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FOGNANI GUIBORD & HOMSY, LLP <br />CHICAGO DENVER NEW YORK <br />20 NORTH CLARK 1700 LINCOLN STREET 1350 AVENUE OF THE AMERICAS <br />THIRTY-SECOND FLOOR $jJITE 2222 THIRTY-FIRST FLOOR <br />CHICAGO, ILLMOIS 60602 pgNVER, COLORADO 80203 NEW YORK, NEw YORK 10019 <br />TecseeoNE: (312)596-7777 TELEPHONE: (303)382-6200 TELEPHONE: (212)479-5620 <br />FACSIMILE: (312) 596-7788 FACSIMILE: (212) 479-5621 <br /> (303) 382-6210 <br />FACSIMILE: <br /> W W W.FGHR.COM <br />August 6.2004 <br />VIA FACSIMILE TRANSMISSION <br />Moms W. Kegley, Esq. <br />Senior Counsel <br />Peabody/BTU Empire Corporation <br />701 Market Street, Suite 733 <br />St. Louis, Missouri 63101-1826 <br />RE: Response to Counteroffer <br />Deaz Mike: <br />I am in receipt of your counteroffer (dated July 27, 2004, received via facsimile <br />transmission on July 30, 2004), and have had the opportunity to discuss it at some length <br />with Brad Barker and Ray Barker. <br />The Barkers have reluctantly concluded that the terms of Peabody's counteroffer do not <br />evidence a real desire on Peabody's part to resolve this matter on terms that are <br />acceptable to the Barkers or the State of Colorado. As 1 had indicated to Peabody's <br />outside counsel, Bob Bassett, before the Barkers ever agreed to a settlement meeting, the <br />Barkers were (and are) looking for a reclamation access agreement that would give them <br />approximately the same amount in current dollars as their predecessor in title received <br />(and they were receiving) under the 1976 agreement. Before the settlement meeting was <br />set up, I indicated to Mr. Bassett that while there was some willingness on the Barkers' <br />part to negotiate the annual payment amount for the reclamation access agreement, the <br />Barkers would not agree to a "low ball" number, and that if that was Peabody's intent, <br />there was no purpose in holding a settlement meeting. <br />After the settlement meeting on July 21, 2004, the Barkers authorized me to make <br />Peabody an offer that included a reclamation agreement with an annual payment amount <br />of $50,000 -- less than the current value of the $16,000 payable under the 1976 <br />agreement; and also gave Peabody a way to reduce that annual payment amount by up to <br />one half if the company were to be successful in its stated desire to drop certain of the <br />Bazkers' lands from the current permit area. The Barkers' offer also gave Peabody an <br />operational lease on some 40 acres of the Bazkers' lands at no additional cost to Peabody. <br />