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                                                                   Exhibit 10.20

                         COAL LEASE AND MINING AGREEMENT

      THIS AGREEMENT, made and entered into this 27th day of May, 1994, by and
between DOUGLAS COAL COMPANY, a West Virginia corporation, whose mailing address
is Wilt Building, Elkins, West Virginia 26241 (the "Lessor") and Patriot Mining
Company, Inc., whose mailing address is Route 12, Box 245, Morgantown, West
Virginia 26505, (the "Lessee"),

                              W I T N E S S E T H :

      1. GRANTING CLAUSE. That for and in consideration of the royalty
hereinafter reserved by Lessor and in further consideration of the covenants and
agreements on Lessee's part to be kept, observed and performed, Lessor hereby
lets and leases unto the Lessee all of the land, coal, surface, and all mining
and other rights in connection therewith which it now owns and situate in
Garrett County, Maryland. A more particular description of the leased premises
is set forth on EXHIBIT A now attached, or to be attached hereto and made a part
of this Agreement by reference.

      TOGETHER with the right to mine, remove and sell all of said coal which
may be economically minable and commercially saleable from the leased premises,
whether by the surface or strip method of mining, the auger method of mining, or
the deep or underground method of mining, with the further right to open and
construct ways or railways, to excavate openings upon said lands the surface of
which is owned by the Lessor, to dig and sink shafts, or to make any other
excavations or openings in or upon said lands which may be necessary or proper
for the purpose of digging, mining or removing the coal from said lands, and
together with such other mining rights and privileges owned by Lessor which are
not hereinbefore particularly set forth; provided, however, that the

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Lessee shall be liable to adjoining land owners and to all third parties for
negligent acts in the conduct of any mining operations. It is understood and
agreed that the Lessee may use the auger method of mining only with the prior
written consent of the Lessor which permission shall not unreasonably be
withheld.

      The grant of mining and other rights by the Lessor to the Lessee is
subject to and limited by (a) the scope and extent of the mining rights and
privileges vested in the Lessor; (b) the rules, laws and regulations of the
State of Maryland and of the United States of America applicable to surface and
underground mining of coal; and (c) any specific limitations of this Agreement.

      BEING the same properties heretofore conveyed to the Lessor by the deed of
Sara-Ki Coal Company, dated May 7, 1966 and of record in Liber 273 folio 451 of
the Land Records of Garrett County, Maryland; by the deed of Johnstown Coal and
Coke Company, dated January 1, 1967 and of record in Liber 277 folio 530 of said
Land Records and by the deed of Allegheny Wood Products, Inc. dated February 28,
1990 and of record in Liber 544 folio 577 of the Land Records of said Garrett
County. Lessor believes, but does not so warrant, that it owns 6,300 acres, more
or less, of coal and 4,766 acres, more or less, of surface overlying said coal
in Garrett County, Maryland; subject, however, to the exceptions and
reservations set forth on EXHIBIT A.

      2. TERM. TO HAVE AND TO HOLD the leased premises, together with all of the
mining rights, easements and privileges owned by the Lessor, for a period of
five (5) years from the effective date of this Agreement, subject to renewal
options for additional terms as hereinafter provided.

      3. TONNAGE ROYALTY. Lessee shall pay the Lessor on or before

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the 25th day of each calendar month of this Agreement, and during any renewal
term thereof, a tonnage royalty for all coal mined, removed, sold and shipped
from the leased premises during the immediate preceding calendar month. Such
tonnage royalty shall be computed on each shipment of coal and shall constitute
the aggregate of:

      (a) In the case of such coal mined by the surface or strip mining method
where the Lessor is the owner of both the coal and the surface lands, the
greater of (i) the amount determined by multiplying the sales price per ton of
coal for each shipment by the number of tons of coal mined, removed, sold and
included in such shipment and multiplying the resulting dollar amount by six per
cent (6%), or (ii) the amount determined by multiplying the number of tons of
coal mined, removed, sold and included in such shipment by $1.25;

      (b) In the case of such coal mined by the surface or strip mining method
where the Lessor is the owner of the coal only, the greater of (i) the amount
determined by multiplying the sales price per ton of coal for each shipment by
the number of tons of coal mined, removed, sold and included in such shipment
and multiplying the resulting dollar amount by four per cent (4%), or (ii) the
amount determined by multiplying the number of tons of coal mined, removed, sold
and included in such shipment by $1.00;

      (c) In the case of coal owned or controlled by the Lessee and mined by the
surface or strip mining method where the Lessor is the owner of the surface
lands only, the greater of (i) the amount determined by multiplying the sales
price per ton of coal for each shipment by the number of tons of coal mined,
removed, sold and included in such shipment and multiplying the resulting dollar

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amount by two per cent (2%), or (ii) the amount determined by multiplying the
number of tons of coal mined, removed, sold and included in such shipment by
$0.40;

      (d) In the case of such coal mined by the auger mining method where the
Lessor is the owner of both the coal and the surface lands, the greater of (i)
the amount determined by multiplying the sales price per ton of coal for each
shipment by the number of tons of coal mined, removed, sold and included in such
shipment and multiplying the resulting dollar amount by six per cent (6%) or,
(ii) the amount determined by multiplying the number of tons of coal mined,
removed, sold and included in such shipment by $1.25;

      (e) In the case of such coal mined by the auger mining method where the
Lessor is the owner of the coal only, the greater of (i) the amount determined
by multiplying the sales price per ton of coal for each shipment by the number
of tons of coal mined, removed, sold and included in such shipment by four per
cent (4%) or, (ii) the amount determined by multiplying the number of tons of
coal mined, removed, sold and included in such shipment by $1.00;

      (f) In the case of such coal mined by the deep or underground method of
mining, the greater of (i) the amount determined by multiplying the sales price
per ton of coal for each shipment by the number of tons of coal mined, removed,
sold and included in such shipment and multiplying the resulting dollar amount
by five per cent (5%) or, (ii) the amount determined by multiplying the number
of tons of coal mined, removed, sold and included in such shipment by $1.00;

      The term "sales price per ton of coal for each shipment" as used in
paragraphs (a), (b), (c), (d), (e) and (f) above set forth, shall mean the price
paid to Lessee by the ultimate consumer for

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each ton FOB loading point deducting any sales commission paid by Lessee to any
independent broker or agent on the number of tons of coal mined, removed, sold
and shipped from the leased premises, increased or decreased to reflect bonuses
or penalties resulting from variations in quality standards of the coal shipped
from contract specifications and decreased by governmental impositions or fees,
if any, as authorized by the immediately succeeding paragraph of this Lease
Agreement. The term "FOB loading point" as used in this paragraph shall mean the
railroad car if such coal is shipped by rail to the customer or the mine site if
such coal is shipped by truck to the customer.

      Lessee shall also have the right to make deductions from the gross sale
price per ton of coal for each shipment for government impositions or fees
charged or required to be paid per ton of coal (i) if such impositions or fees
are in excess of charges set forth below, and (ii) if, and to the extent that,
Lessee is unable to recover such increased costs either in the gross sale price
per ton of coal or by a separate charge to its customers.

      The current governmental impositions or fees are as follows:

<TABLE>
<S>                            <C>
Surface Mined Coal
         County Severance Tax  $0.30 / Ton
         State Severance Tax   $0.17 / Ton
         OSM Tax               $0.35 / Ton
         Federal Excise Tax    $0.55 / Ton

Deep or Underground Mined Coal

         County Severance Tax  N / A
         State Severance Tax   $0.15 / Ton
         OSM Tax               $0.15 / Ton
         Federal Excise Tax    $1.10 / Ton
</TABLE>

      The term "independent broker or agent" shall not include any corporation
in which Lessee, or any assignee of Lessee, shall have a financial interest, nor
any partnership or other operation in which Lessee or its assignee shall have
any interest nor any

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employee of Lessee or its assignee.

      For all coal mined and removed from the leased premises and sold and
shipped in a commingled state after processing through the preparation plant of
the Lessee, the term "number of tons of coal mined, removed, sold and included
in such shipment" means the total number of tons of coal mined and removed from
the leased premises and trucked to the preparation plant of Lessee as determined
by truck weights reduced by a reject factor to be determined by Lessee upon
washability tests for the coal mined from each mine on the leased premises. Such
tests shall be based upon the specific gravity at which the coal is to be washed
for sale by the Lessee taking into consideration all preparation plant
efficiency factors. If, from time to time during the term of this Agreement,
including any renewal term thereof, any appreciable change is determined in the
quality of the coal mined, removed and shipped from any mine on the leased
premises, Lessee shall run additional washability tests in order that the reject
factor may be equitably adjusted. Lessee agrees that it shall cause said
washability test to be performed at least on a monthly basis.

      The term "ton" as used in this Agreement means a net ton of 2,000 pounds
avoirdupois.

      Measurement of weights for the purpose of determining the "number of tons
of coal mined, removed, sold and included in such shipment" shall be determined
by truck weights at the time the coal is removed from the leased premises and,
where applicable, by truck weights at the time the coal is received at the
tipple or preparation plan of Lessee. In the case of the shipment of such coal
by rail, weights shall be determined by the carrier in accordance with its
customary practices employed for invoicing such

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shipments. Where coal from the leased premises is commingled with coal mined and
removed from lands other than the leased premises, the Lessee shall keep an
accurate record of weights of the coal from the leased premises contained in
each shipment.

      4. MINIMUM AND ADVANCE ROYALTY. Lessee shall pay to the Lessor as minimum
and advance royalty during the initial five (5) year term of this Agreement the
guaranteed amount of Seven Hundred Fifty Thousand Dollars ($750,000.00), which
amount shall be paid in quarter-annual installments in advance each lease year,
beginning with the payment of the amount of Thirty-Seven Thousand Five Hundred
Dollars ($37,500.00) on the effective date of this Agreement, the receipt of
which is hereby acknowledged by the Lessor.

      For each lease year during the first renewal five (5) year term of this
Agreement, the Lessee shall pay to the Lessor as minimum and advance royalty the
amount of One Hundred Fifty Thousand Dollars ($150,000.00) per lease year; for
each lease year during the second and third five (5) year terms thereof the
Lessee shall pay to Lessor the amount of Two Hundred Thousand Dollars
($200,000.00) per lease year as further minimum and advance royalty and, should
the Lessee renew or extend this Agreement beyond the third renewal term of five
(5) years, the Lessee shall pay to the Lessor as further minimum and advance
royalty the amount of Two Hundred Fifty Thousand Dollars ($250,000.00) per lease
year.

      Lessee shall pay Lessor such minimum and advance royalty for each renewal
term in quarter-annual installments in advance each lease year, beginning with
the first day of each renewal term. A "lease year" shall be a period of three
hundred sixty-five (365) days beginning with the date of this Agreement.

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      The payment of minimum and advance royalty by the Lessee shall be subject
to the credit of earned tonnage royalty as hereinafter provided in paragraph 5
of this Agreement and such payments, for each renewal term of this Agreement,
shall be subject to the rights of the Lessee as set forth in paragraphs 19 and
20 of this Agreement.

      5. PAYMENT OF TONNAGE ROYALTY. Royalty on tonnage mined, removed, shipped
and sold from the leased premises shall be reported to Lessor by lessee on or
about the 25th day of each month for all coal mined, removed, shipped and sold
from the leased premises during the preceding calendar month in accordance with
the formulae therefor described in paragraph 3 of this Agreement. Such tonnage
royalty shall be credited against any minimum and advance royalty payment
theretofore paid by the Lessee and any balance of earned tonnage royalty shall
be paid immediately to the Lessor. If, on the payment date of any minimum and
advance royalty installment, as hereinbefore provided in paragraph 4 of this
Agreement, a tonnage royalty payment credit exists but does not equal the total
amount of the minimum and advance royalty payment then due, the Lessee shall pay
to the Lessor the difference between the tonnage royalty payment credit and the
amount of the installment of the minimum and advance royalty payment then due.
The term "tonnage royalty payment credit" shall mean the excess of the aggregate
minimum and advance royalty payments theretofore made. Nothing herein set forth
shall be construed to relieve Lessee from the obligation to pay tonnage royalty
on all coal mined and removed from the leased premises at the rates hereinbefore
specified even though total tonnage royalty paid exceed the amount of the
minimum and advance royalty provided by this Agreement.

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      6. COMMINGLING OF COAL. Lessor recognizes that commingling of the coal
mined, removed, sold and shipped from the leased premises with coal mined,
removed, sold and shipped from lands other than the leased premises may be
desirable in order to permit the Lessee to market a maximum volume of coal at
the best obtainable selling price. Accordingly, lessee shall have the right to
commingle Lessor's coal with other coals and it is the intention of the parties
to this Agreement that the royalty paid Lessor for coal from the leased premises
in a commingled state shall fully represent the royalty factor due Lessor under
this Agreement.

      7. RECORDS. Lessee shall keep an accurate record of all coal mined,
removed, shipped and sold from the leased premises and Lessor, directly or
through its agent, shall have the right to examine such records at all
reasonable times. Lessee shall maintain a record of all trucks operating from
the leased premises, which record shall show the date, truck number or other
identification, trucking company, number of loads hauled on the date, weight of
each load, and point of delivery. If the coal is shipped by rail, the Lessee
shall maintain a record of all railroad car numbers, weights and destinations,
company and address and to whom shipped and selling price F.O.B. shipping point.
Lessee shall also, if requested, furnish Lessor copies of purchase orders and
sales invoices for coal mined, removed, sold and shipped from the leased
premises, together with information as to any authorized broker's or agent's
sales commission paid on such sale.

      The described records shall be maintained by Lessee for a period of three
years, including the lease year in which the coal was mined, removed, shipped
and sold from the leased premises.

      8. PERMITS - RECLAMATION. As soon as reasonably possible

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after the effective date of this Agreement, the Lessee shall make application to
the applicable agency of the State of Maryland for a permit evidencing approval
to open and operate a mining operation and on the leased premises. Upon the
completion of the mining operations and the abandonment of each permitted area,
Lessee shall promptly make application for further and other mining permits in
order that a continuous mining operations may be conducted on the leased
premises during the term of this Agreement, or during any renewal term thereof.

      At such time during the term of this Agreement, or any renewal term
thereof, or upon any termination or abandonment thereof, when Lessee's
underground mine or mines or surface operations are worked out or are
indefinitely closed, Lessee shall properly seal the mine openings, control
drainage and reclaim all mined areas, including waste and gob piles, disturbed
by its operations in the manner required by all applicable laws of the State of
Maryland, the United States of America, and the rules and regulations issued
thereunder.

      9. COMMENCEMENT OF OPERATIONS. Consistent with its proposed mining plan
for the leased premises, the Lessee shall, as soon as possible after the date
that a permit is received from the applicable agency of the State of Maryland,
authorizing a mining operation on the leased premises, commence and prosecute
the work required for a surface mining operation or, in case of an underground
mining operation, driving the necessary courses or entries and shall install the
necessary structures, machinery and equipment and employ the required personnel
for the mining operations contemplated by this Agreement. Lessee, in conducting
any strip or surface mining operation on the leased premises, shall

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exercise due care in such operations so that the mineability of any underlying
seams of coal shall not be adversely affected.

      Prior to the commencement of any mining operations on the leased premises,
the Lessee shall cause to be prepared and submitted to the Lessor, or its
designated agent, a comprehensive mining plan showing the manner and method of
mining contemplated by Lessee for the purpose of realizing from its operations a
maximum of economically minable and commercially saleable coal consistent with
mining safety standards. Said mining plan and any and all amendments thereto
shall be reviewed and approved in writing by Lessor, or its designated agent,
which approval shall not unreasonably be withheld.

      The term "economically minable and commercially saleable" coal, as used in
this Lease, means coal which when reached in the ordinary course of operation
and development of the leased premises ordinarily could be mined by the Lessee
and marketed at reasonable profit by the use of machinery and methods for mining
and cleaning coal which at the time are modern and efficient, and by the use of
skillful and efficient management and planning. It is understood and agreed
between the parties hereto that said term "economically minable and commercially
saleable" coal, as employed by this Lease, shall be construed to the end that as
much coal shall be recovered as is reasonable and practicable, but without
imposing an unreasonable burden upon the Lessee in this regard where unfavorable
natural conditions are encountered.

      10. METHOD OF OPERATIONS. The Lessee shall adopt and pursue only such
methods of surface and underground mining as corresponds with the mining law of
the State of Maryland, the United States of America and its bureaus, including
compliance with the requirements

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of the Mine Safety and Health Administration (MSHA), and as are in accord with
generally approved methods of coal mining.

      11. INSPECTION OF MINES - MAPS. Lessor, or its agents and engineers, or
other persons on its behalf, shall have the right to enter at all reasonable
times during regular business hours the mines and works of the Lessee in order
to inspect, examine, survey or measure the same or any part thereof, or for any
other lawful purpose connected with this Agreement and for the purpose to use
freely the means of access to the said mines or works, provided that such
inspections shall not unreasonably interfere with Lessee's operations. Lessor
shall indemnify and hold harmless Lessee from accident or injury to themselves
and its agent(s) incurred during any such inspection.

      Coincident with the beginning of any underground mining operation on the
leased premises, the Lessee shall employ a competent engineer experienced in
underground mining, whose duty it shall be to keep up the mine surveys and give
directions and courses of entries, rooms and air courses and plot the same on a
feasible scale map and send a copy of said map to the Lessor, or its designee,
within thirty (30) days following each anniversary date of the execution of this
Agreement. The map shall show all mine work done during the immediately
preceding lease year and the Lessor may keep said map for a reasonable period of
time in order to copy such portions thereof as it may deem advisable.

      12. WHEELAGE. In addition to the royalty hereinbefore provided to be paid,
the Lessee shall pay the Lessor wheelage for all coal mined and removed from
lands other than the leased premises and transported across the demised premises
or through any of its mine haulways from adjoining coal mining operations. Said

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wheelage shall be computed and paid on the 25th day of each calendar month for
all coal so transported during the immediately preceding month at the rate of
Five Cents per ton. Weights of the coal so transported shall be determined at
its delivery point.

      13. DEPOSIT OF POWER PLANT ASH. Lessee has advised Lessor that the coal
reserves underlying the leased property when mined may be dedicated to electric
utility customers owning and/or operating electric power generating plants
located within reasonable proximity to the leased property; further, that the
residue from the burning of the coal (commonly known as "power plant ash") may
be economically trucked to and disposed of in spoil areas of the leased
property. Accordingly, in the event Lessee shall contract with its utility
customer or customers for the disposal of power plant ash on the leased
property, Lessee agrees to pay Lessor as compensation for the right to deposit
such product on the property the greater of 25 cents per ton of power plant ash
so deposited or two percent (2%) of Lessee's contract price per ton for such
disposal, whichever amount shall be the greater amount per ton. Such
compensation shall be paid to Lessor each month based upon the tons deposited on
the leased property in the immediately preceding month.

      It shall be a condition to the deposit of any power plant ash on the
leased property that each such deposit shall not include any material hazardous
or toxic in nature as defined or set forth in the applicable laws and standards
established by the Environmental Protection Agency. The Lessor reserves the
right to designate or approve in writing the areas of the leased property
available for the deposit of power plant ash.

      14. PROPERTY AND SEVERANCE TAXES. Lessee shall, during the

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term of this Agreement and during the terms of any renewal thereof, pay all ad
valorem taxes assessed or levied upon the coal and other minerals and the
surface land owned by the Lessor, together with all taxes assessed upon the
severance and the sale of coal from the leased premises. Lessee shall also pay
all taxes assessed or levied upon any structures, improvements, machinery and
equipment which it shall construct or bring upon the leased premises.

      15. INDEMNIFICATION. Lessee hereby indemnifies and saves harmless the
Lessor from and against all and any claims, demands, suits or causes of action
in law or in equity, for damages and injuries (including death) of every kind
and nature to persons and property occurring on or about the leased premises and
arising from its negligence, or the negligence of its employees, contractors,
subcontractors, invitees and assignees. Lessee shall purchase and maintain in
effect at all times during the term of this Agreement, including any renewal
term, comprehensive general liability insurance in prudent limits protecting
against all such claims, demands, suits or causes of action and shall name the
Lessor as an additional insured in such policy. The Lessee shall furnish the
Lessor with a certificate from the insurer that such insurance remains in full
force and effect.

      16. FORCE MAJEURE. Except for the payment of tonnage royalty and minimum
and advance royalty, as hereinbefore provided, Lessee shall not be deemed in
default for failure to perform or observe any of the terms, conditions,
provisions, obligations or covenants to be performed and observed by him during
periods in which performance or observance is prevented by any cause reasonably
beyond Lessee's control such as war, riot, insurrection, flood, or other Act of
God, shortage of coal cars, a strike or lockout among

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the miners or other employees of Lessee, a strike of railway employees, order of
any governmental body affecting the distribution, routing or delivery of coal or
cars, or any order of any governmental body restricting or prorating the mining
or production of coal, causes or necessitates the complete cessation of mining
operations on the leased premises, or the quality of coal renders it
unmerchantable. In any such event, the Lessee shall stand excused from
compliance with its anticipated production schedule and the term of this
Agreement shall be extended, unless sooner terminated as provided in this
Agreement, for a period equal to the period for which performance is suspended
due to force majeure. All periods of force majeure shall be deemed to begin at
the time Lessee stops performance under this Agreement by reason of such force
majeure, and Lessee shall notify Lessor of the beginning and ending date of such
period of force majeure.

      In the event a period of force majeure shall extend for a period of sixty
or more consecutive days, Lessee, at its option, may suspend the payment of any
minimum or advance royalty required under this lease during such period;
however, its obligation to pay such royalty shall resume immediately upon the
cessation of the period of force majeure.

      17. RENEWAL TERMS. Lessee shall have the right and option to renew this
Agreement for three (3) terms of five (5) years each, so long as, in the opinion
of the Lessee, there remains economically minable and commercially saleable coal
underlying the leased premises. The first renewal terms of five (5) years shall
begin on the expiration of the initial term and each further and other renewal
term of five (5) years each shall begin upon the expiration of the immediately
preceding renewal term.

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      Lessee shall have the right and option to renew this Agreement from year
to year following the expiration of the fourth (4th) term of five (5) years
until all the economically minable and commercially saleable coal has been
removed.

      Each renewal term shall be upon the same terms and conditions as the
initial term subject to adjustments of the minimum and advance royalty as
provided in paragraph 4. Notice of Lessee's intention to exercise its option to
renew shall be given the Lessor in writing at least three (3) months in advance
of the expiration date of the initial term and, if the option is exercised to
renew this Agreement for additional renewal terms, at least three (3) months in
advance of the expiration of the immediately preceding renewal term. Lessee must
be actively mining upon the leased premises to renew or extend the lease beyond
the second five (5) year term.

      Any minimum and advance royalty payment which, at the termination of the
initial term of this Agreement, shall not have been fully recovered by the
credit of earned tonnage royalty against such minimum and advance royalty
payments, shall be carried forward to each succeeding renewal term or terms of
this Agreement and applied in such renewal term or terms against all earned
tonnage royalty in excess of the amount of tonnage royalty required or otherwise
necessary to recoup the minimum and advance royalty paid during such renewal
term or terms of this Agreement. The right and option of Lessee to renew this
Agreement shall be subject to and subservient to the Lessor's right to terminate
this Agreement as set forth in paragraph 18.

      18. FORFEITURE - RENT RESERVED. If the Lessee shall fail to make any
payment in this Agreement provided for at the time and in

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the manner herein provided, or if the Lessee shall fail to keep or perform any
of the covenants or agreements on its part to be kept and performed under this
Agreement, Lessor shall notify Lessee in writing of such default. If any default
in payment shall continue for more than fifteen (15) days after notice in
writing shall have been delivered to the Lessee, or if any other default shall
continue for more than thirty (30) days after notice in writing shall have been
delivered to the Lessee, or if any other default shall continue for more than
thirty (30) days after notice in writing aforesaid, then this Agreement shall,
at the option of the Lessor and upon further notice in writing delivered to the
Lessee or mailed to him at his mailing address by registered or certified mail,
become null and void, whereupon the said Lessor forthwith shall have the right
to peaceable reentry and repossession of the leased premises.

      If any default of Lessee (other than its failure to make any payment
provided by this Agreement) cannot reasonably be remedied within a period of
thirty (30) days after written notice thereof, Lessor, upon the application of
Lessee, shall grant Lessee such additional time as reasonably required to remedy
the default.

      All royalties herein agreed to be paid by the Lessee shall be deemed and
treated as rents reserved by the Lessor, who reserves to itself all the rights
of a landlord under the laws of the State of Maryland for the collection of the
same and if any of the royalty shall remain unpaid for thirty (30) days after
the same shall have become due and payable, as hereinbefore provided, the Lessor
shall have the right to enforce the payment of the same by the remedies given by
law to landlords against delinquent tenants and the parties hereto further agree
that not only the personal property of

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the Lessee shall be subject to such remedies as contemplated and directed by
law, but also that the Lessor may enter upon the leasehold and sell the same, or
any part thereof, together with the improvements thereon, for the royalty then
due upon the default of payment therefor as aforesaid. At any sale of the
leasehold established under this Agreement, or any part thereof, the Lessor
shall have the right to become the purchaser thereof free from any and all
claims of the Lessee.

      If, during the term of this Agreement, or any renewal term thereof, the
Lessee makes an assignment for the benefit of its creditors, files a voluntary
petition in bankruptcy, is adjudicated as bankrupt by any court, or voluntarily
or involuntarily takes the benefit of any insolvency act or is dissolved under
it; or if a receiver or trustee of the Lessee and/or its property is appointed
in any non-bankruptcy proceeding, and the appointment, petition for an
arrangement, or reorganization, if made in any proceeding instituted by the
Lessee, is not vacated within thirty (30) days after it is made, or if made in
proceedings instituted by any person other than Lessee, is not vacated within
one hundred twenty (120) days after it is made, this Lease Agreement and the
terms thereof shall, upon a date specified by the Lessor to the Lessee in a
notice of termination made by registered or certified mail, wholly cease and
determine with the same effect as if the date of termination so specified was
the date set forth in the Agreement as the date of expiration of the lease.

      At that or any later time Lessor may recover possession of the leased
premises without having to make any demand or any notice to quit possession or
other notices prescribed by the statutes of the State of Maryland, and Lessee
expressly waives all rights to such

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demand or notice to quit possession or any other statutory notice or
prerequisite.

      The provisions of the immediately preceding two subparagraphs of paragraph
18 of this Agreement shall not be applicable to (i) an assignment of the within
Agreement, in whole or in part, to Applied Energy Service, its successor or
assigns, or (ii) the pledge by Lessee of the coal reserves as permitted by
paragraph 21(b) of this Agreement; provided, however, in both instances, the
Lessee shall not be in default of any provision of this Agreement.

      19. SURRENDER. Lessee shall have the right to surrender this Lease after
the initial five (5) year term by giving thirty (30) days written notice to
Lessor thereof, and the payment to Lessor of any sums of money that may be due
and payable under the terms hereof at the time of such surrender, and Lessee
shall thereupon be released and discharged from all further payments,
liabilities or obligations other than those required by law or by this
Agreement. Lessee agrees that upon surrender of this lease, Lessee shall enter
or cause to be entered a release of this Lease in the proper book of record in
the county, if a Memorandum of Lease shall have been recorded in such county.

      If required by Lessor, Lessee shall execute a release in writing of its
interest in the leasehold premises which release shall be drafted, executed and
acknowledged in such manner that it may be recorded in the land records of
Garrett County, Maryland.

      Upon the effective date of any termination of this Agreement, in the
manner herein provided, Lessee's obligation for the payment of future advance
and minimum royalty shall cease. However, nothing in this paragraph 19 of the
Agreement shall be construed as to relieve Lessee of its obligation to pay
earned tonnage royalty

                                     - 19 -
<PAGE>

and advance and minimum royalty due as of the effective date of the termination
or to reclaim the leased premises in accordance with the provisions of law, nor
to waive any claim of the Lessor against Lessee arising out of any breach of
this Agreement.

      20. CANCELLATION OF ADVANCE ROYALTY PAYMENTS. If and when Lessee shall
have paid advance minimum royalty as hereinbefore provided (to the extent the
same have not been credited against tonnage royalties) equal to the tonnage
royalty which would be due on the merchantable or practicable and economically
minable coal then estimated by Lessee to be remaining unmined and in place based
upon applicable tonnage royalty rates at the time(s) when advance minimum
royalties were paid, the Lessee shall have the right to cancel the Advance
Royalty Payment until this Lease is surrendered as hereinafter provided. The
cancellation of advance minimum royalties does not effect any tonnage royalties
due and payable thereafter as provided in Paragraph 3. Lessee must begin mining
or resume suspended mining upon the leased premises within twelve (12) months of
canceling the Advance Royalty Payment.

      21. ADDITIONAL PROVISIONS. Notwithstanding anything to the contrary
contained in this Agreement, the following additional provisions shall be
applicable hereunder:

      (a) It is expressly agreed that Lessee, having complied with all of the
provisions of this Agreement required of it, shall have the right to remove all
of its property and equipment, including structures, from the leased premises
within a period of six (6) months after the expiration of termination of this
Agreement or any renewal term thereof and may re-enter the leased premises
thereafter in the event such entry is necessary to complete reclamation or any
functions necessary to the obtainment of final

                                     - 20 -
<PAGE>

releases of all mining permits.

      (b) Lessee shall not assign its rights and obligations under this
Agreement without the prior written consent thereto of Lessor unless such
assignment is to an affiliated company or to Applied Energy Service, one of its
prospective customers. Lessee hereby covenants and agrees that notwithstanding
the fact that it may have assigned to another party a part or all of the
property interest which it controls by this Agreement, it shall continue to be
responsible for the obligations required of it under this Agreement.

      (c) Provided the Lessee is not in default of any provision of this
Agreement, Lessor grants Lessee, or any affiliated company to whom this
Agreement has been assigned, the right to pledge the coal reserves available to
it under this Agreement to the performance of a long term contract with Applied
Energy Service involving, in whole or in part, the mining and sale of the coal
reserves underlying the leased property; provided, however, that any such pledge
shall be subject to the royalty and other provisions of this Agreement and if
Lessor shall be required to join in the pledge agreement it shall not subject
its reversionary interest in the property to the pledge agreement.

      Lessor agrees to negotiate in good faith with Lessee amendments or
modifications to this Agreement to the extent required by any such pledge so
long as such amendments or modifications do not materially alter the terms and
conditions of this Coal Lease and Mining Agreement.

      (d) Lessor believes but does not warrant that it has good and sufficient
title to the coal leased by this Agreement and the surface land also leased
hereunder, and has good and sufficient

                                     - 21 -
<PAGE>

mining rights and privileges to permit the mining of the leasehold premises by
the deep or underground method of mining. In the event any party asserts any
claim or title superior to the Lessor, the Lessor shall forthwith commence and
continuously prosecute an action to quiet title until resolution thereof. The
Lessee may pay all royalties into escrow until such resolution is confirmed. Any
sums paid in escrow by Lessee shall be deemed payment of royalties or other sums
due hereunder. In the event that the Lessor's ownership interest in the property
is less than the interest represented, then the actual interest owned shall be
used to calculate the royalties and the Lessor shall reimburse Lessee for any
amount previously paid which exceeds the amount which would have been paid had
the royalties been based on the actual interest.

      (e) Lessor may furnish the Lessee with information in its possession
showing estimated reserves of mineable coal underlying the leased premises,
drill-hole information and other data. If furnished Lessee as aforesaid, such
information is not intended to be nor shall the same constitute any assurance or
guarantee upon the part of Lessor of the existence of such reserves or as to the
quality of coal or the mineability of such coal underlying the leased premises
and Lessee shall have the obligation to satisfy itself as to the reserves of
coal, the quality of the coal and the mineability thereof.

      (f) It is agreed that some mining operations have heretofore been
undertaken in, on or under the leased premises and that Lessor has not
heretofore made and does not now make any representations concerning the
condition of any entries, working places or opening therein or the surface,
structures or works therein or thereon, and that Lessee takes the lease premises
in their present as is

                                     - 22 -
<PAGE>

condition.

      (g) Lessor reserves the right to remove all merchantable timber on the
surface land subject to this Agreement. Upon the application by Lessee for a
permit authorizing surface mining operations on any portion of said land, Lessee
shall give Lessor at least one hundred fifty (150) days' written notice of its
intent to commence surface mining operations, including a description of the
areas intended to be permitted for surface mining purposes. Upon receipt of said
notice Lessor shall have the right to remove the timber on the proposed mining
area within the one hundred fifty (150) day period. In the event that Lessor
shall fail to remove said timber prior to the expiration of the described
period, Lessor shall have no right to remove said timber and Lessee shall make
such disposition thereof as it shall determine to be in its best interests.

      (h) If, in the course of its contemplated mining operations on the leased
property, Lessee shall discover the presence of minerals other than coal in
commercially mineable and saleable quantities or shall contemplate a rock
crushing operation for the production and sale of aggregate in commercial
quantities it shall immediately enter into negotiations with the Lessor for the
purpose of establishing a fair and reasonable royalty rate as compensation for
Lessor's interest in such mineral and/or aggregates.

      (i) Lessor by this Agreement grants to the Lessee such an economic
interest in the leased premises as shall be sufficient to support the allowance
for depletion of the coal mined by Lessee as provided by the Internal Revenue
Code.

      (j) At the request of the Lessee, Lessor shall enter into a Memorandum of
Lease in a form sufficient for recording as part of

                                     - 23 -
<PAGE>

the land records in Garrett County, Maryland.

      22. ARBITRATION. If, during the term of this Agreement or during any
renewal term thereof, a dispute shall arise between the Lessor and the Lessee,
or their or either of their respective successors, or assigns, with respect to
any right or obligation arising thereunder (including the amount of royalties
due but excluding the refusal or the failure of the Lessee to render an account
of and pay advance and minimum royalty or tonnage royalty when due) the matter
in dispute, if it cannot be settled between the parties, shall be referred to
arbitrators, one of whom shall be selected by lessor and another by the Lessee,
and in the event the two thus chosen cannot agree they shall appoint a third
arbitrator, and report in writing their conclusions as to the matter in dispute
between the Lessor and the Lessee. In the event that either Lessor or Lessee
shall fail to appoint an arbitrator within thirty (30) days after receiving
notice from the other party to do so, then the other party shall appoint two
arbitrators who shall report in writing their conclusions aforesaid. The
conclusion of the arbitrators, when reported in writing, shall be binding upon
the parties to this Agreement. The fees and expenses of the arbitrators shall be
paid equally by the Lessor and the Lessee.

      23. WAIVER, MODIFICATION OR AMENDMENT. The failure of either the Lessor or
Lessee to exercise any of their respective rights hereunder upon the
non-performance by the other party of any condition, covenant or provision
contained in this Agreement shall not be construed as a waiver thereof, nor
shall the defective performance or the waiver of non-performance of any such
condition, covenant or provision upon the part of the other party as to any
subsequent defective performance or non-performance thereof.

                                     - 24 -
<PAGE>

      No waiver, release, modification, nor amendment of any of the terms,
conditions or provisions of this Agreement shall be valid or set up in any
judicial proceeding or otherwise, unless the same be in writing duly signed by
the Lessor and the Lessee.

      24. SURVIVAL OF REPRESENTATIONS. This Agreement and the terms and
conditions thereof shall be binding upon the successors and assigns of the
parties hereto, whether such pertinent legal language is herein stated or
omitted.

      25. NOTICES. Notices, payment and other communications required or
permitted to be made or given under this Agreement shall be delivered either
personally or by certified or registered mail (return receipt requested),
postage prepaid, at the respective addresses of the parties first herein
written, provided, however, that either party hereto may from time to time
change its address by giving written notice, delivered as aforesaid, of a new
address.

      26. EFFECTIVE DATE. This Agreement, executed as of the day, month and year
first herein set forth, shall become effective (i) upon the valid exercise by
Lessee of the Option described in the "Option to Lease Coal Lands" also executed
this date by the Lessor and Lessee and (ii) the Closing of the transactions
contemplated by the Option Agreement.

      Lessor and Lessee, by their respective initials to this Agreement, certify
that the Option was validly exercised by Lessee on August 25, 1995; and that the
transactions contemplated by the Option Agreement were closed on September 21,
1995; and that the latter date is the Effective Date of this Agreement.

                         Initials: Lessor CJP Lessee GWR

      IN WITNESS WHEREOF, the parties have hereunto set their hands

                                     - 25 -
<PAGE>

      to duplicate original copies hereof as of the day and year first herein
written.

                                           DOUGLAS COAL COMPANY (Lessor)

                                           By /s/ Christopher J. Polino
                                              ----------------------------------
                                                          Its President

                                           PATRIOT MINING COMPANY, INC. (Lessee)

                                           By /s/ Richard B. Bolen
                                              ----------------------------------
                                                           Its President

STATE OF WEST VIRGINIA,

COUNTY OF MONONGALIA, to-wit:

      The undersigned, a Notary Public of, in and for the County and State
aforesaid, hereby certifies that Christopher J. Polino, President, who signed
the foregoing writing bearing date the 27th day of May, 1994, for DOUGLAS COAL
COMPANY, a West Virginia corporation, has this day acknowledged the same to be
the free act and deed of said corporation.

      GIVEN under my hand and seal this 27th day of May, 1994.

                                               /s/ Vaughn R. Miller
                                               ---------------------------------
                                                             Notary Public

Official Seal [Notary Seal]

STATE OF WEST VIRGINIA,

COUNTY OF MONONGALIA, to-wit:

      The undersigned, a Notary Public of, in and for the County and

                                     - 26 -
<PAGE>

State aforesaid, hereby certifies that Richard B. Bolen, President, who signed
the foregoing writing bearing date the 27th day of May, 1994, for PATRIOT MINING
COMPANY, INC., a West Virginia corporation, has this day acknowledged the same
to be the free act and deed of said corporation.

      GIVEN under my hand and seal this 27th day of May, 1994.

                                               /s/ Vaughn R. Miller
                                               ---------------------------------
                                                             Notary Public

Official Seal: [Notary Seal]

This instrument prepared by: Richard G. Herndon
                         Attorney-at-Law
                         83 Edgington Lane
                         Wheeling, WV  26003

                                     - 27 -
<PAGE>

                           OPTION TO LEASE COAL LANDS

      THIS AGREEMENT, made the 27th day of May, 1994, by and between DOUGLAS
COAL COMPANY, a West Virginia corporation with offices at Elkins, West Virginia
("Douglas") and PATRIOT MINING COMPANY, INC., with offices at Morgantown, West
Virginia, ("Patriot"),

                    WHEREIN IT IS MUTUALLY AGREED AS FOLLOWS:

      1. Grant of Option. In consideration of the sum of TEN DOLLARS ($10.00)
and other valuable considerations, Douglas irrevocably grants to Patriot the
exclusive right, privilege and option (the "Option") to lease all of the land,
coal, surface, and all mining and other rights in connection therewith, which it
now owns in Garrett County, Maryland, upon the terms, provisions and conditions
set forth in the Coal Lease and Mining Agreement attached hereto and executed in
duplicate by Douglas and Patriot as of the date hereof.

      A more particular description of the property is set forth on EXHIBIT A
attached to and made a part of the Coal Lease and Mining Agreement referenced
above.

      2. Option Period. The Option shall become effective upon the signing of
this Agreement and shall extend for a period of twelve (12) months thereafter
(the "Initial Period") unless sooner exercised by Patriot or extended for an
additional period as hereinafter provided.

      3. Option Fee. Patriot shall pay to Douglas a monthly option fee of TWO
THOUSAND FIVE HUNDRED DOLLARS ($2,500.00) during the initial option period or
any extension thereof. The monthly option fee shall be paid upon the execution
of this Agreement and on each succeeding monthly anniversary thereof, which
shall be fully recoupable from the tonnage royalty provided for in Paragraph 3
of the attached Coal Lease and Mining Agreement at the same monthly rate at
which it was paid.

      4. Exercise of Option. The Option may be exercised by Patriot on or before
the expiration of the Option Period by mailing written notice of exercise by
registered or certified mail to Christopher J. Polino, President of Douglas Coal
Company, at its regular mailing address, Post Office Box 230, Elkins, West
Virginia 26241.

      5. Extension of Option Period. If, during the Initial Option period,
Patriot shall have diligently undertaken its examination, exploration,
prospecting, drilling, testing and evaluation of the Leased Premises, but is
unable to complete its testing and evaluation program prior to the expiration of
the Initial Optional Period, it may request of Douglas by registered or
certified mail

<PAGE>

an additional option period (the "Extended Period") of 90 days beginning with
the expiration of the Initial Period and ending at midnight on the 90th day
thereafter. The grant of the Extended Option Period shall not unreasonably be
withheld by Douglas.

      6. Rights and Duties During Option Period. During the Option Period (and,
if Patriot elects to exercise the Option, until and including the Closing Date
hereinafter referred to) the rights and duties hereunder of the parties hereto
shall be as follows:

      (a) Patriot shall have the obligation to examine, explore, prospect,
drill, test and evaluate, as it deems appropriate, all of the Leased Premises
for the purpose of determining whether to exercise the Option;

      (b) Representatives of Patriot shall have access to all books, records,
maps, drill records and other information and data in the possession of Douglas
relating to the Leased Premises; provided, however, that Patriot shall treat and
hold confidential all such information furnished to it by Douglas (excluding
information previously known to Patriot or which is or shall become generally
known to the public or which shall lawfully be made available to Patriot by a
person or entity other than Douglas) to prevent the disclosure thereof to others
and shall not, unless it shall exercise the Option, commercially utilize any
such information without the prior consent to such use by Douglas, and

      (c) Douglas shall not, without the prior consent of Patriot (which shall
not be unreasonably withheld), lease, dispose of or encumber any part of the
Leased Premises during the Option Period, and

      (d) Douglas shall provide Patriot with all information now in its
possession bearing upon and confirming its good and marketable title to all of
the lands, minerals and mining rights described on Exhibit A, except for liens
for taxes not yet due and payable and such minor imperfections of title and
encumbrances, if any, as do not materially detract from the value, or interfere
with the use of the Leased Property for mining purposes.

      7. Non-Exercise of Option. In the event Patriot shall not exercise the
Option (whether during the Initial or any Extended Period), all obligations of
the parties as set forth in the Coal Lease and Mining Agreement shall no longer
be binding upon Douglas and Patriot. However, Patriot shall promptly return its
executed original of the Coal Lease and Mining Agreement to Douglas for
cancellation.

                                        2
<PAGE>

      8. Closing. In the event Patriot shall exercise the Option in the manner
set forth in Paragraph 4 hereof, the closing of the transaction contemplated by
this Agreement shall take place at the offices of Patriot at a mutually
convenient time and date, but no later than 30 days after receipt by Douglas of
notice of such exercise (the "Closing Date").

      On the Closing Date the effective date of the Coal Lease and Mining
Agreement shall be inserted in the Agreement and the date initialed upon behalf
of Douglas and upon behalf of Patriot. Thereupon Patriot shall deliver to
Douglas its check in the amount of Thirty-Seven Thousand Five Hundred Dollars
($37,500.00) representing the first quarter-annual payment of the Minimum and
Advance Royalties due under the Agreement.

      At the Closing Patriot shall receive a favorable legal opinion, date the
Closing Date, from Herndon, Morton, Herndon & Yaeger, attorneys for Douglas,
and/or such other counsel reasonably acceptable to Patriot, in form and
substance reasonably satisfactory to Patriot and its counsel, to the effect that
(i) all actions and other proceedings required to be taken by or on the part of
Douglas with respect to this Agreement and the Lease have been duly and properly
taken, and (ii) that Douglas has the legal right and power to lease to Patriot
the Leased Premises pursuant to and upon the terms and conditions stated in the
Lease Agreement.

      9. Reports. It is a further consideration of this Agreement, whether or
not the Option is exercised, that, coincident with the exercise date of the
Option, if exercised, or the expiration date thereof, if not exercised, Patriot
shall provide Douglas with a complete copy of its reports relating to the
examination, exploration, prospecting, including results of drill hole tests,
and other information relating to the coal interests of Douglas in the subject
property.

      10. Fees and Expenses. Douglas, on the one hand, and Patriot, on the other
hand, agree to indemnify the other against and save and hold the other harmless
from any and all liabilities (including, without limitation, attorney's fees) to
any person claiming brokerage, commissions or finder's or attorney's fee or
expense on account of services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement, the Lease or the
transactions contemplated hereby or thereby.

      11. Entire Understanding; Amendment. This Agreement expresses the entire
understanding of the parties hereto with respect to the transactions herein
contemplated, and this Agreement may not be amended or modified except by
written instrument signed by both parties hereto.

                                        3
<PAGE>

      12. Benefit. This Agreement shall be binding upon, and inure to the
benefit of, the respective successors in interest and assigns of Douglas and of
Patriot; provided, however, Patriot shall not assign its rights and obligations
under this Agreement without the prior written consent thereto of Douglas,
unless such assignment is to an affiliate of Patriot. Further, Patriot hereby
covenants and agrees that notwithstanding the fact that it may have assigned to
third parties all or part of the property controlled by this Option, it shall
continue to be responsible for the obligations required of it by the Option.

      13. Counterparts. This Agreement has been executed in two or more
counterparts, each of which shall be deemed an original and all of which shall
constitute but one and the same instrument.

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

                                                  DOUGLAS COAL COMPANY

                                                  By: /s/ Christopher J. Polino
                                                      --------------------------
                                                              President

                                                  PATRIOT MINING COMPANY, INC.

                                                  By: /s/ Richard B. Bolen
                                                      --------------------------
                                                              President

                                        4
<PAGE>

STATE OF WEST VIRGINIA,

COUNTY OF MONONGALIA, TO-WIT:

      The undersigned, a Notary Public of, in and for the County and State
aforesaid, hereby certifies that Christopher J. Polino, President, who signed
the foregoing writing bearing date the 27th day of May, 1994, for DOUGLAS COAL
COMPANY, a West Virginia corporation, has this day acknowledged the same to be
the free act and deed of said corporation.

      GIVEN under my hand and seal this 27th day of May, 1994.

                                                  /s/ Vaughn R. Miller
                                                  ------------------------------
                                                        Notary Public

STATE OF WEST VIRGINIA,

COUNTY OF MONONGALIA, TO-WIT:

      The undersigned, a Notary Public of, in and for the County and State
aforesaid, hereby certifies that Richard B. Bolen, President, who signed the
foregoing writing bearing date the 27th day of May, 1994, for PATRIOT MINING
COMPANY, INC., a West Virginia corporation, has this day acknowledged the same
to be the free act and deed of said corporation.

      GIVEN under my hand and seal this 27th day of May, 1994.

                                                  /s/ Vaughn R. Miller
                                                  ------------------------------
                                                        Notary Public

                                        5
<PAGE>

                                    GUARANTEE

      ANKER GROUP, INC., a corporation organized under the laws of Delaware
(hereinafter referred to as the "Guarantor"), hereby unconditionally and
irrevocably guarantees to DOUGLAS COAL COMPANY, a corporation organized under
the laws of West Virginia (hereinafter referred to as the "Beneficiary"), and
its successors and assigns, the performance of any and all of the obligations of
Patriot Mining Company, Inc., a West Virginia corporation which is a direct
wholly-owned subsidiary of the Guarantor ("Patriot"), under that certain Coal
Lease and Mining Agreement attached as Exhibit 1 to that certain Option to Lease
Coal Lands of even date herewith between Patriot and the Beneficiary.

      This Guarantee shall constitute a guarantee of performance, and is made by
the Guarantor as primary obligor and not merely as surety. The Beneficiary shall
not be required to give any notice, make any demand, take any action or pursue
any remedy against Patriot or any other party as a condition to proceeding
against the Guarantor under this Guarantee.

      The Guarantor hereby represents and warrants that it is a corporation duly
organized, validly existing and in good standing under the laws of Delaware,
that it has full corporate power and authority to own its properties and conduct
its business as it is now being conducted, that the execution, delivery and
performance of this Guarantee have been duly and validly authorized by all
requisite corporation action, that this Guarantee constitutes the legal and
valid obligation of the Guarantor, binding upon the Guarantor in accordance with
its terms, and that the execution of this Guarantee will not violate or conflict
with any other agreement or instrument binding upon the Guarantor.

      The foregoing promises and obligations shall bind the Guarantor, its
successors and assigns, and shall inure to the benefit of the Beneficiary, its
successors and assigns; provided, however, that the Guarantor shall not assign
all or any part of its obligations hereunder without the prior written consent
of the Beneficiary.

      This Guarantee is entered into under and pursuant to, and shall be
governed by and construed in accordance with, the laws of West Virginia.

      WITNESS the due execution hereof by a duly authorized officer of the
Guarantor as of this    day of May, 1994.

                                                       ANKER GROUP, INC.

                                                  By:  /s/ John J. Faltis
                                                       -------------------------
                                                       Name:  John J. Faltis
                                                       Title: President

<PAGE>

                        MEMORANDUM OF LEASE FOR RECORDING

      THIS MEMORANDUM OF LEASE (the "Memorandum") made the 21st day of
September, 1995, by and between DOUGLAS COAL COMPANY, a West Virginia
corporation, whose mailing address is Wilt Building, Elkins, West Virginia 26241
(the "Lessor") and PATRIOT MINING COMPANY, INC., also a West Virginia
corporation, whose mailing address is 2708 Cranberry Square, Morgantown, West
Virginia 26505 (the "Lessee"),

                                   WITNESETH:

      1. Douglas Coal Company and Patriot Mining Company, Inc. are parties to a
Coal Lease and Mining Agreement (the "Lease") effective as of September 21,
1995.

      2. The leased premises are situate in Garrett County, Maryland and this
Memorandum is entered into by the parties for the purpose of recordation as
permitted by the laws of the State of Maryland.

      3. The names and addresses of the Lessor and the Lessee, as set forth in
the Lease, are the same as set forth in the first paragraph of this Memorandum.

      4. The premises and the coal mining and other rights so leased are
described on EXHIBIT A which is attached to the within Memorandum and
incorporated by reference therein.

      5. The initial term of the Lease of the premises, together with the mining
rights, easements and privileges owned by the Lessor, is five (5) years,
beginning on September 21, 1995. The initial term is subject to renewal options.

      6. Upon the expiration of the initial term of five (5) years, the Lessee
has the right and option to renew the Lease for three (3) additional terms of
five (5) years each with the first renewal term of five (5) years to begin upon
the expiration of the initial term with each further and other renewal term to
begin upon the expiration of the immediately preceding renewal term. Upon the
expiration of the fourth (4th) term of five (5) years Lessee has the right and
option to renew the Lease from year to year until, in its opinion, all of the
economically minable and commercially saleable coal has been removed from the
leased premises.

      7. All of the terms, covenants, conditions and stipulations of the Lease
relating to the leased premises and leased mining rights, easements and
privileges are incorporated by reference in the within Memorandum and made a
part thereof with the same force and effect as if fully set forth herein.

<PAGE>

      IN WITNESS WHEREOF the parties have hereunto executed this Memorandum by
their respective officers authorized for the purpose the day, month and year
first herein set forth.

                                                  DOUGLAS COAL COMPANY
                                                         (Lessor)

                                                  By /s/ Chistopher J. Polino
                                                     ---------------------------
                                                          Its President

                                                  PATRIOT MINING COMPANY, INC,
                                                           (Lessee)

                                                  By /s/ Gerald W. Ramsburg
                                                     ---------------------------
                                                          Its President

Witness to the foregoing signatures:

/s/ Richard G. Herndon
---------------------------

STATE OF WEST VIRGINIA,

COUNTY OF MONONGALIA, to-wit:

      The undersigned, a Notary Public of, in and for the County and State
aforesaid, hereby certifies that Christopher J. Polino, President, who signed
the foregoing writing beating date the 21st day of September, 1995, for Douglas
Coal Company, a West Virginia corporation, has this day acknowledged is
signature to be the free act and deed of said Corporation.

      GIVEN under my hand and seal this 21st day of September, 1995.

                                                     /s/ Vaughn R. Miller
                                                     ---------------------------
                                                             Notary Public

(Official Seal)

                                       2
<PAGE>

STATE OF WEST VIRGINIA,

COUNTY OF MONONGALIA, to-wit:

      The undersigned, a Notary Public of, in and for the County and State
aforesaid, hereby certifies that Gerald W. Ramsburg, President, who signed the
foregoing writing bearing date the 21st day of September, 1995, for Patriot
Mining Company, Inc., a West Virginia corporation, has this day acknowledged the
same to be the free act and deed of said Corporation.

      Given under my hand and seal this 21st day of September, 1995.

                                                  /s/ Vaughn R. Miller
                                                  ---------------------------
                                                         Notary Public

(Official Seal)

The foregoing instrument prepared by:
      Richard G. Herndon
      Herndon, Morton, Herndon & Yaeger
      83 Edgington Lane
      Wheeling, WV 26003
      242-2300

                                       3<PAGE>
                                                                   Exhibit 10.21

            THIS LEASE, Made as of February 28, 1996 between SOUTHERN REGION
INDUSTRIAL REALTY, INC., a corporation of Georgia, Lessor, and ADVANTAGE ENERGY
CORPORATION, a corporation of West Virginia, Lessee;

                                  WITNESSETH:

            IN consideration of the sum of Ten Dollars ($10.00) cash, receipt of
which is acknowledged, and the performance and observance of the terms and
provisions hereinafter set forth to be performed and observed by Lessee, and
reserving as rent the royalties, rentals and all other payments hereinafter
provided for, Lessor hereby leases to Lessee, for the period of fifteen (15)
years from the date hereof (the "Effective Date") through February 28, 2011,
subject to termination or extension for additional five (5) year periods until
all the coal which can be economically mined and removed has been mined and
removed and the reclamation thereof has been finally approved by the state
and/or federal agency or agencies which now have or shall hereafter have
jurisdiction or control of such mining operations, and all the bonds therefor
have been fully released, all as hereinafter provided in ARTICLE XX hereof, the
sole and exclusive right of mining and removing, by any method of mining,
various seams of coal hereinafter identified within five (5) parcels of land
containing in the aggregate 10,019.34 acres, more or less, situated partly in
Buchanan County, Virginia, on the waters of Laurel Fork of Dismal Creek and
partly in Tazewell County, Virginia, on the waters of Town Hill, Big and Middle
Creeks of Clinch River, and being more fully shown on colored map attached
hereto and made a part hereof and marked in the lower right-hand corner thereof:
"Pocahontas Land Corporation, Bluefield, West Virginia, No. 2185-G, February 16,
1996, GBM," which seams of coal and the surface in which Lessee is given rights
of use hereunder are referred to hereinafter as the "Leased Properties":

<PAGE>

            (a) The right to mine and remove all seams of coal except the
Pocahontas No. 3, Raven, Tiller and Lower Seaboard Seams of coal in the
following described PARCEL NO. 1 and PARCEL NO. 2, upon and subject to the terms
and conditions hereinafter stated:

            PARCEL NO. 1 - A parcel of land shown by yellow border on aforesaid
attached map situated partly in Garden Magisterial District of Buchanan County,
Virginia, on the waters of Laurel Fork of Dismal Creek and Spring, Kinder and
Old House Hollow Branches of same, and partly in Maiden Spring Magisterial
District of Tazewell County, Virginia, on the waters of Town Hill Creek, Big
Creek and West Fork of same, and containing 2,053.06 acres, more or less.

            Said 2,053.06 acres, more or less, are made up of tracts or parcels
of land in which Southern Region Industrial Realty, Inc. owns the fee or the
minerals only and which for convenience of designation are as follows (areas
given are by estimation only and are not to be construed as a warranty of
acreage):

                          TABLE OF AREA - PARCEL NO. 1
                            BUCHANAN COUNTY, VIRGINIA

<TABLE>
<CAPTION>
Tract or Parcel                                       Area in Acres
out of which area is taken                       Fee      Min.     Total
--------------------------                      ------   ------   --------
<S>                                             <C>      <C>      <C>
Pt. Tract No. 2 - John White
     "56.24 acres"                                   -     3.04       3.04
Tract No. 5 - Thomas Henkle
     "54.43 acres"                               54.44        -      54.44
Pt. Tract No. 6 - Mary Joice
     "93.74 acres"                                   -    91.82      91.82
Tract No. 7 - Mary V. Keen
     "54.99 acres"                               53.30        -
Tract No. 9- D. C. Whitt
     "175.00 acres"                                  -   152.31     152.31
Tract No. 10 - Clinch Valley Coal &
     Iron Co. - D. C. Whitt "75.00 acres"            -    92.36      92.36
Tract No. 11 - Coal Mountain Mining
     Co. - "183.60 acres"                       194.45        -     194.45
Pt. Tract No. 33 - J. N. Harman
     "182.87 acres"                              87.92        -      87.92
Tract No. 37 - G. H.  Brown

</TABLE>

                                       2
<PAGE>

<TABLE>
<S>                                             <C>      <C>      <C>
     "148.66 acres"                              16.34        -      16.34
Tract No. 38 - Riley Altizer
     "100.00 acres"                                  -     9.89       9.89
Tract No. 39 - Susie Brown
     "226.26 acres"                                  -   225.30     225.30
Tract No. 40 - James O. McNeil
     "118.66 acres"                                  -   119.19     119.19
Tract No. 40-A - James O. McNeil
     "26.72 acres"                                   -    26.54      26.54
                                                ------   ------   --------
     TOTAL - BUCHANAN COUNTY                    406.45   720.45   1,126.90
</TABLE>

                          TABLE OF AREA - PARCEL NO. 1
                            TAZEWELL COUNTY, VIRGINIA

<TABLE>
<CAPTION>
Tract or Parcel                                         Area in Acres
out of which area is taken                       Fee      Min.       Total
--------------------------                      ------   ------      -----
<S>                                             <C>      <C>         <C>
Pt. Tract No. 1 - O. F. & C. J. Barnes
     "4430.00 acres"                            269.36    75.13      344.49
Pt. Tract No. 2 - John White
     "56.24 acres"                                5.74    46.68       52.42
Tract No. 3 - Caleb Smith
     "51.37 acres"                                   -    49.49       49.49
Tract No. 4 - John B. Graham
     "31.50 acres"                                7.92     1.57*       9.49
Pt. Tract No. 6 - Mary Joice
     "93.74 acres"                                   -     2.64        2.64
Tract No. 8 - Samuel D. Sayers
     "438.00 acres"                                  -   338.43      338.43
Pt. Tract No. 26 - C. A. Spotts
     "171.00 acres"                               7.80    12.74       20.54
Pt. Tract No. 27 - Alexander Vance
     "100.00 acres"                               6.82        -        6.82
Pt. Tract No. 28 - John Shelton
     "50.00 acres"                               11.90    19.08**     30.98
Pt. Tract No. 33 - J. N. Harman
     "182.87 acres"                              63.19     7.67***    70.86
                                                ------   ------      -----
     TOTAL - TAZEWELL COUNTY                    372.73   553.43      926.16
</TABLE>

*     Southern Region Industrial Realty, Inc. owns 0.42 of an acre of oil and
      gas only within this tract.

**    Southern Region Industrial Realty, Inc. owns 2.87 acres of oil and gas
      only within this tract.

                                       3
<PAGE>

***   Southern Region Industrial Realty, Inc. owns 2.19 acres of oil and gas
      only within this tract.

                         SUMMARY OF AREA - PARCEL NO. 1

<TABLE>
<CAPTION>
                            Area in Acres
                     Fee        Min.      Total
                    ------   --------   --------
<S>                 <C>      <C>        <C>
Buchanan County     406.45     720.45   1,126.90
Tazewell County     372.73     553.43     926.16
                    ------   --------   --------
     TOTALS         779.18   1,273.88   2,053.06
</TABLE>

            PARCEL NO. 2 - A parcel of land shown by red border on aforesaid
attached map situated in Maiden Spring Magisterial District of Tazewell County,
Virginia, partly on the waters of Big Creek of Clinch River and West Fork,
Goodwin Branch and Wildcat and Murray Hollows of same, and partly on the waters
of Middle Creek of said Clinch River, containing 5,815.98 acres, more or less.

            Said 5,815.98 acres, more or less, are made up of tracts or parcels
of land in which Southern Region Industrial Realty, Inc. owns the fee or the
minerals only and which for convenience of designation are as follows (areas
given are by estimation only and are not to be construed as a warranty of
acreage):

                          TABLE OF AREA - PARCEL NO. 2
                            TAZEWELL COUNTY, VIRGINIA

<TABLE>
<CAPTION>
Tract or Parcel                                           Area in Acres
out of which area is taken                        Fee          Min.       Total
--------------------------                      --------     --------    --------
<S>                                             <C>          <C>         <C>
Tract No. 1 - O. F. & C. J. Barnes
     "4430.00 acres"                            3,734.17        83.03    3,817.20
Tract No. 12 - Levi Hickman
     "153.17 acres"                                54.47       106.22      160.69
Tract No. 20 - Thomas Lowe
     "150.00 acres"                               152.50            -      152.50
Tract No. 21 - Clinch Valley Coal &
     Iron - "Pt. Parcel No. 1 - 400.00 acres"          -         2.70        2.70
Tract No. 22 - Rees Vandike
</TABLE>

                                       4
<PAGE>

<TABLE>
<S>                                             <C>          <C>         <C>
     "206.10 acres"                               205.21         1.99      207.20
Tract No. 23 - B. V. Elswick
     "130.00 acres"                                    -       138.73      138.73
Tract No. 24 - Charles E. Scott
     "15.00 acres"                                 11.11         3.32       14.43
Pt. Tract No. 25 - Erastus B. Scott
     "287.00 acres"                               165.34         6.43      171.77
Pt. Tract No. 27 - Alexander Vance
     "100.00 acres"                                10.63            -       10.63
Pt. Tract No. 29 - Joseph V. Kelly
     "225.00 acres"                               251.25*           -      251.25
Tract No. 30 - John Stevenson
     "180.00 acres"                               193.33            -      193.33
Tract No. 31 - John Stevenson
     "200.00 acres"                               205.28            -      205.28
Tract No. 32 - James M. McGuire
     "175.00 acres"                                92.48            -       92.48
Tract No. 34 - James Allen
     "109.56 acres"                               109.56            -      109.56
Tract No. 35 - James E. Griffitts
     "137.50 acres"                                    -       139.80      139.80
Tract No. 36 - W. S. Raines
     "83.33 acres"                                 60.30            -       60.30
Tract No. 41 - W. L. C. Burke
     "12.45 acres"                                     -        12.45       12.45
Tract No. 44 - K. D. R. Harman
     "439.00 acres"                                53.11            -       53.11
Tract No. 45 - J. A. Everett
     "0.57 of an acre"                              0.69            -        0.69
Tract No. 46 - C. E. Murray
     "0.47 of an acre"                              0.52            -        0.52
Tract No. 48 - W. J. Elswick
     "162.60 acres"                                    -        21.36       21.36
                                                --------     --------    --------
     TOTAL - PARCEL NO. 2                       5,299.95       516.03    5,815.98
</TABLE>

*     Southern Region Industrial Realty, Inc. owns 8.28 acres, more or less, of
      oil and gas only within this tract.

            (b) Excepting the Pocahontas No. 3, Raven, Tiller and Lower Seaboard
Seams of coal and the outcrop of the Jawbone Seam of coal (approximately 210
feet in width and depicted by a broken outcrop line on said attached whiteprint
map), the right to mine and remove

                                       5
<PAGE>

all seams of coal in the following described PARCEL NO. 3, upon and subject to
the terms and conditions hereinafter stated:

            PARCEL NO. 3 - A parcel of land shown by blue border on aforesaid
attached map situated in Maiden Spring Magisterial District of Tazewell County,
Virginia, on the waters of Big Creek, and West Fork and Goodwin Branch of same,
containing 1,083.22 acres, more or less.

            Said 1,083.22 acres, more or less, are made up of tracts or parcels
of land in which Southern Region Industrial Realty, Inc. owns the fee or the
minerals only and which for convenience of designation are as follows (areas
given are by estimation only and are not to be construed as a warranty of
acreage):

                          TABLE OF AREA - PARCEL NO. 3
                            TAZEWELL COUNTY, VIRGINIA

<TABLE>
<CAPTION>
Tract or Parcel                                   Area in Acres
out of which area is taken                  Fee         Min.        Total
--------------------------               --------     --------    --------
<S>                                      <C>          <C>         <C>
Pt. Tract No. 1 - O. F. & C. J. Barnes
     "4430.00 acres"                       719.58            -      719.58
Pt. Tract No. 25 - Erastus B. Scott
     "287.00 acres"                        115.06            -      115.06
Pt. Tract No. 26 - C. A. Spotts
     "171.00 acres"                        142.30        10.13      152.43
Pt. Tract No. 27 - Alexander Vance
     "100.00 acres"                         91.13            -       91.13
Pt. Tract No. 29 - Joseph V. Kelly
     "225.00 acres"                          5.02*           -        5.02
                                         --------     --------    --------
TOTAL - PARCEL NO. 3                     1,073.09        10.13    1,083.22
</TABLE>

*     Southern Region Industrial Realty, Inc. owns 0.29 of an acre of oil and
      gas only within this tract.

                                       6
<PAGE>

            (c) The right to mine and remove all seams of coal except the
Pocahontas No. 3, Raven, Tiller, Lower Seaboard and Greasy Creek Seams of coal
in the following described PARCEL NO. 4, upon and subject to the terms and
conditions hereinafter stated:

            PARCEL NO. 4 - A parcel of land shown by green border on aforesaid
attached map situated in Maiden Spring Magisterial District of Tazewell County,
Virginia, on the waters of Big Creek of Clinch River, and Baldwin Hollow and
Beaver Hollow (Cecils Branch) of same, containing 1,053.82 acres, more or less.

            Said 1,053.82 acres, more or less, are made up of tracts or parcels
of land in which Southern Region Industrial Realty, Inc. owns the fee or the
minerals only and which for convenience of designation are as follows (areas
given are by estimation only and are not to be construed as a warranty of
acreage):

                          TABLE OF AREA - PARCEL NO. 4
                            TAZEWELL COUNTY, VIRGINIA

<TABLE>
<CAPTION>
Tract or Parcel                            Area in Acres
out of which area is taken          Fee         Min.        Total
--------------------------        --------    --------    --------
<S>                               <C>         <C>         <C>
Tract No. 13 - James P.  Kelly
     "400.00 acres"                 576.15        8.27      584.42

Tract No. 14 - Martin Griffitts
     "49.20 acres"                       -       52.18       52.18
Tract No. 15 - D. B. Cecil
     "35.00 acres"                   35.95           -       35.95
Tract No. 16 - D. B. Cecil
     "205.00 acres"                 192.77        0.41      193.18
Tract No. 17 - Augustus White
     "50.00 acres"                   42.30        3.17       45.47
Tract No. 18 - Thomas Lowe
     "37.00 acres"                   36.86           -       36.86
Tract No. 19 - Thomas Lowe
     "134.00 acres"                      -      100.00      100.00
Tract No. 47 - George L. Carter
     "5.76 acres"                     5.76           -        5.76
                                  --------    --------    --------
</TABLE>

                                       7
<PAGE>

<TABLE>
<CAPTION>
Tract or Parcel                            Area in Acres
out of which area is taken          Fee         Min.        Total
--------------------------        --------    --------    --------
<S>                               <C>         <C>         <C>
     TOTAL - PARCEL NO. 4           889.79      164.03    1,053.82
</TABLE>

            (d) The right to mine and remove all seams of coal except the
Pocahontas No. 3, Raven, Tiller, Lower Seaboard and War Creek Seams of coal in
the following described PARCEL NO. 5, upon and subject to the terms and
conditions hereinafter stated:

            PARCEL NO. 5 - A parcel of land shown by purple border on aforesaid
attached map situated in Maiden Spring Magisterial District of Tazewell County,
Virginia, on the waters of Middle Creek of Clinch River, containing 13.26 acres,
more or less.

            Said 13.26 acres, more or less, are made up of tracts or parcels of
land in which Southern Region Industrial Realty, Inc. owns the fee or the
minerals only and which for convenience of designation are as follows (areas
given are by estimation only and are not to be construed as a warranty of
acreage):

                          TABLE OF AREA - PARCEL NO. 5
                            TAZEWELL COUNTY, VIRGINIA

<TABLE>
<CAPTION>
Tract or Parcel                            Area in Acres
out of which area is taken             Fee      Min.    Total
--------------------------            -----    -----    -----
<S>                                   <C>      <C>      <C>
Pt. Tract No. 32 - James M. McGuire
     "175.00 acres"                   13.26        -    13.26
                                      -----    -----    -----
     TOTAL - PARCEL NO. 5             13.26        -    13.26
</TABLE>

                                 RECAPITULATION

<TABLE>
<CAPTION>
                                                                  Area in Acres
                                                          Fee          Min.        Total
                                                       ---------    ---------    ---------
<S>                                                    <C>          <C>          <C>
Parcel No. 1 - The right to mine all seams of coal
except the Pocahontas No. 3, Raven, Tiller and Lower
Seaboard Seams                                            779.18     1,273.88     2,053.06

Parcel No. 2 - The right to mine all seams of coal
except the Pocahontas No. 3,
</TABLE>

                                       8
<PAGE>

<TABLE>
<S>                                                    <C>          <C>          <C>
Raven, Tiller and Lower Seaboard Seams                  5,299.95       516.03     5,815.98

Parcel No. 3 - The right to mine all seams of coal
except the Pocahontas No. 3, Raven, Tiller, Lower
Seaboard and part of the Jawbone Seams                  1,073.09        10.13     1,083.22

Parcel No. 4 - The right to mine all seams of coal
except the Pocahontas No. 3, Raven, Tiller, Lower
Seaboard and Greasy Creek Seams                           889.79       164.03     1,053.82

Parcel No. 5 - The right to mine all seams of coal
except the Pocahontas No. 3, Raven, Tiller, Lower
Seaboard and War Creek Seams                               13.26            -        13.26
                                                       ---------    ---------    ---------
     TOTALS                                             8,055.27     1,964.07    10,019.34
</TABLE>

            It is the intent of the parties hereto that Lessor is hereby
granting unto Lessee the right to mine and remove all seams of coal within the
Leased Properties not currently owned by or leased to third parties.

            SUBJECT, HOWEVER, TO RIGHTS OF:

            (a) Consolidation Coal Company under the following:

                  (i) Deed dated September 28, 1978, recorded in the Clerk's
            Office of the Circuit Court of Tazewell County, Virginia, in Deed
            Book No. 453, page 84, and in the Clerk's Office of the Circuit
            Court of Buchanan County, Virginia, in Deed Book No. 260, page 819,
            from The Youngstown Mines Corporation, remote predecessor in title
            of Southern Region Industrial Realty, Inc., conveying the Pocahontas
            No. 3 Seam of coal only within the boundaries of all parcels herein;
            and

                  (ii) Deed dated May 24, 1994, not recorded, among LTV Steel
            Company, predecessor in title of Southern Region Industrial Realty,
            Inc., Acme Packaging Corporation and Stelco Coal Company conveying
            to said Consolidation Coal Company 13.26 acres, more or less, of the
            War Creek Seam of coal (also known as the Pocahontas No. 11 Seam)
            being within the boundary of Parcel No. 5 herein;

            (b) Jewell Ridge Coal Corporation under the following:

                                       9
<PAGE>

                  (i) Lease dated July 1, 1949, not recorded, as supplemented
            and modified, from said The Youngstown Mines Corporation, et als, of
            the right to mine the Raven Seam of coal only within the boundaries
            of all parcels included herein;

                  (ii) Supplemental lease dated October 6, 1969, not recorded,
            as supplemented and modified, from said The Youngstown Mines
            Corporation, of the right to mine the Tiller Seam of coal only
            within the boundaries of all parcels included herein;

                  (iii) Lease dated October 1, 1970, not recorded, as
            supplemented and modified, from said The Youngstown Mines
            Corporation, et als, of the right to mine the Lower Seaboard Seam of
            coal only within the boundaries of all parcels included herein;

            (c) Covenant Coal Corporation under lease dated January 29, 1990,
not recorded, as supplemented and modified, from said LTV Steel Company, Inc.,
et als, of the right to mine the Greasy Creek Seam of coal only within the
boundaries of Parcel No. 4 included herein;

            (d) J. D. Harrison and Joe Blair McGlothlin, Trustees, under deed
dated July 13, 1964, recorded in the Clerk's Office of the Circuit Court of
Tazewell County, Virginia, in Deed Book No. 315, page 514, from said The
Youngstown Mines Corporation to Norma Mining Corporation, predecessor in title
of said J.D. Harrison and Joe Blair McGlothlin, conveying certain rights to
mine, by surface and auger methods only, the coal of the Jawbone Seam only
within the boundaries of Parcel No 3 included herein and being designated by a
labeled Jawbone Seam outcrop line on said attached map;

            (e) Ray Brothers Corporation, successor to Ashland Oil and Refining
Company, under oil and gas lease dated June 8, 1964, recorded in the Clerk's
Office of the Circuit Court of Tazewell County, Virginia, in Deed Book No. 316,
page 112, and in the Clerk's Office of the Circuit Court of Buchanan County,
Virginia, in Deed Book No. 164, page 360; and as modified by a partial surrender
of lease dated January 10, 1971, recorded in said Tazewell

                                       10
<PAGE>

County in Deed Book No. 361, page 103, and in said Buchanan County in Deed Book
No. 199, page 127, from said Ray Brothers Corporation to The Youngstown Mines
Corporation, remote predecessor in title of Southern Region Industrial Realty,
Inc;

            (f) American Electric Power Company for rights-of-way for electric
power transmission lines and appurtenances as now located and in use;

            (g) Bell Atlantic Telephone Company of Virginia for telephone lines
and appurtenances as now located and in use;

            (h) Norfolk and Western Railway Company for railway rights-of-way as
now located and in use;

            (i) Virginia Department of Transportation and the public for public
roads as now located and in use;

            (j) Others in the surface and minerals not owned by Southern Region
Industrial Realty, Inc. as may be included within the boundaries of all parcels
included herein, together with rights of surface lessees, if any;

            (k) State, county and other public highways, telecommunication,
television cable transmission lines, pipeline or other rights-of-way or
easements and restrictions as may appear of record; and

            (l) The public, United States of America, Commonwealth of Virginia,
riparian owners and others, if any, in and to the beds and streams of any and
all waterways, tributaries and other drainage systems which may be located
within the boundaries of all parcels included herein.

            THE RIGHTS HEREIN LEASED are limited to such as Lessor possesses and
has the lawful right to lease and to such as Lessor owns under the deeds
covering said properties

                                       11
<PAGE>

or said coal and appurtenant rights. Lessor does not warrant its title to the
Leased Properties or any portion thereof. However, upon the assertion of an
adverse claim to any portion of the leased properties, Lessor shall render all
assistance possible to Lessee in defense against such adverse claim. It is
further agreed that, if a court decree (after exhaustion of appeals) or by
agreement of the parties hereto it is determined that the adverse claim is valid
and such adverse claim is of such nature that Lessor does not have sufficient
title to such portion of said Leased Properties to permit Lessee's mining of the
coal therein, then, to the extent the Lessee has paid royalties to Lessor on
coal mined in such portion, such royalties shall be refunded to Lessee.

            Lessee shall not cut or remove any timber from the premises
containing the Leased Properties, and Lessee shall notify Lessor at least sixty
(60) days prior to destroying any merchantable timber thereon so that such
timber may be cut and removed by Lessor, its agent or designee, in advance.

            EXCEPTING AND RESERVING, HOWEVER, from this lease, and to the Lessor
all seams of coal other than those herein leased and the entire ownership of the
properties herein described, and all of the oil, gas and other minerals and
mineral substances, timber, and other products of every kind and description
therein and thereon, together with the right to mine, remove and take away the
entire amount and body thereof, for all purposes other than those for which this
lease is made; PROVIDED, HOWEVER, that exercise of the ownership and rights so
excepted and reserved shall not unreasonably interfere with the requirements,
convenience and safety of operations of Lessee.

            Lessor and Lessee recognize the importance of environmental
protection and the necessity of proper ecological balance, and, to further these
objectives, Lessee agrees to conduct all operations hereunder with utmost
caution and in compliance in every material respect with all

                                       12
<PAGE>

applicable laws of the State of West Virginia and the United States of America
now existing or hereafter enacted, and all rules and regulations promulgated
thereunder, to preserve conditions as nearly as possible as they presently exist
by altering the topography and interfering with or impeding watercourses as
little as possible.

            IT IS UNDERSTOOD AND AGREED by and between Lessor and Lessee,
however, that the Leased Properties are in an area committed to the mining and
removal of coal and other minerals and that coal mining operations and other
enterprises have been and are now being conducted by a lessee or lessees of
Lessor in, upon and under the surface of the properties above described and in
the general vicinity thereof. It is the intention hereof that the Leased
Properties are hereby leased to Lessee, AS IS, IN THEIR PRESENT CONDITION and
subject to the rights of others as hereinabove set forth.

            THIS LEASE is subject to the following terms and provisions which
Lessee covenants with Lessor to perform and observe, viz:

                                    ARTICLE I

                         COVENANT TO DEVELOP; PERMITTING

            Section 1.1. Development. Once Lessee begins to mine coal under this
lease, Lessee shall at all times diligently and energetically open, develop and
maintain operations within the Leased Properties in order that so long as fair
prices are obtainable its capacity for mining, preparing and shipping coal shall
be sufficient to meet the demands and requirements of the market to the extent
that the same can reasonably be done hereunder; and Lessee shall report promptly
in writing to Lessor or its designated agent any suspension of operations,
reasons therefor and expected duration thereof.

            Section 1.2. Permitting. Lessee agrees that upon execution of this
lease it will promptly commence or cause to be commenced the necessary
procedures with the appropriate

                                       13
<PAGE>

state and/or federal agencies having jurisdiction of such mining operations to
obtain and maintain in effect the requisite permit or permits for the conduct of
mining operations within Leased Properties. Lessee also agrees to continue with
or cause to be continued subsequent required permitting procedures with said
state and/or federal agencies to the end that the mining operations contemplated
under this lease shall be continuous, insofar as possible under applicable laws,
and, except as provided in Section 1.1 above, and the regulations promulgated
under applicable laws, until all the mineable and merchantable coal on the
Leased Properties , which can be mined and removed by such mining methods as
Lessor may approve, has been mined and removed. For purposes of this lease the
term "mineable and merchantable coal" shall be defined as coal which can be
mined at a reasonable profit. In the event this lease shall be terminated or
canceled as a result of Lessee's failure to perform under or comply with this
lease prior to completion of operations hereunder and Lessee shall have obtained
the requisite permit or permits for the conduct of such mining operations from
such agencies, then Lessee hereby covenants and agrees that it shall promptly,
upon request of Lessor, assign and/or otherwise transfer said permit or permits,
pursuant to Virginia law, to such other party or parties as Lessor may
designate; provided, however, Lessee shall not be required to assign and/or
otherwise transfer any permits unless Lessor provides proper notice thereof
within six (6) months of the termination or cancellation of the lease.

                                   ARTICLE II

                               PRODUCTION ROYALTY

            Section 2.1. Amount of Royalty. Lessee shall pay to Lessor as rent a
royalty of One Dollar and Twenty-five Cents ($1.25) per net ton of 2,000 pounds
of coal mined and removed hereunder or five percent (5%) of the average gross
selling price per net ton, as

                                       14
<PAGE>

hereinafter defined, whichever is greater, for coal mined and removed hereunder,
calculated and reported on a monthly basis (the "Tonnage Royalties").

            Section 2.2. Reporting of Quantity of Coal Mined. Lessee shall, on
or before the twenty-fifth (25th) day of each calendar month, furnish to Lessor
or its designated agent a written report, certified as to correctness by such
agent as Lessee may designate having personal knowledge of the facts, showing
the quantity of coal mined and removed hereunder during the immediately
preceding calendar month, using as a basis railroad weights of all coal shipped
by railroad and ascertaining the quantity of all other coal mined and removed
hereunder in a manner satisfactory to the Lessor or the designated agent of
Lessor; and Lessee shall comply with any further rules and regulations for the
accurate ascertainment and report of the quantity of coal mined and removed
hereunder and the selling price thereof that may reasonably be prescribed by the
Lessor or its designated agent.

            In the event Lessee shall mix coal produced hereunder with other
coal prior to shipment, Lessee shall comply with such reasonable rules and
regulations as the Lessor or the designated agent of Lessor shall from time to
time prescribe for the purpose of ascertaining with reasonable accuracy the
quantity of coal produced hereunder.

            Section 2.3. Date of Payment of Royalty; Interest. On or before the
twenty-fifth (25th) day of each calendar month, Lessee shall pay Tonnage
Royalties to Lessor for the coal mined and removed hereunder during the
immediately preceding calendar month in accordance with Section 2.1 above. In
the event Tonnage Royalties are not paid before the 30th day of each month,
Lessee will pay interest to Lessor on any Tonnage Royalties due and not paid by
the 25th day of that calendar month at the effective prime interest rate as then
charged by Morgan Guaranty Trust Company of New York and calculated daily from
the date said amounts are due.

                                       15
<PAGE>

            Section 2.4. Calculation of Royalty; Gross Selling Price Defined.
For the purpose of calculating Tonnage Royalties, the term "gross selling price"
as used herein shall mean the actual price paid for coal sold to a bona fide
purchaser, assuming the sale occurs, f.o.b. the initial outbound loading point
after preparation, if any, or, if not first transported to a preparation
facility, the actual price paid for the coal, assuming the sale occurs, f.o.b.
the said outbound loading point, less any sales tax imposed thereon, but without
deduction for selling commissions, advertising, credit losses, or other
expenses, but with deduction for discounts or allowances actually allowed to
arms-length wholesalers; provided, however, that if Lessor gives notice to
Lessee in writing that, in Lessor's or its designated agent's reasonable
judgment, a particular purchaser is not a bona fide purchaser, Lessor may elect
to substitute for the gross selling price paid by that purchaser the prevailing
market price of such coal as reasonably determined by Lessor or its designated
agent and based upon recent sales by Lessee and others of coal of comparable
quality to bona fide purchasers; provided further, that for any coal consumed on
or off the Leased Properties without sale by Lessee the gross selling price for
the purpose of computing the Tonnage Royalties due Lessor therefor shall be the
prevailing market price, as determined above, of such coal at the time of
shipment from the Leased Properties or, if used on the Leased Properties, at the
time of use. The term "gross selling price" shall not include transportation
costs incurred to transport the coal to a preparation plant located off the
surface of the premises containing the Leased Properties.

            The term "bona fide purchaser" as used herein shall mean a purchaser
who pays valuable consideration in good faith without intending to take unfair
advantage of any third parties, including Lessor, and in no case shall that
phrase include entities owned by Lessee's parent corporation.

                                       16
<PAGE>

            Section 2.5. Unmined or Lost Coal. Tonnage Royalties which may be
owed by Lessee for mineable and merchantable coal in place left unmined or
rendered unmineable or that may be lost or destroyed within the Leased
Properties, as provided in Section 7.1 hereof, shall be based on the prevailing
market price, as determined above, of such coal, if properly sized and cleaned,
at the time when such coal should have been mined or at the time when such coal
is lost or destroyed, as may be appropriate under the terms of this lease.

                                   ARTICLE III

                          ADVANCE MINIMUM ANNUAL RENTAL

            Section 3.1. Amount and Payment; Interest; Lessee shall pay to
Lessor, as Advance Minimum Annual Rentals on account of coal mined or to be
mined hereunder, the sum of $250,000.00 for each of lease years one and two
(March 1, 1996 through February 28, 1997 and March 1, 1997 through February 28,
1998); $750,000.00 for lease year three (March 1, 1998 through February 28,
1999); and $1,000,000.00 for each lease year thereafter under this lease and
extensions thereof. Payment of Advance Minimum Annual Rental shall be made
quarterly in advance.

            Lessee will pay interest to Lessor on the amount of any Advance
Minimum Annual Rental due and not paid within ten (10) days of the date such
rental is due at the effective prime interest rate as then charged by Morgan
Guaranty Trust Company of New York and calculated daily from the date said
amount is due.

            Section 3.2. Recoupment. Lessee shall receive a credit against
Tonnage Royalties payable under this lease based on the amount of Advance
Minimum Annual Rentals paid as follows:

                  (a) The total amount of Advance Minimum Annual Rentals paid to
            Lessor for each of lease years one through five (the five-year
            period beginning

                                       17
<PAGE>

            March 1, 1996 and ending February 28, 2001) shall be fully
            recoupable as a credit against Tonnage Royalties payable to Lessor
            for coal mined during those five lease years and during the next
            succeeding lease year, except that such credit will only apply to
            Tonnage Royalties for coal mined in the sixth lease year to the
            extent the Tonnage Royalties due Lessor in that sixth lease year
            exceed the amount of Minimum Annual Rentals due for that sixth lease
            year.

                  (b) The total amount of Advance Minimum Annual Rentals paid
            for lease year six (March 1, 2001 through February 28, 2002) and for
            each succeeding lease year shall be fully recoupable as a credit
            against Tonnage Royalties payable to Lessor for coal mined in that
            lease year for which the Advance Minimum Annual Rentals are paid
            and, to the extent Tonnage Royalties due Lessor for coal mined in
            the next succeeding lease year exceed $1,000,000, as a credit
            against Tonnage Royalties due Lessor for coal mined in that next
            succeeding lease year.

                  (c) In any lease year in which Tonnage Royalties payable under
            this lease exceed $2,000,000.00, the amount of such Tonnage
            Royalties due Lessor in excess of that amount will be reduced by the
            amount of any previously unrecouped Advance Minimum Annual Rentals
            paid for any previous lease year.

                  (d) Notwithstanding any of the provisions of this Section 3.2,
            in no event will any payment of Advance Minimum Annual Rentals be
            credited more than once against Tonnage Royalties due Lessor
            hereunder.

            Section 3.3. Failure to Perform; Excuse. In the event of unavoidable
interruption of or delay in its operations in any lease year, due to strikes,
accidents, inadequate car supply, or other causes not within the control of
Lessee, at the end of that lease year Lessee shall be reimbursed that percentage
of its payment of Advance Minimum Annual Rentals which is equal to the
percentage of that year in which Lessee's operations are delayed because of any
such causes. However, the parties hereto recognize and agree that the potential
for depressed markets for the sale of coal or coal products, whether such
conditions are regional in nature or more

                                       18
<PAGE>

widespread, and increased production costs are business risks contemplated by
operators and miners and sellers of coal, and, therefore, neither the existence
of a depressed market for the sale of coal or coal products, nor increased or
high costs of mining coal experienced by Lessee, nor any combination thereof
shall constitute grounds for or be deemed to be interpreted as a basis for
release from payment of Advance Minimum Annual Rentals under Section 3.1 hereof.

            Section 3.4. Modification of Minimum Rental. Whenever, in the
reasonable opinion of the Lessor or its designated agent, the quantity of
unmined mineable and merchantable coal remaining which Lessee is or has become
obligated to mine has been reduced or depleted so as to justify a modification,
reduction, or suspension of advance minimum annual rental, such advance minimum
annual rental may be modified, reduced, or suspended as the General Manager of
Lessor or its designated agent may, in its sole discretion, permit, and Lessee
shall mine the same at the rate of Tonnage Royalties provided for in ARTICLE II
above.

                                   ARTICLE IV

                          LESSEE'S RECORDS; INSPECTION

            4.1. For a period of five (5) years after subject coal is mined,
Lessee shall keep books of account to ascertain: the quantity of coal mined; the
quantity of coal used at the mines; the quantity of coal shipped; and the
selling prices obtained for all coal mined hereunder. Upon 15 days prior written
notice by Lessor to Lessee, said books shall be open for inspection by Lessor
and its designated agent for the purpose of comparing and verifying the reports
rendered by Lessee under ARTICLE II hereof or for obtaining information as to
the quantity of coal mined, the quantity of coal used at the mines, the quantity
of coal shipped and the selling prices obtained.

            4.2. Upon Lessor's reasonable request, supporting documentation
pertaining to said books of account, such as coal sales contracts, purchase
contracts, invoices, lessee work

                                       19
<PAGE>

papers and any other supporting documentation considered necessary to Lessor's
inspection hereunder shall be made available to Lessor and its designated agent
within 30 days for review, copying and reproduction, if considered necessary, in
order to document and confirm the information contained in the books of account
described in the preceding Section 4.1. The contents of such documentation shall
be treated as confidential information and shall not be disclosed by Lessor or
by its designated agent to any person or entity not a party to this lease,
except as provided by relevant state or federal laws.

                                    ARTICLE V

                            ENVIRONMENTAL LIABILITIES

            Section 5.1. Lessor shall not be responsible for any pollution of
air, lands or water resulting from coal and coal products, slack, dirt, slate
and other waste materials deposited by Lessee, its sublessees, assigns or
contractors, on the premises containing the Leased Properties, or arising or
resulting from Lessee's operations hereunder, and Lessee shall indemnify and
save harmless Lessor, and its agent designated to act on its behalf under this
lease, its officers, agents and employees, from all claims, demands,
prosecutions, fines, and judgments against Lessor, and its agent designated to
act on its behalf under this lease, its agents and affiliates, and its and their
respective officers, agents and employees, arising by reason of any such
pollution and Lessee shall pay all reasonable costs and expenses incurred by any
of such indemnitees in defending any such claims, demands and prosecutions. Upon
request of Lessor, and its agent designated to act on its behalf under this
lease, Lessee shall defend against any and all such claims and demands at
Lessee's expense.

                                       20
<PAGE>

                                   ARTICLE VI

                           LESSEE'S MINING OPERATIONS

            Lessee covenants that it will use due care and diligence to protect
the Leased Properties from waste, injury or damage and to that end Lessee shall
conduct its operations hereunder in accordance with the terms of Sections 6.1
and 6.2 hereof.

            Section 6.1. Mining Practices and Compliance with Laws. Lessee
shall, in accordance with plans of mining and descriptions thereof approved as
provided for in Section 6.2 below, but subject to the requirements of the State
of Virginia and federal law pertaining to the conduct of the mining of coal,
mine the coal within the Leased Properties in the most effectual, workmanlike
and proper manner, and so that said mining shall not unreasonably interfere with
the proper exercise of the rights hereinbefore excepted and reserved to Lessor;
and, Lessee shall comply in every material respect with the laws of the State of
Virginia and the United States of America now existing or hereafter enacted, and
all the rules and regulations promulgated thereunder, relating to the conduct of
operations for the mining of coal.

            Section 6.2. Approval of Mining Plans. To protect the Leased
Properties from waste, injury or damage, Lessee shall mine the coal within the
Leased Properties in accordance with plans of mining and reclamation and
descriptions thereof (the "Plans") which shall be submitted by Lessee to Lessor.
Such mining and reclamation shall not be initiated until the Plans have been
approved in writing by the Lessor or by its designated agent; provided, however,
that if the Lessor or its designated agent fails to either approve or deny the
Plans within 15 days of being furnished with a copy thereof, Lessor shall be
deemed to have approved the Plans. In addition to the Plans, and upon the
reasonable request of Lessor or its designated agent, Lessee shall furnish
Lessor: (i) a copy of Lessee's application for the mining permit, including the
reclamation plans required by the State of Virginia, with the maps and drawings
attached thereto,

                                       21

<PAGE>

and (ii) a statement of the post mining land use which is proposed to be made of
the Leased Properties following reclamation obligations, for approval by said
General Manager, prior to its being filed with the governmental agencies
responsible for issuance of such mining permits. Lessor and its designated agent
shall use due diligence in reviewing such application and plans of mining and
reclamation and descriptions thereof. Notwithstanding the foregoing provisions
of this Section 6.2, Lessor shall not require a higher post-mining land use and
condition than the pre-mining land use and condition, unless otherwise agreed
between Lessor and Lessee. No change in any such plans or descriptions so
approved by the Lessor or by its designated agent shall be made without such
change being approved in advance by the Lessor or by its designated agent, or
except as required by such regulatory agencies.

                                   ARTICLE VII

                      LESSEE'S LIABILITY FOR NONCOMPLIANCE

            Section 7.1. If at any time Lessee shall not conduct operations as
provided in ARTICLE VI hereof and loss of mineable and merchantable coal which
Lessee is obligated to mine or loss of other coal of Lessor may thereby result
or be threatened, the Lessor or its designated agent shall provide Lessee with a
detailed written explanation of each such violation, and, in the event of a
failure of Lessee to cure or diligently begin to cure such violation within ten
(10) days of receipt of Lessor's detailed written explanation, to enter the
Leased Properties and stop the work at the place of such violation until Lessee
shall comply with said ARTICLE VI; and Lessee shall pay to Lessor the full
amount of Tonnage Royalties, at the rate provided in ARTICLE II hereof, on the
estimated tonnage of mineable and merchantable coal lost which Lessee is
obligated to mine or that may remain unmined by reason of failure of Lessee to
conduct operations as required by said ARTICLE VI, in the same manner as if said
mineable and merchantable coal had been mined; and Lessee shall compensate
Lessor for the full amount of

                                       22

<PAGE>

Tonnage Royalties for any other mineable and merchantable coal of Lessor that is
lost by reason of the failure of Lessee to conduct operations as required by
said ARTICLE VI.

                                  ARTICLE VIII

             ENGINEERING REQUIREMENTS; SURVEY DATA; PRESERVATION OF
                     SURVEY CONTROL (TRIANGULATION) STATIONS

            Section 8.1. Engineering Requirements; Authority of General Manager
of Lessor. Lessee shall employ a competent engineer to make surveys, determine
elevations, prepare plans and maps of the mine workings, and Lessee shall
prepare and keep up, on a scale to the approval of the Lessor or its designated
agent, a map which shall be posted every three (3) months and shall show
accurately and completely, the boundaries of the lands included herein, the
locations of all railway tracks, rights-of-way, streams, roads, buildings,
structures and mine workings on or under said lands, together with elevations on
sea level datum on the mine workings, and any additional information that can be
practically obtained and that may be necessary to the safe and proper conduct of
the mining operations, or that may be required by the Lessor or its designated
agent. The size of said map shall be in accordance with standards to be
reasonably prescribed by the Lessor or by its designated agent and a
reproducible tracing of said map, which shall be the property of Lessor, shall
be sent to the Lessor or its designated agent on or before the twentieth (20th)
day of January, April, July and October of each year, properly posted in
accordance herewith for the three (3) months ending on the last day of the
calendar month immediately preceding; and the Lessor or its designated agent
shall have the privilege of keeping said tracing a sufficient time to obtain
therefrom such information as he may desire before returning the said tracing to
Lessee for each subsequent posting; and Lessor and its designated agent shall at
all reasonable times have access to the maps, plans and tracings of Lessee, and
may take therefrom copies of such portions as may be desired.

                                       23

<PAGE>

            Section 8.2. Survey Data; Preservation of Survey Control
(Triangulation) Stations. Upon Lessor's request, Lessee shall furnish Lessor or
its designated agent with a copy of all information, including but not limited
to, maps, survey field books and traverse sheets, resulting from surveying
performed on behalf of the Lessee within the premises containing the Leased
Properties. Lessee shall use due care to avoid the destruction of survey control
or triangulation stations. However, if in Lessee's operations hereunder, it
becomes necessary to destroy one of said survey control or triangulation
stations, then Lessor or its designated agent shall be notified at least 90 days
in advance of such destruction. If such destruction does occur without said
prior notice thereof being given to Lessor or its designated agent, then Lessee
shall promptly reimburse Lessor or its designated agent for the cost of
resetting said survey control or triangulation stations.

                                   ARTICLE IX

                        FAILURE TO FURNISH PLANS OR MAPS

            Section 9.1. If Lessee fails to furnish any plan or map as provided
for in ARTICLE VIII hereof for fifteen (15) days after written demand therefor
by the Lessor or its designated agent, Lessor may at its option employ a
competent engineer to make surveys and to prepare such plan or map, and Lessee
shall pay to Lessor the full amount of expenses so incurred.

                                   ARTICLE X

                      PREVENTION OF FIRES; DUTIES OF LESSEE

            Section 10.1. Lessee shall use all reasonable care and precaution to
prevent the occurrence of fires in timber or forest growth on the surface
overlying the Leased Properties and, when and where practicable, to cause the
prompt extinguishment of any such fires, and Lessee shall cooperate with Lessor
and its other lessees or agents in extinguishing such fires on said

                                       24

<PAGE>

surface and on adjoining lands that may be liable to spread to or over said
surface overlying the Leased Properties. Lessee shall be responsible for all
damage caused by fire to timber or forest growth or in any other respect on the
surface overlying the Leased Properties or adjoining lands, but only to the
extent the same is due to the negligence of Lessee, its employees, agents or
contractors.

                                   ARTICLE XI

                      COAL FROM OTHER LANDS; LAND USE TOLL

            Section 11.1. In the event Lessee transports or ships coal from any
property not owned by Lessor into, over, through or under any of the Leased
Properties, Lessee shall pay to Lessor fifteen cents (15(cent)) per net ton of
that coal, or, one-half of one per cent (1/2%) of the average gross selling
price per net ton of that coal, as gross selling price is defined in Section 2.4
above, whichever is greater, as land use toll for such transportation or
shipment. Lessee shall report and make payment, pursuant to the provisions of
Sections 2.2 and 2.3 above, for coal transported or shipped hereunder.
Furthermore, Lessee will not deposit refuse derived from any property not owned
by Lessor or by its designated agent on the Leased Properties.

                                   ARTICLE XII

                                 INDEMNIFICATION

            Section 12.1. Lessee shall conduct operations hereunder on its own
behalf and not as agent or employee of Lessor, and there shall be no privity of
contract between Lessor and agents or employees of Lessee. All employees,
agents, contractors, subcontractors, and materialmen of Lessee, whether on a
wage or profit sharing basis, shall be selected, hired, directed, paid, and
discharged only by Lessee. Lessee shall and hereby agrees to indemnify and save
harmless Lessor, its agents and affiliates, and its and their respective
officers, agents and employees, from and against any and all claims, demands,
suits, judgments, recoveries and

                                       25

<PAGE>

liabilities for injury to or death of any person or persons whomsoever and for
loss of or damage to any property whatsoever, arising or in any manner growing
out of the operations or activities of Lessee under or in connection with this
lease. Lessee hereby further agrees to indemnify and save harmless Lessor, its
agents and affiliates, and its and their respective officers, agents and
employees, from and against any and all penalties, fines, prosecutions,
statutory recoveries (whether civil or criminal) and governmental actions which
arise from or are occasioned by the operations or activities of Lessee under or
in connection with this lease.

                                  ARTICLE XIII

                  TAXES AND ASSESSMENTS; COAL APPRAISAL REPORTS

            Section 13.1. Taxes and Assessments. During the term of this lease
and any extensions or renewals pursuant to ARTICLE XX hereof, Lessee shall pay
and bear and reimburse Lessor for the expense of all taxes and assessments of
every kind and character that may be levied or assessed by governmental
authority against or upon the Leased Properties or Lessor's ownership thereof,
including, without limitation: (i) excise, privilege or license taxes based upon
the acreage of land owned by Lessor in the State of Virginia, any exemption of
acreage therefrom to be prorated to the acreage included in this lease; (ii) ad
valorem taxes; and (iii) taxes levied or assessed on the coal mined hereunder,
on the privilege of mining said coal, on the improvements or other property of
Lessee in or on Leased Properties, on the leasehold rights of Lessee, and on the
income accruing to Lessee therefrom. Within thirty (30) days of Lessee's receipt
of a statement for such taxes and assessments, together with copies of
corresponding paid tax tickets therefor, Lessee shall repay to Lessor the amount
of any such taxes and assessments as shall be paid by Lessor.

                                       26

<PAGE>

            Section 13.2. Method of Payment. Lessee shall pay such taxes and
assessments annually to Lessor as Lessor may direct. Adjustments for overpayment
for any tax year shall be credited or billed, as the case may be, by such
reasonable method as Lessor shall determine.

            Section 13.3. Coal Appraisal Reports. Lessee shall submit to Lessor
or its designated agent, for its review, a copy of annual coal appraisal reports
and returns prepared pursuant to Virginia law, or regulations promulgated
thereunder, prior to their filing with the Virginia State Tax Department. It is
understood and agreed that the assessments and levies arising and calculated
from such reports are based, in part, upon the annual production tonnages of
Lessee, and for that reason, Lessee shall pay to Lessor, in the manner provided
in Section 13.2 hereof, an amount equal to any increase in such assessments and
levies resulting from operations upon the lands herein. Lessee will pay interest
to Lessor on any amounts due under Section 13.2 hereof and this Section and not
paid within thirty (30) days after demand therefor has been made at the
effective prime interest rate as then charged by Morgan Guaranty Trust Company
of New York and calculated daily from the date said amounts are due. Lessor
reserves the right to pay any taxes or assessments due under this ARTICLE XIII
without waiving its rights for collection thereof from Lessee as provided in
ARTICLES XXII and XXIII of this lease.

                                   ARTICLE XIV

                         PROHIBITION AGAINST ASSIGNMENT

            Section 14.1. Lessee shall not mortgage, assign, convey, sublease,
or set over any of its estate, interest or rights hereunder or any part thereof,
or any of its rights or interests in buildings and other improvements placed
upon the Leased Properties by the Lessee, except with the written consent of
Lessor or its designated agent and the written assumption by the transferee of
all the obligations of Lessee in form satisfactory to Lessor, with the clear
understanding that such written consent may be subject to renegotiation of the
royalty rates or other provisions

                                       27

<PAGE>

hereinabove set forth for coal mined from the area, or coal seams therein, which
are assigned, conveyed, subleased, or set over; AND no judicial or other sale or
transfer of any kind, except under order or decree issued by any court or
judicial officer or tribunal, or in compliance with any order or decree of any
court of equity or in any proceedings in bankruptcy, shall have the effect of
transferring this lease or any of the estate, interest or rights of Lessee for
any time or term, except with the written consent of Lessor and the written
assumption by the transferee of all the obligations of Lessee in form
satisfactory to Lessor.

            Section 14.2. Upon written notice to Lessor or its designated agent,
Lessee shall have the right, voluntarily or by operation of law, to assign,
sublease or otherwise transfer its rights hereunder, or any part thereof, to any
corporation which is a subsidiary of Anker Group, Inc., or to any of its
subsidiaries or sub-subsidiaries, but no such assignment shall relieve Lessee or
any guarantor of its obligations hereunder. No such assignment or subletting
shall affect the production royalty rates set forth in Section 2.1 hereof.

                                   ARTICLE XV

                     WORKERS' COMPENSATION; LESSEE'S DUTIES

            Section 15.1. Lessee shall subscribe to and operate under the
provisions of the applicable worker's compensation laws of Virginia and make all
necessary payments thereto with respect to Lessee's employees. Lessee shall take
all reasonable steps to insure that drivers of any trucks which may be hired,
rented or leased, are also covered by such applicable worker's compensation.
Lessee shall, upon request, furnish to Lessor a certificate or certificates of
its compliance with the applicable worker's compensation laws, together with
paid premium receipts.

                                       28

<PAGE>

            If at any time Lessee's subscription to said Workers' Compensation
Act shall cease to be in force and effect, then Lessee shall suspend, and Lessor
or its designated agent may stop all operations of Lessee hereunder until such
subscription shall be reinstated.

                                   ARTICLE XVI

                BLACK LUNG BENEFITS; INDEMNIFICATION: EVIDENCE OF
                            FINANCIAL RESPONSIBILITY

            Section 16.1. Lessee hereby guarantees and agrees to indemnify and
save harmless Lessor, its agents and affiliates, and its and their respective
officers, agents and employees, from the payment of or any liability for
benefits which may be required under the Black Lung Benefits Act (30 U.S.C. 901,
et seq.) and under any laws or regulations of the State of Virginia, arising
from any mining operations hereunder, and Lessee agrees that during the primary
period and renewals, if any, of this lease, it will furnish annually to Lessor
or its designated agent evidence of financial responsibility for such black lung
benefits under applicable federal and state laws, as well as regulations issued
thereunder. Such evidence of financial responsibility shall consist of the
following:

            (a) in the event the Workers' Compensation law of the state (State)
            in which the leased property is located has been included in the
            list published by the Secretary of Labor of the United States of
            America under the Black Lung Benefits Act (30 U.S.C. 901, et seq.),
            such evidence shall consist of a certification from the officers
            administering the Workers' Compensation program for the State
            certifying as to Lessee's black lung benefits coverage under those
            Workers' Compensation laws;

            (b) in the event the Workers' Compensation laws of the State are not
            included in the list published by the Secretary of Labor of the
            United States of America under the Black Lung Benefits Act (30
            U.S.C. 901, et seq.), Lessee shall either:

                  (1) qualify as a self-insurer in accordance with regulations
            prescribed by said Secretary of Labor, or

                                       29

<PAGE>

                  (2) insure and keep insured, with any stock company or mutual
            company or association, or any other person or fund, including any
            State fund, which is authorized under the laws of the State to
            insure Workers' compensation, all black lung benefits payable under
            applicable federal and state statutes and regulations issued
            thereunder, and furnish a satisfactory certificate to Lessor
            evidencing such insurance coverage.

                                  ARTICLE XVII

                  WAGES AND BENEFITS; INDEMNIFICATION AND BOND

            Section 17.1. Lessee hereby guarantees and agrees to indemnify
Lessor, its agents and affiliates, and its and their respective officers, agents
and employees, from the payment of or any liability for, or resulting from,
wages and benefits which may be due Lessee's employees or contractors.

                                  ARTICLE XVIII

                       INSURANCE; CESSATION OF OPERATIONS

            Section 18.1. Amount of Insurance. As a condition precedent to the
commencement of operations hereunder, Lessee shall arrange for the maintenance
of public liability insurance, including, but not limited to, coverage for
environmental or pollution liability, with a good solvent casualty insurance
company or companies satisfactory to Lessor, which insurance shall indemnify the
Lessor and its designated agent against legal liability for loss by reason of
personal injury, death and property damage or loss sustained as a result, or by
reason, of the operations hereunder, with a minimum combined single limit of
$4,000,000.00 for bodily injury, death and property damage and Lessee shall,
upon request of Lessor or its designated agent, furnish to Lessor or its
designated agent certificates of such insurance, together with paid premium
receipts. This coverage shall also include any trucks or other equipment hired,
rented or leased in operations hereunder.

                                       30

<PAGE>

            It is understood and agreed, however, that the minimum limits of
coverage set forth above are not intended and will in no manner limit the
recoveries of Lessor under the indemnity provisions of ARTICLES V, XII, XVI and
XVII above and on page 14 of this lease.

            Section 18.2. Cessation or Suspension of Operations. If at any time
any of these insurance coverages shall cease to be in force and effect, then,
upon written demand of Lessor or its designated agent, Lessee shall suspend all
operations hereunder until such insurance coverages shall be reinstated.

                                   ARTICLE XIX

                   LESSOR'S RIGHT TO INSPECT MINING OPERATIONS

            Section 19.1. Except to the extent it may interfere with Lessee's
operations, Lessor, and the Lessor's employees, agents and engineers, shall at
all times have the right and privilege of entering the works and mines of Lessee
in or upon the Leased Properties included herein to inspect, examine, survey or
measure the same or any part thereof solely for the purpose of verifying the
reports of Lessee as to the amounts of coal mined or removed and for that
purpose to use freely the means of access to said works and mines, without
hindrance or molestation. Lessor acknowledges and agrees that in entering the
works and mines of Lessee, it, along with its employees, agents and engineers,
assumes all risks associated therewith. Lessor further acknowledges and agrees
to fully and completely indemnify and hold Lessee harmless from and against all
claims, demands, suits, judgments, recoveries and liabilities for injury to or
death of any person or persons whomsoever and for loss of or damage to any
property whatsoever, arising or in any manner growing out of the activities of
Lessor's employers, agents and engineers in their performance of Lessor's rights
under this Section 19.1.

                                   ARTICLE XX

                                       31

<PAGE>

                         OBLIGATION TO MINE; EXTENSION;
                          DUTY TO RECLAIM; TERMINATION

            Section 20.1. Obligation to Mine; Extension. Lessee shall mine and
remove all of the mineable and merchantable coal which can be mined and removed
hereunder by modern mining methods and if, at the expiration of the original
period hereof, Lessee has not mined and removed all of the mineable and
merchantable coal which it is or may become obligated to mine, then this lease
shall be extended for such additional five (5) year periods as may be necessary,
upon the same terms and provisions, but subject to the full payment of all
royalties, rentals and other payments due hereunder, until all of said mineable
and merchantable coal which can be economically mined and removed by approved
mining methods has been mined and removed from the Leased Properties; and
whenever during said original period or any extension thereof, as herein
provided, Lessee shall have mined and removed all of said mineable and
merchantable coal by such approved mining methods and shall have paid all
royalties, rentals and other payments due or accrued hereunder then Lessee's
obligation to mine coal and make payment of minimum annual rental hereunder
shall terminate.

            Section 20.2. Duty to Reclaim; Payment of Amounts Due; Termination.
In the event the lease herein shall not be extended at the end of the original
period hereof or any extended period thereof, or all of said coal has been mined
and removed, then this lease shall continue to be extended for additional one
(1) year periods, at a nominal rental to be determined by Lessor (not to exceed
$100.00 per year), until all the reclamation of the lands disturbed by mining
operations under this lease has been completed and finally approved by the state
and/or federal agency or agencies having jurisdiction of such mining operations
and all the bonds for such reclamation have been fully released by such agency
or agencies. Upon such release of all of said bonds this lease shall terminate,
without, however, releasing Lessee from any obligations

                                       32

<PAGE>

or liabilities arising prior to said termination. Further, in the event Lessee
has not made payment of all royalties, rentals and other payments due hereunder
at the end of the original period hereof or any renewal or extended period
thereof, then Lessor, at its option, may extend the term of this lease until all
of such payments have been made.

                                   ARTICLE XXI

                              TERMINATION OF LEASE

            Section 21.1. Termination by Lessee. After Lessee's satisfaction of
all mining and reclamation obligations contained in ARTICLE XX hereof, Lessee
may give Lessor or its designated agent thirty (30) days' notice of its
intention to terminate this lease, and, if Lessor or its designated agent shall
determine that Lessee has fully performed its obligations under this lease,
Lessee's obligations hereunder shall be deemed terminated effective on such
thirtieth (30th) day, without, however, releasing Lessee from any obligations or
liabilities arising prior to said termination of obligations. Upon termination
of this lease, any Advance Minimum Annual Rentals paid for the lease year in
which the termination occurs which has not been credited against Tonnage
Royalties for that year shall be refunded to Lessee, and Lessee shall not be
liable for any further Advance Minimum Annual Rentals.

            Section 21.2. Removal of Property Following Termination or
Expiration. Upon the cancellation, termination or expiration of this lease for
any reason, Lessee shall have 180 days in which to remove from the Leased
Properties all Lessee's equipment, buildings and other improvements and personal
property, and any of the same not so removed shall, at Lessor's option, either
become the property of Lessor without charge therefor or be disposed of by
Lessor at Lessee's cost and expense; provided, however, that Lessee shall not
remove any equipment, buildings, improvements or property unless Lessee shall
have fully performed all matters to be performed by it hereunder.

                                       33

<PAGE>

                                  ARTICLE XXII

                                     DEFAULT

            Section 22.1. Default; Cancellation by Lessor. If any one or more of
the following events (herein sometimes called Events of Default) shall occur:

                  (a) If default shall be made in the due and punctual payment
            of any rent, royalty or any part thereof, when and as the same may
            become due and payable, or in the payment of taxes and insurance
            premiums or any other amounts to be borne by Lessee hereunder, or in
            the furnishing of receipts and certificates of payment therefor when
            due, or in the furnishing of any of the books, records or reports by
            Lessee to be furnished under this lease, and such default shall
            continue for fifteen (15) days after notice by Lessor or its
            designated agent to Lessee; or,

                  (b) If default shall be made by Lessee in the performance of
            or compliance with any of the covenants, agreements, terms or
            conditions contained in this lease, other than those referred to in
            the foregoing subsection (a) of this Section 22.1, and such default
            shall continue for a period of sixty (60) days after written notice
            thereof from Lessor or its designated agent to Lessee, and Lessee
            shall not within such period commence with due diligence the curing
            of such default, or if Lessee shall, within such period, commence
            with due diligence to cure such default and thereafter shall fail or
            neglect to prosecute and complete with due diligence and dispatch
            the curing of such default; or,

                  (c) If Lessee shall file a voluntary petition in bankruptcy or
            shall be adjudicated bankrupt or insolvent, or shall file any
            petition or answer seeking or acquiescing in any reorganization,
            arrangement, composition, readjustment, liquidation, dissolution or
            similar relief for itself under any present or future federal, state
            or other statute, law or regulation, or shall seek or consent to or
            acquiesce in the appointment of any trustee, receiver, or liquidator
            of Lessee or of all or any substantial part of the property leased
            hereby or of any or all the rents, revenues, issues, earnings,
            profits, or income thereof, or shall make any general

                                       34

<PAGE>

            assignment for the benefit of creditors, or shall admit in writing
            its inability to pay its debts generally as they become due;

then and in any such event, Lessor or its designated agent at any time
thereafter while such default or condition is continuing, may give written
notice to Lessee specifying the occurrence giving rise to such Event of Default,
or Events of Default, and stating that the lease shall terminate on the date
specified in such notice, which shall be at least ten (10) days after the giving
of such notice. Upon the date specified in such notice, this lease and the
estate and interest hereby demised shall terminate and all rights of Lessee
under this lease shall cease.

            Section 22.2. Repossession, etc. by Lessor. Lessee expressly waives
any right to prior notice or any process of law other than the issuance of the
warrant of distraint, and Lessee further expressly waives any right to hearing
prior to the levy of such warrant and sale thereunder and at any time after such
termination of this lease, Lessor or its designated agent, without further
notice, may enter and re-enter the Leased Properties for all proper purposes and
repossess itself by all legal means, including summary proceedings, of its prior
and former estate and may remove Lessee and all persons claiming through Lessee
from the Leased Properties.

            Section 22.3. Survival of Lessee's Obligations; Damages. No
termination of this lease or repossession of the Leased Properties, by force,
summary proceedings, ejectment or otherwise, shall relieve Lessee of its
liability and obligations under this lease, and such liability and obligations,
including, without limitation, the indemnity commitments contained in ARTICLES
V, XII, XVI and XVII above and on page 14 of this lease, shall survive
termination or any repossession. In the event of any such termination or
repossession, Lessee shall pay to Lessor the advance minimum annual rentals,
production royalties and other charges required to be paid by Lessee up to the
time of such termination or repossession.

                                       35

<PAGE>

            Section 22.4. No Waiver, etc. by Lessor. No failure by Lessor or its
designated agent to insist upon the strict performance of any covenant,
agreement, term or condition of this lease or to exercise any right, power or
remedy consequent upon a breach thereof, and no acceptance of full or partial
performance or payment of royalties during the continuance of any such breach,
shall constitute a waiver of or consent to any such breach or of such covenant,
agreement, term or condition. No waiver of any breach shall affect or alter this
lease, but each and every covenant, agreement, term and condition of this lease
shall continue in full force and effect with respect to any other then existing
or subsequent breach thereof.

            Section 22.5. Injunction Against Breach. In the event of any breach
or threatened breach by Lessee of any of the covenants, agreements, terms or
conditions of this lease, Lessor shall have the right to invoke any rights,
powers and remedies allowed at law, in equity or by statute or otherwise,
whether or not specifically provided in this lease.

            Section 22.6. Lessor's Remedies Cumulative, etc. Each right, power
and remedy of Lessor and its designated agent provided for in this lease shall
be cumulative and concurrent and shall be in addition to every other right,
power or remedy provided for in this lease or now or hereafter existing at law
or in equity, by statute or otherwise, and the exercise or beginning of the
exercise by Lessor or by its designated agent of any one or more of the rights,
powers or remedies provided for in this lease or now or hereafter existing at
law or in equity, by statute or otherwise shall not preclude the simultaneous or
later exercise by Lessor or by its designated agent of any or all other rights,
powers or remedies provided for in this lease, or by statute or otherwise.

                                       36

<PAGE>

                                  ARTICLE XXIII

                                  CONDEMNATION

            Section 23.1. If the coal herein leased, or any portion thereof,
shall be taken in, or in any manner affected by, condemnation for any public or
quasi-public use under any statute or by right of eminent domain, or by private
purchase in lieu of condemnation, by a public body vested with the power of
eminent domain, then, and in each and every such event, Lessor or its designated
agent shall be free to conduct all negotiations for compensation or damages,
including without limitation, participation in viewer's proceedings and the
institution of litigation concerning such taking, with the understanding that in
the case of each and every condemnation or taking Lessor shall notify Lessee of
same, and Lessor and Lessee shall be paid out of any such award or compensation
in damages as follows:

            (a) If the award for the coal in any such condemnation or taking
shall exceed the amount of royalty that would have been due Lessor had the coal
been then mined, based upon recent sales by Lessee or, if no such sales exist,
based upon recent sales by others of coal of comparable quality, all of such
award which is in excess of said royalty amount shall be the property of and be
paid to Lessee and the balance of the award shall be the property of and be
retained by Lessor; or,

            (b) If such award for the coal shall be equal to or less than said
royalty amount, then all of such award shall be the property of and be retained
by Lessor.

            (c) Any specific award for Lessee's buildings, structures or
improvements shall be paid to Lessee and any award for surface lands, or
interests therein or any other buildings, structure or improvements thereon,
shall be the property of Lessor.

            Lessee shall cooperate with Lessor and its designated agent in all
matters hereunder, including joining in any litigation or settlement if Lessor
determines such to be

                                       37

<PAGE>

necessary; provided, that any such condemnation or taking shall not otherwise
affect Lessee's duties and obligations under this lease, except as provided
herein.

                                  ARTICLE XXIV

                   LESSEE'S RIGHT TO PAY ROYALTIES INTO ESCROW

            Section 24.1. Lessee's Right to Pay Royalties Into Escrow. In the
event any party asserts any claim of title in the Leases Properties superior to
Lessor, Lessor and Lessee shall determine whether to commence and continuously
prosecute an action to quiet title until resolution thereof. In such event,
Lessor and Lessee may execute a mutually agreed upon escrow agreement, or other
appropriate instrument, whereby Lessee shall pay all royalties or other sums due
hereunder into escrow until such resolution is confirmed. Any sums paid into
such escrow by Lessee, together with any interest earned thereon, shall be
applied toward payment of the Tonnage Royalties and other sums due Lessor
hereunder.

                                   ARTICLE XXV

                                   ARBITRATION

            Section 25.1. If there should arise any matters in dispute hereunder
on which Lessor and Lessee cannot finally agree, such matter or matters shall be
referred to a board of arbitrators consisting of three (3) disinterested,
competent persons, one selected by Lessor and one by Lessee, as hereinafter
provided, and the two thus selected shall select the third, who shall have the
power of an umpire and be known as umpire-arbitrator. The decision and award of
such arbitrators, or any two of them, or, in case of disagreement among all the
arbitrators, of the umpire-arbitrator, shall be conclusive and binding upon
Lessor and Lessee and promptly complied with.

            The party desiring arbitration shall give written notice to the
other party, definitively stating the point or points in dispute and naming the
person selected as arbitrator;

                                       38

<PAGE>

and it shall be the duty of the other party, within fifteen (15) days after
receiving such notice, to name an arbitrator, and these two shall select the
umpire-arbitrator; and in event the party notified does not name an arbitrator
within said period of fifteen (15) days, the party serving such notice may
select a second arbitrator and the two thus selected shall select the
umpire-arbitrator.

            In the event of failure of the two arbitrators, selected as
aforesaid, within thirty (30) days from receipt by both of them of notice of
their selection, to agree upon the umpire-arbitrator, then they shall jointly
notify, in writing, the parties of their failure to agree upon such
umpire-arbitrator. The parties shall then, within fifteen (15) days from the
date of such notification, jointly select the umpire-arbitrator. In the event
the parties are unable to so select the umpire-arbitrator within said fifteen
(15) day period, they shall then jointly select the names of three (3) potential
umpire-arbitrators. None of these three (3) potential umpire-arbitrators shall
represent, or have any affiliation with either party. Once the list of said
three (3) potential umpire-arbitrators has been prepared, each party shall then
strike the name of one (1) potential umpire-arbitrator from said list. The
person remaining on such list after the parties have stricken a name from said
list shall be the umpire-arbitrator. Further, in the event the parties fail to
select such umpire-arbitrator as aforesaid, either of the parties may apply to
the American Arbitration Association (AAA) for the appointment of an
umpire-arbitrator pursuant to the rules and procedures of the AAA for the
appointment of neutral arbitrators, as revised. The individual then designated
will act as such umpire-arbitrator hereunder.

            The umpire-arbitrator thus chosen shall give to Lessor and Lessee
written notice as to the time and place of hearing, which hearing shall be not
less than ten (10) nor more than twenty (20) days after his selection, and, at
the time and place appointed he shall proceed with

                                       39

<PAGE>

the hearing unless, for some good cause of which the arbitrators shall be the
judge, it shall be postponed until some later date within a reasonable time.
Both Lessor and Lessee shall have full opportunity to be heard, orally and in
writing, on any question thus submitted. In arriving at a decision and award,
the arbitrators shall be bound by any relevant state and federal law applicable
to the substantive issue or issues so submitted for arbitration, and they shall
make such decision and award in writing, and deliver a copy to both Lessor and
Lessee. The arbitration award shall specify by whom the costs of arbitration
shall be borne and paid and the amount of such costs, including reasonable
compensation for the arbitrators.

                                  ARTICLE XXVI

                                 CONTROLLING LAW

            Section 26.1. In all coal mining operations and other activities
conducted hereunder Lessee shall comply with all the laws of the United States
of America and the State of Virginia now or hereafter enacted, and all rules and
regulations promulgated thereunder by any governmental agency, relating to such
coal mining operations or other activities. Any disputes as to the meaning and
application of any of the provisions of this lease shall be determined under the
laws of the State of Virginia.

                                  ARTICLE XXVII

                                     NOTICE

            Section 27.1. The giving of any notice to, or the making of any
demand on, Lessee shall be sufficient if in writing, addressed to Lessee and
mailed via certified mail, providing for receipt, to Lessee at P. O. Box 1249,
Beaver, West Virginia 25813, with a copy to Anker Group, Inc., 2708 Cranberry
Square, Morgantown, West Virginia 26505, Attn: President; and likewise the
giving of any notice to, or the making of any demand on, Lessor or its
designated agent shall be sufficient if in writing, addressed to Lessor and
similarly mailed via

                                       40

<PAGE>

certified mail, providing for receipt, to Lessor at c/o Pocahontas Land
Corporation, P. O. Box 1517, Bluefield, West Virginia 24701; and ten (10) days
shall be considered a reasonable notice or demand period except where a longer
notice period is herein prescribed.

                                 ARTICLE XXVIII

                                    HEADINGS

            Section 28.1. The headings of the ARTICLES in this lease are for
convenience only and shall not be used to construe or interpret the scope or
intent of this lease or in any way affect the same.

                                  ARTICLE XXIX

                                    SURVIVAL

            Section 29.1. No termination or cancellation of this lease shall
relieve either of the parties hereto from any obligations or liabilities
incurred by it under this lease as of the time of such termination or
cancellation.

                                   ARTICLE XXX

                                  SEVERABILITY

            Section 30.1. If any term or provision of this lease is held to be
illegal or invalid for any reason whatsoever, such illegality or invalidity
shall not affect the validity or legality of any of the other terms or
provisions of this lease.

                                  ARTICLE XXXI

                    TERMS BINDING UPON SUCCESSORS AND ASSIGNS

            Section 31.1. All of the terms and provisions hereof to be performed
and observed by the respective parties hereto shall be binding upon and shall
inure to the benefit of their respective successors, and assigns.

                                       41

<PAGE>

                                  ARTICLE XXXII

                                 CONFIDENTIALITY

            Section 32.1. This lease and all information concerning or
pertaining to Lessee and its affiliates developed or acquired by Lessor under or
in connection with this lease shall be kept strictly confidential and shall not
be released or made public without Lessee's express prior consent.

            WITNESS the following signatures and seals as of the date first
above written.

            Executed in two (2) counterparts.

                                       SOUTHERN REGION INDUSTRIAL REALTY, INC.
                                       By

                                       /s/ John R. Turbyfill

                                 Vice President

                                       ADVANTAGE ENERGY CORPORATION
                                       By

                                       /s/ Richard B. Bolen
                                       ---------------------------------------
                                       Its President

                                       42

<PAGE>

STATE OF WEST VIRGINIA      )
                            ) To-wit:
CITY OF NORFOLK             )

            I, CAROLE K. JOHNSON, a Notary Public of said County, do certify
that JOHN R. TURBYFILL, its VICE PRESIDENT, who signed the writing above, dated
as of February 28, 1996, for said Southern Region Industrial Realty, Inc., has
this day in my said County, before me, acknowledged the said writing to be the
act and deed of said Corporation.

            Given under my hand and official seal this 28th day of FEBRUARY,
1996.

                                                     /s/ Carole K. Johnson
                                                     ---------------------------
                                                     Notary Public

My commission expires: My Commission Expires May 31, 1998
                       I was commissioned Carole M. Kingery.

STATE OF WEST VIRGINIA    )
                          ) To-wit:
COUNTY OF MERCER          )

            I, Cathy T. Buzzo, a Notary Public of said County, do certify that
Richard B. Bolen, its President, who signed the writing above, dated as of
February 28, 1996, for said Advantage Energy Corporation, has this day in my
said County, before me, acknowledged the said writing to be the act and deed of
said Corporation.

            Given under my hand and official seal this 28th day of February,
1996.

                                                     /s/ Carthy T. Buzzo
                                                     ---------------------------
                                                     Notary Public

My commission expires: August 16, 1998.

            This instrument prepared by Thomas L. Linkous, Attorney at Law,
Bluefield, West Virginia 24710-1517.

                                       43

c:\lease\Advantage
<PAGE>

POCAHONTAS LAND CORPORATION
POCAHONTAS DEVELOPMENT CORPORATION

800 Princeton Avenue
P.O. Box 1517                                                    Daniel D. Smith
Bluefield, West Virginia 24701                                   President
(304) 325-2054 - Telecopier                                      (304) 325-7472

                                        September 9, 1997

Mr.  Richard Bolen
Vice President-Operations
Anker Virginia Mining Company, Inc.
2708 Cranberry Square
Morgantown, WV 26505

      RE:   ANKER VIRGINIA MINING COMPANY, INC. - Proposed sublease of a portion
            of the Greasy Creek seam of coal to Pyxis Resources Company,
            Tazewell County, Virginia

Dear Dick:

      This is in regard to our recent discussions regarding a proposed sublease
of a portion of the Greasy Creek seam of coal from Anker Virginia Mining
Company, Inc. to Pyxis Resources Company within its leasehold from Southern
Region Industrial Realty, Inc. (SRIR).

      As per our agreement, this is to confirm that in order to insure the
recovery of the Greasy Creek seam in the proposed area of sublease, SRIR agrees
to modify the royalty to $1.00 per ton or 4% g.s.p., whichever greater.

      We understand that the formal sublease agreement will be forwarded to us
for execution as soon as practicable.

      If you have any questions regarding this letter, please call.

                                        Sincerely,

                                        /s/ Daniel D. Smith

                                        Daniel D. Smith
                                        President

DDS:dt
/dds/bolen
xc: Mr. F. Thomas Rubenstein
    REG EFH RNS RHC

NORFOLK
SOUTHERN(R)

<PAGE>

      THIS AMENDMENT OF LEASE, Made as of August 1, 2002, between SOUTHERN
REGION INDUSTRIAL REALTY, INC. (SRIR), a corporation of Georgia, Lessor, and
ANKER VIRGINIA MINING COMPANY, INC. (Anker), a corporation of Virginia, Lessee,
with POCAHONTAS LAND CORPORATION (Pocahontas), a corporation of Virginia,
joining;

                                  WITNESSETH:

            WHEREAS:

            1. By lease dated February 28, 1996 (Original Lease), SRIR leased to
Advantage Energy Corporation (Advantage), predecessor of Anker, for a period of
fifteen (15) years through February 28, 2011, subject to further renewals, the
right to mine various seams of coal within five (5) parcels of land containing
in the aggregate 10,019.34 acres, more or less, situated in Buchanan and
Tazewell Counties, Virginia, as described therein, and upon terms and conditions
therein set forth;

            2. By management agreement dated March 1, 1996, SRIR employed and
appointed Pocahontas as its agent to develop, market, administer, supervise and
contract with respect to its mineral properties and mineral leases;

            3. By assignment effective July 31, 1997 (Anker Assignment),
Advantage assigned all its right, title and interest in the Original Lease to
Anker, upon terms and conditions therein set forth;

            4. By letter dated September 9, 1997, Pocahontas and SRIR agreed
with Anker that the royalty rate under the Original Lease would be reduced to
$1.00 per ton or 4% of the gross sales price, whichever is greater, for the
Greasy Creek seam of coal in a portion of the premises leased under the Original
Lease that Anker proposed to sublease to Pyxis Resources Company (Greasy Creek
Seam Royalty Letter);

            5. By sublease dated October 31, 1997 (Pyxis Sublease), Anker
subleased to Pyxis Resources Company, with the consent of SRIR, the right to
mine the Greasy Creek Seam of coal within two (2) parcels of land containing in
the aggregate 3,977.89 acres, more or less, situated in Tazewell County,
Virginia, upon terms and conditions therein set forth;

            6. By letter dated January 23, 1998 (Clinchfield Assignment), SRIR
was notified that the Pyxis Sublease had been assigned to Clinchfield Coal
Company (Clinchfield), upon the same terms and conditions as contained in the
Pyxis Sublease;
<PAGE>

            7. By amendment No. 1 to sublease agreement dated February 9, 2001
(Clinchfield Amendment), between Anker and Clinchfield, with the consent of
SRIR, an additional area of 914 acres, more or less, of the Greasy Creek Seam of
coal only was added to the Pyxis Sublease area:

            8. By sublease dated February 14, 2001 (Norton Sublease), Anker
subleased to Norton Coal Company, with the consent of SRIR, the right to mine
the Jawbone Seam of coal and seams above the Jawbone Seam within a parcel of
land containing 555 acres, more or less, situated in Tazewell County, Virginia,
upon terms and conditions therein set forth;

            (Original Lease, Anker Assignment, Greasy Creek Seam Royalty Letter,
            Pyxis Sublease, Clinchfield Assignment, Clinchfield Amendment and
            Norton Sublease are hereinafter referred to as "Anker Papers"); and

            9. Anker has requested and SRIR has agreed, for the remaining period
of said Original Lease, to amend and modify the advance minimum annual rental
provisions contained in Article III of the Original Lease upon terms and
conditions hereinafter set forth.

            NOW, THEREFORE, in consideration of the premises contained herein,
the mutual benefit to be derived by the parties hereto and the continued
performance and observance by Anker of all the terms and provisions of said
Anker Papers, and this Amendment of Lease, the Original Lease is amended as
follows:

            FIRST: Sections 3.1 and 3.2 of Article III of the Original Lease are
hereby deleted in their entirety and the following substituted as new Sections
3.1 and 3.2 of such Article III:

                                  ARTICLE III

                          ADVANCE MINIMUM ANNUAL RENTAL

            Section 3.1. Amount and Payment; Interest; Lessee shall pay to
Lessor, as advance minimum annual rental on account of coal mined or to be mined
hereunder, the sum of Two Hundred Fifty Thousand Dollars ($250,000.00) for
calendar year 2003 and Two Hundred Fifty Thousand Dollars ($250,000.00) for each
calendar year thereafter under this lease and extensions thereof. Payment of
advance minimum annual rental shall be made quarterly in advance.

                                       2
<PAGE>

            Lessee will pay interest to Lessor on the amount of any advance
minimum annual rental due and not paid by the date such rental is due at the
rate of one and one-half percent (1 1/2%) per month from the date said amount is
due.

            Section 3.2. Recoupment. Each payment of advance minimum annual
rental shall be applied as a credit, first against production royalties payable
for mining performed in the calendar year for which such payment of minimum
annual rental is made and then, to the extent not recouped by such credit
against production royalties earned during that calendar year, against
production royalties earned in the next succeeding calendar year. It is
understood and agreed that no royalty payments due for any calendar year shall
be credited against advance minimum annual rental applicable to any subsequent
calendar year.

            SECOND: Lessee agrees to relinquish its right to recoup any
unrecouped minimum annual rentals paid from the date of the Original Lease
through the date hereof ($1,600,402.03, less the production royalties for the
months of August [$39,232.37] and September [amount yet to be calculated],
2002). Effective as of this date, Lessee shall be relieved and forever
discharged from further advance minimum annual rentals for calendar year 2002,
or the lease year which commenced on March 1, 2002; however, Lessee shall pay to
Lessor production royalties for coal mined under the Anker Papers as set forth
in Section 2.3 of Original Lease, but subject to the Greasy Creek Seam Royalty
Letter.

            THIRD: The Original Lease, as herein amended, shall remain in full
force and effect.

                                       3
<PAGE>

            WITNESS the following signatures and seals as of the date first
above written.

            Executed in two (2) counterparts.

                                        SOUTHERN REGION INDUSTRIAL REALTY, INC.

                                     By /s/ Daniel D. Smith
                                        ---------------------------------------
                                        Daniel D. Smith
                                        Vice President

                                        ANKER VIRGINIA MINING COMPANY, INC.

                                     By /s/ James A. Beck, Jr.
                                        ---------------------------------------

                                        Its President & CEO

                                        POCAHONTASLAND CORPORATION

                                     By /s/ Daniel D. Smith
                                        ---------------------------------------
                                        Daniel D. Smith
                                        President

                                       4
<PAGE>

STATE OF WEST VIRGINIA    )
                          ) To-wit:
COUNTY OF MERCER          )

            I, Beteresia J. Willis, a Notary Public of said County, do certify
that Daniel D. Smith, Vice President, who signed the writing above, dated as of
August 1, 2002, for said Southern Region Industrial Realty, Inc., has this day
in my said County, before me, acknowledged the said writing to be the act and
deed of said Corporation.

            Given under my hand and official seal this 17th day of October,
2002.

                                        /s/ Beteresia J. Willis
                                        ---------------------------------------
                                        Notary Public

My commission expires: May 17, 2010 .

STATE OF WEST VIRGINIA   )
                         )To-wit:
COUNTY OF MONONGALIA     )

            I, Fred C. Kunzelman, a Notary Public of said County, do certify
that James A. Beck, Jr., its President, who signed the writing above, dated as
of August 1, 2002, for said Anker Virginia Mining Company, Inc., has this day in
my said County, before me, acknowledged the said writing to be the act and deed
of said Corporation.

            Given under my hand and official seal this 22nd day of October,
2002.

                                        /s/ Fred C. Kunzelman
                                        ---------------------------------------
                                        Notary Public

My commission expires: 8-1-2006 .

                                       5
<PAGE>

STATE OF WEST VIRGINIA  )
                        ) To-wit:
COUNTY OF MERCER        )

            I, Beteresia J. Willis, a Notary Public of said County, do certify
that Daniel D. Smith, President, who signed the writing above, dated as of
August 1, 2002, for said Pocahontas Land Corporation, has this day in my said
County, before me, acknowledged the said writing to be the act and deed of said
Corporation.

            Given under my hand and official seal this 17th day of October,
2002.

                                        /s/ Beteresia J. Willis
                                        ---------------------------------------
                                        Notary Public

My Commission expires:  May 17, 2010.

            This instrument was prepared by Stephen M. Hopta, Attorney at Law,
Bluefield, West Virginia 24701.

Lease\Anker-Amendment

                                       6

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