Document:

exv10w5

 

EXECUTION VERSION

Exhibit 10.5

PLEDGE AGREEMENT

     PLEDGE AGREEMENT, dated as of March 4, 2008, by and among Westmoreland Coal Company, a
Delaware corporation (“Grantor” or “Borrower”); Westmoreland Resources, Inc.
(“Guarantor”); and Tontine Capital Associates, L.P., a Delaware limited partnership, as
Collateral Agent for Purchasers (as hereinafter defined) (together with its permitted successors in
such capacity as the collateral agent, the “Collateral Agent”).

     Reference is hereby made to (i) that certain Senior Secured Convertible Note Purchase
Agreement, dated as of March 4, 2008, by and among Grantor, Tontine Partners, L.P., a Delaware
limited partnership, and Tontine Capital Partners, L.P., a Delaware limited partnership (each,
“Purchaser” and collectively, “Purchasers”) and the Collateral Agent (the “Note
Purchase Agreement”), (ii) that certain Security Agreement, dated as of March 4, 2008, by and
among the Guarantor, Purchasers and the Collateral Agent (the “Security Agreement”) and
(iii) that certain First Interstate Business Loan Agreement by and between Guarantor and First
Interstate Bank dated October 29, 2007, as in effect as of the date hereof (the “First
Interstate Loan Agreement” and together with all related documents and agreements thereunder,
the “First Interstate Loan Documents”).

	1.	 	GRANT OF SECURITY INTEREST. For valuable consideration, Grantor grants to the Collateral
Agent a security interest in the Collateral to secure the Indebtedness and agrees that the
Collateral Agent shall have the rights stated in this Agreement with respect to the
Collateral, in addition to all other rights which the Collateral Agent may have by law.
	 
	2.	 	COLLATERAL DESCRIPTION. The word “Collateral” as used in this Agreement means
Grantor’s present and future rights, title and interest in and to, any capital stock or
ownership interests, however evidenced, in the Guarantor (including the shares specifically
referenced below) (the “Stock”) together with any and all present and future additions
thereto, substitutions therefore, and replacements thereof, together with any and all present
and future certificates and/or instruments evidencing any Stock and further together with all
Income and Proceeds as described herein:

10,000 Shares of WESTMORELAND RESOURCES, INC. Stock,

Stock Certificate Numbers I-1, II-4, III-4, III-5 and IV-3.

	3.	 	CROSS-COLLATERALIZATION. In addition to the Note Purchase Agreement, the Notes, the Guaranty
and the Security Agreement, this Agreement secures all obligations, debts and liabilities,
plus interest thereon, of Grantor to the Collateral Agent, Purchasers, or any one or more of
them, as well as all claims by Purchasers against Grantor under or in connection with the Note
Purchase Agreement, the Notes and the other Transaction Documents, whether now existing or
hereafter arising under or in connection with the Note Purchase

 

 

	 	 	Agreement, the Notes or the other Transaction Documents, whether voluntary or otherwise,
whether due or not due, direct or indirect, determined or undetermined, absolute or
contingent, liquidated or unliquidated, whether Grantor or Guarantor may be liable
individually or jointly with others, whether obligated as guarantor, surety, accommodation
party or otherwise.

	4.	 	BORROWER’S WAIVERS AND RESPONSIBILITIES. Except as otherwise required under this Agreement
or by applicable law, (A) Borrower assumes the responsibility for being and keeping informed
about the Collateral, and (B) Borrower waives any defenses that may arise because of any
action or inaction of the Collateral Agent, including without limitation any failure of the
Collateral Agent to realize upon the Collateral or any delay by the Collateral Agent in
realizing upon the Collateral; and Borrower agrees to remain liable under the Notes no matter
what action the Collateral Agent takes or fails to take under this Agreement.
	 
	5.	 	GRANTOR’S REPRESENTATIONS AND WARRANTIES. Grantor warrants that: (A) this Agreement is
executed at its own request and not at the request of the Collateral Agent or any Purchaser;
and (B) Grantor has the full right, power and authority to enter into this Agreement and to
pledge the Collateral to the Collateral Agent.
	 
	6.	 	GRANTOR’S WAIVERS. Grantor waives all requirements of presentment, protest, demand, and
notice of dishonor or non-payment to Grantor, or any other party to the Indebtedness or the
Collateral.
	 
	7.	 	REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL. Grantor represents and
warrants to the Collateral Agent that:

	 	a.	 	Ownership. Grantor is the lawful owner of the Collateral free and clear of
all security interests, liens, encumbrances and claims of others except (i) those in
favor of First Interstate Bank pursuant to the First Interstate Loan Documents, and
(ii) as disclosed to and accepted by the Collateral Agent in writing prior to
execution of this Agreement.
	 
	 	b.	 	Right to Pledge. Grantor has the full right, power and authority to enter
into this Agreement and to pledge the Collateral.
	 
	 	c.	 	Authority; Binding Effect. Grantor has the full right, power and authority
to enter into this Agreement and to grant a security interest in the Collateral to the
Collateral Agent. This Agreement is binding upon Grantor as well as Grantor’s
successors and assigns, and is legally enforceable in accordance with its terms. The
foregoing representations and warranties, and all other representations and warranties
contained in this Agreement are and shall be continuing in nature and shall remain in

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	 	 	 	full force and effect until such time as this Agreement is terminated or cancelled
as provided herein.

	 	d.	 	No Further Assignment. Grantor has not, and shall not, sell, assign,
transfer, encumber or otherwise dispose of any of Grantor’s rights in the Collateral
except to First Interstate as provided in the First Interstate Loan Documents and as
provided in this Agreement.
	 
	 	e.	 	No Defaults. There are no defaults existing under the Collateral, and there
are no offsets or counterclaims to the same. Grantor will strictly and promptly
perform each of the terms, conditions, covenants and agreements, if any, contained in
the Collateral which are to be performed by Grantor.
	 
	 	f.	 	Financing Statements. Grantor authorizes the Collateral Agent to file a UCC
financing statement, or alternatively, a copy of this Agreement to perfect the
Collateral Agent’s security interest. At the Collateral Agent’s request, Grantor
additionally agrees to sign all other documents that are necessary to perfect,
protect, and continue the Collateral Agent’s security interest in the Property.
Grantor will pay all filing fees, title transfer fees, and other fees and costs
involved unless prohibited by law or unless the Collateral Agent is required by law to
pay such fees and costs. Grantor irrevocably appoints the Collateral Agent to execute
documents necessary to transfer title if there is a default. The Collateral Agent may
file a copy of this Agreement as a financing statement. If Grantor changes Grantor’s
name or address, or the name or address of any person granting a security interest
under this Agreement changes, Grantor will promptly notify the the Collateral Agent of
such change.

	8.	 	COLLATERAL AGENT’S RIGHTS AND OBLIGATIONS WITH RESPECT TO THE COLLATERAL. The Collateral
Agent may hold the Collateral until all Indebtedness has been paid and satisfied. Thereafter
the Collateral Agent may deliver the Collateral to Grantor or to any other owner of the
Collateral. The Collateral Agent shall have the following rights in addition to all other
rights the Collateral Agent may have by law:

	 	a.	 	Maintenance and Protection of Collateral. The Collateral Agent may, but
shall not be obligated to, take such steps as it deems necessary or desirable to
protect, maintain, insure, store, or care for the Collateral, including paying of any
liens or claims against the Collateral not otherwise permitted under this Agreement.
This may include such things as hiring other people, such as attorneys, appraisers or
other experts. The Collateral Agent may charge Grantor for any cost incurred in so
doing.
	 
	 	b.	 	Income and Proceeds from the Collateral. The Collateral Agent may receive
all Income and Proceeds and add it to the Collateral. Grantor

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	 	 	 	agrees to deliver to the Collateral Agent immediately upon receipt, in the exact
form received and without commingling with other property, all Income and Proceeds
from the Collateral which may be received by, paid, or delivered to Grantor or for
Grantor’s account, whether as an addition to, in discharge of, in substitution of,
or in exchange for any of the Collateral.

	 	c.	 	Application of Cash. At the Collateral Agent’s option, the Collateral Agent
may apply any cash, whether included in the Collateral or received as Income and
Proceeds or through liquidation, sale, or retirement, of the Collateral, to the
satisfaction of the Indebtedness or such portion thereof as the Collateral Agent shall
choose, whether or not matured.
	 
	 	d.	 	Transactions with Others. The Collateral Agent may (1) extend time for
payment or other performance, (2) grant a renewal or change in terms or conditions, or
(3) compromise, compound or release any obligation, with any one or more Obligors,
endorsers, or Guarantors of the Indebtedness as the Collateral Agent deems advisable,
without obtaining the prior written consent of Grantor, and no such act or failure to
act shall affect the Collateral Agent’s rights against Grantor or the Collateral.
	 
	 	e.	 	All Collateral Secures Indebtedness. All Collateral shall be security for
the Indebtedness, where ever the Collateral may be located.
	 
	 	f.	 	Collection of Collateral. The Collateral Agent at the Collateral Agent’s
option may, but need not, collect the Income and Proceeds directly from the Obligors.
Grantor authorizes and directs the Obligors, if the Collateral Agent decides to
collect the Income and Proceeds, to pay and deliver to the Collateral Agent all Income
and Proceeds from the Collateral and to accept the Collateral Agent’s receipt for the
payments.
	 
	 	g.	 	Power of Attorney. Grantor irrevocably appoints the Collateral Agent as
Grantor’s attorney-in-fact, with full power of substitution, (a) to demand, collect,
receive, receipt for, sue and recover all Income and Proceeds and other sums of money
and other Property which may now or hereafter become due, owing or payable from the
Obligors in accordance with the terms of the Collateral; (b) to execute, sign and
endorse any and all instruments, receipts, checks, drafts and warrants issued in
payment for the Collateral; (c) to settle or compromise any and all claims arising
under the Collateral, and in the place and stead of Grantor, execute and deliver
Grantor’s release and acquittance for Grantor; (d) to file any claim or claims or to
take any action or institute or take part in any proceedings, either in the Collateral
Agent’s own name or in the name of Grantor, or otherwise, which in the discretion of
the Collateral Agent may seem to be necessary or advisable; and (e) to execute in
Grantor’s name and to deliver to the Obligors on Grantor’s behalf, at the time and in
the manner specified by the Collateral, any necessary instruments or documents.

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	 	h.	 	Perfection of Security Interest. Upon the Collateral Agent’s request and
subject to First Interstate Bank’s rights under the First Interstate Loan Documents,
Grantor will deliver to the Collateral Agent any and all of the documents evidencing
or constituting the Collateral. When applicable law provides more than one method of
perfection of the Collateral Agent’s security interest, the Collateral Agent may
choose the method(s) to be used. Upon the Collateral Agent’s request, Grantor will
sign and deliver any writings necessary to perfect the Collateral Agent’s security
interest. If any of the Collateral consists of securities for which no certificate
has been issued, Grantor agrees, at the Collateral Agent’s option, either to request
issuance of an appropriate certificate or to execute appropriate instructions on the
Collateral Agent’s forms instructing the issuer, transfer agent, mutual fund company,
or broker, as the case may be, to record on its books or records, by book-entry or
otherwise, the Collateral Agent’s security interest in the Collateral. Grantor also
agrees to execute any additional documents, including but not limited to, a control
agreement, necessary to perfect the Collateral Agent’s security interest as the
Collateral Agent may desire. Grantor hereby appoints the Collateral Agent as
Grantor’s irrevocable attorney-in-fact for the purpose of executing any documents
necessary to perfect, amend, or to continue the security interest granted in this
Agreement or to demand termination of filings of other secured parties, subject to
First Interstate Bank’s rights under the First Interstate Loan Documents.

	9.	 	THE COLLATERAL AGENT’S EXPENDITURES. If any action or proceeding is commenced that would
materially affect the Collateral Agent’s interest in the Collateral or if Grantor fails to
comply with any provision of this Agreement or any Transaction Documents, including but not
limited to Grantor’s failure to discharge or pay when due any amounts Grantor is required to
discharge or pay under this Agreement or any Transaction Documents, the Collateral Agent on
Grantor’s behalf may (but shall not be obligated to) take any action that the Collateral Agent
deems appropriate, including but not limited to discharging or paying all taxes, liens,
security interests, encumbrances and other claims, at any time levied or placed on the
Collateral and not otherwise permitted under this Agreement, and paying all costs for
insuring, maintaining and preserving the Collateral. All such expenditures incurred or paid
by the Collateral Agent for such purposes will then bear interest at the rate charged under
the Notes from the date incurred or paid by the Collateral Agent to the date of repayment by
Grantor. All such expenses will become a part of the Indebtedness and, at the Collateral
Agent’s option, will (A) be payable on demand; (B) be added to the balance of the Notes and be
apportioned among and be payable with any installment payments to become due during either (1)
the term of any applicable insurance policy; or (2) the remaining term of the Notes; or (C) be
treated as a balloon payment which will be due and payable at the Notes’ maturity. The
Agreement also will secure

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	 	 	payment of these amounts. Such right shall be in addition to all other rights and remedies
to which the Collateral Agent may be entitled upon a default.

	10.	 	LIMITATIONS ON OBLIGATIONS OF THE COLLATERAL AGENT. The Collateral Agent shall use ordinary
reasonable care in the physical preservation and custody of the Collateral in the Collateral
Agent’s possession, but shall have no other obligation to protect the Collateral or its value.
In particular, but without limitation, the Collateral Agent shall have no responsibility for
(A) any depreciation in value of the Collateral or for the collection or protection of any
Income and Proceeds from the Collateral, (B) preservation of rights against parties to the
Collateral or against third persons, (C) ascertaining any maturities, calls, conversions,
exchanges, offers, tenders, or similar matters relating to any of the Collateral, or (D)
informing Grantor about any of the above, whether or not the Collateral Agent has or is deemed
to have knowledge of such matters. Except as provided above, the Collateral Agent shall have
no liability for depreciation or deterioration of the Collateral.
	 
	11.	 	RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs, at any time thereafter, the
Collateral Agent may exercise any one or more of the following rights and remedies:

	 	a.	 	Accelerate Indebtedness. Declare all Indebtedness immediately due and
payable without notice of any kind to any Credit Party.
	 
	 	b.	 	Collect the Collateral. Collect any of the Collateral and, at the Collateral
Agent’s option and to the extent permitted by applicable law, retain possession of the
Collateral while suing on the Indebtedness.
	 
	 	c.	 	Sell the Collateral. Sell the Collateral, at the Collateral Agent’s
discretion, as unit or in the parcels, at one or more public or private sales. Unless
the Collateral is perishable or threatens to decline speedily in value or is of a type
customarily sold on a recognized market, the Collateral Agent shall give or mail to
Grantor, and other persons as required by law, notice at least ten (10) days in
advance of the time and place of any public sale, or of the time after which any
private sale may be made. However, no notice need be provided to any person who,
after an Event of Default occurs, enters into and authenticates an agreement waiving
that person’s right to notification of sale. Grantor agrees that any requirement of
reasonable notice as to Grantor is satisfied if the Collateral Agent mails notice by
ordinary mail addressed to Grantor at the last address Grantor has given the
Collateral Agent in writing. If a public sale is held, there shall be sufficient
compliance with all requirements of notice to the public by a single publication in
any newspaper of general circulation in the county where the Collateral is located,
setting forth the time and place of sale and a brief description of the property to be
sold. The Collateral Agent may be a purchaser at any public sale.

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	 	d.	 	Sell Securities. Sell any securities included in the Collateral in a manner
consistent with applicable federal and state securities laws. If, because of
restrictions under such laws, the Collateral Agent is unable, or believes the
Collateral Agent is unable, to sell the securities in an open market transaction,
Grantor agrees that the Collateral Agent will have no obligation to delay sale until
the securities can be registered. Then the Collateral Agent may make a private sale
to one or more persons or to a restricted group of persons, even though such sale may
result in a price that is less favorable than might be obtained in an open market
transaction. Such a sale will be considered commercially reasonable. If any
securities held as Collateral are “restricted securities” as defined in the
Rules of the Securities and Exchange Commission (such as Regulation D or Rule 144) or
the rules of state securities departments under state “Blue Sky” laws, or if
Grantor or any other owner of the Collateral is an affiliate of the issuer of the
securities, Grantor agrees that neither Grantor, nor any member of Grantor’s family,
nor any other person signing this Agreement will sell or dispose of any securities of
such issuer without obtaining the Collateral Agent’s prior written consent.
	 
	 	e.	 	Rights and Remedies with Respect to Investment Property, Financial Assets and
Related Collateral. In addition to other rights and remedies granted under this
Agreement and under applicable law, the Collateral Agent may exercise any or all of
the following rights and remedies: (1) register with any issuer or broker or other
securities intermediary any of the Collateral consisting of investment property or
financial assets (collectively herein, “investment property”) in the
Collateral Agent’s sole name or in the name of the Collateral Agent’s broker, agent or
nominee; (2) cause any issuer, broker or other securities intermediary to deliver to
the Collateral Agent any of the Collateral consisting of securities, or investment
property capable of being delivered; (3) enter into a control agreement or power of
attorney with any issuer or securities intermediary with respect to any Collateral
consisting of investment property, on such terms as the Collateral Agent may deem
appropriate, in its sole discretion, including without limitation, an agreement
granting to the Collateral Agent any of the rights provided hereunder without further
notice to or consent by Grantor; (4) execute any such control agreement on Grantor’s
behalf and in Grantor’s name, and hereby irrevocably appoints the Collateral Agent as
agent and attorney-in-fact, coupled with an interest, for the purpose of executing
such control agreement on Grantor’s behalf; (5) exercise any and all rights of the
Collateral Agent under any such control agreement or power of attorney; (6) exercise
any voting, conversion, registration, purchase, option, or other rights with respect
to any Collateral; (7) collect, with or without legal action, and issue receipts
concerning any notes, checks, drafts, remittances or distributions that are paid or
payable with respect to any Collateral consisting of investment

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	 	 	 	property. Any control agreement entered with respect to any investment property
shall contain the following provisions, at the Collateral Agent’s discretion. The
Collateral Agent shall be authorized to instruct the issuer, broker or other
securities intermediary to take or to refrain from taking such actions with respect
to the investment property as the Collateral Agent may instruct, without further
notice to or consent by Grantor. Such actions may include without limitation the
issuance of entitlement orders, account instructions, general trading or buy or
sell orders, transfer and redemption orders, and stop loss orders. The Collateral
Agent shall be further entitled to instruct the issuer, broker or securities
intermediary to sell or to liquidate any investment property, or to pay the cash
surrender or account termination value with respect to any and all investment
property, and to deliver all such payments and liquidation proceeds to the
Collateral Agent. Any such control agreement shall contain such authorizations as
are necessary to place the Collateral Agent in “control” of such investment
collateral, as contemplated under the provisions of the Uniform Commercial Code,
and shall fully authorize the Collateral Agent to issue “entitlement
orders” concerning the transfer, redemption, liquidation or disposition of
investment collateral, in conformance with the provisions of the Uniform Commercial
Code.

	 	f.	 	Foreclosure. Maintain a judicial suit for foreclosure and sale of the
Collateral.
	 
	 	g.	 	Transfer Title. Effect transfer of title upon sale of all or part of the
Collateral. For this purpose, Grantor irrevocably appoints the Collateral Agent as
Grantor’s attorney-in-fact to execute endorsements, assignments and instruments in the
name of Grantor and each of them (if more than one) as shall be necessary or
reasonable.
	 
	 	h.	 	Other Rights and Remedies. Have and exercise any or all of the rights and
remedies of a secured creditor under the provisions of the Uniform Commercial Code, at
law, in equity, or otherwise.
	 
	 	i.	 	Application of Proceeds. Apply any cash which is part of the Collateral, or
which is received from the collection or sale of the Collateral, to reimbursement of
any expenses, including any costs for registration of securities, commissions incurred
in connection with a sale, attorneys’ fees and court costs, whether or not there is a
lawsuit and including any fees on appeal, incurred by the Collateral Agent in
connection with the collection and sale of such Collateral and to the payment of the
Indebtedness of Grantor to the Collateral Agent, with any excess funds to be paid to
Grantor as the interests of Grantor may appear. The Credit Parties agree, to the
extent permitted by law, to pay any deficiency after application of the proceeds of
the Collateral to the Indebtedness.

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	 	j.	 	Election of Remedies. Except as may be prohibited by applicable law, all of
the Collateral Agent’s rights and remedies, whether evidenced by this Agreement, the
Transaction Documents, or by any other writing, shall be cumulative and may be
exercised singularly or concurrently. Election by the Collateral Agent to pursue any
remedy shall not exclude pursuit of any other remedy, and an election to make
expenditures or to take action to perform an obligation of Grantor under this
Agreement, after Grantor’s failure to perform, shall not affect the Collateral Agent’s
right to declare a default and exercise its remedies.

	12.	 	RIGHTS OF FIRST INTERSTATE BANK. Notwithstanding anything to the contrary contained herein,
the rights of the Collateral Agent and the Purchasers and the obligations of Grantor as set
forth herein are subject to the rights of First Interstate Bank under the First Interstate
Loan Documents. To the extent that Grantor is required to deliver, endorse, or otherwise pay
over or otherwise provide possession or control over any of the Collateral as provided herein,
such obligations shall be subject to the rights of First Interstate Bank to such Collateral,
as set forth in the First Interstate Loan Documents. Further, any representation, warranty or
covenant of Grantor in this Agreement that the Collateral is not and shall not be subject to
any liens, encumbrances or other restrictions shall specifically be qualified by the liens and
rights of First Interstate Bank with respect to the Collateral as set forth in the First
Interstate Loan Documents. The limitations and qualifications set forth in this Section 12
shall be effective solely to recognize the rights of First Interstate Bank and shall not
otherwise impair the liens and security interests granted by Grantor to the Collateral Agent
pursuant to this Agreement. The parties acknowledge that, to the extent that the obligations
of Grantor to First Interstate Bank arising under the First Interstate Loan Documents have
been satisfied and such parties have no further obligations to make loans or advances to the
Borrower thereunder, the limitations and qualifications set forth in this Section 12 shall be
of no further force or effect and Grantor covenants to take all such actions set forth herein
and necessary to give effect to the provisions of this Agreement.
	 
	13.	 	MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this
Agreement:

	 	a.	 	Amendments. This Agreement, together with any Transaction Documents,
constitutes the entire understanding and agreement of the parties as to the matters
set forth in this Agreement. No alteration of or amendment to this Agreement shall be
effective unless given in writing and signed by the party or parties sought to be
charged or bound by the alteration or amendment.
	 
	 	b.	 	Attorneys’ Fees; Expenses. Grantor agrees to pay upon demand all of the
Collateral Agent’s and Purchasers’ costs and expenses, including any attorneys’ fees
and legal expenses, incurred in connection with the

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	 	 	 	enforcement of this Agreement. The Collateral Agent and Purchasers may hire or pay
someone else to help enforce this Agreement, and Grantor shall pay the costs and
expenses of such enforcement. Costs and expenses include the Collateral Agent’s
and Purchasers’ attorneys’ fees and legal expenses whether or not there is a
lawsuit, including attorneys’ fees and legal expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction), appeals,
and any anticipated post-judgment collection services; provided that such
fees and expenses shall be limited to those of one counsel to the Collateral Agent
and Purchasers collectively and, if reasonably requested by the Collateral Agent or
Purchasers, one local counsel in each jurisdiction in which Collateral is located;
provided further in the event of a conflict of interest between the
Collateral Agent and any Purchaser or between Purchasers, Grantor shall pay all
reasonable out-of-pocket fees and expenses of such additional counsel as may be
necessary. Grantor also shall pay all court costs and such additional fees as may
be directed by the court.

	 	c.	 	Caption Headings. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions of this
Agreement.
	 
	 	d.	 	Governing Law. This Agreement will be governed by federal law applicable to
the Collateral Agent and, to the extent not preempted by federal law, the laws of the
State of New York without regard to its conflicts of law provisions. This Agreement
has been accepted by the Collateral Agent in the State of New York.
	 
	 	e.	 	No Waiver by the Collateral Agent. The Collateral Agent shall not be deemed
to have waived any rights under this Agreement unless such waiver is given in writing
and signed by the Collateral Agent. No delay or omission on the part of the
Collateral Agent in exercising any right shall operate as a waiver of such right or
any other right. A waiver by the Collateral Agent of a provision of this Agreement
shall not prejudice or constitute a waiver of the Collateral Agent’s right otherwise
to demand strict compliance with that provision or any other provision of this
Agreement. No prior waiver by the Collateral Agent, nor any course of dealing between
the Collateral Agent and Grantor, shall constitute a waiver of any of the Collateral
Agent’s rights or of any of Grantor’s obligations as to any future transactions.
Whenever the consent of the Collateral Agent is required under this Agreement, the
granting of such consent by the Collateral Agent in any instance shall not constitute
continuing consent to subsequent instances where such consent is required and in all
cases such consent may be granted or withheld in the sole discretion of the Collateral
Agent.

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	 	f.	 	Notices. Any notice required to be given under this Agreement shall be given
in accordance with Section 11.10 of the Note Purchase Agreement, and if to Grantor,
addressed as follows:

Westmoreland Resources, Inc.

P.O. Box 449

Hardin, MT 59034

Attn: Morris W. Kegley

Telecopy Number: (719) 448-8097

with a copy to:

Westmoreland Coal Company

2 North Cascade Avenue, 14th Floor

Colorado Springs, Colorado 80903

Attn: General Counsel

Telecopy Number: (719) 448-8097

	 	g.	 	Severability. If a court of competent jurisdiction finds any provision of
this Agreement to be illegal, invalid, or unenforceable as to any circumstance, that
finding shall not make the offending provision illegal, invalid, or unenforceable as
to any other circumstance. If feasible, the offending provision shall be considered
modified so that it becomes legal, valid and enforceable. If the offending provision
cannot be so modified, it shall be considered deleted from this Agreement. Unless
otherwise required by law, the illegality, invalidity, or unenforceability of any
provision of this Agreement shall not affect the legality, validity or enforceability
of any other provision of this Agreement.
	 
	 	h.	 	Successors and Assigns. Subject to any limitations stated in this Agreement
on transfer of Grantor’s interest, this Agreement shall be binding upon and inure to
the benefit of the parties, their successors and assigns. If ownership of the
Collateral becomes vested in a person other than Grantor, the Collateral Agent,
without notice to Grantor, may deal with Grantor’s successors with reference to this
Agreement and the Indebtedness by way of forbearance or extension without releasing
Grantor from the obligations of this Agreement or liability under the Indebtedness.
	 
	 	i.	 	Time is of the Essence. Time is of the essence in the performance of this
Agreement.

	14.	 	DEFINITIONS. The following capitalized words and terms shall have the following meanings
when used in this Agreement. Unless specifically stated to the contrary, all references to
dollar amounts shall mean amounts in lawful money of the United States of America. Words and
terms used in the singular shall

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	 	 	include the plural, and the plural shall include the singular, as the context may require.
Words and terms not otherwise defined in this Agreement shall have the meanings attributed
to such terms in the Uniform Commercial Code:

	 	a.	 	Agreement. The word “Agreement” means this Pledge Agreement, as this
Pledge Agreement may be amended or modified from time to time, together with all
exhibits and schedules attached to this Pledge Agreement from time to time.
	 
	 	b.	 	Borrower. The word “Borrower” shall have the meaning set forth in
the preamble to this Agreement.
	 
	 	c.	 	Collateral. The word “Collateral” shall have the meaning set forth
in Section 1 of this Agreement.
	 
	 	d.	 	Collateral Agent. The words “Collateral Agent” shall have the
meaning set forth in the preamble to this Agreement.
	 
	 	e.	 	Credit Party or Credit Parties. The words “Credit Party” or
“Credit Parties” shall have the meaning set forth in the Note Purchase
Agreement.
	 
	 	f.	 	Event of Default. The words “Event of Default” shall have the
meaning set forth in the Note Purchase Agreement.
	 
	 	g.	 	First Interstate Loan Agreement. The words “First Interstate Loan
Agreement” shall have the meaning set forth in the second paragraph of this
Agreement.
	 
	 	h.	 	First Interstate Loan Documents. The words “First Interstate Loan
Documents” shall have the meaning set forth in the second paragraph of this
Agreement.
	 
	 	i.	 	Grantor. The word “Grantor” shall have the meaning set forth in the
preamble to this Agreement.
	 
	 	j.	 	Guarantor. The word “Guarantor” shall have the meaning set forth in
the preamble to this Agreement.
	 
	 	k.	 	Guaranty. The word “Guaranty” shall have the meaning set forth in
the Note Purchase Agreement.
	 
	 	l.	 	Income and Proceeds. The words “Income and Proceeds” mean all
present and future income, proceeds, earnings, increases, and substitutions from or
for the Collateral of every kind and nature, including without limitation all
payments, interest, profits, distributions, benefits, rights, options, warrants,
dividends, stock dividends, stock splits, stock rights, regulatory dividends,
subscriptions, monies, claims for money due and to

12

 

	 	 	 	become due, proceeds of any insurance on the Collateral, shares of stock of
different par value or no par value issued in substitution or exchange for shares
included in the Collateral, and all other property Grantor is entitled to receive
on account of such Collateral, including accounts, documents, instruments, chattel
paper, and general intangibles.

	 	m.	 	Indebtedness. The word “Indebtedness” means the obligations and
indebtedness of Borrower under the Note Purchase Agreement, the Notes and the other
Transaction Documents, including all principal and interest together with all other
indebtedness and costs and expenses for which Grantor is responsible under this
Agreement or under any of the Transaction Documents.
	 
	 	n.	 	Note or Notes. The words “Note” or “Notes” means the Notes
executed by Grantor in the original aggregate principal amount of $15,000,000 dated
March 4, 2008, together with all increases thereto in accordance with the Note
Purchase Agreement, renewals of, extensions of, modifications of, refinancings of,
consolidations of, and substitutions for the Notes or Note Purchase Agreement.
	 
	 	o.	 	Note Purchase Agreement. The words “Note Purchase Agreement” shall
have the meaning set forth in the second paragraph of this Agreement.
	 
	 	p.	 	Obligor. The word “Obligor” means without limitation any and all
persons obligated to pay money or to perform some other act under the Collateral.
	 
	 	q.	 	Property. The word “Property” means all of Grantor’s right, title
and interest in and to all the Property as described in the “Collateral
Description” section of this Agreement.
	 
	 	r.	 	Purchaser or Purchasers. The words “Purchaser” or
“Purchasers” shall have the meaning set forth in the second paragraph of this
Agreement.
	 
	 	s.	 	Security Agreement. The words “Security Agreement” shall have the
meaning set forth in the second paragraph of this Agreement.
	 
	 	t.	 	Stock. The word “Stock” shall have the meaning set forth in Section
2 of this Agreement.
	 
	 	u.	 	Transaction Documents. The words “Transaction Documents” shall have
the meaning set forth in the Note Purchase Agreement.

13

 

[remainder of page intentionally blank]

14

 

     IN WITNESS WHEREOF, Grantor and Guarantor have executed this Agreement as of the day
and year first above written.

	 	 	 	 	 
	GRANTOR:	 	 
	 
	 	 	 	 
	WESTMORELAND COAL COMPANY	 	 
	 
	 	 	 	 
	By:

	 	/s/ Keith E. Alessi	 	 
	 

	 	 

Name: Keith E. Alessi
	 	 
	 

	 	Title: Chief Executive Officer and President	 	 
	 
	 	 	 	 
	GUARANTOR:	 	 
	 
	 	 	 	 
	WESTMORELAND RESOURCES, INC.	 	 
	 
	 	 	 	 
	By:

	 	/s/ Keith E. Alessi	 	 
	 

	 	 

Name: Keith E. Alessi
	 	 
	 

	 	Title: Chief Executive Officer	 	 

[Signature page to Pledge Agreement]

S-1 

 

	 	 	 	 	 	 	 
	COLLATERAL AGENT:	 	 
	 
	 	 	 	 	 	 
	TONTINE CAPITAL ASSOCIATES, L.P.	 	 
	as the Collateral Agent	 	 
	 
	 	 	 	 	 	 
	By:	 	TONTINE CAPITAL ASSOCIATES GP, L.L.C.,	 	 
	 	 	its general partner	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Jeffrey L. Gendell	 	 
	 

	 	 	 	 

Name: Jeffrey L. Gendell
	 	 
	 

	 	 	 	Title: Managing Member	 	 

[Signature page to Pledge Agreement]

S-2INCORPORATED UNDER THE LAWS OF
                                      Delaware

        NUMBER                                                        SHARES

                              COLONY ENERGY, INC.
                                 Common Stock
                          Par Value $.001 Per Share

THIS CERTIFIES THAT:______________________________________________________
is the registered holder of _____________________________________ shares of the
Common Stock, par value $.001 per share, of Colony Energy, Inc., a Delaware
corporation, transferable on the books of the Corporation by the holder hereof
in person or by attorney upon surrender of this certificate duly endorsed.

    IN WITNESS, the said Corporation has caused this Certificate to be signed by
its duly authorized officers and its Corporate Seal is hereunto affixed this the
______ day of _____________________, A.D. _______.

___________________________                    ____________________________
     PRESIDENT                              SECRETARY

                                  CERTIFICATE
                                      FOR
                                   __________
                                     SHARES
                                of Common Stock
                           par value $.001 per share
                             of Colony Energy, Inc.
                                   ISSUED TO
                              ___________________
                                     DATED
                              ___________________

     FOR VALUE RECEIVED, ____________________ sells, assigns and transfers unto
_________________________--__________________________  ___________________
Shares represented by the within Certificate and do hereby irrevocably
constitute and appoint _________________________________________ attorney to
transfer the said Shares on the books of the within named corporation with full
power of substitution in the premises.

Dated ______________ _____, _________

                                   ____________________________________

In Presence of
____________________________________

NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATSOEVER.

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