Document:

exv10w4

EXHIBIT 10.4

FORM OF

CONTINGENT PAYMENT OBLIGATION

			
	 	 	 
	Denver, Colorado
	 	Executed October 16, 2008

     FOR VALUE RECEIVED, the undersigned, FEEDSTOCK INVESTMENTS IV, LLC, a Delaware limited
liability company (“Investor”), having an address of 82 Devonshire Street, R7E, Boston,
Massachusetts 02109, promises to pay to the order of WESTMORELAND RESOURCES, INC., a Delaware
corporation having an address of Two North Cascade Avenue, Colorado Springs, Colorado 80903
(“WRI”), the amounts described below as set forth in this Contingent Payment Obligation (this
“Note”). Any defined term used herein which is not defined herein shall have the meaning given
such term in the Membership Interest Purchase Agreement dated effective October 16, 2008 among
Investor, WRI, Absaloka Coal, LLC, a Delaware limited liability company (“Absaloka”) and WRI
Partners, Inc., a Delaware corporation (the “Agreement”) regarding the sale by WRI to Investor of
WRI’s membership interest in Absaloka. This Note is subject to the terms and the obligations of
Investor and WRI set forth in the Agreement.

     Payment. Investor shall pay to WRI an amount each calendar quarter (the “Contingent
Payment”) which shall equal the excess of (i) ninety percent (90%) of Investor’s share as a Member
in Absaloka of Indian Coal Production Tax Credits attributable to production and sales of Indian
Coal from the Sublease under the Amended and Restated Limited Liability Company Agreement of
Absaloka (the “Operating Agreement”) for such calendar quarter over (ii)  the amount of the Fixed
Payment paid by Investor to WRI for such calendar quarter under the Fixed Payment Note dated as of
the same date as this Note, including the amount of any Fixed Payment deferred from a prior
calendar quarter and paid during the given calendar quarter, according to the terms and subject to
adjustments set forth herein. The Contingent Payment shall be paid within ten (10) business days
following Investor’s receipt of an invoice from WRI delivered after each completed calendar
quarter, commencing with the invoice pertaining to the calendar quarter ending December 31, 2008,
until the occurrence of the events set forth under “Termination of Note” below. In circumstances
described (i) in Section 7 of the Agreement upon the occurrence of a Breach Liquidation, and (ii)
in Section 8 of the Agreement upon the
withdrawal of Investor from Absaloka, Absaloka may make Contingent Payments to WRI on behalf
of Investor. Payments made pursuant to this paragraph shall be subject to adjustment in accordance
with the provisions of Section 14.2 of the Agreement to accommodate corrections or adjustments in
the computation of Indian Coal Production Tax Credits available to Absaloka.

     Suspension of Contingent Payments. Notwithstanding the foregoing, Investor may
suspend Contingent Payments (i) if Absaloka fails to provide tax information to Investor by April 1
of any year or (ii) upon the occurrence of an event specified in Section 12.3(c)(iii) of the
Agreement. With respect to the Contingent Payments suspended by reason of the occurrence of the
event set forth in (i) above, upon the delivery to Investor by Absaloka of tax information,
Investor shall pay to WRI all Contingent Payments, including any Contingent Payments covering

 

 

periods of suspension. With respect to the Contingent Payments suspended by reason of the
occurrence of the events set forth in clause (ii) above, Contingent Payments shall be resumed in
accordance with the terms of Section 12.3(c)(iii) of the Agreement.

     Termination of Note. This Note shall terminate, and all obligations hereunder be
extinguished upon the earliest of (i) the exercise by Investor or WRI of the right to require
transfer of Investor’s membership interest upon the failure of Absaloka to satisfy the Second
Payment Conditions, in accordance with the terms set forth in Section 6 of the Agreement; (ii) the
occurrence of a Breach Liquidation Event, in accordance with the terms set forth in Section 7 of
the Agreement; (iii) a Disqualification Event or a Disallowance Event, as provided under Section 12
of the Agreement; (iv) the enactment of an amendment in or to the Internal Revenue Code that
eliminates the Indian Coal Production Tax Credits that are available to Absaloka from the
production and sale of coal from the Sublease, as provided in Section 12.4 of the Agreement;
(v) Investor’s withdrawal from Absaloka, as provided under Section 8 of the Agreement and Article
XI of the Operating Agreement; or (vi) the date of a Buyout Notice from WRI to Investor, as
provided in Section 9 of the Agreement. Upon the occurrence of such earliest event, this Note will
be terminated upon the payment of all accrued amounts then due under this Note.

     Payment Instructions. Investor shall make all payments due under the terms of this
Note to WRI by wire transfer of immediately available funds to an account designated by WRI or at
such other place as may be designated to Investor in writing by WRI, all in accordance with the
provisions set forth in the Agreement, except as follows:

     (a) Until satisfaction or waiver of the Second Payment Conditions (as defined in the
Agreement), payments due under this Note shall be paid in accordance with the terms of the Approval
Escrow Agreement.

     (b) If at any time after satisfaction or waiver of the Second Payment Conditions, the Manager
of Absaloka notifies Investor and WRI in writing that Absaloka is experiencing a Cash Deficit (as
defined in the Operating Agreement), Investor shall thereafter make the Contingent Payments
directly to Absaloka, by wire transfer of immediately available funds to an account designated by
the Manager of Absaloka, until it is notified by the Manager of Absaloka in writing that Absaloka
no longer is experiencing a Cash Deficit. WRI shall treat such payment to Absaloka as satisfying
an equal amount of any accrued and unpaid obligations under this
Contingent Note. Investor shall notify WRI of the amount and timing of such payments to
Absaloka.

     (c) From the Escrow Commencement Date until the Conclusion of a Tax Audit (as such terms are
defined in Section 12 of the Agreement), Contingent Payments under this Note shall be paid in
accordance with the terms of the IRS Audit Escrow Agreement.

     Security; Recourse. This Note shall be a recourse obligation of Investor, secured by
a pledge by Investor to WRI of Investor’s entire membership interest in Absaloka pursuant to a
Pledge Agreement dated as of October 16, 2008.

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     Remedies. The remedies provided in this Note shall be cumulative and shall be in
addition to any other rights or remedies now or hereafter provided by law or equity. Whenever WRI
shall sustain or incur any losses or out-of-pocket expenses with respect to this Note in connection
with a failure by Investor to pay all Contingent Payments when due hereunder, Investor shall pay,
on demand, to WRI, in addition to any other penalties or premiums hereunder, an amount sufficient
to compensate WRI for all such losses or out-of-pocket expenses, including, without limitation, all
costs and expenses of a suit or proceeding (or any appeal thereof) brought for recovery of all or
any part of or for protection of the indebtedness evidenced by this Note or to enforce WRI’s rights
hereunder or thereunder, including reasonable attorneys’ fees. No delay, failure or omission by
any holder of this Note, in respect of any default by Investor, to exercise any right or remedy
shall constitute a waiver of the right to exercise the right or remedy upon any such default or
subsequent default.

     Waiver. Investor and any endorser herein waives presentment, demand, notice of
dishonor, notice of acceleration and protest, and assents to any extension of time with respect to
any payment due under this Note, and to the addition or release of any party. No waiver of any
payment or other right under this Note shall operate as a waiver of any other payment or right.

     Amendment. This Note may not be changed orally, but only by an agreement in writing,
signed by the party against whom enforcement of any waiver, change, modification or discharge is
sought.

     Validity. If any of the provisions of this Note shall be held to be invalid or
unenforceable, the determination of invalidity or unenforceability of any such provision shall not
affect the validity or enforceability of any other provision or provisions hereof.

     Successors and Assigns. This Note shall be binding upon Investor and its successors
and assigns and shall inure to the benefit of and be enforceable by WRI and its successors and
assigns.

     Notices. All notices to Investor expressly required in this Note shall be in writing
and shall be delivered by hand delivery or mailed by certified mail, return receipt requested,
postage prepaid, addressed to Investor at its address set forth above, or at such other address as
Investor shall notify the holder hereof. All such notices or other communications shall be deemed
to be properly given upon receipt of delivery by Investor.

     Conflict. In the event of a conflict between the provisions of this Note and the
terms of either the Agreement or the Operating Agreement, the terms of the Agreement and the
Operating Agreement will control.

     Governing Law. This Note shall be construed and enforced in accordance with the law
of the State of Delaware.

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     IN WITNESS WHEREOF, Investor and WRI have caused this instrument to be executed as of the day
and year first above written.

	 	 	 	 	 	 	 	 	 	 	 
	INVESTOR:	 	 	 	WRI:	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	FEEDSTOCK INVESTMENTS IV, LLC	 	 	 	WESTMORELAND RESOURCES, INC.	 	 
	By its Manager	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	 	 	 	 	By:	 	 	 	 
	Name:

	 	 

	 	 	 	Name:
	 	 

	 	 
	Title:

	 	 	 	 	 	Title:	 	 	 	 

4exv10w5

EXHIBIT 10.5

AMENDMENT TO

BUSINESS LOAN AGREEMENT

AND

COMMERCIAL SECURITY AGREEMENT

     This Amendment dated October 16, 2008, to Business Loan Agreement and Commercial Security
Agreement, each dated October 29, 2007, is entered into by FIRST INTERSTATE BANK (the “Lender”) and
WESTMORELAND RESOURCES, INC., a Delaware corporation (the “Borrower”).

RECITALS

     WHEREAS, Lender and Borrower are parties to a Business Loan Agreement (the “Loan Agreement”)
providing for an $8,500,000 term loan, evidenced by a promissory note (the “Term Note”) and a
$20,000,000 revolving loan, evidenced by a promissory note (the “Revolving Note”); and

     WHEREAS, the obligations under the Loan Agreement, the Term Note and the Revolving Note are
secured by the inventory, chattel paper, accounts, equipment and intangibles of Borrower (the
“Collateral”) pursuant to a Commercial Security Agreement (the “Security Agreement”); and

     WHEREAS, Borrower desires to enter into a series of transactions (the “Tax Credit
Transactions”) which will involve the transfer of certain contracts and agreements comprising a
portion of the Collateral to a newly formed limited liability company, Absaloka Coal, LLC (the
“LLC”), the goal of which Tax Credit Transactions is to increase the cash flow of Borrower; and

     WHEREAS, Borrower has requested that Lender amend certain provisions of the Loan Agreement,
the Security Agreement and the Related Agreements to accommodate the Tax Credit Transactions, and
Lender has agreed to such Amendment on the terms, and subject to the conditions, set forth herein.
Defined terms not defined herein shall have the meanings ascribed thereto in the Loan Agreement.

AGREEMENT

     NOW, THEREFORE, in consideration of the foregoing recitals and other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be
legally bound, the parties hereto agree as follows:

     1. Amendment of Definition of Collateral; Pledge of Agreements.

     (a) The Collateral securing Borrower’s obligations under the Loan Agreement and the
Related Agreements, and as pledged in the Security Agreement, is

 

 

hereby amended to exclude therefrom the following agreements providing for the sale of
coal by Borrower and proceeds derived therefrom:

     (i) Coal Purchase Agreement dated August 27, 1986 between Borrower and Western
Fuels Association, Inc.;

     (ii) Coal Supply Agreement dated January 1, 2005 between Borrower and Midwest
Energy Resources Company;

     (iii) Coal Supply Agreement dated as of June 16, 2005, as amended, among
Borrower, Westmoreland Coal Sales Company (“WCSC”), and Rocky Mountain Power, Inc.;
and

     (iv) Coal Supply Agreement dated February 1, 2007, and Master Coal Supply
Agreement dated October 23, 2007, each as amended by Confirmation Notices, and each
between Borrower and Northern States Power Company

(collectively, the agreements referred to in this Paragraph 1 are referred to as the
“Assigned Coal Sales Agreements.”)

     (b) The Collateral securing Borrower’s obligations under the Loan Agreement and the
Related Agreements, and as pledged in the Security Agreement, is hereby amended to exclude
therefrom Borrower’s limited liability company interest in the LLC.

     (c) Borrower hereby pledges and grants a security interest to Lender, to secure its
obligations under the Loan Agreement and Related Agreements, in all of its rights, including
rights to payment, arising under the following agreements, and agrees that they shall
constitute Collateral governed by and subject to all terms of the Security Agreement:

     (i) Coal Mining Sublease Agreement between Borrower and Absaloka Coal, LLC;

     (ii) Contract Mining Agreement dated October 15, 2008 between Borrower and
Absaloka Coal, LLC;

     (iii) Fixed Payment Note dated October 16, 2008 payable to Borrower; and

     (iv) Contingent Payment Obligation dated October 16, 2008 payable to Borrower.

2

 

     2. Amendment of Negative Covenants. Lender agrees that the provisions of the Loan
Agreement appearing under the caption “Negative Covenants” and the provisions of the Security
Agreement specified below shall be amended as follows:

     (a) Clause (2) of the Negative Covenant in the Loan Agreement captioned “Continuity of
Operations” and the provisions of the Security Agreement appearing under the caption
“Transactions Involving Collateral” shall be amended to add at the end thereof the
following:

     Notwithstanding the foregoing:

     (i) Borrower and Absaloka Coal, LLC may enter into the Coal Mining Sublease
Agreement (the “Sublease”), pursuant to which Borrower will sublease to Absaloka
Coal, LLC the right to mine up to 40 million tons of coal from the Absaloka Mine;

     (ii) Borrower and Absaloka Coal, LLC may enter into Assignment and Assumption
Agreements transferring to Absaloka Coal, LLC the Assigned Coal Sales Agreements;
and

     (iii) Borrower may enter into the Membership Interest Purchase Agreement dated
October 16, 2008 pursuant to which it will transfer its interest in Absaloka Coal,
LLC to Feedstock Investments IV, LLC.

     (b) Clause (1) of the Negative Covenant in the Loan Agreement captioned “Continuity of
Operations” shall be amended as follows:

     (i) During the duration of the Sublease, new agreements providing for the
supply and sale of coal from the Absaloka Mine, as well as renewals and amendments
of the Assigned Coal Sales Agreements, shall be entered into by Absaloka Coal, LLC,
and not by Borrower, and the accounts related to the sale of coal from the Absaloka
Mine under such agreements will be accounts of Absaloka Coal, LLC and not of
Borrower;

     (ii) During the duration of the Sublease, WCSC will suspend the sale of coal on
behalf of Borrower under its Sales Agency Agreement with Borrower, and coal sales
from the Absaloka Mine that are arranged through WCSC will be made by Absaloka Coal,
LLC rather than Borrower.

     (c) The Negative Covenant captioned “Loans, Acquisitions and Guarantees” shall be
amended to add the following at the end thereof:

     ; provided, however, that for so long as Absaloka Coal, LLC is
in existence and no Event of Default has occurred and is continuing,
Borrower may engage in the transactions with Absaloka Coal, LLC,
including loans and advances from Borrower to Absaloka Coal, LLC,
contemplated by the Membership Interest Purchase Agreement dated as
of October 16,

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2008 and the Amended and Restated Limited Liability Company
Agreement of Absaloka Coal, LLC (collectively, the “Transaction
Agreements”).

     3. Amendment of Affirmative Covenants. Lender agrees that the provisions of the Loan
Agreement appearing under the caption “Affirmative Covenants” shall be amended as follows:

     (a) The Affirmative Covenant captioned “Inspection” shall be amended to add the
following:

Borrower, in its capacity as manager of Absaloka Coal, LLC, shall
make the books, accounts and records of Absaloka Coal, LLC available
for inspection and copying by Lender.

     4. Consent to Transaction Agreement and Tax Credit Transaction. Lender hereby agrees
that Borrower may enter into the Transaction Agreement and the Tax Credit Transactions on
substantially the terms set forth in the documents listed on Exhibit A hereto and agrees
that the proceeds from the Tax Credit Transactions are not required to be held in trust for Lender.

     5. No Recourse Against Feedstock Investments IV, LLC. Lender agrees that Feedstock
Investments IV, LLC, in its capacity as a member of Absaloka Coal, LLC, shall have no liability for
the obligations of Borrower under the Loan Agreement and the Related Agreements.

     6. Ratification. All terms of the Loan Agreement and the Related Documents that are
not contrary to, or inconsistent with the terms and conditions of this Amendment shall remain in
full force and effect and are hereby reaffirmed, ratified, confirmed as of the date hereof and are
incorporated herein by reference; and each of the representations, warranties, covenants, and
agreements of Borrower and Guarantor, as set forth in the Loan Agreement and Related Documents are
true today, to the same extent as if made today, and are incorporated herein by reference as though
more fully set out, except as modified herein.

     7. Guaranty. By its approval of this Agreement, Westmoreland Coal Company consents to
the terms herein contained, and ratifies and confirms that its Commercial Guaranty and Commercial
Pledge Agreement remain in full force and effect and constitute a continuing guaranty of the Loan
Agreement and the Related Documents.

     8. Counterparts. This Amendment may be executed in any number of counterparts and all
of such counterparts taken together shall be deemed to constitute one and the same instrument.

     9. Binding Effect. This Amendment shall be binding upon and inure to the benefit of
each of the parties hereto and their respective successors and assigns.

     10. Severability. Any provision of this Amendment held by a court of competent
jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this
Amendment.

4

 

     11. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF MONTANA, WITHOUT REGARD TO CONFLICTS
OF LAWS PRINCIPLES.

5

 

     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and
delivered as of the date first above written.

	 	 	 	 	 	 	 
	 	 	WESTMORELAND RESOURCES, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:

Name:
	 	/s/ Morris W. Kegley
 

Morris W. Kegley
	 	 
	 

	 	Title:
	 	Vice President and General Counsel	 	 
	 
	 	 	 	 	 	 
	 	 	FIRST INTERSTATE BANK	 	 
	 
	 	 	 	 	 	 
	 

	 	By: 

Name:
	 	/s/ Steve Tostenrud
 

 Steve Tostenrud
	 	 
	 

	 	Title:	 	 Vice President	 	 

	 	 	 	 	 
	Guarantor hereby consents to this

amendment and ratifies its obligations

as provided in Paragraph 7 hereof	 	 
	 
	 	 	 	 
	Date: October 16, 2008	 	 
	 
	 	 	 	 
	WESTMORELAND COAL COMPANY	 	 
	 
	 	 	 	 
	By: 

Name:

	 	/s/ Douglas P. Kathol
 

Douglas P. Kathol
	 	 
	Title:

	 	Vice President, Finance and Treasurer

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