Exhibit 10.2


 


GUARANTEE AND SECURITY
AGREEMENT


 




dated as of


 


November 25, 2009


 




among


 




CLOUD PEAK ENERGY RESOURCES LLC


 




the GUARANTORS party hereto


 




and


 




MORGAN STANLEY SENIOR FUNDING, INC.,

as Administrative Agent


 

















 


TABLE OF
CONTENTS


 






 


	
   

  	
   

  	
  PAGE

  
	
   

  	
   

  	
   

  
	
  SECTION 1.

  	
  Definitions

  	
  3

  
	
  SECTION 2.

  	
  Guarantees by Guarantors

  	
  12

  
	
  SECTION 3.

  	
  Grant of Transaction Liens

  	
  14

  
	
  SECTION 4.

  	
  General Representations and
  Warranties

  	
  17

  
	
  SECTION 5.

  	
  Further Assurances; General
  Covenants

  	
  20

  
	
  SECTION 6.

  	
  As-Extracted Collateral

  	
  21

  
	
  SECTION 7.

  	
  Recordable Intellectual Property

  	
  21

  
	
  SECTION 8.

  	
  Investment Property

  	
  22

  
	
  SECTION 9.

  	
  Deposit Accounts

  	
  25

  
	
  SECTION 10.

  	
  Cash Collateral Accounts

  	
  25

  
	
  SECTION 11.

  	
  Commercial Tort Claims

  	
  26

  
	
  SECTION 12.

  	
  Transfer Of Record Ownership

  	
  26

  
	
  SECTION 13.

  	
  Right to Vote Securities

  	
  26

  
	
  SECTION 14.

  	
  Certain Cash Distributions

  	
  27

  
	
  SECTION 15.

  	
  Remedies upon Event of Default

  	
  27

  
	
  SECTION 16.

  	
  Application of Proceeds

  	
  29

  
	
  SECTION 17.

  	
  Fees and Expenses; Indemnification

  	
  30

  
	
  SECTION 18.

  	
  Authority to Administer Collateral

  	
  31

  
	
  SECTION 19.

  	
  Limitation on Duty in Respect of
  Collateral

  	
  32

  
	
  SECTION 20.

  	
  General Provisions Concerning the
  Administrative Agent

  	
  32

  
	
  SECTION 21.

  	
  Termination of Transaction Liens;
  Release of Collateral

  	
  33

  
	
  SECTION 22.

  	
  Additional Guarantors and Grantors

  	
  33

  
	
  SECTION 23.

  	
  Additional Secured Obligations

  	
  34

  
	
  SECTION 24.

  	
  Notices

  	
  34

  
	
  SECTION 25.

  	
  No Implied Waivers; Remedies Not
  Exclusive

  	
  34

  
	
  SECTION 26.

  	
  Successors and Assigns

  	
  34

  
	
  SECTION 27.

  	
  Amendments and Waivers

  	
  34

  
	
  SECTION 28.

  	
  Choice of Law

  	
  34

  
	
  SECTION 29.

  	
  Waiver of Jury Trial

  	
  34

  
	
  SECTION 30.

  	
  Severability

  	
  35

  



 

















 


	
  SCHEDULES:

  	
   

  
	
   

  	
   

  
	
  Schedule
  1

  	
  Equity Interests in Subsidiaries and Affiliates
  Owned by Original Grantors

  
	
  Schedule
  2

  	
  Other Investment Property Owned by Original Grantors

  
	
  Schedule
  3

  	
  Material Commercial Tort Claims

  
	
  Schedule
  4

  	
  Material Contracts with Governmental Authorities

  
	
  Schedule
  5

  	
  Locations of Equipment and Inventory

  
	
  Schedule
  6

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

  
	
  Schedule
  7

  	
  Material Licenses

  
	
  Schedule
  8

  	
  Material Coal Supply Agreements

  
	
   

  	
   

  
	
  EXHIBITS:

  	
   

  
	
   

  	
   

  
	
  Exhibit A

  	
  Security Agreement Supplement

  
	
  Exhibit B

  	
  Copyright Security Agreement

  
	
  Exhibit C

  	
  Patent Security Agreement

  
	
  Exhibit D

  	
  Trademark Security Agreement

  
	
  Exhibit E

  	
  Perfection Certificate

  
	
  Exhibit F

  	
  Issuer Control Agreement

  
	
  Exhibit G

  	
  Securities Account Control Agreement

  
	
  Exhibit H

  	
  Deposit Account Control Agreement

  
	
  Exhibit I

  	
  Commodity Account Control Agreement

  



 


2

















 


GUARANTEE
AND SECURITY AGREEMENT


 


AGREEMENT dated as of November 25, 2009 among
CLOUD PEAK ENERGY RESOURCES LLC, a Delaware limited liability company, as
Borrower, the GUARANTORS party hereto and MORGAN STANLEY SENIOR FUNDING, INC. (“MSSF”), as Administrative Agent.


 


RECITALS:


 


The Borrower is entering into the Credit Agreement
described in Section 1 hereof, pursuant to which the Borrower intends to
borrow funds and obtain letters of credit for the purposes set forth therein,
and is willing to secure its obligations under the Loan Documents and under
certain Permitted Hedging Agreements through security interests on its assets,
all in the manner and to the extent under this Agreement and the other Security
Documents.


 


Certain Subsidiaries of the Borrower will guarantee
the obligations of the Borrower under the Credit Agreement and such Permitted
Hedging Agreements, and are further willing to secure such obligations through
Liens on their respective assets, in each case through pledges and other
security interests on their assets, all in the manner and to the extent
provided under this Agreement and the other Security Documents.


 


The Lenders and the Issuing Bank are not willing to
make loans or issue or participate in letters of credit under the Credit
Agreement, and the counterparties to such Permitted Hedging Agreements are not
willing to enter into or maintain them, unless the foregoing obligations of the
Borrower are secured and guaranteed as described above and each guarantee
thereof is secured by Liens on assets of the relevant Guarantor as provided in
the Security Documents.


 


Therefore, the parties hereto agree as follows:


 


SECTION 1.                            Definitions.


 


(a)                                  Terms Defined in Credit
Agreement.  Terms defined in the Credit Agreement and not
otherwise defined in subsection (b) or (c) of this Section have,
as used herein, the respective meanings provided for therein.  The rules of construction specified in
Sections 1.03 and 1.04 of the Credit Agreement 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

  



 


3

















 


	
  Term

  	
   

  	
  UCC

  
	
   

  	
   

  	
   

  
	
  Commercial Tort Claim

  	
   

  	
  9-102

  
	
  Commodity Account

  	
   

  	
  9-102

  
	
  Commodity Contract

  	
   

  	
  9-102

  
	
  Commodity Customer

  	
   

  	
  9-102

  
	
  Commodity Intermediary

  	
   

  	
  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 Account

  	
   

  	
  8-501

  
	
  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:


 


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


 


“Borrower Secured
Obligations” means (i) all principal of all Loans and LC
Disbursement reimbursement obligations outstanding from time to time under the
Credit Agreement, all interest (including Post-Petition Interest) on such Loans
and LC Reimbursement Obligations and all other amounts now or hereafter payable
by the Borrower pursuant to the Loan Documents and (ii) all obligations
(if any) under Secured Hedging Agreements.


 


“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 Administrative Agent pursuant to the
Security Documents.  When used with
respect to a specific Grantor, the term


 


4

















 


“Collateral” means all its property on which
such a Lien is granted or purports to be granted.


 


“Collateral Accounts”
means the Cash Collateral Accounts, the Controlled Commodity Accounts, the
Controlled Deposit Accounts and the Controlled Securities Accounts.


 


“Commodity Account
Control Agreement” means, with respect to any Commodity Account as
to which a Grantor is the Commodity Customer, an agreement in substantially the
form of Exhibit I hereto (with any changes that the Administrative Agent
shall approve in its reasonable discretion) by such Grantor, the Administrative
Agent and the relevant Commodity Intermediary that the Commodity Intermediary
will apply any value distributed on account of the Commodity Contracts carried
in such Commodity Account as directed by the Administrative Agent without
further consent by such Grantor.  Each
such agreement must be satisfactory in form and substance to the Administrative
Agent.


 


“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
8), 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.


 


5

















 


“Controlled
Commodity Account” means a Commodity Account as to which (i) a
Grantor is the Commodity Customer and (ii) a Commodity Account Control
Agreement is in effect.


 


“Controlled Deposit
Account” means a Deposit Account (i) that is subject to a
Deposit Account Control Agreement or (ii) as to which the Administrative
Agent is the Depositary Bank’s “customer” (as defined in UCC Section 4-104).


 


“Controlled
Securities Account” means a Securities Account that (i) is
maintained in the name of a Grantor at an office of a Securities Intermediary
located in the United States and (ii) together with all Financial Assets
credited thereto and all related Security Entitlements, is subject to a
Securities Account Control Agreement among such Grantor, the Administrative
Agent and such Securities Intermediary.


 


“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 (with any changes that the Administrative Agent
shall have approved), executed and delivered by a Grantor in favor of the
Administrative Agent for the benefit of the Secured Parties.


 


“Credit Agreement”
means the Credit Agreement dated as of November 25, 2009 among Cloud Peak
Energy Resources LLC, the Lenders party thereto, the Issuing Banks party
thereto, MSSF, as Administrative Agent and Swingline Lender, and MSSF, Credit
Suisse Securities (USA) LLC, and RBC Capital Markets, as Joint Lead Arrangers
and Joint Bookrunners.


 


“Decker Joint
Venture” means Decker Coal Company, an unincorporated joint venture
formed under the laws of Montana pursuant to the agreement titled Decker Coal
Company and dated as of September 1, 1970 by and among Western Mineral, Inc.,
Wytana, Inc., Montana Royalty Company, Ltd. and Peter Kiewit Sons’, Inc.,
as such agreement is in effect on the date hereof and shall hereafter be
amended from time to time.


 


“Deposit Account
Control Agreement” means, with respect to any Deposit Account of any
Grantor, a Deposit Account Control Agreement substantially in the form


 


6

















 


of Exhibit H (with any changes that the
Administrative Agent shall have approved in its reasonable discretion) among
such Grantor, the Administrative Agent and the relevant Depositary Bank.


 


“Depositary Bank”
means a bank at which a Controlled Deposit Account is maintained.


 


“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.


 


“Escrow Account”
means the escrow account created pursuant to the Escrow Agreement.


 


“Escrow Account
Property” means all cash, securities, investments, financial assets
and other property from time to time credited to, or deposited in, the Escrow
Account, and any and all proceeds of the foregoing.


 


“Escrow Agreement”
means that certain Escrow Agreement, dated on or about the date hereof, by and
among SunTrust Bank, the Borrower and the Parent.


 


“Foreign Subsidiary”
means any Subsidiary which is a “controlled foreign corporation” within the
meaning of the Internal Revenue Code of 1986, as amended from time to time.


 


“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 Borrower and the Guarantors.


 


“Guarantors”
means each Subsidiary listed on the signature pages hereof under the
caption “Guarantors” and each Subsidiary that shall, at any time after the date
hereof, become a “Guarantor” pursuant to Section 22.


 


7

















 


“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 Administrative
Agent in such Recordable Intellectual Property.


 


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


 


“Issuer Control
Agreement” means an Issuer Control Agreement substantially in the
form of Exhibit F (with any changes that the Administrative Agent shall
have approved).


 


“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 Commercial
Tort Claim” means a Commercial Tort Claim involving a claim for more
than $1,000,000.


 


“Material Contract”
means any Contract to which any Grantor is a party that is material to Cloud
Peak Energy Resources LLC 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 in form reasonably satisfactory to the
Administrative Agent (taking into account all relevant circumstances, including
customary industry practice for coal financings) in each case creating a Lien
(to the extent feasible) on real property (including any leasehold interests in
real property) and improvements thereto in favor of the Administrative Agent
(or a sub-agent appointed pursuant to Section 20(b)) for the benefit of
the Secured Parties and with such changes in the form thereof as the
Administrative Agent shall reasonably request for the purpose of conforming to
local practice for similar instruments in the jurisdiction where such real
property is located.


 


“Non-Contingent
Secured Obligation” means at any time any Secured Obligation (or
portion thereof) that is not a Contingent Secured Obligation at such time.


 


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


 


8

















 


“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.


 


“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 (with any changes that the Administrative Agent shall
have approved), executed and delivered by a Grantor in favor of the
Administrative Agent for the benefit of the Secured Parties.


 


“Perfection
Certificate” means, with respect to any Grantor, a certificate
substantially in the form of Exhibit E (with any changes that the
Administrative Agent shall have approved), completed and supplemented with the
schedules contemplated thereby to the reasonable satisfaction of the
Administrative Agent, and signed by an officer of such Grantor.


 


“Permitted Liens”
means (i) the Transaction Liens and (ii) any other Liens on the
Collateral permitted to be created or assumed or to exist pursuant to Section 6.02
of the Credit Agreement.


 


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


 


“Post-Petition
Interest” means any interest that accrues after the commencement of
any case, proceeding or other action relating to the bankruptcy, insolvency or
reorganization of any one or more of the Grantors (or would accrue but for the
operation of applicable bankruptcy or insolvency laws), whether or not such
interest is allowed or allowable as a claim in any such proceeding.


 


“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


 


9

















 


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) non-exclusive 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.


 


“Release Conditions”
means the following conditions for releasing all the Secured Guarantees and
terminating all the Transaction Liens:


 


(i)                                     all Commitments under the Credit
Agreement shall have expired or been terminated;


 


(ii)                                  all Non-Contingent Secured Obligations
shall have been paid in full;


 


(iii)                               no Contingent Secured Obligation with
respect to any Letter of Credit shall remain outstanding; provided that the condition in this clause
(iii) shall not apply to outstanding Letters of Credit if the Borrower has
granted to the Administrative Agent, for the benefit of the Lenders, a security
interest in Cash Equivalents acceptable to the Issuing Bank and the Required
Lenders (or causes a bank acceptable to the Issuing Bank and the Required
Lenders to issue a letter of credit naming the Administrative Agent as
beneficiary or deposits cash collateral pursuant to terms and conditions in the
Credit Agreement) in an amount equal to 100% of the LC Exposure (plus any
accrued and unpaid interest thereon) as of the date of such termination, on
terms and conditions and pursuant to documentation reasonably satisfactory to
the Issuing Bank and the Required Lenders; and


 


(iv)                              no Contingent Secured Obligation (other
than Contingent Secured Obligation with respect to any Letter of Credit) as to
which a written claim has been asserted on or prior to the date of such release
shall remain outstanding.


 


10
















 


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


 


“Secured Guarantee”
means, with respect to each Guarantor, its guarantee of the Borrower Secured
Obligations under Section 2 hereof or Section 1 of a Security
Agreement Supplement.


 


“Secured Hedging Agreements”
means a Permitted Hedging Agreement that is (i) between a Credit Party and
a Person who was a Lender Party or an Affiliate of a Lender Party at the time
such Permitted Hedging Agreement was entered into and (ii) designated by
the Borrower as an “Additional Secured Obligation” pursuant to Section 23.


 


“Secured
Obligations” means (i) in the case of the Borrower, the
Borrower Secured Obligations and (ii) in the case of each Guarantor, all
of its obligations under its Secured Guarantee.


 


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


 


“Securities
Account Control Agreement” means, when used with respect to a
Securities Account, a Securities Account Control Agreement substantially in the
form of Exhibit G hereto (with any changes that the Administrative Agent
shall have approved in its reasonable discretion) among the relevant Securities
Intermediary, the relevant Grantor and the Administrative Agent.


 


“Security
Agreement Supplement” means a Security Agreement Supplement,
substantially in the form of Exhibit A, signed and delivered to the
Administrative Agent for the purpose of adding a Subsidiary as a party hereto
pursuant to Section 22 and/or adding additional property to the
Collateral.


 


“Security
Documents” means this Agreement, the Security Agreement Supplements,
the Commodity Account Control Agreements, the Deposit Account Control
Agreements, the Issuer Control Agreements, the Securities Account Control
Agreements, the Mortgages, the Intellectual Property Security Agreements and
all other supplemental or additional security agreements, control agreements,
mortgages or similar instruments delivered pursuant to the Loan Documents.


 


“Subsidiary
Guarantor” means each Subsidiary listed on the signature pages of
this Agreement under the caption “Guarantors” and each Subsidiary that shall,
at any time after the date hereof, become a Guarantor pursuant to Section 22
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.


 


11

















 


“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 Administrative 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.                            Guarantees
by Guarantors.


 


(a)                                  Secured
Guarantees.  Each Guarantor
unconditionally and irrevocably guarantees the full and punctual payment of
each Borrower Secured Obligation when due (whether at stated maturity, upon
acceleration or otherwise).  If the
Borrower fails to pay any Borrower Secured Obligation punctually when due, each
Guarantor agrees that it will forthwith on demand pay the amount not so paid at
the place and in the manner specified in the relevant Secured Agreement.


 


(b)                                 Secured
Guarantees Unconditional.  The
obligations of each Guarantor under its Secured Guarantee shall be
unconditional and absolute and, without limiting the generality of the
foregoing, shall not be released, discharged or otherwise affected by:


 


(i)                       any extension,
renewal, settlement, compromise, waiver or release in respect of any obligation
of the Borrower, any other Guarantor or any other Person under any Secured
Agreement, by operation of law or otherwise;


 


(ii)                    any
modification or amendment of or supplement to any Secured Agreement;


 


(iii)                 any release,
impairment, non-perfection or invalidity of any direct or indirect security for
any obligation of the Borrower, any other Guarantor or any other Person under
any Secured Agreement;


 


12

















 


(iv)                any change in
the corporate existence, structure or ownership of the Borrower, any other
Guarantor or any other Person or any of their respective subsidiaries, or any
insolvency, bankruptcy, reorganization or other similar proceeding affecting
the Borrower, any other Guarantor or any other Person or any of their assets or
any resulting release or discharge of any obligation of the Borrower, any other
Guarantor or any other Person under any Secured Agreement;


 


(v)                   the existence
of any claim, set-off or other right that such Guarantor may have at any time
against the Borrower, any other Guarantor, any Secured Party or any other
Person, whether in connection with the Loan Documents or any unrelated
transactions, provided that
nothing herein shall prevent the assertion of any such claim by separate suit
or compulsory counterclaim;


 


(vi)                any invalidity
or unenforceability relating to or against the Borrower, any other Guarantor or
any other Person for any reason of any Secured Agreement, or any provision of
applicable law or regulation purporting to prohibit the payment of any Secured
Obligation by the Borrower, any other Guarantor or any other Person; or


 


(vii)             any other act
or omission to act or delay of any kind by the Borrower, any other Guarantor,
any other party to any Secured Agreement, any Secured Party or any other
Person, or any other circumstance whatsoever that might, but for the provisions
of this clause (vii), constitute a legal or equitable discharge of or defense
to any obligation of any Guarantor hereunder.


 


(c)                                  Release
of Secured Guarantees.  (i) All
the Secured Guarantees will be released when all the Release Conditions are
satisfied.  If at any time any payment of
a Borrower Secured Obligation is rescinded or must be otherwise restored or
returned upon the insolvency or receivership of the Borrower or otherwise, the
Secured Guarantees shall be reinstated with respect thereto as though such
payment had been due but not made at such time.


 


(ii)                    If all the
capital stock of a Guarantor or all the assets of a Guarantor are sold to a
Person other than Holdings, the Borrower or one of its Subsidiaries in a
transaction permitted by the Credit Agreement (any such sale, a “Sale of Guarantor”), such Guarantor shall
be automatically released from its Secured Guarantee and any and all
obligations thereunder.  Such release
shall not require the consent of any Secured Party (including the
Administrative Agent), and the Administrative Agent shall be fully protected in
relying on a certificate of the Borrower as to whether any particular sale
constitutes a Sale of Guarantor.


 


(iii)                 In addition to
any release permitted by subsection (ii), the Administrative Agent may release
any Secured Guarantee with the prior written consent of the Required Lenders; provided that any release of all or
substantially all the Secured Guarantees shall require the consent of all the
Lenders.


 


13

















 


(d)                                 Waiver
by Guarantors.  Each
Guarantor irrevocably waives acceptance hereof, presentment, demand, protest
and any notice not provided for herein, as well as any requirement that at any
time any action be taken by any Person against the Borrower, any other
Guarantor or any other Person.


 


(e)                                  Subrogation.  A Guarantor that makes a payment with respect
to a Borrower Secured Obligation hereunder shall be subrogated to the rights of
the payee against the Borrower with respect to such payment; provided that no Guarantor shall enforce
any payment by way of subrogation against the Borrower, or by reason of
contribution against any other guarantor of such Borrower Secured Obligation,
until all the Release Conditions have been satisfied.


 


(f)                                    Stay
of Acceleration.  If
acceleration of the time for payment of any Secured Obligation by the Borrower
is stayed by reason of the insolvency or receivership of the Borrower or
otherwise, all Secured Obligations otherwise subject to acceleration under the
terms of any Secured Agreement shall nonetheless be payable by the Guarantors
hereunder forthwith on demand by the Administrative Agent.


 


(g)                                 Right
of Set-Off.  If any
Secured Obligation is not paid promptly when due, each of the Secured Parties
and their respective Affiliates is authorized, to the fullest extent permitted
by law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final but in no event any escrow accounts) at any time
held and other obligations at any time owing by such Secured Party or Affiliate
to or for the credit or the account of any Guarantor against the obligations of
such Guarantor under its Secured Guarantee, irrespective of whether or not such
Secured Party shall have made any demand thereunder and although such
obligations may be unmatured.  The rights
of each Secured Party under this subsection are in addition to all other rights
and remedies (including other rights of set-off) that such Secured Party may
have.


 


(h)                                 Continuing
Guarantee.  Each
Secured Guarantee is a continuing guarantee, shall be binding on the relevant
Guarantor and its successors and assigns, and shall be enforceable by the
Administrative Agent or the Secured Parties. 
If all or part of any Secured Party’s interest in any Secured Obligation
is assigned or otherwise transferred, the transferor’s rights under each
Secured Guarantee, to the extent applicable to the obligation so transferred,
shall automatically be transferred with such obligation.


 


(i)                                     Limitation
on Obligations of Subsidiary Guarantor.  Anything
contained in this Agreement to the contrary notwithstanding, the obligations of
each Subsidiary Guarantor hereunder shall be limited to a maximum aggregate
amount equal to the greatest amount that would not render such Subsidiary
Guarantor’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.


 


SECTION 3.                            Grant
of Transaction Liens.


 


(a)                                  The Borrower
and each Guarantor, in each case in order to secure its Secured Obligations,
grants to the Administrative Agent for the benefit of the Secured Parties a
continuing security interest in all the following property of the Borrower or
such


 


14

















 


Guarantor, 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;


 


(iv)                all cash and
Deposit Accounts;


 


(v)                   the Commercial
Tort Claims described in Schedule 3;


 


(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 (1) its Collateral Accounts, (2) all Financial
Assets credited to its Collateral Accounts from time to time and all Security
Entitlements in respect thereof, (3) all cash held in its Collateral
Accounts from time to time and (4) all other money in the possession of
the Administrative Agent; and


 


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


 


provided that the following property
is excluded from the foregoing security interests: (A) motor vehicles or
any other asset that is covered by a certificate of title, the perfection of a
security interest in which is excluded from the Uniform Commercial Code


 


15

















 


in
the relevant jurisdiction, (B) voting Equity Interests in any Foreign
Subsidiary, to the extent (but only to the extent) required to prevent the
Collateral from including more than 66% of all voting Equity Interests in such
Foreign Subsidiary, (C) Equity Interests in the Excluded Subsidiaries and
Wyoming Quality Healthcare Coalition, (D) the Escrow Account and the
Escrow Account Property, (E) shares of capital stock of Stancorp Financial
Group, Inc. held on the Effective Date, (F) capital credits relating
to the membership interests of Cordero Mining LLC in the Tri-County Electric
Association, Inc, a Wyoming power cooperative, and Powder River Energy
Corporation, a Wyoming power cooperative, and (G) any property to the
extent that (but only to the extent that, and only for so long as) the grant of
a security interest therein is prohibited by any applicable law or regulation,
requires a consent not obtained of any Governmental Authority pursuant to any
applicable law or regulation, or is prohibited by, or constitutes a breach or
default under or results in the termination of or requires any consent not
obtained under, any contract, license, agreement, permit, instrument or other
document evidencing or giving rise to such property or, in the case of any
Investment Property, any applicable shareholder or similar agreement, except to
the extent that such law or regulation or the term in such contract, license,
agreement, instrument or other document or shareholder or similar agreement
providing for such prohibition, breach, default or termination or requiring
such consent is ineffective under applicable law (including without limitation
Sections 9-406, 9-407, 9-408 and 9-409 of the UCC in any applicable
jurisdiction, the Bankruptcy Code and any similar state insolvency laws, or
general principles of equity) to prevent the creation or attachment of the
security interests granted hereunder; 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 foregoing in items (A) through (G) (other
than the Escrow Account and the Escrow Account Property) of the immediately
preceding proviso.  Each Grantor shall
upon request of the Administrative Agent use all commercially reasonable
efforts to obtain any such required consent that is reasonably obtainable, provided that it is understood that (I) no such efforts
shall be required with respect to (x) any joint venture agreement with
respect to a Person that is not a Restricted Subsidiary, (y) any permit
issued by, and any LBM, LBA or other coal lease entered into or granted by, a
Governmental Authority or (z) as in effect on the Effective Date, any
private coal lease or any coal purchase or coal supply contract and that (II) use
of “commercially reasonable efforts” to permit or obtain consent to any such
assignment with respect to any private coal lease or any coal purchase or coal
supply contract entered into after the Effective Date shall not be deemed to
require any Grantor to agree to commercial terms that, in the aggregate, such
Grantor determines in good faith are materially less advantageous to such
Grantor in relation to the overall terms of such agreement.  Notwithstanding anything in this Agreement or
any other Security Document to the contrary, (i) this Agreement shall not,
at any time, constitute a grant of a security interest in, or an assignment of,
and “Collateral” shall not include any Letter of Credit Rights to the extent a
Grantor is required by applicable law to apply the proceeds of a drawing of
such Letter of Credit for a specified purpose and (ii) 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.


 


16

















 


(b)                                 Notwithstanding
the foregoing, the creation (other than by this Agreement) or perfection of
pledges of or security interests in particular material assets will not be
required if, and for so long as, in the sole good faith judgment of the
Administrative Agent, the cost and burden to such Grantor of creating or
perfecting such pledges or security interests in such assets is excessive in
view of the benefits to be obtained by the Secured Parties therefrom; provided that it is hereby acknowledged and agreed that no
Grantor shall be required (i) 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, (ii) to take steps to perfect the security
interest in Pledged Letter-of-Credit Rights by causing the Administrative Agent
to have control (within the meaning specified in UCC Section 9-107)
thereof, or (iii) to seek any consent with respect to the matters referred
to in the penultimate sentence of clause (a) above except on the
conditions and subject to the terms set forth in such sentence.


 


(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 Administrative
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 4.                            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 its Perfection
Certificate.


 


(b)                                 With respect to
each Original Grantor, Schedule 1 lists all Equity Interests in Subsidiaries
and Affiliates owned by such Grantor as of the Effective Date.


 


(c)                                  With respect to
each Original Grantor, Schedule 2 lists, as of the Effective Date, (i) all
Securities owned by such Grantor (except Securities evidencing Equity Interests
in Subsidiaries and Affiliates), (ii) all Securities Accounts to which
Financial Assets are credited in respect of which such Grantor owns Security
Entitlements, and (iii) all Commodity Accounts in respect of which such
Grantor is the Commodity Customer.


 


(d)                                 With respect to
each Original Grantor, Schedule 4 lists, as of the Effective Date, all Material
Contracts with Governmental Authorities to which such Original Grantor is a
party.


 


(e)                                  With respect to
each Original Grantor, Schedule 5 lists, as of the Effective Date, the
locations of the Equipment and Inventory (other than any Equipment or


 


17

















 


Inventory in transit) constituting each item
of heavy mobile equipment with a current book value exceeding $1,000,000
included in the Collateral.  As of the
Effective Date, except for those locations listed on Schedule 5 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.


 


(f)                                    With respect to
each original Grantor, Schedule 7 lists, as of the Effective Date, each
Material Contract to which such Original Grantor is party that is a License.


 


(g)                                 All Pledged
Equity Interests owned by such Grantor in its Subsidiaries are owned by it free
and clear of any Lien other than (i) the Transaction Liens, (ii) any
inchoate tax liens and (iii) Liens permitted under Section 6.02 of
the Credit Agreement.  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 Loan
Documents and the Transaction Documents and except as otherwise permitted under
the Credit Agreement) which restricts in any manner the rights of any present
or future holder of any Pledged Equity Interest with respect thereto.


 


(h)                                 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 6.02
of the Credit Agreement.


 


(i)                                     Such Grantor
has not performed any acts that might prevent the Administrative Agent from
enforcing any of the provisions of the Security Documents or that would limit
the Administrative Agent in any such enforcement.  No 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 6.02
of the Credit Agreement.  After the
Effective Date, no Collateral owned by such Grantor will be in the possession
or under the Control of any other Person having a claim thereto or security
interest therein, other than in connection with a Lien permitted under Section 6.02
of the Credit Agreement.


 


(j)                                     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 Effective 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


 


18

















 


thereon, then on such later date) and (iii) when
so attached, will secure all of such Grantor’s Secured Obligations.


 


(k)                                  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 Effective 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 Liens
permitted under Section 6.02 of the Credit Agreement) on such Real
Property Collateral.


 


(l)                                     Such Grantor
has delivered a Perfection Certificate to the Administrative Agent.  With respect to each Original Grantor,
information set forth therein is correct and complete in all material respects
as of the Effective Date.


 


(m)                               When UCC
financing statements describing the Collateral as “all personal property” have
been filed in the offices specified in such Perfection Certificate, the
Transaction Liens will 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 Liens permitted under Section 6.02
of the Credit Agreement. When, 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 5(a) and 7(a)), the
Transaction Liens will 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 6.02 of the Credit Agreement.  Except for (i) the filing of such UCC
financing statements, (ii) such Intellectual Property Filings (iii) the
due recordation of the Mortgages and (iv) and 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 will
be given to the applicable Governmental Authority on or prior to the date by
which such notices are due, 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 or for the enforcement of the Transaction Liens.


 


(n)                                 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 Closing Date.


 


(o)                                 Such Grantor’s
Collateral is insured as required by the Credit Agreement.


 


(p)                                 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.


 


19

















 


SECTION 5.                            Further
Assurances; General Covenants.  Each Grantor
covenants as follows:


 


(a)                                  Such Grantor
will, from time to time, at the Borrower’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
Administrative 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 Loan
Documents and to the same extent as required for the Liens granted on the
Closing Date;


 


(ii)                    in the case of
Pledged Deposit Accounts and Pledged Investment Property, cause the
Administrative Agent to have Control thereof;


 


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


 


(iv)                enable, to the
extent possible, the Administrative 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 Loan Documents.


 


Such
Grantor authorizes the Administrative 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
Administrative Agent may deem necessary or desirable for the purposes set forth
in the preceding sentence.  Each Grantor
also ratifies its authorization for the Administrative Agent to file in any
such jurisdiction any initial financing statements or amendments thereto if
filed prior to the date hereof.  The
Administrative 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 Administrative Agent as secured party. The Borrower 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 location (determined as provided in UCC Section 9-307), unless at
least 30 days before it takes any such action it informs the Administrative
Agent and takes all steps reasonably requested (at the Borrower’s or such
Grantor’s sole cost and expense) to maintain the perfection and status of the
Transaction Liens.


 


20
















 


(c)                                  If any of its
Collateral is in the possession or control of a warehouseman, bailee or agent
at any time, such Grantor will (i) notify such warehouseman, bailee or
agent of the relevant Transaction Liens, (ii) instruct such warehouseman,
bailee or agent to hold all such Collateral for the Administrative Agent’s
account subject to the Administrative Agent’s instructions (which shall permit
such Collateral to be removed by such Grantor in the ordinary course of
business until the Administrative Agent notifies such warehouseman, bailee or
agent that an Event of Default has occurred and is continuing), (iii) use
all commercially reasonable efforts to cause such warehouseman, bailee or agent
to Authenticate a Record acknowledging that it holds possession of such
Collateral for the Administrative Agent’s benefit and (iv) make such
Authenticated Record available to the Administrative Agent.


 


(d)                                 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 (i) doing so would
violate a covenant in the Credit Agreement or (ii) an Event of Default
shall have occurred and be continuing and either (A) the Administrative
Agent shall have notified such Grantor that its right to do so is terminated,
suspended or otherwise limited or (B) the maturity of any or all of the
Secured Obligations shall have been accelerated.  Concurrently with any sale, lease or other
disposition (except a sale or disposition to another Grantor or a lease)
permitted by the foregoing proviso,
the Transaction Liens on the assets sold or disposed of (but not in any
Proceeds arising from such sale or disposition) will cease immediately without
any action by the Administrative Agent or any other Secured Party.  The Administrative Agent will promptly, at
the Borrower’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 or disposed of is no longer subject to a Transaction Lien.


 


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


 


SECTION 6.                            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 6
hereto, such Grantor will (i) provide notice thereof to the Administrative
Agent within 20 days of such acquisition, together with a supplement to
Schedule 6 reflecting such acquisition, (ii) deliver to the Administrative
Agent a fully completed financing statement in appropriate form for filing
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
real estate descriptions sufficient to enable the Administrative Agent to
record the financing statements in the appropriate real property records) and (iii) reimburse
the Administrative Agent for all related filing fees and any recording or stamp
taxes due in connection with such filings.


 


SECTION 7.                            Recordable
Intellectual Property.  Each Grantor
covenants as follows:


 


21

















 


(a)                                  On the
Effective 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 will sign and deliver to the Administrative Agent
Intellectual Property Security Agreements with respect to all Recordable
Intellectual Property then owned by it. 
At the request of the Administrative Agent, Grantor will sign and
deliver to the Administrative Agent an appropriate Intellectual Property
Security Agreement covering any acquired material Recordable Intellectual
Property for which notice has been provided to the Administrative Agent in
accordance with Section 7(b)(i) hereof, and the provisions of this
Agreement shall automatically apply thereto.


 


(b)                                 Such Grantor
will notify the Administrative Agent (i) in accordance with Section 5.14(b) of
the Credit Agreement if it acquires any material Recordable Intellectual
Property after the Effective Date, and (ii) 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 Administrative Agent
thereof as soon as is reasonably practicable.


 


(c)                                  Upon the
occurrence and during the continuance of an Event of Default, 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 Administrative Agent, for the
ratable benefit of the Secured Parties, or its designee.


 


SECTION 8.                            Investment
Property.  Each Grantor
represents, warrants and covenants as follows:


 


(a)                                  Certificated
Securities.  On the
Effective 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 will deliver to the Administrative 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 Administrative Agent as Collateral
hereunder. The provisions of this subsection shall not apply to voting Equity
Interests in any Foreign Subsidiary, to the extent (but only to the extent)
required to prevent the Collateral from including more than 66% of all voting
Equity Interests in such Foreign Subsidiary.


 


(b)                                 Uncertificated
Securities.  On the
Effective 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 will enter into (and cause the relevant issuer to
enter into) an Issuer Control Agreement in respect of each Pledged 


 


22

















 


Uncertificated Security then owned by such
Grantor and deliver such Issuer Control Agreement to the Administrative Agent
(which shall enter into the same). 
Thereafter, whenever such Grantor acquires any other Pledged Uncertificated
Security, such Grantor will enter into (and cause the relevant issuer to enter
into) an Issuer Control Agreement in respect of such Pledged Uncertificated
Security and deliver such Issuer Control Agreement to the Administrative Agent
(which shall enter into the same).  The
provisions of this subsection shall not apply to voting Equity Interests in any
Foreign Subsidiary, to the extent (but only to the extent) required to prevent
the Collateral from including more than 66% of all voting Equity Interests in
such Foreign Subsidiary.


 


(c)                                  Security
Entitlements.  On the
Effective 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 will, with respect to each Security Entitlement
(other than any Security Entitlement credited to (i) the Escrow Account
and (ii) the account in which the shares of capital stock of Stancorp
Financial Group, Inc. are held on the Effective Date) then owned by it,
enter into (and cause the relevant Securities Intermediary to enter into) a
Securities Account Control Agreement in respect of such Security Entitlement
and the Securities Account to which the underlying Financial Asset is credited
and will deliver such Securities Account Control Agreement to the
Administrative Agent (which shall enter into the same).  Thereafter, whenever such Grantor acquires
any other Security Entitlement, such Grantor will, as promptly as practicable,
cause the underlying Financial Asset to be credited to a Controlled Securities
Account.


 


(d)                                 Commodity
Accounts.  On the
Effective 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 will enter into (and cause the relevant Commodity
Intermediary to enter into) a Commodity Account Control Agreement in respect of
each Commodity Account owned by it and will deliver such Commodity Account
Control Agreement to the Administrative Agent (which shall enter into the
same).  Thereafter, such Grantor will
cause each Commodity Contract owned by it to be carried at all times in a
Controlled Commodity Account.


 


(e)                                  Perfection
as to Certificated Securities.  When such Grantor delivers the certificate
representing any Pledged Certificated Security owned by it to the
Administrative Agent and complies with Section 8(j) in connection
with such delivery, (i) the Transaction Lien on such Pledged Certificated
Security will be perfected, subject to no prior Liens or rights of others
(other than inchoate tax liens), (ii) the Administrative Agent will have
Control of such Pledged Certificated Security and (iii) provided that the
Administrative Agent does not have notice of any adverse claim (within the
meaning of UCC Section 8-105) to such Pledged Certificated Security, the
Administrative Agent will be a protected purchaser (within the meaning of UCC Section 8-303)
thereof.


 


(f)                                    Perfection
as to Uncertificated Securities.  When such Grantor, the Administrative Agent
and the issuer of any Pledged Uncertificated Security owned by such Grantor
enter into an Issuer Control Agreement with respect thereto, (i) the
Transaction Lien on such Pledged Uncertificated Security will be perfected,
subject to no prior Liens or rights of others (subject to Liens permitted under
Section 6.02 of the Credit 


 


23

















 


Agreement), (ii) the Administrative
Agent will have Control of such Pledged Uncertificated Security and (iii) provided
that the Administrative Agent does not have notice of any adverse claim (within
the meaning of UCC Section 8-105) to such Pledged Certificated Security,
the Administrative Agent will be a protected purchaser (within the meaning of
UCC Section 8-303) thereof.


 


(g)                                 Perfection
as to Security Entitlements.  So long as the Financial Asset underlying any
Security Entitlement owned by such Grantor is credited to a Controlled
Securities Account, (i) the Transaction Lien on such Security Entitlement
will be perfected, subject to no prior Liens or rights of others (except Liens
and rights of the relevant Securities Intermediary that are Liens permitted
under Section 6.02 of the Credit Agreement), (ii) the Administrative
Agent will have Control of such Security Entitlement and (iii) no action
based on an adverse claim to such Security Entitlement or such Financial Asset,
whether framed in conversion, replevin, constructive trust, equitable lien or
other theory, may be asserted against the Administrative Agent or any other
Secured Party.


 


(h)                                 Perfection
as to Commodity Accounts.  So
long as any Commodity Account is subject to a Commodity Account Control
Agreement, (i) the Transaction Liens on such Commodity Account and all
Commodity Contracts carried therein will be perfected, subject to no prior
Liens or rights of others (except Liens and rights of the relevant Commodity
Intermediary permitted by such Commodity Account Control Agreement) and (ii) the
Administrative Agent will have Control of such Commodity Account and all
Commodity Contracts carried therein from time to time.


 


(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 Administrative Agent, will be in
suitable form for transfer by delivery, or accompanied by duly executed
instruments of transfer or assignment in blank, with signatures appropriately
guaranteed, all in form and substance satisfactory to the Administrative Agent.


 


(k)                                  Compliance
with Applicable Foreign Laws.  If and so long as the Collateral includes (i) any
Equity Interest in, or other Investment Property issued by, a legal entity
organized under the laws of a jurisdiction outside the United States or (ii) any
Security Entitlement in respect of a Financial Asset issued by such a foreign
legal entity, the relevant Grantor will upon request of the Administrative
Agent take all such action as may be required under the laws of such foreign
jurisdiction to ensure that the Transaction Lien on such Collateral ranks prior
to all Liens and rights of others therein (subject to applicable law and to
Liens permitted by Section 6.02 of the Credit Agreement).  Such 


 


24

















 


action will not be required if, and for so
long as, in the sole good faith judgment of the Administrative Agent, the cost
and burden to such Grantor of taking such action is excessive in view of the
benefits to be obtained by the Secured Parties therefrom.


 


(l)                                     Certification
of Limited Liability Company and Partnership Interests.  Any limited liability company and any
partnership controlled by any Grantor shall either (a) 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 (b) 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 Administrative Agent pursuant to Section 8(a) and
such Grantor shall fulfill all other requirements under Section 8
applicable in respect thereof.


 


SECTION 9.                            Deposit
Accounts.  Each Grantor
represents, warrants and covenants as follows:


 


(a)                                  All cash owned
by such Grantor (other than any Escrow Account Property) will be deposited,
upon or promptly after the receipt thereof, in one or more Controlled Deposit
Accounts.


 


(b)                                 In respect of
each Controlled Deposit Account, the Depositary Bank’s jurisdiction (determined
as provided in UCC Section 9-304) will at all times be a jurisdiction in which
Article 9 of the Uniform Commercial Code is in effect.


 


(c)                                  So long as the
Administrative Agent has Control of a Controlled Deposit Account, the
Transaction Lien on such Controlled Deposit Account will be perfected, subject
to no prior Liens or rights of others (except the Depositary Bank’s right to
deduct its normal operating charges and any uncollected funds previously
credited thereto and except for Liens permitted by Section 6.02 of the
Credit Agreement).  Notwithstanding
anything in this Agreement to the contrary, the Escrow Account shall not be a
Controlled Deposit Account subject to a Deposit Account Control Agreement.


 


(d)                                 Materiality
Exception.  The Grantors
have the right not to comply with the foregoing provisions of this Section with
respect to Deposit Accounts having total collected balances that do not at any
time exceed $5,000,000 in the aggregate for all Grantors or any payroll or
employee benefit accounts.  However, if
an Event of Default occurs and is continuing, the Administrative Agent may
terminate the foregoing right not to comply, or reduce the amount thereof, by
giving at least 10 Business Days’ notice of such termination or reduction to
the relevant Grantors.


 


SECTION 10.                     Cash
Collateral Accounts.  If and when
required for purposes hereof or of any other Loan Document, the Administrative
Agent will establish with respect to each Grantor an account (its “Cash Collateral Account”), in the name and under the
exclusive control of the Administrative Agent, into which all amounts owned by
such Grantor that are to be deposited therein pursuant to the Loan Documents
shall be deposited from time to time. 
Funds held in any Cash Collateral Account may, until 


 


25

















 


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 continuing, the Administrative Agent may select such Cash
Equivalents.  Subject to Section 16,
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 Loan Documents pursuant to which such Cash
Collateral Account was required to be established.


 


SECTION 11.                     Commercial
Tort Claims.  Each Grantor
represents, warrants and covenants as follows:


 


(a)                                  In the case of
an Original Grantor, Schedule 3 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 Effective Date.  In
the case of any other Grantor, Schedule 3 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.


 


(b)                                 If any Grantor
acquires a Material Commercial Tort Claim after the Effective 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
will promptly sign and deliver to the Administrative Agent a Security Agreement
Supplement granting a security interest in such Commercial Tort Claim (which
shall be described therein with the specificity required to satisfy said
Official Comment 5) to the Administrative Agent for the benefit of the Secured
Parties.


 


SECTION 12.                     Transfer
of Record Ownership.  At any time
when an Event of Default under Section 7(a) of the Credit Agreement shall have occurred and be
continuing, the Administrative Agent may (and to the extent that action by it
is required, the relevant Grantor, if directed to do so by the Administrative
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 Administrative Agent or its nominee.  Each Grantor will take any and all actions
reasonably requested by the Administrative Agent to facilitate compliance with
this Section.  If the provisions of this Section are
implemented, Section 8(b) shall not thereafter apply to any Pledged
Security that is registered in the name of the Administrative Agent or its
nominee.  The Administrative Agent will
promptly give to the relevant Grantor copies of any notices and other
communications received by the Administrative Agent with respect to Pledged
Securities registered in the name of the Administrative Agent or its nominee.


 


SECTION 13.                     Right
to Vote Securities.  (a) Unless
an Event of Default shall have occurred and be continuing, 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, and the
Administrative Agent will, upon receiving a written request from such Grantor,
deliver to such Grantor or as specified in such request such proxies, powers of



 


26

















 


attorney, consents, ratifications and waivers
in respect of any such Pledged Security that is registered in the name of the
Administrative Agent or its nominee or any such Pledged Security Entitlement as
to which the Administrative Agent or its nominee is the Entitlement Holder, in
each case as shall be specified in such request and be in form and substance
satisfactory to the Administrative Agent.


 


(b)                                 If an Event of
Default shall have occurred and be continuing, the Administrative Agent will
have the exclusive right to the extent permitted by law (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 Administrative Agent were the absolute and sole owner thereof, and each
Grantor will take all such action as the Administrative Agent may reasonably
request from time to time to give effect to such right.


 


SECTION 14.                     Certain
Cash Distributions.  Cash Distributions
with respect to assets held in a Collateral Account shall be deposited and held
therein, or withdrawn therefrom, as provided in Section 10.  Cash Distributions with respect to any
Pledged Equity Interest or Pledged Debt that is not held in a Collateral
Account (whether held in the name of a Grantor or in the name of the
Administrative Agent or its nominee) shall be deposited, promptly upon receipt
thereof, in a Controlled Deposit Account of the relevant Grantor or in a zero
balance account which is swept to a Controlled Deposit Account; provided that, if an Event of Default
shall have occurred and be continuing, the Administrative Agent may deposit, or
direct the recipient thereof to deposit, each such Cash Distribution in the
relevant Grantor’s Cash Collateral Account; provided, further, the rest of this provision shall not apply to
payroll or employee benefit accounts.


 


SECTION 15.                     Remedies
upon Event of Default.  (a) If an
Event of Default shall have occurred and be continuing, the Administrative
Agent may 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 Administrative Agent may 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 Administrative Agent
may, without being required to give any notice, except as herein provided or as
may be required by mandatory provisions of law, 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 Administrative 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
Administrative 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, any Secured Party may be the purchaser of any or all 


 


27

















 


of the Collateral at any such sale and (with the consent of the
Administrative 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 sale of Collateral by the
Administrative Agent (including pursuant to a power of sale granted by statute
or under a judicial proceeding), the receipt of the Administrative 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 Administrative 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
Administrative Agent shall not be obliged to make any sale of Collateral
regardless of notice of sale having been given. 
The Administrative 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 Administrative Agent accepts the first offer received
and does not offer such Collateral to more than one offeree.  The Administrative 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.


 


(c)                                  Notice of any
such sale or other disposition shall be given to the relevant Grantor(s) as
(and if) required by Section 18.


 


(d)                                 For the purpose
of enabling the Administrative Agent to exercise rights and remedies under this
Agreement at such time as the Administrative Agent shall be lawfully entitled
to exercise such rights and remedies, each Grantor hereby grants to the
Administrative 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 Administrative
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 Administrative Agent in accordance herewith shall be
binding upon each Grantor notwithstanding any subsequent cure of an Event of
Default.


 


28
















 


(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 16.                     Application
of Proceeds.  (a) If an
Event of Default shall have occurred and be continuing, the Administrative
Agent may 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 Administrative Agent, and all expenses, liabilities and
advances incurred or made by the Administrative Agent in connection with the
Security Documents, and any other amounts then due and payable to the
Administrative Agent pursuant to Section 17 or pursuant to Section 9.03
of the Credit Agreement;


 


second,       to pay (i) all Secured Obligations under the
Loan Documents (including without limitation principal of and interest on the
Loans and all other amounts owing thereunder) (or provide for the payment
thereof pursuant to Section 16(b)) and (ii) all Secured Obligations
under Secured Hedging Agreements, 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 to the extent permitted by the limitation in Section 2(i).  The Administrative Agent may make such
distributions hereunder in cash or in kind or, on a ratable basis, in any
combination thereof.


 


(b)                                 If at any time
any portion of any monies collected or received by the Administrative Agent
would, but for the provisions of this Section 16(b), be payable pursuant
to Section 16(a) in respect of a Contingent Secured Obligation, the
Administrative Agent shall not apply any monies to pay such Contingent Secured
Obligation but instead shall request the holder thereof, at least 10 days
before each proposed distribution hereunder, to notify the Administrative Agent
as to the maximum amount of such Contingent Secured Obligation if then
ascertainable (e.g., in the case
of a letter of credit, the maximum amount available for subsequent drawings
thereunder).  If the holder of such
Contingent Secured Obligation does not notify the Administrative Agent of the
maximum ascertainable amount thereof at least two Business Days before such
distribution, such holder will not be entitled to share in such
distribution.  If such holder does so
notify the Administrative Agent as to the maximum ascertainable amount thereof,
the Administrative Agent will allocate to such holder a portion of the monies
to be distributed in such distribution, calculated as if such Contingent
Secured Obligation 


 


29

















 


were outstanding in such maximum
ascertainable amount.  However, the
Administrative Agent will not apply such portion of such monies to pay such
Contingent Secured Obligation, but instead will hold such monies or invest such
monies in Cash Equivalents.  All such
monies and Cash Equivalents and all proceeds thereof will constitute Collateral
hereunder, but will be subject to distribution in accordance with this Section 16(b) rather
than Section 16(a).  The
Administrative Agent will hold all such monies and Cash Equivalents and the net
proceeds thereof in trust until all or part of such Contingent Secured
Obligation becomes a Non-Contingent Secured Obligation, whereupon the
Administrative Agent at the request of the relevant Secured Party will apply
the amount so held in trust to pay such Non-Contingent Secured Obligation; provided that, if the other Secured
Obligations theretofore paid pursuant to the same clause of Section 16(a) (i.e., clause second or third)
were not paid in full, the Administrative Agent will apply the amount so held
in trust to pay the same percentage of such Non-Contingent Secured Obligation
as the percentage of such other Secured Obligations theretofore paid pursuant
to the same clause of Section 16(a). 
If (i) the holder of such Contingent Secured Obligation shall
advise the Administrative Agent that no portion thereof remains in the category
of a Contingent Secured Obligation and (ii) the Administrative Agent still
holds any amount held in trust pursuant to this Section 16(b) in
respect of such Contingent Secured Obligation (after paying all amounts payable
pursuant to the preceding sentence with respect to any portions thereof that
became Non-Contingent Secured Obligations), such remaining amount will be
applied by the Administrative Agent in the order of priorities set forth in Section 16(a).


 


(c)                                  In making the
payments and allocations required by this Section, the Administrative Agent may
rely upon information supplied to it pursuant to Section 20(c).  All distributions made by the Administrative
Agent pursuant to this Section shall be final (except in the event of
manifest error) and the Administrative Agent shall have no duty to inquire as
to the application by any Secured Party of any amount distributed to it.


 


SECTION 17.                     Fees
and Expenses; Indemnification.  (a) The
Borrower will forthwith upon demand pay to the Administrative Agent:


 


(i)                       the amount of
any taxes that the Administrative Agent may have been required to pay by reason
of the Transaction Liens or to free any Collateral from any other Lien thereon;


 


(ii)                    the amount of
any and all reasonable out-of-pocket expenses, including transfer taxes and
reasonable fees and expenses of counsel and other experts, that the
Administrative Agent may incur in connection with (x) the administration
or enforcement of the Security Documents, including such expenses as are
incurred to preserve the value of the Collateral or the validity, perfection,
rank or value of any Transaction Lien, (y) the collection, sale or other
disposition of any Collateral or (z) the exercise by the Administrative
Agent of any of its rights or powers under the Security Documents;


 


(iii)                 the amount of
any fees that the Borrower shall have agreed in writing to pay to the
Administrative Agent and that shall have become due and payable in accordance
with such written agreement; and


 


30

















 


(iv)                the amount
required to indemnify the Administrative Agent for, or hold it harmless and
defend it against, any loss, liability or expense (including the reasonable
fees and expenses of its counsel and any experts or sub-agents appointed by it
hereunder) incurred or suffered by the Administrative Agent in connection with
the Security Documents, except to the extent that such loss, liability or
expense arises from the Administrative Agent’s gross negligence or willful
misconduct or a breach of any duty that the Administrative Agent has under this
Agreement (after giving effect to Sections 19 and 20).


 


(b)                                 If any transfer
tax, documentary stamp tax or other similar tax is payable in connection with
any transfer or other transaction provided for in the Security Documents, the
Borrower will pay such tax and provide any required tax stamps to the
Administrative Agent or as otherwise required by law.


 


(c)                                  The Borrower
shall indemnify each of the Secured Parties that are not Lender Parties,
including any counterparties to Secured Hedging Agreements, to the same extent
as it shall indemnify the Lender Parties pursuant to Section 9.03(b) of
the Credit Agreement.


 


SECTION 18.                     Authority
to Administer Collateral.  Each Grantor
irrevocably appoints the Administrative 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
Borrower’s expense, to the extent permitted by law 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
Credit Agreement;


 


(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 Administrative 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
Administrative 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)


 


31

















 


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 Administrative 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 19.                     Limitation
on Duty in Respect of Collateral.  Beyond the
exercise of reasonable care in the custody and preservation thereof, the
Administrative 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
Administrative 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 diminution in the value thereof, by reason of any
act or omission of any sub-agent or bailee selected by the Administrative Agent
in good faith, except to the extent that such liability arises from the
Administrative Agent’s gross negligence or willful misconduct.


 


SECTION 20.                     General
Provisions Concerning the Administrative Agent.


 


(a)                                  The provisions
of Article 8 of the Credit Agreement shall inure to the benefit of the
Administrative 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 Administrative 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 Administrative 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 Administrative Agent is required in writing to
exercise by the Required Lenders (or such other number or percentage of the
Lenders as shall be necessary under the circumstances as provided in Section 9.02
of the Credit Agreement), and (iii) except as expressly set forth in the
Loan Documents, the Administrative 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
Administrative Agent or any of its Affiliates in any capacity.  The Administrative 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 Administrative Agent shall be deemed
not to have knowledge of any Event of Default unless and until written notice
thereof is given to the Administrative Agent the Borrower or a Secured Party.


 


(b)                                 Sub-Agents
and Related Parties.  The
Administrative 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 Administrative Agent and any such
sub-agent may perform any of its duties and exercise any of its rights and
powers through its Related Parties.  The 


 


32

















 


exculpatory provisions of Section 19 and
this Section shall apply to any such sub-agent and to the Related Parties
of the Administrative 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
Administrative Agent will be entitled to rely on information from (i) its own records for
information as to the Lender Parties, their Secured Obligations and actions
taken by them, (ii) any
Secured Party (or any trustee, agent or similar representative thereof) for
information as to its Secured Obligations and actions taken by it, to the
extent that the Administrative Agent has not obtained such information from its
own records, and (iii) the
Borrower, to the extent that the Administrative Agent has not obtained
information from the foregoing sources.


 


(d)                                 Refusal
to Act.  The Administrative Agent may
refuse to act on any notice, consent, direction or instruction from any Secured
Parties or any agent, trustee or similar representative thereof that, in the
Administrative Agent’s opinion, (i) is
contrary to law or the provisions of any Security Document, (ii) may expose the
Administrative Agent to liability (unless the Administrative Agent shall have
been indemnified, to its reasonable satisfaction, for such liability by the
Secured Parties that gave such notice, consent, direction or instruction) or (iii) is unduly prejudicial to
Secured Parties not joining in such notice, consent, direction or instruction.


 


SECTION 21.                     Termination
of Transaction Liens; Release of Collateral. 
(a) The Transaction Liens
granted by each Guarantor shall terminate when its Secured Guarantee is
released pursuant to Section 2(c).


 


(b)                                 The Transaction
Liens granted by the Borrower shall terminate when all the Release Conditions
are satisfied.


 


(c)                                  At any time
before the Transaction Liens granted by the Borrower terminate, the
Administrative Agent may, at the written request of the Borrower, (i) release any Collateral (but
not all or substantially all the Collateral) with the prior written consent of
the Required Lenders or (ii) release
all or substantially all the Collateral with the prior written consent of all
Lenders.


 


(d)                                 Upon any
termination of a Transaction Lien or release of Collateral, the Administrative
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 22.                     Additional
Guarantors and Grantors.  Any Subsidiary
may become a party hereto by signing and delivering to the Administrative Agent
a Security Agreement Supplement, whereupon such Subsidiary, other than a
Foreign Subsidiary, shall become a “Guarantor” and a “Grantor” as defined
herein.


 


33

















 


SECTION 23.                     Additional
Secured Obligations.  The Borrower
may from time to time designate its obligations under any Permitted Hedging
Agreement as an additional Borrower Secured Obligation for purposes hereof by
delivering to the Administrative Agent a certificate signed by a Financial
Officer that (i) identifies
such Hedging Agreement, specifying the name and address of the other party
thereto, the notional principal amount thereof and the expiration date thereof,
(ii) states that the
Borrower’s obligations thereunder are designated as Borrower Secured
Obligations for purposes hereof and (iii) states
that such Hedging Agreement is a Permitted Hedging Agreement under the Credit
Agreement.


 


SECTION 24.                     Notices.  Each notice, request or
other communication given to any party hereunder shall be given in accordance
with Section 9.01 of the Credit Agreement, and in the case of any such
notice, request or other communication to a Grantor other than the Borrower,
shall be given to it in care of the Borrower.


 


SECTION 25.                     No
Implied Waivers; Remedies Not Exclusive. 
No failure by the Administrative 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 Administrative Agent
or any Secured Party of any right or remedy under any Loan Document preclude
any other or further exercise thereof or the exercise of any other right or
remedy.  The rights and remedies
specified in the Loan Documents are cumulative and are not exclusive of any
other rights or remedies provided by law.


 


SECTION 26.                     Successors
and Assigns.  This Agreement
is for the benefit of the Administrative 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 the
Grantors and their respective successors and assigns.


 


SECTION 27.                     Amendments
and Waivers.  Neither this
Agreement nor any provision hereof may be waived, amended, modified or
terminated except pursuant to an agreement or agreements in writing entered
into by the Administrative Agent, with the consent of such Lenders as are
required to consent thereto under Section 9.02 of the Credit
Agreement.  No such waiver, amendment or
modification shall be binding upon any Grantor, except with its written
consent.


 


SECTION 28.                     Choice
of Law.  This Agreement shall be
construed in accordance with and governed by the laws of the State of New York,
except as otherwise required by mandatory provisions of law 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 29.                     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 


 


34

















 


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 30.                     Severability.  If any provision of any
Security Document is invalid or unenforceable in any jurisdiction, then, to the
fullest extent permitted by law, (i) 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 (ii) the invalidity or unenforceability of
such provision in such jurisdiction shall not affect the validity or
enforceability thereof in any other jurisdiction.


 


35

















 


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 Borrower

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Michael Barrett

  
	
   

  	
   

  	
  Name:

  	
  Michael
  Barrett

  
	
   

  	
   

  	
  Title:

  	
  CFO

  



 


[Signature
page to Guarantee and Security Agreement]


 

















 


	
   

  	
  ANTELOPE COAL LLC

  
	
   

  	
  CABALLO ROJO LLC

  
	
   

  	
  CABALLO ROJO HOLDINGS LLC

  
	
   

  	
  CLOUD PEAK ENERGY SERVICES
  COMPANY

  
	
   

  	
  CLOUD PEAK ENERGY FINANCE
  CORP.

  
	
   

  	
  CORDERO MINING LLC

  
	
   

  	
  CORDERO MINING HOLDINGS
  LLC

  
	
   

  	
  KENNECOTT COAL SALES LLC

  
	
   

  	
  NERCO LLC

  
	
   

  	
  NERCO COAL LLC

  
	
   

  	
  NERCO COAL SALES LLC

  
	
   

  	
  NORTHERN COAL
  TRANSPORTATION LLC

  
	
   

  	
  PROSPECT LAND AND
  DEVELOPMENT LLC

  
	
   

  	
  RESOURCE DEVELOPMENT LLC

  
	
   

  	
  SEQUATCHIE VALLEY COAL
  CORPORATION

  
	
   

  	
  SPRING CREEK COAL LLC

  
	
   

  	
  WESTERN MINERALS LLC,

  
	
   

  	
  as Guarantors

  



 


 


	
   

  	
  By:

  	
  /s/
  Colin Marshall

  
	
   

  	
   

  	
  Name:

  	
  Colin
  Marshall

  
	
   

  	
   

  	
  Title:

  	
  President
  & CEO

  



 


[Signature
page to Guarantee and Security Agreement]


 

















 


	
   

  	
  MORGAN STANLEY SENIOR FUNDING, INC.,

  as Administrative Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Peter Zippelius

  
	
   

  	
   

  	
  Name:

  	
  Peter
  Zippelius

  
	
   

  	
   

  	
  Title:

  	
  Vice
  President

  



 


[Signature
page to Guarantee and Security Agreement]