Document:

exv10w3

 

Exhibit 10.3

EMPLOYEE MATTERS AGREEMENT

by and between

PEABODY ENERGY CORPORATION

and

PATRIOT COAL CORPORATION

Dated October 22, 2007

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	 	 	Page	 
	 
	 	 	 	 
	ARTICLE 1 DEFINITIONS AND INTERPRETATION
	 	 	1	 
	Section 1.1 Definitions
	 	 	1	 
	Section 1.2 References; Interpretation
	 	 	5	 
	 
	 	 	 	 
	ARTICLE 2 GENERAL PRINCIPLES
	 	 	5	 
	Section 2.1 Assumption and Retention of Liabilities.
	 	 	5	 
	Section 2.2 Patriot Employee Participation in PEC Benefit Plans.
	 	 	6	 
	Section 2.3 Service Credit
	 	 	6	 
	Section 2.4 Approval of Patriot Plans by PEC as Sole Shareholder
	 	 	7	 
	 
	 	 	 	 
	ARTICLE 3 RETIREMENT PLANS
	 	 	7	 
	Section 3.1 PEC and Patriot 401(k) Plans.
	 	 	7	 
	Section 3.2 PEC and Patriot Supplemental Defined Contribution Plans.
	 	 	9	 
	Section 3.3 PEC Defined Benefit Retirement Plans
	 	 	9	 
	Section 3.4 PEC Notice to Patriot of Benefit Distributions
	 	 	10	 
	 
	 	 	 	 
	ARTICLE 4 HEALTH AND WELFARE PLANS
	 	 	10	 
	Section 4.1 Patriot Welfare Plans.
	 	 	10	 
	Section 4.2 Reimbursement Account Plan.
	 	 	10	 
	Section 4.3 Retiree Medical Benefits.
	 	 	11	 
	Section 4.4 COBRA and HIPAA
	 	 	12	 
	Section 4.5 Liabilities.
	 	 	13	 
	Section 4.6 Vacation and Other Time-Off Benefits
	 	 	13	 
	 
	 	 	 	 
	ARTICLE 5 LONG-TERM INCENTIVE AWARDS
	 	 	14	 
	Section 5.1 Treatment of Outstanding PEC Options.
	 	 	14	 
	Section 5.2 Treatment of Outstanding PEC Restricted Stock.
	 	 	15	 
	Section 5.3 Treatment of Outstanding PEC Performance Units Awards.
	 	 	17	 
	Section 5.4 PEC ESPP
	 	 	18	 
	Section 5.5 Cooperation
	 	 	18	 
	Section 5.6 SEC Registration
	 	 	18	 
	Section 5.7 Savings Clause
	 	 	19	 
	 
	 	 	 	 
	ARTICLE 6 ADDITIONAL COMPENSATION MATTERS
	 	 	19	 
	Section 6.1 Annual Incentive Awards.
	 	 	19	 
	Section 6.2 PEC Individual Arrangements.
	 	 	20	 
	Section 6.3 Severance Benefits
	 	 	20	 
	Section 6.4 Benefit Administration.
	 	 	20	 
	Section 6.5 Tax Matters
	 	 	21	 
	 
	 	 	 	 
	ARTICLE 7 INDEMNIFICATION
	 	 	21	 
	 
	 	 	 	 
	ARTICLE 8 GENERAL AND ADMINISTRATIVE
	 	 	22	 
	Section 8.1 Sharing of Information
	 	 	22	 
	Section 8.2 Reasonable Efforts/Cooperation
	 	 	22	 
	Section 8.3 Employer Rights
	 	 	22	 

 

 

	 	 	 	 	 
	 	 	Page	 
	 
	 	 	 	 
	Section 8.4 Effect on Employment
	 	 	22	 
	Section 8.5 Consent of Third Parties
	 	 	22	 
	Section 8.6 Access to Employees
	 	 	23	 
	Section 8.7 Beneficiary Designation/Release of Information/Right to Reimbursement
	 	 	23	 
	Section 8.8 Not a Change in Control
	 	 	23	 
	 
	 	 	 	 
	ARTICLE 9 MISCELLANEOUS
	 	 	23	 
	Section 9.1 Effect if Distribution Does not Occur
	 	 	23	 
	Section 9.2 Relationship of Parties
	 	 	23	 
	Section 9.3 Affiliates
	 	 	24	 
	Section 9.4 Notices
	 	 	24	 
	Section 9.5 Entire Agreement
	 	 	24	 
	Section 9.6 Waivers
	 	 	24	 
	Section 9.7 Amendments
	 	 	25	 
	Section 9.8 Termination.
	 	 	25	 
	Section 9.9 Governing Law
	 	 	25	 
	Section 9.10 Dispute Resolution
	 	 	25	 
	Section 9.11 Titles and Headings
	 	 	25	 
	Section 9.12 Counterparts
	 	 	25	 
	Section 9.13 Assignment
	 	 	25	 
	Section 9.14 Severability
	 	 	26	 
	Section 9.15 Exhibits and Schedules
	 	 	26	 
	Section 9.16 Specific Performance
	 	 	26	 
	Section 9.17 Waiver of Jury Trial
	 	 	26	 
	Section 9.18 Authorization
	 	 	27	 
	Section 9.19 No Third-Party Beneficiaries
	 	 	27	 
	Section 9.20 Construction
	 	 	27	 

ii

 

EMPLOYEE MATTERS AGREEMENT

     This EMPLOYEE MATTERS AGREEMENT (the “Agreement”) is entered into October 22, 2007, by
and between Peabody Energy Corporation, a Delaware corporation (“PEC”), and Patriot Coal
Corporation (“Patriot”), a Delaware corporation (“Patriot”) (each a “Party”
and together the “Parties”).

RECITALS

     WHEREAS, PEC, acting through its direct and indirect Subsidiaries, currently conducts several
businesses in the coal industry;

     WHEREAS, the Board of Directors of PEC has determined that it is appropriate, desirable and in
the best interests of PEC and its shareholders to separate PEC into two separate, independent,
publicly traded companies by creating Patriot and distributing a portion of PEC’s coal mining
business to Patriot. The remainder of the PEC businesses will continue to be owned and conducted,
directly or indirectly, by PEC;

     WHEREAS, to effectuate the distribution, the Parties entered into that certain Separation
Agreement, Plan of Reorganization and Distribution dated of even date herewith (the “Separation
Agreement”); and

     WHEREAS, pursuant to the Separation Agreement, PEC and Patriot have agreed to enter into this
Agreement for the purpose of allocating between and among them assets, liabilities and
responsibilities with respect to certain non-collectively-bargained employee compensation and
benefit plans and arrangements;

     NOW, THEREFORE, in consideration of the foregoing premises, the mutual promises and covenants
hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Parties, intending to be legally bound, agree as follows:

ARTICLE 1

DEFINITIONS AND INTERPRETATION

     Section 1.1 Definitions. Capitalized terms used but not defined herein shall have the
meanings assigned to such terms in the Separation Agreement. The following terms shall have the
following meanings:

     “Adjusted PEC Option” shall have the meaning assigned thereto in Section 5.1(a) of
this Agreement.

     “Adjusted PEC Performance Units” shall have the meaning assigned thereto in Section
5.3(a) of this Agreement.

     “Agreement” shall have the meaning assigned thereto in the preamble to this Agreement.

 

 

     “Benefit Plan” means, with respect to an entity, each plan, program, arrangement,
agreement or commitment that is an employment, consulting, non-competition or deferred compensation
agreement, or an executive compensation, incentive bonus or other bonus, employee pension,
profit-sharing, savings, retirement, supplemental retirement, stock option, stock purchase,
performance units, restricted stock, other equity-based compensation, severance pay, salary
continuation, life, health, hospitalization, sick leave, vacation pay, disability or accident
insurance plan, corporate-owned or key-person life insurance or other employee benefit plan,
program, arrangement, agreement or commitment that covers non-collectively-bargained employees,
including any “employee benefit plan” (as defined in ERISA Section 3(3)) sponsored or maintained by
such entity (or to which such entity contributes or is required to contribute).

     “COBRA” means the continuation coverage requirements for “group health plans” under
Title X of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, and as codified
in Code Section 4980B and ERISA Sections 601 through 608, together with all regulations in effect
thereunder.

     “Code” means the Internal Revenue Code of 1986, as amended.

     “Detrimental Conduct Provisions” means any provisions that proscribe conduct of PEC
Employees, Patriot Employees, or former PEC Employees in their capacity as such, whether set forth
in outstanding awards issued under the PEC Stock Plans or otherwise, in each case as in effect from
time to time.

     “Distribution” means the distribution to the holders of PEC Common Stock of all of the
outstanding shares of Patriot Common Stock at the rate of one share of Patriot Common Stock for
every ten shares of PEC Common Stock outstanding as of the Record Date.

     “Distribution Date” means the date upon which the distribution described in the
Separation Agreement shall be effective, as defined in the Separation Agreement.

     “DOL” means the United States Department of Labor.

     “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

     “HIPAA” means the Health Insurance Portability and Accountability Act of 1996, as
amended.

     “IRS” means the United States Internal Revenue Service.

     “Parties” shall have the meaning assigned thereto in the preamble to this Agreement.

     “Patriot” shall have the meaning assigned thereto in the preamble to this Agreement.

     “Patriot 401(k) Plan” shall have the meaning assigned thereto in Section 3.1(a) of
this Agreement.

     “Patriot Benefit Plan” means any Benefit Plan sponsored, maintained or contributed to
by any member of the Patriot Group as such Group is constituted on or after the Distribution Date.

2

 

     “Patriot Common Stock” means the outstanding shares of common stock, $0.01 par value,
of Patriot.

     “Patriot Employee” means any individual who is employed by or will be employed by
Patriot or any member of the Patriot Group, including active employees and employees on vacation
and approved leave of absence (including maternity, paternity, family, sick leave, qualified
military service under the Uniformed Services Employment and Reemployment Rights Act of 1994,
short- or long-term disability leave, leave under the Family Medical Leave Act and other approved
leave).

     “Patriot Participant” means any individual who, following the Distribution Date, is a
Patriot Employee or a beneficiary, dependent or alternate payee of a Patriot Employee.

     “Patriot Reimbursement Account Plan” shall have the meaning assigned thereto in
Section 4.2(a) of this Agreement.

     “Patriot Retiree Medical Program” shall have the meaning assigned thereto in Section
4.3(a) of this Agreement.

     “Patriot Senior Management Employee” means a member of the Patriot senior executive
team designated by PEC who transfers employment from PEC to Patriot as of the Distribution Date and
is party to a transition letter agreement with PEC; provided, however, that the Chairman of the
Patriot Board of Directors and Executive Advisor for Patriot shall not be a Patriot Senior
Management Employee.

     “Patriot Service Plans” means, collectively, the Patriot 401(k) Plan and the Patriot
Welfare Plans to the extent eligibility for or the level of benefits thereunder depends on length
of service, including the Patriot vacation, short-term disability and retiree medical programs.

     “Patriot Stock Plan” shall have the meaning assigned thereto in Section 2.4 of this
Agreement.

     “Patriot Supplemental Defined Contribution Plan” shall have the meaning assigned
thereto in Section 3.2(b) of this Agreement.

     “Patriot Welfare Plans” shall have the meaning assigned thereto in Section 4.1(a) of
this Agreement.

     “PEC” shall have the meaning assigned thereto in the preamble to this Agreement.

     “PEC 401(k) Plan” means the Peabody Investments Corp. Employee Retirement Account.

     “PEC Benefit Plan” means any Benefit Plan sponsored, maintained or contributed to by
any member of the PEC Group as such Group is constituted on or after the Distribution Date.

     “PEC Common Stock” means the outstanding shares of common stock, $0.01 par value, of
PEC.

3

 

     “PEC Employee” means any individual who is employed by or will be employed by PEC or
any member of the PEC Group, including active employees and employees on vacation and approved
leave of absence (including maternity, paternity, family, sick leave, qualified military service
under the Uniformed Services Employment and Reemployment Rights Act of 1994, short- or long-term
disability leave, leave under the Family Medical Leave Act and other approved leave).

     “PEC ESPP” means the Peabody Energy Corporation Employee Stock Purchase Plan.

     “PEC Option” means an option to purchase shares of PEC Common Stock granted pursuant
to one of the PEC Stock Plans.

     “PEC Participant” means any individual who, following the Distribution Date, is a PEC
Employee, a former PEC Employee or a beneficiary, dependent or alternate payee of any of the
foregoing.

     “PEC Performance Unit” means a unit granted by PEC or one of its affiliates pursuant
to one of the PEC Stock Plans representing a general unsecured promise by PEC or one of its
affiliates to deliver a share of PEC Common Stock (or the cash equivalent) upon the satisfaction of
one or more performance-based vesting requirements.

     “PEC Reimbursement Account Plan” shall have the meaning assigned thereto in Section
4.2(a) of this Agreement.

     “PEC Restricted Share” means a share of PEC Common Stock granted by PEC or one of its
affiliates pursuant to one of the PEC Stock Plans which is subject to a vesting requirement or
other restriction.

     “PEC Retiree Medical Allowance” shall have the meaning assigned thereto in Section
4.3(a) of this Agreement.

     “PEC Pension Plan” means the Peabody Investments Corp. Retirement Plan for Salaried
Employees.

     “PEC SERA” shall have the meaning assigned thereto in Section 3.2(a) of this
Agreement.

     “PEC Service Plans” means, collectively, the PEC Pension Plan, the PEC 401(k) Plan and
the PEC Welfare Plans to the extent eligibility for or the level of benefits thereunder depends on
length of service, including the PEC vacation, short-term disability and retiree medical programs.

     “PEC Stock Plans” means, collectively, the Peabody Energy Corporation 2004 Long-Term
Equity Incentive Plan, the Peabody Energy Corporation Long-Term Equity Incentive Plan, the 1998
Stock Purchase and Option Plan for Key Employees of P&L Coal Holdings Corporation, the Peabody
Energy Corporation Equity Incentive Plan for Non-Employee Directors and any other stock option or
stock incentive compensation plan or arrangement

4

 

maintained before the Distribution Date for employees, officers, or non-employee directors of
PEC or its affiliates, as amended.

     “PEC Welfare Plans” shall have the meaning assigned thereto in Section 4.1(a) of this
Agreement.

     “Separation Agreement” shall have the meaning assigned thereto in the recitals to this
Agreement.

     “Service Crediting Date” means the date on which a PEC Employee who participates in
any of the PEC Service Plans becomes employed by a member of the Patriot Group (a) immediately
following employment with the PEC Group and (b) within one (1) year after the Distribution Date (or
such later date as mutually agreed to by the Parties), as further described in Section 2.3(a) of
this Agreement.

     “Subsequent Patriot Employee” means an individual who becomes employed by Patriot or
any member of the Patriot Group (a) later than the Distribution Date but within one (1) year after
the Distribution Date (or such later date as mutually agreed to by the parties) and (b) immediately
following employment with the PEC Group.

     Section 1.2 References; Interpretation. References in this Agreement to any gender
include references to all genders, and references to the singular include references to the plural
and vice versa. Unless the context otherwise requires, the words “include”, “includes” and
“including” when used in this Agreement shall be deemed to be followed by the phrase “without
limitation.” Unless the context otherwise requires, references in this Agreement to Articles,
Sections, Annexes, Exhibits and Schedules shall be deemed to be references to Articles and Sections
of, and Annexes, Exhibits and Schedules to, this Agreement. Unless the context otherwise requires,
the words “hereof”, “hereby” and “herein” and words of similar meaning when used in this Agreement
refer to this Agreement in its entirety and not to any particular Article, Section or provision of
this Agreement.

ARTICLE 2

GENERAL PRINCIPLES

     Section 2.1 Assumption and Retention of Liabilities.

     (a) As of the Effective Time, except as otherwise expressly provided for in this
Agreement, the Liability Assumption Agreements, or any other agreement by and between the
Parties and/or their affiliates, PEC shall, or shall cause one or more members of the PEC
Group to, retain and PEC hereby agrees to pay, perform, fulfill and discharge, in due course
in full: (i) all Liabilities under all PEC Benefit Plans; and (ii) any other Liabilities or
obligations expressly assigned to PEC or any of its affiliates under this Agreement.

     (b) As of the Effective Time, except as otherwise expressly provided for in this
Agreement, the Liability Assumption Agreements, or any other agreement by and between the Parties and/or their affiliates, Patriot shall, or shall cause one or more
members of the Patriot Group to, retain or assume and Patriot hereby agrees to pay,

5

 

perform,
fulfill and discharge, in due course in full: (i) all Liabilities under all Patriot Benefit
Plans; and (ii) any other Liabilities or obligations expressly assigned to Patriot or any of
its affiliates under this Agreement.

     (c) From time to time after the Distribution Date, Patriot shall promptly reimburse
PEC, upon PEC’s reasonable request and the presentation by PEC of such substantiating
documentation as Patriot shall reasonably request, for the cost of any obligations or
Liabilities satisfied or assumed by PEC or its affiliates that are, or that have been made
pursuant to this Agreement, the responsibility of Patriot or any of its affiliates. Except
as otherwise provided in this Agreement, any such request for reimbursement must be made by
PEC not later than the first anniversary of the Distribution Date.

     (d) From time to time after the Distribution Date, PEC shall promptly reimburse
Patriot, upon Patriot’s reasonable request and the presentation by Patriot of such
substantiating documentation as PEC shall reasonably request, for the cost of any
obligations or Liabilities satisfied or assumed by Patriot or its affiliates that are, or
that have been made pursuant to this Agreement, the responsibility of PEC or any of its
affiliates. Except as otherwise provided in this Agreement, any such request for
reimbursement must be made by Patriot not later than the first anniversary of the
Distribution Date.

     Section 2.2 Patriot Employee Participation in PEC Benefit Plans. Except as otherwise
expressly provided for in this Agreement or as otherwise expressly agreed to in writing between the
Parties, effective as of the Distribution Date (or a Patriot Employee’s later date of separation
from service with the PEC Group) each Patriot Employee and any other Patriot service provider
(including any individual who is an independent contractor, temporary employee, temporary service
worker, consultant, freelancer, agency employee, leased employee, on-call worker, incidental
worker, or non-payroll worker of any member of the Patriot Group or in any other employment,
non-employment, or retainer arrangement, or relationship with any member of the Patriot Group)
shall cease to participate in, be covered by, accrue benefits under, be eligible to contribute to
or have any rights (other than to benefits that have accrued and vested by the Distribution Date
or, if later, the Patriot Employee’s date of separation from service with the PEC Group) under any
PEC Benefit Plan, and PEC and Patriot shall take all necessary action to effectuate each such
cessation.

     Section 2.3 Service Credit. Except as otherwise expressly provided in this Agreement
or as otherwise expressly agreed to in writing between the Parties, Patriot (acting directly or
through its affiliates) shall cause the Patriot Service Plans to provide each PEC Employee who
becomes a Patriot Participant credit for purposes of eligibility, vesting, determination of benefit
levels, and, to the extent applicable, benefit accruals under the Patriot Service Plans for such
Patriot Participant’s service with any member of the PEC Group, in accordance with subsections (a)
and (b) below, to the same extent such service was recognized by the applicable PEC Service Plan;
provided that such service shall not be recognized to the extent that such
recognition would result in the duplication of benefits.

     (a) If a PEC Employee who participates in any of the PEC Service Plans (i) becomes
employed by a member of the Patriot Group within one (1) year after the Distribution Date
(or such later date as mutually agreed to by the Parties) (the “Service

6

 

Crediting
Date”), and (ii) such PEC Employee was continuously employed by the PEC Group from a
date before the Distribution Date until immediately before the date such PEC Employee
commences active employment with a member of the Patriot Group, then such PEC Employee’s
service with the PEC Group shall be recognized for purposes of eligibility, vesting and
level of benefits under the appropriate Patriot Service Plans, in each case to the same
extent as such PEC Employee’s service with the PEC Group was recognized under the
corresponding PEC Service Plans.

     (b) If a PEC Employee who participates in any of the PEC Service Plans becomes employed
by a member of the Patriot Group either (i) after the Service Crediting Date or (ii) without
having been continuously employed by the PEC Group from a date before the Distribution Date
until immediately before the date such PEC Employee commences active employment with a
member of the Patriot Group, then, except to the extent required by applicable Law, such
individual’s service with the PEC Group will not be recognized for any purpose under any
Patriot Service Plan.

     Section 2.4 Approval of Patriot Plans by PEC as Sole Shareholder. Effective before
the Distribution Date, Patriot shall adopt the Patriot Coal Corporation 2007 Long-Term Equity
Incentive Plan (the “Patriot Stock Plan”), which shall permit the issuance of long-term
incentive awards that have material terms and conditions substantially similar to the long-term
incentive awards issued under the Peabody Energy Corporation 2004 Long-Term Equity Incentive Plan.
The Patriot Stock Plan and the annual incentive plan adopted by Patriot in accordance with Section
6.1(b) of this Agreement shall be approved prior to the Distribution Date by a PEC affiliate as
Patriot’s sole shareholder.

ARTICLE 3

RETIREMENT PLANS

     Section 3.1 PEC and Patriot 401(k) Plans.

     (a) Patriot 401(k) Plan. Effective as of the Distribution Date, Patriot shall,
or shall cause one of its affiliates to, establish a defined contribution retirement plan
and trust for the benefit of Patriot Participants (the “Patriot 401(k) Plan”).
Patriot shall be responsible for taking all necessary, reasonable and appropriate action to
establish, maintain and administer the Patriot 401(k) Plan so that it is qualified under
Code Section 401(a) and the trust thereunder is exempt under Code Section 501(a). Patriot
(acting directly or through its affiliates) shall be responsible for any and all Liabilities
and other obligations with respect to the Patriot 401(k) Plan.

     (b) Transfer of PEC 401(k) Plan Assets. Not later than thirty (30) days after
the Distribution Date (or at such later time as mutually agreed in writing by the Parties),
PEC shall cause the accounts (including any outstanding loan balances and any employer
contribution accounts, vested or unvested) in the PEC 401(k) Plan attributable to Patriot
Participants who are employed as of the transfer date and all of the assets in the PEC
401(k) Plan related thereto to be transferred (based on the investments, including PEC Common Stock, in place on or as soon as administratively practicable before the
transfer date) to the Patriot 401(k) Plan, and Patriot shall cause the Patriot 401(k) Plan
to accept such transfer of accounts and underlying assets and, effective as of the date of such

7

 

transfer, to assume and to fully perform, pay and discharge all obligations of the PEC
401(k) Plan relating to the accounts of Patriot Participants as of the transfer date, to the
extent the assets related to those accounts are actually transferred from the PEC 401(k)
Plan to the Patriot 401(k) Plan. The transfer of assets shall be conducted in accordance
with Code Section 414(l), Treasury Regulation Section 1.414(1)-1, and ERISA Section 208.
The PEC 401(k) Plan accounts of individuals who become Patriot Participants after the
Distribution Date that are not transferred to the Patriot 401(k) Plan pursuant to the
procedure described above shall be governed by the regular terms of the PEC 401(k) Plan.

     (c) Continuation of Elections. As of the Distribution Date, Patriot (acting
directly or through its affiliates) shall cause the Patriot 401(k) Plan to recognize and
maintain PEC 401(k) Plan elections or designations, including participant deferral elections
(to the extent possible), investment elections, beneficiary designations, and the rights of
alternate payees under qualified domestic relations orders with respect to Patriot
Participants, to the extent such elections or designations are available under the Patriot
401(k) Plan and continued pursuant to procedures adopted under the Patriot 401(k) Plan.
With respect to Patriot Participant elections to invest in PEC Common Stock, the Patriot
401(k) Plan will invest new deferral amounts covered by such elections in the appropriate
default target retirement fund under the Patriot 401(k) Plan and Patriot Participants may
change the investment of such amounts in accordance with Patriot 401(k) Plan procedures.
The PEC Common Stock investment alternative shall remain available under the Patriot 401(k)
Plan for up to two years (as determined by the Patriot 401(k) Plan fiduciaries in their sole
discretion) only with respect to accounts transferred from the PEC 401(k) Plan as described
in paragraph (b) above and only to the extent that such accounts are invested in PEC Common
Stock at the time of the transfer. A Patriot Common Stock investment alternative may be
made available under the Patriot 401(k) Plan at a later date.

     (d) Form 5310-A. No later than thirty (30) days prior to the Distribution
Date, PEC shall, if necessary, file IRS Form 5310-A regarding the transfer of Assets and
Liabilities from the PEC 401(k) Plan to the Patriot 401(k) Plan as discussed in this Article
3.

     (e) Contributions through the Distribution Date; Performance Contributions.
All contributions payable to the PEC 401(k) Plan through the Distribution Date with respect
to employee deferrals and contributions for PEC Employees who become Patriot Employees as of
the Distribution Date, determined in accordance with the terms and provisions of the PEC
401(k) Plan, ERISA and the Code, shall be paid by PEC (or its affiliate) to the PEC 401(k)
Plan prior to the date of the asset transfer described in paragraph (b) above. With respect
to the performance contributions that could have been earned during calendar year 2007 by
PEC Employees (i) who become Patriot Employees in connection with the Distribution, (ii) for
whom the 2007 performance contribution liability resides with an entity that does not
operate the Patriot Business (as defined in the Separation Agreement), and (iii) who remain employed with
the Patriot Group on December 31, 2007, PEC shall determine, in accordance with regular plan
procedures, the performance contribution amount each such Patriot Employee could have
received

8

 

under the PEC 401(k) Plan, based on PEC’s performance and such individual’s
pro-rated PEC salary for the year, and shall remit that amount in cash to Patriot at the
same time performance contributions are deposited into the PEC 401(k) Plan. Patriot shall
deposit the corresponding amount into the Patriot 401(k) Plan account of the affected
Patriot Employee as soon as administratively feasible following receipt.

     The Patriot Group shall fund and deposit into the Patriot 401(k) Plan the 2007
performance contributions on behalf of PEC Employees who become Patriot Employees in
connection with the Distribution and for whom the performance contribution liability resides
with an entity that operates the Patriot Business (as listed in Exhibit A to the Separation
Agreement).

     Section 3.2 PEC and Patriot Supplemental Defined Contribution Plans.

     (a) PEC Supplemental Employee Retirement Account Plan. Following the
Distribution Date, the PEC Group shall retain all obligations and Liabilities under, or with
respect to, the Peabody Investments Corp. Supplemental Employee Retirement Account (the
“PEC SERA”). Any rights of Patriot Employees earned under the PEC SERA before the
Distribution Date or their later date of separation from service with the PEC Group shall
remain with the PEC SERA and shall be governed by the terms and conditions of the PEC SERA
documents. Individuals, including Patriot Employees, who separate from service with the PEC
Group become eligible for distribution of their benefits under the PEC SERA in accordance
with the plan terms and administrative procedures.

     (b) Patriot Supplemental Defined Contribution Plan. Effective on or about the
Distribution Date, Patriot shall, or shall cause one of its affiliates to, establish a
non-qualified defined contribution plan that is substantially comparable to the PEC SERA as
in effect immediately prior to the Distribution Date to benefit, on a prospective basis,
Patriot Participants who participated in the PEC SERA immediately prior to the Distribution
Date and other eligible Patriot Employees (the “Patriot Supplemental Defined
Contribution Plan”).

     Section 3.3 PEC Defined Benefit Retirement Plans. Following the Distribution Date,
the PEC Group shall retain all obligations and Liabilities under, or with respect to, any PEC or
PEC Group qualified or non-qualified defined benefit retirement plan. Any rights of Patriot
Employees earned under any such defined benefit retirement plan before the Distribution Date or
their later date of separation from service with the PEC Group shall remain with such defined
benefit retirement plan and shall be governed by the terms and conditions of the applicable plan
documents. Individuals, including Patriot Employees, who separate from service with the PEC Group
become eligible for distribution of their benefits under the PEC Group qualified and non-qualified
defined benefit retirement plans in accordance with the plan terms and administrative procedures.

     Section 3.4 PEC Notice to Patriot of Benefit Distributions. The PEC Group agrees to
notify the Patriot human resources department, unless otherwise prohibited by law, of benefit
distribution elections submitted by Patriot Employees under the PEC SERA or a PEC Group

9

 

qualified
or non-qualified defined benefit retirement plan within sixty (60) days after the PEC Group
receives such elections.

ARTICLE 4

HEALTH AND WELFARE PLANS

     Section 4.1 Patriot Welfare Plans.

     (a) Establishment of Patriot Welfare Plans. Effective as of the Distribution
Date, Patriot shall, or shall cause a Patriot affiliate to, establish health and welfare
benefit plans for the benefit of eligible Patriot Participants (the “Patriot Welfare
Plans”), the terms of which are substantially comparable to the applicable terms of the
PEC health and welfare benefit plans as in effect immediately prior to the Distribution Date
(the “PEC Welfare Plans”).

     (b) Terms of Participation in Patriot Welfare Plans. Patriot (acting directly
or through its affiliates) shall cause all Patriot Welfare Plans to (i) waive all
limitations as to preexisting conditions, exclusions, and service conditions with respect to
participation and coverage requirements applicable to Patriot Participants, other than
limitations that were in effect with respect to participants as of the Distribution Date
under the PEC Welfare Plans, and (ii) waive any waiting period limitation or evidence of
insurability requirement that would otherwise be applicable to a Patriot Participant
following the Distribution Date to the extent such Patriot Participant had satisfied any
similar limitation under the analogous PEC Welfare Plan.

     Section 4.2 Reimbursement Account Plan.

     (a) Patriot Reimbursement Account Plan. Effective as of the Distribution Date,
Patriot shall, or shall cause a Patriot affiliate to, establish a health and dependent care
reimbursement account plan (the “Patriot Reimbursement Account Plan”) with features
that are comparable to those contained in the health and dependent care reimbursement
account plan maintained by PEC (or its affiliate) immediately prior to the Distribution Date
(the “PEC Reimbursement Account Plan”). The account balance under the PEC
Reimbursement Account Plan of any PEC Participant who transfers to employment with the
Patriot Group directly from employment with the PEC Group during the period beginning on the
Distribution Date and ending on the Service Crediting Date shall be transferred within a
reasonable period to the Patriot Reimbursement Account Plan on behalf of that participant
and shall thereafter be administered in accordance with the terms of the Patriot
Reimbursement Account Plan. If a PEC Participant whose health reimbursement account is
transferred to the Patriot Reimbursement Account Plan has received health reimbursements
that exceed the amount he or she has contributed to the health reimbursement account as of
the transfer date, Patriot (or its affiliate) shall collect that Patriot Employee’s payroll
contributions in accordance with the Patriot Reimbursement Account Plan procedures and remit
them on a monthly basis to PEC until PEC has recouped the total health reimbursements paid
to or for that PEC Participant under the PEC Reimbursement Account Plan for the year;
provided that such contributions and remittances will cease upon the Patriot Employee’s
cessation of participation in the Patriot Reimbursement Account Plan. The PEC

10

 

Reimbursement
Account Plan balance of any PEC Participant who transfers to employment with the Patriot
Group after the Service Crediting Date shall be handled in accordance with the terms and
procedures of the PEC Reimbursement Account Plan.

     PEC shall administer the Patriot Reimbursement Account Plan from the Distribution Date
through December 31, 2007 (including the claims run-out period following the end of the plan
year) and shall submit a monthly written invoice to Patriot detailing the reimbursement
claims and administrative fees incurred on Patriot’s behalf under the Patriot Reimbursement
Account Plan during that period. Patriot shall be liable for such amounts and shall pay
such invoices within thirty (30) business days after receipt. Patriot shall have the right,
at its own expense and upon reasonable notice to PEC, to audit, or to cause an inspection
body selected by Patriot and composed of members with appropriate professional
qualifications to audit, such invoices in a commercially reasonable manner during normal PEC
business hours, not more frequently than once each calendar quarter.

     (b) PEC Reimbursement Account Plan. PEC shall retain the Liability for
administering under the PEC Reimbursement Account Plan all reimbursement claims of PEC
Participants (including PEC Participants who participate in the PEC Reimbursement Account
Plan before becoming Patriot Employees) arising through and after the Distribution Date,
within the timeframes applicable under the plan terms.

     Section 4.3 Retiree Medical Benefits.

     (a) Patriot Retiree Medical Program. Effective on or about the Distribution
Date, Patriot shall, or shall cause one of its affiliates to, establish a retiree medical
program (the “Patriot Retiree Medical Program”) that is substantially comparable to
the retiree medical allowance arrangement maintained by PEC immediately prior to the
Distribution Date (the “PEC Retiree Medical Allowance”) to benefit, on a prospective
basis, Patriot Employees who participated in the PEC Retiree Medical Allowance prior to the
Distribution Date and other eligible Patriot Employees and certain retirees. Patriot shall
be responsible for all obligations and Liabilities under, or with respect to, the Patriot
Retiree Medical Program. The retiree medical allowance under the Patriot Retiree Medical
Program shall be based in part on service with the Patriot Group in accordance with
paragraphs (i) and (ii) below, as applicable.

     (i) Patriot Employees with No Accrued Benefit under the PEC Retiree Medical
Allowance. Patriot Employees who are eligible to participate in the Patriot
Retiree Medical Program and are not eligible for a retiree medical allowance under
the PEC Retiree Medical Allowance as of the Distribution Date or their later date of
separation from service with the PEC Group will receive credit under the Patriot
Retiree Medical Program for all of their service with the Patriot Group and the PEC
Group.

     (ii) Patriot Employees with Accrued Benefit under the PEC Retiree Medical
Allowance. Patriot Employees who are eligible for a retiree medical allowance
under the PEC Retiree Medical Allowance and are actively employed and not on
long-term disability leave as of the Distribution Date and Subsequent

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Patriot
Employees who are eligible for a retiree medical allowance under the PEC Retiree
Medical Allowance and are actively employed and not on long-term disability leave as
of their date of separation from service with the PEC Group will retain their
allowance accrued under the PEC Retiree Medical Allowance. Such employees will be
eligible to accrue an additional retiree medical allowance under the Patriot Retiree
Medical Program based on their service with the Patriot Group and will not be
required to satisfy the minimum years of service requirement under the Patriot
Retiree Medical Program. The Patriot Retiree Medical Program shall not recognize
the PEC Group service of any Patriot Employee or Subsequent Patriot Employee who
earned a benefit under the PEC Retiree Medical Allowance in such a manner that such
service recognition would result in duplication of the retiree medical allowance
benefits earned under the PEC Retiree Medical Allowance.

     For the avoidance of doubt, the Patriot Group shall be responsible for the retiree
medical allowances of individuals who are retired as of the Distribution Date and who, prior
to retirement, were employed by an entity that operates the Patriot Business (as listed in
Exhibit A to the Separation Agreement). The Patriot Group shall not be responsible for the
retiree medical allowances and healthcare benefits of former employees of Peabody Coal
Company, LLC under the Peabody Investments Corp. and Affiliates Welfare Benefit Plan that
are covered by the Salaried Employee Liabilities Assumption Agreement between the Parties
and certain of their affiliates.

     (b) PEC Retiree Medical Allowance. PEC shall retain all obligations and
Liabilities under, or with respect to, the PEC Retiree Medical Allowance for Patriot
Employees and Subsequent Patriot Employees covered by paragraph (a)(ii) above. Any rights
such Patriot Employees accrued under the PEC Retiree Medical Allowance before the
Distribution Date and rights such Subsequent Patriot Employees accrued under the PEC Retiree
Medical Allowance before their date of separation from service with the PEC Group shall
remain with the PEC Retiree Medical Allowance and shall be governed by the terms and
conditions of the PEC Retiree Medical Allowance arrangement.

     Section 4.4 COBRA and HIPAA. Effective as of the Distribution Date, Patriot (acting
directly or through its affiliates) shall assume, or shall cause the Patriot Welfare Plans to
assume, responsibility for compliance with the health care continuation coverage requirements of
COBRA with respect to Patriot Employees who, immediately prior to the Distribution Date, were
covered under a PEC Welfare Plan pursuant to COBRA. PEC (acting directly or through its
affiliates) shall be responsible for administering compliance with any certificate of creditable
coverage requirements of HIPAA or Medicare applicable to the PEC Welfare Plans with respect to
Patriot Employees incurred while they were participants in the PEC Welfare Plans. The Parties
hereto agree that neither the Distribution nor any transfers of employment directly from the PEC
Group to the Patriot Group that occur as of the Distribution Date shall constitute a COBRA
qualifying event for purposes of COBRA.

     Section 4.5 Liabilities.

     (a) Insured Benefits. With respect to employee welfare and fringe benefits
that are provided through the purchase of insurance, (i) PEC (acting directly or through

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its
affiliates) shall cause the PEC Welfare Plans, through the appropriate insurers, to fully
perform, pay and discharge, within the timeframes applicable under the relevant plan, all
claims that are incurred under the PEC Welfare Plans through and after the Distribution
Date, and (ii) Patriot (acting directly or through its affiliates) shall cause the Patriot
Welfare Plans, through the appropriate insurers, to fully perform, pay and discharge, within
the timeframes applicable under the relevant plan, all claims that are incurred under the
Patriot Welfare Plans from and after the Distribution Date.

     (b) Self-Insured Benefits. With respect to employee welfare and fringe
benefits that are provided on a self-insured basis, (i) PEC (acting directly or through its
affiliates) shall fully perform, pay and discharge, within the timeframes applicable under
the relevant PEC Welfare Plans, all claims that are incurred under the PEC Welfare Plans
through and after the Distribution Date, and (ii) Patriot (acting directly or through its
affiliates) shall fully perform, pay and discharge, within the timeframes applicable under
the relevant Patriot Welfare Plans, all claims that are incurred under the Patriot Welfare
Plans from and after the Distribution Date.

     (c) Invoices. PEC shall administer the Patriot Welfare Plans from the
Distribution Date through December 31, 2007 (including the claims run-out period following
the end of the plan year) and shall submit a monthly written invoice to Patriot detailing
the self-insured health and welfare benefit claims, insured benefit premiums and
administrative fees incurred on Patriot’s behalf under the Patriot Welfare Plans during that
period. Patriot shall be liable for such amounts and shall pay such invoices within thirty
(30) business days after receipt. Patriot shall have the right, at its own expense and upon
reasonable notice to PEC, to audit, or to cause an inspection body selected by Patriot and
composed of members with appropriate professional qualifications to audit, such invoices in
a commercially reasonable manner during normal PEC business hours, not more frequently than
once each calendar quarter.

     (d) Incurred Claim Definition. For purposes of this Section 4.5, a claim or
Liability is deemed to be incurred (i) with respect to medical, dental, vision and/or
prescription drug benefits, upon the rendering of health services giving rise to such claim
or Liability; (ii) with respect to disability benefits, upon the date of an individual’s
disability, as determined by the disability benefit insurance carrier or claim
administrator, giving rise to such claim or Liability; and (iii) with respect to a period of
continuous hospitalization, upon the date of admission to the hospital.

     Section 4.6 Vacation and Other Time-Off Benefits. Patriot (or its affiliate) shall
credit each individual who becomes a Patriot Employee as of the Distribution Date and each
Subsequent Patriot Employee with the amount of accrued but unused vacation time (including banked
vacation time) and other time-off benefits as such Patriot Employee or Subsequent Patriot Employee
had with the PEC Group as of the Distribution Date or, if later, his or her date of transfer from
the PEC Group to the Patriot Group. The Patriot Employees and Subsequent Patriot Employees for
whom Patriot (or its affiliate) provides vacation and other time-off credits as described above shall not have a right to a cash payment for their accrued but unused
vacation time (including banked vacation time) or other time-off benefits upon their transfer from
the PEC Group to the Patriot Group as a result of the Distribution.

13

 

     Notwithstanding the foregoing, Patriot (or its affiliate) shall not be required to credit any
Patriot Employee or Subsequent Patriot Employee with any vacation or time-off accrual to the extent
that a benefit attributable to such accrual is retained and provided by the PEC Group. The accrued
but unused vacation time (including banked vacation time) and other time-off benefits of PEC
Employees who become Patriot Employees after the Service Crediting Date shall be handled in
accordance with the terms and procedures of the PEC vacation and time-off benefits plans and
policies.

ARTICLE 5

LONG-TERM INCENTIVE AWARDS

     Section 5.1 Treatment of Outstanding PEC Options.

     (a) Adjustment of All PEC Options. Except as otherwise provided herein or
otherwise agreed in writing by the Parties, each PEC Option that is outstanding immediately
prior to the Distribution Date shall, as of the PEC ex-dividend date, be converted into an
adjusted PEC Option (an “Adjusted PEC Option”) based on a formula determined by the
PEC Compensation Committee in accordance with the pertinent terms of the applicable PEC
Stock Plan and described in Exhibit A attached hereto. Such adjustment may involve an
adjustment of the PEC Option exercise price, the number of underlying shares, and/or other
adjustments permitted by the applicable PEC Stock Plan.

     (b) Adjusted PEC Options of Patriot Employees. Adjusted PEC Options held by
Patriot Employees who are not Patriot Senior Management Employees that have not been
exercised or forfeited shall remain in effect and continue to vest following the
Distribution Date based on the optionee’s service with the Patriot Group. An Adjusted PEC
Option shall remain subject to the terms and conditions (including the exercise provisions)
of the underlying PEC Option as in effect immediately prior to the Distribution Date,
subject to amendments to the PEC Stock Plan and/or the applicable award agreement.

     (c) PEC Options of Patriot Senior Management Employees.

     (i) Options Granted before 2006 and Scheduled to Vest on or Before January
3, 2008. Adjusted PEC Options held by a Patriot Senior Management Employee that
were granted before January 1, 2006, are scheduled to vest on or before January 3,
2008 and have not been forfeited by the Distribution Date shall continue to vest
based on the optionee’s service with the Patriot Group through the earlier of his or
her date of termination from Patriot or January 3, 2008. The Patriot Senior
Management Employee shall have six (6) months after the earlier of January 3, 2008
or his or her date of termination from the Patriot Group to exercise the vested
portion of his or her Adjusted PEC Options in accordance with the terms of the
applicable plan and option agreement. An Adjusted PEC Option shall remain subject
to the terms and conditions of the underlying PEC Option as in effect immediately prior to the Distribution Date, including any Detrimental
Conduct Provisions and terms relating to post-termination exercise periods provided
for in any option holder’s employment agreement, subject to amendments to the PEC
Stock Plan and/or the applicable award agreement.

14

 

     (ii) Options Granted before 2006 and Scheduled to Vest After January 3,
2008. Adjusted PEC Options held by a Patriot Senior Management Employee that
were granted before January 1, 2006, are scheduled to vest after January 3, 2008 and
have not been forfeited by the Distribution Date shall vest in full immediately
prior to the Distribution and shall be converted to a dollar value, determined by
subtracting the exercise price from the closing price of the PEC Common Stock on the
Distribution Date, and that value will be distributed to the Patriot Senior
Management Employee as soon as practicable on or after the Distribution Date in the
form of registered shares of PEC Common Stock based on the closing price of PEC
Common Stock on the Distribution Date.

     (iii) Options Granted During 2006 or 2007. PEC Options held by a
Patriot Senior Management Employee that were granted during 2006 or 2007 and have
not been exercised or forfeited by the Distribution Date shall continue pursuant to
the terms of PEC Option agreements.

     (d) Amendment of PEC Stock Plans. Prior to the Distribution Date, PEC shall
amend the applicable PEC Stock Plans as necessary, effective as of the Distribution Date, to
provide that for purposes of the Adjusted PEC Options (including the determination of
exercisability and the post-termination exercise period), a Patriot Employee’s service with
the Patriot Group following the Distribution Date shall be deemed to be continued service
with PEC.

     (e) Exercise of Adjusted PEC Options. Upon the exercise of an Adjusted PEC
Option, regardless of the holder thereof, the exercise price shall be paid (or otherwise
satisfied to the satisfaction of PEC) in accordance with the terms of the Adjusted PEC
Option. PEC shall administer the applicable PEC Stock Plan and award agreement in
accordance with their terms and, to the extent that any tax withholding or reporting is
required, PEC shall collect the withholding amount and remit it and the pertinent
information to the entity with the withholding and reporting obligation.

     Section 5.2 Treatment of Outstanding PEC Restricted Stock.

     (a) Rights of All PEC Restricted Stock Awards. Each holder of PEC Restricted
Shares that remain outstanding on the Record Date shall receive, as of the Distribution
Date, the dividend paid in connection with the Distribution with respect to his or her PEC
Restricted Shares in accordance with the terms of the applicable plan and award agreement
and on the same basis as other PEC shareholders.

     (b) PEC Restricted Shares of Patriot Employees. PEC Restricted Shares held by
Patriot Employees who are not Patriot Senior Management Employees that have not been
forfeited by the Distribution Date shall remain in effect and continue to vest following the
Distribution Date based on the holder’s service with the Patriot Group. The PEC Restricted Shares shall remain subject to the terms and conditions of the
underlying PEC Restricted Shares award as in effect immediately prior to the Distribution
Date, subject to amendments to the PEC Stock Plan and/or the applicable award agreement.

15

 

     (c) PEC Restricted Shares of Patriot Senior Management Employees. 

     (i) PEC Restricted Shares Scheduled to Vest on or Before January 3,
2008. PEC Restricted Shares held by Patriot Senior Management Employees that
have not been forfeited by the Distribution Date shall remain in effect and continue
to vest based on the holder’s service with the Patriot Group through the earlier of
his or her date of termination from Patriot or January 3, 2008. The PEC Restricted
Shares shall remain subject to the terms and conditions of the underlying PEC
Restricted Shares award as in effect immediately prior to the Distribution Date,
including any Detrimental Conduct Provisions provided for in any holder’s employment
agreement, subject to amendments to the PEC Stock Plan and/or the applicable award
agreement.

     (ii) Restricted Shares Scheduled to Vest After January 3, 2008. PEC
Restricted Shares held by Patriot Senior Management Employees that are scheduled to
vest later than January 3, 2008 and have not been forfeited by the Distribution Date
shall become fully vested immediately prior to the Distribution and shall be
distributed to the Patriot Senior Management Employees in the form of registered
            shares of PEC Common Stock as soon as practicable on or after the Distribution Date.

     (d) Amendment of PEC Stock Plans. Prior to the Distribution Date, PEC shall
amend the applicable PEC Stock Plans as necessary, effective as of the Distribution Date, to
provide that for purposes of continued vesting of PEC Restricted Shares, a Patriot
Employee’s service with the Patriot Group following the Distribution Date shall be deemed to
be continued service with PEC

     (e) Settlement of PEC Restricted Stock Awards. Upon the vesting of PEC
Restricted Shares, PEC shall be responsible for the settlement of such PEC Restricted
Shares. PEC shall administer the applicable PEC Stock Plan and award agreement in
accordance with their terms and, to the extent that any tax withholding or reporting is
required, PEC shall collect the withholding amount and remit it and the pertinent
information to the entity with the withholding and reporting obligation.

     (f) Grant of Restricted Stock. The Executive Vice President and Chief
Marketing Officer of PEC and the Group Vice President of Eastern Operations of PEC shall be
entitled to a grant of shares of restricted PEC Stock as soon as practicable following the
approval of this Employee Matters Agreement, but in no event any later than the Distribution
Date. Such shares of restricted PEC stock shall be subject to a substantial risk of
forfeiture and transfer restrictions which shall lapse if and when both the Executive Vice
President and Chief Marketing Officer of PEC and the Group Vice President of Eastern
Operations of PEC terminate their employment with PEC and immediately commence employment
with Patriot as the Chief Executive Officer of Patriot and the Chief Operating Officer of
Patriot respectively. Such shares of restricted PEC Stock shall be forfeited on December 31, 2007 if such termination of employment
with PEC and commencement of employment with Patriot does not occur prior to such date.

16

 

     Section 5.3 Treatment of Outstanding PEC Performance Units Awards.

     (a) Adjustment of all PEC Performance Unit Awards. Each PEC Performance Unit
that is outstanding immediately prior to the Distribution Date shall be converted, as of the
PEC ex-dividend date, into an adjusted PEC Performance Unit (an “Adjusted PEC
Performance Unit”) based on a formula determined by the PEC Compensation Committee in
accordance with the pertinent terms of the applicable PEC Stock Plan and described in
Exhibit A attached hereto. Such adjustment may involve an adjustment in the number of
underlying shares and/or other adjustments permitted by the applicable PEC Stock Plan.

     (b) Adjusted PEC Performance Units of Patriot Senior Management Employees.

     (i) Adjusted PEC Performance Units Scheduled to Vest on or Before December
31, 2007. Adjusted PEC Performance Units held by Patriot Senior Management
Employees that have not been forfeited by the Distribution Date shall remain in
effect and continue to vest based on the holder’s service with the Patriot Group
through the earlier of his or her date of termination from Patriot or December 31,
2007. The Adjusted PEC Performance Units shall remain subject to the terms and
conditions of the underlying PEC Performance Units award as in effect immediately
prior to the Distribution Date, including any Detrimental Conduct Provisions
provided for in the holder’s employment agreement.

     (ii) Adjusted PEC Performance Units Scheduled to Vest After December 31,
2007. Adjusted PEC Performance Units held by a Patriot Senior Management
Employee that are scheduled to vest after December 31, 2007 and have not been
forfeited by December 31, 2007 shall become payable at their full value (without
proration) based on PEC’s actual performance results as of December 31, 2007,
provided that the Patriot Senior Management Employee remains employed with Patriot
on December 31, 2007. PEC shall pay the value of such Adjusted PEC Performance
Units in the form of PEC Common Stock in accordance with regular PEC Stock Plan
administrative procedures as soon as practicable on or after December 31, 2007, but
no later than March 15, 2008. If a Patriot Senior Management Employee terminates
employment with Patriot before December 31, 2007, a pro rata portion of his or her
Adjusted PEC Performance Units may be payable based on the terms and conditions of
the underlying PEC Performance Units award. The Adjusted PEC Performance Units
shall remain subject to the terms and conditions of the underlying PEC Performance
Units award as in effect immediately prior to the Distribution Date, including any
Detrimental Conduct Provisions provided for in the holder’s employment agreement.

     (c) Amendment of PEC Stock Plans. Prior to the Distribution Date, PEC shall
amend the applicable PEC Stock Plans as necessary, effective as of the Distribution Date, to
provide that for purposes of continued vesting of the Adjusted PEC Performance Units, a
Patriot Employee’s service with the Patriot Group following the Distribution Date through
December 31, 2007 shall be deemed to be continued service with PEC.

17

 

     (d) Settlement of Adjusted PEC Performance Unit Awards. Upon the vesting and
payment of the Adjusted PEC Performance Units, PEC shall be responsible for the settlement
of all Adjusted PEC Performance Unit awards. PEC shall administer the applicable PEC Stock
Plan and award agreement in accordance with their terms and, to the extent that any tax
withholding or reporting is required, PEC shall collect the withholding amount and remit it
and the pertinent information to the entity with the withholding and reporting obligation.

     Section 5.4 PEC ESPP. A PEC Participant who (a) is contributing to the PEC ESPP for
the offering period in effect on the Distribution Date and (b) terminates employment with PEC and
transfers directly to employment with Patriot in connection with the Distribution shall be
permitted to purchase shares during that offering period with the cash credited to his or her PEC
ESPP option account as of his or her employment termination date, provided that
such PEC Participant’s employment termination date and transfer to Patriot occurs within three (3)
months before the end of the PEC ESPP offering period. If the employment termination and Patriot
transfer date is more than three (3) months before the end of the PEC ESPP offering period, the PEC
Participant shall not be permitted to purchase shares during the offering period in effect on the
Distribution Date and his or her contributions will be refunded in accordance with the terms of the
PEC ESPP. The payroll deductions of PEC Participants covered by this provision shall continue
through the last day on which such individuals are on the PEC payroll. PEC shall amend the PEC
ESPP on or before the Distribution Date to facilitate the share purchase described in the first
sentence of this section. The PEC ESPP otherwise shall operate in accordance with its current
terms, including, among other provisions, the 18-month stock holding period requirement.

     Section 5.5 Cooperation. Each of the Parties shall establish an appropriate
administration system to handle, in an orderly manner, exercises of Adjusted PEC Options and the
settlement of PEC Restricted Shares and Adjusted PEC Performance Units. The Parties will work
together to unify and consolidate all indicative data and payroll and employment information on
regular timetables and make certain that each applicable entity’s data and records in respect of
such awards are correct and updated on a timely basis. The foregoing shall include employment
status and information required for tax withholding/remittance, compliance with trading windows and
compliance with the requirements of the Exchange Act and other applicable Laws. In addition, the
Patriot Group agrees to notify the PEC human resources department of the termination of employment
of any Patriot Employee who previously was a PEC Employee and participated in a PEC Stock Plan as
soon as administratively feasible after such individual’s separation from service with the Patriot
Group.

     Section 5.6 SEC Registration. The Parties mutually agree to use commercially reasonable efforts to maintain effective
registration statements with the SEC with respect to the long-term incentive awards described in
this Article 5, to the extent any such registration statement is required by applicable Law. To
the extent that a registration requirement applies to a PEC Stock Plan, PEC shall be responsible
for SEC rule compliance. To the extent that a registration requirement applies to a Patriot Stock
Plan on or after the Distribution Date, Patriot shall be responsible for SEC rule compliance.

18

 

     Section 5.7 Savings Clause. The Parties hereby acknowledge that the provisions of this Article 5 are intended to
achieve certain tax, legal and accounting objectives and, in the event such objectives are not
achieved, the Parties agree to negotiate in good faith regarding such other actions that may be
necessary or appropriate to achieve such objectives.

ARTICLE 6

ADDITIONAL COMPENSATION MATTERS

     Section 6.1 Annual Incentive Awards.

     (a) PEC Employees who become Patriot Employees in connection with the Distribution
shall receive their annual incentive awards for the full 2007 calendar year, calculated as
described below.

     (i) Patriot Senior Management Employees. With respect to Patriot
Senior Management Employees, sixty percent (60%) of the annual incentive shall be
nondiscretionary and based on PEC’s performance in accordance with the terms of the
PEC annual incentive plan (using PEC’s twelve-month results) and forty percent (40%)
of the annual incentive will be discretionary and based on the Patriot Senior
Management Employee’s efforts related to the Distribution in accordance with
criteria established by the Patriot Board of Directors or the Compensation Committee
thereof. The annual incentive awards will be calculated and paid, in accordance
with paragraph (b) below and the existing guidelines used by PEC to calculate and
pay such bonuses, as soon as practicable on or after December 31, 2007, but no later
than March 15, 2008.

     (ii) Other Patriot Employees. With respect to Patriot Employees who
are not Patriot Senior Management Employees, the annual incentive shall be
determined based in part on the portion of the 2007 calendar year the Patriot
Employee is employed with the PEC Group and in part on the portion of the 2007
calendar year the Patriot Employee is employed with the Patriot Group. The portion
of the annual incentive attributable to employment with the PEC Group shall be based
on PEC’s performance (using PEC’s twelve-month results) and the terms of the PEC
annual incentive plan and shall be prorated to correspond with the period of 2007
employment with the PEC Group. The portion of the annual incentive attributable to
employment with the Patriot Group shall be based on criteria established by the
Patriot Board of Directors or the Compensation Committee thereof and shall be
prorated to correspond with the period of 2007 employment with the Patriot Group.
The annual incentive awards will be calculated and paid, in accordance with
paragraph (b) below and the existing guidelines used by PEC to calculate and pay
such bonuses, as soon as practicable on or after December 31, 2007, but no later
than March 15, 2008.

     (b) Annual Incentive Liability. Except as otherwise provided in this Section
6.1, PEC shall retain responsibility for all Liabilities and fully perform, pay and
discharge all obligations, when such obligations become due, relating to any 2007 annual
incentive awards under any PEC annual incentive plan. To the extent that any such obligations
relate to PEC Employees who become Patriot Employees in connection with the

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Distribution and for whom the 2007 annual incentive award liability resides with an
entity that does not operate the Patriot Business (as defined in the Separation Agreement),
(i) the PEC Group shall pay to the applicable Patriot Employees the portion of their 2007
annual incentive, if any, that corresponds with their period of employment with the PEC
Group during the 2007 calendar year, and (ii) Patriot shall pay the portion of their 2007
annual incentive, if any, that corresponds with their period of employment with the Patriot
Group during the 2007 calendar year.

     The Patriot Group shall be responsible for and pay the 2007 annual incentive awards of
PEC Employees who become Patriot Employees in connection with the Distribution and for whom
the 2007 annual incentive award liability resides with an entity that operates the Patriot
Business (as listed in Exhibit A to the Separation Agreement).

     (c) Establishment of Patriot Annual Incentive Plan. Effective on or before
January 1, 2008, Patriot (or its affiliate) shall adopt an annual incentive plan that
permits the issuance of annual incentive awards on terms and conditions substantially
comparable to those under the PEC annual incentive plan, provided that the payment amounts
and individual performance criteria shall be established in the discretion of the Patriot
Board of Directors or the Compensation Committee thereof.

     Section 6.2 PEC Individual Arrangements. PEC acknowledges and agrees that, except as
otherwise provided herein, PEC (or its affiliate) shall have full responsibility with respect to
any Liabilities and the payment or performance of any obligations arising out of or relating to any
employment, consulting, non-competition, retention or other compensatory arrangement previously
provided by any member of the PEC Group to any PEC Participant, including life insurance policies
not held in any trust and covering any PEC Participant.

     Section 6.3 Severance Benefits. PEC and Patriot acknowledge and agree that the
transactions contemplated by the Separation Agreement will not constitute a termination of
employment for purposes of any policy, plan, program or agreement of PEC or any member of the PEC
Group that provides for the payment of severance, separation pay, salary continuation or similar
benefits in the event of a termination of employment.

     Section 6.4 Benefit Administration. In addition to the benefit plans and other
programs PEC (or its affiliate) is to administer on Patriot’s behalf in accordance with this
Agreement, PEC (or its affiliate) shall administer such other programs as agreed upon and
identified in writing by the Parties for the benefit of Patriot Employees from the Distribution
Date through December 31, 2007.

     Section 6.5 Tax Matters.

     (a) Tax Deductions in General. The Parties agree to take the actions that are
necessary or desirable to enable the Party responsible for any payment under this Agreement
to receive, to the extent possible, the benefit of any tax deduction related to such payment. If the Patriot Group receives a tax benefit as a result of any payment
or benefit funded by the PEC Group under this Agreement, the Patriot Group shall

20

 

reimburse the PEC Group for that tax benefit at the time and to the extent that such
tax benefit is realized.

     (b) Equity-Based Compensation Deductions. The Parties agree that, to the
extent permitted by law, tax deductions for equity-based compensation described in Sections
5.1, 5.2, and 5.3 shall be allocated to and claimed by the entity or entities that employed
the individual receiving the compensation during the relevant vesting period based on the
number of months of such individual’s employment with such entity or entities. Tax
withholding and reporting obligations will be the responsibility of the entity claiming the
deduction. To the extent deductions cannot be claimed in this manner or are disallowed or
adjusted on audit, the entity that receives the tax benefit shall reimburse the entity that
would have received such tax benefit pursuant to the preceding sentence as and when
realized. To the extent such reimbursement is treated as taxable income, the reimbursing
party shall gross-up the reimbursement amount for taxes.

     (c) Code Sections 162(m) and 409A. Notwithstanding anything in this Agreement
to the contrary (including the treatment of supplemental and deferred compensation plans,
outstanding long-term incentive awards and annual incentive awards as described herein), the
Parties agree to take the actions that are necessary or desirable to ensure that (a) a
federal income tax deduction for the payment of such supplemental or deferred compensation
or long-term incentive award, annual incentive award or other compensation is not limited by
reason of Code Section 162(m), and (b) the treatment of such supplemental or deferred
compensation or long-term incentive award, annual incentive award or other compensation does
not cause the imposition of a tax under Code Section 409A.

ARTICLE 7

INDEMNIFICATION

Any claim for indemnification under this Agreement shall be governed by, and be subject to, the
provisions of Article VI of the Separation Agreement, which provisions are hereby
incorporated by reference into this Agreement, and any references to “Agreement” in such
Article VI as incorporated herein shall be deemed to be references to this Agreement.

ARTICLE 8

GENERAL AND ADMINISTRATIVE

     Section 8.1 Sharing of Information. PEC and Patriot (acting directly or through their respective affiliates) shall provide to
the other and their respective agents and vendors all Information as the other may reasonably
request to enable the requesting Party to administer efficiently and accurately each of its Benefit
Plans and to determine the scope of, as well as fulfill, its obligations under this Agreement.
Such information shall, to the extent reasonably practicable, be provided in the format and at the
times and places requested, but in no event shall the Party providing such information be obligated
to incur any out-of-pocket expenses not reimbursed by the Party making such request or make such information available outside of its normal business hours and premises. Any information
shared or exchanged pursuant to this Agreement shall be subject to the confidentiality requirements
set forth in Section 13.04 of the Separation Agreement. The Parties also hereby agree to
enter into any business associate

21

 

agreements that may be required for the sharing of any Information pursuant to this Agreement
to comply with the requirements of HIPAA.

     Section 8.2 Reasonable Efforts/Cooperation. Each of the Parties hereto will use its commercially reasonable efforts to promptly take,
or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or
advisable under applicable Laws and regulations to consummate the transactions contemplated by this
Agreement, including adopting plans or plan amendments. Each of the Parties hereto shall cooperate
fully on any issue relating to the transactions contemplated by this Agreement for which the other
Party seeks a determination letter or private letter ruling from the IRS, an advisory opinion from
the DOL or any other filing, consent or approval with respect to or by a Governmental Entity.

     Section 8.3 Employer Rights. Nothing in this Agreement shall prohibit Patriot or any Patriot affiliate from amending,
modifying or terminating any Patriot Benefit Plan at any time within its sole discretion after the
Distribution Date. In addition, other than as provided in Article 3, Article 4, Article 5, or
Article 6, nothing in this Agreement shall prohibit PEC or any PEC affiliate from amending,
modifying or terminating any PEC Benefit Plan at any time within its sole discretion.

     Section 8.4 Effect on Employment. Except as expressly provided in this Agreement, the occurrence of the distribution alone
shall not cause any employee to be deemed to have incurred a termination of employment that
entitles such individual to the commencement of benefits under any of the PEC Benefit Plans.
Furthermore, nothing in this Agreement is intended to confer upon any employee or former employee
of PEC, Patriot or any of their respective affiliates any right to continued employment, or any
recall or similar rights to an individual on layoff or any type of approved leave.

     Section 8.5 Consent of Third Parties. If any provision of this Agreement depends on the consent of any third party and such
consent is withheld, the Parties shall use commercially reasonable efforts to implement the
applicable provisions of this Agreement to the fullest extent practicable. If any provision of
this Agreement cannot be implemented due to the failure of such third party to consent, the Parties
shall negotiate in good faith to implement the provision in a mutually satisfactory manner.

     Section 8.6 Access to Employees. Following the Distribution Date, PEC and Patriot shall, or shall cause their respective
affiliates to, make available to each other those of their employees who may reasonably be needed
in order to defend or prosecute any legal or administrative action (other than a legal action
between PEC and Patriot) to which any employee, director or Benefit Plan of the PEC Group or the
Patriot Group is a party and which relates to their respective Benefit Plans prior to the
Distribution Date. The Party to whom an employee is made available in accordance with this
Section 8.6 shall pay or reimburse the other Party for all reasonable expenses which may be
incurred by such employee in connection therewith, including all reasonable travel, lodging, and
meal expenses, but excluding any amount for such employee’s time spent in connection herewith.

     Section 8.7 Beneficiary Designation/Release of Information/Right to Reimbursement. To the extent permitted by applicable Law and except as otherwise provided for in this
Agreement, all beneficiary designations, authorizations for the release of information and rights

22

 

to reimbursement made by or relating to Patriot Employees under PEC Benefit Plans shall be
transferred to and be in full force and effect under the corresponding Patriot Benefit Plans until
such beneficiary designations, authorizations or rights are replaced or revoked by, or no longer
apply to, the relevant Patriot Employee.

     Section 8.8 Not a Change in Control. The Parties hereto acknowledge and agree that the transactions contemplated by the
Separation Agreement and this Agreement do not constitute a “change in control” for purposes of any
PEC Benefit Plan, PEC Stock Plan or Patriot Benefit Plan.

ARTICLE 9

MISCELLANEOUS

     Section 9.1 Effect if Distribution Does not Occur. Notwithstanding anything in this Agreement to the contrary, if the Separation Agreement is
not executed or if it terminates prior to the Effective Time, then all actions and events that are,
under this Agreement, to be taken or occur effective prior to, as of or following the Distribution
Date, or otherwise in connection with the distribution, shall not be taken or occur except to the
extent specifically agreed to in writing by PEC and Patriot and neither Party shall have any
Liability or further obligation to the other Party under this Agreement.

     Section 9.2 Relationship of Parties. Nothing in this Agreement shall be deemed or construed by the Parties or any third party as
creating the relationship of principal and agent, partnership or joint venture between the Parties,
it being understood and agreed that no provision contained herein, and no act of the Parties, shall
be deemed to create any relationship between the Parties other than the relationship set forth
herein.

     Section 9.3 Affiliates. Each of PEC and Patriot shall cause to be performed, and hereby guarantees the performance
of, all actions, agreements and obligations set forth in this Agreement to be performed by each of
their affiliates, respectively.

     Section 9.4 Notices. All notices and communications under this Agreement shall be in writing and shall be deemed
to have been given (a) when received, if such notice or communication is delivered by facsimile,
hand delivery or overnight courier, or (b) three (3) business days after mailing if such notice or
communication is sent by United States registered or certified mail, return receipt requested,
first class postage prepaid. All notices and communications, to be effective, must be properly
addressed to the party to whom they are directed at its address as follows:

To PEC:

Peabody Energy Corporation

701 Market Street

St. Louis, MO 63101

Attn: Alexander Schoch, Executive Vice President — Law

Facsimile: 314.342.3419

To Patriot:

23

 

Patriot Coal Corporation

12312 Olive Boulevard, Suite 400

St. Louis, MO 63141

Attn: Joseph W. Bean, Senior Vice President, General Counsel and
Corporate Secretary

Facsimile:

Either Party may, by written notice delivered to the other Party in accordance with this Section
9.4, change the address to which delivery of any notice shall thereafter be made.

     Section 9.5 Entire Agreement. This Agreement, the Separation Agreement, and each
other Ancillary Agreement, including any annexes, schedules and exhibits hereto and thereto, as
well as any other agreements and documents referred to herein and therein, shall constitute the
entire agreement between the Parties with respect to the subject matter hereof and shall supersede
all previous negotiations, commitments and writings with respect to such subject matter. In the
event of any inconsistency between this Agreement and any exhibit or schedule hereto, the exhibit
or schedule shall prevail.

     Section 9.6 Waivers. No waiver of any terms, provision or condition of or failure to exercise or delay in
exercising any rights or remedies under this Agreement, in any one or more instances, shall be
deemed to be, or construed as, a further or continuing waiver of any such term, provision,
condition, right or remedy or as a waiver of any other term, provision or condition of this
Agreement.

     Section 9.7 Amendments. Subject to the terms of Section 9.8 of this Agreement, this Agreement may not be modified
or amended except by an instrument in writing signed by both of the Parties.

     Section 9.8 Termination. If permitted by the Separation Agreement, this Agreement (including Article 7 hereof
(Indemnification)) may be terminated and abandoned at any time prior to the Distribution Date by
and in the sole discretion of PEC without the approval of Patriot or the shareholders of PEC, and
it shall be deemed terminated if and when the Separation Agreement is terminated. In the event of
such termination, neither Party shall have any liability of any kind to the other Party or any
other Person, except as may be provided in transition letters issued by PEC to Patriot Senior
Management Employees. After the Distribution Date, this Agreement may not be terminated except by
an agreement in writing signed by both Parties; provided, however, that Article 7 shall not be
terminated after the Distribution Date in respect of any PEC Indemnitee or Patriot Indemnitee
without the consent of such Person.

     Section 9.9 Governing Law. This Agreement shall be governed by and construed in accordance with the internal Laws of
the State of Delaware, without regard to the conflicts of law rules of such state).

     Section 9.10 Dispute Resolution. The dispute resolution provisions in Section 15.15 of the Separation Agreement
shall apply to this Agreement.

     Section 9.11 Titles and Headings. Titles and headings to sections herein are inserted for the convenience of reference only
and are not intended to be a part of or to affect the meaning or interpretation of this Agreement.

24

 

     Section 9.12 Counterparts. This Agreement may be executed in more than one counterpart, each of which shall be deemed
an original instrument and all of which together shall be considered one and the same agreement,
and shall become effective when one or more such counterparts have been signed by each of the
Parties and delivered to the other Parties.

     Section 9.13 Assignment. Neither of the Parties hereto may assign its rights or delegate any of its duties under this
Agreement without the prior written consent of the other Party or as otherwise provided in the
Separation Agreement. This Agreement shall be binding upon, and shall inure to the benefit of, the
Parties and their respective successors and permitted assigns. Nothing contained in this
Agreement, express or implied, is intended to confer any benefits, rights or remedies upon any
Person other than members of the PEC Group and the Patriot Group.

     Section 9.14 Severability. In the event that any one or more of the provisions contained in this Agreement is held
invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in any way be affected or impaired
thereby. The Parties shall endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions, the economic effect of which comes as close as
possible to that of the invalid, illegal or unenforceable provisions.

     Section 9.15 Exhibits and Schedules. The Exhibits and Schedules shall be construed with and as an integral part of this
Agreement to the same extent as if the same had been set forth verbatim herein.

     Section 9.16 Specific Performance. The Parties agree that irreparable damage would occur in the event that the provisions of
this Agreement were not performed in accordance with their specific terms. Accordingly, it is
hereby agreed that the Parties shall be entitled to (a) an injunction or injunctions to enforce
specifically the terms and provisions hereof in any arbitration in accordance with Section 9.10 of
this Agreement, (b) provisional or temporary injunctive relief in accordance therewith in any court
of the United States, and (c) enforcement of any such award of an arbitral tribunal or any court of
the United States, or any other any other tribunal sitting in any state of the United States or in
any foreign country that has jurisdiction, this being in addition to any other remedy or relief to
which they may be entitled.

     Section 9.17 Waiver of Jury Trial. SUBJECT TO SECTION 9.10 AND SECTION 9.16 OF THIS AGREEMENT, EACH OF THE PARTIES HEREBY
WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY
WITH RESPECT TO ANY COURT PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF AND PERMITTED UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT. EACH OF THE PARTIES HEREBY (a) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF
ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (b) ACKNOWLEDGES THAT IT HAS BEEN
INDUCED TO ENTER INTO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, AS
APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.17.

25

 

     Section 9.18 Authorization. Each of the Parties hereby represents and warrants that it has the power and authority to
execute, deliver and perform this Agreement, that this Agreement has been duly authorized by all
necessary corporate action on the part of such Party, that this Agreement constitutes a legal,
valid and binding obligation of each such Party and that the execution, delivery and performance of
this Agreement by such Party does not contravene or conflict with any provision of law or of its
charter or bylaws or any material agreement, instrument or order binding on such Party.

     Section 9.19 No Third-Party Beneficiaries. This Agreement is solely for the benefit of the Parties and should not be deemed to confer
upon third parties any remedy, claim, liability, reimbursement, cause of action or other right in
excess of those existing without reference to this Agreement.

     Section 9.20 Construction. The Parties have participated jointly in the negotiation and drafting of this Agreement.
This Agreement shall be construed without regard to any presumption or rule requiring construction
or interpretation against the party drafting or causing any instrument to be drafted.

[SIGNATURE PAGE FOLLOWS]

26

 

     IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed as of the day
and year first above written.

	 	 	 	 	 
	 	PEABODY ENERGY CORPORATION

 	 
	 	By:  	/s/ Sharon D. Fiehler
 	 
	 	 	Name:  	Sharon D. Fiehler 	 
	 	 	Title:  	Executive Vice President -- Human Resources and
Administration 	 
	 
	 	PATRIOT COAL CORPORATION

 	 
	 	By:  	/s/ Richard M. Whiting
 	 
	 	 	Name:  	Richard M. Whiting 	 
	 	 	Title:  	President and Chief Executive Officer 	 

27

 

	 	 	 	 	 

EXHIBIT A

ADJUSTMENT METHODOLOGY

Example of Methodology for Adjusting PEC Equity-Based Compensation Awards

in Connection with the Distribution

Certain adjustment factors will not be determinable until the PEC ex-dividend date, so the
following example illustrates the methodology to be used to adjust PEC equity-based compensation
awards in connection with the Distribution.

     Example of a Stock Options Adjustment:

Employee A holds an option to purchase 1,000 shares of PEC Common Stock at a strike
price of $3.00 per share. If the pre-Distribution value of PEC Common Stock is $40
per share, Employee A’s option has a pre-Distribution intrinsic value of $37,000.

	 	 	 	 	 
	A — Number of outstanding PEC options for Employee A
	 	 	1,000	 
	B — PEC option strike price
	 	$	3.00	 
	C — Price of PEC Common Stock immediately before Distribution
	 	$	40.00	 
	D — Intrinsic value of PEC options immediately before Distribution
[(A * C) — (A * B)]
	 	$	37,000	 

     Following the Distribution, PEC Common Stock is worth $36.00 per share.

#1 Adjustment of the Strike Price Post-Distribution: The adjusted strike price is
determined by multiplying the Ratio (shown below in E) by the price of the PEC
Common Stock post-Distribution which equals an adjusted strike price of $2.70. The
intrinsic value following the adjustment of the strike price is $33,300, which
leaves an intrinsic value shortfall of $3,700.

	 	 	 	 	 
	E — Ratio of PEC option strike price to pre-Distribution value of
PEC Common Stock
	 	 	0.075	 
	F —  Price of PEC Common Stock immediately after Distribution
	 	$	36.00	 
	G — Post-Distribution PEC option strike price
(D * E)
	 	$	2.70	 
	H —  Intrinsic value of PEC options immediately after Distribution
[(A * F) — (A * G)]
	 	$	33,300	 
	I — Intrinsic value shortfall
(D — H)
	 	$	3,700	 

#2 Adjustment of the Number of Stock Options Post Distribution: The adjusted number
of options is determined by taking the original number of options and adding an
additional number of options to them determined by dividing the intrinsic value
shortfall by the difference between the value of the post-

 

 

Distribution PEC Common Stock and the adjusted strike price (this formula is shown
below in J).

The intrinsic value following the adjustment of the strike price and the number of
options should equal the same intrinsic value of the options post-Distribution as
the options had pre-Distribution. The intrinsic value post-Distribution is
determined by taking the final number of options times the post-Distribution value
of PEC Common Stock minus the final number of options times the adjusted strike
price. Both before and after the distribution, the options have an intrinsic value
of $37,000.

	 	 	 	 	 
	J — Adjusted number of PEC options
[A + (I / (F — G))]

	 	 	1,111	 
	Intrinsic value of PEC options after Distribution
[(J * F) — (J * G)]

	 	$	37,000	 

 

 

     Example of Performance Units/Phantom Equity Adjustment:

Employee A holds 1,000 PEC performance units. If the pre-Distribution value of PEC
Common Stock is $40 per share, Employee A’s performance units have a pre-Distribution
intrinsic value of $40,000.

	 	 	 	 	 
	A — Number of outstanding PEC performance units for Employee A
	 	 	1,000	 
	B — Price of PEC Common Stock immediately before Distribution
	 	$	40.00	 
	C — Intrinsic value of PEC performance units immediately before
Distribution
(A * B)
	 	$	40,000	 

After the Distribution, PEC Common Stock is worth $36.00 which causes an intrinsic
value shortfall of $4,000 (as shown in E below).

To eliminate such shortfall, Employee A’s PEC performance units would be adjusted as
shown below by (i) dividing the intrinsic value shortfall, $4,000, by the
post-Distribution value of PEC Common stock, $36 per share, and adding the result to
the original number of outstanding PEC performance units. This calculation results
in a post-Distribution number of outstanding PEC performance units of 1,111. This
would result in a post-Distribution intrinsic value of $40,000, determined by
multiplying the adjusted number of PEC performance units by the value of the
post-Distribution Common Stock.

	 	 	 	 	 
	D — Price of PEC Common Stock immediately after Distribution
	 	$	36.00	 
	E — Intrinsic value shortfall [C — (A * D)]
	 	$	4,000	 
	F — Adjusted number of PEC performance units
[A + (E / D)]
	 	 	1,111	 
	Intrinsic value of PEC performance units after Distribution
(F * D)
	 	$	40,000exv10w4

 

Exhibit 10.4

Execution Version

COAL SUPPLY AGREEMENT

     This Coal Supply Agreement (this “Agreement”) is made and entered into as of October 22, 2007
(the “Execution Date”) by and between COALSALES II, LLC, FORMERLY KNOWN AS PEABODY COALSALES
COMPANY (hereinafter “COALSALES II”), and PATRIOT COAL SALES LLC, a Delaware limited liability
company (“Patriot”).

RECITALS:

	A.	 	COALSALES II currently purchases coal from one or more affiliates of Patriot for resale to
COALSALES II’s customers (each such customer, an “End Customer”; and each contract for the
sale of coal from COALSALES II to an End Customer, an “End Customer Contract”).
	 
	B.	 	Patriot operates one or more coal mines designated as
approved sources as set forth in the terms and conditions in Exhibit A attached hereto (such terms and conditions, the
“Exhibit A Terms”); and such mine(s) have supplied coal to COALSALES II to enable COALSALES II
to fulfill its supply obligations under the End Customer Contract(s).
	 
	C.	 	Immediately prior to the Effective Date (which, for purposes
hereof, shall be October 31, 2007, and, when relevant, 11:59 p.m. on such date) COALSALES II and Patriot were both indirect
subsidiaries of Peabody Energy Corporation. Commencing on or after the Effective Date, as a
result of a spin-off transaction, Patriot will no longer be an indirect subsidiary of Peabody
Energy Corporation.
	 
	D.	 	It is the intent of the parties to allow COALSALES II to continue to meet its obligations
under the End Customer Contract(s) with respect to Specification “A” coal by purchasing
Specification “A” coal from Patriot in accordance with the terms and conditions of this
Agreement.

AGREEMENT:

     NOW, THEREFORE, COALSALES II and Patriot agree as follows:

	1.	 	INCORPORATION OF EXHIBIT A TERMS

	 	1.1	 	Incorporation of Exhibit A Terms. It is the intent of the parties that, except
where expressly provided otherwise in the body this Agreement, the Exhibit A Terms
(including the rights, obligations and benefits of “Seller” and “Buyer” thereunder)
shall apply to Patriot as if Patriot were the named “Seller” thereunder, and to
COALSALES II as if COALSALES II were the named “Buyer” thereunder. Accordingly, the
Exhibit A Terms are hereby incorporated by reference into this Agreement, with the same
force and effect as if fully set forth herein, subject to the modifications thereto set
forth below.
	 
	 	1.2	 	No Assignment or Privity. For the avoidance of doubt, this Agreement does not
constitute a subcontract, delegation or assignment by COALSALES II of the End Customer
Contract(s), and there will be no privity of contract between End Customer(s) and
Patriot under or in respect of the End Customer Contract(s).

-1-

 

	 	1.3	 	Communications For Scheduling, Transportation, and Related Activities. Patriot
shall have the right, without obtaining the prior written consent of COALSALES II, to
communicate directly with End Customer for any purposes and/or activities which by
their nature require direct communication between Patriot and End Customer, such as
scheduling and transportation, but expressly excluding any communications that a
reasonable person would perceive as detrimental to COALSALES II’s interests under the
End Customer Contract(s) including, without limitation, communications relating to
pricing, amendments to the End Customer Contract(s), termination of the End Customer
Contract(s), or any material modifications to price, quality, or quantity terms.
Patriot shall promptly notify COALSALES II of all substantive communications exchanged
between Patriot and End Customer in relation to the End Customer Contract(s). Where End
Customer’s direct involvement is necessary to effectuate the scheduling and
transportation of the coal, Patriot shall be responsible for making the necessary
arrangements with End Customer to satisfy the obligations of COALSALES II under the End
Customer Contract(s) that address the specific performance obligations expected from
End Customer related to coal shipped to End Customer hereunder. Under no circumstances
shall COALSALES II be liable to Patriot for damages of any kind arising out of or
relating to End Customer’s failure to meet any of its obligations relating to the
scheduling and transportation of coal; provided, that if Patriot has any claims or
defenses arising under COALSALES II’s rights in connection with a failure of the End
Customer to satisfy its performance obligations under the End Customer Contract(s),
COALSALES II shall, subject to Section 1.6 hereof, use commercially reasonable efforts
to pursue all such rights and defenses on Patriot’s behalf or for the benefit of
Patriot.
	 
	 	1.4	 	Assumption of Rights, Remedies, Responsibilities and Obligations. In
furtherance of the foregoing, Patriot hereby assumes toward COALSALES II all
obligations and responsibilities that the “Seller” has toward the “Buyer” under the
Exhibit A Terms; and COALSALES II will have the benefit of all rights and remedies
against Patriot that the “Buyer” has against the “Seller” under the Exhibit A Terms, in
each case subject to the modifications set forth below. Likewise, except for certain
obligations for which End Customer may assume direct responsibility pursuant to
separate communications between Patriot and End Customer as set forth in Sections 1.3
and 4.3 hereof, COALSALES II hereby assumes toward Patriot all obligations and
responsibilities that the “Buyer” has toward the “Seller” under the Exhibit A Terms;
and Patriot will have the benefit of all rights and remedies against COALSALES II that
the “Seller” has against the “Buyer” under the Exhibit A Terms, in each case subject to
the modifications set forth below. For the sake of clarity, the Exhibit A Terms, as
modified by the body of this Agreement, will apply to Specification “A” coal that is resold by
COALSALES II.

-2-

 

	 	1.5	 	Conflicting Terms. If there is a conflict or inconsistency between a provision
of the Exhibit A Terms and a provision of the body of this Agreement, the provision of
the body of this Agreement will control.
	 
	 	1.6	 	Legal Proceedings. In addition to all other rights and remedies available under
this Agreement, including the Exhibit A Terms, the following shall apply:

	 	(a)	 	COALSALES II will use commercially reasonable efforts to defend
its rights against End Customer(s) under the End Customer Contract(s) and to
pursue all necessary legal action to enforce its rights against End Customer(s)
under the End Customer Contract(s); provided, however, that COALSALES II shall
have the right, in its sole discretion, to determine whether or not it will
pursue or defend a given legal action; and in the event COALSALES II determines
not to pursue or defend a given legal action, it shall notify Patriot of such
determination. COALSALES II agrees that in the course of defending or pursuing
its rights against End Customer(s) under the End Customer Contract(s) that it
will exercise commercially reasonable efforts to avoid taking any actions that
it knows or would reasonably be expected to know would be detrimental to
Patriot without first advising Patriot of such actions. Notwithstanding the
foregoing, nothing in this Section 1.6(a) will be construed to limit any right
that Patriot may have against COALSALES II under this Agreement as a result of
such action by, or inaction of, COALSALES II.
	 
	 	(b)	 	If the parties are co-defendants in any legal proceeding
arising out of the End Customer Contract(s), the parties agree to work together
in good faith and in the spirit of mutual cooperation to defend such action in
a manner beneficial to both parties, provided, that each party shall have the
right to engage counsel of its choosing, and will bear the costs of its own
legal defense.

	2.	 	COAL PREPAYMENT 2008-2011

	 	2.1	 	Monthly Prepayment; Prepayment Supply Period. As consideration for Patriot’s
entering in to this Agreement, subject to fulfillment by Patriot of its obligations
hereunder, and as additional consideration for coal deliveries to be made during the
period beginning January 1, 2008 and ending December 31, 2011 (the “Prepayment Supply
Period”), COALSALES II shall pay to Patriot forty eight (48) equal, monthly,
non-refundable payments in the amount of $1,041,666 (each a “Monthly Prepayment”),
beginning on December 20, 2007 and continuing through November 20, 2011. Each Monthly
Prepayment shall represent consideration for the coal deliveries made to COALSALES II
during the month of the Prepayment Supply Period immediately following the month in which such
Monthly Prepayment is due and payable. (By way of example, the Monthly Prepayment
made on December 20, 2007 shall represent consideration

-3-

 

	 	 	 	for the coal deliveries made during January, 2008 of the Prepayment Supply Period, and each Monthly Prepayment
thereafter shall likewise be applied as consideration for each consecutive month of
the Prepayment Supply Period). In the event no coal deliveries are made during a
given month of the Prepayment Supply Period, the Monthly Prepayment made with
respect to that month shall not be refunded, but shall be applied as additional
consideration for coal deliveries made during the following month of the Prepayment
Supply Period. The Monthly Prepayments shall entitle COALSALES II to a first
priority right for production for quantities to be delivered under this Agreement
from the sources and reserves of coal for Specification “A” coal shown on Exhibit 1
of the Exhibit A Terms, except, that if Patriot experiences an event of force
majeure, as that term is described in Article XII of the Exhibit A Terms, deliveries
shall be distributed in accordance with the terms of Article XII of the Exhibit A
Terms. For the avoidance of doubt, the Monthly Prepayment is in addition to, and
shall not serve as a reduction of, any amounts due and payable by COALSALES II under
Sections 4.7 and 4.8.
	 
	 	2.2	 	Taxes and Royalties. If at any point in time Patriot notifies COALSALES II in
writing that it is obligated to pay federal, state or local taxes (except for taxes on
Patriot’s income or property), or private royalties as a result of a Monthly Prepayment
received, then COALSALES II shall promptly reimburse Patriot for all such taxes or
royalties assessed against and actually paid by Patriot related to such Monthly
Prepayment.

	3.	 	GENERAL MODIFICATIONS TO EXHIBIT A TERMS
	 
	 	 	The purpose of this Agreement is to allow COALSALES II to continue to meet its obligations
under the End Customer Contract(s) with respect to Specification “A” coal by purchasing
Specification “A” coal from Patriot in accordance with the terms and conditions agreed to
hereunder. Accordingly, this Agreement will be construed and performed in furtherance of
such purpose notwithstanding that the parties may not have adequately modified the Exhibit A
Terms.
	 
	 	 	The following provisions of this Article 3 set forth general modifications to be made to,
and rules of construction to be applied to, the Exhibit A Terms.

	 	3.1	 	Notices and Information. To the extent certain provisions of the Exhibit A
Terms require that the “Buyer” or the “Seller” provide the other with notice within a
period of two (2) business days or less, for purposes of incorporating such requirement
into this Agreement, each party hereto shall use commercially reasonable efforts to
promptly relay such notice to the other party, taking into consideration the notice
requirement under the Exhibit A Terms. In all other situations under the Exhibit A
Terms requiring the “Buyer” to provide notice or information to the “Seller” within a
period of time greater than two (2) business days, for purposes of incorporating such requirement into this Agreement, such
period of time shall be extended by two (2) business days to account for the
possibility that End Customer(s) may not provide such notice or information to

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	 	 	 	COALSALES II under the End Customer Contract(s) until the end of the specified
period, provided, however, that upon receipt of any notice given by End Customer,
COALSALES II will use commercially reasonable efforts to promptly forward such
notice to Patriot. Likewise, except for any provisions under the Exhibit A Terms
requiring two (2) business days’ or less notice, whenever the Exhibit A Terms
require the “Seller” to provide notice or information to the “Buyer” within a
specified period of time, for purposes of incorporating such requirement into this
Agreement, such period of time shall be shortened by two (2) business days to enable
COALSALES II sufficient time to provide the same notice or information to End
Customer(s) under the End Customer Contract(s).
	 
	 	3.2	 	Confidentiality. To the extent that Patriot has possession or knowledge of the
terms of existing End Customer Contract(s), Patriot covenants that during the term of
this Agreement and continuing after termination of this Agreement until otherwise
permitted in writing by COALSALES II, it will hold the End Customer Contract(s) and the
information contained therein in strictest confidence and will protect the End Customer
Contract(s) from any unauthorized disclosure. Except as expressly provided for herein,
Patriot will not disclose to any third parties any information of any nature, specific
or general, pertaining to the End Customer Contract(s), and will only disclose such
information to those of its employees who have a need to know in order for Patriot to
perform its obligations hereunder. In the event Patriot has a legitimate business
and/or financial need to disclose the terms of the End Customer Contract(s) to a third
party, Patriot shall promptly notify COALSALES II of the circumstances necessitating
the need to disclose, and COALSALES II shall act in good faith and use commercially
reasonable efforts to obtain the End Customer’s written consent to Patriot’s disclosure
of the End Customer Contract(s) under those limited circumstances. The foregoing
notwithstanding, either party may disclose the terms of this Agreement to such party’s
lenders, counsel, accountants or prospective permitted purchasers, directly or
indirectly, of all or substantially all of such party’s assets or of any rights under
this Agreement, in each case who have agreed to keep such terms confidential, or in
order to comply with any applicable law, order, regulation or exchange rule; provided,
such party shall notify the other party of any proceeding of which it is aware which
may result in disclosure and use reasonable efforts to prevent or limit the disclosure.
	 
	 	3.3	 	Audit and Inspection Rights. Whenever the End Customer Contract(s) grants End
Customer(s) the right to conduct an audit or inspection of, or access to coal
production facilities, processes, books, records, or otherwise, End Customer(s) will be
entitled, as applicable, to enforce or exercise such audit, inspection and/or access
rights against Patriot. If COALSALES II has the right under an End Customer Contract to
conduct any inspections of an End Customer’s books, records, or premises, such right
does not directly pass through to Patriot under this Agreement; however, Patriot may
request such inspection rights from COALSALES II, and COALSALES II shall contact that End Customer and use commercially
reasonable efforts to obtain that End Customer’s consent to such request. In the
event End Customer refuses Patriot’s request to inspect,

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	 	 	 	COALSALES II shall be obligated to promptly conduct the inspection on Patriot’s behalf and at Patriot’s
sole expense, and shall report the results of such inspection to Patriot promptly
upon completion, provided, that disclosure of such results does not violate the
terms of confidentiality under the End Customer Contract(s). Notwithstanding the
foregoing, this Section 3.3 does not eliminate or modify COALSALES II’s audit,
inspection or access rights under the Exhibit A Terms with respect to Patriot or
Patriot’s facilities, processes, books or records.
	 
	 	3.4	 	Rejected Deliveries. If, pursuant to the Exhibit A Terms, COALSALES II
exercises its right to reject any non-conforming coal shipments or to suspend
deliveries, COALSALES II shall, subject to the notice provisions set forth in Section
3.1 hereof, notify Patriot. Patriot will, at its sole expense, take all necessary
measures to correct the conditions giving rise to the failure of the coal to conform to
specifications under the Exhibit A Terms, and will reimburse COALSALES II for any and
all costs and expenses incurred by COALSALES II as a result of Patriot’s shipment of
non-conforming coal. COALSALES II and Patriot will work together in good faith to
expeditiously resolve any disputes arising from non-conforming coal or suspended
shipments. If, however, an End Customer exercises its right to hold COALSALES II in
anticipatory breach of its End Customer Contract as a result of Patriot’s failure to
provide conforming coal pursuant to this Agreement, and not as a result of any action
or inaction of COALSALES II, Patriot shall indemnify COALSALES II in accordance with
the terms of Section 3.8 hereof for any damages arising on or after the Effective Date
hereof that are pursued by End Customer against COALSALES II by reason of such breach.
	 
	 	3.5	 	References to End Customer Contract(s). Notwithstanding anything in this
Agreement to the contrary, references herein to the End Customer Contract(s) shall not
expand Patriot’s liability to COALSALES II beyond the liability Patriot has to
COALSALES II according to the terms and conditions of this Agreement.
	 
	 	3.6	 	Assignment. Neither party shall assign this Agreement without the prior written
consent of the other party, which consent shall not be unreasonably withheld or
delayed. Notwithstanding the foregoing, either party may, without the need of consent
from the other party (and without relieving itself from liability hereunder), (a)
transfer, sell, pledge, encumber, or assign this Agreement or the account, revenues or
proceeds hereof in connection with any financing or other financial arrangement; (b)
transfer or assign this Agreement to an affiliate of such party; or (c) transfer or
assign this Agreement to any person or entity succeeding to all or substantially all of
the assets of such party by way of merger, reorganization, or otherwise, provided,
however, that in each such case, any such assignee shall agree in writing to be bound
by the terms and conditions hereof, and that no such assignment shall in any way
relieve the assignor from liability or full performance under this Agreement.
	 
	 	3.7	 	Venue and Dispute Resolution. Subject to Article 6 of this Agreement, venue for
the resolution of disputes between COALSALES II and Patriot under this

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	 	 	 	Agreement will lie exclusively in the federal courts of jurisdiction in the Eastern District of
Missouri.
	 
	 	3.8	 	Indemnification. Subject to the limitations in Article XVIII of the Exhibit A
Terms, each party hereto (as the “Indemnifying Party”) shall indemnify, defend and hold
harmless the other party, its directors, officers, employees, agents and affiliates
(collectively, the “Indemnified Party”) from and against any and all suits, actions,
legal or administrative proceedings, claims, demands, actual damages, fines, punitive
damages, losses, costs, liabilities, interest, and attorneys’ fees (including any such
fees and expenses incurred in enforcing this indemnity) incurred by the Indemnified
Party arising from a breach by the Indemnifying Party of its obligations to the
Indemnified Party under this Agreement.
	 
	 	3.9	 	Specification “A” Coal and Sourcing. It is understood and agreed by the parties
hereto that this Agreement applies solely to Specification “A” coal, as defined in the
Exhibit A Terms, and such coal shall be supplied from the sources and reserves of coal
for Specification “A” coal shown on Exhibit 1 of the Exhibit A Terms plus any
additional sources approved pursuant to this Agreement.

	4.	 	SPECIFIC MODIFICATIONS TO EXHIBIT A TERMS
	 
	 	 	The following provisions of this Article 4 set forth specific modifications to be made to
specified provisions of the Exhibit A Terms. All references to sections or pages are to
sections or pages of the Exhibit A Terms, unless specifically indicated otherwise.

	 	4.1	 	Definitions. All defined terms in the Exhibit A Terms shall have the same
meanings under this Agreement; and all capitalized terms herein that are not otherwise
defined shall have the meaning ascribed to them in the Exhibit A Terms.
	 
	 	4.2	 	Article 1, Section 1 (Term of Agreement).

	 	(a)	 	Original and Extended Terms. The Original Term (as
defined in the Exhibit A Terms) when applied to this Agreement shall commence
on the Effective Date hereof and continue until December 31, 2012. If it is
determined that an existing End Customer has the valid right to extend its End
Customer Contract, and if End Customer exercises such right, on or before
January 1, 2012 to extend the term of that End Customer Contract (the “Extended
Term”), then the term of this Agreement will likewise be extended for the same
period of time. In such event, COALSALES II shall notify Patriot of the
Extended Term and the volume of coal tonnage required under such Extended Term
(if known) within 10 business days after COALSALES II’s receipt of End
Customer’s notice to extend the term of its End Customer Contract.
	 
	 	(b)	 	Expiration of this Agreement. This Agreement will
expire upon the later of (a) the end of the Original Term or (b) the end of the
Extended Term, subject to earlier termination as provided under Section 4.2(c)
hereof.

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	 	 	 	Following expiration of this Agreement, neither party hereto shall have, after the effective date of such expiration, any further obligation under
this Agreement to the other, provided, however, that such expiration shall not
affect any rights or obligations of each party existing under this Agreement
for coal shipped or required to be shipped prior to the effective date of said
expiration.
	 
	 	(c)	 	Early Termination of this Agreement. If COALSALES II
exercises its rights under Article VI, Section 3(c)(i) or Article IX, Section 2
of the Exhibit A Terms to terminate this Agreement prior to the expiration of
the Original Term or Extended Term, then (i) Article 2 and Sections 3.8 and
4.12 hereof shall survive termination of this Agreement and (ii) neither party
hereto shall have, after the effective date of such early termination, any
further obligation under this Agreement to the other, provided, however, that
such early termination shall not affect any rights or obligations of each party
existing under this Agreement for coal shipped prior to the effective date of
said termination.

	 	4.3	 	Article II (Quantities and Deliveries; Related Communications). For purposes of
ensuring the seamless delivery of the coal to End Customer(s), Patriot shall comply
with the Seller obligations under Article II of the Exhibit A Terms, including, without
limitation, all requirements as to quantity, delivery, specifications, quality,
loading, transport, delivery, and establishment of a demurrage account. For
Specification “A” coal to be shipped to End Customer(s), all required notices and other
communications related to the foregoing shall be made by Patriot directly to End
Customer(s) within the stated notice period. In addition to its obligation to
communicate directly with the End Customer(s) to fulfill the Seller obligations under
Article II of the Exhibit A Terms, Patriot may, pursuant to Section 1.3 of this
Agreement, exchange information directly with End Customer(s) at the address(es)
provided to it by COALSALES II for purposes of coordinating transportation, scheduling,
loading days, quantity, delivery and any other details for which End Customer(s) must
have direct involvement. Subject to Section 1.3 hereof, Patriot agrees that any and all
decisions made between Patriot and End Customer(s) as a result of such direct
communications are outside of COALSALES II’s control, and as such, COALSALES II
disclaims all responsibility for, and any and all liability for damages incurred by
Patriot, or claimed against Patriot by End Customer(s), arising from the scheduling and
transportation of the coal between End Customer(s) and Patriot. To the extent copies
of any written communications under the End Customer Contract(s) in connection with
scheduling, transportation and related activities are required by Patriot to perform
its obligations hereunder, COALSALES shall provide Patriot with copies of such
communications.
	 
	 	4.4	 	Article II, Section 1 (Quantity and Maximum Quantity Coal Purchases). The
terms “Contract Year” and “Contract Half Year” when referenced under this Agreement
shall have the same meaning ascribed to it under Article II, Section 1(a) of the
Exhibit A Terms. The term “Quantity” when used under this

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	 	 	 	Agreement shall mean the amount of coal to be purchased by COALSALES II from Patriot under this Agreement for a
particular Contract Half Year. For each Contract Half Year, the Quantity of coal
purchased shall equal the quantity shown in the following chart with respect to that
same Contract Half Year.

QUANTITY PURCHASES PER CONTRACT HALF YEAR:

	 	 	 
	CONTRACT YEAR	 	QUANTITY PER CONTRACT HALF YEAR
	2007
	 	288,000 tons
	2008
	 	1,600,250 tons
	2009
	 	1,412,500 tons
	2010
	 	1,412,500 tons
	2011
	 	1,412,500 tons
	2012
	 	1,412,500 tons

	 	4.5	 	Article II, Sections 3 and 4 (Approved Rail and Barge Shipping Origins).
Patriot shall comply at all times with the Exhibit A Terms regarding railcars and
barges provided by End Customer, the approved rail and barge shipping origin(s) listed
on Exhibit 1, Minimum Trainload Requirements and Maximum Load Limit Requirements of the
Exhibit A Terms, all of which shall be communicated by COALSALES II to Patriot along
with any changes thereto as requested by COALSALES II pursuant to its rights under this
Agreement. Any penalties arising from Patriot’s failure to comply with the foregoing
requirements, except those caused by End Customer, shall be paid by Patriot to
COALSALES II who shall pass along such payments to End Customer. Any changes desired by
Patriot to the approved rail or barge shipping origin(s) listed on Exhibit 1 of the
Exhibit A Terms are subject to the prior written consent of COALSALES II, and all
increased transportation, barging, and/or handling costs arising therefrom shall be
borne solely by Patriot. If prior consent of End Customer is required for COALSALES II
to make such change under the End Customer Contract, COALSALES II shall exercise
commercially reasonable efforts to gain End Customer’s consent, and if such consent is
obtained, COALSALES II will grant its consent to make the change under this Agreement.
	 
	 	4.6	 	Article III, Section 1(b) (Substitution Rights). Patriot may, at any time
during the course of this Agreement, request the right to provide coal to COALSALES II
from substitute sources, and COALSALES II shall have the right, in its sole

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	 	 	 	discretion, to grant or deny such request, provided, however, that if COALSALES II is not fully
utilizing the substitution rights provided to it under the End Customer Contract(s),
the parties agree to meet periodically to discuss alternatives to optimize the
substitution rights under the End Customer Contract(s) to the mutual benefit of the
parties. Notwithstanding anything to the contrary in this Agreement, Patriot shall not
have any liability nor have any obligation and/or responsibilities with respect to coal
supplied by COALSALES II from sources other than Patriot under this Agreement to
satisfy the delivery requirements under the End Customer Contract(s). For purposes of
clarity, the Quantity of coal to be supplied under this Agreement shall not be reduced
by deliveries of coal under the End Customer Contract(s) by COALSALES II from any
sources not provided by Patriot. In addition, should End Customer claim a force majeure
event under the End Customer Contract(s) during any period of time when COALSALES II is
supplying coal from any sources not provided by Patriot under the End Customer
Contract(s), then COALSALES II shall prorate among Patriot and such other sources any
reduction in deliveries claimed by End Customer resulting from such force majeure event
in proportion to the quantity of scheduled shipments from Patriot and such other
sources during the period of the such force majeure event.
	 
	 	4.7	 	Article IV (Payment). For coal purchased hereunder that is shipped to End
Customer(s) under existing End Customer Contract(s) having destination weights and
analyses, promptly after receipt from End Customer(s) of weight, analytical, and
pricing data for a given half-month, as required under the End Customer Contract(s),
COALSALES II shall submit such information to Patriot; and Patriot shall, as soon as
commercially practicable after receipt of such information, prepare and submit to
COALSALES II the invoice for the half-month that corresponds to such information. For
all other coal purchased hereunder, certified origin weights and analysis provided by
Patriot shall govern payment and quality adjustments will be determined based upon
formulas set forth in the Exhibit A Terms utilizing such certified origin weights and
analyses. All invoices shall be submitted by Patriot directly to COALSALES II at the
billing address(s) provided by COALSALES II (e.g. mail, facsimile and EDI as
applicable), in accordance with the same procedures governing COALSALES II’s submission
of invoices to End Customer under the Exhibit A Terms. COALSALES II shall have twenty
two (22) calendar days after the close of such half-month to submit payment to Patriot.
Patriot agrees that in the event of a payment dispute between COALSALES II and End
Customer, it will cooperate fully with COALSALES II and will take all reasonable
measures to assist COALSALES II in resolving any issues with End Customer relating to
invoices, payment, and collection of all outstanding amounts due from End Customer.
	 
	 	4.8	 	Article VI, Sections 1 — 4 (Base Price and Base Price Adjustments).

	 	(a)	 	Relationship of Monthly Prepayments to Price. For
purposes of clarity, the Monthly Prepayment obligations of COALSALES II under
Article 2 hereof shall not be credited against the Patriot Base Price or the
Patriot Selling Price, nor shall the Patriot Base Price or the Patriot Selling
Price

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	 	 	 	be reduced as a consequence of the Monthly Prepayments made under Article 2.
	 
	 	(b)	 	Patriot Base Price During Original Term. The “Patriot
Base Price” for quantities of Specification “A” coal purchased by COALSALES II
hereunder during a given Contract Year in the Original Term shall equal the
Patriot Base Price set forth in the following table:

	 	 	 
	 	 	PATRIOT BASE PRICE*
	CONTRACT YEAR	 	(per ton)
	2007
	 	$45.000
	2008
	 	$51.249
	2009
	 	$52.080
	2010
	 	$52.080
	2011
	 	$45.000
	2012
	 	$45.000

 

			
	*	 	Before adjustments for premiums, penalties and changes in law.

	 	(c)	 	[Intentionally blank]
	 
	 	(d)	 	Patriot Selling Price During Original Term. The
“Patriot Selling Price” per ton at which COALSALES II will purchase coal from
Patriot under this Agreement during the Original Term will equal:

	 	(i)	 	the Patriot Base Price per ton (as determined
above under this Section 4.8),
	 
	 	(ii)	 	adjusted pursuant to Article VI of the Exhibit
A Terms, and
	 
	 	(iii)	 	adjusted for quality pursuant to Section 4.10
of this Agreement.

	 	4.9	 	Article VI, Section 3(c) (Changes in Law). With respect to changes of law
occurring during the period from November 1, 2007 through and inclusive of December 31,
2008: (i) Base Price adjustments for changes in laws pursuant to Article VI, Section 3(c) of the Exhibit A Terms shall be made only to the extent
that COALSALES II is able to recover such adjustments from End Customer(s) on an End
Customer by End Customer basis; and (ii) COALSALES II shall use commercially
reasonable efforts to obtain the consent of End Customer(s) to such adjustments.
With respect to End Customer Contracts entered into after November 1, 2007,
COALSALES II shall use commercially reasonable efforts to

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	 	 	 	include in such contracts a right to adjust prices for changes in laws similar to Article VI, Section 3 of the
Exhibit A Terms.
	 
	 	4.10	 	Article VII — Adjustment of Price for Quality. Premiums and penalties per ton
to be paid or credited by COALSALES II to Patriot under this Agreement shall be
calculated on the Base Price charged by COALSALES II to End Customer under the formulas
set forth in Article VII of the Exhibit A Terms.
	 
	 	4.11	 	Article XIX (Notices). Notices provided for or required herein shall be given
by postage prepaid, certified mail, addressed as follows:

	 	 	 
	Patriot Coal Sales LLC

	 	COALSALES II, LLC
	12312 Olive Boulevard, Suite 400

	 	701 Market Street
	St. Louis, Missouri 63141

	 	St. Louis, Missouri 63101
	Attention: General Counsel

	 	Attention: Senior Vice President, Sales and Marketing

	5.	 	PATRIOT SELLING PRICE DURING EXTENDED TERM

	 	5.1	 	Scope of Article 5. This Article 5 governs the price of coal purchased
by COALSALES II from Patriot under this Agreement during the Extended Term, if any. The
price of coal purchased by COALSALES II from Patriot under this Agreement during the
Original Term will be governed by Section 4.8.
	 
	 	5.2	 	Extended Term Pricing Periods. For purposes of determining the Market
Price (as defined below), and consequently the Patriot Base Price and Patriot Selling
Price, during the Extended Term, the Extended Term will be divided into the following
three pricing periods:

	 	(1)	 	The “First Extended Term Price Period” will commence upon the
start of the Extended Term and, if the Extended Term is longer than 24 months,
will end at the end of the 24th month of the Extended Term.
	 
	 	(2)	 	If the Extended Term is longer than 24 months, the “Second
Extended Term Price Period” will commence upon the end of the First Extended
Term Price Period and, if the Extended Term is longer than 48 months, will end
at the end of the 48th month of the Extended Term.
	 
	 	(3)	 	If the Extended Term is longer than 48 months, the “Third
Extended Term Price Period” will commence upon the end of the Second Extended
Term Price Period and will end upon the expiration of the Extended Term.

	 	 	 	The First, Second and Third Extended Term Price Periods will each be referred to
herein as an “Extended Term Price Period”.

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	 	5.3	 	Determination of Market Price. 

	 	(a)	 	“Market Price” per ton of Specification “A” coal for each
Extended Term Price Period will be determined: (i) by mutual agreement of the
parties in accordance with Section 5.3(b) hereof during the First Negotiation
Period (as defined in Section 5.3(b)(i) hereof); (ii) if the parties are unable
to mutually agree upon a Market Price after the First Negotiation Period, then
the Market Price will be determined by mutual agreement of the parties in
accordance with Section 5.3(b) hereof during the Second Negotiation Period (as
defined in Section 5.3(b)(ii) hereof); or (iii) if the parties are unable to
mutually agree upon a Market Price after the Second Negotiation Period, then
the Market Price will be determined pursuant Sections 5.3(c) through 5.7
hereof.
	 
	 	(b)	 	During the First Negotiation Period and, if necessary, the
Second Negotiation Period, the parties shall meet regularly and work together
exercising good faith attempts to reach a mutually agreed Market Price for
Specification “A” coal, which Market Price shall not be adjusted pursuant to
Section 5.7.

	 	(i)	 	The “First Negotiation Period” shall mean (1)
for the First Extended Term Price Period, the period January 15, 2012
through March 1, 2012, (2) for the Second Extended Term Price Period,
the period January 15, 2014 through March 1, 2014, and (3) for the
Third Extended Term Price Period, the period January 15, 2016 through
March 1, 2016.
	 
	 	(ii)	 	The “Second Negotiation Period” shall mean (1)
for the First Extended Term Price Period, the period May 1, 2012
through May 31, 2012, (2) for the Second Extended Term Price Period,
the period May 1, 2014 through May 31, 2014, and (3) for the Third
Extended Term Price Period, the period May 1, 2016 through May 31,
2016.

	 	(c)	 	If the parties are unable to mutually agree upon a Market Price
under Section 5.3(b) hereof after the Second Negotiation Period, then the
Market Price will be determined in accordance with this Section 5.3(c).
Commencing on the first day of each Market Price Period (as defined in Section
5.3(c)(i)), for each business day during which data is available, COALSALES II
will calculate the simple average of the daily “bid” and “ask” prices from the
three “Approved Pricing Sources” (as defined in Section 5.3(c)(ii)) for the
Central Appalachian CSX-BSK 12,500 Btu/lb <1% sulfur rail product for the
applicable Extended Term Price Period. This average will be the “Index Based
Market Price”.

	 	(i)	 	“Market Price Period” shall mean (1) for the First Extended Term Price Period, the period February 1, 2012 through
May 31,

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	 	 	 	2012, (2) for the Second Extended Term Price Period, the period February 1, 2014 through May 31, 2014, and (3) for the Third Extended
Term Price Period, the period February 1, 2016 through May 31, 2016.
	 
	 	(ii)	 	The three “Approved Pricing Sources” under this
Agreement are: ICAP United, Inc.; Evolution Markets, Inc.; and TFS
Energy, LLC. If any of the foregoing Approved Pricing Sources is
discontinued, altered or otherwise becomes unavailable, then either
party may suggest a replacement, but if the parties are unable to agree
upon a replacement, the Index Based Market Price shall be determined
using the average of the remaining two Approved Pricing Sources. If two
of the three Approved Pricing Sources are discontinued, altered or
otherwise become unavailable, the parties shall work in good faith to
choose one mutually agreeable replacement broker source (which shall
thereafter be deemed an Approved Pricing Source); and the Index Based
Market Price shall henceforth be determined using the average of the
remaining Approved Pricing Source and the newly appointed Approved
Pricing Source. If the parties are unable to reach agreement within a
reasonable period of time as to such replacement Approved Pricing
Source, the matter shall be determined by arbitration in accordance
with Section 6.3 of this Agreement.

	 	5.4	 	SO2 Adjustment. The Index Based Market Price shall be adjusted to
reflect a sulfur value of 1.2lbs SO2/MMBtu.

	 	 	 
	SO2 Adjustment = (((1.60 — 1.20) x 12,500 Btu)/1,000,000) X SA
	
Where:
	 	 
	
“SA”

	 	means the simple average value of the
published monthly Air Daily Price Index for an SO2 emission
allowance for the months of the applicable Market Price Period
or, if such index ceases to be published, by such mutually
agreed substitute broker which accurately measures the market
value of SO2 emission allowances.

	 	5.5	 	Btu Adjustment. The Index Based Market Price will be adjusted to
reflect contract calorific value according to the following formula:
	 
	 	 	 	Btu Adjustment = Index Based Market Price x ((12,300 — 12,500)/12,500)
	 
	 	5.6	 	Patriot’s Premium. “Patriot’s Premium” equals the fixed amount of
$1.00/ton, which represents a premium to the Index Based Market Price to reflect the
volume and terms and conditions under the Exhibit A Terms.

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	 	5.7	 	Market Price During Extended Term. If the Market Price is being
determined pursuant to Section 5.3(c) hereof, then the Market Price per ton during each
Extended Term Price Period will equal:

	 	(a)	 	the Index Based Market Price per ton for that Extended Price
Term Period, as determined under Section 5.3(c),
	 
	 	(b)	 	plus the “SO2 Adjustment” determined under Section
5.4,
	 
	 	(c)	 	plus the “Btu Adjustment” determined under Section 5.5, and
	 
	 	(d)	 	plus “Patriot’s Premium” determined under Section 5.6.

	 	 	 	COALSALES II will provide the Market Price, along with the calculation thereof
pursuant to this Section 5.7, to Patriot within fifteen (15) days following the
Second Negotiation Period, and Patriot will provide written notice of its acceptance
or rejection of the Market Price to COALSALES II no later than June 30th
of that year. In the event Patriot rejects COALSALES II’s calculation of the Market
Price, then the calculation of Market Price will be determined by one or more
arbitrators in an arbitration proceeding pursuant to Article 6 of this Agreement,
and such determination will be final and binding upon the parties. Such arbitration
proceeding must be completed within 90 days after commencement.

	 	5.8	 	Patriot Base Price During Extended Term. The “Patriot Base Price” will
equal the Market Price for each Extended Term Price Period.
	 
	 	5.9	 	Patriot Selling Price During Extended Term. The “Patriot Selling Price”
per ton at which COALSALES II will purchase coal from Patriot under this Agreement
during each Extended Term Price Period will equal:

	 	(a)	 	the Patriot Base Price per ton for that Extended Term Price
Period, as determined under Section 5.8, and
	 
	 	(b)	 	adjusted for quality pursuant to Section 4.11 of this
Agreement.
	 
	 	 	 	For the sake of clarity, during the Extended Term, the Patriot Selling Price will
not be reduced pursuant to Article V of the Exhibit A Terms.

	6.	 	RESOLUTION OF DISPUTES

	 	6.1	 	Notice of Dispute. Disputes arising pursuant to this Agreement shall be
resolved in accordance with this Section. Either party may invoke the procedures of
this Section by written notice to the other party claiming the existence of a dispute and
describing the nature of that dispute (the “Dispute Notice”).
	 
	 	6.2	 	Resolution of Disputes. Any dispute between the parties arising under
this Agreement first shall be referred for resolution to a senior representative of
each

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	 		 	party. Upon receipt of a notice describing the dispute, designating the notifying party’s senior representative and indicating that the dispute is to be resolved by the
parties’ senior representatives under this Agreement, the other party shall promptly
designate its senior representative to the notifying party. The senior representatives
so designated shall attempt to resolve the dispute on an informal basis as promptly as
practicable. The parties agree that they shall negotiate expeditiously in good faith in
an effort to resolve any disputes arising under this Agreement. In the event a dispute
cannot be resolved by negotiation within thirty (30) days after the date that the
Dispute Notice was received by the other party, or within such other period as the
parties may jointly agree, the parties agree to consider the use of a mini-trial or
other informal procedure such as umpire settlement (“Informal Procedure”) to resolve
the dispute. An Informal Procedure shall be utilized only if the parties agree in
writing on the procedures to be followed and whether the resulting determination shall
be binding. All disputes that are resolved by negotiation or through a binding Informal
Procedure shall be acknowledged in writing by both parties. Any dispute that is not
resolved nor committed to final and binding resolution by means of an Informal
Procedure within ninety (90) days of the date the Dispute Notice was received by the
other party may, within one hundred (100) days of the date of the Dispute Notice, be
referred to arbitration by either party and the same shall be resolved not later than
one hundred fifty (150) days after such referral to arbitration in accordance with
Section 6.3 below. A disputed matter that is not submitted to arbitration as provided
herein shall be deemed to have been waived.
	 
	 	6.3	 	Arbitration. Any controversies or claims arising out of or relating to
this Agreement or the breach hereof which are not resolved by negotiations between the
parties, or which is not committed to final and binding resolution by means of an
Informal Procedure, shall be determined by arbitration in accordance with Commercial
Arbitration Rules of the American Arbitration Association; provided, however, the
arbitrator(s) selected shall be a person knowledgeable of the subject matter of the
arbitration. Judgment may be entered on the arbitration award in any court having
jurisdiction. Unless otherwise agreed in writing by COALSALES II and Patriot,
performance of their respective obligations under this Agreement shall be continued in
full by the parties during the arbitration process. The parties stipulate that this
Agreement constitutes a contract evidencing a transaction involving commerce and that
this section is enforceable under the Federal Arbitration Act (9 U.S.C.A. §§ 1 et
seq.).

[REMAINDER OF PAGE INTENTIONALLY BLANK. SIGNATURES ON NEXT PAGE.]

-16-

 

     IN
WITNESS WHEREOF, COALSALES II and Patriot have executed this
Agreement as of the Execution Date.

	 	 	 	 	 
	 	COALSALES II, LLC, formerly known as 

Peabody Coalsales Company

 	 
	 	By:  	/s/ John F. Quinn Jr.
 	 
	 	 	Name:  	John F. Quinn Jr. 	 
	 	 	Title:  	Vice President 	 
	 
	 	PATRIOT COAL SALES LLC

 	 
	 	By:  	/s/ Michael V. Altrudo
 	 
	 	 	Name:  	Michael V. Altrudo 	 
	 	 	Title:  	President 	 
	 

-17-

 

Exhibit
A

Table of Contents

	 	 	 	 	 	 	 
	ARTICLE	 	TITLE	 	Page
	 
	I

	 	Term of Agreement
	 	 	2	 
	II

	 	Quantities & Deliveries
	 	 	2	 
	III

	 	Specifications, Quality & Weight
	 	 	12	 
	IV

	 	Payment
	 	 	19	 
	V

	 	Price
	 	 	20	 
	VI

	 	Base Price & Base Price Adjustments
	 	 	20	 
	VII

	 	Adjustment of Price for Quality
	 	 	25	 
	VIII

	 	Sampling and Analysis
	 	 	27	 
	IX

	 	[Intentionally blank]
	 	 	30	 
	X

	 	Major Technological Improvements
	 	 	30	 
	XI

	 	Administrative Program
	 	 	31	 
	XII

	 	Force Majeure
	 	 	32	 
	XIII

	 	Warranties and Dedication
	 	 	34	 
	XIV

	 	Buyer’s Right to Market Coal with Origin Weights and Analyses
	 	 	35	 
	XV

	 	[Intentionally blank]
	 	 	35	 
	XVI

	 	Government Compliance Certificate
	 	 	36	 
	XVII

	 	[Intentionally blank]
	 	 	36	 
	XVIII

	 	Waiver and Limitation of Damages
	 	 	36	 
	XIX

	 	[Intentionally blank]
	 	 	37	 
	XX

	 	[Intentionally blank]
	 	 	37	 
	XXI

	 	Confidentiality
	 	 	37	 
	XXII

	 	Finality
	 	 	37	 
	XXIII

	 	Governing Law
	 	 	38	 
	Exh. 1

	 	Seller’s Production Source(s), Reserves of Coal, Approved
Coal, Approved Rail Shipping Origin(s), and
Approved Barge Shipping Origins
	 	 	39	 
	Exh. 2

	 	West Virginia Severance Tax
	 	 	41	 
	Exh. 3

	 	Government Contractor Compliance Certificate
	 	 	42	 

 

 

ARTICLE I

TERM OF AGREEMENT

     Section 1.
The term of this Agreement shall be for the period commencing
October 31,
2007, and continuing through and including December 31, 2012, (hereinafter “original term”) except
as provided elsewhere in this Agreement.

     Section 2. Provided this Agreement is still in effect, Buyer shall have the optional
right, but not the obligation, to extend the term of this Agreement for a period of up to sixty
(60) months beyond the original term (such extended period hereinafter referred to as “extended
term”) for coal produced from reserves of coal dedicated to this Agreement. Buyer shall give
written notice of its election to extend the term for such additional period on or before January
1, 2012. Such notice by Buyer shall designate the length of the extended term. If such optional
right of Buyer is exercised, all provisions of this Agreement shall continue in full force and
effect over the extended term designated by Buyer.

ARTICLE II

QUANTITIES & DELIVERIES

     Section 1. (a) For the purposes of this Agreement, the term “Contract Year” shall be
defined as the period commencing January 1 of each calendar year and ending December 31 of each
calendar year. Each following Contract Year shall commence on January 1 thereof and continue for a
12-month period thereafter. Each Contract Year shall consist of two Contract Half-Year periods,
which shall respectively consist of the first six (6) months and the last six (6) months of each
calendar year.

          (b) Seller shall supply coal meeting the requirements of Specification “A” coal.

2

 

          (c) At least sixty (60) calendar days prior to the beginning of each Contract Half-Year,
Seller shall propose to Buyer, in writing, a schedule of monthly deliveries and shipping origin for
such Contract Half-Year (the “scheduled quantity”); such proposed schedule shall provide for
deliveries in approximately equal monthly quantities, and unless Seller is notified otherwise by
Buyer, such schedule of monthly quantity obligations shall be accepted and implemented by both
parties hereunder. It is acknowledged that such scheduled shipping origins (but not monthly
quantity obligations) are to be provided for planning purposes and may be adjusted from time to
time in accordance with the following sentence. Seller may by notice in writing by the twentieth
(20th) day of the month prior to shipment, change the scheduled shipping origins for any
subsequent month; provided, however, such changes shall not increase or decrease the total amount
required to be delivered in such month.

     Section 2. The term “ton” shall mean a net ton of 2,000 pounds avoirdupois weight.

     Section 3. (a) Except as provided in Article II, Section 4, Seller shall cause the
coal that is to be delivered hereunder to be loaded into carrier- or Buyer-provided railcars (at
Buyer’s option) at approved rail shipping origin(s) (hereinafter the “approved rail shipping
origin”), as described on Exhibit 1, attached hereto and hereby made a part hereof, and properly
consign such shipment in accordance with Section 5 of this Article and in accordance with Buyer’s
or any of its existing End Customer’s rail transportation contract(s), as amended or superseded.
New amendments or provisions to such rail transportation contract placing new or revised
requirements on Seller regarding the loading of railcars and/or consignment of shipments hereunder,
other than that provided for herein, shall be subject to Seller’s approval which shall not be
unreasonably withheld.

3

 

     Seller shall not have the right to ship coal to be delivered under this Agreement from any
rail shipping origin other than the approved rail shipping origin(s) listed on Exhibit 1, unless
Seller shall first have obtained Buyer’s written approval of such additional shipping origin.
Title to the coal and risk of loss thereof shall pass to Buyer as the loaded railcars are pulled
from any such origin.

     Seller shall add on each Bill of Lading or Mine Card documents such notation(s) as may be
designated by Buyer to Seller. Seller shall cause the loadings to be tendered in unit train
consignments each consisting of at least ninety (90) railcars, which shall be tendered in unit
train consignments of at least ninety-six (96) railcars. If Seller is unable to load any railcar
that has been placed for loading due to an unserviceable condition of a railcar, and has notified
the railroad and Buyer of such unserviceable condition, Seller shall be relieved of any penalties
for failure to comply with the minimum train size requirements that are attributable to such
unserviceable railcar. Should Seller be limited to seventy-five (75) railcars at any approved rail
shipping origin, and tender unit train consignments consisting of between seventy-five (75) and
ninety (90) railcars, then Seller shall pay Buyer an amount equal to one-half of one percent (0.5%)
of the Base Price for each ton of coal in such unit train.

     Seller shall provide, maintain, and operate at each approved rail shipping origin (except as
further provided herein) a unit train loading facility, including coal storage and track to
facilitate the proper loading of each unit train within twenty-four (24) hours of actual or
constructive placement by the railroad. Seller agrees to operate said loading facility(ies) on a
twenty-four (24) hours per day, seven (7) days per week basis.

     Seller agrees to load each unit train to comply with the Buyer’s Minimum Trainload
Requirements and Maximum Load Limit requirements. To comply with Buyer’s Minimum

4

 

Trainload Requirements, Seller shall load each unit train of coal to full visible capacity and
an average lading weight of at least ninety-eight (98) tons per steel railcar and one hundred seven
(107) tons per aluminum railcar if such railcars are Buyer-provided railcars. Seller shall load
each unit train to a minimum of ninety-eight percent (98%) of the total marked load capacity of all
the railcars in the unit train if such railcars are carrier-provided railcars. Additionally,
Seller recognizes that Buyer shall be assessed a penalty by the railroad for phantom tons in the
event that Seller fails to load each unit train to a lading weight of ninety-eight percent (98%) of
the total of the marked load limit of all the railcars in the unit train. To comply with Buyer’s
Maximum Load Limit Requirements, Seller shall not load any railcar in excess of a gross load limit,
including lading and railcar, of 270,000 pounds. Buyer shall have the right to alter the Minimum
Trainload Requirements and Maximum Load Limit Requirements by giving Seller seven (7) days prior
written notice; provided, however, Buyer’s Minimum Trainload Requirements shall not require Seller
to load railcars to within two (2) tons of the Maximum Load Limit Requirement.

     If Seller fails to comply with the foregoing origin loading requirements and/or the Maximum
Load Limit Requirements, Seller shall pay to Buyer the penalty charges assessed by the railroad.
The charges will be those actually paid to the railroad and will not exceed those published in the
railroad’s Freight Tariff No. ICC-CSXT-8200, Series, in effect when such charges were incurred. If
Seller fails to comply with Buyer’s Minimum Trainload Requirement, then Seller shall pay to Buyer a
penalty charge of $0.03 per ton or part of a ton that the average lading weight per railcar falls
short of the Minimum Trainload Requirement times the actual number of tons in the unit train.

5

 

     (b) Should Buyer, in accordance with the terms of Article III of this Agreement, reject any
railcar load(s) of coal in any shipment, Seller shall arrange for the removal of such rejected
railcar(s). All costs assessed by the railroad, including but not limited to reconsignment
charges, transportation charges, and demurrage charges, shall be to the account of Seller. In
addition, if the rejected railcar(s) of coal are Buyer-provided railcar(s), then Seller shall also
pay the per diem and mileage charges as defined in the Car Hire Tables of the Official Railway
Equipment Register, ICC-REF-6411 Series, as amended. Such per diem charges shall be effective as
of the first 7:00 AM following Buyer’s rejection until the railcar(s) are unloaded at a destination
specified by Seller and then returned to a destination specified by (or by the railroad, if
applicable) for further utilization. Such mileage charges shall be based on the loaded and empty
miles traveled by the rejected railcar(s) from the point of rejection to such specified return
destination.

     (c) During periods of freezing temperatures, Buyer shall provide notice on a weekly basis,
regarding freeze-proofing. When directed by Buyer to use freeze-proofing agents, Seller shall
cause these agents to be properly applied during loading in sufficient quantity for the coal to
comply with the free flowing requirements (when received at the consigned destination) expressed
elsewhere in this Agreement, and Seller shall include the statement “Freeze Treatment Applied” on
the shipping manifests. For each ton of coal delivered under this Agreement to which such
freeze-proofing has been applied in strict accordance herewith, an amount of one and one-half
percent (1.5%) of the Base Price applicable thereto shall be added to the Selling Price of such
coal.

     (d) Seller shall indemnify, save harmless, and defend Buyer, its agents, and its affiliates
(all referred to in this sentence as “Buyer”) from and against any liabilities, expenses,

6

 

claims, and all other obligations whatsoever, including without limitation, all judgments
rendered against and all fines and penalties imposed upon Buyer (whether severally, or in
combination with others) and any reasonable attorneys’ fees and any other costs of litigation (all
of which are hereinafter referred to as “liabilities”) arising out of injuries or death to any
person(s), or damage to any property, caused by or related to, in whole or in part, the railcars
furnished hereunder (as applicable), between the time that such railcars are delivered to Seller or
Seller’s agent and the time that custody thereof is properly returned to Buyer (or to Buyer’s agent
carrier, if applicable), except for that portion of any such liabilities that rise out of Buyer’s
contributing negligent acts or negligent omissions. Any injury or death to person(s) or damage to
property as hereinbefore described shall be reported to Buyer by Seller immediately upon the
occurrence thereof, and confirmed in writing as soon as possible.

     Section 4. If, during any calendar month(s), Buyer and Seller mutually agree to
deliver all or any portion of the scheduled quantity obligation of Specification “A” coal FOB barge
rather than FOB rail, Seller shall load such Specification “A” coal into Buyer-provided barges.
Seller shall load all Specification “A” coal to be delivered hereunder into Buyer-provided barges
at the approved barge shipping origin(s) (hereinafter the “approved barge shipping origin”) as
described on Exhibit 1, attached hereto and hereby made a part hereof, at which time delivery and
title for coal conforming to this Agreement shall pass to Buyer. Such barge shipments shall be
tendered by Seller loaded to each barge’s normal draft capacity (each such barge of coal
hereinafter referred to as “bargeload lot”) unless otherwise directed by Buyer or its agents.

     The loading, switching, movement, and fleeting of barges between the time Buyer delivers the
barges and the time Buyer picks up the barges shall be at Seller’s risk and expense.

7

 

     Except for the movement between Anker Rail & River Terminal and Dippel Barge Facility, Seller
shall not move, nor permit the movement of, any barge(s) provided by Buyer, or its agent, to any
other location once the barge(s) are delivered at an approved barge shipping origin for loading,
unless otherwise agreed to by Buyer. The movement of any barge(s) requested by Seller and approved
by Buyer shall be arranged and directed by Buyer at Seller’s expense.

     In the event that an approved barge shipping origin is utilized by more than one supplier of
coal to Buyer, Buyer shall arrange for the allocation and placement of barges on a weekly basis in
response to the suppliers’ reasonable requests. Barge requests are to be made by Seller under this
Agreement so as to provide for approximately equal weekly shipments in fulfillment of Seller’s
monthly quantity obligation hereunder.

     Seller shall not have the right to ship coal to be delivered under this Agreement from any
barge shipping origin other than the approved barge shipping origin(s) unless Seller shall first
have obtained Buyer’s written approval of such proposed shipping origin. Such written approval
shall not be unreasonably withheld and shall further be conditioned upon Seller’s agreement to pay
any increase in barging and/or handling costs that would be incurred by Buyer for shipments made
from the proposed shipping origin as compared to the Alloy Dock at Milepost 89.7 on the Kanawha
River.

     (a) It shall be Seller’s obligation to provide adequate dock and harbor facilities at the
approved barge shipping origin(s), to load barges in accord to Buyer’s or its agent’s request, and
to dispatch and otherwise comply with reasonable requirements of Buyer or its agent’s barging and
operating schedule.

8

 

     Seller shall indemnify, save harmless, and defend Buyer, its agents, and its affiliates (all
referred to in this sentence as “Buyer”) from and against any liabilities, expenses, claims, and
all other obligations whatsoever, including without limitation, all judgments rendered against and
all fines and penalties imposed upon Buyer (whether severally, or in combination with others) and
any reasonable attorneys’ fees and any other costs of litigation (all of which are hereinafter
referred to as “liabilities”) arising out of injuries or death to any person(s), or damage to any
property, caused by or related to, in whole or in part, the barges furnished hereunder, between the
time that such barges are delivered to Seller or Seller’s agent and the time that custody thereof
is properly returned to Buyer (or to Buyer’s agent carrier, if applicable), except for that portion
of any such liabilities that arise out of Buyer’s contributing negligent acts or negligent
omissions. Any injury or death to person(s) or damage to property as hereinbefore described shall
be reported to Buyer by Seller immediately upon the occurrence thereof, and confirmed in writing as
soon as possible.

     (b) Seller shall be responsible for all loss of, or damage to, any barge provided hereunder
and for the loss of any coal in said barge (other than damage or loss due to normal wear and tear,
latent or patent defects in the barge existing at the time of delivery) occurring after such barge
has been delivered to Seller at the approved barge shipping origin and while in the custody,
control, and possession of Seller. Seller shall reimburse Buyer for the cost to Buyer of repairing
or replacing any such barge in an amount not to exceed its replacement value at the time of its
loss or damage. Said replacement value shall be defined as the remaining year of life of said
barge, divided by the expected life of said barge when new, and multiplied by the current market
value of a new barge having similar design and capacity at the time of loss or damage. A barge
shall be deemed to have been delivered to Seller and be in Seller’s custody, control, and

9

 

possession, when it has been secured by or on behalf of Buyer or its agent at an approved
barge shipping origin to await loading and shall be deemed to be picked up when untied for pick up
by or on behalf of Buyer from such approved barge shipping origin.

     Seller shall have the right, but not the duty, to refuse to load any barges which Seller
considers unseaworthy or contain an excessive amount of residual coal or extraneous material or are
otherwise in unserviceable condition upon delivery to Seller. In such event, Seller shall promptly
notify Buyer.

     (c) Seller shall be allowed three (3) free loading days for the loading of each barge
delivered by Buyer to an approved barge shipping origin. A loading day shall commence at 7:00 AM
of a calendar day and end at 7:00 AM the next calendar day. The first free loading day shall
commence at the later of 7:00 AM of a calendar day immediately following the delivery of said
barge, or 7:00 AM on the delivery date of the barge for loading specified in Seller’s notice.

     (d) The three (3) free loading days for a barge delivered shall end seventy-two (72)
consecutive hours after they commenced. Actual loading days for a barge shall commence
concurrently with the commencement of the three (3) free loading days and shall continue until the
barge has been loaded and Buyer has been advised that the barge is loaded and available at the
approved barge shipping origin for pick up by Buyer or its agent.

     (e) Seller shall maintain a demurrage account in which debits and credits for the loading of
barges shall be recorded. One credit for each barge delivered to be loaded with coal shall be
recorded in the demurrage account for each loading day for which the actual loading time for the
barge is less than the free loading days for the barge set forth above, and one debit for each
barge delivered to be loaded with coal shall be recorded in the demurrage account for each loading
day, or part of a loading day, for which the actual loading time for the barge is

10

 

greater than the free loading days provided above for loading the barge, and for each
demurrage day accrued for each barge in a bargeload shipment rejected by Buyer as hereinafter
provided.

     (f) At the end of each calendar quarter throughout the term of this Agreement, the demurrage
account shall be balanced and settled as follows: Credits in the demurrage account shall be used
to cancel debits in the demurrage account with one credit canceling one debit. Seller shall pay to
Buyer the daily barge demurrage rate of $100.00 (which amount shall be adjusted in an amount
proportional to the adjustments to the Base Price under Article VI hereof), for each debit in a
demurrage account not so cancelled. There shall not be a payment for credits in the demurrage
account. Excess credits in a demurrage account accumulated during each calendar quarter which
remain unused following the balancing and settlement of the demurrage account shall be cancelled.

     (g) Should Buyer, in accordance with the terms of Article III of this Agreement, reject any
bargeload lot(s) as provided for herein, Seller shall pay all barge transportation cost(s)
associated with the shipment of such rejected bargeload lot(s), including the daily barge demurrage
rate effective as of the first 7:00 AM following Buyer’s rejection and all other costs incurred by
Buyer with respect to said shipment(s) from the time said bargeload lot(s) is (are) rejected until
the barge(s) is (are) unloaded at a location designated by Seller and subsequently transported to a
destination specified by Buyer for further utilization.

     Section 5. The coal to be delivered hereunder shall be properly consigned by Seller
(Rail Freight Collect if shipped by rail) for rail or barge delivery to Buyer’s designated
destination (also referred to in this Agreement as “Plant”). Buyer shall notify Seller of the
designated destination of shipments, and Seller, at its own risk and expense, shall have the right
to have an observer present at the unloading of such shipments.

11

 

     Section 6. For each unit train or bargeload lot shipment of coal hereunder, Seller,
within twenty-four (24) hours of the completion of loading of such shipment, shall provide via
computer or telecopier (actual method specified by Buyer) to the applicable consigned destination,
and to Buyer, a shipping notice showing unit train and railcar number(s) or barge number(s),
estimated weight of the coal in each railcar or barge, shipping date, the rail shipping origin or
the barge shipping origin from which shipment was consigned.

     Section 7. Seller shall sample and analyze the coal as it is loaded into each unit
train or bargeload (lot(s) and notify Buyer, by telecopy, and/or Telex of the type of coal being
shipped (i.e., Specification “A”) and the short proximate (calorific value per pound, percent
moisture, percent ash, and percent sulfur) average analytical results of each unit train lot
shipment or bargeload lot shipment, including the identifying number of the railcars or barges
comprising such lot, within one (1) business day after the coal is loaded into the unit train or
bargeload lot for delivery.

ARTICLE III

SPECIFICATIONS, QUALITY & WEIGHT

     Section 1. The coal to be delivered hereunder shall be produced at approved
production source(s) as defined in Exhibit 1. Seller shall have no right to deliver coal under
this Agreement from any other production source without Buyer’s written consent that Seller may do
so, which consent shall not be unreasonably withheld.

     In the event that Seller desires to supply coal from any other production source, Seller shall
notify Buyer in writing of such proposed new source, documenting as follows: location of mineral
tract(s); status of all legal interests in such tract(s); coal seam(s) designation (by tract[s]);
typical proximate analysis from such seam(s); typical ultimate analysis from such seam(s); typical
ash mineral analysis from such seam(s); trace element analysis from such

12

 

seam(s); analysis of fusion temperatures, both in oxidizing and reducing atmospheres, from
such seam(s); an analysis of the sulfur forms from such seam(s); an analysis of Hardgrove
grindability for such seam(s); and any other pertinent information requested by Buyer.

     Seller shall not have the right to ship coal under this Agreement from any such proposed new
production source except upon Buyer’s written approval of Seller’s request pursuant to the
preceding paragraph, which shall be based upon Buyer’s reasonable determination of the suitability
of such proposed source for Buyer’s purposes hereunder. Buyer shall require prior to its approval
that: (i) the coal would meet the requirements of Article III, Section 2 and the “Contracted”
specifications of Article III, Section 3 of this Agreement; (ii) none of the aforementioned
analyses (proximate, ultimate, ash mineral, trace element, fusion temperatures, sulfur forms, or
grindability) differ in material respect from the coal from production sources initially approved
in Exhibit 1; (iii) Seller owns or controls the reserves from which such coal would be produced;
(iv) the reserves of coal are located in the state of West Virginia; and (v) the supplying of such
coal shall not result in a higher delivered price (¢/MMBtu) to Buyer than the coal shipped from the
Harris loadout (OPSL No. 65289).

          In the event that Buyer gives written approval for such new source, subsequent shipments from
such source shall be subject to this Agreement in all respects.

     Section 2. The coal to be delivered hereunder shall have a maximum top size of two
inches (2”), and shall be free flowing and free of extraneous material upon uploading at Buyer’s
Plant.

     Section 3. The coal from each respective approved rail shipping origin based upon the
applicable analyses obtained pursuant to Article VIII, shall meet the following “Contracted”
specifications under the table entitled “SPECIFICATION A” on a Contract Half-Month basis

13

 

(except for lbs. SO2/MMBtu on both a Contracted and Suspension Half-Month weighted
average basis, and for Volatile Matter on a Contracted Half-Month weighted average basis, which
shall be additionally based on the combined weighted average of all shipping origins for
Specification “A” coal as further provided for in footnote ***). Further, for the purposes of this
Article, the following “Suspension” specifications under the table “SPECIFICATION A” shall
also be applicable to the coal from each such respective origin on the indicated bases.

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	SPECIFICATION A	 
	 	 	“As-Received” Basis	 
	 	 	Contracted	 	 	Suspension Basis	 
	 	 	Half-Month	 	 	Half-Month	 	 	Applicable Lot	 
	 	 	Wtd. Avg.	 	 	Wtd. Avg. (A)*	 	 	Wtd. Avg. (B)*	 
	 	 	 	 	 	 	Minimum	 	 	Maximum	 	 	Minimum	 	 	Maximum	 
	Caloric Value (Btu/lb.)
	 	 	12,300	 	 	 	12,000	 	 	 	N/A	 	 	 	11,800	 	 	 	N/A	 
	Moisture (%)
	 	 	8.0	 	 	 	N/A	 	 	 	9.0	 	 	 	N/A	 	 	 	10.0	 
	Ash (%)
	 	 	13.0	 	 	 	N/A	 	 	 	14.0	 	 	 	N/A	 	 	 	15.0	 
	**Ash Loading
(lbs. Ash/MMBtu)
	 	 	11.0	 	 	 	N/A	 	 	 	12.0	 	 	 	N/A	 	 	 	13.0	 
	Volatile Matter (%)
	 	 	330.0	***	 	 	N/A	 	 	 	N/A	 	 	 	27.0	 	 	 	N/A	 
	Hardgrove Grindability
	 	 	344.0	 	 	 	N/A	 	 	 	N/A	 	 	 	(c)	*	 	 	N/A	 
	Sulfur (%)
	 	 	N/A	 	 	 	0.7	 	 	 	N/A	 	 	 	N/A	 	 	 	N/A	 
	**Sulfur Dioxide
(lbs. SO2/MMBtu)
	 	 	£1.45	***	 	 	N/A	 	 	 	1.45	***	 	 	N/A	 	 	 	1.50	 
	Ash Fusion Temp.
(H=1/2W)°F, Red. Ats.
	 	 	32700	 	 	 	N/A	 	 	 	N/A	 	 	 	2650	 	 	 	N/A	 

 

			
	*	 	Definitions:
	 
	(A)=	 	 the half-month weighted average analysis result (as determined under Article
IV).
	 
	(B)=	 	 the analysis result of the sample (or composite of samples,
if more than one) representing each unit train of coal.
	 
	(C)=	 	 the “suspension” specification for grindability shall be no
less than X, where X = 12,300 times 44.0, divided by the actual weighted
average “As-Received” calorific value for such period.
	 
	 	 	N/A: Not applicable.
	 
	**	 	For the purpose of determining the pounds of sulfur dioxide per
million Btu and pounds ash per million Btu, the figures shall be rounded to the
nearest one hundredth. For example, 1.604 pounds SO2 per million
Btu shall mean 1.60 pounds SO2 per million Btu, while 1.605 pounds
SO2 per million Btu shall mean 1.61 pounds SO2 per
million Btu and shall be deemed, for example, not to have met a 1.60 pounds
SO2 per million Btu specification.
	 
	***	 	The Half-Month weighted average SO2 from each
approved rail shipping origin (except as hereafter provided) and collectively
from all approved shipping origins shall not exceed a maximum 1.45 pounds
SO2/MMBtu effective May 1, 2001 and thereafter. Additionally, the
maximum Contracted and Suspension Basis Half-Month weighted

14

 

			
	 	 	average for sulfer dioxide (1bs. SO2/MMBtu) shall be 1.50 lbs.
effective September 1, 1999 and thereafter for coal shipped from each of the
following rail shipping origins: the Harris Mine, Rocklick Complex, and the
Wells Complex. The Contracted Half-Month weighted average volatile matter
from all approved rail shipping origins shall be greater than or equal to
30.0%. Additionally, the Contracted Half-Month weighted average for
volatile matter shall be 27.0% (minimum) for coal shipped from the Harris
Mine rail shipping origin.

     Section 4. In addition to all other remedies at law or in equity, except as
specifically limited elsewhere in this Agreement, and in addition to the price adjustments provided
for in Article VII, Buyer shall have the following rights and remedies upon Seller’s failure to
conform with the requirements as set forth in Sections 1, 2, and 3 of this Article and/or Article
II, Section 1.

     (a) Buyer shall have the right to reject any shipment if the coal in such shipment fails to
conform to any requirement set forth in Article III, Sections 1 or 2. Buyer shall also have the
right to reject a shipment if the coal in such shipment fails to conform to any requirement set
forth in Article III, Section 3, applicable to said shipment. Should Buyer elect to exercise such
right of rejection, it shall notify Seller of its election, such notification to be promptly
confirmed in writing.

     (b) Buyer shall have the right to suspend further shipments of coal hereunder from any
approved shipping origin(s) in the event the coal quality from such shipping origin(s) fails to
meet the defined minimum or exceeds the defined maximum “Suspension” specifications as set forth in
Section 3 of this Article, or if the coal fails to conform to any requirement set forth in Sections
1 or 2 of this Article and/or Article II, Section 1. Should Buyer exercise such right to suspend
further shipments, Buyer shall notify Seller in writing within twenty (20) calendar days after the
day or half-month period in which such failure occurs.

15

 

     (c) Upon receipt of Buyer’s notice of suspension, Seller shall suspend further shipments from
such shipping origin(s) and make every reasonable effort to correct the conditions giving rise to
the shipment(s) of coal failing to conform to specifications. Seller shall inform Buyer in writing
on a weekly basis of such corrective actions taken by Seller.

     During such suspension, Seller shall, upon prior notice and subject to Seller’s reasonable
safety requirements, permit Buyer’s full access to the mine(s) designated in Exhibit 1, and to all
relevant engineering data and facilities related to such shipping origin(s). Buyer shall have the
right, but not the duty, to participate in discussions relating to the matter and to recommend
procedures to correct said matter.

     Such suspension shall continue until Seller provides buyer with assurances in writing that are
acceptable to Buyer (such acceptance not to be unreasonably withheld) stating that the conditions
causing shipment of nonconforming coal have been corrected and that Seller can and shall deliver
coal meeting Article III, Sections 1 and 2 and Article II, Section 1 requirements and meeting all
of the applicable specifications of Article III, Section 3.

     Upon receipt by Buyer of Seller’s satisfactory written assurances, shipments shall be resumed
at the rate specified in Article II.

     (d) In the event that: (i) Seller fails to provide Buyer with satisfactory assurances within
thirty (30) days after the date of Buyer’s notice of suspension as described in Article III,
Section 4(b); or (ii) having provided such assurances, Seller fails to correct such conditions and
resume shipments in the ensuing thirty (30) days thereafter; or (iii) after such resumption of
shipments, Seller’s subsequent deliveries from the suspended shipping origin(s) at any time during
the ensuing sixty (60) days fall below the minimum or exceed the maximum applicable “Suspension”
specifications in Article III, Section 3, or fail to conform to the requirements of

16

 

Article III, Sections 1 and 2, and Article II, Section 1; then Buyer shall have the right to
hold Seller in anticipatory breach of this Agreement and enforce any and all claims for past,
present, and future damages incurred or to be incurred by reason of such breach, subject to the
limitation of consequential damages as specified in Article XVIII, Section 2.

     (e) Whether shipments suspended pursuant to Article III, Section 4(b) hereof shall be made up
shall be subject to Buyer’s sole discretion, subject to a mutually agreeable schedule so that such
make up tonnage shall be shipped no later than 365 calendar days following the date of the
resumption of deliveries after such suspension.

     (f) Seller shall, at all times, exercise reasonable care and diligence in its efforts to ship
to Buyer coal which conforms to the “Contracted” specifications of Section 3 of this Article III.

     Section 5. The weight of the coal delivered pursuant to this Agreement shall be
determined by Buyer at its expense. For rail deliveries, the accuracy of scale(s) shall be
maintained between +0.20 percent. Scale(s) shall be calibrated at least once every six (6)
months in accordance with the guidelines established by the national Institute of Standards and
Technology Handbook #44. Such calibrations shall be performed by a party, mutually agreeable to
Buyer and Seller, in accordance with the aforementioned guidelines. For barge deliveries, conveyor
belt scales at the barge unloading facility(ies) shall be calibrated once each month to maintain
them to within +0.50 percent accuracy. The testing and calibration of such conveyor belt
shall be accomplished in accordance with the guidelines outlined in the National Institute of
Standard and Technology Handbook #44, or other procedures which shall be mutually acceptable to
Seller and Buyer. At Seller’s request, which Seller may make from time to time,

17

 

Buyer shall inform Seller of the result of such testing and calibration. It shall be the
responsibility of Buyer to arrange and schedule scale calibrations when required.

     Buyer shall give prompt notice by telephone or telegram and confirm such notice in writing to
Seller if and when any scales are discovered to be in error beyond the limits established above.
During any period when such scales are inoperable, determination of the quantities of coal
delivered shall be made by a procedure to be established by agreement of Buyer and Seller. Seller
shall have the right, but not the duty, to have a representative present at any and all times to
observe the determination of weights and/or recalibration or testing of scales; however, Buyer
shall not be obligated to notify Seller to be present. If Seller should at any time question the
accuracy of the weights thus determined, Seller shall so advise Buyer and confirm the same in
writing. Buyer shall arrange to test the scales and shall give written notice to Seller of the
date of such test so that Seller may have a representative present. If such test shows the scales
to be in error, they shall be adjusted to the required accuracy established above. If such test
requested by Seller shows the scales to be within the applicable limits established above for the
respective scale, then Seller shall pay all costs of such test, otherwise Buyer shall pay all such
cost.

     If, upon testing pursuant to the above paragraph, the scales are determined to be in error
beyond the limits established above, an adjustment of the payment to Seller shall be made based on
the assumption that the condition causing the scales to be in error beyond such limits shall have
existed with respect to all coal unloaded on and after thirty (30) calendar days prior to Seller’s
notification to Buyer that Seller questions the accuracy of the weights, or the date of the
previous scale calibration, whichever is later. Such adjustments shall be in an amount equal to
the difference in the weights as specified in the applicable invoices and the weights that would

18

 

have been obtained had the scales not been inaccurate, multiplied by the price per ton as
stated in said invoices.

     If, upon any regular calibration of the scales, the scales are determined to be in error
beyond the limits established above, an adjustment shall be made in the same manner provided in the
preceding paragraph, such adjustment to be based on the assumption that the condition causing the
scales to be in error beyond such limits shall have existed with respect to all shipments weighed
on and after a date thirty (30) calendar days prior to such determination, or the date of the
previous scale calibration, whichever is later.

     Any payments due by either party to the other, as a result of adjustments made pursuant to
this Article III, Section 5, shall be paid within thirty (30) calendar days from the date of the
determination thereof.

ARTICLE IV

PAYMENT

     Buyer shall pay Seller by wire transfer (recipient account per Seller’s advice) in United
States Funds for all coal received, unloaded, taken into account, and accepted hereunder.

     Buyer shall submit to Seller the weight, analytical, and pricing data on such coal taken into
account and accepted during each half-month within five (5) working days after each such
half-month. Thereafter, Seller shall mail to Buyer, within two (2) working days of receipt of such
information, an invoice (referencing the contract number designated by Buyer), in triplicate,
covering such half-month unloadings.

     Buyer shall make payment to Seller within twenty (20) calendar days after the close of such
half-month, provided Seller’s invoice is submitted in accordance with the preceding paragraph.

19

 

     For the purpose of this Agreement, “month” shall mean a calendar month and “half-month” shall
mean either the first fifteen (15) calendar days of a month or the calendar days in a month after
the fifteenth (15th) calendar day thereof, as the case may be.

ARTICLE V

PRICE

     For coal accepted hereunder, the FOB railcar or FOB barge price for all approved shipping
origins to be paid to Seller by Buyer (hereinafter “Selling Price”) for each ton thereof shall be
the then applicable Base Price (as determined under Article VI) plus or minus such other charges or
credits to the Base Price as determined pursuant to Article VII, and Article II, Section 3, if
applicable.

ARTICLE VI

BASE PRICE & BASE PRICE ADJUSTMENTS

     Section 1. The initial Base Price shall be $45.00 per ton, effective November 1, 2007.
Such Base Price shall be subject to adjustments in accordance with the provisions hereinafter set
forth in this Article VI.

     Section 2. The Base Price shall be redetermined, to the nearest tenth of a cent by the
methods prescribed in Section 3 of this Article. The Base Price as so adjusted shall be the Base
Price applicable to any coal shipped on and after the effective date of any such adjustment and
shall remain in effect until the Base Price is again adjusted pursuant to this Article.

     Section 3. Adjustable Components.

     (a) [Intentionally blank]

     (b) Assessments Components. The Assessments Component shall be adjusted effective on
the first day of the next half-month following the effective date of any change occurring after
November 1, 2007 (except when such change is effective on the first day of a

20

 

month in which case the Assessments Component shall be adjusted as of such date) in the
assessment to Seller for Federal Reclamation Fee, Federal Black Lung Excise Tax, West Virginia
Special Reclamation Tax, and West Virginia Mines and Minerals Operations Fund Tax, as further
defined in this Section 3(b). Such amounts shall be adjusted for any related tax credits allowed
Seller. For the purposes of calculating price adjustments under this Section 3(b), all adjustments
shall be deemed to be based on those assessments applicable to underground mining.

The initial amounts of the Federal Reclamation Fee and the Federal Black Lung Excise Tax as shown
in Section 4 below are net of a four percent (4%) deduction for moisture content in excess of
inherent moisture ($.135 — $.005 = $.130 Federal Reclamation Fee, and $1.100 — $0.044 = $1.056
Federal Black Lung Excise Tax). In the event of an adjustment to the base amounts of $0.150 per
ton and $1.100 per ton for the Federal Reclamation Fee and the Federal Black Lung Excise Tax
respectively, the adjusted amounts pursuant to this Section 3(b) shall reflect said four percent
(4%) deduction for moisture content in excess of inherent moisture. Said four percent (4%)
deduction shall be fixed and firm for the term of this Agreement.

     (c) Changes in Law. Seller hereby certifies that to the best of its knowledge the
approved production source(s) are in good faith compliance with the rules, practices, and standards
issued by any governmental agency with respect to legislation, regulations, rules, or mandates
which were in effect either by interim or final rules, or passed, adopted, or promulgated but to go
into later effect, as of November 1, 2007.

     (i) In the event of the enactment, modification, revision, or changes in the interpretation as
set forth in a legally enforceable written policy memorandum from the applicable governmental
entity or decision by a court of competent jurisdiction of any federal, state or local legislation,
regulations, rules, or mandates issued pursuant thereto, including but

21

 

not limited to the Federal Mine Safety & Health Act of 1977 and the Surface Mining Control and
Reclamation Act of 1977, after November 1, 2007, which affect the bituminous coal industry with
respect to reclamation; conservation; environmental protection; mine safety; mine working
conditions and practices; ventilation; health; occupational hazards; research, reclamation, and
conservation of mined area; or other aspects of coal production, and which increases or decreases
Seller’s cost of producing coal under this Agreement, an equitable adjustment will be made to the
current Base Price to recognize such changed cost; provided, however, there shall be no changes
made in the Base Price hereunder for changed costs related to labor related benefits or taxes, real
or personal property taxes, corporate net income and franchise taxes, Federal Reclamation Fee,
Federal Black Lung Excise Tax, West Virginia Special Reclamation Tax, and West Virginia Mines and
Minerals Operations Fund Tax, inasmuch as the exclusive adjustments for such items are provided for
in Subsection (a) and (b) hereof, (should any such item listed for exclusion become known by a
different name, or should a new tax or assessment be levied for the same purpose(s), there shall
likewise be no change under this Subsection (c) for any such item).

     Buyer shall have the right, but not the obligation, to terminate this Agreement should any
such adjustment cause the Base Price to be increased by more than twenty-five percent (25%) of its
then current amount or should the total of all such adjustments under this Section 3(c) cause the
Base Price to be increased by more than fifty percent (50%) of its initial amount as of November 1,
2007. Should Buyer terminate the Agreement as provided in the prior sentence, Seller may nullify
such termination by giving written notice to Buyer within ten (10) calendar days after receiving
Buyer’s notice of such termination that Seller permanently waives its right to the amount of such
adjustment which is in excess of any such limits, as applicable.

22

 

     If any of the foregoing governmental actions cause Seller to incur any increase in costs as
hereinbefore described, then Seller shall consider and, if in its good faith judgment determines it
is warranted (as further defined), contest or appeal the legal basis of such actions and/or its
application to Seller, with the objective of mitigating any resulting increase in the Base Price
under this Article. Seller shall consult with Buyer in conjunction with making such determination,
which shall be based upon, by way of illustration but not of limitation, the likelihood of
prevailing in such action and by the economic impact, absent such contest or appeal, upon such Base
Price.

     Seller shall notify Buyer in the event of any governmental action applicable under this
Article and shall submit detailed documentation to allow determination of any such adjustment.
Notwithstanding Article XI, Section 3, if Seller and Buyer are unable to agree within ninety (90)
days of receipt by Buyer of Seller’s documentation as to the amount the price per ton should be
adjusted or as to whether the event is applicable, then the matter shall be submitted to a firm of
mining engineers and/or independent certified public accountants mutually agreeable to the parties
for final determination, which shall be binding upon the parties. The costs associated with any
such mining engineers’ and/or certified public accountants’ review shall be shared equally by the
Buyer and Seller.

     If upon agreement or final determination, an adjustment in the cost per ton is found to be
appropriate, appropriate credit for such amount on all tons shipped and accepted on and after the
effective date of any such change resulting in such price adjustment, plus interest computed on the
basis of the prime rate in effect at Citibank, N.A., commencing sixty (60) days after the effective
date of such change, shall be made to the party to whom the benefit of such credit is due;
provided, however, that Seller shall not be entitled to any such credit for such tonnage

23

 

delivered prior to the date upon which Seller’s written request for such adjustment is
received by Buyer, nor for interest for a period of sixty (60) days subsequent to such date of
Buyer’s receipt.

     (ii) If Buyer elects to terminate this Agreement under the provisions of this Article VI,
Section 3(c), then neither party shall have, after the effective date of such termination, any
further obligation under this Agreement; provided, however, that such termination shall not affect
any rights or obligations of Buyer or Seller existing under this Agreement for coal shipped or
required to be shipped prior to the effective date of said termination.

     (d) West Virginia Severance Tax Component. The Base Price includes a component for
West Virginia Severance Tax in the amount of five percent (5.00%) of the Base Price. Any time
there is a change in any of the Base Price Components or a change in the Severance Tax rate, a new
Severance Tax Component shall be calculated in accordance with the formula set forth in Exhibit 2,
attached hereto and hereby made a part hereof. Such components shall be adjusted for any related
tax credits allowed Seller.

     Section 4. The amount of the initial Base Price allocated to each Component thereof,
and the method to be used for the adjustment of each such Component, are as follows:

24

 

	 	 	 	 	 	 	 
	 	 	Initial Amount	 	 
	Component	 	Per Ton of Base Price	 	Comments
	Unadjusted Fixed Portion

	 	 	41.621	 	 	 
	Assessments
	 	 	 	 	 	 
	a. Federal
Reclamation Fee

	 	 	.130	 	 	Shall be adjusted pursuant to Article
VI, Section3(b)
	b. Federal Black
Lung Excise Tax

	 	 	1.056	 	 	 
	c. WV Special
Reclamation Tax

	 	 	.030	 	 	 
	d. WV Mines and
Minerals
Operations Fund
Tax

	 	 	.020	 	 	 
	Changes in Law

	 	 	0.000	 	 	Shall be adjusted
pursuant to Article
VI, Section3(c)
	WV Severance Tax

	 	 	2.143	 	 	Shall be adjusted
pursuant to Article
VI, Section 3(d)
	INITIAL FOB BASE PRICE

	 	$	45.000	 	 	 

ARTICLE VII

ADJUSTMENT OF PRICE FOR QUALITY

     In order for the Selling Price to accommodate variations in calorific value and the sulfur
dioxide value of the coal delivered hereunder, there shall be an amount added to or subtracted from
the Base Price as provided in this Article.

25

 

     Section 1. If the weighted average calorific value of the Specification “A” coal
received at each respective consigned destination during the half-month period is greater than the
applicable “Contracted” half-month weighted average specification (“Guaranteed”) Btu per pound,
then there shall be an amount added to the Base Price, as determined by the following formula, to
arrive at the Selling Price for such coal:

	 	 	 	 	 
	Amount Per Ton of
Increase for
Caloric Value

	  =  	(Actual Btu — Guaranteed
Btu) x .73 
                
(Guaranteed Btu)
	x 	Base
Price Redetermined

Pursuant to Article
VI

provided, however, that no premium shall be paid for the increment, if any, by which the calorific
value of such coal exceeds the Guaranteed Btu by 1000 Btu per pound.

     Section 2. If the weighted average calorific value of the Specification “A” coal
received at each respective consigned destination during the half-month period is less than the
Guaranteed Btu per pound, then there shall be an amount subtracted from the Base Price, as
determined by the following formula, to arrive at the Selling Price for such coal:

	 	 	 	 	 
	Amount Per Ton of
Decrease for
Caloric Value

	  =  	(Guaranteed Btu — Actual
Btu) 
         
(Guaranteed Btu)
	  x  	Base Price
Redetermined 

Pursuant to Article
VI

     Section 3. An initial amount of three dollars ($3.00) per ton, subject to adjustment
of such initial amount as provided herein, shall be deducted from the Base Price to arrive at the
Selling Price for each unit train lot or bargeload lot (or a composite of two (2) or more bargeload
lots) of coal shipped having a sulfur dioxide (SO2) value greater than the maximum
SO2

26

 

Applicable Lot “Suspension” specification applicable under Article III, Section 3. This
deduction shall be in addition to the Btu quality adjustment as provided in Sections 1 and 2 of
this Article and to Buyer’s other remedies as provided in Article III of this Agreement.

At any time such shipments occur, the percentage change (carried out four decimal places, e.g.,
6.124% shall be 0.0612) between the initial Base Price and the adjusted Base Price applicable to
such coal shall be multiplied by three dollars ($3.00) and the amount obtained (rounded to the
nearest tenth of a cent) shall be added to or subtracted from, as the case may be, the three
dollars ($3.00) in lieu of any such previous adjustment thereto and the amount thus obtained shall
be the applicable Selling Price deduction for SO2 quality of such coal.

     Section 4. [Intentionally blank]

     Section 5. In addition to the foregoing provisions of this Article, if the combined
weighted average sulfur dioxide per million Btu value of Specification “A” coal received at the
consigned destination from all approved shipping origins during a half-month period is more than
1.20 lbs. per million Btu, then there shall be an amount subtracted from the Base Price as
determined by the following formula, to arrive at the Selling Price for such coal:

	 	 	 	 	 
	Amount Per Ton
of Decrease for
Excess SO2 Value

	  =  	Actual lbs.
SO2/Btu
— 1.20 lbs.
SO2/Btu
X 0.150 X
	 	Base Price Redetermined
Pursuant to Article VI

ARTICLE VIII

SAMPLING AND ANALYSES

     Section 1. All coal delivered hereunder shall be sampled by Buyer using a mechanical
sampling system before it is commingled with other coal and approximately at the time it is
weighed. The sampling party shall determine, by proper analyses made in its laboratory

27

 

and at its expense, the “as-received” quality and characteristics of the coal. The sampling
and analyses shall be performed in accordance with methods approved by the American Society for
Testing and Materials (ASTM), or such other method as may be mutually acceptable. Except as
otherwise provided in this Article, the results of the sampling and analyses by the sampling party
shall be accepted as the quality and characteristics of the coal delivered hereunder.

     Section 2. Seller shall have the right to have a representative present at any and all
times to observe the sampling and to receive a split of the resultant laboratory pulp when sampling
is being performed pursuant to Section 1 above, and Seller may also analyze the coal either from
its own samples or from samples taken by Buyer. Buyer shall retain the remaining portion of the
laboratory pulp of each coal sample until the twentieth (20th) day following the
calendar half-month in which the applicable lot of coal represented by such sample was unloaded at
the Plant so that Seller (and/or a commercial laboratory employed by Seller) may obtain and analyze
a portion of such laboratory pulp. Seller’s analytical results obtained from such pulp portion,
however, shall not be relevant for any purpose under the Agreement.

     Section 3. The results of the sampling and analyses by Buyer shall be accepted as the
quality and characteristics of the coal delivered hereunder at each respective consigned
destination; provided, however, that if Seller should at any time question the correctness of
either the sampling or the analyses made by Buyer, Seller shall have the right to have up to two
(2) unit trains of coal or up to six (6) bargeload lot(s) of coal hereunder individually sampled
and analyzed by a commercial testing laboratory, mutually chose, and using mutually acceptable
procedures. The results of such commercial testing laboratory’s sampling and analyses shall be
accepted as the quality and characteristics of such coal. If the average of one or more of the coal
quality parameter values of the gross samples separately collected and analyzed by the

28

 

commercial testing laboratory differ by more than the ASTM (or other mutually agreed
methodology) reproducibility tolerance ranges for such respective coal quality parameter, when
compared to the average values of the gross samples separately collected and analyzed by the Buyer
when both sets of samples have been taken from the same delivery of coal, then Buyer shall pay such
charges of such commercial testing laboratory, otherwise Seller shall pay such charges.

     Section 4. Unless Seller challenges, pursuant to Section 3 of this Article, the
accuracy of either the sampling or analyses made by Buyer by written notice to Buyer within thirty
(3) calendar days after receipt of Buyer’s notice of such analytical results, Seller shall be
deemed to have waived all claims with respect to such sampling and analyses.

     Section 5. Coal received, unloaded, and taken into account that is not sampled but not
analyzed for reasons beyond Buyer’s control shall be taken into account as follows: If during any
half-month at least seventy-five (75) percent (by weight) of coal delivered from an approved
shipping origin at a respective consigned destination during such period has been sampled and
analyzed, then the weighted average analytical results of such samples shall be applicable to all
coal delivered from such shipping origin to such consigned destination during such half-month
period. If at least seventy-five (75) percent (by weight) of coal delivered from an approved
shipping origin at a consigned destination during any such half-month period has not been sampled
and analyzed, then the weighted average analytical results of the portion of sampled and analyzed
coal shall apply to such portion, and the weighted average analytical result of the last preceding
four (4) half-months in which at least seventy-five (75) percent (by weight) of the coal delivered
from such shipping origin to such consigned destination was sampled and analyzed

29

 

shall be applicable to such portion of the coal delivered from such shipping origin which was
not sampled and/or was not analyzed for such half-month period.

ARTICLE IX

[Intentionally blank]

ARTICLE X

MAJOR TECHNOLOGICAL IMPROVEMENTS

     The parties hereto recognize that major technological improvements during the term hereof in
mining, hauling, handling, or processing coal may provide Seller the opportunity to reduce its
costs of supplying coal hereunder. Seller agrees to consider the introduction of any such new
technology in mining, hauling, handling, or processing coal at the approved production sources and
shall implement such new technology if feasible. The Selling Price for all coal delivered from any
approved production source where any such new technology is introduced shall be reduced by fifty
percent (50%) of the difference between Seller’s normal production, hauling, handling, and
processing costs per ton without such new technology and such production, hauling, handling, and
processing costs per ton subsequent to the implementation of such new technology, including
depreciation of any related capital expenditures(s), amortization of any costs related to
installation of such new technology, and a rate of return on such expenditures and costs at the
then existing prime rate of Citibank, N.A., prorated over the normal useful life of any such
capital expenditure(s).

     The Selling Price hereunder shall not be reduced pursuant to this Article X based on Seller’s
use in the approved production sources of any technology, if such technology was generally
available for commercial use in the mining industry as of November 1, 2007.

30

 

ARTICLE XI

ADMINISTRATIVE PROGRAM

     Section 1. [Intentionally blank]

     Section 2. In the event that supervening events or circumstances shall render
inapplicable any of the methods set forth in Article VI for computing price adjustments hereunder,
the parties hereto shall meet promptly to consider and agree upon new and revised methods
appropriate to the circumstances then prevailing.

     Section 3. Seller and Buyer shall keep accurate up-to-date records and books of
account showing all costs, payments, price revisions, credits, debits, weights, analyses, and all
other data required of each of them for the purpose of administering this Agreement.

     Each time the price is to be revised in accordance with Article VI and at any other reasonable
time upon ten (10) days notice from Buyer, Seller shall furnish to Buyer a detailed statement (a
“claim”) showing Seller’s calculations of the price which should then be in effect under the
provisions of this Agreement.

     Buyer shall make a preliminary review of the claim within a reasonable amount of time. Upon
completion of Buyer’s preliminary review, Buyer may submit to Seller a letter explaining the
differences, if any, in the price as shown on the claim and the price as determined by Buyer’s
preliminary review. Buyer shall then submit a letter agreement to Seller for its review and
countersignature to establish a tentative price adjustment. The price adjustment as agreed to in
the fully executed letter agreement, either a debit or credit, shall be processed using Buyer’s
normal payment procedures and, if necessary, a tentative retroactive adjustment shall be made by
payment to the party to whom such tentative adjustment is due.

     From time to time, representatives of Buyer shall audit Seller’s claim(s) and recommend final
price adjustments associated with such claim(s). Thereafter, Buyer shall submit a letter

31

 

agreement to Seller for its review and countersignature to establish a final price adjustment.
The price adjustment as agreed to in the fully executed letter agreement, either a debit or
credit, shall be processed using buyer’s normal payment procedures and, if necessary, a final
retroactive adjustment shall be made by payment to the party to whom such final adjustment is due.

     Section 4. Buyer and its designated representatives and/or agents including its
auditors, engineers, and geologists, shall at reasonable times, upon reasonable notice, have access
to the mine(s) producing coal under this Agreement; to all support facilities and to all records
pertaining to the coal reserves covered by this Agreement); to all records pertaining to
transportation costs, the determination of weights, and to any adjustments in price under this
Agreement; and to all records relating to the sampling and analytical determinations made pursuant
to Article VIII of this Agreement.

ARTICLE XII

FORCE MAJEURE

     No party shall be subject to liability to the other party for the failure to perform in
conformity with this Agreement where such failure results from an event or occurrence beyond the
control of the party affected thereby (and, in regard to Seller’s failure, is due solely to an
event or occurrence pertaining to the approved production source[s] making then current deliveries
to Buyer), such as without limitation, acts of God, war, insurrection, riots, nuclear disaster,
strikes, labor disputes, threats of violence, labor and material shortages, fires, explosions,
floods, river water levels or freeze-ups, breakdowns or damage to mines, plants, equipment or
facilities (including emergency outages or an extension of a scheduled outage of equipment or
facilities to make repairs to avoid breakdowns thereof or damage thereto), interruptions to or
slowdowns in transportation, railcar shortages, barge shortages, river lock outages, embargoes,
orders or acts of civil or military authority, laws, regulations, or

32

 

administrative rulings. The provisions of the above sentence shall not excuse a party from
performing unless such party shall give written notice to the other party and furnish full
information as to the cause of the force majeure event and probable extent thereof within thirty
(30) calendar days after such cause occurs. Failure to give such notice and furnish such
information within the time specified shall be deemed a waiver of all rights under this Article for
such period of time during which notice was not given. No suspension or reduction by reasons of
force majeure shall invalidate the remainder of this Agreement but, on the removal of the cause,
shipments shall resume at the specified rate. (During such periods when a force majeure event or
occurrence claimed by Seller results in a reduction in shipments, shipments from the affected
production source(s) for ultimate delivery under this Agreement shall not be reduced below the pro
rata share which the average rate of such shipments therefrom pursuant to this Agreement for the
six (6) months preceding the force majeure event bears to the total contractual commitments to all
parties from such production source(s) as of the date of the force majeure event.) Deficiencies in
shipments under this Article shall be made upon in accordance with a mutually agreeable schedule.
Delivery of make up tonnage shall be scheduled so that such deliveries shall be shipped no later
than 365 calendar days following the date of the termination of the force majeure event which gave
rise to the suspension or reduction of shipments to be made up; provided, however, that the
delivery rate for any make up tons shall not exceed twenty-five thousand (25,000) tons per month,
unless otherwise required by Buyer and agreed to by Seller.

     Without limiting the generality of this Article, in the event of a partial or total
curtailment of the generating capacity at the Plant or partial or total curtailment of transmission
or distribution of electricity therefrom, or any other force majeure event pertaining to Buyer,
Buyer

33

 

shall be relieved under this Article from its obligation to accept any portion or all
deliveries form Seller based upon the quantity of Seller’s coal scheduled for delivery under this
Agreement during the period over which such force majeure event or occurrence exists or existed.

     Seller shall furnish Buyer a monthly statement by the fifteenth (15th) day of the
calendar month setting force the amount of tonnage not shipped because of force majeure causes
asserted during the preceding calendar month, and shall inform Buyer in writing on a weekly basis
during the duration of such force majeure event as to the progress of the alleviation thereof.

     Nothing herein contained shall be construed as requiring Seller or Buyer to accede to any
demands of labor, or labor unions, or suppliers, or other parties which Seller or Buyer considers
unacceptable.

ARTICLE XIII

WARRANTIES AND DEDICATION

     In addition to all other warranties and representations made by Seller in this Agreement,
Seller represents and warrants that (i) Seller has sufficient reserves of coal as defined in
Exhibit 1 to satisfy the quantity and quality provisions of this Agreement during the original term
hereof, including, but not limited to any elections of Buyer as to quantity under Article II,
Section 1; (ii) Seller is or will be, at the time specified for the first delivery of coal
hereunder, in good faith compliance with all laws and regulations regarding the mining and sale of
coal (notices and orders issued under the Federal Coal Mine Health and Safety Act and State and
Federal Reclamation Acts excepted); and (iii) Seller has filed or will have filed in a timely
manner to have obtained by said time all licenses, permits, certificates, and other documents
necessary for it to fulfill its obligations hereunder. Seller shall furnish, within thirty (30)
days of Buyer’s request, which Buyer may make from time to time and at any time, to Buyer a
statement

34

 

indicating the amount of reserves that remain to fulfill the quantity and quality requirements
of this Agreement.

     Seller covenants that it will, and does hereby, dedicate to this Agreement such quantity of
said coal reserves and appurtenant facilities as is required for the full performance of Seller’s
obligations hereunder during the original term (including Buyer’s options of quantity) and that
Seller will not sell nor contract to sell to others nor take for its own use coal from said
reserves in such quantity and quality as to jeopardize its ability to deliver the total quantity
and quality of coal called for by this Agreement. Nothing in this Article XIII shall be construed
as preventing Seller from mining and selling coal from said reserves to others nor from utilizing
said facilities provided Seller complies with the foregoing provisions with respect thereto.

ARTICLE XIV

BUYER’S RIGHT TO MARKET COAL WITH ORIGIN WEIGHTS AND ANALYSES

     Buyer reserves the right, at any time, and from time to time, at its sole discretion to sell
to any person, firm, or corporation whether or not associated or affiliated with Buyer any or all
coal purchased by Buyer under this Agreement where origin weights and analyses by Seller apply.

     In the event of any such sales by Buyer, and Buyer does not sample, analyze, and weigh said
coal, Seller’s analyses and weights shall govern for the purpose of payment to Seller, subject to
Buyer’s right, at Buyer’s sole risk and expense, to examine Seller’s sample, analyses, and weight
records and to have representatives present when Seller performs the sampling, analyses, and
weighing; provided, that in the event that Buyer challenges in writing the accuracy of the
sampling, analyses, or weights of Seller, then buyer shall have all of the rights and obligations
of “Seller” pursuant to Article III, Section 5 and Article VIII of this Agreement, and Seller shall
have all of the rights and obligations of “Buyer” under such provisions.

35

 

ARTICLE XV

[Intentionally blank]

ARTICLE XVI

GOVERNMENT COMPLIANCE CERTIFICATE

Seller hereby agrees that it does, and for the term of this Agreement will, comply with the duties
of “SELLER” under the “Government Contractor Compliance Certificate,” attached hereto and hereby
made a part hereof marked Exhibit 3.

ARTICLE XVII

EMPLOYEE INTEREST

     Seller represents to Buyer that Seller has not given and will not give, directly or
indirectly, anything of value to any employee or other representative of Buyer or its subsidiaries
or affiliates with the view of securing this Agreement or obtaining favorable treatment with
respect to the performance of this Agreement. If such representation is untrue, or becomes untrue,
Buyer shall have the right to terminate this Agreement, to sue for damages, and to take such other
action as may be provided by law. If Seller obtains knowledge at any time that any such employee
has a direct or indirect interest in Seller or its affiliates, it will immediately inform Buyer of
such fact.

ARTICLE XVIII

WAIVER AND LIMITATION OF DAMAGES

     Section 1. The failure of any party to insist in any one or more instances upon strict
performance of any of the provisions of this Agreement or to take advantage of any of its rights
hereunder shall not be construed as a future waiver of any such provisions or the relinquishment of
any such rights, but the same shall continue and remain in full force and effect for the term of
this Agreement.

36

 

     Section 2. Neither Seller nor Buyer shall be liable for any special, incidental, or
consequential damages which exceed, in the aggregate, twenty-five million dollars ($25,000,000.00)
for the entire term of this Agreement.

ARTICLE XIX

[Intentionally blank]

ARTICLE XX

[Intentionally blank]

ARTICLE XXI

CONFIDENTIALITY

     The parties and their agents or representatives who, by this Agreement or otherwise, obtain
any documents or other information relative to this Agreement, shall, except for the acceptable
disclosure of information to other affiliated companies which shall also keep the same
confidential, keep confidential the terms and conditions of this Agreement, the transactions
provided for herein, and any such documents or other information unless readily ascertainable from
public information or sources, requested by a regulatory commission, or required by law to be
disclosed.

ARTICLE XXII

FINALITY

     This Agreement is intended as the final, complete, and exclusive statement of the terms of the
Agreement between the parties. The parties agree that parol or extrinsic evidence may not be used
to vary or contradict the express terms of this Agreement. This Agreement shall not be amended or
modified and no waiver of any provision hereof shall be effective, unless set forth in a written
instrument authorized and executed with the same formality as this Agreement.

37

 

     The titles of the articles and sections of this Agreement have been inserted as a matter of
convenience for reference only.

ARTICLE XXIII

GOVERNING LAW

     This Agreement shall be construed, enforced, and performed in accordance with the laws of the
State of West Virginia.

38

 

EXHIBIT 1

Page 1 of 2

Revision Effective November 1, 1995

SELLER’S PRODUCTION SOURCE(S), RESERVES OF COAL, APPROVED RAIL

SHIPPING ORIGIN(S), AND APPROVED BARGE SHIPPING ORIGIN(S)

     The production source(s) and reserves of coal to which reference is made to
in Section 1 of Article III and in Article XIII, respectively, consist of the
following:

Sources and Reserves of Coal for Specification “A” Coal:

	1)	 	Big Mountain Complex (as depicted on the map attached hereto and
hereby made a part hereof) extracting the reserves consisting of the
Kittanning, Coalburg, Stockton, Dorothy, Chilton, and Hernshaw seams of coal
in Boone County, West Virginia.

	2)	 	Colony Bay Mine (as depicted on the map attached hereto and hereby
made a part hereof) extracting the reserves consisting of the Kittanning,
Coalburg, and Stockton seams of coal in Boone County, West Virginia.

	3)	 	Rocklick Complex (as depicted on the map attached hereto and hereby
made a part hereof) extracting the reserves consisting of the Winifrede,
Hernshaw, and No. 2 Gas seams of coal in Boone County, West Virginia.

	4)	 	Wells Complex (as depicted on the map attached hereto and hereby made
a part hereof) extracting the reserves consisting of the Powellton, No. 2
Gas, and Eagle seams of coal in Boone County, West Virginia.

	5)	 	Harris Mine (as depicted on the map attached hereto and hereby made a
part hereof) extracting the reserves consisting of the Eagle and No. 2 Gas
seams of coal in Boone County, West Virginia.

	6)	 	Robin Hood Complex (as depicted on the map attached hereto and hereby
made a part hereof) extracting the reserves consisting of the Dorothy,
Williamson, Chilton, and Kittanning seams of coal in Boone County, West
Virginia.

	7)	 	NuEast Mine (as depicted on the map attached hereto and hereby made a
part hereof) extracting the reserves consisting of the Kittanning, Clarion,
Stockton, Coalburg, Winifred, No. 2 Gas, Powellton, and Eagle seams of coal
in Kanawha, Fayette, and Boone Counties, West Virginia.

	8)	 	Cook Mountain Reserve (as depicted on the map attached hereto and
hereby made a part hereof) extracting the reserves consisting of the
Kittanning, Stockton-Lewiston, and Coalburg seams of coal in Boone County,
West Virgina.

 

EXHIBIT 1

Page 2 of 2

Revision Effective May 1, 1996

SELLER’S PRODUCTION SOURCE(S), RESERVES OF COAL,

APPROVED RAIL SHIPPING ORIGIN(S), AND 

APPROVED BARGE SHIPPING ORIGIN(S)

Approved Rail Shipping Origin(s) for Specification “A” Coal:

	 	 	 	 	 
	Facility	 	Origin rail Station	 	OPSL No.
	Big Mountain 

Wells 

Rocklick 

Colony Bay 

Harris 

Robin Hood 

Cook Mountain 

Cook Mountain

	 	Prenter, WV

Wells Prep Plant, WV

Lick, WV

Wharton, WV

Harris, WV

Robin Hood, WV

Wells Prep Plant, WV

Robin Hood, WV
	 	CSXT 64790

CSXT 65275

CSXT 65288

CSXT 65285

CSXT 65289

CSXT 65325

CSXT 65275

CSXT 65325

 

Exhibit 2

WEST VIRGINIA SEVERANCE TAX

     Whenever there is any change in the Base Price or a change in the West Virginia Severance Tax
Rate, a new West Virginia Severance Tax subcomponent shall be calculated and the Base Price shall
be adjusted to reflect such change in accordance with the following:

	 	 	 	 	 	 	 
	 

	 	T =
	 	    R      
x

1 — R
	 	BPE

where:

	 	T = 	 	Revised West Virginia Severance Tax Subcomponent
	 
	 	R = 	 	The Statutory West Virginia Severance Tax Rate
	 
	 	BPE = 	 	The Current Base Price, excluding the West Virginia Severance Tax
subcomponent

 

Exhibit 3

Government Compliance Certificate

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00131-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00131-of-00352.parquet"}]]