<PAGE>

                                                                   Exhibit 10.15

                                 GRANT AGREEMENT

                      NON-QUALIFIED STOCK OPTION AGREEMENT

                  THIS AGREEMENT, dated as of ___________, is made by and
between P&L COAL HOLDINGS CORPORATION, a Delaware corporation (the "Company"),
and the undersigned employee of the Company or a Subsidiary (as defined below)
or Affiliate (as defined below) of the Company ("Optionee").

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

                  WHEREAS, the Company wishes to carry out the Plan (as
hereinafter defined), the terms of which are hereby incorporated by reference
and made a part of this Agreement; and

                  WHEREAS, the Committee (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 Non-Qualified Options
provided for herein to the Optionee as an incentive for increased efforts during
his term of office with the Company or its Subsidiaries or Affiliates, and has
advised the Company thereof and instructed the undersigned officers to issue
said Options;

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

                                    ARTICLE I
                                   DEFINITIONS

         Whenever the following terms are used in this Agreement, they shall
have the meaning specified in the Plan or below unless the context clearly
indicates to the contrary.

Section 1.1 - "Active Trading Market" shall mean, as to the Company's Common
Stock, that the Company's Common Stock is listed or quoted on a national
exchange or the NASDAQ National Market.

Section 1.2 - "Affiliate," as applied to any Person, shall mean any other Person
directly or indirectly controlling, controlled by, or under common control with,
that Person. For the purposes of this definition "control" (including, with
correlative meanings, the terms "controlling," "controlled by" and "under common
control with"), as applied to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of that Person, whether through the ownership of voting securities, by
contract or otherwise.

<PAGE>

Section 1.3 - "Applicable Percentage" shall mean the percentage set forth on
Schedule B attached hereto.

Section 1.4 - "Board of Directors" shall mean the Board of Directors of the
Company.

Section 1.5 - "Cause" shall mean (i) any material and uncorrected breach by
Optionee of the terms of his employment agreement with the Company, if any,
including, but not limited to, engaging in action in violation of any
restrictive covenants therein, (ii) any willful fraud or dishonesty of Optionee
involving the property or business of the Company, (iii) a deliberate or willful
refusal or failure of Optionee to comply with any major corporate policy of the
Company which is communicated to Optionee in writing or (iv) Optionee's
conviction of, or plea of nolo contendere to, any felony if such conviction
shall result in his imprisonment; provided that with respect to clauses (i),
(ii) or (iii) above, Optionee 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.
In the event that Optionee is terminated for failure to meet performance goals,
as determined by the initial CEO, such termination shall be considered a
termination for Cause for all purposes relating to his Options.

Section 1.6 - "Change of Control" shall mean an acquisition of all or
substantially all of the direct and indirect assets of the Company and its
Subsidiaries (by merger, consolidation, recapitalization event, stock or asset
sale or otherwise), whereby immediately following any such transaction (i) the
Lehman Fund owns, in the aggregate, less than 50 percent of the Company's
outstanding voting securities that the Lehman Fund owned (excluding the sell
down of approximately $75 million anticipated to occur after the Closing Date)
after the Closing Date or (ii) any Person individually owns more of the
Company's then outstanding voting securities entitled to vote generally than is
owned in the aggregate by the Lehman Fund and its Affiliates.

Section 1.7 - "Closing Date" shall mean May 19, 1998.

Section 1.8 - "Committee" shall mean the Compensation Committee of the Company.

Section 1.9 - "Common Stock Ownership Agreement" shall mean that certain Common
Stock Ownership Agreement dated as of the date hereof between the Optionee and
the Company.

Section 1.10 - "Cumulative Performance Target" shall mean the Cumulative
Performance Targets as set forth in Schedule A attached hereto.

Section 1.11 - "Disability" shall mean Optionee's absence from the full-time
performance of Optionee's duties pursuant to a reasonable determination made in
accordance with the Company's disability plan that Optionee is disabled as a
result of incapacity due to physical or mental illness that lasts, or is
reasonably expected to last, for at least six months.

Section 1.12 - "EBITDA" shall have the same meaning as "Consolidated EBITDA" has
in the Credit Agreement, dated as of May 14, 1998, among the Company, the
several lenders from time to time parties hereto (the "Lenders"), Lehman
Brothers Inc., as arranger, Lehman Commercial Paper Inc. ("LCPI"), as
syndication agent, LCPI, as documentation agent and LCPI, as administrative
agent for the Lenders (the "Credit Agreement"), provided that for this purpose
Citizens Power LLC shall not be excluded from the calculation of Consolidated
EBITDA.

                                       2
<PAGE>

Section 1.13 - "Fiscal Year" shall mean the most recently completed fiscal year
of the Company.

Section 1.14 - "FMV per Share" shall mean: (i) prior to a Public Offering, the
fair market value of the equity of the Company, as determined by the Board of
Directors in good faith, taking into account all relevant factors, including the
Company's historic financial performance, its business prospects and recent
sales or valuations of similar companies; (ii) after a Public Offering, the
average of the closing prices of the shares of Common Stock for the 20 trading
days immediately preceding the determination date; provided, however, at the
time of the Public Offering, the offering price per share of Common Stock; and
(iii) notwithstanding the foregoing, in the event of a Change in Control, the
per share value of equity based on amounts paid in the Change of Control.

Section 1.15 - "Good Reason" shall mean (i) a reduction by the Company in
Optionee's Base Salary, (ii) a material reduction in the aggregate program of
employee benefits and perquisites to which Optionee is entitled (other than a
reduction which affects all executives and is approved by the initial CEO;
provided, however; that if the initial CEO terminates without Good Reason,
voluntarily retires, dies or has a Disability or if such reduction is necessary
to maintain the financial viability or solvency of the Company, the reduction
does not require the approval of the initial CEO); or, without the approval of
the initial CEO: (iii) relocation by more than 50 miles from Optionee's
workplace, (iv) any material diminution or material adverse change in Optionee's
duties, responsibilities or reporting relationships, which causes Optionee to
fall below the level of the executive team, or (v) a material decline in
Optionee's Bonus opportunity; provided, however, that after a Change of Control
of the Company or an IPO, clauses (ii) through (v) above shall be replaced by
the following: (i) a material reduction in the aggregate program of employee
benefits and perquisites to which Optionee is entitled (other than a reduction
which affects all executives), (ii) relocation by more than 50 miles from
Optionee's workplace, (iii) any material diminution or material adverse change
in Optionee's duties, responsibilities or reporting relationships, which causes
Optionee to fall below the level of the executive team, or (iv) a material
decline in Optionee's Bonus opportunity.

Section 1.16 - "Lehman Fund" shall mean the initial purchasers listed on the
signature pages to the Stockholders Agreement and any other entity that is owned
or controlled directly or indirectly by Lehman Brothers Holdings, Inc.

Section 1.17 - "Missed Year" shall mean a Fiscal Year in which the Company's
actual performance measured as the ratio of Net Debt to EBITDA is less than 100%
of the Performance Target for such Fiscal Year.

Section 1.18 - "Net Debt" shall mean Consolidated Total Debt, as defined in the
Credit Agreement, less cash and equivalents of the Company and its Restricted
Subsidiaries, as defined in the Credit Agreement.

Section 1.19 - "Options" shall mean the non-qualified options, which may include
a Time Option and/or a Performance Option and/or a Superperformance Option, to
purchase Common Stock granted under this Agreement.

                                       3
<PAGE>

Section 1.20 - "Performance Option" shall mean an Option with respect to which
the commencement of exercisability is governed by Section 3.2 hereof.

Section 1.21 - "Performance Target" shall mean the Performance Targets as set
forth in Schedule A attached hereto, which shall be based on the ratio of Net
Debt to EBITDA as determined annually by the Board of Directors.

Section 1.22 - "Plan" shall mean the 1998 Stock Purchase and Option Plan for Key
Employees of the Company, as from time to time amended.

Section 1.23 - Pronouns. The masculine pronoun shall include the feminine and
neuter, and the singular the plural, where the context so indicates.

Section 1.24 - "Public Offering" shall mean the sale of shares of any class of
the Company's stock to the public pursuant to an effective registration
statement (other than a registration statement on Form S-4 or S-8 or any similar
or successor form) filed under the Securities Act of 1933 which results in an
Active Trading Market of the lesser of 25% of the outstanding shares of Common
Stock and an aggregate value of outstanding securities that are registered equal
to $250 million; provided, however, that the first such Public Offering shall be
called an "IPO."

Section 1.25 - "Recapitalization Event" shall mean a recapitalization,
reorganization, stock dividend or other special corporate restructuring which
results in an extraordinary distribution to the stockholders of cash and/or
securities through the use of leveraging or otherwise but which does not result
in a Change of Control.

Section 1.26 - "Retirement" shall mean normal retirement at age 62, which
retirement occurs more than five years after the Closing Date. Any purported
retirement prior to the fifth anniversary of the Closing Date, shall be treated
the same as a Termination of Employment without Good Reason.

Section 1.27 - "Stockholders Agreement" shall mean the Stockholders Agreement
dated as of the date hereof among the Company, Lehman Brothers Merchant Banking
Partners II L.P., the Optionee and the other parties thereto.

Section 1.28 - "Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations, or group of
commonly controlled corporations, other than the last corporation in the
unbroken chain then owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.

Section 1.29 - "Superperformance Option" shall mean an Option with respect to
which the commencement of exercisability is governed by Section 3.3 hereof.

Section 1.30 - "Termination of Employment" shall mean a termination of the
Optionee's employment with the Company (regardless of the reason therefor).

Section 1.31 - "Time Option" shall mean an Option with respect to which the
commencement of exercisability is governed by Section 3.1 hereof.

                                       4
<PAGE>

                                   ARTICLE II
                                GRANT OF OPTIONS

Section 2.1 - Grant of Options. For good and valuable consideration, the Company
shall grant to the Optionee a Time Option and/or a Performance Option and/or a
Superperformance Option to purchase any part or all of an aggregate of the
number of shares set forth with respect to each such Option on the signature
page hereof of its Common Stock upon the terms and conditions set forth in this
Agreement.

Section 2.2 - Exercise Price. The exercise price of the shares of Common Stock
covered by the Option shall be $20.00 per share subject to adjustment pursuant
to Section 2.4 herein without commission or other charge.

Section 2.3 - No Obligation of Employment. Nothing in this Agreement or in the
Plan shall confer upon the Optionee any right to continue in the employ of the
Company or any Subsidiary or Affiliate or shall interfere with or restrict in
any way the rights of the Company and its Subsidiaries or Affiliates, which are
hereby expressly reserved, to terminate the employment of the Optionee at any
time for any reason whatsoever, with or without Cause.

Section 2.4 - Adjustments in Options.

                  (a)      Subject to Section 9 of the Plan, in the event that
         the outstanding shares of the stock subject to an Option are, from time
         to time, changed into or exchanged for a different number or kind of
         shares of the Company or other securities of the Company by reason of a
         merger, consolidation, Recapitalization Event, reclassification, stock
         split, stock dividend, combination of shares, or otherwise, the
         Committee shall make an appropriate and equitable adjustment in the
         number and kind of shares or other consideration as to which such
         Option, or portions thereof then unexercised, shall be exercisable and
         the exercise price therefor. Any such adjustment made by the Committee
         shall be final and binding upon the Optionee, the Company and all other
         interested persons.

                  (b)      Upon a Recapitalization Event which is not a Change
         of Control, each share of Common Stock subject to an Option shall be
         entitled to receive any amounts distributed in connection therewith, as
         if the Option had been exercised, and any amounts so distributed shall
         be applied to Optionee's outstanding loan balance and thereafter to the
         exercise price of Options, commencing with Time Options, until the
         aggregate amount of such dividend equivalent has been fully applied.

Section 2.5 - Conditions to Grant of Option. Concurrently with the execution of
this Agreement, the Optionee shall execute a Common Stock Ownership Agreement
and a Stockholders Agreement, in forms which are substantially similar to those
attached hereto, which covers the Option granted hereunder.

                                       5
<PAGE>

                                  ARTICLE III
                            EXERCISABILITY OF OPTIONS

Section 3.1 - Time Option. Unless otherwise provided in this Agreement, this
Time Option shall become exercisable as follows:

<TABLE>
<CAPTION>
         Date Time Option                   Percentage of Common Stock As to
        Becomes Exercisable                 Which Time Option Is Exercisable
----------------------------------          --------------------------------
<S>                                         <C>
After the first Anniversary Date                          20%

After the second Anniversary Date                         40%

After the third Anniversary Date                          60%

After the fourth Anniversary Date                         80%

After the fifth Anniversary Date                          100%
</TABLE>

For purposes hereof, the term "Anniversary Date" shall mean the Closing Date
anniversary date. The first Anniversary Date shall mean the Anniversary Date
immediately following the close of the Fiscal Year during which the Options were
granted hereunder.

Section 3.2 - Performance Option.

                  (a) Unless otherwise provided in this Agreement, this
         Performance Option shall become exercisable with respect to 20% of the
         shares of Common Stock subject to such Performance Option on each of
         the Anniversary Dates mentioned in Section 3.1 hereof, to the extent
         that the Company's actual performance for the Fiscal Year equals or
         exceeds the applicable Performance Target.

                  (b) If any Fiscal Year is a Missed Year, such Performance
         Option shall become exercisable with respect to a portion of the shares
         subject to Performance Option in an amount equal to the product of (i)
         20%, (ii) the Applicable Percentage and (iii) the total number of
         shares subject to Optionee's Performance Option.

                  (c) If either all or a portion of Optionee's Performance
         Option do not become exercisable in any year pursuant to the above,
         such Option may nonetheless become exercisable based on the Cumulative
         Performance Target in an amount equal to (i) the product of (A) 40%, if
         the determination is on the second Anniversary Date, 60%, if on the
         third Anniversary Date, 80%, if on the fourth Anniversary Date and
         100%, if on the fifth Anniversary Date, (B) the Applicable Percentage
         and (C) total number of shares subject to Optionee's Performance Option
         less (ii) the total number of shares of Common Stock subject to
         Optionee's Performance Option which have become exercisable.

                  (d) Notwithstanding the foregoing, the Performance Option
         shall become exercisable as to 100% of the shares of Common Stock
         subject to the Performance Option nine and one-half (9 1/2) years after
         the date of grant (but only to the extent such

                                       6
<PAGE>

         Performance Option has not otherwise terminated or become exercisable)
         at an exercise price of $20.00 per share, as adjusted pursuant to
         Section 2.4 herein, whether or not the Performance Targets are
         achieved.

Section 3.3 - Superperformance Option I and Superperformance Option II. The
Superperformance Option I and the Superperformance Option II shall vest upon the
earlier of (i) the Lehman Fund's achievement of the Internal Rate of Return
("IRR") targets for the Superperformance Option I and the Superperformance
Option II respectively set forth in Schedule C and the earliest of completion of
(x) an IPO, (y) a Change of Control or (z) a Recapitalization Event; and (ii) 9
1/2 years from the date of grant. IRR shall be determined on a fully-diluted
basis (after taking into account outstanding grants and issuances in connection
therewith) at the earlier of (1) 2 years after an IPO or (2) the sale by the
Lehman Fund of 50% of its shares owned after the closing of the purchase of the
Company (excluding the sell down of approximately $75 million anticipated to
occur after the Closing Date), which shall be calculated using the two year
trading average for purposes of (1) or the actual amount received for purposes
of (2). IRR shall be calculated using methodology comparable to that used in the
Sensitivity Case dated May 3, 1998, as attached hereto, and including any
dividends and distributions actually received by the Lehman Fund.

Section 3.4 - Acceleration Events. Notwithstanding anything in this Article III
to the contrary:

                  (a) The Time Option shall become fully exercisable early (but
         only to the extent such Time Option has not otherwise terminated or
         become exercisable) upon (i) a Termination of Employment on account of
         death or Disability, (ii) a Change of Control or (iii) a
         Recapitalization Event.

                  (b) The Performance Option shall become fully exercisable
         early (but only to the extent such Performance Option has not otherwise
         terminated or become exercisable) upon (i) a Change of Control, (ii) a
         Recapitalization Event or (iii) an IPO.

                  (c) The Superperformance Option I only shall become
         exercisable early (but only to the extent such Superperformance Option
         I has not otherwise terminated or become exercisable) as follows: (i)
         upon completion of an IPO during the first 36 months following the
         Closing Date, at least 50% of the shares subject to this
         Superperformance Option I shall vest and the balance shall vest in
         accordance with the IRR chart set forth in Section 3.3, above, or (ii)
         upon a Change of Control or a Recapitalization Event during the first
         36 months following the Closing Date, 100% of the shares subject to
         this Superperformance Option I shall vest.

Section 3.5 - Effect of Termination of Employment. Except as otherwise provided
in this Article III, no Option shall become exercisable as to any additional
shares of Common Stock following Termination of Employment, and such
unexercisable Option shall immediately terminate.

Section 3.6 - Expiration of Options. The Options may not be exercised to any
extent by Optionee after the first to occur of the following events:

                  (a) The tenth anniversary of the date hereof; or

                                       7
<PAGE>

                  (b) The first anniversary of the date of Termination of
         Employment (i) by reason of death, Disability, or Retirement or (ii)
         without Cause or for Good Reason; or

                  (c) The date of a Termination of Employment for Cause or
         without Good Reason; or

                  (d) The date of a Termination of Employment for any reason if
         the Option exercise price is higher than the FMV per Share subject to
         such Option on such date of Termination of Employment; or

                  (e) Upon a Change of Control, the Compensation Committee may
         terminate the Options, so long as the Optionee is cashed out at the
         Change of Control price or is permitted to exercise his Options prior
         to the Change of Control.

                                   ARTICLE IV
                               EXERCISE OF OPTION

Section 4.1 - Person Eligible to Exercise. During the lifetime of the Optionee,
only he, or in the event of disability his committee or conservator, may
exercise an Option or any portion thereof. After the death of the Optionee, any
exercisable portion of an Option may, prior to the time when an Option becomes
unexercisable under Section 3.6, be exercised by his beneficiary or estate.

Section 4.2 - Partial Exercise. Any exercisable portion of an Option or the
entire Option, if then wholly exercisable, may be exercised in whole or in part
at any time prior to the time when the Option or portion thereof becomes
unexercisable under Section 3.6; provided, however, that any partial exercise
shall be for whole shares of Common Stock only.

Section 4.3 - Manner of Exercise. The Option, or any exercisable portion
thereof, may be exercised solely by delivering to the Secretary of the Company
or his office all of the following prior to the time when the Option or such
portion becomes unexercisable under Section 3.6:

                  (a) Notice in writing signed by the Optionee or the other
         person then entitled to exercise the Option or portion thereof, stating
         that the Option or portion thereof is thereby exercised, such notice
         complying with all applicable rules established by the Committee;

                  (b) Full payment (in cash, in Shares, by check or by a
         combination thereof) for the shares with respect to which such Option
         or portion thereof is exercised;

                  (c) A bona fide written representation and agreement, in a
         form satisfactory to the Committee, signed by the Optionee or other
         person then entitled to exercise such Option or portion thereof,
         stating that the shares of Common Stock are being acquired for his own
         account, for investment and without any present intention of
         distributing or reselling said shares or any of them except as may be
         permitted under the Securities Act of 1933, as amended (the "Act"), and
         then applicable rules and regulations thereunder, and that the Optionee
         or other person then entitled to exercise such Option or portion
         thereof will indemnify the Company against and hold it free and
         harmless from any loss, damage,

                                       8
<PAGE>

         expense or liability resulting to the Company if any sale or
         distribution of the shares by such person is contrary to the
         representation and agreement referred to above; provided, however, that
         the Committee may, in its absolute discretion, take whatever additional
         actions it deems appropriate to ensure the observance and performance
         of such representation and agreement and to effect compliance with the
         Act and any other federal or state securities laws or regulations;

                  (d) Full payment to the Company of all amounts which, under
         federal, state or local law, it is required to withhold upon exercise
         of the Option; and

                  (e) In the event the Option or portion thereof shall be
         exercised pursuant to Section 4.1 by any person or persons other than
         the Optionee, appropriate proof of the right of such person or persons
         to exercise the option.

Without limiting the generality of the foregoing, the Committee may require an
opinion of counsel acceptable to it to the effect that any subsequent transfer
of shares acquired on exercise of an Option does not violate the Act, and may
issue stop-transfer orders covering such shares. Share certificates evidencing
stock issued on exercise of this Option shall bear an appropriate legend
referring to the provisions of subsection (c) above and the agreements herein.
The written representation and agreement referred to in subsection (c) above
shall, however, not be required if the shares to be issued pursuant to such
exercise have been registered under the Act, and such registration is then
effective in respect of such shares.

Section 4.4 - Conditions to Issuance of Stock Certificates. The shares of Common
Stock deliverable upon the exercise of an Option, or any portion thereof, may be
either previously authorized but unissued shares or issued shares which have
then been reacquired by the Company. Such shares shall be fully paid and
nonassessable. The Company shall not be required to issue or deliver any
certificate or certificates for shares of Common Stock purchased upon the
exercise of an Option or portion thereof prior to fulfillment of all of the
following conditions:

                  (a) The obtaining of approval or other clearance from any
         state or federal governmental agency which the Committee shall, in its
         absolute discretion, determine to be necessary or advisable; and

                  (b) The lapse of such reasonable period of time following the
         exercise of the Option as the Committee may from time to time establish
         for reasons of administrative convenience.

Section 4.5 - Rights as Stockholder. The holder of an Option shall not be, nor
have any of the rights or privileges of, a stockholder of the Company in respect
of any shares purchasable upon the exercise of the Option or any portion thereof
unless and until certificates representing such shares shall have been issued by
the Company to such holder.

                                       9
<PAGE>

                                    ARTICLE V
                                  MISCELLANEOUS

Section 5.1 - Administration. The Committee shall have the power to interpret
the Plan and this Agreement and to adopt such rules for the administration,
interpretation and application of the Plan as are consistent therewith and to
interpret or revoke any such rules. All actions taken and all interpretations
and determinations made by the Committee shall be final and binding upon the
Optionee, the Company and all other interested persons. No member of the
Committee shall be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan or the Options. In
its absolute discretion, the Board of Directors may at any time and from time to
time exercise any and all rights and duties of the Committee under the Plan and
this Agreement.

Section 5.2 - Options Not Transferable. Neither the Options nor any interest or
right therein or part thereof shall be liable for the debts, contracts or
engagements of the Optionee or his successors in interest or shall be subject to
disposition by transfer, alienation, anticipation, pledge, encumbrance,
assignment or any other means whether such disposition be voluntary or
involuntary or by operation of law by judgment, levy, attachment, garnishment or
any other legal or equitable proceedings (including bankruptcy), and any
attempted disposition thereof shall be null and void and of no effect; provided,
however, that this Section 5.2 shall not prevent transfers by will or by the
applicable laws of descent and distribution.

Section 5.3 - Shares to Be Reserved. The Company shall at all times during the
term of the Options reserve and keep available such number of shares of Common
Stock as will be sufficient to satisfy the requirements of this Agreement.

Section 5.4 - Notices. Any notice to be given under the terms of this Agreement
to the Company shall be addressed to the Company in care of its Secretary, and
any notice to be given to the Optionee shall be addressed to him at the address
given beneath his signature hereto. By a notice given pursuant to this Section
5.4, either party may hereafter designate a different address for notices to be
given to him. Any notice which is required to be given to the Optionee shall, if
the Optionee is then deceased, be given to the Optionee's personal
representative if such representative has previously informed the Company of his
status and address by written notice under this Section 5.4. Any notice shall
have been deemed duly given when enclosed in a properly sealed envelope or
wrapper addressed as aforesaid, deposited (with postage prepaid) in a post
office or branch post office regularly maintained by the United States Postal
Service.

Section 5.5 - Titles. Titles are provided herein for convenience only and are
not to serve as a basis for interpretation or construction of this Agreement.

Section 5.6 - Applicability of Plan, Common Stock Ownership Agreement and
Stockholders Agreement. The Options and the shares of Common Stock issued to the
Optionee upon exercise of the Options shall be subject to all of the terms and
provisions of the Plan, Common Stock Ownership Agreement and the Stockholders
Agreement, to the extent applicable to the Options and such shares. In the event
of any conflict between this Agreement and the Plan, the terms of the Plan shall
control. In the event of any conflict between this Agreement, the Plan and the
Common Stock Ownership Agreement, the terms of the Common Stock Ownership
Agreement

                                       10
<PAGE>

shall control. In the event of any conflict between this Agreement or the Plan
or the Common Stock Ownership Agreement and the Stockholders Agreement, the
terms of the Stockholders Agreement shall control.

Section 5.7 - Amendment. This Agreement may be amended only by a writing
executed by the parties hereto which specifically states that it is amending
this Agreement.

Section 5.8 - 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. The Company shall pay any legal
fees in connection with such arbitration in the event that the Optionee prevails
on a material element of his claim or defense.

Section 5.9 - Governing Law. The laws of the State of New York 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.

Section 5.10 - Jurisdiction. Any suit, action or proceeding against the Optionee
with respect to this Agreement, or any judgment entered by any court in respect
of any thereof, shall be brought in any court of competent jurisdiction in the
State of New York, as the Company may elect in its sole discretion, and the
Optionee hereby submits to the non-exclusive jurisdiction of such courts for the
purpose of any such suit, action, proceeding or judgment. The Optionee hereby
irrevocably waives any objections which he may now or hereafter have to the
laying of the venue of any suit, action or proceeding arising out of or relating
to this Agreement brought in any court of competent jurisdiction in the State of
New York, and hereby further irrevocably waives any claim that any such suit,
action or proceeding brought in any such court has been brought in any
inconvenient forum. No suit, action or proceeding against the Company with
respect to this Agreement may be brought in any court, domestic or foreign, or
before any similar domestic or foreign authority other than in a court of
competent jurisdiction in the State of New York, and the Optionee hereby
irrevocably waives any right which he may otherwise have had to bring such an
action in any other court, domestic or foreign, or before any similar domestic
or foreign authority. The Company hereby submits to the jurisdiction of such
courts for the purpose of any such suit, action or proceeding.

                                       11
<PAGE>

                  IN WITNESS WHEREOF, this Agreement has been executed and
delivered by the parties hereto.

                                            P&L COAL HOLDINGS CORPORATION

                                            By __________________________
                                             Its  VP Human Resources

________________________________
                                            Aggregate number of shares of Common
OPTIONEE                                    Stock for which the Time Option
                                            granted hereunder is
                                            exercisable:_______

                                            Aggregate number of shares of Common
                                            Stock for which the Performance
                                            Option granted hereunder is
                                            exercisable: ______

                                            Aggregate number of shares of Common
                                            Stock for which the Superperformance
                                            I Option granted hereunder is
                                            Exercisable: _______

                                            Aggregate number of shares of Common
                                            Stock for which the Superperformance
                                            II Option granted hereunder is
                                            Exercisable: ________

Optionee's Taxpayer Identification Number:

                                       12
<PAGE>

                                   SCHEDULE A

                               PERFORMANCE TARGETS
                                 ($ IN MILLIONS)

<TABLE>
<CAPTION>
Fiscal Year           Performance Target*         Cumulative Performance Target*
-----------           ------------------          -----------------------------
<S>                   <C>                         <C>
   1999                      4.50                             N/A
   2000                      4.40                             N/A
   2001                      4.38                             N/A
</TABLE>

*        Upon disposition or acquisition of any business or substantial portion
of the assets of the Company or another company, the Performance Targets for the
Fiscal Year of such disposition or such acquisition and each subsequent Fiscal
Year shall be adjusted to eliminate or include, as the case may be, the income
and expense related to the business or assets that were subject to disposition
or acquisition.

         Such adjustments must be consented to by all non-management directors
of the Board of Directors. If such directors cannot so consent, the adjustment
proposal shall be submitted to the Company's independent auditors, who can
consult with the necessary consultants for binding resolution.

Performance Targets for Fiscal Years to be determined annually by the Board of
Directors.

<PAGE>

                                   SCHEDULE B

                              APPLICABLE PERCENTAGE

<TABLE>
<CAPTION>
       FY99 Percentage of
   Performance Target Achieved                Applicable
  (annual or cumulative) (Pct.)               Percentage
---------------------------------             ----------
<S>                                           <C>
Greater than 4.60 Net Debt/EBITDA                 0.00
4.60 Net Debt/EBITDA                             80.00
4.50 Net Debt/EBITDA                            100.00
</TABLE>

<TABLE>
<CAPTION>
       FY00 Percentage of
   Performance Target Achieved                Applicable
  (annual or cumulative) (Pct.)               Percentage
---------------------------------             ----------
<S>                                           <C>
Greater than 4.66 Net Debt/EBITDA                 0.00
4.66 Net Debt/EBITDA                             80.00
4.40 Net Debt/EBITDA                            100.00
</TABLE>

<TABLE>
<CAPTION>
       FY01 Percentage of
  Performance Target Achieved                 Applicable
  (annual or cumulative) (Pct.)               Percentage
---------------------------------             ----------
<S>                                           <C>
Greater than 4.59 Net Debt/EBITDA                 0.00
4.59 Net Debt/EBITDA                             80.00
4.38 Net Debt/EBITDA                            100.00
</TABLE>

       For intermediate percentages, the Applicable Percentage will increase in
a linear progression from 80% to 100%.

       For each fiscal years, the percentage of performance target achieved
entry level shall be determined by the Board.

<PAGE>

                                   SCHEDULE C

                                   IRR TARGETS

                        Superperformance Option I Shares

<TABLE>
<CAPTION>
                                                                 Vesting of
                                                              Superperformance
                                                             Option I shares As
                                                                a % of shares
                                                               Underlying such
IRR of Investment                                              Option granted
-----------------                                            ------------------
<S>                                                          <C>
less than 28%                                                      0%
28%                                                                20%
29%                                                                40%
30%                                                                60%
31%                                                                80%
32% or greater                                                     100%
</TABLE>

                        Superperformance Option II Shares

<TABLE>
<C>                                                                <C>
40% or greater                                                     100%
</TABLE>