EMPLOYMENT AGREEMENT

 

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                                                                   Exhibit 10.34

 

                              EMPLOYMENT AGREEMENT

 

                  AGREEMENT, as of the date set forth on the signature page

hereof, by and between Peabody Energy Corporation, a Delaware corporation (the

"Company") and the undersigned executive (the "Executive").

 

                                    RECITALS

 

                  In order to induce Executive to serve in the executive team

position set forth on the signature page hereof, the Company desires to provide

Executive with compensation and other benefits on the terms and conditions set

forth in this Agreement.

 

                  Executive is willing to accept such employment and perform

services for the Company, on the terms and conditions hereinafter set forth.

 

                  It is therefore hereby agreed by and between the parties as

follows:

 

                  1.       Employment.

 

                  1.1      Subject to the terms and conditions of this

Agreement, the Company agrees to employ Executive during the Term hereof in the

executive team position set forth on the signature page hereof. In such

capacity, Executive shall report to Irl F. Engelhardt (the "CEO"), and shall

have the customary powers, responsibilities and authorities of executives

holding such positions in corporations of the size, type and nature of the

Company, as it exists from time to time, and as are assigned by the Board of

Directors of the Company (the "Board") and the CEO.

 

                  1.2      Subject to the terms and conditions of this

Agreement, Executive hereby accepts employment in the executive team position

set forth on the signature page hereof

 

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commencing as of the date hereof (the "Commencement Date") and agrees, subject

to any period of vacation and sick leave, to devote his full business time and

efforts to the performance of services, duties and responsibilities in

connection therewith, subject at all times to review and control of the Board or

the CEO.

 

                  1.3      Nothing in this Agreement shall preclude Executive

from engaging in charitable work and community affairs, from delivering

lectures, fulfilling speaking engagements or teaching at educational

institutions, from managing any investment made by him or his immediate family

with respect to which Executive or such family member is not substantially

involved with the management or operation of the entity in which Executive has

invested (provided that no such investment in publicly traded equity securities

or other property may exceed 5% of the equity of any entity, without the prior

approval of the CEO or the Board) or from serving, subject to the prior approval

of the CEO or the Board, as a member of boards of directors or as a trustee of

any other corporation, association or entity, to the extent that any of the

above activities do not materially interfere with the performance of his duties

hereunder. For purposes of the preceding sentence, any approval by the CEO or

the Board required therein shall not be unreasonably withheld.

 

                  2.       Term of Employment. Executive's term of employment

under this Agreement (the "Term of Employment") shall commence on the

Commencement Date and, subject to termination by the terms hereunder, shall have

an initial term of three years (the "Initial Term"), which, beginning on the

first anniversary of the Commencement Date, shall extend thereafter on a

day-to-day basis for an "evergreen" three-year term.

 

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                  3.       Compensation.

 

                  3.1      Salary. During the Term of Employment, the Company

shall pay Executive a base salary ("Base Salary") at an initial rate as set

forth on the signature page hereof. Base Salary shall be payable in accordance

with the ordinary payroll practices of the Company. During the Term of

Employment, the Board and the CEO shall, in good faith, review, at least

annually, Executive's Base Salary in accordance with the Company's customary

procedures and practices regarding the salaries of senior executives and may, if

determined by the Board to be appropriate, increase Executive's Base Salary

following such review. "Base Salary" for all purposes herein shall be deemed to

be a reference to any such increased amount.

 

                  3.2      Annual Bonus. In addition to his Base Salary,

Executive shall, commencing with the 2003 fiscal year and continuing each fiscal

year thereafter, be eligible to receive an annual cash bonus (the "Bonus")

during the term of his employment hereunder to be developed by the Board, based

on achievement of performance targets established by the Board in consultation

with the CEO as soon as practicable at the beginning of the fiscal year for

which the performance targets relate. A Bonus award shall be payable to

Executive at the time bonuses are paid to executive officers in accordance with

the Company's policies and practices as set by the Board in consultation with

the CEO. Notwithstanding the foregoing, with respect to the 2003 fiscal year,

Executive shall receive a Bonus equal to the sum of (i) the amount equal to the

prorated target bonus to which Executive is entitled at current place of

employment, plus (ii) an amount equal to the Bonus to which Executive would have

been entitled, had he been employed by the Company during the entire 2003 fiscal

year (assuming the discretionary portion of such Bonus is paid at target),

multiplied by a fraction the numerator of which is the number of days in the

period beginning on the Commencement Date and ending on the last day of the 2003

fiscal

 

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year and the denominator of which is 365. Executive's Bonus target for the

portion of the 2003 fiscal year during which Executive is employed by the

Company is set forth on the signature page hereof.

 

                  3.3      Additional Lump-sum Payment. In the event Executive

(a) remains in the Company's employ until Executive attains age fifty-five (55),

(b) terminates employment under section 6.1 on or after age fifty-two, or (c)

dies or becomes disabled, the Company shall pay Executive (or, in the event of

Executive's death, Executive's estate) $800,000 in a lump sum as soon as

administratively feasible following the termination of Executive's employment

with the Company.

 

                  3.4      Signing Bonus and Deferred Compensation Account. (a)

As of the Commencement Date, the Company grants Executive, as a signing bonus

(the "Signing Bonus"), an amount equal to the fair market value of 20,000 shares

of the Company's common stock (based on the average closing price for the

Company's common stock as reported on the New York Stock Exchange during the

30-day period immediately preceding the Commencement Date), to be reflected on

the Company's accounting records as deferred compensation payable to Executive

in a lump sum (with any earnings thereon, as described below) as soon as

administratively feasible following the termination of Executive's employment

with the Company. Notwithstanding the foregoing, the Signing Bonus (and any

earnings thereon) initially shall constitute unvested and forfeitable deferred

compensation and shall become vested and nonforfeitable on the date on which

Executive attains age 55 or, if earlier, on the fifth anniversary of the date on

which Executive becomes the Company's chief executive officer; provided,

however, that in the event Executive's employment with the Company is terminated

before the Signing Bonus (and any earnings thereon) becomes vested and

nonforfeitable pursuant

 

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to the immediately preceding clause, the Signing Bonus (and any earnings

thereon) shall be subject to the following:

 

         (1)      In the event Executive's employment with the Company is

         terminated (i) by Executive for Good Reason, (ii) by the Company

         without Cause, or (iii) as a result of Executive's death or Disability,

         the Signing Bonus (and any earnings thereon) shall become vested and

         nonforfeitable as of the date of such termination; and

 

         (2)      In the event Executive's employment with the Company is

         terminated for any other reason, the Signing Bonus (and any earnings

         thereon) shall be immediately forfeited.

 

                  (b)      In the event Executive's employment with the Company

is terminated before Executive reaches age 55, the amount payable by the Company

under this Section 3.4 (unless the Signing Bonus is otherwise forfeited pursuant

to Section 3.4(a) hereof) shall be equal to the greater of (i) the value of the

Signing Bonus as of the Commencement Date, as determined under Section 3.4(a)

hereof, plus interest thereon, which shall accrue annually, during the period

beginning on the Commencement Date and ending on the date of payment (if any) of

the Signing Bonus, at a rate equal to twelve month LIBOR plus 2, as adjusted on

each anniversary date of the Commencement Date, and (ii) an amount equal to the

fair market value of 20,000 shares of the Company's common stock as of the date

of termination of Executive's employment with the Company (based on the average

closing price for the Company's common stock as reported on the New York Stock

Exchange during the 30-day period immediately preceding the date of such

termination).

 

                  (c)      In the event Executive's employment with the Company

is terminated after Executive reaches age 55 but before Executive reaches age

62, the amount payable by the Company under this Section 3.4 (unless the Signing

Bonus is otherwise forfeited pursuant to Section 3.4(a) hereof) shall be equal

to the greater of (i) the amount to which Executive would

 

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have been entitled under Section 3.4(b) with interest accruing to the date of

termination, without any forfeiture, (ii) an amount equal to $1,600,000 reduced

by .333% for each month that the termination date occurs before reaching age 62,

or (iii) an amount equal to the fair market value of 20,000 shares of the

Company's common stock as of the date of termination of Executive's employment

with the Company (based on the average closing price for the Company's common

stock as reported on the New York Stock Exchange during the 30-day period

immediately preceding the date of such termination).

 

                  (d)      In the event Executive's employment with the Company

is terminated after Executive age 62, the provisions of the immediately

preceding paragraph shall apply; provided, however, that the amount described in

Section 3.4(c)(ii) hereof shall be equal to $1,600,000.

 

                  (e)      Notwithstanding anything herein to the contrary,

Executive shall not be deemed to have any beneficial ownership interest in any

reserve, account, fund or other asset of the Company and shall be an unsecured

general creditor of the Company for purposes of this Section 3.4. For purposes

of valuing any shares under this section 3.4, an adjustment shall be made to

account for the new number or new kind of shares of the Company or other

securities of the Company due to a merger, consolidation, recapitalization

event, reclassification, stock split, stock dividend, combination of shares, or

otherwise.

 

                  4.       Employee Benefits.

 

                  4.1      Equity-Based Compensation. Simultaneously with the

execution of this Agreement, the Company and Executive are entering into the

Restricted Stock Grant Agreement, and the Option Grant Agreement in the forms

attached hereto as Exhibits A and B, respectively

 

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(together with any other agreement approved by the Board and designated by the

Board an "Ancillary Document" for purposes of this Agreement, the "Ancillary

Documents").

 

                  4.2      Employee Benefit Programs, Plans and Practices;

Perquisites. The Company shall provide Executive while employed hereunder with

coverage under such employee benefit plans (commensurate with his position in

the Company and to the extent permitted under any employee benefit plan) in

accordance with the terms thereof, including the Continuation Benefits (as

defined herein), Directors and Officers ("D&O") insurance policy, which covers

claims arising out of actions or inactions occurring during the Term of

Employment, in accordance with the D&O insurance policy, and other employee

benefits which the Company may make available to its senior executives from time

to time in its discretion. The Company shall also provide Executive with

perquisites which the Company may make available to its senior executives from

time to time in its discretion.

 

                  4.3      Vacation. Executive shall be entitled to the number

of business days paid vacation in each calendar year as determined in accordance

with the Company's applicable vacation policies, which shall be taken at such

times as are consistent with Executive's responsibilities hereunder.

 

                  5.       Expenses. Subject to prevailing Company policy or

such guidelines as may be established by the Board, the Company will reimburse

Executive for all reasonable expenses incurred by Executive in carrying out his

duties.

 

                  6.       Termination of Employment.

 

                  6.1      Termination Not for Cause or for Good Reason. (a) The

Company or Executive may terminate Executive's Term of Employment at any time

for any reason by written notice at least thirty (30) days in advance. If the

Executive's employment is terminated (i) by the

 

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Company other than for Cause (as defined in Section 6.2(b) hereof), Disability

(as defined in Section 6.3 hereof) or death or (ii) by Executive for Good Reason

(as defined in Section 6.1(b) hereof), then:

 

         (1)      the Company, as liquidated damages and in lieu of any other

         damages therefor, shall (A) continue to pay to Executive Base Salary

         for a period ending on the third anniversary date of such termination

         (the "Continuation Period"), with such payments to be made in

         accordance with the terms of Section 3.1 and (B) pay to Executive an

         additional amount equal to three (3) times the higher of (x)

         Executive's target Bonus for the year of termination (as established by

         the Board under Section 3.2 hereof), or (y) the annualized average of

         the actual Bonus awards paid to Executive in the three-year period

         prior to such termination (or the total period of Executive's

         employment with the Company, if less than three years) (the "Severance

         Payments"). The Severance Payments shall be made in substantially equal

         installments over the Continuation Period in accordance with Company

         payroll practices, unless the CEO or the Board approves payment in a

         lump sum;

 

         (2)      the Company shall pay to Executive (i) any unpaid Bonus earned

         by Executive with respect to the year immediately preceding the year of

         termination, if any, and (ii) a prorated bonus (the "Prorated Bonus")

         for the year of termination, payable when such bonuses are paid to

         other senior executives of the Company, calculated as the Bonus

         Executive would have received in such year based on the Company's

         actual performance multiplied by a fraction, the numerator of which is

         the number of business days during the year of termination that

         Executive was employed and the denominator of which is the total number

         of business days during the year of termination;

 

         (3)      the Company shall also continue to provide Executive during

         the Continuation Period with qualified and nonqualified defined

         contribution pension, life insurance, medical and other benefits