EXHIBIT 10.13

                              EMPLOYMENT AGREEMENT
                              (MICHAEL R. PEELISH)

     EMPLOYMENT AGREEMENT (the "Agreement") dated July 30, 2004 by and between
Foundation Coal Corporation (the "Company") and Michael R. Peelish
("Executive").

     WHEREAS, RAG Coal International AG and American Coal Acquisition Corp.
("ACA") have entered into a Stock Purchase Agreement, dated as of May 24, 2004
(the "Purchase Agreement") pursuant to which, after giving effect to the
transactions contemplated by the Purchase Agreement, the Company will be a
subsidiary of ACA or one of its affiliates;

     WHEREAS, Executive is currently employed by the Company and has entered
into an employment agreement between Executive and the Company (the "Prior
Employment Agreement") and a change in control agreement between Executive and
the Company (together with the Prior Employment Agreement, the "Prior
Agreements") and the Company desires that Executive continue to be employed by
the Company and to enter into this Agreement embodying the terms of Executive's
employment;

     WHEREAS, Executive desires to continue to be employed by the Company and to
enter into this Agreement;

     In consideration of the premises and mutual covenants herein and for other
good and valuable consideration, the parties agree as follows:

     1. Effectiveness; Term of Employment.

     a. Effectiveness. This Agreement shall constitute a binding agreement
between the parties as of the date hereof; provided, that notwithstanding any
other provision of this Agreement, the operative provisions of this Agreement
shall become effective only upon the Closing Date (as defined in the Purchase
Agreement (such date being hereinafter referred to as the "Effective Date")). In
the event the Purchase Agreement is terminated for any reason without the
Closing Date having occurred, this Agreement shall be terminated without further
obligation or liability of either party.

     b. Term. Subject to the provisions of Section 7 of this Agreement,
Executive shall be employed by the Company for a period commencing on the
Effective Date and ending on the second anniversary of the Effective Date (the
"Employment Term") on the terms and subject to the conditions set forth in this
Agreement; provided, however, that commencing with the second anniversary of the
Effective Date and on each anniversary thereafter (each an "Extension Date"),
the Employment Term shall be automatically extended for an additional one-year
period, unless the Company or Executive provides the other party hereto 60 days'
prior written notice before the next Extension Date that the Employment Term
shall not be so extended.


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     2. Position.

     a. During the Employment Term, Executive shall serve as the Company's
Senior Vice President, Safety and Human Resources. In such position, Executive
shall be the most senior executive of the Company, shall report directly to the
Board of Directors of the Company (the "Board") and the Chief Executive Officer
of the Company and shall have such duties and authority as shall be determined
from time to time by the Board. During the Employment Term, Executive will
devote Executive's full business time and best efforts to the performance of
Executive's duties hereunder and will not engage in any other business,
profession or occupation for compensation or otherwise which would conflict or
interfere with the rendition of such services either directly or indirectly,
without the prior written consent of the Board; provided that nothing herein
shall preclude Executive from (i) subject to the prior approval of the Board
(which shall not unreasonably be withheld), accepting appointment to or continue
to serve on any board of directors or trustees of any business corporation, (ii)
engaging in charitable activities and community affairs or (iii) managing his
personal investments and affairs; provided in each case, and in the aggregate,
that such activities do not conflict or interfere with the performance of
Executive's duties hereunder or conflict with Section 9.

     3. Base Salary. During the Employment Term, the Company shall pay Executive
a base salary at the annual rate of $194,361, payable in regular installments in
accordance with the Company's usual payment practices. Executive shall be
entitled to increases (but not decreases) in Executive's base salary, if any, as
may be determined from time to time in the sole discretion of the Board and the
Board shall be obligated to annually review Executive's base salary for
increases but not decreases. Executive's annual base salary, as in effect from
time to time, is hereinafter referred to as the "Base Salary."

     4. Annual Bonus. With respect to each full calendar year of the Company
during the Employment Term, Executive shall be eligible to earn an annual bonus
award (an "Annual Bonus") based upon the achievement of certain individual and
Company performance targets established by the Board, in consultation with
Executive (such targets to be established no later than 90 days following the
beginning of the year in which they relate) as set forth below;

-------------------------- ----------------- ------------------ --------------
COMPANY PERFORMANCE        PERCENT OF BASE   INDIVIDUAL         PERCENT OF
                           SALARY            PERFORMANCE        BASE SALARY
-------------------------- ----------------- ------------------ --------------
125% of Target             83.33%            Maximum            41.67%
-------------------------- ----------------- ------------------ --------------
100% of Target             33.33%            Target             16.67%
-------------------------- ----------------- ------------------ --------------
85% of Target              16.67%            Below Target       8.33%
-------------------------- ----------------- ------------------ --------------
Below 85% of Target            0.00%
-------------------------- ----------------- ------------------ --------------
Straight line interpolation between each percentage.

provided, that Executive shall be eligible for an Annual Bonus for the full
calendar year 2004 (the "2004 Bonus"); provided, that Executive agrees that
Executive shall not be entitled to any


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other annual bonus for calendar year 2004 under any other plan, program,
agreement or arrangement of the Company. The Company Performance targets for the
2004 Bonus shall be based (i) two-thirds on target free cash flow (cash from
operations and cash from investing activities plus net interest expense plus
taxes paid plus the Capex True-Up (as defined in the Purchase Agreement)
(including related post-closing adjustments)) generated following the Effective
Date through December 31, 2004, pursuant to the Q1 forecast and (ii) one-third
based on target EBITDA (as defined in the credit agreement among the Company,
Citicorp North America, Inc and the other parties thereto, dated July 30, 2004)
for the entire 2004 calendar year, pursuant to the Q1 forecast.

     5. Employee Benefits.

     a. During the Employment Term, Executive shall be entitled to participate
in the Company's employee benefit plans (other than annual bonus plans) as in
effect from time to time (collectively "Employee Benefits"), on terms no less
favorable than those generally made available to other senior executives of the
Company. Executive will be provided with four (4) weeks of paid vacation.

     b. The Company shall be unconditionally obligated to issue the options
described on Exhibit A on the terms and conditions set forth therein, as soon as
practicable following the date hereof. The Company and Executive agree to
document and finalize, or cause to be documented and finalized, the grant of
stock options pursuant to a stock incentive plan to be adopted by FC 1 Corp. (as
well as any other supporting documentation) on terms set forth on Exhibit A as
soon as practicable following the date hereof.

     6. Business Expenses. During the Employment Term, reasonable travel and
other expenses incurred by Executive in the performance of Executive's duties
hereunder shall be reimbursed by the Company in accordance with Company
policies.

     7. Termination. The Employment Term and Executive's employment hereunder
may be terminated by either party at any time and for any reason; provided that
Executive will be required to give the Company at least 60 days' advance written
notice of any resignation of Executive's employment. Notwithstanding any other
provision of this Agreement, the provisions of this Section 7 shall exclusively
govern Executive's rights upon termination of employment with the Company and
its affiliates.

     a. By the Company For Cause or By Executive Resignation Without Good
Reason.

     (i) The Employment Term and Executive's employment hereunder may be
terminated by the Company for Cause (as defined below) and shall terminate
automatically upon Executive's resignation without Good Reason (as defined in
Section 7(c)). Any termination of Executive's employment by the Company for
Cause shall be effective only upon the vote of a majority of the members of the
Board (other than Executive).


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     (ii) For purposes of this Agreement, "Cause" shall mean (A) Executive's
continued and willful, intentional or grossly negligent failure to substantially
perform Executive's duties hereunder (other than as a result of total or partial
incapacity due to physical or mental illness), (B) Executive's conviction of, or
plea of nolo contendere to a crime constituting (x) a felony under the laws of
the United States or any state thereof or (y) a misdemeanor involving moral
turpitude, deceit, dishonesty or fraud that relates to the Company property, (C)
the willful, intentional or grossly negligent conduct of Executive which is
demonstrably and materially injurious to the Company, monetarily or otherwise or
(D) Executive's material breach of the provisions of Sections 8 or 9 of this
Agreement. For purposes of this definition of Cause, no act, or failure to act,
on Executive's part shall be deemed willful, intentional or grossly negligent if
Executive acted in good faith and in a manner that Executive reasonably believed
to be in, or not opposed to, the best interests of the Company.

     (iii) If Executive's employment is terminated by the Company for Cause, or
if Executive resigns without Good Reason, Executive shall be entitled to
receive:

          (A) the Base Salary through the date of termination;

          (B) any Annual Bonus earned but unpaid as of the date of termination
     for any previously completed fiscal year;

          (C) reimbursement for any unreimbursed business expenses properly
     incurred by Executive in accordance with Company policy prior to the date
     of Executive's termination; and

          (D) such Employee Benefits, if any, as to which Executive may be
     entitled under the employee benefit plans of the Company (the amounts
     described in clauses (A) through (D) hereof being referred to as the
     "Accrued Rights").

     Following such termination of Executive's employment by the Company for
Cause or resignation by Executive without Good Reason, except as set forth in
this Section 7(a)(iii), Executive shall have no further rights to any
compensation or any other benefits under this Agreement.

     b. Disability or Death.

     (i) The Employment Term and Executive's employment hereunder shall
terminate upon Executive's death. If Executive becomes physically or mentally
incapacitated so as to be unable to perform the essential functions of
Executive's duties (such incapacity is hereinafter referred to as "Disability"),
then (A) the Board may allow another officer of the Company to perform
Executive's duties and responsibilities during the period of such Disability,
and (B) if such Disability continues for 120 consecutive days or 180 days during
any consecutive 360 day period, the Board may terminate Executive's employment
under this Agreement. If any question shall arise as to whether, during any
period Executive is disabled so as to be unable to perform the essential
functions of Executive's then existing position or positions with or without
reasonable accommodation, Executive may, and at the request of the Company
shall, submit to


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the Company a certification in reasonable detail by a physician selected by the
Company, to whom Executive or Executive's guardian has no reasonable objection,
as to whether Executive is so disabled and how long such disability is expected
to continue, and such certification shall for the purposes of this Agreement be
conclusive of the issue. Executive shall cooperate with any reasonable request
of the physician in connection with such certification. If such question shall
arise and Executive shall fail to submit such certification, the Company's
determination of such issue shall be binding on Executive. Nothing in this
Section 7(b) shall be construed to waive Executive's rights, if any, under
existing law including, without limitation, the Family and Medical Leave Act of
1993, 29 U.S.C. ss.2601 et seq. and the Americans with DisabilitieS Act, 42
U.S.C. ss.12101 et seq.

     (ii) Upon termination of Executive's employment hereunder for either
Disability or death, Executive or Executive's estate (as the case may be) shall
be entitled to receive:

          (A) the Accrued Rights; and

          (B) fifty percent (50%) of the Base Salary (the "Target Annual Bonus")
     multiplied by a fraction, the numerator of which is the number of days of
     the calendar year of termination that shall have elapsed through the date
     of Executive's termination of employment and the denominator of which is
     365.

     Following Executive's termination of employment due to death or Disability,
except as set forth in this Section 7(b)(ii), Executive shall have no further
rights to any compensation or any other benefits under this Agreement.

     c. By the Company Without Cause or Resignation by Executive for Good
Reason.

     (i) The Employment Term and Executive's employment hereunder may be
terminated by the Company without Cause or by Executive's resignation for Good
Reason.

     (ii) For purposes of this Agreement, "Good Reason" shall mean (A) the
failure of the Company to pay or cause to be paid Executive's Base Salary or
Annual Bonus, when due hereunder or (B) any substantial diminution in
Executive's authority or responsibilities from those described in Section 2
hereof, (C) the requirement by the Company that Executive's principal office be
located outside the greater Baltimore, Maryland metropolitan area or (D) any
failure of the Company to obtain the assumption in writing of its obligation to
perform this Agreement by any successor to all or substantially all of the
business or assets of the Company upon a merger, consolidation, sale or similar
transaction (other than an assumption that occurs by operation of law); provided
that any of the events described in clauses (A) through (D) of this Section
7(c)(ii) shall constitute Good Reason only if the Company fails to cure such
event within 30 days after receipt from Executive of written notice of the event
which constitutes Good Reason.



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     (iii) If Executive's employment is terminated by the Company without Cause
(other than by reason of death or Disability) or if Executive resigns for Good
Reason, Executive shall be entitled to receive:

          (A) the Accrued Rights;

          (B) the Target Annual Bonus multiplied by a fraction, the numerator of
     which is the number of days of the calendar year of termination that shall
     have elapsed through the date of Executive's termination of employment and
     the denominator of which is 365; and

          (C) subject to Executive's continued compliance with the provisions of
     Sections 8 and 9, the product of (i) the sum of (x) the Base Salary and (y)
     the Target Annual Bonus multiplied by (ii) a fraction, the numerator of
     which is the greater of (x) the number of full months remaining in the
     Employment Term and (y) twelve and the denominator of which is twelve,
     payable in equal bi-monthly installments over the Restricted Period (as
     defined in Section 8) in accordance with the Company's usual payroll
     practices; provided that the aggregate amount described in this clause (C)
     shall be reduced, but not below zero, by the present value of any other
     cash severance or cash termination benefits payable to Executive under any
     other plans, programs or arrangements of the Company or its affiliates,
     including, without limitation, any severance plan of the Company in which
     Executive is entitled to participate.

     Following Executive's termination of employment by the Company without
Cause (other than by reason of Executive's death or Disability) or by
Executive's resignation for Good Reason, except as set forth in this Section
7(c)(iii), Executive shall have no further rights to any compensation or any
other benefits under this Agreement.

     d. Expiration of Employment Term.

     (i) Election Not to Extend the Employment Term. In the event either party
elects not to extend the Employment Term pursuant to Section 1, unless
Executive's employment is earlier terminated pursuant to paragraphs (a), (b) or
(c) of this Section 7, Executive's termination of employment hereunder (whether
or not Executive continues as an employee of the Company thereafter) shall be
deemed to occur on the close of business on the day immediately preceding the
next scheduled Extension Date and Executive shall be entitled to receive the
Accrued Rights.

     Following such termination of Executive's employment hereunder as a result
of either party's election not to extend the Employment Term, except as set
forth in this Section 7(d)(i), Executive shall have no further rights to any
compensation or any other benefits under this Agreement.

     (ii) Continued Employment Beyond the Expiration of the Employment Term.
Unless the parties otherwise agree in writing, continuation of Executive's
employment with the Company beyond the expiration of the Employment Term shall
be deemed an employment at-


                                                                               7


will and shall not be deemed to extend any of the provisions of this Agreement
and Executive's employment may thereafter be terminated at will by either
Executive or the Company; provided that the provisions of Sections 8, 9 and 10
of this Agreement shall survive any termination of this Agreement or Executive's
termination of employment hereunder.

     e. Notice of Termination. Any purported termination of employment by the
Company or by Executive (other than due to Executive's death) shall be
communicated by written Notice of Termination to the other party hereto in
accordance with Section 12(i) hereof. For purposes of this Agreement, a "Notice
of Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of employment under the provision so indicated.

     f. Board/Committee Resignation. Upon termination of Executive's employment
for any reason, Executive agrees to resign, as of the date of such termination
and to the extent applicable, from the Board and the LLC Board (and any
committees thereof) and the Board of Directors (and any committees thereof) of
any of the Company's affiliates.

     8. Non-Competition.

     a. Executive acknowledges and recognizes the highly competitive nature of
the businesses of the Company and its affiliates and accordingly agrees as
follows:

     (1) During the Employment Term and for a period of nine months following
the date Executive ceases to be employed by the Company for any reason, other
than due to the Company's failure to renew the Employment Term pursuant to
Section 1(b) (the "Restricted Period"), Executive will not, whether on
Executive's own behalf or on behalf of or in conjunction with any person, firm,
partnership, joint venture, association, corporation or other business
organization, entity or enterprise whatsoever ("Person"), directly or indirectly
solicit or assist in soliciting in competition with the Company, the business of
any customer of the Company or prospective customer of the Company:

               (i)  with whom Executive had personal contact or dealings on
                    behalf of the Company during the one year period preceding
                    Executive's termination of employment;

               (ii) with whom employees reporting to Executive have had personal
                    contact or dealings on behalf of the Company during the one
                    year immediately preceding Executive's termination of
                    employment; or

               (iii) for whom Executive had direct or indirect responsibility
                    during the one year immediately preceding Executive's
                    termination of employment.



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     (2) During the Restricted Period, Executive will not directly or
indirectly:

               (i)  engage in any coal-related business that competes with the
                    business of the Company or its affiliates (including,
                    without limitation, businesses which the Company or its
                    affiliates have specific plans to conduct in the future and
                    as to which Executive is aware of such planning) in the
                    United States (a "Competitive Business");

               (ii) enter the employ of, or render any services to, any Person
                    (or any division or controlled or controlling affiliate of
                    any Person) who or which engages in a Competitive Business;

               (iii) acquire a financial interest in, or otherwise become
                    actively involved with, any Competitive Business, directly
                    or indirectly, as an individual, partner, shareholder,
                    officer, director, principal, agent, trustee or consultant;
                    or

               (iv) interfere with, or attempt to interfere with, business
                    relationships (whether formed before, on or after the date
                    of this Agreement) between the Company or any of its
                    affiliates and customers, clients, suppliers partners,
                    members or investors of the Company or its affiliates.

     (3) Notwithstanding anything to the contrary in this Agreement, Executive
may, directly or indirectly own, solely as an investment, securities of any
Person engaged in the business of the Company or its affiliates which are
publicly traded on a national or regional stock exchange or on the
over-the-counter market if Executive (i) is not a controlling person of, or a
member of a group which controls, such person and (ii) does not, directly or
indirectly, own 5% or more of any class of securities of such Person.

     (4) During the Employment Term and, for a period of two years following the
date Executive ceases to be employed by the Company, Executive will not, whether
on Executive's own behalf or on behalf of or in conjunction with any Person,
directly or indirectly:

               (i)  solicit or encourage any employee of the Company or its
                    affiliates to leave the employment of the Company or its
                    affiliates; or

               (ii) hire any such employee who was employed by the Company or
                    its affiliates as of the date of Executive's termination of
                    employment with the Company or who left the employment of
                    the Company or its affiliates coincident with, or within one
                    year prior to or after, the termination of Executive's
                    employment with the Company.


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     (5) During the Restricted Period, Executive will not, directly or
indirectly, solicit or encourage to cease to work with the Company or its
affiliates any consultant then under contract with the Company or its
affiliates.

     b. It is expressly understood and agreed that although Executive and the
Company consider the restrictions contained in this Section 8 to be reasonable,
if a final judicial determination is made by a court of competent jurisdiction
that the time or territory or any other restriction contained in this Agreement
is an unenforceable restriction against Executive, the provisions of this
Agreement shall not be rendered void but shall be deemed amended to apply as to
such maximum time and territory and to such maximum extent as such court may
judicially determine or indicate to be enforceable. Alternatively, if any court
of competent jurisdiction finds that any restriction contained in this Agreement
is unenforceable, and such restriction cannot be amended so as to make it
enforceable, such finding shall not affect the enforceability of any of the
other restrictions contained herein.

     9. Confidentiality; Intellectual Property.

     a. Confidentiality.

     (i) Executive will not at any time (whether during or after Executive's
employment with the Company) (x) retain or use for the benefit, purposes or
account of Executive or any other Person; or (y) disclose, divulge, reveal,
communicate, share, transfer or provide access to any Person outside the Company
(other than its professional advisers who are bound by confidentiality
obligations), any non-public, proprietary or confidential information
--including without limitation trade secrets, know-how, research and
development, software, databases, inventions, processes, formulae, technology,
designs and other intellectual property, information concerning finances,
investments, profits, pricing, costs, products, services, vendors, customers,
clients, partners, investors, personnel, compensation, recruiting, training,
advertising, sales, marketing, promotions, government and regulatory activities
and approvals -- concerning the past, current or future business, activities and
operations of the Company, its subsidiaries or affiliates and/or any third party
that has disclosed or provided any of same to the Company on a confidential
basis ("Confidential Information") without the prior written authorization of
the Board; provided, that Executive may disclose such information to Executive's
legal and/or financial advisor for the limited purpose of enforcing Executive's
rights under this Agreement; provided, that Executive shall request that such
legal and/or financial advisors not disclose such information.

     (ii) "Confidential Information" shall not include any information that is
(a) generally known to the industry or the public other than as a result of
Executive's breach of this covenant or any breach of other confidentiality
obligations by third parties; (b) made legitimately available to Executive by a
third party without breach of any confidentiality obligation; or (c) required by
law to be disclosed; provided that Executive shall give prompt written notice to
the Company of such requirement, disclose no more information than is so
required, and cooperate with any attempts by the Company to obtain a protective
order or similar treatment.



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     (iii) Except as required by law, Executive will not disclose to anyone,
other than Executive's immediate family, legal or financial advisors or members
of the Company's senior management, the existence or contents of this Agreement;
provided that Executive may disclose to any prospective future employer the
provisions of Sections 8 and 9 of this Agreement provided they agree to maintain
the confidentiality of such terms.

     (iv) Upon termination of Executive's employment with the Company for any
reason, Executive shall (x) cease and not thereafter commence use of any
Confidential Information or intellectual property (including without limitation,
any patent, invention, copyright, trade secret, trademark, trade name, logo,
domain name or other source indicator) owned or used by the Company, its
subsidiaries or affiliates; (y) immediately destroy, delete, or return to the
Company, at the Company's option, all originals and copies in any form or medium
(including memoranda, books, papers, plans, computer files, letters and other
data) in Executive's possession or control (including any of the foregoing
stored or located in Executive's office, home, laptop or other computer, whether
or not Company property) that contain Confidential Information or otherwise
relate to the business of the Company, its affiliates and subsidiaries, except
that Executive may retain only those portions of any personal notes, notebooks
and diaries that do not contain any Confidential Information; and (z) notify and
fully cooperate with the Company regarding the delivery or destruction of any
other Confidential Information of which Executive is or becomes aware.

     b. Intellectual Property.

     (i) If Executive has created, invented, designed, developed, contributed to
or improved any works of authorship, inventions, intellectual property,
materials, documents or other work product (including without limitation,
research, reports, software, databases, systems, applications, presentations,
textual works, content, or audiovisual materials) ("Works"), either alone or
with third parties, prior to Executive's employment by the Company, that are
relevant to or implicated by such employment ("Prior Works"), Executive hereby
grants the Company a perpetual, non-exclusive, royalty-free, worldwide,
assignable, sublicensable license under all rights and intellectual property
rights (including rights under patent, industrial property, copyright,
trademark, trade secret, unfair competition and related laws) therein for all
purposes in connection with the Company's current and future business.

     (ii) If Executive creates, invents, designs, develops, contributes to or
improves any Works, either alone or with third parties, at any time during
Executive's employment by the Company and within the scope of such employment
and/or with the use of any the Company resources ("Company Works"), Executive
shall promptly and fully disclose same to the Company and hereby irrevocably
assigns, transfers and conveys, to the maximum extent permitted by applicable
law, all rights and intellectual property rights therein (including rights under
patent, industrial property, copyright, trademark, trade secret, unfair
competition and related laws) to the Company to the extent ownership of any such
rights does not vest originally in the Company.

     (iii) Executive agrees to keep and maintain adequate and current written
records (in the form of notes, sketches, drawings, and any other form or media
requested by the


                                                                              11


Company) of all Company Works. The records will be available to and remain the
sole property and intellectual property of the Company at all times.

     (iv) Executive shall take all requested actions and execute all requested
documents (including any licenses or assignments required by a government
contract) at the Company's expense (but without further remuneration) to assist
the Company in validating, maintaining, protecting, enforcing, perfecting,
recording, patenting or registering any of the Company's rights in the Prior
Works and Company Works. If the Company is unable for any other reason to secure
Executive's signature on any document for this purpose, then Executive hereby
irrevocably designates and appoints the Company and its duly authorized officers
and agents as Executive's agent and attorney in fact, to act for and in
Executive's behalf and stead to execute any documents and to do all other
lawfully permitted acts in connection with the foregoing.

     (v) Executive shall not improperly use for the benefit of, bring to any
premises of, divulge, disclose, communicate, reveal, transfer or provide access
to, or share with the Company any confidential, proprietary or non-public
information or intellectual property relating to a former employer or other
third party without the prior written permission of such third party. Executive
shall comply with all relevant policies and guidelines of the Company regarding
the protection of confidential information and intellectual property and
potential conflicts of interest. Executive acknowledges that the Company may
amend any such policies and guidelines from time to time, and that Executive
remains at all times bound by their most current version that has been
communicated to Executive.

     (vi) The provisions of Section 9 shall survive the termination of
Executive's employment for any reason.

     10. Specific Performance. Executive acknowledges and agrees that the
Company's remedies at law for a breach or threatened breach of any of the
provisions of Section 8 or Section 9 would be inadequate and the Company would
suffer irreparable damages as a result of such breach or threatened breach. In
recognition of this fact, Executive agrees that, in the event of such a breach
or threatened breach, in addition to any remedies at law, the Company, without
posting any bond, shall be entitled to cease making any payments or providing
any benefit otherwise required by this Agreement and obtain equitable relief in
the form of specific performance, temporary restraining order, temporary or
permanent injunction or any other equitable remedy which may then be available.

     11. Gross-Up.

     a. In the event it shall be determined that any payment, benefit or
distribution (or combination thereof) by the Company, any of its affiliates, or
one or more trusts established by the Company for the benefit of its employees,
to or for the benefit of Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement, any other plan,
arrangement or agreement with the Company or any of its affiliates, or
otherwise) other than any benefit or payment Executive is entitled to receive in
connection with any equity interest (including, without limitation, any option
to purchase such equity interest) held by


                                                                              12


Executive in the Foundation Coal Holdings, LLC or any of its subsidiaries and/or
successors (or any securities received in connection with such equity interest)
(a "Payment") is subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code")or any interest or
penalties are incurred by Executive with respect to such excise tax (such excise
tax, together with any such interest and penalties, hereinafter collectively
referred to as the "Excise Tax"), Executive shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that after payment
by Executive of the Excise Tax imposed on the Payments and any income,
employment and other taxes (and any interest and penalties imposed with respect
thereto) and the Excise Tax imposed upon the Gross-Up Payment, Executive retains
an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments.

     b. All determinations required to be made under this Section 11, including
whether and when a Gross-Up Payment is required and the amount of such Gross-Up
Payment and the assumptions to be utilized in arriving at such determination,
shall be made by Deloitte & Touche, LLP or such other nationally recognized
certified public accounting firm as may be designated by the Company (the
"Accounting Firm") which shall provide detailed supporting calculations both to
the Company and Executive within 15 business days of the receipt of notice from
Executive that there has been a Payment, or such earlier time as is requested by
the Company; provided, that for purposes of determining the amount of any
Gross-Up Payment, Executive shall be deemed to pay federal income tax at the
highest marginal rates applicable to individuals in the calendar year in which
any such Gross-Up Payment is to be made and deemed to pay state and local income
taxes at the highest effective rates applicable to individuals in the state or
locality of Executive's residence or place of employment in the calendar year in
which any such Gross-Up Payment is to be made, net of the maximum reduction in
federal income taxes that can be obtained from deduction of such state and local
taxes, taking into account limitations applicable to individuals subject to
federal income tax at the highest marginal rates. All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 11, shall be paid by the Company to
Executive (or to the appropriate taxing authority on Executive's behalf) when
the associated Excise Tax is due. If the Accounting Firm determines that no
Excise Tax is payable by Executive, it shall so indicate to Executive in
writing. Any determination by the Accounting Firm shall be binding upon the
Company and Executive. As a result of the uncertainty in the application of
Section 4999 of the Code, it is possible that the amount of the Gross-Up Payment
determined by the Accounting Firm to be due to (or on behalf of) Executive was
lower than the amount actually due ("Underpayment"). In the event that the
Company exhausts its remedies pursuant to Section 11(c) and Executive thereafter
is required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of
Executive.

     c. Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of any Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after Executive is informed in
writing of such claim and shall apprise the Company of the nature of such claim
and the date on which such claim is requested to be paid.


                                                                              13


Executive shall not pay such claim prior to the expiration of the thirty day
period following the date on which Executive gives such notice to the Company
(or such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies Executive in writing
prior to the expiration of such period that it desires to contest such claim,
Executive shall (i) give the Company any information reasonably requested by the
Company relating to such claim, (ii) take such action in connection with
contesting such claim as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the Company, (iii)
cooperate with the Company in good faith in order to effectively contest such
claim and (iv) permit the Company to participate in any proceedings relating to
such claim; provided, however, that the Company shall bear and pay directly all
costs and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold Executive harmless, on
an after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 11(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forego any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and Executive agrees to prosecute such contest
to a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, further, that if the Company directs Executive to pay such
claim and sue for a refund, the Company shall advance the amount of such payment
to Executive, on an interest-free basis, and shall (to the extent permitted by
law) indemnify and hold Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed income with
respect to such advance; provided, further, that if Executive is required to
extend the statute of limitations to enable the Company to contest such claim,
such extension shall be limited solely to such contested amount. The Company's
control of the contest shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.

     d. If, after the receipt by Executive of an amount paid or advanced by the
Company pursuant to this Section 11, Executive becomes entitled to receive any
refund with respect to a Gross-Up Payment, Executive shall (subject to the
Company's complying with the requirements of Section 11(c)) promptly pay to the
Company the amount of such refund received (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by
Executive of an amount advanced by the Company pursuant to Section 11(c), a
determination is made that Executive shall not be entitled to any refund with
respect to such claim and the Company does not notify Executive in writing of
its intent to contest such denial of refund prior to the expiration of 30 days
after such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of the Gross-Up Payment required to be paid.



                                                                              14


     12. Miscellaneous.

     a. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and to be performed entirely within such jurisdiction. Except as provided in
Section 10 of this Agreement, any controversy or claim arising out of or
relating to this Agreement or Executive's employment with the Company or the
termination thereof shall be resolved by binding confidential arbitration, to be
held in New York, New York, in accordance with the Employee Dispute Resolution
Rules of the American Arbitration Association. Judgment upon the award rendered
by the arbitrator(s) may be entered in any court having jurisdiction thereof.
The costs and expenses incurred in connection with such arbitration shall be
borne by the party that does not prevail in such arbitration. Each party shall
be responsible for such party's legal fees and expenses incurred in connection
with such arbitration.

     b. Entire Agreement/Amendments. This Agreement contains the entire
understanding of the parties with respect to the employment of Executive by the
Company. There are no restrictions, agreements, promises, warranties, covenants
or undertakings between the parties with respect to the subject matter herein
other than those expressly set forth herein. This Agreement may not be altered,
modified, or amended except by written instrument signed by the parties hereto.

     c. No Mitigation; No Offset. In the event of any termination of Executive's
employment under Section 7 of this Agreement, Executive shall be under no
obligation to seek other employment and there shall be no offset against amounts
due Executive under this Agreement, or otherwise, on account of any remuneration
or other benefit attributable to any subsequent employment that Executive may
obtain.

     d. Indemnification; D&O Insurance. Executive shall be indemnified to the
same extent as other senior executives, officers and directors with respect to
Executive's service as an employee and director of the Company and the LLC.
During the Employment Term, the Company shall keep in place a directors and
officers' liability insurance policy (or policies) providing comprehensive
coverage to Executive to the extent that the Company provides such coverage for
any other senior executive, officer or director of the Company and following the
Employment Term, Executive shall be entitled to such coverage to the extent that
the Company provides such coverage for any other current and former senior
executive, officer or director of the Company.

     e. No Waiver. The failure of a party to insist upon strict adherence to any
term of this Agreement on any occasion shall not be considered a waiver of such
party's rights or deprive such party of the right thereafter to insist upon
strict adherence to that term or any other term of this Agreement.

     f. Severability. In the event that any one or more of the provisions of
this Agreement shall be or become invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
of this Agreement shall not be affected thereby.


                                                                              15


     g. Assignment. This Agreement, and all of Executive's rights and duties
hereunder, shall not be assignable or delegable by Executive. Any purported
assignment or delegation by Executive in violation of the foregoing shall be
null and void ab initio and of no force and effect. This Agreement shall be
assigned by the Company to a person or entity which is an affiliate or a
successor in interest to substantially all of the business operations of the
Company. Upon such assignment, the rights and obligations of the Company
hereunder shall become the rights and obligations of such affiliate or successor
person or entity.

     h. Successors; Binding Agreement. This Agreement shall inure to the benefit
of and be binding upon personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.

     i. Notice. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered by hand or overnight courier or
three days after it has been mailed by United States registered mail, return
receipt requested, postage prepaid, addressed to the respective addresses set
forth below in this Agreement, or to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notice of
change of address shall be effective only upon receipt.

     If to the Company:

     Foundation Coal Corporation
     999 Corporate Boulevard
     Linthicum Heights, Maryland  21090
     Attention:  General Counsel

     If to Executive:

     To the most recent address of Executive set forth in the personnel records
     of the Company.

     j. Representations.

     (i) Executive hereby represents to the Company that the execution and
delivery of this Agreement by Executive and the Company and the performance by
Executive of Executive's duties hereunder shall not constitute a breach of, or
otherwise contravene, the terms of any employment agreement or other agreement
or policy to which Executive is a party or otherwise bound.

     (ii) The Company represents and warrants that (A) it is fully authorized by
action of its Board (and of any other person or body whose action is required)
to enter into this Agreement and to perform its obligations under it; (B) to the
best of its knowledge and belief, the execution, delivery and performance of
this Agreement by the Company does not violate any law, regulation, order,
judgment or decree or any agreement, plan or corporate governance document of
the Company or its affiliates or shareholders; and (C) to the best of its
knowledge


                                                                              16


and belief, upon the execution and delivery of this Agreement by the parties,
this Agreement shall be the valid and binding obligation of the Company,
enforceable in accordance with its terms, except to the extent enforceability
may be limited by applicable bankruptcy, insolvency or similar laws affecting
the enforcement of creditors' rights generally.

     k. Prior Agreements. This Agreement supercedes all prior agreements and
understandings (including verbal agreements) between Executive and the Company
and/or its affiliates regarding the terms and conditions of Executive's
employment with the Company and/or its affiliates including, without limitation,
the Prior Agreements.

     l. Cooperation. Executive shall provide Executive's reasonable cooperation
in connection with any action or proceeding (or any appeal from any action or
proceeding) which relates to events occurring during Executive's employment
hereunder and does not unreasonably interfere with the Executive's subsequent
employment. This provision shall survive any termination of this Agreement. The
Company agrees to reimburse, in accordance with Company policies, Executive
promptly for Executive's reasonable and documented out-of-pocket expenses
incurred in connection with the cooperation obligation set forth in this Section
12(m). Notwithstanding the foregoing the preceding cooperation obligation shall
not apply to any actions proceeding or controversy between Executive and the
Company or as to which it could reasonably be determined that Executive's right
to subsequently enforce Executive's rights under this Agreement could be
prejudiced.

     m. Withholding Taxes. The Company may withhold from any amounts payable
under this Agreement such Federal, state and local taxes as may be required to
be withheld pursuant to any applicable law or regulation.

     n. Counterparts. This Agreement may be signed in counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.







     IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.



FOUNDATION COAL CORPORATION                 MICHAEL R. PEELISH





     /s/ James Roberts                      /s/ Michael R. Peelish
----------------------------------------    ------------------------------------
By:  James Roberts
Title:  Chief Executive Officer




                                                                       EXHIBIT A



                                   FC 1 CORP.
                          MANAGEMENT EQUITY TERM SHEET


OPTIONS


Amount:             Nonqualified options ("Options") to acquire 9% of the
                    outstanding shares of common stock ("Shares") of FC 1 Corp.
                    (the "Company") will be granted to the members of the senior
                    management team listed on Schedule 1 (the "Senior
                    Managers"). 2.5% of the outstanding shares of common stock
                    will be granted as "Time Options" (i.e., options vesting as
                    described under "Time Vesting" below) and 6.5% of the
                    outstanding shares of common stock will be granted as
                    "Performance Options" (i.e., options vesting as described
                    under "Performance Vesting" below).

Exercise Price:     The Time Options shall have a per share exercise price equal
                    to the imputed price per share of Company common stock paid
                    by the Investor Members (as defined in the Amended and
                    Restated Limited Liability Company Operating Agreement of
                    Foundation Coal Holdings, LLC (the "LLC Agreement")) for
                    their Class A Units (as defined in the LLC Agreement) (the
                    "Deal Price") and the Performance Options shall have a per
                    share exercise price equal to 1.75 times the Deal Price. The
                    aggregate exercise price of the Time Options is
                    approximately $5,384,615, and the aggregate exercise price
                    of the Performance Options is approximately $24,500,000. A
                    Senior Manager may pay the exercise price by any combination
                    of (i) payment in cash or its equivalent, (ii) following an
                    IPO, through a cashless "broker transaction" and (iii) to
                    the extent it does not result in adverse accounting
                    treatment to the Company, (A) tendering to the Company
                    Shares or Class A Units (as defined in the LLC Agreement)
                    based on their Fair Market Value or (B) having Shares that
                    would otherwise have been delivered to the Senior Manager
                    upon exercise of such Option withheld by the Company, based
                    on their Fair Market Value. The Company shall use its
                    commercially reasonable efforts to file an S-8, to the
                    extent available, with respect to the Shares subject to
                    Options, as soon as practicable following an initial
                    registered public offering of the Shares ("IPO"). A Senior
                    Manager shall have the right to satisfy the minimum required
                    withholding tax obligation due upon the exercise of an
                    Option by having Shares, with an aggregate Fair Market Value
                    (as defined below), as the date of such exercise, equal to
                    such withholding tax obligation, withheld by the Company
                    from any Shares that would otherwise have been delivered to
                    the Senior Manager upon exercise of such Option.

Allocation:         The Time Options and Performance Options shall be allocated
                    and granted to employees in the respective amounts set forth
                    on Schedule 1.

Time Vesting:       Subject to the Senior Managers continued employment, the
                    Time Options will vest and become exercisable with respect
                    to 20% of the shares subject to the


                                                                               2


                    Time Options on each December 31 beginning on December 31,
                    2004 and ending on December 31, 2008.

Performance         Subject to the Senior Managers continued employment, the
Vesting:            Performance Options will vest and become exercisable on the
                    8th anniversary of the date of grant, subject to partial
                    accelerated vesting each calendar year through December 31,
                    2008, with respect to five percent (5%) of the Shares
                    subject to the Performance Options upon achievement of each
                    of the annual performance targets set forth below (i.e.,
                    achievement of each performance target for a particular year
                    results in the five percent (5%) vesting):

                       -        EBITDA

                       -        Production

                       -        Cost per ton

                       -        Free cash flow

                    Such targets are more fully set forth on Schedule II. If a
                    performance target is not achieved in any year (a "Missed
                    Year"), but the aggregate of such performance target is
                    achieved with respect to the Missed Year and the following
                    year (an "Excess Year"), 100% of the Performance Options
                    with respect to such performance target that did not vest in
                    the Missed Year shall vest.

Termination of      The Options will have a term of 10 years and the vested
Employment:         portion of the Options will expire (i) 90 days (120 days
                    prior to an IPO) following termination of employment for any
                    reason other than due to termination by the Company for
                    Cause (as defined below), death, or disability, (ii)
                    immediately upon termination by the Company for Cause and
                    (iii) 1 year following termination of employment due to
                    death or disability. Notwithstanding the foregoing, (i) if a
                    Senior Manager's termination of employment for any reason
                    other than by the Company for Cause occurs after the close
                    of a calendar year but prior to the date on which the Senior
                    Manager is advised by the Company whether the performance
                    targets in respect of such calendar were attained (the
                    "Target Determination Date"), the portion of the Performance
                    Option which is available to vest on account of such
                    calendar year's performance will expire (A) on the Target
                    Determination Date, in respect of the portion of such
                    Performance Option as to which the performance targets were
                    not attained (unless the application of clause (ii) below
                    would result in a later termination date), and (B) 90 days
                    (120 days prior to an IPO) following the Target
                    Determination Date in respect of the portion of such
                    Performance Option as to which the performance targets were
                    attained, and (ii) if a Senior Manager's termination of
                    employment by the Company without Cause or by the Senior
                    Manager for Good Reason occurs during a calendar year, then
                    the portion of the Performance Option which is available to
                    vest on account of such calendar


                                                                               3

                    year's performance in accordance with the third following
                    paragraph will expire (A) on the Target Determination Date,
                    in respect of the portion of such Performance Option as to
                    which the performance targets were not attained and (B) 90
                    days (120 days prior to an IPO) following the Target
                    Determination Date in respect of the portion of such
                    Performance Option which becomes vested in accordance with
                    the third following paragraph.

                    Depending upon the circumstance of termination, the Senior
                    Manager may be entitled to the Option Exercise Put Right as
                    described below.

                    Other than as stated above, any unvested Options will be
                    forfeited upon a termination of the Senior Manager's
                    employment for any reason; provided, that, in the event that
                    a Senior Manager's employment is terminated by the Company
                    without Cause (as defined below) or by the Senior Manager
                    for Good Reason (as defined below), (x) the CEO shall be
                    deemed vested in 100% of his outstanding Time Options upon
                    such termination of employment and (y) the other Senior
                    Managers shall be deemed vested in any Time Options that
                    would have otherwise vested in the calendar year in which
                    such termination of employment occurs. In the event of a
                    termination of a Senior Manager's employment due to death or
                    disability, the Senior Manager shall be deemed vested in any
                    Time Options that would otherwise have vested in the
                    calendar year in which such termination of employment occurs
                    and the following calendar year.

                    In the event of the termination of a Senior Manager's
                    employment by the Company without Cause or by a Senior
                    Manager for Good Reason, the Senior Managers shall become
                    vested in any Performance Options as to which the
                    performance targets are achieved for the year of
                    termination, or for a Missed Year due to performance for the
                    year of termination.

Option              In the event of a termination of a Senior Manager's
Exercise Put        employment for any reason, other than (i) by the Company for
Right               Cause or (ii) due to the Senior Manager's resignation
                    without Good Reason, upon exercise of an Option following
                    such termination of employment and prior to the date the
                    shares subject to the Option are registered and freely
                    tradable following an IPO of the Company's equity securities
                    (the "Put Exercise"), the Senior Manager will have the right
                    (the "Option Exercise Put Right") to require the Company to
                    purchase a number of Class A Units or shares of common stock
                    of the Company, in each case, which, to the extent necessary
                    to avoid adverse accounting consequences, have been held by
                    the Senior Manager for at least six months with an aggregate
                    Fair Market Value, as of the date of such purchase, equal to
                    the remaining tax liability (above the minimum required
                    withholding tax liability) incurred by the Senior Manager
                    upon the exercise of such Option (the "Remaining Tax
                    Liability"). The Option Exercise Put Right may be exercised
                    by the Senior Manager at any time within 210 days following
                    the Senior Manager's exercise of the Option (under the
                    circumstances described above) (provided, that the Option
                    Exercise Put Right may not be exercised prior to 181 days
                    following the Senior Manager's exercise of the Option to the
                    extent that the Senior Manager


                                                                               4


                    intends to require the Company to purchase the Shares
                    received in connection with the Put Exercise) by providing
                    the Company with written notice of exercise thereof and
                    written representation detailing the calculation of the
                    Remaining Tax Liability, which calculation shall be
                    reasonably acceptable to the Company. For the avoidance of
                    doubt, Shares will not be deemed to be "freely tradable" for
                    purposes of this paragraph if they are subject to an
                    underwriter's lockup agreement.

                    The Company shall pay the purchase price due upon the
                    exercise of the Option Exercise Put Right within 3 business
                    days following the Senior Manger's tendering of the related
                    shares or Units by delivery of funds deposited into an
                    account designated by the Senior Manager, a bank cashier's
                    check, a certified check or a company check of the Company
                    for the purchase price.

                    Notwithstanding anything to the contrary elsewhere herein,
                    the Company shall not be obligated to pay for the Units or
                    shares purchased in connection with the exercise of an
                    Option Exercise Put Right (i) to the extent that the
                    purchase of such Units or shares would result (x) in a
                    violation of any law, policy, writ or judgment promulgated
                    or entered by any governmental authority applicable to the
                    Company or any of its affiliates or any of its or their
                    assets or (y) after giving effect thereto (including any
                    dividends or other distributions or loans from an affiliate
                    of the Company to the Company in connection therewith), in a
                    financing default, or (ii) if immediately prior to such
                    purchase of Units or shares, there exists a financing
                    default which prohibits such purchase (including any
                    dividends or other distributions or loans from an affiliate
                    of the Company to the Company in connection therewith).

Change of           Upon a Change of Control (as defined below) (i) all unvested
Control             Time Options will vest and (ii) the unvested Performance
Provisions:         Options will vest with respect to the performance year in
                    which the Change of Control occurred and the remaining
                    performance years following the Change of Control if, and
                    only if, the value realized by the Investor Members with
                    respect to their investment in the Company whether prior to
                    or in the transaction, and including amounts received
                    through distributions (excluding tax and regular quarterly
                    dividends) or disposition of their interests in Units of
                    stock of the Company represents a 2.0x or greater return to
                    the Investor Members on their invested capital. If a Senior
                    Manager is terminated by the Company without Cause prior to
                    a Change of Control and a Change of Control is consummated
                    by the Company within 180 days following the termination of
                    such Senior Manager, the vesting of the Options with respect
                    to such Senior Manager will be recalculated taking into
                    account the Change of Control as if such Change of Control
                    had occurred prior to the termination of the Senior Manager.

Management          The shares issued in connection with the exercise of an
Shareholders        Option will be subject to the terms and conditions of a
Agreement:          management shareholders' agreement (described below).


                                                                               5

MANAGEMENT SHAREHOLDERS AGREEMENT:

Any shares issued upon the conversion of Class A Units purchased and the shares
issued upon exercise of an Option (together, the "Shares") will be subject to
the following terms and conditions.

Representation:     Senior Managers will make customary representations
                    regarding investment intent, financial sophistication and
                    enforceability.


Transfer            Shares will be subject to a restriction on transfer prior to
Restrictions:       the earlier to occur of (i) one or more primary or secondary
                    public offerings that results in gross proceeds to the
                    Company or the holders participating therein in excess of
                    $50 million (a "Qualified IPO"), (ii) the occurrence of a
                    Change of Control and (iii) a period of five years (the
                    earliest of (i), (ii) or (iii), the "Lapse Date").

                    The transfer restriction shall not apply to sales to the
                    Company and sales to the Investor Members or their
                    affiliates.

                    The transfer restriction shall not apply to sales in
                    accordance with the drag along and tag along rights (see
                    below) or transfers to family member or family trusts.

Right of First      If the Lapse Date occurs prior to Change of Control or an
Refusal:            IPO, the Company will have a right of first refusal on any
                    proposed sale of Shares until a Change of Control or an IPO.

Drag Along          The Investor Members will have the right to drag along
                    Shares in the event of any private sale to a third party in
                    the same proportion as the Investor Member's Shares are
                    sold. The drag along rights shall be on substantially the
                    same terms as the drag along rights relating to the A Units
                    under the LLC Agreement and the Management Members
                    Agreement.

Tag Along:          The Senior Managers shall have the right to tag along in the
                    event of a private sale by the Investor Members to a third
                    party in the same proportion as the Investor Member's Shares
                    are sold. The tag along rights shall be on substantially the
                    same terms as the tag along rights relating to the A Units
                    under the LLC Agreement and the Management Members
                    Agreement.

Call Rights:        Shares shall be subject to call rights by the Company upon
                    the termination of the Senior Manager's employment for any
                    reason prior to a Qualified IPO. The call right will be
                    exercisable by the Company for a period of 210 days
                    following the later of (x) such Senior Manager's termination
                    of employment or (y) in the case of Shares issued upon the
                    exercise of Options, the date of exercise of such Options,
                    and, if the Company does not exercise such rights within the
                    applicable 210 day period, the Investor Members will have
                    the right to call such Shares for a period of 30 days
                    thereafter.


                                                                               6


                    The purchase price for Shares will be the lower of cost and
                    Fair Market Value on date of exercise of the call upon a
                    termination of a Senior Manager's employment by the Company
                    for Cause.

                    The purchase price for Shares will be Fair Market Value on
                    date of exercise of the call upon a termination under any
                    other circumstances.

                    The purchase price may be paid in cash or by note payable in
                    installments of up to five years, bearing interest at the
                    prime lending rate in effect as of the date of purchase on
                    substantially the same terms as the call rights applicable
                    to the Class A Units under the Management Members Agreement.

Fair Market         The Fair Market Value for the Company and Investor Member
Value               call rights and Option Exercise Put Rights described herein
                    will be determined by the Board in good faith (without any
                    discounts with respect to a termination by the Company
                    without Cause, by the Senior Manager with Good Reason, death
                    or disability, but with a 25% discount to reflect minority
                    interest and illiquidity in the event of a termination by
                    the Company with Cause or by the Senior Manager without Good
                    Reason). If the Senior Manager disagrees with the Boards
                    determination, he or she may require the Company to retain
                    an independent appraiser to determine the fair market value
                    (evaluated based on the discounts in the preceding
                    sentence). The Company will bear the cost of the appraisal
                    unless the appraised value is within 10% of the Board's
                    determination, in which case, the Senior Manager will bear
                    the cost of the appraisal. If a Senior Manager is terminated
                    by the Company without Cause prior to a Change of Control or
                    a Qualified IPO and a Change of Control or a Qualified IPO
                    is consummated by the Company within 180 days following the
                    termination of such Senior Manager, fair market value with
                    respect to such Senior Manager will be recalculated taking
                    into account the Change of Control or a Qualified IPO as if
                    such Change of Control or a Qualified IPO had occurred prior
                    to the termination of the Senior Manager. The methodology
                    used in determining the Fair Market Value of the Shares in
                    connection with the Option Exercise Put Right shall be the
                    same methodology used by the Company in determining the
                    Senior Manager's reportable compensation upon exercise of an
                    Option.

Voting Agreement:   Until the occurrence of the Lapse Date, the Senior Managers
                    will be obligated to vote any Shares with respect to all
                    matters in the same proportion as the Shares held by the
                    Investor Members are voted on such matters.

Registration        Senior Managers will be given customary piggyback
Rights:             registration rights (other than in the primary IPO)
                    substantially consistent with the Registration Rights
                    Agreement, subject to brokerage restrictions and lock-out
                    periods imposed by the underwriters; provided, that, with
                    respect to incidental registrations, the Senior Managers
                    will have priority after the Investor Members.

Preemptive Rights:  Same as A Units until a Qualified IPO.


                                                                               7
Rights:

Definitions:        "Cause" has the meaning set forth in the employment
                    agreement between the applicable Senior Manager and the
                    Company or its affiliate to which this Exhibit A is
                    attached.

                    "Change of Control" has the meaning set forth in the LLC
                    Agreement.

                    "Good Reason" has the meaning set forth in the employment
                    agreement between the applicable Senior Manager and the
                    Company or its affiliate to which this Exhibit A is
                    attached.





                                   SCHEDULE I
                          (ALLOCATION OF OPTION GRANTS)


SENIOR MANAGER                      PERCENT OF OUTSTANDING
----------------------------------------------------------

Michael R. Peelish                         .80%


Approximately 27.78% of the shares subject to each grant shall be Time Options
             and approximately 72.22% of the shares subject to each grant shall
             be Performance Options.









                                   SCHEDULE II
                              (PERFORMANCE TARGETS)



     "Actual Cost Per Ton" means, in respect of a fiscal year, the cost per ton
of coal to the Company determined on a basis consistent with the forecasts
utilized for the performance targets.

     "Actual EBITDA" has the meaning set forth in the Credit Agreement dated as
of July 30, 2004 by and among Foundation PA Coal Company, as borrower, FC 2
Corp. and Foundation Coal Corporation, as guarantors, and the lenders named
therein as in effect on the date hereof.

     "Actual Free Cash Flow" means, in respect of a fiscal year, EBITDA less the
sum of capital expenditures as set forth in its audited financial statements.

     "Actual Production" means, in respect of a fiscal year, the sum of (i) tons
produced in East and (ii) tons produced in West divided by 5.


     "Target Free Cash Flow" means, $59.4 million in respect of 2004, $113.1
million in respect of 2005, $183.7 million in respect of 2006, $83.5 million in
respect of 2007 and $144.1 million in respect of 2008; provided that the Board
may make such equitable adjustments to Target Free Cash Flow as it reasonably
deems to be appropriate in order to achieve the intention of this agreement
after giving effect to significant events including, without limitation,
acquisitions, dispositions, mergers or similar transactions.

     "Target Cost Per Ton" means, in respect of any fiscal year is to be based
on the cost per ton forecasts consistent with the forecast utilized for the
other performance targets.

     "Target EBITDA" means, $153.7 million in respect of 2004, $238.1 million in
respect of 2005, $267.6 million in respect of 2006, $261.9 million in respect of
2007 and $212.2 million in respect of 2008; provided, that the Board may make
any adjustment to EBITDA as it deems to be appropriate (including adjustments
made as a result of acquisitions, dispositions, mergers, recapitalizations,
reorganizations, consolidations, spin-offs, distributions, other extraordinary
transactions, other changes in the structure of the Company or any of its
Affiliates, or significant capital expenditures so that Target EBITDA equitable
reflects the basis for determining Actual EBITDA for the period in question).

     "Target Production" means, 28.6 million tons in respect of 2004, 29.5
million tons in respect of 2005, 29.8 million tons in respect of 2006, 28.9
million tons in respect of 2007 and 29.1 million tons in respect of 2008;
provided that the Board may make such equitable adjustments to Target Production
as it reasonably deems to be appropriate in order to achieve the intention of
this agreement after giving effect to significant events including, without
limitation, acquisitions, dispositions, mergers or similar transactions.