- 11 - royalty payments. ERL’s total liability for the advance royalties, however, totaled $200 million in cash and notes. Each note, recourse and nonrecourse, became due 20 years after execution; however, at the election of either JAD or ERL, each note could be extended for an additional 10 years. Although each note bore annual interest at a rate of 6 percent, no partner was personally liable for the payment of such interest. The maturity date of each recourse note would not change if the lease were terminated prior to its primary term. The offering materials explained that the coal reserves underlying the leased property would serve as security for each note. The coal property was acquired by JAD in 1977 for $3,750,000. Information pertaining to this acquisition was presented in the offering materials. The offering materials explained that the coal property contained three principal coal seams; namely the Mason, Harlan, and Wallins Creek seams. The offering materials further explained that the objective of the partnership was to develop these three seams and then to develop other seams if such development were practicable. The Coal Reserve Report, which accompanied the offering memorandum, however, did not lend solid support for this objective. Although it maintained that the Mason seam was “of good quality”, the Coal Reserve Report noted that the Mason seam was not without serious limitations. The report further indicated that coal recovered from the Harlan seam would be burdened by a high ash content andPage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011