**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 continuethe 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 herebyagree as follows: 

1.        Term.  Subject to the provisions of Section 7of 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 forthin 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 additionalone-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’sSenior 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 timeto 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 occupationfor 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 charitableactivities 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 dutieshereunder or conflict with the provisions contained in Section 9. 

3.        BaseSalary.  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 beentitled 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 

“Board”) and the Board shall be obligated to annually review Executive’s base salary for increases but not decreases. Executive’sannual 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 ofthe 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 theEmployment 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 toparticipate 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 toother 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 bereimbursed 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 Executivewill 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 exclusivelygovern 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 nolocontendere 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’smaterial 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 bedeemed 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 policyprior to the date of Executive’s termination; and 

(D)  such Employee Benefits, if any, as to whichExecutive 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 forthin 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 andExecutive’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 ishereinafter 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 Disabilitycontinues 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 tobe 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 inreasonable 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 certificationshall 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 suchcertification, 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 Familyand 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 eitherDisability 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 multipliedby afraction, 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 haveno further rights to any compensation or any other benefits under this Agreement. 

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

(i)    The Employment Term andExecutive’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 outsideof 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 ofthe 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 fromExecutive 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, asdescribed 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 inemployment 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 numeratorof 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 orincentive awards are payable to other participants; and 

(C)  subject to Executive’s continued compliancewith 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 accordancewith 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 payableto 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 severancepayments 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 inSection 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 beneficialowner, 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 theCompany 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’sdeath 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 shallhave 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 Termshall 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 theprovisions 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 theEmployment 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 Agreementrelied 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 anyreason, 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 committeesthereof) and the board of directors of any of the Company’s affiliates (and any committees thereof). 

8.      Non-Competition. 

a.        Executiveacknowledges 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 “RestrictedPeriod”), 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 enterprisewhatsoever (“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 ofemployment; 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 affiliateshave 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 andcustomers, 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 orindirectly 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) isnot 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 Executiveceases 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 ofthe 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 anyconsultant then under contract with the Company or its affiliates. 

b.        It is expresslyunderstood 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 orany 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 suchmaximum 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 beamended 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 usefor 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 byconfidentiality obligations), any non-public, proprietary or confidential information — including without limitation trade secrets, know-how, research and development, software, databases, inventions, processes, formulae, technology, designsand 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 orprovided 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 legaland/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 publicother 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 confidentialityobligation; 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 theCompany to obtain a protective order or similar treatment. 

(iii)    Except as required by law, Executive will notdisclose 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 anyprospective 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 orintellectual 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’spossession 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 theCompany, 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 Companyregarding 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 aperpetual, 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 andrelated laws) therein for all purposes in connection with the Company’s current and future business. 

(ii)    IfExecutive 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 anythe 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 andintellectual 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 inthe Company. 

(iii)    Executive agrees to keep and maintain adequate and current written records (in the form ofnotes, 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 assignmentsrequired 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’srights 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 dulyauthorized 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 Executiveremains at all times bound by their most current version that has been communicated to Executive. 

(vi)    Theprovisions 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 orSection 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 additionto 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, temporaryrestraining order, temporary or permanent injunction or any other equitable remedy which may then be available. 

11.      Gross-Up. 

  a.        In theevent 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 ofExecutive (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 ofits 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 “ExciseTax”), 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 othertaxes (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 theforegoing 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 isless 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 themaximum 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 theassumptions 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 detailedsupporting 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 ofdetermining 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 stateand 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 maximumreduction 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 theAccounting 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 theassociated 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 ExciseTax 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 itsremedies 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 paidby the Company to or for the benefit of Executive. 

  c.        Executive shall notifythe 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 daysafter 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 dayperiod 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 theexpiration 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 suchclaim 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 theCompany 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 andexpenses (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 respectthereto) 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, atits 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 taxclaimed 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 appellatecourts, 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, andshall (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 anyimputed 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 contestedamount. 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 theInternal Revenue Service or any other taxing authority. 

  d.        If, after thereceipt 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 withthe 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 bythe 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 refundprior 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 requiredto be paid. 

12.      Miscellaneous. 

  a.         Governing Law.  This Agreement shall be governed by and construed inaccordance 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 tothis 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 theAmerican 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 thatdoes 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 Executiveby 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; NoOffset.  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 Executiveunder 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 directorswith 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 (orpolicies) 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 suchcoverage 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 awaiver 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 unenforceablein 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 assignmentor 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 tosubstantially 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 benefitof 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 havebeen 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 representsto 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 anyemployment agreement or other agreement or policy to which Executive is a party or otherwise bound. 

(ii)    TheCompany 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 itsknowledge 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 affiliatesor 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 itsterms, 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 inconnection 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 connectionwith 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 itcould 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 tobe withheld pursuant to any applicable law or regulation. 

 

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n.        Counterparts.  This Agreement may besigned 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 theCode (“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 effectuntil 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 theCompany 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 fromservice” 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 wouldotherwise 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 followingExecutive’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 aseparate 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 notaffect 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 wereincurred, 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 anyreimbursements 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 whichExecutive 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 firstabove written. 

 

Foundation Coal Corporation
  
Michael R. Peelish
 
 
  
 
 
By:
 
James F. Roberts
   
Title:
 
Chief Executive Officer
   
 

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