Document:

Exhibit 10.5

 

EXECUTION
COPY

 

THIRD AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

OF

CLOUD PEAK ENERGY RESOURCES LLC

 

 

Dated November 19, 2009

 

 

TABLE OF CONTENTS

 

	
  ARTICLE 1 DEFINITIONS

  	
  2

  
	
  1.1 Defined Terms

  	
  2

  
	
  1.2 Other Definitional Provisions;
  Interpretation

  	
  17

  
	
   

  	
   

  
	
  ARTICLE 2 FORMATION

  	
  18

  
	
  2.1 Formation; Qualification

  	
  18

  
	
  2.2 Name

  	
  18

  
	
  2.3 Term

  	
  18

  
	
  2.4 Headquarters Office

  	
  18

  
	
  2.5 Registered Agent and Office

  	
  18

  
	
  2.6 Purpose

  	
  19

  
	
  2.7 Powers

  	
  19

  
	
   

  	
   

  
	
  ARTICLE 3 MEMBERS AND INTERESTS

  	
  19

  
	
  3.1 Members

  	
  19

  
	
  3.2 Meeting of Members

  	
  20

  
	
  3.3 Membership Units

  	
  22

  
	
  3.4 Authorization and Issuance of
  Additional Units

  	
  25

  
	
   

  	
   

  
	
  ARTICLE 4 MANAGEMENT AND OPERATIONS

  	
  26

  
	
  4.1 Manager

  	
  26

  
	
  4.2 Management Authority

  	
  26

  
	
  4.3 Rio Tinto Member Approval
  Rights

  	
  27

  
	
  4.4 Duties

  	
  28

  
	
  4.5 Reliance by Third Parties

  	
  28

  
	
  4.6 Resignation

  	
  28

  
	
  4.7 Removal

  	
  29

  
	
  4.8 Vacancies

  	
  29

  
	
  4.9 Information Relating to the
  Company

  	
  29

  
	
  4.10 Insurance

  	
  29

  
	
  4.11 Board of Directors

  	
  30

  
	
  4.12 Officers

  	
  30

  
	
  4.13 Certain Costs, Fees and
  Expenses

  	
  30

  
	
  4.14 Certain Duties and
  Obligations of the Members

  	
  31

  
	
  4.15 Limitation of Liability;
  Exculpation

  	
  31

  
	
  4.16 Indemnification

  	
  32

  
	
  4.17 Title to Assets; Liens

  	
  33

  
	
  4.18 CPE Conduct of Business Only
  Through the Company

  	
  33

  
	
  4.19 Business Opportunities

  	
  34

  
	
   

  	
   

  
	
  ARTICLE 5 CAPITAL CONTRIBUTIONS; DISTRIBUTIONS

  	
  36

  
	
  5.1 Capital Contributions

  	
  36

  

 

i

 

	
  5.2 Loans from Members

  	
  36

  
	
  5.3 Loans from Third Parties

  	
  36

  
	
  5.4 Distributions

  	
  36

  
	
  5.5 Revisions to Reflect Issuance
  of Additional Units

  	
  37

  
	
   

  	
   

  
	
  ARTICLE 6 BOOKS AND RECORDS; TAX; CAPITAL ACCOUNTS;
  ALLOCATIONS

  	
  37

  
	
  6.1 General Accounting Matters

  	
  37

  
	
  6.2 Capital Accounts

  	
  38

  
	
  6.3 Allocations

  	
  38

  
	
  6.4 Allocations of Net Income and
  Net Losses for U.S. Federal Income Tax Purposes

  	
  40

  
	
  6.5 Revisions to Allocations to
  Reflect Issuance

  	
  42

  
	
  6.6 Certain Tax Matters

  	
  42

  
	
  6.7 Tax Year

  	
  43

  
	
  6.8 Withholding Requirements

  	
  43

  
	
  6.9 Reports to Members

  	
  44

  
	
  6.10
  Auditors

  	
  45

  
	
   

  	
   

  
	
  ARTICLE 7 DISSOLUTION

  	
  45

  
	
  7.1 Dissolution

  	
  45

  
	
  7.2 Winding-Up

  	
  46

  
	
  7.3 Final Distribution

  	
  46

  
	
   

  	
   

  
	
  ARTICLE 8 TRANSFER; SUBSTITUTION; ADJUSTMENTS; REDEMPTION
  RIGHT OF CLOUD PEAK

  	
  47

  
	
  8.1 Restrictions on Transfer

  	
  47

  
	
  8.2 Substituted Members

  	
  48

  
	
  8.3 Redemption Right of Cloud
  Peak

  	
  48

  
	
  8.4 Effect of Void Transfers

  	
  51

  
	
   

  	
   

  
	
  ARTICLE 9 REDEMPTION RIGHT OF RIO TINTO MEMBERS

  	
  51

  
	
  9.1 Redemption Right of Rio Tinto
  Members

  	
  51

  
	
  9.2 Effect of Exercise of
  Redemption Right

  	
  54

  
	
  9.3 Reservation of CPE Common
  Stock

  	
  54

  
	
   

  	
   

  
	
  ARTICLE 10 MISCELLANEOUS

  	
  54

  
	
  10.1 Further Assurances

  	
  54

  
	
  10.2 Amendments

  	
  54

  
	
  10.3 Restrictions on Disclosure
  of Information

  	
  54

  
	
  10.4 Injunctive Relief

  	
  56

  
	
  10.5 No Third-Party Beneficiaries

  	
  56

  
	
  10.6 Notices

  	
  56

  
	
  10.7 Severability

  	
  56

  
	
  10.8 Counterparts and Signature

  	
  57

  
	
  10.9
  Governing Law; Submission to Jurisdiction; Waiver of Jury Trial

  	
  57

  

 

ii

 

THIRD AMENDED AND RESTATED

LIMITED LIABILITY COMPANY AGREEMENT

OF

CLOUD PEAK ENERGY RESOURCES LLC

 

This Third Amended and Restated Limited Liability
Company Agreement (this “Agreement”)
of Cloud Peak Energy Resources LLC, a Delaware limited liability company (the “Company”), is made and entered into
as of November 19, 2009, by and between Rio Tinto Energy America Inc., a
Delaware corporation (“RTEA”),
Kennecott Management Services Company, a Delaware corporation (“KMS”), and Cloud Peak Energy Inc.,
a Delaware corporation (“CPE”).  Certain terms used in this Agreement are
defined in Section 1.1.

 

RECITALS

 

WHEREAS, the Company was formed by RTEA under the
provisions of the LLC Act (as defined below) under the name “Rio Tinto Sage LLC”
by the filing of a Certificate of Formation with the Secretary of State of the
State of Delaware on August 19, 2008;

 

WHEREAS, simultaneously therewith RTEA entered into
the Limited Liability Company Agreement of Rio Tinto Sage LLC dated as of August 19,
2008 (the “Initial LLC Agreement”);

 

WHEREAS, through a series of transactions, RTEA
contributed substantially all of RTA’s non-Colorado Western United States coal
mining business (other than the Colowyo mine) (the “Coal
Business”) to the Company;

 

WHEREAS, Rio Tinto Sage LLC was renamed “Cloud Peak
Energy LLC” by filing a Certificate of Amendment with the Secretary of State of
the State of Delaware on October 2, 2009, Cloud Peak Energy LLC was
renamed “CPE LLC” by filing a Certificate of Amendment with the Secretary of
State of the State of Delaware on November 2, 2009 and CPE LLC was renamed
“Cloud Peak Energy Resources LLC” by filing a Certificate of Amendment with the
Secretary of State of the State of Delaware on November 9, 2009;

 

WHEREAS, on October 28, 2009, RTEA and KMS
entered into an Amended and Restated Limited Liability Company Agreement of Rio
Tinto Sage LLC (the “First Amended and Restated
LLC Agreement”) pursuant to which KMS was admitted as a Member
in the Company;

 

WHEREAS, on November 18, 2009, RTEA and KMS
entered into the Second Amended and Restated Limited Liability Company
Operating Agreement of Cloud Peak Energy Resources LLC (the “Second Amended and Restated LLC Agreement”)
pursuant to which (i) the membership units in the Company were reclassified
into Common Membership Units and (ii) each of RTEA and KMS received the
Redemption Right (as defined below and as set forth in Article 9 of
this Agreement);

 

WHEREAS, concurrent with the execution of this
Agreement, (i) CPE will purchase a portion of RTEA’s interest in the Coal
Business through the acquisition from RTEA of 30,600,000 Common Membership
Units pursuant to the Acquisition Agreement (the 

 

 

“Acquisition”)
and, as consideration, will issue the CPE Promissory Note (as defined below) and
(ii) CPE, RTEA, KMS and/or their respective affiliates will enter the
Transaction Documents (as defined below); and

 

WHEREAS, the Members desire to amend and restate the
Second Amended and Restated LLC Agreement to, among other things, (i) reflect
the admission of CPE as a Member in the Company and its designation as Manager
of the Company, (ii) set forth the rights and obligations of each Member
with respect to the Company and (iii) set forth the terms and conditions
for the operation of the Company.

 

NOW,
THEREFORE, in consideration of the foregoing and the mutual covenants and
agreements set forth below, and other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the Parties hereby agree
as follows:

 

ARTICLE 1

DEFINITIONS

 

1.1          Defined
Terms.  The
following terms shall have the following meanings in this Agreement:

 

“Acquisition”
has the meaning set forth in the recitals of this Agreement.

 

“Acquisition
Agreement” means the Acquisition Agreement dated as of the date
hereof by and between CPE and RTEA, as the same may be amended, restated,
supplemented or otherwise modified from time to time.

 

“Action”
means any suit, arbitration, inquiry, proceeding or investigation (whether
civil, criminal, administrative, investigative, or informal) by or before any
court, Governmental Authority or any arbitration tribunal asserted by a Person.

 

“Adjusted
Capital Account Balance” means, with respect to any Member, the
balance in such Member’s Capital Account after giving effect to the following
adjustments: (a) debits to such Capital Account of the items described in
Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4-6) and (b) credits
to such Capital Account of such Member’s share of Partnership Minimum Gain or
Partner Nonrecourse Debt Minimum Gain or of any amount which such Member would
be required to restore under this Agreement or otherwise.  The foregoing definition of Adjusted Capital
Account Balance is intended to comply with the provisions of Treasury
Regulation Section 1.704-1(b)(2)(ii)(d) and shall be interpreted
consistently therewith.

 

“Adjustment
Event” has the meaning set forth in Section 3.3(d) of
this Agreement.

 

“Affiliate”
means, with respect to any Person, any other Person that, directly or
indirectly, through one or more intermediaries, Controls, is Controlled by or
is under common Control with such Person. 
For purposes of this Agreement, CPE shall be deemed to be an Affiliate
of the Company, but the Rio Tinto Members shall not be considered Affiliates of
the Company.

 

2

 

“Agency
Agreement” means the Agency Contract dated as of the
date hereof by and between the Company and RTEA as the same may be amended,
restated, supplemented or otherwise modified from time to time.

 

“Agreement”
has the meaning set forth in the preamble of this Agreement, as the same may be
amended, restated, supplemented, or otherwise modified from time to time.

 

“Beneficial
Owner” (including, with correlative meaning, the term “beneficially owns”) has the meaning
attributed to it in Rules 13d-3 and 13d-5 under the Exchange Act, whether
or not applicable.  For purposes of this
Agreement no Member shall be deemed to be the Beneficial Owner of CPE Common
Stock solely by reason of such Member’s ownership of Common Membership Units
that are redeemable pursuant to Section 9.1.

 

“Board” has the meaning set forth in Section 4.11
of this Agreement.

 

“Budget”
means an annual operating and capital budget of the Company, including, among
other things, anticipated revenues, expenditures (capital and operating), and
cash and capital requirements of the Company for the following year.

 

“Business
Day” means a day other than a Saturday, Sunday or other day on
which commercial banks in New York, New York are authorized or required by Law
to close.

 

“Capital
Account” has the meaning set forth in Section 6.2(a) of
this Agreement.

 

“Capital
Contribution” means the total amount of cash and the agreed fair
market value (net of all liabilities secured by such assets that the Company is
considered to assume or take subject to under Section 752 of the Code) of
all other assets contributed to the Company by a Member.

 

“Capital Stock” means (i) with
respect to any Person that is a corporation, any and all shares, interests in,
participations in (or other equivalents), however designated, of corporate
stock, including each class of common stock and preferred stock of such Person
and (2) with respect to any Person that is not a corporation, any and all
partnership, limited liability company or other equity interests of such Person
or any other interest that confers on a Person the right to receive a share of
the profits and losses of, or distribution of assets, of the issuing Person.

 

“Carrying
Value” means, with respect to any asset of the Company, the
asset’s adjusted basis for U.S. federal income tax purposes, except that the
Carrying Values of all assets of the Company shall be adjusted to equal their
respective fair market values, in accordance with the rules, events, and times,
set forth in Treasury Regulation Section 1.704-1(b)(2)(iv)(f) and
otherwise provided for in the rules governing maintenance of Capital
Accounts under Treasury Regulations, except as otherwise provided herein; provided,
however, that such adjustments shall be made only if the Manager
reasonably determines that such adjustments are necessary or appropriate to
reflect the relative economic interests of the Members.  The Carrying Value of any asset of the
Company distributed to any Member shall be adjusted immediately prior to such
distribution to equal its fair market value and depreciation shall be
calculated by reference to Carrying Value, instead of tax basis, once Carrying
Value differs from tax basis.  The Carrying

 

3

 

Value of any asset contributed (or deemed
contributed under Treasury Regulation Section 1.704-1(b)(1)(iv)) by a
Member to the Company will be the fair market value of the asset at the date of
its contribution thereto.

 

“Cash
Settlement” means immediately available funds in an amount equal
to the Redeemed Units Equivalent in the case of Common Membership Units being
redeemed pursuant to Section 8.3 or Section 9.1 of this
Agreement.

 

“Certificate”
has the meaning set forth in Section 2.1(a) of this Agreement.

 

“Certificate
of Amendment” has the meaning set forth in Section 2.1(a) of
this Agreement.

 

“Change in
Control” (i) with respect to the Manager, shall have the
meaning ascribed to the term “Change in Control” under the CPE 2009 Long-Term Incentive
Plan or any similar successor equity incentive plan of CPE and (ii) with
respect to the Company, means (1) any acquisition, merger or consolidation
of the Company with or into any other entity or any other similar transaction,
whether in a single transaction or series of related transactions, where (A) the
Members of the Company immediately prior to such transaction in the aggregate
cease to own more than 50% of the general voting power of the entity surviving
or resulting from such transaction (or its stockholders) or (B) any Person
or Group becomes the Beneficial Owner of more than 50% of the general voting
power of the entity surviving or resulting from such transaction (or its
stockholders), (2) any other transaction or series of related transactions
not covered by clause (ii)(1) of this definition in which more than 50% of
the Company’s general voting power is Transferred to or acquired by any other
Person or Group, or (3) the sale or Transfer by the Company of all or
substantially all of its assets;  provided, however, that, in determining whether a Change in
Control of the Company has occurred, CPE Common Stock and Common Membership
Units (A) acquired pursuant to a transaction under this Agreement by the
Company, CPE or the Rio Tinto Members, including through the exercise of the
Redemption Right under Section 9.1 of this Agreement or otherwise,
or (B) Transferred to any Permitted Transferee shall not, in either case,
constitute an event which could cause a Change in Control.

 

“Claim”  means any Action, complaint, charge or
investigation pending or, to the Person’s knowledge, threatened against the
Person or any of its Representatives.

 

“Coal
Business” has the meaning set forth in the recitals to this
Agreement.

 

“Code”
means the Internal Revenue Code of 1986, as amended from time to time, or any
successor statute and the rules and regulations thereunder in effect from
time to time.  Any reference herein to a
specific provision of the Code shall mean, where appropriate, the corresponding
provision in any successor statute.

 

“Commission”
means the United States Securities and Exchange Commission.

 

“Committed
LBA Payments” means those expenditures indentified under the
caption LBA Payments — Committed in the Life of Mine Model.

 

“Common
Membership Unit” means a Unit representing, when outstanding, a
fractional part of the Interests of all Members holding Common Membership
Units, and having 

 

4

 

the rights and obligations
specified with respect to Common Membership Units in this Agreement.

 

“Company”
has the meaning set forth in the preamble of this Agreement.

 

“Company
Interests” means, with respect to any CPE Securities, the
corresponding class of Units or Equity Interests, or an incurrence of
Indebtedness of the Company, as applicable, with designations, preferences and
other rights, terms and conditions (other than financial covenants applicable
to CPE or its Subsidiaries) that are substantially the same as the
designations, preferences and other rights, terms and conditions of such other
CPE Securities.

 

“Company
Purposes” has the meaning set forth in Section 2.6
of this Agreement.

 

“Confidential
Information” has the meaning set forth in Section 10.3(a) of
this Agreement.

 

“Control”
(including the terms “Controlled by”
and “under common Control with”), with
respect to the relationship between or among two or more Persons, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the affairs or management of a Person, whether through the
ownership of voting Equity Interests, as trustee or executor, by contract or
otherwise.

 

“CPE”
has the meaning set forth in the preamble of this Agreement, including any
successor.

 

“CPESC”
means Cloud Peak Energy Services Company, a Delaware corporation.

 

“CPE
Assumption Notice” has the meaning set forth in Section 9.1(b)(i) of
this Agreement.

 

“CPE
Assumption Right” has the meaning set forth in Section 9.1(b)(i) of
this Agreement.

 

“CPE
Common Stock” means the common stock, par value $0.01, of CPE.

 

“CPE
Promissory Note” means the promissory note dated as of the date
hereof issued to RTEA by CPE as consideration for the Acquisition under the
Acquisition Agreement.

 

“CPE Redeemed Units” has the meaning set
forth in Section 8.3(a) of this Agreement.

 

“CPE
Redemption Assumption Notice” has the meaning set forth in Section 8.3(b)(i) of
this Agreement.

 

“CPE
Redemption Assumption Right” has the meaning set forth in Section 8.3(b)(i) of
this Agreement.

 

5

 

“CPE
Redemption Date” has the meaning set forth in Section 8.3(a) of
this Agreement.

 

“CPE Redemption Notice” has the meaning
set forth in Section 8.3(a) of this Agreement.

 

“CPE
Redemption Price” means the arithmetic average of the volume
weighted average prices for a share of CPE Common Stock on the principal United
States securities exchange or automated or electronic quotation system on which
CPE Common Stock trades, as reported by Bloomberg, L.P., or its successor, for
each of the ten (10) consecutive full Trading Days ending on and including
the last full Trading Day immediately prior to the Redemption Notice Date, in
the case of Common Membership Units being redeemed pursuant to Section 8.3
or Section 9.1, subject to appropriate and equitable adjustment for
any stock splits, reverse splits, stock dividends or similar events affecting
the CPE Common Stock.  If, on the
Redemption Date, the CPE Common Stock is not traded on a securities exchange or
automated or electronic quotation system, then a nationally recognized
independent investment bank, which shall be selected by mutual agreement of the
Manager and the Rio Tinto Members, shall, within thirty (30) days after its
selection, make a binding determination of the CPE Redemption Price.  All fees and costs of such investment bank
shall be the responsibility of the Rio Tinto Members.  If the Manager and the Rio Tinto Members
cannot mutually agree in good faith on the selection of a nationally recognized
investment bank, the Rio Tinto Members shall direct the Manager to select the
nationally recognized investment bank chosen by the Rio Tinto Members.

 

“CPE Redemption Right” has the meaning
set forth in Section 8.3(a) of this Agreement.

 

“CPE
Redemption Share/Cash Settlement” has the meaning set forth in Section 8.3(b)(i) of
this Agreement.

 

“CPE
Securities” means any Equity Interests of CPE, or any rights,
options, warrants or convertible or exchangeable securities having the right to
convert into, exchange for, subscribe for or purchase any Equity Interests of
CPE or any Indebtedness of CPE.

 

“CPE 2009
Long Term Incentive Plan” has the meaning set forth in Section 3.4(b)(i) of
this Agreement.

 

“CPI
Adjustment” means for any dollar amount and with respect to a
calendar year (the “Current Year”),
an annual upward adjustment, if any, for inflation (but not any downward
adjustments for deflation) which adjustment shall be made by adjusting such
dollar amount by the percentage increase, if any, from the CPI Index (as
defined below) as of  November 2009,
in the annual rate set forth in the United States Consumer Price Index—All
Urban Consumers for the U.S. City Average for All Items, 1982-1984=100,
published by United States Department of Labor, Bureau of Labor Statistics (the
“CPI Index”) as of January 1 of
the Current Year or, if that index is discontinued, the successor index that
most closely approximates such index. 
The annual CPI Adjustment calculation shall be made as of January 1
of each calendar year and shall be determined upon publication of the CPI Index
(or any such successor index).

 

6

 

“Debt
Financing Transactions” means the Notes Offering and the
revolving credit facility to be entered into by the Company.

 

“Employee
Matters Agreement” means the Employee Matters Agreement dated as
of the date hereof by and among the Company, CPE, Rio Tinto plc, Rio Tinto
Limited, RTA, RTEA and CPESC as the same may be amended, restated, supplemented
or otherwise modified from time to time.

 

“Equity
Compensation Notice” has the meaning set forth in Section 3.4(b)(i) of
this Agreement.

 

“Equity
Interests” means:

 

(i)            with respect to the Company,
any and all units, interests, participations or other equivalents (however
designated, whether voting or non-voting) of limited liability company
interests or equivalent ownership interests in, or issued by, the Company or
interests, participations or other equivalents to share in the revenues or
earnings of the Company, or securities convertible into, or exchangeable or
exercisable for, such units, interests, participations or other equivalents and
options, warrants or other rights to acquire such units, interests,
participations or other equivalents (including, Indebtedness that is
convertible into, or exchangeable for, units, interests, participations or
other equivalents), but shall not include any stock, options or other
equivalents in CPE pursuant to any CPE employee benefit plan or any other
Indebtedness of the Company, and

 

(ii)           with respect to any other
Person, any and all shares, interests, participations or other equivalents
(however designated, whether voting or non-voting) of capital stock,
partnership interests (whether general or limited), limited liability company
interests or equivalent ownership interests in or issued by, or interests,
participations or other equivalents to share in the revenues or earnings of
including any form of beneficial interest in a trust, such Person or securities
convertible into, or exchangeable or exercisable for, such shares, interests,
participations or other equivalents and options, warrants or other rights to
acquire such shares, interests, participations or other equivalents (including,
Indebtedness that is convertible into, or exchangeable for, shares, interests,
participations or other equivalents), but shall not include any other
Indebtedness of such Person.

 

“ERISA”
means the Employee Retirement Income Security Act of 1974, as amended, and the rules and
regulations promulgated thereunder, as the same may be amended from time to
time.

 

“Escrow
Agreement” means the Escrow Agreement dated November 25,
2009, by and among RTEA, the Company and SunTrust Bank, as the same may be
amended, restated, supplemented, replaced or otherwise modified from time to
time.

 

“Excess
Nonrecourse Liability” has the meaning set forth Treasury
Regulation Section 1.752-3(a)(3).

 

7

 

“Exchange
Act” means the Securities and
Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder, as the same may be amended from time to time.

 

“First
Amended and Restated LLC Agreement” has the meaning set forth in
the recitals to this Agreement.

 

“Fiscal
Month” means each fiscal month within the Company’s Fiscal Year,
as determined by the Manager.

 

“Fiscal
Quarter” means each fiscal quarter, which shall consist of three
Fiscal Months.

 

“Fiscal
Year” means the fiscal year of the Company ending on December 31
of each year.

 

“Former
Manager” has the meaning set forth in Section 4.7 of
this Agreement.

 

“GAAP”
means the generally accepted accounting principles in the United States.

 

“Governmental
Authority” means any United States federal, state or local or
any foreign government, supranational, governmental, regulatory or
administrative authority, instrumentality, agency or commission, political
subdivision, securities self-regulatory organization or any court, tribunal or
judicial or arbitral body or other governmental authority.

 

“Group”
has the meaning set forth in Section 13(d)(3) and Rule 13d-5 of
the Exchange Act.

 

“Indebtedness”
means, with respect to any Person, at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of
such Person evidenced by bonds, debentures, notes or other similar instruments
issued by such Person, (iii) all obligations of such Person to pay the
deferred purchase price for property, including LBAs, or services, except trade
accounts payable arising in the ordinary course of business, (iv) all
obligations of such Person evidenced by surety bonds or other similar
instruments, (v) all reimbursement obligations of such Person in respect
of letters of credit or other similar instruments, (vi) all Indebtedness
of others secured by any lien, security interest or mortgage on any asset of
such Person and (vii) all Indebtedness of others guaranteed (whether by
virtue of partnership arrangements, by agreement to keep well, to purchase
assets, goods, securities or services, to take-or-pay, or to maintain a minimum
net worth, financial ratio or similar requirements, or otherwise) by such
Person.

 

“Indemnitee”
has the meaning set forth in Section 4.15(a) of this
Agreement.

 

“Information”
means information, whether or not patentable or copyrightable, in written,
oral, electronic or other tangible or intangible forms, stored in any medium,
including studies, reports, records, books, contracts, instruments, surveys,
discoveries, ideas, concepts, know-how, techniques, designs, specifications,
drawings, blueprints, diagrams, models, prototypes, samples, flow charts, data,
computer data, disks, diskettes, tapes, geological 

 

8

 

information, computer programs or other software,
marketing plans, customer names, communications by or to attorneys (including
attorney-client privileged communications), memoranda and other materials
prepared by attorneys or under their direction (including attorney work
product), and other technical, financial, employee or business information or
data.

 

“Initial
Units” means the Common Membership Units of the Company issued
and outstanding immediately following the initial public offering by CPE of its
CPE Common Stock (the “IPO”) as
reflected on Exhibit A immediately following the IPO (excluding any
Common Membership Units held by CPE in respect of any grants of CPE Common
Stock at the time of the IPO under the CPE 2009 Long Term Incentive Plan).

 

“Initial
LLC Agreement” has the meaning set forth in the recitals of this
Agreement.

 

“Interest”
means a Member’s limited liability company interest in the Company as provided
in this Agreement and under the LLC Act, which shall include any Managing
Member Interest and/or Non-Managing Member Interest held by such Member in the
Company, and, in addition, any and all rights and benefits to which a Member is
entitled under this Agreement and/or the LLC Act, together with all duties and
obligations of such Person to comply with this Agreement and/or the LLC Act.

 

“Investment
Company Act” means the Investment Company Act of 1940, as
amended, and the rules and regulations promulgated thereunder, as the same
may be amended from time to time.

 

“Issued
CPE Shares” has the meaning set forth in Section 3.4(b)(ii) of
this Agreement.

 

“JRC MIPA” has the meaning set forth in Section 6.4(e) of
this Agreement.

 

“KMS”
has the meaning set forth in the preamble to this Agreement.

 

“KMS
Member” means KMS and any Permitted Transferees of KMS (so long
as Section 8.2 has been satisfied with respect to such Permitted
Transferee); provided that if KMS and all of its Permitted Transferees
cease to own Common Membership Units, then KMS and its Permitted Transferees
shall no longer be treated as the KMS Member under this Agreement.

 

“Law”
means any law (statutory, common or otherwise), constitution, ordinance, code,
rule, regulation, executive order or other similar authority enacted, adopted,
promulgated or applied by any Governmental Authority, each as amended from time
to time.

 

“LBA”
means lease by application.

 

“Liabilities”
means all damages, losses, liabilities or obligations, payments, amounts paid
in settlement, fines, penalties, costs of burdens associated with performing
injunctive relief and other costs (including reasonable fees and expenses of
outside attorneys, accountants and other professional advisors, and of expert
witnesses and other costs of investigation, preparation and litigation in connection
with any Action, appeal, petition, plea, 

 

9

 

charge, complaint, claim, suit, demand, litigation,
arbitration, mediation, hearing, inquiry, investigation or similar matter or
proceeding) of any kind or nature whatsoever, whether known or unknown,
asserted or unasserted, absolute, contingent or vested, accrued or unaccrued,
liquidated or unliquidated, or matured or unmatured.

 

“Lien”
means, with respect to any asset, any lien, mortgage, deed of trust, pledge,
security interest, charge or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable Law,
including any conditional sale or other title retention agreement and any lease
in the nature thereof.

 

“Life of
Mine Model” means the model prepared by the Company and attached
as Exhibit B to this Agreement.

 

“Liquidator”
has the meaning set forth in Section 7.2 of this Agreement.

 

“LLC Act”
means the Delaware Limited Liability Company Act, 6 Del.C. §§18-101, et seq.,
as it may be amended from time to time, and any successor to such statute.

 

“Management
Services Agreement” means the Management Services Agreement
dated as of the date hereof by and between the Company and CPE, as the same may
be amended, restated, supplemented or otherwise modified from time to time.

 

“Manager”
has the meaning set forth in Section 4.1 of this Agreement.

 

“Managing
Member Interest” means the management and ownership interest of
the Manager in the Company, which includes any Common Membership Units held by
the Manager (including Common Membership Units acquired pursuant to Section 8.3
or Section 9.1 of this Agreement) and any other Units held by the
Manager, and includes any and all rights and benefits to which the Manager is
entitled under this Agreement and/or the LLC Act, together with all obligations
of the Manager to comply with this Agreement and/or the LLC Act.

 

“Master
Separation Agreement” means the Master Separation Agreement
dated as of the date hereof by and among the Company, CPE, RTA, RTEA, KMS and
the Subsidiaries named therein, as the same may be amended, restated,
supplemented or otherwise modified from time to time.

 

“Member”
means each Person that is or becomes a member, as contemplated in the LLC Act,
of the Company in accordance with the provisions of this Agreement and is
listed on Exhibit A to this Agreement (as such Exhibit may be
amended or modified from time to time) and has not ceased to be a Member as
provided in Section 3.1(e) of this Agreement.

 

“Member
Information” has the meaning set forth in Section 10.3(c) of
this Agreement.

 

“MSA Exhibit A” has the meaning set
forth in Section 6.4(e) of this Agreement.

 

“Net
Income” or “Net Losses,”
as appropriate, means, for any period, the taxable income or tax loss of the
Company for such period for U.S. federal income tax purposes, as determined in
accordance with the accounting method used by the Company for U.S. federal 

 

10

 

income tax purposes, taking into account any
separately stated tax items and increased by the amount of any tax-exempt
income of the Company during such period and decreased by the amount of any
Code Section 705(a)(2)(B) expenditures (within the meaning of
Treasury Regulation Section 1.704-1(b)(2)(iv)(i)) of the Company); provided,
however, that (i) Net Income or Net Losses of the Company shall be
computed without regard to the amount of any items of gross income, gain, loss
or deduction that are specifically allocated pursuant to Section 6.3(b) and
(ii) in determining Net Income or Net Losses of the Company, any amounts
paid under the Employee Matters and Management Services Agreement shall be
treated as payments to a non-Member under Code Section 707.  In the event that the Capital Accounts are
adjusted pursuant to an adjustment to the Carrying Value of an asset of the
Company or as otherwise provided for in this Agreement, the Net Income or Net
Losses of the Company (and the constituent items of income, gain, loss and
deduction) realized thereafter shall be computed in accordance with the
principles of Treasury Regulation Section 1.704-1(b)(2)(iv)(g).  If the Carrying Value of an asset is
adjusted, such asset shall be treated as having been sold for its fair market
value and any deemed gain or loss shall be taken into account in determining
Net Income or Net Losses.

 

“Non-LBA
Capital Payments” means those expenditures identified under the
caption Non-LBA Capital Total in the Life of Mine Model.

 

“Non-Managing
Member” means, unless the context otherwise requires, the RTEA
Member, the KMS Member and each additional Person, other than the Manager,
including Permitted Transferees (so long as Section 8.2 has been
satisfied with respect to such Permitted Transferees), that becomes a Member
pursuant to the terms of this Agreement, in such Person’s capacity as a
non-managing member of the Company.

 

“Non-Managing
Member Interest” means the ownership interest of a Non-Managing
Member in the Company, which may be evidenced by Common Membership Units (other
than Common Membership Units included in the Managing Member Interest) and any
other Units held by a Non-Managing Member, and includes any and all rights and
benefits to which such Non-Managing Member is entitled under this Agreement
and/or the LLC Act, together with all obligations of such Non-Managing Member
to comply with this Agreement and/or the LLC Act.

 

“Nonrecourse
Debt” means any Company liability to the extent that no Member
(or related person within the meaning of Treasury Regulation Section 1.752-4(b))
bears the economic risk of loss for such liability under Treasury Regulation Section 1.752-2.

 

“Notes
Offering” means the offering and sale of the Senior Notes due
2016 and the Senior Notes due 2019 by the Company and Cloud Peak Energy Finance
Corp., a Delaware corporation.

 

“Options”
means options, issued under the CPE 2009 Long-Term Incentive Plan or any
similar successor equity incentive plan of CPE providing employee benefits
(including benefits related to, among other things, and without limitation, the
issuance of restricted and non-restricted CPE Common Stock, the payment of
bonuses in CPE Common Stock, the issuance of CPE Common Stock in settlement of
stock appreciation rights or otherwise), to acquire CPE Common Stock or other equity
equivalents of CPE.

 

11

 

“Over-Allotment
Unit Purchase” means the purchase, if any, by CPE from RTEA of a
portion of RTEA’s interest in the Coal Business through the acquisition of
Common Membership Units pursuant to the Acquisition Agreement upon exercise by
the Underwriters of the over-allotment option that may be exercised by the
Underwriters of the initial public offering of CPE’s Common Stock pursuant to
the Underwriting Agreement.

 

“Partial
CPE Redeemed Units Equivalent” means the product of (i) the
Partial Cash CPE Redeemed Units, times (ii) the CPE Redemption Price.

 

“Partial
Cash CPE Redeemed Units” means, with respect to any redemption
pursuant to Section 8.3 for which CPE has exercised the CPE Redemption
Assumption Right, the number of Common Membership Units equal to the difference
between (x) the total number of CPE Redeemed Units and (y) the
Partial Share CPE Redeemed Units.

 

“Partial
Cash Redeemed Units” means, with respect to any redemption
pursuant to Section 9.1 for which CPE has exercised the CPE
Assumption Right, the number of Common Membership Units equal to the difference
between (x) the total number of Redeemed Units and (y) the Partial
Share Redeemed Units.

 

“Partial
Cash Settlement” means (i) in the case of Common Membership
Units being redeemed pursuant to Section 9.1, immediately available
funds equal to the Partial Redeemed Units Equivalent or (ii) in the case
of Common Membership Units being redeemed pursuant to Section 8.3,
immediately available funds equal to the Partial CPE Redeemed Units Equivalent.

 

“Partial
Redeemed Units Equivalent” means the product of (i) the
Partial Cash Redeemed Units, times (ii) the CPE Redemption Price.

 

“Partial
Share CPE Redeemed Units” means, with respect to any redemption
pursuant to Section 8.3 for which CPE has exercised the CPE
Redemption Assumption Right, the number of CPE Redeemed Units for which CPE has
indicated in the CPE Redemption Assumption Notice for such redemption that it
intends to settle in shares of CPE Common Stock.

 

“Partial
Share Redeemed Units” means, with respect to any redemption
pursuant to Section 9.1 for which CPE has exercised the CPE
Assumption Right, the number of Redeemed Units for which CPE has indicated in
the CPE Assumption Notice for such redemption that it intends to settle in
shares of CPE Common Stock.

 

“Partial
Share Settlement” means (i) a number of shares of CPE
Common Stock equal to the Partial Share Redeemed Units, in the case of Common
Membership Units being redeemed pursuant to Section 9.1, or (ii) a
number of shares of CPE Common Stock equal to the Partial Share CPE Redeemed
Units, in the case of Common Membership units being redeemed pursuant to Section 8.3.

 

“Partner
Nonrecourse Debt” means any Company liability to the extent such
liability is nonrecourse for purposes of Treasury Regulation Section 1.1001-2
with respect to which a Member (or related person within the meaning of
Treasury Regulation Section 1.752-

 

12

 

4(b)) bears the economic risk of loss under Treasury
Regulation Section 1.752-2 because, for example, the Member or related
person is a creditor or guarantor with respect to such liability.

 

“Partner
Nonrecourse Debt Minimum Gain” has the meaning set forth in
Treasury Regulation Section 1.704-2(i)(2) and, as provided therein,
shall generally be the amount, with respect to each Partner Nonrecourse Debt,
equal to the Partnership Minimum Gain that would result if such Partner
Nonrecourse Debt were treated as a Nonrecourse Debt.

 

“Partnership
Minimum Gain” has the meaning set forth in Treasury Regulation Section 1.704-2(b)(2) and,
as provided therein, shall generally be determined by computing, for each
Nonrecourse Debt of the Company, any Net Income the Company would realize if it
disposed of the property subject to that liability for no consideration other
than full satisfaction of the liability and then aggregating the separate
amounts of Net Income so computed.

 

“Party”
or “Parties” means the Company and each
Member of the Company.

 

“Percentage
Interest” means, with respect to any Member at any time holding
Common Membership Units, the quotient, expressed as a percentage, obtained by
dividing (i) the number of Common Membership Units held by such holder at
the time of such calculation, by (ii) the total number of all Common
Membership Units outstanding at the time of such calculation.

 

“Permitted
Transferee” means in the case of any Member, an Affiliate of
such Member.

 

“Person”
means any individual, corporation, limited liability company, partnership,
trust, joint stock company, business trust, unincorporated association, joint
venture, Governmental Authority or other entity or organization of any nature
whatsoever.

 

“Prohibited Person”
means any Person with whom a Member would be restricted from doing business
under the Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism Act of 2001, H. R. 3162, Public
Law 107 56, as amended, and Executive Order Number 13224 on Terrorism
Financing, effective September 24, 2001, and regulations promulgated
pursuant thereto, including, without limitation, Persons named on the Office of
Foreign Asset Control Specially Designated Nationals and Blocked Persons List,
as such List may be amended from time to time.

 

“PV Amount”
has the meaning set forth in Section 6.4(d) of this Agreement.

 

“Redeemed
Units” has the meaning set forth in Section 9.1(a) of
this Agreement.

 

“Redeemed
Units Equivalent” means the product of (i) the Share
Settlement, times (ii) the CPE Redemption Price.

 

“Redeeming
Member” has the meaning set forth in Section 9.1(a) of
this Agreement.

 

“Redemption
Date” has the meaning set forth in Section 9.1(a) of
this Agreement.

 

13

 

“Redemption
Notice” has the meaning set forth in Section 9.1(a) of
this Agreement.

 

“Redemption
Notice Date” means the date on which a Redeeming Member delivers
a Redemption Notice pursuant to Section 9.1(a).

 

“Redemption
Right” has the meaning set forth in Section 9.1(a) of
this Agreement.

 

“Registration
Rights Agreement” means the Registration Rights Agreement dated
as of the date hereof between RTEA, KMS and CPE, as the same may be amended,
restated, supplemented or otherwise modified from time to time.

 

“Regulatory
Allocations” has the meaning set forth in Section 6.3(c) of
this Agreement.

 

“Representative”
has the meaning set forth in Section 4.15(a) of this
Agreement.

 

“Retraction
Notice” has the meaning set forth in Section 9.1(c) of
this Agreement.

 

“Rio Tinto
Designee” has the meaning set forth in Section 3.1(g) of
this Agreement.

 

“Rio Tinto
Member” means the RTEA Member, the KMS Member and their
respective Permitted Transferees.

 

“Rio Tinto
Member Affiliate” has the meaning set forth in Section 4.19(a) of
this Agreement.

 

“Rio Tinto
Member Approval” means the approval of the Rio Tinto Members by
the Rio Tinto Designee pursuant to Section 4.3(b).

 

“Rio Tinto
Member Approval Rights” has the meaning set forth in Section 4.3(a) of
this Agreement.

 

“Rio Tinto
Member Non-Approval Trigger Date” means the first date on which
the aggregate amount of Common Membership Units Transferred by the Rio Tinto
Members (other than Transfers to Permitted Transferees pursuant to this
Agreement or among the Rio Tinto Members) exceeds 70% (subject to adjustment to
reflect any Unit split or reverse Unit split, Unit distribution, Unit
reclassification, recapitalization or similar event) of the Initial Units.  For purposes of this definition, the Common Membership
Units Transferred by the Rio Tinto Members (i) shall include the Transfer
of Common Membership Units to CPE pursuant to the Acquisition Agreement and (ii) shall
not include the number of (A) shares of CPE Common Stock beneficially
owned by the Rio Tinto Members (and such Permitted Transferees) as a result of
the exercise of the Redemption Right or the CPE Redemption Right and (B) shares
of CPE Common Stock beneficially owned by such Rio Tinto Member issued in
connection with any dividend or distribution on CPE Common Stock received by
such Rio Tinto Member as a result of the exercise of the Redemption Right or
the CPE Redemption Right.

 

14

 

“RTA”
means Rio Tinto America Inc., a Delaware corporation.

 

“RTEA”
has the meaning set forth in the preamble of this Agreement.

 

“RTEA Coal
Supply Agreement” means the Rio Tinto Energy America Coal Supply
Agreement dated as of the date hereof by and between the Company and RTEA as
the same may be amended, restated, supplemented or otherwise modified from time
to time.

 

“RTEA
Member” means RTEA and any Permitted Transferees of RTEA (so
long as Section 8.2 has been satisfied with respect to such
Permitted Transferee); provided that if RTEA and all of its Permitted
Transferees cease to own any Common Membership Units then RTEA and its
Permitted Transferees shall no longer be treated as the RTEA Member under this
Agreement.

 

“Second
Amended and Restated LLC Agreement” has the meaning set forth in
the recitals to this Agreement.

 

“Section 704(c) Property”
means any asset of the Company if the Carrying Value of such asset differs from
its adjusted tax basis.

 

“Share/Cash
Settlement” has the meaning set forth in Section 9.1(b)(i) of
this Agreement.

 

“Share
Settlement” means a number of shares of CPE Common Stock equal
to (i) the number of Redeemed Units being redeemed pursuant to Section 9.1
or (ii) the number of CPE Redeemed Units being redeemed pursuant to Section 8.3.

 

“Software License Agreement”
means the Software License Agreement dated as of the date hereof between the
Company and RTEA, as the same may be amended, restated, supplemented or
otherwise modified from time to time.

 

“Subsidiary”
means, with respect to any Person, (i) a corporation a majority of whose
Capital Stock with the general voting power under ordinary circumstances to
vote in the election of directors of such corporation (irrespective of whether
or not, at the time, any other class or classes of securities shall have, or
might have, voting power by reason of the happening of any contingency) or a
majority of the outstanding Equity Interests is at the date of determination
beneficially owned by such Person, by one or more Subsidiaries of such Person
or by such Person and one or more Subsidiaries thereof or (ii) any other
Person (other than a corporation), including a joint venture, a general or
limited partnership or a limited liability company, in which such Person, one
or more Subsidiaries thereof or such Person and one or more Subsidiaries
thereof, directly or indirectly, at the date of determination thereof,
beneficially owns (x) at least a majority ownership interest entitled to
vote in the election of directors, managers or trustees thereof (or other
Persons performing such functions), (y) at least a majority of the
outstanding Equity Interests or (z) otherwise acts as the general partner
or managing member of such other Person. 
For purposes of this Agreement, the Decker mine shall not be deemed a
Subsidiary of the Company.

 

15

 

“Tax
Matters Member” has the meaning set forth in Section 6.6(a) of
this Agreement.

 

“Tax
Receivable Agreement” means the Tax Receivable Agreement dated
as of the date hereof between CPE and RTEA, as the same may be amended, restated,
supplemented or otherwise modified from time to time.

 

“Trademark
Assignment Agreement” means the Trademark Assignment Agreement
dated as of the date hereof by and between RTEA and the Company, as the same
may be amended, restated, supplemented or otherwise modified from time to time.

 

“Trademark
License Agreement” means the Trademark License Agreement dated
as of the date hereof by and between RTEA and the Company, as the same may be
amended, restated, supplemented or otherwise modified from time to time.

 

“Trading
Day” means a day on which the principal United States securities
exchange on which CPE Common Stock is listed or admitted to trading, or a
national automated quotation system if CPE Common Stock is not listed or
admitted to trading on any such securities exchange, as applicable, is open for
the transaction of business (unless such trading shall have been suspended for
the entire day).

 

“Transactions”
means, collectively, (i) the IPO, (ii) the Debt Financing
Transactions described in the registration statement on Form S-1 File No. 333-161293
filed by CPE with the Commission and (iii) all other transactions
contemplated, as of the date hereof, by this Agreement and the other
Transaction Documents.

 

“Transaction
Documents” means, collectively, the following agreements:

 

	
   

  	
  (i)

  	
  this
  Agreement;

  
	
   

  	
  (ii)

  	
  the
  Acquisition Agreement;

  
	
   

  	
  (iii)

  	
  the
  Agency Agreement;

  
	
   

  	
  (iv)

  	
  the
  CPE Promissory Note;

  
	
   

  	
  (v)

  	
  the
  Employee Matters Agreement;

  
	
   

  	
  (vi)

  	
  the
  Escrow Agreement;

  
	
   

  	
  (vii)

  	
  the
  Management Services Agreement;

  
	
   

  	
  (viii)

  	
  the
  Master Separation Agreement;

  
	
   

  	
  (ix)

  	
  the
  Registration Rights Agreement;

  
	
   

  	
  (x)

  	
  the
  RTEA Coal Supply Agreement;

  
	
   

  	
  (xi)

  	
  the
  Software License Agreement;

  
	
   

  	
  (xii)

  	
  the
  Tax Receivable Agreement;

  
	
   

  	
  (xiii)

  	
  the
  Trademark Assignment Agreement;

  
	
   

  	
  (xiv)

  	
  the
  Trademark License Agreement; and

  
	
   

  	
  (xv)

  	
  the
  Transition Services Agreement.

  

 

“Transfer”
(including the term “Transferred”)
means, directly or indirectly, to sell, transfer, give, exchange, bequest,
assign, pledge, grant a security interest in, encumber, hypothecate or
otherwise dispose of, either voluntarily or involuntarily.

 

16

 

“Transferring
Member” has the meaning set forth in Section 8.1(a) of
this Agreement.

 

“Transition
Services Agreement” means the Transition Services Agreement
dated as of the date hereof between and among Rio Tinto Services Inc., the
Company and CPE, as the same may be amended, restated, supplemented or
otherwise modified from time to time.

 

“Treas.
Reg. 1.752-7 Liabilities”
has the meaning set forth in Section 6.4(d) of this Agreement.

 

“Treasury
Regulations” means the federal income tax regulations, including
any temporary regulations, promulgated under the Code, as such Treasury
Regulations may be amended from time to time. 
Any and all references herein to specific Treasury Regulations
provisions shall be deemed to refer to any corresponding successor provisions.

 

“Uncommitted
LBA Payments” means those expenditures identified under the
caption LBA Payments — Uncommitted in the Life of Mine Model.

 

“Underwriters”
means the several underwriters of the IPO named in the Underwriting Agreement.

 

“Underwriting
Agreement” means the underwriting agreement entered into among
CPE and the Underwriters for the initial public offering of CPE’s Common Stock.

 

“Unit”
has the meaning set forth in Section 3.3(a).

 

1.2          Other
Definitional Provisions; Interpretation.

 

(a)           The words “hereof,” “herein”
and “hereunder” and words of similar import when used in this Agreement will
refer to this Agreement as a whole, including the Exhibits attached hereto, and
not to any particular provision of this Agreement.  Article, section and subsection references
are to this Agreement unless otherwise specified.

 

(b)           The words “include” and “including”
and words of similar import when used in this Agreement shall be deemed to be
followed by the words “without limitation.”

 

(c)           The titles and headings in
this Agreement are included for convenience of reference only and will not
limit or otherwise affect the meaning or interpretation of this Agreement.

 

(d)           The meanings given to
capitalized terms defined herein will be equally applicable to both the
singular and plural forms of such terms. 
Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms.

 

17

 

ARTICLE 2

FORMATION

 

2.1          Formation; Qualification.

 

(a)           A Certificate of Formation
of the Company (the “Certificate”)
was filed with the Secretary of State of the State of Delaware on August 19,
2008 to form on such date the Company as a limited liability company pursuant
to the LLC Act.  A Certificate of
Amendment was filed with the Secretary of State of the State of Delaware (i) on
October 2, 2009, renaming the Company “Cloud Peak Energy LLC, (ii) on
November 2, 2009, renaming the Company “CPE LLC” and (iii) on November 9,
2009, renaming the Company “Cloud Peak Energy Resources LLC” (the “Certificate of Amendment”).”  The rights, duties and liabilities of the
Members shall be as provided in the LLC Act, except as otherwise provided in
this Agreement.

 

(b)           The Company shall be
qualified or registered under foreign limited liability company statutes or
assumed or fictitious name statutes or similar laws in any jurisdiction in
which the Company owns property or transacts business to the extent, in the
judgment of the Manager, such qualification or registration is necessary or
advisable in order to protect the limited liability of the Members or to permit
the Company lawfully to own property or transact business. The Manager shall,
to the extent necessary in the judgment of the Manager, maintain the Company’s
good standing in each such jurisdiction.

 

(c)           The Manager and any Person
to whom the Manager delegates authority under this Agreement shall be an “authorized
person” within the meaning of § 18-204(a) of the LLC Act, and shall have
the power and authority to execute, file and publish any certificates, notices,
statements or other documents (and any amendments or restatements thereof)
necessary to permit the Company to conduct business as a limited liability
company in each jurisdiction where the Company elects to do business.

 

2.2          Name.  The name of the limited liability company
formed by the filing of the Certificate, as amended by the filing of the
Certificate of Amendment is “Cloud Peak Energy Resources LLC.”  The business of the Company may be conducted
upon compliance, to the extent necessary or advisable in the judgment of the
Manager, with all applicable Laws under any other name designated by the
Manager.

 

2.3          Term.  The term of the Company commenced as of the
date of filing the Certificate and will continue in perpetuity; provided
that the Company may be dissolved in accordance with the provisions of this
Agreement or by the LLC Act.

 

2.4          Headquarters
Office.  The Company’s
headquarters office shall initially be located in 505 S. Gillette Avenue,
Gillette, Wyoming  82716.  The Manager may determine to open, close or
move any office at any time in its absolute discretion.

 

2.5          Registered
Agent and Office.  The address
of the Company’s registered office in the State of Delaware is c/o Corporation
Service Company, 2711 Centerville Road, Suite 400, Wilmington, County
of New Castle, Delaware 19808.  The name
of the Company’s registered agent at such address is Corporation Service
Company.  The Manager may at any time
designate another or replacement registered agent or registered office or both.

 

18

 

2.6          Purpose.  The purpose of the Company is to engage in
any lawful act or activity for which limited liability companies may be formed
under the LLC Act (the “Company Purposes”).

 

2.7          Powers.  The Company shall have the power and
authority to take any and all actions necessary, appropriate, desirable,
advisable, incidental or convenient to, or for the furtherance of, the Company
Purposes, alone or with other Persons.

 

ARTICLE 3

MEMBERS AND INTERESTS

 

3.1          Members.

 

(a)           Each of RTEA and KMS were
previously admitted as a Member to the Company pursuant to the Initial LLC
Agreement and the First Amended and Restated LLC Agreement, and the Units held
by RTEA and KMS were reclassified into Common Membership Units pursuant to the
Second Amended and Restated LLC Agreement. 
Upon the execution of this Agreement and the Acquisition Agreement, CPE
shall be admitted to the Company as a Member. 
Following the initial purchase by CPE from RTEA of Common Membership
Units pursuant to the Acquisition Agreement, each Person named as a
Non-Managing Member on Exhibit A hereto on the date hereof shall be
deemed to own the number of Common Membership Units specified in Exhibit A,
and the Manager on the date hereof shall be deemed to own a Managing Member
Interest including the number of Common Membership Units specified in Exhibit A.

 

(b)           In addition to the
information described in Section 3.1(a) hereof, Exhibit A
hereto contains the name and address of each Member as of the date hereof.  The Company shall revise Exhibit A
(i) following the Over-Allotment Membership Unit Purchase, if any, to
reflect the purchase of additional Common Membership units by CPE following the
closing of the Over-Allotment Option as set forth in the Acquisition Agreement,
(ii) from time to time to reflect the issuance, conversion or Transfer of
Units in accordance with the terms of this Agreement and other modifications to
or changes in the information set forth therein and (iii) in accordance
with Sections 3.3, 3.4, 8.2 and 9.1.  Any amendment or revision to Exhibit A
or to the Company’s records as contemplated by this Agreement to reflect
information regarding Members or under Section 3.3, 3.4, 8.2 or 9.1
and in accordance with such Sections shall be deemed to amend this Agreement,
but shall not require the approval of the Manager or any Member.

 

(c)           One or more additional
Persons may be admitted as a Member of the Company only upon (i) an
issuance of Units or other Company Interests pursuant to and in compliance with
Sections 3.3 or 3.4 or a Transfer of Units pursuant to and in
compliance with Article 8 and (ii) the execution and delivery
by such Person of a counterpart to this Agreement or other written agreement,
in a form reasonably satisfactory to the Manager, to be bound by all the terms
and conditions of this Agreement.  Upon
such execution, the Company shall amend Exhibit A (which shall be
deemed an amendment to this Agreement), as the Manager may reasonably determine
is necessary, to reflect the admission of such Person as a Member and such
other information of such Person as indicated in Exhibit A.  Unless admitted to the Company as a Member as
provided in this Section 3.1 or Section 8.2, no Person
is, or will be considered to be, 

 

19

 

a Member.  Notwithstanding the rights of the Manager set
forth in this Agreement, the Rio Tinto Designee, on behalf of the Rio Tinto
Members, shall have the right to direct the Manager to amend Exhibit A
to reflect the admission of any such Person admitted to the Company as a Member
pursuant to this Section 3.1 or Section 8.2.

 

(d)           Notwithstanding the
foregoing clause (c) of this Section 3.1, in no case will
the Manager admit any Member, issue any Equity Interests in the Company,
consent to any Transfer or otherwise take any action if such admittance,
issuance, Transfer or other action would cause the Company to be a partnership
that has more than one hundred (100) partners within the meaning of Treasury
Regulation Section 1.7704-1(h)(1)(ii).

 

(e)           Subject to the other
provisions of this Section 3.1 and Section 8.2, each
Person that holds one or more Units in compliance with the terms of this
Agreement shall be a Member.  A Member
will cease to be a Member when such Person ceases to own any Units in the
Company, in which case Exhibit A shall be amended by the Company as
the Manager may reasonably determine is necessary to reflect that such Person
is no longer a Member.

 

(f)            Except as provided in the
LLC Act, this Agreement or as otherwise agreed by a Member, in no event shall
any Member (or any former Member), by reason of its status as a Member (or
former Member), have any liability or responsibility for (i) any
Indebtedness, duties, Liabilities or any other obligations of the Company or
any other Member or former Member under this Agreement, (ii) the repayment
of any Capital Contribution of any other Member or (iii) any act or
omission of any other Member.

 

(g)           If one or more Rio Tinto
Members and one or more of their respective Permitted Transferees (which have
the rights and powers of a Rio Tinto Member under Section 8.2(c))
hold Common Membership Units in the Company at the same time, such Rio Tinto
Members and Permitted Transferees shall designate RTA or an Affiliate of RTA
(the “Rio Tinto Designee”) to act on
behalf of all of them and vote all of their Common Membership Units with
respect to any matter requiring approval of the Rio Tinto Members.  Notwithstanding any provision to the contrary
in this Agreement or the LLC Act, any vote, consent or other approval required
to be given by the Rio Tinto Members (including its Permitted Transferees)
pursuant to this Agreement may given by a vote of, or a consent or other
approval in writing signed by, the Rio Tinto Designee on behalf of the Rio
Tinto Members and their Permitted Transferees. 
The Rio Tinto Members, together with any Permitted Transferees of the
Rio Tinto Members, will determine in their sole discretion how the Rio Tinto
Designee shall act with respect to any matter requiring approval of the Rio
Tinto Member under this Agreement.

 

3.2          Meeting of
Members.

 

(a)           Annual Meeting.  Subject to Section 3.2(g), an
annual meeting of Members shall be held on such date and at such time as (i) shall
be designated from time to time by the Manager, but no less often than once
during each calendar year, and (ii) stated in the notice of the meeting,
at which meeting the Members entitled to vote shall transact such business as
may properly be brought before the meeting. 
At each annual meeting of the Members (i) the Manager shall discuss
the matters and affairs of the Company, and (ii) the Members shall address
such other matters as may be raised at the meeting by the Members or Manager.

 

20

 

(b)           Special Meetings.  A special meeting of Members, for any purpose
or purposes, may be called by the Manager and shall be called by the Manager
upon the receipt by the Manager of the written request of any Member, in each
case upon giving written notice of the special meeting as set forth in clause (d) of
this Section 3.2.  Such
request shall state the date and purpose or purposes of the proposed meeting
and shall be given to the Manager at least twenty (20) calendar days prior to
the date of the proposed meeting.

 

(c)           Place and Conduct of
Meetings.  Meetings of
the Members shall be held at such time and place, either within or without the
State of Delaware, as shall be designated from time to time by the Manager and
stated in the notice of the meeting or in a duly executed waiver of notice
thereof.  All meetings shall be conducted
by such Person as the Manager may appoint pursuant to such rules for the
conduct of the meeting as the Manager or such other Person deems
appropriate.  Such meetings may be held
in person, by teleconference or by any other reasonable means, in each case at
the discretion of the Manager.

 

(d)           Notice of Meetings.  Written notice of an annual meeting or
special meeting stating the place, date, and hour of the meeting and in the
case of a special meeting, the purpose or purposes for which the meeting is
called, shall be given by the Manager no later than ten (10) calendar days
before the date of the meeting to each Member entitled to vote at such meeting,
unless waived by each such Member.

 

(e)           Quorum.  The presence of the holders of a majority of
all the Common Membership Units then outstanding and entitled to vote thereat,
whether in person or represented by a valid written proxy, shall constitute a
quorum at all meetings of the Members for the transaction of business.  If, however, such quorum shall not be present
or represented at any meeting of the Members, the Members entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented.

 

(f)            Voting.  Except as otherwise set forth herein, all
matters submitted to the vote of the Members shall be decided by an affirmative
vote of the holders of Common Membership Units representing a majority of all
the Common Membership Units then outstanding. 
Such votes may be cast in person or by valid written proxy, but no proxy
shall be voted after three years from its date, unless such proxy provides for
a longer period.

 

(g)           Action by Consent.  (i) Any consent required herein or
action required to be taken at any annual or special meeting of Members, or any
action which may be taken at any annual or special meeting of such Members, may
be taken without a meeting, without a vote, without prior written notice and
with a consent or consents in writing signed by Members who are holders of
outstanding Common Membership Units having not less than the minimum number of
votes, pursuant to clause (f) of this Section 3.2, that would
be necessary to authorize or take such action at a meeting at which all Common
Membership Units entitled to vote thereon were present and voted.  Prompt notice of the taking of the action
without a meeting by less than unanimous written consent shall be given to
those Members who are holders of Common Membership Units and who have not
consented in writing; provided that the failure to give any such notice
shall not affect the validity of the action taken by such written consent.

 

21

 

3.3          Membership
Units.

 

(a)           Units.  The Interests in the Company may be
represented by one or more classes of units (each, a “Unit”).  The aggregate number of authorized Units that
the Company is authorized to issue is 200,000,000 Common Membership Units.  The aggregate number of authorized Units
shall not be changed, modified or adjusted from that set forth in the
immediately preceding sentence; provided, that, in the event the
total number of authorized shares of CPE Common Stock under the amended and
restated certificate of incorporation of CPE shall be increased or decreased
after the date of this Agreement, then the total number of authorized Units
shall be automatically correspondingly increased or decreased by the same
number so that the number of the authorized Units equals the number of
authorized shares of CPE Common Stock. 
Any Units repurchased by, or otherwise transferred to, the Company or
otherwise forfeited (but not cancelled by the Company) shall thereafter deemed
to be authorized but unissued and may be subsequently issued as Units for all
purposes hereunder in accordance with this Agreement.  Any Units repurchased by, or otherwise
transferred to, the Company and cancelled by the Company shall thereafter not
be available or authorized to be subsequently issued by the Company.  Subject to Section 10.2, in the
event that the Company issues an additional class of Units other than Common
Membership Units, the Manager shall make such revisions to this Agreement
(including, but not limited to, the revisions described in Section 5.5
and Section 6.5), as it deems necessary to reflect the issuance of
such additional Units.

 

(b)           Register.  Exhibit A shall be the register
of ownership of all Interests in the Company (including any outstanding Units)
as provided in this Section and shall be the definitive record of
ownership of all Interests in the Company (including any outstanding Units) and
all relevant information with respect to each Member.  Units shall be uncertificated and recorded in
the books and records of the Company.

 

(c)           Common Membership Units.  The Common Membership Units shall consist of
equal units (and may be issued in fractional units).  The Common Membership Units shall have the
rights and obligations set forth herein including being entitled to share in
distributions and allocations as provided in Sections 5.4, 6.4 and 7.3,
and as otherwise provided in this Agreement.

 

(d)           Splits, Distributions and
Reclassifications.  Neither the
Company nor CPE shall in any manner divide (by any split, distribution,
reclassification, recapitalization or otherwise) or combine (by reverse split,
reclassification, recapitalization or otherwise) any class or series of the
outstanding Units or CPE Securities (including, but not limited to, CPE Common
Stock) (an “Adjustment Event”) unless an
identical Adjustment Event is occurring with respect to the corresponding class
or series of Units or CPE Securities, in which event, CPE shall cause such
class or series of Units or CPE Securities to be divided or combined
concurrently with and in the same manner as the corresponding class or series
of Units or CPE Securities subject to such Adjustment Event.  Any
Adjustment Event pursuant to this Section 3.3(d) must include
a distribution to holders of such class or series of Units which is
economically equivalent to any distribution to the corresponding class of CPE
Securities made with respect to such division or combination.  In the
event of a partial reclassification or a series of multiple transactions,
(whether related or not) whereby holders of a class of CPE Securities receive
or are entitled to receive more than a single type of consideration (determined
based upon any form of stockholder election as applicable), CPE shall cause
holders of the corresponding class or series of Units to 

 

22

 

have the right, in the
holder’s sole discretion, to elect the type of consideration (in the same
manner, and at the same time, as any such form of election available to such
holders of CPE Securities). 
Notwithstanding the foregoing, nothing in this Section 3.3(d) shall
modify, alter or supersede the provisions of Section 10.2 of this
Agreement or any other provision of this Agreement requiring the consent or
approval of any Member to authorize or approve any transaction or event
described in this Section 3.3(d).

 

(e)           Issuances of CPE Securities;
Mergers, Consolidation, Etc.

 

(i)            At any time CPE issues any
CPE Securities, other than pursuant to Section 8.3(b) or Section 9.1(b) of
this Agreement, or incurs any Indebtedness constituting CPE Securities, the
Company shall issue to CPE (x) in the case of an issuance of shares of CPE
Common Stock, an equal number of Common Membership Units, registered in the
name of CPE or (y) in the case of an issuance of any other CPE Securities
of any other class, type or kind, including any incurrence of Indebtedness
constituting CPE Securities, an equal number of corresponding Company Interests
with designations, preferences and other rights, terms and conditions (other
than financial covenants applicable to CPE or its Subsidiaries) that are
substantially the same as the designations, preferences and other rights, terms
and conditions the corresponding CPE Securities, registered in the name of
CPE.  The net proceeds, if any and as
determined in the reasonable judgment of the Manager, whether in cash or other
property, received by CPE with respect to the issuance of CPE Securities,
including any incurrence of Indebtedness constituting CPE Securities, shall be
transferred to the Company no later than the close of business on the Business
Day following the receipt of any such net proceeds by CPE.

 

(ii)           In the event of (A) any
consolidation or merger or combination to which CPE is a party (other than a
merger in which CPE is the continuing corporation and which does not result in
any reclassification of, or change (other than in par value, or from par value
to no par value, or from no par value to par value, or as a result of a
subdivision or combination) in the number of, outstanding shares of CPE Common
Stock) or (B) any sale, Transfer or other disposition of all or
substantially all of the assets of CPE, directly or indirectly, to any Person,
as a result of which holders of CPE Common Stock shall be entitled to receive
either stock, securities or other property or assets (including cash) as
consideration with respect to or in exchange for CPE Common Stock, then CPE
shall take all necessary action such that the Common Membership Units then
outstanding and held by Non-Managing Members shall be exchangeable on a
per-Common Membership Unit basis at any time or from time to time following
such event at the option of each Non-Managing Member into the kind and amount
of shares of stock and/or other securities and property (including cash) that
would have been receivable by such Non-Managing Members upon such
consolidation, merger, sale, Transfer or other disposition had the Non-Managing
Members held an equivalent amount of CPE Common Stock (equal to the number of
Common Membership Units held by such Non-Managing Members) immediately prior to
the record date for such reclassification, change, combination, consolidation,
merger, sale, Transfer or other disposition. 
If the holders of CPE Common Stock, upon the occurrence of any event set
forth in (A) or (B) of this clause (ii), shall be entitled to receive
more than a single type of consideration for such shares of CPE Common Stock
(including cash, stock or other securities), then CPE shall take all necessary
action such that Common Membership Units held by the Non-Managing Members shall
be exchangeable at any time or from time to time following such event at the option
of the Non-Managing Member on a 

 

23

 

per-Common Membership Unit
basis  (as prescribed in the foregoing sentence) into the types of
consideration available to, and consistent with the per share exchange ratio
applicable to, holders of CPE Common Stock at the occurrence of such event; provided,
that, if pursuant to such event, holders of CPE Common Stock receive or
are entitled to receive more than a single type of consideration determined
based, in whole or in part, upon any form of stockholder election, the
Non-Managing Members shall have the right to elect the type of security that
such Non-Managing Member shall be entitled to receive under this clause (ii) in
a manner substantially similar to, and at the same time of, the election
available to such holders of CPE Common Stock. 
If pursuant to the provision set forth in the foregoing sentence,
holders of CPE Common Stock are entitled to receive cash, in addition to other
type(s) of consideration, the Non-Managing Member shall have the right, in
its sole discretion to exchange all or any portion of such Non-Managing Member’s
Common Membership Units for cash only. 
In the event that following the occurrence of any event set forth in (A) or
(B) of this clause (ii) there is any concentrative or dilutive action
taken by the successor entity to CPE (including, without limitation, any
dividend paid by such successor entity without a commensurate distribution to
the Non-Managing Members of the Company), the ratio by which Common Membership
Units are exchangeable into stocks or securities pursuant to this Section 3.3(e)(ii) shall
be appropriately adjusted to reflect consideration received by holders of such
stock or securities and not received by the Non-Managing Members holding Common
Membership Units which would have been received had such Common Membership
Units been exchanged into such stock or securities immediately prior to the
record date for such event.

 

(f)            Cancellation of Securities
and Units.

 

(i)            CPE shall not
undertake any redemption, repurchase, acquisition, exchange, cancellation or
termination of any share of CPE Common Stock that is not accompanied by a
substantially contemporaneous prior (including economically equivalent
consideration paid) redemption, repurchase, acquisition, cancellation or
termination of Common Membership Units registered in the name of CPE in order
to maintain a one-to-one ratio between the number of Common Membership Units
held by CPE and the number of shares of CPE Common Stock issued and outstanding
and not held in treasury, unless such action is necessary to maintain at all
times a one-to-one ratio between the number of Common Membership Units held by
CPE and the number of shares of CPE Common Stock issued and outstanding and not
held in treasury.  The Manager shall
promptly revise Exhibit A to reflect any such redemption,
repurchase, acquisition, cancellation or termination.

 

(ii)           CPE shall not
undertake any redemption, repurchase, acquisition, incurrence, repayment,
exchange, cancellation or termination of any CPE Securities (other than shares
of CPE Common Stock that are subject to subsection (f)(i) above), that is
not accompanied by a substantially contemporaneous prior (including
economically equivalent consideration paid) redemption, repurchase,
acquisition, incurrence, repayment, exchange, cancellation or termination of
the corresponding Company Interest in order to maintain a one-to-one ratio
between the number of applicable Company Interests and the number of corresponding
CPE Securities, unless such action is necessary to maintain at all times a
one-to-one ratio between the number of Company Interests and the number of
corresponding CPE Securities.  The
Manager shall promptly revise Exhibit A to reflect any such
redemption, repurchase, acquisition, incurrence, repayment, exchange,
cancellation or termination.

 

24

 

(g)           One-to-One Ratio of
Units/Interests held by CPE and CPE Securities.  The intent of this Agreement, including this Section 3.3
and Section 3.4, is to ensure, among other things, that a
one-to-one ratio is at all times maintained between (A) the number of
Common Membership Units held by CPE and the number of shares of CPE Common
Stock outstanding and (B) the number of Company Interests held by CPE of
each type or kind issued and the number of corresponding CPE Securities (of
such type or kind issued) outstanding, and such provisions shall be interpreted
consistently with such intent.

 

(h)           Notice.  CPE shall give written notice thereof to all
holders of Units (based on the ledger of ownership of the Company) at least
twenty (20) days prior to (i) the date on which CPE sets a record date for
determining rights in connection with a (x) merger, tender offer,
reorganization, recapitalization, reclassification or other change in the
capital structure of CPE (y) any transaction identified in Section 3.3(e) or
(z) any dividend or distribution (including in liquidation) and (ii) if
no such record date is set, the date of such foregoing event.

 

(i)            Transfer.  Upon any Transfer permitted under this
Agreement, the Manager shall record in Exhibit A of the Company (i) the
number, type and kind of Units being Transferred by the Transferring Member, (ii) the
number, type and kind of Units Transferred to the transferee and (iii) the
remaining number, type and kind of Units held by the Transferring Member.

 

3.4          Authorization
and Issuance of Additional Units.

 

(a)           General.  The Company shall only be permitted to issue
additional Units or other Equity Interests in the Company to the Persons and on
the terms and conditions provided for in Section 3.3, this Section 3.4
and Section 9.1.  No equity
compensation in the form of Units or other Company Interests may be issued by
the Company.  Except as otherwise
provided in this Agreement, the Manager may cause the Company to issue
additional Units authorized under this Agreement at such times and upon such
terms as the Manager shall determine. 
This Agreement shall be amended as necessary in connection with the
issuance of additional Units and Company Interests and the admission of
additional Members under this Agreement, each in accordance with the
requirements of Section 10.2 of this Agreement.

 

(b)           Equity Compensation Issued
by CPE.

 

(i)            In connection with the
exercise of Options or warrants under the CPE 2009 Long-Term Incentive Plan or
any similar or successor equity incentive plan of CPE (the “CPE 2009 Long Term Incentive Plan”),
CPE shall have the right to acquire additional Common Membership Units from the
Company.  CPE shall exercise its rights
under this Section 3.4(b)(i) by giving written notice (the “Equity Compensation Notice”) to the
Company and all Members following exercise of the Options.  The Equity Compensation Notice shall specify
the net number of shares of CPE Common Stock actually issued by CPE to third
parties pursuant to exercise of the Options or warrants.  The Company shall issue the Common Membership
Units to which CPE is entitled under this Section 3.4(b)(i) within
three (3) Business Days after delivery of the Equity Compensation Notice
(to be effective immediately prior to the close of business on such date).  The number of additional Common Membership
Units that CPE shall be entitled to receive under this Section 3.4(b)(i) shall
be equal to the net number of shares of CPE Common Stock issued by CPE pursuant
to the exercise of the Options or warrants. 
The net number of 

 

25

 

shares of CPE Common Stock
issued by CPE pursuant to exercise of the Options or warrants shall be equal to
(i) the number of shares of CPE Common Stock with respect to which the
Options or warrants were exercised, less (ii) any shares of CPE Common
Stock transferred to or withheld by CPE (e.g., in connection with a cashless
exercise, stock swap, tax payments or otherwise) in satisfaction of the
exercise price or taxes payable as a result of the exercise of the Options or
warrants.  In consideration of the Common
Membership Units issued by the Company to CPE under this Section 3.4(b)(i),
CPE shall contribute to the Company the cash consideration, if any, received by
CPE in exchange for the net shares of CPE Common Stock issued pursuant to
exercise of the Options or warrants, net of any amount that represents withholding
taxes required to be paid by CPE to the appropriate taxing authorities.  CPE shall contribute any cash consideration
to which the Company is entitled under this Section 3.4(b)(i) on
the same date (and to be effective as of the same time) that the Company issues
the Common Membership Units to CPE.

 

(ii)           In connection with the grant
of CPE Common Stock pursuant to the CPE 2009 Long-Term Equity Incentive Plan
(including, without limitation, the issuance of restricted and non-restricted
CPE Common Stock (including as dividends or distributions on such restricted or
non-restricted CPE Common Stock), the payment of bonuses in CPE Common Stock,
the issuance of CPE Common Stock in settlement of stock appreciation rights or
otherwise), other than through the exercise of Options as contemplated in Section 3.4(b)(i),
CPE shall deliver an Equity Compensation Notice to the Company and all Members
following the date on which shares of CPE Common Stock are issued (“Issued CPE Shares”).  The Equity Compensation Notice shall specify
the number of Issued CPE Shares.  Within
three (3) Business Days after delivery of the Equity Compensation Notice
(to be effective immediately prior to the close of business on such date) (i) the
Company shall issue to CPE a number of Common Membership Units equal to the
number of Issued CPE Shares with the same restrictions, if any, to which the
Issued CPE Shares are subject and (ii) CPE shall contribute to the Company
any cash consideration received by CPE in respect of such Issued CPE Shares,
net of any amount that represents withholding taxes required to be paid by CPE
to the appropriate taxing authorities.

 

ARTICLE 4

MANAGEMENT AND OPERATIONS

 

4.1          Manager.  The Company shall be managed by one manager
(the “Manager”) that shall be CPE (unless
and until CPE is no longer a Member in the Company or CPE is properly removed
and replaced in accordance with Sections 4.7 and 4.8).  CPE may not be removed as the Manager except
as provided in Section 4.7. 
Any Manager that is properly removed pursuant to Section 4.7
shall be replaced in the manner provided in Section 4.8.

 

4.2          Management
Authority.  Except as
provided in Section 4.3, the Manager shall have authority on behalf
of the Company to manage and make all decisions with respect to the Company’s
business and affairs without the approval of the Members.  In connection with the implementation,
consummation or administration of any matter within the scope of the Manager’s
authority, the Manager is authorized, without the approval of the Members (but
subject to Section 4.3), to execute and deliver on behalf of the
Company (but not on behalf of any other Member) contracts, instruments,
conveyances, checks, drafts and other documents of any kind or character to the
extent the Manager deems it necessary or desirable.  The Manager may delegate to officers,
employees, agents or representatives of the Manager or other Persons 

 

26

 

any or all of the foregoing
powers by written authorization identifying specifically or generally the
powers delegated or acts authorized.

 

4.3          Rio Tinto
Member Approval Rights.

 

(a)           Until the Rio Tinto Member
Non-Approval Trigger Date, the Manager shall not take, or cause the Company to
take any of the actions specified in Section 4.3(b) (“Rio Tinto Member Approval Rights”)
without Rio Tinto Member Approval.

 

(b)           Subject to Section 4.3(a) and
notwithstanding anything to the contrary in this Agreement, until the Rio Tinto
Member Non-Approval Trigger Date, neither the Company nor CPE shall take, cause
to be taken, or agree to take or authorize any of the following actions without
Rio Tinto Member Approval:

 

(i)            approval of (i) any
transaction that would result in a Change in Control of the Company or a Change
in Control of the Manager or (ii) a change in the Manager pursuant to Section 4.8;

 

(ii)           entering into any agreement
to effect or consummate any merger, consolidation, dissolution or liquidation
of the Company or any merger, consolidation, dissolution or liquidation of any
Subsidiary of the Company, except that (x) any Subsidiary may liquidate or
dissolve or merge or consolidate into the Company in a transaction in which the
Company is the surviving corporation, (y) any Subsidiary may merge into or
consolidate with any other Subsidiary in a transaction in which the surviving
entity is a Subsidiary and (z) any Subsidiary may merge or consolidate
with another Person in a transaction in which the surviving entity is such
Subsidiary;

 

(iii)          (A) the direct or
indirect sale, transfer, lease or other disposition of property or assets
(including Capital Stock of any Subsidiary), whether now owned or hereafter
acquired, of the Company and its Subsidiaries to any Person other than the
Company or its wholly-owned Subsidiaries in any one transaction or series of
related transactions outside of the ordinary course of business for aggregate
consideration (including assumed Indebtedness valued at the amount that is or
is required to be shown on the balance sheet of the Company) in an amount in excess
of $500 million, subject to the CPI Adjustment; provided, however,
that the approval of the Rio Tinto Members under this Section 4.3(b) shall
not be required in connection with the creation, incurrence or assumption of
(or foreclosure or other realization with respect to) any Lien created,
incurred or assumed in connection with Indebtedness assumed, incurred or issued
as permitted by the terms of this Agreement or the Transactions;

 

(iv)          any fundamental change
outside of the ordinary course in the nature (but not size or methods) of the
Coal Business as in effect on the date of this Agreement, but only insofar as
such fundamental change does not relate to the normal operation or activities
of the Coal Business or any business or operation reasonably related or
ancillary to the Coal Business;

 

(v)           entering into any agreement
to effect or consummate any acquisition of any other business or assets that
has a purchase price in excess of $500 million, or that would result in the
issuance of Equity Interests in excess of $500 million, in either case 

 

27

 

subject to the CPI
Adjustment, taken as a whole, in any one transaction or series of related
transactions, whether by purchase and sale, merger, consolidation or otherwise;

 

(vi)          the assumption, incurrence
or issuance of Indebtedness in an aggregate principal amount in excess of 125%
of the Indebtedness amounts included in the Company’s Life of Mine Model,
subject to the CPI Adjustment, other than Indebtedness (x) to fund
ordinary course business operations of the Company or (y) to fund any
capital expenditures that do not require Rio Tinto Member Approval as set forth
in clause (vii) below;

 

(vii)         making or committing to
make, in any calendar year period, capital expenditures outside the ordinary
course of business; it being acknowledged that the following capital
expenditures, as adjusted by the CPI Adjustment, shall be deemed to be in the
ordinary course of business: (x) Committed LBA Payments reflected in the
Company’s Life of Mine Model and (y) the aggregate amount of other capital
expenditures that for such calendar year period is not in excess of 125%
multiplied by the sum of (1) Uncommitted LBA Payments reflected in the
Company’s Life of Mine Model for such calendar year period, (2) Non-LBA
Capital Payments reflected in the Company’s Life of Mine Model for such
calendar year period and (3) the cumulative amount by which actual capital
expenditures in preceding years for capital expenditures other than Committed
LBA Payments is less than the sum of Uncommitted LBA Payments and Non-LBA
Capital Payments for such prior years.

 

(viii)        except as otherwise set
forth in any other Transaction Document, settle any Claims as to which any of
the Rio Tinto Members or any of their Affiliates would have liability.

 

(c)           Except for the matters
expressly specified in Section 4.3(b), the Rio Tinto Member
Approval Rights shall not, and are not intended to, affect, limit, modify or
supersede the Manager’s right and obligation to conduct, make all decisions and
manage the day-to-day business and affairs of the Company.

 

4.4          Duties.  The Manager shall carry out its duties in
good faith, in a manner that it believes to be in the best interests of the
Company.  The Manager shall devote such
time and expend such resources to the business and affairs of the Company as it
may determine, in its reasonable discretion, is necessary or appropriate for
the efficient carrying on of the Company’s business.

 

4.5          Reliance by
Third Parties.  No third party
dealing with the Company shall be required to ascertain whether the Manager is
acting in accordance with the provisions of this Agreement.  All third parties may rely conclusively on
any agreement, instrument or other document executed by the Manager as being
within the Manager’s authority and binding on the Company.  If the Manager acts without authority it
shall be liable to the Members for any damages arising out of its unauthorized
actions.

 

4.6          Resignation.  The Manager may resign at any time by giving
written notice to the Members.  Unless
otherwise specified in the notice, the resignation shall take effect upon
receipt thereof by the Members, and the acceptance of the resignation shall not
be necessary to make it effective. 
Notwithstanding the foregoing, if a replacement Manager has not been
designated 

 

28

 

pursuant to Section 4.8,
such resignation shall not take effect until the appointment of the new Manager
pursuant to Section 4.8.

 

4.7          Removal.  CPE may from time to time and at any time
with or without cause remove itself, and any subsequent Manager, from the
position of Manager by giving written notice to the Members and such Manager.  If at any time the Manager (the “Former Manager”) is removed
pursuant to this Section 4.7 or resigns pursuant to Section 4.6
and a new Manager is appointed pursuant to Section 4.8, the Former
Manager will, if the Former Manager owns any Common Membership Units,
automatically become a Non-Managing Member in the Company and the Managing
Member Interest of the Former Manager will automatically cease to be the
Managing Member Interest; provided, however that the provisions
of Section 3.3(e)(ii), Section 4.14(a) and Section 8.3
shall not apply to CPE and CPE shall continue to owe the duties set forth under
Section 4.14(b).

 

4.8          Vacancies.  If there is a vacancy in the position of
Manager occurring for any reason, CPE shall have the right, subject to Section 4.3(b)(i),
to designate any Person (including, without limitation, CPE or its Affiliates)
as Manager.  Any such designation shall
be made by giving written notice thereof to the Members.

 

4.9          Information
Relating to the Company.

 

(a)           In addition to any
information required to be provided pursuant to Section 6.6 or Section 6.9,
the Manager shall supply to a Member as soon as reasonably practicable after
written request therefor any information required to be available to the
Members under the LLC Act and any other information reasonably requested by
such Member regarding the Company or its activities (including copies of all
books and accounts, documents and other information in order to enable such
Member to monitor its investment in the Company, exercise its rights under this
Agreement and such other information as may be reasonably required to enable
such Member to account for its investment in the Company and otherwise comply
with the requirements of applicable laws, GAAP, the generally accepted
accounting principles or other accounting requirements of any Member and the
requirements of any Government Authority), provided that obtaining the
information requested is not unduly burdensome to the Manager (it being
understood that any information necessary for a Member to account for its
investment in the Company under the generally accepted accounting principles or
other accounting requirements applicable to such Member shall not be deemed
unduly burdensome).

 

(b)           During ordinary business
hours, each Member and its authorized representative shall have access to all
books, records and materials in the Company’s offices regarding the Company or
its activities.

 

(c)           The Manager shall notify a
Member if the Manager considers any information received pursuant to this Section 4.9
to be Confidential Information.  Any such
Confidential Information will be subject to the provisions of Section 10.3
of this Agreement.

 

4.10        Insurance.  The Company shall maintain or cause to be
maintained in force at all times, for the protection of the Company and the
Members to the extent of their insurable interests, such insurance as the
Manager believes is warranted for the operations being conducted.

 

29

 

4.11        Board of
Directors.  The Manager
may establish a Board of Directors (the “Board”) for
the Company to manage the business and affairs of the Company and may designate
one or more persons as members of the Board and may delegate any or all of its
authority as Manager to such Board; provided that no such delegation
shall reduce or otherwise affect the duties and obligations of the Manager
hereunder.  If a Board is created
pursuant to this Section 4.11, the Board may designate one or more
committees to act on its behalf as it deems appropriate.

 

4.12        Officers.

 

(a)           The Manager may, from time
to time, designate one or more Persons to fill one or more officer positions of
the Company.  Any officers so designated
shall have such titles and authority and perform such duties as the Manager
may, from time to time, delegate to them. 
If the title given to a particular officer is one commonly used for
officers of a business corporation, the assignment of such title shall
constitute the delegation to such officer of the authority and duties that are
normally associated with that office, subject to any specific delegation of
authority and duties made to such officer, or restrictions placed thereon, by
the Manager.  Each officer shall hold
office until his or her successor is duly designated, until his or her death or
until he or she resigns or is removed in the manner hereinafter provided.  Any number of offices may be held by the same
Person.  The salaries or other
compensation, if any, of the officers of the Company shall be fixed from time
to time by the Manager.  The initial
officers of the Company are listed on Exhibit C hereto.

 

(b)           Any officer of the Company
may resign at any time by giving written notice thereof to the Manager.  Any officer may be removed, either with or
without cause, by the Manager whenever in its judgment the best interests of
the Company will be served thereby; provided, however, that such
removal shall be without prejudice to the contract rights, if any, of the
Person so removed.  Designation of an
officer shall not, by itself, create contract rights.

 

4.13        Certain
Costs, Fees and Expenses.

 

(a)           Except as expressly provided
in the Transaction Documents, the Company shall pay, or cause to be paid, all
costs, fees, operating expenses and other expenses of the Company (including
the costs, fees and expenses of attorneys, accountants or other professionals
and the compensation of all personnel providing services to the Company)
incurred in pursuing and conducting, or otherwise related to, the activities,
including intended activities, of the Company, including for any acquisitions,
financing transactions or any other transactions, whether or not consummated.

 

(b)           The Manager is hereby
authorized to receive payments from the Company as set forth in the Management
Services Agreement.  Except as provided
therein, the Manager shall not be entitled to compensation for performance of
its duties hereunder.  Any payment made
to the Manager pursuant to the Management Services Agreement shall be treated
under Section 707(a) of the Code as a payment to the Manager in its
capacity as Manager and not in its capacity as a Member of the Company.

 

30

 

4.14        Certain
Duties and Obligations of the Members.

 

(a)           Under no circumstance shall
the Non-Managing Members constitute fiduciaries of any other Member or the
Company, or owe any fiduciary or other duties or obligations to any other
Member or the Company, whether express, implied or otherwise existing (but for
this provision) by operation of law or application of legal or equitable
principles, and any and all such duties and obligations, and any and all Claims
and causes of action which may be based thereon, are hereby expressly waived
and relinquished by the Members.  Except
as otherwise provided in this Agreement, no Non-Managing Member shall have any
authority to act for, bind, commit or assume any obligation or responsibility
on behalf of the Company, its properties or any other Member.

 

(b)           In connection with the
performance of its duties as Manager of the Company, the Manager acknowledges
that it will owe to the Members, solely in their capacity as Members, the same
fiduciary or quasi-fiduciary duties or similar duties and obligations as it
would owe to the stockholders of a Delaware corporation if it were a member of
the board of directors of such a corporation and the Members were stockholders
of such corporation.  The Members
acknowledge that the Manager will take action through its board of directors,
and that the members of the Manager’s board of directors will owe comparable
fiduciary duties to the stockholders of the Manager.  The Manager will use all commercially
reasonable and appropriate efforts and means, as determined in good faith by
the Manager, to minimize any conflicts of interest between the Members and the
stockholders of the Manager and to effectuate any transaction that involves or
affects any of the Company, the Manager, the Members and/or the stockholders of
the Manager in a manner that does not (i) disadvantage the Members or
their interests relative to the stockholders of the Manager, (ii) advantage
the stockholders of the Manager relative to the Members or (iii) treat the
Members and the stockholders of the Manager differently, except to reflect the
fact that stockholders are stockholders of a corporation and the Members are
members of a limited liability company or as otherwise provided herein or in
any other Transaction Document.

 

4.15        Limitation
of Liability; Exculpation.

 

(a)           No (i) Manager or
Member of the Company, nor any of their respective Subsidiaries or Affiliates
nor (ii) any of their respective direct or indirect officers, directors,
trustees, members, managers, partners, equity holders, employees or agents
(each, a “Representative”), nor (iii) any
of their heirs, executors, successors and assigns ((i), (i) and (iii),
each, an “Indemnitee”), shall be liable
to the Company or any Member for any act or omission by such Indemnitee in
connection with the conduct of affairs of the Company or otherwise incurred in
connection with the Company or this Agreement or the matters contemplated
herein, in each case unless such act or omission was the result of gross
negligence or willful misconduct or constitutes a breach of, or a failure to
comply with this Agreement.  Except as
provided in the LLC Act, this Agreement or as otherwise expressly agreed, in no
event shall the Manager (or any former Manager), by reason of its status as
Manager (or former Manager), have any liability or responsibility for (i) any
Indebtedness, duties, Liabilities or any other obligations of the Company (or
any other Manager or former Manager), (ii) the repayment of any Capital
Contribution of any other Manager or (iii) any act or omission of any
other Manager.  To the extent any portion
of this Section 4.15 directly conflicts with any of the Transaction
Documents, 

 

31

 

other than this Agreement,
such other Transaction Document shall control with respect to the matters set
forth therein.

 

(b)           Subject to Section 4.4(b),
notwithstanding any other provision of this Agreement or other applicable
provision of law or equity, whenever in this Agreement a Manager, Member,
director or officer of the Manager or the Company is permitted or required to
make a decision (i) in its “sole discretion,” or “discretion,” with “complete
discretion” or under a grant of similar authority or latitude, such Manager,
Member, director or officer shall be entitled to consider only such interests
and factors as it desires in good faith and shall, to the fullest extent
permitted by applicable law, have no duty or obligation to give any
consideration to any interest of or factors affecting the Company or the
Members, or (ii) in its “good faith” or under another expressed standard,
such Manager, Member, director or officer shall act under such express standard
and shall not be subject to any other or different standards.

 

(c)           Any Manager, Member,
Liquidator, director or officer of the Manager or the Company may consult with
legal counsel and accountants selected by it at its expense or with legal
counsel and accountants for the Manager or the Company at the Company’s
expense.  Each Manager, Member,
Liquidator, director and officer of the Manager or the Company shall be fully
protected in relying in good faith upon the records of the Manager or the
Company and upon information, opinions, reports, or statements presented by
another Manager, Member, Liquidator, director or officer, or employee of the
Manager or the Company, or committees of the Manager, Liquidator or the
Company, or by any other Person (including, without limitation, legal counsel
and public accountants) as to matters that the Manager, Member, Liquidator,
director or officer reasonably believes are within such other Person’s
professional or expert competence, including information, opinions, reports or
statements as to the value and amount of the assets, liabilities, Net Income or
Net Losses of the Company, or the value and amount of assets or reserves or
contracts, agreements or other undertakings that would be sufficient to pay
claims and obligations of the Company or to make reasonable provision to pay
such claims and obligations, or any other facts pertinent to the existence and
amount of assets from which distributions to Members or creditors might
properly be paid.

 

4.16        Indemnification.

 

(a)           Indemnification Rights.  The Company shall indemnify and hold harmless
each Indemnitee from and against any and all Liabilities, in which the
Indemnitee was involved or may be involved, or threatened to be involved, as a
party or otherwise, arising out of or relating to the business of the Company,
this Agreement, any Person’s status as a Manager, Member, director or officer
of the Company or any action taken by any Manager, Member, director or officer
of the Company under this Agreement or otherwise on behalf of the Company,
regardless of whether the Indemnitee continues to be a Manager, Member,
director or officer of the Company, or an Affiliate or Representative of a
Manager, Member, director or officer of the Company, to the fullest extent
permitted by the LLC Act and all other applicable Laws; provided that an
Indemnitee shall be entitled to indemnification hereunder only to the extent
that such Indemnitee’s conduct did not result from gross negligence or willful
misconduct.  The termination of any
proceeding by settlement, judgment, order, conviction, or upon a plea of nolo
contendere or its equivalent shall not, of itself, create a presumption that
such Indemnitee’s conduct resulted from gross negligence or willful
misconduct.  To the extent any portion of
this Section 4.16 directly conflicts with any of the Transaction
Documents, other than this 

 

32

 

Agreement, such other
Transaction Document shall control with respect to the matters set forth
therein.

 

(b)           Expenses.  Expenses incurred by an Indemnitee in
defending against any Liability or potential Liability subject to this Section 4.16
shall be, from time to time, promptly advanced by the Company prior to the
final disposition of such Liability upon receipt by the Company of an
undertaking reasonably acceptable in form and substance to the Manager by or on
behalf of the Indemnitee to repay such amount if it shall be determined that
such Person is not entitled to be indemnified as authorized in this Section 4.16.

 

(c)           Indemnification Rights
Non-Exclusive; Rights of Indemnified Parties.  The indemnification provided by this Section 4.16
shall be in addition to any other rights an Indemnitee may be entitled under
any agreement, as a matter of law or equity, or otherwise.  Such indemnification shall continue with
respect to an Indemnitee even though it has ceased to serve in any particular
capacity and shall inure to the benefit of its heirs, executors, successors,
assigns and other legal representatives. 
The provisions of Section 4.15 and this Section 4.16
shall not supersede any other provisions providing for indemnification of any
Indemnitee in any other Transaction Document, including the Master Separation
Agreement.  To the extent that any
provision in Section 4.15 and this Section 4.16
conflict with any other Transaction Document, such other Transaction Document
shall control.

 

(d)           Assets of the Company.  Any indemnification under this Section 4.16
shall be satisfied solely out of the assets of the Company, and no Member or
Manager shall be subject to personal liability or required to fund or cause to
be funded any obligation by reason of these indemnification provisions.

 

(e)           Other Liability Insurance.  The Company may purchase and maintain
insurance, at the Company’s expense, on behalf of such Persons as the Manager
shall reasonably determine, against any liability that may be asserted against,
or any expense that may be incurred by, such Person in connection with the
activities of the Company and its Subsidiaries or Affiliates regardless of
whether the Company would have the obligation to indemnify such Person against
such liability under the provisions of this Agreement.

 

(f)            Calculation of
Indemnification.  Any
indemnification obligation payable to the Rio Tinto Members arising under this Section 4.16
will be calculated and payable in accordance with Section 6.1 of the
Master Separation Agreement.

 

4.17        Title to
Assets; Liens.  Unless
specifically licensed or leased to the Company, title to the assets of the
Company, whether real, personal or mixed and whether tangible or intangible,
shall be deemed to be owned by the Company as an entity, and no Members,
individually or collectively, shall have any ownership interest in such assets
or any portion thereof or any right of partition.  The Company shall be permitted to create,
incur, assume or permit to exist Liens on any assets (including Equity
Interests or other securities of any Person, including any Subsidiary) now
owned or hereafter acquired by it or on any income or revenues or rights in
respect of any thereof.

 

4.18        CPE Conduct
of Business Only Through the Company.  Except as provided in this Agreement, or as
may be otherwise provided in any written agreement by and among (a) the 

 

33

 

Company, (b) at least
one or more of RTEA, KMS or any of their Affiliates and (c) CPE, CPE shall
not, and shall cause its respective Affiliates not to directly or indirectly
create or establish a new business venture, expand an existing business venture
or engage in or conduct any business or venture (whether or not operated
through a separate legal entity or as part of a larger corporation or other
entity), or invest any amount of resources in connection with the foregoing,
other than in (i) any business or venture that is held in, or conducted
through, the Company or (ii) any business or venture entered into in
connection with (w) the acquisition, ownership or disposition of its
Managing Member Interest (or if it is not then the Manager, its Non-Managing
Member Interest), (x) the management of the business of the Company as
provided herein, (y) CPE’s operation as a public reporting company with a
class of securities registered under the Exchange Act and (z) such other
activities that are incidental to the foregoing.  The requirements of this Section 4.18
shall apply to CPE so long as CPE, including any successor, is a Member of the
Company, regardless of whether CPE is no longer the Manager pursuant to Section 4.6
or Section 4.7 of this Agreement. 
The Manager (including any future Managers if CPE is no longer the
Manager pursuant to Section 4.6 or Section 4.7 of this
Agreement) shall not have any business or other interests or engage in any
other business ventures (whether or not operated through a separate legal
entity or as part of a larger corporation or other entity) other than as held
in or conducted through the Company.  The
Company shall conduct substantially all of its business activities directly
through entities treated as partnerships for U.S. federal income tax purposes
or through entities whose existence is disregarded for U.S. federal income tax
purposes.

 

4.19        Business
Opportunities. 
(a) Subject to the proviso in the last sentence of clause (b) of
this Section 4.19, and except as otherwise agreed in writing
between CPE, the Company and a Rio Tinto Member, to the fullest extent
permitted by law, (1) no Rio Tinto Member (or any of the officers,
directors, employees, advisory board members, agents, stockholders, members,
partners, Affiliates and subsidiaries of any Rio Tinto Member (excluding, for
purposes of this Section 4.19, any Permitted Transferees) or any of
its Affiliates (collectively, the “Rio Tinto Member
Affiliates”)) shall have the duty (fiduciary or otherwise) or
obligation, if any, to refrain from (i) engaging in the same or similar
activities or lines of business as CPE or the Company, (ii) doing business
with any client, customer or vendor of CPE or the Company or (iii) entering
into and performing one or more agreements (or modifications or supplements to
pre-existing agreements) with CPE or the Company, including, without
limitation, in the case of any of clause (i), (ii) or (iii), any such
matters as may be corporate opportunities, (2) no Rio Tinto Member nor any
Rio Tinto Member Affiliate shall be deemed to have breached any duties (fiduciary
or otherwise), if any, to CPE or its stockholders or the Company or its Members
by reason of any Rio Tinto Member or any Rio Tinto Member Affiliate engaging in
any such activity or entering into such transactions, including, without
limitation, any corporate opportunities, whether or not such opportunities have
been offered to CPE or the Company and (3) to the extent required by
applicable law in order to effectuate the purpose of this provision, neither
CPE nor the Company shall have any interest or expectancy, and CPE and the
Company specifically renounce any interest or expectancy, in, and in being
offered an opportunity to participate in, any such activities or transactions.

 

(b)           If any Rio Tinto Member or
Rio Tinto Member Affiliate acquires knowledge of any potential matter or
transaction which may be a corporate opportunity or otherwise is utilizing any
corporate opportunity, CPE and the Company shall have no interest in such
corporate opportunity and no expectancy that such corporate opportunity be
offered to it, 

 

34

 

any such interest or
expectancy being hereby renounced, so that (1) such Rio Tinto Member or
Rio Tinto Member Affiliate shall, to the fullest extent permitted by law, have
the right to hold and to utilize any such corporate opportunity for its own
account (and for the account of its officers, directors, employees, advisory
board members, agents, stockholders, members, partners, Affiliates and
subsidiaries (other than CPE or the Company)) or to direct, sell, assign or
transfer such corporate opportunity to any person other than CPE or the Company
and (2) such Rio Tinto Member or Rio Tinto Member Affiliate shall have no
obligation to communicate or offer such corporate opportunity to CPE or the
Company and shall not, to the fullest extent permitted by law, breach any duty
(fiduciary or otherwise) to CPE or any of its stockholders or the Company or
any of its Members or be liable to CPE or any of its stockholders or the
Company or any of its members for breach of any duty (fiduciary or otherwise)
as a director, officer, stockholder or member of CPE or the Company by reason
of the fact that any Rio Tinto Member or Rio Tinto Member Affiliate acquires,
utilizes, or seeks such corporate opportunity for itself, directs such
corporate opportunity to another person, or otherwise does not communicate
information regarding such corporate opportunity to CPE or any of its
stockholders or the Company or any of its Members; provided, however, that notwithstanding any
other provision of this Section 4.19, CPE and the Company do not
renounce any interest or expectancy they may have in any corporate opportunity
that is offered to any director or officer of CPE or the Company (as defined in
Securities Exchange Rule 16a-1(f)) who also is a Rio Tinto Member
Affiliate if such opportunity is expressly offered in writing to such person
solely in his or her capacity as a director or officer of CPE or the Company
(as defined in Securities Exchange Act Rule 16a-1(f)).

 

(c)           For purposes of this Section 4.19,
(1) the term “corporate opportunity” shall mean an investment, business
opportunity or prospective economic or competitive advantage, including,
without limitation, any matter (i) in which CPE could have an interest or
expectancy, (ii) which CPE is financially able to undertake, or with
respect to which CPE would reasonably be able to obtain debt or equity
financing, and (iii) which is, from its nature, in the line or lines of
CPE’s business or reasonable expansion thereof, (2) the term “CPE” shall
mean CPE, the Company and all corporations, partnerships, joint ventures,
associations and other entities in which CPE or the Company beneficially owns
(directly or indirectly) voting stock, voting power, partnership interests or
similar voting interests and (3) the term “person” shall mean an
individual, partnership, corporation, limited liability company, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision thereof, or other entity of any kind.

 

(d)           Neither the alteration,
amendment or repeal of this Section 4.19 nor the adoption of any
provisions of this Agreement inconsistent with this Section 4.19
shall eliminate or reduce the effect of this Section 4.19 in
respect of any matter occurring, or any cause of action, suit or claim that,
but for this Section 4.19, would accrue or arise prior to such
alteration, amendment, repeal or adoption.

 

35

 

ARTICLE 5

CAPITAL CONTRIBUTIONS; DISTRIBUTIONS

 

5.1          Capital Contributions.

 

(a)           Except as set forth in this
Agreement or any other Transaction Document, no Member shall be required or
permitted to make any other capital contribution to, or provide credit support
for, the Company.

 

(b)           Except as provided in Article 9
of this Agreement, no Member shall be entitled to withdraw, or demand the
return of, any part its Capital Contributions or Capital Account.  No Member shall be entitled to interest on or
with respect to any Capital Contribution or Capital Account.

 

(c)           Except as otherwise provided
in this Agreement, no Person shall have any preemptive, preferential or similar
right to subscribe for or to acquire any Units.

 

5.2          Loans from
Members.  Loans by
Members to the Company shall not be considered contributions to the capital of
the Company hereunder.  If any Member
shall advance funds to the Company in excess of the amounts required to be
contributed to the capital of the Company, the making of such advances shall
not result in any increase in the amount of the Capital Account of such Member
and shall be payable or collectible in accordance with the terms and conditions
upon which advances are made; provided that the terms of any such loan
shall not be less favorable to the Company, taken as a whole, than would be
available to the Company from unrelated lenders and such loan shall be approved
by the Manager.

 

5.3          Loans from
Third Parties.  The Company
may incur Indebtedness, or enter into other similar credit, guarantee, surety,
financing or refinancing arrangements for any purpose with any Person upon such
terms as the Manager determines appropriate, including to guarantee or provide
other credit support arrangements for the benefit of its Subsidiaries or CPE; provided
that the Company shall not incur any Indebtedness that is recourse to any
Member, except to the extent otherwise agreed to in writing by the applicable
Member in its sole discretion. 
Notwithstanding the foregoing, CPE may (but shall not be required to),
with the approval of the Rio Tinto Members, enter into guarantees or other
credit support arrangements for the benefit of the Company and/or its
Subsidiaries, but no other Member shall be required to do so.

 

5.4          Distributions.  All distributions made by the Company shall
be made in accordance with this Section 5.4.

 

(a)           Distributions of cash from
the Company shall be made by the Manager, in its discretion, at such times as
the Manager shall determine from time to time, to the Members holding Common
Membership Units, pro rata in accordance with their Percentage Interests.  It is intended that distributions made by the
Company will be made in such amounts as shall enable CPE to (i) satisfy
any present or future tax, levy, import, duty, charge, assessment or fee of any
nature (including interest, penalties, and additions thereto) that is imposed
on it by any government or other taxing authority and (ii) meet its
obligations pursuant to the Tax Receivable Agreement.

 

36

 

(b)           Liquidating Distributions.  All distributions to the Members made in
connection with the sale, exchange or other disposition of all or substantially
all of the Company’s assets, or with respect to the winding up and liquidation
of the Company, shall be made among the Members holding Common Membership Units
pro rata in accordance with their Percentage Interests.

 

(c)           Limitations on Distributions.  Notwithstanding anything in
this Agreement to the contrary, no distribution shall be made in violation of
the LLC Act.

 

(d)           Exculpation.  The Members hereby consent and agree that,
except as expressly provided herein or required by applicable law and except
for distributions not made in compliance with this Agreement, no Member shall
have an obligation to return amounts distributed to such Member by the Company,
whether such obligation would have arisen under § 18-502(b) of the
LLC Act or otherwise.

 

(e)           Notes Offering Distribution.  Notwithstanding anything to the contrary in
this Section 5.4, in the event the Notes Offering is consummated,
the Company shall make a one-time distribution to RTEA with respect to the
amount of any distributions previously declared (but unpaid) pursuant to the
Second Amended and Restated LLC Agreement in respect of the Common Membership
Units held by RTEA.

 

(f)            Indemnification Payments.  Any payments made by the Company to RTEA or
its Affiliates pursuant to Article VI of the Master Separation Agreement
shall be treated as: (i) a pro-rata distribution of such amount to
all unitholders of the Company and (ii) a payment by all unitholders
(other than RTEA and its Affiliates) of their pro-rata share of such amount
to RTEA or its Affiliates.

 

5.5          Revisions
to Reflect Issuance of Additional Units.  Subject to Section 10.2,
in the event that the Company issues an additional class of Units other than
Common Membership Units pursuant to Article 3 of this Agreement,
the Manager shall make such revisions to this Agreement, including this Article 5,
as it reasonably deems necessary to reflect the issuance of such additional
Units.

 

ARTICLE 6

BOOKS AND RECORDS; TAX; CAPITAL ACCOUNTS; ALLOCATIONS

 

6.1          General
Accounting Matters.

 

(a)           The Manager shall keep, or
cause to be kept, books and records pertaining to the Company’s business
showing all of its assets and liabilities, receipts and disbursements, Net
Income and Net Losses, Members’ Capital Accounts and all transactions entered
into by the Company.  Such books and
records of the Company shall be kept at the office of the Company and, subject
to the confidentiality provisions of this Agreement, the Members and their
representatives shall at all reasonable times have free access thereto for the
purpose of inspecting or copying the same.

 

(b)           The Company’s books of
account shall be kept on an accrual basis in accordance with GAAP or as
otherwise provided by the Manager or otherwise agreed with the 

 

37

 

Rio Tinto Members, except
that for U.S. federal, state and local income tax purposes such books shall be
kept in accordance with applicable tax accounting principles.

 

6.2          Capital
Accounts.

 

(a)           The Company shall maintain
for each Member on the books of the Company a capital account (a “Capital Account”).  Each Member’s Capital Account shall be
maintained in accordance with the provisions of Treasury Regulation Section 1.704-1(b)(2)(iv) and
the provisions of this Agreement.

 

(b)           The Capital Account of a
Member shall be credited with the amount of all Capital Contributions by such
Member to the Company.  The Capital
Account of a Member shall be increased by the amount of any Net Income (or
items of gross income) allocated to such Member pursuant to this Article 6,
and decreased by (i) the amount of any Net Losses (or items of loss or
deduction) allocated to such Member pursuant to this Article 6, (ii) the
amount of any cash distributed to such Member and (iii) the fair market
value of any asset distributed in kind to such Member (net of all liabilities
secured by such asset that such Member is considered to assume or take subject
to under Section 752 of the Code). 
The Capital Account of the Member also shall be adjusted appropriately
to reflect any other adjustment required pursuant to Treasury Regulation Section 1.704-1
or 1.704-2.

 

(c)           In the event that any
Interest in the Company is Transferred including in connection with the initial
purchase by CPE from RTEA of Common Membership Units and the Over-Allotment
Unit Purchase, if any, the transferee of such Interest shall succeed to the
portion of the transferor’s Capital Account attributable to such Interest.

 

6.3          Allocations.

 

(a)           General.  Allocations of Net Income or Net Losses
pursuant to this Section 6.3 shall be made at the end of each
Fiscal Quarter, at such times as the Carrying Value of Company assets is
adjusted pursuant to the definition thereof and at such other times as required
by this Agreement.  Except as provided in
Section 6.3(b) and as otherwise provided in this Agreement,
Net Income and Net Losses, shall be allocated to the Members pro-rata in
accordance with each Members’ Percentage Interests.  Subject to the other provisions of this Article 6,
an allocation to a Member of a share of Net Profit or Net Loss shall be treated
as an allocation of the same share of each item of income, gain, loss or
deduction that is taken into account in computing Net Profit or Net Loss.

 

(b)           Special Allocations.

 

(i)            Qualified Income Offset.  If any Member receives an unexpected
adjustment, allocation, or distribution described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4-6)
in any Fiscal Year or other period which would cause such Member to have a
deficit Adjusted Capital Account Balance as of the end of such Fiscal Year or
other period, items of Company income and gain (consisting of a pro rata
portion of each item of Company income, including gross income and gain) shall
be specifically allocated to such Member in an amount and manner sufficient to
eliminate, to the extent required by the Treasury Regulations, the deficit in
such Member’s Adjusted Capital Account Balance as quickly as possible.  This Section 

 

38

 

6.3(b)(i) is
intended to comply with the qualified income offset provision in Treasury
Regulation Section 1.704-1(b)(2)(ii)(d) and shall be interpreted
consistently therewith.

 

(ii)           Gross Income Allocation.  If any Member would otherwise have a deficit
Adjusted Capital Account Balance as of the last day of any Fiscal Year or other
period, individual items of income and gain of the Company shall be
specifically allocated to such Member (in the manner specified in Section 6.3(b)(i))
so as to eliminate such deficit as quickly as possible.

 

(iii)          Partnership Minimum Gain
Chargeback.  If there is
a net decrease in Partnership Minimum Gain during a Fiscal Year or other
period, each Member shall be allocated items of Company gross income and gain
for such Fiscal Year or other period (and, if necessary, subsequent Fiscal
Years or periods) in proportion to, and to the extent of, such Member’s share
of such net decrease, except to the extent such allocation would not be
required by Treasury Regulation Section 1.704-2(f).  The amounts referred to in this Section 6.4(b)(iii),
and the items to be so allocated, shall be determined in accordance with
Treasury Regulation Section 1.704-2.  This Section 6.3(b)(iii) is
intended to constitute a “minimum gain chargeback” provision as described in
Treasury Regulation Section 1.704-2(f) or 1.704-2(j)(2) and
shall be interpreted consistently therewith.

 

(iv)          Partner Nonrecourse Debt
Minimum Gain Chargeback.  If
there is a net decrease in Partner Nonrecourse Debt Minimum Gain during a
Fiscal Year or other period, then each Member shall be allocated items of
Company gross income or gain equal to such Member’s share of such net decrease,
except to the extent such allocation would not be required under Treasury
Regulation Section 1.704-2(i)(4) or 1.704-2(j)(2).  The amounts referred to in this Section 6.3(b)(iv) and
the items to be so allocated shall be determined in accordance with Treasury
Regulation Section 1.704-2.  This Section 6.3(b)(iv) is
intended to comply with the minimum gain chargeback requirement contained in
Treasury Regulation Section 1.704-2(i)(4) and shall be interpreted
consistently therewith.

 

(v)           Limitations on Net Loss
Allocations.  With
respect to any Member, notwithstanding the provisions of Section 6.3(a),
the amount of Net Losses for any Fiscal Year or other period that would
otherwise be allocated to a Member under Section 6.3(a) shall
not cause or increase a deficit Adjusted Capital Account Balance.  Any Net Losses in excess of the limitation
set forth in this Section 6.3(b)(v) shall be allocated among
the Members pro rata to the extent each, respectively, is liable or exposed
with respect to any debt or other obligations of the Company.

 

(vi)          Partner Nonrecourse
Deductions.  Partner
nonrecourse deductions (as described in Treasury Regulation Section 1.704-2(i))
for any Fiscal Year or other period shall be specifically allocated to the
Members who bear the economic risk of loss with respect to Partner Nonrecourse
Debt to which such partner nonrecourse deductions are attributable in
accordance with Treasury Regulation Section 1.704-2(i)(1).

 

(vii)         Nonrecourse Deductions.  Nonrecourse deductions (as described in
Treasury Regulation Section 1.704-2(b)) for any Fiscal Year or other
period shall be allocated among the Members pro rata in accordance with their
relative Percentage Interests.

 

39

 

(viii)        Excess Nonrecourse
Liabilities.  If the
built-in gain in Company assets subject to Nonrecourse Debts exceeds the gain
described in Treasury Regulation Section 1.752-3(a)(2), the Excess
Nonrecourse Liabilities shall be allocated (i) first, to RTEA up to the
amount of built-in gain that is allocable to RTEA on Section 704(c) Property,
(ii) second, among the Members other than RTEA up to the amount of
built-in gain that is allocable to such other Members on Section 704(c) Property
and (iii) last, any remaining Excess Nonrecourse Liabilities shall be
allocated among the Members pro rata in accordance with their relative
Percentage Interests.

 

(ix)           Ordering Rules.  Anything contained in this Agreement to the
contrary notwithstanding, allocations for any Fiscal Quarter or other period of
nonrecourse deductions (as described in Treasury Regulation Section 1.704-2(b))
or partner nonrecourse deductions (as described in Treasury Regulation Section 1.704-2(i)),
or of items required to be allocated pursuant to the minimum gain chargeback
requirements contained in Sections 6.3(b)(iii) and 6.3(b)(iv),
shall be made before any other allocations hereunder.

 

(c)           Curative Provisions.  The allocations set forth in Section 6.3(b)(i)-(viii) (the
“Regulatory Allocations”) are
intended to comply with certain requirements of Treasury Regulation Sections
1.704-1(b) and 1.704-2.  The
Regulatory Allocations may not be consistent with the manner in which the
Members intend to allocate Net Income and Net Losses or make
contributions.  Accordingly,
notwithstanding the other provisions of this Agreement, but subject to the
Regulatory Allocations, Members shall reallocate items of income, gain,
deduction and loss among the Members so as to eliminate the effect of the
Regulatory Allocations and thereby cause the respective Capital Accounts of the
Members to be in the amounts (or as close thereto as possible) they would have
been if Net Income and Net Losses (and such other items of income, gain,
deduction and loss) had been allocated without reference to the Regulatory
Allocations.  In general, the Members
anticipate that this will be accomplished by specially allocating other Net
Income and Net Losses (and such other items of income, gain, deduction and
loss) among the Members so that the net amount of the Regulatory Allocations and
such special allocations to each such Member is zero.  In addition, if in any Fiscal Year or other
period there is a decrease in Partnership Minimum Gain, or in Partner
Nonrecourse Debt Minimum Gain, and application of the minimum gain chargeback
requirements set forth in this Section 6.3 would cause a distortion
in the economic arrangement among the Members, the Members may, if they do not
expect that the Company will have sufficient other income to correct such
distortion, request the Internal Revenue Service to waive either or both of
such minimum gain chargeback requirements. 
If such request is granted, this Agreement shall be applied in such
instance as if it did not contain such minimum gain chargeback requirements.

 

6.4          Allocations
of Net Income and Net Losses for U.S. Federal Income Tax Purposes.

 

(a)           In accordance with Sections
704(b) and 704(c) of the Code and the Treasury Regulations
thereunder, income, gain, loss and deduction with respect to any Company asset
contributed (or deemed contributed) to the capital of the Company shall, solely
for U.S. federal income tax purposes, be allocated among the Members so as to
take into account any variation between the adjusted basis of such Company
asset for U.S. federal income tax purposes and its Carrying Value upon its
contribution (or deemed contribution). 
If the Carrying Value of any Company asset is adjusted, subsequent
allocations of taxable income, gain, loss and 

 

40

 

deduction with respect to
such Company asset shall take account of any variation between the adjusted
basis of such Company asset for U.S. federal income tax purposes and the
Carrying Value of such Company asset in the manner prescribed under Code
Sections 704(b) and 704(c) and the Treasury Regulations
thereunder.  The Company shall elect and
apply at all times the “traditional” method (within the meaning of Treasury
Regulation Section 1.704-3(b)) with respect to any property under this Section 6.4.

 

(b)           All items of depreciation
and depletion, to the extent allowable, shall be taken into account pursuant to
Section 263A of the Code in the determination of “inventory costs.”

 

(c)           Pursuant to Treasury
Regulation Section 1.704-1(b)(4)(iii), if and to the extent deductions for
percentage depletion with respect to a depletable property exceed the adjusted
tax basis of such property, such percentage depletion shall be allocated in
accordance with Percentage Interests.

 

(d)           Deductions with respect to
payments made by the Company to satisfy the Company’s contingent liabilities
(the nominal amount of such liabilities hereinafter referred to as the “Treas. Reg. 1.752-7 Liabilities”)
shall be allocated first to the present value of such payments, as were
determined as of the date of the Second Amended and Restated LLC Agreement (the
“PV Amount”) until expenditures have
been made equal to PV Amount.  In each
year, until expenditures equal to the Treas. Reg. 1.752-7 Liabilities are paid,
deductions with respect to each Section 1.752-7 Liability shall be allocated
to RTEA and any successor to the Capital Account of RTEA pursuant to Section 6.2(c) until
such Members are allocated an amount of deductions equal to the PV Amount.  Following such time, deductions shall be
allocated among the Members in accordance with Percentage Interests.  For the purposes of this Section 6.4(d),
the term “Section 1.752-7 Liability” shall mean any contingent obligation
that is described by Treasury Regulation Section 1.752-7, as agreed to by
the Parties.  The present value of contingent
liabilities shall be determined using RTEA’s cost of obtaining funds from
unrelated financing parties, either as agreed to by the Parties or as
determined through an appraisal process.

 

(e)           Jacobs Ranch.  Solely
for U.S. federal income tax purposes, all benefits and burdens of that certain
Membership Interest Purchase Agreement, dated as of March 8, 2009, by and
between Rio Tinto Sage LLC and Arch Coal, Inc. (the “JRC MIPA”),
other than those set forth in Exhibit A to the Master Separation Agreement
(the “MSA Exhibit A”), shall remain
solely for the account of RTEA shall not be treated as items of income, gain,
loss or deduction of the Company.  The Members shall treat the benefits
and burdens of the JRC MIPA set forth in the MSA Exhibit A as a contribution
by RTEA to the Company and assumption by the Company of such benefits and
burdens and shall treat any items of income, gain, loss or deduction with
respect to such benefits and burdens as items of the
Company.  Consistent with the foregoing, any payments to RTEA
indirectly from Arch Coal, Inc. or to Arch Coal, Inc. indirectly from
RTEA pursuant to the JRC MIPA, other than payments made with respect to the MSA
Exhibit A, shall be treated for U.S. federal income tax purposes as
payments directly between Arch Coal, Inc. and RTEA.   Payments
made with respect to the MSA Exhibit A shall be treated under Section 707(a) of
the Code as payments by and between the Company and a Person who is not a
Member of the Company.  Subject to Section 6.5 of this Agreement,
the Members and the Company shall not take any position inconsistent with the
foregoing.

 

41

 

6.5          Revisions
to Allocations to Reflect Issuance.  In the event that the Company issues
additional classes of Units to the Members pursuant to Article 3 of
this Agreement, the Manager shall, subject to Section 10.2, make
such revisions to this Article 6 as it reasonably deems necessary
to reflect the terms of the issuance of such additional class of Units,
including making preferential allocations to classes of Units that are entitled
thereto.

 

6.6          Certain Tax
Matters.

 

(a)           The “tax matters partner”
for purposes of Section 6231(a)(7) of the Code shall be CPE (the “Tax Matters Member”).  The Tax Matters Member shall have all the
rights, duties, powers and obligations provided for in Sections 6221 through
6232 of the Code with respect to the Company. 
The Tax Matters Member shall inform each other Member of all significant
matters that may come to its attention in its capacity as such by giving notice
thereof within ten (10) days after becoming aware thereof and, within such
time, shall forward to each other Member copies of all significant written
communications it may receive in such capacity. 
This provision is not intended to authorize the Tax Matters Member to
take any action left to the determination of an individual Member under
Sections 6222 through 6231 of the Code.

 

(b)           The Tax Matters Member shall
not initiate any action or proceeding in any court, extend any statute of
limitations, or take any other action in its capacity as Tax Matters Member,
which it knows, has reason to know, or would reasonably be expected to know,
would or would reasonably be expected to have a significant adverse effect on
RTEA as a Member of the Company, without approval of the RTEA Members, which
approval may not be unreasonably withheld; provided, however,
that, for this purpose, it shall not be unreasonable for an RTEA Member to
withhold such approval if the action proposed to be taken could significantly
adversely effect such Member or its Affiliates. 
The RTEA Members may alert the Tax Matters Member as to any actions that
would have a significant adverse effect on an RTEA Member or its Affiliates.

 

(c)           The Manager shall timely
cause to be prepared all U.S. federal, state, local and foreign tax returns and
reports (including amended returns) of the Company and its subsidiaries for
each year or period that such returns or reports are required to be filed and,
subject to the remainder of this subsection, shall cause such tax returns to be
timely filed.  No later than thirty (30)
days prior to filing of all income and franchise tax returns of the Company,
the Manager shall have provided copies of all such tax returns to the other
Members for review.  The RTEA Members
shall be entitled to provide reasonable comments on such returns to the Manager
no later than fifteen (15) days after receiving copies of such returns, and the
Manager shall consider in good faith all such comments.  If the Manager
does not incorporate any comment made by any RTEA Member in accordance with the
foregoing sentence, at the request of such RTEA Member the Manager shall
provide any information necessary for such RTEA Member to properly file its
U.S. federal, state, local, and foreign tax returns and reports (including
amended returns and information returns) and any disclosure required in
connection with the filing of such returns or reports in a manner consistent
with such comment.

 

(d)           Within ninety (90) days
after the end of each Fiscal Year, or as soon as reasonably practical
thereafter, the Manager shall prepare and send, or cause to be prepared and sent,
to each Person who was a Member at any time during such Fiscal Year copies of
such information as may be required for U.S. federal, state, local and foreign
income tax reporting 

 

42

 

purposes, including copies
of Form 1065 and Schedule K-1 or any successor form or schedule, for such
Person. At any time after such information has been provided, upon at least
five (5) business days’ notice from a Member, the Manager shall also
provide each Member with a reasonable opportunity during ordinary business
hours to review and make copies of all workpapers related to such information
or to any return prepared under paragraph (c) above. As soon as
practicable following the end of each quarter (and in any event not later than
thirty (30) days after the end of such quarter), the Manager shall also cause
to be provided to each Member an estimate of each Member’s share of all items
of income, gain, loss, deduction and credit of the Company for the quarter just
completed and for the Fiscal Year to date for federal income tax purposes.

 

(e)           The Company intends to be
taxable as a partnership for U.S. federal, state and local income tax purposes
and the Manager shall not take any action or make any election so as to cause
the Company or any subsidiary treated as a partnership or a disregarded entity
for U.S. federal income tax purposes to not be taxable as a partnership or a
disregarded entity for U.S. federal, state and local income tax purposes.

 

(f)            The Manager shall elect,
pursuant to Section 754 of the Code, to adjust the basis of the Company’s
property, with respect to its U.S. federal income tax return for the taxable
year in which CPE first purchased Units in the Company and the Manager shall
cause such election to remain in effect for every year of the Company
thereafter.  The Company shall make such
election with respect to all Subsidiaries of the Company that are treated as
partnerships for U.S. federal income tax purposes in the same year the Company
makes such election and if any Subsidiary of the Company is treated as a
partnership for U.S. federal income tax purposes in a subsequent taxable year,
the Company shall cause such election to be made in such year.

 

(g)           Except as otherwise provided
herein, all other elections required or permitted to be made by the Company
under the Code (or applicable foreign, state or local law), including elections
with respect to any subsidiary of the Company, shall be made as may be
determined by the Manager and all decisions and positions taken with respect to
the Company’s or any Subsidiary’s taxable income or tax loss (or items thereof)
under the Code or other applicable tax law shall be made in such manner as may
be reasonably determined by the Manager. 
Notwithstanding the foregoing, the Manager shall not make any election
for U.S. federal, state or local income tax purposes or for franchise tax
purposes and shall not make any decision or take any position with respect to
allocations of taxable income, if the Manager knows or has reason to know, or
would reasonably be expected to know that such election, decision, or position
would, or would reasonably be expected to have a significant adverse effect on
RTEA or its Affiliates and a greater negative impact proportionally on the amount
of taxable inclusions incurred by RTEA with respect to income allocated to it
by the Company than if such election, decision, or position had not been made
or taken.   The RTEA Members may alert
the Manager as to any election, decision, or position that would have a
significant adverse effect on an RTEA Member or its Affiliates.

 

6.7          Tax Year.  The taxable year of the Company shall be the
same as its Fiscal Year.

 

6.8          Withholding
Requirements. 
Notwithstanding any provision herein to the contrary, the Manager is
authorized to take any and all actions that it determines to be necessary 

 

43

 

or appropriate to ensure
that the Company satisfies any and all withholding and tax payment obligations
under Sections 1441, 1445, 1446 or any other provision of the Code or other
applicable law.  Without limiting the
generality of the foregoing, the Manager may withhold from distributions the
amount that it determines is required to be withheld from the amount otherwise
distributable to any Member pursuant to Article 5; provided,
however, that such amount shall be deemed to have been distributed to
such Member for purposes of applying Article 5 and this Article 6.  The Manager will not withhold any amounts
from cash or other property distributable to any Member to satisfy any
withholding and tax payment obligations to the extent that such Member
demonstrates to the Manager’s satisfaction that such Member is not subject to
such withholding and tax payment obligation. 
In the event that the Manager withholds or incurred tax in respect of
any Member for any period in excess of the amount of cash or other property
otherwise distributable to such Member for such period (or there is a
determination by any taxing authority that the Company should have withheld or
incurred any tax for any period in excess of the tax, if any, that it actually
withheld or paid for such period), such excess amount (or such additional
amount) shall be treated as a recourse loan to such Member that shall bear
interest at the rate of 10% per annum and be payable on demand.

 

6.9          Reports to
Members.

 

(a)           The books of account and
records of the Company shall be audited as of the end of each Fiscal Year by
the Company’s independent public accountants.

 

(b)           Within one (1) calendar
day after the applicable due date for the filing of CPE’s quarterly reports for
the end of each Fiscal Quarter of CPE with the Commission (or the next Business
Day if the first calendar day is not a Business Day), the Company shall send to
each Person who was a Member during such period an unaudited report setting
forth the following as of the end of such Fiscal Quarter:

 

(i)            unless such Fiscal Quarter
is the last Fiscal Quarter of the Fiscal Year, an unaudited balance sheet as of
the end of such period;

 

(ii)           unless such Fiscal Quarter
is the last Fiscal Quarter of the Fiscal Year, an unaudited income statement of
the Company for such period;

 

(iii)          unless such Fiscal Quarter
is the last Fiscal Quarter of the Fiscal Year, an unaudited cash flow statement
of the Company for such period;

 

(iv)          a statement of each Member’s
Capital Account; and

 

(v)           a summary of the Company’s
activities during such period.

 

(c)           Within one (1) calendar
day after the applicable due date for the filing of CPE’s annual report for the
end of each Fiscal Year of CPE with the Commission (or the next Business Day if
the first calendar day is not a Business Day), the Company shall send to each
Person who was a Member during such period an audited report setting forth the
following as of the end of such Fiscal Year:

 

(i)            an audited balance sheet as
of the end of such Fiscal Year;

 

44

 

(ii)           an audited income statement
of the Company for such Fiscal Year;

 

(iii)          an audited cash flow
statement of the Company for such Fiscal Year;

 

(iv)          a statement of each Member’s
Capital Account; and

 

(v)           a summary of the Company’s
activities during such period.

 

(d)           The Company shall provide
each Member with monthly “flash reports.”

 

(e)           The Company shall provide
each Member annually with a copy of the Life of Mine Model and the Budget.

 

(f)            With reasonable promptness,
the Manager will deliver such other information available to the Manager,
including financial statements and computations, as any Member may from time to
time reasonably request in order to comply with regulatory requirements,
including reporting requirements, to which such Member is subject.

 

(g)           The Manager shall not be
deemed to be in breach of this Section 6.9 for failure to deliver
the reports and other information under clause (b) or (c) of this Section 6.9,
if the Manager delivers such information to each Member on the earlier of (i) the
date such information is provided to the lenders or the holders of any
indebtedness of the Company or filed and (ii) a date that is within thirty
(30) calendar days of the due date set forth in clause (b) or (c) above.

 

6.10        Auditors.  The independent registered public accountant
of the Company shall be determined by the Manager, in its sole discretion.

 

ARTICLE 7

DISSOLUTION

 

7.1          Dissolution.

 

(a)           The Company shall be
dissolved and subsequently terminated upon the occurrence of the first of the
following events:

 

(i)            the unanimous decision of
the Members to dissolve the Company;

 

(ii)           the entry of a decree of
judicial dissolution of the Company pursuant to § 18-802 of the LLC Act; or

 

(iii)          the termination of the legal
existence of the last remaining Member or the occurrence of any other event
that causes the last remaining Member to cease to be a Member of the Company,
unless the Company is continued without dissolution pursuant to Section 7.1(b).

 

(b)           Upon the occurrence of any
event that causes the last remaining Member of the Company to cease to be a
Member of the Company (other than upon continuation of the 

 

45

 

Company without dissolution
upon an assignment by the Member of all of its Interest in the Company and the
admission of the transferee as a Member pursuant to Section 8.2),
to the fullest extent permitted by law, the personal representative of such
Member is hereby authorized to, within ninety (90) days after the occurrence of
the event that terminated the continued membership of such Member in the
Company, agree in writing (i) to continue the Company and (ii) to the
admission of the personal representative or its nominee or designee, as the
case may be, as a substitute Member of the Company, effective as of the
occurrence of the event that terminated the continued membership of such Member
in the Company.

 

(c)           Notwithstanding any other
provision of this Agreement, the bankruptcy (as defined in §§ 18-101(1) and
18-304 of the LLC Act) of a Member shall not cause the Member to cease to be a
Member of the Company and, upon the occurrence of such an event, the Company
shall continue without dissolution.

 

7.2          Winding-Up.  When the Company is dissolved, the business
and property of the Company shall be wound up in an orderly manner by the
Manager or by a liquidating trustee as may be appointed by the Manager and the
Rio Tinto Members (the Manager or such liquidating trustee, as the case may be,
the “Liquidator”).  No Member shall take any action (with respect
to the Company) that is inconsistent with, or not necessary to or appropriate
for, the winding-up of the Company’s business and affairs.  The rights of the Rio Tinto Members to
approve the appointment of a Person (other than the Manager) to act as
Liquidator under this Section 7.2 shall terminate on the Rio Tinto
Approval Rights Trigger Date under Section 4.3(b).

 

7.3          Final
Distribution.

 

(a)           As soon as reasonable
following the event that caused the dissolution of the Company, the assets of
the Company shall be applied in the following manner and order:

 

(i)            to pay the expenses of the
winding-up, liquidation and dissolution of the Company, and all creditors of
the Company, including Members who are creditors of the Company, either by
actual payment or by making a reasonable provision therefor, in the manner, and
in the order of priority, set forth in § 18-804 of the LLC Act;

 

(ii)           to distribute the remaining
assets of the Company to the Members in accordance with Section 5.4(b).

 

(b)           If any Member has a deficit
balance in its Capital Account in excess of any unpaid Capital Contributions
(if any), such Member shall have no obligation to make any Capital Contribution
to the Company with respect to such deficit, and such deficit shall not be
considered a debt owed to the Company or to any other Person for any purpose
whatsoever.

 

(c)           Each Member shall look
solely to the assets of the Company for the amounts distributable to it
hereunder and shall have no right or power to demand or receive property
therefor from any other Member.

 

(d)           The Company shall terminate
when (i) all of the assets of the Company, after payment of or due
provision for all debts, liabilities and obligations of the Company, shall 

 

46

 

have been distributed to the
Member in the manner provided for in this Agreement and (ii) the
Certificate shall have been canceled in the manner required by the LLC Act.

 

ARTICLE 8

TRANSFER; SUBSTITUTION; ADJUSTMENTS; REDEMPTION RIGHT OF CLOUD PEAK

 

8.1          Restrictions
on Transfer.

 

(a)           No Member may Transfer all
or any portion of its Units except with the written consent of the Manager in
its sole discretion; provided, however, that subject to Section 8.1(b),
a Member may, without the consent of the Manager, at any time Transfer any of
such Member’s Units to a Permitted Transferee of such Member.  It is a condition to any Transfer by a Member
(the “Transferring Member”) otherwise
permitted hereunder that the transferee (i) agrees to become a party to,
and be bound by the terms of, this Agreement to the same extent as the
Transferring Member and (ii) assumes by operation of law or express
agreement all of the obligations of the Transferring Member under this
Agreement or any other agreement to which such Transferring Member is a party
with respect to such Transferred Units or other Company Interests.  Any transferee, whether or not admitted as a
Member, shall take subject to the obligations of the transferor hereunder.

 

(b)           In addition to any other
restrictions on Transfer herein contained, including, without limitation, the
provisions of this Article 8, any purported Transfer or assignment
of a Unit or other Company Interests by any Member in the following
circumstances shall be void ab initio (unless in the case of clause (v) below
only, the consent of the Manager is obtained):

 

(i)            to any Person who lacks the
legal right, power or capacity to own Units or other Company Interests;

 

(ii)           if such Transfer would cause
the Company to become, with respect to any employee benefit plan subject to
Title I of ERISA, a “party-in-interest” (as defined in Section 3(14) of
ERISA) or a “disqualified person” (as defined in Section 4975(c) of
the Code);

 

(iii)          if such Transfer would, in
the opinion of counsel to the Company, cause any portion of the assets of the
Company to constitute assets of any employee benefit plan pursuant to
Department of Labor Regulations Section 2510.3-101;

 

(iv)          if such Transfer requires
the registration of such Units or other Company Interests pursuant to any
applicable federal, state or foreign securities laws or regulations or would
otherwise materially violate any federal, state or foreign securities laws or
regulations applicable to the Company, the Units or such Company Interests;

 

(v)           if such Transfer (in and by
itself) subjects the Company to be regulated under the Investment Company Act,
the Investment Advisors Act of 1940 or ERISA, each as amended;

 

47

 

(vi)          if such Transfer would cause
the Company to fail the limitation set forth in Section 3.1(d) or
would otherwise result in a risk that the Company would be treated as a “publicly
traded partnership,” as such term is defined in Section 469(k)(2) or
7704(b) of the Code;

 

(vii)         if such Transfer violates
any applicable Laws in any material respect;

 

(viii)        if the Company does not
receive written instruments (including, without limitation, copies of any
instruments of Transfer and such assignee’s agreement to be bound by this
Agreement as an assignee and Member) that are in a form satisfactory to the
Manager (in its sole and absolute discretion); or

 

(ix)           to any Prohibited Person.

 

8.2          Substituted
Members.

 

(a)           No Member shall have the
right to substitute a transferee as a Member in his or her place with respect
to any Units or other Equity Interests in the Company so Transferred (including
any transferee permitted by Section 8.1) unless (i) such
Transfer is made in compliance with the terms of this Agreement and any other
agreements with the Company to which such transferor Member is a party and (ii) such
transferee assumes and agrees to be bound, by written instrument satisfactory
to the Manager pursuant to Section 8.l(b)(viii), all the rights,
powers, restrictions, duties and liabilities that were applicable to the
transferor by virtue of the transferor’s ownership of the Units or other Equity
Interests in the Company being Transferred.

 

(b)           Except as provided in Section 8.2(c) and
otherwise in this Agreement, a transferee who has been admitted as a Member in
accordance with Section 8.2(a) shall have all the rights and
powers and be subject to all the restrictions, duties and liabilities of a
Member under this Agreement holding the same Units or other Equity Interests in
the Company.  The admission of any
transferee as a Member shall be subject to the provisions of Section 3.1.

 

(c)           In the event of a Transfer
by a Rio Tinto Member, the transferee shall not have the rights and powers of a
Rio Tinto Member under this Agreement unless the transferee is a Permitted
Transferee of the Rio Tinto Members prior to and following the Transfer.

 

8.3          Redemption
Right of Cloud Peak.

 

(a)           Redemption Right.  If the Rio Tinto Members own, in the
aggregate, less than five percent (5%) (subject to adjustment to reflect any
Units split or reverse Unit split, Unit distribution, Unit reclassification,
recapitalization or similar event) of the Initial Units, the Company shall have
the right to acquire by redemption all of the Common Membership Units held by
the Rio Tinto Members (the “CPE Redemption Right”)
at a price to be paid by the Company equal to and in the form of the Cash
Settlement.  The Company shall exercise
such right by giving written notice (the “CPE Redemption Notice”)
to the Rio Tinto Members with a copy to CPE. 
The CPE Redemption Notice shall state that the Company intends to
acquire by redemption all of the Common Membership Units held by the Rio Tinto
Members (the “CPE Redeemed Units”) and shall
specify a date, which is not more than sixty (60) Business Days 

 

48

 

after delivery of the CPE
Redemption Notice or as otherwise agreed between the Company and the Rio Tinto
Members, on which date exercise of the CPE Redemption Right shall be completed
(the “CPE Redemption Date”).  Unless CPE has assumed the rights and
obligations of the Company with respect to the CPE Redemption Right pursuant to
Section 8.3(b), then, on the CPE Redemption Date (i) the Rio
Tinto Members shall transfer and surrender to the Company the CPE Redeemed
Units and represent and warrant to the Company that the CPE Redeemed Units are
owned by the Rio Tinto Members free and clear of all liens and encumbrances and
(ii) the Company shall (x) cancel the CPE Redeemed Units, (y) pay
to the Rio Tinto Members the Cash Settlement to which the Rio Tinto Members are
entitled under this Section 8.3(a) and (z) revise Exhibit A
accordingly to reflect the cancellation of the CPE Redeemed Units pursuant to
this Section 8.3(a).

 

(b)           CPE Redemption Assumption
Right.

 

(i)            If the Company has delivered
a CPE Redemption Notice to the Rio Tinto Members (with a copy to CPE), CPE may,
in its sole discretion, within three (3) Business Days of delivery of the
CPE Redemption Notice or as otherwise agreed to between the Company and the Rio
Tinto Members, elect to assume the rights and obligations of the Company with
respect to the CPE Redemption Right (the “CPE Redemption Assumption
Right”), whereupon CPE shall acquire the Common Membership Units
held by the Rio Tinto Members as set forth below.  If CPE elects to exercise its CPE Redemption
Assumption Right pursuant to this Section 8.3(b), within three (3) Business
Days of delivery of the CPE Redemption Notice or as otherwise agreed to between
the Company and the Rio Tinto Members, CPE shall give written notice (the “CPE Redemption Assumption Notice”)
to the Company (with a copy to the Rio Tinto Members) of its intent to exercise
the CPE Redemption Assumption Right and its intended settlement method to pay,
as CPE determines in its sole discretion, to the Rio Tinto Members on the CPE
Redemption Date, either (x) the Share Settlement or (y) in lieu of
the Share Settlement, the Cash Settlement or (z) both the Partial Share
Settlement and the Partial Cash Settlement (the Partial Share Settlement
together with the Partial Cash Settlement, the “CPE
Redemption Share/Cash Settlement”) for the CPE Redeemed
Units.  On the CPE Redemption Date (to be
effective immediately prior to the close of business on the CPE Redemption
Date) (x) the Rio Tinto Members shall transfer and surrender to CPE and
represent and warrant to CPE that the CPE Redeemed Units are owned by the Rio
Tinto Members free and clear of all Liens, (y) if CPE determines to pay
the Cash Settlement or the CPE Redemption Share/Cash Settlement, CPE shall
transfer to the Company CPE Redeemed Units in respect of such Cash Settlement,
or, if a CPE Redemption Share/Cash Settlement, CPE Redeemed Units in respect of
the Partial Cash Settlement and, in each case, the Company shall (A) cancel
the CPE Redeemed Units and (B) revise Exhibit A accordingly to
reflect the cancellation of the CPE Redeemed Units and (z) if CPE
determines to pay the Share Settlement or the CPE Redemption Share/Cash
Settlement, CPE shall represent and warrant to the Rio Tinto Members that the
shares of CPE Common Stock payable to the Rio Tinto Members are validly issued,
fully paid and non-assessable.

 

(ii)           If CPE exercises the CPE
Redemption Assumption Right and fully performs its obligations in connection
therewith pursuant to this Section 8.3(b), the Company’s
obligations with respect to the CPE Redemption Right shall be fully satisfied
and discharged, and each of the Rio Tinto Members, the Company and CPE shall,
for U.S. federal, state and local income tax purposes, treat the transaction
between CPE and the Rio Tinto Members as a sale of 

 

49

 

the Rio Tinto Members’
Common Membership Units to CPE.  The Rio
Tinto Members agree to execute such instruments of transfer, officer’s or other
certificates or cross receipts to the extent necessary to evidence the transfer
of the CPE Redeemed Units and as CPE may reasonably require in connection with
the issuance of shares of CPE Common Stock upon exercise of the CPE Redemption
Assumption Right.

 

(c)           Redemption Mechanics.  On the CPE Redemption Date the following
shall occur:

 

(1)           the Company shall (A) revise Exhibit A
to reflect (i) that the Rio Tinto Members will hold no Common Membership
Units following the CPE Redemption Date and (ii) if CPE exercises the CPE
Redemption Assumption Right, the number of Common Membership Units held by CPE
following the CPE Redemption Date, and (B) deliver to CPE all transfer tax
stamps or funds therefor, if required in connection with the exercise of the
CPE Redemption Right;

 

(2)           (i) if CPE has not exercised the CPE Redemption
Assumption Right, the Company shall deliver to the Rio Tinto Members a Cash
Settlement for the CPE Redeemed Units or (ii) if CPE has exercised the CPE
Redemption Assumption Right, CPE shall deliver to the Rio Tinto Members (or
such other party that the Rio Tinto Members may designate) one of the
following:

 

(A)          in the event that CPE determines to pay the Rio
Tinto Members the Share Settlement, CPE shall (x) issue to the Rio Tinto
Members in such name or names as the Rio Tinto Members may direct the Share
Settlement and (y) deliver or cause to be delivered at the office of CPE’s
transfer agent, a certificate or certificates representing the number of full
shares of CPE Common Stock issuable in a Share Settlement, if the CPE Common
Stock is certificated, issued in the name of the Rio Tinto Members or in such
other name or names as the Rio Tinto Members may direct;

 

(B)           in the event that CPE determines to pay the Rio
Tinto Members the Cash Settlement, CPE shall pay to the Rio Tinto Members or
such other Person as the Rio Tinto Members may direct the Cash Settlement; or

 

(C)           in the event that CPE determines to pay the CPE
Redemption Share/Cash Settlement, CPE shall (x) issue to the Rio Tinto
Members in such name or names as the Rio Tinto Members may direct the Partial
Share Settlement, (y) deliver or cause to be delivered at the office of
CPE’s transfer agent, a certificate or certificates representing the number of
full shares of CPE Common Stock issuable upon redemption in a Partial Share
Settlement, if the CPE Common Stock is certificated, issued in the name of the
Rio Tinto Members or in such other name or names as the Rio Tinto Members may
direct, and (z) pay to the Rio Tinto Members or such other Persons as the
Rio Tinto Members may direct the Partial Cash Settlement.

 

If CPE exercises the CPE
Redemption Assumption Right, the acquisition of the CPE Redeemed Units pursuant
to this Section 8.3 shall be deemed to have been effected
immediately prior to the close of business on the CPE Redemption Date.  If CPE elects to pay (i) the Share
Settlement or (ii) the CPE Redemption Share/Cash Settlement, the Person or
Persons in whose 

 

50

 

name or names the shares of
CPE Common Stock are to be recorded shall be treated for all purposes as having
become the record holder or holders of such shares of CPE Common Stock
immediately prior to the close of business on the CPE Redemption Date and may
resell such shares of CPE Common Stock as permitted under applicable Law.

 

8.4          Effect of
Void Transfers.  No Transfer
of any Units owned by a Member in violation hereof shall be made or recorded on
the books of the Company, and any such purported Transfer shall be void and of
no effect.

 

ARTICLE 9

REDEMPTION RIGHT OF RIO TINTO MEMBERS

 

9.1          Redemption
Right of Rio Tinto Members.

 

(a)           Redemption Right. Any Rio Tinto
Member shall be entitled to cause the Company to acquire by redemption at any
time all or any portion of the Common Membership Units held by it (the “Redemption Right”) at a redemption
price to be paid by the Company equal to and in the form of the Cash
Settlement.  Any Rio Tinto Member
desiring to exercise its Redemption Right (the “Redeeming
Member”) shall exercise such right by giving written notice (the
“Redemption Notice”) to the Company
with a copy to CPE.  The Redemption
Notice shall specify the number of Common Membership Units (the “Redeemed Units”) that the Redeeming
Member intends to have the Company redeem and a date, which is not more than
sixty (60) Business Days after delivery of the Redemption Notice or as
otherwise agreed between the Company and such Redeeming Member, on which date
exercise of the Redemption Right shall be completed (the “Redemption
Date”) unless the Redeeming Member has timely delivered a
Retraction Notice as provided in Section 9.1(c).  Notwithstanding the foregoing sentence, if
any Rio Tinto Member exercises the Redemption Right within one hundred eighty
(180) days following the date of this Agreement and after giving effect to the
redemption of the Redeemed Units the Rio Tinto Members, collectively, will
cease to own any Common Membership Units, the Redemption Date specified in the
Redemption Notice shall be at least sixty (60) Business Days after delivery of
the Redemption Notice.  Unless (i) CPE
has assumed the rights and obligations of the Company with respect to the
Redemption Right pursuant to Section 9.1(b), or (ii) the
Redeeming Member has timely delivered a Retraction Notice as provided in Section 9.1(c),
then, on the Redemption Date (to be effective immediately prior to the close of
business on the Redemption Date) (x) the Redeeming Member shall transfer
and surrender to the Company the Redeemed Units and represent and warrant to
the Company that the Redeemed Units are owned by such Redeeming Member free and
clear of all liens and encumbrances and (y) the Company shall (A) cancel
the Redeemed Units, (B) pay to the Redeeming Member the Cash Settlement to
which the Redeeming Member is entitled under this Section 9.1(a) and
(C) revise Exhibit A accordingly to reflect the cancellation
of the Redeemed Units pursuant to this Section 9.1(a).  All of the Company’s rights and obligations
arising from the Redemption Notice shall terminate if the Redeeming Member
timely delivers a Retraction Notice as provided in Section 9.1(c).

 

(b)           CPE Assumption Right.

 

(i)            If a Rio Tinto Member has
delivered a Redemption Notice to the Company (with a copy to CPE), CPE may, in
its sole discretion, within three (3) Business Days 

 

51

 

of delivery of the
Redemption Notice or as otherwise agreed to between the Company and the
Redeeming Member, elect to assume the rights and obligations of the Company
with respect to the Redemption Right (the “CPE Assumption Right”),
whereupon CPE shall acquire the Common Membership Units offered for redemption
by the Redeeming Member as set forth below. 
If CPE elects to exercise its CPE Assumption Right pursuant to this Section 9.1(b),
within three (3) Business Days of delivery of the Redemption Notice or as
otherwise agreed to between the Company and the Redeeming Member, CPE shall
give written notice (the “CPE Assumption Notice”)
to the Company (with a copy to the Redeeming Member) of its intent to exercise
the CPE Assumption Right and its intended settlement method to pay, as CPE
determines in its sole discretion, to the Redeeming Member on the Redemption
Date, either (x) the Share Settlement or (y) in lieu of the Share
Settlement, the Cash Settlement or (z) both the Partial Share Settlement
and the Partial Cash Settlement (the Partial Share Settlement together with the
Partial Cash Settlement, the “Share/Cash Settlement”)
for the Redeemed Units.  On the
Redemption Date (to be effective immediately prior to the close of business on
the Redemption Date) (x) the Redeeming Member shall transfer and surrender
to CPE and represent and warrant to CPE that the Redeemed Units are owned by
such Redeeming Member free and clear of all Liens, (y) if CPE determines
to pay the Cash Settlement or the Share/Cash Settlement, CPE shall transfer to
the Company Redeemed Units in respect of such Cash Settlement, or, if a
Share/Cash Settlement, Redeemed Units in respect of the Partial Cash Settlement
and (z) if CPE determines to pay the Share Settlement or the Share/Cash
Settlement, CPE shall represent and warrant to the Redeeming Member that the
shares of CPE Common Stock payable to the Redeeming Member are validly issued,
fully paid and non-assessable.

 

(ii)           If CPE exercises the CPE
Assumption Right and fully performs its obligations in connection therewith
pursuant to this Section 9.1(b), the Company’s obligations with
respect to such Redeeming Member’s exercise of the Redemption Right shall be
fully satisfied and discharged, and each of the Redeeming Member, the Company
and CPE shall, for U.S. federal, state and local income tax purposes, treat the
transaction between CPE and the Redeeming Member as a sale of the Redeeming
Member’s Common Membership Units to CPE. Each Redeeming Member agrees to
execute such instruments of transfer, officer’s or other certificates or cross
receipts to the extent necessary to evidence the redemption of the Redeemed
Units and as CPE may reasonably require in connection with the issuance of
shares of CPE Common Stock upon exercise of the CPE Assumption Right.

 

(c)           Retraction Notice. At any time
after delivery of the Redemption Notice and no later than three (3) Business
Days prior to the Redemption Date or as otherwise agreed between the Company
and such Redeeming Member, the Redeeming Member may retract its Redemption
Notice by giving written notice (the “Retraction Notice”)
to the Company (with a copy to CPE).  The
timely delivery of a Retraction Notice shall terminate all of the Redeeming
Member’s, Company’s and CPE’s rights and obligations under this Section 9.1
arising from such Redemption Notice.

 

(d)           Redemption Mechanics.  Unless a timely Retraction Notice has been
delivered to the Company with a copy to CPE prior to the Redemption Date as set
forth in Section 9.1(c), on the Redemption Date the following shall
occur:

 

(1) the Company shall (A) revise Exhibit A
to reflect (i) the number of Common Membership Units held by the Redeeming
Member following the Redemption Date 

 

52

 

and (ii) if CPE exercises the CPE Assumption Right, the number of
Common Membership Units held by CPE following the Redemption Date, and (B) deliver
to CPE all transfer tax stamps or funds therefor, if required pursuant to Section 9.1(e);

 

(2) (i) if CPE has not exercised the CPE
Assumption Right, the Company shall deliver to the Redeeming Member a Cash
Settlement for the Redeemed Units or (ii) if CPE has exercised the CPE
Assumption Right, CPE shall deliver to the Redeeming Member (or such other
party that the Redeeming Member may designate) one of the following:

 

(A) in the event that CPE determines to pay the
Redeeming Member the Share Settlement, CPE shall (x) issue to the
Redeeming Member in such name or names as the Redeeming Member may direct the
Share Settlement and (y) deliver or cause to be delivered at the office of
CPE’s transfer agent, a certificate or certificates representing the number of
full shares of CPE Common Stock issuable upon redemption in a Share Settlement,
if the CPE Common Stock is certificated, issued in the name of the Redeeming
Member or in such other name or names as the Redeeming Member may direct;

 

(B) in the event that CPE determines to pay the
Redeeming Member the Cash Settlement, CPE shall pay to the Redeeming Member or
such other Person as the Redeeming Member may direct the Cash Settlement; or

 

(C)           in the event that CPE determines to pay the
Share/Cash Settlement, CPE shall (x) issue to the Redeeming Member in such
name or names as the Redeeming Member may direct the Partial Share Settlement, (y) deliver
or cause to be delivered at the office of CPE’s transfer agent, a certificate
or certificates representing the number of full shares of CPE Common Stock
issuable upon redemption in a Partial Share Settlement, if the CPE Common Stock
is certificated, issued in the name of the Redeeming Member or in such other
name or names as the Redeeming Member may direct, and (z) pay to the
Redeeming Member or such other Persons as the Redeeming Member may direct the
Partial Cash Settlement.

 

If CPE exercises the CPE Assumption
Right, redemption pursuant to this Section 9.1 shall be deemed to
have been effected immediately prior to the close of business on the Redemption
Date.  If CPE elects to pay (i) the
Share Settlement or (ii) the Share/Cash Settlement, the Person or Persons
in whose name or names the shares of CPE Common Stock are to be recorded shall
be treated for all purposes as having become the record holder or holders of
such shares of CPE Common Stock immediately prior to the close of business on
the Redemption Date and may resell such shares of CPE Common Stock as permitted
under applicable Law.

 

(e)           Stamp or Similar Taxes.  The issuance of certificates, if such
certificates are issued, representing shares of CPE Common Stock upon
redemption of Common Membership Units in (i) a Share Settlement or (ii) a
Partial Share Settlement and Partial Cash Settlement upon exercise by CPE of
the CPE Assumption Right shall be made without charge to the Redeeming Member
for any stamp or other similar tax in respect of such issuance; provided,
however, that if any such certificate is to be issued in a name other
than that of the Redeeming Member, then the Person or Persons requesting the
issuance thereof shall pay to the Company for remittance to CPE the amount of
any tax that may be payable by CPE in respect of any transfer 

 

53

 

involved in such issuance or
shall establish to the satisfaction of the Company that such tax has been paid
or is not payable.

 

9.2          Effect of
Exercise of Redemption Right.  This Agreement shall continue notwithstanding
the exercise of a Redeeming Member’s Redemption Right and all governance or
other rights set forth herein in accordance with their terms and subject to
their conditions (including as referenced in Section 4.3(a) and
(b)) shall be exercised by the remaining Members and the Redeeming
Member (to the extent of such Redeeming Member’s remaining Interest in the
Company).  No exercise of a Redeeming
Member’s Redemption Right shall relieve such Redeeming Member of any prior
breach of this Agreement.

 

9.3          Reservation
of CPE Common Stock.  CPE
shall at all times reserve and keep available out of its authorized but
unissued CPE Common Stock, solely for the purpose of issuance upon redemption
of Common Membership Units, such number of CPE Common Stock that may be
issuable upon the exercise by CPE of the CPE Assumption Right, assuming for
purposes of this Section 9.3, that CPE would elect to exercise its
CPE Assumption Right and chose the Share Settlement as its intended settlement
method to pay; provided, that nothing contained herein shall be construed to
preclude CPE from paying the Share Settlement by delivery of CPE Common Stock
which is held in the treasury of CPE. 
CPE covenants that all CPE Common Stock that shall be issued upon (i) a
Share Settlement or (ii) a Share/Cash Settlement will, upon issue, be
validly issued, fully paid and non-assessable.

 

ARTICLE 10

MISCELLANEOUS

 

10.1        Further
Assurances.  The Manager
and each Member of the Company shall, or shall cause their respective
Affiliates or Representatives, as appropriate, to, take such actions and
execute and deliver such other agreements, instruments and documents as may be
necessary or desirable in order to carry out the purposes of this Agreement.

 

10.2        Amendments.  Except as otherwise expressly provided in
this Agreement or as required by Law, this Agreement may be amended by the
written consent of each of the (i) Manager and (ii) the Non-Managing
Members; provided, however, that no amendment may adversely
affect the rights of any holder of Common Membership Units without the consent
of such holder if such amendment adversely affects the rights of such holder
other than on a pro rata basis with other holders of Common Membership Units
(it being understood that any amendment to Section 4.3 of this
Agreement prior to the Rio Tinto Member Non-Approval Trigger Date requires the
prior written consent of the Rio Tinto Members).  In addition, any amendment to the Management
Services Agreement that could materially adversely impact the economic
interests of the Non-Managing Members will require the consent of the
Non-Managing Members prior to the execution of such amendment by the Manager on
behalf of CPE LLC.  Notwithstanding the
foregoing, the consent rights of the Non-Managing Members pursuant to this Section 10.2
shall terminate when the Non-Managing Members cease to own in the aggregate at
least 10% of the Initial Units.

 

10.3        Restrictions
on Disclosure of Information.  For a period of three (3) years after
the earlier of (x) the dissolution of the Company and the termination of
this Agreement or (y) the date upon which such Member ceases to be a
Member of the Company:

 

54

 

(a)           Each Member shall, and shall cause
its Affiliates and its and its Affiliates’ directors, officers, employees,
agents and Representatives to, hold in confidence, in accordance with no less
than the standards of confidentiality that it uses with respect to its own
Confidential Information (as defined below), and in no event less than a
reasonable standard of care, all documents and Information concerning any other
party hereto furnished it by such other party or its representatives in
connection with the transactions contemplated by this Agreement which the
Manager notifies such Member that it in good faith believes it is not in the
best interest of the Company to disclose or could damage the Company or its
business or which the Company is required by law or by agreement with a third
party to keep confidential (the “Confidential Information”).  Notwithstanding the foregoing, each Member
and each of its Affiliates may disclose such Confidential Information to the
extent that such Confidential Information is required, in such Member’s sole
discretion, in connection with the preparation of any financial, reserve or
other information as needed or appropriate to be included in the public filings
of such Member or is required to be disclosed to lenders of Indebtedness,
provided such lenders are under an obligation to keep such Confidential
Information confidential, or such Member or Affiliate can demonstrate that such
Confidential Information is or was (i) generally available to the public other
than by the breach of this Agreement, or (ii) lawfully acquired from a third
Person on a non-confidential basis or independently developed by, or on behalf
of, such Person.  Notwithstanding the
foregoing, each Member and its Affiliates may disclose such Confidential
Information to the extent that such Person reasonably believes it is legally
compelled to disclose such Confidential Information by judicial or
administrative process or to any tribunal, agency, Governmental Authority,
including, but not limited to, the New York Stock Exchange, or else stand
liable for contempt or suffer other censure or financial penalty or is
otherwise required by Law to disclose such Confidential Information.  Each Member shall maintain, and shall cause its
Affiliates to maintain, policies and procedures, and develop such further
policies and procedures as shall from time to time become necessary or
appropriate, to ensure compliance with this Section 10.3(a).  Nothing contained in this Section 10.3
shall be deemed to limit the disclosure by a Member of its own Confidential
Information.

 

(b)           Each Member shall (i) not, directly
or indirectly, use the Confidential Information of the Company, except (x) as
necessary in the ordinary course of the Company’s or such Member’s business or (y)
as otherwise agreed between the Company and any Member, or disclose the
Confidential Information of the Company to any third party and (ii) inform all
of its employees to whom the Confidential Information of the Company is
entrusted or exposed of the requirements of this Section and of their
obligations relating thereto. 
Notwithstanding the foregoing, in connection with a potential merger,
acquisition, disposition, financing or other transaction or any potential
Transfer of Units or CPE Common Stock by a Member, such Member may disclose
Confidential Information of the Company to third-parties if the Member requires
the recipients of such Confidential Information to sign an agreement of
confidentiality and nondisclosure reasonably satisfactory to such Member.

 

(c)           The Company shall preserve the
confidentiality of all Confidential Information supplied by the Members and
their Affiliates (“Member Information”)
to the same extent that a Member must preserve the confidentiality of
Confidential Information pursuant to Sections 10.3(a) and (b).

 

55

 

(d)           Member Information shall not be
supplied by the Company or its Subsidiaries to any Person, including any other
Member, who is not an employee of the Company or the Manager, including any
employee of a Member who is not an employee of the Company or the Manager.
Notwithstanding the foregoing, Member Information may be disclosed to the
Member’s Representatives and to authorized third-party contractors of the
Company if the Company determines that such disclosure is reasonably necessary
to further the business of the Company, and if such contractor executes a
non-disclosure agreement preventing such contractor from disclosing such Member
Information for the benefit of each provider of Member Information in a form
reasonably acceptable to the Members providing such Member’s Information.
Member Information disclosed by any Member to the Company or the Manager shall
not be shared with any other Member that is not the Manager without the
disclosing Member’s written consent.

 

10.4        Injunctive
Relief.  The Company
and each Member acknowledge and agree that any breach or violation of any of
the terms of, or a default under, this Agreement, including, but not limited
to, Section 4.3, will cause the other Members and the Company, as the
case may be, irreparable injury for which an adequate remedy at law is not
available.  Accordingly, it is agreed
that each of the Members and the Company will be entitled to an injunction or
restraining order restraining such breach, violation or default or threatened
breach, violation or default and to any other equitable relief, including,
without limitation, specific performance of the terms and provisions of this
Agreement, in addition to any other remedy to which they may be entitled, at
law or equity.  The Company and each
Member further agree that, in the event of any action for an injunction or
other equitable remedy in respect of such breach or enforcement of specific
performance, it will not assert the defense that a remedy at law would be
adequate.  Nothing stated herein shall
limit any other remedies provided under this Agreement or available to the
parties at law or equity.

 

10.5        No
Third-Party Beneficiaries.  This Agreement shall inure to the benefit of,
and be binding upon, the Parties hereto and their respective legal
representatives, successors and permitted assigns and transferees.  Except as otherwise provided in this
Agreement, nothing in this Agreement, express or implied, is intended to confer
upon any other Person any rights or remedies of any nature whatsoever under or
by reason of this Agreement.

 

10.6        Notices.  Any notice, instruction, direction, demand or
other communication required under the terms of this Agreement shall be in
writing and shall be delivered by hand, facsimile transmission, electronic mail
or nationally recognized overnight delivery service (with postage prepaid) and
shall be deemed given when received if delivered on a Business Day during
normal business hours of the recipient or, if not so delivered, on the next
Business Day following receipt.  Notices
to the Company or any Member shall be delivered to the Company or such Member
as set forth in Exhibit A, as it may be revised from time to time.

 

10.7        Severability.  If any term or other provision of this
Agreement shall be determined by a court, administrative agency or arbitrator
to be invalid, illegal or unenforceable, such invalidity, illegality or
unenforceability shall not render the entire Agreement invalid. Rather, this
Agreement shall be construed as if not containing the particular invalid,
illegal or unenforceable provision, and all other provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in any
manner materially adverse to either the Company or the Members.

 

56

 

Upon such determination that
any term or other provision is invalid, illegal or unenforceable, the Company
and the Members shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the Members as closely as possible in a
reasonably acceptable manner to the end that the transactions contemplated
hereby are fulfilled to the fullest extent permitted under applicable Law.

 

10.8        Counterparts
and Signature.  This
Agreement may be executed in separate counterparts, each of which shall be
deemed an original and all of which, when taken together, shall constitute one
and the same instrument.  This Agreement
may be executed by electronic transmission, including by facsimile or
electronic mail, by each party hereto of a signed signature page hereof to the
other party.

 

10.9        Governing Law; Submission to Jurisdiction; Waiver of Jury Trial.

 

(a)           This Agreement is to be construed in
accordance with and governed by the internal laws of the State of Delaware
without giving effect to any choice of law rule that would cause the
application of the laws of any jurisdiction other than the internal laws of the
State of Delaware to the rights and duties of the Parties.

 

(b)           Each Party hereby expressly and
irrevocably consents and submits to the jurisdiction of each state and federal
court located in Wilmington, Delaware (and each appellate court wherever
located with jurisdiction over appeals from such court) for any action or other
proceeding arising out of or relating to this Agreement, or the negotiation,
validity or performance of this Agreement, or the transactions contemplated
thereby (and agrees not to commence any action or other proceeding relating
thereto except in such courts, including to enforce any settlement, order or
award).  Each Party hereto:

 

(i)            consents to service of process in
any such action or proceeding in any manner permitted by the laws of the State
of Delaware, and also agrees that service of process by registered or certified
mail, return receipt requested, at its address specified pursuant to Section
10.6 is sufficient and reasonably calculated to give actual notice;

 

(ii)           agrees that each state and federal
court located in Wilmington, Delaware shall be deemed to be a convenient forum;
and

 

(iii)          waives and agrees not to assert (by
way of motion, as a defense or otherwise), in any such action or proceeding
commenced in any state or federal court located in Wilmington, Delaware, any
claim that such party is not subject personally to the jurisdiction of such
court, that such legal proceeding has been brought in an inconvenient forum,
that the venue of such proceeding is improper or that this Agreement or the
subject matter hereof or thereof may not be enforced in or by such court.

 

(c)           In the event of any action or other
proceeding relating to this Agreement or the enforcement of any provision of
this Agreement, the prevailing party (as determined by the court) shall be
entitled to payment by the non-prevailing party of all costs and expenses
(including reasonable attorneys’ fees) incurred by the prevailing party,
including any costs and expenses incurred in connection with any challenge to
the jurisdiction or the convenience or

 

57

 

propriety of venue of
proceedings before any state or federal court located in Wilmington, Delaware.

 

(d)           Each
of the Parties hereto hereby waives to the fullest extent permitted by
applicable Law any right it may have to a trial by jury with respect to any
legal action or other legal proceeding directly or indirectly arising out of,
under or in connection with this Agreement or the transactions contemplated
hereby.  Each of the Parties
hereto (a) certifies that no Representative, agent or attorney of any other
Party has represented, expressly or otherwise, that such other party would not,
in the event of litigation, seek to enforce that foregoing waiver and (b) acknowledges
that it and the other Parties hereto have been induced to enter into this
Agreement and the transactions contemplated by this Agreement, as applicable,
by, among other things, the mutual waivers set forth in this Section 10.9(d).

 

(signature page follows)

 

58

 

IN WITNESS WHEREOF, each of the undersigned has
executed this Agreement or caused this Agreement to be executed on its behalf
as of the date first written above.

 

 

	
   

  	
  RIO TINTO ENERGY AMERICA INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  James P. Berson

  
	
   

  	
  Name:

  	
  James
  P. Berson

  
	
   

  	
  Title:

  	
  Authorized
  Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  KENNECOTT MANAGEMENT SERVICES COMPANY

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  James P. Berson

  
	
   

  	
  Name:

  	
  James
  P. Berson

  
	
   

  	
  Title:

  	
  Authorized
  Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  CLOUD PEAK ENERGY INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Colin Marshall

  
	
   

  	
  Name:

  	
  Colin
  Marshall

  
	
   

  	
  Title:

  	
  President and CEO

  

 

 

[Signature page for Third
Amended and Restated Limited Liability Company Agreement of Cloud Peak Energy
Resources LLC]

 

59Exhibit
10.6

 

EXECUTION COPY

 

ACQUISITION AGREEMENT

 

THIS
ACQUISITION AGREEMENT dated as of November 19, 2009 (this “Agreement”),
is between Cloud Peak Energy Inc., a Delaware corporation (“Cloud Peak”), and Rio Tinto Energy
America Inc., a Delaware corporation (“RTEA”).  Certain terms used in this Agreement are
defined in Section 1.1.  Except as otherwise specified in this Agreement, all capitalized terms
used herein that are defined in the Master Separation Agreement (as defined
below) have the respective meanings specified therein.

 

RECITALS

 

WHEREAS,
through a series of structuring transactions, RTEA contributed the non-Colorado
Western United States coal mining business (other than the Colowyo mine) (the “Coal Business”) of Rio Tinto
America Inc., a Delaware corporation (“RTA”) to
Cloud Peak Energy Resources LLC, a Delaware limited liability company (“CPE  LLC”);

 

WHEREAS,
prior to the completion of the transactions contemplated in this Agreement,
RTEA and Kennecott Management Services Company, a Delaware corporation (“KMS”) owned all of the outstanding
Common Membership Units (as defined below) of CPE LLC;

 

WHEREAS,
concurrent with the execution of this Agreement, (i) RTA, RTEA, KMS, Cloud
Peak, CPE LLC and certain subsidiaries of CPE LLC will enter into a Master
Separation Agreement, (ii) Cloud Peak, RTEA and KMS will enter into the Third
Amended and Restated Limited Liability Company Operating Agreement of CPE LLC
(the “LLC  Agreement”)
and (iii) Cloud Peak, RTEA and KMS and/or their respective Affiliates will
enter into the Transaction Documents, including the Tax Receivable Agreement;

 

WHEREAS,
Cloud Peak desires to acquire a portion of RTEA’s interest in the Coal Business
through the acquisition from RTEA of Common Membership Units (as defined below)
in CPE LLC, and, as consideration, will issue to RTEA the CPE Note (as defined
below);

 

WHEREAS,
the Underwriters have required, as a condition to their entering into the
Underwriting Agreement, that Cloud Peak grant the Underwriters an option (the “Overallotment  Option”) to purchase up to an additional 4,590,000
shares of Common Stock from Cloud Peak to cover overallotments of shares in the
Initial Public Offering (the “Overallotment”);
and

 

WHEREAS,
upon the exercise of the Overallotment Option, Cloud Peak desires to acquire an
additional portion of RTEA’s interest in the Coal Business through the
acquisition from RTEA of additional Common Membership Units in CPE LLC.

 

NOW, THEREFORE, in
consideration of the foregoing and the mutual covenants and agreements set
forth below, and other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, Cloud Peak and RTEA hereby agree as
follows:

 

 

ARTICLE 1

 

DEFINITIONS

 

1.1.                              Certain Definitions.  For purposes of this
Agreement, the following terms shall have the meanings specified in this Section
1.1:

 

“Code”
means the Internal Revenue Code of 1986, as
amended from time to time, or any successor statute and the rules and
regulations thereunder in effect from time to time.  Any reference herein to a specific provision
of the Code shall mean, where appropriate, the corresponding provision in any
successor statute.

 

“Common
Membership Units” means the limited liability company common
membership units of CPE LLC as described in the LLC Agreement.

 

“Common Stock”
means the common stock, $0.01 par value per share, of Cloud Peak.

 

“Encumbrance” means, with respect to
any specified asset, any security interest, lien, mortgage, claim, charge,
pledge, restriction, option, reservation, equitable interest, deed of trust,
right of first refusal, easement, servitude or encumbrance of any nature.

 

“First
Closing Date” has the meaning set forth in Section 3 of the
Underwriting Agreement.

 

“Initial
Public Offering” means the initial public offering registered
under the Securities Act of the Common Stock of Cloud Peak.

 

“Optional
Closing Date” has the meaning set forth in Section 3 of the
Underwriting Agreement.

 

“Master
Separation Agreement” means the Master Separation Agreement
dated as of the date hereof among RTA, RTEA, KMS, Cloud Peak, CPE LLC and
certain subsidiaries of CPE LLC.

 

“Underwriters”
means the several underwriters of the offering named in the Underwriting
Agreement.

 

“Underwriting
Agreement” means the underwriting agreement to be entered into
among Cloud Peak and the Underwriters for the Initial Public Offering.

 

1.2.                              Additional Terms.  In addition to the defined
terms identified in Section 1.1, the following terms have the meanings
assigned in the Sections referred to in the table below:

 

	
  Term

  	
   

  	
  Section

  
	
  Acquisition Closing

  	
   

  	
  2.4

  
	
  Agreement

  	
   

  	
  Preamble

  
	
  Business Day

  	
   

  	
  Master Separation
  Agreement

  
	
  Cloud Peak

  	
   

  	
  Preamble

  
	
  Coal Business

  	
   

  	
  Recitals

  

 

2

 

	
  CPE LLC

  	
   

  	
  Recitals

  
	
  CPE Note

  	
   

  	
  2.2

  
	
  KMS

  	
   

  	
  Recitals

  
	
  Law

  	
   

  	
  Master Separation
  Agreement

  
	
  LLC Agreement

  	
   

  	
  Recitals

  
	
  New York Courts

  	
   

  	
  5.3

  
	
  Overallotment

  	
   

  	
  Recitals

  
	
  Overallotment
  Acquisition Closing

  	
   

  	
  3.3

  
	
  Overallotment Option

  	
   

  	
  Recitals

  
	
  RTA

  	
   

  	
  Recitals

  
	
  RTEA

  	
   

  	
  Preamble

  
	
  Tax Receivable
  Agreement

  	
   

  	
  Master Separation Agreement

  
	
  Transaction Documents

  	
   

  	
  Master Separation
  Agreement

  
	
  Unit(s)

  	
   

  	
  2.1

  
	
  Unit Price

  	
   

  	
  2.2

  

 

ARTICLE 2

 

ACQUISITION OF UNITS

 

2.1.                                    Acquisition.  RTEA hereby agrees to sell to Cloud Peak and
Cloud Peak hereby agrees to acquire from RTEA a portion of RTEA’s interest in
the Coal Business through the acquisition of 30,600,000 Common Membership Units
(each a “Unit” and collectively, the “Units”),
free and clear of all Encumbrances.

 

2.2.                                    Unit Price.  The price of each Unit shall
equal $14.175 (the “Unit Price”).
As consideration for the Units, Cloud Peak shall issue a promissory note (the “CPE  Note”)
in a principal amount equal to the number of Units multiplied by the Unit
Price, in the form attached hereto as Exhibit A.

 

2.3.                                    Payment of Note.  Cloud Peak hereby agrees to use all of the
net proceeds of the Initial Public Offering to pay the CPE Note in full as
promptly as practicable by wire transfer of immediately available funds to an
account designated by RTEA in writing in accordance with the requirements of the
CPE Note.  The failure by Cloud Peak to
pay the CPE Note shall constitute a breach of this Agreement.

 

2.4.                                    Acquisition Closing.  The closing of the transactions contemplated
in this Article 2 (the “Acquisition Closing”) shall take place on the
date hereof.

 

2.5.                                    FIRPTA
Certificate.  Prior to
the Acquisition Closing, RTEA shall provide Cloud Peak with a FIRPTA
certificate, in the form attached hereto as Exhibit B, duly executed by
an officer of RTEA.

 

2.6.                                    Transfer Taxes and Fees.  Cloud Peak shall be responsible for any
documentary, transfer, sales or other taxes, if any, imposed by reason of the
sale of the Units under this Agreement and any deficiency, interest or penalty
asserted with respect thereto.

 

3

 

ARTICLE 3

 

ACQUISITION OF OVERALLOTMENT UNITS

 

3.1.                                    Overallotment Acquisition.  In the event the Underwriters exercise the
Overallotment Option and the transactions related to the Overallotment Option
set forth in the Underwriting Agreement are consummated, RTEA hereby agrees to
sell to Cloud Peak and Cloud Peak hereby agrees to acquire from RTEA a portion
of RTEA’s interest in the Coal Business through the acquisition of a number of
Common Membership Units, free and clear of all Encumbrances, equal to the number
of shares of Common Stock sold by Cloud Peak pursuant to the Overallotment
Option (each an “Overallotment
Unit” and collectively, the “Overallotment  Units”), which may be up to 4,590,000 shares of Common
Stock.

 

3.2.                                    Overallotment Unit Price.  The price of each
Overallotment Unit shall equal the Unit Price. Cloud Peak shall pay to RTEA an
amount equal to the number of Overallotment Units multiplied by the Unit Price
by wire transfer of immediately available funds to an account designated by
RTEA in writing at the Overallotment Acquisition Closing (as defined below).

 

3.3.                                    Overallotment Acquisition Closing.  The closing of the
transactions contemplated in this Article 3 (the “Overallotment
Acquisition Closing”) shall take place no later than 1 P.M. EST,
on the Business Day following the Optional Closing Date.

 

3.4.                                    Transfer Taxes and Fees.  Cloud Peak shall be responsible for any
documentary, transfer, sales or other taxes, if any, imposed by reason of the
sale of the Overallotment Units under this Agreement and any deficiency,
interest or penalty asserted with respect thereto.

 

3.5.                                    Conditions to
Overallotment Acquisition Closing.  The obligations of both Cloud Peak and RTEA
under this Article 3 are subject to the fulfillment or waiver of the following
conditions:

 

3.5.1.                          The
Underwriters shall have exercised their Overallotment Option and the
transactions related to the Overallotment Option set forth in the Underwriting
Agreement are consummated; and

 

3.5.2.                          There shall not
have been issued and be in effect any order, decree or judgment of, or in, any
court, tribunal of competent jurisdiction or governmental authority which makes
the issue and sale of the Overallotment Units or any of the other transactions
contemplated by this Agreement illegal or invalid.

 

4

 

ARTICLE 4

 

REPRESENTATIONS AND WARRANTIES

 

4.1.                                  Representations and Warranties of RTEA.  RTEA represents and warrants to Cloud Peak as
follows:

 

4.1.1.                         Organization; Good Standing; Qualification of RTEA.  RTEA is a Delaware
corporation, duly organized and validly existing under the laws of the State of
Delaware and is in good standing under such laws.  RTEA has the requisite power and authority to
own its properties and to conduct its business in all material respects.  RTEA is in good standing and qualified to do
business in every jurisdiction where the failure to so qualify would have a
material adverse effect on its business or financial condition or on RTEA’s
ability to enter into this Agreement or to consummate the transactions
contemplated hereby.

 

4.1.2.                         Organization; Good Standing; Qualification of CPE LLC.  CPE LLC is a limited
liability company, duly organized and validly existing under the laws of the
State of Delaware and is in good standing under such laws.  CPE LLC has the requisite power and authority
to own its properties and to conduct its business in all material
respects.  CPE LLC is in good standing
and qualified to do business in every jurisdiction where the failure to so
qualify would have a material adverse effect on its business or financial
condition or on RTEA’s ability to enter into this Agreement or to consummate
the transactions contemplated hereby.

 

4.1.3.                         Authorization.  The execution, delivery and
performance of this Agreement and the sale of the Units and the Overallotment
Units is within the power of and has been duly authorized by RTEA.  This Agreement constitutes the legal, valid
and binding obligation of RTEA enforceable against RTEA in accordance with its
terms, except as may be limited by (i) applicable bankruptcy, insolvency,
reorganization or other laws of general application relating to or affecting
the enforcement of creditors’ rights generally and (ii) the effect of rules of
law governing the availability of equitable remedies.

 

4.1.4.                         Title to the Membership Units.  RTEA owns, and has good and
marketable title to the Units and the Overallotment Units it has agreed to sell
pursuant to the terms of this Agreement. 
Except for any restrictions set forth in the LLC Agreement, RTEA holds
such Units and the Overallotment Units free and clear of any Encumbrance.

 

4.1.5.                         Consents.  Except as have been previously obtained or
made, no consent, approval or authorization of, or designation, declaration
or filing with, any governmental authority or other third party on the part of
CPE LLC or RTEA is required in connection with the execution and delivery of
this Agreement or the consummation of the transactions contemplated hereby.

 

4.2.                                  Representations and Warranties of Cloud Peak.  Cloud Peak hereby represents
and warrants to RTEA as follows:

 

4.2.1.                         Organization; Good Standing;
Qualification.  Cloud Peak is a corporation, duly 

 

5

 

organized and validly existing under the laws of the
State of Delaware and is in good standing under such laws.  Cloud Peak has the requisite power and
authority to conduct its business in all material respects.  Cloud Peak is in good standing and qualified
to do business in every jurisdiction where the failure to so qualify would have
a material adverse effect on its business or financial condition or on its
ability to enter into this Agreement or to consummate the transactions
contemplated hereby.

 

4.2.2.                         Authorization.  The execution, delivery and
performance of this Agreement and the CPE Note and the purchase of the Units
and Overallotment Units are within the powers of and have been duly authorized
by Cloud Peak.  Both this Agreement and,
when duly executed, the CPE Note, constitute legal, valid and binding
obligations of Cloud Peak enforceable against Cloud Peak in accordance with
their terms, except as may be limited by (i) applicable bankruptcy, insolvency,
reorganization or other laws of general application relating to or affecting
the enforcement of creditors’ rights generally and (ii) the effect of rules of
law governing the availability of equitable remedies.

 

4.2.3.                         Consents.  Except as have been previously obtained or
made, no consent, approval or authorization of, or designation, declaration
or filing with, any governmental authority or other third party on the part of
Cloud Peak is required in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby.

 

ARTICLE 5

 

MISCELLANEOUS

 

5.1.                                  Further
Assurances.  From time
to time after the date hereof, each of the parties to this Agreement shall
deliver or cause to be delivered to the other party hereto such further
documents and instruments and shall do and cause to be done such further acts as
each party shall reasonably request to carry out more effectively the
provisions and purposes of this Agreement.

 

5.2.                                  Assignment. Neither party to this Agreement shall assign,
transfer or otherwise alienate any or all of its rights, obligations or interest
under this Agreement, without the express prior written consent of the other
party, which consent may be granted or withheld in such other party’s sole
discretion. Any attempted transfer in violation of the previous sentence shall
be invalid and ineffective ab initio.

 

5.3.                                  Governing Law; Submission to Jurisdiction; Waiver of Jury Trial.

 

5.3.1.                         This Agreement
is to be construed in accordance with and governed by the internal laws of the
State of New York without giving effect to any choice of law rule that would
cause the application of the laws of any jurisdiction other than the internal
laws of the State of New York to the rights and duties of the Parties.

 

5.3.2.                         Each Party
hereby irrevocably and unconditionally consents to submit to the sole and exclusive
jurisdiction of the United States District Court for the Southern 

 

6

 

District of New York or, if
such court does not have subject matter jurisdiction, the Supreme Court of the
State of New York sitting in New York County (the “New
York  Courts”)
for any legal action or other legal proceeding arising out of or relating to
this Agreement, or the negotiation, validity or performance of this Agreement,
or the transactions contemplated thereby (and agrees not to commence any legal
action or other legal proceeding relating thereto except in such courts),
including to enforce any settlement, order or award.  Each Party hereto:

 

5.3.2.1.               consents to
service of process in any such proceeding in any manner permitted by the laws
of the State of New York, and also agrees that service of process by registered
or certified mail, return receipt requested, at its address specified pursuant
to Section 5.5 is sufficient and reasonably calculated to give actual
notice;

 

5.3.2.2.               agrees that the
New York Courts shall be deemed to be a convenient forum; and

 

5.3.2.3.               waives and
agrees not to assert (by way of motion, as a defense or otherwise), in any such
legal proceeding commenced in the New York Courts that such Party is not
subject personally to the jurisdiction of such court, that such legal
proceeding has been brought in an inconvenient forum, that the venue of such
proceeding is improper or that this Agreement or the subject matter hereof or
thereof may not be enforced in or by such court.

 

5.3.3.                         In the event of
any action or other proceeding relating to this Agreement or the enforcement of
any provision of this Agreement, the prevailing party (as determined by the
court) shall be entitled to payment by the non-prevailing party of all costs
and expenses (including reasonable attorneys’ fees) incurred by the prevailing
party, including any costs and expenses incurred in connection with any
challenge to the jurisdiction or the convenience or propriety of venue of
proceedings before the New York Courts.

 

5.3.4.                         Each of the
Parties hereto hereby waives to the fullest extent permitted by applicable Law
any right it may have to a trial by jury with respect to any legal action or
other legal proceeding directly or indirectly arising out of, under or in
connection with this Agreement or the transactions contemplated hereby or
thereby.  Each of the Parties hereto (a) certifies
that no Representative, agent or attorney of any other Party has represented,
expressly or otherwise, that such other Party would not, in the event of
litigation, seek to enforce that foregoing waiver and (b) acknowledges that it
and the other Parties hereto have been induced to enter into this Agreement and
the transactions contemplated by this Agreement, as applicable, by , among
other things, the mutual waivers set forth in this Section 5.3.4.

 

5.4.                                  Specific
Performance. Each of the Parties hereto acknowledges and
agrees that the other Party would be irreparably damaged if any of the
provisions of this Agreement are not performed in accordance with their
specific terms and that any breach of this Agreement by a Party could not be
adequately compensated in all cases by monetary damages alone.  Accordingly, in addition to any other right
or remedy to which each Party may be entitled, at law 

 

7

 

or at equity, each Party shall be entitled to enforce any provision of
this Agreement by a decree of specific performance and to temporary,
preliminary and permanent injunctive relief to prevent breaches or threatened
breaches of any provisions of this Agreement, without posting any bond or other
undertaking.

 

5.5.                                  Notices.  Any notice, instruction, direction or demand
required under the terms of this Agreement shall be in writing and shall be
duly given upon delivery, if delivered by hand, facsimile transmission or mail
(with postage prepaid), to the following addresses:

 

If to Cloud Peak, to:

 

Cloud Peak Energy Inc.

General Counsel

505 S. Gillette Avenue

Gillette, Wyoming 82716

(307) 687-6000

Fax: (307) 687-6059

 

If to RTEA, to:

 

Rio
Tinto Energy America Inc.

Legal Department

4700 Daybreak Parkway

South Jordan, Utah 84095

(801) 204-2000

Fax: (801) 204-2892

 

With a
copy to (which shall not constitute notice):

 

Craig Johnson, Esq.

Rio Tinto Services Inc.

224 North 2200 West

Salt Lake City, Utah 84116

(801) 238-2400

Fax: (801) 238-2473

 

or to such other addresses or telecopy numbers as may
be specified by like notice to the other Parties.

 

5.6.                                  Survival.  The covenants and other agreements contained in this
Agreement, and liability for the breach of any obligations contained herein,
shall survive each of the Acquisition Closing, the Overallotment Acquisition
Closing and the Transactions and shall remain in full force and effect.

 

8

 

5.7.                                  No Third-Party Beneficiaries.  This Agreement shall inure to the benefit of,
and be binding upon, the parties hereto and their respective legal
representatives, successors and assigns. 
Nothing in this Agreement, express or implied, is intended to confer
upon any other Person any rights or remedies of any nature whatsoever under or
by reason of this Agreement.

 

5.8.                                  Amendment.  This Agreement may be
amended only by a written agreement executed by the parties hereto.

 

5.9.                                  Waiver.  A provision of this
Agreement may be waived only by a writing signed by the party intended to be
bound by the waiver. A party is not prevented from enforcing any right, remedy
or condition in the party’s favor because of any failure or delay in exercising
any right or remedy or in requiring satisfaction of any condition, except to
the extent that the party specifically waives the same in writing.  A written waiver given for one matter or
occasion is effective only in that instance and only for the purpose
stated.  A waiver once given is not to be
construed as a waiver for any other matter or occasion.  Any enumeration of a party’s rights and
remedies in this Agreement is not intended to be exclusive, and a party’s
rights and remedies are intended to be cumulative to the extent permitted by
Law and include any rights and remedies authorized in Law or in equity.

 

5.10.                            Severability.  If any term or other provision of this
Agreement shall be determined by a court, administrative agency or arbitrator
to be invalid, illegal or unenforceable, such invalidity, illegality or
unenforceability shall not render the entire Agreement invalid. Rather, this
Agreement shall be construed as if not containing the particular invalid,
illegal or unenforceable provision, and all other provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in any
manner materially adverse to either party. Upon such determination that any
term or other provision is invalid, illegal or unenforceable, the parties shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the fullest extent permitted
under applicable Law.

 

5.11.                            Counterparts and Signature.  This Agreement may be executed in separate
counterparts, each of which shall be deemed an original and all of which, when
taken together, shall constitute one and the same instrument.  This Agreement may be executed by electronic
transmission, including by facsimile or electronic mail, by each party hereto
of a signed signature page hereof to the other party.

 

5.12.                            Characterization.  It is intended by the parties hereto that
each of the acquisitions of Common Membership Units pursuant to Sections 2.1
and 3.1 of this Agreement be characterized as the purchase of interests
in an entity treated as a partnership for U.S. federal income tax purposes and
subject thereby to Section 743 of the Code.  Each of RTEA and Cloud Peak agrees, unless
otherwise required by a change in law, regulation, written interpretation
thereof or as may be required by a “determination” as defined in Section 1313(a)
of the Code following the date of this Agreement, to file tax returns and
reports consistent with such characterization.

 

9

 

5.13.                           Interpretation of Agreement.

 

5.13.1.                  As used in this
Agreement, the words “include” and “including,” and variations thereof, shall
not be deemed to be terms of limitation, and shall be deemed to be followed by
the words “without limitation.”

 

5.13.2.                  Unless
otherwise specified, references in this Agreement to “Articles”, “Sections” and
“Exhibits” are intended to refer to Articles of, Sections of, and Exhibits to,
this Agreement.

 

5.13.3.                  The Article and
Section headings contained in this Agreement are solely for the purpose of
reference, are not part of the agreement of the parties and shall not in any
way affect the meaning or interpretation of this Agreement.

 

5.13.4.                  Each party
hereto and its counsel cooperated in drafting and preparation of this Agreement
and the documents referred to in this Agreement.  Any rule of law or any legal decision that
would require interpretation of any ambiguities in this Agreement against the
party that drafted it is of no application and is hereby expressly waived.

 

[Signature page to follow]

 

10

 

IN WITNESS WHEREOF, the
parties hereto have caused this Agreement to be executed on the day and year
first above written.

 

 

	
   

  	
  CLOUD PEAK ENERGY INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Colin Marshall

  
	
   

  	
  Name:

  	
  Colin
  Marshall

  
	
   

  	
  Title:

  	
  President
  and CEO

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  RIO TINTO ENERGY AMERICA INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  James P. Berson

  
	
   

  	
  Name:

  	
  James
  P. Berson

  
	
   

  	
  Title:

  	
  Authorized
  Agent

  

 

 

[Acquisition Agreement Signature
Page]

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