IN THE UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF VIRGINIA ROANOKE DIVISION

Transcription

1 Document Page 1 of 32 IN THE UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF VIRGINIA ROANOKE DIVISION In re: XINERGY LTD., et al., Chapter 11 Case No. 15-[ ] ( ) Debtors. 1 (Joint Administration Requested) DEBTORS MOTION FOR ENTRY OF INTERIM AND FINAL ORDERS AUTHORIZING (I) DEBTORS TO CONTINUE AND RENEW SURETY BOND PROGRAM AND (II) FINANCIAL INSTITUTIONS TO HONOR AND PROCESS RELATED CHECKS AND TRANSFERS The above-captioned debtors and debtors-in-possession (collectively, the Debtors ), by their undersigned counsel, hereby move (the Motion ) the Court for entry of interim and final orders, each substantially in the form order attached hereto as Exhibit A (the Interim Order ), pursuant to 363 and 364 of Title 11 of the United States Code, 11 U.S.C (as amended, the Bankruptcy Code ) authorizing (i) the Debtors to maintain, continue and renew, in their sole discretion, their Surety Bond Program (defined below) and (ii) their financial institutions to receive, process, honor and pay related checks and wire transfers. In support of 1 The Debtors, along with the last four digits of each Debtor s federal tax identification number, are listed on Schedule 1 attached hereto. HUNTON & WILLIAMS LLP Riverfront Plaza, East Tower 951 East Byrd Street Richmond, Virginia Telephone: (804) Facsimile: (804) Tyler P. Brown (VSB No ) Henry P. (Toby) Long, III (VSB No ) Justin F. Paget (VSB No ) Proposed Counsel to the Debtors and Debtors in Possession

2 Document Page 2 of 32 this Motion, the Debtors rely on the Declaration of Michael R. Castle in support of the Chapter 11 Petitions and Related Motions (the Castle Declaration ). In further support of this Motion, the Debtors submit as follows: I. Jurisdiction, Venue and Predicates for Relief 1. The Court has jurisdiction over this matter pursuant to 28 U.S.C. 157 and 1334(b). Venue is proper pursuant to 28 U.S.C and This matter is a core proceeding within the meaning of 28 U.S.C. 157(b)(2). 2. The predicates for the relief requested herein are sections 363 and 364 of the Bankruptcy Code. II. Background 3. On the date hereof (the Petition Date ), each of the Debtors filed with the Court their respective voluntary petitions for relief under chapter 11 of Title 11 of the Bankruptcy Code, commencing the above-captioned chapter 11 cases. The Debtors continue to operate their businesses and manage their properties as debtors-in-possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. 4. No creditors committee has been appointed in these cases. No trustee or examiner has been appointed. 5. Contemporaneously herewith, the Debtors have filed a motion requesting joint administration of their chapter 11 cases. 6. A full description of the Debtors business operations, corporate structures, capital structures, and reasons for commencing these cases is set forth in full in the Castle Declaration, which was filed contemporaneously with this Motion and which is incorporated herein by reference. Additional facts in support of the specific relief sought herein are set forth below. 2

3 Document Page 3 of 32 III. Relief Requested 7. By this Motion, the Debtors request entry of interim and final orders authorizing (i) the Debtors to maintain, continue and renew, in their sole discretion, their Surety Bond Program on an uninterrupted basis and in accordance with the same practices and procedures, including, but not limited to, the maintenance of cash collateral, as was in effect before the Petition Date, and (ii) their financial institutions to receive, process, honor and pay related checks or wire transfers. 8. This authority would include permitting the Debtors (i) to pay all amounts arising under the Surety Bond Program due and payable after the Petition Date (the Obligations ) and (ii) to renew or obtain new surety bonds as needed, including, but not limited to, as may be required by law or judicial authority, without further notice or order of the Court. If the requested relief is not granted and the Surety Bond Program is interrupted, lapses or terminates, the Debtors operations could be severely affected, thereby endangering the Debtors restructuring efforts and substantially harming all creditors. The Surety Bond Program 9. In the ordinary course of their businesses, the Debtors are required, pursuant to state and federal law, to provide surety bonds (the Surety Bond Program ) to third parties to secure the Debtors payment or performance of certain other obligations, including obligations owed to municipalities, obligations owed to state or federal agencies and judicial authorities, contractual or permit obligations, obligations required by law, including pertaining to workers compensation, mine closure, prospecting, water treatment or reclamation costs, performance bonds and/or other guarantees, obligations related to equipment leases and obligations to customers and suppliers. Failure to provide, maintain and timely replace these surety bonds could jeopardize the Debtors ability to procure the mining permits that are necessary for their 3

4 Document Page 4 of 32 operations. The obligees of such surety bonds (the Obligees ), their issuers (the Issuers ), their identification or policy numbers and/or the total bond or aggregate coverage amounts provided are set forth on Exhibit B attached hereto. 2 A. Surety Bonds 10. As of the Petition Date, the Debtors had approximately $13,247,000 in outstanding surety bonds. The vast majority of these surety bonds, in an aggregate amount of approximately $12,394,000, have been provided by the Debtors to various governmental authorities and agencies to secure certain reclamation obligations of the Debtors in relation to their mining operations, especially those operations that are surface mining operations. Other categories of surety bonds issued on behalf of the Debtors secure workers compensation obligations (in an aggregate amount of approximately $601,000) and other miscellaneous obligations (in an aggregate amount of approximately $252,000). 11. For their surety bonds that are posted to secure reclamation obligations, the Debtors have posted collateral with the Issuers thereof, ranging in value from 0% to in excess of 34% of the amounts of the surety bonds. In aggregate, the Debtors have provided collateral in cash in an amount of approximately $4,212,000 for this purpose. The Debtors have also provided collateral in cash in an amount of approximately $204,000 to secure surety bonds posted on account of workers compensation obligations in the State of and approximately $86,000 for other miscellaneous obligations in the State of and Commonwealth of Kentucky. The premiums for most of the surety bonds are determined 2 Although the Debtors have made a good faith effort to identify all of their current surety bonds on Exhibit B, it is possible that some of the current surety bonds may not be listed on Exhibit B. The omission of a particular surety bond on Exhibit B is not intended to exclude such surety bond from the coverage of this Motion or any order entered in connection with this Motion. 4

5 Document Page 5 of 32 annually and are paid by the Debtors to the Issuers of the surety bonds at inception and annually thereafter. B. Indemnity Agreements 12. Because the issuance of a surety bond shifts the risk of the Debtors nonperformance or non-payment from the Debtors obligee to the surety, sureties cautiously screen bond applicants to minimize their loss exposure. Despite this reallocation of financial risk, a surety bond is not the equivalent of an insurance policy. Unlike an insurance policy, if an Issuer incurs a loss on a surety bond, it is entitled to recover the full amount of that loss from the principal. This right to indemnity is typically memorialized in an indemnity agreement between the Issuer and the principal, the execution of which is generally required by the Issuer as a precondition to the issuance of a bond. The Debtors are a party to a number of such indemnity agreements (together, the Indemnity Agreements ). Pursuant to the Indemnity Agreements, the Debtors have agreed to indemnify certain parties from any loss, cost, damage or expense they may incur by reason of their execution of any bonds on behalf of Debtors. By this Motion, the Debtors seek the authority, but not the obligation, to honor those Indemnity Agreements. 13. Based on the current financial status of the Debtors, it is unlikely that the Debtors will be able to renew or obtain replacement surety bonds on an unsecured basis and in some cases capacity may not be available even on a secured basis. In order to be able to give the financial assurances the Debtors will be required to provide in order to continue their business operations during these chapter 11 cases, the Debtors must maintain the existing Surety Bond Program and may need additional bonding capacity not currently provided by the Surety Bond Program. 5

6 Document Page 6 of Accordingly, to operate their businesses, which requires the Debtors to maintain their Surety Bond Program, the Debtors will have to either renew or replace their existing surety bonds, and will most likely have to maintain collateral arrangements similar to those currently in place. IV. Basis for Relief Requested A. Payments Made in Respect of the Debtors Surety Bond Program Are Ordinary Course Transactions 15. Section 363 of the Bankruptcy Code provides, in relevant part, that a debtor in possession may enter into transactions... in the ordinary course of business without notice or a hearing, and may use property of the estate in the ordinary course of business without notice or a hearing. 11 U.S.C. 363(c)(1). The purpose of section 363(c)(1) of the Bankruptcy Code is to enable a debtor in possession to engage in the ordinary transactions required to operate its business without undue oversight by creditors or the court. See In re Dornier Aviation (North Am.), Inc., Case Nos (SSM), (SSM), 2002 WL , at *7 8 (Bankr. E.D. Va. Dec. 18, 2002) (citing In re Roth Am., Inc., 975 F.2d 949, 952 (3d Cir. 1992)); see also Med. Malpractice Ins. Ass n v. Hirsch (In re Lavigne), 114 F.3d 379, 384 (2d Cir. 1997); Chaney v. Official Comm. of Unsecured Creditors of Crystal Apparel, Inc. (In re Crystal Apparel, Inc.), 207 B.R. 406, 409 (S.D.N.Y. 1997). The ordinary course of business standard is intended to allow a debtor the flexibility it needs to run its business and respond quickly to changes in the business climate. Habinger, Inc. v. Metro. Cosmetic & Reconstructive Surgical Clinic, P.A., 124 B.R. 784, 786 (Bankr. D. Minn. 1990). 16. Therefore, the Debtors believe they are permitted to pay all postpetition amounts due pursuant to the Surety Bond Program and to renew or obtain new surety bonds as such actions are in the ordinary course of the Debtors businesses. 6

7 Document Page 7 of 32 B. Continuing the Surety Bond Program and Paying All Obligations in Respect Thereof Is Necessary to Preserve the Value of the Debtors Estates 17. Notwithstanding the Debtors belief that the Surety Bond Program is within the ordinary course of their businesses and that they can continue this program without notice and a hearing, the Debtors request that the Court enter an order authorizing the Debtors to continue the Surety Bond Program to ensure that Issuers do not terminate or decline to renew the surety bonds, or refuse to enter into surety bonds with the Debtors in the future. 18. Section 363(b)(1) of the Bankruptcy Code empowers the Court to allow the debtor to use, sell, or lease, other than in the ordinary course of business, property of the estate. Debtors decisions to use, sell or lease assets outside the ordinary course of business must be based upon the sound business judgment of the debtor. See Comm. of Equity Sec. Holders v. Lionel Corp. (In re Lionel Corp.), 722 F.2d 1063, (2d Cir. 1983) (requiring a good business reason to approve a sale pursuant to section 363(b)); In re W.A. Mallory Co., 214 B.R. 834, 836 (Bankr. E.D. Va. 1997) ( This Court follows the sound business purpose test when examining 363(b) sales. ) (citing In re WBQ P ship, 189 B.R. 97, 102 (Bankr. E.D. Va. 1995)); see also In re Chateaugay Corp., 973 F.2d 141, 143 (2d Cir. 1992) (holding that a judge determining a section 363(b) application must find from the evidence presented before him or her a good business reason to grant such application); In re Ionosphere Clubs, Inc., 100 B.R. 670, 675 (Bankr. S.D.N.Y. 1989) (noting that the standard for determining a section 363(b) motion is a good business reason ). 19. Indeed, courts in this and other districts have consistently and appropriately been loath to interfere with corporate decisions unless it is shown that the bankrupt s decision was one taken in bad faith or in gross abuse of the bankrupt s retained business discretion. Lubrizol Enters., Inc. v. Richmond Metal Finishers, Inc., 756 F.2d 1043, 1047 (4th Cir. 1985) (applying 7

8 Document Page 8 of 32 the business judgment rule to a debtor s decision to reject an executory contract); see also Official Comm. of Subordinated Bondholders v. Integrated Res., Inc. (In re Integrated Res., Inc.), 147 B.R. 650, 656 (S.D.N.Y. 1992), appeal dismissed, 3 F.3d 49 (2d Cir. 1993) (internal quotations omitted). 20. The nature of the Debtors businesses and the extent of their operations make it essential for the Debtors to maintain their Surety Bond Program on an ongoing and uninterrupted basis. The nonpayment of any Obligations under the Surety Bond Program could result in one or more of the Issuers terminating or declining to renew their surety bonds or refusing to enter into surety bonds with the Debtors in the future. If any surety bonds lapse without renewal, or the Debtors are unable to obtain new surety bonds for certain purposes, the Debtors could default on various obligations, which could severely disrupt the Debtors operations to the detriment of all parties in interest. For example, failure to maintain the required surety bonds could trigger cancellation of the Debtors workers compensation insurance programs, cause the Debtors to be in violation of their obligations under federal or state law, including, but not limited to, the Surface Mining Control and Reclamation Act of 1977, and cause the Debtors to default on their obligations to the Federal Labor. 21. Moreover, because the Surety Bond Program is partly secured by cash collateral, there is no advantage to not replacing or renewing any surety bonds. The continuation of the Surety Bond Program and the payment of postpetition obligations arising under the Surety Bond Program are therefore essential to preserving the Debtors businesses and preserving the value of the Debtors estates for all creditors. 8

9 Document Page 9 of 32 C. To the Extent the Court Determines that the Surety Bond Program Is a Secured Extension of Credit, Relief Is Appropriate under Section 364 of the Bankruptcy Code 22. Section 364(c) permits a debtor unable to obtain unsecured credit allowable in the ordinary course under section 364(a) to obtain credit (1) with priority over any or all administrative expenses specified in sections 503(b) or 507(b); (2) secured by a lien on property of the estate that is not otherwise subject to a lien; or (3) secured by a junior lien on property of the estate that is subject to a lien. To satisfy the requirements of section 364(c) of the Bankruptcy Code, a debtor need only demonstrate by a good faith effort that credit was not available to the debtor on an unsecured or administrative expense basis. Bray v. Shenandoah Fed. Sav. & Loan Assoc. (In re Snowshoe Co.), 789 F.2d 1085, 1088 (4th Cir. 1986) (affirming the lower court s approval of a loan made to the debtor under sections 364(c) and (d)). The Bankruptcy Code imposes no duty to seek credit from every possible lender before concluding that such credit is unavailable. Id.; see also In re Sky Valley, Inc., 100 B.R. 107, 113 (Bankr. N.D. Ga. 1988), aff d sub nom. Anchor Sav. Bank FSB v. Sky Valley, Inc., 99 B.R. 117, 120 n.4 (N.D. Ga. 1989) (finding that it would be unrealistic and unnecessary to require a debtor to conduct an exhaustive search for financing in cases where few lenders would be willing to extend credit). 23. As set forth above, the Debtors believe that it would be exceedingly difficult to obtain new bonding capacity at this time except on a secured basis. To the extent the renewal or replacement or any new surety bond is deemed a secured extension of credit, the Debtors request authority to do so pursuant to section 364(c) of the Bankruptcy Code. The Debtors further submit that, pursuant to section 364(e), any reversal or modification on appeal of this authorization to obtain credit under section 364 should not affect the validity of the debt incurred or any priority of a lien granted. 9

10 Document Page 10 of The Debtors do not, at this time, seek to assume any contractual obligations associated with surety bonds. Accordingly, if the Court authorizes the relief requested herein, such relief should not be deemed to constitute postpetition assumption or adoption of any suretyrelated program or policy or agreement in connection with the Surety Bond Program or otherwise, as executory contracts pursuant to section 365 of the Bankruptcy Code, except as specifically set forth herein. D Applicable Financial Institutions Should Be Authorized to Honor and Process Related Checks and Transfers 25. The Debtors also request that all applicable banks and other financial institutions be authorized to receive, process, honor and pay all checks presented for payment of, and to honor all fund transfer requests made by the Debtors related to, the claims that the Debtors request authority to pay in this Motion, regardless of whether the checks were presented or fund transfer requests were submitted before or after the Petition Date, provided, however, that: (a) funds are available in the Debtors accounts to cover the checks and fund transfers and (b) all the banks and other financial institutions are authorized to rely on the Debtors designation of any particular check as approved by the Order. V. Interim Order 26. The Debtors seek the relief requested in this Motion substantially in the form of the Interim Order. Within three business days of the entry of the Interim Order, the Debtors shall serve a copy of the Interim Order and this Motion on (a) the Office of the United States Trustee for the Western District of Virginia (the U.S. Trustee ), (b) the attorneys for the administrative agent for the Debtors proposed postpetition lenders; (c) all known creditors holding secured claims against the Debtors estates; (d) those creditors holding the 30 largest unsecured claims against the Debtors estates on a consolidated basis; (e) the Internal Revenue Service; (f) the 10

11 Document Page 11 of 32 Canadian Revenue Agency; (g) the United States Agency; (h) the Securities and Exchange Commission; (i) the Ontario Securities Commission; and (j) the Issuers and Obligees set forth on Exhibit B attached hereto. 27. The Debtors request that the deadline to file an objection ( Objection ) to the Motion shall be 4:00 p.m. (prevailing Eastern Time) on a date established by the Court that is at least seven calendar days prior to any hearing scheduled by the Court with respect to the relief sought herein on a final basis (the Objection Deadline ). An Objection shall be considered timely only if, on or prior to the Objection Deadline, it is (a) filed with the Court and (b) served upon and actually received by (i) the U.S. Trustee, the Office of the United States Trustee for the Western District of Virginia, First Campbell Square Building, 210 First Street, SW, Suite 505, Roanoke, VA 24011, Attn: Margaret Garber, Margaret.K.Garber@usdoj.gov; (ii) proposed counsel to the Debtors, Hunton & Williams LLP, Riverfront Plaza, East Tower, 951 East Byrd Street, Richmond, Virginia 23219, Attn: Tyler P. Brown, tpbrown@hunton.com; (iii) the attorneys for an informal group of holders of the Debtors prepetition secured notes and lenders under the Debtors postpetition financing, (a) Paul, Weiss, Rifkind, Wharton & Garrison LLP, 1285 Avenue of the Americas, New York , Attn: Andrew N. Rosenberg and Brian S. Hermann, arosenberg@paulweiss.com and bhermann@paulweiss.com and (b) Kutak Rock LLP, Bank of America Center, 1111 East Main Street, Suite 800, Richmond, Virginia 23219, Attn: Peter J. Barrett, peter.barrett@kutakrock.com; and (iv) the attorneys for any official committee of unsecured creditors, if then appointed in these cases, on or before the Objection Deadline. 11

12 Document Page 12 of Unless otherwise ordered by the Court, a reply to an Objection may be filed with the Court and served on or before 12:00 p.m. (prevailing Eastern Time) on the day that is at least two business days before the date of the applicable hearing. 29. If no Objections are timely filed and served as set forth herein, the Debtors shall, on or after the Objection Deadline, submit to the Court a final order substantially in the form of the Interim Order granting the relief requested herein on a final basis, which order shall be submitted and may be entered with no hearing and no further notice or opportunity to be heard afforded to any party. If an Objection is timely filed, a hearing will be held at a date and time to be established by the Court. 30. The foregoing notice procedures satisfy Bankruptcy Rule 9014 by providing the counterparties with notice and an opportunity to object and be heard at a hearing. See, e.g., In re Drexel Burnham Lambert, 160 B.R. 729, 734 (S.D.N.Y. 1993) (an opportunity to present objections satisfies due process); In re Colorado Mountain Cellars, Inc., 226 B.R. 244, 246 (D. Colo. 1998) (a hearing is not required to satisfy Bankruptcy Rule 9014). Furthermore, the proposed notice procedures protect the due process rights of the parties in interest without unnecessarily exposing the Debtors estates to unwarranted administrative expenses. VI. Necessity for Immediate Relief 31. Bankruptcy Rule 4001(c) provides that the court may conduct a hearing before [14 days after service of the motion], but the court may authorize the obtaining of credit only to the extent necessary to avoid immediate and irreparable harm to the estate pending a final hearing. Bankruptcy Rule 6003 provides that [e]xcept to the extent that relief is necessary to avoid immediate and irreparable harm, the court shall not, within 21 days after the filing of the petition, grant...(b) a motion to use, sell, lease, or otherwise incur an obligation regarding property of the estate, including a motion to pay all or part of a claim that arose before the filing 12

13 Document Page 13 of 32 of the petition... If the Debtors are not permitted to continue to maintain their Surety Bond Program in their current forms, it would cause immediate and irreparable harm by endangering the Debtors ability to maintain sufficient surety bonds, which are necessary for their operations. Accordingly, the interim relief requested herein is consistent with Bankruptcy Rules 4001 and VII. Request for Waiver of Stay 32. To implement the foregoing successfully, the Debtors seek a waiver of the notice requirements under Bankruptcy Rule 6004(a) and the 14-day stay of an order authorizing the use, sale or lease of property under Bankruptcy Rule 6004(h). VIII. Notice 33. The Debtors have served notice of this Motion on (a) the U.S. Trustee, (b) the attorneys for an informal group of holders of the Debtors prepetition secured notes and lenders under the Debtors postpetition financing; (c) all known creditors holding secured claims against the Debtors estates; (d) those creditors holding the 30 largest unsecured claims against the Debtors estates on a consolidated basis; (e) the Internal Revenue Service; (f) the Canadian Revenue Agency; (g) the United States Agency; (h) the Securities and Exchange Commission; (i) the Ontario Securities Commission; and (j) the Issuers and Obligees set forth on Exhibit B attached hereto. IX. No Previous Request 34. No previous request for the relief sought herein has been made by the Debtors to this or any other court. 13

14 Document Page 14 of 32 WHEREFORE, the Debtors respectfully request that the Court grant the relief requested herein and such other and further relief as is just and proper. DATED: April 6, 2015 Tyler P. Brown (VSB No ) Henry P. (Toby) Long, III (VSB No ) Justin F. Paget (VSB No.77979) HUNTON & WILLIAMS LLP Riverfront Plaza, East Tower 951 East Byrd Street Richmond, Virginia Telephone: (804) Facsimile: (804) Proposed Counsel to the Debtors and Debtors in Possession Respectfully submitted, /s/ Henry P. (Toby) Long, III 14

15 Document Page 15 of 32 SCHEDULE 1 (Debtor Entities) 1. Xinergy Ltd. (3697) 14. Whitewater (7740) 2. Xinergy Corp. (3865) 15. Whitewater Resources, (9929) 3. Xinergy Finance (US), Inc. (5692) 16. Shenandoah Energy, (6770) 4. Pinnacle Group (6851) 17. High MAF, (5418) 5. Xinergy of, Inc. (2401) 18. Wise Loading Services, (7154) 6. Xinergy Straight Creek, Inc. (0071) 19. Strata Fuels, (1559) 7. Xinergy Sales, Inc. (8180) 20. True Energy, (2894) 8. Xinergy Land, Inc. (8121) 21. Mining, (0122) 9. Middle Fork Mining, Inc. (1593) 22. Brier Creek Coal, (9999) 10. Big Run Mining, Inc. (1585) 23. Bull Creek Processing, (0894) 11. Xinergy of Virginia, Inc. (8046) 24. Minerals, (7746) 12. Coal, (3113) 25. Leasing, (7844) 13. Sewell Mountain Coal Co., (9737) 26. (7796) 15

16 Document Page 16 of 32 EXHIBIT A

17 Document Page 17 of 32 IN THE UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF VIRGINIA ROANOKE DIVISION In re: XINERGY LTD., et al., Chapter 11 Case No. 15-[ ] ( ) Debtors. 1 (Joint Administration Requested) INTERIM ORDER AUTHORIZING (I) DEBTORS TO CONTINUE AND RENEW SURETY BOND PROGRAM AND (II) FINANCIAL INSTITUTIONS TO HONOR AND PROCESS RELATED CHECKS AND TRANSFERS Upon the motion (the Motion ) 2 of the above-captioned debtors and debtors-inpossession (collectively, the Debtors ) for entry of an order pursuant to sections 363 and 364 of the Bankruptcy Code (i) the Debtors to maintain, continue and renew, in their sole discretion, their Surety Bond Program on an uninterrupted basis and in accordance with the same practices and procedures, including, but not limited to, the maintenance of cash collateral, as was in effect before the Petition Date, and (ii) their financial institutions to receive, process, honor and pay 1 2 The Debtors, along with the last four digits of each Debtor s federal tax identification number, are listed on Schedule 1 attached hereto. Unless otherwise defined herein, all capitalized terms shall have the meaning ascribed to them in the Motion. HUNTON & WILLIAMS LLP Riverfront Plaza, East Tower 951 East Byrd Street Richmond, Virginia Telephone: (804) Facsimile: (804) Tyler P. Brown (VSB No ) Henry P. (Toby) Long, III (VSB No ) Justin F. Paget (VSB No ) Proposed Counsel to the Debtors and Debtors in Possession

18 Document Page 18 of 32 related checks or wire transfers; the Court finds that: (a) it has jurisdiction over the matters raised in the Motion pursuant to 28 U.S.C. 157 and 1334(b); (b) this is a core proceeding pursuant to 28 U.S.C. 157(b)(2); (c) the relief requested in the Motion is in the best interest of the Debtors, their estates and creditors, and is necessary to prevent immediate and irreparable harm; (d) proper and adequate notice of the Motion and the hearing thereon has been given and no other or further notice is necessary; and (e) the record herein after due deliberation thereon, good and sufficient cause exists for the granting of the relief as set forth herein. Therefore, IT IS HEREBY ORDERED THAT: 1. The relief requested in the Motion is hereby GRANTED on an interim basis. 2. The Debtors are, in their sole discretion, authorized and empowered to maintain their Surety Bond Program on an uninterrupted basis, and in accordance with the same practices and procedures, including, but not limited to, the maintenance of cash collateral, as were in effect prior to the Petition Date. 3. The Debtors are hereby authorized, but not required, to honor each of the Indemnity Agreements. 4. The Debtors are, in their sole discretion, authorized, but not required, to pay all amounts arising under the Surety Bond Program, due and payable after the Petition Date; provided that, prior to entry of an order granting the relief requested in the Motion on a final basis, the Debtors will not pay any prepetition amounts arising under the Surety Bond Program before the applicable due date. 5. The Debtors are, in their sole discretion, authorized, but not required, to renew existing surety bonds, increase or decrease the size of any such surety bonds and obtain new surety bonds, and execute any other agreements in connection with the Surety Bond Program and 2

19 Document Page 19 of 32 all related instruments, documents and papers, and to take all actions reasonably appropriate with respect thereto; provided that, notwithstanding any of the foregoing, the Debtors shall (i) consult with the administrative agent for the Debtors postpetition lenders or (ii) obtain a further order of the Court prior to paying any amount or making any material modification to the Surety Bond Program that, in either case, is outside of the ordinary course of the Debtors business and not consistent with the Debtors past or industry practices; provided further that to the extent the Debtors seek to provide collateral in connection with obtaining new surety bonds or provide additional collateral for the postpetition renewal of surety bonds, the Debtors shall provide such collateral only to the extent permitted under any debtor-in-possession financing facility. 6. The failure to specifically describe or include any particular feature of the Surety Bond Program in this Interim Order shall not diminish or impair the effectiveness of such feature, it being the intent of this Court that the Surety Bond Program be approved in its entirety. 7. If the Debtors are not in default with respect to the applicable surety bond or Indemnity Agreement (other than a default caused by the commencement of the chapter 11 cases), and has paid all related premiums as and when due with respect to such surety bond, the protections to be afforded to such sureties in the Motion or this Interim Order shall not apply to any surety bond as to which a surety (a) has provided a cancellation notice or which it has refused to renew in the ordinary course in an amount which is not more than any such expiring surety bond and consistent with past practices, (b) has moved for relief from the automatic stay, (c) has made a demand for additional reserves or collateral pertaining to an existing surety bond or any renewal thereof, or (d) has enforced its rights with respect to collateral securing the same, except to the extent such enforcement is undertaken with respect to a letter of credit which would otherwise expire within thirty (30) days. 3

20 Document Page 20 of Nothing in this Interim Order or the Motion shall be construed as prejudicing the rights of the Debtors to dispute or contest the amount of or basis for any claims against the Debtors in connection with or relating to the Surety Bond Program and nothing herein renders any claim by any third party (other than an Issuer) based on a prepetition actual, potential or asserted liability of the Debtors, which claim may or does result in a loss to a surety under the Surety Bond Program, into a postpetition claim or expense of administration. This paragraph shall not affect the rights of any surety under paragraph 4 hereof. 9. Except as expressly set forth herein, to the extent any surety bond or related agreement is deemed an executory contract within the meaning of section 365 of the Bankruptcy Code, neither this Interim Order nor any payments made in accordance with this Interim Order shall constitute (a) the assumption or postpetition re-affirmation of those surety bonds or related agreements under section 365 of the Bankruptcy Code, (b) a grant of third-party beneficiary status or bestowal of any additional rights on any third party or (c) a waiver of any rights, claims or defenses of the Debtors. 10. The Debtors are authorized and empowered to take all actions necessary to implement the relief granted in this Interim Order. 11. To the extent that there may be an inconsistency between the terms of the Interim Order (I) Authorizing Debtors (A) To Obtain Postpetition Financing Pursuant to 11 U.S.C. 105, 361, 362, 364(c)(1), 364(c)(2), 364(c)(3), 364(d)(1) and 364(e) and (B) To Utilize Cash Collateral Pursuant to 11 U.S.C. 363, (II) Granting Adequate to Prepetition Secured Parties Pursuant to 11 U.S.C. 361, 362, 363 and 364 and (III) Scheduling Final Hearing Pursuant to Bankruptcy Rules 4001(b) and (c) (the Interim DIP Order ) or any final order approving the debtor-in-possession financing, if and when entered, and this Interim Order, the 4

21 Document Page 21 of 32 terms of the Interim DIP Order or final order approving the proposed debtor-in-possession, as applicable, shall govern. 12. Within three business days of the entry of this Interim Order, the Debtors shall serve a copy of this Interim Order and the Motion on (a) the U.S. Trustee, (b) the attorneys for the administrative agent for the Debtors proposed postpetition lenders; (c) all known creditors holding secured claims against the Debtors estates; (d) those creditors holding the 30 largest unsecured claims against the Debtors estates on a consolidated basis; (e) the Internal Revenue Service; (f) the Canadian Revenue Agency; (g) the United States Agency; (h) the Securities and Exchange Commission; (i) the Ontario Securities Commission; and (j) the Issuers and Obligees set forth on Exhibit B attached hereto. 13. Any objection to the relief requested in the Motion on a permanent basis must, by 4:00 p.m. (prevailing Eastern Time) on (the Objection Deadline ), be: (a) filed with the Court and (b) actually received by (i) the U.S. Trustee, the Office of the United States Trustee for the Western District of Virginia, First Campbell Square Building, 210 First Street, SW, Suite 505, Roanoke, VA 24011, Attn: Margaret Garber, Margaret.K.Garber@usdoj.gov; (ii) proposed counsel to the Debtors, Hunton & Williams LLP, Riverfront Plaza, East Tower, 951 East Byrd Street, Richmond, Virginia 23219, Attn: Tyler P. Brown, tpbrown@hunton.com; (iii) the attorneys for an informal group of holders of the Debtors prepetition secured notes and lenders under the Debtors postpetition financing, (a) Paul, Weiss, Rifkind, Wharton & Garrison LLP, 1285 Avenue of the Americas, New York , Attn: Andrew N. Rosenberg and Brian S. Hermann, arosenberg@paulweiss.com and bhermann@paulweiss.com and (b) Kutak Rock LLP, Bank of America Center, 1111 East Main Street, Suite 800, Richmond, Virginia 23219, Attn: Peter J. Barrett, 5

22 Document Page 22 of 32 and (iv) the attorneys for any official committee of unsecured creditors, if then appointed in these cases, on or before the Objection Deadline. 14. A reply to an Objection may be filed with the Court and served on or before 12:00 p.m. (prevailing Eastern Time) on the day that is at least two business days before the hearing date set forth below. 15. If a timely objection is received there shall be a hearing on, 2015, at (prevailing Eastern Time) to consider such timely objection to the Motion. 16. If no Objections are timely filed and served as set forth herein, the Debtors shall, on or after the Objection Deadline, submit to the Court a final order substantially in the form of this Interim Order, which order shall be submitted and may be entered with no further notice or opportunity to be heard afforded any party, and the Motion shall be approved, on a final basis, retroactive to the date of the commencement of these chapter 11 cases. 17. The contents of the Motion and the notice procedures set forth therein are good and sufficient notice and satisfy Bankruptcy Rules 4001 and 9014 by providing parties with notice and an opportunity to object and be heard at a hearing. 18. Notwithstanding anything to the contrary contained herein, any payment to be made, or authorization contained, hereunder shall be subject to the requirements imposed on the Debtors under any approved debtor-in-possession financing facility (including with respect to any budgets governing or relating thereto). 19. Notwithstanding any Bankruptcy Rule (including, but not limited to, Bankruptcy Rule 6004(h)) or Local Bankruptcy Rule that might otherwise delay the effectiveness of this Order, the terms and conditions of this Order shall be immediately effective and enforceable upon its entry. 6

23 Document Page 23 of This Court shall retain exclusive jurisdiction over any and all matters arising from or related to the implementation or interpretation of this Interim Order. Dated:, 2015 UNITED STATES BANKRUPTCY JUDGE Entered on Docket: 7

24 Document Page 24 of 32 WE ASK FOR THIS: /s/ Henry P. (Toby) Long, III Tyler P. Brown, Esquire (VSB No ) Henry P. (Toby) Long, III (VSB No ) Justin F. Paget (VSB No ) HUNTON & WILLIAMS LLP Riverfront Plaza, East Tower 951 East Byrd Street Richmond, VA Tel: (804) Fax: (804) Proposed Counsel to the Debtors and Debtors in Possession 8

25 Document Page 25 of 32 EXHIBIT B

26 Document Page 26 of 32 DEBTOR Coal, EFFECTIVE DATE SURETY BONDS BOND TOTAL NUMBER BOND AMOUNT ISSUER 10/09/ $52, Lexon 12/17/ $166, Lexon Xinergy Corp. 01/11/ $11, Lexon Xinergy Corp. 02/06/ $65, Lexon Xinergy Corp. 02/06/ $50, Lexon Xinergy Corp. 02/06/ $1, Lexon Xinergy Corp. 02/06/ $5, Lexon Xinergy Corp. 03/22/ $34, Lexon True Energy Fuels, 06/26/ $550, Lexon 06/22/ $18, Lexon OBLIGEE American Electric Power Appalachian Power Commonwealth of Kentucky Energy and Environment Cabinet Commonwealth of KY Energy and Environment Cabinet Commonwealth of KY Energy and Environment Cabinet Commonwealth of KY Energy and Environment Cabinet Commonwealth of KY Energy and Environment Cabinet Kentucky Utilities Virginia Dept of Mines, Minerals & Energy

27 Document Page 27 of 32 06/22/ $432, Lexon 06/22/ $320, Lexon 06/22/ $118, Lexon 06/22/ $259, Lexon 06/22/ $108, Lexon 06/22/ $244, Lexon 06/22/ $338, Lexon 06/22/ $288, Lexon 06/22/ $446, Lexon 2

28 Document Page 28 of 32 06/22/ $482, Lexon 06/22/ $39, Lexon 06/22/ $10, Lexon 06/22/ $785, Lexon 06/22/ $409, Lexon 06/22/ $10, Lexon 06/22/ $123, Lexon 06/22/ $111, Lexon 06/22/ $32, Lexon 3

29 Document Page 29 of 32 06/22/ $27, Lexon 06/22/ $10, Lexon 06/22/ $187, Lexon 06/22/ $11, Lexon 10/27/ $169, Lexon 10/27/ $32, Lexon 11/17/ $621, Lexon 01/17/ $212, Lexon 01/17/ $149, Lexon 4

30 Document Page 30 of 32 Sewell Mountain Coal Co., Sewell Mountain Coal Co., 03/07/ $77, Lexon 06/15/ $34, Lexon 06/15/ $432, Lexon 06/15/ $154, Lexon 06/15/ $126, Lexon 03/07/ $45, Lexon 03/07/ $201, Lexon 11/12/ $88, Lexon 11/12/ $160, Lexon 5

31 Document Page 31 of 32 Sewell Mountain Coal Co., Coal, Coal, Coal, Coal, Coal, Coal, Coal, Coal, 11/12/ $469, Lexon 06/09/ $852, Lexon 06/09/ $1,139, Lexon 06/09/ $119, Lexon 11/14/ $39, Lexon 02/08/ $10, Lexon 02/08/ $25, Lexon 04/05/ $11, Lexon 05/15/ $779, Lexon 6

32 Document Page 32 of 32 Coal, Coal, Coal, Coal, Coal, Coal, Coal, Brier Creek Coal, Coal, 09/14/ $299, Lexon 12/05/ $9, Lexon 01/04/ $50, Lexon 03/25/ $34, Lexon 04/04/ $125, Lexon 12/13/ $4, Lexon 06/03/ $419, Lexon 10/12/ $225, Lexon 10/12/ $375, Lexon Division of Labor Division of Labor 7