Contract

Exhibit 10.3

EXECUTION COPY

SECTION 9711 COAL ACT LIABILITIES
ASSUMPTION AGREEMENT

This SECTION 9711 COAL ACT LIABILITIES ASSUMPTION AGREEMENT (“Agreement”) is made on the 22nd day of October, 2007 by and between Peabody Holding Company, LLC (“PHC”), a Delaware limited liability company with principal offices at 000 Xxxxxx Xxxxxx, Xx. Xxxxx, XX 00000, Patriot Coal Corporation (“Patriot”), a Delaware corporation with principal offices at 00000 Xxxxx Xxxxxxxxx, Xxxxx 000, Xx. Xxxxx, Xxxxxxxx, and, solely with respect to its obligations under Section 7 hereof, Peabody Energy Corporation (“PEC”), a Delaware corporation with principal offices at 000 Xxxxxx Xxxxxx, Xx. Xxxxx, XX 00000 (each of the foregoing being sometimes referred to hereinafter individually as “a party” or jointly as “the parties”).

RECITALS

WHEREAS, contemporaneously herewith, all of the shares of common stock of Patriot have been distributed to the stockholders of PEC, PHC’s ultimate parent company, and Patriot will indirectly own all of the capital stock of certain Transferred Companies (as defined below); and

WHEREAS, the Transferred Companies, as defined below, have obligations to provide healthcare to eligible retirees and their eligible dependents pursuant to the Coal Act (as defined below); and

WHEREAS, notwithstanding the transfer of ownership, PHC will remain a “related person” to the Transferred Companies as the term “related person” is defined in Section 9701 of the Coal Act; and,

WHEREAS, as a “related person” within the meaning of the Coal Act to the Transferred Companies, PHC will remain liable for the provision of healthcare benefits to eligible retirees and their eligible dependents under the Coal Act; and

WHEREAS, PHC and Patriot desire to provide for the continued payment for the healthcare benefits in accordance with the requirements of certain provisions of the Coal Act and with the retiree healthcare plans adopted pursuant to those provisions of the Coal Act;

WHEREAS, PHC has agreed to assume the liabilities for the provision of such healthcare benefits; and

WHEREAS, contemporaneously herewith PHC and Patriot have entered an Administrative Service Agreement pursuant to which Patriot will take certain actions necessary and appropriate for the administration of any Coal Act Plans (as defined below) and delivery of benefits constituting Section 9711 Coal Act Liabilities (as defined below).

NOW, THEREFORE, in consideration of the mutual promises, covenants and

agreements contained herein, the parties do hereby agree as follows:

Section 1. Defined Terms.

(a) The term “Coal Act” shall mean the Coal Industry Retiree Health Benefit Act of 1992, 26 U.S.C. §§ 9701 — 9722, as may be amended, modified or replaced from time to time.

(b) The term “Section 9711 Coal Act Liabilities” shall mean amounts the Transferred Companies are required to pay in order to provide healthcare benefits to those retirees of the Transferred Companies, identified on Attachment A hereto, and their eligible dependents who, as of the Effective Date of this Agreement, were receiving benefits from a health plan maintained by the Transferred Companies pursuant to Section 9711 of the Coal Act and remain eligible for such benefits. PHC shall not assume liability for payments to any individual not listed on Attachment A (other than any eligible dependent of an individual listed on Attachment A) and for any individual listed on Attachment A including any eligible dependent who becomes ineligible for such benefits (but only for costs arising from and after the time such individual becomes ineligible).

(d) The term “Effective Date” shall mean the date first hereinabove entered.

(e) The term “Patriot Group” shall mean Patriot and the Transferred Companies, as defined herein.

(f) The term “Transferred Companies” shall mean Affinity Mining Company, Colony Bay Coal Company, Eastern Associated Coal, LLC, Xxxxxxxx Coal Company, LLC, Mountain View Coal Company, LLC, Peabody Coal Company, LLC, Pine Ridge Coal Company, LLC, and Sterling Smokeless Coal Company, LLC, and each of their respective successors.

Section 2. Assumption of Section 9711 Coal Act Liabilities.

(a) PHC assumes, and agrees to pay and discharge when due in accordance herewith, the Section 9711 Coal Act Liabilities.

(b) Patriot shall instruct each third party administrator to deliver each invoice with respect to Section 9711 Coal Act Liabilities directly to PHC in accordance with such third party administrator’s normal billing cycle, and PHC shall pay each such invoice in full (solely to the extent such amounts relate to the Section 9711 Coal Act Liabilities) by wire transfer in immediately available funds when due. PHC shall pay the fees of the third-party administrators of the medical and prescription drug services to the retirees identified on Attachment A when due. The parties hereto acknowledge that the current practice is to include such fees in the last invoice of the month related to such medical or prescription drug services.

Section 3. Mutual Cooperation. Each of PHC and Patriot will use their commercially reasonable efforts to cooperate with each other to give full effect to the transactions contemplated by this Agreement. If PHC provides written notice that any amounts were paid under this

agreement in excess of the actual Section 9711 Coal Act Liabilities, Patriot will use its commercially reasonable efforts to recover such excess amounts for PHC’s benefit.

Section 4. Settlement of Claims. Patriot shall immediately notify PHC when Patriot or any of its subsidiaries are sued by the UMWA or a former employee or his or her eligible dependents regarding the Section 9711 Coal Act Liabilities. Patriot may not settle any such dispute without the prior written consent of PHC, not to be unreasonably withheld or delayed. If Patriot settles any such claim without the prior written consent of PHC, then PHC shall not be liable for reimbursement of any amounts paid by Patriot as a result of such un-consented settlement under this Agreement.

Section 5. PHC Right to Pursue a Claim or Defense. If PHC determines that Patriot or any of the Transferred Companies is failing to pursue with reasonable diligence a claim or defense related to any Section 9711 Coal Act Liabilities, it shall notify Patriot in writing of such failure. If Patriot fails or refuses to pursue such claim or defense diligently within thirty (30) days of such notice, then PHC at its option may elect to pursue such claim or defense at its cost in the name of Patriot or the affected Transferred Company. Any contest assumed by PHC pursuant to this provision shall be conducted by attorneys employed or retained by PHC (subject to the right of Patriot to participate in such prosecution or defense at Patriot’s cost) and PHC may settle or compromise the claim or defense without the consent of Patriot or the affected Transferred Company, so long as such settlement or compromise does not include any payment or other obligation of Patriot or its controlled affiliates. PHC, Patriot and the Transferred Companies shall use their commercially reasonable efforts to cooperate with each other in the continued prosecution or defense of any such claim, including the provision of witnesses and production of documents.

Section 6. Maintenance of Books and Records; Inspection. Patriot shall, at all times during the continuance of this Agreement, maintain full and complete books of account and other records with respect to all activities under this Agreement including, but not limited to, records of all payments made in connection with, or as a result of, such activities and all contracts entered and evaluations performed with respect to payment of Section 9711 Coal Act Liabilities. PHC shall, at all times during the continuance of this Agreement, have the right to inspect, copy, and/or audit all account books and other records with respect to this Agreement at Patriot’s offices and during regular business hours; provided that (i) PHC is not entitled to inspect such books and records more than once every six months, (ii) PHC shall provide at least forty-eight (48) hours advance notification, including reasonable detail of the materials to be reviewed, and (iii) no such inspection or audit shall unreasonably interfere with the normal and regular conduct of Patriot’s business.

Section 7. PEC Guarantee. PEC hereby irrevocably and unconditionally guarantees the prompt and full payment by PHC of all amounts owed by it under this Agreement, subject to its right of setoff set forth in the Separation Agreement, Plan of Reorganization and Distribution, dated as of October 22, 2007 (the “Separation Agreement”) by and between PEC and Patriot. Such guaranty shall be a guaranty of payment and not merely of collection, and shall not be conditioned or contingent upon the pursuit of any remedies against PHC. The liability of PEC under this guaranty shall, to the fullest extent permitted under applicable law, be absolute, unconditional and irrevocable. PEC hereby waives any and all notice of the creation, renewal,

extension or accrual of any of the guaranteed obligations and notice of or proof of reliance by Patriot upon this guaranty or acceptance of this guaranty. The guaranteed obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred in reliance upon this guaranty. When pursuing its rights and remedies hereunder against PEC, Patriot shall be under no obligation to pursue such rights and remedies it may have against PHC or any right of offset with respect thereto, and any failure by Patriot to pursue such other rights or remedies or to collect any payments from PHC or to realize upon or to exercise any such right of offset shall not relieve PEC of any liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of Patriot. PEC irrevocably waives acceptance hereof, presentment, demand, protest, promptness, diligence, obligation to protect, secure or perfect any security interest and any notice. Patriot shall not be obligated to file any claim relating to any guaranteed obligation in the event that PHC becomes subject to a bankruptcy, reorganization or similar proceeding, and the failure of Patriot to so file shall not affect PEC’s obligations hereunder. In the event that any payment to Patriot in respect of any guaranteed obligation is rescinded or must otherwise be returned for any reason whatsoever, PEC shall remain liable hereunder with respect to the guaranteed obligation as if such payment had not been made, and the guaranty shall be reinstated and shall continue even if otherwise terminated.

Section 8. Indemnification. PHC agrees that it shall indemnify, defend and hold harmless Patriot and its respective affiliates and the successors, assigns, employees, officers, directors and agents of each, from and against any claims, actions or causes of action, damages, penalties, fines, assessments, attorney fees or other costs or expenses principally resulting from the failure of PHC to timely pay and discharge the Section 9711 Coal Act Liabilities.

Section 9. Resolution of Disputes. Any party or parties to a dispute or disagreement under this Agreement (“Covered Dispute”) (including but not limited to any issue as to the arbitrability of such Covered Dispute) may give the other parties to the Covered Dispute written notice of the Covered Dispute initiating the provisions hereunder. Within ten days after delivery of the notice of a Covered Dispute, the receiving parties shall submit to the other a written response. The notice and the response shall include a statement of each party’s respective position and a summary of arguments supporting that position and the name and title of the executive who will represent the claimants and of any other individual who will accompany such executive in resolving the Covered Dispute. Within twenty (20) days after delivery of the first notice, such executives shall meet at a mutually acceptable time and place, and thereafter as often as they reasonably deem necessary, and shall negotiate in good faith to attempt to resolve the Covered Dispute. All reasonable requests for information made by one party to the other will be honored. If the Covered Dispute has not been resolved by negotiation within thirty (30) days of the first notice of the Covered Dispute, the parties to the Covered Dispute may, by their mutual consent, submit the Covered Dispute to arbitration in St. Louis, Missouri. Arbitration of any Covered Dispute shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association in effect on the date of the first notice of the Covered Dispute. The parties agree to use 3 arbitrators for any Covered Dispute in excess of Two Million Dollars ($2,000,000.00). Any decision of the arbitrator (or arbitrators) agreed upon or appointed and acting pursuant to this Section 9 shall be final and binding upon the parties and judgment may be entered thereon, upon the application of any of the parties, by any court of competent jurisdiction. The arbitrator may also award reasonable attorney’s fees and the costs of the arbitration to the prevailing party. This Section 9 shall not preclude any of the parties from seeking a temporary

restraining order, preliminary injunction or other temporary injunctive relief necessary to enforce this Section 9 or protect rights under this Agreement. If the parties do not mutually agree to arbitrate the Covered Dispute, the Covered Dispute shall be resolved pursuant to Section 15.08 of the Separation Agreement.

Section 10. Waiver. The failure of any party to comply with any of its obligations or agreements or to fulfill any conditions contained in this Agreement may be excused only by a written waiver from the other parties. Failure by any party to exercise, or delay by any party in exercising, any right under this Agreement shall not operate as a waiver thereof, nor shall any single or partial exercise of any right hereunder by a party preclude any other or future exercise of that right or any other right hereunder by such party.

Section 11. Notices. All notices, requests or other communications required or permitted hereunder shall be given in writing by hand delivery, registered mail, certified mail or overnight courier, return receipt requested, postage prepaid, to the party to receive the same at its respective address set forth below, or at such other address as may from time to time be designated by such party to the others in accordance with this Section 11.

If to Patriot, to:

Xxxxxx X. Xxxx
Senior Vice President, General Counsel and Corporate Secretary
Patriot Coal Corporation
00000 Xxxxx Xxxxxxxxx, Xxxxx 000
Xx. Xxxxx, XX 00000
Fax:

If to PHC, to:

Xxxxxxxxx Xxxxxx, Esq.
Executive Vice President Law and Chief Legal Officer
Peabody Holding Company, LLC
000 Xxxxxx Xxxxxx
Xx. Xxxxx, XX 00000
Fax: 000-000-0000

All such notices and communications hereunder shall be deemed given when received, as evidenced by the acknowledgment of receipt issued with respect thereto by the applicable postal authorities or the signed acknowledgment of receipt of the person to whom such notice or communication shall have been addressed or his or her authorized representative.

Section 12. No Third-Party Beneficiaries. Except for the Transferred Companies, neither this Agreement nor any provision hereof shall create any right in favor of or impose any obligation upon any person or entity other than the parties hereto and their respective successors and permitted assigns. Without limiting the generality of the foregoing, this Agreement is not intended to, and does not, create any rights, third party or otherwise, on behalf of the United Mine Workers of America Combined Benefit Fund, the 1992 Fund, the 1993 Fund, the United Mine

Workers of America, any retiree or dependent, or any other person or individual. No third party shall be entitled to any subrogation rights with respect to any obligation of any party under this Agreement.

Section 13. Captions and Paragraph Headings. Captions and paragraph headings are used hereinafter for convenience only and are not a part of this Agreement and shall not be used in construing it.

Section 14. Entire Agreement. The making, execution and delivery of this Agreement by the parties has been induced by no representations, statements, warranties or agreements other than those herein expressed. Notwithstanding any provisions in any other agreement, this Agreement, together with the Separation Agreement and the other agreements contemplated thereby, including without limitation the Administrative Services Agreement, dated as of October 22, 2007, by and between PHC and Patriot, embodies the entire understanding of the parties and their respective subsidiaries and affiliates relating to the matters set forth herein. This Agreement may be modified only by a written instrument executed by the parties. The parties make no representation or warranties with respect to the subject matter of this Agreement not expressly set forth in this Agreement. This Agreement supersedes and terminates all other discussions, negotiations, understandings, arrangements and agreements between or among PHC, Patriot, the Transferred Companies, or any respective affiliated companies, entities or persons relating to the subject matter hereof.

Section 15. Assignability. Neither of the parties hereto may assign this Agreement without the prior written consent of the other parties, which consent will not be unreasonably withheld or delayed. Any impermissible attempted assignment of this Agreement without such prior written consent shall be void, and the party assigning or attempting to assign this Agreement shall remain bound by and obligated by this Agreement as if no assignment or attempted assignment had occurred.

Section 16. Successors and Assigns. This Agreement and the provisions hereof shall be binding upon and inure to the benefit of the respective successors and permitted assigns of the parties hereto.

Section 17. Severability. In the event one or more of the provisions of this Agreement shall, for any reason, be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of any other provision of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision was not a part of this Agreement.

Section 18. Counterparts. This Agreement may be executed in any number of duplicate counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.

Section 19. Governing Law. The parties hereto have agreed that the validity, construction, operation and effect of any and all of the terms and provisions of this Agreement shall be determined and enforced in accordance with the laws and regulations of the State of Delaware, without giving effect to principles of conflicts of law thereunder.

IN WITNESS WHEREOF, the parties hereto have caused this Section 9711 Coal Act Liabilities Assumption Agreement to be duly executed by one of their respective officers duly authorized and directed as of the date first written above.



PEABODY HOLDING COMPANY, LLC		PATRIOT COAL CORPORATION

By:	/s/ Xxxxxxx X. Xxxxxxx	By:	/s/ Xxxxxxx X. Xxxxxxx

	Name: Xxxxxxx X. Xxxxxxx		Name: Xxxxxxx X. Xxxxxxx
	Title: Executive Vice President		Title: President & Chief Financial Officer



Solely for purposes of Section 7 hereof: PEABODY ENERGY CORPORATION

By:		/s/ Xxxxxxx X. Xxxxxxx

		Name: Xxxxxxx X. Xxxxxxx
		Title: Executive Vice President

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