Exhibit 10.1

 

SECURITY AGREEMENT

 

dated as of

 

October 17, 2016

 

by

 

CLOUD PEAK ENERGY RESOURCES LLC

CLOUD PEAK ENERGY FINANCE CORP.

 

THE OTHER GRANTORS

FROM TIME TO TIME PARTY HERETO

 

in favor of

 

WILMINGTON TRUST, NATIONAL ASSOCIATION,

 

solely in its capacity as Collateral Agent

 

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TABLE OF CONTENTS

 

Section 1.

Definitions

1

Section 2.

Grant of Transaction Liens

8

Section 3.

General Representations and Warranties

10

Section 4.

Further Assurances; General Covenants

12

Section 5.

As-Extracted Collateral

13

Section 6.

Recordable Intellectual Property

14

Section 7.

Investment Property

14

Section 8.

[Reserved]

15

Section 9.

Cash Collateral Accounts

15

Section 10.

Commercial Tort Claims

16

Section 11.

Transfer of Record Ownership

16

Section 12.

Right to Vote Securities

16

Section 13.

[Reserved]

16

Section 14.

Remedies upon Event of Default

17

Section 15.

Application of Proceeds

18

Section 16.

[Reserved.]

19

Section 17.

Authority to Administer Collateral

19

Section 18.

Limitation on Duty in Respect of Collateral

19

Section 19.

General Provisions Concerning the Collateral Agent

20

Section 20.

Termination of Transaction Liens; Release of Collateral

21

Section 21.

Additional Guarantors and Grantors

21

Section 22.

[Reserved.]

21

Section 23.

Notices

21

Section 24.

No Implied Waivers; Remedies Not Exclusive

21

Section 25.

Successors and Assigns

21

Section 26.

Amendments and Waivers

21

Section 27.

Choice of Law

22

Section 28.

Waiver of Jury Trial

22

Section 29.

Severability

22

Section 30.

Conflicts with Note Documents

22

Section 31.

Entire Agreement

22

Section 32.

Intercreditor Agreements

23

Section 33.

Subordination of Liens

23

Section 34.

Concerning the Collateral Agent

24

 

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SCHEDULES:

 

 

 

 

Schedule 1

Subsidiary Guarantors

 

Schedule 2

Jurisdiction of Formation

 

Schedule 3

Equity Interests in Subsidiaries and Affiliates Owned by Original Grantors

 

Schedule 4

Other Investment Property Owned by Original Grantors

 

Schedule 5

Material Commercial Tort Claims

 

Schedule 6

Material Contracts with Governmental Authorities

 

Schedule 7

Locations of Equipment and Inventory

 

Schedule 8

Locations of active mine sites or preparation plants and As-Extracted Collateral

 

Schedule 9

Material Licenses

 

Schedule 10

Material Coal Supply Agreements

 

Schedule 11

Registered Intellectual Property

 

 

 

 

EXHIBITS:

 

 

 

 

 

Exhibit A

Security Agreement Supplement

 

Exhibit B

Copyright Security Agreement

 

Exhibit C

Patent Security Agreement

 

Exhibit D

Trademark Security Agreement

 

 

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SECURITY AGREEMENT

 

THIS SECURITY AGREEMENT dated as of October 17, 2016 (“Agreement”) among CLOUD
PEAK ENERGY RESOURCES LLC, a Delaware limited liability company (the “Company”),
CLOUD PEAK ENERGY FINANCE CORP., a Delaware corporation (the “Co-issuer” and,
together with the Company, the “Issuers”), CLOUD PEAK ENERGY INC., a Delaware
corporation (the “Parent Guarantor”), the Subsidiary Guarantors (as defined
herein) listed on Schedule 1 hereto, and WILMINGTON TRUST, NATIONAL ASSOCIATION,
a national banking association, solely in its capacity as Collateral Agent under
the Indenture (as defined below) (the “Collateral Agent”).

 

RECITALS:

 

A.                                    The Issuers are issuing $290,366,000
aggregate principal amount of 12% Second Lien Senior Secured Notes due 2021
(together with all Additional Notes issued from time to time after the date
hereof under, and in accordance with, the Indenture (as defined below) and all
notes issued in replacement therefor under the Indenture, the “Notes”) pursuant
to an indenture dated as of October 17, 2016 (the “Indenture”) among the
Issuers, the Parent Guarantor, the Subsidiary Guarantors and Wilmington Trust,
National Association, as trustee (together with any successor thereto, the
“Trustee”) and as Collateral Agent.

 

B.                                    The Issuers are required under the
Indenture to become a party hereto as Grantors and to secure their obligations
under the Notes and the Indenture through security interests on their assets
(other than the assets constituting Excluded Collateral), all in the manner and
to the extent as set forth in this Agreement and the other Security Documents.

 

C.                                    The Parent Guarantor and the Subsidiary
Guarantors (jointly, the “Guarantors”) are required under the Indenture to
(i) become a party to the Indenture and guarantee (a “Note Guaranty”) the
payment of the Notes and the other obligations of the Issuers thereunder and
under the Indenture and (ii) become a party hereto as a Grantor and secure such
obligations through security interests on their assets (other than the assets
constituting Excluded Collateral), all in the manner and to the extent as set
forth in this Agreement and the other Security Documents.

 

D.                                    The Grantors are affiliates of one
another, are an integral part of a consolidated enterprise and will derive
substantial direct and indirect benefits from the issuance of Notes, and are
willing to execute and deliver this Agreement in order to induce the Secured
Parties to acquire the Notes and to make their respective extensions of credit
and other accommodations as set forth in the Indenture.

 

NOW, THEREFORE, each Grantor hereby agrees with Collateral Agent as follows:

 

Section 1.                                           Definitions.

 

(a)                                 Terms Defined in the Indenture and First
Lien/Second Lien Intercreditor Agreement.  Terms defined in the Indenture or the
First Lien/Second Lien Intercreditor Agreement and not otherwise defined in
subsection (b) or (c) of this Section have, as used herein,

 

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the respective meanings provided for therein.  The rules of construction
specified in Section 1.04 of the Indenture also apply to this Agreement.

 

(b)                                 Terms Defined in UCC.  As used herein, each
of the following terms has the meaning specified in the UCC:

 

Term

 

UCC

Account

 

9-102

As-Extracted Collateral

 

9-102

Authenticate

 

9-102

Certificated Security

 

8-102

Chattel Paper

 

9-102

Commercial Tort Claim

 

9-102

Deposit Account

 

9-102

Document

 

9-102

Entitlement Holder

 

8-102

Entitlement Order

 

8-102

Equipment

 

9-102

Financial Asset

 

8-102 & 103

Fixtures

 

9-102

General Intangibles

 

9-102

Instrument

 

9-102

Inventory

 

9-102

Investment Property

 

9-102

Letter-of-Credit Right

 

9-102

Record

 

9-102

Securities Intermediary

 

8-102

Security

 

8-102 & 103

Security Entitlement

 

8-102

Supporting Obligations

 

9-102

Uncertificated Security

 

8-102

 

(c)                                  Additional Definitions.  The following
additional terms, as used herein, have the following meanings:

 

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“Bankruptcy Code” means the United States Bankruptcy Code, as amended, Title 11,
U.S. Code.

 

“Cash Distributions” means dividends, interest and other distributions and
payments (including proceeds of liquidation, sale or other disposition) made or
received in cash upon or with respect to any Collateral.

 

“Collateral” means all, property, whether now owned or hereafter acquired, on
which a Lien is granted or purports to be granted to the Collateral Agent
pursuant to the Security Documents.  When used with respect to a specific
Grantor, the term “Collateral” means all its property on which such a Lien is
granted or purports to be granted.

 

“Collateral Accounts” means the Cash Collateral Accounts.

 

“Contingent Secured Obligation” means, at any time, any Secured Obligation (or
portion thereof) that is contingent in nature at such time, including any
Secured Obligation that is:

 

(i)                                     an obligation to reimburse a bank for
drawings not yet made under a letter of credit issued by it;

 

(ii)                                  an obligation under a Hedging Agreement to
make payments that cannot be quantified at such time;

 

(iii)                               any other obligation (including any
guarantee) that is contingent in nature at such time; or

 

(iv)                              an obligation to provide collateral to secure
any of the foregoing types of obligations.

 

“Contracts” means all written contracts and agreements, including, but not
limited to, any coal supply agreements (including the coal supply agreements
listed on Schedule 10), equipment leases and transportation contracts, between
any Grantor and any other Person as the same may be amended, assigned, extended,
restated, supplemented, replaced or otherwise modified from time to time,
including (i) all rights of any Grantor to receive moneys due and to become due
to it thereunder or in connection therewith, (ii) all rights of any Grantor to
receive proceeds of any insurance, indemnity, warranty or guaranty with respect
thereto and (iii) all rights of any Grantor to damages arising thereunder.

 

“Control” has the meaning specified in UCC Section 8-106, 9-104, 9-105, 9-106 or
9-107, as may be applicable to the relevant Collateral.

 

“Control Agent” means:

 

(i)                                     until the Discharge of Senior
Obligations, the First Lien Collateral Agent in its capacity as gratuitous
bailee and agent for the Collateral Agent for the purpose of perfecting the Lien
of the Collateral Agent on Collateral, to the extent so provided in Section 5.05
of the First Lien/Second Lien Intercreditor Agreement;

 

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(ii)                                  upon the Discharge of Senior Obligations,
(x) the Collateral Agent; or (y) other Designated Second Priority Representative
(designated in accordance with the terms of the Pari Passu Second Lien
Intercreditor Agreement) as gratuitous bailee and agent for the Collateral Agent
for the purpose of perfecting the Lien of Collateral Agent on Collateral, to the
extent so provided in Section 2.09 of the Pari Passu Second Lien Intercreditor
Agreement.

 

“Copyright License” means any agreement granting to any Grantor, or pursuant to
which any Grantor grants to any other Person, any right to use, copy, reproduce,
distribute, prepare derivative works, display or publish any records or other
materials on which a Copyright is in existence or may come into existence.

 

“Copyrights” means all the following:  (i) all copyrights under the laws of the
United States or any other country (whether or not the underlying works of
authorship have been published), and all registrations and applications for the
foregoing including those set forth in Schedule 1 to any Copyright Security
Agreement, (ii) all renewals of any of the foregoing, (iii) all claims for, and
rights to sue for, past or future infringements of any of the foregoing, and
(iv) all income, royalties, damages and payments now or hereafter due or payable
with respect to any of the foregoing, including damages and payments for past or
future infringements thereof.

 

“Copyright Security Agreement” means a Copyright Security Agreement,
substantially in the form of Exhibit B, executed and delivered by a Grantor in
favor of the Collateral Agent for the benefit of the Secured Parties.

 

“Credit Agreement” means the Credit Agreement dated as of February 21, 2014 (as
amended by the Second Amendment to Credit Agreement dated September 9, 2016 and
as may be otherwise amended, restated, extended, supplemented, or otherwise
modified in writing from time to time) among the Company, the Lenders party
thereto, the Issuing Banks party thereto, PNC Bank, National Association, as
Administrative Agent and Swingline Lender, and PNC Capital Markets, LLC and
Wells Fargo Securities, LLC, as Joint Lead Arrangers and Joint Bookrunners.

 

“Equity Interest” means (i) in the case of a corporation, any shares of its
capital stock, (ii) in the case of a limited liability company, any membership
interest therein, (iii) in the case of a partnership, any partnership interest
(whether general or limited) therein, (iv) in the case of any other business
entity, any participation or other interest in the equity or profits thereof,
(v) any warrant, option or other right to acquire any Equity Interest described
in this definition or (vi) any Security Entitlement in respect of any Equity
Interest described in this definition.

 

“First Lien Collateral Agent” has the meaning ascribed to such term in the First
Lien/Second Lien Intercreditor Agreement.

 

“First Lien/Second Lien Intercreditor Agreement” means the First Lien/Second
Lien Intercreditor Agreement dated as of the day hereof (as may be amended,
restated, extended, supplemented, or otherwise modified in writing from time to
time) among the Issuers, the other grantors party thereto, PNC Bank, National
Association, as representative for the First Lien Credit Agreement Secured
Parties (as defined therein), Wilmington Trust, National Association, solely in
its capacity as the Collateral Agent, as representative for the Second Lien
Indenture

 

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Secured Parties (as defined therein), and each additional Second Priority
Representative (as defined therein) and Senior Representative (as defined
therein) that from time to time becomes a party thereto.

 

“General Intangibles” means all “general intangibles” as such term is defined in
Section 9-102 of the UCC and, in any event, including with respect to any
Grantor, all leases, licenses, permits, concessions, franchises and
authorizations issued or granted by Governmental Authorities in any form, and
portions thereof, to which such Grantor is a party or under which such Grantor
has any right, title or interest or to which such Grantor or any property of
such Grantor is subject, and all pending applications therefor filed by such
Grantor, as the same may from time to time be amended, supplemented, replaced or
otherwise modified, including (i) all rights of such Grantor to receive moneys
due and to become due to it thereunder or in connection therewith, (ii) all
rights of such Grantor to receive proceeds of any insurance, indemnity, warranty
or guaranty with respect thereto, and (iii) all rights of such Grantor to
damages arising thereunder.

 

“Grantors” means the Issuers and the Guarantors.

 

“Intellectual Property” means all intellectual property now owned or hereafter
acquired by any Grantor, including Patents, Copyrights, Licenses, Trademarks,
trade secrets and confidential or proprietary technical and business information
(including know-how).

 

“Intellectual Property Filing” means (i) with respect to any Patent, exclusive
Patent License, Trademark or exclusive Trademark License, the filing of the
applicable Patent Security Agreement or Trademark Security Agreement with the
United States Patent and Trademark Office, and (ii) with respect to any
Copyright or exclusive Copyright License, the filing of the applicable Copyright
Security Agreement with the United States Copyright Office, in each case
sufficient to record the Transaction Lien granted to the Collateral Agent in
such Recordable Intellectual Property.

 

“Intellectual Property Security Agreement” means a Copyright Security Agreement,
a Patent Security Agreement or a Trademark Security Agreement.

 

“Intercreditor Agreements” means the First Lien/Second Lien Intercreditor
Agreement and, if applicable, Pari Passu Second Lien Intercreditor Agreement.

 

“License” means any Patent License, Trademark License, Copyright License or
other license or sublicense agreement relating to Intellectual Property to which
any Grantor is a party.

 

“Material Adverse Effect” means any event or circumstance, either individually
or in the aggregate, that has had or would reasonably be expected to have a
material (a) adverse effect on (i) the business, assets, operations or condition
(financial or otherwise) of the Issuers and the Guarantors taken as a whole, or
(ii) the ability of the Issuers and the Guarantors (taken as a whole) to perform
any of their payment obligations under any Note Document or (b) impairment of
the rights of or benefits available to the Secured Parties under any Note
Document.

 

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“Material Contract” means any Contract to which any Grantor is a party that is
material to the Company and its subsidiaries, taken as a whole, and in respect
of which breach or non-performance, would reasonably be expected to have a
Material Adverse Effect.

 

“Mortgage” means a mortgage, deed of trust, assignment of leases and rents,
leasehold mortgage or other security document creating a Lien (to the extent
feasible) on real property (including any leasehold interests in real property)
and improvements thereto in favor of, the Collateral Agent (or a sub-agent
appointed pursuant to Section 19(b)) for the benefit of the Secured Parties.

 

“Original Grantor” means any Grantor that grants a Lien on any of its assets
hereunder on the Issue Date.

 

“own” refers to the possession of sufficient rights in property to grant a
security interest therein as contemplated by UCC Section 9-203, and “acquire”
refers to the acquisition of any such rights.

 

“Pari Passu Second Lien Intercreditor Agreement” means the pari passu second
lien intercreditor agreement on the terms set forth in the Indenture (or such
other terms satisfactory to the parties thereto, so long as such other terms are
not materially adverse to the interests of the Holders as compared to the terms
contemplated in the Indenture (as determined in good faith by the Company)) to
be entered by and between the Collateral Agent, on the one hand, and the
trustee, administrative agent, collateral agent, security agent or similar agent
under indenture, loan agreement or other agreement with respect to any other
series of Pari Passu Secured Debt, on the other hand, to provide for, among
other things, the relative rights and remedies of the holders of the Secured
Obligations and holders of any other Obligations relating to Pari Passu Secured
Debt with respect to the Collateral.

 

“Patent License” means any agreement granting to any Grantor, or pursuant to
which any Grantor grants to any other Person, any right with respect to any
Patent.

 

“Patents” means (i) all letters patent and design letters patent of the United
States or any other country and all applications therefor, including those set
forth in Schedule 1 to any Patent Security Agreement, (ii) all reissues,
divisions, continuations, continuations in part and extensions of any of the
foregoing, (iii) all claims for, and rights to sue for, past or future
infringements of any of the foregoing, and (iv) all income, royalties, damages
and payments now or hereafter due or payable with respect to any of the
foregoing, including damages and payments for past or future infringements
thereof.

 

“Patent Security Agreement” means a Patent Security Agreement, substantially in
the form of Exhibit C, executed and delivered by a Grantor in favor of the
Collateral Agent for the benefit of the Secured Parties.

 

“Personal Property Collateral” means all property included in the Collateral
except Real Property Collateral.

 

“Pledged” when used in conjunction with any type of asset, means at any time an
asset of such type that is included (or that creates rights that are included)
in the Collateral at such time.

 

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For example, “Pledged Equity Interest” means an Equity Interest that is included
in the Collateral at such time.

 

“Proceeds” means all proceeds of, and all other profits, products, rents or
receipts, in whatever form, arising from the collection, sale, lease, exchange,
assignment, licensing or other disposition of, or other realization upon, any
Collateral, including all claims of the relevant Grantor against third parties
for loss of, damage to or destruction of, or for proceeds payable under, or
unearned premiums with respect to, policies of insurance in respect of, any
Collateral, and any condemnation or requisition payments with respect to any
Collateral.

 

“Real Property Collateral” means all real property (including any leasehold
interests in real property) and fixed improvements thereto included in the
Collateral.

 

“Recordable Intellectual Property” means (i) any Patent registered with the
United States Patent and Trademark Office and any exclusive Patent License with
respect to a Patent so registered (excluding (x) licenses for commercial off the
shelf computer software that are generally available on nondiscriminatory
pricing terms and (y) nonexclusive licenses incidental to the purchase of
equipment that are generally available to others who purchase the same
equipment), (ii) any Trademark registered with the United States Patent and
Trademark Office, and any exclusive Trademark License with respect to a
Trademark so registered, (iii) any Copyright registered with the United States
Copyright Office and any exclusive Copyright License with respect to a Copyright
so registered (excluding (x) licenses for commercial off the shelf computer
software that are generally available on nondiscriminatory pricing terms and
(y) non-exclusive licenses incidental to the purchase of equipment that are
generally available to others who purchase the same equipment), and all rights
in or under any of the foregoing.

 

“Secured Agreement” when used with respect to any Secured Obligation, refers
collectively to each instrument, agreement or other document that sets forth
obligations of an Issuer, obligations of a Guarantor and/or rights of the holder
with respect to such Secured Obligation.

 

“Secured Obligations” means all the Obligations of the Issuers with respect to
the Notes, the Obligations of the Guarantors under the Note Guaranties and all
other Obligations of the Issuers and the Guarantors under the Note Documents.

 

“Secured Parties” means the holders from time to time of the Secured
Obligations.

 

“Security Agreement Supplement” means a Security Agreement Supplement,
substantially in the form of Exhibit A, signed and delivered to the Collateral
Agent for the purpose of adding a Subsidiary as a party hereto pursuant to
Section 21 and/or adding additional property to the Collateral.

 

“Security Documents” means this Agreement, the Security Agreement Supplements,
the Mortgages, the Intellectual Property Security Agreements, the Intercreditor
Agreements and all other supplemental or additional security agreements, control
agreements, mortgages or similar instruments delivered pursuant to the Note
Documents.

 

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“Senior Lien” has the meaning ascribed to such term in the First Lien/Second
Lien Intercreditor Agreement.

 

“Subsidiary Guarantor” means each Subsidiary listed on Schedule 1 to this
Agreement and each Subsidiary that shall, at any time after the date hereof,
become a Guarantor pursuant to Section 21 of this Agreement.

 

“Trademark License” means any agreement granting to any Grantor, or pursuant to
which any Grantor grants to any other Person, any right to use any Trademark.

 

“Trademarks” means:  (i) all trademarks, trade names, corporate names, company
names, business names, fictitious business names, trade styles, service marks,
logos, brand names, and trade dress, (ii) the goodwill of the business
symbolized by or associated with each of the foregoing, (iii) all registrations
and applications to register any of the foregoing, including those set forth in
Schedule 1 to any Trademark Security Agreement, (iv) all renewals of any of the
foregoing, (v) all claims for, and rights to sue for, past or future
infringements of any of the foregoing, and (vi) all income, royalties, damages
and payments now or hereafter due or payable with respect to any of the
foregoing, including damages and payments for past or future infringements
thereof.

 

“Trademark Security Agreement” means a Trademark Security Agreement,
substantially in the form of Exhibit D, executed and delivered by a Grantor in
favor of the Collateral Agent for the benefit of the Secured Parties.

 

“Transaction Liens” means the Liens granted by the Grantors under the Security
Documents.

 

“UCC” means the Uniform Commercial Code as in effect from time to time in the
State of New York; provided that, if perfection or the effect of perfection or
non-perfection or the priority of any Transaction Lien on any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than New York, “UCC” means the Uniform Commercial Code as in effect from time to
time in such other jurisdiction for purposes of the provisions hereof relating
to such perfection, effect of perfection or non-perfection or priority.

 

Section 2.                                           Grant of Transaction Liens.

 

(a)                                 Each Grantor, in each case in order to
secure its Secured Obligations, grants to the Collateral Agent for the benefit
of the Collateral Agent, the Trustee and the other Secured Parties and hereby
reconfirms its grant to the Collateral Agent, for the benefit of the Collateral
Agent, the Trustee and the other Secured Parties of, a continuing security
interest in all the following property of such Grantor, as the case may be,
whether now owned or existing or hereafter acquired or arising and regardless of
where located:

 

(i)                                     all Accounts;

 

(ii)                                  all As-Extracted Collateral;

 

(iii)                               all Chattel Paper,

 

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(iv)                              all cash and Deposit Accounts;

 

(v)                                 the Commercial Tort Claims described in
Schedule 5;

 

(vi)                              all Contracts;

 

(vii)                           all Documents;

 

(viii)                        all Equipment;

 

(ix)                              all Fixtures;

 

(x)                                 all General Intangibles;

 

(xi)                              all Instruments;

 

(xii)                           all Intellectual Property;

 

(xiii)                        all Inventory;

 

(xiv)                       all Investment Property;

 

(xv)                          all Letter-of-Credit Rights;

 

(xvi)                       all books and records (including customer lists,
credit files, computer programs, printouts and other computer materials and
records) of such Grantor pertaining to any of its Collateral;

 

(xvii)                    such Grantor’s ownership interest in (A) its
Collateral Accounts, (B) all Financial Assets credited to its Collateral
Accounts from time to time and all Security Entitlements in respect thereof, and
(C) all cash held in its Collateral Accounts from time to time; and

 

(xviii)                 all Proceeds of the Collateral described in the
foregoing clauses (i) through (xvii);

 

provided that the Excluded Collateral is excluded from the foregoing security
interests; and provided further that the security interests granted hereunder
shall include the right of the applicable Grantor to receive all proceeds
derived from or in connection with the sale, assignment or transfer of the
Excluded Collateral but only to the extent that, and only for so long as, such
proceeds are not properties that would constitute the Excluded Collateral
themselves.

 

(b)                                 Notwithstanding the foregoing or anything in
this Agreement or any other Security Document to the contrary, (i) remedies with
respect to Collateral as to which creation and perfection is governed by a
Mortgage but also included in the definition of Collateral under this Agreement
shall be governed by the provisions of the applicable Mortgage, (ii) the
creation (other than by this Agreement) or perfection of pledges of or security
interests in particular assets will not be required if, and for so long as, the
creation or perfection of such security interests would require a foreign law
governed security or pledge agreement, and (iii) no Grantor shall be required
(A) to take steps to perfect the security interest in Excluded Accounts, (B) to
take steps to perfect the security interests in property and assets (other than
deposit, securities and

 

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commodities accounts) requiring perfection through control agreements (other
than the filing a financing statement under the Uniform Commercial Code of any
applicable jurisdiction to the extent such security interest can be perfected by
such filing), (C) to take steps to perfect the security interests granted
hereunder by indicating such security interest on the certificate of title for
any motor vehicle asset or other asset that is covered by a certificate of
title, (D) to take steps to perfect the security interest in Letter-of-Credit
Rights (other than the filing a financing statement under the Uniform Commercial
Code of any applicable jurisdiction to the extent such security interest can be
perfected by such filing), (E) to seek any third party consent, or (F) to take
steps to perfect the security interests granted hereunder in any commercial tort
claims. In addition, the Lien on certain items of Collateral will not be
required to be perfected (or perfected by a particular method) to the extent
that the administrative agent for the Credit Agreement does not require such
Lien to be perfected (or perfected by such particular method) under the Credit
Agreement.

 

(c)                                  With respect to each right to payment or
performance included in the Collateral from time to time, the Transaction Lien
granted therein includes a continuing security interest in (i) any Supporting
Obligation that supports such payment or performance and (ii) any Lien that
(x) secures such right to payment or performance or (y) secures any such
Supporting Obligation.

 

(d)                                 The Transaction Liens are granted as
security only and shall not subject the Collateral Agent or any other Secured
Party to, or transfer or in any way affect or modify, any obligation or
liability of any Grantor with respect to any of the Collateral or any
transaction in connection therewith.

 

Section 3.                                           General Representations and
Warranties.   Each Grantor represents and warrants that:

 

(a)                                 Such Grantor is duly organized, validly
existing and in good standing under the laws of the jurisdiction identified as
its jurisdiction of organization in Schedule 2.

 

(b)                                 With respect to each Original Grantor,
Schedule 3 lists all Equity Interests in Subsidiaries and Affiliates owned by
such Grantor as of the Issue Date.

 

(c)                                  With respect to each Original Grantor,
Schedule 4 lists, as of the Issue Date, all Securities owned by such Grantor
(except Securities evidencing Equity Interests in Subsidiaries and Affiliates).

 

(d)                                 With respect to each Original Grantor,
Schedule 6 lists, as of the Issue Date, all Material Contracts with Governmental
Authorities to which such Original Grantor is a party other than those described
in the Parent Guarantor’s and the Company’s 10-K or 10-Q filings with the SEC.

 

(e)                                  As of the Issue Date, except for those
locations listed on Schedule 7 where (i) mining equipment may be, from time to
time, in the possession of a third party in order to be repaired or rebuilt or
(ii) coal inventory may be, from time to time, stored on a temporary basis prior
to being transported to customers, none of the Equipment or Inventory that is
included in the Collateral is in the possession of an issuer of a negotiable
document (as defined in Section 7-104 of the New York UCC) therefor or is
otherwise in the possession of any bailee or warehouseman.

 

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(f)                                   With respect to each Original Grantor,
Schedule 9 lists, as of the Issue Date, each Material Contract to which such
Original Grantor is party that is a License.

 

(g)                                  With respect to each Original Grantor,
Schedule 11 lists, as of the Issue Date, all Intellectual Property of such
Grantor that is registered or subject to applications for registration in the
name of such Grantor.

 

(h)                                 All Pledged Equity Interests owned by such
Grantor in its Subsidiaries are owned by it free and clear of any Lien other
than any Liens permitted under Section 4.10 of the Indenture.  All shares of
capital stock included in such Pledged Equity Interests (including shares of
capital stock in respect of which such Grantor owns a Security Entitlement) have
been duly authorized and validly issued and are fully paid and non-assessable. 
None of such Pledged Equity Interests is subject to any option to purchase or
similar right of any Person.  Such Grantor is not and will not become a party to
or otherwise bound by any agreement (except the Note Documents, the Senior
Collateral Documents and except as otherwise permitted under the Indenture)
which restricts in any manner the rights of any present or future holder of any
Pledged Equity Interest with respect thereto.

 

(i)                                     Such Grantor has good and valid title to
all its Collateral that is material to its business, except where the failure to
have such title or interest does not or would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect. All the
Collateral is free and clear of any Lien other than Liens permitted under
Section 4.10 of the Indenture.

 

(j)                                    No effective financing statement,
security agreement, mortgage or similar or equivalent document or instrument
covering all or part of the Collateral owned by such Grantor is on file or of
record in any jurisdiction in which such filing or recording would be effective
to perfect or record a Lien on such Collateral, except financing statements,
mortgages or other similar or equivalent documents with respect to Liens
permitted under Section 4.10 of the Indenture.  As of the Issue Date, no
Collateral owned by such Grantor is in the possession or under the Control of
any other Person having a claim thereto or security interest therein, other than
in connection with any Lien permitted under Section 4.10 of the Indenture.

 

(k)                                 The Transaction Liens on all Personal
Property Collateral owned by such Grantor (i) have been validly created,
(ii) will attach to each item of such Collateral on the Issue Date (or, if such
Grantor on a later date first obtains rights thereto or obtains a consent or
removes another applicable restriction on granting a security interest thereon,
then on such later date) and (iii) when so attached, will secure all of such
Grantor’s Secured Obligations.

 

(l)                                     Subject to the limitations set forth
therein, when the relevant Mortgages have been duly executed and delivered, the
Transaction Liens on all Real Property Collateral owned by such Grantor as of
the Issue Date will have been validly created and will secure all such Grantor’s
Secured Obligations.  When such Mortgages have been duly recorded, such
Transaction Liens will rank prior to all other Liens (except for Liens permitted
under Section 4.10 of the Indenture) on such Real Property Collateral.

 

(m)                             [Reserved].

 

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(n)                                 UCC financing statements describing the
Collateral as “all personal property” have been filed in the offices in the
jurisdiction of formation specified in Schedule 2 and the Transaction Liens
constitute perfected security interests in the Personal Property Collateral
owned by such Grantor to the extent that a security interest therein may be
perfected by filing pursuant to the UCC, prior to all Liens and rights of others
therein except for Liens permitted under Section 4.10 of the Indenture.  In
addition to the filing of such UCC financing statements, the applicable
Intellectual Property Filings have been made with respect to such Grantor’s
Recordable Intellectual Property (including any future filings required pursuant
to Sections 4(a) and 6(a)) and the Transaction Liens constitute perfected
security interests in all right, title and interest of such Grantor in its
Recordable Intellectual Property to the extent that security interests therein
may be perfected by such filings, prior to all Liens and rights of others
therein except for Liens permitted under Section 4.10 of the Indenture.  Except
for (i) the filing of such UCC financing statements, (ii) such Intellectual
Property Filings (iii) the due recordation of the Mortgages, (iv) notices of the
Transactions required under the Mining Permits (including to the Bureau of
Alcohol, Tobacco and Firearms) and Environmental Permits regarding a change in
control that were or will be given to the applicable Governmental Authority on
or prior to the date by which such notices were or are due, (v) the entry into
control agreements and (vi) steps which are, pursuant to Section 2(b) above, not
required, no registration, recordation or filing with any governmental body,
agency or official is required in connection with the execution or delivery of
the Security Documents or is necessary for the validity or enforceability
thereof or for the perfection or due recordation of the Transaction Liens.

 

(o)                                 Such Grantor has taken, and will continue to
take, all actions necessary under the UCC to perfect its interest in any
Accounts or Chattel Paper purchased or otherwise acquired by it, as against its
assignors and creditors of its assignors to the same extent as required for the
Liens granted on the Issue Date.

 

(p)                                 [Reserved].

 

(q)                                 All of such Grantor’s Inventory has or will
have been produced in compliance with the applicable material requirements of
the Fair Labor Standards Act, as amended.

 

Section 4.                                           Further Assurances; General
Covenants.  Each Grantor covenants as follows:

 

(a)                                 Subject to the Intercreditor Agreements,
such Grantor will, from time to time, at the Company’s expense, execute,
deliver, file and record any statement, assignment, instrument, document,
agreement or other paper and take any other action (including any Intellectual
Property Filing) that from time to time may be necessary or desirable, or that
the Collateral Agent may request, in order to:

 

(i)                                     create, preserve, perfect, confirm or
validate the Transaction Liens on such Grantor’s Collateral, subject, in each
case to the exceptions and exclusions in the Note Documents and to the same
extent as required for the Liens granted on the Issue Date;

 

(ii)                                  in the case of Certificated Securities,
cause the Collateral Agent to have Control thereof;

 

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(iii)                               enable the Collateral Agent and the other
Secured Parties to obtain the full benefits of the Security Documents; or

 

(iv)                              enable, to the extent possible, the Collateral
Agent to exercise and enforce any of its rights, powers and remedies with
respect to any of such Grantor’s Collateral, subject, in each case to the
exceptions and exclusions in the Note Documents.

 

Without limiting the foregoing, such Grantor authorizes the Collateral Agent to
execute and file such financing statements or continuation statements in such
jurisdictions with such descriptions of collateral (including “all assets” or
“all personal property” or other words to that effect) and other information set
forth therein as the Collateral Agent may deem necessary or desirable for the
purposes set forth in the preceding sentence.  Each Grantor also ratifies its
authorization for the Collateral Agent to file in any such jurisdiction any
initial financing statements or amendments thereto if filed prior to the date
hereof for the purposes set forth in the preceding sentence.  The Collateral
Agent is further authorized to file with the United States Patent and Trademark
Office or United States Copyright Office (or any successor office or any similar
office in any other country) such documents as may be necessary or advisable for
the purpose of perfecting, confirming, continuing, enforcing or protecting the
security interests granted by each Grantor, without the signature of any
Grantor, and naming any Grantor or the Grantors as debtors and the Collateral
Agent as secured party.  The Company will pay the costs of, or incidental to,
any Intellectual Property Filings and any recording or filing of any financing
or continuation statements or other documents recorded or filed pursuant hereto.

 

(b)                                 Such Grantor will not (i) change its name or
organizational form or structure or (ii) change its jurisdiction of
organization, unless, in each case, it promptly informs the Collateral Agent and
takes all steps reasonably that are necessary to maintain the perfection and
status of the Transaction Liens.

 

(c)                                  Such Grantor will not sell, lease,
exchange, assign or otherwise dispose of, or grant any option with respect to,
any of its Collateral; provided that such Grantor may do any of the foregoing
unless doing so would violate a covenant in the Indenture.  Concurrently with
any sale, lease, exchange, assignment or other disposition permitted by the
foregoing proviso, the Transaction Liens on the assets sold, leased, exchanged,
assigned or otherwise disposed of (but not in any Proceeds arising from such
sale or disposition) will be released in accordance with Section 11.05 of the
Indenture.  The Collateral Agent will promptly, at the Company’s expense,
execute and deliver to the relevant Grantor such documents as such Grantor shall
reasonably request to evidence the fact that any asset so sold, leased,
exchanged, assigned or otherwise disposed of is no longer subject to a
Transaction Lien.

 

(d)                                 Such Grantor will, promptly upon request,
provide to the Collateral Agent all information and evidence concerning such
Grantor’s Collateral that the Collateral Agent may reasonably request from time
to time to enable it to enforce the provisions of the Security Documents.

 

Section 5.                                           As-Extracted Collateral. 
If any Grantor acquires any interest in any preparation plant or any
As-Extracted Collateral, then, in each case, unless such preparation plant is
included on Schedule 8 hereto, such Grantor will (i) provide notice thereof to
the Collateral Agent within 20 days of such acquisition, together with a
supplement to Schedule 8 reflecting

 

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such acquisition, (ii) prepare and file any financing statement covering such
As-Extracted Collateral (which financing statements shall include the name of
the record owner of the real estate if other than the Grantor and sufficient
real estate descriptions for recording) as are necessary to record and perfect
the Lien in such As-Extracted Collateral and (iii) pay all related filing fees
and any recording or stamp taxes due in connection with such filings.

 

Section 6.                                           Recordable Intellectual
Property.  Each Grantor covenants as follows:

 

(a)                                 On the Issue Date (in the case of an
Original Grantor) or such later date on which it signs and delivers its first
Security Agreement Supplement (in the case of any other Grantor), such Grantor
will sign and deliver to the Collateral Agent Intellectual Property Security
Agreements with respect to all Recordable Intellectual Property then owned by
it.  At the request of the Collateral Agent (it being understood that the
Collateral Agent shall have no duty to make such request), Grantor will sign and
deliver to the Collateral Agent an appropriate Intellectual Property Security
Agreement covering any acquired material Recordable Intellectual Property, and
the provisions of this Agreement shall automatically apply thereto.

 

(b)                                 Such Grantor will notify the Collateral
Agent as soon as reasonably practicable if any material Recordable Intellectual
Property owned by such Grantor is abandoned or dedicated to the public, or if
there is any proceeding instituted in the United States Copyright Office, the
United States Patent and Trademark Office or any court, that challenges such
Grantor’s ownership of such material Recordable Intellectual Property.  If any
of such Grantor’s rights to any material Recordable Intellectual Property are
infringed, misappropriated or diluted by a third party such that there is a
Material Adverse Effect, such Grantor will notify the Collateral Agent thereof
as soon as is reasonably practicable.

 

(c)                                  Upon the occurrence and during the
continuance of an Event of Default upon the Collateral Agent’s request, each
Grantor shall use its best efforts to obtain all requisite consents or approvals
by the licensor of each Copyright License, Patent License or Trademark License
under which such Grantor is a licensee to effect the assignment of all such
Grantor’s right, title and interest thereunder to the Collateral Agent, for the
ratable benefit of the Secured Parties, or its designee.

 

Section 7.                                           Investment Property.  Each
Grantor represents, warrants and covenants as follows:

 

(a)                                 Certificated Securities.  On the Issue Date
(in the case of an Original Grantor) or the date on which it signs and delivers
its first Security Agreement Supplement (in the case of any other Grantor), such
Grantor shall have delivered to the Control Agent as Collateral hereunder all
certificates representing Pledged Certificated Securities then owned by such
Grantor.  Thereafter, whenever such Grantor acquires any other certificate
representing a Pledged Certificated Security, such Grantor will, as promptly as
practicable, deliver such certificate to the Control Agent as Collateral
hereunder.  The provisions of this subsection shall not apply to any Excluded
Collateral.

 

(b)                                 [Reserved].

 

(c)                                  [Reserved].

 

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(d)                                 [Reserved].

 

(e)                                  Perfection as to Certificated Securities. 
When (x) such Grantor delivers the certificate representing any Pledged
Certificated Security owned by it to the Control Agent, which delivery shall be
in compliance with Section 7(j), (y) the Control Agent takes possession and
obtains Control in the State of New York over such Pledged Certificated Security
and (z) the First Lien/Second Lien Intercreditor Agreement is executed and
delivered by the parties thereto (i) the Transaction Lien on such Pledged
Certificated Security will be perfected, subject to no prior Liens or rights of
others (other than Liens permitted under Section 4.10 of the Indenture), and
(ii) the Collateral Agent will have Control of such Pledged Certificated
Security.

 

(f)                                   [Reserved].

 

(g)                                  [Reserved].

 

(h)                                 [Reserved].

 

(i)                                     Agreement as to Applicable
Jurisdiction.  In respect of all Security Entitlements owned by such Grantor,
and all Securities Accounts to which the related Financial Assets are credited,
the Securities Intermediary’s jurisdiction (determined as provided in UCC
Section 8-110(e)) will at all times be located in the United States.  In respect
of all Commodity Contracts owned by such Grantor and all Commodity Accounts in
which such Commodity Contracts are carried, the Commodity Intermediary’s
jurisdiction (determined as provided in UCC Section 9-305(b)) will at all times
be located in the United States.

 

(j)                                    Delivery of Pledged Certificates.  All
Pledged Certificates, when delivered to the Control Agent, will be in suitable
form for transfer by delivery, or accompanied by duly executed instruments of
transfer or assignment in blank.

 

(k)                                 Certification of Limited Liability Company
and Partnership Interests.  Any limited liability company and any partnership
controlled by any Grantor shall either (i) not include in its operative
documents any provision that any Equity Interests in such limited liability
company or such partnership be a “security” as defined under Article 8 of the
Uniform Commercial Code, or (ii) certificate any Equity Interests in any such
limited liability company or such partnership.  To the extent an interest in any
limited liability company or partnership controlled by any Grantor and pledged
hereunder is certificated or becomes certificated, each such certificate shall
be delivered to the Control Agent pursuant to Section 7(a) and such Grantor
shall fulfill all other requirements under Section 7 applicable in respect
thereof.

 

Section 8.                                           [Reserved].

 

Section 9.                                           Cash Collateral Accounts. 
If and when required for purposes hereof or of any other Note Document, subject
to the terms of the Intercreditor Agreements, the Collateral Agent will
establish with respect to each Grantor an account (each a “Cash Collateral
Account”), in the name and under the exclusive control of the Collateral Agent,
into which all amounts owned by such Grantor that are to be deposited therein
pursuant to the Note Documents shall be deposited from time to time.  Funds held
in any Cash Collateral Account may, until withdrawn, be invested and reinvested
in such Cash Equivalents as the relevant Grantor shall request from time to
time; provided that if an Event of Default shall have occurred and be

 

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continuing, the Collateral Agent may, but shall not be obligated to, select such
Cash Equivalents.  Subject to the terms of the Intercreditor Agreements and
Section 15, withdrawal of funds on deposit in any Cash Collateral Account shall
be permitted if, as and when expressly so provided in or in respect of the
applicable provision of the Note Documents pursuant to which such Cash
Collateral Account was required to be established.

 

Section 10.                                    Commercial Tort Claims.  Each
Grantor represents, warrants and covenants as follows:

 

(a)                                 In the case of an Original Grantor,
Schedule 5 accurately describes, with the specificity required to satisfy
Official Comment 5 to UCC Section 9-108, each Material Commercial Tort Claim
with respect to which such Original Grantor is the claimant as of the Issue
Date.  In the case of any other Grantor, Schedule 4 to its first Security
Agreement Supplement will accurately describe, with the specificity required to
satisfy said Official Comment 5, each Material Commercial Tort Claim with
respect to which such Grantor is the claimant as of the date on which it signs
and delivers such Security Agreement Supplement.

 

Section 11.                                    Transfer of Record Ownership.  At
any time when an Event of Default under Section 6.01(a) of the Indenture shall
have occurred and be continuing, the Collateral Agent, subject to the terms of
the Intercreditor Agreements, may, but shall not be obligated to, (and to the
extent that action by it is required, the relevant Grantor, if directed to do so
by the Collateral Agent, will as promptly as practicable) cause each of the
Pledged Securities (or any portion thereof specified in such direction) to be
transferred of record into the name of the Collateral Agent or its nominee. 
Each Grantor will take any and all actions reasonably requested by the
Collateral Agent to facilitate compliance with this Section.

 

Section 12.                                    Right to Vote Securities.

 

(a)                                 Unless an Event of Default shall have
occurred and be continuing and Collateral Agent has provided written notice of
its exercise of rights pursuant to Section 12(b) below, each Grantor will have
the right, from time to time, to vote and to give consents, ratifications and
waivers with respect to any Pledged Security owned by it and the Financial Asset
underlying any Pledged Security Entitlement owned by it.

 

(b)                                 If an Event of Default shall have occurred
and be continuing, then with written notice to the Company, the Collateral Agent
will have the exclusive right to, but not the obligation to, the extent
permitted by law and the Intercreditor Agreements (and, in the case of a Pledged
partnership interest, whether general or limited, or Pledged membership interest
or similar interest in a limited liability company, by the relevant partnership
agreement, limited liability company agreement, operating agreement or other
governing document) to vote, to give consents, ratifications and waivers and to
take any other action with respect to the Pledged Investment Property, the other
Pledged Equity Interests and the Financial Assets underlying the Pledged
Security Entitlements, with the same force and effect as if the Collateral Agent
were the absolute and sole owner thereof, and each Grantor will take all such
action as the Collateral Agent may reasonably request from time to time to give
effect to such right.

 

Section 13.                                    [Reserved].

 

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Section 14.                                    Remedies upon Event of Default.

 

(a)                                 If an Event of Default shall have occurred
and be continuing, the Collateral Agent may, but shall not be obligated to,
subject to the terms of the Intercreditor Agreements, exercise (or cause its
sub-agents to exercise) any or all of the remedies available to it (or to such
sub-agents) under the Security Documents.

 

(b)                                 Without limiting the generality of the
foregoing, if an Event of Default shall have occurred and be continuing, the
Collateral Agent may, but shall not be obligated to, subject to the terms of the
Intercreditor Agreements, exercise on behalf of the Secured Parties all the
rights of a secured party under the UCC (whether or not in effect in the
jurisdiction where such rights are exercised) with respect to any Personal
Property Collateral and, in addition, the Collateral Agent may, without being
required to give any notice, except as herein provided or as may be required by
mandatory provisions of law, subject to the terms of the Intercreditor
Agreements, sell or otherwise dispose of the Collateral or any part thereof in
one or more parcels at public or private sale, at any exchange, broker’s board
or at any of the Collateral Agent’s offices or elsewhere, for cash, on credit or
for future delivery, at such time or times and at such price or prices and upon
such other terms as the Collateral Agent may deem commercially reasonable,
irrespective of the impact of any such sales on the market price of the
Collateral.  To the maximum extent permitted by applicable law and the
Intercreditor Agreements, any Secured Party may be the purchaser of any or all
of the Collateral at any such sale and (with the consent of the Collateral
Agent, which may be withheld in its discretion) shall be entitled, for the
purpose of bidding and making settlement or payment of the purchase price for
all or any portion of the Collateral sold at any such public sale, to use and
apply all of any part of the Secured Obligations as a credit on account of the
purchase price of any Collateral payable at such sale.  Upon any such sale of
Collateral by the Collateral Agent (including pursuant to a power of sale
granted by statute or under a judicial proceeding), the receipt of the
Collateral Agent or of the officer making the sale shall be a sufficient
discharge to the purchaser or purchasers of the Collateral so sold and such
purchaser or purchasers shall not be obligated to see to the application of any
part of the purchase money paid to the Collateral Agent or such officer or be
answerable in any way for the misapplication thereof.  Each purchaser at any
such sale shall hold the property sold absolutely free from any claim, or right
on the part of any Grantor, and each Grantor hereby waives (to the extent
permitted by law) all rights of redemption, stay or appraisal that it now has or
may at any time in the future have under any rule of law or statute now existing
or hereafter enacted.  The Collateral Agent shall not be obliged to make any
sale of Collateral regardless of notice of sale having been given.  The
Collateral Agent may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was so adjourned.  To
the maximum extent permitted by law, each Grantor hereby waives any claim
against any Secured Party arising because the price at which any Collateral may
have been sold at such a private sale was less than the price that might have
been obtained at a public sale, even if the Collateral Agent accepts the first
offer received and does not offer such Collateral to more than one offeree.  The
Collateral Agent may disclaim any warranty, as to title or as to any other
matter, in connection with such sale or other disposition, and its doing so
shall not be considered adversely to affect the commercial reasonableness of
such sale or other disposition.

 

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(c)                                  Notice of any such sale or other
disposition shall be given to the relevant Grantor(s) as (and if) required by
Section 17.

 

(d)                                 For the purpose of enabling the Collateral
Agent to exercise rights and remedies under this Agreement at such time as the
Collateral Agent shall be lawfully entitled to exercise such rights and remedies
in compliance with the Intercreditor Agreements, each Grantor hereby grants to
the Collateral Agent an irrevocable license (exercisable without payment of
royalty or other compensation to the Grantors), to use, license or sublicense
any of the Collateral consisting of Intellectual Property now owned or hereafter
acquired by such Grantor, and including in such license access to all media in
which any of the licensed items may be recorded or stored and to all computer
software and programs used for the compilation or printout thereof.  The use of
such license by the Collateral Agent may be exercised only upon the occurrence
and during the continuation of an Event of Default; provided, however, that any
license, sublicense or other transaction entered into by the Collateral Agent in
accordance herewith shall be binding upon each Grantor notwithstanding any
subsequent cure of an Event of Default.

 

(e)                                  The foregoing provisions of this
Section shall apply to Real Property Collateral only to the extent permitted by
applicable law and the provisions of any applicable Mortgage.

 

Section 15.                                    Application of Proceeds.

 

(a)                                 If an Event of Default shall have occurred
and be continuing, the Collateral Agent may, subject to the terms of the
Intercreditor Agreements, apply (i) any cash held in the Collateral Accounts and
(ii) the proceeds of any sale or other disposition of all or any part of the
Collateral, in the following order of priorities:

 

first, to pay the expenses of such sale or other disposition, including
reasonable compensation to agents of and counsel for the Collateral Agent and
Trustee, and all expenses, liabilities and advances incurred or made by the
Collateral Agent and Trustee in connection with the Security Documents, and any
other amounts then due and payable to the Collateral Agent and Trustee pursuant
to Sections 7.07 and 11.08 of the Indenture;

 

second, to pay (i) all Secured Obligations under the Note Documents (including
without limitation principal of and interest on the Notes and all other amounts
owing thereunder), and (ii) all other Secured Obligations, in each case pro rata
in accordance with their respective amounts, until payment in full of all such
interest and fees shall have been made (or so provided for); and

 

third, to pay to the relevant Grantor, or as a court of competent jurisdiction
may direct, any surplus then remaining from the proceeds of the Collateral owned
by it;

 

provided that Collateral owned by a Subsidiary Guarantor and any proceeds
thereof shall be applied pursuant to the foregoing clauses first, second and
third only in a maximum aggregate amount equal to the greatest amount that would
not render respective Grantor’s obligations hereunder subject to avoidance as a
fraudulent transfer or conveyance under Section 548 of the Bankruptcy Code or
any comparable provisions of applicable state law.  The Collateral Agent may
make such distributions hereunder in cash or in kind or, on a ratable basis, in
any combination thereof.

 

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(b)                                 In making the payments and allocations
required by this Section, the Collateral Agent may rely upon information
supplied to it pursuant to Section 19(c).  All distributions made by the
Collateral Agent pursuant to this Section shall be final (except in the event of
manifest error) and the Collateral Agent shall have no duty to inquire as to the
application by any Secured Party of any amount distributed to it.

 

Section 16.                                    [Reserved.]

 

Section 17.                                    Authority to Administer
Collateral.  Each Grantor irrevocably appoints the Collateral Agent its true and
lawful attorney, with full power of substitution, in the name of such Grantor,
any Secured Party or otherwise, for the sole use and benefit of the Secured
Parties, but at the Issuers’ expense, to the extent permitted by law and subject
to the terms of the Intercreditor Agreements, to exercise, at any time and from
time to time while an Event of Default shall have occurred and be continuing,
all or any of the following powers with respect to all or any of such Grantor’s
Collateral:

 

(a)                                 to demand, sue for, collect, receive and
give acquittance for any and all monies due or to become due upon or by virtue
thereof,

 

(b)                                 to obtain and adjust insurance required to
be maintained by such Grantor pursuant to the Indenture, if any,

 

(c)                                  to settle, compromise, compound, prosecute
or defend any action or proceeding with respect thereto,

 

(d)                                 to sell, lease, license or otherwise dispose
of the same or the proceeds or avails thereof, as fully and effectually as if
the Collateral Agent were the absolute owner thereof, and

 

(e)                                  to extend the time of payment of any or all
thereof and to make any allowance or other adjustment with reference thereto;

 

provided that, except in the case of Personal Property Collateral that is
perishable or threatens to decline speedily in value or is of a type customarily
sold on a recognized market, the Collateral Agent will give the relevant Grantor
at least ten days’ prior written notice of the time and place of any public sale
thereof or the time after which any private sale or other intended disposition
thereof will be made.  Any such notice shall (i) contain the information
specified in UCC Section 9-613, (ii) be Authenticated and (iii) be sent to the
parties required to be notified pursuant to UCC Section 9-611(c); provided that,
if the Collateral Agent fails to comply with this sentence in any respect, its
liability for such failure shall be limited to the liability (if any) imposed on
it as a matter of law under the UCC.

 

Section 18.                                    Limitation on Duty in Respect of
Collateral.  Beyond the exercise of reasonable care in the custody and
preservation thereof, the Collateral Agent will have no duty as to any
Collateral in its possession or control or in the possession or control of any
sub-agent or bailee or any income therefrom or as to the preservation of rights
against prior parties or any other rights pertaining thereto.  The Collateral
Agent will be deemed to have exercised reasonable care in the custody and
preservation of the Collateral in its possession or control if such Collateral
is accorded treatment substantially equal to that which it accords its own
property, and will not be liable or responsible for any loss or damage to any
Collateral, or for any

 

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diminution in the value thereof, by reason of any act or omission of any
sub-agent or bailee selected by the Collateral Agent in good faith, except to
the extent that such liability arises from the Collateral Agent’s gross
negligence or willful misconduct.

 

Section 19.                                    General Provisions Concerning the
Collateral Agent.

 

(a)                                 The provisions of Articles VII and XI of the
Indenture shall inure to the benefit of the Collateral Agent, and shall be
binding upon all Grantors and all Secured Parties, in connection with this
Agreement and the other Security Documents.  Without limiting the generality of
the foregoing, (i) the Collateral Agent shall not be subject to any fiduciary or
other implied duties, regardless of whether an Event of Default has occurred and
is continuing, (ii) the Collateral Agent shall not have any duty to take any
discretionary action or exercise any discretionary powers, except discretionary
rights and powers expressly contemplated by the Security Documents that the
Trustee directs the Collateral Agent in writing to exercise, and (iii) except as
expressly set forth in the Note Documents, the Collateral Agent shall not have
any duty to disclose, and shall not be liable for any failure to disclose, any
information relating to any Grantor that is communicated to or obtained by the
bank serving as Collateral Agent or any of its Affiliates in any capacity.  The
Collateral Agent shall not be responsible for the existence, genuineness or
value of any Collateral or for the validity, perfection, priority or
enforceability of any Transaction Lien, whether impaired by operation of law or
by reason of any action or omission to act on its part under the Security
Documents.  The Collateral Agent shall be deemed not to have knowledge of any
Event of Default unless and until written notice thereof is given to the
Collateral Agent and the Trustee.

 

(b)                                 Sub-Agents and Related Parties.  The
Collateral Agent may perform any of its duties and exercise any of its rights
and powers through one or more sub-agents appointed by it.  The Collateral Agent
and any such sub-agent may perform any of its duties and exercise any of its
rights and powers through its Affiliates and through its and its Affiliates’
respective directors, officers, members, partners, employees, agents and
advisors (jointly, the “Related Parties”).  The exculpatory provisions of
Section 18 and this Section shall apply to any such sub-agent and to the Related
Parties of the Collateral Agent and any such sub-agent.

 

(c)                                  Information as to Secured Obligations and
Actions by Secured Parties.  For all purposes of the Security Documents,
including determining the amounts of the Secured Obligations and whether a
Secured Obligation is a Contingent Secured Obligation or not, or whether any
action has been taken under any Secured Agreement, the Collateral Agent will be
entitled to rely on information from (i) its own records for information as to
the Holders, their Secured Obligations and actions taken by them, (ii) the
Trustee for information as to its Secured Obligations and actions taken by it,
to the extent that the Collateral Agent has not obtained such information from
its own records, and (iii) the Issuers, to the extent that the Collateral Agent
has not obtained information from the foregoing sources.

 

(d)                                 Refusal to Act.  The Collateral Agent may
refuse to act on any notice, consent, direction or instruction from the Trustee
or any Secured Parties, in the Collateral Agent’s opinion, (i) is contrary to
law or the provisions of any Security Document, (ii) may expose the Collateral
Agent to liability (unless the Collateral Agent shall have been indemnified, to
its satisfaction, for such liability by the Secured Parties that gave such
notice, consent, direction or

 

20

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instruction) or (iii) is unduly prejudicial to Secured Parties not joining in
such notice, consent, direction or instruction.

 

Section 20.                                    Termination of Transaction Liens;
Release of Collateral.

 

(a)                                 The Transaction Lien granted by any Grantor
shall terminate, all without delivery of any instrument or performance of any
act by any party, at any time or from time to time in accordance with the
provisions of Section 11.05 of the Indenture.

 

(b)                                 The Collateral (or a portion thereof) shall
be released from the Transaction Lien created by this Agreement, all without
delivery of any instrument or performance of any act by any party, at any time
or from time to time in accordance with the provisions of Section 11.05 of the
Indenture.

 

(c)                                  Upon any termination of a Transaction Lien
or release of Collateral, the Collateral Agent will, at the expense of the
relevant Grantor, execute and deliver to such Grantor such documents as such
Grantor shall reasonably request to evidence the termination of such Transaction
Lien or the release of such Collateral, as the case may be.

 

Section 21.                                    Additional Guarantors and
Grantors.  Any Subsidiary of the Parent Guarantor may become a party hereto by
signing and delivering to the Collateral Agent a Security Agreement Supplement,
whereupon such Subsidiary shall become a “Grantor” as defined herein.

 

Section 22.                                    [Reserved.]

 

Section 23.                                    Notices.  Each notice, request or
other communication given to any party hereunder shall be given in accordance
with Section 13.01 of the Indenture, and in the case of any such notice, request
or other communication to a Grantor other than the Company, shall be given to it
in care of the Company.

 

Section 24.                                    No Implied Waivers; Remedies Not
Exclusive.  No failure by the Collateral Agent or any Secured Party to exercise,
and no delay in exercising and no course of dealing with respect to, any right
or remedy under any Security Document shall operate as a waiver thereof; nor
shall any single or partial exercise by the Collateral Agent or any Secured
Party of any right or remedy under this Agreement or any other Note Document
preclude any other or further exercise thereof or the exercise of any other
right or remedy.  The rights and remedies specified in the Note Documents are
cumulative and are not exclusive of any other rights or remedies provided by
law.

 

Section 25.                                    Successors and Assigns.  The
Liens provided for in this Agreement are for the benefit of the Collateral Agent
and the Secured Parties.  If all or any part of any Secured Party’s interest in
any Secured Obligation is assigned or otherwise transferred, the transferor’s
rights hereunder, to the extent applicable to the obligation so transferred,
shall be automatically transferred with such obligation.  This Agreement shall
be binding on each party hereto and their respective successors and assigns.

 

Section 26.                                    Amendments and Waivers.  Neither
this Agreement nor any provision hereof may be waived, amended, modified or
terminated except pursuant to an agreement or

 

21

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agreements in writing entered into by the Collateral Agent, with the consent of
such Holders, if any, as are required to consent thereto under Article IX of the
Indenture, and in compliance with the Intercreditor Agreements.  No such waiver,
amendment or modification shall be binding upon any Grantor, except with its
written consent.

 

Section 27.                                    Choice of Law.  This Agreement
shall be construed in accordance with and governed by the laws of the State of
New York, without regard to conflicts of laws principles (other than Sections
5-1401 and 5-1402 of the General Obligations Law of the State of New York) and
except to the extent that remedies provided by the laws of any jurisdiction
other than the State of New York are governed by the laws of such jurisdiction.

 

Section 28.                                    Waiver of Jury Trial.  EACH PARTY
HERETO WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT
MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY
ARISING OUT OF OR RELATING TO ANY SECURITY DOCUMENT OR ANY TRANSACTION
CONTEMPLATED THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). 
EACH PARTY HERETO (a) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND
(b) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION.

 

Section 29.                                    Severability.  If any provision
of any Security Document is invalid or unenforceable in any jurisdiction, then,
to the fullest extent permitted by law, (a) the other provisions of the Security
Documents shall remain in full force and effect in such jurisdiction and the
Secured Parties in order to carry out the intentions of the parties thereto as
nearly as may be possible and (b) the invalidity or unenforceability of such
provision in such jurisdiction shall not affect the validity or enforceability
thereof in any other jurisdiction.

 

Section 30.                                    Conflicts with Note Documents. 
To the fullest extent possible, the terms and provisions of this Agreement shall
be read together with the terms and provisions of each other Note Document so
that the terms and provisions of this Agreement do not conflict with the terms
and provisions of any Note Document; provided, however, notwithstanding the
foregoing, in the event that any of the terms or provisions of the Indenture
conflicts with any terms or provisions of any Note Document, including this
Agreement, the terms or provisions of the Indenture shall govern and control for
all purposes; provided further that (a) the inclusion in this Agreement of terms
and provisions as to rights or remedies in favor of the Collateral Agent related
to Collateral and not expressly addressed in the Indenture shall not be deemed
to be in conflict with the Indenture and all such rights or remedies contained
herein shall be given full force and effect, and (b) the inclusion in this
Agreement of terms or provisions that are less restrictive to the Parent
Guarantor or any Subsidiary thereof shall not be deemed to be in conflict with
the Indenture and all such terms and provisions contained herein shall be given
full force and effect.

 

Section 31.                                    Entire Agreement.  This
Agreement, the other Note Documents and any separate letter agreements with
respect to fees payable to the Collateral Agent constitute the

 

22

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entire contract among the parties relating to the subject matter hereof and
supersede any and all previous agreements and understandings, oral or written,
relating to the subject matter hereof.

 

Section 32.                                    Intercreditor Agreements.

 

(a)                                 Notwithstanding anything herein to the
contrary, (i) the Liens and security interests granted to the Collateral Agent
pursuant to this Agreement and (ii) the exercise of any right or remedy by the
Collateral Agent hereunder or the application of Proceeds (including insurance
proceeds and condemnation proceeds) of any Collateral, are subject to the
provisions of the Intercreditor Agreements.  In the event of any conflict
between the terms of an Intercreditor Agreement and the terms of this Agreement,
the terms of the Intercreditor Agreement shall govern.

 

(b)                                 Without limiting the generality of the
foregoing clause (a) and subject to the provisions of the Intercreditor
Agreements, with respect to the Collateral, any obligation of any Grantor
hereunder or under any other Second Priority Debt Document with respect to the
delivery or control of any Collateral, the provisions of voting rights, the
turning over of proceeds of Collateral or the obtaining of any consent of any
Person, in each case in connection with any Collateral shall be deemed to be
satisfied if (i) until the Discharge of Senior Debt Obligations, such Grantor
complies with the requirements of the similar provision of the applicable Senior
Debt Document, including, for avoidance of doubt, by delivering any possessory
Collateral or granting control over any Collateral to the Senior Representative,
or (ii) upon the Discharge of Senior Debt Obligations and in case any person
other than the Collateral Agent acts as Designated Second Priority
Representative (designated in accordance with the terms of the Pari Passu Second
Lien Intercreditor Agreement), such Grantor complies with the requirements of
the similar provision of the applicable Second Priority Debt Document,
including, for avoidance of doubt, by delivering any possessory Collateral or
granting control over any Collateral to such Designated Second Priority
Representative. Notwithstanding anything in this Agreement to the contrary, for
purposes of any representation in this Agreement, delivery of Collateral to, or
the granting of control over Collateral to, the Control Agent shall be deemed to
include delivery of Collateral to, or the granting of control over Collateral
to, the Collateral Agent.

 

(c)                                  Notwithstanding anything herein to the
contrary, any request, decision or determination made, or documents or other
items deemed satisfactory, desirable, necessary, appropriate or advisable, by
the Senior Representative with respect to the equivalent section under the
Senior Debt Documents, shall be deemed to have been made, or deemed
satisfactory, desirable, necessary, appropriate or advisable by the Collateral
Agent.

 

(d)                                 Notwithstanding anything to the contrary
contained herein, prior to the Discharge of Senior Debt Obligations no Grantor
shall be required to take any actions other than the filing of UCC financing
statements unless it is so required to take such action under the Senior Debt
Documents.

 

Section 33.                                    Subordination of Liens. 
Notwithstanding anything herein to the contrary, (A) the liens and security
interests granted to the Second Priority Representative pursuant to this
Agreement are expressly subject and subordinate to the liens and security
interests granted in favor of the Senior Secured Parties (as defined in the
First Lien/Second Lien Intercreditor Agreement referred to below), including
liens and security interests granted to PNC Bank,

 

23

--------------------------------------------------------------------------------

 

National Association, as administrative and collateral agent, pursuant to or in
connection with the Credit Agreement dated as of February 21, 2014, by and among
Cloud Peak Energy Resources LLC, as borrower, its subsidiaries party thereto, as
guarantors, PNC Bank, National Association, as administrative and collateral
agent, and a syndicate of lenders, as such agreement is amended by the First
Amendment to Credit Agreement, dated September 5, 2014 and Second Amendment to
Credit Agreement dated September 9, 2016 and as it otherwise has been or may be,
in whole or in part, in one or more instances, amended, restated, renewed,
extended, substituted, refinanced, restructured, replaced, supplemented or
otherwise modified from time to time (including, without limitation, any
successive amendments, restatements, renewals, extensions, or substitutions of
the foregoing) and (B) the exercise of any right or remedy by the Second
Priority Representative hereunder is subject to the limitations and provisions
of the First Lien/Second Lien Intercreditor Agreement dated as of October 17,
2016 (as amended, restated, supplemented or otherwise modified from time to
time, the “First Lien/Second Lien Intercreditor Agreement”), among PNC Bank,
National Association, as First Lien Collateral Agent, Wilmington Trust, National
Association, as Second Lien Collateral Agent, the Borrowers, their subsidiaries
and affiliated entities party thereto. In the event of any conflict between the
terms of the First Lien/Second Lien Intercreditor Agreement and the terms of
this Agreement, the terms of the First Lien/Second Lien Intercreditor Agreement
shall govern.

 

Section 34.                                    Concerning the Collateral Agent. 
The Collateral Agent is a party to this Agreement solely in its capacity as
Collateral Agent pursuant to the Indenture and not in its individual capacity. 
The Collateral Agent shall have all of the rights, privileges and immunities
afforded to it as Collateral Agent under the Indenture and the other Note
Documents as though fully set forth herein.

 

[signature pages follow]

 

24

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.

 

 

CLOUD PEAK ENERGY RESOURCES LLC,

 

as an Issuer

 

 

 

 

 

 

 

By:

/s/ Heath Hill

 

 

Name:

Heath Hill

 

 

Title:

Executive Vice President and Chief Financial Officer

 

 

 

 

 

 

 

CLOUD PEAK ENERGY FINANCE CORP.,

 

as an Issuer

 

 

 

 

 

 

 

By:

/s/ Heath Hill

 

 

Name:

Heath Hill

 

 

Title:

Executive Vice President and Chief Financial Officer

 

 

 

 

 

 

 

CLOUD PEAK ENERGY INC.,

 

as the Parent Guarantor

 

 

 

 

 

 

 

By:

/s/ Heath Hill

 

 

Name:

Heath Hill

 

 

Title:

Executive Vice President and Chief Financial Officer

 

[SIGNATURE PAGE SECURITY AGREEMENT]

 

--------------------------------------------------------------------------------

 

 

ANTELOPE COAL LLC,

 

ARROWHEAD I LLC,

 

ARROWHEAD II LLC,

 

ARROWHEAD III LLC,

 

BIG METAL COAL CO. LLC,

 

CABALLO ROJO HOLDINGS LLC,

 

CABALLO ROJO LLC,

 

CLOUD PEAK ENERGY LOGISTICS LLC,

 

CLOUD PEAK ENERGY LOGISTICS I LLC,

 

CLOUD PEAK ENERGY SERVICES COMPANY,

 

CORDERO MINING HOLDINGS LLC,

 

CORDERO MINING LLC,

 

CORDERO OIL AND GAS LLC,

 

KENNECOTT COAL SALES LLC,

 

NERCO COAL LLC,

 

NERCO COAL SALES LLC,

 

NERCO LLC,

 

PROSPECT LAND AND DEVELOPMENT LLC,

 

RESOURCE DEVELOPMENT LLC,

 

SEQUATCHIE VALLEY COAL CORPORATION,

 

SPRING CREEK COAL LLC,

 

WESTERN MINERALS LLC,

 

YOUNGS CREEK HOLDINGS I LLC,

 

YOUNGS CREEK HOLDINGS II LLC,

 

YOUNGS CREEK MINING COMPANY, LLC,

 

as Subsidiary Guarantors

 

 

 

 

 

 

 

By:

/s/ Heath Hill

 

 

Name:

Heath Hill

 

 

Title:

Executive Vice President and Chief Financial Officer

 

[SIGNATURE PAGE SECURITY AGREEMENT]

 

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.

 

 

WILMINGTON TRUST,

 

NATIONAL ASSOCIATION, solely in its capacity

 

as Collateral Agent

 

 

 

 

 

 

 

By:

/s/ W. Thomas Morris, II

 

 

Name:

W. Thomas Morris, II

 

 

Title:

Vice President

 

[SIGNATURE PAGE SECURITY AGREEMENT]

 

--------------------------------------------------------------------------------

 

EXHIBIT A

to Security Agreement

 

SECURITY AGREEMENT SUPPLEMENT

 

SECURITY AGREEMENT SUPPLEMENT dated as of       ,    , between [NAME OF GRANTOR]
(the “Grantor”), and WILMINGTON TRUST, NATIONAL ASSOCIATION, as Collateral
Agent.

 

RECITALS:

 

CLOUD PEAK ENERGY RESOURCES LLC and CLOUD PEAK ENERGY FINANCE CORP. (together,
the “Issuers”), CLOUD PEAK ENERGY INC. (the “Parent Guarantor”), the Subsidiary
Guarantors party thereto and Wilmington Trust, National Association, as
Collateral Agent, are parties to the Security Agreement dated as of October 17,
2016 (as may be amended and/or supplemented, the “Security Agreement”) under
which the Issuers, the Parent Guarantor and the Subsidiary Guarantors secure
certain of obligations of the Issuers (the “Issuers Secured Obligations”) and
the guaranties of the Borrower Secured Obligations (each, a “Secured Guarantee”)
by the Parent Guarantor and the Subsidiary Guarantors;

 

[Name of Grantor] desires to become [is] a party to the Security Agreement as a
Subsidiary Guarantor and Grantor thereunder;

 

Terms defined in the Security Agreement (or whose definitions are incorporated
by reference in Section 1 of the Security Agreement) and not otherwise defined
herein have, as used herein, the respective meanings provided for therein;

 

Now, therefore, in consideration of the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:

 

1.             Grant of Transaction Liens.  i.           (a) In order to secure
the Secured Obligations, the Grantor grants to the Collateral Agent for the
benefit of the Collateral Agent, the Trustee and the other Secured Parties a
continuing security interest in all property of the Grantor of the type
described in Section 2(a) of the Security Agreement and subject to the
exclusions and limitations set forth in Section 2, whether now owned or existing
or hereafter acquired or arising and regardless of where located (the “New
Collateral”).

 

ii.             With respect to each right to payment or performance included in
the Collateral from time to time, the Transaction Lien granted therein includes
a continuing security interest in (i) any Supporting Obligation that supports
such payment or performance and (ii) any Lien that (x) secures such right to
payment or performance or (y) secures any such Supporting Obligation.

 

iii.            The foregoing transaction Liens are granted as security only and
shall not subject the Collateral Agent or any other Secured Party to, or
transfer or in any way affect or modify, any obligation or liability of the
Grantor with respect to any of the New Collateral or any transaction in
connection therewith.

 

1

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2.             Delivery of Collateral.  Concurrently with delivering this
Security Agreement Supplement to the Collateral Agent, the Grantor is complying
with the provisions of Section 7 of the Security Agreement with respect to
Investment Property, in each case if and to the extent included in the New
Collateral at such time.

 

3.             Party to Security Agreement.  Upon delivering this Security
Agreement Supplement to the Collateral Agent, the Grantor will become a party to
the Security Agreement as a “Subsidiary Guarantor” and “Grantor” and will
thereafter have all the rights and obligations of a Subsidiary Guarantor and a
Grantor thereunder and be bound by all the provisions thereof as fully as if the
Grantor were one of the original parties thereto; provided that provisions that
expressly apply only to Original Grantors (as defined in the Security Agreement)
shall not apply to the Grantor.

 

4.             Representations and Warranties. i.           (a) The Grantor is
duly organized, validly existing and in good standing under the laws of the
jurisdiction identified as its jurisdiction of organization in Schedule 1
hereto.

 

ii.             Within 60 days after the date hereof, the Grantor will furnish
to the Collateral Agent a file search report from each UCC filing office in the
state of the Grantor’s jurisdiction of formation listed in Schedule 1, showing
the filing made at such filing office to perfect the Transaction Liens on the
New Collateral.

 

iii.            The execution and delivery of this Security Agreement Supplement
by the Grantor and the performance by it of its obligations under the Security
Agreement as supplemented hereby (i) do not require any consent or approval of,
registration or filing with, or other action by, any Governmental Authority,
except for (A) the filing of such UCC financing statements, (B) such
Intellectual Property Filings, (C) the due recordation of the Mortgages, if
applicable, (D) notices of the transactions required under any Mining Permit or
Environmental Permit regarding a charge in control that will be given to the
applicable Governmental Authority on or prior to the date by which such notices
are due, (E) the entry into control agreements, and (F) steps which are,
pursuant to Section 2(b) of the Security Agreement, not required; (ii) are
within its corporate or other powers, (iii) have been duly authorized by all
necessary corporate or other action, (iv) do not violate its organizational
documents, (v) do not contravene or constitute a default under, any provision of
applicable law or regulation or of agreement, judgment, injunction, order,
decree or other instrument binding upon it, except in each case referred to in
this clause (v) to the extent that failure to do so would not reasonably be
expected to have a Material Adverse Effect, or (vi) will not result in the
creation or imposition of any Lien (except a Transaction Lien) on any of its
assets.

 

iv.            The Security Agreement as supplemented hereby constitutes a valid
and binding agreement of the Grantor, enforceable in accordance with its terms,
except as limited by (i) applicable bankruptcy, insolvency, fraudulent
conveyance or other similar laws affecting creditors’ rights generally and
(ii) general principles of equity.

 

v.             Each of the representations and warranties set forth in Sections
3, 7, and 10 of the Security Agreement is true as applied to the Grantor and the
New Collateral; provided that, to the extent that such representations and
warranties specifically refer to an earlier date, they shall be

 

2

--------------------------------------------------------------------------------

 

true and correct in all respects as of such earlier date (to the extent the
Grantor would be a party to the Security Agreement on such earlier date).  For
purposes of the foregoing sentence, references in said Sections to a “Grantor”
shall be deemed to refer to the Grantor, references to Schedules to the Security
Agreement shall be deemed to refer to the corresponding Schedules to this
Security Agreement Supplement, references to “Collateral” shall be deemed to
refer to the New Collateral, and references to the “Issue Date” shall be deemed
to refer to the date on which the Grantor signs and delivers this Security
Agreement Supplement.

 

5.             Governing Law.  This Security Agreement Supplement shall be
construed in accordance with and governed by the laws of the State of New York
without regard to conflicts of laws principles (other than Sections 5-1401 and
5-1402 of the General Obligations Law of the State of New York) and except to
the extent that remedies provided by the laws of any jurisdiction other than the
State of New York are governed by the laws of such jurisdiction.

 

6.             Concerning the Collateral Agent.  The Collateral Agent is a party
to this Security Agreement Supplement solely in its capacity as Collateral Agent
pursuant to the Indenture and not in its individual capacity. The Collateral
Agent shall have all of the rights, privileges and immunities afforded to it as
Collateral Agent under the Indenture and the other Note Documents as though
fully set forth herein.

 

3

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement
Supplement to be duly executed by their respective authorized officers as of the
day and year first above written.

 

 

[NAME OF GRANTOR]

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

 

 

 

WILMINGTON TRUST, NATIONAL ASSOCIATION, as Collateral Agent

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

4

--------------------------------------------------------------------------------

 

Schedule 1
to Security Agreement
Supplement

 

JURISDICTION OF FORMATION

 

Grantor

 

Jurisdiction of
Organization

 

Filing Office

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5

--------------------------------------------------------------------------------

 

Schedule 2
to Security Agreement
Supplement

 

EQUITY INTERESTS IN SUBSIDIARIES AND AFFILIATES
OWNED BY GRANTOR

 

Issuer

 

Jurisdiction of
Organization

 

Percentage Owned

 

Number of Share
Units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6

--------------------------------------------------------------------------------

 

Schedule 3
to Security Agreement
Supplement

 

INVESTMENT PROPERTY
(other than Equity Interests in Subsidiaries and Affiliates)
OWNED BY GRANTOR

 

PART 1 — Securities

 

7

--------------------------------------------------------------------------------

 

Schedule 4
to Security Agreement
Supplement

 

MATERIAL COMMERCIAL TORT CLAIMS

 

8

--------------------------------------------------------------------------------

 

EXHIBIT B

to Security Agreement

 

COPYRIGHT SECURITY AGREEMENT

 

WHEREAS, [name of Grantor], a [corporation](3), (herein referred to as the
“Grantor”) owns, or in the case of licenses is a party to, the Copyright
Collateral (as defined below);

 

WHEREAS, CLOUD PEAK ENERGY RESOURCES LLC and CLOUD PEAK ENERGY FINANCE CORP.
(together, the “Issuers”) issued $[·] aggregate principal amount of 12% Second
Lien Senior Secured Notes due 2021 pursuant to an indenture dated as of
October 17, 2016 (the “Indenture”) among the Issuers, CLOUD PEAK ENERGY INC.
(the “Parent Guarantor”), the Subsidiary Guarantors party thereto, and
Wilmington Trust, National Association, as Trustee and the Collateral Agent.

 

WHEREAS, pursuant to (i) the Security Agreement dated as of October 17, 2016 (as
may be amended and/or supplemented from time to time, the “Security Agreement”)
among the Issuers, the Parent Guarantor, the Subsidiary Guarantors party thereto
and Wilmington Trust, National Association, as the Collateral Agent for the
Secured Parties referred to therein (in such capacity, together with its
successors in such capacity, the “Grantee”), and (ii) certain other Security
Documents (including this Copyright Security Agreement), the Grantor has secured
certain of its obligations (the “Secured Obligations”) by granting to the
Grantee for the benefit of such Secured Parties a continuing security interest
in personal property of the Grantor, including all right, title and interest of
the Grantor in, to and under the Copyright Collateral (as defined below);

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Grantor grants to the Grantee, to secure
the Secured Obligations, a continuing security interest in all of the Grantor’s
right, title and interest in, to and under the following (all of the following
items or types, of property being herein collectively referred to as the
“Copyright Collateral”), whether now owned or existing or hereafter acquired or
arising:

 

i.              each Copyright (as defined in the Security Agreement) owned by
the Grantor that is Recordable Intellectual Property (as defined in the Security
Agreement), including, without limitation, each Copyright registration or
application therefor referred to in Schedule 1 hereto;

 

ii.             each Copyright License (as defined in the Security Agreement) to
which the Grantor is a party, including, without limitation, each exclusive
Copyright License identified in Schedule 1 hereto; and

 

iii.            all proceeds of, revenues from, and accounts and general
intangibles arising out of, the foregoing, including, without limitation, all
proceeds of and revenues from any claim by the Grantor against third parties for
past, present or future infringement of any Copyright owned by the Grantor
(including, without limitation, any Copyright identified in

 

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(3)  Modify as needed if the Grantor is not a Corporation.

 

1

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Schedule 1), and all rights and benefits of the Grantor under any Copyright
License (including, without limitation, any exclusive Copyright License
identified in Schedule 1).

 

The Grantor irrevocably constitutes and appoints the Grantee and any officer or
agent thereof, with full power of substitution, as its true and lawful
attorney-in-fact with full power and authority in the name of the Grantor or in
the Grantee’s name, from time to time, in the Grantee’s discretion, so long as
any Event of Default shall have occurred and be continuing, to take with respect
to the Copyright Collateral any and all appropriate action which the Grantor
might take with respect to the Copyright Collateral and to execute any and all
documents and instruments which may be necessary or desirable to carry out the
terms of this Copyright Security Agreement and to accomplish the purposes
hereof.

 

The Grantor acknowledges and affirms that the rights and remedies of the Grantee
with respect to the security interest in the Copyright Collateral granted hereby
are more fully set forth in the Security Agreement, the terms and provisions of
which are incorporated by reference herein as if fully set forth herein.

 

The Collateral Agent is a party to this Copyright Security Agreement solely in
its capacity as Collateral Agent pursuant to the Indenture and not in its
individual capacity. The Collateral Agent shall have all of the rights,
privileges and immunities afforded to it as Collateral Agent under the Indenture
and the other Note Documents as though fully set forth herein.

 

2

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the parties hereto have caused this Copyright Security
Agreement to be duly executed by their respective authorized officers as of the
    day of     ,              .

 

 

[NAME OF GRANTOR]

 

 

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

 

 

 

 

 

WILMINGTON TRUST, NATIONAL ASSOCIATION, as Collateral Agent

 

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

3

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Schedule l to Copyright

Security Agreement

 

[NAME OF GRANTOR]

 

COPYRIGHT REGISTRATIONS

 

Registration No.

 

Registration Date

 

Title

 

Expiration
Date

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COPYRIGHT APPLICATIONS

 

Case No.

 

Serial No.

 

Country

 

Date

 

Filing Title

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXCLUSIVE COPYRIGHT LICENSES

 

Name of
Agreement

 

Parties
Licensor/Licensee

 

Date of
Agreement

 

Subject
Matter

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4

--------------------------------------------------------------------------------

 

EXHIBIT C

to Security Agreement

 

PATENT SECURITY AGREEMENT

 

WHEREAS, [name of Grantor], a [corporation](4), (herein referred to as the
“Grantor”) owns, or in the case of licenses is a party to, the Patent Collateral
(as defined below);

 

WHEREAS, CLOUD PEAK ENERGY RESOURCES LLC and CLOUD PEAK ENERGY FINANCE CORP.
(together, the “Issuers”) issued $[·] aggregate principal amount of 12% Second
Lien Senior Secured Notes due 2021 pursuant to an indenture dated as of
October 17, 2016 (the “Indenture”) among the Issuers, CLOUD PEAK ENERGY INC.
(the “Parent Guarantor”), the Subsidiary Guarantors party thereto, and
Wilmington Trust, National Association, as Trustee and the Collateral Agent.

 

WHEREAS, pursuant to (i) the Security Agreement dated as of October 17, 2016 (as
may be amended and/or supplemented from time to time, the “Security Agreement”)
among the Issuers, the Parent Guarantor, the Subsidiary Guarantors party thereto
and Wilmington Trust, National Association, as the Collateral Agent for the
Secured Parties referred to therein (in such capacity, together with its
successors in such capacity, the “Grantee”), and (ii) certain other Security
Documents (including this Patent Security Agreement), the Grantor has secured
certain of its obligations (the “Secured Obligations”) by granting to the
Grantee for the benefit of such Secured Parties a continuing security interest
in personal property of the Grantor, including all right, title and interest of
the Grantor in, to and under the Patent Collateral (as defined below);

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Grantor grants to the Grantee, to secure
the Secured Obligations, a continuing security interest in all of the Grantor’s
right, title and interest in, to and under the following (all of the following
items or types, of property being herein collectively referred to as the “Patent
Collateral”), whether now owned or existing or hereafter acquired or arising:

 

i.              each Patent (as defined in the Security Agreement) owned by the
Grantor that is Recordable Intellectual Property (as defined in the Security
Agreement), including, without limitation, each Patent referred to in Schedule 1
hereto;

 

ii.             each Patent License (as defined in the Security Agreement) to
which the Grantor is a party, including, without limitation, each exclusive
Patent License identified in Schedule 1 hereto; and

 

iii.            all proceeds of, and revenues from, the foregoing, including,
without limitation, all proceeds of and revenues from any claim by the Grantor
against third parties for past, present or future infringement of any Patent
owned by the Grantor (including,

 

--------------------------------------------------------------------------------

(4)  Modify as needed if the Grantor is not a Corporation.

 

1

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without limitation, any Patent identified in Schedule 1 hereto), and all rights
and benefits of the Grantor under any Patent License (including, without
limitation, any exclusive Patent License identified in Schedule 1 hereto).

 

The Grantor irrevocably constitutes and appoints the Grantee and any officer or
agent thereof, with full power of substitution, as its true and lawful
attorney-in-fact with full power and authority in the name of the Grantor or in
the Grantee’s name, from time to time, in the Grantee’s discretion, so long as
any Event of Default shall have occurred and be continuing, to take with respect
to the Patent Collateral any and all appropriate action which the Grantor might
take with respect to the Patent Collateral and to execute any and all documents
and instruments which may be necessary or desirable to carry out the terms of
this Patent Security Agreement and to accomplish the purposes hereof.

 

The Grantor acknowledges and affirms that the rights and remedies of the Grantee
with respect to the security interest in the Patent Collateral granted hereby
are more fully set forth in the Security Agreement, the terms and provisions of
which are incorporated by reference herein as if fully set forth herein.

 

The Collateral Agent is a party to this Patent Security Agreement solely in its
capacity as Collateral Agent pursuant to the Indenture and not in its individual
capacity. The Collateral Agent shall have all of the rights, privileges and
immunities afforded to it as Collateral Agent under the Indenture and the other
Note Documents as though fully set forth herein.

 

2

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the parties hereto have caused this Patent Security
Agreement to be duly executed by their respective authorized officers as of the
    day of     ,               .

 

 

[NAME OF GRANTOR]

 

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

 

 

 

 

WILMINGTON TRUST, NATIONAL ASSOCIATION, as Collateral Agent

 

 

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

3

--------------------------------------------------------------------------------

 

Schedule l to Patent

Security Agreement

 

[NAME OF GRANTOR]

 

PATENTS AND DESIGN PATENTS

 

Patent No.

 

Issued

 

Expiration

 

Country

 

Title

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PATENT APPLICATIONS

 

Case No.

 

Serial No.

 

Country

 

Date

 

Filing Title

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PATENT LICENSES

 

Name of Agreement

 

Parties
Licensor/Licensee

 

Date of Agreement

 

Subject
Matter

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4

--------------------------------------------------------------------------------

 

EXHIBIT D

to Security Agreement

 

TRADEMARK SECURITY AGREEMENT

 

WHEREAS, [name of Grantor], a [corporation](5), (herein referred to as the
“Grantor”) owns, or in the case of licenses is a party to, the Trademark
Collateral (as defined below);

 

WHEREAS, CLOUD PEAK ENERGY RESOURCES LLC and CLOUD PEAK ENERGY FINANCE CORP.
(together, the “Issuers”) issued $[·] aggregate principal amount of 12% Second
Lien Senior Secured Notes due 2021 pursuant to an indenture dated as of
October 17, 2016 (the “Indenture”) among the Issuers, CLOUD PEAK ENERGY INC.
(the “Parent Guarantor”), the Subsidiary Guarantors party thereto, and
Wilmington Trust, National Association, as Trustee and the Collateral Agent.

 

WHEREAS, pursuant to (i) the Security Agreement dated as of October 17, 2016 (as
may be amended and/or supplemented from time to time, the “Security Agreement”)
among the Issuers, the Parent Guarantor, the Subsidiary Guarantors party thereto
and Wilmington Trust, National Association, as the Collateral Agent for the
Secured Parties referred to therein (in such capacity, together with its
successors in such capacity, the “Grantee”), and (ii) certain other Security
Documents (including this Trademark Security Agreement), the Grantor has secured
certain of its obligations (the “Secured Obligations”) by granting to the
Grantee for the benefit of such Secured Parties a continuing security interest
in personal property of the Grantor, including all right, title and interest of
the Grantor in, to and under the Trademark Collateral (as defined below);

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Grantor grants to the Grantee, to secure
the Secured Obligations, a continuing security interest in all of the Grantor’s
right, title and interest in, to and under the following (all of the following
items or types, of property being herein collectively referred to as the
“Trademark Collateral”), whether now owned or existing or hereafter acquired or
arising:

 

i.              each Trademark (as defined in the Security Agreement) owned by
the Grantor that is Recordable Intellectual Property (as defined in the Security
Agreement), including, without limitation, each Trademark registration and
application referred to in Schedule 1 hereto , and all of the goodwill of the
business connected with the use of, or symbolized by, each Trademark;

 

ii.             each Trademark License (as defined in the Security Agreement) to
which the Grantor is a party, including, without limitation, each exclusive
Trademark License identified in Schedule 1 hereto, and all of the goodwill of
the business connected with the use of, or symbolized by, each Trademark
licensed pursuant thereto; and

 

iii.            all proceeds of and revenues from the foregoing, including,
without limitation, all proceeds of and revenues from any claim by the Grantor
against third parties for past,

 

--------------------------------------------------------------------------------

(5)  Modify as needed if the Grantor is not a Corporation.

 

1

--------------------------------------------------------------------------------

 

present or future unfair competition with, or violation of intellectual property
rights in connection with or injury to, or infringement or dilution of any
Trademark owned by the Grantor (including, without limitation, any Trademark
identified in Schedule 1 hereto), and all rights and benefits of the Grantor
under any Trademark License (including, without limitation, any exclusive
Trademark License identified in Schedule 1 hereto), or for injury to the
goodwill associated with any of the foregoing.

 

The Grantor irrevocably constitutes and appoints the Grantee and any officer or
agent thereof, with full power of substitution, as its true and lawful
attorney-in-fact with full power and authority in the name of the Grantor or in
the Grantee’s name, from time to time, in the Grantee’s discretion, so long as
any Event of Default shall have occurred and be continuing, to take with respect
to the Trademark Collateral any and all appropriate action which the Grantor
might take with respect to the Trademark Collateral and to execute any and all
documents and instruments which may be necessary or desirable to carry out the
terms of this Trademark Security Agreement and to accomplish the purposes
hereof.

 

The Grantor acknowledges and affirms that the rights and remedies of the Grantee
with respect to the security interest in the Trademark Collateral granted hereby
are more fully set forth in the Security Agreement, the terms and provisions of
which are incorporated by reference herein as if fully set forth herein.

 

The Collateral Agent is a party to this Trademark Security Agreement solely in
its capacity as Collateral Agent pursuant to the Indenture and not in its
individual capacity. The Collateral Agent shall have all of the rights,
privileges and immunities afforded to it as Collateral Agent under the Indenture
and the other Note Documents as though fully set forth herein.

 

2

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the parties hereto have caused this Trademark Security
Agreement to be duly executed by their respective authorized officers as of the
    day of     ,           .

 

 

[NAME OF GRANTOR]

 

 

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

 

 

WILMINGTON TRUST, NATIONAL ASSOCIATION, as Collateral Agent

 

 

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

3

--------------------------------------------------------------------------------

 

Schedule l to Trademark

Security Agreement

 

[NAME OF GRANTOR]

 

TRADEMARK REGISTRATIONS

 

U.S. TRADEMARK REGISTRATIONS

 

Trademark

 

Registration Number

 

Registration Date

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. TRADEMARK APPLICATIONS

 

Trademark

 

Filing Date

 

Application Number

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXCLUSIVE TRADEMARK LICENSES

 

Name of
Agreement

 

Parties
Licensor/Licensee

 

Date of
Agreement

 

Subject
Matter

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4

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