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                                                                   Exhibit 10.20

                           PEABODY ENERGY CORPORATION
                EQUITY INCENTIVE PLAN FOR NON-EMPLOYEE DIRECTORS

                       NONQUALIFIED STOCK OPTION AGREEMENT

         THIS AGREEMENT (the "Agreement"), dated as of ______________, 20__ is
made between PEABODY ENERGY CORPORATION, a Delaware corporation (the "Company")
and the undersigned director of the Company (the "Participant").

         WHEREAS, the Company wishes to afford the Participant the opportunity
to purchase shares of its $.01 par value common stock ("Stock");

         WHEREAS, the Company wishes to carry out the Peabody Energy Corporation
Equity Incentive Plan for Non-Employee Directors (the "Plan"), the terms of
which are hereby incorporated by reference and made a part of this Agreement;
and

         WHEREAS, the Board (as hereinafter defined), appointed to administer
the Plan, has determined that it would be to the advantage and best interest of
the Company and its stockholders to grant the nonqualified stock option (the
"Option") provided herein to the Participant as an incentive for increased
efforts during the Participant's term as a director of the Company, and has
advised the Company thereof and instructed its officers to issue the said
Option.

         NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties do hereby agree as follows:

         1.       Terms of Award. The following words and phrases used in the
Agreement shall have the meanings set forth in this paragraph 1:

         (a)      The "Participant" is ______________________.

         (b)      The "Grant Date" is ______________________.

         (c)      The number of "Covered Shares" is ______________________
                  shares of Stock.

         (d)      The "Exercise Price" is $__________ per share.

Other words and phrases used in the Agreement are defined in the Plan or
elsewhere in the Agreement. Except where the context clearly implies or
indicates the contrary, a word, term or phrase used in the Plan is similarly
used in the Agreement.

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         2.       Nonqualified Stock Option. The Option is a nonqualified stock
option and is not intended to constitute an "incentive stock option" as that
term is used in Section 422 of the Internal Revenue Code of 1986, as amended.

         3.       Date of Exercise.

                  (a)      Subject to the terms of paragraph 3(b) and the
                           limitations of this Agreement, the Option shall
                           become exercisable in three annual installments,
                           commencing on the first anniversary of the Grant
                           Date, as follows:

                           (i)      The Option shall become exercisable with
                                    respect to one-third (1/3) of the Covered
                                    Shares (rounded down to the nearest whole
                                    share) on the first anniversary of the Grant
                                    Date.

                           (ii)     The Option shall become exercisable with
                                    respect to an additional one-third (1/3) of
                                    the Covered Shares (rounded down to the
                                    nearest whole share) on the second
                                    anniversary of the Grant Date.

                           (iii)    The Option shall become exercisable with
                                    respect to the balance of the Covered Shares
                                    on the third anniversary of the Grant Date.

                  (b)      Notwithstanding the terms of paragraph 3(a) but
                           otherwise subject to the limitations of this
                           Agreement, the Option shall become fully exercisable
                           upon a Change in Control (as defined in the Plan).

         4.       Expiration. The Option shall not be exercisable after the
Company's close of business on the last business day that occurs prior to the
Expiration Date. The "Expiration Date" shall be the earliest to occur of:

         (a)      the ten (10) year anniversary of the Grant Date;

         (b)      the ninety (90) day anniversary of such Date of Termination if
                  the Date of Termination occurs by reason of (i) termination by
                  the Company with Cause or (ii) termination by the Participant
                  without the consent of the Board; or

         (c)      the five (5) year anniversary of such Date of Termination if
                  the Date of Termination occurs by reason of (i) termination by
                  the Company without Cause, (ii) termination by the Participant
                  with the consent of the Board, (iii) Disability, or (iv)
                  death.

 If the Date of Termination occurs due to any reason described in paragraph 4(b)
above, the portion of the Option that is not exercisable shall be immediately
forfeited. If the Date of Termination occurs due to any reason described in
paragraph 4(c) above, the Option shall continue to become exercisable in
accordance with paragraph 3 above. Notwithstanding the foregoing, if the
Participant dies within five (5) years following the Date of Termination and the
Option has not already expired, the Option shall be exercisable for two (2)
years after the Participant's death or until the five (5) year anniversary of
the Date of Termination, if longer, but

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in no event shall the Option be exercisable following the ten (10) year
anniversary of the Grant Date.

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         5.       Method of Option Exercise. Subject to the terms of this
Agreement and the Plan, the Option may be exercised in whole or in part by
filing a written notice with the Secretary of the Company at its corporate
headquarters prior to the Company's close of business on the last business day
that occurs prior to the Expiration Date. Such notice shall specify the number
of shares of Stock which the Participant elects to purchase, and shall be
accompanied by payment of the Exercise Price for such shares of Stock indicated
by the Participant's election. Payment shall be by (a) cash, (b) check payable
to the Company, (c) by delivery of shares of Stock that have been beneficially
owned by the Participant for at least six (6) months before the date of exercise
("Mature Stock") or (d) any combination of the foregoing. The Option shall not
be exercisable if and to the extent the Company determines that such exercise
would violate applicable state or Federal securities laws or the rules and
regulations of the New York Stock Exchange. If the Company makes such a
determination, it shall use all reasonable efforts to obtain compliance with
such laws, rules and regulations by making any determination hereunder, the
Company may rely on the opinion of counsel for the Company.

         6.       Withholding. All deliveries and distributions under this
Agreement are subject to withholding of all applicable taxes, if any. At the
election of the Participant, and subject to such rules and limitations as may be
established by the Board from time to time, such withholding obligations, if
any, may be satisfied through the surrender of Mature Stock.

         7.       Transferability. Except as otherwise provided in this
paragraph 7, the Option is not transferable other than as designated by the
Participant by will or by the laws of descent and distribution and during the
Participant's life may only be exercised by the Participant. However, the
Participant may transfer the Option to (a) one or more of the Participant's
Family Members; (b) one or more trusts for the benefit of the Participant and/or
one or more Family Members; or (c) one or more partnerships (general or
limited), corporations, limited liability companies or other entities in which
the aggregate interests of the Participant and Family Members exceed eighty
percent (80%) of all interests (each a "Permitted Transferee"). In the event of
the death of the Participant, the Option may be exercised only by the Permitted
Transferee, the executor or administrator of the Participant's estate or the
person or persons to whom the Participant's rights passed by will or the laws of
descent and distribution and only to the extent that the Participant or the
Permitted Transferee was entitled to exercise the Option at the date of the
Participant's death.

         8.       Definitions.

         (a)      Board. The term "Board" shall mean the Board of Directors of
                  Peabody Energy Corporation.

         (b)      Cause. The term "Cause" shall mean (i) the willful and
                  continued failure by the Participant to substantially perform
                  the duties as required of a director of the Company, (ii) any
                  willful fraud or dishonesty of the Participant involving the
                  property or business of the Company, or (iii) the
                  Participant's conviction of, or plea of nolo contendere to,
                  any felony; provided that with respect to clauses (i) or (ii)
                  above, the Participant shall have 10 days following written
                  notice of the conduct which is the basis for the potential
                  termination for Cause within which to cure such conduct in
                  order to prevent termination for Cause by the Company.

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         (c)      Date of Termination. The "Date of Termination" shall be the
                  first day occurring on or after the Grant Date on which the
                  Participant ceases to be a director of the Company, regardless
                  of the reason for such cessation.

         (d)      Disability. The term "Disability" shall mean a medically
                  determinable physical or mental impairment that causes the
                  Participant to be unable to engage in any substantial gainful
                  activity, which condition, in the opinion of a physician
                  selected by the Board, is expected to have a duration of not
                  less than 120 days.

         (e)      Family Member. The term "Family Member" shall mean any one of
                  the Participant's spouse, children or grandchildren.

         9.       Successors and Assigns. This Agreement shall be binding upon,
and inure to the benefit of, the Company and its successors and assigns, and
upon any person acquiring, whether by merger, consolidation, purchase of assets
or otherwise, all or substantially all of the Company's assets and business.

         10.      Administration. The authority to manage and control the
operation and administration of this Agreement shall be vested in the Board, and
the Board shall have all powers with respect to this Agreement as it has with
respect to the Plan. Any interpretation of the Agreement by the Board and any
decision made by it with respect to the Agreement is final and binding on all
persons.

         11.      Plan Governs. Notwithstanding anything in this Agreement to
the contrary, the terms of this Agreement shall be subject to the terms of the
Plan, a copy of which may be obtained by the Participant from the office of the
Secretary of the Company; and this Agreement is subject to all interpretations,
amendments, rules and regulations promulgated by the Board from time to time
pursuant to the Plan.

         12.      No Right to Continue as a Director. Neither the Plan nor this
Agreement shall constitute or be evidence of any agreement, express or implied,
that the Participant has a right to continue as a director of the Company for
any period of time, or at any particular compensation.

         13.      Notice. Any written notice to the Company required by any of
the provisions of this Plan shall be addressed to the Secretary of the Company
and shall become effective when it is received.

         14.      No Rights as a Stockholder. The Participant shall not have any
rights of a stockholder with respect to the shares subject to the Option, until
a stock certificate has been duly issued following exercise of the Option as
provided herein.

         15.      Amendment. This Agreement may be amended by written agreement
of the Participant and the Company, without the consent of any other person.

         16.      Dispute Resolution. Any dispute or controversy arising under
or in connection with this Agreement shall be resolved by arbitration.
Arbitrators shall be selected, and arbitration shall be conducted, in accordance
with the rules of the American Arbitration Association.

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         17.      Governing Law. The laws of the State of Delaware shall govern
the interpretation, validity and performance of the terms of this Agreement
regardless of the law that might be applied under principles of conflicts of
laws.

         IN WITNESS WHEREOF, the Participant has executed this Agreement, and
the Company has caused these presents to be executed in its name and on its
behalf, all as of the Grant Date.

                                         PARTICIPANT

                                         ______________________________________

                                         PEABODY ENERGY CORPORATION

                                         By:    _______________________________
                                         Its:   _______________________________

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