Purpose of the Trust. Kiewit Royalty Trust (the "Trust") was organized by Peter Kiewit Sons', Inc. (now, known as Level 3 Communications, Inc.) (the "Trustor") under the laws of the State of Nebraska on May 17, 1982 to provide an efficient, orderly and practical means of administrating the income received from three royalty interests and sixteen overriding royalty interests in leases of four coal mines located in the States of Montana and Wyoming (the "Coal Royalties"). The trustee of the Trust is U.S. Bank National Association, Omaha, Nebraska (the "Trustee"), which is a wholly-owned subsidiary of U.S. Bancorp, a bank holding company. The Coal Royalties are the interests retained in the four mine properties under the leases of the mineral rights to the mining companies who have developed, mined, and sold the coal from these mines. In general, the Coal Royalties entitle the Trust to a specified portion of the value of the total coal production from these mines, free of the expense of development and operation.
The Coal Royalties were conveyed by the Trustor to the Trust for the benefit of the holders of record of the Trustor's Class B and Class C common stock as of June 10, 1982. Ownership of beneficial interests in the Trust is represented by 12,633,432 units of beneficial interest (hereinafter referred to as "Units"). The Trust is a purely ministerial trust which generally distributes the available revenues generated by the Coal Royalties, net of the Trust's expenses, to the holders of Units. Trust expenses include but are not limited to, fees of the Trustee, and compensation paid to geologists, engineers, accountants, attorneys, or other professionals that the Trustee may, in its discretion, employ in the administration of the Trust. With respect to any liability that is contingent or uncertain in amount or that otherwise is not currently due, the Trustee has the discretion to establish cash reserves for the payment thereof.
The Coal Royalties. The Coal Royalties provide for the payment of either a specified amount per ton of coal produced, or a fixed percentage of the value or price with respect to the coal produced under the leases relating to these interests. The remaining terms of the individual Coal Royalties vary considerably, as does the acreage covered by the underlying coal leases, the estimated total tons of coal within a legal description of property as evidenced by a lease (the "Tons Under Lease") and the estimated total tons of coal under lease that can be economically extracted under existing market conditions ("Current Economic Tons"). In general, the Current Economic Tons will be less than the total Tons Under Lease because the cost of extracting a portion of the total Tons Under Lease will outweigh the price at which the coal could be sold. In addition, Current Economic Tons may be reduced by the refusal of a state and/or federal authority to grant a permit to mine portions of the coal reserves within a specific property. The inability to extract the total Tons Under Lease or the inability to sell any portion of the coal extracted will reduce the royalties payable to the Trust.