This Transition Agreement involves
Title: TRANSITION SERVICES AGREEMENT
Governing Law: New York Date: 11/25/2009
TRANSITION SERVICES AGREEMENT
This TRANSITION SERVICES AGREEMENT (this “ Agreement ”), is made and entered into as of November 19, 2009 (the “ Effective Date ”), between Rio Tinto Services Inc., a Delaware corporation (“ RTS ”), Cloud Peak Energy Resources LLC, a Delaware limited liability company (“ CPE LLC ”) and Cloud Peak Energy Inc., a Delaware corporation (together with its subsidiaries, “ CPE ” and, together with CPE LLC, the “ Company ”). RTS, CPE LLC and CPE are sometimes referred to herein separately as a “ Party ” and together as the “ Parties .”
WHEREAS, CPE is conducting an initial public offering of its common stock (the “IPO” );
WHEREAS, CPE LLC owns the western United States coal business (other than the Colowyo mine) of Rio Tinto America Inc., a Delaware corporation (“ RTA ”), an indirect wholly-owned subsidiary of Rio Tinto plc and its “ Affiliates” (which, for purposes of this Agreement, means any entity that, directly or indirectly, controls, is controlled by, or is under common control with any specified entity or person; provided , however , that for purposes of this Agreement, except to the extent expressly provided for herein, the determination of whether an entity or person is an Affiliate shall be made assuming that Rio Tinto plc and its Affiliates and RTS are not Affiliates of the Company and vice versa);
WHEREAS, immediately prior to the IPO, CPE will acquire an interest in RTA’s western United States coal business (other than the Colowyo mine) through the purchase of membership units of CPE LLC indirectly held by RTA;
WHEREAS, following the completion of the IPO, CPE will be a holding company, its sole asset will be its managing member interest in CPE LLC and its only business will be acting as the sole manager of CPE LLC; and
WHEREAS, CPE desires that RTS provide CPE LLC with certain agreed upon transitional services for a period following the consummation of the IPO, and RTS has agreed to provide such services on the terms and subject to the conditions set forth herein (CPE LLC is herein referred to as the (“ Service Recipient ”) in its capacity as the recipient of Transition Services (as defined below) and RTS is herein referred to as the (“ Service Provider ”) in its capacity as the provider of Transition Services).
NOW THEREFORE, for and in consideration of the respective covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto agree as follows:
1.1 Defined Terms . Capitalized terms shall have the meanings given them herein. Capitalized terms not defined herein shall have the meanings ascribed to such terms in the Master Separation Agreement dated as of the date hereof by and among, RTEA, KMS, CPE, CPE LLC and the Subsidiaries named therein (the “ Master Separation Agreement ”).
1.2 Interpretation . When a reference is made in this Agreement to Articles or Sections, such reference shall be to an Article or Section of this Agreement unless otherwise indicated. Whenever the words “include,” “includes,” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation”, whether or not so stated. The words “herein”, “hereof” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to a particular Article, Section or other subdivision. Any singular term in this Agreement shall be deemed to include the plural, and any plural term the singular. The use of a particular gender in this Agreement is for convenience of reference only and shall not affect the interpretation of this Agreement. The titles, captions or headings of the Sections and Articles herein are for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. Annex A , Annex B and the schedules identified in this Agreement are incorporated herein by reference and made a part hereof.
PROVISION OF TRANSITION SERVICES
2.1 Agreement . Upon the terms and subject to the conditions contained herein, the Service Provider agrees to provide or cause to be provided to the Service Recipient or its Affiliates the services listed on Annex A hereto at the locations that such transition services were provided to the Service Recipient or its predecessors immediately prior to the Effective Date (or at such locations as are otherwise agreed to by the Parties), together with any additional services that they may mutually agree to in writing (including the term of such services) from time to time (each a “ Transition Service ” and collectively the “ Transition Services ”). For the avoidance of doubt, the Service Provider will use its commercially reasonable efforts to provide the Transition Services to the Service Recipient under the terms of this Agreement.
2.2 Transition Period . Subject to Section 2.3 , the Service Provider shall provide the Transition Services for a period shown for the applicable Transition Services on Annex A (each, a “ Transition Period ”). The applicable Transition Period for any particular Transition Service, other than those identified as a P&OS function on Annex A , may be
extended one time for a period of up to six months upon 30 calendar days’ written notice from the Service Recipient to the Service Provider unless the Parties otherwise agree to extend the Transition Period for such Transition Service by mutual written agreement and on mutually satisfactory terms. Any Transition Services identified with a finance function designation under Annex A will be automatically extended one time upon request of the Service Recipient to the Service Provider if the Transition Period for such Transition Services as set forth on Annex A will expire within (i) 30 calendar days of a fiscal period end or (ii) (30) calendar days of any applicable reporting deadline of the U.S. Securities and Exchange Commission (the “ Commission ”) until, in the case of subclause (i), the report relating to such fiscal period is required to be filed with the Commission and in the case of subclause (ii), the expiration of such reporting deadline.
2.3 Term of Agreement; Early Termination of Transition Services . This Agreement shall commence on the Effective Date and continue for so long as any Transition Services are provided to the Service Recipient unless sooner terminated by the Parties or as otherwise provided in this Agreement. The Service Recipient may elect to terminate the provision of all or any portion of the Transition Services (or any Transition Service) prior to the expiration of the Transition Period by delivering written notice of such election to the Service Provider. Unless the Service Provider otherwise agrees in writing, and except as set forth below, any such termination shall be deemed to be effective no earlier than thirty (30) calendar days following the Service Provider’s receipt of such notice and the Transition Period for the affected Transition Services shall be deemed to terminate upon such effective date; provided, however, that if such termination would result in an obligation by the Service Provider to pay an early-termination or other similar fee to a third-party, such termination shall be deemed to be effective no earlier than sixty (60) calendar days following the Service Provider’s receipt of such notice and the Transition Period for the affected Transition Service shall be deemed to terminate upon such effective date. Upon the occurrence of a change in control of CPE or CPE LLC , this Agreement shall terminate effective upon the date of such change in control, unless the Service Provider otherwise agrees in writing. For purposes of this Agreement, the term “ change in control ” (i) with respect to CPE, 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 Cloud Peak Energy Inc. and (ii) with respect to the Service Recipient, means a “Change in Control” as defined in the Third Amended and Restated Limited Liability Company Agreement of the Service Recipient. Each of the service level agreements with RTS set forth on Annex B hereto (each a “ Service Level Agreement ”) shall terminate upon the termination of the relevant Transition Service.
2.4 Continuation of Certain Obligations and Duties. Neither the expiration of the Transition Period, nor the termination of this Agreement pursuant to Section 2.3 above, shall terminate or modify any duty or obligation of the Parties which are specifically intended to continue beyond the Transition Period or pursuant to any other agreement, including without limitation those duties and obligations of the Parties specified on Annex A hereto.
2.5 Service Boundaries.
(a) The Service Provider shall be obligated to provide the Transition Services as set forth on Annex A . Any special specifications with respect to any Transition Services shall be set forth on Annex A . The Transition Services required to be provided by the Service Provider will be limited to providing services of personnel based on the maximum time per full time employee (“ FTE ”) per category of Transition Services, as specified in Annex A , whether or not required by the Service Recipient or needed to provide services at a requested level, unless the Parties otherwise agree. The Service Provider, unless otherwise agreed by the Parties, shall not be obligated to provide any Transition Services to relocate the corporate headquarters and personnel of the Company.
(b) The Service Recipient acknowledges that the personnel engaged in providing the Transition Services are engaged in other duties for the Service Provider and its Affiliates. Such personnel will seek to provide reasonable allocation of time during their normal daily work schedule based on their judgment to perform the Transition Services, but, except as otherwise expressly provided in the applicable Service Level Agreement, the Service Provider makes no guarantee of priority of service to the Service Recipient. If a conflict in priorities arises as determined by a Service Provider acting reasonably, the Service Provider shall be entitled to give priority to the requirements of the Service Provider and its Affiliates. Service Provider personnel shall not, absent prior agreement and under a separate cost schedule to be agreed in advance, provide Transition Services during non-business hours, weekends, holidays, or vacation periods, except for Priority 1 critical issues, as such term is defined in the IS&T Service Level Agreement attached hereto.
(c) Except as required to maintain the Transition Services as provided for in this Agreement, the Service Provider shall be under no obligation to obtain any third party consent or approval, purchase, lease, license or sublicense any additional equipment, software or other asset or to maintain any existing lease, license, sublicense or other asset. In the event that any equipment, software or asset is required, in the Service Provider’s reasonable judgment, to be purchased, leased or licensed for use in connection with the Transition Services, the Service Recipient shall be notified by the Service Provider in advance and in writing (including notification of the estimated related costs of such purchase, lease or license). The Service Provider, in its reasonable judgment, shall approve or reject such purchase, lease or license. The Service Recipient shall pay its pro rata share of the costs of such equipment, software or asset, as reasonably determined by the Service Provider.
(d) The Service Provider shall not be obligated to (i) perform any Transition Service it believes in good faith results or would result in (x) a violation of applicable Law, (y) a conflict of interest between the Parties or (z) a breach of contract or other obligation owed to a third party by the Service Provider or (ii) hire any additional employees (other than to replace existing employees) or maintain the employment of any specific employee.
(e) The Service Provider will comply with substantially the same performance measurement metrics, if any, for Transition Services that it uses for its own operations, other than to the extent required by applicable Law. Where the Service Provider does not use similar services for its own operations, the Service Provider shall use commercially reasonable efforts to provide Transition Services in accordance with the Service Provider’s policies, procedures and practices in effect immediately prior to the Effective Date.
2.6 No Secondment. For the avoidance of doubt, the Service Provider is not under any obligation to second or procure the secondment to the Service Recipient of any employee or other personnel in connection with the provision of the Transition Services. The Parties agree that such individuals providing services are employees, contract employees or secondees of the Service Provider.
2.7 Compliance with Policies; Safety of Personnel . All Transition Services must be reasonably capable of being performed in a manner that is consistent with policies and procedures of the Service Provider, including those relating to compliance with all applicable competition, antitrust, health, safety and environmental laws. The Service Provider shall use commercially reasonable efforts to provide the Service Recipient with advance written notice in the event it believes any Transition Service is not consistent with such policies or procedures if it would materially impact the Transition Services to be provided. To the extent Transition Services are performed on site, the Service Provider will be permitted to withdraw any personnel providing Transition Services at that time if it believes that such personnel face any risk to their personal safety and prior notice (to the extent possible) has been given to the Service Recipient. The Service Provider and its personnel shall comply, in all material respects, with all applicable Laws in providing the Transition Services.
2.8 Responsibility for Errors . The Service Provider’s sole responsibility for errors or omissions committed by it in performing the Transition Services shall be to correct such errors or omissions in the Transition Services; provided, however, that the Service Recipient must as promptly as practicable under the circumstances advise the Service Provider of any such error or omission of which it becomes aware after having used commercially reasonable efforts to detect any such errors or omissions. NOTWITHSTANDING THE FOREGOING, AND AS SET FORTH IN SECTION 6.12 OF THIS AGREEMENT, THE SERVICE PROVIDER SPECIFICALLY EXCLUDES ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO ANY TRANSITION SERVICES PROVIDED UNDER THIS AGREEMENT, AND EXCEPT AS OTHERWISE SET FORTH HEREIN, THE TRANSITION SERVICES ARE PROVIDED ON AN “AS IS,” “WHERE IS” BASIS.
PAYMENT FOR TRANSITION SERVICES
3.1 Payment Obligation. The Service Recipient shall pay the Service Provider for the Transition Services the amounts set forth in Annex A , in accordance with the terms set forth in Annex A . The Service Recipient shall also reimburse the Service Provider for all reasonable out-of-pocket expenses incurred in connection with the provision of the Transition Services to the Service Recipient. If the term of any Transition Service is extended or if there is any material change in the assumptions used by the Parties in originally determining the costs to be charged, the Service Recipient shall pay the Service Provider adjusted charges that are determined in a manner consistent with such changed assumptions and as mutually agreed in writing and in advance by the Service Provider and Service Recipient acting in good faith. If no agreement is reached, the Service Provider shall not be required to provide any Transition Services for any adjusted charges based on such changed assumptions. Any payments owed to the Service Provider as set forth in Annex A may be reduced commensurately on thirty (30) calendar days’ written notice by the Service Recipient to the Service Provider if the related Transition Services are terminated by the Service Recipient pursuant to Section 2.3 hereto.
3.2 Invoices; Payment Due Date . The Service Provider shall provide the Service Recipient on a monthly basis with a monthly invoice reflecting in reasonable detail (a) the Transition Services, and (b) fees owed for such Transition Services provided during the preceding month and all reasonable out-of-pocket expenses incurred. All amounts shall be due and payable within thirty (30) days after the date of the invoice. This Section shall survive any termination of this Agreement with respect to Transition Services performed pursuant to this Agreement for which the Service Provider has not yet been paid. The fees and charges payable under this Agreement and set forth on Annex A are exclusive of any sales tax or excise taxes or any customs or import charges or duties or any similar charges or duties.
3.3 Interest on Late Payment . Any amounts owed by the Service Recipient under this Agreement that are not paid when due shall bear interest, from the time the payment was due until the time paid, at a rate of 10% per annum compounded annually.
RIO TINTO SERVICES PERSONNEL
4.1 Availability . During the entire Transition Period, the Service Provider shall use its commercially reasonable efforts to maintain the personnel necessary to provide the Transition Services from time to time; provided, however, there is no assurance that the same personnel as have been used to provide previous services will be available throughout any Transition Period.
4.2 Subcontractors . The Service Provider may engage a subcontractor (a “Subcontractor” ) to perform all or any of the Transition Services, provided that any such Subcontractor agrees in writing to be bound by confidentiality obligations at least as protective as terms of Section 6.8 regarding confidentiality and non-use of information, and provided further
that the Service Provider remains responsible for the performance of such Subcontractor and for paying the Subcontractor.
GOOD FAITH COOPERATION
5.1 Intent of the Parties . The intent of the Parties is (a) that the level and quality of the Transition Services provided by the Service Provider to the Service Recipient be maintained at and result in a quality and level of service that is reasonably equivalent to that performed by the Service Provider prior to the IPO and (b) that the Service Provider be fully and promptly paid in accordance with this Agreement for providing such Transition Services.
5.2 Cooperation . The Parties agree to cooperate in good faith in all matters relating to the provision and receipt of Transition Services. Each Party shall act in good faith to achieve the benefits expected and to resolve any problems that may occur in a commercially reasonable way. The Parties agree for this purpose as follows:
(a) Each Party agrees to appoint and maintain a coordinator with responsibility for ensuring that the overall intent of this Agreement is achieved. In that regard, RTS shall initially assign Brian Oldham as its coordinator and CPE and CPE LLC shall initially assign Tracy Breinholt as their coordinator.
(b) The Service Provider shall supervise the activities of its officers, employees and representatives with respect to the Transition Services in a manner reasonably consistent with past practice.
(c) The Service Provider shall maintain accurate and complete books and records concerning the provision and charges for the Transition Services and will make such books and records available to the Service Recipient, or its designated representatives for inspection and copying at any time during the Service Provider’s regular business hours.
(d) The Service Recipient shall provide all information and access reasonably required or requested by the Service Provider to perform its obligations under this Agreement and shall make available, as requested by the Service Provider, sufficient resources, access to the Service Recipient’s employees and timely decisions, approvals and acceptances in order that the Service Provider may perform its obligations hereunder in a timely manner.
(e) The Parties covenant and agree that they shall not knowingly take any action or enter into any commitment or agreement in connection with the transactions and activities contemplated hereunder that would result in a contravention of any provisions of applicable Law.
(f) The Parties agree to use commercially reasonable efforts in seeking to obtain all third party consents, licenses, sublicenses or approvals necessary to permit each
Party to perform its obligations hereunder, including, rights to use third party software needed for the performance of Transition Services.
6.1 Mutual Representations . Each Party represents and warrants to the other that it has the corporate power and authority to enter into and perform its obligations under this Agreement and has taken all corporate and any other action necessary to execute and deliver this Agreement, to consummate the transactions contemplated hereby and to perform its obligations hereunder.
6.2 Record Retention . To facilitate the possible exchange of information pursuant to this Agreement, the applicable Service Level Agreement or in accordance with applicable Law, the Parties agree to comply with the record retention requirements as set forth in Section 7.10 of the Master Separation Agreement.
6.3 Indemnification Against Third Party Claims .
(a) Subject to the limitations and other provisions in Sections 6.5 and 6.6 , the Service Recipient shall indemnify