AMENDED AND RESTATED
SECURITY AGREEMENT
This Amended and Restated Security Agreement (this "Agreement") is executed
as of January 13, 2006, by and among Consolidated Energy, Inc., a Wyoming
corporation (the "Company"), Eastern Consolidated Energy, Inc., a Kentucky
corporation and wholly-owned subsidiary of the Company ("Eastern Consolidated"),
Eastern Consolidated Oil and Gas, Inc., a Kentucky corporation and wholly-owned
subsidiary of the Company ("Oil & Gas"), CEI Holdings, Inc., a Nevada
corporation and wholly-owned subsidiary of the Company ("CEI"), ▇▇▇▇▇▇ Mining,
Inc., a Kentucky corporation and wholly owned subsidiary of the Company ("MMI"),
▇▇▇▇▇▇▇▇ Processing, Inc., a Kentucky corporation and wholly owned subsidiary of
the Company ("WPI"), Eastern Coal Energies, Inc., a Kentucky corporation and
wholly owned subsidiary of the Company ("ECI", and together with the Company,
Eastern Consolidated and Oil & Gas, MMI and WPI the "Debtors" and individually,
a "Debtor"), and Gryphon Master Fund, L.P., a Bermuda limited partnership, as
collateral agent for the Secured Parties (the "Collateral Agent").
FOR VALUABLE CONSIDERATION, the receipt and adequacy of which are hereby
acknowledged, each Debtor hereby covenants and agrees with the Collateral Agent,
for the benefit of the Secured Parties, as follows:
1. Reference to Purchase Agreement and Notes. This Agreement is an
amendment and restatement (and not a novation) of that certain Security
Agreement executed as of February 24, 2005 by and among the Debtors and the
Collateral Agent (the "Prior Agreement") which was executed and delivered in
connection with that certain Securities Purchase Agreement (the "Purchase
Agreement"), dated as of even date with the Prior Agreement by and among the
Company and the Purchasers named therein (each, together with their successors
and permitted assigns, a "Secured Party" and collectively, the "Secured
Parties"), and in connection with the issuance by the Company of the Notes
pursuant to the Purchase Agreement. Capitalized terms used in this Agreement but
not otherwise defined herein shall have the meanings ascribed to such terms in
the Purchase Agreement. The Collateral Agent shall have the rights,
responsibilities and immunities set forth in Annex A hereto.
2. Incorporation of Purchase Agreement and Notes. The terms, conditions,
and provisions of the Purchase Agreement and the several Notes are incorporated
herein by reference, the same as if set forth herein verbatim, which terms,
conditions, and provisions shall continue to be in full force and effect
hereunder until each Note is paid and performed in full.
3. Certain Definitions. As used herein, the following terms have the
meanings indicated:
Collateral means any and all assets and properties (real, personal or
mixed) of Debtors (or any of them), whether now owned or hereafter acquired,
including, without limitation, (i) all coal and other minerals as extracted in
connection with Debtors' mining operations, (ii) the Company's entire equity
interest in Eastern Consolidated, Oil & Gas and CEI and all dividends and
distributions in respect thereof, and (iii) all assets in the following
categories of collateral, as each category is defined in the UCC as in effect on
the date hereof:
"Accounts"
"Chattel Paper"
"Deposit Accounts"
"Documents"
"Equipment"
"General Intangibles"
"Instruments"
"Inventory"
"Investment Property"
"Letter-of-Credit Rights"
"Payment Intangibles"
"Supporting Obligations"
To the extent not listed above as original collateral, "Proceeds,"
including those payable under insurance policies covering Collateral, and all
substitutions or replacements of Collateral, and accessions or additions to
Collateral, and books and records pertaining to the Collateral.
Collateral includes all property and interests existing or acquired by any
Debtor falling within the descriptions set forth above, whether by purchase,
lease, merger or otherwise.
THE DEFINITION OF COLLATERAL CONTAINED HEREIN SHOULD BE GIVEN THE BROADEST
MEANING UNDER APPLICABLE LAW. IT IS DEBTORS' INTENTION THAT THE SECURED PARTIES
BE GRANTED A SECURITY INTEREST IN ALL COLLATERAL OF DEBTORS WHETHER NOW OWNED OR
HEREAFTER ACQUIRED AND WHEREVER LOCATED.
Default means the occurrence of any one or more of the following events,
which in the case of clause (ii) below continues for a period of 5 days after
the Collateral Agent gives written notice thereof: (i) an Event of Default (as
defined in the Notes); (ii) except as otherwise provided in this definition, the
failure of any Debtor to perform any material covenant, agreement, or condition
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contained herein; (iii) the levy against the Collateral, or any part thereof, or
any execution, attachment, sequestration, or other writ; (iv) the appointment of
a receiver with respect to the Collateral, or any part thereof; (v) the filing
by any Debtor, by way of petition or answer, of any petition or other pleading
seeking relief as a debtor, or an adjustment of any Debtor's debts, or any other
relief under any bankruptcy, reorganization, or insolvency laws now or hereafter
existing; or (vi) the receipt by the Collateral Agent of information
establishing that any representation or warranty made by any Debtor herein is
false, misleading, or erroneous in any material respect.
Leasehold Mortgage means that certain Fee and Leasehold Mortgage,
Assignment of Leases and Subleases, Security Agreement, Fixture Filing and
As-Extracted Collateral Filing by Eastern Consolidated, as Mortgagor, to the
Collateral Agent, as Mortgagee.
Obligations means all of the liabilities and obligations (primary,
secondary, direct, contingent, sole, joint or several) due or to become due, or
that are now or may be hereafter contracted or acquired, or owing to, of any
Debtor to the Secured Parties, including, without limitation, each Debtor's
payment and performance under this Agreement, the Purchase Agreement, the Notes
and each of those certain Secured Promissory Notes, each dated January 13, 2006,
executed by the Company in favor of the Secured Parties, together with any and
all renewals, extensions, and modifications of the same, whether on account of
principal, interest, fees, indemnities, costs, expenses, costs of collection
thereunder or otherwise.
Obligor means any person obligated with respect to any of the Collateral,
whether as an account debtor, obligor on an instrument, issuer of securities, or
otherwise.
Security Interest means the security interest granted and the pledge and
assignment made under Paragraph 4.
UCC means the Uniform Commercial Code as enacted in the State of Texas, or
other applicable jurisdiction, as amended at the time in question.
4. Security Interest. In order to secure the full and complete payment and
performance of the Obligations when due, each Debtor hereby grants to the
Collateral Agent, for the ratable benefit of the Secured Parties, a first
priority security interest in and to the Collateral and pledges and assigns the
Collateral to the Collateral Agent, for the ratable benefit of the Secured
Parties. Such security interest is granted and such pledge and assignment are
made as security only and shall not subject the Collateral Agent to, or transfer
or in any way affect or modify, any obligation of any Debtor with respect to any
of the Collateral or any transaction involving or giving rise thereto.
5. Representations, Warranties and Covenants of Debtors.
(a) Representations and Warranties with Respect to the Collateral.
Each Debtor represents and warrants that (i) it has all requisite power and
authority to enter into this Agreement; (ii) except for any financing statement
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that may be filed by the Collateral Agent, for the ratable benefit of the
Secured Parties, with respect to the Collateral, no financing statement covering
the Collateral, or any part thereof, has been filed with any filing officer or
agency; (iii) no other security agreement covering the Collateral, or any part
thereof, has been made and no security interest, other than the one created
herein, has attached to or been perfected in the Collateral or in any part
thereof; (iv) on the date hereof each Debtors jurisdiction of organization and
identification number from such jurisdiction of organization is specified on
Schedule 1 hereto, and (v) no dispute, right of setoff, counterclaim, or defense
exists with respect to any part of the Collateral.
(b) Affirmative Covenants of Debtors. Each Debtor covenants and agrees
to each and all of the following: (i) to execute and deliver promptly to the
Collateral Agent all such other assignments, certificates, and supplemental
writings, and to do all other acts or things, as the Collateral Agent may
reasonably request in order more fully to evidence and perfect the security
interest created herein and to promptly pay the reasonable costs and expenses of
the Collateral Agent in connection with the Collateral Agent's perfection of its
security interests in the Collateral hereunder; (ii) to furnish the Collateral
Agent promptly with any information or writing that the Collateral Agent may
reasonably request concerning the Collateral; (iii) to allow the Collateral
Agent to inspect all books and records of any Debtor relating to the Collateral
or the Notes, and to make and take away copies of such books and records at the
Collateral Agent's expense; (iv) to notify the Collateral Agent promptly of any
change in any material fact or circumstance warranted or represented by any
Debtor in this Agreement or in any other writings furnished by any Debtor to the
Collateral Agent in connection with the Collateral; (v) to notify the Collateral
Agent promptly of any claim, action, or proceeding affecting title to the
Collateral, or any part thereof, or the security interest herein, and at the
request of the Collateral Agent, to appear in and defend, at Debtors' sole cost
and expense, any action or proceeding; (vi) to maintain insurance customarily
obtained by similar businesses, (vii) to pay to the Collateral Agent promptly
the amount of all costs and expenses (including reasonable attorney's fees)
incurred by the Collateral Agent in the enforcement of their rights hereunder,
and (viii) to, within [thirty (30)] days of the date hereof, execute and deliver
to the Collateral Agent for the ratable benefit of the Secured Parties one or
more mortgages acceptable to the Secured Parties in their sole and absolute
discretion in order to grant to the Collateral Agent, for the ratable benefit of
the Secured Parties, a first priority mortgage lien on all of such Debtor's real
property interests (including both fee and leasehold interests) with respect to
which the Collateral Agent does not have a first priority mortgage lien on the
date hereof and use its best efforts to obtain all consents required to grant
the Collateral Agent a mortgage on any such real property interests with respect
to which consent is required.
(c) Negative Covenants of Debtors. Each Debtor covenants and agrees
that, without the prior written consent of the Collateral Agent (which consent
may be granted or withheld in the sole and absolute discretion of the Collateral
Agent), such Debtor will not (i) except for sales of inventory in the ordinary
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course of business consistent with past practice, sell, assign, or transfer the
Collateral or any of its rights therein, (ii) create any other security interest
in, mortgage, or otherwise encumber the Collateral or any part thereof, or
permit the Collateral to be or become subject to any lien, attachment,
execution, sequestration, other legal or equitable process, or any encumbrance
of any kind or character, except the security interest created herein, or (iii)
change its jurisdiction of organization, name or corporate structure.
6. Default; Remedies. Should a Default occur and be continuing, the
Collateral Agent may, at its election, exercise any and all rights available to
the Collateral Agent and the Secured Parties under the UCC, in addition to any
and all other rights afforded by this Agreement, at law, in equity, or
otherwise, including, without limitation, (a) requiring any Debtor to assemble
all or part of the Collateral and make it available to the Collateral Agent at a
place to be designated by the Collateral Agent which is reasonably convenient to
such Debtor and the Collateral Agent, (b) surrendering any policies of insurance
on all or part of the Collateral and receiving and applying the unearned
premiums as a credit on the Obligations, (c) applying by appropriate judicial
proceedings for appointment of a receiver for all or part of the Collateral (and
each Debtor hereby consents to any such appointment), (d) applying to the
Obligations any cash held by the Collateral Agent under this Agreement, and (e)
exercising any and all of the rights and remedies available to the Collateral
Agent under the Leasehold Mortgage. In furtherance of the foregoing, the
Collateral Agent agrees that, unless and until a Default has occurred and is
continuing, it will not exercise its rights under Section 2.1 of the Leasehold
Mortgage to collect rent and other sums due under all Subleases (as defined in
the Leasehold Mortgage)).
(a) Notice. Reasonable notification of the time and place of any
public sale of the Collateral, or reasonable notification of the time after
which any private sale or other intended disposition of the Collateral is to be
made, shall be sent to Debtors and to any other person entitled to notice under
the UCC; provided that if any of the Collateral threatens to decline speedily in
value or is of the type customarily sold on a recognized market, the Collateral
Agent may sell or otherwise dispose of the Collateral without notification,
advertisement, or other notice of any kind. It is agreed that notice sent or
given not less than three calendar days prior to the taking of the action to
which the notice relates is reasonable notification and notice for the purposes
of this subparagraph.
(b) Sales of Securities. In connection with the sale of any Collateral
that is securities, the Collateral Agent are authorized, but not obligated, to
limit prospective purchasers to the extent deemed necessary or desirable by the
Collateral Agent to render such sale exempt from the registration requirements
of the Securities Act of 1933, as amended, and any applicable state securities
laws, and no sale so made in good faith by the Collateral Agent shall be deemed
not to be "commercially reasonable" because so made.
(c) Application of Proceeds. The Collateral Agent shall apply the
proceeds of any sale or other disposition of the Collateral under this Paragraph
6 in the following order: first, to the payment of all its reasonable expenses
incurred in retaking, holding, and preparing any of the Collateral for sale(s)
or other disposition, in arranging for such sale(s) or other disposition, and in
actually selling or disposing of the same (all of which are part of the
Obligations); second, toward repayment of any other amounts expended by the
Collateral Agent under this Agreement; and third, toward payment of the balance
of the Obligations on a pro rata basis. Any surplus remaining shall be delivered
to Debtors or as a court of competent jurisdiction may direct.
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7. Other Rights.
(a) Performance. In the event any Debtor shall fail to pay when due
all taxes on any of the Collateral, or to preserve the priority of the Security
Interest in any of the Collateral, or otherwise fail to perform any of its
obligations under this Agreement with respect to the Collateral, then the
Collateral Agent may, at its option, but without being required to do so, pay
such taxes, prosecute or defend any suits in relation to the Collateral, or take
all such other action which any Debtor is required, but has failed or refused,
to take under this Agreement. Any sum which may be expended or paid by the
Collateral Agent under this subparagraph (including, without limitation, court
costs and attorneys' fees) shall bear interest from the dates of expenditure or
payment at the highest lawful rate until paid and, together with such interest,
shall be payable by each Debtor to the Collateral Agent upon demand and shall be
part of the Obligations.
(b) Collection. Upon notice from the Collateral Agent, each Obligor
with respect to any payments on any of the Collateral (including, without
limitation, dividends and other distributions with respect to securities and
insurance proceeds payable by reason of loss or damage to any of the Collateral)
is hereby authorized and directed by each Debtor to make payment directly to the
Collateral Agent, for the benefit of the Secured Parties, regardless of whether
any Debtor was previously making collections thereon. Subject to Paragraph 7(e)
hereof, until such notice is given, each Debtor is authorized to retain and
expend all payments made on the Collateral. The Collateral Agent shall have the
right in its own name or in the name of any Debtor to compromise or extend time
of payment with respect to all or any portion of the Collateral for such amounts
and upon such terms as the Collateral Agent may determine; to demand, collect,
receive, receipt for, ▇▇▇ for, compound, and give acquaintances for any and all
amounts due or to become due with respect to the Collateral; to take control of
cash and other proceeds of any Collateral; to endorse the name of any Debtor on
any notes, acceptances, checks, drafts, money orders, or other evidences of
payment on the Collateral that may come into the possession of the Collateral
Agent; to sign the name of any Debtor on any invoice or ▇▇▇▇ of lading relating
to any Collateral, on any drafts against Obligors or other persons making
payment with respect to the Collateral, on assignments and verifications of
accounts or other Collateral and on notices to Obligors making payment with
respect to the Collateral; to send requests for verification of obligations to
any Obligor; and to do all other acts and things necessary to carry out the
intent of this Agreement. If any Obligor fails or refuses to make payment on any
Collateral when due, the Collateral Agent is authorized, in its sole discretion,
either in its own name or in the name of any Debtor, to take such action as the
Collateral Agent shall deem appropriate for the collection of any amounts owed
with respect to the Collateral or upon which a delinquency exists. Regardless of
any other provision hereof, however, the Collateral Agent shall never be liable
for its failure to collect, or for its failure to exercise diligence in the
collection of, any amounts owed with respect to the Collateral, nor shall it be
under any duty whatever to anyone except Debtors to account for funds that they
shall actually receive hereunder. Without limiting the generality of the
foregoing, the Collateral Agent shall have no responsibility for ascertaining
any maturities, calls, conversions, exchanges, offers, tenders, or similar
matters relating to any Collateral, or for informing any Debtor with respect to
any of such matters (irrespective of whether the Collateral Agent actually has,
or may be deemed to have, knowledge thereof). The rights granted to the
Collateral Agent under this subparagraph may be exercised at any time, whether
or not a Default has occurred and is continuing.
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(c) Record Ownership of Securities. Whether or not a Default has
occurred and is continuing, the Collateral Agent at any time may have any
Collateral that is securities and that is in the possession of the Collateral
Agent, or their nominee or nominees, registered in its name, or in the name of
its nominee or nominees, as pledgee; and, as to any securities so registered,
the Collateral Agent shall execute and deliver (or cause to be executed and
delivered) to the applicable Debtor all such proxies, powers of attorney,
dividend coupons or orders, and other documents as such Debtor may reasonably
request for the purpose of enabling such Debtor to exercise the voting rights
and powers which it is entitled to exercise under this Agreement and to receive
the dividends and other payments in respect of securities which it is authorized
to receive and retain under this Agreement.
(d) Voting of Securities. As long as a Default has not occurred and is
not continuing, Debtors shall be entitled to exercise all voting rights
pertaining to any Collateral that is securities. After the occurrence and during
the continuance of a Default, the right to vote any Collateral that is
securities shall be vested exclusively in the Collateral Agent. To this end,
each Debtor hereby irrevocably constitutes and appoints the Collateral Agent the
proxy and attorney-in-fact of such Debtor, with full power of substitution, to
vote, and to act with respect to, any and all Collateral that is securities
standing in the name of such Debtor or with respect to which such Debtor is
entitled to vote and act, subject to the understanding that such proxy may not
be exercised unless a Default has occurred and is continuing. The proxy herein
granted is coupled with an interest, is irrevocable, and shall continue until
the Obligations have been paid and performed in full.
(e) Certain Proceeds. Notwithstanding any provision of this Agreement
to the contrary, any and all stock dividends or distributions in property made
on or in respect of any Collateral that is securities, and any proceeds of any
Collateral that is securities, whether such dividends, distributions, or
proceeds result from a subdivision, combination, or reclassification of the
outstanding capital stock of any issuer thereof or as a result of any merger,
consolidation, acquisition, or other exchange of assets to which any issuer may
be a party, or otherwise, shall be part of the Collateral hereunder, and shall,
if received by any Debtor, be held in trust for the Collateral Agent, for the
benefit of the Secured Parties. Upon notice from the Collateral Agent, such
dividends, distributions or other proceeds shall forthwith be delivered to the
Collateral Agent (accompanied by proper instruments of assignment and/or stock
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and/or bond powers executed by such Debtor in accordance with the Collateral
Agent's instructions) to be held subject to the terms of this Agreement. Any
cash proceeds of Collateral which come into the possession of the Collateral
Agent (including, without limitation, insurance proceeds) may, at the Collateral
Agent's option, be applied in whole or in part to the Obligations (to the extent
then due), be released in whole or in part to or on the written instructions of
Debtors for any general or specific purpose, or be retained in whole or in part
by the Collateral Agent as additional Collateral. Any cash Collateral in the
possession of the Collateral Agent may be invested by the Collateral Agent in
certificates of deposit of a term of 12 months or less issued by any state or
national bank having combined capital and surplus greater than $100,000,000, or
in securities issued or guaranteed by the United States of America or any agency
thereof that mature within a year of the date of acquisition thereof. The
Collateral Agent shall never be obligated to make any such investment and shall
never have any liability to any Debtor for any loss that may result therefrom.
All interest and other amounts earned from any investment of Collateral may be
dealt with by the Collateral Agent in the same manner as other cash Collateral.
The provisions of this subparagraph shall be applicable whether or not a Default
has occurred and is continuing.
(f) Subrogation. If any of the Obligations is given in renewal or
extension or applied toward the payment of indebtedness secured by any lien, the
Collateral Agent, for the ratable benefit of the Secured Parties shall be, and
is hereby, subrogated to all of the rights, titles, interests, and liens
securing the indebtedness so renewed, extended, or paid.
(g) Indemnification. Each Debtor hereby, jointly and severally,
assumes all liability for the Collateral, for the Security Interest, and for any
use, possession, maintenance, and management of, all or any of the Collateral,
including, without limitation, any taxes arising as a result of, or in
connection with, the transactions contemplated herein, and agrees to assume
liability for, and to indemnify and hold the Collateral Agent and the Secured
Parties harmless from and against, any and all claims, causes of action, or
liability, for injuries to or deaths of persons and damage to property,
howsoever arising from or incident to such use, possession, maintenance, and
management, whether such persons be agents or employees of any Debtor or of
third parties, or such damage be to property of any Debtor or of others. Each
Debtor, jointly and severally, agrees to indemnify, save, and hold the
Collateral Agent and the Secured Parties harmless from and against, and
covenants to defend the Collateral Agent and the Secured Parties against, any
and all losses, damages, claims, costs, penalties, liabilities, and expenses,
including, without limitation, court costs and attorneys' fees, howsoever
arising or incurred because of, incident to, or with respect to the Collateral
or any use, possession, maintenance, or management thereof and the execution,
delivery, enforcement, performance and administration of this Agreement.
(h) Duty of Collateral Agent. The Collateral Agent's sole duty with
respect to the custody, safekeeping and physical preservation of the Collateral
in its possession, under Section 9.207 of the UCC or otherwise, shall be to deal
with it in the same manner as the Collateral Agent deals with similar property
for its own account. Neither the Collateral Agent, any Secured Party nor any of
their respective officers, directors, employees or agents shall be liable for
failure to demand, collect or realize upon any of the Collateral or for any
delay in doing so or shall be under any obligation to sell or otherwise dispose
of any Collateral upon the request of any Debtor or any other person or to take
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any other action whatsoever with regard to the Collateral or any part thereof.
The power conferred on the Collateral Agent and the Secured Parties hereunder
are solely to protect the Collateral Agent's and the Secured Parties' interests
in the Collateral and shall not impose any duty upon the Collateral Agent or any
Secured Party to exercise any such powers. The Collateral Agent and the Secured
Parties shall be accountable only to the Debtors and only for amounts that they
actually receive as a result of the exercise of such powers, and neither they
nor any of their officers, directors, employees or agents shall be responsible
to any Debtor for any act or failure to act hereunder, except for their own
gross negligence or willful misconduct.
8. Miscellaneous.
(a) Term. Upon full and final payment in cash and performance of the
Obligations, this Agreement (other than Paragraph 7(g) hereof) shall thereafter
terminate upon receipt by the Collateral Agent of the Company's written notice
of such termination.
(b) Actions Not Releases. The Security Interest and each Debtor's
Obligations and the Collateral Agent's and the Secured Parties' rights hereunder
shall not be released, diminished, impaired, or adversely affected by the
occurrence of any one or more of the following events: (i) the taking or
accepting of any other security or assurance for any or all of the Obligations;
(ii) any release, surrender, exchange, subordination, or loss of any security or
assurance at any time existing in connection with any or all of the Obligations;
(iii) the modification of, amendment to, or waiver of compliance with any terms
of this Agreement without the notification or consent of any Debtor, except as
required herein (the right to such notification or consent being herein
specifically waived by each Debtor); (iv) the insolvency, bankruptcy, or lack of
corporate, partnership or trust power of any party at any time liable for the
payment of any or all of the Obligations, whether now existing or hereafter
occurring; (v) any renewal, extension, or rearrangement of the payment of any or
all of the Obligations, either with or without notice to or consent of any
Debtor, or any adjustment, indulgence, forbearance, or compromise that may be
granted or given by the Collateral Agent to any Debtor; (vi) any neglect, delay,
omission, failure, or refusal of the Collateral Agent to take or prosecute any
action in connection with this Agreement or any other agreement, document,
guaranty, or instrument evidencing, securing, or assuring the payment of all or
any of the Obligations; (vii) any failure of the Collateral Agent to notify any
Debtor of any renewal, extension, or assignment of the Obligations or any part
thereof, or the release of any security, or of any other action taken or
refrained from being taken by the Collateral Agent against any Debtor or any new
agreement between Secured Parties and any Debtor, it being understood that the
Collateral Agent shall not be required to give Debtor any notice of any kind
under any circumstances whatsoever with respect to or in connection with the
Obligations, including, without limitation, notice of acceptance of this
Agreement or any Collateral ever delivered to or for the account of the
Collateral Agent hereunder; (viii) the illegality, invalidity, or
unenforceability of all or any part of the Obligations against any party
obligated with respect thereto by reason of the fact that the Obligations, or
the interest paid or payable with respect thereto, exceeds the amount permitted
by law, the act of creating the Obligations, or any part thereof, is ultra
▇▇▇▇▇, or the officers, partners, or trustees creating same acted in excess of
their authority, or for any other reason; or (ix) if any payment by any party
obligated with respect thereto is held to constitute a preference under
applicable laws or for any other reason the Collateral Agent is required to
refund such payment or pay the amount thereof to someone else.
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(c) Waivers. Except to the extent expressly otherwise provided herein,
each Debtor waives (i) any right to require the Collateral Agent or Secured
Parties to proceed against any other person, to exhaust their rights in the
Collateral, or to pursue any other right which the Collateral Agent or Secured
Parties may have; (ii) with respect to the Obligations, presentment and demand
for payment, protest, notice of protest and nonpayment, and notice of the
intention to accelerate; and (iii) all rights of marshaling in respect of any
and all of the Collateral.
(d) Financing Statement. The Collateral Agent shall be entitled at any
time to file this Agreement or a carbon, photographic, or other reproduction of
this Agreement, as a financing statement, but the failure of the Collateral
Agent to do so shall not impair the validity or enforceability of this
Agreement. Each Debtor hereby irrevocably authorizes the Collateral Agent to do
all acts and things which it may deem necessary or appropriate to perfect and
continue perfected the security interest created by this Agreement, and to
protect the Collateral, including filing of financing statements covering the
Collateral wherever the Collateral Agent deems appropriate, and the Debtors
hereby agree to reimburse the Collateral Agent immediately for all filings and
recording fees and taxes in connection therewith.
(e) Amendments. This instrument may be amended only by an instrument
in writing executed jointly by each Debtor and the Collateral Agent, and
supplemented only by documents delivered or to be delivered in accordance with
the express terms hereof; provided that the Collateral Agent shall only be
permitted to enter into any amendment that releases all or substantially all of
the Collateral or releases any Debtor from its obligations hereunder upon the
written direction of the holders of more than 50% of the then outstanding
aggregate principal amount of the Notes.
(f) Multiple Counterparts. This Agreement has been executed in a
number of identical counterparts, each of which shall be deemed an original for
all purposes and all of which constitute, collectively, one agreement; but, in
making proof of this Agreement, it shall not be necessary to produce or account
for more than one such counterpart.
(g) Parties Bound; Assignment. This Agreement shall be binding on
Debtors each of their successors and permitted assigns and shall inure to the
benefit of the Collateral Agent and the Secured Parties and their respective
successors and assigns. No Debtor may, without the prior written consent of the
Collateral Agent, assign any rights, duties, or obligations hereunder. In the
event of an assignment of all or part of the Obligations, the Security Interest
and other rights and benefits hereunder, to the extent applicable to the part of
the Obligations so assigned, shall be transferred therewith.
(h) Governing Law; Exclusive Jurisdiction. This Agreement shall be
governed by and construed in accordance with the internal laws of the State of
Texas, without giving effect to the choice of law provisions. This Agreement
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shall not be interpreted or construed with any presumption against the party
causing this Agreement to be drafted. Each Debtor, the Collateral Agent and each
Secured Party (i) hereby irrevocably submit to the exclusive jurisdiction of the
United States District Court sitting in the Northern District of Texas and the
courts of the State of Texas located in Dallas, Texas, for the purposes of any
suit, action or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby, and (ii) hereby waive, and agree not to assert
in any such suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of such court, that the suit, action or proceeding
is brought in an inconvenient forum or that the venue of the suit, action or
proceeding is improper.
(i) Complete Agreement. This Agreement, the Purchase Agreement, the
Notes, and all other agreements, instruments or documents executed and/or
delivered in connection therewith are intended by Debtors and the Collateral
Agent as a final expression of their agreement with respect to the subject
matter hereof and thereof, and supersede all prior agreements and understandings
whether oral or written with respect to the subject matter hereof and thereof.
(j) Further Assurances. Debtors agree (a) to furnish upon the Secured
Parties' request such further information, (b) to execute and deliver such other
documents, including one or more fee and/or leasehold mortgages encumbering all
of the Debtors' real property interests, (c) grant such other liens, and (d) to
do such other acts and things, all of the Secured Parties may request in their
sole and absolute discretion for the purpose of carrying out the intent of this
Agreement and the documents referred to in this Agreement, it being the
intention of the parties hereto that the Collateral Agent have, for the ratable
benefit of the Secured Parties, a perfected, first-priority security interest in
all property of each Debtor, real personal and mixed.
[Remainder of page intentionally left blank.]
11
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the date first
above written.
"Debtors":
CONSOLIDATED ENERGY, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇, President
EASTERN CONSOLIDATED ENERGY, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
-------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇, President
EASTERN CONSOLIDATED OIL AND GAS, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
---------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇, President
CEI HOLDINGS, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
---------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇, President
▇▇▇▇▇▇ MINING, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
---------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇, President
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▇▇▇▇▇▇▇▇ PROCESSING, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
---------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇, President
EASTERN COAL ENERGIES, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
---------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇, President
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"Collateral Agent":
GRYPHON MASTER FUND, L.P.
By: Gryphon Partners, L.P., its General Partner
By: Gryphon Management Partners, L.P., its General Partner
By: Gryphon Advisors, L.L.C., its General Partner
By: /s/ ▇.▇. ▇▇▇▇ ▇▇
-----------------
▇.▇. ▇▇▇▇, ▇▇, Authorized Agent
14
ANNEX A
to
SECURITY
AGREEMENT
THE COLLATERAL AGENT
1. Appointment. The Secured Parties (all capitalized terms used herein
and not otherwise defined shall have the respective meanings provided in the
Amended and Restated Security Agreement to which this Annex A is attached (the
"Agreement")), by their acceptance of the benefits of the Agreement, hereby
designate Gryphon Master Fund, L.P. ("Gryphon" or "Collateral Agent") as the
Collateral Agent to act as specified herein and in the Agreement. Each Secured
Party shall be deemed irrevocably to authorize the Collateral Agent to take such
action on its behalf under the provisions of the Agreement and any other
Transaction Document (as such term is defined in the Purchase Agreement) and to
exercise such powers and to perform such duties hereunder and thereunder as are
specifically delegated to or required of the Collateral Agent by the terms
hereof and thereof and such other powers as are reasonably incidental thereto.
The Collateral Agent may perform any of its duties hereunder by or through its
agents or employees.
2. Nature of Duties. The Collateral Agent shall have no duties or
responsibilities except those expressly set forth in the Agreement. Neither the
Collateral Agent nor any of its partners, members, shareholders, officers,
directors, employees or agents shall be liable for any action taken or omitted
by it as such under the Agreement or hereunder or in connection herewith or
therewith, be responsible for the consequence of any oversight or error of
judgment or answerable for any loss, unless caused solely by its or their gross
negligence or willful misconduct as determined by a final judgment (not subject
to further appeal) of a court of competent jurisdiction. The duties of the
Collateral Agent shall be mechanical and administrative in nature; the
Collateral Agent shall not have by reason of the Agreement or any other
Transaction Document a fiduciary relationship in respect of any Debtor or any
Secured Party; and nothing in the Agreement or any other Transaction Document,
expressed or implied, is intended to or shall be so construed as to impose upon
the Collateral Agent any obligations in respect of the Agreement or any other
Transaction Document except as expressly set forth herein and therein.
3. Lack of Reliance on the Collateral Agent. Independently and without
reliance upon the Collateral Agent, each Secured Party, to the extent it deems
appropriate, has made and shall continue to make (i) its own independent
investigation of the financial condition and affairs of the Company and its
subsidiaries in connection with such Secured Party's investment in the Debtors,
the creation and continuance of the Obligations, the transactions contemplated
by the Transaction Documents, and the taking or not taking of any action in
connection therewith, and (ii) its own appraisal of the creditworthiness of the
Company and its subsidiaries, and of the value of the Collateral from time to
time, and the Collateral Agent shall have no duty or responsibility, either
initially or on a continuing basis, to provide any Secured Party with any
credit, market or other information with respect thereto, whether coming into
its possession before any Obligations are incurred or at any time or times
thereafter. The Collateral Agent shall not be responsible to the Debtors or any
15
Secured Party for any recitals, statements, information, representations or
warranties herein or in any document, certificate or other writing delivered in
connection herewith, or for the execution, effectiveness, genuineness, validity,
enforceability, perfection, collectibility, priority or sufficiency of the
Agreement or any other Transaction Document, or for the financial condition of
the Debtors or the value of any of the Collateral, or be required to make any
inquiry concerning either the performance or observance of any of the terms,
provisions or conditions of the Agreement or any other Transaction Document, or
the financial condition of the Debtors, or the value of any of the Collateral,
or the existence or possible existence of any default or Event of Default under
the Agreement, the Notes or any of the other Transaction Documents.
4. Certain Rights of the Collateral Agent. The Collateral Agent shall
have the right to take any action with respect to the Collateral, on behalf of
all of the Secured Parties. To the extent practical, the Collateral Agent shall
request instructions from the Secured Parties with respect to any material act
or action (including failure to act) in connection with the Agreement or any
other Transaction Document, and shall be entitled to act or refrain from acting
in accordance with the instructions of Secured Parties holding a majority in
principal amount of Notes (based on then-outstanding principal amounts of Notes
at the time of any such determination); if such instructions are not provided
despite the Collateral Agent's request therefor, the Collateral Agent shall be
entitled to refrain from such act or taking such action, and if such action is
taken, shall be entitled to appropriate indemnification from the Secured Parties
in respect of actions to be taken by the Collateral Agent; and the Collateral
Agent shall not incur liability to any person or entity by reason of so
refraining. Without limiting the foregoing, (a) no Secured Party shall have any
right of action whatsoever against the Collateral Agent as a result of the
Collateral Agent acting or refraining from acting hereunder in accordance with
the terms of the Agreement or any other Transaction Document, and the Debtors
shall have no right to question or challenge the authority of, or the
instructions given to, the Collateral Agent pursuant to the foregoing and (b)
the Collateral Agent shall not be required to take any action which the
Collateral Agent believes (i) could reasonably be expected to expose it to
personal liability or (ii) is contrary to this Agreement, the Transaction
Documents or applicable law.
5. Reliance. The Collateral Agent shall be entitled to rely, and shall
be fully protected in relying, upon any writing, resolution, notice, statement,
certificate, telex, teletype or telecopier message, cablegram, radiogram, order
or other document or telephone message signed, sent or made by the proper person
or entity, and, with respect to all legal matters pertaining to the Agreement
and the other Transaction Documents and its duties thereunder, upon advice of
counsel selected by it and upon all other matters pertaining to this Agreement
and the other Transaction Documents and its duties thereunder, upon advice of
other experts selected by it.
6. Indemnification. To the extent that the Collateral Agent is not
reimbursed and indemnified by the Debtors, the Secured Parties will jointly and
severally reimburse and indemnify the Collateral Agent, in proportion to their
initially purchased respective principal amounts of Notes, from and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by or asserted against the
Collateral Agent in performing its duties hereunder or under the Agreement or
any other Transaction Document, or in any way relating to or arising out of the
Agreement or any other Transaction Document except for those determined by a
final judgment (not subject to further appeal) of a court of competent
jurisdiction to have resulted solely from the Collateral Agent's own gross
negligence or willful misconduct. Prior to taking any action hereunder as
Collateral Agent, the Collateral Agent may require each Secured Party to deposit
with it sufficient sums as it determines in good faith is necessary to protect
the Collateral Agent for costs and expenses associated with taking such action.
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7. Resignation by the Collateral Agent.
(a) The Collateral Agent may resign from the performance of all its
functions and duties under the Agreement and the other Transaction
Documents at any time by giving 30 days' prior written notice (as provided
in the Agreement) to the Debtors and the Secured Parties. Such resignation
shall take effect upon the appointment of a successor Collateral Agent
pursuant to clauses (b) and (c) below.
(b) Upon any such notice of resignation, the Secured Parties holding a
majority of the principal amount of Notes then outstanding, shall appoint a
successor Collateral Agent hereunder.
(c) If a successor Collateral Agent shall not have been so appointed within
said 30-day period, the Collateral Agent shall then appoint a successor
Collateral Agent who shall serve as Collateral Agent until such time, if any, as
the Secured Parties appoint a successor Collateral Agent as provided above. If a
successor Collateral Agent has not been appointed within such 30-day period, the
Collateral Agent may petition any court of competent jurisdiction or may
interplead the Debtors and the Secured Parties in a proceeding for the
appointment of a successor Collateral Agent, and all fees, including, but not
limited to, extraordinary fees associated with the filing of interpleader and
expenses associated therewith, shall be payable by the Debtors on demand.
8. Rights with respect to Collateral. Each Secured Party
agrees with all other Secured Parties and the Collateral Agent (i) that it shall
not, and shall not attempt to, exercise any rights with respect to its security
interest in the Collateral, whether pursuant to any other agreement or otherwise
(other than pursuant to this Agreement), or take or institute any action against
the Collateral Agent or any of the other Secured Parties in respect of the
Collateral or its rights hereunder (other than any such action arising from the
breach of this Agreement) and (ii) that such Secured Party has no other rights
with respect to the Collateral other than as set forth in this Agreement and the
other Transaction Documents.
17