Document:

exv10w2

	 	 	 	 	 

Exhibit 10.2

RESTATED EMPLOYMENT AGREEMENT

     This AGREEMENT (the “Agreement”) is entered into as of December 31, 2008 (the “Commencement
Date”) by and between Peabody Energy Corporation, a Delaware corporation (the “Company”), and
Richard A. Navarre (“Executive”). This Agreement is a continuation, in the form of a complete
restatement to incorporate updated provisions and new legal requirements, of the most recent
employment agreement between the Company and Executive dated May 19, 1998 (the “Prior Agreement”).

RECITALS

     To induce Executive to continue to serve as the Company’s President and Chief Commercial
Officer, the Company desires to continue to provide Executive with compensation and other benefits
on the terms and subject to the conditions set forth in this Agreement.

     Executive is willing to accept such continued employment and to continue to perform services
for the Company, on the terms and subject to the conditions hereinafter set forth.

     It is therefore hereby agreed by and between the parties as follows:

     1. Employment.

          1.1 Subject to the terms and conditions of this Agreement, the Company agrees to continue to
employ Executive during the term hereof as President and Chief Commercial Officer. In such
capacity, Executive shall report to the Chairman and Chief Executive Officer of the Company (the
“Chairman and CEO”) and shall have the customary powers, responsibilities and authority of
executives holding such positions in corporations of the size, type and nature of the Company, as
it exists from time to time, and as are assigned by the Chairman and CEO.

          1.2 Subject to the terms and conditions of this Agreement, Executive hereby accepts continued
employment as President and Chief Commercial Officer, measured from the date of the Prior
Agreement, and agrees, subject to any period of vacation or other approved leave, to continue to
devote his or her full business time and efforts to the performance of services, duties and
responsibilities in connection therewith, subject at all times to review and control of the
Chairman and CEO.

          1.3 Subject to Executive’s compliance with all of the provisions of the Company’s code of
conduct and other policies, nothing in this Agreement shall preclude Executive from engaging in
charitable work and community affairs, from delivering lectures, fulfilling speaking engagements or
teaching at educational institutions, from managing any investment made by him or her or his or her
immediate family with respect to which Executive is not substantially involved with the management
or operation of the entity in which Executive has invested (provided that no such investment in
publicly traded equity securities may exceed five percent (5%) of the equity of any entity without
the prior written approval of the Chairman and

 

 

CEO) or from serving, subject to the prior written approval of the Chairman and CEO, as a
member of boards of directors or as a trustee of any other corporation, association or entity, to
the extent that any of the above activities do not materially interfere with the performance of his
or her duties hereunder. For purposes of the preceding sentence, any approval by the Chairman and
CEO required therein shall not be unreasonably withheld.

     2. Term of Employment. Executive’s term of employment (the “Term of Employment”)
commenced on the date of the Prior Agreement and, subject to termination as provided herein, has a
two (2) -year term. On a daily basis, the Term of Employment shall be automatically extended by
one additional day unless Executive’s employment hereunder has terminated under Section 6.

     3. Compensation.

          3.1 Salary. During the Term of Employment, the Company shall pay Executive a base
salary (“Base Salary”) at the initial rate of $730,000. Such Base Salary shall be payable in
accordance with the ordinary payroll practices of the Company. During the Term of Employment, the
Compensation Committee of the Board (the “Compensation Committee”) and/or the Chairman and CEO
shall review Executive’s Base Salary in good faith, at least annually, in accordance with the
Company’s customary procedures and practices regarding the salaries of senior executives, and may
increase Executive’s Base Salary following such review. “Base Salary” for all purposes herein
shall be deemed to be a reference to the Base Salary in effect as of any date that requires the
determination of Executive’s Base Salary hereunder.

          3.2 Annual Bonus.

     (a) In addition to Base Salary, Executive shall be eligible to receive an annual cash
bonus (the “Bonus”) in accordance with a program developed by the Board, based on
achievement of performance targets established by the Compensation Committee and/or the
Chairman and CEO as soon as practicable at or after the beginning of the calendar year to
which the performance targets relate. Executive’s Bonus opportunity for the 2008 fiscal
year is 90% of his or her Base Salary. Executive’s maximum Bonus
opportunity for the 2008 fiscal year is 180% of his Base Salary. The Compensation Committee and/or the Chairman and
CEO shall review Executive’s Bonus opportunity in good faith from time to time in accordance
with the Company’s customary procedures and practices regarding the bonus opportunities of
senior executives, and may adjust Executive’s Bonus opportunity following such review.
“Bonus” for all purposes herein, except as otherwise specifically stated, shall be deemed to
be a reference to the Bonus opportunity in effect as of any date that requires the
determination of Executive’s Bonus hereunder.

     (b) A Bonus award for any calendar year shall be payable to Executive at the time
bonuses are paid to executive officers for such calendar year in accordance with the
Company’s policies and practices, but in no event later than March 15 of the calendar year
following the later of (i) the calendar year in which the Bonus is earned or (ii) the
calendar year in which the Bonus is no longer subject to a substantial risk of forfeiture
within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the
“Code”), and the Treasury regulations and other guidance in effect thereunder (collectively,
“Section 409A”).

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          3.3 Equity-Based Compensation. Any outstanding stock option or other equity-based
incentive agreements as of the date hereof shall remain in full force and effect and shall not be
affected by this Agreement. Executive shall be eligible to receive, from time to time during the
Term of Employment, equity-based compensation awards under the Company’s equity incentive plan(s)
(the “Long-Term Incentive Awards”). Any such Long-Term Incentive Awards shall be governed by
separate grant agreements. The grant date value for Executive’s Long-Term Incentive Awards for the
2008 fiscal year is 275% of his or her Base Salary, with a
maximum potential payout level for Performance Units to be determined
in accordance with the performance matrix set forth in the 2008
Performance Units Agreement. The Compensation Committee and/or the Chairman
and CEO shall review the grant date value of Executive’s Long-Term Incentive Awards in good faith
from time to time in accordance with the Company’s customary procedures and practices regarding the
long-term incentive awards of senior executives, and may adjust the grant date value of future
Long-Term Incentive Awards to Executive following such review. “Long-Term Incentive Award” for all
purposes herein, except as otherwise specifically stated, shall be deemed to be a reference to the
grant date Long-Term Incentive Award value in effect as of any date that requires the determination
of Executive’s Long-Term Incentive Award value hereunder or under any grant agreement.

     4. Employee Benefits.

          4.1 Employee Benefit Programs, Plans and Practices; Perquisites. The Company shall
provide Executive with employee benefits and perquisites at a level (a) commensurate with his or
her position in the Company and (b) at least as favorable to Executive as the arrangements the
Company provides to its other senior executives that are in effect and open to new participants on
the Commencement Date, including retirement benefits, health and welfare benefits, the Continuation
Benefits (as defined in Section 6.2(b)(ii)(B)(II)), directors and officers insurance and/or an
indemnification agreement that covers claims arising out of actions or inactions occurring during
the Term of Employment, and other employee benefits and perquisites which the Company may make
available to its senior executives from time to time in its discretion on and after the
Commencement Date. Executive’s rights under any employee benefit plans or programs of the Company
as of the Commencement Date shall continue in accordance with plan or program terms as in effect at
any given time.

          4.2 Vacation. Executive shall be entitled to the number of business days paid
vacation in each calendar year as determined in accordance with the Company’s applicable vacation
policies, which shall be taken at such times as are consistent with Executive’s responsibilities
hereunder.

     5. Expenses. Subject to prevailing Company policy or guidelines, the Company will
reimburse Executive for all reasonable expenses incurred by Executive in carrying out his or her
duties on behalf of the Company, provided that payment or reimbursement of expenses shall be made
promptly and in no event later than December 31 of the year following the year in which such
expenses were incurred, the amount of such expenses eligible for payment or reimbursement in any
year shall not affect the amount of such expenses eligible for payment or reimbursement in any
other year and no such right to payment or reimbursement shall be subject to liquidation or
exchange for another benefit.

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     6. Termination of Employment.

          6.1 Termination of Employment for Any Reason. Except as otherwise specifically
provided in this Agreement, the Company or Executive may terminate Executive’s Term of Employment
at any time for any reason by written notice to the other party at least thirty (30) days in
advance of the date of termination of Executive’s employment. In the event of a termination of
Executive’s employment for any reason during the Term of Employment, the Company shall pay to
Executive:

     (a) within five (5) business days following the date of termination of Executive’s
employment, a lump sum that includes: (i) Executive’s Base Salary earned on or prior to the
date of such termination but not yet paid to Executive in accordance with the Company’s
customary procedures and practices for the payment of executive salaries; (ii) any business
expenses incurred by Executive and properly submitted for reimbursement, but not yet
reimbursed by the Company under Section 5 above as of the date of such termination; and
(iii) any vacation time accrued but unused as of the date of such termination;

     (b) any benefits accrued and vested under any of the Company’s employee benefit
programs, plans and practices on or prior to the date of termination of Executive’s
employment; and

     (c) if Executive’s employment terminates due to retirement (as defined for the
applicable plan):

     (i) if the employment termination date precedes the payment date for the Bonus
earned during the calendar year immediately prior to the calendar year of employment
termination, the Bonus Executive earned during the calendar year immediately prior
to the calendar year of employment termination; and

     (ii) a prorated bonus for the calendar year of termination of Executive’s
employment, calculated as the Bonus Executive would have received in such year based
on actual performance multiplied by a fraction, the numerator of which is the number
of business days that Executive was employed during the calendar year of termination
and the denominator of which is the total number of business days during the
calendar year of termination.

Any bonus due under paragraph (i) or (ii) above shall be payable when annual bonuses are
paid to other senior executives of the Company, but in no event later than March 15 of the
calendar year following the later of (A) the calendar year in which the bonus is earned or
(B) the calendar year in which the bonus is no longer subject to a substantial risk of
forfeiture within the meaning of Section 409A.

The amounts described in (a) and (b) above are collectively referred to herein as the “Accrued
Obligations” and shall be paid in accordance with the terms of such Company programs, plans and
practices. The Accrued Obligations shall be paid in addition to any amounts payable under

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any other provision of this Section 6 due to the termination of Executive’s employment. Any
business expenses incurred by Executive before his or her employment termination date and properly
submitted for reimbursement before or within ninety (90) days after the employment termination date
shall be processed and paid in accordance with Section 5.

          6.2 Termination by the Company without Cause or Termination by Executive for Good
Reason.

          (a) Notice Requirements.

     (i) General. Except as otherwise provided in paragraph (ii) below with
respect to a Good Reason termination, the Company or Executive may terminate
Executive’s Term of Employment at any time for any reason by written notice to the
other party at least thirty (30) days in advance of the date of termination of
Executive’s employment.

     (ii) Good Reason Notice Requirements and Cure Period. If Executive
terminates his or her employment during the Term of Employment for Good Reason (as
defined in Section 6.2(d) hereof), Executive shall provide written notice to the
Company at least forty-five (45) days in advance of the date of termination, such
notice shall describe the conduct Executive believes to constitute Good Reason and
the Company shall have the opportunity to cure the Good Reason within thirty (30)
days after receiving such notice. If the Company cures the conduct that is the
basis for the potential termination for Good Reason within such thirty (30)-day
period, Executive’s notice of termination shall be deemed withdrawn. If Executive
does not give notice to the Company as described in this Section 6.2(a)(ii) within
ninety (90) days after an event giving rise to Good Reason, Executive’s right to
claim Good Reason termination on the basis of such event shall be deemed waived.

          (b) Severance Benefits.

     (i) Severance Payment. If Executive’s employment is terminated:

     (A) by the Company for a reason other than Cause (as defined in Section
6.3(b) hereof), Disability (as defined in Section 6.4 hereof) or death, or

     (B) by Executive for Good Reason (as defined in Section 6.2(d) hereof),

and such termination constitutes a Separation from Service (as defined in Section
6.2(c) hereof), the Company, as severance, shall pay to Executive an amount (the
“Severance Payment”) equal to the total of:

     (I) two (2) times Executive’s Base Salary; plus

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

     (III) two (2) times six percent (6%) of Executive’s Base Salary
(to compensate Executive for Company contributions he or she
otherwise might have received under the Company’s retirement plan).

The Company shall pay to Executive (x) one-half (1/2) of such Severance Payment in a
lump sum payment on the earlier to occur of Executive’s death or the first business
day immediately following the six (6)-month anniversary of Executive’s Separation
from Service and (y) the remaining one-half (1/2) of the Severance Payment in six (6)
substantially equal monthly payments beginning on the first day of the month next
following the initial lump sum payment.

     (ii) Unpaid Bonus, Prorated Bonus and Continuation Benefits. In
addition, if Executive’s employment is terminated:

     (A) by the Company for a reason other than Cause (as defined in Section
6.3(b) hereof), Disability (as defined in Section 6.4 hereof) or death, or

     (B) by Executive for Good Reason (as defined in Section 6.2(d) hereof),

and such termination constitutes a Separation from Service, the following provisions
shall apply:

     (I) Unpaid Bonus and Prorated Bonus. The Company shall
pay to Executive (aa) any unpaid Bonus earned by Executive with
respect to the year immediately preceding the year of termination, if
any, and (bb) a prorated bonus (the “Prorated Bonus”) for the
calendar year of termination of Executive’s employment, calculated as
the Bonus Executive would have received in such year based on actual
performance multiplied by a fraction, the numerator of which is the
number of business days during the calendar year of termination that
Executive was employed and the denominator of which is the total
number of business days during the calendar year of termination. The
unpaid Bonus and the Prorated Bonus shall be payable when annual

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bonuses are paid to other senior executives of the Company, but
in no event later than March 15 of the calendar year following the
later of (1) the calendar year in which the Bonus is earned or (2)
the calendar year in which the Bonus is no longer subject to a
substantial risk of forfeiture within the meaning of Section 409A.

     (II) Continuation Benefits. Executive shall be entitled
to continuation of life insurance, group health coverage (including
medical, dental, and vision benefits), accidental death &
dismemberment coverage, and the health care flexible spending account
(to the extent required to comply with COBRA continuation coverage
requirements) (collectively, the “Continuation Benefits”) in
accordance with the applicable plan terms for a period of two (2)
years following the date of Executive’s Separation from Service (the
“Benefit Continuation Period”); provided, however,
that Executive pays the full cost of his or her coverage under such
plans, except that Executive shall pay only the required
contributions for any health care continuation coverage required to
be provided to or on behalf of Executive under the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), on
the same basis as any other plan participant electing similar COBRA
continuation coverage under the Company health plan; and
provided, further, that any such coverage shall
terminate to the extent that Executive is offered or obtains
comparable benefits from any other employer during the Benefit
Continuation Period. Executive shall be reimbursed by the Company,
on an after-tax basis, for his or her cost of the Continuation
Benefits (except that the reimbursement for his or her required
contributions for COBRA health care continuation coverage shall be
reduced by an amount equal to the cost paid by an active employee for
similar coverage under the Company health plan). The amount of
expenses eligible for reimbursement or Continuation Benefits provided
during one calendar year shall not affect the expenses eligible for
reimbursement or amount of Continuation Benefits provided during a
subsequent calendar year (except with respect to health plan maximums
imposed on the reimbursement of expenses referred to in Code Section
105(b)), the right to reimbursement or Continuation Benefits may not
be exchanged or substituted for other forms of compensation to
Executive, and any reimbursement or payment under the Continuation
Benefits arrangements will be paid in accordance with applicable plan
terms and no later than the last day of the calendar year following
the calendar year in which Executive incurred the expense giving rise
to such reimbursement or payment.

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     (iii) Forfeiture. Notwithstanding the foregoing, if Executive breaches
any provision of Section 13 hereof, the remaining balances of the Severance Payment,
the Prorated Bonus, and any Continuation Benefits shall be forfeited.

     (c) “Separation from Service.” For purposes of this Agreement, the term
“Separation from Service” means a “separation from service” as such term is defined under
Section 409A. The terms “terminate,” “termination,” “termination of employment,” and
variations thereof, when used in this Agreement in connection with Executive’s employment,
are intended to mean a termination of employment that constitutes a Separation from Service.
For purposes of the determination of whether Executive has had a “separation from service”
as described under Section 409A, the terms “Company,” “employer” and “service recipient”
mean Peabody Energy Corporation and any affiliate with which Peabody Energy Corporation
would be considered a single employer under Code Section 414(b) or (c), provided that, in
applying Code Section 1563(a)(1), (2), and (3) for purposes of determining a controlled
group of corporations under Code Section 414(b), the language “at least 50 percent” is used
instead of “at least 80 percent” each place it appears in Code Section 1563(a)(1), (2), and
(3), and in applying Treasury Regulation Section 1.414(c)-2 for purposes of determining
trades or businesses (whether or not incorporated) that are under common control for
purposes of Code Section 414(c), “at least 50 percent” is used instead of “at least 80
percent” each place it appears in Treasury Regulation Section 1.414(c)-2. In addition,
where the use of a definition of “Company,” “employer” or “service recipient” for purposes
of determining a “separation from service” is based upon legitimate business criteria, in
applying Code Section 1563(a)(1), (2), and (3) for purposes of determining a controlled
group of corporations under Code Section 414(b), the language “at least 20 percent” is used
instead of “at least 80 percent” each place it appears in Code Section 1563(a)(1), (2), and
(3), and in applying Treasury Regulation Section 1.414(c)-2 for purposes of determining
trades or businesses (whether or not incorporated) that are under common control for
purposes of Code Section 414(c), the language “at least 20 percent” is used instead of “at
least 80 percent” each place it appears in Treasury Regulation Section 1.414(c)-2.

     (d) “Good Reason.” For purposes of this Agreement, the term “Good Reason”
means:

     (i) a reduction by the Company in Executive’s Base Salary from that in effect
immediately prior to the reduction (in which event the Severance Payment shall be
calculated based on Executive’s Base Salary in effect immediately prior to any such
reduction);

     (ii)
a material reduction in Executive’s Bonus opportunity, maximum
Bonus opportunity  and Long-Term
Incentive Award grant date value used to establish Bonus or Long-Term
Incentive Awards, respectively, from time to time, from those in effect immediately
prior to any such reduction (in which event any portion of the Severance Payment
that relates to Bonus or Long-Term Incentive Awards shall be

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calculated based on the Bonus or Long-Term Incentive Award grant
date value, as applicable, in effect immediately prior to any such reduction);

     (iii) a material reduction in the aggregate program of employee benefits and
perquisites to which Executive is entitled (other than a reduction that generally
affects all executives);

     (iv) relocation of Executive’s primary office by more than 50 miles from the
location of Executive’s primary office as of the date of this Agreement;

     (v) any material diminution or material adverse change in Executive’s duties,
responsibilities or reporting relationships;

     (vi) a breach by the Company of a material provision of this Agreement; or

     (vii) a failure on the part of the Company to obtain a written assumption of
its obligations under this Agreement by a successor owner of substantially all of
the Company’s assets in connection with a merger, consolidation, asset sale,
liquidation, combination or other similar transaction.

Any amounts due to Executive in connection with a termination of employment shall be
computed without giving effect to any changes that give rise to Good Reason.

          6.3 Voluntary Termination by Executive; Discharge for Cause.

     (a) In the event that Executive’s employment is terminated (i) by the Company for
Cause, as hereinafter defined, in which event no advance written notice is required, or (ii)
by Executive for a reason other than Good Reason, Disability or death, the Company shall pay
to Executive only the Accrued Obligations.

     (b) As used herein, the term “Cause” shall be limited to:

     (i) any material and uncorrected breach by Executive of the terms of this
Agreement, including, but not limited to, engaging in action in violation of Section
13 hereof;

     (ii) any willful fraud or dishonesty of Executive involving the property or
business of the Company;

     (iii) a deliberate or willful refusal or failure of Executive to comply with
any major corporate policy of the Company which is communicated to Executive in
writing; or

     (iv) Executive’s conviction of, or plea of nolo contendere to,
any felony if such conviction results in his or her imprisonment;

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provided that with respect to clause (i), (ii) or (iii) above, Executive shall have
ten (10) days following written notice of the conduct which is the basis for the potential
termination for Cause within which to cure such conduct to prevent termination for Cause by
the Company. If Executive cures the conduct that is the basis for the potential termination
for Cause within such ten (10)-day period, the Company’s notice of termination shall be
deemed withdrawn. Except for violations of Section 13 hereof or termination under Section
6.3(b)(iv) above, only actions, conduct and events occurring during the Term of Employment
with the Company shall be the subject of a termination for Cause. In the event that
Executive is terminated for failure to meet performance goals, such termination shall be
considered a termination without Cause for purposes of his or her right to receive the
Severance Payment, the Prorated Bonus and the Continuation Benefits.

          6.4 Disability.

     (a) In the event of the Disability (as defined in (b) below) of Executive during the
Term of Employment, the Company may terminate Executive’s Term of Employment upon written
notice to Executive (or Executive’s personal representative, if applicable) effective upon
the date of receipt thereof (the “Disability Commencement Date”). The Company shall pay to
Executive (i) the Accrued Obligations as provided in Section 6.1 hereof and (ii) any unpaid
Bonus earned by the Executive with respect to the year immediately preceding the year of
termination and the Prorated Bonus, with such bonuses to be paid when annual bonuses are
paid to other senior executives of the Company, but in no event later than March 15 of the
calendar year following the calendar year in which Executive’s employment terminated.

     (b) The term “Disability,” for purposes of this Agreement, generally shall mean
Executive’s absence from the full-time performance of Executive’s duties pursuant to a
reasonable determination made in accordance with the Company’s long-term disability plan
that Executive is disabled and entitled to long-term disability benefits as a result of
incapacity due to physical or mental illness that lasts, or is reasonably expected to last,
for at least six (6) months.

          6.5 Death. In the event of Executive’s death during the Term of Employment or at any
time thereafter while payments are still owing to Executive under the terms of this Agreement, the
Company shall pay to Executive’s beneficiary(ies) (to the extent so designated by Executive) or his
or her estate (to the extent that no such beneficiary has been designated) (a) the Accrued
Obligations as provided in Section 6.1 hereof and (b) any unpaid Bonus earned by the Executive with
respect to the year immediately preceding the year of termination and the Prorated Bonus, with such
bonuses to be paid when annual bonuses are paid to other senior executives of the Company, but in
no event later than March 15 of the calendar year following the calendar year in which Executive’s
employment terminated.

          6.6 No Further Notice or Compensation or Damages. Executive understands and agrees
that he or she shall not be entitled to any further notice, compensation or damages upon
termination of employment under this Agreement, other than amounts specified in Section 4, this
Section 6, any ancillary documents or any plan, program or arrangement of the Company.

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          6.7 Executive’s Duty to Provide Materials. Upon the termination of Executive’s
employment for any reason, Executive or his or her estate shall surrender to the Company all
correspondence, letters, files, contracts, mailing lists, customer lists, advertising materials,
ledgers, supplies, equipment, checks, and all other materials and records of any kind that are the
property of the Company or any of its subsidiaries or affiliates, that may be in Executive’s
possession or under his or her control, including, without limitation, any “soft” copies or
computerized or electronic versions thereof.

     7. Tax Gross-Up Payments.

          7.1 Gross-Up of Excise Tax. If Executive becomes entitled to any payment, benefit or
distribution (or combination thereof) by the Company, any affiliated company, or one or more trusts
established by the Company for the benefit of its employees, whether paid or payable pursuant to
Section 7 of this Agreement or any other plan, arrangement, or agreement with the Company or any
affiliated company (the “Payments”), which are or become subject to the excise tax imposed by Code
Section 4999 or any interest or penalties are incurred by Executive during his or her lifetime with
respect to such excise tax (such excise tax, together with any such interest and penalties,
hereinafter collectively referred to as the “Excise Tax”), the Company shall pay to Executive an
additional payment (the “Gross-Up Payment”) in an amount such that after payment by Executive of
all taxes (including any interest or penalties imposed with respect to such taxes), including,
without limitation, any income taxes (and any interest and penalties imposed with respect thereto)
and the Excise Tax imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Payments.

          7.2 Determination of Gross-Up Payment.

     (a) All determinations required to be made under this Section 7, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be made by a nationally
recognized certified public accounting firm as may be designated by the Company (the
“Accounting Firm”), which shall provide detailed supporting calculations to both the Company
and Executive within ten (10) business days after the receipt of notice from Executive that
Payments were made, or such earlier time as is required by the Company; provided
that, for purposes of determining the amount of any Gross-Up Payment, Executive shall be
deemed to pay federal income tax at the highest marginal rates applicable to individuals in
the calendar year in which any such Gross-Up Payment is to be made and deemed to pay state
and local income taxes at the highest effective rates applicable to individuals in the state
or locality of Executive’s residence or place of employment in the calendar year in which
any such Gross-Up Payment is to be made, net of the maximum reduction in federal income
taxes that can be obtained from deduction of such state and local taxes, taking into account
limitations applicable to individuals subject to federal income tax at the highest marginal
rates. All fees and expenses of the Accounting Firm shall be borne solely by the Company.

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     (b) Any Gross-Up Payment, as determined pursuant to this Section 7, shall be paid by
the Company to Executive (or to the appropriate taxing authority on Executive’s behalf) when
due in accordance with paragraph (a) above; provided, however, that such
payment shall be made no later than (i) with respect to taxes, the end of Executive’s
taxable year following the taxable year in which Executive remits such taxes to the
applicable taxing authority, and (ii) with respect to interest and penalties incurred by
Executive with respect to such taxes, the end of Executive’s taxable year following the
taxable year in which Executive incurs such interest and/or penalties, as applicable. The
amount of interest and penalties reimbursed by the Company during one calendar year shall
not affect the amount of interest and penalties reimbursable by the Company during a
subsequent calendar year, and the right to such reimbursement may not be exchanged or
substituted for other forms of compensation to Executive.

     (c) If the Accounting Firm determines that no Excise Tax is payable by Executive, it
shall so indicate to the Company and Executive in writing. Any determination by the
Accounting Firm shall be binding upon the Company and Executive. As a result of the
uncertainty in the application of Code Section 4999, it is possible that the amount of the
Gross-Up Payment determined by the Accounting Firm to be due to (or on behalf of) Executive
may be lower than the amount actually required to be paid by Executive to the applicable
taxing authority (“Underpayment”). In the event that the Company exhausts its remedies
hereunder and Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred and any
such Underpayment shall be promptly paid by the Company to or for the benefit of Executive;
provided, however, that such Underpayment shall be paid no later than the end of Executive’s
taxable year following the taxable year in which Executive remits the Excise Tax to the
applicable taxing authority.

          7.3 Disputed Taxes.

     (a) Executive shall notify the Company in writing of any claim by the Internal Revenue
Service or other relevant taxing authority that, if successful, would require the payment by
the Company of any Gross-Up Payment. Such notification shall be given as soon as
practicable, but no later than ten (10) business days after Executive is informed in writing
of such claim and shall apprise the Company of the nature of such claim and the date on
which such claim is requested to be paid. If such claim is due to a tax audit or litigation
addressing the existence or amount of tax liability, whether federal, state or local (a
“Reimbursable Claim”), then Executive shall not pay such claim prior to the expiration of
the thirty (30)-day period following the date on which it gives such notice to the Company
(or such shorter period ending on the date that any payment of taxes with respect to such
Reimbursable Claim is due). If the Company notifies Executive in writing prior to the
expiration of such period that it desires to contest such Reimbursable Claim, Executive
shall (i) give the Company any information reasonably requested by the Company relating to
such Reimbursable Claim, (ii) take such action in connection with contesting such
Reimbursable Claim as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to such
Reimbursable Claim by an attorney reasonably selected by the Company,

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(iii) cooperate with the Company in good faith in order to effectively contest such
Reimbursable Claim, and (iv) permit the Company to participate in any proceedings relating
to such Reimbursable Claim; provided, however, that the Company shall bear
and pay directly all costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold Executive harmless, on
an after-tax basis, for any Excise Tax or income tax (including interest and penalties with
respect thereto) imposed as a result of such representation and payment of costs and
expenses.

     (b) Without limiting the foregoing provisions of this Section 7.3, the Company shall
control all proceedings taken in connection with such contest and, at its sole option, may
pursue or forego any and all administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such Reimbursable Claim and may, at its sole option,
either direct Executive to pay the tax claimed and sue for a refund or contest the
Reimbursable Claim in any permissible manner, and Executive agrees to prosecute such contest
to a determination before any administrative tribunal, in a court of initial jurisdiction
and in one or more appellate courts, as the Company shall determine; provided that
if the Company directs Executive to pay such Reimbursable Claim and sue for a refund, the
Company shall advance the amount of such payment to Executive, on an interest-free basis,
and shall indemnify and hold Executive harmless, on an after-tax basis, from any Excise Tax
or income tax (including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
provided, further, that if Executive is required to extend the statute of
limitations to enable the Company to contest such Reimbursable Claim, Executive may limit
this extension solely to such contested amount. The Company’s control of the contest shall
be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and
Executive shall be entitled to settle or contest, as the case may be, any other issue raised
by the Internal Revenue Service or any other taxing authority. In no event shall payments
for or reimbursements to Executive for Reimbursable Claims be made later than the end of
Executive’s taxable year following the taxable year in which the taxes that are the subject
to the Reimbursable Claim are remitted to the taxing authority, or if as a result of such
audit or litigation no taxes are remitted, the end of Executive’s taxable year following the
taxable year in which the audit is completed or there is a final nonappealable settlement or
other resolution of the litigation.

          7.4 Refunds of Gross-Up Payments. If, after the receipt by Executive of an amount
paid or advanced by the Company pursuant to this Section 7, Executive becomes entitled to receive
any refund with respect to a Gross-Up Payment, Executive shall (subject to the Company’s complying
with the requirements of Section 7.3) promptly pay to the Company the amount of such refund
received (together with any interest paid or credited thereon after taxes applicable thereto). If,
after the receipt by Executive of an amount advanced by the Company pursuant to this Section 7, a
determination is made that Executive shall not be entitled to any refund with respect to such claim
and the Company does not notify Executive in writing of its intent to contest such denial of refund
prior to the expiration of thirty (30) days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the

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amount of such advance shall offset, to the extent thereof, the amount of the Gross-Up Payment
required to be paid.

     8. Notices. All notices or communications hereunder shall be in writing, addressed as
follows:

To the Company:

Chairman and Chief Executive Officer

Peabody Energy Corporation

701 Market Street, Suite 900

St. Louis, Missouri 63101-1826

To Executive at the most recent address set forth in the Company’s personnel records.

Any such notice or communication shall be delivered by hand or by courier or sent certified or
registered mail, return receipt requested, postage prepaid, addressed as above (or to such other
address as such party may designate in a notice duly delivered as described above), and the third
business day after the actual date of sending shall constitute the time at which notice was given.

     9. Severability. If any provision of this Agreement is declared to be invalid or
unenforceable, in whole or in part, such invalidity or unenforceability shall not affect the
remaining provisions hereof, which shall remain in full force and effect.

     10. Assignment. Neither this Agreement nor any rights or obligations hereunder shall
be assignable or otherwise subject to hypothecation by Executive (except by will or by operation of
the laws of intestate succession) or by the Company, except that the Company may assign this
Agreement, in writing, to any successor (whether by merger, purchase, spin-off or otherwise) to all
or substantially all of the stock, assets or businesses of the Company. This Agreement shall be
binding upon, inure to the benefit of and be enforceable by the heirs and representatives of
Executive and the permitted assigns and successors of the Company.

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

     12. Code Section 409A Compliance.

     (a) This Agreement is intended to comply with Section 409A and shall, to the extent
practicable, be construed in accordance therewith. Accordingly, notwithstanding anything in
this Agreement to the contrary, if the Company determines that Executive is a “specified
employee” (as defined in Code Section 409A(a)(2)(B)(i)) at the time of his or her Separation
from Service and any amount payable to Executive under this Agreement is a deferral of
compensation subject to the additional tax described in Code Section 409A(a)(1)(B) and would
be considered a payment upon Executive’s Separation from Service, then such amount shall not
be paid before the date that is the earlier of (i) six (6) months and one (1) day after
Executive’s Separation from Service or (ii) Executive’s death (the “Delay Period”). Upon
the expiration of the Delay Period, the initial payment

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following the Delay Period shall include a lump sum payment equal to those payments
that otherwise would have been paid if the delay had not applied, and any remaining payments
due shall be payable in accordance with their original payment schedule.

     (b) If either party to this Agreement reasonably determines that any amount payable
pursuant to this Agreement would result in adverse tax consequences under Section 409A
(including, but not limited to, the additional tax described in Code Section 409A(a)(1)(B)),
then such party shall deliver written notice of such determination to the other party, and
the parties hereby agree to work in good faith to amend this Agreement so it (i) is exempt
from, or compliant with, the requirements of Section 409A and (ii) preserves as nearly as
possible the original intent and economic effect of the affected provisions.

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

     (a) Executive, during the Term of Employment and thereafter, will not, directly or
indirectly, use for himself or herself or use for, or disclose to, any party other than the
Company, or any subsidiary of the Company (other than in the ordinary course of Executive’s
duties for the benefit of the Company or any subsidiary of the Company), any secret or
confidential information regarding the business or property of the Company or its
subsidiaries or regarding any secret or confidential apparatus, process, system, or other
method at any time used, developed, acquired, discovered or investigated by or for the
Company or its subsidiaries, whether or not developed, acquired, discovered or investigated
by Executive. At the termination of Executive’s employment or at any other time the Company
or any of its subsidiaries may request, Executive shall promptly deliver to the Company all
memoranda, notes, records, plats, sketches, plans or other documents (including, without
limitation, any “soft” copies or computerized or electronic versions thereof) made by,
compiled by, delivered to, or otherwise acquired by Executive concerning the business or
properties of the Company or its subsidiaries or any secret or confidential product,
apparatus or process used developed, acquired or investigated by the Company or its
subsidiaries.

     (b) In consideration of the Company’s obligations under this Agreement, Executive
agrees that during the Term of Employment and (i) for a period of one (1) year thereafter,
without the prior written consent of the Chairman and CEO, he or she will not, directly or
indirectly, as principal, manager, agent, consultant, officer, stockholder, partner,
investor, lender or employee or in any other capacity, carry on, be engaged in or have any
financial interest in, any entity which is in competition with the business of the Company
or its subsidiaries and (ii) for a period of two (2) years thereafter, without the prior
written consent of the Chairman and CEO, he or she shall not, on his or her own behalf or on
behalf of any person, firm or company, directly or indirectly, solicit or offer employment
to any person who is or has been employed by the Company or its subsidiaries at any time
during the twelve (12) months immediately preceding such solicitation.

     (c) For purposes of this Section 13, an entity shall be deemed to be in competition
with the Company if it is principally involved in the purchase, sale or other

15

 

dealing in any property or the rendering of any service purchased, sold, dealt in or
rendered by the Company as a part of the business of the Company within the same geographic
area in which the Company effects such sales or dealings or renders such services.
Notwithstanding this Section 13(c) or Section 13(b), nothing herein shall be construed so as
to preclude Executive from investing in any publicly or privately held company, provided
that Executive’s beneficial ownership of any class of securities of an entity in competition
with the Company does not exceed five percent (5%) (or such higher percentage approved in
writing by the Chairman and CEO) of the outstanding securities of such class.

     (d) Executive agrees that the covenant not to compete and the covenant not to solicit
are reasonable under the circumstances and will not interfere with his or her ability to
earn a living or otherwise to meet his or her financial obligations. Executive and the
Company agree that if in the opinion of any court of competent jurisdiction such restraint
is not reasonable in any respect, such court shall have the right, power and authority to
excise or modify such provision or provisions of this covenant which appear unreasonable and
to enforce the remainder of the covenant as so amended. Executive agrees that any breach of
the covenants contained in this Section 13 would irreparably injure the Company.
Accordingly, Executive agrees that, in the event that a court enjoins Executive from any
activity prohibited by this Section 13, the Company may, in addition to pursuing any other
remedies it may have in law or in equity, cease making any payments otherwise required by
this Agreement and obtain an injunction against Executive from any court having jurisdiction
over the matter restraining any further violation of this Agreement by Executive.

     14. Beneficiaries; References. Executive shall be entitled to select (and change, to
the extent permitted under any applicable law) a beneficiary or beneficiaries to receive any
compensation or benefit payable hereunder following Executive’s death, and may change such
election, in either case by giving the Company written notice thereof. In the event of Executive’s
death or a judicial determination of his or her incompetence, reference in this Agreement to
Executive shall be deemed, where appropriate, to refer to his or her beneficiary, estate or other
legal representative. Any reference to the masculine gender in this Agreement shall include, where
appropriate, the feminine.

     15. Dispute Resolution. Any dispute or controversy arising under or in connection
with this Agreement (other than an action to enforce the covenants in Section 13 hereof) or any
ancillary documents shall be resolved by arbitration in St. Louis, Missouri. Three arbitrators
shall be selected, and arbitration shall be conducted, in accordance with the rules of the American
Arbitration Association. The arbitrators shall have the discretion to award the cost of
arbitration, arbitrators’ fees and the respective attorneys’ fees of each party between the parties
as they see fit. Notwithstanding anything in this Section 15 to the contrary, payments made under
this Section 15 that are provided during one calendar year shall not affect the amount of such
payments provided during a subsequent calendar year, payments under this Section 15 may not be
exchanged or substituted for other forms of compensation to Executive, and any such payment will be
paid within sixty (60) days after Executive prevails, but in no event later than the last day of
Executive’s taxable year following the taxable year in which he or she incurred the expense giving
rise to such payment.

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

     17. Effect on Prior Agreements. This Agreement and any ancillary documents contain
the entire understanding between the parties hereto. This Agreement is a continuation, in the form
of a complete restatement to incorporate updated provisions and new legal requirements, of the
Prior Agreement between the Company and Executive and, except as provided herein or in an ancillary
document, supersedes in all respects the Prior Agreement and any other agreement or understanding,
written or oral, between the Company, any affiliate of the Company or any predecessor of the
Company or affiliate of the Company and Executive.

     18. Withholding. The Company shall be entitled to withhold from payments to or on
behalf of Executive any amount of tax withholding required by law.

     19. Currency. All dollar amounts or references contained in this Agreement and any
ancillary document refer to the United States dollar.

     20. Survival. Notwithstanding the expiration of the term of this Agreement, the
applicable provisions of this Agreement (such as Sections 5 through 21) shall remain in effect as
long as is reasonably necessary to give effect thereto in accordance with the terms hereof.

     21. Counterparts. This Agreement may be executed in two or more counterparts, each of
which will be deemed an original.

[SIGNATURE PAGE FOLLOWS]

17

 

	 	 	 	 	 
	 	PEABODY ENERGY CORPORATION

 	 
	 	By  	/s/
Sharon D. Fiehler
 	 
	 	 	Sharon D. Fiehler	 
	 	 	Executive Vice President and Chief
Administrative Officer 	 

	 	 	 	 	 
	 	EXECUTIVE

 	 
	 	/s/ Richard A. Navarre
 	 
	 	Richard A. Navarre 	 
	 	 	 
	 

18exv10w3

Exhibit 10.3

EMPLOYMENT AGREEMENT

     This
AGREEMENT (the “Agreement”) is entered into as of December
31, 2008 (the “Commencement
Date”) by and between Peabody Energy Corporation, a Delaware corporation (the “Company”), and
Michael C. Crews (“Executive”).

RECITALS

     To induce Executive to serve as the Company’s Executive Vice President and Chief Financial
Officer, the Company desires to provide Executive with compensation and other benefits on the terms
and subject to the conditions set forth in this Agreement.

     Executive is willing to accept such employment and perform services for the Company, on the
terms and subject to the conditions hereinafter set forth.

     It is therefore hereby agreed by and between the parties as follows:

     1. Employment.

          1.1 Subject to the terms and conditions of this Agreement, the Company agrees to employ
Executive during the term hereof as Executive Vice President and Chief Financial Officer. In such
capacity, Executive shall report to the Chairman and Chief Executive Officer (the “Chairman and
CEO”) and shall have the customary powers, responsibilities and authority of executives holding
such positions in corporations of the size, type and nature of the Company, as it exists from time
to time, and as are assigned by the Chairman and CEO.

          1.2 Subject to the terms and conditions of this Agreement, Executive hereby accepts employment
as Executive Vice President and Chief Financial Officer commencing as of the Commencement Date and
agrees, subject to any period of vacation or other approved leave, to devote his or her full
business time and efforts to the performance of services, duties and responsibilities in connection
therewith, subject at all times to review and control of the Chairman and CEO.

          1.3 Subject to Executive’s compliance with all of the provisions of the Company’s code of
conduct and other policies, nothing in this Agreement shall preclude Executive from engaging in
charitable work and community affairs, from delivering lectures, fulfilling speaking engagements or
teaching at educational institutions, from managing any investment made by him or her or his or her
immediate family with respect to which Executive is not substantially involved with the management
or operation of the entity in which Executive has invested (provided that no such investment in
publicly traded equity securities may exceed five percent (5%) of the equity of any entity without
the prior written approval of the Chairman and CEO) or from serving, subject to the prior written
approval of the Chairman and CEO, as a member of boards of directors or as a trustee of any other
corporation, association or entity, to the extent that any of the above activities do not
materially interfere with the performance of his or her duties hereunder. For purposes of the
preceding sentence, any approval by the Chairman and CEO required therein shall not be unreasonably
withheld.

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     2. Term of Employment. Executive’s term of employment under this Agreement shall
commence on the Commencement Date and continue for three (3) years, subject to earlier termination
as provided in the Agreement (the “Term of Employment”). The Agreement automatically will renew
for a one (1)-year period at the end of the initial Term of Employment and, if applicable, any
renewal period, unless either the Company or Executive notifies the other party of the intention
not to renew the Agreement in writing at least ninety (90) days before the end of the applicable
period.

     3. Compensation.

          3.1 Salary. During the Term of Employment, the Company shall pay Executive a base
salary (“Base Salary”) at the initial rate of $400,000. Such Base Salary shall be payable in
accordance with the ordinary payroll practices of the Company. During the Term of Employment, the
Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”) and/or
the Chairman and CEO shall review Executive’s Base Salary in good faith, at least annually, in
accordance with the Company’s customary procedures and practices regarding the salaries of senior
executives, and may adjust Executive’s Base Salary following such review. “Base Salary” for all
purposes herein shall be deemed to be a reference to the Base Salary in effect as of any date that
requires the determination of Executive’s Base Salary hereunder.

          3.2 Annual Bonus.

     (a) In addition to Base Salary, Executive shall, commencing in 2008 and continuing for
each calendar year thereafter during the Term of Employment, be eligible to receive an
annual cash bonus (the “Bonus”) in accordance with a program developed by the Compensation
Committee and/or the Chairman and CEO, based on achievement of performance targets
established by the Compensation Committee and/or the Chairman and CEO as soon as practicable
at or after the beginning of the calendar year to which the performance targets relate. The
performance targets for the 2008 Bonus shall be determined before or as soon as practicable
after the Commencement Date. Executive’s Bonus opportunity for the 2008 fiscal year is 80%
of his or her Base Salary. Executive’s maximum Bonus opportunity
for the 2008 fiscal year is 160% of his Base Salary. The Compensation Committee and/or the Chairman and CEO shall
review Executive’s Bonus opportunity in good faith from time to time in accordance with the
Company’s customary procedures and practices regarding the bonus opportunities of senior
executives, and may adjust Executive’s Bonus opportunity following such review. “Bonus” for
all purposes herein, except as otherwise specifically stated, shall be deemed to be a
reference to the Bonus opportunity in effect as of any date that requires the determination
of Executive’s Bonus hereunder.

     (b) A Bonus award for any calendar year shall be payable to Executive at the time
bonuses are paid to executive officers for such calendar year in accordance with the
Company’s policies and practices, but in no event later than March 15 of the calendar year
following the later of (i) the calendar year in which the Bonus is earned or (ii) the
calendar year in which the Bonus is no longer subject to a substantial risk of forfeiture
within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the
“Code”), and the Treasury regulations and other guidance in effect thereunder (collectively,
“Section 409A”).

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          3.3 Equity-Based Compensation.

     (a) Periodic Awards. Executive shall be eligible to receive, from time to time
during the Term of Employment, equity-based compensation awards under the Company’s equity
incentive plan(s) (the “Long-Term Incentive Awards”). Any such Long-Term Incentive Awards
shall be governed by separate grant agreements. The grant date value for Executive’s
Long-Term Incentive Awards for the 2008 fiscal year is 150% of his or her Base Salary, with a maximum potential payout level for Performance Units to be determined in accordance with the performance
matrix set forth in the 2008 Performance Units Agreement. The
Compensation Committee and/or the Chairman and CEO shall review the grant date value of
Executive’s Long-Term Incentive Awards in good faith from time to time in accordance with
the Company’s customary procedures and practices regarding the long-term incentive awards of
senior executives, and may adjust the grant date value of future Long-Term Incentive Awards
to Executive following such review. “Long-Term Incentive Award” for all purposes herein,
except as otherwise specifically stated, shall be deemed to be a reference to the grant date
Long-Term Incentive Award value in effect as of any date that requires the determination of
Executive’s Long-Term Incentive Award value hereunder or under any grant agreement.

     4. Employee Benefits.

          4.1 Employee Benefit Programs, Plans and Practices; Perquisites. The Company shall
provide Executive with employee benefits and perquisites at a level (a) commensurate with his or
her position in the Company and (b) at least as favorable to Executive as the arrangements the
Company provides to its other senior executives that are in effect and open to new participants on
the Commencement Date, including retirement benefits, health and welfare benefits, the Continuation
Benefits (as defined in Section 6.2(b)(ii)(B)(II)), directors and officers insurance and/or an
indemnification agreement that covers claims arising out of actions or inactions occurring during
the Term of Employment, and other employee benefits and perquisites which the Company may make
available to its senior executives from time to time in its discretion on and after the
Commencement Date. Executive’s rights, if any, under any employee benefit plans or programs of the
Company as of the Commencement Date shall continue in accordance with plan or program terms as in
effect at any given time.

          4.2 Vacation. Executive shall be entitled to the number of business days paid
vacation in each calendar year as determined in accordance with the Company’s applicable vacation
policies, which shall be taken at such times as are consistent with Executive’s responsibilities
hereunder.

     5. Expenses. Subject to prevailing Company policy or guidelines, the Company will
reimburse Executive for all reasonable expenses incurred by Executive in carrying out his or her
duties on behalf of the Company, provided that payment or reimbursement of expenses shall be made
promptly and in no event later than December 31 of the year following the year in which such
expenses were incurred, the amount of such expenses eligible for payment or reimbursement in any
year shall not affect the amount of such expenses eligible for payment or reimbursement in any
other year and no such right to payment or reimbursement shall be subject to liquidation or
exchange for another benefit.

3

 

     6. Termination of Employment.

          6.1 Termination of Employment for Any Reason. Except as otherwise specifically
provided in this Agreement, the Company or Executive may terminate Executive’s Term of Employment
at any time for any reason by written notice to the other party at least thirty (30) days in
advance of the date of termination of Executive’s employment. In the event of a termination of
Executive’s employment for any reason during the Term of Employment, the Company shall pay to
Executive:

     (a) within five (5) business days following the date of termination of Executive’s
employment, a lump sum that includes: (i) Executive’s Base Salary earned on or prior to the
date of such termination but not yet paid to Executive in accordance with the Company’s
customary procedures and practices for the payment of executive salaries; (ii) any business
expenses incurred by Executive and properly submitted for reimbursement, but not yet
reimbursed by the Company under Section 5 above as of the date of such termination; and
(iii) any vacation time accrued but unused as of the date of such termination;

     (b) any benefits accrued and vested under any of the Company’s employee benefit
programs, plans and practices on or prior to the date of termination of Executive’s
employment; and

     (c) if Executive’s employment terminates due to retirement (as defined in the
applicable plan), a prorated bonus for the calendar year of termination of Executive’s
employment, calculated as the Bonus Executive would have received in such year based on
actual performance multiplied by a fraction, the numerator of which is the number of
business days during the calendar year of termination that Executive was employed and the
denominator of which is the total number of business days during the calendar year of
termination. Such bonus shall be payable when annual Bonuses are paid to other senior
executives of the Company, but in no event later than March 15 of the calendar year
following the later of (i) the calendar year in which the Bonus is earned or (ii) the
calendar year in which the bonus is no longer subject to a substantial risk of forfeiture
within the meaning of Section 409A.

The amounts described in (a) and (b) above are collectively referred to herein as the “Accrued
Obligations” and shall be paid in accordance with the terms of such Company programs, plans and
practices. The Accrued Obligations shall be paid in addition to any amounts payable under any
other provision of this Section 6 due to the termination of Executive’s employment. Any business
expenses incurred by Executive before his or her employment termination date and properly submitted
for reimbursement before or within ninety (90) days after the employment termination date shall be
processed and paid in accordance with Section 5.

          6.2 Termination by the Company without Cause or Termination by Executive for Good
Reason.

     (a) Notice Requirements.

4

 

     (i) General. Except as otherwise provided in paragraph (ii) below with
respect to a Good Reason termination, the Company or Executive may terminate
Executive’s Term of Employment at any time for any reason by written notice to the
other party at least thirty (30) days in advance of the date of termination of
Executive’s employment.

     (ii) Good Reason Notice Requirements and Cure Period. If Executive
terminates his or her employment during the Term of Employment for Good Reason (as
defined in Section 6.2(d) hereof), Executive shall provide written notice to the
Company at least forty-five (45) days in advance of the date of termination, such
notice shall describe the conduct Executive believes to constitute Good Reason and
the Company shall have the opportunity to cure the Good Reason within thirty (30)
days after receiving such notice. If the Company cures the conduct that is the
basis for the potential termination for Good Reason within such thirty (30)-day
period, Executive’s notice of termination shall be deemed withdrawn. If Executive
does not give notice to the Company as described in this Section 6.2(a)(ii) within
ninety (90) days after an event giving rise to Good Reason, Executive’s right to
claim Good Reason termination on the basis of such event shall be deemed waived.

     (b) Severance Benefits.

     (i) Severance Payment. If Executive’s employment is terminated during
the Term of Employment (for the avoidance of doubt, the term “terminated” does not
include non-renewal of this Agreement):

     (A) by the Company for a reason other than Cause (as defined in Section
6.3(b) hereof), Disability (as defined in Section 6.4 hereof) or death, or

     (B) by Executive for Good Reason (as defined in Section 6.2(d) hereof),

and such termination constitutes a Separation from Service (as defined in Section
6.2(c) hereof), the Company, as severance, shall pay to Executive an amount (the
“Severance Payment”) equal to the total of:

     (I) two (2) times Executive’s Base Salary; plus

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

5

 

     (III) two (2) times six percent (6%) of Executive’s Base Salary
(to compensate Executive for Company contributions he or she
otherwise might have received under the Company’s retirement plan).

The Company shall pay to Executive (x) one-half (1/2) of such Severance Payment in a
lump sum payment on the earlier to occur of Executive’s death or the first business
day immediately following the six (6)-month anniversary of Executive’s Separation
from Service and (y) the remaining one-half (1/2) of the Severance Payment in six (6)
substantially equal monthly payments beginning on the first day of the month next
following the initial lump sum payment.

     (ii) Prorated Bonus and Continuation Benefits. In addition, if
Executive’s employment is terminated:

     (A) by the Company for a reason other than Cause (as defined in Section
6.3(b) hereof), Disability (as defined in Section 6.4 hereof) or death, or

     (B) by Executive for Good Reason (as defined in Section 6.2(d) hereof),

and such termination constitutes a Separation from Service, the following provisions
shall apply:

     (I) Prorated Bonus. The Company shall pay to Executive
a prorated bonus (the “Prorated Bonus”) for the calendar year of
termination of Executive’s employment, calculated as the Bonus
Executive would have received in such year based on actual
performance multiplied by a fraction, the numerator of which is the
number of business days during the calendar year of termination that
Executive was employed and the denominator of which is the total
number of business days during the calendar year of termination. The
Prorated Bonus shall be payable when annual bonuses are paid to other
senior executives of the Company, but in no event later than March 15
of the calendar year following the later of (aa) the calendar year in
which the Bonus is earned or (bb) the calendar year in which the
Bonus is no longer subject to a substantial risk of forfeiture within
the meaning of Section 409A.

     (II) Continuation Benefits. Executive shall be entitled
to continuation of group health coverage (including medical, dental,
and vision benefits, to the extent permitted under the applicable
plan) and the health care flexible spending account (to the extent
required to comply with COBRA continuation coverage requirements)
(collectively, the “Continuation Benefits”) in accordance with the
applicable plan terms for a period of up to eighteen (18) months
following the date of Executive’s Separation

6

 

from Service (the “Benefit Continuation Period”);
provided, however, that Executive pays the full cost
of his or her coverage under such plans, except that Executive shall
pay only the required contributions for any health care continuation
coverage required to be provided to or on behalf of Executive under
the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended (“COBRA”), on the same basis as any other plan participant
electing similar COBRA continuation coverage under the Company health
plan; and provided, further, that any such coverage
shall terminate to the extent that Executive is offered or obtains
comparable benefits from any other employer during the Benefit
Continuation Period. Executive shall be reimbursed by the Company,
on an after-tax basis, for his or her cost of the Continuation
Benefits (except that the reimbursement for his or her required
contributions for COBRA health care continuation coverage shall be
reduced by an amount equal to the cost paid by an active employee for
similar coverage under the Company health plan). The amount of
expenses eligible for reimbursement or Continuation Benefits provided
during one calendar year shall not affect the expenses eligible for
reimbursement or amount of Continuation Benefits provided during a
subsequent calendar year (except with respect to health plan maximums
imposed on the reimbursement of expenses referred to in Code Section
105(b)), the right to reimbursement or Continuation Benefits may not
be exchanged or substituted for other forms of compensation to
Executive, and any reimbursement or payment under the Continuation
Benefits arrangements will be paid in accordance with applicable plan
terms and no later than the last day of the calendar year following
the calendar year in which Executive incurred the expense giving rise
to such reimbursement or payment.

     (iii) Forfeiture. Notwithstanding the foregoing, if Executive breaches
any provision of Section 13 hereof, the remaining balances of the Severance Payment,
the Prorated Bonus, and any Continuation Benefits shall be forfeited.

     (c) “Separation from Service.” For purposes of this Agreement, the term
“Separation from Service” means a “separation from service” as such term is defined under
Section 409A. The terms “terminate,” “termination,” “termination of employment,” and
variations thereof, when used in this Agreement in connection with Executive’s employment,
are intended to mean a termination of employment that constitutes a Separation from Service.
For purposes of the determination of whether Executive has had a “separation from service”
as described under Section 409A, the terms “Company,” “employer” and “service recipient”
mean Peabody Energy Corporation and any affiliate with which Peabody Energy Corporation
would be considered a single employer under Code Section 414(b) or (c), provided that, in
applying Code Section 1563(a)(1), (2), and (3) for purposes of determining a controlled

7

 

group of corporations under Code Section 414(b), the language “at least 50 percent” is
used instead of “at least 80 percent” each place it appears in Code Section 1563(a)(1), (2),
and (3), and in applying Treasury Regulation Section 1.414(c)-2 for purposes of determining
trades or businesses (whether or not incorporated) that are under common control for
purposes of Code Section 414(c), “at least 50 percent” is used instead of “at least 80
percent” each place it appears in Treasury Regulation Section 1.414(c)-2. In addition,
where the use of a definition of “Company,” “employer” or “service recipient” for purposes
of determining a “separation from service” is based upon legitimate business criteria, in
applying Code Section 1563(a)(1), (2), and (3) for purposes of determining a controlled
group of corporations under Code Section 414(b), the language “at least 20 percent” is used
instead of “at least 80 percent” each place it appears in Code Section 1563(a)(1), (2), and
(3), and in applying Treasury Regulation Section 1.414(c)-2 for purposes of determining
trades or businesses (whether or not incorporated) that are under common control for
purposes of Code Section 414(c), the language “at least 20 percent” is used instead of “at
least 80 percent” each place it appears in Treasury Regulation Section 1.414(c)-2.

     (d) “Good Reason.” For purposes of this Agreement, the term “Good Reason”
means:

     (i) a reduction, other than a reduction that generally affects all
similarly-situated executives and does not exceed ten percent (10%) in one year or
fifteen percent (15%) in the aggregate over three (3) consecutive years, by the
Company in Executive’s Base Salary from that in effect immediately prior to the
reduction (in which event the Severance Payment shall be calculated based on
Executive’s Base Salary in effect immediately prior to any such reduction);

     (ii) a reduction, other than a reduction that generally affects all
similarly-situated executives, by the Company in Executive’s
Bonus opportunity, maximum Bonus opportunity and
Long-Term Incentive Award grant date value used to establish Bonus or
Long-Term Incentive Awards, respectively, from time to time, from those in effect
immediately prior to any such reduction (in which event any portion of the Severance
Payment that relates to Bonus or Long-Term Incentive Awards shall be calculated
based on the Bonus or Long-Term Incentive Award grant date value, as
applicable, in effect immediately prior to any such reduction);

     (iii) a material reduction in the aggregate program of employee benefits and
perquisites to which Executive is entitled (other than a reduction that generally
affects all executives);

     (iv) relocation of Executive’s primary office by more than 50 miles from the
location of Executive’s primary office as of the date of this Agreement;

     (v) any material diminution or material adverse change in Executive’s duties or
responsibilities;

8

 

     (vi) a breach by the Company of a material provision of this Agreement; or

     (vii) a failure on the part of the Company to obtain a written assumption of
its obligations under this Agreement by a successor owner of substantially all of
the Company’s assets in connection with a merger, consolidation, asset sale,
liquidation, combination or other similar transaction.

Any amounts due to Executive in connection with a termination of employment shall be
computed without giving effect to any changes that give rise to Good Reason.

          6.3 Voluntary Termination by Executive; Discharge for Cause.

     (a) In the event that Executive’s employment is terminated (i) by the Company for
Cause, as hereinafter defined, in which event no advance written notice is required, or (ii)
by Executive for a reason other than Good Reason, Disability or death, the Company shall pay
to Executive only the Accrued Obligations.

     (b) As used herein, the term “Cause” means:

     (i) any material and uncorrected breach by Executive of the terms of this
Agreement, including, but not limited to, engaging in action in violation of Section
13 hereof;

     (ii) any willful fraud or dishonesty of Executive that has a material
detrimental effect on (a) the reputation or business of the Company or any of its
subsidiaries or affiliates or (b) Executive’s reputation or performance of his or
her duties to the Company or any of its subsidiaries or affiliates;

     (iii) a deliberate or willful refusal or failure of Executive to comply with
any major corporate policy of the Company which is communicated to Executive in
writing; or

     (iv) Executive’s conviction of, or plea of nolo contendere to, any
felony if such conviction results in his or her imprisonment or has a material
detrimental effect on the reputation or business of the Company or any of its
subsidiaries or affiliates;

provided that with respect to clause (i), (ii) or (iii) above, Executive shall have
ten (10) days following written notice of the conduct which is the basis for the potential
termination for Cause within which to cure such conduct to prevent termination for Cause by
the Company. If Executive cures the conduct that is the basis for the potential termination
for Cause within such ten (10)-day period, the Company’s notice of termination shall be
deemed withdrawn. Except for violations of Section 13 hereof or termination under Section
6.3(b)(iv) above, only actions, conduct and events occurring during the Term of Employment
with the Company shall be the subject of a termination for Cause. In the event that
Executive is terminated for failure to meet performance goals, such termination shall be
considered a termination without Cause for purposes of

9

 

his or her right to receive the Severance Payment, the Prorated Bonus and the Continuation
Benefits.

          6.4 Disability.

     (a) In the event of the Disability (as defined in (b) below) of Executive during the
Term of Employment, the Company may terminate Executive’s Term of Employment upon written
notice to Executive (or Executive’s personal representative, if applicable) effective upon
the date of receipt thereof (the “Disability Commencement Date”). The Company shall pay to
Executive the Accrued Obligations as provided in Section 6.1 hereof, and the Prorated Bonus
when such bonuses are paid to other senior executives of the Company, but in no event later
than March 15 of the calendar year following the calendar year in which Executive’s
employment terminated.

     (b) The term “Disability,” for purposes of this Agreement, generally shall mean
Executive’s absence from the full-time performance of Executive’s duties pursuant to a
reasonable determination made in accordance with the Company’s long-term disability plan
that Executive is disabled and entitled to long-term disability benefits as a result of
incapacity due to physical or mental illness that lasts, or is reasonably expected to last,
for at least six (6) months.

          6.5 Death. In the event of Executive’s death during the Term of Employment or at any
time thereafter while payments are still owing to Executive under the terms of this Agreement, the
Company shall pay to Executive’s beneficiary(ies) (to the extent so designated by Executive) or his
or her estate (to the extent that no such beneficiary has been designated) the Accrued Obligations
as provided in Section 6.1 hereof, and the Prorated Bonus when such bonuses are paid to other
senior executives of the Company, but in no event later than March 15 of the calendar year
following the calendar year in which Executive’s employment terminated.

          6.6 No Further Notice or Compensation or Damages. Executive understands and agrees
that he or she shall not be entitled to any further notice, compensation or damages upon
termination of employment under this Agreement, other than amounts specified in Section 4, this
Section 6, any ancillary documents or any plan, program or arrangement of the Company.

          6.7 Executive’s Duty to Provide Materials. Upon the termination of Executive’s
employment for any reason, Executive or his or her estate shall surrender to the Company all
correspondence, letters, files, contracts, mailing lists, customer lists, advertising materials,
ledgers, supplies, equipment, checks, and all other materials and records of any kind that are the
property of the Company or any of its subsidiaries or affiliates, that may be in Executive’s
possession or under his or her control, including, without limitation, any “soft” copies or
computerized or electronic versions thereof.

     7. Tax Gross-Up Payments.

          7.1 Gross-Up of Excise Tax. If Executive becomes entitled to any payment, benefit or
distribution (or combination thereof) by the Company, any affiliated company, or one or more trusts
established by the Company for the benefit of its employees, whether paid or payable pursuant to
Section 7 of this Agreement or any other plan, arrangement, or agreement

10

 

with the Company or any affiliated company (the “Payments”), which are or become subject to
the excise tax imposed by Code Section 4999 or any interest or penalties are incurred by Executive
during his or her lifetime with respect to such excise tax (such excise tax, together with any such
interest and penalties, hereinafter collectively referred to as the “Excise Tax”), the Company
shall pay to Executive an additional payment (the “Gross-Up Payment”) in an amount such that after
payment by Executive of all taxes (including any interest or penalties imposed with respect to such
taxes), including, without limitation, any income taxes (and any interest and penalties imposed
with respect thereto) and the Excise Tax imposed upon the Gross-Up Payment, Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.

          7.2 Determination of Gross-Up Payment.

     (a) All determinations required to be made under this Section 7, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be made by a nationally
recognized certified public accounting firm as may be designated by the Company (the
“Accounting Firm”), which shall provide detailed supporting calculations to both the Company
and Executive within ten (10) business days after the receipt of notice from Executive that
Payments were made, or such earlier time as is required by the Company; provided
that, for purposes of determining the amount of any Gross-Up Payment, Executive shall be
deemed to pay federal income tax at the highest marginal rates applicable to individuals in
the calendar year in which any such Gross-Up Payment is to be made and deemed to pay state
and local income taxes at the highest effective rates applicable to individuals in the state
or locality of Executive’s residence or place of employment in the calendar year in which
any such Gross-Up Payment is to be made, net of the maximum reduction in federal income
taxes that can be obtained from deduction of such state and local taxes, taking into account
limitations applicable to individuals subject to federal income tax at the highest marginal
rates. All fees and expenses of the Accounting Firm shall be borne solely by the Company.

     (b) Any Gross-Up Payment, as determined pursuant to this Section 7, shall be paid by
the Company to Executive (or to the appropriate taxing authority on Executive’s behalf) when
due in accordance with paragraph (a) above; provided, however, that such
payment shall be made no later than (i) with respect to taxes, the end of Executive’s
taxable year following the taxable year in which Executive remits such taxes to the
applicable taxing authority, and (ii) with respect to interest and penalties incurred by
Executive with respect to such taxes, the end of Executive’s taxable year following the
taxable year in which Executive incurs such interest and/or penalties, as applicable. The
amount of interest and penalties reimbursed by the Company during one calendar year shall
not affect the amount of interest and penalties reimbursable by the Company during a
subsequent calendar year, and the right to such reimbursement may not be exchanged or
substituted for other forms of compensation to Executive.

     (c) If the Accounting Firm determines that no Excise Tax is payable by Executive, it
shall so indicate to the Company and Executive in writing. Any determination by the
Accounting Firm shall be binding upon the Company and Executive. As a result of the
uncertainty in the application of Code Section 4999, it is

11

 

possible that the amount of the Gross-Up Payment determined by the Accounting Firm to
be due to (or on behalf of) Executive may be lower than the amount actually required to be
paid by Executive to the applicable taxing authority (“Underpayment”). In the event that
the Company exhausts its remedies hereunder and Executive thereafter is required to make a
payment of any Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of Executive; provided, however, that such
Underpayment shall be paid no later than the end of Executive’s taxable year following the
taxable year in which Executive remits the Excise Tax to the applicable taxing authority.

          7.3 Disputed Taxes.

     (a) Executive shall notify the Company in writing of any claim by the Internal Revenue
Service or other relevant taxing authority that, if successful, would require the payment by
the Company of any Gross-Up Payment. Such notification shall be given as soon as
practicable, but no later than ten (10) business days after Executive is informed in writing
of such claim and shall apprise the Company of the nature of such claim and the date on
which such claim is requested to be paid. If such claim is due to a tax audit or litigation
addressing the existence or amount of tax liability, whether federal, state or local (a
“Reimbursable Claim”), then Executive shall not pay such claim prior to the expiration of
the thirty (30)-day period following the date on which it gives such notice to the Company
(or such shorter period ending on the date that any payment of taxes with respect to such
Reimbursable Claim is due). If the Company notifies Executive in writing prior to the
expiration of such period that it desires to contest such Reimbursable Claim, Executive
shall (i) give the Company any information reasonably requested by the Company relating to
such Reimbursable Claim, (ii) take such action in connection with contesting such
Reimbursable Claim as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to such
Reimbursable Claim by an attorney reasonably selected by the Company, (iii) cooperate with
the Company in good faith in order to effectively contest such Reimbursable Claim, and (iv)
permit the Company to participate in any proceedings relating to such Reimbursable Claim;
provided, however, that the Company shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in connection with such
contest and shall indemnify and hold Executive harmless, on an after-tax basis, for any
Excise Tax or income tax (including interest and penalties with respect thereto) imposed as
a result of such representation and payment of costs and expenses.

     (b) Without limiting the foregoing provisions of this Section 7.3, the Company shall
control all proceedings taken in connection with such contest and, at its sole option, may
pursue or forego any and all administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such Reimbursable Claim and may, at its sole option,
either direct Executive to pay the tax claimed and sue for a refund or contest the
Reimbursable Claim in any permissible manner, and Executive agrees to prosecute such contest
to a determination before any administrative tribunal, in a court of initial jurisdiction
and in one or more appellate courts, as the Company shall

12

 

determine; provided that if the Company directs Executive to pay such
Reimbursable Claim and sue for a refund, the Company shall advance the amount of such
payment to Executive, on an interest-free basis, and shall indemnify and hold Executive
harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or with respect to any
imputed income with respect to such advance; provided, further, that if
Executive is required to extend the statute of limitations to enable the Company to contest
such Reimbursable Claim, Executive may limit this extension solely to such contested amount.
The Company’s control of the contest shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue Service or any
other taxing authority. In no event shall payments for or reimbursements to Executive for
Reimbursable Claims be made later than the end of Executive’s taxable year following the
taxable year in which the taxes that are the subject to the Reimbursable Claim are remitted
to the taxing authority, or if as a result of such audit or litigation no taxes are
remitted, the end of Executive’s taxable year following the taxable year in which the audit
is completed or there is a final nonappealable settlement or other resolution of the
litigation.

          7.4 Refunds of Gross-Up Payments. If, after the receipt by Executive of an amount
paid or advanced by the Company pursuant to this Section 7, Executive becomes entitled to receive
any refund with respect to a Gross-Up Payment, Executive shall (subject to the Company’s complying
with the requirements of Section 7.3) promptly pay to the Company the amount of such refund
received (together with any interest paid or credited thereon after taxes applicable thereto). If,
after the receipt by Executive of an amount advanced by the Company pursuant to this Section 7, a
determination is made that Executive shall not be entitled to any refund with respect to such claim
and the Company does not notify Executive in writing of its intent to contest such denial of refund
prior to the expiration of thirty (30) days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the
extent thereof, the amount of the Gross-Up Payment required to be paid.

     8. Notices. All notices or communications hereunder shall be in writing, addressed as
follows:

To the Company:

Chairman and Chief Executive Officer

Peabody Energy Corporation

701 Market Street, Suite 900

St. Louis, Missouri 63101-1826

          To Executive at the most recent address set forth in the Company’s personnel
records.

Any such notice or communication shall be delivered by hand or by courier or sent certified or
registered mail, return receipt requested, postage prepaid, addressed as above (or to such other

13

 

address as such party may designate in a notice duly delivered as described above), and the third
business day after the actual date of sending shall constitute the time at which notice was given.

     9. Severability. If any provision of this Agreement is declared to be invalid or
unenforceable, in whole or in part, such invalidity or unenforceability shall not affect the
remaining provisions hereof, which shall remain in full force and effect.

     10. Assignment. Neither this Agreement nor any rights or obligations hereunder shall
be assignable or otherwise subject to hypothecation by Executive (except by will or by operation of
the laws of intestate succession) or by the Company, except that the Company may assign this
Agreement, in writing, to any successor (whether by merger, purchase, spin-off or otherwise) to all
or substantially all of the stock, assets or businesses of the Company. This Agreement shall be
binding upon, inure to the benefit of and be enforceable by the heirs and representatives of
Executive and the permitted assigns and successors of the Company.

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

     12. Code Section 409A Compliance.

     (a) This Agreement is intended to comply with Section 409A and shall, to the extent
practicable, be construed in accordance therewith. Accordingly, notwithstanding anything in
this Agreement to the contrary, if the Company determines that Executive is a “specified
employee” (as defined in Code Section 409A(a)(2)(B)(i)) at the time of his or her Separation
from Service and any amount payable to Executive under this Agreement is a deferral of
compensation subject to the additional tax described in Code Section 409A(a)(1)(B) and would
be considered a payment upon Executive’s Separation from Service, then such amount shall not
be paid before the date that is the earlier of (i) six (6) months and one (1) day after
Executive’s Separation from Service or (ii) Executive’s death (the “Delay Period”). Upon
the expiration of the Delay Period, the initial payment following the Delay Period shall
include a lump sum payment equal to those payments that otherwise would have been paid if
the delay had not applied, and any remaining payments due shall be payable in accordance
with their original payment schedule.

     (b) If either party to this Agreement reasonably determines that any amount payable
pursuant to this Agreement would result in adverse tax consequences under Section 409A
(including, but not limited to, the additional tax described in Code Section 409A(a)(1)(B)),
then such party shall deliver written notice of such determination to the other party, and
the parties hereby agree to work in good faith to amend this Agreement so it (i) is exempt
from, or compliant with, the requirements of Section 409A and (ii) preserves as nearly as
possible the original intent and economic effect of the affected provisions.

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

     (a) Executive, during the Term of Employment and thereafter, will not, directly or
indirectly, use for himself or herself or use for, or disclose to, any party other than the
Company, or any subsidiary of the Company (other than in the ordinary course

14

 

of Executive’s duties for the benefit of the Company or any subsidiary of the Company),
any secret or confidential information regarding the business or property of the Company or
its subsidiaries or regarding any secret or confidential apparatus, process, system, or
other method at any time used, developed, acquired, discovered or investigated by or for the
Company or its subsidiaries, whether or not developed, acquired, discovered or investigated
by Executive. At the termination of Executive’s employment or at any other time the Company
or any of its subsidiaries may request, Executive shall promptly deliver to the Company all
memoranda, notes, records, plats, sketches, plans or other documents (including, without
limitation, any “soft” copies or computerized or electronic versions thereof) made by,
compiled by, delivered to, or otherwise acquired by Executive concerning the business or
properties of the Company or its subsidiaries or any secret or confidential product,
apparatus or process used developed, acquired or investigated by the Company or its
subsidiaries.

     (b) In consideration of the Company’s obligations under this Agreement, Executive
agrees that, during his or her employment with the Company and:

     (i) for a period of one (1) year thereafter, without the prior written consent
of the Chairman and CEO, he or she shall not, directly or indirectly, as principal,
manager, agent, consultant, officer, stockholder, partner, investor, lender or
employee or in any other capacity, carry on, be engaged in or have any financial
interest in, any entity which is in competition with the business of the Company or
its subsidiaries; provided, however, that this paragraph (i) shall
not apply if the Company does not renew this Agreement and terminates Executive’s
employment and Executive does not receive severance benefits from the Company; and

     (ii) for a period of two (2) years thereafter, without the prior written
consent of the Chairman and CEO, he or she shall not, on his or her own behalf or on
behalf of any person, firm or company, directly or indirectly, solicit or offer
employment to any person who is or has been employed by the Company or its
subsidiaries at any time during the twelve (12) months immediately preceding such
solicitation.

     (c) For purposes of this Section 13, an entity shall be deemed to be in competition
with the Company if it is principally involved in the purchase, sale or other dealing in any
property or the rendering of any service purchased, sold, dealt in or rendered by the
Company as a part of the business of the Company within the same geographic area in which
the Company effects such sales or dealings or renders such services. Notwithstanding this
Section 13(c) or Section 13(b), nothing herein shall be construed so as to preclude
Executive from investing in any publicly or privately held company, provided that
Executive’s beneficial ownership of any class of securities of an entity in competition with
the Company does not exceed five percent (5%) (or such higher percentage approved in writing
by the Chairman and CEO) of the outstanding securities of such class.

     (d) Executive agrees that the covenant not to compete and the covenant not to solicit
are reasonable under the circumstances and will not interfere with his or her ability

15

 

to earn a living or otherwise to meet his or her financial obligations. Executive and
the Company agree that if in the opinion of any court of competent jurisdiction such
restraint is not reasonable in any respect, such court shall have the right, power and
authority to excise or modify such provision or provisions of this covenant which appear
unreasonable and to enforce the remainder of the covenant as so amended. Executive agrees
that any breach of the covenants contained in this Section 13 would irreparably injure the
Company. Accordingly, Executive agrees that, in the event that a court enjoins Executive
from any activity prohibited by this Section 13, the Company may, in addition to pursuing
any other remedies it may have in law or in equity, cease making any payments otherwise
required by this Agreement and obtain an injunction against Executive from any court having
jurisdiction over the matter restraining any further violation of this Agreement by
Executive.

     14. Beneficiaries; References. Executive shall be entitled to select (and change, to
the extent permitted under any applicable law) a beneficiary or beneficiaries to receive any
compensation or benefit payable hereunder following Executive’s death, and may change such
election, in either case by giving the Company written notice thereof. In the event of Executive’s
death or a judicial determination of his or her incompetence, reference in this Agreement to
Executive shall be deemed, where appropriate, to refer to his or her beneficiary, estate or other
legal representative. Any reference to the masculine gender in this Agreement shall include, where
appropriate, the feminine.

     15. Dispute Resolution. Any dispute or controversy arising under or in connection
with this Agreement (other than an action to enforce the covenants in Section 13 hereof) or any
ancillary documents shall be resolved by arbitration in St. Louis, Missouri. Three arbitrators
shall be selected, and arbitration shall be conducted, in accordance with the rules of the American
Arbitration Association. The arbitrators shall have the discretion to award the cost of
arbitration, arbitrators’ fees and the respective attorneys’ fees of each party between the parties
as they see fit. Notwithstanding anything in this Section 15 to the contrary, payments made under
this Section 15 that are provided during one calendar year shall not affect the amount of such
payments provided during a subsequent calendar year, payments under this Section 15 may not be
exchanged or substituted for other forms of compensation to Executive, and any such payment will be
paid within sixty (60) days after Executive prevails, but in no event later than the last day of
Executive’s taxable year following the taxable year in which he or she incurred the expense giving
rise to such payment.

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

     17. Effect on Prior Agreements. This Agreement and any ancillary documents contain
the entire understanding between the parties hereto and this Agreement, except as provided in an
ancillary document, supersedes in all respects any prior or other agreement or understanding,
written or oral, between the Company, any affiliate of the Company or any predecessor of the
Company or affiliate of the Company and Executive.

     18. Withholding. The Company shall be entitled to withhold from payments to or on
behalf of Executive any amount of tax withholding required by law.

16

 

     19. Currency. All dollar amounts or references contained in this Agreement and any
ancillary document refer to the United States dollar.

     20. Survival. Notwithstanding the expiration of the term of this Agreement, the
applicable provisions of this Agreement (such as Sections 5 through 21) shall remain in effect as
long as is reasonably necessary to give effect thereto in accordance with the terms hereof.

     21. Counterparts. This Agreement may be executed in two or more counterparts, each of
which will be deemed an original.

[SIGNATURE PAGE FOLLOWS]

17

 

	 	 	 	 	 
	 	PEABODY ENERGY CORPORATION

 	 
	 	By  	/s/ Sharon D. Fiehler
 	 
	 	 	Sharon D. Fiehler	 
	 	 	Executive Vice President and Chief
Administrative Officer 	 
	 
	 	EXECUTIVE

 	 
	 	/s/ Michael C. Crews
 	 
	 	Michael C. Crews 	 
	 	 	 
	 

18

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