Document:

exv10w1

 

Exhibit
10.1

EXECUTION COPY

TRANSITION SERVICES AGREEMENT

by and among

PEABODY
ENERGY CORPORATION

and

PATRIOT COAL CORPORATION

Dated as of October 22, 2007

 

 

TRANSITION SERVICES AGREEMENT

	 	 	 	 	 	 	 	 	 
	ARTICLE I DEFINITIONS	 	 	1	 
	 
	 	 	 	 	 	 	 	 
	 

	 	Section 1.01.
	 	Definitions
	 	 	1	 
	 

	 	Section 1.02.
	 	Currency
	 	 	4	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE II TRANSITION SERVICE SCHEDULES	 	 	4	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE III SERVICES	 	 	4	 
	 
	 	 	 	 	 	 	 	 
	 

	 	Section 3.01.
	 	Services Generally
	 	 	4	 
	 

	 	Section 3.02.
	 	Service Levels
	 	 	4	 
	 

	 	Section 3.03.
	 	Impracticability
	 	 	5	 
	 

	 	Section 3.04.
	 	Additional Resources
	 	 	5	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE IV OPERATING COMMITTEE	 	 	5	 
	 
	 	 	 	 	 	 	 	 
	 

	 	Section 4.01.
	 	Organization
	 	 	5	 
	 

	 	Section 4.02.
	 	Decision Making
	 	 	5	 
	 

	 	Section 4.03.
	 	Meetings
	 	 	5	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE V TERM	 	 	5	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE VI COMPENSATION	 	 	6	 
	 
	 	 	 	 	 	 	 	 
	 

	 	Section 6.01.
	 	Charges for Services
	 	 	6	 
	 

	 	Section 6.02.
	 	Payment Terms
	 	 	6	 
	 

	 	Section 6.03.
	 	Taxes
	 	 	7	 
	 

	 	Section 6.04.
	 	Performance under Ancillary Agreements
	 	 	7	 
	 

	 	Section 6.05.
	 	Error Correction; True up; Accounting
	 	 	7	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE VII GENERAL OBLIGATIONS	 	 	7	 
	 
	 	 	 	 	 	 	 	 
	 

	 	Section 7.01.
	 	Performance Metrics
	 	 	7	 
	 

	 	Section 7.02.
	 	Disclaimer of Warranties
	 	 	8	 
	 

	 	Section 7.03.
	 	Transitional Nature of Services; Changes
	 	 	8	 
	 

	 	Section 7.04.
	 	Responsibilities for Errors; Changes
	 	 	8	 
	 

	 	Section 7.05.
	 	Cooperation and Consents
	 	 	8	 
	 

	 	Section 7.06.
	 	Alternatives
	 	 	9	 
	 

	 	Section 7.07.
	 	Personnel
	 	 	9	 
	 

	 	Section 7.08.
	 	Insurance
	 	 	10	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE VIII TERMINATION	 	 	10	 
	 
	 	 	 	 	 	 	 	 
	 

	 	Section 8.01.
	 	Termination
	 	 	10	 
	 

	 	Section 8.02.
	 	Survival
	 	 	11	 
	 

	 	Section 8.03.
	 	Payment
	 	 	11	 
	 

	 	Section 8.04.
	 	User ID; Passwords
	 	 	11	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE IX RELATIONSHIP BETWEEN THE PARTIES	 	 	12	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE X SUBCONTRACTORS	 	 	12	 
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 

 

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	 	Section 10.01.
	 	Subcontractors
	 	 	12	 
	 

	 	Section 10.02.
	 	Assignment
	 	 	12	 
	 
	ARTICLE XI INTELLECTUAL PROPERTY	 	 	12	 
	 
	 	 	 	 	 	 	 	 
	 

	 	Section 11.01.
	 	Allocation of Rights by Ancillary Agreements
	 	 	12	 
	 

	 	Section 11.02.
	 	Existing Ownership Rights Unaffected
	 	 	13	 
	 

	 	Section 11.03.
	 	Third Party Software
	 	 	13	 
	 

	 	Section 11.04.
	 	Termination of Licenses
	 	 	13	 
	 
	ARTICLE XII NO OBLIGATION	 	 	13	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE XIII CONFIDENTIALITY	 	 	13	 
	 
	 	 	 	 	 	 	 	 
	 

	 	Section 13.01.
	 	Confidentiality
	 	 	13	 
	 

	 	Section 13.02.
	 	PCC Confidential Information
	 	 	14	 
	 

	 	Section 13.03.
	 	Permitted Purpose
	 	 	14	 
	 

	 	Section 13.04.
	 	Disclosure
	 	 	14	 
	 

	 	Section 13.05.
	 	Custody
	 	 	14	 
	 

	 	Section 13.06.
	 	Expiration of Confidentiality Provisions
	 	 	14	 
	 
	ARTICLE XIV LIMITATION OF LIABILITY AND INDEMNIFICATION	 	 	15	 
	 
	 	 	 	 	 	 	 	 
	 

	 	Section 14.01.
	 	Indemnification
	 	 	15	 
	 

	 	Section 14.02.
	 	Limitation of Liability
	 	 	16	 
	 

	 	Section 14.03.
	 	Exclusions
	 	 	16	 
	 

	 	Section 14.04.
	 	Provisions Applicable with respect
to Indemnification Obligations
	 	 	16	 
	 

	 	Section 14.05.
	 	Survival
	 	 	17	 
	 
	ARTICLE XV DISPUTE RESOLUTION	 	 	17	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE XVI ASSIGNMENT	 	 	17	 
	 
	 	 	 	 	 	 	 	 
	 

	 	Section 16.01.
	 	Prohibition of Assignment
	 	 	17	 
	 

	 	Section 16.02.
	 	Assignment to PEC Group Company
	 	 	17	 
	 
	ARTICLE XVII MISCELLANEOUS	 	 	17	 
	 
	 	 	 	 	 	 	 	 
	 

	 	Section 17.01.
	 	Notices
	 	 	17	 
	 

	 	Section 17.02.
	 	Governing Law
	 	 	17	 
	 

	 	Section 17.03.
	 	Judgment Currency
	 	 	17	 
	 

	 	Section 17.04.
	 	Entire Agreement
	 	 	17	 
	 

	 	Section 17.05.
	 	Conflicts
	 	 	18	 
	 

	 	Section 17.06.
	 	Force Majeure
	 	 	18	 
	 

	 	Section 17.07.
	 	Amendment and Waiver
	 	 	18	 
	 

	 	Section 17.08.
	 	Further Assurances
	 	 	18	 
	 

	 	Section 17.09.
	 	Severability
	 	 	19	 
	 

	 	Section 17.10.
	 	Counterparts
	 	 	19	 

 

 

TRANSITION SERVICES AGREEMENT

     TRANSITION SERVICES AGREEMENT (this “Agreement”), dated as of October 22, 2007, by and between
Peabody Energy Corporation, a Delaware corporation (“PEC”) and Patriot Coal Corporation, a Delaware
corporation (“PCC” and together with PEC, the “Parties”, and each individually, a “Party”).
Capitalized terms used but not defined herein shall have the meaning ascribed to them in the
Separation Agreement (as defined below).

RECITALS

     WHEREAS PEC and PCC have entered into a Separation Agreement, Plan of Reorganization and
Distribution dated October 22, 2007 pursuant to which the Parties set out the terms and conditions
relating to the separation of the Eastern Business (such that the Eastern Business is to be held,
as at the Effective Time, directly or indirectly, by PCC (such agreement, as amended, restated or
modified from time to time, the “Separation Agreement”).

     WHEREAS in connection therewith, PCC desires that PEC and other members of the PEC Group, as
applicable, provide PCC and other members of the PCC Group, as applicable, with certain
transitional services with respect to the operation of the PCC Group following the Effective Date,
subject to the terms and conditions of this Agreement.

     NOW, THEREFORE, in consideration of the foregoing premises and the mutual agreements and
covenants contained in this Agreement and other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the Parties agree as follows:

ARTICLE I

DEFINITIONS

          Section 1.01. Definitions. For the purposes of this Agreement, the following words and
expressions and variations thereof, unless a clearly inconsistent meaning is required under the
context, shall have the meanings specified or referred to in this Section 1.01:

     “Affiliate” of any Person means any other Person that, directly or indirectly, controls, is
controlled by, or is under common control with such first Person as of the date on which or at any
time during the period for when such determination is being made. For purposes of this definition,
“Control” means the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the ownership of voting
securities or other interests, by contract or otherwise, and the terms “Controlling” and
“Controlled” have meanings correlative to the foregoing.

     “Agreement” has the meaning set forth in Article II.

     “Applicable Law” means any applicable law, statute, rule or regulation of any Governmental
Authority or any outstanding order, judgment, injunction, ruling or decree by any Governmental
Authority.

 

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     “Business Concern” means any corporation, company, limited liability company, partnership,
joint venture, trust, unincorporated association or any other form of association.

     “Business Day” means any day excluding (i) Saturday, Sunday and any other day which, in St.
Louis, Missouri, is a legal holiday or (ii) a day on which banks are authorized by Applicable Law
to close in St. Louis, Missouri.

     “Chief Representative” has the meaning set forth in Section 7.07(c).

     “Commercially Reasonable Efforts” means the efforts that a reasonable and prudent Person
desirous of achieving a business result would use in similar circumstances to ensure that such
result is achieved as expeditiously as possible in the context of commercial relations of the type
envisaged by this Agreement; provided, however, that an obligation to use Commercially Reasonable
Efforts under this Agreement does not require the Person subject to that obligation to assume any
material obligations or pay any material amounts to a Third Party.

     “Consent” means any approval, consent, ratification, waiver or other authorization.

     “Contract” means any contract, agreement, lease, license, commitment, consensual obligation,
promise or undertaking (whether written or oral and whether express or implied) that is legally
binding on any Person or any part of its property under Applicable Law.

     “Dollars” or “$” means the lawful currency of the United States of America.

     “Event of Default” has the meaning set forth in Section 8.01.

     “Expiration Date” has the meaning set forth in Article V.

     “Fair Market Value” means, in relation to the pricing of services under this Agreement, terms
that would be agreed between non-affiliated third parties for comparable services on a comparable
scale, determined in the reasonable judgment of PEC.

     “Force Majeure Event” has the meaning set forth in Section 17.07.

     “Governmental Authority” means any court, arbitration panel, governmental or regulatory
authority, agency, stock exchange, commission or body.

     “Governmental Authorization” means any Consent, license, certificate, franchise, registration
or permit issued, granted, given or otherwise made available by, or under the authority of, any
Governmental Authority or pursuant to any Applicable Law.

     “Group” means PEC Group or PCC Group, as the context requires.

     “Impracticability” has the meaning set forth in Section 3.03.

     “Operating Committee” has the meaning set forth in Section 4.01.

     “PCC Confidential Information” has the meaning set forth in Section 13.02.

 

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     “PCC Group” means PCC and its Subsidiaries from time to time after the Effective Time.

     “PCC Indemnified Parties” has the meaning set forth in Section 14.01.

     “PEC Group” means PEC and its Subsidiaries from time to time after the Effective Time.

     “PEC Group Company” means any Person forming part of the PEC Group.

     “PEC Indemnified Parties” has the meaning set forth in Section 14.01.

     “Permitted Purpose” has the meaning set forth in Section 13.03.

     “Person” means any individual, Business Concern or Governmental Authority.

     “Prime Rate” means the rate of interest announced by Bank of America, Inc. from time to time
as its “prime rate,” “prime lending rate,” “base rate” or similar reference rate. In the event the
Prime Rate is discontinued as a standard, the holder hereof shall designate a comparable reference
rate as a substitute therefor. For purposes hereof, the Prime Rate in effect at the close of
business on each business day of Bank of America, Inc. shall be the Prime Rate for that day and any
immediately succeeding non-business day or days.

     “Results” has the meaning set forth in Section 11.02.

     “Sales Taxes” means any sales, use, consumption, goods and services, value added or similar
tax, duty or charge imposed pursuant to Applicable Law.

     “Separation Agreement” has the meaning set out in the Preamble to this Agreement.

     “Service(s)” has the meaning set forth in Section 3.01.

     “Service Manager” has the meaning set forth in Section 7.07(c).

     “Service Provider” means PEC or a member of PEC Group when it is providing a Service to PCC or
a member of PCC Group hereunder in accordance with a Transition Service Schedule.

     “Service Recipient” means PCC or a member of PCC Group when it is receiving a Service from PEC
or a member of PEC Group hereunder in accordance with a Transition Service Schedule.

     “Subcontractor” has the meaning set forth in Section 10.01.

     “Subsidiary” of any Person means any corporation, partnership, limited liability entity, joint
venture or other organization, whether incorporated or unincorporated, of which of a majority of
the total voting power of capital stock or other interests entitled (without the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by such Person.

     “Term” has the meaning set forth in Article V.

 

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     “Third Party” means a Person that is not a Party to this Agreement, other than a member of the
PEC Group or a member of the PCC Group or an Affiliate of either Group.

     “Transition Service Schedule” has the meaning set forth in Article II.

          Section 1.02. Currency. Except as otherwise specified in a Transition Service
Schedule, all references to currency herein are to lawful money of the United States of America.

ARTICLE II

TRANSITION SERVICE SCHEDULES

          This Agreement will govern individual transitional Services as requested by PCC or any other
member of PCC Group, and provided by PEC or any other member of PEC Group, the details of which are
set forth in the Transition Service Schedules attached to and forming part of this Agreement. Each
Service shall be covered by this Agreement upon execution of a transition service schedule in the
form attached hereto (each transition service schedule, a “Transition Service Schedule”).

          For each Service, the Parties shall set forth in a Transition Service Schedule substantially
in the form of Schedule 1 hereto, among other things, (i) the time period during which the
Service will be provided if different from the Term of this Agreement; (ii) a summary of the
Service to be provided; and (iii) the method for determining the charge, if any, for the Service
and any other terms applicable thereto. Obligations regarding a Transition Service Schedule shall
be effective upon the later of the Effective Date of this Agreement or the date of execution of the
applicable Transition Service Schedule. This Agreement and all the Transition Service Schedules
shall be defined as the “Agreement” and incorporated herein wherever reference to it is made.

ARTICLE III

SERVICES

          Section 3.01. Services Generally. Except as otherwise provided herein, for the Term
hereof, PEC and other members of the PEC Group shall provide to PCC and the other members of PCC
Group, and shall cause the other applicable members of PEC Group to provide or cause to be provided
to PCC and the other members of PCC Group, the Services described in the Transition Service
Schedule(s) attached hereto identified on such Schedules as Services to be provided by members of
the PEC Group. The Service(s) described on a single Transition Service Schedule shall be referred
to herein as a “Service”. Collectively, the services described on all the Transition Service
Schedules shall be referred to herein as the “Services”. PEC and PCC shall cause the members of
their respective Groups to, if applicable, comply with the terms and conditions set forth in this
Agreement or in the Transition Services Schedules.

          Section 3.02. Service Levels. Except as otherwise provided in a Transition Service Schedule for a specific service: (i)
the Service Provider shall provide the Services only to the extent such Services are being provided
by PEC or any other member of the PEC Group immediately prior to the Effective Date and at a level
of service substantially similar to that provided by PEC or the applicable member of the PEC Group
immediately prior to the Effective Date; and (ii) the Services will be available only for purposes
of conducting the business of the

 

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Service Recipient substantially in the manner it was conducted
prior to the Effective Time; provided, however, that nothing in this Agreement will require a Party
to favor the other Party over its other business operations. Except as otherwise provided in a
Transition Service Schedule in respect of a specific Service, PCC will not be entitled to any new
service.

          Section 3.03. Impracticability. A Service Provider shall not be required to provide
any Service to the extent the performance of such Service becomes impracticable as a result of a
cause or causes outside the reasonable control of the Service Provider, including unfeasible
technological requirements, or to the extent the performance of such Services would require the
Service Provider to violate any Applicable Law, or would result in the breach of any license,
Governmental Authorization or Contract (an “Impracticability”).

          Section 3.04. Additional Resources. In accordance with Section 7.07 below and except
as specifically provided in a Transition Service Schedule for a specific Service, in providing the
Services, a Service Provider shall not be obligated to: (i) hire any additional employees; (ii)
maintain the employment of any specific employee; (iii) purchase, lease or license any additional
facilities, equipment or software; or (iv) pay any costs related to the transfer or conversion of
the Service Recipient’s data to the Service Provider or any alternate supplier of Services.

ARTICLE IV

OPERATING COMMITTEE

          Section 4.01. Organization. The Parties shall create an operating committee (the
“Operating Committee”) and shall each appoint one (1) employee to the Operating Committee for the
Term. The Operating Committee will oversee the implementation and application of this Agreement and
shall attempt to resolve any dispute between the Parties. Each of the Parties shall have the right
to change its Operating Committee member at any time with employees of comparable knowledge,
expertise and decision-making authority.

          Section 4.02. Decision Making. All Operating Committee decisions shall be taken
unanimously. If the Operating Committee fails to make a decision, resolve a dispute, agree upon any
necessary action, or if a Party so requests, in the event of a material breach of this Agreement, a
senior officer of PEC and a senior officer of PCC, neither of whom shall have any direct oversight
or responsibility for
the subject matter in dispute, shall attempt within a period of fourteen (14) days to
conclusively resolve any such unresolved issue.

          Section 4.03. Meetings. During the Term, the Operating Committee members shall meet,
in person or via teleconference, at least once in each week, or less frequently if agreed by the
members of the Operating Committee. In addition, the Operating Committee shall meet as often as
necessary in order to promptly resolve any disputes submitted to it by any representative of either
Party.

ARTICLE V

TERM

          The term of this Agreement shall commence on the Effective Date and end six (6) months
following the Effective Date, unless earlier terminated under Article VIII or extended as

 

6

hereinafter provided (the “Term”). PCC shall have the right to extend the term of the agreement
for a renewal term of three months upon written notice to PEC no later than thirty (30) days prior
to the expiration of the initial term (the last day of the initial term or renewal term, as
applicable, the “Expiration Date”). Under certain circumstances and for certain Services, as
specified in the applicable Transition Service Schedule, PCC shall have the right to extend the
term of the agreement for a second renewal term of three (3) additional months. The Parties may
agree on an earlier expiration date respecting a specific Service by specifying such date on the
Transition Service Schedule for that Service. Services shall be provided up to and including the
date set forth in the applicable Transition Service Schedule, subject to earlier termination as
provided in Article VIII. It shall be the sole responsibility of the Service Recipient, upon and
after expiration or early termination of this Agreement with respect to a specific Service, to
perform, render and provide for itself (or to make arrangements with one or more Third Party
service providers to perform, render and provide) such Service, and to do all necessary planning
and make all necessary preparations in connection therewith.

ARTICLE VI

COMPENSATION

          Section 6.01. Charges for Services. The Service Recipient shall pay the Service
Provider the charges, if any, set forth on the Transition Service Schedules for each of the
Services listed therein as adjusted, from time to time, in accordance with the processes and
procedures established under Section 7.01 hereof, or, if no such charges are specifically indicated
otherwise on a Transition Service Schedule, the Fair Market Value of the Services; provided that
actual charges for the Services shall be, during the period beginning 181 days after the Effective
Date and ending 270 days after the Effective Date, 125% of such amounts and, during the period
beginning 271 days after the Effective Date and continuing through the remaining term of this
Agreement, 150% of such amounts. If there is any inconsistency between the Transition Service
Schedule and this Section 6.01, the terms of the Transition Service Schedule shall govern. The
Parties also intend, having regard to the reciprocal and transitional nature of this Agreement and
other factors, for charges to be easy to administer and justify; and, therefore, they hereby
acknowledge that it may be
counterproductive to try to recover every cost, charge or expense, particularly those that are
insignificant or de minimis.

          Section 6.02. Payment Terms. Except as otherwise specified in a Transition Service
Schedule, the Service Provider shall invoice the Service Recipient monthly (or on such other basis
as the Parties may mutually determine) for all charges pursuant to this Agreement. Such invoices
shall specify the Services provided to the Service Recipient during the preceding month and
identifying the Service fee applicable to each Service so specified, and shall be accompanied by
reasonable documentation or other reasonable explanations supporting such charges. Except as
otherwise specified in a Transition Service Schedule, the Service Recipient shall pay, net of
applicable withholding tax, if any, the Service Provider for all Services provided hereunder within
thirty (30) days after receipt of an invoice therefor by wire transfer of immediately available
funds to the account designated by the Service Provider for this purpose. Late payments shall bear
interest at a rate per annum equal to the Prime Rate plus 2.0%, calculated for the actual number of
days elapsed, accrued from and excluding the date on which such payment was due up to and including
the date of payment.

 

7

          Section 6.03. Taxes. The fees and charges payable by the Service Recipient under this
Agreement and set forth on the Transition Service Schedules shall be exclusive of any Sales Taxes
or excise taxes or any customs or import charges or duties or any similar charges or duties which
may be imposed by any Governmental Authority in connection with the purchase or delivery of the
Services or materials to the Service Recipient. The Service Recipient shall remit to the Service
Provider any Sales Taxes properly payable to the Service Provider pursuant to this Agreement.
Applicable Sales Taxes shall be indicated by the Service Provider separately on all of the Service
Provider’s invoices. The Parties shall co-operate with each other to minimize any applicable Sales
Taxes and each shall provide the other with any reasonable certificates or documents which are
useful for such purpose.

          Section 6.04. Performance under Ancillary Agreements. Notwithstanding anything to the
contrary contained herein, the Service Recipient shall not be charged under this Agreement for any
obligations that are specifically required to be performed under the Separation Agreement or any
other Ancillary Agreement; and any such other obligations shall be performed and charged for (if
applicable) in accordance with the terms of the Separation Agreement or such other Ancillary
Agreement.

          Section 6.05. Error Correction; True-up; Accounting. The Parties shall agree to
develop, through the Operating Committee or otherwise, mutually acceptable reasonable processes and
procedures for conducting internal audits and making adjustments to charges as a result of the
movement of employees and functions between the Parties, the discovery of errors or omissions in
charges, as well as a true-up of amounts owed. In no event shall such processes and procedures
extend beyond eighteen (18) months after completion of a Service.

ARTICLE VII

GENERAL OBLIGATIONS

          Section 7.01. Performance Metrics. Subject to Sections 3.02 to 3.04 and any other
terms and conditions of this Agreement, PEC shall maintain, and shall cause the relevant other
members of PEC Group to maintain, sufficient resources to perform their obligations hereunder.
Specific performance metrics for PEC for a specific Service may be set forth in the corresponding
Transition Service Schedule. Where none is set forth, PEC and the other relevant members of PEC
Group shall use Commercially Reasonable Efforts to provide Services, or to cause the Services to be
provided, in accordance with PEC’s policies, procedures, service levels and practices in effect
before the Effective Date and shall exercise the same care and skill as PEC exercises in performing
similar services for itself or for the other members of PEC Group. To the extent within the
possession and control of PCC and the other relevant members of the PCC Group, PCC shall provide,
and shall cause the other relevant members of the PCC Group to provide, PEC and the other relevant
members of the PEC Group with information and documentation sufficient for PEC and the other
relevant members of the PEC Group to perform the Services they are obligated to perform hereunder
as they were performed before the Effective Date and shall make available, as reasonably requested
by PEC or the other relevant members of the PEC Group, sufficient resources and timely decisions,
approvals and acceptances in order that PEC and the other relevant members of PEC Group may perform
their obligations hereunder in a timely manner.

 

8

          Section 7.02. Disclaimer of Warranties. Except as expressly provided in this
Agreement, PEC does not make any warranties or conditions, express, implied, conventional or
statutory, including but not limited to, the implied warranties or conditions of merchantability,
of quality or fitness for a particular purpose, with respect to the Services or other items or
deliverables provided by it or any other member of the PEC Group hereunder or any transactions
contemplated herein.

          Section 7.03. Transitional Nature of Services; Changes. The Parties acknowledge the
transitional nature of the Services and that a Service Provider may make changes from time to time
in the manner of performing the Services if the Service Provider is making similar changes in
performing similar services for itself and if the Service Provider provides to the Service
Recipient reasonable notice of the circumstances regarding such changes.

          Section 7.04. Responsibilities for Errors; Changes. Except in the case of Service
Provider’s gross negligence, bad faith or willful misconduct, the Service Provider’s sole
responsibility to the Service Recipient:

          (a) for errors or omissions in Services, shall be to furnish correct information, payment
and/or adjustment in the Services, at no additional cost or expense to the Service Recipient;
provided that the Service Provider must promptly advise the Service Recipient of any such error or
omission of which it becomes aware after using Commercially Reasonable Efforts

          to detect any such errors or omissions in accordance with the standard of care set forth in
Section 7.01; and

          (b) for failure to deliver any Service because of Impracticability, shall be to use
Commercially Reasonable Efforts, subject to Section 3.03, to make the Services available or to
resume performing the Services as promptly as reasonably practicable.

          Section 7.05. Cooperation and Consents. The Parties shall, and shall cause the other
relevant members of their respective Groups to, cooperate with each other in all matters relating
to the provision and receipt of Services. Such cooperation shall include exchanging information,
performing true-ups and adjustments, and obtaining all Third Party Consents, licenses or
sublicenses necessary to permit each Party to perform its obligations hereunder (including by way
of example, not by way of limitation, rights to use Third Party software needed for the performance
of Services). Pursuant to Section 11.03, the costs of obtaining such Third Party Consents, licenses
or sublicenses shall be borne by the Service Recipient. The Parties shall maintain, and shall cause
the other relevant members of their respective Groups to maintain, in accordance with its standard
document retention procedures, documentation supporting the information relevant to cost
calculations contained in the Transition Service Schedules.

          With respect to those Services that, in the reasonable opinion of PCC, relate to matters of
internal control over financial reporting and with respect to which PCC reasonably believes testing
of certain key controls maintained by the Service Provider is necessary in order to permit PCC’s
management to perform an adequate assessment of internal control over financial reporting (and to
permit its auditors or internal auditors to audit its internal control over financial reporting and
management’s assessment thereof), upon request by PCC no later than 90

 

9

days before the end of a
calendar year where such management assessment and related audit of its internal control over
financial reporting is actually required for SEC reporting, the Service Provider and PCC shall
jointly identify key controls over financial reporting maintained by the Service Provider. The
Service Provider will provide PCC’s external or internal auditors access to information, systems
and those individuals responsible for execution of any key controls maintained by the Service
Provider so as to enable the independent auditors or internal auditors to determine such controls
over the practices and procedures relating to the Service Provider’s performance of such Services
under this Agreement are in effect. The Service Provider will, and will use Commercially Reasonable
Efforts to cause its external or internal auditors to, provide information to PCC and PCC’s
external or internal auditors in order to allow PCC or PCC’s internal or external auditors to
perform procedures with respect to key controls which must be tested as part of PCC’s management
assessment process and required by generally accepted auditing standards, including, without
limitation, PCAOB Auditing Standard No. 2, and by Section 404 of the Sarbanes-Oxley Act of 2002 and
the rules promulgated thereunder. All expenditures incurred by a Service Provider in performing its
obligations under this paragraph shall be payable by the Service Recipient.

          Section 7.06. Alternatives. If the Service Provider reasonably believes it is unable to provide any Service because of a
failure to obtain necessary Consents, licenses or sublicenses pursuant to Section 7.05 or because
of Impracticability, the Parties shall cooperate to determine the best alternative approach. Until
such alternative approach is found or the problem otherwise resolved to the satisfaction of the
Parties, the Service Provider shall use Commercially Reasonable Efforts subject to Sections 3.02,
3.03 and 3.04, to continue providing the Service. To the extent an agreed upon alternative approach
requires the occurrence of costs or expenditures above and beyond that which is included in the
Service Provider’s charge for the Service in question, such additional costs and expenditures
shall, unless otherwise agreed, be borne by the Service Recipient.

          Section 7.07. Personnel.

          (a) Right to designate and change personnel. The Service Provider will have the right to
designate which personnel it will assign to perform the Services. The Service Provider also will
have the right to remove and replace any such personnel at any time or designate any of its
Affiliates or a Subcontractor at any time to perform the Services, subject to the provisions of
Article X; provided, however, that the Service Provider will use Commercially Reasonable Efforts to
limit the disruption to the Service Recipient in the transition of the Services to different
personnel or to a Subcontractor. In the event that personnel with the designated level of
experience are not then employed by the Service Provider, the Service Provider will use
Commercially Reasonable Efforts to provide such personnel or Subcontractor personnel having an
adequate level of experience; provided, however, that the Service Provider will have no obligation
to retain any individual employee for the sole purpose of providing the applicable Services.

          (b) Financial Responsibility. The Service Provider will pay for all personnel expenses,
including wages, of its employees performing the Services.

 

10

          (c) Service Managers and Chief Representatives. During the Term of this Agreement, PEC will
appoint (i) one of its employees (the “Service Manager”) who will have overall responsibility for
managing and coordinating the delivery of the Services and who shall serve as PEC’s representative
on the Operating Committee and (ii) one of its employees for each service as indicated in each
Transition Service Schedule (the “Chief Representative”). The Service Manager and the Chief
Representatives will coordinate and consult with the Service Recipient. The Service Provider may,
at its discretion, select other individuals to serve in these capacities during the Term of this
Agreement upon providing notice to the other Party. For greater certainty, a Chief Representative
may serve as such in respect of one or more Transition Service Schedules.

          Section 7.08. Insurance. Each Party shall obtain and maintain at its own expense
insurance of the type generally maintained in the ordinary course of its business. Except as
otherwise specified in a Transition
Service Schedule, the Service Provider shall not be required to obtain and maintain any
particular insurance in relation to providing any Service.

ARTICLE VIII

TERMINATION

          Section 8.01. Termination. The Service Recipient may terminate this Agreement or any
Service, with or without cause, at any time upon at least sixty (60) days, prior notice to the
Service Provider. As soon as reasonably practicable following receipt of any such notice, the
Service Provider shall advise the Service Recipient as to whether termination of such Service will
(a) require the termination or partial termination of, or otherwise affect the provision of,
certain other Services, or (b) result in any early termination costs, including those related to
Subcontractors. In the event that such termination is expected by the Service Provider to result
in any early termination costs, the Service Provider will, if practicable, provide to the Service
Recipient such information as it has reasonably available regarding the estimated amount of such
costs, which in the case of a Subcontractor may be based upon information provided by such
Subcontractor. Any early termination costs shall be borne by the Service Recipient as set forth in
Section 8.03. If either will be the case, the Service Recipient may withdraw its termination
notice within five (5) Business Days. If the Service Recipient does not withdraw the termination
notice within such period, such termination will occur in accordance with the original notice.

          In addition, the Parties agree that (a) this Agreement may be terminated in its entirety
immediately at the option of the non-defaulting Party, in the event that an Event of Default occurs
in relation to the other Party, and such termination shall take effect immediately upon the
non-defaulting Party providing notice to the other of the termination (except as otherwise
specified in clause (e) below), and that (b) either Party may terminate this Agreement (and the
corresponding Transition Service Schedule) with respect to a specific Service upon providing notice
to the other Party in the event that an Event of Default occurs in relation to such other Party,
and such termination shall take effect immediately upon the non-defaulting Party providing such
notice to the other (except as otherwise specified in clause (e) below).

          For the purposes of this Agreement, each of the following shall individually and collectively
constitute an “Event of Default”:

 

11

          (a) in relation to the Service Recipient, if the Service Recipient defaults in payment to the
Service Provider of any payments which are due and payable by it to the Service Provider pursuant
to this Agreement, and such default is not cured within thirty (30) days following receipt by the
Service Recipient of notice of such default;

          (b) in relation to the Service Provider, if the Service Provider defaults in payment to the
Service Recipient of any payments which are due and payable by it to the Service Recipient pursuant
to this Agreement (if any), and such default is not cured within thirty (30) days following receipt
by the Service Provider of notice of such default;

          (c) either Party breaches any of its material obligations to the other Party pursuant to this
Agreement (other than as set out in paragraphs (a) and (b) above), and fails to
cure it within thirty (30) days after receipt of notice from the non-defaulting Party
specifying the default in reasonable detail and demanding that it be rectified, provided that if
such breach is not capable of being cured within thirty (30) days after receipt of such notice and
the Party in default has diligently pursued efforts to cure the default within the thirty (30) day
period, no Event of Default under this paragraph (c) shall occur;

          (d) either Party breaches any material representation or warranty, or fails to perform or
comply with any covenant, provision, undertaking or obligation in or of the Separation Agreement
within thirty (30) days of notice by the other Party of any such failure;

          (e) either Party (i) is bankrupt or insolvent or takes the benefit of any statute in force for
bankrupt or insolvent debtors, or (ii) files a proposal or takes any action or proceeding before
any court of competent jurisdiction for its dissolution, winding-up or liquidation, or for the
liquidation of its assets, or a receiver is appointed in respect of its assets, which order, filing
or appointment is not rescinded within sixty (60) days.

          Section 8.02. Survival. Notwithstanding the foregoing, in the event of any termination
or expiration with respect to one or more Services, but less than all Services, this Agreement
shall continue in full force and effect with respect to any Services not terminated or expired.

          Section 8.03. Payment. Immediately following the Expiration Date, the Service Provider
shall cease, or cause the other members of the Group to which it belongs, or its Subcontractors to
cease, providing the Services, and the Service Recipient shall promptly pay or cause the other
members of the Group to which it belongs, to promptly pay all fees accrued pursuant to Article VI
but unpaid to the Service Provider, provided, however, that in case of earlier termination without
cause, the Service Recipient shall reimburse the Service Provider only to the extent of the
reasonable termination costs actually incurred by the Service Provider resulting from the Service
Recipient’s early termination of such Services, including those owed to Subcontractors. The Service
Provider will use Commercially Reasonable Efforts to mitigate such termination costs.

          Section 8.04. User ID; Passwords. The Parties shall use Commercially Reasonable
Efforts upon the termination or expiration of this Agreement or of any specific Service hereto to
ensure that access by one Party to the other Party’s systems is cancelled.

 

12

ARTICLE IX

RELATIONSHIP BETWEEN THE PARTIES

          The Service Provider is and will remain at all times an independent contractor in the
performance of all Services hereunder. In all matters relating to this Agreement, the Service
Provider will be solely responsible for the acts of its employees and agents, and employees or
agents of the Service Provider shall not be considered employees or agents of the Service
Recipient. Except as otherwise provided herein, the Service Provider will not have any right,

          power or authority to create any obligation, express or implied, on behalf of the Service
Recipient nor shall the Service Provider act or represent or hold itself out as having authority to
act as an agent or partner of the Service Recipient, or in any way bind or commit the Service
Recipient to any obligations. Nothing in this Agreement is intended to create or constitute a joint
venture, partnership, agency, trust or other association of any kind between the Parties or Persons
referred to herein, and each Party shall be responsible only for its respective obligations as set
forth in this Agreement. Neither the Service Provider and nor its employees shall be considered an
employee or agent of the Service Recipient for any purpose, except as expressly agreed by the
Parties. The Service Provider shall have sole responsibility for the supervision, daily direction
and control, payment of salary (including withholding of income taxes and deductions at source),
worker’s compensation, disability benefits and the like of its employees.

ARTICLE X

SUBCONTRACTORS

          Section 10.01. Subcontractors. The Service Provider may, subject to Section 10.02,
engage a “Subcontractor” to perform all or any portion of the Service Provider’s duties under this
Agreement, provided that any such Subcontractor agrees in writing to be bound by confidentiality
obligations at least as protective as the terms of Section 13.05 of the Separation Agreement
regarding confidentiality and non-use of information, and provided further that the Service
Provider remains responsible for the performance of such Subcontractor and for paying the
Subcontractor. As used in this Agreement, “Subcontractor” will mean any Person or entity engaged to
perform hereunder.

          Section 10.02. Assignment. In the event of any subcontracting by the Service Provider
to a non-Affiliate of the Service Provider of all or any portion of the Service Provider’s duties
under this Agreement, the Service Provider shall assign and transfer to the Service Recipient the
full benefit of all such non-Affiliate subcontractor’s performance covenants, guarantees,
warranties or indemnities (if any), to the extent same are transferable or assignable, in respect
of the portion of the Services provided to the Service Recipient pursuant to such subcontracting;
and if any such guarantees, warranties, indemnities and benefits are not assignable, the Service
Provider shall use Commercially Reasonable Efforts to procure the benefit of same for the Service
Recipient through other legal permissible means.

ARTICLE XI

INTELLECTUAL PROPERTY

          Section 11.01. Allocation of Rights by Ancillary Agreements. This Agreement and the
performance of this Agreement will not affect the ownership of any patent, trademark or

 

13

copyright
or other intellectual property rights allocated in the Separation Agreement or any of the Ancillary
Agreements.

          Section 11.02. Existing Ownership Rights Unaffected. Neither Party will gain, by virtue of this Agreement, any rights of ownership of copyrights,
patents, trade secrets, trademarks or any other intellectual property rights owned by the other.
Notwithstanding the foregoing, any ideas, concepts or any results arising out of the performance of
the Services (the “Results”) by the Service Provider hereunder shall be the exclusive property of
the Service Recipient. The Service Provider shall execute all documents and perform all other acts
necessary or desirable to confirm title in the name of the Service Recipient in the Results in any
jurisdiction of the world including all copyrights, trade secrets and industrial designs, and
provide assistance, if necessary, to protect or enforce the Service Recipient’s rights under said
intellectual property rights. Such obligation to execute documents and provide assistance shall
survive the expiration or early termination of this Agreement.

          The Service Recipient agrees to reimburse the Service Provider for any reasonable
out-of-pocket expenses arising out of the obligations under this Section 11.02. The Service
Provider hereby waives and shall cause its employees to waive, the whole of its and their moral
rights to any copyright material developed under this Agreement.

          Section 11.03. Third Party Software. In addition to the consideration set forth
elsewhere in this Agreement, the Service Recipient shall also pay any amounts (and applicable Sales
Taxes) that are required to be paid to any licensors of software that is used by the Service
Provider in connection with the provision of any Service hereunder, and any amounts (and applicable
Sales Taxes) that are required to be paid to any such licensors to obtain the Consent of such
licensors to allow the Service Provider to provide any of the Services hereunder. Subject to the
immediately preceding sentence and to the terms of the Separation Agreement, the Service Provider
will use Commercially Reasonable Efforts to obtain any Consent that may be required from such
licensors in order to provide any of the transition Services hereunder.

          Section 11.04. Termination of Licenses. Any license granted hereunder by the Service
Provider shall terminate ipso facto upon the expiration or early termination of this Agreement.

ARTICLE XII

NO OBLIGATION

          Neither Party assumes any responsibility or obligation whatsoever, other than the
responsibilities and obligations expressly set forth in this Agreement (including the exhibits and
schedules hereto), in the Separation Agreement or in a separate written agreement between the
Parties.

ARTICLE XIII

CONFIDENTIALITY

          Section 13.01. Confidentiality. The terms of the Confidentiality provisions set forth
in Article XIII of the Separation Agreement shall apply to all confidential information disclosed
in the course of the Parties’ interactions under this Agreement. This Article XIII of the

 

14

Agreement sets out
additional requirements regarding confidential information for the purposes of this Agreement.

          Section 13.02. PCC Confidential Information. The term “PCC Confidential Information”
means all business or operational information concerning PCC or any other member of the PCC Group
(including (i) earnings reports and forecasts, (ii) macro-economic reports and forecasts, (iii)
business and strategic plans, (iv) general market evaluations and surveys, (v) litigation
presentations and risk assessments, (vi) budgets, (vii) financing and credit-related information,
(viii) specifications, ideas and concepts for products and services, (ix) quality assurance
policies, procedures and specifications, (x) customer information, (xi) Software, (xii) training
materials and information, and (xiii) all other know-how, methodology, procedures, techniques and
trade secrets related to design, development and operational processes) which, prior to or
following the Effective Time, has been disclosed by PCC or any other member of the PCC Group to PEC
or any other member of the PEC Group, in written, oral (including by recording), electronic, or
visual form to, or otherwise has come into the possession of, PEC or any other member of the PEC
Group (except to the extent that such information can be shown to have been (i) in the public
domain through no action of PEC or any other member of the PEC Group or (ii) lawfully acquired from
other sources by PEC or any other member of the PEC Group to which it was furnished; provided;
however, in the case of clause (ii) that, to the knowledge of PEC or the relevant member of the PEC
Group, such sources did not provide such information in breach of any confidentiality obligations).

          Section 13.03. Permitted Purpose. The term “Permitted Purpose” means the provision of
a “Service” by the Service Provider to the Service Recipient under this Agreement.

          Section 13.04. Disclosure. Members of the PEC Group may use PCC Confidential
Information in connection with a Permitted Purpose, provided that for purposes of this Agreement,
PCC Confidential Information shall not be used by the Service Provider for any purpose other than a
Permitted Purpose or in any way that is detrimental to the Service Recipient. In particular,

          (a) the Service Provider shall not disclose any PCC Confidential Information to any employee
of the Service Provider who does not have a need to know such PCC Confidential Information in order
to perform the Permitted Purpose;

          (b) the Service Provider shall not use the PCC Confidential Information other than for such
purposes as shall be expressly permitted under this Agreement.

          Section 13.05. Custody. The PCC Confidential Information, including any derivative
documents prepared by PEC Group, will be held in safe custody and kept confidential on the terms
set forth in this Agreement. Each PEC Group employee who is authorized to have or be aware of PCC

          Confidential Information, will store that information in his possession in separate paper
and/or electronic files.

          Section 13.06. Expiration of Confidentiality Provisions. The obligations of the
Parties under this Article XIII shall survive the expiration or earlier termination of this
Agreement; provided, however, that in any event, the obligations of the Parties under this Article

 

15

XIII shall expire on the fifth anniversary of the expiration or earlier termination of this
Agreement.

ARTICLE XIV

LIMITATION OF LIABILITY AND INDEMNIFICATION

          Section 14.01. Indemnification. PEC shall indemnify, defend and hold harmless PCC,
each other member of the PCC Group and each of their respective directors, officers and employees,
and each of the heirs, executors, trustees, administrators, successors and assignors of any of the
foregoing (collectively, the “PCC Indemnified Parties”), from and against any and all Liabilities
of the PCC Indemnified Parties incurred by, borne by or asserted against any of them relating to,
arising out of or resulting from any of the following items (without duplication):

          (a) the breach or the failure of performance by PEC of any of the covenants, promises,
undertakings or agreements which it is obligated to perform under this Agreement;

          (b) death of or injury of any person whomsoever, including but not limited to directors,
officers, employees, servants or agents of PCC, of another member of PCC Group, or contractors to
the extent that such Liabilities are not covered by worker’s compensation;

          (c) loss of, or damage to, or destruction of any property whatsoever, including any loss of
use thereof, including without limitation, property of PCC, of another member of PCC Group, or
their respective directors, officers, employees, agents, subsidiaries or subcontractors; or

          (d) any claim or assertion that the execution or performance by PCC of its obligations under
this Agreement violates or interferes with any contractual or other right or obligation or
relationship of PEC to or with any other Person,
caused by, arising out of, or in any way related to this Agreement, but subject however to the
limitations of liability provided in this Agreement.

          PCC shall indemnify, defend and hold harmless PEC, each other member of PEC Group and each of
their respective directors, officers and employees, and each of the heirs, executors, trustees,
administrators, successors and assignors of any of the foregoing (collectively, the “PEC
Indemnified Parties”), from and against any and all Liabilities of the PEC Indemnified Parties
incurred by, borne by or asserted against any of them relating to, arising out of or resulting from
any of the following items (without duplication):

          (a) the breach or the failure of performance by PCC of any of the covenants, promises,
undertakings or agreements which it is obligated to perform under this Agreement;

          (b) death of or injury of any person whomsoever, including but not limited to directors,
officers, employees, servants or agents of PEC, of another member of PEC Group, or contractors to
the extent that such Liabilities are not covered by worker’s compensation;

          (c) loss of, or damage to, or destruction of any property whatsoever, including any loss of
use thereof, including without limitation, property of PEC, of another member of

 

16

PEC Group, or
their respective directors, officers, employees, agents, subsidiaries or subcontractors; or

          (d) any claim or assertion that the execution or performance by PEC of its obligations under
this Agreement violates or interferes with any contractual or other right or obligation or
relationship of PCC to or with any other Person,

caused by, arising out of, or in any way related to this Agreement, the provision of Services as
contemplated in this Agreement by PEC, or the other members of PEC Group, their respective
directors, officers, employees, servants, agents, subsidiaries or subcontractors, but subject
however to the limitations of liability provided in this Agreement.

          Section 14.02. Limitation of Liability. Notwithstanding the provisions of Section
14.01, the total aggregate liability of PEC to PCC for all events, acts or omissions of PEC under
or in connection with this Agreement or the Services provided by PEC hereunder, and the total
aggregate liability of PCC to PEC for all events, acts or omissions of PCC under or in connection
with this Agreement, in each case, whether based on an action or claim in contract, warranty,
equity, negligence, tort or otherwise, shall not exceed (i) in the case of the liability of PEC to
PCC, an amount equal to the value of the Services payable by PCC to PEC under this Agreement, or
(ii) in the case of the liability of PCC to PEC, an amount equal to $1.0 million; provided that the
foregoing limit shall not apply (i) in the case of the liability of PEC to PCC, with respect to any
liability arising out of or relating to PEC’s gross negligence or willful misconduct or the gross
negligence or willful misconduct of its personnel, mandataries or agents or other Persons for which
it is responsible under Applicable Law, or (ii) in the case of the liability of PCC to PEC, with
respect to any liability arising out of or relating to PCC’s gross negligence or willful misconduct
or the gross negligence or willful misconduct of its personnel, mandataries or agents or other
Persons for which it is responsible under Applicable Law.

          In no event shall any member of PEC Group or PCC Group be liable to any member of the other
Group for any special, consequential, indirect, collateral, incidental or punitive damages, lost
profits, or failure to realize expected savings, or other commercial or economic loss of any kind,
however caused and on any theory of liability, (including negligence) arising in any way out of
this Agreement, whether or not such Person has been advised for the possibility of any such
damages; provided, however, that the foregoing limitations shall not limit either Party’s
indemnification obligations for liabilities to with respect to Third Party Claims as set forth in
Article IX of the Separation Agreement.

          Section 14.03. Exclusions. Notwithstanding any provision to the contrary in this
Agreement, the foregoing limitations in this Article XIV shall not apply to PEC’s obligation to
indemnify PCC in respect of an intellectual property right infringement claim instituted or made by
a Third Party in connection with PEC’s Services or software or to PCC’s obligation to indemnify PEC
in respect of an intellectual property right infringement claim instituted or made by a Third Party
in connection with PCC’s Services or software.

          Section 14.04. Provisions Applicable with respect to Indemnification Obligations.
Article V of the Separation Agreement shall apply mutatis mutandis with respect to any Liability
subject to indemnification or reimbursement pursuant to Article XIV of this Agreement.

 

17

          Section 14.05. Survival. The rights and obligations of the Parties under this Article
XIV shall survive the expiration or earlier termination of this Agreement.

ARTICLE XV

DISPUTE RESOLUTION

          The Separation Agreement with respect to Dispute Resolution, effective on the Effective Date,
among the Parties and other parties thereto shall govern all disputes, controversies or claims
(whether arising in contract, delict, tort or otherwise) between the Parties that may arise out of,
or relate to, or arise under or in connection with, this Agreement or the transactions contemplated
hereby (including all actions taken in furtherance of the transactions contemplated hereby), or the
commercial or economic relationship of the Parties relating hereto or thereto.

ARTICLE XVI

ASSIGNMENT

          Section 16.01. Prohibition of Assignment. Neither Party shall assign or transfer this
Agreement, in whole or in part, or any interest or obligation arising under this Agreement except
as permitted by Section 7.07(a), Article X and Section 16.02, without the prior written consent of
the other Party.

          Section 16.02. Assignment to PEC Group Company. PEC may elect to have one or more of
the members of the PEC Group assume the rights and obligations of PEC under this Agreement.

ARTICLE XVII

MISCELLANEOUS

          Section 17.01. Notices. All notices and other communications hereunder shall be given
in the manner set forth in Section 15.02 of the Separation Agreement.

          Section 17.02. Governing Law. This Agreement shall be construed in accordance with,
and governed by, the laws of the State of Delaware, without regard to the conflicts of law rules of
such state.

          Section 17.03. Judgment Currency. The obligations of a Party to make payments
hereunder shall not be discharged by an amount paid in any currency other than Dollars, whether
pursuant to a court order or judgment or arbitral award or otherwise, to the extent that the amount
so paid upon conversion to Dollars and transferred to an account indicated by the Party to receive
such funds under normal banking procedures does not yield the amount of Dollars due; and each Party
hereby, as a separate obligation and notwithstanding any such judgment, agrees to indemnify each
other Party against, and to pay to such Party on demand, in Dollars, any difference between the sum
originally due in Dollars and the amount of Dollars received upon any such conversion and transfer.

          Section 17.04. Entire Agreement. This Agreement, the other Ancillary Agreements, the
Separation Agreement and exhibits, schedules and appendices hereto, including

 

18

the Transition
Services Schedules, and thereto and the specific agreements contemplated herein or thereby, contain
the entire agreement between the Parties with respect to the subject matter hereof and supersedes
all previous agreements, negotiations, discussions, writings, understandings, commitments and
conversations with respect to such subject matter. No agreements or understandings exist between
the Parties other than those set forth or referred to herein or therein.

          Section 17.05. Conflicts. In case of any conflict or inconsistency between this
Agreement and the Separation Agreement, this Agreement shall prevail. In case of any conflict or
inconsistency between the terms and conditions of this Agreement (excluding, for the purpose of
this Section 17.05, any Transition Service Schedule thereto) and the terms of any Transition
Service Schedule, the provisions of the Transition Service Schedule shall prevail.

          Section 17.06. Force Majeure. No Party shall be deemed in default of this Agreement to
the extent that any delay or failure in the performance of its obligations under this Agreement
results from superior force (“Force Majeure”) or any act, occurrence or omission beyond its
reasonable control and without its fault or negligence, such as fires, explosions, accidents,
strikes, lockouts or labor
disturbances, floods, droughts, earthquakes, epidemics, seizures of cargo, wars (whether or
not declared), civil commotion, acts of God or the public enemy, action of any government,
legislature, court or other Governmental Authority, action by any authority, representative or
organization exercising or claiming to exercise powers of a government or Governmental Authority,
compliance with Applicable Law, blockades, power failures or curtailments, inadequacy or shortages
or curtailments or cessation of supplies of raw materials or other supplies, failure or breakdown
of equipment of facilities or, in the case of computer systems, any failure in electrical or air
conditioning equipment (a “Force Majeure Event”). If a Force Majeure Event has occurred and its
effects are continuing, then, upon notice by the Party who is delayed or prevented from performing
its obligations to the other Party, (i) the affected provisions or other requirements of this
Agreement shall be suspended to the extent necessary during the period of such disability, (ii) the
Party which is delayed or prevented from performing its obligations by a Force Majeure Event shall
have the right to apportion its Services in an equitable manner to all users and (iii) such Party
shall have no liability to the other Party or any other Person in connection therewith. The Party
which is delayed or prevented from performing its obligations by the Force Majeure Event shall
resume full performance of this Agreement as soon as reasonably practicable following the cessation
of the Force Majeure Event (or the consequences thereof).

          Section 17.07. Amendment and Waiver. This Agreement may not be altered or amended, nor
may any rights hereunder be waived, except by an instrument in writing executed by the Party or
Parties to be charged with such amendment or waiver. No waiver of any terms, provision or condition
of or failure to exercise or delay in exercising any rights or remedies under this Agreement, in
any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver
of any such term, provision, condition, right or remedy or as a waiver of any other term, provision
or condition of this Agreement.

          Section 17.08. Further Assurances. Each Party agrees to use Commercially Reasonable
Efforts to execute any and all documents and to perform such other acts as may be necessary or
expedient to further the purposes of this Agreement and the relations contemplated

 

19

hereby. Without
limiting the foregoing and the provisions of the Separation Agreement each Party shall make
available during normal business hours for inspection by the other Party and such other Persons as
the other Party shall designate in writing, all books and records in the possession which relate to
the Services and which are necessary to confirm the said Party’s compliance with its obligations
under this Agreement.

          Section 17.09. Severability. The provisions of this Agreement are severable and should
any provision hereof be void, voidable or unenforceable under any applicable law, such provision
shall not affect or invalidate any other provision of this Agreement, which shall continue to
govern the relative rights and duties of the Parties as though such void, voidable or unenforceable
provision were not a part hereof.

          Section 17.10. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original instrument, but all of which together shall
constitute but one and the same Agreement.

[Signatures appear on following page.]

 

20

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

	 	 	 	 	 
	 	PEABODY ENERGY CORPORATION

 	 
	 	By:  	/s/ Richard A. Navarre
 	 
	 	 	Name:  	Richard A. Navarre 	 
	 	 	Title:  	Executive Vice President 	 
	 

	 	 	 	 	 
	 	PATRIOT COAL CORPORATION

 	 
	 	By:  	                                              /s/ Richard M. Whiting
 	 
	 	 	Name:  	Richard M. Whiting 	 
	 	 	Title:  	President & Chief Executive Officerexv10w2

 

Exhibit 10.2

EXECUTION
COPY

TAX SEPARATION AGREEMENT

          This TAX SEPARATION AGREEMENT is dated as of October 22, 2007, by and among Peabody Energy
Corporation (“Peabody”), a Delaware corporation, and Patriot Coal Corporation (“Spinco”), a
Delaware corporation.

          WHEREAS, as of the date hereof, Peabody is the common parent of an affiliated group of
domestic corporations within the meaning of Section 1504(a) of the Code, and the members of the
affiliated group have heretofore joined in filing consolidated federal income Tax returns (the
“Affiliated Group”);

          WHEREAS, Peabody intends to distribute all of the outstanding shares of stock of Spinco pro
rata to the holders of Peabody common stock in a transaction that qualifies under sections 355 and
368 of the Code; and

          WHEREAS, as a result of the Distribution, the Parties desire to enter into this Tax Separation
Agreement to provide for certain Tax matters, including the assignment of responsibility for the
preparation and filing of Tax Returns, the payment of and indemnification for Taxes (including
Taxes with respect to the Distribution and related transactions as contemplated in the other
Transaction Agreements), entitlement to refunds of Taxes, and the prosecution and defense of any
Tax controversies;

          NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained
in this Agreement, the Parties hereby agree as follows:

ARTICLE I. DEFINITIONS

          SECTION 1.1. General. Capitalized terms used in this Agreement and not defined
herein shall have the meanings that such terms have in the Separation Agreement. As used in this
Agreement, the following terms shall have the following meanings:

          “Affiliated Group” shall have the meaning specified in the preamble hereof.

          “Agreement” shall mean this Tax Separation Agreement.

     “Business Day” or “Business Days” shall mean a day which is not a Saturday, Sunday or a
day on which banks in New York City are authorized or required by law to close.

     “Closing of the Books Method” shall mean the apportionment of items between portions of
a taxable period based on a closing of the books and records on the Distribution Date (as if
the Distribution Date was the end of the taxable period), provided
that, any items not susceptible to such apportionment shall be apportioned on
the basis of elapsed days during the relevant portion of the taxable period.

 

 

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

     “Confidentiality Agreement” shall mean any agreement pursuant to which the parties
named therein have agreed to terms under which they were permitted to review certain
financial information relating to Spinco or the Spinco Business.

     “Consolidated Return” shall mean any Tax Return relating to Income Taxes filed pursuant
to Section 1502 of the Code, or any comparable combined, consolidated, or unitary group Tax
Return relating to Income Taxes filed under state or local tax law which, in each case,
includes Peabody and at least one subsidiary.

     “Contribution” shall have the meaning specified in the Separation Agreement.

     “Distribution” shall have the meaning specified in the Separation Agreement.

     “Distribution Date” shall mean the Business Day on which the Distribution is effected.

     “Distribution-Related Liability” shall mean any liability subject to indemnification
pursuant to Section 4.3.

     “Final Determination” shall mean the final resolution of liability for any Tax for any
taxable period, including any related interest or penalties, by or as a result of: (i) a
final and unappealable decision, judgment, decree or other order by any court of competent
jurisdiction; (ii) a closing agreement or accepted offer in compromise under Section 7121 or
7122 of the Code, or comparable agreement under the laws of other jurisdictions which
resolves the entire Tax liability for any taxable period; or (iii) any allowance of a refund
or credit in respect of an overpayment of Tax, but only after the expiration of all periods
during which such refund may be recovered by the jurisdiction imposing the Tax.

     “Income Tax” shall mean any income, franchise or similar Taxes imposed on (or measured
by) net income or net profits.

     “Income Tax Returns” shall mean all Tax Returns relating to Income Taxes.

     “Indemnification Tax Benefit” shall have the meaning specified in Section 2.4(b).

     “Indemnified Tax” shall have the meaning specified in Section 2.4(b).

     “IRS” shall mean the Internal Revenue Service.

     “Opinion” shall mean the opinion delivered by Ernst & Young LLP pursuant to Section
3.02(j) of the Separation Agreement.

     “Other Tax” shall mean any Tax other than an Income Tax.

     “Party” shall mean either Peabody or Spinco, as the case maybe.

2

 

     “Payment Period” shall have the meaning specified in Section 2.4(c).

     “Peabody” shall have the meaning specified in the preamble hereof.

     “Proceeding” shall mean any audit, examination or other proceeding brought by a Taxing
Authority with respect to Taxes.

     “Prohibited Acts” shall have the meaning specified in Section 4.2.

     “Refund” shall have the meaning specified in Section 2.2.

     “Restricted Period” shall mean the two-year period commencing on the Distribution Date.

     “Retained Liabilities” shall mean the Liabilities covered by the “Liability Assumption
Agreements” as defined in the Separation Agreement.

     “Retained Liability Payment” shall have the meaning specified in Section 2.6.

     “Retained Liability Tax Benefit” shall have the meaning specified in Section 2.6.

     “Ruling” shall mean the private letter ruling issued by the IRS to Peabody dated
September 26, 2007, , attached hereto as Exhibit A, and any supplemental rulings related
thereto.

     “Separation Agreement” shall mean the agreement entitled “Separation Agreement, Plan of
Reorganization and Distribution,” entered into by Peabody and Spinco dated as of October 22,
2007.

     “Spinco” shall have the meaning set forth in the preamble hereof.

     “Spinco Business” shall have the same meaning as “Patriot Business” as defined in the
Separation Agreement.

     “Spinco Pre-Closing NOL” shall mean any net operating loss from a taxable period ending
on or before the Distribution Date that is allocated to Spinco after the Distribution Date
under applicable Law.

     “Spinco Pre-Closing Tax Credit” shall mean any credit to which Section 383 of the Code
(or any corresponding provision under state, local or foreign Law) applies from a taxable
period ending on or before the Distribution Date that is allocated to Spinco after the
Distribution Date under applicable Law.

     “Straddle Period” shall mean any taxable period commencing prior to, and ending after,
the Distribution Date.

     “Tax” or “Taxes” shall mean any federal, state, local or foreign income, gross
receipts, property, sales, use, license, excise, franchise, employment, payroll,
withholding, alternative or add on minimum, ad valorem, transfer or excise tax, or any

3

 

other
tax, custom, duty, governmental fee or other like assessment or charge of any kind
whatsoever, together with any interest or penalty, imposed by any Taxing Authority.

     “Taxing Authority” shall mean any governmental authority (whether United States or
non-United States, and including, any state, municipality, political subdivision or
governmental agency) responsible for the imposition of any Tax.

     “Tax Returns” shall mean all reports or returns (including information returns and
amended returns) required to be filed or that may be filed for any period with any Taxing
Authority in connection with any Tax or Taxes (whether domestic or foreign).

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

ARTICLE II.   ALLOCATION OF TAX LIABILITIES

          SECTION 2.1.   Indemnity. (a) Subject to Article IV and without duplication, Peabody
shall indemnify Spinco from all liability for (i) Income Taxes of Spinco or any other member of the
Affiliated Group with respect to taxable periods ending on or before the Distribution Date and (ii)
Income Taxes of Spinco or relating to the Spinco Business for any Straddle Period, but only to the
extent attributable to the portion of the Straddle Period ending on or before the Distribution
Date. Taxes for a Straddle Period shall be apportioned in accordance with the Closing of the
Books Method.

          (b) Spinco shall indemnify Peabody from all liability for Other Taxes (excluding any such
Taxes covered by Section 4.5(g)) of Spinco or relating to the Spinco Business for any taxable
period.

          SECTION 2.2.   Refunds. (a) Subject to Section 3.5, if a Party receives a refund,
offset, credit, or other benefit (including interest received thereon) (a “Refund”) of Tax which
the other Party would have been obligated to indemnify had the Refund been a payment, then the
Party receiving the Refund shall promptly pay the amount of the Refund to the other Party, less
reasonable costs and expenses incurred in connection with such Refund, including any Taxes on such
Refund or interest thereon.

          (b) Each Party shall, if reasonably requested by the other Party, cause the relevant entity to
file for and use its reasonable best efforts to obtain and expedite the receipt of any Refund to
which such requesting Party is entitled under this Section 2.2.

4

 

          SECTION 2.3.   Contests.

          (a)   In the case of any Proceeding that relates to Taxes for which Peabody is responsible
under Section 2.1 hereof, Peabody shall have the right to control, in its sole discretion, the
conduct of such Proceeding. Subject to the foregoing, Spinco shall have the right to participate
jointly in any Proceeding if the consequences of the resolution of such Proceeding could reasonably
be expected to affect the tax liability of Spinco for any tax period following the Distribution.

          (b)   In the case of any Proceeding that relates to Taxes for which Spinco is responsible
under Section 2.1 hereof, Spinco shall have the sole right to control the conduct of such
Proceeding.

          (c)   In the case of any Proceeding that relates to a Straddle Period of Spinco or the Spinco
Business the parties shall use reasonable efforts to cause such Proceeding to be bifurcated between
the period ending on the Distribution Date and the period beginning after the Distribution Date.
If the parties are able to cause the audit to be so bifurcated, then Sections 2.3(a) and (b) hereof
shall govern the control of such Proceedings. To the extent that the parties are unable to cause
such bifurcation, Peabody and Spinco shall jointly control such Proceeding.

          (d)   After the Distribution Date, each Party shall promptly notify the other Party in writing
upon receipt of written notice of the commencement of any Proceeding or of any demand or claim upon
it, which, if determined adversely, would be grounds for indemnification from such other Party
pursuant to Section 2.1 or could reasonably be expected to have an adverse Tax effect on the other
Party. Each Party shall, on a timely basis, keep the other Party informed of all developments in
the Proceeding and provide such other Party with copies of all pleadings, briefs, orders, and other
correspondence pertaining thereto.

          SECTION 2.4.   Treatment of Payments; After Tax Basis

          (a) Peabody and Spinco agree to treat any indemnification payments (other than payments of
interest pursuant to Section 2.4(c)) pursuant to this Agreement, including any payments made
pursuant to Section 2.6, as either a capital contribution or a distribution, as the case may be,
between Peabody and Spinco occurring immediately prior to the Distribution, and to challenge in
good faith any other characterization of such payments by any Taxing Authority. If,
notwithstanding such good faith efforts, the receipt or accrual of any such payment (other than
payments of interest pursuant to Section 2.4(c)) results in taxable income to the indemnified
Party, such payment shall be increased so that, after the payment of any Taxes with respect to the
payment, the indemnified Party shall have realized the same net amount it would have realized had
the payment not resulted in taxable income.

          (b) To the extent that any liability for Taxes that is subject to indemnification under
Section 2.1 (an “Indemnified Tax”) gives rise to an Indemnification Tax Benefit to the indemnified
Party in any taxable period, the indemnified Party will promptly remit to the indemnifying Party
the amount of any such Indemnification Tax Benefit actually realized. For purposes of

5

 

this
Agreement, “Indemnification Tax Benefit” means a reduction in the amount of Taxes that are required
to be paid or increase in refund due, whether resulting from a deduction, from reduced gain or
increased loss from disposition of an asset, or otherwise. For purposes of this Agreement, an
indemnified Party will be deemed to have actually realized an Indemnification Tax Benefit at the
time the amount of Taxes such indemnified Party is required to pay is reduced or the amount of any
refund due is increased. The amount of any Indemnification Tax Benefit in this Section 2.4(b)
shall be calculated by comparing (i) the indemnified Party’s actual Tax liability taking into
account any Indemnified Tax with (ii) what the indemnified Party’s Tax liability would have been
without taking into account any Indemnified Tax. If, pursuant to this Agreement, the indemnified
Party makes a remittance to the indemnifying Party of any Indemnification Tax Benefit and all or
part of such Indemnification Tax Benefit is subsequently disallowed, the indemnifying Party will
promptly pay to the indemnified Party that portion of such remittance equal to the portion of the
Indemnification Tax Benefit that is disallowed.

          (c) Payments made pursuant to this Agreement that are not made within the period prescribed in
this Agreement or, if no period is prescribed, within thirty (30) days after demand for payment is
made (the “Payment Period”) shall bear interest for the period from and including the date
immediately following the last date of the Payment Period through and including the date of payment
at a per annum rate equal to the Applicable Rate. Such interest will be payable at the same time
as the payment to which it relates and shall be calculated on the basis of a year of 365 days and
the actual number of days for which due.

          SECTION 2.5.   Agent. Subject to the other applicable provisions of this Agreement,
Spinco hereby irrevocably designates Peabody as its sole and exclusive agent and attorney-in-fact
to take such action (including execution of documents) as Peabody, in its sole discretion, may deem
appropriate in any and all matters (including audits) relating to any Income Tax Return for which
Peabody has an indemnification obligation under Section 2.1.

          SECTION 2.6.   Retained Liabilities. To the extent that any payments made by
Peabody in respect of the Retained Liabilities (a “Retained Liability Payment”) gives rise to a
Retained Liability Tax Benefit to Spinco in any taxable period, Spinco will promptly remit to
Peabody the amount of any such Retained Liability Tax Benefit actually realized. For purposes of
this Agreement, “Retained Liability Tax Benefit” means a reduction in the amount of Taxes that are
required to be paid or increase in refund due, whether resulting from a deduction, credit,
increased basis, or otherwise. For purposes of this Agreement, Spinco will be deemed to have
actually realized a Retained Liability Tax Benefit at the time the amount of Taxes Spinco is
required to pay is reduced or the amount of any refund due is increased. The amount of any
Retained Liability Tax Benefit in this Section 2.6 shall be calculated by comparing (i) Spinco’s
actual Tax liability taking into account any Retained Liability Payment with (ii) what Spinco’s Tax
liability would have been without taking into account any Retained Liability Payment. If, pursuant
to this Agreement, Spinco makes a remittance to Peabody of any Retained Liability Tax Benefit and
all or part of such Retained Liability Tax Benefit is subsequently disallowed,
Peabody will promptly pay to Spinco that portion of such remittance equal to the portion of
the Retained Liability Tax Benefit that is disallowed.

ARTICLE III.   RETURNS AND TAXES ATTRIBUTABLE TO SPINCO

          SECTION 3.1.   Peabody’s Responsibility for the Preparation of Tax Returns and for the
Payment of Taxes.

6

 

          (a)   Peabody shall prepare and file or cause to be prepared and filed all Tax Returns of
Spinco or relating to the Spinco Business that are due on or before the Distribution Date (taking
into account any valid extensions thereof and including any Tax Returns for the short year ending
on the Distribution Date) and all Income Tax Returns of the Affiliated Group.

          (b)   With respect to Income Tax Returns that are to be prepared and filed by Peabody pursuant
to the preceding paragraph (including separate Tax returns of Spinco included in a Consolidated
Return but not including any Tax Returns for the short year ending on the Distribution Date)
Peabody shall provide a copy of such Tax Returns to Spinco no later than the Distribution Date.
With respect to Tax Returns for the short year ending on the Distribution Date, Peabody shall
provide to Spinco the following:

            (i)   An estimate of taxable income (loss) and the components of such taxable income
(loss) to be reported on such Tax Returns no later than two and one-half months after the
Distribution Date and any updates to such estimates as they occur and become available;

            (ii)   A copy of such Tax Returns to Spinco not later than thirty (30) days prior to
the due date for filing of such Tax Returns. Spinco shall have the right to review such Tax
Returns and to review all work papers and procedures used to prepare any such Tax Returns.
If Spinco, within ten (10) days after delivery of any such Tax Returns, notifies Peabody in
writing of any objections Spinco has to positions taken or statements made in such Tax
Returns that could reasonably be expected to have a material adverse impact on Spinco,
Peabody agrees to consider such objections in good faith. If Spinco does not so notify
Peabody of any objection, Spinco shall be considered to have consented to the filing of such
Tax Returns.

          (c)   To the extent that Spinco or the Spinco Business is included in any Consolidated Return
for a taxable period that includes the Distribution Date, Peabody shall include in such
Consolidated Return the results of Spinco and the Spinco Business on the basis of the Closing of
the Books Method. To the extent permitted by law or administrative practice with respect to other
Income Tax Returns, the taxable period relating to Spinco or the Spinco Business shall be treated
as ending on the Distribution Date, and if the taxable period does not, in fact, end on the
Distribution Date, the Parties shall apportion all tax items between the portions of the taxable
period before and after the Distribution Date on the Closing of the Books Method.

          (d) Where Peabody prepares and files or causes to be prepared and filed a Tax Return that
reflects information related to Spinco or the Spinco Business pursuant to paragraphs (a) and (c) of
this Section 3.1, the portions of such Tax Returns relating to Spinco shall be submitted to Spinco
no later than thirty (30) days prior to the due date (including extensions) for
filing of such Tax Returns (or if such due date is within 45 days following the Distribution
Date, as promptly as practicable following the Distribution Date). Within ten (10) days after
delivery of any such portions of any Tax Return, Spinco shall provide comments to Peabody in
writing to the extent Spinco objects to any statements that could reasonably be expected to
adversely impact it, and Peabody agrees to consider such objections in good faith. If Spinco does
not so notify Peabody of any objection, Spinco shall be considered to have consented to the filing
of such Tax Return.

7

 

          SECTION 3.2.   Spinco’s Responsibility for the Preparation of Tax Returns and for the
Payment of Taxes. Spinco shall prepare and file or cause to be prepared and filed all Tax
Returns relating to Taxes of Spinco or the Spinco Business that have not been filed before the
Distribution Date, except for Income Tax Returns of the Affiliated Group and Income Tax Returns of
Spinco for any Straddle Period as described in Sections 3.1 and 3.3.

          SECTION 3.3.   Responsibility for the Preparation of Straddle Period Income Tax Returns
and for the Payment of Straddle Period Income Taxes. Peabody shall prepare and file or cause
to be prepared and filed all Income Tax Returns of Spinco for any Straddle Period. All such Income
Tax Returns that are to be prepared and filed by Peabody pursuant to this paragraph shall be
submitted to Spinco not later than thirty (30) days prior to the due date for filing of such Tax
Returns (or if such due date is within 45 days following the Distribution Date, as promptly as
practicable following the Distribution Date). Spinco shall have the right to review such Tax
Returns and to review all work papers and procedures used to prepare any such Tax Return. If
Spinco, within ten (10) business days after delivery of any such Tax Return, notifies Peabody in
writing that it objects to any of the items in such Tax Return, Peabody and Spinco shall attempt in
good faith to resolve the dispute and, if they are unable to do so, the disputed items shall be
resolved (within a reasonable time, taking into account the deadline for filing such Tax Return) by
an internationally recognized independent accounting firm chosen by both Peabody and Spinco. Upon
resolution of all such items, the relevant Straddle Period Tax Return shall be filed on that basis.
The costs, fees and expenses of such accounting firm shall be borne equally by Peabody and Spinco.

          SECTION 3.4.   Manner of Preparation. All Income Tax Returns filed on or after the
Distribution Date shall be prepared in a manner that is consistent with the Ruling and the Opinion,
or any other rulings obtained from other Taxing Authorities in connection with the Distribution (in
the absence of a Final Determination to the contrary) and shall be filed on a timely basis
(including pursuant to extensions) by the Party responsible for such filing under this Agreement.
In the absence of a Final Determination to the contrary, a controlling change in law or
circumstances, or accounting method changes pursuant to applications that are approved by the
Internal Revenue Service, all Income Tax Returns of Spinco for tax periods commencing prior to the
Distribution Date shall be prepared on a basis consistent with the elections, accounting methods,
conventions, assumptions and principles of taxation used with respect to the Spinco Business for
the most recent taxable periods for which Tax Returns of the Affiliated Group have been filed.

          SECTION 3.5.   Carrybacks. Spinco agrees not to carry back any net operating losses,
capital losses or credits for any taxable period ending after the Distribution Date to a taxable
period, or portion thereof, ending on or before the Distribution Date. To the extent that
Spinco is required by applicable law to carry back any such net operating losses, capital
losses or credits, any refund of Taxes attributable to such carryback shall be for Peabody’s
account.

          SECTION 3.6.   Retention of Records; Cooperation; Access. 

          (a)   Peabody and Spinco shall, and shall cause each of their Subsidiaries to retain adequate
records, documents, accounting data and other information (including computer data) necessary for
the preparation and filing of all Tax Returns required to be filed by Peabody or

8

 

Spinco and for any
Proceeding relating to such Tax Returns or to any Taxes payable by Peabody or Spinco.

          (b)   Peabody and Spinco shall, and shall cause each of their Subsidiaries to cooperate and
provide reasonable access to (i) all records, documents, accounting data and other information
(including computer data) necessary for the preparation and filing of all Tax Returns required to
be filed by Peabody or Spinco and for any Proceeding relating to such Tax Returns or to any Taxes
payable by Peabody or Spinco and (ii) its personnel and premises, for the purpose of the
preparation, review or audit of such Tax Returns, or in connection with any Proceeding, as
reasonably requested by either Peabody or Spinco.

          (c)   The obligations set forth above in Sections 3.6(a) and 3.6(b) shall continue until the
longer of (i) the time of a Final Determination or (ii) expiration of all applicable statutes of
limitations, to which the records and information relate. For purposes of the preceding sentence,
each Party shall assume that no applicable statute of limitations has expired unless such Party has
received notification or otherwise has actual knowledge that such statute of limitations has
expired.

          SECTION 3.7.   Confidentiality; Ownership of Information; Privileged Information. The
provisions of Article XIII of the Separation Agreement relating to confidentiality of information,
ownership of information, privileged information and related matters shall apply with equal force
to any records and information prepared and/or shared by and among the Parties in carrying out the
intent of this Agreement.

          SECTION 3.8.   Sections 382 and 383 Limitations. Peabody agrees to make a timely and
valid election under Treasury Regulation Section 1.1502-95 and Section 1.1502-98 (and any
corresponding elections under state, local or foreign Law) to allocate to Spinco a portion of the
“consolidated section 382 limitation” and “consolidated section 383 credit limitation” (as those
terms are defined under the Treasury Regulations issued pursuant to Code Section 1502) (and any
corresponding limitations under state, local or foreign Law) of the Affiliated Group in an amount
that is equal to the sum of all applicable Spinco Pre-Closing NOLs and Spinco Pre-Closing Tax
Credits, respectively; provided, that Peabody shall not be required to adjust any such
allocation made pursuant to this Section 3.8 as the result of any adjustment by the IRS (or
applicable governmental authority) to any Spinco Pre-Closing NOL or Spinco Pre-Closing Tax Credit.

ARTICLE IV.   DISTRIBUTION AND RELATED TAX MATTERS

          Notwithstanding anything herein to the contrary, the provisions of this Article IV shall
govern all matters among the parties hereto related to a Distribution-Related Liability.

          SECTION 4.1.   Compliance with the Ruling. Spinco and Peabody hereby confirm and
agree to comply with any and all covenants, agreements and representations in the Ruling applicable
to Spinco and Peabody, respectively (including but not limited, in the case of Spinco, to agreeing
that Spinco will not cease the active conduct of its trade or business within the meaning of
Section 355(b) of the Code).

          SECTION 4.2.   Opinion Requirement for Major Transactions Undertaken by Spinco During the
Restricted Period. Spinco agrees that during the Restricted Period it will not

9

 

(i) merge or
consolidate with or into any other corporation, (ii) liquidate or partially liquidate (within the
meaning of such terms as defined in Section 346 and Section 302, respectively, of the Code), (iii)
sell or transfer all or substantially all of its assets (within the meaning of Rev. Proc. 77-37,
1977-2 C.B. 568) in a single transaction or series of related transactions, or sell or transfer any
portion of its assets that would violate the “continuity of business enterprise” requirement of
Treas. Reg. §1.368-1(d), (iv) redeem or otherwise repurchase any of its capital stock other than
pursuant to open market stock repurchase programs meeting the requirements of section 4.05(1)(b) of
Rev. Proc. 96-30, 1996-1 C.B. 696, or (v) enter into any negotiations, agreements or arrangements
with respect to transactions or events (including any transactions described in Sections
4.2(i)-(iv) (and, for this purpose, including any redemptions made pursuant to open market stock
repurchase programs), stock issuances, pursuant to the exercise of options or otherwise, option
grants, capital contributions or acquisitions, entering into any partnership or joint venture
arrangements, or a series of such transactions or events, but excluding the Distribution) that may
cause the Distribution to be treated as part of a plan pursuant to which one or more persons
acquire directly or indirectly stock of Spinco representing a “50-percent or greater interest”
therein within the meaning of Section 355(d)(4) of the Code (collectively the “Prohibited Acts”).
Notwithstanding the foregoing, Spinco may take any of the Prohibited Acts, subject to Section 4.3,
if (x) Spinco first obtains (at its expense) an opinion in form and substance reasonably acceptable
to Peabody of a nationally recognized law firm reasonably acceptable to Peabody, which opinion may
be based on usual and customary factual representations or (y) at Spinco’s request, Peabody (at the
expense of Spinco) obtains a supplemental ruling from the Internal Revenue Service, that such
Prohibited Act or Acts, and any transaction related thereto, will not (a) affect any of the
conclusions set forth in the Ruling, including (i) the qualification of the Contribution under
Section 368 of the Code, (ii) the qualification of the Distribution under Section 355 of the Code,
and (iii) the nonrecognition of gain to Peabody in the Contribution and the Distribution or (b)
cause the stock of Spinco distributed in the Distribution to fail to be treated as qualified
property pursuant to Section 355(e) of the Code. Spinco may also take any of the Prohibited Acts,
subject to Section 4.3, with the consent of Peabody in its sole and absolute discretion. During
the Restricted Period, Spinco shall provide all information reasonably requested by Peabody
relating to any transaction involving an acquisition (directly or indirectly) of 5% or more of
Spinco stock. Spinco will provide Peabody with notice of all acquisitions (direct or indirect)
within the meaning of Section 355(e) of the Code once the aggregate amount of such transactions
exceeds 25% of Spinco stock.

          SECTION 4.3.   Indemnification by Spinco. If Spinco takes any action or enters into
any agreement to take any action, including any of the Prohibited Acts as defined in Section 4.2 of
this Agreement, or if there is a breach by Spinco of Section 4.1 hereof, or if there is any direct
or indirect acquisition of Spinco stock, and as a result (i) the Distribution shall fail to qualify
under Section 355 of the Code, (ii) the stock of Spinco distributed in the Distribution
shall fail to be treated as qualified property pursuant to Section 355(e) of the Code or (iii)
the Contribution fails to qualify under Section 368 of the Code or Peabody recognizes any gain in
connection with the Contribution, then Spinco shall indemnify and hold harmless Peabody against any
and all Taxes imposed upon or incurred by Peabody (and any Taxes of Peabody shareholders to the
extent Peabody is liable with respect to such Taxes, whether to a Taxing Authority, to a
shareholder or to any other person) as a result, unless such Taxes would, in any event, have been
imposed upon or incurred by Peabody without regard to such actions, breaches or events, as
determined at such time. To the extent Peabody recognizes income under clauses

10

 

(i), (ii) or (iii)
of the preceding sentence and such income is offset by net operating losses of Peabody, the amount
of Taxes for which Spinco shall indemnify and hold harmless Peabody under this Section 4.3 shall be
determined as if such income had not been offset by such net operating losses. Peabody shall be
indemnified and held harmless under this Section 4.3 without regard to whether an opinion or
supplemental ruling pertaining to the action pursuant to Section 4.2 was obtained, and without
regard to whether Peabody gave its consent to such action pursuant to Section 4.2 or otherwise.

          SECTION 4.4.   Information Sharing. On or before the Distribution Date, Peabody
agrees to furnish Spinco with: (i) a copy of all Confidentiality Agreements, and (ii) a list of
persons who may be deemed, in Peabody’s sole judgment, to have reached an agreement, understanding
or arrangement, or to have engaged in substantial negotiations with Peabody concerning a potential
acquisition of Spinco or the Spinco Business or any portion thereof at the time of the Distribution
within the meaning of Treas. Reg. § 1.355-7(d). Notwithstanding the foregoing, Spinco shall not be
relieved of any obligation under Section 4.2 or any liability to Peabody under Section 4.3 with
respect to any person not included in the list described in subsection (ii) herein.

          SECTION 4.5.   Procedural Matters.

          (a)   Notice. If either Spinco or Peabody receives any written notice of deficiency,
claim or adjustment or any other written communication from a Taxing Authority that may result in a
Distribution-Related Liability, the Party receiving such notice or communication shall promptly
give written notice thereof to the other Party, provided that any delay by Peabody in so notifying
Spinco shall not relieve Spinco of any liability to Peabody hereunder except to the extent Spinco
is materially and adversely prejudiced by such delay. Peabody undertakes and agrees that from and
after such time as Peabody obtains knowledge that any representative of a Taxing Authority has
begun to investigate or inquire into the Distribution (whether or not such investigation or inquiry
is a formal or informal investigation or inquiry), Peabody shall (i) notify Spinco thereof,
provided that any delay by Peabody in so notifying Spinco shall not relieve Spinco of any liability
to Peabody hereunder except to the extent Spinco is materially and adversely prejudiced by such
delay, (ii) consult with Spinco from time to time as to the conduct of such investigation or
inquiry, (iii) provide Spinco with copies of all correspondence between Peabody or its
representatives and such Taxing Authority or any representative thereof pertaining to such
investigation or inquiry and (iv) cooperate with Spinco to permit a representative (reasonably
satisfactory to Peabody) of Spinco to be present and participate in all meetings with such Taxing
Authority or any representative thereof pertaining to such investigation or inquiry,
provided, that any costs relating to Spinco’s representation at such meetings shall
be borne by Spinco.

          (b)   Written Acknowledgment. Promptly upon receipt of notice as provided in Section
4.5(a), Spinco shall respond in writing to Peabody as to whether the liability asserted in the
notice of deficiency, claim or adjustment or other written communication would, if imposed upon or
incurred by Peabody or its Subsidiaries, be a Distribution-Related Liability. If Spinco believes
in good faith that such liability may not be a Distribution-Related Liability, Spinco shall set
forth in writing to Peabody the grounds for such belief. For the avoidance of doubt, Spinco will
satisfy the requirements of this Section 4.5(b) if it believes in good faith that there is
insufficient information

11

 

to determine whether such liability would, if imposed or incurred on
Peabody or its subsidiaries, be a Distribution-Related Liability.

          (c)   Tax Proceedings Controlled by Spinco. Any Proceeding that may result in a
Distribution-Related Liability, which is acknowledged as such by Spinco pursuant to the first
sentence of Section 4.5(b), shall be conducted in accordance with this Section 4.5(c).

            (i)   Promptly upon Spinco’s written acknowledgment that the asserted liability is a
Distribution-Related Liability pursuant to Section 4.5(b), Spinco may assume and direct the
defense or settlement of the Proceeding, provided that Spinco shall permit a
representative of Peabody to be present and participate in all hearings before any court and
in all meetings with the relevant Taxing Authority or any representative thereof pertaining
to such Proceeding (with any costs solely relating to Peabody’s representation at such
meetings to be borne by Peabody), provided further that, if Spinco
fails to prosecute the Proceeding in a reasonably diligent manner, Peabody may (at Spinco’s
expense and subject to the provisions in Section 4.5(d)) assume and direct the defense or
settlement of the Proceeding. If the Distribution-Related Liability is grouped with other
unrelated asserted liabilities or issues in the Proceeding, Peabody and Spinco shall use
their respective reasonable best efforts to cause the Distribution-Related Liability to be
the subject of a separate Proceeding. If such severance is not possible, Spinco shall
assume, direct and be responsible only for the matters relating to the Distribution-Related
Liability and Peabody shall assume, direct and be responsible for all other matters.

            (ii)   Upon request, during the course of the Proceeding, Spinco shall from time to
time furnish Peabody with evidence reasonably satisfactory to Peabody of its ability to pay
the full amount of the Distribution-Related Liability. If at any time during such
Proceeding, Peabody reasonably determines, after due investigation, that Spinco may not be
able to pay the full amount of the Distribution-Related Liability, if required, then Spinco
shall be required to furnish a guarantee or performance bond satisfactory to Peabody in an
amount equal to the amount of the Distribution-Related Liability asserted by the Taxing
Authority. If Spinco fails to furnish such guarantee or bond, Peabody may assume control of
the Proceedings in accordance with Section 4.5(d).

            (iii)   Spinco shall pay all expenses directly related to the Distribution-Related
Liability, including but not limited to reasonable fees for attorneys, accountants, expert
witnesses or other consultants retained by it and, to the extent that any such expenses have
been or are paid by Peabody or any of its Subsidiaries, Spinco shall promptly reimburse
Peabody or such subsidiary therefor.

            (iv)   Peabody shall, at Spinco’s sole cost (including but not limited to any
reasonable out-of-pocket costs incurred by Peabody), take such action as Spinco may
reasonably request (including but not limited to the execution of powers of attorney for one
or more persons designated by Spinco and the filing of a petition, complaint, amended Tax
Return or claim for refund) in contesting the Distribution-Related Liability. Spinco shall,
on a timely basis, keep Peabody informed of all developments in the Proceeding and provide
Peabody with copies of all pleadings, briefs, orders, and other written papers pertaining
thereto.

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            (v)   Subject to satisfaction of the conditions herein set forth, Spinco may direct
Peabody to settle the Distribution-Related Liability on such terms and for such amount as
Spinco may direct. Peabody may condition such settlement on receipt, prior to the
settlement, from Spinco of the indemnity payment with respect to the Distribution-Related
Liability less any amounts to be paid directly by Spinco to the Taxing Authority. Spinco
may direct Peabody, at Spinco’s expense, to pay an asserted deficiency for the
Distribution-Related Liability out of funds provided by Spinco, and to file a claim for
refund. Peabody shall not pay (unless otherwise required by a proper notice of assessment
and after prompt notification to Spinco of Peabody’s receipt of notice and demand for
payment) any portion of the Distribution-Related Liability without the written consent of
Spinco, which shall not be unreasonably withheld.

          (d)   Tax Proceedings Controlled by Peabody. In the event that (i) Spinco does not
provide Peabody with the written acknowledgment contemplated by Section 4.5(b) to the effect that
Spinco confirms that the asserted liability is a Distribution-Related Liability within thirty (30)
days following receipt of notice provided in Section 4.5(a), or (ii) following such confirmation,
Spinco fails within thirty (30) days following request therefor to furnish to Peabody evidence of
its ability to pay the full amount of the Distribution-Related Liability, or (iii) Peabody
reasonably believes after due investigation that Spinco may not be able to pay the full amount of
the Distribution-Related Liability, if required, and Spinco fails to furnish a guarantee or
performance bond satisfactory to Peabody in an amount equal to the amount of the
Distribution-Related Liability then being asserted by the Taxing Authority, or (iv) should Spinco
fail to prosecute the Proceeding in a reasonably diligent manner, then Peabody may assume control
of the Proceeding upon the following terms: (1) Peabody will diligently defend against the claim of
the Taxing Authority, including the pursuit of the appeal of any adverse determinations to the
appropriate tribunal (unless advised in writing by independent outside counsel at Spinco’s sole
cost in its reasonable judgment that Peabody would not prevail upon any such appeal) and shall
employ such resources, including independent counsel, in conducting such defense as are reasonably
commensurate to the nature and magnitude of the claim; (2) Peabody will consult with Spinco as to
the conduct of all Proceedings, will provide Spinco with copies of all protests, pleadings, briefs,
filings, correspondence and similar materials relative to the Proceedings and will permit a
representative of Spinco to be present and participate in all meetings with the relevant Taxing
Authority and all hearings before any court; and (3) Peabody will not settle, compromise or concede
any claim that would result in a Distribution-Related Liability without Spinco’s consent, not to be
unreasonably withheld. Subject to the above, any such Proceeding shall be controlled and directed
exclusively by Peabody and any related expenses incurred by any member of the PEC Group, including
but not limited to, reasonable fees for attorneys, accountants, expert witnesses or other
consultants directly related to the Distribution-Related Liability shall be reimbursed by Spinco,
if Spinco admits or is found to
have incorrectly failed to acknowledge the asserted liability as a Distribution-Related
Liability as provided in Section 4.5(b); provided, however, that Peabody will not be required to
pursue the claim in the federal district court, Court of Claims or any state court if as a
prerequisite to such Court’s jurisdiction, it is required to pay the asserted liability unless the
funds necessary to invoke such jurisdiction are provided by Spinco at no cost to Peabody.

          (e)   Time and Manner of Payment. Unless otherwise agreed in writing, Spinco shall pay
to Peabody the amount with respect to a Distribution-Related Liability (less any amount paid
directly by Spinco to the Taxing Authority or made available to Peabody under Section 4.5(d)) at

13

 

least two (2) Business Days prior to the date payment of the Distribution-Related Liability is to
be made to the Taxing Authority. Such payment shall be paid by Spinco to Peabody by wire transfer
of immediately available funds to an account designated by Peabody by written notice to Spinco
prior to the due date of such payment. If Spinco delays making payment beyond the due date
hereunder, Spinco shall pay interest to Peabody on the amount unpaid at the rate of the monthly
average of the “prime rate” as published in the Wall Street Journal for each day and the actual
number of days for which any amount due hereunder is unpaid; provided, however, that this provision
for interest shall not be construed to give Spinco the right to defer payment beyond the due date
hereunder.

          (f)   Refund of Amounts Paid by Spinco. Should Peabody or any other member of the
Affiliated Group receive a refund in respect of amounts paid by Spinco to any Taxing Authority on
Peabody’s behalf or paid by Spinco to Peabody for payment to a Taxing Authority with respect to a
Distribution-Related Liability, or should any such amounts that would otherwise be refundable to
Peabody be applied or credited by the Taxing Authority to obligations of Peabody unrelated to a
Distribution-Related Liability, then Peabody shall, promptly following receipt (or notification of
credit), remit such refund (including any statutory interest that is included in such refund or
credited amount) to Spinco.

          (g)   Transfer Taxes. Peabody shall bear any and all stamp, duty, transfer, sales and
use or similar Taxes incurred in connection with the Contribution and Distribution.

          (h) Cooperation. Subject to the provisions of Section 3.7, Peabody and Spinco shall
reasonably cooperate with one another in a timely manner with respect to any Tax matter covered by
this Agreement, including any Proceeding described in Section 2.3. Peabody and Spinco agree that
such cooperation shall include, without limitation, making available to the other Party, during
normal business hours, all books, records and information, officers and employees (without
substantial interruption of employment) necessary or useful in connection with any such Tax matter.
The Party requesting or otherwise entitled to any books, records, information, officers or
employees pursuant to this Section 4.5(h) shall bear all reasonable out-of-pocket costs and
expenses (except reimbursement of salaries, employee benefits and general overhead) incurred in
connection with providing such books, records, information, officers or employees.

          (h)   Supplemental Rulings. Peabody shall provide Spinco a copy of and an opportunity
to comment upon any supplemental ruling sought from the Internal Revenue Service with respect to
the Ruling and no supplemental ruling request shall be made without Spinco’s consent if such
supplemental ruling would materially expand Spinco’s indemnification obligations under Section 4.3.

ARTICLE V.   MISCELLANEOUS

          SECTION 5.1.   Complete Agreement; Construction. This Agreement shall constitute the
entire agreement between the Parties with respect to the subject matter hereof and shall supersede
all previous negotiations, commitments and writings with respect to such subject matter.

14

 

          SECTION 5.2.   Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and shall become
effective when one or more such counterparts have been signed by both Parties.

          SECTION 5.3.   Survival of Agreements. Except as otherwise contemplated by this
Agreement, all covenants and agreements of the Parties contained in this Agreement shall survive
the Distribution Date.

          SECTION 5.4.   Notices. All notices and other communications hereunder shall be in
writing and hand delivered or mailed by registered or certified mail (return receipt requested) or
sent by any means of electronic message transmission with delivery confirmed (by voice or
otherwise) to the Parties at the following addresses (or at such other addresses for a Party as
shall be specified by like notice) and will be deemed given on the date on which such notice is
received:

To Peabody:

Peabody Energy Corporation

701 Market Street

St. Louis, MO 63101

Attention: Alexander Schoch

Executive Vice President – Law

Fax: 314-342-3419

To Spinco:

Patriot Coal Corporation

12312 Olive Boulevard, Suite 400

St. Louis, MO 63101

Attention: Joseph W. Bean

Senior Vice President, General Counsel and Corporate Secretary

Fax:

          SECTION 5.5.   Waivers. The failure of any Party to require strict performance by the
other Party of any provision in this Agreement will not waive or diminish that Party’s right to
demand strict performance thereafter of that or any other provision hereof.

          SECTION 5.6.   Amendments. This Agreement may not be modified or amended except by an
agreement in writing signed by the Parties hereto.

          SECTION 5.7.   Assignment. This Agreement shall not be assignable, in whole or in
part, directly or indirectly, by any Party hereto without the prior written consent of the other
Party hereto, and any attempt to assign any rights or obligations arising under this Agreement
without such consent shall be void.

15

 

          SECTION 5.8.   Successors and Assigns. The provisions to this Agreement shall be
binding upon, inure to the benefit of and be enforceable by the Parties and their respective
successors and permitted assigns.

          SECTION 5.9.   Additional Members. Any new members of the Affiliated Group shall
automatically become a Party to this Agreement upon becoming members.

          SECTION 5.10.   Third Party Beneficiaries. This Agreement is solely for the benefit of
the Parties hereto and should not be deemed to confer upon third parties any remedy, claim,
liability, reimbursement, claim of action or other right in excess of those existing without
reference to this Agreement.

          SECTION 5.11.   Title and Headings. Titles and headings to sections herein are
inserted for the convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Agreement.

          SECTION 5.12.   Exhibits. The Exhibits to this Agreement shall be construed with and
as an integral part of this Agreement to the same extent as if the same had been set forth verbatim
herein.

          SECTION 5.13.   GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO ITS CONFLICTS OF LAW RULES.

          SECTION 5.14.   Consent to Jurisdiction. The Parties hereto hereby agree that the
appropriate forum and venue for any disputes between any of the Parties hereto arising out of this
Agreement shall be any state or federal court sitting in St. Louis, Missouri and each of the
Parties hereto hereby submits to the personal jurisdiction of any such court. The foregoing shall
not limit the rights of any Party to obtain execution of judgment in any other jurisdiction.

          SECTION 5.15.   Severability. In the event any one or more of the provisions
contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained herein and therein
shall not in any way be affected or impaired thereby. The Parties shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the
economic effect of which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.

[remainder of page intentionally left blank]

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

	 	 	 	 	 
	 	PEABODY ENERGY CORPORATION

 	 
	 	By:  	/s/ Richard A. Navarre
 	 
	 	 	Name:  	Richard A. Navarre 	 
	 	 	Title:  	Executive Vice President 	 
	 

	 	 	 	 	 
	 	PATRIOT COAL CORPORATION

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

17

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