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Employment Agreement [Amendment No. 1] - Peabody Energy Corp. and Frederick D. Palmer

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                               FIRST AMENDMENT TO
                           PEABODY ENERGY CORPORATION
                              EMPLOYMENT AGREEMENT
                              (FOR LISTED OFFICERS)

         THIS AMENDMENT (this "Amendment") to the Employment Agreement (as
defined below) is entered into as of May 10, 2001, by and between Peabody Energy
Corporation (the "Company" formerly known as P&L Coal Holdings Corporation), a
Delaware corporation and Fredrick D. Palmer ("Executive").


         WHEREAS, the Company and Executive entered into that certain Employment
Agreement dated as of February 13, 2001 (the "Employment Agreement");

         WHEREAS, pursuant to Section 10 of the Employment Agreement, the
Employment Agreement may be amended by written agreement of the parties thereto;

         WHEREAS, the Company desires, and Executive agrees, to amend the
provisions of the Employment Agreement, subject to the consummation on or before
July 31, 2001, of an initial public offering with respect to the Company's
shares of common stock ("IPO");

         NOW, THEREFORE, in the event that an IPO is consummated on or before
July 31, 2001, the Employment Agreement is hereby amended, effective upon the
date of such IPO, as follows:


         Section 2 of the Employment Agreement is amended in part to change the
reference to the "'evergreen' one-year term" to the "'evergreen' two-year term."


         Section 3.1 of the Employment Agreement is amended in part by deleting
from the end of the third sentence the words "provided, however, that no such
increase shall be made before the Company obtains ratings on its unsecured debt
from Standard & Poor's and Moody's of at least BBB- and Baa3, respectively
("Investment-Grade Credit Rating")".


         Section 3.2 of the Employment Agreement is amended in part by deleting
from the second sentence the words ", and such target shall not be increased
before the Company obtains an Investment-Grade Credit Rating".



         Section 6.1(a) of the Employment Agreement is amended in part by
replacing the second sentence thereof with the following:

                  "If the Executive's employment is terminated (i) by the
         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), 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 of two years following 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 two
         (2) 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 average of the actual Bonus awards paid to Executive in the
         three-year period prior to such termination (the "Severance


         A new Section 6.1(d) is added to the Employment Agreement to read as

"(i)     If Executive becomes entitled to any payment, benefit or distribution
         (or combination thereof) by the Company, any affiliated company, or one
         or more trusts established by the Company for the benefit of its
         employees, whether paid or payable pursuant to Section 6.1 of this
         Agreement or any other plan, arrangement, or agreement with the Company
         or any affiliated company (the "Payments"), which are or become subject
         to the excise tax imposed by Section 4999 of the Internal Revenue Code
         of 1986, as amended (the "Code") or any interest or penalties are
         incurred by Executive with respect to such excise tax (such excise tax,
         together with any such interest and penalties, hereinafter collectively
         referred to as the "Excise Tax"), the Company shall make to Executive
         an additional payment (the "Gross-Up Payment") in an amount such that
         after payment by Executive of all taxes (including any interest or
         penalties imposed with respect to such taxes), including, without
         limitation, any income taxes (and any interest and penalties imposed
         with respect thereto) and the Excise Tax imposed upon the Gross-Up
         Payment, Executive retains an amount of the Gross-Up Payment equal to
         the Excise Tax imposed upon the Payments; provided, however, that such
         Gross-Up Payment shall not exceed $956,161.

(ii)     All determinations required to be made under this Section 6.1(d),
         including whether and when a Gross-Up Payment is required and the
         amount of such Gross-Up Payment and the assumptions to be utilized in
         arriving at such determination, shall be made by a nationally
         recognized certified public accounting firm as may be designated by the
         Company (the "Accounting Firm") which shall provide detailed supporting
         calculations both to the Company and Executive within ten business days
         of the receipt of notice from Executive that Payments were made, or
         such earlier time as is required by the Company; provided that for
         purposes of determining the amount of any Gross-Up Payment, Executive
         shall be deemed to pay federal income tax at the highest marginal rates
         applicable to individuals in the calendar year in which any such
         Gross-Up Payment is to be made and



         deemed to pay state and local income taxes at the highest effective
         rates applicable to individuals in the state or locality of Executive's
         residence or place of employment in the calendar year in which any such
         Gross-Up Payment is to be made, net of the maximum reduction in federal
         income taxes that can be obtained from deduction of such state and
         local taxes, taking into account limitations applicable to individuals
         subject to federal income tax at the highest marginal rates. All fees
         and expenses of the Accounting Firm shall be borne solely by the
         Company. Any Gross-Up Payment, as determined pursuant to this Section
         6.1(d), shall be paid by the Company to Executive (or to the
         appropriate taxing authority on Executive's behalf) when due. If the
         Accounting Firm determines that no Excise Tax is payable by Executive,
         it shall so indicate to Executive in writing. Any determination by the
         Accounting Firm shall be binding upon the Company and Executive. As a
         result of the uncertainty in the application of Section 4999 of the
         Code, it is possible that the amount of the Gross-Up Payment determined
         by the Accounting Firm to be due to (or on behalf of) Executive was
         lower than the amount actually due ("Underpayment"). In the event that
         the Company exhausts its remedies hereunder and Executive thereafter is
         required to make a payment of any Excise Tax, the Accounting Firm shall
         determine the amount of the Underpayment that has occurred and any such
         Underpayment shall be promptly paid by the Company to or for the
         benefit of Executive.

(iii)    Executive shall notify the Company in writing of any claim by the
         Internal Revenue Service that, if successful, would require the payment
         by the Company of any Gross-Up Payment. Such notification shall be
         given as soon as practicable, but no later than ten business days after
         Executive is informed in writing of such claim and shall apprise the
         Company of the nature of such claim and the date on which such claim is
         requested to be paid. Executive shall not pay such claim prior to the
         expiration of the thirty-day period following the date on which it
         gives such notice to the Company (or such shorter period ending on the
         date that any payment of taxes with respect to such claim is due). If
         the Company notifies Executive in writing prior to the expiration of
         such period that it desires to contest such claim, Executive shall (i)
         give the Company any information reasonably requested by the Company
         relating to such claim, (ii) take such action in connection with
         contesting such claim as the Company shall reasonably request in
         writing from time to time, including, without limitation, accepting
         legal representation with respect to such claim by an attorney
         reasonably selected by the Company, (iii) cooperate with the Company in
         good faith in order to effectively contest such claim and (iv) permit
         the Company to participate in any proceedings relating to such claim;
         provided, however, that the Company shall bear and pay directly all
         costs and expenses (including additional interest and penalties)
         incurred in connection with such contest and shall indemnify and hold
         Executive harmless, on an after-tax basis, for any Excise Tax or income
         tax (including interest and penalties with respect thereto) imposed as
         a result of such representation and payment of costs and expenses.
         Without limitation on the foregoing provisions of this Section 6.1(d),
         the Company shall control all proceedings taken in connection with such
         contest and, at its sole option, may pursue or forego any and all
         administrative appeals, proceedings, hearings and conferences with the
         taxing authority in respect of such claim and may, at its sole option,
         either direct Executive to pay the tax claimed and sue for a refund or
         contest the claim in any permissible manner, and Executive agrees to
         prosecute such contest to a determination before any administrative
         tribunal, in a court of initial jurisdiction and in one or more



         courts, as the Company shall determine; provided, further, that if the
         Company directs Executive to pay such claim and sue for a refund, the
         Company shall advance the amount of such payment to Executive, on an
         interest-free basis, and shall indemnify and hold Executive harmless,
         on an after-tax basis, from any Excise Tax or income tax (including
         interest or penalties with respect thereto) imposed with respect to
         such advance or with respect to any imputed income with respect to such
         advance; provided, further, that if Executive is required to extend the
         statute of limitations to enable the Company to contest such claim,
         Executive may limit this extension solely to such contested amount. The
         Company's control of the contest shall be limited to issues with
         respect to which a Gross-Up Payment would be payable hereunder and
         Executive shall be entitled to settle or contest, as the case may be,
         any other issue raised by the Internal Revenue Service or any other
         taxing authority.

(iv)     If, after the receipt by Executive of an amount paid or advanced by the
         Company pursuant to this Section 6.1(d), Executive becomes entitled to
         receive any refund with respect to a Gross-Up Payment, Executive shall
         (subject to the Company's complying with the requirements of Section
         6.1(d)(iii)) promptly pay to the Company the amount of such refund
         received (together with any interest paid or credited thereon after
         taxes applicable thereto). If, after the receipt by Executive of an
         amount advanced by the Company pursuant to Section 6.1(d), a
         determination is made that Executive shall not be entitled to any
         refund with respect to such claim and the Company does not notify
         Executive in writing of its intent to contest such denial of refund
         prior to the expiration of thirty days after such determination, then
         such advance shall be forgiven and shall not be required to be repaid
         and the amount of such advance shall offset, to the extent thereof, the
         amount of the Gross-Up Payment required to be paid."


         This Amendment shall only become valid and binding upon consummation of
an IPO on or before July 31, 2001, and shall otherwise be null and void. Except
as provided herein, the Employment Agreement shall remain in full force and

         IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.

                                    P&L Coal Holdings Corporation

                                    By: ______________________________

                                              Chairman & Chief Executive Officer



                                    Name: ______________________________