Exhibit 10.5

EMPLOYMENT AGREEMENT

Senior Manager

THIS AGREEMENT by and among Foundation Coal Corporation, a Delaware corporation
(the “Company”) and Michael R. Peelish (“Executive”) is entered into and
effective dated as of January 1, 2009.

WHEREAS, the Company desires to continue the employment of Executive as a
full-time employee of the Company and Executive desires to serve the Company in
such capacity; and

WHEREAS, the Company and Executive desire to enter into an Employment Agreement
to memorialize the terms and conditions of such employment;

NOW, THEREFORE, in consideration of the premises and mutual covenants contained
herein and for other good and valuable consideration, the receipt of which is
mutually acknowledged, the Company and Executive hereby agree as follows:

1.        Term.  Subject to the provisions of Section 7 of this Agreement,
Executive shall continue to be employed by the Company for a period commencing
on the date hereof and ending on December 31, 2011 (the “Employment Term”) on
the terms and subject to the conditions set forth in this Agreement; provided,
however, that commencing on December 31, 2011 and on each anniversary thereafter
(each an “Extension Date”), the Employment Term shall be automatically extended
for an additional one-year period, unless the Company or Executive provides the
other party hereto 60 days’ prior written notice before the next Extension Date
that the Employment Term shall not be so extended.

2.        Position.  During the Employment Term, Executive shall serve as the
Company’s Senior Vice President, Safety and Human Resources. In such position,
Executive shall report directly to the Chief Executive Officer (the “CEO”) of
the Company and shall have such duties and authority as shall be determined from
time to time by the CEO. During the Employment Term, Executive will devote
Executive’s full business time and best efforts to the performance of
Executive’s duties hereunder and will not engage in any other business,
profession or occupation for compensation or otherwise which would conflict or
interfere with the rendition of such services either directly or indirectly,
without the prior written consent of the CEO; provided that nothing herein shall
preclude Executive from (i) subject to the prior approval of the CEO (which
shall not unreasonably be withheld), accepting appointment to or continuing to
serve on any board of directors or trustees of any business or corporation,
(ii) engaging in charitable activities and community affairs or (iii) managing
his personal investments and affairs; provided that in each case, and in the
aggregate, such activities do not conflict or interfere with the performance of
Executive’s duties hereunder or conflict with the provisions contained in
Section 9.

3.        Base Salary.  During the Employment Term, the Company shall pay
Executive a base salary at the annual rate of $229,000, payable in regular
installments in accordance with the Company’s usual payment practices. Executive
shall be entitled to increases (but not decreases) in Executive’s base salary,
if any, as may be determined from time to time in the sole discretion of the
Board of Directors of the Company (the

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“Board”) and the Board shall be obligated to annually review Executive’s base
salary for increases but not decreases. Executive’s annual base salary, as in
effect from time to time, is hereinafter referred to as the “Base Salary.”

4.        Annual Bonus.  With respect to each full calendar year of the Company
during the Employment Term, Executive shall be eligible to earn an annual bonus
award (an “Annual Bonus”) based upon the achievement of certain individual and
Company performance targets established by the Board, in consultation with the
CEO (such targets to be established no later than 90 days following the
beginning of the year in which they relate); provided that, Executive’s target
Annual Bonus shall be not less than 65% of his Base Salary (the “Target Annual
Bonus”). With respect to each full calendar year of the Company during the
Employment Term, the amount of the Annual Bonus (if any) shall be paid as soon
as practicable but no later than March 15 of the calendar year following the
calendar year for which such Annual Bonus is earned.

5.        Employee Benefits.  During the Employment Term, Executive shall be
entitled to participate in the Company’s employee benefit plans (other than
annual bonus plans) as in effect from time to time (collectively “Employee
Benefits”), on terms no less favorable than those generally made available to
other senior executives of the Company. Executive will be provided paid vacation
pursuant to the Vacation Summary Plan Description.

6.        Business Expenses.  During the Employment Term, reasonable travel and
other expenses incurred by Executive in the performance of Executive’s duties
hereunder shall be reimbursed by the Company in accordance with Company
policies.

7.        Termination.  The Employment Term and Executive’s employment hereunder
may be terminated by either party at any time and for any reason; provided that
Executive will be required to give the Company at least 60 days’ advance written
notice of any resignation of Executive’s employment. Notwithstanding any other
provision of this Agreement, the provisions of this Section 7 shall exclusively
govern Executive’s rights upon termination of employment with the Company and
its affiliates.

a.        By the Company For Cause or By Executive Resignation Without Good
Reason.

(i)    The Employment Term and Executive’s employment hereunder may be
terminated by the Company for Cause (as defined below) and shall terminate
automatically upon Executive’s resignation without Good Reason (as defined in
Section 7(c)(ii)).

(ii)    For purposes of this Agreement, “Cause” shall mean (A) Executive’s
continued and willful, intentional or grossly negligent failure to substantially
perform Executive’s duties hereunder (other than as a result of total or partial
incapacity due to physical or mental illness), (B) Executive’s conviction of, or
plea of nolo contendere to a crime constituting (x) a felony under the laws of
the United States or any state thereof or (y) a misdemeanor involving moral
turpitude, deceit, dishonesty or fraud that relates to the Company property,
(C) the willful, intentional or grossly negligent conduct of Executive which is
demonstrably and materially injurious to the Company, monetarily or otherwise or
(D) Executive’s material breach of the

 

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provisions of Sections 8 or 9 of this Agreement. For purposes of this definition
of Cause, no act, or failure to act, on Executive’s part shall be deemed
willful, intentional or grossly negligent if Executive acted in good faith and
in a manner that Executive reasonably believed to be in, or not opposed to, the
best interests of the Company.

(iii)    If Executive’s employment is terminated by the Company for Cause, or if
Executive resigns without Good Reason, Executive shall be entitled to receive:

(A)  the Base Salary through the date of termination;

(B)  any Annual Bonus earned but unpaid as of the date of termination for any
previously completed fiscal year;

(C)  reimbursement for any unreimbursed business expenses properly incurred by
Executive in accordance with Company policy prior to the date of Executive’s
termination; and

(D)  such Employee Benefits, if any, as to which Executive may be entitled under
the employee benefit plans of the Company (the amounts described in clauses
(A) through (D) hereof being referred to as the “Accrued Rights”).

Following such termination of Executive’s employment by the Company for Cause or
resignation by Executive without Good Reason, except as set forth in this
Section 7(a)(iii), Executive shall have no further rights to any compensation or
any other benefits under this Agreement.

b.        Disability or Death.

(i)    The Employment Term and Executive’s employment hereunder shall terminate
upon Executive’s death. If Executive becomes physically or mentally
incapacitated so as to be unable to perform the essential functions of
Executive’s duties (such incapacity is hereinafter referred to as “Disability”),
then (A) the CEO may allow another officer of the Company to perform Executive’s
duties and responsibilities during the period of such Disability, and (B) if
such Disability continues for 120 consecutive days or 180 days during any
consecutive 360 day period, the CEO may terminate Executive’s employment under
this Agreement. If any question shall arise as to whether, during any period
Executive is disabled so as to be unable to perform the essential functions of
Executive’s then existing position or positions with or without reasonable
accommodation, Executive may, and at the request of the Company shall, submit to
the Company a certification in reasonable detail by a physician selected by the
Company, to whom Executive or Executive’s guardian has no reasonable objection,
as to whether Executive is so disabled and how long such disability is expected
to continue, and such certification shall for the purposes of this Agreement be
conclusive of the issue. Executive shall cooperate with any reasonable request
of the physician in connection with such certification. If such question shall
arise and Executive shall fail to submit such certification, the Company’s
determination of such issue shall be binding on Executive. Nothing in this
Section 7(b) shall be construed to waive Executive’s rights, if any, under
existing law including, without limitation, the Family and Medical Leave Act of
1933, 29 U.S.C. ss.2601 et seq. and the Americans With Disabilities Act, 424
S.C. ss.12101 et seq.

 

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(ii)    Upon termination of Executive’s employment hereunder for either
Disability or death, Executive or Executive’s estate (as the case may be) shall
be entitled to receive:

(A)  the Accrued Rights; and

(B)  Target Annual Bonus multiplied by a fraction, the numerator of which is the
number of days of the calendar year of termination that shall have elapsed
through the date of Executive’s termination of employment and the denominator of
which is 365.

Following Executive’s termination of employment due to Disability or death,
except as set forth in this Section 7(b)(ii), Executive shall have no further
rights to any compensation or any other benefits under this Agreement.

c.        By the Company Without Cause or Resignation by Executive for Good
Reason.

(i)    The Employment Term and Executive’s employment hereunder may be
terminated by the Company without Cause or by Executive’s resignation for Good
Reason.

(ii)    For purposes of this Agreement, “Good Reason” shall mean (A) the failure
of the Company to pay or cause to be paid Executive’s Base Salary or Annual
Bonus, when due hereunder, (B) any substantial diminution in Executive’s
authority or responsibilities from those described in Section 2 hereof, (C) the
requirement by the Company that Executive’s principal office be located more
than 50 miles outside of the greater Baltimore, Maryland metropolitan area, or
(D) any failure of the Company to obtain the assumption in writing of its
obligation to perform this Agreement by any successor to all or substantially
all of the business or assets of the Company upon a merger, consolidation, sale
or similar transaction (other than an assumption that occurs by operation of
law); provided that any of the events described in clauses (A) through (D) of
this Section 7(c)(ii) shall constitute Good Reason only if Executive provides
written notice to the Company of the existence of any such event within 90 days
of the initial existence of the event and the Company fails to cure such event
within 30 days after receipt from Executive of such written notice.

(iii)    If Executive’s employment is terminated by the Company without Cause
(other than by reason of death or Disability and other than any termination by
the Company following the Company’s receipt of a Notice of Termination from
Executive setting forth Executive’s intention to resign without Good Reason, as
described in Section 7(a)(i)) or if Executive resigns for Good Reason, in either
case whether or not such termination occurs in connection with a Change in
Control, Executive shall be entitled to receive:

(A)  the Accrued Rights;

(B)  an amount equal to the Annual Bonus that Executive would have been entitled
to receive in respect of the fiscal year in which Executive’s termination date
occurs, had Executive continued in employment until the end of such fiscal year,
which amount, determined based on the Company’s actual performance for such year
relative to the performance goals applicable to Executive, shall be multiplied
by a fraction (A) the numerator of which is the number of days in

 

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such fiscal year through termination date and (B) the denominator of which is
365 and shall be payable in a lump sum payment at the time such bonus or
incentive awards are payable to other participants; and

(C)  subject to Executive’s continued compliance with the provisions of Sections
8 and 9, an amount equal to the sum of (x) the Base Salary and (y) the Target
Annual Bonus, payable in equal bi-monthly installments over the Restricted
Period (as defined in Section 8) in accordance with the Company’s usual payroll
practices; provided that the aggregate amount described in this clause (C) shall
be reduced, but not below zero, by the present value of any other cash severance
or cash termination benefits payable to Executive under any other plans,
programs or arrangements of the Company or its affiliates, including, without
limitation, any severance plan of the Company in which Executive is entitled to
participate.

(iv)    Notwithstanding the foregoing in Section 7(c)(iii), if Executive would
be entitled to receive aggregate severance payments and/or benefits under an
applicable severance plan or policy of the Company (the “Applicable Severance
Policy”) in effect at the time of Executive’s termination which are greater than
the payments provided in Section 7(c)(iii), then Executive shall instead receive
the payments and benefits provided by the Applicable Severance Policy and shall
not be entitled to receive the payments provided in Section 7(c)(iii).

(v)    For purposes of this Agreement, “Change in Control” shall mean the
consummation of any transaction (including any merger or consolidation), the
result of which is that (i) any Group (as defined in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended) or Person, as described in
Section 8(a)(1), becomes the beneficial owner, directly or indirectly, of more
than 25% of the voting securities of the Company or its successor entity,
(ii) any Group or Person becomes the beneficial owner, directly or indirectly,
of more than 50% of the voting securities of the Company or its successor entity
or (iii) any Person becomes the beneficial owner, directly or indirectly, of all
or substantially all of the assets of the Company or its successor entity.

(vi)    Following Executive’s termination of employment by the Company without
Cause (other than by reason of Executive’s death or Disability) or by
Executive’s resignation for Good Reason, in either case whether or not in
connection with a Change in Control, and except as set forth in
Section 7(c)(iii) or Section 7(c)(iv), as applicable, Executive shall have no
further rights to any compensation or any other benefits under this Agreement.

d.        Expiration of Employment Term. Unless the parties otherwise agree in
writing, continuation of Executive’s employment with the Company beyond the
expiration of the Employment Term shall be deemed an employment at-will and
shall not be deemed to extend any of the provisions of this Agreement and
Executive’s employment may thereafter be terminated at will by either Executive
or the Company; provided that the provisions of Sections 8, 9 and 10 of this
Agreement shall survive any termination of this Agreement or Executive’s
termination of employment hereunder.

e.        Notice of Termination.  Any purported termination of employment by the
Company or by Executive (other than due to Executive’s death) during the
Employment Term shall be communicated by written Notice of Termination to the
other party hereto in accordance with Section 12(i) hereof. For purposes of

 

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this Agreement, a “Notice of Termination” shall mean a notice which shall
indicate the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of employment under the provision so indicated.

f.        Board/Committee Resignation.  Upon termination of Executive’s
employment for any reason, Executive agrees to resign, as of the date of such
termination and to the extent applicable, from (i) any position as an officer of
the Company and any of the Company’s affiliates, and (ii) the Board (and any
committees thereof) and the board of directors of any of the Company’s
affiliates (and any committees thereof).

8.      Non-Competition.

a.        Executive acknowledges and recognizes the highly competitive nature of
the businesses of the Company and its affiliates and accordingly agrees as
follows:

(1)          During the Employment Term and for a period of nine months
following the date Executive ceases to be employed by the Company for any reason
(the “Restricted Period”), Executive will not, whether on Executive’s own behalf
or on behalf of or in conjunction with any person, firm, partnership, joint
venture, association, corporation or other business organization, entity or
enterprise whatsoever (“Person”), directly or indirectly solicit or assist in
soliciting in competition with the Company, the business of any customer of the
Company or prospective customer of the Company:

 

  (i) with whom Executive had personal contact or dealings on behalf of the
Company during the one year period preceding Executive’s termination of
employment;

 

  (ii) with whom employees reporting to Executive have had personal contact or
dealings on behalf of the Company during the one year immediately preceding
Executive’s termination of employment; or

 

  (iii) for whom Executive had direct or indirect responsibility during the one
year immediately preceding Executive’s termination of employment.

(2)          During the Restricted Period, Executive will not directly or
indirectly:

 

  (i) engage in any coal-related business that competes with the business of the
Company or its affiliates (including, without limitation, businesses which the
Company or its affiliates have specific plans to conduct in the future and as to
which Executive is aware of such planning) in the United States (a “Competitive
Business”);

 

  (ii) enter the employ of, or render any services to, any Person (or any
division or controlled or controlling affiliate of any Person) who or which
engages in a Competitive Business;

 

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  (iii) acquire a financial interest in, or otherwise become actively involved
with, any Competitive Business, directly or indirectly, as an individual,
partner, shareholder, officer, director, principal, agent, trustee or
consultant;

 

  (iv) interfere with, or attempt to interfere with, business relationships
(whether formed before, on or after the date of this Agreement) between the
Company or any of its affiliates and customers, clients, suppliers partners,
members or investors of the Company or its affiliates, or

 

  (v) disparage the Company or any of its stockholders, directors, officers,
employees or agents.

(3)          Notwithstanding anything to the contrary in this Agreement,
Executive may, directly or indirectly own, solely as an investment, securities
of any Person engaged in the business of the Company or its affiliates which are
publicly traded on a national or regional stock exchange or on the
over-the-counter market if Executive (i) is not a controlling person of, or a
member of a group which controls, such person and (ii) does not, directly or
indirectly, own 5% or more of any class of securities of such Person.

(4)          During the Employment Term and, for a period of two years following
the date Executive ceases to be employed by the Company, Executive will not,
whether on Executive’s own behalf or on behalf of or in conjunction with any
Person, directly or indirectly:

 

  (i) solicit or encourage any employee of the Company or its affiliates to
leave the employment of the Company or its affiliates; or

 

  (ii) hire any such employee who was employed by the Company or its affiliates
as of the date of Executive’s termination of employment with the Company or who
left the employment of the Company or its affiliates coincident with, or within
one year prior to or after, the termination of Executive’s employment with the
Company.

(5)          During the Restricted Period, Executive will not, directly or
indirectly, solicit or encourage to cease to work with the Company or its
affiliates any consultant then under contract with the Company or its
affiliates.

b.        It is expressly understood and agreed that although Executive and the
Company consider the restrictions contained in this Section 8 to be reasonable,
if a final judicial determination is made by a court of competent jurisdiction
that the time or territory or any other restriction contained in this Agreement
is an unenforceable restriction against Executive, the provisions of this
Agreement shall not be rendered void but shall be deemed amended to apply as to
such maximum time and territory and to such maximum extent as such court may
judicially determine or indicate to be enforceable. Alternatively, if any court
of competent jurisdiction finds that any restriction contained in this Agreement
is unenforceable, and such restriction cannot be amended so as to make it
enforceable, such finding shall not affect the enforceability of any of the
other restrictions contained herein.

 

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9.      Confidentiality; Intellectual Property.

a.        Confidentiality.

(i)    Executive will not at any time (whether during or after Executive’s
employment with the Company) (x) retain or use for the benefit, purposes or
account of Executive or any other Person; or (y) disclose, divulge, reveal,
communicate, share, transfer or provide access to any Person outside the Company
(other than its professional advisers who are bound by confidentiality
obligations), any non-public, proprietary or confidential information —
including without limitation trade secrets, know-how, research and development,
software, databases, inventions, processes, formulae, technology, designs and
other intellectual property, information concerning finances, investments,
profits, pricing, costs, products, services, vendors, customers, clients,
partners, investors, personnel, compensation, recruiting, training, advertising,
sales, marketing, promotions, government and regulatory activities and approvals
— concerning the past, current or future business, activities and operations of
the Company, its subsidiaries or affiliates and/or any third party that has
disclosed or provided any of same to the Company on a confidential basis
(“Confidential Information”) without the prior written authorization of the
Board; provided, that Executive may disclose such information to Executive’s
legal and/or financial advisor for the limited purpose of enforcing Executive’s
rights under this Agreement; provided, that Executive shall request that such
legal and/or financial advisors not disclose such information.

(ii)    Confidential Information shall not include any information that is
(a) generally known to the industry or the public other than as a result of
Executive’s breach of this covenant or any breach of other confidentiality
obligations by third parties; (b) made legitimately available to Executive by a
third party without breach of any confidentiality obligation; or (c) required by
law to be disclosed; provided that Executive shall give prompt written notice to
the Company of such requirement, disclose no more information than is so
required, and cooperate with any attempts by the Company to obtain a protective
order or similar treatment.

(iii)    Except as required by law, Executive will not disclose to anyone, other
than Executive’s immediate family, legal or financial advisors or members of the
Company’s senior management, the existence or contents of this Agreement;
provided that Executive may disclose to any prospective future employer the
provisions of Sections 8 and 9 of this Agreement provided they agree to maintain
the confidentiality of such terms.

(iv)    Upon termination of Executive’s employment with the Company for any
reason, Executive shall (x) cease and not thereafter commence use of any
Confidential Information or intellectual property (including without limitation,
any patent, invention, copyright, trade secret, trademark, trade name, logo,
domain name or other source indicator) owned or used by the Company, its
subsidiaries or affiliates; (y) immediately destroy, delete, or return to the
Company, at the Company’s option, all originals and copies in any form or medium
(including memoranda, books, papers, plans, computer files, letters and other
data) in Executive’s possession or control (including any of the foregoing
stored or located in Executive’s office, home, laptop or other computer, whether
or not Company property) that contain Confidential Information or otherwise
relate to the business of the Company, its affiliates and subsidiaries, except
that Executive may retain only those portions of any personal notes, notebooks
and diaries that do not contain any Confidential Information; and (z) notify and
fully cooperate with the Company regarding the delivery or destruction of any
other Confidential Information of which Executive is or becomes aware.

 

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    b.        Intellectual Property.

(i)    If Executive has created, invented, designed, developed, contributed to
or improved any works of authorship, inventions, intellectual property,
materials, documents or other work product (including without limitation,
research, reports, software, databases, systems, applications, presentations,
textual works, content, or audiovisual materials) (“Works”), either alone or
with third parties, prior to Executive’s employment by the Company, that are
relevant to or implicated by such employment (“Prior Works”), Executive hereby
grants the Company a perpetual, non-exclusive, royalty-free, worldwide,
assignable, sublicensable license under all rights and intellectual property
rights (including rights under patent, industrial property, copyright,
trademark, trade secret, unfair competition and related laws) therein for all
purposes in connection with the Company’s current and future business.

(ii)    If Executive creates, invents, designs, develops, contributes to or
improves any Works, either alone or with third parties, at any time during
Executive’s employment by the Company and within the scope of such employment
and/or with the use of any the Company resources (“Company Works”), Executive
shall promptly and fully disclose same to the Company and hereby irrevocably
assigns, transfers and conveys, to the maximum extent permitted by applicable
law, all rights and intellectual property rights therein (including rights under
patent, industrial property, copyright, trademark, trade secret, unfair
competition and related laws) to the Company to the extent ownership of any such
rights does not vest originally in the Company.

(iii)    Executive agrees to keep and maintain adequate and current written
records (in the form of notes, sketches, drawings, and any other form or media
requested by the Company) of all Company Works. The records will be available to
and remain the sole property and intellectual property of the Company at all
times.

(iv)    Executive shall take all requested actions and execute all requested
documents (including any licenses or assignments required by a government
contract) at the Company’s expense (but without further remuneration) to assist
the Company in validating, maintaining, protecting, enforcing, perfecting,
recording, patenting or registering any of the Company’s rights in the Prior
Works and Company Works. If the Company is unable for any other reason to secure
Executive’s signature on any document for this purpose, then Executive hereby
irrevocably designates and appoints the Company and its duly authorized officers
and agents as Executive’s agent and attorney in fact, to act for and in
Executive’s behalf and stead to execute any documents and to do all other
lawfully permitted acts in connection with the foregoing.

(v)    Executive shall not improperly use for the benefit of, bring to any
premises of, divulge, disclose, communicate, reveal, transfer or provide access
to, or share with the Company any confidential, proprietary or non-public
information or intellectual property relating to a former employer or other
third party without the prior written permission of such third party. Executive
shall comply with all relevant policies and guidelines of the Company regarding
the protection of Confidential Information and intellectual property and

 

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potential conflicts of interest. Executive acknowledges that the Company may
amend any such policies and guidelines from time to time, and that Executive
remains at all times bound by their most current version that has been
communicated to Executive.

(vi)    The provisions of Section 9 shall survive the termination of Executive’s
employment for any reason.

10.      Specific Performance.  Executive acknowledges and agrees that the
Company’s remedies at law for a breach or threatened breach of any of the
provisions of Section 8 or Section 9 would be inadequate and the Company would
suffer irreparable damages as a result of such breach or threatened breach. In
recognition of this fact, Executive agrees that, in the event of such a breach
or threatened breach, in addition to any remedies at law, the Company, without
posting any bond, shall be entitled to cease making any payments or providing
any benefit otherwise required by this Agreement and obtain equitable relief in
the form of specific performance, temporary restraining order, temporary or
permanent injunction or any other equitable remedy which may then be available.

11.      Gross-Up.

  a.        In the event it shall be determined that any payment, benefit or
distribution (or combination thereof) by the Company, any of its affiliates, or
one or more trusts established by the Company for the benefit of its employees,
to or for the benefit of Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement, any other plan,
arrangement or agreement, including but not limited to the Nonqualified Stock
Option Agreement, with the Company or any of its affiliates, or otherwise) (each
a “Payment” and all such Payments, the “Total Payments”) is subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the “Code”) or any interest or penalties are incurred by Executive with
respect to such excise tax (such excise tax, together with any such interest and
penalties, hereinafter collectively referred to as the “Excise Tax”), Executive
shall be entitled to receive an additional payment (a “Gross-Up Payment”) in an
amount such that after payment by Executive of the Excise Tax imposed on the
Payments and any income, employment and other 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. Notwithstanding the foregoing
provisions of this Section 11(a), if it shall be determined that Executive is
entitled to a Gross-Up Payment, but that the Total Payments would not be subject
to the Excise Tax if the Total Payments were reduced by an amount that is less
than 10% of the portion of the Total Payments that would be treated as
“parachute payments” under Section 280G of the Code, then the amounts payable to
Executive under this Agreement shall be reduced (but not below zero) to the
maximum amount that could be paid to Executive without giving rise to the Excise
Tax (the “Safe Harbor Cap”), and no Gross-Up Payment shall be made to Executive.
For purposes of reducing the Total Payments to the Safe Harbor Cap, any amounts
that are not “deferred compensation” within the meaning of Section 409A of the
Code shall be reduced first.

  b.        All determinations required to be made under this Section 11,
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 Deloitte & Touche, LLP or such other nationally

 

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recognized certified public accounting firm as may be designated by the Company
(the “Accounting Firm”) which shall provide detailed supporting calculations
both to the Company and Executive within 15 business days of the receipt of
notice from Executive that there has been a Payment, or such earlier time as is
requested 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.
Any Gross-Up Payment, as determined pursuant to this Section 11, shall be paid
by the Company to Executive (or to the appropriate taxing authority on
Executive’s behalf) when the associated Excise Tax is due; provided that in no
event shall any payment under this Section 11 be made later than the end of the
calendar year following the year in which the Excise Tax is paid. If the
Accounting Firm determines that no Excise Tax is payable by Executive, it shall
so indicate to 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 Section 4999 of the Code, it is possible that the amount
of the Gross-Up Payment determined by the Accounting Firm to be due to (or on
behalf of) Executive was lower than the amount actually due (“Underpayment”). In
the event that the Company exhausts its remedies pursuant to Section 11(c) 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.

  c.        Executive shall notify the Company in writing of any claim by the
Internal Revenue Service 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 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. Executive shall not
pay such claim prior to the expiration of the thirty day period following the
date on which Executive gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If the Company notifies Executive in writing prior to the expiration of such
period that it desires to contest such claim, Executive shall (i) give the
Company any information reasonably requested by the Company relating to such
claim, (ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company, (iii) cooperate with the Company
in good faith in order to effectively contest such claim and (iv) permit the
Company to participate in any proceedings relating to such 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. Without limitation on the foregoing provisions of this Section 11(c),
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,

 

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proceedings, hearings and conferences with the taxing authority in respect of
such claim and may, at its sole option, either direct Executive to pay the tax
claimed and sue for a refund or contest the 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 determine; provided, further, that if the
Company directs Executive to pay such claim and sue for a refund, the Company
shall advance the amount of such payment to Executive, on an interest-free
basis, and shall (to the extent permitted by law) 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 claim, such extension shall be limited 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.

  d.        If, after the receipt by Executive of an amount paid or advanced by
the Company pursuant to this Section 11, 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 11(c)) 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 Section 11(c), 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 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.

12.      Miscellaneous.

  a.         Governing Law.  This Agreement shall be governed by and construed
in accordance with the laws of the State of New York applicable to contracts
made and to be performed entirely within such jurisdiction. Except as provided
in Section 10 of this Agreement, any controversy or claim arising out of or
relating to this Agreement or Executive’s employment with the Company or the
termination thereof shall be resolved by binding confidential arbitration, to be
held in New York, New York, in accordance with the Employee Dispute Resolution
Rules of the American Arbitration Association. Judgment upon the award rendered
by the arbitrator(s) may be entered in any court having jurisdiction thereof.
The costs and expenses incurred in connection with such arbitration shall be
borne by the party that does not prevail in such arbitration. Each party shall
be responsible for such party’s legal fees and expenses incurred in connection
with such arbitration.

  b.        Entire Agreement; Amendments.  This Agreement contains the entire
understanding of the parties with respect to the employment of Executive by the
Company. There are no restrictions, agreements, promises, warranties, covenants
or undertakings between the parties with respect to the subject matter herein
other than those expressly set forth herein. This Agreement may not be altered,
modified, or amended except by written instrument signed by the parties hereto.

 

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  c.        No Mitigation; No Offset.  In the event of any termination of
Executive’s employment under Section 7 of this Agreement, Executive shall be
under no obligation to seek other employment and there shall be no offset
against amounts due Executive under this Agreement, or otherwise, on account of
any remuneration or other benefit attributable to any subsequent employment that
Executive may obtain.

  d.        Indemnification; D&O Insurance.  Executive shall be indemnified to
the same extent as other senior executives, officers and directors with respect
to Executive’s service as an employee and director of the Company or any of the
Company’s affiliates. During the Employment Term, the Company shall keep in
place a directors and officers’ liability insurance policy (or policies)
providing comprehensive coverage to Executive to the extent that the Company
provides such coverage for any other senior executive, officer or director of
the Company and following the Employment Term, Executive shall be entitled to
such coverage to the extent that the Company provides such coverage for any
other current and former senior executive, officer or director of the Company.

  e.        No Waiver.  The failure of a party to insist upon strict adherence
to any term of this Agreement on any occasion shall not be considered a waiver
of such party’s rights or deprive such party of the right thereafter to insist
upon strict adherence to that term or any other term of this Agreement.

  f.        Severability.  In the event that any one or more of the provisions
of this Agreement shall be or become invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
of this Agreement shall not be affected thereby.

  g.        Assignment.  This Agreement, and all of Executive’s rights and
duties hereunder, shall not be assignable or delegable by Executive. Any
purported assignment or delegation by Executive in violation of the foregoing
shall be null and void ab initio and of no force and effect. This Agreement
shall be assigned by the Company to a person or entity which is an affiliate or
a successor in interest to substantially all of the business operations of the
Company. Upon such assignment, the rights and obligations of the Company
hereunder shall become the rights and obligations of such affiliate or successor
person or entity.

  h.        Successors; Binding Agreement.  This Agreement shall inure to the
benefit of and be binding upon personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.

  i.        Notice.  For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered by hand or overnight courier or
three days after it has been mailed by United States registered mail, return
receipt requested, postage prepaid, addressed to the respective addresses set
forth below in this Agreement, or to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notice of
change of address shall be effective only upon receipt.

 

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If to the Company:

Foundation Coal Corporation

999 Corporate Boulevard, Suite 300

Linthicum Heights, Maryland 21090

Attention: General Counsel

If to Executive:

To the most recent address of Executive set forth in the personnel records of
the Company.

j.        Representations.

(i)    Executive hereby represents to the Company that the execution and
delivery of this Agreement by Executive and the Company and the performance by
Executive of Executive’s duties hereunder shall not constitute a breach of, or
otherwise contravene, the terms of any employment agreement or other agreement
or policy to which Executive is a party or otherwise bound.

(ii)    The Company represents and warrants that (A) it is fully authorized by
action of its Board (and of any other person or body whose action is required)
to enter into this Agreement and to perform its obligations under it; (B) to the
best of its knowledge and belief, the execution, delivery and performance of
this Agreement by the Company does not violate any law, regulation, order,
judgment or decree or any agreement, plan or corporate governance document of
the Company or its affiliates or shareholders; and (C) to the best of its
knowledge and belief, upon the execution and delivery of this Agreement by the
parties, this Agreement shall be the valid and binding obligation of the
Company, enforceable in accordance with its terms, except to the extent
enforceability may be limited by applicable bankruptcy, insolvency or similar
laws affecting the enforcement of creditors’ rights generally.

k.        Prior Agreements.  This Agreement supersedes all prior agreements and
understandings (including verbal agreements) between Executive and the Company
and/or its affiliates regarding the terms and conditions of Executive’s
employment with the Company and/or its affiliates.

l.        Cooperation.  Executive shall provide Executive’s reasonable
cooperation in connection with any action or proceeding (or any appeal from any
action or proceeding) which relates to events occurring during Executive’s
employment hereunder and does not unreasonably interfere with Executive’s
subsequent employment. This provision shall survive any termination of this
Agreement. The Company agrees to reimburse, in accordance with Company policies,
Executive promptly for Executive’s reasonable and documented out-of-pocket
expenses incurred in connection with the cooperation obligation set forth in
this Section 12(l). Notwithstanding the foregoing the preceding cooperation
obligation shall not apply to any actions proceeding or controversy between
Executive and the Company or as to which it could reasonably be determined that
Executive’s right to subsequently enforce Executive’s rights under this
Agreement could be prejudiced.

m.        Withholding Taxes.  The Company may withhold from any amounts payable
under this Agreement such Federal, state and local taxes as may be required to
be withheld pursuant to any applicable law or regulation.

 

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n.        Counterparts.  This Agreement may be signed in counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.

o.        Section 409A Compliance.  To the extent applicable, it is intended
that this Agreement comply with the provisions of Section 409A of the Code
(“Section 409A”). This Agreement will be administered and interpreted in a
manner consistent with this intent, and any provision that would cause this
Agreement to fail to satisfy Section 409A will have no force and effect until
amended to comply therewith (which amendment may be retroactive to the extent
permitted by Section 409A). Notwithstanding anything contained herein to the
contrary, Executive shall not be considered to have terminated employment with
the Company for purposes of this Agreement and no payments shall be due to
Executive under this Agreement which are payable upon Executive’s termination of
employment unless Executive would be considered to have incurred a “separation
from service” from the Company within the meaning of Section 409A. To the extent
required in order to avoid accelerated taxation and/or tax penalties under
Section 409A, amounts that would otherwise be payable and benefits that would
otherwise be provided pursuant to this Agreement during the six-month period
immediately following Executive’s termination of employment shall instead be
paid on the first business day after the date that is six months following
Executive’s termination of employment (or upon Executive’s death, if earlier).
In addition, for purposes of this Agreement, each amount to be paid or benefit
to be provided to Executive pursuant to this Agreement shall be construed as a
separate identified payment for purposes of Section 409A. With respect to
expenses eligible for reimbursement under the terms of this Agreement, (i) the
amount of such expenses eligible for reimbursement in any taxable year shall not
affect the expenses eligible for reimbursement in another taxable year and
(ii) any reimbursements of such expenses shall be made no later than the end of
the calendar year following the calendar year in which the related expenses were
incurred, except, in each case, to the extent that the right to reimbursement
does not provide for a “deferral of compensation” within the meaning of
Section 409A; provided, however, that with respect to any reimbursements for any
taxes to which Executive becomes entitled under the terms of this Agreement, the
payment of such reimbursements shall be made by the Company no later than the
end of the calendar year following the calendar year in which Executive remits
the related taxes. Upon the expiration of the applicable Section 409A(a)(2)
deferral period, all payments deferred pursuant to this Agreement shall be paid
to Executive in a lump sum (less applicable tax withholdings).

[Remainder of Page is Intentionally Left Blank]

 

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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.

 

Foundation Coal Corporation

   

Michael R. Peelish

 

 

   

 

 

By:

 

James F. Roberts

     

Title:

 

Chief Executive Officer

     

 

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