, bankruptcy, liquidation, reorganization, dissolution or winding up, we may not have sufficient assets to pay amounts due on any or all of the exchange notes then outstanding. See “Description of Exchange Notes—Ranking.”

 
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Claims of creditors of non-guarantor subsidiaries will have priority with respect to the assets and earnings of such subsidiaries over holders of the exchange notes.
 
All of our subsidiaries guarantee the exchange notes. However, we may designate (subject to certain exceptions) any of our subsidiaries as “unrestricted” under the indenture, and such unrestricted subsidiaries will not guarantee the exchange notes. Claims of creditors of any subsidiaries that do not guarantee the exchange notes, including trade creditors, secured creditors and creditors holding indebtedness and guarantees issued by such subsidiaries, will generally have priority with respect to the assets and earnings of such subsidiaries over our claims or those of our creditors, including holders of the exchange notes, even if the obligations of those subsidiaries do not constitute senior indebtedness.
 
Because each subsidiary guarantor’s liability under its guarantee may be reduced to zero, avoided or released under certain circumstances, you may not receive any payments from some or all of the guarantors.
 
The exchange notes will be guaranteed by subsidiary guarantors. However, the guarantees by the subsidiary guarantors are limited to the maximum amount that the subsidiary guarantors are permitted to guarantee under applicable law. As a result, a subsidiary guarantor’s liability under its guarantee could be reduced to zero, depending upon the amount of other obligations of such subsidiary guarantor. In addition, holders of the exchange notes will lose the benefit of a particular guarantee if it is released by the trustee or the holders, as applicable, under certain circumstances described under “Description of Exchange Notes—Guarantees.” Holders of the exchange notes will not have a claim as a creditor against any subsidiary that is no longer a guarantor of the exchange notes, and the exchange notes will be structurally subordinated to all existing and future liabilities, including trade payables, of any such subsidiary guarantor.
 
We may not have available cash or the ability to raise additional funds to pay interest on the exchange notes or to purchase the exchange notes upon a change of control.
 
The exchange notes bear interest semi-annually at a rate of 7.875% per year. In addition, we may in certain circumstances be obligated to pay additional interest. If a change of control occurs, holders of the exchange notes may require us to repurchase all or a portion of their exchange notes at a price equal to 101% of the principal amount of the exchange notes, together with any accrued and unpaid interest, if any, to the date of repurchase. We may not have sufficient funds to pay the interest or repurchase price when due.
 
Our ability to make such payments and payments associated with our other indebtedness and to fund planned capital expenditures will depend on our ability to generate or access cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under our revolving credit facility in an amount sufficient to enable us to pay our indebtedness, including the exchange notes, or to fund our other liquidity needs.
 
If we fail to pay interest on the exchange notes or repurchase the exchange notes when required, we will be in default under the indenture governing the exchange notes. See “Description of Exchange Notes—Repurchase of Exchange Notes Upon a Change of Control” and “Description of Exchange Notes—Events of Default.”
 
We rely on dividends, loans and other payments and distributions from our mining subsidiaries to meet our debt service and other obligations.
 
Our principal assets are the direct and indirect equity interests we hold in our subsidiaries. As a result, we will rely on dividends, loans and other payments or distributions from our mining subsidiaries to meet our debt service and other obligations. The ability of our subsidiaries to pay dividends or make loans or other payments or distributions to us will depend substantially on their respective operating results and will be subject to restrictions under, among other things, our revolving credit facility, the indenture governing the exchange notes, other existing and future agreements or financing arrangements and the laws of our subsidiaries’ jurisdictions of organization (which may limit the amount of funds available for the payment of dividends).
 
The indenture for the exchange notes contains various covenants that limit our discretion in the operation of our business.
 
The indenture governing the exchange notes offered hereby contains various provisions that limit our discretion in the operation of our business by restricting our ability to:

 
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·
incur additional debt and issue preferred stock;
 
 
·
pay dividends, acquire shares of capital stock, make payments on subordinated debt or make investments;
 
 
·
place limitations on distributions from certain restricted subsidiaries;
 
 
·
issue or sell capital stock to certain restricted subsidiaries;
 
 
·
issue guarantees;
 
 
·
sell or exchange assets;
 
 
·
enter into transactions with shareholders and affiliates;
 
 
·
create liens;
 
 
·
engage in unrelated businesses; and
 
 
·
effect mergers.
 
Any of these restrictions on our ability to operate our business in our discretion could harm our business seriously by, among other things, limiting our ability to adapt to changing industry conditions and to take advantage of financing, merger and acquisition and other corporate opportunities.
 
We have made only limited covenants in the indenture for the exchange notes, and these limited covenants may not protect your investment.
 
The indenture for the exchange notes contains only limited covenants. Among others, the indenture for the exchange notes does not require us to maintain any financial ratios or specific levels of net worth, revenues, income, cash flows or liquidity and, accordingly, does not protect holders of the exchange notes in the event that we experience significant adverse changes in our financial condition or results of operations.
 
In addition, we could engage in many types of transactions, such as acquisitions, refinancings or recapitalizations, that could substantially affect our capital structure and the value of the exchange notes but may not constitute a “change of control” that permits holders to require us to repurchase their exchange notes.
 
The occurrence of any change of control will also constitute an event of default under our revolving credit facility.
 
The occurrence of any change of control as described under “Description of Exchange Notes—Repurchase of Exchange Notes Upon a Change of Control” pursuant to the terms of the exchange notes will also constitute an event of default under our revolving credit facility. Such event of default would allow the administrative agent and the collateral agent (at the direction of the administrative agent) under our revolving credit facility to, among other remedies, foreclose on the collateral securing the revolving credit facility, terminate the lender commitments and accelerate the maturity of the outstanding loans and other obligations thereunder, which would trigger an event of default with respect to the exchange notes.
 
Federal and state fraudulent conveyance laws may permit a court to void the exchange notes and the subsidiary guarantees, and, if that occurs, you may not receive any payments on the exchange notes or the subsidiary guarantees.
 
The issuance of the exchange notes and the subsidiary guarantees may be subject to review under federal and state fraudulent conveyance statutes. Although the relevant laws may vary from state to state, the payment of consideration generally will be a fraudulent conveyance under such laws if:
 
 
·
it was paid with the intent of hindering, delaying or defrauding creditors; or
 
 
·
we or any subsidiary guarantor received less than reasonably equivalent value or fair consideration in return for issuing either the exchange notes or a subsidiary guarantee, as applicable, and either:
 
 
·
we or the subsidiary guarantor was insolvent or rendered insolvent by reason of the incurrence of the debt;
 
 
·
payment of the consideration left us or the subsidiary guarantor with an unreasonably small amount of capital to carry on our or its business; or

 
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·
we or the subsidiary guarantor intended to, or believed that we or it would, incur debts beyond our or its ability to pay the debt.
 
If a court were to find that the issuance of the exchange notes or a subsidiary guarantee was a fraudulent conveyance, the court could void the payment obligations under the exchange notes or such subsidiary guarantee or subordinate the exchange notes or such subsidiary guarantee in right of payment to existing and future debt, or require the holders of the exchange notes to repay any amounts received with respect to the exchange notes or such subsidiary guarantee. In the event of a finding that a fraudulent conveyance occurred, you may not receive any repayment on the exchange notes, may not have a claim against the subsidiary guarantor and may only be a general unsecured creditor of us or our subsidiary.
 
The measure of insolvency for purposes of these fraudulent transfer laws will vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred. Generally, however, a company would be considered insolvent if:
 
 
·
the sum of its debts, including contingent liabilities, was greater than the fair saleable value of all of its assets;
 
 
·
if the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they became absolute and matured; or
 
 
·
it could not pay its debts as they became due.
 
We believe that after giving effect to the exchange offer we will not be insolvent, will not have unreasonably small capital for our business and will not have incurred debts beyond our ability to pay such debts as they mature. We cannot assure you, however, as to what standard a court would apply in making these determinations or that a court would agree with our conclusions in this regard or, regardless of the standard that a court uses, that the issuance of the exchange notes and the guarantees would not be subordinated to our or any of the subsidiary guarantors’ other debt.
 
The subsidiary guarantees also could be subject to the claim that, because they were incurred for our benefit (and only indirectly for the benefit of the subsidiary guarantors), the obligations of the subsidiary guarantors were incurred for less than reasonably equivalent value or fair consideration. A court could then void a subsidiary guarantor’s obligation under its subsidiary guarantee, subordinate the subsidiary guarantee in right of payment to other debt of the subsidiary guarantor or take other action detrimental to your interests as a holder of exchange notes. If the subsidiary guarantees are unenforceable, your interests would be effectively subordinated in right of payment to all of our subsidiaries’ debt and other liabilities, including liabilities to trade creditors.
 
If an active and liquid trading market for the exchange notes does not develop, the market price of the exchange notes may decline and you may be unable to sell your exchange notes.
 
The exchange notes are a new issue of securities for which there is currently no public market. We do not intend to list the exchange notes on any securities exchange or to arrange for their quotation on any interdealer quotation system. An active trading market may not develop for the exchange notes. We have been informed by the initial purchasers of the original notes that they intend to make a market in the exchange notes after this offering is completed. However, the initial purchasers may cease their market-making at any time. Even if a trading market for the exchange notes does develop, the market may not be liquid. If an active trading market does not develop, you may be unable to resell your exchange notes or may only be able to sell them at a substantial discount. Historically, the market for non-investment grade debt has been subject to disruptions that have caused substantial volatility in the prices of these securities. We cannot assure you that any market for the exchange notes will be free from similar disruptions. Any such disruptions could have an adverse effect on you, as a holder of the exchange notes, regardless of our operating results, financial performance or prospects.
 
An adverse rating of the exchange notes may cause their trading price to fall.
 
We intend to rate the exchange notes, and a rating agency may assign a rating to the exchange notes that is lower than the ratings assigned to our other debt. Ratings agencies also may lower ratings on the exchange notes in the future. If rating agencies assign a lower-than-expected rating or reduce, or indicate that they may reduce, their ratings in the future, the trading price of the exchange notes could significantly decline.

 
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You may not be able to sell the original notes if you do not exchange them in this exchange offer.
 
If you hold original notes and do not exchange them in this offer, you will remain subject to the transfer restrictions applicable to the original notes and reflected in their legend. We issued the original notes under exemptions from the registration requirements of the Securities Act and applicable state securities laws. In general, holders of the original notes may not offer or sell them unless they are exempt from registration or registered under the Securities Act and applicable state securities laws. We have agreed, in certain circumstances, to file a shelf registration statement covering resales of the original notes. Except in those circumstances, we do not intend to register the original notes under the Securities Act. After consummation of this exchange offer, we will have no further obligation to do so. Additionally, there is no existing market for the original notes, and neither we nor any of our affiliates will make a market in the original notes.
 
If you tender original notes in this exchange offer for the purpose of participating in a distribution of the exchange notes, you may be deemed to have received restricted securities. If so, you will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Additionally, as a result of the exchange offer, it is expected that the aggregate principal amount of the original notes will decrease substantially. As a result, it is unlikely that a liquid trading market will exist for the original notes at any time. This lack of liquidity will make transactions more difficult and may reduce the trading price of the original notes. See “The Exchange Offer” and “Description of Exchange Notes—Registration Rights Agreement”.
 
You may not receive the exchange notes in the exchange offer if the exchange offer procedures are not properly followed.
 
We will issue the exchange notes in exchange for your original notes only if you properly tender such original notes before expiration of the exchange offer.  Neither we nor the exchange agent is under any duty to give notification of defects or irregularities with respect to the tenders of the original notes for exchange.
 
Risks Related to the Coal Industry
 
Because the demand and pricing for coal is greatly influenced by consumption patterns of the domestic electricity generation industry and the worldwide steel industry, a reduction in the demand for coal by these industries would likely cause our revenues and profitability to decline significantly.
 
We derived 59% of our total revenues for the six months ended June 30, 2011 and 88% of our total revenues in 2010, from our electric utility customers.  In connection with the IRP Acquisition, we also began to provide metallurgical coal to the steel industry and as a result 41% of our total revenues for the six months ended June 30, 2011 was from industrial customers, including those in the steel industry.
 
We compete with coal producers in the United States and overseas for domestic and international sales. Demand for our coal and the prices that we will be able to obtain primarily will depend upon coal consumption patterns of the electric utility industry and the worldwide steel industry. Consumption by the utility industry is affected by the demand for electricity, environmental and other governmental regulations, technological developments and the price of competing coal and alternative fuel supplies including nuclear, natural gas, oil and renewable energy sources, including hydroelectric power.  Demand by the utility industry is impacted by weather patterns, overall economic activity and the associated demand for power by industrial users. Consumption by the steel industry is primarily affected by economic growth and the demand for steel used in construction as well as appliances and automobiles.

 
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Portions of our coal reserves possess quality characteristics that enable us to mine, process and market them as either metallurgical coal or high quality steam coal, depending on the prevailing conditions in the markets for metallurgical and steam coal. A decline in the metallurgical market relative to the steam market could cause us to shift coal from the metallurgical market to the steam market, potentially reducing the price we could obtain for this coal and adversely impacting our cash flows, results of operations or financial condition
 
Any downward pressure on coal prices would likely cause our profitability to decline.
 
Changes in the export and import markets for coal products could affect the demand for our coal, our pricing and our profitability.
 
We compete in a worldwide market. The pricing and demand for our products is affected by a number of factors beyond our control. These factors include:
 
 
·
currency exchange rates;
 
 
·
growth of economic development;
 
 
·
price of alternative sources of electricity;
 
 
·
worldwide demand; and
 
 
·
ocean freight rates.
 
Any decrease in the amount of coal exported from the United States, or any increase in the amount of coal imported into the United States, could have a material adverse impact on the demand for our coal, our pricing and our profitability.
 
Increased consolidation and competition in the U.S. coal industry may adversely affect our revenues and profitability.
 
During the last several years, the U.S. coal industry has experienced increased consolidation, which has contributed to the industry becoming more competitive. Consequently, many of our competitors in the domestic coal industry are major coal producers who have significantly greater financial resources than us. The intense competition among coal producers may impact our ability to retain or attract customers and may therefore adversely affect our future revenues and profitability.
 
Fluctuations in transportation costs and the availability and dependability of transportation could affect the demand for our coal and our ability to deliver coal to our customers.
 
Increases in transportation costs could have an adverse effect on demand for our coal.  Customers choose coal supplies based, primarily, on the total delivered cost of coal.  Any increase in transportation costs would cause an increase in the total delivered cost of coal.  That could cause some of our customers to seek less expensive sources of coal or alternative fuels to satisfy their energy needs.  In addition, significant decreases in transportation costs from other coal-producing regions, both domestic and international, could result in increased competition from coal producers in those regions.  For instance, coal mines in the western United States could become more attractive as a source of coal to consumers in the eastern United States, if the costs of transporting coal from the West were significantly reduced.
 
Our Central Appalachia mines generally ship coal via rail systems, ocean vessels and barges.  During 2010, we shipped in excess of 90% of our coal from our Central Appalachia mines via CSX.  In the Midwest, we shipped in excess of 65% of our produced coal by truck and the remainder via the rail system or by barge.  We believe that our 2011 transportation modes will continue to be comparable to those used in 2010, except that the shipments from the newly acquired IRP mines will also use ocean vessels and barges.  Our dependence upon railroads, third party trucking companies, ocean vessels and barges impacts our ability to deliver coal to our customers.  Disruption of service 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.  Decreased performance levels over longer periods of time could cause our customers to look elsewhere for their fuel needs, negatively affecting our revenues and profitability.
 
In past years, the major eastern railroads (CSX and Norfolk Southern) have experienced periods of increased overall rail traffic due to an expanding economy and shortages of both equipment and personnel.  This increase in traffic could impact our ability to obtain the necessary rail cars to deliver coal to our customers and have an adverse impact on our financial results.
 
Shortages or increased costs of skilled labor in the coal regions that we operate may hamper our ability to achieve high labor productivity and competitive costs.
 
Coal mining continues to be a labor-intensive industry. In times of increased demand, many producers attempt to increase coal production, which historically has resulted in a competitive market for the limited supply of trained coal miners. In some cases, this market situation has caused compensation levels to increase, particularly for “skilled” positions such as electricians and mine foremen. To maintain current production levels, we may be forced to respond to increases in wages and other forms of compensation, and related recruiting efforts by our competitors. Any future shortage of skilled miners, or increases in our labor costs, could have an adverse impact on our labor productivity and costs and on our ability to expand production.

 
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Government laws, regulations and other requirements relating to the protection of the environment, health and safety and other matters impose significant costs on us, and future requirements could limit our ability to produce coal.
 
We are subject to extensive federal, state and local regulations with respect to matters such as:
 
 
·
employee health and safety;
 
 
·
permitting and licensing requirements;
 
 
·
air quality standards;
 
 
·
water quality standards;
 
 
·
plant, wildlife and wetland protection;
 
 
·
blasting operations;
 
 
·
the management and disposal of hazardous and non-hazardous materials generated by mining operations;
 
 
·
the storage of petroleum products and other hazardous substances;
 
 
·
reclamation and restoration of properties after mining operations are completed;
 
 
·
discharge of materials into the environment, including air emissions and wastewater discharge;
 
 
·
surface subsidence from underground mining; and
 
 
·
the effects of mining operations on groundwater quality and availability.
 
Complying with these requirements, including the terms of our permits, has had, and will continue to have, a significant effect on our costs of operations. We could incur substantial costs, including clean up costs, fines, civil or criminal sanctions and third party claims for personal injury or property damage as a result of violations of or liabilities under these laws and regulations.
 
The coal industry is also affected by significant legislation mandating specified benefits for retired miners. In addition, the utility industry, which is the most significant end user of coal, is subject to extensive regulation regarding the environmental impact of its power generating activities. Coal contains impurities, including sulfur, mercury, chlorine and other elements or compounds, many of which are released into the air when coal is burned. Stricter environmental regulations of emissions from coal-fired electric generating plants could increase the costs of using coal, thereby reducing demand for coal as a fuel source or the volume and price of our coal sales, or making coal a less attractive fuel alternative in the planning and building of utility power plants in the future.
 
New legislation, regulations and orders adopted or implemented in the future (or changes in interpretations of existing laws and regulations) may materially adversely affect our mining operations, our cost structure and our customers’ operations or ability to use coal.
 
The majority of our coal supply agreements contain provisions that allow the purchaser to terminate its contract if legislation is passed that either restricts the use or type of coal permissible at the purchaser’s plant or results in too great an increase in the cost of coal. These factors and legislation, if enacted, could have a material adverse effect on our financial condition and results of operations.
 
The passage of legislation responsive to the Framework Convention on Global Climate Change or similar governmental initiatives could result in restrictions on coal use.
 
The United States and more than 160 other nations are signatories to the 1992 Framework Convention on Global Climate Change, commonly known as the Kyoto Protocol, which is intended to limit or capture emissions of greenhouse gases, such as carbon dioxide.  In December 1997, the signatories to the convention established a potentially binding set of emissions targets for developed nations.  Although the specific emissions targets vary from country to country, the United States would be required to reduce emissions to 93% of 1990 levels over a five-year budget period from 2008 through 2012.  The U.S. Senate has not ratified the treaty commitments.  The current administration could support the effort to ratify the treaty.  With Russia’s ratification of the Kyoto Protocol in 2004, it became binding on all ratifying countries.  The implementation of the Kyoto Protocol in the United States and other countries, and other emissions limits, such as those adopted by the European Union, could affect demand for coal inside and outside the United States.  If the Kyoto Protocol or other comprehensive legislation or regulations focusing on greenhouse gas emissions is enacted by the United States, it could have the effect of restricting the use of coal.  Other efforts to reduce emissions of greenhouse gases and federal initiatives to encourage the use of natural gas also may affect the use of coal as an energy source.

 
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In December 2009, approximately 190 countries participated in the United Nations Climate Change Conference in Copenhagen. The participants “took note” of a non-binding accord under which participating nations would report, by January 31, 2010, their commitments to reduce greenhouse gas emissions. Under this non-binding framework, the U.S. has committed to cut greenhouse gas emissions by 17% below 2005 levels by 2020, 42% below 2005 levels by 2030, and 83% below 2005 levels by 2050.
 
We are subject to the federal Clean Water Act and similar state laws which impose treatment, monitoring and reporting obligations.
 
The federal Clean Water Act and corresponding state laws affect coal mining operations by imposing restrictions on discharges into regulated waters. Permits requiring regular monitoring and compliance with effluent limitations and reporting requirements govern the discharge of pollutants into regulated waters. New requirements under the Clean Water Act (such as the proposal discussed below in the risk factor “We must obtain governmental permits and approvals for mining operations, which can be a costly and time consuming process and result in restrictions on our operations”) and corresponding state laws could cause us to incur significant additional costs that adversely affect our operating results.
 
Regulations have expanded the definition of black lung disease and generally made it easier for claimants to assert and prosecute claims, which could increase our exposure to black lung benefit liabilities.
 
In January 2001, the United States Department of Labor amended the regulations implementing the federal black lung laws to give greater weight to the opinion of a claimant’s treating physician, expand the definition of black lung disease and limit the amount of medical evidence that can be submitted by claimants and respondents. The amendments also alter administrative procedures for the adjudication of claims, which, according to the Department of Labor, results in streamlined procedures that are less formal, less adversarial and easier for participants to understand. These and other changes to the federal black lung regulations could significantly increase our exposure to black lung benefits liabilities.
 
The Patient Protection and Affordable Care Act of 2010 (Act) was enacted into law on March 23, 2010 and included a black-lung provision that creates a rebuttable presumption that a miner with at least 15 years of service, with totally disabling pulmonary or respiratory lung impairment and negative radiographic chest x-ray evidence would be disabled due to pneumoconiosis and be eligible for black lung benefits. The new Act also makes it easier for widows of miners to become eligible for benefits. The enactment of this new legislation could significantly impact the Company’s future payments for black lung benefits.
 
In recent years, legislation on black lung reform has been introduced but not enacted in Congress and in the Kentucky legislature. It is possible that additional legislation will be reintroduced for consideration by Congress. If any of the proposals included in this or similar legislation is passed, the number of claimants who are awarded benefits could significantly increase. Any such changes in black lung legislation, if approved, may adversely affect our business, financial condition and results of operations.
 
Extensive environmental laws and regulations affect the end-users of coal and could reduce the demand for coal as a fuel source and cause the volume of our sales to decline.
 
The Clean Air Act and similar state and local laws extensively regulate the amount of sulfur dioxide, particulate matter, nitrogen oxides, mercury and other compounds emitted into the air from electric power plants, which are the largest end-users of our coal. Compliance with such laws and regulations, which can take a variety of forms, may reduce demand for coal as a fuel source because they can require significant emissions control expenditures for coal-fired power plants to attain applicable ambient air quality standards, which may lead these generators to switch to other fuels that generate less of these emissions and may also reduce future demand for the construction of coal-fired power plants.
 
The EPA has adopted more stringent National Ambient Air Quality Standards for nitrogen dioxide and sulfur dioxide, both of which are emitted from coal-fired combustion units. The EPA is considering whether to adopt a more stringent standard for ground-level ozone, to which emissions from coal combustion units can contribute. The demand for coal could be affected at electric generating facilities located in geographic areas that exceed the modified standards.

 
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The U.S. Department of Justice, on behalf of the EPA, has filed lawsuits against several investor-owned electric utilities and brought an administrative action against one government-owned utility for alleged violations of the Clean Air Act. We supply coal to some of the currently-affected utilities, and it is possible that other of our customers will be sued. These lawsuits could require the utilities to pay penalties, install pollution control equipment or undertake other emission reduction measures, any of which could adversely impact their demand for our coal.
 
A regional haze program initiated by the EPA to protect and to improve visibility at and around national parks, national wilderness areas and international parks restricts the construction of new coal-fired power plants whose operation may impair visibility at and around federally protected areas and may require some existing coal-fired power plants to install additional control measures designed to limit haze-causing emissions.
 
The Clean Air Act also imposes standards on sources of hazardous air pollutants. For example, on May 3, 2011, the EPA issued a proposed rule to regulate emissions of mercury and other inorganic pollutants from electric power plants.  The proposal also includes standards for nitrogen oxides, sulfur dioxide, and particulate matter.  These standards and future standards could have the effect of decreasing demand for coal. So-called multi-pollutant bills, which could regulate additional air pollutants, have been proposed by various members of Congress. If such initiatives are enacted into law, power plant operators could choose other fuel sources to meet their requirements, reducing the demand for coal.
 
On July 6, 2011, the EPA issued its Cross-State Air Pollution Rule (CSAPR) which regulates power plant emissions in 22 states.  Effective January 2012, the rule requires significant reductions in emissions of sulfur dioxide and nitrogen oxide, with the applicable requirement being determined on a state-by-state basis.  Further reductions are required after 2014.  The CSAPR also includes a cap-and-trade mechanism that allows intrastate and limited interstate trading of emissions allowances. The EPA also issued a supplemental proposal to require an additional six states to make summertime nitrogen oxide reductions, bringing the total number of covered states to 28.
 
As a result of the U.S. Supreme Court’s decision on April 2, 2007 in Massachusetts, et al. v. EPA, 549 U.S. 497 (2007), finding that greenhouse gases fall within the Clean Air Act definition of “air pollutant,” the EPA was required to determine whether emissions of greenhouse gases “endanger” public health or welfare. In December 2009, the EPA published its finding that current and projected concentrations of carbon dioxide and five other greenhouse gases in the atmosphere threaten the public’s health and welfare. This finding enables the EPA to proceed with a broad regulatory program for the control of greenhouse gas emissions, including carbon dioxide emissions. The EPA has recently completed several rulemaking actions indicating its intent to do so, including, among others, a final greenhouse gas reporting rule for certain major stationary source permitting programs, final regulations to control greenhouse gas emissions from light duty vehicles, and a final “tailoring” rule explaining how it would implement the Clean Air Act’s Title V and prevention of significant deterioration permitting programs with respect to greenhouse gas emissions from major stationary sources In recent legislative sessions, both houses of Congress have considered, but failed to enact, new legislation that could establish a national cap on, or other regulation of, carbon emissions and other greenhouse gases. Recent proposals include a cap and trade system that would require the purchase of emission permits, which could be traded on the open market. These and other proposals would make it more costly to operate coal-fired plants and could make coal a less attractive fuel for future power plants. Any new or proposed requirements adversely affecting the use of coal could adversely affect our operations and results.
 
The permitting of new coal-fired power plants has also recently been contested by state regulators and environmental organizations based on concerns relating to greenhouse gas emissions. In several litigation cases, plaintiffs are seeking various remedies, including injunctive relief, against power plant owners. However, the risk of an adverse outcome has been mitigated by the June 20, 2011 decision of the U.S. Supreme Court in Connecticut v. AEP.  The Supreme Court reversed the decision of the United States Court of Appeals for the Second Circuit which had allowed plaintiffs’ claims that public utilities’ greenhouse gas emissions created a “public nuisance” to go to trial.  The Supreme Court held that the EPA’s authority to regulate greenhouse gas emissions under the Clean Air Act displaces federal common law claims.  The effect of these recent cases may also be mitigated in the event Congress adopts greenhouse gas legislation and because the EPA has finalized the adoption of greenhouse gas emission standards. Nevertheless, increased efforts to control greenhouse gas emissions by state, federal, judicial or international authorities could result in reduced demand for coal.
 
The EPA has issued a proposed rule to regulate the management of coal ash that results from the combustion of coal.  The proposed rule would classify coal ash produced at electric power plants as a waste, thereby making it subject to significant restrictions on storage and disposal.  In conjunction with the rulemaking, EPA has conducted assessments of the integrity of dams, impoundments, and other structures where coal ash from electric power plants is deposited.  Although the rulemaking has been delayed, further scrutiny of coal ash management practices could result in reduced demand for coal.

 
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We must obtain governmental permits and approvals for mining operations, which can be a costly and time consuming process and result in restrictions on our operations.
 
Numerous governmental permits and approvals are required for mining operations. Our operations are principally regulated under permits issued by state regulatory and enforcement agencies pursuant to the federal Surface Mining Control and Reclamation Act (SMCRA). Regulatory authorities exercise considerable discretion in the timing and scope of permit issuance. Requirements imposed by these authorities may be costly and time consuming and may result in delays in the commencement or continuation of exploration or production operations. In addition, we often are required to prepare and present to federal, state and local authorities data pertaining to the effect or impact that proposed exploration for or production of coal might have on the environment. Further, the public may comment on and otherwise engage in the permitting process, including through intervention in the courts. Accordingly, the permits we need may not be issued, or, if issued, may not be issued in a timely fashion, or may involve requirements that restrict our ability to conduct our mining operations or to do so profitably.
 
Prior to placing excess fill material in valleys in connection with surface mining operations, coal mining companies are required to obtain a permit from the U.S. Army Corps of Engineers (Corps) under Section 404 of the Clean Water Act (404 Permit). Previously, this permit could be either a simplified Nationwide Permit #21 (NWP 21) or a more complicated individual permit. Litigation respecting the validity of the NWP 21 permit program has been ongoing for several years. Recently, the Corps announced its decision to suspend the use of NWP 21 in a six state Appalachian region, including Kentucky and West Virginia, where we operate. Litigation respecting the issuance of certain Section 404 permits has also been ongoing for several years, focusing primarily on whether the Corps’ decision to issue such permits conformed to the requirements of the Clean Water Act and/or the National Environmental Policy Act. The matters at issue in such litigation are such that a ruling for the plaintiffs could have an adverse impact on our planned surface mining operations.
 
In 2009, the EPA announced publicly that it will exercise its statutory right to more actively review Section 404 permitting actions by the Corps. In the third quarter of 2009, the EPA announced that it would further review 79 surface mining permit applications, including four of our permits. These 79 permits were identified as likely to impact water quality and therefore requiring additional review under the Clean Water Act. EPA oversight could further delay and/or restrict the issuance of such permits, either of which events could have an adverse impact on our planned mining operations. More recently, the EPA announced acceptable levels for the conductivity of water in streams receiving discharge from permitted coal mining sites in a six-state area of Central Appalachia, including Kentucky and West Virginia. If such levels of conductivity are enforced as numerical limits, they could have a significant impact on our ability to secure Section 404 permits and have a material impact on our operations. The National Mining Association (NMA), on behalf of its member companies including coal producers such as ourselves, has filed suit against the EPA and the Corps contesting the legality of the enhanced review process and the imposition of such conductivity standard. Recently, the U.S. District Court for the District of Columbia, before which this suit was brought, issued its opinion denying the EPA’s motion to dismiss the case on grounds that there was no final agency action, that the case was not ripe for adjudication and that the NMA lacked standing. The court also denied the NMA’s motion for a preliminary injunction of EPA’s exercise of such oversight and the imposition of such standard. The states of West Virginia and Kentucky, and the coal associations in those states, have also filed suits contesting these actions by the EPA.
 
We have significant reclamation and mine closure obligations. If the assumptions underlying our accruals are materially inaccurate, we could be required to expend greater amounts than anticipated.
 
The SMCRA establishes operational, reclamation and closure standards for all aspects of surface mining as well as many aspects of underground mining. We accrue for the costs of current mine disturbance and of final mine closure, including the cost of treating mine water discharge where necessary. Under U.S. generally accepted accounting principles we are required to account for the costs related to the closure of mines and the reclamation of the land upon exhaustion of coal reserves. The fair value of an asset retirement obligation is recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The present value of the estimated asset retirement costs is capitalized as part of the carrying amount of the long-lived asset. At June 30, 2011, we had accrued $101.4 million related to estimated mine reclamation costs. The amounts recorded are dependent upon a number of variables, including the estimated future retirement costs, estimated proven reserves, assumptions involving profit margins, inflation rates, and the assumed credit-adjusted interest rates. Furthermore, these obligations are unfunded. If these accruals are insufficient or our liability in a particular year is greater than currently anticipated, our future operating results could be adversely affected.

 
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Foreign currency fluctuations could adversely affect the competitiveness of our coal abroad.
 
We rely on customers in other countries for a portion of our sales, with shipments to countries in North America, South America, Europe, Asia and Africa. We compete in these international markets against coal produced in other countries. Coal is sold internationally in United States dollars. As a result, mining costs in competing producing countries may be reduced in United States dollar terms based on currency exchange rates, providing an advantage to foreign coal producers. Currency fluctuations among countries purchasing and selling coal could adversely affect the competitiveness of our coal in international markets.
 
Terrorist attacks and threats, escalation of military activity in response to such attacks or acts of war may negatively affect our business, financial condition and results of operations.
 
Terrorist attacks and threats, escalation of military activity in response to such attacks or acts of war may negatively affect our business, financial condition and results of operations. Our business is affected by general economic conditions, fluctuations in consumer confidence and spending, and market liquidity, which can decline as a result of numerous factors outside of our control, such as terrorist attacks and acts of war. Future terrorist attacks against U.S. targets, rumors or threats of war, actual conflicts involving the United States or its allies, or military or trade disruptions affecting our customers could cause delays or losses in transportation and deliveries of coal to our customers, decreased sales of our coal and extension of time for payment of accounts receivable from our customers. Strategic targets such as energy-related assets may be at greater risk of future terrorist attacks than other targets in the United States. In addition, disruption or significant increases in energy prices could result in government-imposed price controls. It is possible that any, or a combination, of these occurrences could have a material adverse effect on our business, financial condition and results of operations.
 
Risks Related to Our Operations
 
We have experienced operating losses and net losses in recent years and may experience losses in the future.
 
We experienced operating losses and net losses in each of the years ended December 31, 2008 and 2007. While we were profitable in the years ended December 31, 2010 and 2009, we must continue to carefully manage our business, including the management of our contracts and our production costs. Although we seek to balance the open portion of contracts to achieve optimal revenues over the long term, the market price of coal is affected by many factors that are outside of our control. Our production costs have increased in recent years, and we expect higher costs to continue for the next several years. Additionally, certain of our long term contracts for sales of coal are priced substantially above current spot prices for coal. Our profitability in the future will be impacted by the price levels that we achieve on future long term contracts. Accordingly, we cannot assure you that we will be able to achieve profitability in the future.
 
We may fail to realize the growth prospects and cost savings anticipated as a result of the IRP Acquisition.
 
The success of the IRP Acquisition will depend, in part, on our ability to realize the anticipated business opportunities and growth prospects from combining our businesses with those of IRP. We may never realize these business opportunities and growth prospects. Integrating operations will be complex and will require significant efforts and expenditures. Our management might have its attention diverted while trying to integrate operations and corporate and administrative infrastructures. We might experience increased competition that limits our ability to expand our business, and we might not be able to capitalize on expected business opportunities, including retaining current customers. If any of these factors limit our ability to integrate the operations successfully or on a timely basis, the expectations of future results of operations expected to result from the IRP Acquisition might not be met.
 
It is possible that the integration process could result in the loss of key employees, the disruption of each company’s ongoing businesses, tax costs or inefficiencies, or inconsistencies in standards, controls, information technology systems, procedures and policies, any of which could adversely affect our ability to maintain relationships with clients, employees or other third parties or our ability to achieve the anticipated benefits of the IRP Acquisition and could harm our financial performance.
 
We will incur significant transaction and acquisition-related integration costs in connection with the IRP Acquisition.
 
We are currently implementing our plan to integrate the operations of IRP. In connection with that plan, we anticipate that we will incur certain non-recurring charges, such as system conversion costs, in connection with this integration. We cannot identify the timing, nature and amount of all such charges at this time.  The acquisition-related integration costs could materially affect our results of operations in the period in which such charges are recorded. Although we believe that the realization of efficiencies related to the integration of the businesses, will offset acquisition-related costs over time, this net benefit may not be achieved in the near term, or at all.

 
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The loss of, or significant reduction in, purchases by our largest customers could adversely affect our revenues.
 
For the six months ended June 30, 2011, we generated approximately 23% of our total revenue from South Carolina Public Service Authority and 13% of our total revenue from Georgia Power Company. At June 30, 2011, we had coal supply agreements with these customers that expire in 2011 to 2012. The execution of a substantial coal supply agreement is frequently the basis on which we undertake the development of coal reserves required to be supplied under the contract.
 
Many of our coal supply agreements contain provisions that permit adjustment of the contract price upward or downward at specified times. Failure of the parties to agree on a price under those provisions may allow either party to either terminate the contract or reduce the coal to be delivered under the contract. Coal supply agreements also typically contain force majeure provisions allowing temporary suspension of performance by the customer or us for the duration of specified events beyond the control of the affected party. Most coal supply agreements contain provisions requiring us to deliver coal meeting quality thresholds for certain characteristics such as:
 
 
·
British thermal units (Btu’s);
 
 
·
sulfur content;
 
 
·
ash content;
 
 
·
grindability; and
 
 
·
ash fusion temperature.
 
In some cases, failure to meet these specifications could result in economic penalties, including price adjustments, the rejection of deliveries or termination of the contracts. In addition, all of our contracts allow our customers to renegotiate or terminate their contracts in the event of changes in regulations or other governmental impositions affecting our industry that increase the cost of coal beyond specified limits. Further, we have been required in the past to purchase sulfur credits or make other pricing adjustments to comply with contractual requirements relating to the sulfur content of coal sold to our customers, and may be required to do so in the future.
 
The operating profits we realize from coal sold under supply agreements depend on a variety of factors. In addition, price adjustment and other provisions may increase our exposure to short term coal price volatility provided by those contracts. If a substantial portion of our coal supply agreements expire or are modified or terminated, we could be materially adversely affected to the extent that we are unable to find alternate buyers for our coal at the same level of profitability. As a result, we might not be able to replace existing long term coal supply agreements at the same prices or with similar profit margins when they expire or are modified or terminated.
 
Certain of our contracts are fixed in quantity but are priced on a quarterly basis. Our operating results are impacted by these quarterly changes in prices. A reduction in prices will result in a decrease to our profit margins.
 
In addition, our ability to receive payment for coal sold and delivered under these contracts depends on the continued creditworthiness of our customers. The bankruptcy of any of our customers could materially and adversely affect our financial position.
 
Our operating results will be negatively impacted if we are unable to balance our mix of contract and spot sales.
 
We have implemented a sales plan that includes long term contracts (one year or greater) and spot sales/ short term contracts (less than one year). We have structured our sales plan based on the assumptions that demand will remain adequate to maintain current shipping levels and that any disruptions in the market will be relatively short-lived. If we are unable to maintain our planned balance of contract sales with spot sales, or our markets become depressed for an extended period of time, our volumes and margins could decrease, negatively affecting our operating results.

 
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Our ability to operate our company effectively could be impaired if we lose senior executives or fail to employ needed additional personnel.
 
The loss of senior executives could have a material adverse effect on our business. There may be a limited number of persons with the requisite experience and skills to serve in our senior management positions. We may not be able to locate or employ qualified executives on acceptable terms. In addition, as our business develops and expands, we believe that our future success will depend greatly on our continued ability to attract and retain highly skilled and qualified personnel. We might not continue to be able to employ key personnel, or to attract and retain qualified personnel in the future. Failure to retain senior executives or attract key personnel could have a material adverse effect on our operations and financial results.
 
Underground mining is subject to increased regulation, and may require us to incur additional cost.
 
Underground coal mining is subject to ever increasing federal and state regulatory control relating to mine safety and health and to ever increasing enforcement activities intended to compel compliance with such laws and regulations. Within the last few years the industry has seen enactment of the federal MINER Act and subsequent additional legislation and regulation imposing significant new safety initiatives and the Dodd-Frank Act imposing new mine safety information reporting requirements. Various states also have enacted their own new laws and regulations imposing additional requirements related to mine safety. These new laws and regulations have and will continue to cause us to incur substantial additional costs, which will adversely impact our operating performance.
 
The U.S. Department of Labor, Mine Safety and Health Administration (MSHA), periodically notifies certain coal mines that a potential pattern of violations may exist based upon an initial statistical screening of violation history and pattern criteria review by MSHA. In the past, certain of our mines have received notices that a potential pattern of violations might exist. Upon receipt of such a notification, we conduct a comprehensive review of the operation that received the notification and prepare and submit to MSHA a plan designed to enhance employee safety at the mine through better education, training, mining practices, and safety management. Following implementation of the plan, MSHA conducts a complete inspection of the mine and further evaluates the situation and then advises the operator whether a pattern of violation exists and whether further action will be taken. The failure to remediate the situation resulting in a finding that a pattern of violation does exist at a mine could have a significant impact on our operations, including the permanent or temporary closure of our mines.
 
On April 12, 2011, MSHA notified our subsidiary, Bledsoe Coal Corporation, that a Pattern of Violation (POV) exists at its Abner Branch Rider Mine.  As a result, within 90 days of the POV notice, if MSHA finds any violation of a mandatory health or safety standard that could significantly and substantially contribute to the cause and effect of a coal or other mine safety or health hazard, MSHA shall require all persons in the areas affected by such violation to be withdrawn from, and to be prohibited from entering such area until MSHA determines the violation has been abated.  The POV notice will terminate if, upon inspection of the entire mine, MSHA finds no S&S violations of mandatory safety and health standards. The Abner Branch Rider Mine produced approximately 220,000 tons in 2010.  The POV could have a significant impact on the operations of that mine.
 
In 2010, a U.S. House of Representatives committee approved a mine safety bill which would give MSHA additional powers to temporarily close mines, mandate additional safety training and impose larger penalties on companies and their executives. A comparable bill introduced in the US Senate failed to receive the necessary votes for passage. If reintroduced and subsequently enacted, this or a similar bill could further increase our costs and impact operating performance.
 
The Dodd-Frank Act includes new requirements for reporting certain mine safety information on a Form 8-K, and for including additional mine safety disclosures in our periodic reports filed with the SEC. Under the Dodd-Frank Act, the SEC is authorized to issue rules and regulations regarding mine safety disclosures, and the SEC has issued proposed rules as of the date of this filing. While the new rules are not yet in effect, such rulemaking by the SEC may cause us to incur additional costs in complying with the new reporting and disclosure requirements.
 
Unexpected increases in raw material costs could significantly impair our operating results.
 
Our coal mining operations use significant amounts of steel, petroleum products and other raw materials in various pieces of mining equipment, supplies and materials, including the roof bolts required by the room and pillar method of mining. Recently and historically, petroleum prices and other commodity prices have been volatile. If the price of steel or other of these materials increase, our operational expenses will increase, which could have a significant negative impact on our cash flow and operating results.

 
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Coal mining is subject to conditions or events beyond our control, which could cause our quarterly or annual results to deteriorate.
 
Our coal mining operations are conducted, in large part, in underground mines and, to a lesser extent, at surface mines. These mines are subject to conditions or events beyond our control that could disrupt operations, affect production and the cost of mining at particular mines for varying lengths of time and have a significant impact on our operating results. These conditions or events have included:
 
 
·
variations in thickness of the layer, or seam, of coal;
 
 
·
variations in geological conditions;
 
 
·
amounts of rock and other natural materials intruding into the coal seam;
 
 
·
equipment failures and unexpected major repairs;
 
 
·
unexpected maintenance problems;
 
 
·
unexpected departures of one or more of our contract miners;
 
 
·
fires and explosions from methane and other sources;
 
 
·
accidental mine water discharges or other environmental accidents;
 
 
·
other accidents or natural disasters; and
 
 
·
weather conditions.
 
Mining in Central Appalachia is complex due to geological characteristics of the region.
 
The geological characteristics of coal reserves in Central Appalachia, such as depth of overburden and coal seam thickness, make them complex and costly to mine. As mines become depleted, replacement reserves may not be available when required or, if available, may not be capable of being mined at costs comparable to those characteristic of the depleting mines. In addition, as compared to mines in other regions permitting, licensing and other environmental and regulatory requirements are more costly and time consuming to satisfy. These factors could materially adversely affect the mining operations and cost structures of, and customers’ ability to use coal produced by, operators in Central Appalachia, including us.
 
Our future success depends upon our ability to acquire or develop additional coal reserves that are economically recoverable.
 
Our recoverable reserves decline as we produce coal. Since we attempt, where practical, to mine our lowest-cost reserves first, we may not be able to mine all of our reserves at a similar cost as we do at our current operations. Our planned development and exploration projects might not result in significant additional reserves, and we might not have continuing success developing additional mines. For example, our construction of additional mining facilities necessary to exploit our reserves could be delayed or terminated due to various factors, including unforeseen geological conditions, weather delays or unanticipated development costs. Our ability to acquire additional coal reserves in the future also could be limited by restrictions under our existing or future debt facilities, competition from other coal companies for attractive properties or the lack of suitable acquisition candidates.
 
In order to develop our reserves, we must receive various governmental permits. We have not yet applied for the permits required or developed the mines necessary to mine all of our reserves. In addition, we might not continue to receive the permits necessary for us to operate profitably in the future. We may not be able to negotiate new leases from the government or from private parties or obtain mining contracts for properties containing additional reserves or maintain our leasehold interests in properties on which mining operations are not commenced during the term of the lease.

 
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Factors beyond our control could impact the amount and pricing of coal supplied by our independent contractors and other third parties.
 
In addition to coal we produce from our Company-operated mines, we have mines that typically are operated by independent contract mine operators, and we purchase coal from third parties for resale. For the remainder of 2011, we anticipate approximately 20% of our total production will come from mines operated by independent contract mine operators and from third party purchased coal sources.  Operational difficulties, changes in demand for contract mine operators from our competitors and other factors beyond our control could affect the availability, pricing and quality of coal produced for us by independent contract mine operators. Disruptions in supply, increases in prices paid for coal produced by independent contract mine operators or purchased from third parties, or the availability of more lucrative direct sales opportunities for our purchased coal sources could increase our costs or lower our volumes, either of which could negatively affect our profitability.
 
We face significant uncertainty in estimating our recoverable coal reserves, and variations from those estimates could lead to decreased revenues and profitability.
 
Forecasts of our future performance are based on estimates of our recoverable coal reserves. Estimates of those reserves were initially based on studies conducted by Marshall Miller & Associates, Inc. in 2004 for our CAPP reserves and 2005 and 2006 for our Midwest reserves in accordance with industry-accepted standards which we have updated for current activity using similar methodologies. A number of sources of information were used to determine recoverable reserves estimates, including:
 
 
·
currently available geological, mining and property control data and maps;
 
 
·
our own operational experience and that of our consultants;
 
 
·
historical production from similar areas with similar conditions;
 
 
·
previously completed geological and reserve studies;
 
 
·
the assumed effects of regulations and taxes by governmental agencies; and
 
 
·
assumptions governing future prices and future operating costs.
 
Reserve estimates will change from time to time to reflect, among other factors:
 
 
·
mining activities;
 
 
·
new engineering and geological data;
 
 
·
acquisition or divestiture of reserve holdings; and
 
 
·
modification of mining plans or mining methods.
 
Therefore, actual coal tonnage recovered from identified reserve areas or properties, and costs associated with our mining operations, may vary from estimates. These variations could be material, and therefore could result in decreased profitability.
 
Our operations could be adversely affected if we are unable to obtain required surety bonds.
 
Federal and state laws require bonds to secure our obligations to reclaim lands used for mining, to pay federal and state workers’ compensation and to satisfy other miscellaneous obligations. As of June 30, 2011, we had outstanding surety bonds with third parties for post-mining reclamation totaling $108.0 million. Furthermore, we have surety bonds for an additional $44.8 million in place for our federal and state workers’ compensation obligations and other miscellaneous obligations. Insurance companies have informed us, along with other participants in the coal industry, that they no longer will provide surety bonds for workers’ compensation and other post-employment benefits without collateral. We have satisfied our obligations under these statutes and regulations by providing letters of credit, cash collateral or other assurances of payment. However, letters of credit can be significantly more costly to us than surety bonds. The issuance of letters of credit under our Revolver also reduces amounts that we can borrow under our Revolver. If we are unable to secure surety bonds for these obligations in the future, and are forced to secure letters of credit indefinitely, our profitability may be negatively affected.

 
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Our work force could become unionized in the future, which could adversely affect the stability of our production and reduce our profitability.
 
Our company owned mines are currently operated by union-free employees. However, our subsidiaries’ employees have the right at any time under the National Labor Relations Act to form or affiliate with a union. Any unionization of our subsidiaries’ employees, or the employees of third-party contractors who mine coal for us, could adversely affect the stability of our production and reduce our profitability.
 
The current administration has indicated that it will support legislation that may make it easier for employees to unionize. Legislation has been proposed to the United States Congress to enact a law allowing our workers to choose union representation solely by signing election cards (“Card Check”), which would eliminate the use of secret ballots to elect union representation. While the impact is uncertain, if Card Check legislation is enacted into law, it will be administratively easier to unionize coal mines and may lead to more coal mines becoming unionized.
 
We have significant unfunded obligations for long term employee benefits for which we accrue based upon assumptions, which, if incorrect, could result in us being required to expend greater amounts than anticipated.
 
We are required by law to provide various long term employee benefits. We accrue amounts for these obligations based on the present value of expected future costs. We employed an independent actuary to complete estimates for our workers’ compensation and black lung (both state and federal) obligations. At June 30, 2011, the current and non-current portions of these obligations included $66.9 million for workers’ compensation benefits and $47.3 million for coal workers’ black lung benefits.
 
We use a valuation method under which the total present and future liabilities are booked based on actuarial studies. Our independent actuary updates these liability estimates annually. However, if our assumptions are incorrect, we could be required to expend greater amounts than anticipated. All of these obligations are unfunded. In addition, the federal government and the governments of the states in which we operate consider changes in workers’ compensation laws from time to time. Such changes, if enacted, could increase our benefit expenses and payments.
 
We may be unable to adequately provide funding for our pension plan obligations based on our current estimates of those obligations.
 
We provide benefits under a defined benefit pension plan that was frozen in 2007. As of June 30, 2011, we estimated that our obligation under the pension plan was underfunded by approximately $10.6 million. If future payments are insufficient to fund the pension plan adequately to cover our future pension obligations, we could incur cash expenditures and costs materially higher than anticipated. The pension obligation is calculated annually and is based on several assumptions, including then prevailing conditions, which may change from year to year. In any year, if our assumptions are inaccurate, we could be required to expend greater amounts than anticipated.
 
Substantially all of our assets are subject to security interests.
 
Substantially all of our cash, receivables, inventory and other assets are subject to various liens and security interests under our debt instruments. If one of these security interest holders becomes entitled to exercise its rights as a secured party, it would have the right to foreclose upon and sell, or otherwise transfer, the collateral subject to its security interest, and the collateral accordingly would be unavailable to us and our other creditors, except to the extent, if any, that other creditors have a superior or equal security interest in the affected collateral or the value of the affected collateral exceeds the amount of indebtedness in respect of which these foreclosure rights are exercised.
 
We may be unable to comply with restrictions imposed by the terms of our indebtedness, which could result in a default under these instruments.
 
Our debt instruments impose a number of restrictions on us. A failure to comply with these restrictions could adversely affect our ability to borrow under our Revolver or result in an event of default under our debt instruments. Our Revolver contains a Consolidated Fixed Charge Ratio covenant and a limit on our capital expenditure. The Consolidated Fixed Charge Ratio covenant under our Revolver is only applicable if the sum of our unrestricted cash plus our availability under our Revolver falls below $35 million and remains in effect until the sum of our unrestricted cash and availability under our Revolver exceeds $35 million for 90 consecutive days. Our Revolver limits the capital expenditures that we may make or agree to make in any fiscal year, but such limitation only will apply if the sum of our unrestricted cash plus our availability under our Revolver falls below $50 million for a period of 5 consecutive days and remains in effect until the sum of our unrestricted cash and availability under our Revolver exceeds $50 million for 90 consecutive days. As of June 30, 2011, our unrestricted cash was $204.7 million and the availability under our Revolver was $25.0 million. 

 
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Additional detail regarding the terms of our Revolver, including these covenants and the related definitions, can be found in our debt agreements, as amended, that have been filed as exhibits to our SEC filings.
 
In the event of a default, our lenders could terminate their commitments to us and declare all amounts borrowed, together with accrued interest and fees, immediately due and payable. If this were to occur, we might not be able to pay these amounts or we might be forced to seek amendments to our debt agreements which could make the terms of these agreements more onerous for us and require the payment of amendment or waiver fees. Failure to comply with these restrictions, even if waived by our lenders, also could adversely affect our credit ratings, which could increase our costs of debt financings and impair our ability to obtain additional debt financing. While the lenders have, to date, waived any covenant violations and amended the covenants, there is no guarantee they will continue to do so if future violations occur.
 
Changes in our credit ratings could adversely affect our costs and expenses.
 
Any downgrade in our credit ratings could adversely affect our ability to borrow and result in more restrictive borrowing terms, including increased borrowing costs, more restrictive covenants and the extension of less open credit. This, in turn, could affect our internal cost of capital estimates and therefore impact operational decisions.
 
Defects in title or loss of any leasehold interests in our properties could limit our ability to mine these properties or result in significant unanticipated costs.
 
We conduct substantially all of our mining operations on properties that we lease. The loss of any lease could adversely affect our ability to mine the associated reserves. Because we generally do not obtain title insurance or otherwise verify title to our leased properties, our right to mine some of our reserves has been in the past, and may again in the future be, adversely affected if defects in title or boundaries exist. In order to obtain leases or rights to conduct our mining operations on property where these defects exist, we have had to, and may in the future have to, incur unanticipated costs. In addition, we may not be able to successfully negotiate new leases for properties containing additional reserves. Some leases have minimum production requirements. Failure to meet those requirements could result in losses of prepaid royalties and, in some rare cases, could result in a loss of the lease itself.
 
Inability to satisfy contractual obligations may adversely affect our profitability.
 
From time to time, we have disputes with our customers over the provisions of long term contracts relating to, among other things, coal quality, pricing, quantity and delays in delivery. In addition, we may not be able to produce sufficient amounts of coal to meet our commitments to our customers. Our inability to satisfy our contractual obligations could result in our need to purchase coal from third party sources to satisfy those obligations or may result in customers initiating claims against us. We may not be able to resolve all of these disputes in a satisfactory manner, which could result in substantial damages or otherwise harm our relationships with customers.
 
We may be unable to exploit opportunities to diversify our operations.
 
Our future business plan may consider opportunities other than underground and surface mining in eastern Kentucky, southern West Virginia and southern Indiana. We will consider opportunities to further increase the percentage of coal that comes from surface mines. We may also consider opportunities to expand both surface and underground mining activities in areas that are outside of eastern Kentucky, southern West Virginia and southern Indiana. We may also consider opportunities in other energy-related areas that are not prohibited by our debt instruments. If we undertake these diversification strategies and fail to execute them successfully, our financial condition and results of operations may be adversely affected.
 
There are risks associated with our acquisition strategy, including our inability to successfully complete acquisitions, our assumption of liabilities, dilution of your investment, significant costs and additional financing required.
 
We may explore opportunities to expand our operations through strategic acquisitions of other coal mining companies. Risks associated with our current and potential acquisitions, including the recent acquisition of IRP, include the disruption of our ongoing business, problems retaining the employees of the acquired business, assets acquired proving to be less valuable than expected, the potential assumption of unknown or unexpected liabilities, costs and problems, the inability of management to maintain uniform standards, controls, procedures and policies, the difficulty of managing a larger company, the risk of becoming involved in labor, commercial or regulatory disputes or litigation related to the new enterprises and the difficulty of integrating the acquired operations and personnel into our existing business.

 
26

 

 
We may choose to use shares of our common stock or other securities to finance a portion of the consideration for future acquisitions, either by issuing them to pay a portion of the purchase price or selling additional shares to investors to raise cash to pay a portion of the purchase price. If shares of our common stock do not maintain sufficient market value or potential acquisition candidates are unwilling to accept shares of our common stock as part of the consideration for the sale of their businesses, we will be required to raise capital through additional sales of debt or equity securities, which might not be possible, or forego the acquisition opportunity, and our growth could be limited. In addition, securities issued in such acquisitions may dilute the holdings of our current or future shareholders.
 
Our currently available cash may not be sufficient to finance any additional acquisitions.
 
We believe that our cash on hand, the availability under our Revolver and cash generated from our operations will provide us with adequate liquidity through 2011. However, such funds may not provide sufficient cash to fund any future acquisitions. Accordingly, we may need to conduct additional debt or equity financings in order to fund any such additional acquisitions, unless we issue shares of our common stock as consideration for those acquisitions. If we are unable to obtain any such financings, we may be required to forego future acquisition opportunities.
 
Our current reserve base in southern Indiana is limited.
 
Our southern Indiana mining complex currently has rights to proven and probable reserves that we believe will be exhausted in approximately 14 years at 2010 levels of production, compared to our current Central Appalachia mining complexes, which have reserves that we believe will last in excess of 35 years at 2010 levels of production. We intend to increase our reserves in southern Indiana by acquiring rights to additional exploitable reserves that are either adjacent to or nearby our current reserves. If we are unable to successfully acquire such rights on acceptable terms, or if our exploration or acquisition activities indicate that such coal reserves or rights do not exist or are not available on acceptable terms, our production and revenues will decline as our reserves in that region are depleted. Exhaustion of reserves at particular mines also may have an adverse effect on our operating results that is disproportionate to the percentage of overall production represented by such mines.
 
Surface mining is subject to increased regulation, and may require us to incur additional costs.
 
Surface mining is subject to numerous regulations related, among others, to blasting activities that can result in additional costs. For example, when blasting in close proximity to structures, additional costs are incurred in designing and implementing more complex blast delay regimens, conducting pre-blast surveys and blast monitoring, and the risk of potential blast-related damages increases. Since the nature of surface mining requires ongoing disturbance to the surface, environmental compliance costs can be significantly greater than with underground operations. In addition, the U.S. Army Corps of Engineers imposes stream mitigation requirements on surface mining operations. These regulations require that footage of stream loss be replaced through various mitigation processes, if any ephemeral, intermittent, or perennial streams are filled due to mining operations. In 2008, the U.S. Department of Interior’s Office of Surface Mining imposed regulatory requirements applicable to excess spoil placement, including the requirement that operators return as much spoil as possible to the excavation created by the mine. These regulations may cause us to incur significant additional costs, which could adversely impact our operating performance.
 
We are subject to various legal proceedings, which may have an adverse effect on our business.
 
We are party to a number of legal proceedings incidental to our normal business activities, including a large number of workers’ compensation claims. While we cannot predict the outcome of the proceedings, there is always the potential that the costs of defending litigation in an individual matter or the aggregation of many matters could have an adverse effect on our cash flows, results of operations or financial position.
 
Our ability to use net operating loss carryforwards may be subject to limitation
 
Section 382 of the U.S. Internal Revenue Code of 1986, as amended, imposes an annual limit on the amount of net operating loss carryforwards that may be used to offset taxable income when a corporation has undergone significant changes in its stock ownership or equity structure. Our ability to use net operating losses is limited by prior changes in our ownership, and may be further limited by issuances of common stock, in connection with the conversion of the existing convertible senior notes or by the consummation of other transactions. As a result, as we earn net taxable income, our ability to use net operating loss carryforwards to offset U.S. federal taxable income may become subject to limitations, which could potentially result in increased future tax liabilities for us.

 
27

 

 
 
USE OF PROCEEDS
 
This exchange offer is intended to satisfy obligations that we have under the registration rights agreement we entered into with the initial purchasers of the original notes on the Closing Date. We will not receive any proceeds from the issuance of the exchange notes in the exchange offer. The form and terms of the exchange notes are identical in all material respects to the form and terms of the original notes, except as described in “The Exchange Offer — Terms of the Exchange Offer”. In consideration for issuing the exchange notes, we will receive original notes in the same principal amount.  The original notes surrendered in exchange for the exchange notes will be retired and cancelled and cannot be reissued.  Therefore, issuance of the exchange notes will not result in any increase in our outstanding indebtedness, the obligations of the subsidiary guarantors or our capital stock.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
28

 

 
RATIO OF EARNINGS TO FIXED CHARGES
 
The following table sets forth our ratio of earnings to fixed charges and deficiency of earnings to fixed charges, as applicable, for each period indicated. The ratios were computed by dividing earnings by fixed charges, with earnings consisting of income (before income taxes), plus fixed charges. Fixed charges consist of interest expensed and capitalized, amortization of debt issuance costs and an estimate of the interest within rental expense. Deficiency of earnings to fixed charges is the net loss (before tax benefit) for each period indicated.

   
Six Months
Ended
June 30, 2011
     
     
Years Ended December 31,
 
     
2010
 
2009
 
2008
 
2007
 
2006
 
Ratio of earnings to fixed charges
   
   
2.6
   
3.5
   
   
   
 
Deficiency of earnings to fixed charges (in thousands)
 
$
5,533
   
   
 
$
96,266
 
$
71,859
 
$
53,320
 
 
CAPITALIZATION
 
The following table sets forth our cash and cash equivalents and capitalization on an actual basis as of June 30, 2011. Because we will receive no additional proceeds from the issuance of the exchange notes, no adjustments have been made for this offering. You should read this table in conjunction with the information contained in “Selected Historical Financial Data” in this prospectus and in our consolidated financial statements and notes thereto that are included in our filings with the SEC that are incorporated by reference into this prospectus.
 

   
As of June 30, 2011
 
   
Actual
 
   
(in thousands)
 
Cash and cash equivalents
  $ 204,683  
Long term debt obligations (including current maturities)
       
7.875% Senior Notes due 2019
    275,000  
3.125% Convertible Senior Notes due 2018, net of discount
    163,088  
4.5% Convertible Senior Notes due 2015, net of discount
    137,117  
Revolving Credit Facilities(1)
     
Total debt (including current maturities)
    575,205  
Shareholders’ equity
       
Common stock, par value $.01 per share
    356  
Paid-in capital
    537,211  
Accumulated deficit
    (65,408 )
Accumulated other comprehensive loss
    (18,684 )
Total shareholders’ equity
    453,475  
Total capitalization
  $ 1,028,680  

(1)
As of June 30, 2011, the Company did not have any borrowings outstanding under its revolving credit facility. The availability of our revolving credit facility is reduced on a dollar-for-dollar basis by our outstanding letters of credit of $63.6 million as of June 30, 2011.
 

 
29

 

 
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
 
The following unaudited pro forma condensed consolidated financial information is based upon the historical consolidated financial information of the Company and IRP. In connection with the IRP Acquisition, the Company completed the Concurrent Offerings. The Company also redeemed its 2012 senior notes with the proceeds from the Concurrent Offerings and entered into its current revolving credit facility. The unaudited pro forma condensed consolidated income statement information has been prepared to reflect the following:
 
 
·
the pro forma results of the Company to give effect to the sale of the original notes, the 2018 convertible senior notes and common stock in the Concurrent Offerings, net of offering expenses; and
 
 
·
the pro forma results of the Company to give effect to the sale of the original notes, the 2018 convertible senior notes and common stock in the Concurrent Offerings, net of offering expenses, the IRP Acquisition, the redemption of all of the Company’s $150.0 million of its senior notes that were due on June 1, 2012 (the “2012 senior notes redemption”) and the amendment and restatement of the revolving credit facility.
 
The unaudited pro forma condensed consolidated income statement for the six months ended June 30, 2011 and the year ended December 31, 2010 were prepared assuming that the IRP Acquisition and related financing transactions occurred on January 1, 2010. The historical consolidated financial information has been adjusted to give effect to estimated pro forma events that are (1) directly attributable to the IRP Acquisition and the related financing transactions, (2) factually supportable and (3) expected to have a continuing impact on the combined results of operations.
 
The unaudited pro forma condensed consolidated financial information should be read in conjunction with the historical consolidated financial statements and accompanying notes of the Company and IRP, which are included and incorporated by reference herein.
 
The unaudited pro forma condensed consolidated financial information has been prepared for illustrative purposes only and is not necessarily indicative of the results of operations in future periods or the results that actually would have been realized had IRP been acquired by the Company during the specified periods. The pro forma adjustments are based on the preliminary information available at the time of the preparation of this document. For purposes of this unaudited pro forma condensed consolidated financial information, the IRP Acquisition price has been allocated to the tangible and intangible assets acquired and liabilities assumed based on a preliminary estimate of fair value of those assets and liabilities.  The actual amounts recorded upon the finalization of the purchase price allocation may differ materially from the information presented in the accompanying unaudited pro forma condensed consolidated financial information. Additionally, the unaudited pro forma condensed consolidated financial information does not reflect the cost of any integration activities or benefits from synergies that may be derived from any integration activities nor does it include any other items not expected to have a continuing impact on the consolidated results of operations.
 
Certain amounts in the historical consolidated IRP financial statements have been reclassified to conform to the Company’s financial statement presentation.

 
30

 


JAMES RIVER COAL COMPANY
 PRO FORMA FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2011
 (in thousands)
 (Unaudited)
INCOME STATEMENT
                         
   
Historical
 JRCC
     
Adjustments
 for
 Concurrent
 Offerings
     
As
 Adjusted
 for
 the
 Concurrent
Offerings
     
Historical
 IRP (a)
     
Adjustments
 for IRP
 Acquisition,
 2012 Senior Notes Redemption
 and
 Revolving
 Credit
 Facility
     
As
 Adjusted
 for the
 Concurrent
 Offerings,
 IRP
 Acquisition,
 2012 Senior Notes Redemption
 and
Revolving
 Credit
 Facility
 
                                                 
Revenues
   
$  
516,619
  
   
    
   
   
    
516,619
  
   
    
224,180
  
   
    
   
   
    
740,799
  
Cost of coal sold
   
    
421,509
  
   
    
   
   
    
421,509
  
   
    
173,728
  
   
    
   
   
    
595,237
  
Depreciation, depletion and amortization
   
    
44,245
  
   
    
   
   
    
44,245
  
   
    
10,346
  
   
    
717
(c)  
   
    
55,308
  
Gross profit
   
    
50,865
  
   
    
   
   
    
50,865
  
   
    
40,106
  
   
    
(717
   
    
90,254
  
Sales, general and administrative expenses
   
    
24,181
  
   
    
   
   
    
24,181
  
   
    
7,482
  
   
    
(1,420
)(d)  
   
    
30,243
  
Other
   
    
8,504
   
   
    
   
   
    
8,504
   
   
    
 
   
    
   
   
    
8,504
  
Operating income (loss)
   
    
18,180
  
   
    
   
   
    
18,180
  
   
    
32,624
  
   
    
703
  
   
    
51,507
  
Interest expense
   
    
23,458
  
   
    
8,721
(b)  
   
    
32,179
  
   
    
1,212
  
   
    
(7,581
)(e)  
   
    
25,810
  
Interest income
   
    
(183
)  
   
    
   
   
    
(183
)  
   
    
(51
)  
   
    
   
   
    
(234
)  
Miscellaneous expense (income), net
   
    
438
   
   
    
   
   
    
438
   
   
    
(543
)  
   
    
451
(e)  
   
    
346
  
Total other expense (income)
   
    
23,713
  
   
    
8,721
  
   
    
32,434
  
   
    
618
  
   
    
(7,130
)  
   
    
25,922
  
Income (loss) before income taxes
   
    
(5,533
)  
   
    
(8,721
)  
   
    
(14,254)
  
   
    
32,006
  
   
    
7,833
  
   
    
25,585
  
Income tax (benefit) expense
   
    
1,282
  
   
    
(3,052
)(f)  
   
    
(1,770
)  
   
    
   
   
    
13,944
(f)  
   
    
12,174
  
Net income (loss)
   
$
(6,815
)  
   
    
(5,669)
  
   
    
(12,484
)  
   
    
32,006
  
   
    
(6,111
)  
   
    
13,411
  
Earnings (loss) per share
   
    
 
   
   
    
 
   
   
    
 
   
   
    
 
   
   
    
 
   
   
    
 
   
Basic
   
(0.22
)  
   
    
 
   
   
    
 
  
   
    
 
   
   
    
 
   
   
    
0.38
  
Dilutive
   
    
(0.22
)  
   
    
 
   
   
    
 
  
   
    
 
   
   
    
 
   
   
    
0.38
  


 
31

 

JAMES RIVER COAL COMPANY
 PRO FORMA FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2010
 (in thousands)
 (Unaudited)
INCOME STATEMENT

                         
   
Historical
 JRCC
   
Adjustments
 for
 Concurrent
 Offerings
   
As
 Adjusted
 for
 the
 Concurrent
 Offerings
 
Historical
 IRP (a)
   
Adjustments
 for IRP
 Acquisition,
 2012 Senior Notes Redemption
 and
Revolving
 Credit
 Facility
   
As
 Adjusted
 for the
 Concurrent
 Offerings,
 IRP
 Acquisition,
 2012 Senior Notes Redemption
 and
Revolving
 Credit
 Facility
                                                 
Revenues
   
701,116
  
   
    
   
   
    
701,116
  
   
    
490,336
  
   
    
   
   
    
1,191,452
  
Cost of coal sold
   
    
514,515
  
   
    
   
   
    
514,515
  
   
    
388,241
  
   
    
   
   
    
902,756
  
Depreciation, depletion and amortization
   
    
64,368
  
   
    
   
   
    
64,368
  
   
    
33,006
  
   
    
4,362
(c)  
   
    
101,736
  
Gross profit
   
    
122,233
  
   
    
   
   
    
122,233
  
   
    
69,089
  
   
    
(4,362
   
    
186,960
  
Sales, general and administrative  expenses
   
    
38,347
  
   
    
   
   
    
38,347
  
   
    
20,388
  
   
    
(2,000)
(d)  
   
    
56,735
  
Other
   
    
   
   
    
   
   
    
   
   
    
(243)
 
   
    
   
   
    
(243
)  
Operating income (loss)
   
    
83,886
  
   
    
   
   
    
83,886
  
   
    
48,944
  
   
    
(2,362
   
    
130,468
  
Interest expense
   
    
29,943
  
   
    
34,885
(b)  
   
    
64,828
  
   
    
5,827
  
   
    
(21,033)
(e)  
   
    
49,622
  
Interest income
   
    
(683
)  
   
    
   
   
    
(683
   
    
(242)
 
   
    
   
   
    
(925
)  
Miscellaneous expense (income), net
   
    
27
   
   
    
   
   
    
27
   
   
    
(7,964)
  
   
    
7,330
(e)  
   
    
(607
)  
Total other expense (income)
   
    
29,287
  
   
    
34,885
  
   
    
64,172
  
   
    
(2,379)
 
   
    
(13,703)
 
   
    
48,090
  
Income before income taxes
   
    
54,599
  
   
    
(34,885
   
    
19,714
  
   
    
51,323
  
   
    
11,341
  
   
    
82,378
  
Income tax (benefit) expense
   
    
(23,566
)  
   
    
(12,210
)(f)  
   
    
(35,776
   
    
   
   
    
21,932
(f)  
   
    
(13,844
Net income
   
$
78,165
  
   
    
(22,675
)  
   
    
55,490
  
   
    
51,323
  
   
    
(10,591)
 
   
    
96,222
  
Earnings per share
   
    
 
   
   
    
 
   
   
    
 
   
   
    
 
   
   
    
 
   
   
    
 
   
Basic
   
2.82
  
   
    
 
   
   
    
 
  
   
    
 
   
   
    
 
   
   
    
2.72
  
Dilutive
   
    
2.82
  
   
    
 
   
   
    
 
  
   
    
 
   
   
    
 
   
   
    
2.72
  




 
32

 

Basis of Presentation
 
On April 18, 2011, the Company completed the acquisition of all of the general and limited partnership interests of IRP. The Company also has entered into certain agreements to finance the IRP Acquisition.
 
The accompanying unaudited pro forma condensed consolidated financial information presents the pro forma consolidated results of operations of the Company based upon the historical financial statements of the Company and IRP, after giving effect to the IRP Acquisition adjustments and the related financing transactions as described in these notes, and are intended to reflect the pro forma impact of the Concurrent Offerings, the IRP Acquisition, the 2012 Senior Notes Redemption and the revolving credit facility. Certain amounts in IRP’s historical financial statements have been reclassified to conform to the Company’s presentation.
 
The IRP Acquisition was accounted for using the acquisition method of accounting, whereby the IRP Acquisition price has been allocated to the tangible and intangible assets acquired and liabilities assumed based on a preliminary estimate of fair value of those assets and liabilities.  The actual amounts recorded upon the finalization of the purchase price allocation may differ materially from the information presented in the accompanying unaudited pro forma condensed consolidated financial information.
 
Pro Forma Adjustments
 
 
(a)
Reflects the pre-acquisition historical results of IRP until April 18, 2011, the date IRP was acquired.
 
 
(b)
Reflects the interest expense associated with the new financing, including the amortization of discount and financing costs. The interest rate on the 2018 convertible senior notes is 3.125% per annum (representing a 8.9% per annum effective interest rate giving effect to the amortization of the discount) and the interest rate on the senior notes is 7.875% per annum.
 
 
(c)
Reflects an adjustment to IRP’s historical depreciation, depletion and amortization based on the preliminary values and lives assigned to the assets acquired.
 
 
(d)
Reflects the removal of the fees paid to IRP’s owners of $1.6 million and $2.4 million for the six months ended June 30, 2011 and the year ended December 31, 2010, respectively, and the incremental fees associated with IRP’s $18.0 million in outstanding letters of credit and a reduction in fees for existing letters of credit under the proposed new senior secured credit facilities.
 
 
(e)
These adjustments reflect the removal of IRP’s historical interest expense and removal of an unrealized gain on an interest rate swap, both of which are associated with the debt repaid prior to the completion of the IRP Acquisition. These adjustments also reflect the additional interest expense associated with the amortization of the costs associated with the revolving credit facility, the removal of a gain recorded on IRP’s historical financial statements for the purchase of a business and the removal of the historical interest on the 2012 senior notes.
 
 
(f)
Applies a 35% effective tax rate to the historical results of IRP and the pro forma adjustments.
 
 
(g)
The shares used to calculate the earnings per share for the pro forma results as of December 31, 2011 have been adjusted to reflect the 7.6 million shares issued in the Concurrent common stock offering.  The shares used to calculate the earnings per share for the pro forma results for the six months ended June 30, 2011 have been adjusted to include 1.0 million shares that were anti-dilutive prior to the pro forma adjustments and to reflect the 7.6 million shares issued in the Concurrent common stock offering as if they were issued on January 1, 2010.
 
 
(h)
The results for the six months ended June 30, 2011 include $8.5 million of transaction costs related to the IRP Acquisition and $0.7 million to write-off the unamortized financing costs with respect to the 2012 senior notes.  These charges are excluded from the pro forma income statement presentation for the year ended December 31, 2010, since they are non-recurring charges resulting directly from the IRP Acquisition or the 2012 senior notes redemption.

 
33

 


SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
 
 
The following table presents our selected historical consolidated financial and operating data as of and for each of the periods indicated. The selected condensed consolidated financial data as of and for the six months ended June 30, 2011 and 2010 are derived from our unaudited condensed consolidated financial statements, and in the opinion of management include all adjustments, consisting only of normal recurring accruals, that are necessary for a fair presentation of our financial position and operating results for these periods. The selected consolidated financial and operating data are not necessarily indicative of the results that may be expected for the entire year. The selected historical consolidated financial data as of December 31, 2010 and 2009 and for each of the three years in the period ended December 31, 2010 is derived from our audited consolidated financial statements incorporated by reference herein. The selected historical consolidated financial data as of December 31, 2008, 2007 and 2006 and for each of the two years in the period ended December 31, 2007 is derived from our audited consolidated financial statements not included in or incorporated by reference in this prospectus. All other information has been derived from our unaudited books and records. The selected historical consolidated financial and operating data is not necessarily indicative of our future performance and should be read in conjunction with “Management’s Discussion and Analysis of JRCC” and our consolidated financial statements and related notes included in our Form 10-K for the year ended December 31, 2010 filed with the SEC on March 9, 2011 and our Form 10-Q for the six months ended June 30, 2010 filed with the SEC on August 9, 2011 and incorporated herein by reference.
 

   
Six Months Ended
June 30,
 
Year Ended December 31,
 
   
2011
   
2010
 
2010
 
2009
 
2008
 
2007
 
2006
 
   
(in thousands)
     
Consolidated Statement of Operations:
                                         
Total revenues
$
516,619
   
367,646
 
$
701,116
   
681,558
   
568,507
   
520,560
   
564,791
 
Cost of coal sold
 
396,927
   
258,055
   
514,515
   
508,888
   
527,888
   
473,347
   
496,799
 
Gain on curtailment of pension plan
 
   
   
   
   
   
(6,091
)
 
 
Depreciation, depletion, and amortization
 
44,245
   
32,567
   
64,368
   
62,078
   
70,277
   
71,856
   
74,562
 
Gross profit (loss)
 
50,865
   
77,024
   
122,233
   
110,592
   
(29,658
)
 
(18,552
)
 
(6,570
)
Selling, general, and administrative expenses
 
24,181
   
19,142
   
38,347
   
39,720
   
34,992
   
32,191
   
30,867
 
Acquisition Costs
 
8,504
   
   
   
   
   
   
 
Operating income (loss)
 
18,180
   
57,882
   
83,886
   
70,872
   
(64,650
)
 
(50,743
)
 
(37,437
)
Interest expense
 
23,458
   
14,836
   
29,943
   
17,057
   
17,746
   
19,764
   
16,782
 
Interest income
 
(183
 
(16
)
 
(683
)
 
(60
)
 
(469
)
 
(471
)
 
(366
)
Charges associated with repayment and amendment of debt
 
740
   
   
   
1,643
   
15,618
   
2,421
   
 
Miscellaneous (income) expense, net
 
(302
 
196
   
27
   
(281
)
 
(1,279
)
 
(598
)
 
(533
)
Income tax (benefit) expense
 
1,282
   
(229
)
 
(23,566
)
 
1,559
   
(273
)
 
(17,844
)
 
(27,151
)
Net (loss) income
$
(6,815
 
43,095
 
$
78,165
   
50,954
   
(95,993
)
 
(54,015
)
 
(26,169
)
Basic earnings (loss) per common share:
$
(0.22
 
1.56
   
2.82
   
1.85
   
(3.91
)
 
(3.29
)
 
(1.65
)
Diluted earnings (loss) per common share:
$
(0.22
)  
1.56
   
2.82
   
1.85
   
(3.91
)
 
(3.29
)
 
(1.65
)
                                           
   
June 30,
 
December 31,
 
   
2011
   
2010
 
2010
 
2009
 
2008
 
2007
 
2006
 
   
(in thousands)
     
Consolidated Balance Sheet Data:
                                         
Working capital (deficit)(a) 
$
247,923
   
204,509
 
$
191,625
   
109,998
   
(54,961
)
 
(8,471
)
 
(2,589
)
Property, plant, and equipment, net
 
889,982
   
356,770
   
385,652
   
354,088
   
344,848
   
319,204
   
337,780
 
Total assets
 
1,428,123
   
717.659
   
784,569
   
669,312
   
463,546
   
439,287
   
451,254
 
Long term debt, includes current maturities
 
575,205
   
281,081
   
284,022
   
278,268
   
168,000
   
188,800
   
167,493
 
Total shareholders’ equity
 
453,475
   
206,741
   
247,383
   
170,342
   
65,238
   
69,774
   
86,397
 

 
34

 


 
   
Six Months Ended
June 30,
 
Year Ended December 31,
   
2011
   
2010
 
2010
 
2009
 
2008
 
2007
 
2006
   
(in thousands)
Consolidated Statement of Cash Flow Data:
                                       
Net cash provided by (used in) operating activities
$
86,798
   
117,833
  $
169,062
   
27,559
   
(1,576
)  
4,022
   
31,680 
Net cash used in investing activities
 
(574,268
 
(34,113
)  
(95,344
)  
(72,010
)  
(73,589
)  
(49,201
)  
(54,738)
Net cash provided by (used in) financing activities
 
511,777
   
(1,346
 
(1,273
)  
149,058
   
73,076
   
48,785
   
15,929 




   
Six Months Ended
June 30,
 
Year Ended December 31,
   
2011
   
2010
 
2010
 
2009
 
2008
 
2007
 
2006
   
(in thousands)
Supplemental Operating Data:
                                       
Tons sold
 
3,216
   
2,283
   
8,919
   
9,623
   
11,383
   
12,049
   
13,128
Tons produced
 
3,206
   
2,267
   
8,910
   
9,877
   
11,355
   
12,051
   
13,054
Revenue per ton sold(b) 
$
100.64
   
79.96
   
78.37
   
70.51
   
49.75
   
42.47
   
42.33
Number of employees
 
2,403
   
1,742
   
1,746
   
1,736
   
1,751
   
1,681
   
1,742
Capital expenditures
$
58,306
   
34,113
   
95,426
   
72,159
   
74,697
   
49,343
   
62,507


_______________
(a)
Working capital is current assets less current liabilities.
(b)
Revenue per ton sold in 2007 and 2006 excludes synfuel handling revenue and revenues per ton sold for all periods presented excludes freight and handling revenues.

 
35

 

 
THE EXCHANGE OFFER
 
Purpose and Effect of the Exchange Offer
 
The exchange offer is designed to provide holders of original notes with an opportunity to acquire exchange notes which, unlike the original notes, generally will be freely transferable at all times, subject to any restrictions on transfer imposed by state securities laws, so long as the holder is (1) acquiring the exchange notes in the ordinary course of its business, (2) has no arrangement or understanding with any person to participate in a distribution of the exchange notes and (3) is not our affiliate within the meaning of the Securities Act.
 
The following summary of certain provisions of the form of the letter of transmittal used in the exchange offer does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all of the provisions of the form of the letter of transmittal, a copy of which is filed as an exhibit to the registration statement of which this prospectus forms a part.
 
Issuance of Original Notes. In March 2011, JRCC formed JR Escrow solely for the purpose of issuing the original 7.875% Senior Notes due 2019. These original notes in the aggregate principal amount of $275,000,000 were issued and sold by JR Escrow on March 29, 2011 to Deutsche Bank Securities, UBS Investment Bank, Raymond James, Brean Murray, Carret & Co., Dahlman Rose & Company, Johnson Rice & Company L.L.C. and Macquarie Capital, as initial purchasers, pursuant to a purchase agreement dated March 24, 2011.
 
The gross proceeds of the offering of the original notes, together with certain additional amounts, were deposited into a segregated escrow account until the date on which specified escrow conditions were satisfied, including the closing of the IRP Acquisition. Upon the satisfaction of the escrow conditions on April 18, 2011, JRCC assumed JR Escrow’s liabilities under the original notes, the indenture and the registration rights agreement described below.
 
JR Escrow issued and sold the original notes in a transaction not requiring registration under the Securities Act in reliance upon an exemption from the registration requirements of the Securities Act. The concurrent resale of the original notes by the initial purchasers to investors was effected in transactions not requiring registration under the Securities Act pursuant to Rule 144A and Regulation S thereunder.
 
The original notes may not be offered for resale, resold or otherwise transferred other than pursuant to a registration statement filed pursuant to the Securities Act or unless an exemption from the registration requirements of the Securities Act is available or such registration requirements otherwise are not applicable to such resale or other transfer. Pursuant to Rule 144 under the Securities Act, the original notes generally may be resold without restriction in the public market commencing six months after the issue date by a holder who is not, and has not been for the preceding three months, our affiliate if JRCC is current in the filing of its Exchange Act reports at the time of sale. After one year, no restrictions apply to public resales of the original notes by such persons, including the requirement that JRCC be current in its public reporting under the Exchange Act. Other exemptions also may be available under other provisions of the federal securities laws for the resale of the original notes.
 
Registration Rights Agreement. In connection with the original issuance and sale of the original notes, we entered into a registration rights agreement dated as of the Closing Date with the initial purchasers of the original notes, pursuant to which we agreed to file with the SEC a registration statement covering the exchange by us of the exchange notes for the original notes. The registration rights agreement obligates us and the subsidiary guarantors to file with the SEC an exchange offer registration statement on an appropriate form under the Securities Act with respect to an offer to the holders of the original notes to exchange their original notes for the exchange notes. The registration rights agreement provides that unless the exchange offer would not be permitted by applicable law or SEC policy, we and the subsidiary guarantors will use our commercially reasonable efforts to:
 
 
·
prepare and file with the SEC the exchange offer registration statement;
 
 
·
keep the exchange offer open for at least 20 business days (or longer if required by applicable law) after the date we provide notice of the exchange offer to holders of the original notes; and
 
 
·
consummate the exchange offer on or prior to 180 days after the issue date of the original notes which was March 29, 2011.

 
36

 

 
We and the subsidiary guarantors have filed the registration statement of which this prospectus forms a part, and are conducting the exchange offer, in compliance with these requirements.
 
In accordance with the registration rights agreement, each holder of original notes is required to make specified representations and comply with the undertakings summarized below under the caption “Terms of the Exchange Offer—Resales of Exchange Notes.”
 
If for any of the reasons specified in the registration rights agreement we and the subsidiary guarantors become obligated to file with the SEC a shelf registration statement covering resales of original notes by the holders, we will be required to use our commercially reasonable efforts to file the shelf registration statement on or prior to 90 days after such filing obligation arises and to cause the shelf registration statement to be declared effective by the SEC on or prior to 180 days after the obligation arises. In such an event, we will be obligated to use our commercially reasonable efforts to keep such shelf registration statement continuously effective, supplemented and amended until the second anniversary of the issue date of the original notes or such shorter period that will terminate when all notes covered by the shelf registration statement have been sold pursuant thereto or otherwise (the “Effectiveness Period”). A holder of original notes that sells its original notes pursuant to the shelf registration statement generally will be required to be named as a selling securityholder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the registration rights agreement that are applicable to such holder (including certain indemnification and contribution obligations).
 
Pursuant to the registration rights agreement, we will be required to pay additional interest if:
 
 
·
we have neither exchanged the exchange notes for all original notes validly tendered nor had a shelf registration statement declared effective, in either case on or prior to the 180th day after the date of issuance of the original notes;
 
 
·
we are required to file a shelf registration statement and such shelf registration statement is not declared effective on or prior to the 180th day after the date such shelf registration statement filing was requested or required; or
 
 
·
if applicable, a shelf registration has been declared effective and such shelf registration ceases to be effective at any time during the Effectiveness Period without being succeeded immediately by a post-effective amendment to such shelf registration statement, or an amendment or supplement to the prospectus forming a part thereof, that cures such failure.
 
Additional interest will accrue on the principal amount of the original notes (in addition to the stated interest on the original notes) following the date on which any of the registration defaults described above has occurred and will continue until all registration defaults have been cured. Additional interest will accrue at a rate of 0.25% per annum during the 90-day period immediately following the occurrence of a registration default and will increase by 0.25% per annum at the end of each subsequent 90-day period while a registration default is continuing, up to a maximum rate of additional interest of 1.00% per annum.
 
We have agreed to pay all expenses incident to the exchange offer (other than commissions and concessions of any broker-dealer) and to indemnify the holders of the original notes against certain liabilities, including liabilities under the Securities Act.
 
This summary of certain provisions of the registration rights agreement does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all of the provisions of the registration rights agreement, which is included as an exhibit to the registration statement of which this prospectus forms a part. For information about how you can view or obtain a copy of the registration rights agreement, see “Where You Can Find Additional Information.”
 
Resale of Exchange Notes
 
We believe that holders of exchange notes issued in the exchange offer may generally offer them for resale and may resell or otherwise transfer them without compliance with the registration and prospectus delivery provisions of the Securities Act.  Our belief is based on existing SEC staff interpretations and is subject to the exceptions and qualifications described in “Plan of Distribution”.

 
37

 

 
Notwithstanding those beliefs, however, each holder of original notes who wishes to exchange them in the exchange offer will be required to make representations to us.  These include representations that the holder:
 
 
·
will acquire the exchange notes in the ordinary course of its business;
 
 
·
has no arrangement or understanding with any person to participate in a distribution (within the meaning of the Securities Act) of the exchange notes to be received in the exchange offer;
 
 
·
is not our affiliate within the meaning of Rule 405 under the Securities Act, which defines “affiliate” as a person that, directly or indirectly, controls or is controlled by, or is under common control with, a specified person;
 
 
·
if it is not a broker dealer, is not engaged in and does not intend to engage in a distribution of the exchange notes.
 
No holder who tenders in the exchange offer with the intention of participating in any manner in a distribution of the exchange notes can rely on the SEC’s position in Exxon Capital, Morgan Stanley and Shearman & Sterling or other interpretative letters and must comply with the registration and prospectus delivery requirements of the Securities Act. Any broker-dealer that holds original notes acquired for its own account as a result of market-making activities or other trading activities, and that receives exchange notes pursuant to the exchange offer, must deliver a prospectus in connection with any resale of such exchange notes, and must agree in the letter of transmittal that it will do so. By making this acknowledgement and by delivering a prospectus, any such broker-dealer will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act. We have agreed in the registration rights agreement that, for a period of 90 days or such longer period if extended pursuant to the registration rights agreement, we will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. A broker-dealer that delivers such a prospectus to purchasers in connection with such resales will be subject to certain of the civil liability provisions under the Securities Act. For additional information, see “Plan of Distribution.”
 
Terms of the Exchange Offer
 
We will accept for exchange all original notes properly tendered and not withdrawn prior to 5:00 p.m., New York City time, on the date this offer expires.  Unless extended by us, the exchange offer will expire at 5:00 p.m., New York City time on           , 2011.  We may extend the exchange offer in our discretion.  We will only accept original notes that are tendered in compliance with this prospectus and the terms of the letter of transmittal.  We will issue $1,000 in principal amount of exchange notes in exchange for each $1,000 in principal amount of original notes tendered and accepted for exchange
 
The form and terms of the exchange notes are substantially the same as those of the original notes, except that the exchange notes are registered under the Securities Act and the transfer restrictions, registration rights and related additional interest terms applicable to the original notes (as described above in the section “—Purpose of the Exchange Offer—Registration Rights Agreement”).  Accordingly, the exchange notes will not bear legends restricting their transfer.  The exchange notes evidence the same debt as the original notes.  We are issuing the exchange notes under the same indenture as the original notes.  The indenture treats the exchange notes and the original notes as a single class of debt securities and the exchange notes and the original notes are entitled to the same benefits under the indenture.
 
Holders may tender some or all of their original notes pursuant to the exchange offer, except that if any original notes are tendered for exchange in part, the untendered amount of such original notes must be in integral multiples of $1,000 in principal amount.  We are not conditioning this exchange offer upon any minimum aggregate principal amount of original notes being tendered for exchange. Holders of original notes will not have any appraisal or dissenters’ rights in connection with the exchange offer.
 
As of the date of this prospectus, we have issued $275,000,000 in principal amount of the original notes, all of which remain outstanding.  We are sending this prospectus, together with the letter of transmittal, to all registered holders of original notes.  We will not fix a record date for determining registered holders of original notes entitled to participate in the exchange offer.
 
We intend to conduct the exchange offer in accordance with the registration rights agreement, the applicable requirements of the Exchange Act and the rules and regulations of the SEC.  Any original notes not exchanged in the exchange offer will remain valid and continue to accrue interest.  Holders of such notes will remain entitled to the rights and benefits of the indenture and the registration rights agreement.

 
38

 

 
We will be deemed to have accepted tendered original notes for exchange only when, as, and if we so notify U.S. Bank National Association, the exchange agent, and have complied with the registration rights agreement.  We will deliver the exchange notes to U.S. Bank National Association, as agent for the tendering holders.
 
If, for any reason, we do not accept any tendered original notes for exchange, we will return them, without expense to the tendering holder, promptly after the expiration or termination of the exchange offer.
 
We will generally pay all charges and expenses in connection with the exchange offer and transfer taxes imposed in connection with the exchange of the original notes for exchange notes in the name of the registered holder of the original notes (as discussed in “The Exchange Offer—Transfer Taxes”).  We will not pay taxes imposed for any other reason, such as taxes imposed as a result of a requested issuance of exchange notes in the name of a person other than the registered holder of the original notes.  Tendering note holders will not be required to pay brokerage commissions or fees or, in most cases, transfer taxes, with respect to the exchange of their original notes in the exchange offer.  See “The Exchange Offer—Fees and Expenses.”
 
Extensions; Amendments; Termination
 
We reserve the right to extend the exchange offer at our discretion. If we extend the exchange offer, we will issue a press release or other public announcement of the extension as soon as reasonably practicable, but in any event no later than 9:00 a.m., Eastern time, on the next business day after the previously scheduled expiration date. During any extension, we may continue to accept for exchange any previously tendered original notes that have not been withdrawn. During an extension, any holders who previously tendered original notes for exchange will be permitted to withdraw them.
 
We also reserve the right, in our sole discretion, to terminate the exchange offer if any of the conditions described in “The Exchange Offer—Conditions to the Exchange Offer” are not satisfied, or to amend the terms of the exchange offer in any manner.
 
We may terminate or amend the exchange offer by notice to the exchange agent. If we amend the exchange offer in a way we consider material, we will prepare a supplement to this prospectus in order to reflect the amendment and will distribute the prospectus supplement to the registered holders. Depending upon the significance of the amendment and the means we choose to notify registered holders, we may extend the exchange offer, if we deem necessary, to allow registered holders time to consider the effect of the amendment. In any event, if there were to be a material change in the exchange offer, which would include any waiver of a material condition, we will extend the offer period, if necessary, so that at least five business days remain in the exchange offer following notice of the material change.
 
Interest on the Exchange Notes
 
As with the original notes, we will pay interest on the exchange notes at an annual rate of 7.875%. We will pay accrued interest semi-annually, on April 1 and October 1. We will make our first interest payment on October 1, 2011 The first payment will include interest from the date we initially issue the exchange notes, plus any accrued interest on the original notes for the period from their initial issue through the date of exchange. Once we issue the exchange notes, interest will no longer accrue on original notes accepted for exchange.
 
Conditions to the Exchange Offer
 
We are not required to accept any original notes for exchange, or to issue any exchange notes, and we may terminate the exchange offer before we accept any original notes for exchange, if:
 
 
·
the exchange offer violates applicable law or any applicable interpretation of the staff of the SEC;
 
 
·
an action or proceeding has been instituted or threatened in any court or by any governmental agency which might materially impair our ability to proceed with the exchange offer, or a material adverse development has occurred in any existing action or proceeding; or
 
 
·
we do not receive all governmental approval that we deem necessary to complete the exchange offer.
 
These conditions are for our sole benefit.  We may assert or waive any of them, in whole or part, at any time and from time to time, prior to the expiration of the exchange offer, in our reasonable judgment, whether or not we waive any other conditions of the exchange offer.  If a condition occurs, we must either waive it and proceed with the exchange offer or terminate the exchange offer.  Our failure or delay at any time prior to the expiration of the exchange offer to exercise any of these rights will not be deemed a waiver of any such rights.  The waiver of any of these rights with respect to particular facts and circumstances will not be deemed a waiver with respect to any other facts and circumstances, provided that we will treat all tendering holders equally with respect to the same facts and circumstances.

 
39

 

 
Procedures for Tendering
 
You may only tender original notes held by you. To tender such notes, unless the tender is made in book-entry form, you must complete, sign, and date the letter of transmittal or a facsimile of the letter of transmittal, as well as comply with one of the procedures below for actual delivery of the original notes to us. Under specific circumstances described in the letter of transmittal, you must have your signature guaranteed. You must mail or deliver the letter of transmittal to the exchange agent before 5:00 p.m., New York City time, on                  , 2011, the day the offer expires.  In addition, either
 
 
·
you must deliver your original notes to the exchange agent with your letter of transmittal, or
 
 
·
you must comply with the guaranteed delivery procedures.
 
The exchange agent must receive the letter of transmittal and other required documents before 5:00 p.m., New York City time, on                     , 2011, the date the offer expires. Otherwise, we will not consider your notes to be properly tendered, and we will not accept them for exchange. The exchange agent’s address is set forth on page 43 and also printed on the back cover page of this prospectus. Do not send your letter of transmittal or any original notes to us.
 
We discuss the procedures for book entry transfer and guaranteed delivery in the next two sections below.
 
By tendering and not withdrawing original notes before the exchange offer expires, you agree to the terms and conditions described in this prospectus and the letter of transmittal. No alternative, conditional, irregular or contingent tender of original notes will be accepted.
 
We recommend that you use an overnight or hand delivery service instead of regular mail.  In all cases, you should allow sufficient time for your tender materials to be delivered to the exchange agent before the offer expires.  You may ask your broker, dealer, commercial bank, trust company or other nominee to handle these formalities for you.  However, you are responsible for choosing how to deliver your original notes, the letter of transmittal and any other required documents to the exchange agent.  You alone bear the risk of non-delivery or late delivery.
 
If you wish to tender any original notes of which you are the beneficial owner but that are registered in the name of a broker, dealer, commercial bank, trust company or other nominee, you should contact the registered holder as soon as possible and arrange with the registered holder to tender on your behalf.  If instead you wish to tender on your own behalf, you must first either:
 
 
·
arrange to re-register the original notes in your name, or
 
 
·
obtain a properly completed bond power from the registered holder of the original notes.
 
Please note that such a transfer of registered ownership may take considerable time.  We cannot assure you that you will be able to re-register your original notes before the exchange offer expires.
 
If the letter of transmittal is signed by anyone other than the registered holder of the tendered original notes, we will only accept the notes for exchange if:
 
 
·
the registered holder:
 
 
·
endorses the original notes, or
 
 
·
executes a properly completed bond power, and
 
 
·
an eligible guarantor institution guarantees the registered holder’s signature.
 
Eligible guarantor institutions are:
 
 
·
a member firm of a registered national securities exchange,
 
 
·
a member firm of the Financial Industry Regulatory Authority, Inc.,

 
40

 

 
 
·
a commercial bank or trust company having an office or correspondent in the United States, or