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•	He will receive a base salary at the initial annual rate of $800,000.

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He will be eligible to receive an annual cash bonus in accordance with a program approved by the Compensation Committee of the Board of Directors. Mr. Kellow's target bonus opportunity for 2013 and subsequent years will be 100% of his base salary, and his maximum bonus opportunity for each such year will be 200% of his base salary; provided, however, that his target and maximum bonus opportunities for 2013 will be prorated.

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He will be eligible to receive annual equity-based compensation awards under Peabody's equity incentive plans. His target opportunity will be 375% of base salary, and the maximum opportunity for any such equity based awards with a variable payment schedule will be 200% of the target units; provided, however, that for 2013 (but not for any other year) he will receive long-term incentive awards, 50% of which will be performance units and 50% of which will be stock options, equal to his prorated target opportunity.

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He will receive a one-time cash payment of $500,000 (net of tax withholding) on the first payroll date following the Commencement Date (the “Additional Award”). Mr. Kellow will be required to repay a prorated portion of the Additional Award if his employment is terminated other than by reason of (1) termination by Peabody without cause, (2) resignation by him for good reason, (3) death or (4) disability (each as defined in the employment agreement) within twenty-four (24) months of the Commencement Date.

•	He will receive a one-time award of performance-based restricted stock units (“RSUs”) consisting of that number of RSUs determined by dividing $2,000,000 by the closing price of Peabody's common stock on the New York Stock Exchange on the Commencement Date (the “Inducement Equity Award”). The RSUs included in the Inducement Equity Award will vest in accordance with the following provisions:

◦	50% of the RSUs will vest only if total shareholder return (“TSR”) (which measures cumulative stock price appreciation plus dividends) of Peabody's common stock for any period of twenty (20) consecutive trading days between the Commencement Date and the fourth anniversary of the Commencement Date exceeds by at least twenty percent (20%) the TSR of Peabody's common stock on the Commencement Date.

◦	The remaining 50% of the RSUs will vest only if the TSR of Peabody's common stock for any period of twenty (20) consecutive trading days between the Commencement Date and the fifth anniversary of the Commencement Date exceeds by at least forty percent (40%) the TSR of Peabody's common stock on the Commencement Date.

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Vesting of the RSUs will also be conditioned on Mr. Kellow's continued employment with Peabody through the fifth anniversary of the Commencement Date; provided, however, that if his employment is terminated by Peabody without cause or by Mr. Kellow for good reason or by reason of death or disability, the RSUs (or a prorated portion of the RSUs, if Mr. Kellow resigns pursuant to a specified clause of the good reason definition described below) will continue to vest in accordance with their terms, subject to Mr. Kellow's compliance with the restrictive covenant agreement described below, as though he remained employed with Peabody through the fifth anniversary of the Commencement Date.

•	In the event of disability, Peabody may terminate Mr. Kellow's employment, in which case he will be entitled to any unpaid bonus earned by him with respect to the year immediately preceding the year of termination and a prorated bonus for the year of termination.

•	In the event of Mr. Kellow's death during the term of employment, Peabody will pay to his beneficiaries or estate any unpaid bonus earned by him with respect to the year immediately preceding the year of termination and a prorated bonus for the year in which he died.

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If Mr. Kellow's employment is terminated by Peabody other than for cause or by Mr. Kellow for good reason, Mr. Kellow will be entitled to the following benefits, subject to the effectiveness of a release by him of claims against Peabody: (A) two times base salary; (B) two times his reference bonus (as defined in the employment agreement); and (C) two times six percent of base salary (to compensate for Peabody contributions he otherwise might have received under Peabody's retirement plan). One-quarter (¼) of these amounts will be paid in a lump sum payment on the earlier to occur of Mr. Kellow's death or the first business day immediately following the six (6) month anniversary of Mr. Kellow's separation from service (as defined in the employment agreement), and the remaining three quarters (¾) will be paid in substantially equal monthly payments for the remainder of the two (2) year period following such separation from service. Mr. Kellow will also be entitled to (1) any unpaid bonus earned by him with respect to the year immediately preceding the year of termination and a prorated bonus for the year of termination, (2) continuation of group health coverage (including medical, dental and vision benefits) for the 18 months following termination, and (3) relocation benefits back to Australia for him and his family in accordance with Peabody's international relocation policy. Continuing benefit coverage will terminate to the extent he is offered or obtains comparable coverage from any other employer. In no event will Mr. Kellow be entitled to reimbursement for or any “gross up” of any excise tax imposed by Internal Revenue Code Section 4999 that he is required to pay. If Mr. Kellow breaches any provision of the restrictive covenant agreement described below, he will forfeit the remaining balances of, and will repay to Peabody the previously paid portion of, the amounts described in this paragraph other than those required by law.

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