Exhibit 10.3
EMPLOYMENT AGREEMENT
     This AGREEMENT (the “Agreement”) is entered into as of December 31, 2008
(the “Commencement Date”) by and between Peabody Energy Corporation, a Delaware
corporation (the “Company”), and Michael C. Crews (“Executive”).
RECITALS
     To induce Executive to serve as the Company’s Executive Vice President and
Chief Financial Officer, the Company desires to provide Executive with
compensation and other benefits on the terms and subject to the conditions set
forth in this Agreement.
     Executive is willing to accept such employment and perform services for the
Company, on the terms and subject to the conditions hereinafter set forth.
     It is therefore hereby agreed by and between the parties as follows:
     1. Employment.
          1.1 Subject to the terms and conditions of this Agreement, the Company
agrees to employ Executive during the term hereof as Executive Vice President
and Chief Financial Officer. In such capacity, Executive shall report to the
Chairman and Chief Executive Officer (the “Chairman and CEO”) and shall have the
customary powers, responsibilities and authority of executives holding such
positions in corporations of the size, type and nature of the Company, as it
exists from time to time, and as are assigned by the Chairman and CEO.
          1.2 Subject to the terms and conditions of this Agreement, Executive
hereby accepts employment as Executive Vice President and Chief Financial
Officer commencing as of the Commencement Date and agrees, subject to any period
of vacation or other approved leave, to devote his or her full business time and
efforts to the performance of services, duties and responsibilities in
connection therewith, subject at all times to review and control of the Chairman
and CEO.
          1.3 Subject to Executive’s compliance with all of the provisions of
the Company’s code of conduct and other policies, nothing in this Agreement
shall preclude Executive from engaging in charitable work and community affairs,
from delivering lectures, fulfilling speaking engagements or teaching at
educational institutions, from managing any investment made by him or her or his
or her immediate family with respect to which Executive is not substantially
involved with the management or operation of the entity in which Executive has
invested (provided that no such investment in publicly traded equity securities
may exceed five percent (5%) of the equity of any entity without the prior
written approval of the Chairman and CEO) or from serving, subject to the prior
written approval of the Chairman and CEO, as a member of boards of directors or
as a trustee of any other corporation, association or entity, to the extent that
any of the above activities do not materially interfere with the performance of
his or her duties hereunder. For purposes of the preceding sentence, any
approval by the Chairman and CEO required therein shall not be unreasonably
withheld.

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     2. Term of Employment. Executive’s term of employment under this Agreement
shall commence on the Commencement Date and continue for three (3) years,
subject to earlier termination as provided in the Agreement (the “Term of
Employment”). The Agreement automatically will renew for a one (1)-year period
at the end of the initial Term of Employment and, if applicable, any renewal
period, unless either the Company or Executive notifies the other party of the
intention not to renew the Agreement in writing at least ninety (90) days before
the end of the applicable period.
     3. Compensation.
          3.1 Salary. During the Term of Employment, the Company shall pay
Executive a base salary (“Base Salary”) at the initial rate of $400,000. Such
Base Salary shall be payable in accordance with the ordinary payroll practices
of the Company. During the Term of Employment, the Compensation Committee of the
Company’s Board of Directors (the “Compensation Committee”) and/or the Chairman
and CEO shall review Executive’s Base Salary in good faith, at least annually,
in accordance with the Company’s customary procedures and practices regarding
the salaries of senior executives, and may adjust Executive’s Base Salary
following such review. “Base Salary” for all purposes herein shall be deemed to
be a reference to the Base Salary in effect as of any date that requires the
determination of Executive’s Base Salary hereunder.
          3.2 Annual Bonus.
     (a) In addition to Base Salary, Executive shall, commencing in 2008 and
continuing for each calendar year thereafter during the Term of Employment, be
eligible to receive an annual cash bonus (the “Bonus”) in accordance with a
program developed by the Compensation Committee and/or the Chairman and CEO,
based on achievement of performance targets established by the Compensation
Committee and/or the Chairman and CEO as soon as practicable at or after the
beginning of the calendar year to which the performance targets relate. The
performance targets for the 2008 Bonus shall be determined before or as soon as
practicable after the Commencement Date. Executive’s Bonus opportunity for the
2008 fiscal year is 80% of his or her Base Salary. Executive’s maximum Bonus
opportunity for the 2008 fiscal year is 160% of his Base Salary. The
Compensation Committee and/or the Chairman and CEO shall review Executive’s
Bonus opportunity in good faith from time to time in accordance with the
Company’s customary procedures and practices regarding the bonus opportunities
of senior executives, and may adjust Executive’s Bonus opportunity following
such review. “Bonus” for all purposes herein, except as otherwise specifically
stated, shall be deemed to be a reference to the Bonus opportunity in effect as
of any date that requires the determination of Executive’s Bonus hereunder.
     (b) A Bonus award for any calendar year shall be payable to Executive at
the time bonuses are paid to executive officers for such calendar year in
accordance with the Company’s policies and practices, but in no event later than
March 15 of the calendar year following the later of (i) the calendar year in
which the Bonus is earned or (ii) the calendar year in which the Bonus is no
longer subject to a substantial risk of forfeiture within the meaning of
Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and
the Treasury regulations and other guidance in effect thereunder (collectively,
“Section 409A”).

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          3.3 Equity-Based Compensation.
     (a) Periodic Awards. Executive shall be eligible to receive, from time to
time during the Term of Employment, equity-based compensation awards under the
Company’s equity incentive plan(s) (the “Long-Term Incentive Awards”). Any such
Long-Term Incentive Awards shall be governed by separate grant agreements. The
grant date value for Executive’s Long-Term Incentive Awards for the 2008 fiscal
year is 150% of his or her Base Salary, with a maximum potential payout level
for Performance Units to be determined in accordance with the performance matrix
set forth in the 2008 Performance Units Agreement. The Compensation Committee
and/or the Chairman and CEO shall review the grant date value of Executive’s
Long-Term Incentive Awards in good faith from time to time in accordance with
the Company’s customary procedures and practices regarding the long-term
incentive awards of senior executives, and may adjust the grant date value of
future Long-Term Incentive Awards to Executive following such review. “Long-Term
Incentive Award” for all purposes herein, except as otherwise specifically
stated, shall be deemed to be a reference to the grant date Long-Term Incentive
Award value in effect as of any date that requires the determination of
Executive’s Long-Term Incentive Award value hereunder or under any grant
agreement.
     4. Employee Benefits.
          4.1 Employee Benefit Programs, Plans and Practices; Perquisites. The
Company shall provide Executive with employee benefits and perquisites at a
level (a) commensurate with his or her position in the Company and (b) at least
as favorable to Executive as the arrangements the Company provides to its other
senior executives that are in effect and open to new participants on the
Commencement Date, including retirement benefits, health and welfare benefits,
the Continuation Benefits (as defined in Section 6.2(b)(ii)(B)(II)), directors
and officers insurance and/or an indemnification agreement that covers claims
arising out of actions or inactions occurring during the Term of Employment, and
other employee benefits and perquisites which the Company may make available to
its senior executives from time to time in its discretion on and after the
Commencement Date. Executive’s rights, if any, under any employee benefit plans
or programs of the Company as of the Commencement Date shall continue in
accordance with plan or program terms as in effect at any given time.
          4.2 Vacation. Executive shall be entitled to the number of business
days paid vacation in each calendar year as determined in accordance with the
Company’s applicable vacation policies, which shall be taken at such times as
are consistent with Executive’s responsibilities hereunder.
     5. Expenses. Subject to prevailing Company policy or guidelines, the
Company will reimburse Executive for all reasonable expenses incurred by
Executive in carrying out his or her duties on behalf of the Company, provided
that payment or reimbursement of expenses shall be made promptly and in no event
later than December 31 of the year following the year in which such expenses
were incurred, the amount of such expenses eligible for payment or reimbursement
in any year shall not affect the amount of such expenses eligible for payment or
reimbursement in any other year and no such right to payment or reimbursement
shall be subject to liquidation or exchange for another benefit.

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     6. Termination of Employment.
          6.1 Termination of Employment for Any Reason. Except as otherwise
specifically provided in this Agreement, the Company or Executive may terminate
Executive’s Term of Employment at any time for any reason by written notice to
the other party at least thirty (30) days in advance of the date of termination
of Executive’s employment. In the event of a termination of Executive’s
employment for any reason during the Term of Employment, the Company shall pay
to Executive:
     (a) within five (5) business days following the date of termination of
Executive’s employment, a lump sum that includes: (i) Executive’s Base Salary
earned on or prior to the date of such termination but not yet paid to Executive
in accordance with the Company’s customary procedures and practices for the
payment of executive salaries; (ii) any business expenses incurred by Executive
and properly submitted for reimbursement, but not yet reimbursed by the Company
under Section 5 above as of the date of such termination; and (iii) any vacation
time accrued but unused as of the date of such termination;
     (b) any benefits accrued and vested under any of the Company’s employee
benefit programs, plans and practices on or prior to the date of termination of
Executive’s employment; and
     (c) if Executive’s employment terminates due to retirement (as defined in
the applicable plan), a prorated bonus for the calendar year of termination of
Executive’s employment, calculated as the Bonus Executive would have received in
such year based on actual performance multiplied by a fraction, the numerator of
which is the number of business days during the calendar year of termination
that Executive was employed and the denominator of which is the total number of
business days during the calendar year of termination. Such bonus shall be
payable when annual Bonuses are paid to other senior executives of the Company,
but in no event later than March 15 of the calendar year following the later of
(i) the calendar year in which the Bonus is earned or (ii) the calendar year in
which the bonus is no longer subject to a substantial risk of forfeiture within
the meaning of Section 409A.
The amounts described in (a) and (b) above are collectively referred to herein
as the “Accrued Obligations” and shall be paid in accordance with the terms of
such Company programs, plans and practices. The Accrued Obligations shall be
paid in addition to any amounts payable under any other provision of this
Section 6 due to the termination of Executive’s employment. Any business
expenses incurred by Executive before his or her employment termination date and
properly submitted for reimbursement before or within ninety (90) days after the
employment termination date shall be processed and paid in accordance with
Section 5.
          6.2 Termination by the Company without Cause or Termination by
Executive for Good Reason.
     (a) Notice Requirements.

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     (i) General. Except as otherwise provided in paragraph (ii) below with
respect to a Good Reason termination, the Company or Executive may terminate
Executive’s Term of Employment at any time for any reason by written notice to
the other party at least thirty (30) days in advance of the date of termination
of Executive’s employment.
     (ii) Good Reason Notice Requirements and Cure Period. If Executive
terminates his or her employment during the Term of Employment for Good Reason
(as defined in Section 6.2(d) hereof), Executive shall provide written notice to
the Company at least forty-five (45) days in advance of the date of termination,
such notice shall describe the conduct Executive believes to constitute Good
Reason and the Company shall have the opportunity to cure the Good Reason within
thirty (30) days after receiving such notice. If the Company cures the conduct
that is the basis for the potential termination for Good Reason within such
thirty (30)-day period, Executive’s notice of termination shall be deemed
withdrawn. If Executive does not give notice to the Company as described in this
Section 6.2(a)(ii) within ninety (90) days after an event giving rise to Good
Reason, Executive’s right to claim Good Reason termination on the basis of such
event shall be deemed waived.
     (b) Severance Benefits.
     (i) Severance Payment. If Executive’s employment is terminated during the
Term of Employment (for the avoidance of doubt, the term “terminated” does not
include non-renewal of this Agreement):
     (A) by the Company for a reason other than Cause (as defined in Section
6.3(b) hereof), Disability (as defined in Section 6.4 hereof) or death, or
     (B) by Executive for Good Reason (as defined in Section 6.2(d) hereof),
and such termination constitutes a Separation from Service (as defined in
Section 6.2(c) hereof), the Company, as severance, shall pay to Executive an
amount (the “Severance Payment”) equal to the total of:
     (I) two (2) times Executive’s Base Salary; plus
     (II) an additional amount equal to two (2) times the annual average of the
actual Bonus awards paid to Executive by the Company for the three (3) calendar
years preceding the date of Executive’s employment termination (or, if Executive
has not been employed by the Company for three (3) full calendar years as of the
date his or her employment is terminated, for the two (2) calendar years or one
(1) calendar year, as applicable, for which he or she has been so employed and
eligible to receive a Bonus); plus

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     (III) two (2) times six percent (6%) of Executive’s Base Salary (to
compensate Executive for Company contributions he or she otherwise might have
received under the Company’s retirement plan).
The Company shall pay to Executive (x) one-half (1/2) of such Severance Payment
in a lump sum payment on the earlier to occur of Executive’s death or the first
business day immediately following the six (6)-month anniversary of Executive’s
Separation from Service and (y) the remaining one-half (1/2) of the Severance
Payment in six (6) substantially equal monthly payments beginning on the first
day of the month next following the initial lump sum payment.
     (ii) Prorated Bonus and Continuation Benefits. In addition, if Executive’s
employment is terminated:
     (A) by the Company for a reason other than Cause (as defined in Section
6.3(b) hereof), Disability (as defined in Section 6.4 hereof) or death, or
     (B) by Executive for Good Reason (as defined in Section 6.2(d) hereof),
and such termination constitutes a Separation from Service, the following
provisions shall apply:
     (I) Prorated Bonus. The Company shall pay to Executive a prorated bonus
(the “Prorated Bonus”) for the calendar year of termination of Executive’s
employment, calculated as the Bonus Executive would have received in such year
based on actual performance multiplied by a fraction, the numerator of which is
the number of business days during the calendar year of termination that
Executive was employed and the denominator of which is the total number of
business days during the calendar year of termination. The Prorated Bonus shall
be payable when annual bonuses are paid to other senior executives of the
Company, but in no event later than March 15 of the calendar year following the
later of (aa) the calendar year in which the Bonus is earned or (bb) the
calendar year in which the Bonus is no longer subject to a substantial risk of
forfeiture within the meaning of Section 409A.
     (II) Continuation Benefits. Executive shall be entitled to continuation of
group health coverage (including medical, dental, and vision benefits, to the
extent permitted under the applicable plan) and the health care flexible
spending account (to the extent required to comply with COBRA continuation
coverage requirements) (collectively, the “Continuation Benefits”) in accordance
with the applicable plan terms for a period of up to eighteen (18) months
following the date of Executive’s Separation

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from Service (the “Benefit Continuation Period”); provided, however, that
Executive pays the full cost of his or her coverage under such plans, except
that Executive shall pay only the required contributions for any health care
continuation coverage required to be provided to or on behalf of Executive under
the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended
(“COBRA”), on the same basis as any other plan participant electing similar
COBRA continuation coverage under the Company health plan; and provided,
further, that any such coverage shall terminate to the extent that Executive is
offered or obtains comparable benefits from any other employer during the
Benefit Continuation Period. Executive shall be reimbursed by the Company, on an
after-tax basis, for his or her cost of the Continuation Benefits (except that
the reimbursement for his or her required contributions for COBRA health care
continuation coverage shall be reduced by an amount equal to the cost paid by an
active employee for similar coverage under the Company health plan). The amount
of expenses eligible for reimbursement or Continuation Benefits provided during
one calendar year shall not affect the expenses eligible for reimbursement or
amount of Continuation Benefits provided during a subsequent calendar year
(except with respect to health plan maximums imposed on the reimbursement of
expenses referred to in Code Section 105(b)), the right to reimbursement or
Continuation Benefits may not be exchanged or substituted for other forms of
compensation to Executive, and any reimbursement or payment under the
Continuation Benefits arrangements will be paid in accordance with applicable
plan terms and no later than the last day of the calendar year following the
calendar year in which Executive incurred the expense giving rise to such
reimbursement or payment.
     (iii) Forfeiture. Notwithstanding the foregoing, if Executive breaches any
provision of Section 13 hereof, the remaining balances of the Severance Payment,
the Prorated Bonus, and any Continuation Benefits shall be forfeited.
     (c) “Separation from Service.” For purposes of this Agreement, the term
“Separation from Service” means a “separation from service” as such term is
defined under Section 409A. The terms “terminate,” “termination,” “termination
of employment,” and variations thereof, when used in this Agreement in
connection with Executive’s employment, are intended to mean a termination of
employment that constitutes a Separation from Service. For purposes of the
determination of whether Executive has had a “separation from service” as
described under Section 409A, the terms “Company,” “employer” and “service
recipient” mean Peabody Energy Corporation and any affiliate with which Peabody
Energy Corporation would be considered a single employer under Code Section
414(b) or (c), provided that, in applying Code Section 1563(a)(1), (2), and
(3) for purposes of determining a controlled

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group of corporations under Code Section 414(b), the language “at least
50 percent” is used instead of “at least 80 percent” each place it appears in
Code Section 1563(a)(1), (2), and (3), and in applying Treasury
Regulation Section 1.414(c)-2 for purposes of determining trades or businesses
(whether or not incorporated) that are under common control for purposes of Code
Section 414(c), “at least 50 percent” is used instead of “at least 80 percent”
each place it appears in Treasury Regulation Section 1.414(c)-2. In addition,
where the use of a definition of “Company,” “employer” or “service recipient”
for purposes of determining a “separation from service” is based upon legitimate
business criteria, in applying Code Section 1563(a)(1), (2), and (3) for
purposes of determining a controlled group of corporations under Code
Section 414(b), the language “at least 20 percent” is used instead of “at least
80 percent” each place it appears in Code Section 1563(a)(1), (2), and (3), and
in applying Treasury Regulation Section 1.414(c)-2 for purposes of determining
trades or businesses (whether or not incorporated) that are under common control
for purposes of Code Section 414(c), the language “at least 20 percent” is used
instead of “at least 80 percent” each place it appears in Treasury
Regulation Section 1.414(c)-2.
     (d) “Good Reason.” For purposes of this Agreement, the term “Good Reason”
means:
     (i) a reduction, other than a reduction that generally affects all
similarly-situated executives and does not exceed ten percent (10%) in one year
or fifteen percent (15%) in the aggregate over three (3) consecutive years, by
the Company in Executive’s Base Salary from that in effect immediately prior to
the reduction (in which event the Severance Payment shall be calculated based on
Executive’s Base Salary in effect immediately prior to any such reduction);
     (ii) a reduction, other than a reduction that generally affects all
similarly-situated executives, by the Company in Executive’s Bonus opportunity,
maximum Bonus opportunity and Long-Term Incentive Award grant date value used to
establish Bonus or Long-Term Incentive Awards, respectively, from time to time,
from those in effect immediately prior to any such reduction (in which event any
portion of the Severance Payment that relates to Bonus or Long-Term Incentive
Awards shall be calculated based on the Bonus or Long-Term Incentive Award grant
date value, as applicable, in effect immediately prior to any such reduction);
     (iii) a material reduction in the aggregate program of employee benefits
and perquisites to which Executive is entitled (other than a reduction that
generally affects all executives);
     (iv) relocation of Executive’s primary office by more than 50 miles from
the location of Executive’s primary office as of the date of this Agreement;
     (v) any material diminution or material adverse change in Executive’s
duties or responsibilities;

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     (vi) a breach by the Company of a material provision of this Agreement; or
     (vii) a failure on the part of the Company to obtain a written assumption
of its obligations under this Agreement by a successor owner of substantially
all of the Company’s assets in connection with a merger, consolidation, asset
sale, liquidation, combination or other similar transaction.
Any amounts due to Executive in connection with a termination of employment
shall be computed without giving effect to any changes that give rise to Good
Reason.
          6.3 Voluntary Termination by Executive; Discharge for Cause.
     (a) In the event that Executive’s employment is terminated (i) by the
Company for Cause, as hereinafter defined, in which event no advance written
notice is required, or (ii) by Executive for a reason other than Good Reason,
Disability or death, the Company shall pay to Executive only the Accrued
Obligations.
     (b) As used herein, the term “Cause” means:
     (i) any material and uncorrected breach by Executive of the terms of this
Agreement, including, but not limited to, engaging in action in violation of
Section 13 hereof;
     (ii) any willful fraud or dishonesty of Executive that has a material
detrimental effect on (a) the reputation or business of the Company or any of
its subsidiaries or affiliates or (b) Executive’s reputation or performance of
his or her duties to the Company or any of its subsidiaries or affiliates;
     (iii) a deliberate or willful refusal or failure of Executive to comply
with any major corporate policy of the Company which is communicated to
Executive in writing; or
     (iv) Executive’s conviction of, or plea of nolo contendere to, any felony
if such conviction results in his or her imprisonment or has a material
detrimental effect on the reputation or business of the Company or any of its
subsidiaries or affiliates;
provided that with respect to clause (i), (ii) or (iii) above, Executive shall
have ten (10) days following written notice of the conduct which is the basis
for the potential termination for Cause within which to cure such conduct to
prevent termination for Cause by the Company. If Executive cures the conduct
that is the basis for the potential termination for Cause within such ten
(10)-day period, the Company’s notice of termination shall be deemed withdrawn.
Except for violations of Section 13 hereof or termination under Section
6.3(b)(iv) above, only actions, conduct and events occurring during the Term of
Employment with the Company shall be the subject of a termination for Cause. In
the event that Executive is terminated for failure to meet performance goals,
such termination shall be considered a termination without Cause for purposes of

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his or her right to receive the Severance Payment, the Prorated Bonus and the
Continuation Benefits.
          6.4 Disability.
     (a) In the event of the Disability (as defined in (b) below) of Executive
during the Term of Employment, the Company may terminate Executive’s Term of
Employment upon written notice to Executive (or Executive’s personal
representative, if applicable) effective upon the date of receipt thereof (the
“Disability Commencement Date”). The Company shall pay to Executive the Accrued
Obligations as provided in Section 6.1 hereof, and the Prorated Bonus when such
bonuses are paid to other senior executives of the Company, but in no event
later than March 15 of the calendar year following the calendar year in which
Executive’s employment terminated.
     (b) The term “Disability,” for purposes of this Agreement, generally shall
mean Executive’s absence from the full-time performance of Executive’s duties
pursuant to a reasonable determination made in accordance with the Company’s
long-term disability plan that Executive is disabled and entitled to long-term
disability benefits as a result of incapacity due to physical or mental illness
that lasts, or is reasonably expected to last, for at least six (6) months.
          6.5 Death. In the event of Executive’s death during the Term of
Employment or at any time thereafter while payments are still owing to Executive
under the terms of this Agreement, the Company shall pay to Executive’s
beneficiary(ies) (to the extent so designated by Executive) or his or her estate
(to the extent that no such beneficiary has been designated) the Accrued
Obligations as provided in Section 6.1 hereof, and the Prorated Bonus when such
bonuses are paid to other senior executives of the Company, but in no event
later than March 15 of the calendar year following the calendar year in which
Executive’s employment terminated.
          6.6 No Further Notice or Compensation or Damages. Executive
understands and agrees that he or she shall not be entitled to any further
notice, compensation or damages upon termination of employment under this
Agreement, other than amounts specified in Section 4, this Section 6, any
ancillary documents or any plan, program or arrangement of the Company.
          6.7 Executive’s Duty to Provide Materials. Upon the termination of
Executive’s employment for any reason, Executive or his or her estate shall
surrender to the Company all correspondence, letters, files, contracts, mailing
lists, customer lists, advertising materials, ledgers, supplies, equipment,
checks, and all other materials and records of any kind that are the property of
the Company or any of its subsidiaries or affiliates, that may be in Executive’s
possession or under his or her control, including, without limitation, any
“soft” copies or computerized or electronic versions thereof.
     7. Tax Gross-Up Payments.
          7.1 Gross-Up of Excise Tax. If Executive becomes entitled to any
payment, benefit or distribution (or combination thereof) by the Company, any
affiliated company, or one or more trusts established by the Company for the
benefit of its employees, whether paid or payable pursuant to Section 7 of this
Agreement or any other plan, arrangement, or agreement

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with the Company or any affiliated company (the “Payments”), which are or become
subject to the excise tax imposed by Code Section 4999 or any interest or
penalties are incurred by Executive during his or her lifetime with respect to
such excise tax (such excise tax, together with any such interest and penalties,
hereinafter collectively referred to as the “Excise Tax”), the Company shall pay
to Executive an additional payment (the “Gross-Up Payment”) in an amount such
that after payment by Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including, without limitation,
any income taxes (and any interest and penalties imposed with respect thereto)
and the Excise Tax imposed upon the Gross-Up Payment, Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments.
          7.2 Determination of Gross-Up Payment.
     (a) All determinations required to be made under this Section 7, including
whether and when a Gross-Up Payment is required and the amount of such Gross-Up
Payment and the assumptions to be utilized in arriving at such determination,
shall be made by a nationally recognized certified public accounting firm as may
be designated by the Company (the “Accounting Firm”), which shall provide
detailed supporting calculations to both the Company and Executive within ten
(10) business days after the receipt of notice from Executive that Payments were
made, or such earlier time as is required by the Company; provided that, for
purposes of determining the amount of any Gross-Up Payment, Executive shall be
deemed to pay federal income tax at the highest marginal rates applicable to
individuals in the calendar year in which any such Gross-Up Payment is to be
made and deemed to pay state and local income taxes at the highest effective
rates applicable to individuals in the state or locality of Executive’s
residence or place of employment in the calendar year in which any such Gross-Up
Payment is to be made, net of the maximum reduction in federal income taxes that
can be obtained from deduction of such state and local taxes, taking into
account limitations applicable to individuals subject to federal income tax at
the highest marginal rates. All fees and expenses of the Accounting Firm shall
be borne solely by the Company.
     (b) Any Gross-Up Payment, as determined pursuant to this Section 7, shall
be paid by the Company to Executive (or to the appropriate taxing authority on
Executive’s behalf) when due in accordance with paragraph (a) above; provided,
however, that such payment shall be made no later than (i) with respect to
taxes, the end of Executive’s taxable year following the taxable year in which
Executive remits such taxes to the applicable taxing authority, and (ii) with
respect to interest and penalties incurred by Executive with respect to such
taxes, the end of Executive’s taxable year following the taxable year in which
Executive incurs such interest and/or penalties, as applicable. The amount of
interest and penalties reimbursed by the Company during one calendar year shall
not affect the amount of interest and penalties reimbursable by the Company
during a subsequent calendar year, and the right to such reimbursement may not
be exchanged or substituted for other forms of compensation to Executive.
     (c) If the Accounting Firm determines that no Excise Tax is payable by
Executive, it shall so indicate to the Company and Executive in writing. Any
determination by the Accounting Firm shall be binding upon the Company and
Executive. As a result of the uncertainty in the application of Code
Section 4999, it is

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possible that the amount of the Gross-Up Payment determined by the Accounting
Firm to be due to (or on behalf of) Executive may be lower than the amount
actually required to be paid by Executive to the applicable taxing authority
(“Underpayment”). In the event that the Company exhausts its remedies hereunder
and Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Company to or for the
benefit of Executive; provided, however, that such Underpayment shall be paid no
later than the end of Executive’s taxable year following the taxable year in
which Executive remits the Excise Tax to the applicable taxing authority.
          7.3 Disputed Taxes.
     (a) Executive shall notify the Company in writing of any claim by the
Internal Revenue Service or other relevant taxing authority that, if successful,
would require the payment by the Company of any Gross-Up Payment. Such
notification shall be given as soon as practicable, but no later than ten
(10) business days after Executive is informed in writing of such claim and
shall apprise the Company of the nature of such claim and the date on which such
claim is requested to be paid. If such claim is due to a tax audit or litigation
addressing the existence or amount of tax liability, whether federal, state or
local (a “Reimbursable Claim”), then Executive shall not pay such claim prior to
the expiration of the thirty (30)-day period following the date on which it
gives such notice to the Company (or such shorter period ending on the date that
any payment of taxes with respect to such Reimbursable Claim is due). If the
Company notifies Executive in writing prior to the expiration of such period
that it desires to contest such Reimbursable Claim, Executive shall (i) give the
Company any information reasonably requested by the Company relating to such
Reimbursable Claim, (ii) take such action in connection with contesting such
Reimbursable Claim as the Company shall reasonably request in writing from time
to time, including, without limitation, accepting legal representation with
respect to such Reimbursable Claim by an attorney reasonably selected by the
Company, (iii) cooperate with the Company in good faith in order to effectively
contest such Reimbursable Claim, and (iv) permit the Company to participate in
any proceedings relating to such Reimbursable Claim; provided, however, that the
Company shall bear and pay directly all costs and expenses (including additional
interest and penalties) incurred in connection with such contest and shall
indemnify and hold Executive harmless, on an after-tax basis, for any Excise Tax
or income tax (including interest and penalties with respect thereto) imposed as
a result of such representation and payment of costs and expenses.
     (b) Without limiting the foregoing provisions of this Section 7.3, the
Company shall control all proceedings taken in connection with such contest and,
at its sole option, may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect of
such Reimbursable Claim and may, at its sole option, either direct Executive to
pay the tax claimed and sue for a refund or contest the Reimbursable Claim in
any permissible manner, and Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall

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determine; provided that if the Company directs Executive to pay such
Reimbursable Claim and sue for a refund, the Company shall advance the amount of
such payment to Executive, on an interest-free basis, and shall indemnify and
hold Executive harmless, on an after-tax basis, from any Excise Tax or income
tax (including interest or penalties with respect thereto) imposed with respect
to such advance or with respect to any imputed income with respect to such
advance; provided, further, that if Executive is required to extend the statute
of limitations to enable the Company to contest such Reimbursable Claim,
Executive may limit this extension solely to such contested amount. The
Company’s control of the contest shall be limited to issues with respect to
which a Gross-Up Payment would be payable hereunder and Executive shall be
entitled to settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority. In no event shall
payments for or reimbursements to Executive for Reimbursable Claims be made
later than the end of Executive’s taxable year following the taxable year in
which the taxes that are the subject to the Reimbursable Claim are remitted to
the taxing authority, or if as a result of such audit or litigation no taxes are
remitted, the end of Executive’s taxable year following the taxable year in
which the audit is completed or there is a final nonappealable settlement or
other resolution of the litigation.
          7.4 Refunds of Gross-Up Payments. If, after the receipt by Executive
of an amount paid or advanced by the Company pursuant to this Section 7,
Executive becomes entitled to receive any refund with respect to a Gross-Up
Payment, Executive shall (subject to the Company’s complying with the
requirements of Section 7.3) promptly pay to the Company the amount of such
refund received (together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by Executive of an amount advanced by
the Company pursuant to this Section 7, a determination is made that Executive
shall not be entitled to any refund with respect to such claim and the Company
does not notify Executive in writing of its intent to contest such denial of
refund prior to the expiration of thirty (30) days after such determination,
then such advance shall be forgiven and shall not be required to be repaid and
the amount of such advance shall offset, to the extent thereof, the amount of
the Gross-Up Payment required to be paid.
     8. Notices. All notices or communications hereunder shall be in writing,
addressed as follows:
To the Company:
Chairman and Chief Executive Officer
Peabody Energy Corporation
701 Market Street, Suite 900
St. Louis, Missouri 63101-1826
          To Executive at the most recent address set forth in the Company’s
personnel records.
Any such notice or communication shall be delivered by hand or by courier or
sent certified or registered mail, return receipt requested, postage prepaid,
addressed as above (or to such other

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address as such party may designate in a notice duly delivered as described
above), and the third business day after the actual date of sending shall
constitute the time at which notice was given.
     9. Severability. If any provision of this Agreement is declared to be
invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provisions hereof, which shall
remain in full force and effect.
     10. Assignment. Neither this Agreement nor any rights or obligations
hereunder shall be assignable or otherwise subject to hypothecation by Executive
(except by will or by operation of the laws of intestate succession) or by the
Company, except that the Company may assign this Agreement, in writing, to any
successor (whether by merger, purchase, spin-off or otherwise) to all or
substantially all of the stock, assets or businesses of the Company. This
Agreement shall be binding upon, inure to the benefit of and be enforceable by
the heirs and representatives of Executive and the permitted assigns and
successors of the Company.
     11. Amendment. This Agreement may be amended only by written agreement of
the parties hereto.
     12. Code Section 409A Compliance.
     (a) This Agreement is intended to comply with Section 409A and shall, to
the extent practicable, be construed in accordance therewith. Accordingly,
notwithstanding anything in this Agreement to the contrary, if the Company
determines that Executive is a “specified employee” (as defined in Code
Section 409A(a)(2)(B)(i)) at the time of his or her Separation from Service and
any amount payable to Executive under this Agreement is a deferral of
compensation subject to the additional tax described in Code
Section 409A(a)(1)(B) and would be considered a payment upon Executive’s
Separation from Service, then such amount shall not be paid before the date that
is the earlier of (i) six (6) months and one (1) day after Executive’s
Separation from Service or (ii) Executive’s death (the “Delay Period”). Upon the
expiration of the Delay Period, the initial payment following the Delay Period
shall include a lump sum payment equal to those payments that otherwise would
have been paid if the delay had not applied, and any remaining payments due
shall be payable in accordance with their original payment schedule.
     (b) If either party to this Agreement reasonably determines that any amount
payable pursuant to this Agreement would result in adverse tax consequences
under Section 409A (including, but not limited to, the additional tax described
in Code Section 409A(a)(1)(B)), then such party shall deliver written notice of
such determination to the other party, and the parties hereby agree to work in
good faith to amend this Agreement so it (i) is exempt from, or compliant with,
the requirements of Section 409A and (ii) preserves as nearly as possible the
original intent and economic effect of the affected provisions.
     13. Nondisclosure of Confidential Information; Non-Competition;
Non-Solicitation.
     (a) Executive, during the Term of Employment and thereafter, will not,
directly or indirectly, use for himself or herself or use for, or disclose to,
any party other than the Company, or any subsidiary of the Company (other than
in the ordinary course

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of Executive’s duties for the benefit of the Company or any subsidiary of the
Company), any secret or confidential information regarding the business or
property of the Company or its subsidiaries or regarding any secret or
confidential apparatus, process, system, or other method at any time used,
developed, acquired, discovered or investigated by or for the Company or its
subsidiaries, whether or not developed, acquired, discovered or investigated by
Executive. At the termination of Executive’s employment or at any other time the
Company or any of its subsidiaries may request, Executive shall promptly deliver
to the Company all memoranda, notes, records, plats, sketches, plans or other
documents (including, without limitation, any “soft” copies or computerized or
electronic versions thereof) made by, compiled by, delivered to, or otherwise
acquired by Executive concerning the business or properties of the Company or
its subsidiaries or any secret or confidential product, apparatus or process
used developed, acquired or investigated by the Company or its subsidiaries.
     (b) In consideration of the Company’s obligations under this Agreement,
Executive agrees that, during his or her employment with the Company and:
     (i) for a period of one (1) year thereafter, without the prior written
consent of the Chairman and CEO, he or she shall not, directly or indirectly, as
principal, manager, agent, consultant, officer, stockholder, partner, investor,
lender or employee or in any other capacity, carry on, be engaged in or have any
financial interest in, any entity which is in competition with the business of
the Company or its subsidiaries; provided, however, that this paragraph
(i) shall not apply if the Company does not renew this Agreement and terminates
Executive’s employment and Executive does not receive severance benefits from
the Company; and
     (ii) for a period of two (2) years thereafter, without the prior written
consent of the Chairman and CEO, he or she shall not, on his or her own behalf
or on behalf of any person, firm or company, directly or indirectly, solicit or
offer employment to any person who is or has been employed by the Company or its
subsidiaries at any time during the twelve (12) months immediately preceding
such solicitation.
     (c) For purposes of this Section 13, an entity shall be deemed to be in
competition with the Company if it is principally involved in the purchase, sale
or other dealing in any property or the rendering of any service purchased,
sold, dealt in or rendered by the Company as a part of the business of the
Company within the same geographic area in which the Company effects such sales
or dealings or renders such services. Notwithstanding this Section 13(c) or
Section 13(b), nothing herein shall be construed so as to preclude Executive
from investing in any publicly or privately held company, provided that
Executive’s beneficial ownership of any class of securities of an entity in
competition with the Company does not exceed five percent (5%) (or such higher
percentage approved in writing by the Chairman and CEO) of the outstanding
securities of such class.
     (d) Executive agrees that the covenant not to compete and the covenant not
to solicit are reasonable under the circumstances and will not interfere with
his or her ability

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to earn a living or otherwise to meet his or her financial obligations.
Executive and the Company agree that if in the opinion of any court of competent
jurisdiction such restraint is not reasonable in any respect, such court shall
have the right, power and authority to excise or modify such provision or
provisions of this covenant which appear unreasonable and to enforce the
remainder of the covenant as so amended. Executive agrees that any breach of the
covenants contained in this Section 13 would irreparably injure the Company.
Accordingly, Executive agrees that, in the event that a court enjoins Executive
from any activity prohibited by this Section 13, the Company may, in addition to
pursuing any other remedies it may have in law or in equity, cease making any
payments otherwise required by this Agreement and obtain an injunction against
Executive from any court having jurisdiction over the matter restraining any
further violation of this Agreement by Executive.
     14. Beneficiaries; References. Executive shall be entitled to select (and
change, to the extent permitted under any applicable law) a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder following
Executive’s death, and may change such election, in either case by giving the
Company written notice thereof. In the event of Executive’s death or a judicial
determination of his or her incompetence, reference in this Agreement to
Executive shall be deemed, where appropriate, to refer to his or her
beneficiary, estate or other legal representative. Any reference to the
masculine gender in this Agreement shall include, where appropriate, the
feminine.
     15. Dispute Resolution. Any dispute or controversy arising under or in
connection with this Agreement (other than an action to enforce the covenants in
Section 13 hereof) or any ancillary documents shall be resolved by arbitration
in St. Louis, Missouri. Three arbitrators shall be selected, and arbitration
shall be conducted, in accordance with the rules of the American Arbitration
Association. The arbitrators shall have the discretion to award the cost of
arbitration, arbitrators’ fees and the respective attorneys’ fees of each party
between the parties as they see fit. Notwithstanding anything in this Section 15
to the contrary, payments made under this Section 15 that are provided during
one calendar year shall not affect the amount of such payments provided during a
subsequent calendar year, payments under this Section 15 may not be exchanged or
substituted for other forms of compensation to Executive, and any such payment
will be paid within sixty (60) days after Executive prevails, but in no event
later than the last day of Executive’s taxable year following the taxable year
in which he or she incurred the expense giving rise to such payment.
     16. Governing Law. This Agreement shall be construed, interpreted and
governed in accordance with the laws of the State of Missouri, without reference
to rules relating to conflicts of law.
     17. Effect on Prior Agreements. This Agreement and any ancillary documents
contain the entire understanding between the parties hereto and this Agreement,
except as provided in an ancillary document, supersedes in all respects any
prior or other agreement or understanding, written or oral, between the Company,
any affiliate of the Company or any predecessor of the Company or affiliate of
the Company and Executive.
     18. Withholding. The Company shall be entitled to withhold from payments to
or on behalf of Executive any amount of tax withholding required by law.

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     19. Currency. All dollar amounts or references contained in this Agreement
and any ancillary document refer to the United States dollar.
     20. Survival. Notwithstanding the expiration of the term of this Agreement,
the applicable provisions of this Agreement (such as Sections 5 through 21)
shall remain in effect as long as is reasonably necessary to give effect thereto
in accordance with the terms hereof.
     21. Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original.
[SIGNATURE PAGE FOLLOWS]

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            PEABODY ENERGY CORPORATION
      By   /s/ Sharon D. Fiehler         Sharon D. Fiehler       Executive Vice
President and Chief Administrative Officer        EXECUTIVE
      /s/ Michael C. Crews       Michael C. Crews           

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