exv10w12



 





EXHIBIT-10.12




EMPLOYMENT AGREEMENT




     This AGREEMENT is entered
into as of 11:59 p.m. New York time on the date set forth on
the signature page hereof, by and between Patriot Coal Corporation, a Delaware corporation (the
“Company”), and the undersigned executive (the “Executive”).



RECITALS




     To induce Executive to serve in the executive team position set forth on the signature page
hereof, 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 in the executive team position set forth on the signature
page hereof. In such capacity, Executive shall report to the Chief Executive Officer of the
Company (the “CEO”) and shall have the customary powers, responsibilities and authorities of
executives holding such positions in publicly-held corporations of the size, type and nature
of the Company, as it exists from time to time, and as are assigned by the CEO.




     1.2 Subject to the terms and conditions of this Agreement, Executive hereby accepts
employment in the executive team position set forth on the signature page hereof commencing
as of the date hereof (the “Commencement Date”) and agrees, subject to any period of
vacation or sick leave, to devote his 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 CEO.




     1.3 Nothing in this Agreement shall preclude Executive from engaging in trade
association activities, charitable work and community affairs, from delivering lectures,
fulfilling speaking engagements or teaching at educational institutions, from managing any
investment made by him or his immediate family with respect to which Executive or such
family member 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 or other property may exceed five percent (5%) of the equity of any entity,
without the prior approval of the CEO or the Board of Directors of the Company (the
“Board”)) or from serving, subject to the prior approval of the CEO or the Board, as a
member of the board 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 duties hereunder. For purposes of the preceding



 









 







sentence, any approval by the CEO or the Board required therein shall not be
unreasonably withheld.



     2. Term of Employment. Executive’s term of employment under this Agreement (the “Term
of Employment”) shall commence on the Commencement Date and, subject to termination as provided in
this Agreement, shall have an initial term of two years (the “Initial Term”). Following the
Initial Term, Executive’s employment shall be employment “at will” unless both parties elect to
extend the Term of Employment. Following the Term of Employment, Executive shall be not entitled
to any benefits upon any termination of employment except for the Accrued Obligations (as defined
in Section 6.1 hereof); provided, however, if, following the Term of Employment, Executive’s
employment is terminated by the Company other than for Cause (as defined in Section 6.3(b) hereof),
Disability (as defined in Section 6.4 hereof) or death, Executive shall be entitled to the
Severance Payment, Prorated Bonus and Continuation Benefits (all as defined in Section 6.2(a)).



     3. Compensation.




     3.1 Salary. During the Term of Employment, the Company shall pay Executive a
base salary (“Base Salary”) in the amount set forth on the signature page hereof. Such Base
Salary shall be payable in accordance with the ordinary payroll practices of the Company.
During the Term of Employment, the Board and the CEO shall review in good faith, at least
annually, Executive’s Base Salary in accordance with the Company’s customary procedures and
practices regarding the salaries of senior executives and may, if determined by the Board to
be appropriate, increase Executive’s Base Salary following such review. “Base Salary” for
all purposes herein shall be deemed to be a reference to any such increased amount.




     3.2 Annual Bonus. In addition to his Base Salary, Executive shall, commencing
with the 2007 calendar year 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 to be developed by the Board, based on achievement of performance targets
established by the Board in consultation with the CEO as soon as practicable at or after the
beginning of the calendar year to which the performance targets relate. The target for the
2007 bonus amount shall be determined before or as soon as practicable after the
Commencement Date. Executive’s target and maximum annual Bonus percentages are set forth on
the signature page hereof. 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 as set by the Board in consultation
with the CEO, but in no event later than March 15 of the calendar year following the later
of (a) the calendar year in which the Bonus is earned or (b) 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 guidance
promulgated and in effect thereunder (“Section 409A”).



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     4. Employee Benefits.




4.1 Equity and Stock Options.




     (a) Executive shall receive an extended long-term incentive award (the
“Extended Long Term Incentive Award”) with a value (as determined by the
Compensation Committee of the Board in good faith) that is at least equal to the
percentage of Executive’s initial Base Salary as set forth on the signature page
hereof. Such award shall consist of stock options and restricted stock units, which
will be granted on or about November 1, 2007. The stock options will be granted
with an exercise price per share equal to the closing market price of a share of
Company common stock on the grant date. The restricted stock units will be granted
with a value per unit equal to the closing market price of a share of Company common
stock on the grant date.




     (b) With respect to each calendar year during the Term of Employment,
commencing with the 2008 calendar year, Executive shall receive equity-based
compensation awards under the Company’s equity incentive plans (the “Annual Long
Term Incentive Awards” and, together with the Extended Long Term Incentive Award,
the “Long Term Incentive Awards”) with a value at least equal to the percentage of
Executive’s Base Salary (as in effect on the date of such award) as set forth on the
signature page hereof. The Annual Long Term Incentive Award with respect to the
2008 calendar year shall be made in the form of restricted stock on or about
November 1, 2007, with a value per share that equals the closing market price of a
share of Company common stock on the grant date. The Annual Long Term Incentive
Award with respect to each calendar year after 2008 shall be made effective on the
first business day of such calendar year.




     (c) As of the date of termination of Executive’s employment due to Executive’s
Disability (as hereinafter defined) or death, or upon the occurrence of a change in
control (as defined in the applicable equity-based plan or award) all outstanding
Long Term Incentive Awards and any other equity-based awards granted to Executive by
the Company shall become immediately and fully vested; provided, however, that any
performance units granted to Executive shall not become fully vested upon a change
in control unless otherwise provided in the applicable plan or award agreement. In
the case of termination of Executive’s employment due to Executive’s Disability (as
defined in Section 6.4) or death, any options held by Executive as of such date
shall remain exercisable until at least the earlier of (i) the date that is one (1)
year after the date of termination of Executive’s employment or (ii) the date on
which the option would have expired solely by reason of the passage of time if
Executive’s employment had not been terminated, provided that no option shall remain
outstanding longer than the maximum time permitted by Section 409A.




     (d) The Long Term Incentive Awards shall be governed by separate grant
agreements (together with any other agreement approved by the Board and designated
by the Board as an “Ancillary Document” for purposes of this



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Agreement, the “Ancillary Documents”). To the extent permitted by any
applicable law and the rules of any exchange on which the Company’s stock is listed,
in the event of any conflict between an Ancillary Document and the terms of this
Agreement, the terms of this Agreement shall govern.




     (e) All Long Term Incentive Awards and any other equity-based awards granted to
Executive by the Company shall be approved by a committee of the Board comprised of
individuals who are both disinterested directors (within the meaning of Section 16
of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) and
independent directors (within the meaning of applicable stock exchange rules) and
shall be exempt from Section 16(b) of the Exchange Act by reason of Rule 16b-3 under
the Exchange Act.




     4.2 Employee Benefit Programs, Plans and Practices; Perquisites. During the
Term of Employment, 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 Company provides to its other senior executives,
including retirement benefits, health and welfare benefits (both active and retiree), the
Continuation Benefits (as defined in Section 6.2(a)(2)), and other employee benefits and
perquisites which the Company may make available to its senior executives from time to time.
To the extent permitted by applicable law, applicable tax-qualification requirements, and
any relevant benefit plan document, Executive’s service with Peabody Energy Corporation and
its affiliates shall be taken into account for purposes of determining eligibility, vesting,
level of benefits and benefit accruals under the Company’s benefit plans (except to the
extent that such service credit would result in a duplication of benefits).




     4.3 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 reasonably consistent with
Executive’s responsibilities hereunder.



     5. Expenses. Subject to prevailing Company policy or such guidelines as may be
established by the Board, the Company will reimburse Executive for all reasonable expenses incurred
by Executive in carrying out his duties on behalf of the Company, provided that
such reimbursement is not taxable income to Executive.



     6. Termination of Employment.




     6.1 Termination of Employment for Any Reason. In the event of a termination of
Executive’s employment for any reason, whether or not such termination occurs 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 equal to (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 regarding
the salaries of executives, (ii) any business expenses incurred by Executive and not yet
reimbursed by the Company under Section 5 above, as of the date of such termination, (iii)
any vacation time accrued but unused as of the date



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of such termination, and (iv) any Bonus earned but not yet paid for any calendar year
prior to the date of such termination and (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 (remuneration described in (a) and (b) above are
collectively referred to as the “Accrued Obligations” herein) in accordance with the terms
of such programs, plans and practices.




     6.2 Termination Not for Cause or for Good Reason. (a) The Company or
Executive may terminate Executive’s Term of Employment at any time for any reason by
providing written notice to the other party at least thirty (30) days (or such other number
of days specified in this Agreement) in advance of the date of termination of Executive’s
employment. If, during the Term of Employment, Executive terminates his or her employment
for Good Reason, 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 of 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’s employment is terminated (i) by the Company other than for Cause (as defined
in Section 6.3(b) hereof), Disability (as defined in Section 6.4 hereof) or death or (ii) by
Executive for Good Reason (as defined in Section 6.2(b) hereof), and such termination
constitutes a Separation from Service (as hereinafter defined), the Company, as severance,
shall pay to Executive an amount (the “Severance Payment”) equal to the product of (A) and
(B):




(A) the sum of:




(I) Executive’s Base Salary, plus




(II) an additional amount equal to the greater of (x) Executive’s
target Bonus for the calendar year of termination of Executive’s employment,
or (y) the annual average of the actual Bonus awards paid to Executive by
the Company for the three (3) calendar years preceding the date of
termination of Executive’s employment (or, if Executive has not yet been
employed by the Company pursuant to this Agreement for three (3) full
calendar years as of the date his or her employment is terminated, for the
two (2) year or one (1) year period, as applicable, for which he or she has
been so employed and received a Bonus), plus




(III) an amount equal to six percent (6%) of Executive’s Base Salary;




multiplied by




(B) the greater of




(I) one (1) or



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     (II) the number of calendar days during the period between the date
that Executive’s employment is terminated and the date that Executive’s Term
of Employment would otherwise expire under this Agreement by reason of the
passage of time (the “Remaining Term”) divided by three hundred sixty five
(365).


If (a) the original Term of Employment has expired or (b) the Remaining Term of the original
Term of Employment is less than or equal to three hundred sixty five (365) days, the Company
shall pay the Severance Payment to the Executive (I) one-half (1/2) of such Severance
Payment in a lump sum payment on the six (6) month anniversary of Executive’s Separation
from Service and (II) the remaining one-half (1/2) of the Severance Payment in six (6) equal
monthly payments beginning on the seven (7) month anniversary of Executive’s Separation from
Service



If the Remaining Term of the original Term of Employment is greater than three hundred sixty
five (365) days, the Company shall pay the Severance Payment to the Executive in
substantially equal installments when Base Salary would otherwise be due in accordance with
Section 3.1 hereof through the end of the Remaining Term; provided, however,
that the all payments otherwise payable in the first six (6) months after Executive’s
Separation from Service shall be paid in a lump sum payment on the first regular pay date
(as provided in Section 3.1 hereof) on or immediately after the six (6) month anniversary of
Executive’s Separation from Service.



“Separation from Service” means a “separation from service,” as such term is defined under
Section 409A.



In addition, if Executive’s employment is terminated (i) by the Company other than for Cause
(as defined in Section 6.3(b) hereof), Disability (as defined in Section 6.4 hereof), or
death or (ii) by Executive for Good Reason (as defined in Section 6.2(b)) and if such
termination constitutes a Separation from Service,





(1) 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 (a) the calendar year in which the Bonus is earned or (b) the
calendar year in which the Bonus is no longer subject to a substantial risk of
forfeiture within the meaning of Section 409A.




(2) The Company shall also continue to provide Executive, as though he or she
remained actively employed, for a period ending on the later of (i) the date that
the Remaining Term expires and (ii) the date that is one (1) year following



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the date of termination of Executive’s employment (the “Benefit Continuation
Period”), life insurance, group health coverage (including medical, dental, and
vision benefits), accidental death & dismemberment coverage, 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; provided, however, 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;
provided, further, that the amount of Continuation Benefits provided
during one calendar year shall not affect the amount of Continuation Benefits
provided during a subsequent calendar year (except with respect to health plan
maximums), the Continuation Benefits may not be exchanged or substituted for other
forms of compensation to Executive, and any reimbursement or payment under the
Continuation Benefit arrangements will be paid in accordance with applicable plan
terms and no later than the last day of Executive’s taxable year following the
taxable year in which he incurred the expense giving rise to such reimbursement or
payment. 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.




     (b) For purposes of this Agreement, the term “Good Reason” means: (i) a reduction by
the Company in Executive’s Base Salary (in which event the Severance Payment shall be
calculated based on Executive’s Base Salary in effect prior to any such reduction); (ii) 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); (iii)
a material decline in Executive’s Bonus or Long Term Incentive Award opportunities (other
than a decline 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 in
Saint Louis, Missouri; or (v) any material diminution or material adverse change in
Executive’s title, duties, responsibilities or reporting relationships. 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. If Executive does not give notice to
the Company as described in Section 6.2(a) hereof 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.




     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 or (ii) by Executive other than for Good Reason, the Company shall pay to Executive
the Accrued Obligations.




     (b) As used herein, the term “Cause” shall be limited to (i) any material and
uncorrected breach by Executive of the terms of this Agreement, including, but not limited
to, a violation of Section 13 hereof, (ii) any willful fraud or dishonesty of Executive
involving the property or business of the Company, (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



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of, or plea of nolo contendere to, any felony if such conviction or
plea results in his or her imprisonment; provided that, with respect to
clauses (i), (ii) and (iii) above, Executive shall have thirty (30) days following his or
her receipt of written notice of the conduct that 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 thirty (30) day period, the Company’s notice of termination shall be deemed
withdrawn. In the event that Executive is terminated for failure to meet performance goals,
as determined by the Board, such termination shall be considered a termination for Cause for
all purposes relating to his or her equity-based compensation awards, but it shall be
considered a termination without Cause for purposes of his or her right to receive the
Severance Payment, the Prorated Bonus and the Continuation Benefits.




     6.4 Disability. In the event of the Disability (as defined 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, 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 was terminated. The term “Disability,” for purposes of this
Agreement, 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
disability plan that Executive is disabled 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, 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
was terminated, and any remaining payments that were payable to Executive by reason of his
or her termination of employment under Section 6.2 to which Executive was entitled at the
time of his or her death in accordance with the terms of Section 6.2.




     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 a termination of his or her employment under this Agreement, other than amounts
specified in Sections 4 and 6 hereof, the Ancillary Documents, and any plan, program or
arrangement of the Company.




     6.7 Executive’s Duty to Deliver 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



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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 all
copies of any of the foregoing.



     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 6.2 hereof or any other plan, arrangement, or agreement
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 the net retained by Executive, after deduction of any
Excise Tax on such Payments and any federal, state or local income tax and Excise Tax on
the Gross-Up Payment shall equal the amount of such Payments.




     7.2 Determination of Gross-Up Payment. 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 mutually agreed by the Company and Executive (the “Accounting Firm”) which shall
provide detailed supporting calculations both to the Company and Executive within ten (10)
business days of 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.
Any Gross-Up Payment, as determined pursuant to this Section 7.2, shall be paid by the
Company to Executive (or to the appropriate taxing authority on Executive’s behalf) when
due; provided, however, that such payment shall be made no later than (a)
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 (b) 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



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reimbursable by the Company during a subsequent calendar year, the right to such
reimbursement may not be exchanged or substituted for other forms of compensation to
Executive. 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 Code Section 4999, 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 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 made 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. 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 fifteen (15) 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 Reimbursable Claim prior to the expiration of the thirty (30) day period
following the date on which he 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. Without limitation on 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



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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 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 where, 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 compliance 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 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:



Patriot Coal Corporation

attn: Board of Directors

12312 Olive Boulevard, Suite 400

Saint Louis, Missouri 63124



with a copy to:




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Patriot Coal Corporation

attn: Richard Whiting

12312 Olive Boulevard, Suite 400

Saint Louis, Missouri 63124



To Executive at the address set forth on the signature page hereof.



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
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 shall be 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. This Agreement shall be binding upon, inure to the benefit of and be
enforceable by the heirs and representatives of Executive and the assigns and successors of the
Company, but 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 to any
successor (whether by merger, spin off, purchase or otherwise) to all or substantially all of the
stock, assets or businesses of the Company.



     11. Amendment. This Agreement may be amended only by written agreement of the parties
hereto.



     12. Amendment to Comply with Code Section 409A. If either party to this Agreement
reasonably determines that any amount payable pursuant to this Agreement would result in adverse
tax consequences under Code 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 is exempt from, or compliant with, the requirements of Code Section 409A and
preserves as nearly as possible the original intentions of the affected provisions. If any payment
due to Executive is required to be delayed by reason of Code Section 409A, such payment shall be
paid in one lump-sum payment as soon as administratively feasible on or after the date such payment
is permitted to be made under Code Section 409A, subject to standard payroll deductions and
withholdings.



     13. Nondisclosure of Confidential Information; Non-Competition; Non-Solicitation.




     (a) Executive, both during the term hereof and thereafter, will not, directly or
indirectly, use for himself or use for, or disclose to, any party other than the Company, or
any subsidiary of the Company (other than in the ordinary course of Executive’s duties for
the benefit of the Company or any subsidiary of the Company or to the extent required by
applicable law), any secret or confidential information that is not publicly available
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



12









 







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 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: (i) during the period of his employment hereunder and for a period of one (1)
year thereafter, without the prior written consent of the Board, he will 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 activities which are in competition with the business of the
Company or its subsidiaries; (ii) during the period of his employment hereunder and for a
period of one (1) year thereafter, without the prior written consent of the Board, he shall
not, on his 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; and (iii) during the first year that this Agreement is in effect, he shall
not, on his own behalf or on behalf of any person, firm or company, directly or indirectly
solicit, offer employment to or hire any person who is employed by Peabody Energy
Corporation or its subsidiaries, except to the extent agreed upon in writing by Peabody
Energy Corporation.




     (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 Executive’s
beneficial ownership of any class of such company’s securities does not exceed five percent
(5%) of the outstanding securities of such class.




     (d) Executive agrees that this covenant not to compete is reasonable under the
circumstances and will not interfere with his ability to earn a living or to otherwise meet
his 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 as to the court shall appear not reasonable 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 of such a breach of this Section 13 by Executive, the Company may, in addition
to pursuing any other remedies it may have in law or in



13









 







equity, cease making any payments otherwise required by this Agreement and seek to
obtain an injunction against Executive from any court having jurisdiction over the matter to
restrain any further violation of this Section 13 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 incompetence, reference in this Agreement to Executive
shall be deemed, where appropriate, to refer to his 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 the
Ancillary Documents shall be resolved by arbitration. Arbitrators shall be selected, and
arbitration shall be conducted, in accordance with the rules of the American Arbitration
Association. The Company shall pay any legal fees in connection with such arbitration in the event
that Executive prevails on a material element of his claim or defense. 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 reimbursement or payment will be paid within sixty (60)
days after Executive prevails, but in no later than the last day of Executive’s taxable year
following the taxable year in which he incurred the expense giving rise to such reimbursement or
payment. This Section 15 shall remain in effect throughout the Term of Employment and for a period
of five (5) years following the termination of the Term of Employment.



     16. Indemnification; Directors’ & Officers’ Liability Insurance.




     (a) The Company shall indemnify Executive during and after the Term of Employment to
the maximum extent permitted by applicable law for any liability incurred by Executive by
reason of his service as an officer or director of the Company or any of its subsidiaries or
affiliates or by reason of his service as a fiduciary of any employee benefit plan of the
Company or any of its subsidiaries or affiliates.




     (b) During the Term of Employment and for so long as Executive may have any liability
by reason of serving as an officer or director of the Company or any of its subsidiaries or
affiliates, Executive shall be entitled to the same directors’ and officers’ liability
insurance coverage that the Company provides generally to its other directors and officers,
as may be amended from time to time for such directors and officers. During the Term of
Employment and for so long as Executive may have any liability by reason of serving as a
fiduciary of any employee benefit plan of the Company or any of its subsidiaries or
affiliates, Executive shall be entitled to the same fiduciary liability insurance coverage
that the Company provides generally to its other directors and officers, as may be amended
from time to time for such directors and officers.



14









 





     17. Governing Law. This Agreement shall be construed, interpreted and governed in
accordance with the laws of the State of New York, without reference to rules relating to conflicts
of law.



     18. Effect on Prior Agreements. This Agreement, the transition letter agreement
entered into by Peabody Energy Corporation and Executive in connection with Executive’s transfer to
the Company, and the Ancillary Documents contain the entire understanding between the parties
hereto and this Agreement, except as proved in an Ancillary Document, supersedes in all respects
any prior or other agreement or understanding, both written and oral, between the Company, any
affiliate of the Company or any predecessor of the Company or affiliate of the Company and
Executive.



     19. Withholding. The Company shall be entitled to withhold from payments to Executive
any amount of withholding required by law.



     20. Survival. Notwithstanding the expiration of the term of this Agreement, the
provisions of Sections 4, 13 and 16 hereunder 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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	 	 	PATRIOT COAL CORPORATION
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/ Richard M. Whiting 
	 	 	 	 	 
	 

	 	 	 	Name:	 	Richard M. Whiting 
	 

	 	 	 	 	 	 
	 

	 	 	 	Title:	 	President & Chief Executive
Officer 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	EXECUTIVE
	 
	 	 	 	 	 	 
	 	 	/s/ Charles A. Ebetino, Jr.
	 	 	 
	 	 	Charles A. Ebetino, Jr.
	 
	 	 	 	 	 	 
	Agreement Commencement Date:	 	October 31, 2007
	 
	 	 	 	 	 	 
	Name of Executive:	 	Charles A. Ebetino, Jr.
	 
	 	 	 	 	 	 
	Address of Executive:	 	12312 Olive Boulevard
	 
	 	 	 	 	 	 
	 	 	St. Louis, MO 63141
	 
	 	 	 	 	 	 
	Executive Team Position:	 	Senior Vice President — Corporate Development
	 
	 	 	 	 	 	 
	Base Salary:	 	$375,000 per annum
	 
	 	 	 	 	 	 
	Annual Bonus Target:	 	80% of Base Salary (with maximum no less than
140% of Base Salary)
	 
	 	 	 	 	 	 
	Long-Term Incentive Award:	 	120% of Base Salary
	 
	 	 	 	 	 	 
	Extended Long-Term Incentive Award:	 	475% of Base Salary







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