Exhibit 10.12
EXECUTION COPY
ADMINISTRATIVE SERVICES AGREEMENT
     This ADMINISTRATIVE SERVICES AGREEMENT (“Agreement”) is made on the 22nd
day of October, 2007 by and between Peabody Holding Company, LLC (“PHC”), a
Delaware limited liability company, with principal offices at 701 Market Street,
St. Louis, MO 63101, Patriot Coal Corporation (“Patriot”), a Delaware
corporation with principal offices at 12312 Olive Boulevard, Suite 400, St.
Louis, Missouri, and, solely with respect to its obligations under Section 11
hereof, Peabody Energy Corporation (“PEC”), a Delaware corporation with
principal offices at 701 Market Street, St. Louis, MO 63101 (each of the
foregoing being sometimes referred to hereinafter individually as “a party” or
jointly as “the parties”).
RECITALS
     WHEREAS, contemporaneously herewith, all of the shares of common stock of
Patriot have been distributed to the stockholders of PEC, PHC’s ultimate parent
company, and Patriot will indirectly own all of the capital stock of certain
Transferred Companies (as defined below);
     WHEREAS, the Transferred Companies have certain ongoing retiree healthcare
obligations pursuant to the Coal Act (as defined below);
     WHEREAS, contemporaneously herewith, PHC has entered into a Section 9711
Coal Act Liabilities Assumption Agreement with Patriot and PEC (the “Coal Act
LAA”), attached hereto as Attachment A, pursuant to which PHC has agreed to
assume certain Section 9711 Coal Act Liabilities (as defined therein) of the
Transferred Companies; and
     WHEREAS, Peabody Coal Company, LLC (“PCC”), a Transferred Company, is a
signatory to a collective bargaining agreement known as the National Bituminous
Coal Wage Agreement pursuant to which it is obligated to provide certain health
benefits to eligible retirees and their eligible dependents;
     WHEREAS, contemporaneously herewith, PHC has entered into a NBCWA
Individual Employer Plan Liabilities Assumption Agreement with Patriot, PCC and
PEC (the “NBCWA LAA”), attached hereto as Attachment B, pursuant to which PHC
agreed to assume certain NBCWA Individual Employer Plan Liabilities (as defined
therein) of PCC;
     WHEREAS, PCC is obligated to provide certain heath benefits to eligible
retirees and their eligible dependents under the Salaried Employer Plan (as
defined below);
     WHEREAS, contemporaneously herewith, PHC has entered into a Salaried
Employee Liabilities Assumption Agreement with Patriot, PCC and PEC (the
“Salaried Employee LAA”), attached hereto as Attachment C, pursuant to which PHC
agreed to assume certain Salaried Employee Liabilities (as defined therein) of
PCC;
     WHEREAS, performance of the obligations under the Coal Act and Article XX
of the NBCWA requires the administration of certain health benefit plans
required by the Coal Act and Article XX of the NBCWA, respectively;

 

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     WHEREAS, PHC desires that Patriot provide the services required to
administer the provision of retiree health benefits by the Transferred Companies
pursuant to the Coal Act, and PCC pursuant to the NBCWA and Salaried Employer
Plan, as set forth in the Coal Act LAA, the NBCWA LLA and the Salaried Employee
LAA; and
     WHEREAS, Patriot desires to provide the services required to administer the
provision of retiree health benefits by the Transferred Companies pursuant to
the Coal Act, and PCC pursuant to the NBCWA and the Salaried Employer Plan.
     NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements contained herein and other good and valuable consideration, the
receipt and adequacy of which the parties hereby acknowledge, the parties do
hereby agree as follows:
     Section 1. Defined Terms.
     (a) The term “Coal Act” shall mean the Coal Industry Retiree Health Benefit
Act of 1992, 26 U.S.C. §§ 9701 — 9722, as may be amended, modified or replaced
from time to time.
     (b) The term “Coal Act Plan” shall have the meaning ascribed to such term
in the Coal Act LAA.
     (c) The term “Effective Date” shall mean the date first hereinabove
entered.
     (d) The term “Fair Market Value” means, in relation to the pricing of
services under this Agreement, terms that would be agreed between non-affiliated
third parties for comparable services on a comparable scale, determined in the
reasonable judgment of Patriot.
     (e) The term “NBCWA” shall mean the National Bituminous Coal Wage Agreement
of 2007.
     (f) The term “NBCWA Individual Employer Plan” shall have the meaning
ascribed to such term in the NBCWA LAA.
     (g) The term “NBCWA Individual Employer Plan Liabilities” shall have the
meaning ascribed to such term in the NBCWA LAA.
     (h) The term “Salaried Employer Plan” shall have the meaning ascribed to
such term in the Salaried Employee LAA.
     (i) The term “Salaried Employee Liabilities” shall have the meaning
ascribed to such term in the Salaried Employee LAA.
     (j) The term “Section 9711 Coal Act Liabilities” shall have the meaning
ascribed to such term in the Coal Act LAA.
     (k) The term “Transferred Companies” shall mean Affinity Mining Company,
Colony Bay Coal Company, Eastern Associated Coal, LLC, Martinka Coal Company,
LLC, Mountain View Coal Company, LLC, Peabody Coal Company, LLC, Pine Ridge Coal
Company, LLC, and

 

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Sterling Smokeless Coal Company, LLC.
     Section 2. Obligations of Patriot. Patriot shall provide services in
accordance with the description of services set forth on Attachment D to this
Agreement, which is incorporated by reference into this Agreement and made a
part hereof as fully as if set forth in its entirety herein. Patriot may retain
third party providers and/or independent contractors to provide services listed
on Attachment D so long as such third party providers and/or independent
contractors are the same as Patriot uses to perform similar services for its own
retiree healthcare obligations, provided, however, that Patriot shall remain
responsible for the full and complete delivery of services described on
Attachment D.
     Section 3. Duration of Agreement. This Agreement shall remain in effect
until the termination of each of the Coal Act LAA, the NBCWA LAA and the
Salaried Employee LAA; provided that PHC may terminate this Agreement at any
time upon 120 days written notice (without prejudice to any amounts owed by PHC
to Patriot pursuant to Section 4 through the date of termination).
     Section 4. Payment for Services. For the services provided pursuant to this
Agreement, PHC shall pay Patriot a fee equal to the Fair Market Value of such
services. Patriot shall provide an accounting to PHC by the fifth day of each
month of all amounts for which it claims it is entitled to receive in respect of
its fees and expenses pursuant to this Agreement from the immediately preceding
month. PHC shall pay Patriot such amounts within five days of receipt of the
accounting. If Patriot administers the plans and/or obligations to pay Coal Act
Liabilities, NBCWA Individual Employer Plan Liabilities or Salaried Employee
Liabilities as contemplated by this Agreement jointly with the administration of
any other employee welfare plan or employee-related liability, Patriot shall
notify PHC of such joint administration, reasonably allocate the costs of
administration under the respective plans, and obtain payment from PHC only for
the reasonable allocation of the cost of administering the services under this
Agreement.
     Section 5. Mutual Cooperation. Each of PHC and Patriot will use their
commercially reasonable efforts to cooperate with each other to give full effect
to the transactions contemplated by this Agreement.
     Section 6. Settlement of Claims. Patriot shall immediately notify PHC when
Patriot or any of its subsidiaries is sued by the UMWA or a former employee or
his or her eligible dependents or when an administrative claim has been filed
with an applicable trustees, in each case regarding the Section 9711 Coal Act
Liabilities, the NBCWA Individual Employer Plan Liabilities or the Salaried
Employee Liabilities. Patriot may not settle any such dispute without the prior
written consent of PHC, not to be unreasonably withheld or delayed. If Patriot
settles any such claim without the prior written consent of PHC, then PHC shall
not be liable for reimbursement of any amounts paid by Patriot as a result of
such un-consented settlement under this Agreement.
     Section 7. PHC’s Right to Pursue a Claim or Defense. If PHC determines that
Patriot is failing to pursue with reasonable diligence a claim or defense
related to any Section 9711 Coal Act Liabilities, NBCWA Individual Employer Plan
Liabilities or Salaried Employee Liabilities, it shall notify Patriot in writing
of such failure. If Patriot fails or refuses to pursue such claim or

 

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defense diligently within thirty (30) days of such notice, then PHC at its
option may elect to pursue such claim or defense at its cost in the name of
Patriot or any of the Transferred Companies. Any contest assumed by PHC pursuant
to this provision shall be conducted by attorneys employed or retained by PHC
(subject to the right of Patriot to participate in such prosecution or defense
at Patriot’s cost) and PHC may settle or compromise the claim or defense without
the consent of Patriot, so long as such settlement or compromise does not
include any payment or other obligation of Patriot or its controlled affiliates.
PHC and Patriot shall use their commercially reasonable efforts to cooperate
with each other in the continued prosecution or defense of any such claim,
including providing witnesses and production of documents.
     Section 8. Maintenance of Books and Records; Inspection. Patriot shall, at
all times during the continuance of this Agreement, maintain full and complete
books of account and other records with respect to all activities under this
Agreement including, but not limited to, records of all payments made in
connection with, or as a result of, such activities and all contracts entered
and evaluations performed with respect to payment of Section 9711 Coal Act
Liabilities, NBCWA Individual Employer Plan Liabilities or Salaried Employee
Liabilities. PHC shall, at all times during the continuance of this Agreement,
have the right to inspect, copy, and/or audit all account books and other
records with respect to this Agreement at Patriot’s offices and during regular
business hours; provided that (i) PHC is not entitled to inspect such books and
records more than once every six months, (ii) PHC shall provide at least
forty-eight (48) hours advance notification, including reasonable detail of the
materials to be reviewed, and (iii) no such inspection or audit shall
unreasonably interfere with the normal and regular conduct of Patriot’s
business.
     Section 9. Independent Contractor; No Relationship. By entering into this
Agreement, the parties do not create or establish any form of a joint venture,
partnership or other form of corporate relationship. Patriot understands and
agrees that Patriot is acting as an independent contractor in performing duties
hereunder. PHC is under no obligation to, and shall not, carry Workers’
Compensation insurance or health or accident insurance to cover Patriot’s
employees or pay any contribution to Social Security, unemployment insurance,
federal or state withholding taxes or provide any other contributions or
benefits that might be expected in any employer-employee relationship. Patriot
agrees to report and pay any contributions for taxes, unemployment insurance,
Social Security and other benefits for its employees, in each case solely with
respect to this Agreement and the services provided hereunder.
     Section 10. Standard of Care; Indemnification.
     (a) Patriot shall, and shall cause the Transferred Companies to, provide
the services hereunder in a prompt and timely manner, using the same degree of
skill and care as a reasonably prudent person would exercise in similar
circumstances in carrying out its own business.
     (b) Patriot shall indemnify, defend and hold harmless PEC, each of its
affiliates and each of their respective directors, officers and employees, and
each of the heirs, executors, trustees, administrators, successors and assignors
of any of the foregoing, from and against any and all claims, debts, liabilities
and obligations, absolute or contingent, matured or not matured, liquidated or
unliquidated, accrued or unaccrued, known or unknown, whenever arising,
including all costs and expenses relating thereto, and including, without
limitation, those debts,

 

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liabilities and obligations arising under this Agreement, any law, rule,
regulation, action, order or consent decree of any governmental entity or any
award of any arbitrator of any kind, and those arising under any contract,
commitment or undertaking (“Liabilities”) of the such persons incurred by, borne
by or asserted against any of them relating to, arising out of or resulting from
any of the following items (without duplication):
     i. the breach or the failure of performance by Patriot of any of the
covenants, promises, undertakings or agreements which it is obligated to perform
under this Agreement;
     ii. death of or injury of any person whomsoever, including but not limited
to directors, officers, employees, servants or agents of PEC, of one of its
affiliates, or contractors to the extent that such Liabilities are not covered
by worker’s compensation;
     iii. loss of, or damage to, or destruction of any property whatsoever,
including any loss of use thereof, including without limitation, property of
PEC, of one of its affiliates, or their respective directors, officers,
employees, agents, subsidiaries or subcontractors; or
     iv. any claim or assertion that the execution or performance by PEC of its
obligations under this Agreement violates or interferes with any contractual or
other right or obligation or relationship of Patriot to or with any other
person,
caused by, arising out of, or in any way related to this Agreement.
     (c) PEC shall indemnify, defend and hold harmless Patriot, each of its
Affiliates and each of their respective directors, officers and employees, and
each of the heirs, executors, trustees, administrators, successors and assignors
of any of the foregoing, from and against any and all Liabilities of the such
persons incurred by, borne by or asserted against any of them relating to,
arising out of or resulting from any of the following items (without
duplication):
     i. the breach or the failure of performance by PEC of any of the covenants,
promises, undertakings or agreements which it is obligated to perform under this
Agreement;
     ii. death of or injury of any person whomsoever, including but not limited
to directors, officers, employees, servants or agents of Patriot, of one of its
affiliates, or contractors to the extent that such Liabilities are not covered
by worker’s compensation;
     iii. loss of, or damage to, or destruction of any property whatsoever,
including any loss of use thereof, including without limitation, property of
Patriot, of one of its affiliates, or their respective directors, officers,
employees, agents, subsidiaries or subcontractors; or
     iv. any claim or assertion that the execution or performance by Patriot of
its obligations under this Agreement violates or interferes with any contractual
or other right or obligation or relationship of PEC to or with any other person,

 

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caused by, arising out of, or in any way related to the provision of services as
contemplated in this Agreement by Patriot, or its affiliates, or their
respective directors, officers, employees, servants, agents, subsidiaries or
subcontractors.
     (d) In no event shall Patriot or its affiliates, on the one hand, or PEC or
its affiliates, on the other hand, be liable to the other for any special,
consequential, indirect, collateral, incidental or punitive damages, lost
profits, or failure to realize expected savings, or other commercial or economic
loss of any kind, however caused and on any theory of liability, (including
negligence) arising in any way out of this Agreement, whether or not such person
has been advised for the possibility of any such damages; provided, however,
that the foregoing limitations shall not limit either Party’s indemnification
obligations for liabilities to with respect to any claims by a third party.
     Section 11. PEC Guarantee. PEC hereby irrevocably and unconditionally
guarantees the prompt and full payment by PHC of all amounts owed by it under
this Agreement, subject to its right of setoff set forth in the Separation
Agreement, Plan of Reorganization and Distribution, dated as of October 22, 2007
(the “Separation Agreement”) by and between PEC and Patriot. Such guaranty shall
be a guaranty of payment and not merely of collection, and shall not be
conditioned or contingent upon the pursuit of any remedies against PHC. The
liability of PEC under this guaranty shall, to the fullest extent permitted
under applicable law, be absolute, unconditional and irrevocable. PEC hereby
waives any and all notice of the creation, renewal, extension or accrual of any
of the guaranteed obligations and notice of or proof of reliance by Patriot upon
this guaranty or acceptance of this guaranty. The guaranteed obligations, and
any of them, shall conclusively be deemed to have been created, contracted or
incurred in reliance upon this guaranty. When pursuing its rights and remedies
hereunder against PEC, Patriot shall be under no obligation to pursue such
rights and remedies it may have against PHC or any right of offset with respect
thereto, and any failure by Patriot to pursue such other rights or remedies or
to collect any payments from PHC or to realize upon or to exercise any such
right of offset shall not relieve PEC of any liability hereunder, and shall not
impair or affect the rights and remedies, whether express, implied or available
as a matter of law, of Patriot. PEC irrevocably waives acceptance hereof,
presentment, demand, protest, promptness, diligence, obligation to protect,
secure or perfect any security interest and any notice. Patriot shall not be
obligated to file any claim relating to any guaranteed obligation in the event
that PHC becomes subject to a bankruptcy, reorganization or similar proceeding,
and the failure of Patriot to so file shall not affect PEC’s obligations
hereunder. In the event that any payment to Patriot in respect of any guaranteed
obligation is rescinded or must otherwise be returned for any reason whatsoever,
PEC shall remain liable hereunder with respect to the guaranteed obligation as
if such payment had not been made, and the guaranty shall be reinstated and
shall continue even if otherwise terminated.
     Section 12. Resolution of Disputes. Any party or parties to a dispute or
disagreement under this Agreement (“Covered Dispute”) (including but not limited
to any issue as to the arbitrability of such Covered Dispute) may give the other
parties to the Covered Dispute written notice of the Covered Dispute initiating
the provisions hereunder. Within ten days after delivery of the notice of a
Covered Dispute, the receiving parties shall submit to the other a written
response. The notice and the response shall include a statement of each party’s
respective position and a summary of arguments supporting that position and the
name and title of the

 

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executive who will represent the claimants and of any other individual who will
accompany such executive in resolving the Covered Dispute. Within twenty
(20) days after delivery of the first notice, such executives shall meet at a
mutually acceptable time and place, and thereafter as often as they reasonably
deem necessary, and shall negotiate in good faith to attempt to resolve the
Covered Dispute. All reasonable requests for information made by one party to
the other will be honored. If the Covered Dispute has not been resolved by
negotiation within thirty (30) days of the first notice of the Covered Dispute,
the parties to the Covered Dispute may, by their mutual consent, submit the
Covered Dispute to arbitration in St. Louis, Missouri. Arbitration of any
Covered Dispute shall be conducted in accordance with the Commercial Arbitration
Rules of the American Arbitration Association in effect on the date of the first
notice of the Covered Dispute. The parties agree to use three arbitrators for
any Covered Dispute in excess of Two Million Dollars ($2,000,000.00). Any
decision of the arbitrator (or arbitrators) agreed upon or appointed and acting
pursuant to this Section 12 shall be final and binding upon the parties and
judgment may be entered thereon, upon the application of any of the parties, by
any court of competent jurisdiction. The arbitrator may also award reasonable
attorney’s fees and the costs of the arbitration to the prevailing party. This
Section 12 shall not preclude any of the parties from seeking a temporary
restraining order, preliminary injunction or other temporary injunctive relief
necessary to enforce this Section 12 or protect rights under this Agreement. If
the parties do not mutually agree to arbitrate the Covered Dispute, the Covered
Dispute shall be resolved pursuant to Section 15.08 of the Separation Agreement.
     Section 13. Waiver. The failure of any party to comply with any of its
obligations or agreements or to fulfill any conditions contained in this
Agreement may be excused only by a written waiver from the other parties.
Failure by any party to exercise, or delay by any party in exercising, any right
under this Agreement shall not operate as a waiver thereof, nor shall any single
or partial exercise of any right hereunder by a party preclude any other or
future exercise of that right or any other right hereunder by such party.
     Section 14. Notices. All notices, requests or other communications required
or permitted hereunder shall be given in writing by hand delivery, registered
mail, certified mail or overnight courier, return receipt requested, postage
prepaid, to the party to receive the same at its respective address set forth
below, or at such other address as may from time to time be designated by such
party to the others in accordance with this Section 14.
If to Patriot, to:
Joseph W. Bean
Senior Vice President, General Counsel and Corporate Secretary
Patriot Coal Corporation
12312 Olive Boulevard, Suite 400
St. Louis, MO 63141
Fax:
If to PHC, to:
Alexander Schoch, Esq.
Executive Vice President Law and Chief Legal Officer

 

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Peabody Holding Company, LLC
701 Market Street
St. Louis, MO 63101
Fax: 314-342-3419
All such notices and communications hereunder shall be deemed given when
received, as evidenced by the acknowledgment of receipt issued with respect
thereto by the applicable postal authorities or the signed acknowledgment of
receipt of the person to whom such notice or communication shall have been
addressed or his or her authorized representative.
     Section 15. No Third-Party Beneficiaries. Neither this Agreement nor any
provision hereof shall create any right in favor of or impose any obligation
upon any person or entity other than the parties hereto and their respective
successors and permitted assigns. Without limiting the generality of the
foregoing, this Agreement is not intended to, and does not, create any rights,
third party or otherwise, on behalf of the United Mine Workers of America
Combined Benefit Fund, the 1992 Fund, the 1993 Fund, the United Mine Workers of
America, any retiree or dependent, or any other person or individual. No third
party shall be entitled to any subrogation rights with respect to any obligation
of any party under this Agreement.
     Section 16. Captions and Paragraph Headings. Captions and paragraph
headings are used hereinafter for convenience only and are not a part of this
Agreement and shall not be used in construing it.
     Section 17. Entire Agreement. The making, execution and delivery of this
Agreement by the parties has been induced by no representations, statements,
warranties or agreements other than those herein expressed. Notwithstanding any
provisions in any other agreement, this Agreement, together with the Separation
Agreement and the other agreements contemplated thereby, including without
limitation the Coal Act LAA, the NBCWA LAA and the Salaried Employee LAA,
embodies the entire understanding of the parties and their respective
subsidiaries and affiliates relating to the matters set forth herein. This
Agreement may be modified only by a written instrument executed by the parties.
The parties make no representation or warranties with respect to the subject
matter of this Agreement not expressly set forth in this Agreement. This
Agreement supersedes and terminates all other discussions, negotiations,
understandings, arrangements and agreements between or among PHC and Patriot or
any respective affiliated companies, entities or persons relating to the subject
matter hereof.
     Section 18. Assignability. Neither of the parties hereto may assign this
Agreement without the prior written consent of the other parties, which consent
will not be unreasonably withheld or delayed. Any impermissible attempted
assignment of this Agreement without such prior written consent shall be void,
and the party assigning or attempting to assign this Agreement shall remain
bound by and obligated by this Agreement as if no assignment or attempted
assignment had occurred.
     Section 19. Successors and Assigns. This Agreement and the provisions
hereof shall be binding upon and inure to the benefit of the respective
successors and permitted assigns of the parties hereto.

 

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     Section 20. Severability. In the event one or more of the provisions of
this Agreement shall, for any reason, be held invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
the validity, legality or enforceability of any other provision of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision was not a part of this Agreement.
     Section 21. Counterparts. This Agreement may be executed in any number of
duplicate counterparts, each of which shall be deemed an original and all of
which together shall constitute one and the same instrument.
     Section 22. Governing Law. The parties hereto have agreed that the
validity, construction, operation and effect of any and all of the terms and
provisions of this Agreement shall be determined and enforced in accordance with
the laws and regulations of the State of Delaware, without giving effect to
principles of conflicts of law thereunder.

 

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     IN WITNESS WHEREOF, the parties hereto have caused this Administrative
Services Agreement to be duly executed by one of their respective officers duly
authorized and directed as of the date first written above.

                      PEABODY HOLDING COMPANY, LLC       PATRIOT COAL
CORPORATION    
 
                   
By:
  /s/ Richard A. Navarre       By:   /s/ Richard M. Whiting    
 
 
 
Name: Richard A. Navarre          
 
Name: Richard M. Whiting    
 
  Title: Executive Vice President           Title: President & Chief Financial
Officer    
 
                    Solely for purposes of Section 11 hereof:                
PEABODY ENERGY CORPORATION                
 
                   
By:
  /s/ Richard A. Navarre                
 
 
 
 Name: Richard A. Navarre                
 
  Title: Executive Vice President