<PAGE>

                                 March 31, 2000

Mr. Roger Walcott, Jr.
1200 Lay Road
St. Louis, MO 63124


PERSONAL AND CONFIDENTIAL

Dear Roger:

Re:  Forgiveness of Indebtedness Relating to Acquisition of Class B Stock
     --------------------------------------------------------------------

     This Letter  Agreement  (the  "Letter  Agreement")  refers to (1) the Stock
Purchase  Agreement  dated May 19, 1998 (the  "Agreement"),  between you and P&L
Coal Holdings  Corporation (the "Company") pursuant to which you acquired 51,546
shares of the Company's Class B Stock (the "Shares") at a price of $365,000 (the
"Purchase  Price"),  and (2) the related  loans between you and the Company (the
"Loans")  covering,  respectively,  the Purchase Price (the "Purchase Loan") and
taxes in the amount of $45,625 owed by you in connection  with such  transaction
(the "Tax Loan"),  as  evidenced by two term notes dated  December 31, 1998 (the
"Purchase   Note"),   and  March  31,  1999  (the  "Tax   Note"),   respectively
(collectively, the "Notes").

     It has been  determined  that it is in your best interest and the Company's
best  interest to forgive part of the  principal  owed to the Company  under the
Loans so that the total amount owed by you in connection with the acquisition of
the Shares (including any taxes relating thereto) does not exceed the amount you
would  have owed had the  Shares  been  granted  to you at  $7.08.  Accordingly,
effective March 31, 2000, the Agreement,  the Loans and related Notes are hereby
amended as follows:

1.   The  principal  due under the Purchase  Loan,  as evidenced by the Purchase
     Note, is reduced from $323,937.50 to $182,500,  and the difference  between
     these  amounts,  i.e.,  $141,437.50,  including  the  accrued  interest  of
     $16,091.94,  is hereby forgiven.  In addition,  the Purchase Loan repayment
     schedule is revised to provide that the  principal,  as reduced,  is due in
     its  entirety  on May 18,  2003.  All other  applicable  provisions  of the
     Purchase  Loan  and the  Purchase  Note,  including,  but not  limited  to,
     provisions  relating  to (i)  interest  rate,  accrual  and  payment,  (ii)
     acceleration  of  repayment  in the  event of  termination  of  employment,
     certain dispositions of the Shares or the occurrence of an Event of default
     (as  defined in the  Purchase  Note),  and (iii) the right to prepay at any
     time all or part of the amounts due under the Purchase  Note,  shall remain
     in full force and effect.

2.   Any and all amounts due under the Tax Loan,  as  evidenced by the Tax Note,
     are hereby forgiven.

3.   As we have  agreed,  your bonus for the  period  April 1, 1999 to March 31,
     2000 will be reduced by $7,224.73 in consideration of the actions set forth
     above.

4.   This Letter  Agreement  supersedes any provision of the Agreement  which is
     contrary to the terms  hereof,  including any provision of Exhibit 1 to the
     Agreement relating to the repayment of the principal of loans granted under
     the Agreement in equal annual installments. Any other applicable provisions
     of the Agreement otherwise remain in full force and effect.

     As soon as administratively  practicable after the execution of this Letter
Agreement,  the Company shall return the Notes to you in exchange for a new note
executed by you, reflecting the modifications described herein.

     Please  confirm your  agreement with the foregoing by signing and returning
to the undersigned the duplicate copy of this letter enclosed herewith.

                                 Very truly yours,


                                 P&L COAL HOLDINGS CORPORATION

                                 By:    /s/ SHARON K. SCHERGEN
                                        ------------------------------

                                 Name:  Sharon K Schergen
                                        ------------------------------

                                 Title: Vice President - Human Resources
                                        ------------------------------




Accepted and Agreed as of the Date first written above:
 /s/ ROGER WALCOTT, JR.
 --------------------------------

Name: Roger Walcott, Jr.
      ---------------------------