Document:

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                                                                   Exhibit 10.12

                                   COAL LEASE

      THIS COAL LEASE, made this 1st day of July, 1999, by and between NGHD
LANDS, INC., a West Virginia Corporation, T. C. LANDS, INC., a West Virginia
Corporation, LARRY A. DEITZ and GLORIA K. DEITZ, his wife, WHITE PINE, INC, a
West Virginia Corporation, G. D. HEROLD ESTATE by JAMES H. WOLVERTON and EUGENIA
P. HEROLD, Co-Executors in the Last Will and Testament of G. D. HEROLD, MAXEY
ANN TULLY, widow, (hereinafter collectively called "Lessor"), and COASTAL
COAL-WEST VIRGINIA, LLC, (hereinafter called "Lessee")

      NOW, THEREFORE, WITNESSETH that, for and in consideration of the rents and
royalties herein reserved and to be paid by Lessee to Lessor as hereinafter
provided and of the terms, conditions, covenants, stipulations and agreements
herein contained and to be kept and performed by Lessee, Lessor does hereby
demise and lease all of the mineable and merchantable coal including the
Stockton Seam and all seams above the Stockton Seam of coal in those certain
tracts or parcels of land situate in Glade District, Webster County, West
Virginia, and more particularly described on Schedule A, attached hereto and
made a part hereof, and shown and designated on a map attached hereto and made a
part hereof and marked for identification, i. e., 188 Acres (WE46), 76 Acres
(WE51), 28 Acres (WE45), 202 Acres (WE48), 20.75 Acres (WE50), 43.54 Acres
(WE52), and 73 Acres (WE47);

      [REFER TO COAL - SCHEDULE A AND MAPS EXHIBIT 1 AND EXHIBIT 2]

all of which, together with the rights granted Lessee in Article II hereof, is
sometimes hereinafter referred to as the "demised premises".

      Lessee does hereby accept this demise and lease and the same is made upon
the following terms, covenants and agreements, that is to say:

                                      C-1
<PAGE>

                                    ARTICLE I

                                TITLE AND ACREAGE

      1.1 No Warranty of Title or Acreage. Lessor hereby leases unto Lessee only
such coal, mining and surface rights in and to the demised premises as Lessor
owns and has the right to lease. This lease is made without any representations
or warranties of any kind as to title or covenants of rights to lease or of
quiet or peaceful possession, express or implied. Moreover, this lease is a
lease in gross and not by acre and in the event there should be a deficiency of
acreage in any of the tracts subject to this lease, such deficiency shall not
impose any liability upon Lessor or in any way affect any provision of this
lease, including without limitation, the minimum annual royalty required to be
paid by Lessee. The parties acknowledge that the map attached hereto is for
convenience only and shows only the approximate location of the demised premises
and its boundary lines. Lessor makes no representations or warranties of any
kind, either expressed or implied, as to contiguity of any individual tracts or
parcels of land which may comprise the demised premises.

                                   ARTICLE II

                                  MINING RIGHTS

      2.1 Grant of Mining Rights. Subject to the provisions of Article I above,
Lessor, to the extent that Lessor owns and has the right to do so, hereby grants
unto Lessee the right to mine and remove all of the mineable and merchantable
coal hereby leased by any mining method, excluding the auger mining method,
which will recover not less than eighty percent (80%) of such coal within the
entire leased premises, together with all necessary and convenient rights with
respect thereto, including but not limited to the following:

      It is understood and agreed by and between the parties hereto that the
Lessee shall make a good faith, reasonable effort, to adopt and implement a
mining plan which will recover no less

                                      C-2
<PAGE>

than eighty percent (80%) of the recoverable coal on the leased premises. After
having exhausted all reasonable efforts to obtain permits which will accomplish
such removal percentages as are required hereunder, the Lessor agrees to
consider in good faith alternate plans. In connection with any such
reconsideration, Lessee shall be provided with copies of any and all
documentation related to the permitting procedure for review by Lessor's
Engineers.

      (a) Rights-of-Way. All necessary rights of way over and across the surface
of the demised premises, with the right to construct, operate and maintain
thereon railroads, roads, haul ways, conveyors, power lines, water lines, drain
ways and other ways necessary or convenient for the exploration, mining and
processing of the coal hereby leased.

      (b) Structures. The right to construct buildings, tipples, preparation
plants, power stations and other structures which Lessee may deem necessary or
convenient for use in connection with its coal mining operations under this
lease.

      (c) Surface. The right to disturb, remove and utilize so much of the
surface of the demised premises and the stone, sand and water thereon and right
to cut and use (subject to the provisions of Section (f) hereof) so much of the
timber situate on the demised premises as may be necessary or convenient for
Lessee's coal mining operations, subject to like consent having been obtained
from the owner(s) of any outstanding interest.

      (d) Subjacent Support. The right to mine by approved mining method all of
the mineable and merchantable coal within and underlying the demised premises
without leaving any subjacent support for the overlying strata and without being
liable for any damages which may be caused by the removal of all of such coal to
the overlying or underlying strata therein or thereon or to any objects or
structures thereon; provided, however, that where Lessor does not own any
portion of the demised premises in fee simple, Lessor's waiver of subjacent
support on

                                      C-3
<PAGE>

that portion of the surface is conditional upon Lessee obtaining a like waiver
from persons owning any outstanding surface interest or other interests and
situate within the demised premises.

      (e) Surface Deposits. The right to deposit upon the surface of the demised
premises slate, rock, dirt, bone, refuse and other unmerchantable materials and
waste water resulting from the mining, removing, processing and marketing of the
coal mined by Lessee from the demised premises; provided, however, that Lessee
shall comply with such reasonable regulations and limitations as Lessor may
prescribe and with all statutes, regulations and rules which may now or
hereafter be enacted or prescribed by the United States of America or the State
of West Virginia or any other governing body which regulates the disposal of
such waste, overburden or refuse material; and provided further, however, that
Lessee shall, during the term of this lease, and at all times thereafter, be
fully and completely responsible for the treatment and/or removal of any water,
overburden or refuse materials placed by Lessee on the demised premises which
shall be required by any governmental agency, including, but not limited to, the
elimination of any fires, drainage or ecological problems or other environmental
hazards.

      (f) Timber. The right to damage or destroy any timber on the demised
premises which damage or destruction is occasioned by Lessee's mining operations
and other activities in connection therewith; provided, however, Lessee shall
give Lessor at least six (6) months written notice of Lessee's intention to
damage or destroy any of such timber and Lessor shall have the right during such
six (6) month period to cut and remove all or any part of such timber and
subject to like notice and consent being obtained from the owner(s) of any
outstanding interest in said demised premises; provided, further, if Lessor
shall fail to exercise the right herein granted,

                                      C-4
<PAGE>

Lessee shall thereafter have the right to cut, burn or remove such timber
without being obligated to pay for the same.

      (g) Wheelage. The right to transport under or through all tracts or any
part of any one tract of the demised premises coal mined from lands other than
the demised premises ("adverse coal") upon the payment to Lessor of an amount of
money equal to (a) Ten Cents ($0.10) or (b) one-fourth of one percent (1/4 of
1%), whichever is greater, of the gross selling price, as hereinafter defined,
for each ton of two thousand (2,000) pounds of such adverse coal so transported
under or through the demised premises as follows: Group 1 - 28-Acre tract
(WE45), 20.75-Acre tract (WE50), 202-Acre tract (WE48), and 43.54-Acre tract
(WE52) have been pooled and regardless of which tract is being used for
transporting over or across the demised premises as aforesaid, the Lessors
(owners) shall be paid wheelage as outlined on Schedule A and as shown on Map
Exhibit 1 Coal Wheelage, attached hereto and made a part hereof; Group 2 -
188-Acre tract (WE46) and 76-Acre tract (WE51) have been pooled and regardless
of which tract is being used for transporting over or across the demised
premises as aforesaid, the Lessors (owners) shall be paid wheelage as outlined
on Schedule A and as shown on Map Exhibit 1 Coal Wheelage, attached hereto and
made a part hereof; and, Group 3 - 73-Acre tract (WE47) shall be paid wheelage
as outlined on Schedule A and as shown on Map Exhibit 1 Coal Wheelage, attached
hereto and made a part hereof; all of which shall be paid wheelage as follows
and as outlined on Map Exhibit 1-Coal Wheelage attached hereto and made a part
hereof:

<TABLE>
<S>                               <C>
GROUP 1: NGHD LANDS, INC.          30.36%
         LARRY A. DEITZ            30.36%
         WHITE PINE, INC.          25.00%
         G. D. HEROLD ESTATE       14.28%
                                  ------
         TOTAL                    100.00%
</TABLE>

                                      C-5
<PAGE>

<TABLE>
<S>                               <C>
GROUP 2: NGHD LANDS, INC.          30.36% of 20/27
         LARRY A. DEITZ            30.36% of 20/27
         WHITE PINE, INC.          25.00% of 20/27
         G. D. HEROLD ESTATE       14.28% of 20/27
                                  ------
                  TOTAL           100.00% of 20/27 INTEREST

                           AND

         T. C. LANDS, INC.         75.00% of 7/27
         LARRY A. DEITZ            25.00% of 7/27
                                  ------
                  TOTAL           100.00% of 7/27 INTEREST

GROUP 3: T. C. LANDS, INC.         25.00%
         LARRY A. DEITZ            25.00%
         MAXEY ANN TULLY           50.00%
                                  ------
                  TOTAL           100.00%
</TABLE>

      It is understood each Group is to be treated separately. All such payments
for adverse coal shall be made annually on or before February 25th. Payments for
the wheelage of adverse coal shall not be credited on minimum annual royalties.

      [NOTE: This provision does not apply to the surface of the tracts or
parcels of the demised coal tracts hereinabove described.]

      (h) Waiver of Barrier Pillars. The right to mine coal upon the demised
premises without maintaining barrier pillars between the demised premises and
any adjacent or contiguous property which may now or at some future time be
owned, leased or controlled by Lessee; provided that, the owners of such
adjacent or contiguous property also consent in writing to waive their rights
with respect to the maintenance of barrier pillars, and further subject to like
consent being obtained from the owner(s) of any outstanding interest.

                                      C-6
<PAGE>

                                   ARTICLE III

                             EXCLUSIONS FROM LEASE:

      3.1 Exceptions and Reservations. This lease is made expressly subject to,
and Lessor excepts and reserves from the demised premises and from the operation
of this lease, the following: the entire ownership and control of the all the
land in the demised premises and the surface thereof and all rights pertaining
thereto, except only to the extent herein expressly leased to Lessee, together
with the stone, sand, water, timber, oil, gas (including without limitation
coalbed methane, gob gas and all natural gases originating, produced, or emitted
from the coal seams) and other minerals, including all coal other than that
herein specifically demised, with the full right to lease, use, enjoy, operate
and develop the same in any manner which may seem appropriate to Lessor; and
together with the right of Lessor, its lessees, assigns and contractors to use
all presently existing and hereinafter constructed roads over and across the
demised premises; provided, however, that the exercise by Lessor of its retained
ownership and control of the materials and minerals excepted in this Article
shall not unreasonably interfere with the requirements and safety of the
operations of Lessee. Gas or gas products released during normal mining
operations are not reserved or excepted.

      3.2 Prior Deeds, etc. Lessor further excepts from this lease any and all
rights, easements, conveyances, rights-of-way, deeds, contracts, leases and
agreements heretofore granted or made by Lessor or any of its predecessors in
title and any and all possessory rights which may pertain to or affect the
demised premises appearing of record or visible on the ground.

      3.3 Inspection By Lessee. Lessor has disclosed to Lessee that prior mining
operations have been prosecuted in, on and under the demised premises and the
Lessor makes no warranty or representation regarding the condition of the
demised premises or any mine entries, working

                                      C-7
<PAGE>

places, structures or surface conditions. Lessee represents that it has
inspected the demised premises and accepts the same as they now are.

                                   ARTICLE IV

                                      TERM

      4.1 Term. The rights granted herein are for, except as hereinafter
provided, an initial term of five (5) years commencing July 1st , 1999, and
ending June 30th, 2004, ("Primary Term"). If and only if at the end of the
Primary Term of this Lease, the Lessee is conducting active mining operations on
the demised premises as described below and paying tonnage royalties as herein
otherwise provided, and shall have fully kept and performed all of the
covenants, agreements, promises and conditions of this Lease, may at its sole
option upon the giving of written notice six (6) months in advance of the end of
the Primary Term, or the first extended term as the case may be, extend this
Lease for a period of two (2) additional five (5) year terms, for a total term
of no more than fifteen (15) years.

                               28.00 Acres (WE45)
                              188.00 Acres (WE46)
                               50.00 Acres (WE49)
                               73.00 Acres (WE47)
                              202.00 Acres (WE48)
                               20.75 Acres (WE50)
                               76.00 Acres (WE51)

      Lessee reserves the right to surrender this Lease Agreement with one
hundred eighty (180) days notice to Lessor, and, if Lessee opts to surrender
this Lease prior to the initial five (5) year term, then Lessee shall pay to
Lessor the amount due as advance minimum royalty for the remaining portion of
the initial five (5) year Primary Term.

      4.2 Entry After Termination. Lessee shall have the right, and the
obligation, after the termination for any reason of this lease, to enter upon
the demised premises for the purpose of

                                      C-8
<PAGE>

reclaiming areas disturbed by its operations and otherwise complying with the
requirements of any federal, state and local law, rule, regulation or ordinance.

                                    ARTICLE V

                                 TONNAGE ROYALTY

      5.1 Tonnage Royalty. Lessee covenants and agrees to pay to Lessor as
tonnage royalty for each ton of coal of two thousand (2000) pounds mined and
removed by approved mining method from the demised premises, an amount of money
equal to (a) One Dollar ($1.00) or (b) Five Percent (5%) whichever sum is
greater, of the gross sales price of said coal f.o.b. the loading point, for
each ton of two thousand (2,000) pounds of coal mined. The following tracts have
been separated into groups for the purpose of payment of tonnage royalty:

                                20.75 Acres (WE50)
                                28.00 Acres (WE45)
                               202.00 Acres (WE48)

                                43.54 Acres (WE52)      GROUP 1

                               188.00 Acres (WE46)

                                76.00 Acres (WE51)      GROUP 2

                                73.00 Acres (WE47)      GROUP 3

      (a) Each such payment of tonnage royalty shall be paid to each individual
owner her/his/its prorata share as the ownership is shown in GROUP 1, GROUP 2,
and GROUP 3, as follows:

<TABLE>
<S>                               <C>
GROUP 1: NGHD LANDS, INC.          30.36%
         LARRY A. DEITZ            30.36%
         WHITE PINE, INC.          25.00%
         G. D. HEROLD ESTATE       14.28%
                                  ------
                  TOTAL           100.00%

GROUP 2: NGHD LANDS, INC.          30.36% of 20/27
         LARRY A. DEITZ            30.36% of 20/27
</TABLE>

                                      C-9
<PAGE>

<TABLE>
<S>                               <C>
         WHITE PINE, INC.          25.00% of 20/27
         G. D. HEROLD ESTATE       14.28% of 20/27
                                  ------
                  TOTAL           100.00% of 20/27 INTEREST

                         AND

         T. C. LANDS, INC.         75.00% of 7/27
         LARRY A. DEITZ            25.00% of 7/27
                                  ------
                  TOTAL           100.00% of 7/27 INTEREST

GROUP 3: T. C. LANDS, INC.         25.00%
         LARRY A. DEITZ            25.00%
         MAXEY ANN TULLY           50.00%
                                  ------
                  TOTAL           100.00%
</TABLE>

      5.2 Definition of Gross Sales Price. As used in this lease, the term
"gross sales price" shall mean the gross price at which Lessee sells coal mined
and removed from the demised premises f.o.b. the loading point without any
deductions for sales commissions, selling costs, advertising, credit losses,
transportation costs, taxes of any kind (other than sales or use taxes),
discounts, or other expenses of deductions whatsoever; provided, however, that
in the event any sale of such coal by Lessee shall not be at arm's length, then
the gross sales price for such sales shall be the gross sales price received by
other operators mining and producing coal of a similar kind and quality in the
area of the coal produced by Lessee which is sold at arm's length.

      5.3 Definition of Loading Point. The term "loading point" for purposes of
this lease, shall mean the point at which the coal is loaded f.o.b. for shipment
by truck, railroad or barge or such other point where the ultimate consumer
takes custody of the coal with respect to coal not shipped by rail or barge as
the parties hereto may from time to time agree to in writing.

                                      C-10
<PAGE>

      5.4 Payment of Tonnage Royalties. Lessee covenants and agrees to pay to
Lessor all tonnage royalties on or before the 25th day of each calendar month
for all coal mined and removed during the preceding calendar month.

      5.5 Weighing of Coal. The quantity of raw coal mined and removed from the
demised premises shall be weighed and determined by true and accurate scales,
duly calibrated for accuracy at least every six (6) months at Lessee's expense
by an independent licensed engineer qualified to make such calibration, and/or
volumetric measurements, and shall be reconciled to truck weights. Lessee shall
be required to give an accurate and separate accounting for each individual coal
tract. In addition, the scales shall be inspected and certified at least
annually by the West Virginia Department of Labor as correct. Lessor, and its
authorized representatives, shall have the right to inspect the scales at any
time during Lessee's normal operating hours; provided, however such inspection
shall not unreasonably interfere with Lessee's operations. Lessee shall keep an
accurate record by date of the number of truck loads from each separate tract,
along with the weight of each truck load, with accompanying printout, hauled
from each mine or pit each day supported by a truck count at the pit or mine.

      (a) In addition to the foregoing, Lessor shall have the absolute right,
upon demand:

            (i)   to have produced and provided to the Lessor or to a duly
                  authorized representative of the Lessor certified copies of
                  any and all documents relating to tonnage production allocated
                  to the demised premises whether such allocation is made within
                  the current corporate entity of the Lessee, a subsidiary
                  corporate entity, or an independent contractor, reconciled to
                  and with truck weights;

            (ii)  to measure and compute by engineering methods the tonnage
                  removed from the premises.

      (b) Any Agreement with any independent contractor shall require such
contractor to provide to the Lessor upon demand copies of documents relating to
the tonnage production on which payment to contractor was made.

                                      C-11
<PAGE>

      (c) In the event such information or such calculation exhibits a
discrepancy between sums paid as Production Royalty, and tonnage removed from
the premises, any dispute in relation thereto shall be submitted to arbitration
as hereinafter provided.

      5.6 Commingling.

      (a) Prior to any commingling of coal mined from the demised premises with
coal mined from other properties, Lessee shall weigh and make a reasonable
determination of the reject percentage of coal mined from the demised premises
pursuant to the terms of this Coal Lease, making use of acceptable engineering
methods for the industry.

      (b) The Lessor reserves the right to measure and compute reject percentage
by any available acceptable engineering method. And in the event of a
discrepancy or disagreement in connection with the same shall be submitted to
arbitration as hereinafter provided.

      (c) If there is any loss of coal subsequent to commingling, such loss
shall be allocated fairly and equitably to all parties whose coal is commingled.

      5.7 Monthly Report. At the same time that Lessee is required to pay
tonnage royalties to Lessor, Lessee shall furnish to Lessor statements signed by
a responsible person having knowledge of the facts showing the quantity of all
coal mined from the demised premises during the preceding calendar month, the
gross sales price of each type of coal f.o.b. the loading point, the number of
tons sold at each price, the seam or seams from which all of such coal was
produced, the method of mining, a summary of coal produced from the demised
premises categorized by tract identification numbers from Schedule A to be
supplied by Lessor. Upon request copies of certificates of the weigh master or
other official of the railroad or barge lines of weights of such car, or barge
of coal shipped during such month over such railroad or barge line and the
weight of all coal mined and removed from the premises by Lessee during such
month

                                      C-12
<PAGE>

and not shipped by railroad or barge will be available at the Lessee's office
for the Lessor to review and/or copy.

      5.8 Lessee's Books and Records. Lessee shall keep accurate books of
accounts showing separately all coal mined and removed by Lessee from the
demised premises and the gross sales price of such coal together with such
additional facts as may be necessary for a just accounting of rents and
royalties. Lessee shall keep and preserve all statements showing realization on
all coal sold by Lessee, including the statements of all sales agents. Lessor,
its agents and attorneys shall have access at any and all reasonable times to
all of such records and to the offices where such records are kept for the
purpose of inspecting, auditing and making copies of such records.

                                   ARTICLE VI

                             MINIMUM ANNUAL ROYALTY

      6.1 Minimum Annual Royalty. For each lease year of the initial five (5)
years this lease is in effect, Lessee covenants and agrees to pay to Lessor a
minimum annual royalty for each tract as scheduled below:

                         SCHEDULE B

<TABLE>
<S>                     <C>     <C>
 28.00 Acres (WE45)     1       $ 1,225.
188.00 Acres (WE46)     2         6,580.
 73.00 Acres (WE47)     3         2,555.
202.00 Acres (WE48)     1         7,070.
 20.75 Acres (WE50)     1           700.
 76.00 Acres (WE51)     2         2,660.
 43.54 Acres (WE52)     1             0.
                                --------
                                $20,790.
</TABLE>

      (a) Each such payment of minimum royalty shall be paid to each individual
owner her/his/its prorata share as the ownership is shown in Schedule A and
shall be payable on or

                                      C-13
<PAGE>

before the first day of each lease year of the initial five (5) year Primary
Term. Lessee shall have the right during any succeeding year during the term of
this Lease, including any extension thereof, to mine, free from tonnage royalty,
an amount of coal sufficient to make up any minimum annual royalty paid in
excess of the tonnage royalty in any prior year of this Lease.

      (b) After the initial five (5) year Primary Term, there will be no minimum
annual royalty payments required.

      (c) Failure to mine on the 43.54 acre tract shall not constitute a breach
in the terms of this agreement nor does active mining on this tract secure the
duration of the lease under the Primary Term.

      (d) If for any reason Lessee fails to mine 20,000 tons of coal from the
demised premises as outlined on Map Exhibit 1-Coal which exhibit is attached
hereto and made a part hereof, in any lease year after the Primary Term, at the
end of each of any such year Lessee will owe Lessor Eighteen Thousand Six
Hundred Dollars ($18,600.00) non-recoupable rent, payable to each individual
Lessor her/his/its prorata share as shown on Schedule A and Map Exhibit 1-Coal
attached hereto and made a part hereof, and further as shown in Group 1, Group 2
and Group 3, Article 5.1 hereof.

      6.2 Recoupment. Lessee shall, for the life of this lease, have the right
in any lease year of the term of this lease to credit and recoup tonnage
royalties due on account of coal mined during such lease year, or any prior
lease year of the present Lease only, all payments of minimum annual royalties
made for such lease year, against the prorata share of each individual owner as
outlined in Schedule A and Map Exhibit l-Coal, and against each individual tract
as outlined in Schedule B. The payment of any tonnage royalties in any lease
year in excess of the

                                      C-14
<PAGE>

minimum annual royalties paid for such lease year shall not be credited on the
minimum annual royalties thereafter required to be paid in any subsequent lease
year or years.

                                   ARTICLE VII

                           OPERATIONS AND MINING PLANS

      7.1 Covenant to Mine. Lessee covenants and agrees that it will promptly
commence and diligently develop and prosecute mining operations hereunder in an
energetic, efficient and skillful manner, according to approved and modern
methods of mining, and with the use of adequate, sufficient and efficient mining
machinery and equipment, reasonably adapted to the conditions encountered, all
to the end that all the mineable and merchantable coal shall be mined, produced
and sold from the demised premises, as is consistent with practical and modern
mining methods and prudent mining practices, having due regard always for safety
and preservation of the demised premises as coal mining operation all in
compliance with all laws, rules, regulations, and ordinances.

      7.2 Definition of Mineable and Merchantable Coal. The term "mineable and
merchantable" coal as used in this lease shall mean coal which, when reached in
the prosecution of Lessee's operations hereunder, can ordinarily be mined at a
profit by the use of such current modern mining methods and cleaning machinery
and equipment as are reasonably adapted to practical, efficient and economical
mining under the conditions found and in conformity with prudent mining
practices and diligent and skillful management.

      7.3 General Mining Plans. Prior to beginning mining operations on the
demised premises, Lessee shall submit to Lessor a general plan for the mining
operations to be conducted upon the demised premises. These plan(s) will be the
same as contained in the permits as submitted to the regulatory agencies for the
mining area. Such plans shall be from time to time

                                      C-15
<PAGE>

updated as the mining circumstances warrant and/or as directed by any regulatory
agency and a copy of such changes will be forwarded to Lessor.

      7.4 Intentionally left blank.

      7.5 Lessor's Approval. Lessee shall obtain Lessor's approval of the plans
and projections mentioned in Section 7.3 hereof prior to conducting any
operations shown on such plans. Said approval shall be given in writing to the
Lessee within 30 day. If Lessor has not responded in writing within said 30
days, then said plans shall be deemed approved by the Lessor. After having
obtained such approval, Lessee shall faithfully adhere to and comply with the
plans and projections so approved and shall not deviate from the same except in
case of emergency and/or as dictated by regulatory agency, mining conditions, or
other unknown conditions after which Lessor shall be duly notified.

      7.6 Maps. Lessee shall at all times maintain maps showing, on true
meridian and on a scale of not more than one hundred (100) feet to the inch, the
extent of Lessee's operations on the demised premises, together with the
boundaries of the demised premises, the location of all railroad tracks,
rights-of-way, streams, roads, buildings, underground roadways, entries,
passages, airways, rooms, shafts, heights of coal, location of channel samples,
rolls or faults, prospect openings, seam elevations, open cuts, box cuts and
seam sections at regular intervals, ponds, hollow-fills and other improvements
therein, thereon, or thereover, and the location and identifying number of each
drill hole and each oil and gas well on the demised premises. Lessee covenants
and agrees to deliver to Lessor semi-annually on or before the 1st day of March
and the 1st day of September, a copy of such maps showing the mining operations
conducted by Lessee as of the last day of December and the last day of June of
each year. Such maps shall be made from data derived from accurate surveys and
shall be prepared by a competent licensed

                                      C-16
<PAGE>

engineer. Lessee shall also furnish Lessor a copy of such maps within thirty
(30) days after receiving from Lessor in writing a request therefor. The maps
will be the same as required by the regulatory agencies except that the Lessee
shall be required to provide the height or total thickness of coal seams and
sections.

      7.7 Permits, Bonds, Reclamation and Expenses. Lessee covenants and agrees
to obtain from the State of West Virginia, and any other governmental authority
requiring the same, permits and other authorizations required for conducting
mining operations on the demised premises and will, at its own cost and expense,
post such bonds as may be required in connection with the issuance of such
permits or other authorizations and, in addition thereto, will pay all
reclamation fees and otherwise be entirely responsible for the reclamation of
the lands disturbed in connection with Lessee's mining operations and will
comply with all of the provisions of this lease in respect to said reclamation.
Upon request, Lessee shall promptly supply Lessor with all information
pertaining to permitting, bonding, inspection reports, citations by any
regulatory authority, and any and all other information which may effect the
Lessor's interests in the demised premises as may reasonably be required by the
Lessor.

      7.8. Intentionally left blank. See Paragraph 7.9.

      7.9 Lost or Abandoned Coal. Before abandoning any area of deep mining or
surface mining, Lessee shall notify Lessor of its intention to abandon in order
that Lessor may, within ten (10) days, inspect the operations of the Lessee to
see whether or not they are in accordance with the terms of the lease and, if
not, to require compliance before abandonment. Any dispute in relation thereto
shall be submitted to arbitration as hereinafter provided.

      7.10. Joint Use of Roads. Lessee agrees to keep at its sole cost and
expense all existing roads on the demised premises and roads constructed by it
thereon in a good state of repair,

                                      C-17
<PAGE>

passable and open, or, when necessary, relocate existing roads so that
continuous access to the demised premises is available. If Lessor authorizes
other persons or entities to use any road constructed or maintained by Lessee,
then Lessor shall enter into an agreement with such persons or entities, which
agreement shall make provision for an allocation of maintenance costs according
to use and for a usage agreement which shall ensure that no unreasonable
interference with Lessee's use of such roads shall occur.

      7.11 Fires. Lessee covenants and agrees that it will use all reasonable
precautions necessary or prudent to avoid damage to or destruction of properties
owned by Lessor by fire and will comply with all federal and state laws and
regulations concerning forest fire and forest fire safety.

                                  ARTICLE VIII

                          LESSOR'S RIGHT OF INSPECTION

      8.1 Inspection. Lessor, its agents, engineers or other persons in its
behalf shall have the right at all reasonable and proper times, but at its and
their own risk, to enter upon the demised premises in order to inspect, examine,
survey or measure the same or any part thereof, or for any other lawful purpose,
and for these purposes to use freely the means of access to the mining
operations of Lessee.

                                   ARTICLE IX

                          INDEMNIFICATION AND INSURANCE

      9.1 Indemnity. Lessee shall fully protect, indemnify and save harmless
Lessor and its directors, officers, agents and employees and each of them, from
any and all claims, demands, damages, liabilities, penalties, fines, costs and
expenses (including reasonable attorneys' fees and costs and expenses of
litigation or alternative dispute resolution methods) arising out of or in
connection with any act or omission relating to the operations or other
activities of Lessee

                                      C-18
<PAGE>

hereunder, its agents, employees, contractors, invitees, sublessees or such
agents', invitees', contractors' sublessees' agents, employees or contractors or
any one or more of them. Lessee's obligation under this paragraph shall survive
the termination of this lease for any cause.

      9.2 General Liability Insurance. In addition to and not in limitation of
the obligations described in Section 9.1 hereof, Lessee covenants and agrees to
maintain and keep in full force and effect, throughout the term of this lease,
general liability and property damage insurance, on an occurrence basis, with
coverage of not less than Two Million Dollars ($2,000,000) for injuries or
damages to any one person, Two Million Dollars ($2,000,000) for any one
occurrence, and Two Million Dollars ($2,000,000) property damage, in which
policy of insurance both Lessee and Lessor shall be named an insured. Any such
policy or policies shall specifically provide that Lessor may be a permissible
claimant for any damage done to its properties.

      9.2-2 Commercial Automobile Liability Insurance. In addition to and not in
limitation of the obligations described in Section 9.1 hereof, Lessee covenants
and agrees to maintain and keep in full force and effect, throughout the term of
this Lease, automobile insurance and non-owned automobile insurance, on an
occurrence basis, in a good and reliable commercial insurance company or
companies authorized to do business in the State of West Virginia with coverage
of not less than Two Million Dollars ($2,000,000.00) for injuries or damages to
any one person, Two Million Dollars ($2,000,000.00) for any one occurrence, and
Two Million Dollars ($2,000,000.00) property damage, in which policy of
insurance both Lessee and Lessor shall be named an insured. Any such policy or
policies shall specifically provide that Lessor may be a permissible claimant
for any damage done to its properties.

                                      C-19
<PAGE>

      9.3 Workers' Compensation Insurance. Lessee, its sublessees, assigns and
contractors shall, throughout the term of this lease, be and remain a subscriber
to the West Virginia Workers' Compensation Fund of which Lessee is a member as a
self insured entity.

      9.4 Intentionally left blank.

      9.5 Form of Insurance Certificates. All insurance required under the
provision of this Article shall contain a provision requiring thirty (30) days'
advance notice to Lessor of any proposed cancellation or any material change in
coverage. Certificates in respect to all such insurance shall be delivered to
Lessor prior to commencement of any operations on the demised premises.

      9.6 Lessee's Liability. The insurance requirements set forth in this
Article are minimum requirements and shall not limit Lessee's liability to
Lessor in any manner.

                                    ARTICLE X

                                      TAXES

      10.1 Payment of Taxes. In addition to all other payments required to be
made by Lessee to Lessor, Lessee covenants and agrees to pay all of the real
estate taxes and assessments becoming due or assessed during the term of this
lease on the demised premises, all such taxes required to be paid on the
personal property and improvements of Lessee placed upon the demised premises
and taxes on the rights and privileges herein demised, as well as all other
taxes and assessments, including, but not limited to, any severance or excise
tax levied against the coal mined hereunder by the United States and the State
of West Virginia, or either of them. Lessee shall furnish to Lessor evidence of
the payment for all such taxes. Lessor shall have the right, but not the
obligation, to pay such taxes and in the event any such payment is made by
Lessor, Lessee shall, upon demand, immediately reimburse Lessor.

                                      C-20
<PAGE>

      10.2 Right to Contest. Notwithstanding the foregoing, Lessee shall have
the right to challenge in good faith, by legal and proper means, in the name,
place and stead of Lessor, the amount, validity and equality, of any such taxes,
levies or assessments that Lessee is required to pay hereunder; provided,
however, that Lessee shall at all times protect Lessor's title to the demised
premises from tax liens, penalties, tax sales or any other encumbrances or
impairments resulting directly or indirectly from any such challenge, and Lessee
shall be responsible for any interest, penalty or similar charges incurred as a
result of any such challenge.

                                   ARTICLE XI

                              LAWS AND REGULATIONS

      11.1 General. Lessee covenants and agrees that it will in connection with
its mining operations and related activities under this lease, comply with all
federal and state laws, now enacted or which may be hereinafter enacted, and all
rules, regulations, and executive orders promulgated thereunder.

      11.2 Black Lung Benefits. Without in any way limiting Lessee's obligations
under paragraph 11.1, Lessee agrees that it shall comply with all of the terms
and provisions of the Black Lung Benefits Act of 1972, the Federal Mine Safety
and Health Act of 1977, the Internal Revenue Code, 26 U.S.C. 1 et seq., the
Black Lung Benefits Reform Act of 1977, the Black Lung Benefits Revenue Act of
1981, the Black Lung Benefits Amendments of 1981, (P.L. 97-119), and the Coal
Industry Retiree Health Benefit Act of 1992, all as now or hereafter amended,
and all rules and regulations adopted pursuant thereto (hereinafter referred to
collectively as "Acts").

      11.3 Lessee To Be Operator. As between Lessor and Lessee the parties
hereto acknowledge that Lessee is, and shall be deemed to be, the operator of
any coal mine or coal preparation facility for the extraction, preparation or
transportation of coal from the demised

                                      C-21
<PAGE>

premises and of all related activities, including but not limited to, coal mine
construction or maintenance and land reclamation or restoration, engaged in by
Lessee or persons under contract with Lessee pursuant to the terms of this lease
with respect to any claim for black lung benefits ("Benefits") filed by or on
account of Lessee's employees or former employees. Lessee shall secure and shall
require any other person or entity who operates, controls or supervises a coal
mine or coal preparation facility on the demised premises or performs services
of construction, maintenance, transportation or other activities related to coal
mining, preparation, shipment or reclamation under the terms of this lease, or
who otherwise may be liable for the payment of Benefits, to secure the payment
of such Benefits to or on account of employees or former employees in accordance
with all applicable laws and regulations and shall provide Lessor, upon request,
with appropriate certification that each of them has provided security in
compliance with all applicable laws and regulations for the payment of such
Benefits.

      11.4 Security for Benefits. Without limiting the generality of Lessee's
obligations to comply with all other provisions of this lease, Lessee agrees
that it will secure and guarantee the payment of all Benefits required to be
paid under the Acts by reason of said mining, construction, transportation,
reclamation and related activities under this lease, and Lessee does hereby
agree that it will indemnify and hold Lessor harmless from any liability or
expenses, including reasonable attorneys' fees, and costs and expenses of
litigation or resolution by alternative means, which Lessor may suffer directly
or indirectly, as a result of or with respect to any claim for Benefits filed by
or on account of any of Lessee's employees or former employees, or employees or
former employees of others who may be required to secure the payment of Benefits
under Article 11.3 above.

                                      C-22
<PAGE>

      11.5 Decisions Concerning Mining. Except as provided in Section 7.9
hereof, notwithstanding any thing in this lease to the contrary, this lease does
not empower Lessor to make any decisions, and Lessor hereby expressly waives and
disclaims any right to make any decisions, with respect to the terms and
conditions under which the coal hereby leased is extracted or prepared, such as,
but not limited to, the manner of extraction or preparation or the amount of
such coal to be produced, all within the meaning of the Acts. The parties hereto
do acknowledge, however, that Lessor has reserved certain rights and has imposed
certain requirements under the terms of this lease solely for the purpose of
preventing waste and protecting the reserved rights of Lessor.

                                   ARTICLE XII

                             REMOVAL ON TERMINATION

      12.1 Removal of Equipment, Buildings and Structures. Upon termination of
this lease by the mining of all of the mineable and merchantable coal hereby
leased and if all rents, royalties and other sums required to be paid hereunder
shall have been fully paid by Lessee, and all covenants on Lessee's part have
been fully kept and performed, Lessee may remove, within six (6) months after
such termination and not thereafter, all moveable mining machinery and equipment
and all buildings and structures which have been placed upon the demised
premises by Lessee or any person claiming under Lessee. Any of such property not
removed within said six (6) months period shall become the sole property of
Lessor without charge or payment therefor. Lessee shall leave the demised
premises on such termination in a neat and orderly condition and reclaimed in
accordance with all laws, rules, regulations, and ordinances.

                                      C-23
<PAGE>

                                  ARTICLE XIII

                                      LIENS

      13.1 Lessor's Lien. The tonnage royalties, minimum annual royalties,
payment for taxes and other sums of money required by this lease to be paid by
Lessee to Lessor shall be treated as rent reserved for the demised premises and
Lessor shall have, for the collection thereof, all of the rights and remedies
which landlords now have or may have for the collection of rent reserved under
contract under the laws of the State of West Virginia.

      13.2 Lessee's Liens. Lessee shall at all times pay when due all claims for
labor, materials, machinery, equipment, and services furnished by any party for
and on behalf of or at the request of Lessee, or any sums of money required to
be paid by Lessee under any law, rule, regulation, or ordinance. Lessee shall
keep the demised premises and the leasehold estate created by this lease, free
from all liens, security interests, and encumbrances (including without
limitation mechanic's and materialmen's liens) (collectively "Liens") in any way
arising out of, connected with, or related to the failure of Lessee to make any
payment referred to in the immediate preceding sentence or in any way created as
a result of, arising out of, or relating to Lessee's operations on the demised
premises or other activities on or off the demised premises which may in any way
give use to any such Lien. Lessee shall indemnify Lessor and hold Lessor
harmless from and against (a) all such Liens, (b) the removal of all such Liens
and any actions, suits, or proceedings related thereto, and (c) all liabilities,
costs, and expenses (including without limitation reasonable attorneys' fees,
and costs and expenses of litigation or alternative dispute resolution methods)
in any way related or connected to the foregoing. If Lessee fails to keep the
demised premises free from Liens, then in addition to any other rights or
remedies available to Lessor under this lease or at law or in equity, Lessor may
take any action Lessor

                                      C-24
<PAGE>

deems necessary or desirable to discharge any such Lien, including but not
limited to payment to the claimant claiming under any such Lien.

                                   ARTICLE XIV

                          ASSIGNMENT, SUBLETTING, ETC.

      14.1 Assignment, Subletting, etc. Lessee shall not, without Lessor's prior
written consent, which shall not be unreasonably withheld, assign, sublease,
transfer, mortgage or encumber this lease, or the leasehold estate created
hereby, in whole or in part. If Lessor should grant such consent then the
assignee, sublessee, transferee, mortgagee, or beneficiary of such encumbrance
shall enter into a direct covenant with Lessor to keep and perform the terms and
conditions of this lease and copies of any such assignment, sublease, transfer
instrument, mortgage, or encumbering instrument shall be delivered to Lessor and
no such assignment, sublease, transfer, mortgage or encumbrance shall relieve
Lessee of its obligations hereunder. In the event Lessor should consent to any
specific assignment, subletting, transfer, mortgage or encumbrance such
assignee, sublessee, transferee, mortgagee or beneficiary of such encumbrance
may not further assign, sublease, transfer, mortgage or encumber this lease
without the specific prior written consent of Lessor.

      14.2 Transfer of Stock. A transfer of fifty percent (50%) or more of the
capital stock of Lessee without Lessor's prior written consent shall constitute
a breach of this Article.

                                   ARTICLE XV

                                   FORFEITURE

      15.1 Events of Default Defined. The following shall be Events of Default
under the terms of this lease and the terms "Events of Default" and "default"
shall mean, whenever they are used in this lease, any one or more of the
following events:

                                      C-25
<PAGE>

      (a) The failure of Lessee to pay or cause to be paid any sums of money due
to Lessor for a period of ten (10) days after such sums of money became due and
owing to Lessor, after notice was received by Lessee by certified/registered
mail;

      (b) The failure of Lessee to keep and perform or be guilty of a breach of
other terms and conditions of this lease continuing for a period of sixty (60)
days after Lessor shall have given written notice thereof to Lessee, which
failure shall include, but not be limited to, any of the following: improper
destruction of timber; failure to obtain waiver from persons owning outstanding
surface interests; failure to comply with regulations and limitations of Lessor
and laws, rules, regulations and ordinances in respect to the dumping of refuse
and waste water; failure to obtain waiver of maintenance of barrier pillars from
adjoining or contiguous property owners; use of the demised premises in
connection with operations on other lands; failure to reclaim surface areas;
failure to permit Lessor to inspect Lessee's operations; failure to account
properly for coal mined; failure to maintain accurate truck scales or to have
them inspected, calibrated and certified; ; failure to provide monthly reports;
failure to make books and records available; failure to prosecute mining
operations in an energetic, efficient and skillful manner according to approved
and modern methods of mining using sufficient and efficient machinery and
equipment; failure to provide plans and projections and deviation from same;
failure to provide maps; failure to obtain permits, bonds and pay reclamation
and other expenses; failure to furnish copies as required in Section 7.7;
failure to work around faults and other conditions; failure to maintain roads;
failure to permit Lessor's inspection; failure to indemnify and to obtain
general liability and property damage, workers' compensation, or fire and
property damage insurance; failure to provide certificate of insurance naming
Lessor as an additional insured; failure to pay taxes and other assessments;
failure to comply with all federal and state laws, rules,

                                      C-26
<PAGE>

regulations and ordinances; failure to provide black lung benefits; or improper
assignment, subletting or mortgaging, transferring or encumbering.

      (c) The bankruptcy of Lessee or a receiver being appointed for Lessee's
business and affairs or an assignment being made for the benefit of Lessee's
creditors.

      15.2 Forfeiture of Lease and Right of Re-entry. If any of the Events of
Default listed in Section 15.1 occurs, Lessor may at its election cancel and
terminate this lease and re-enter and repossess the demised premises as of
Lessor's former estate and all rights of Lessee in respect thereto shall cease.

      15.3 Waiver. Any failure of Lessor to exercise the rights herein granted
in respect to any particular matter of default shall not constitute a waiver
thereof nor as a waiver of the same or any other default by Lessee subsequently
occurring and shall not prevent the forfeiture or cancellation of this lease for
any other cause of forfeiture or for the same causes occurring at any other
time.

                                   ARTICLE XVI

                             SUCCESSORS AND ASSIGNS

      16.1 Successors and Assigns. Except where provided otherwise herein, this
lease and all its terms, provisions, covenants, conditions and agreements shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective permitted successors and assigns.

                                  ARTICLE XVII

                                     NOTICES

      17.1 Notice. Any notice which Lessee may desire to serve upon Lessor may
be served by mailing the same by certified mail, postage prepaid, addressed to
H. R. Deitz, P. O. Box X, Summersville, WV 26651, who is duly appointed agent of
Lessor for purposes of receiving notice and approving mining plans and changes
thereto, for the following:

                                      C-27
<PAGE>

            NGHD LANDS, INC.
            P.O. BOX X
            SUMMERSVILLE, WV 26651

            T. C. LANDS, INC.
            P.O. BOX X
            SUMMERSVILLE, WV 26651

            WHITE PINE, INC.
            P.O. BOX 485
            SUMMERSVILLE, WV 26651

            LARRY A. DEITZ, TRUSTEE FOR
            ANNE ELIZABETH DEITZ
            P.O. BOX X
            SUMMERSVILLE, WV 26651

            LARRY A. AND GLORIA K. DEITZ
            HC 71, BOX 12B
            AUGUSTA, WV 26704

            G. D. HEROLD ESTATE
            C/O JAMES H. WOLVERTON
            1 CHARLES DRIVE
            SUMMERSVILLE, WV 26651

            MAXEY ANN TULLY
            1801 WEBSTER ROAD
            SUMMERSVILLE, WV 26651

      Should the said H. R. Deitz become unable for any reason to so serve, or
for any reason elect not to so serve, then and in that event the Lessors do
hereby nominate and appoint John H. McCutcheon, II, P. O. Box 485, Summersville,
West Virginia 26651, to serve as such agent for the purposes of receiving notice
and approving mining plans and changes thereto.

      The agent for Lessor may be removed or replaced by written agreement of
the owners of fifty-one percent (51%) of the total ownership under this
agreement.

      Any notice which Lessor may desire to serve upon Lessee may be served by
mailing the same by certified mail, postage prepaid, addressed to Lessee at:

                                      C-28
<PAGE>

            COASTAL COAL-WEST VIRGINIA, LLC
            Brooks Run Operations
            61 Missouri Run Road
            Cowen, WV 26206

      Either party hereto may change its designation of the place for such
notice only by an instrument in writing executed by the party desiring to make
such change and delivered to the other party.

                                  ARTICLE XVIII

                           RELATIONSHIP OF THE PARTIES

      18.1 Relationship. The relationship between the parties hereto shall be
that of landlord and tenant, governed by the present or future laws of the State
of West Virginia, and such relationship shall never be interpreted or
established as that of partners, joint venturers, co-tenants, principal and
agent, joint enterprisers, or any relationship other than that of landlord and
tenant.

                                   ARTICLE XIX

                                  MISCELLANEOUS

      19.1 Construction of Lease. The titles of articles and sections are for
the purpose of convenience of reference only and shall not be considered or
construed as affecting, in any way, the meaning of the provisions hereof. No
consideration shall be given to the fact or presumption that one party had a
greater or lesser hand in drafting this lease.

      19.2 Time Is Of The Essence. The parties recognize that time is of the
essence in the performance of all of the obligations required under this lease.

      19.3 Complete Agreement. This lease, together with all exhibits hereto,
contains all of the agreements, conditions and understandings made between the
parties hereto and may not be

                                      C-29
<PAGE>

modified or changed in whole or in part, orally or in any other manner than an
agreement in writing signed by all the parties hereto or their respective
successors in interest.

      19.4 Governing Law. This lease shall be construed, interpreted and the
rights of the parties determined in accordance with the laws of the State of
West Virginia (without reference to the choice of law provisions of West
Virginia law). Lessor and lessee hereby irrevocably submit to the jurisdiction
of the Courts of Webster County, West Virginia, and to the jurisdiction of the
United States District Court for the Southern District of West Virginia for the
purposes of any suit, action, or other proceeding in any way arising out of,
relating to, or connected with this lease. Lessor and Lessee agree not to assert
that any such suit, action, or other proceeding under such jurisdiction is in an
inconvenient forum or that venue is improper.

      19.5 Invalidity. In the event any one or more of the provisions of this
lease shall, for any reason, be held to be invalid, illegal or unenforceable in
any respect, then to the maximum extent possible, such invalidity, illegality,
or enforceability shall not affect any other provision of this lease.

      19.6 Prior Leases. The parties hereto agree that this lease and all
provisions herein replaces and supersedes and renders null and void any and all
prior leases, supplemental agreements and/or amendments between the parties
hereto, including but not limited to a lease dated the 1st day of July, 1978,
between ANR Coal Development Company and H. R. Deitz, etal.

      19.7 Ownership. If Lessee finds that Lessor does not have One Hundred
Percent (100%) ownership in any tract, Lessee will notify Lessor and Lessor will
have the right, but not the obligation, during the three (3) months following
such notice within which to acquire

                                      C-30
<PAGE>

unowned interest. Further, if Lessor acquires such interest, said newly acquired
interest will become part of this Lease under the same terms and conditions
herein contained.

      19.8 Payment Procedures. The parties hereto agree that all payments
hereunder shall be made to each individual Lessor/Owner in her/his/its prorata
share as shown on Schedule A which is attached hereto and made a part hereof.

      19.9 Counterparts. This Lease may be executed in any one or more
counterparts, each of which shall be deemed an original and it shall not be
necessary in making proof of this Lease to produce or account for more than one
such counterpart.

      19.10 Memorandum of Lease. Lessor and Lessee agree to execute a Memorandum
of Lease suitable for recording.

      19.11 Arbitration. In the case of any disagreement or dispute between the
parties as to matters covered by Sections 5.5 Weighing of Coal, 5.6 Commingling,
or 7.9 Lost or Abandoned Coal, of this Lease, all such disagreements or disputes
shall be settled from time to time by arbitration as follows: Either the Lessee
or the Lessor may undertake to have the controversy settled by arbitration
before a single arbitrator in accordance with the Commercial Arbitration Rules
of the American Arbitration Association, as now existing or hereinafter amended,
and judgment upon the award rendered by the arbitrator will be binding on both
parties and may be entered in any court having jurisdiction thereof. Submission
to arbitration shall be a condition precedent to the resort to litigation by
either Party to this Lease with respect to any controversy or claim arising out
of or relating thereto.

      This Lease Agreement shall inure to the benefit of and shall be binding
upon the parties hereto and their respective successors and assigns.

                                      C-31
<PAGE>

                                   ARTICLE XX

                                     SURFACE

      20.1 Surface. By surface lease of even date herewith, certain of the
parties comprising Lessor have leased to Lessee their interest in certain
surface tracts on, above, over, and across certain seams of coal as more
particularly described in said surface lease. Lessee specifically agrees that
upon termination of such surface lease for any reason whatsoever, this coal
lease shall automatically terminate without any further act or deed by Lessor.

      The Parties hereto understand and agree that this Lease of the coal in, on
and underlying certain tracts of land herein described is executed
simultaneously with another lease on the surface over said tracts and it is
agreed by and between all Parties hereto that in case of conflict or ambiguity
between the provisions of this Lease and said Surface Lease, the provisions of
this Coal Lease shall control.

      IN WITNESS WHEREOF, the corporate parties hereto have caused their
corporate names to be hereunto signed and their corporate seals to be hereunto
affixed by their proper officers thereunto duly authorized as of the day and
year first above written.

LESSEE:                                         LESSOR:

COASTAL COAL-WEST VIRGINIA, LLC                 NGHD LANDS, INC.
                                                a West Virginia Corporation

By: /s/ James W. Copley                         By: /s/ H. R. Deitz
    ------------------------------                  ---------------------------
      Its: Vice Pres                                  Its: President
                                                      FEIN:  55-0698542

ATTEST:

BY: /s/ William S. Hedgin, Jr.
    ------------------------------------

Its: Assistant Secretary

                                      C-32
<PAGE>

                                            T.C. LANDS, INC.
                                            a West Virginia Corporation

                                            By: /s/ Anne E. Deitz
                                                ---------------------------
                                                Its:  President

                                            FEIN: 55-0690537

                                            /s/ Larry A. Deitz
                                            -------------------------------
                                            LARRY A. DEITZ
                                            SSN: ###-##-####

                                            /s/ Gloria K. Deitz
                                            -------------------------------
                                            GLORIA K. DEITZ
                                            SSN: ###-##-####

                                            WHITE PINE, INC.
                                            a West Virginia Corporation

                                            By: John H. McCutcheon
                                                ------------------------------
                                                Its: President

                                            FEIN:  55-0738427

                                            G. D. HEROLD ESTATE
                                            FEIN: 55-0632612

                                            By: /s/ James H. Wolverton
                                                -------------------------------
                                                James H. Wolverton, Co-Executor

                                            By: /s/ Doris E. Loria,
                                                -------------------------------
                                                Attorney-in-Fact for
                                                Eugenia P. Herold, Co-Executor

                                            /s/ Maxey Ann Tully
                                            -------------------------------
                                            MAXEY ANN TULLY, Widow
                                            SSN: ###-##-####

                                      C-33
<PAGE>

STATE OF WEST VIRGINIA

COUNTY OF NICHOLAS, TO-WIT:

      The foregoing instrument was acknowledged before me, the undersigned
authority, this 21st day of August, 1999, by NGHD LANDS, INC., a West Virginia
Corporation, by H. R. Deitz, its President, for and on behalf of said
Corporation.

      My commission expires: November 28, 2006.

(Notarial Seal)                          /s/ Mary Jo Bragg
                                         -----------------------------
                                                 Notary Public

STATE OF _________________________

COUNTY OF________________________, TO-WIT:

      The foregoing instrument was acknowledged before me, the undersigned
authority, this ___ day of _____________________________________________,
____________, by T.C. LANDS, INC., a West Virginia Corporation, by
_________________________________, its _______________________, for and on
behalf of said Corporation.

      My commission expires: _____________________________________

(Notarial Seal)                         ____________________________
                                                Notary Public

                                      C-34
<PAGE>

STATE OF _________________________

COUNTY OF________________________, TO-WIT:

      The foregoing instrument was acknowledged before me, the undersigned
authority, this ___ day of _____________________________________________,
______________, by NGHD LANDS, INC., a West Virginia Corporation, by
_____________________________, its _______________________, for and on behalf of
said Corporation.

      My commission expires: ________________________________________________

(Notarial Seal)                      ______________________________________
                                                  Notary Public

STATE OF WASHINGTON

COUNTY OF KING, TO-WIT:

      The foregoing instrument was acknowledged before me, the undersigned
authority, this 24th day of August, 1999, by T.C. LANDS, INC., a West Virginia
Corporation, by Anne E. Deitz, its President, for and on behalf of said
Corporation. My commission expires: October 27, 1999.

(Notarial Seal)                                 /s/ Antoinette Russell
                                                -------------------------------
                                                         Notary Public

                                      C-35
<PAGE>

STATE OF WEST VIRGINIA

COUNTY OF NICHOLAS, TO-WIT:

      The foregoing instrument was acknowledged before me, the undersigned
authority, this 25th day of August, 1999, by LARRY A. DEITZ and GLORIA K. DEITZ,
husband and wife.

      My commission expires: November 28, 2006.

(Notarial Seal)                                 /s/ Mary Jo Bragg
                                                -------------------------------
                                                         Notary Public

STATE OF WEST VIRGINIA

COUNTY OF NICHOLAS, TO-WIT:

      The foregoing instrument was acknowledged before me, the undersigned
authority, this 25th day of August, 1999, by WHITE PINE, INC., a West Virginia
Corporation, by John H. McCutcheon II, its President, for and on behalf of said
Corporation.

      My commission expires: November 28, 2006.

(Notarial Seal)                                 /s/ Mary Jo Bragg
                                                -------------------------------
                                                         Notary Public

                                      C-36
<PAGE>

STATE OF _________________________

COUNTY OF________________________, TO-WIT:

      The foregoing instrument was acknowledged before me, the undersigned
authority, this ___ day of _____________________________________________,
______________, by LARRY A. DEITZ and GLORIA K. DEITZ, husband and wife.

      My commission expires: ________________________________________________

(Notarial Seal)                     ______________________________________
                                                 Notary Public

STATE OF _________________________

COUNTY OF________________________, TO-WIT:

      The foregoing instrument was acknowledged before me, the undersigned
authority, this ___ day of _____________________________________________,
______________, by WHITE PINE, INC., a West Virginia Corporation, by
_____________________________, its _______________________, for and on behalf of
said Corporation.

      My commission expires: ________________________________________________

(Notarial Seal)                     ______________________________________
                                                Notary Public

                                      C-37
<PAGE>

STATE OF WEST VIRGINIA

COUNTY OF NICHOLAS, TO-WIT:

      The foregoing instrument was acknowledged before me, the undersigned
authority, this 24 day of August, 1999, by JAMES H. WOLVERTON, Co-Executor in
the Last Will and Testament of G. D. HEROLD.

      My commission expires: March 11, 2002.

(Notarial Seal)                            /s/ Betty R. Losch
                                           ------------------------------------
                                                       Notary Public

STATE OF OHIO

COUNTY OF COLUMBIANA, TO-WIT:

      The foregoing instrument was acknowledged before me, the undersigned
authority, this 1st day of September, 1999, by EUGENIA P. HEROLD, Co-Executor in
the Last Will and Testament of G. D. HEROLD. (Doris E. Loria, Attorney-In-Fact
For Eugenia P. Herold)

      My commission expires: November 5, 2002.

(Notarial Seal)                            /s/ Christine A. Wilson
                                           ------------------------------------
                                                       Notary Public

                                      C-38
<PAGE>

STATE OF _________________________

COUNTY OF________________________, TO-WIT:

      The foregoing instrument was acknowledged before me, the undersigned
authority, this ___ day of _____________________________________________,
______________, by JAMES H. WOLVERTON, Co-Executor in the Last Will and
Testament of G. D. HEROLD.

      My commission expires: ________________________________________________

(Notarial Seal)                      ______________________________________
                                                 Notary Public

STATE OF _________________________

COUNTY OF________________________, TO-WIT:

      The foregoing instrument was acknowledged before me, the undersigned
authority, this ___ day of _____________________________________________,
______________, by EUGENIA P. HEROLD, Co-Executor in the Last Will and Testament
of G. D. HEROLD.

      My commission expires: ________________________________________________

(Notarial Seal)                     ______________________________________
                                                 Notary Public

                                      C-39
<PAGE>

STATE OF WEST VIRGINIA

COUNTY OF NICHOLAS, TO-WIT:

      The foregoing instrument was acknowledged before me, the undersigned
authority, this 26th day of August, 1999, by MAXEY ANN TULLY, widow.

      My commission expires: November 28, 2006.

                                           /s/ Mary Jo Bragg
                                           ------------------------------------
                                                       Notary Public

STATE OF WEST VIRGINIA

COUNTY OF BRAXTON, TO-WIT:

      The foregoing instrument was acknowledged before me, the undersigned
authority, this 12th day of August, 1999, by COASTAL COAL-WEST VIRGINIA, LLC, a
limited liability company, by James W. Copley, Jr., its Vice President, for and
on behalf of said Limited Liability Company.

      My commission expires: April 7, 2009.

(Notarial Seal)                            /s/ Melody A. Martin
                                           ------------------------------------
                                                       Notary Public

THIS INSTRUMENT PREPARED BY:

This lease was prepared jointly by attorneys for Lessor and Lessee.

                                      C-40
<PAGE>

                          LEASE AND SUBLEASE AGREEMENT

      THIS LEASE AND SUBLEASE AGREEMENT (this "Agreement") made and entered into
this 14 day of March, 2001, by and between COASTAL COAL-WEST VIRGINIA, LLC, a
Delaware limited liability company, (hereinafter referred to as "Lessor");
COASTAL COAL COMPANY, LLC, a Delaware limited liability company, (hereinafter
referred to as "Coastal"); EAST KENTUCKY ENERGY CORPORATION, a Kentucky
corporation, (hereinafter referred to as "Lessee"); and AEI RESOURCES, INC., a
Kentucky Corporation (hereinafter referred to as "AEI").

                              W I T N E S S E T H:

      Lessor is the owner of certain surface properties located in the Glade
District of Webster County, West Virginia, as more fully identified on Exhibit A
attached hereto and made a part hereof (collectively, the "Owned Tracts"). In
addition, Lessor is the lessee of certain coal and coal mining rights on certain
tracts or parcels of land located in the Glade District of Webster County, West
Virginia, as more fully identified on Exhibit B attached hereto (collectively
the "Leased Tracts"). The Owned Tracts and the Leased Tracts are herein
collectively referred to as the "Property", and are more particularly defined as
shown on the map attached hereto and made a part hereof as Exhibit C. Lessee
acknowledges receipt of copies of the documents by which Lessor is currently the
lessee of the Leased Tracts and copies of the documents by which Lessor is
obligated to pay an overriding royalty on all but two (2) of the Owned Tracts,
all of which are identified on Exhibit B attached hereto. The Leased Tracts
documents and the Owned Tracts documents are herein collectively referred to as
the "Property Documents."

<PAGE>

      By this Agreement, Lessor desires to lease and sublease to Lessee and
Lessee desires to obtain from Lessor, rights to mine the coal on and under the
Property as more fully specified hereinafter.

      NOW, THEREFORE, in consideration of One Dollar ($1.00) in hand paid by
Lessee to Lessor and of the terms, conditions, covenants and royalties
hereinafter set forth, Lessor does hereby lease and sublease, as appropriate, to
Lessee the exclusive right to mine and remove the coal on or under the Property,
together with mining rights with respect thereto, by the mining methods and in
the seams as specified in the Property Documents.

ARTICLE ONE. RIGHTS AND OBLIGATIONS.

      1.1 Reference is made to Exhibits A, B and C attached hereto and which
identify the tracts which comprise the Property. If Lessee determines in its
reasonable discretion that any right owned or controlled by Lessor (by lease or
otherwise) within the tracts identified on Exhibits A and B should be terminated
or not renewed, it shall first consult with Lessor and if Lessor agrees, the
parties shall mutually cooperate to terminate or not renew such right. If the
parties do not agree that such right should be terminated or not renewed, Lessee
shall cause such right to be surrendered to Lessor and Lessor shall thereupon
acquire all rights related thereto, including the benefit of any recoupable
amounts without reimbursement to Lessee, and shall assume all obligations
related thereto accruing after the date of such surrender. Except as otherwise
expressly provided herein, Lessor shall take all action required to maintain its
leasehold rights in full force and effect in order to protect the concurrent
right of Lessee.

                                      -2-
<PAGE>

      1.2 Lessor does hereby lease unto Lessee its mining rights and privileges
with respect to the coal on the Property together with rights of ingress, egress
and regress and other rights and privileges incidental to operation and
production of coal from the Property.

      1.3 Lessor does not undertake to lease to Lessee any greater or other
rights in the Property than it has by virtue of (i) deeds or leases pursuant to
which it acquired its interests in the Property, and (ii) all right, title and
interest which Lessor may have acquired by operation of law.

      1.4 Excluded from the scope of this Agreement and reserved by Lessor for
all purposes other than those for which this Agreement is made, are all of the
rights and remedies of the underlying lessor(s) or granting party under the
Property Documents with respect to all operations on the Property in the same
manner as if Lessor were the original lessor or granting party under the
Property Documents.

      1.5 Lessee covenants to commence mining the mineable and merchantable coal
in and on the Property as soon as practicable (presently projected to be within
five years) and to thereafter continue mining the same with due diligence during
the term of this Agreement except when prevented by circumstances beyond
Lessee's control. The term "mineable and merchantable coal" as used in this
Agreement shall be the definition as ascribed to it in the Property Documents
for each tract. Provided, however, Lessor and Lessee recognize and agree that
the Property covered hereby forms a part of a larger mining area and that from
time to time prudent mining practices and the logical and practical sequence of
Lessee's operations within such mining area will cause Lessee to commence and
discontinue from time to time its coal removal operations on the Property.

                                      -3-
<PAGE>

      1.6 Lessee hereby assumes all of the obligations and conditions contained
in the Property Documents with respect to all of its operations on the Property
in the same manner as if Lessee were the original lessee or party under the
Property Documents, except as otherwise specifically set forth herein. Lessee
acknowledges that it has received of a copy of the Property Documents, has read
and examined same, and hereby agrees that all operations in the exercise of
Lessee's mining rights under this Agreement shall be in compliance with all the
terms, conditions and obligations of the Property Documents. If there is any
conflict or inconsistency between this Agreement and any provision in any one or
more of the Property Documents, the provisions of the applicable Property
Document shall be controlling to determine obligations hereunder.

      1.7 Except as set forth in Section 2.1 of this Agreement, payments due
under the Property Documents shall be paid by Lessee directly to the party
entitled to the same at the times required by the Property Documents and Lessee
shall, at the same time, provide to Lessor evidence that all such payments have
been made in a timely manner. Lessee has this day paid to Lessor the sum of One
Hundred Fifty Four Thousand Two Hundred Sixty-Two Dollars ($154,262.00) to
reimburse Lessor for recoupable amounts heretofore paid by Lessor under the
Property Documents as set forth on Exhibit B attached hereto and Lessee shall
hereafter have the benefit of such recoupable amounts. Lessor warrants to Lessee
that the amounts set forth on Exhibit B are true and correct and are recoupable
in accordance with the applicable Property Documents.

      1.8 The parties acknowledge that Lessor has reserved certain rights
hereunder and imposed certain requirements on Lessee hereunder solely for the
purpose of

                                      -4-
<PAGE>

insuring that the mineable and merchantable coal is recovered from the
Property and that Lessor (to the extent applicable) and its lessor(s) each
receive payments due it; and nothing herein shall be construed in such a way as
to express or imply any right of Lessor to control Lessee or its mining or other
activities under this Agreement.

ARTICLE TWO. SHARING OF MINIMUM ROYALTY OBLIGATIONS.

      2.1 Under the Property Documents whereby Lessee is subleasing only a
portion of the lease area, the portion of the minimum royalty obligation to be
paid by Lessee is set forth on Exhibit B and Lessee shall pay its share directly
to the party entitled to the same as set forth in Section 1.7 of this Agreement.
Lessor and Lessee hereby agree that, in the event either party is able to recoup
all of its portion of the prepaid minimum royalty balance, prior to paying the
underlying lessor royalties in excess of said minimum royalty balance, it shall
consult with the other to determine if Lessor or Lessee, as the case may be, has
any outstanding recoupable prepaid minimum royalty on said lease. If so, Lessor
or Lessee, as the case may be, shall recoup such balance from the underlying
lessor's tonnage royalty and shall reimburse the other any amounts so recouped.

      2.2 At such time as Lessor or Lessee, as the case may be, has mined and
removed all of the mineable and merchantable coal from its portion of the area
under the Property Documents where Lessee is subleasing only a portion of the
underlying area, the party with mineable and merchantable coal remaining shall
be obligated thereafter to pay the full amount of the minimum royalty due under
the applicable Property Document in order to keep said Property Document in full
force and effect. Lessor or Lessee, as the case may be,

                                      -5-
<PAGE>

shall notify the other party of such event no less than sixty (60) days prior to
the date the next minimum royalty would be due under such Property Document to
the underlying lessor(s).

ARTICLE THREE. TERM.

      3.1 The term of this Agreement shall terminate with respect to each
Property Document upon (i) exhaustion of all the mineable and merchantable coal
from the tract(s) in the Property covered thereby, or (ii) the surrender or
termination thereof in accordance with Section 1.1 hereof, or (iii) the
expiration of the term of such Property Document, whichever occurs sooner. This
Agreement shall likewise terminate upon exhaustion of all of the mineable and
merchantable coal in all tracts in the Property. To the extent that Lessor has
the right under the Property Documents to grant such right, Lessee shall have
the right of entry (to any such tract(s)) following the term of this Agreement
to perform reclamation required by law and Lessor shall not interfere with the
same.

      3.2 Upon termination of this Agreement, Lessee shall be in compliance with
all terms of this Agreement including, without limitation, the payment of
tonnage royalties, minimum annual royalties, taxes and all other payments due
under the Property Documents, prorated to the date of such termination.
Notwithstanding the surrender or other termination of this Agreement (in whole
or in part), Lessee shall remain responsible for and perform all reclamation
upon the Property as may be required by law, subject to the provisions of
Section 3.3 hereof. Any recoupable balance pertaining to any minimum royalty
under the Property Documents, to the extent of the portions of the Property
affected by any such surrender or
                                      -6-
<PAGE>

termination, shall become the sole and absolute property of Lessor without any
reimbursement to Lessee.

      3.3   (a) At such time as Lessee shall have mined and removed all of the
mineable and merchantable coal in and underlying the Property or upon
termination of Lessee's right to mine, process and ship coal as provided herein
or upon termination of this Agreement with respect to any portion of the
Property, at Lessor's election made within 60 days thereof, Lessee either (i)
shall commence and within a reasonable period thereafter fully reclaim and
restore such portions of the Property in accordance with all applicable laws,
regulations and permits or (ii) shall leave such portions of the Property in
such condition that mining by another may begin immediately after termination
hereof, each as hereinafter more fully described. Lessor in its sole discretion
may elect option (i) for parts or portions of the Property and option (ii) for
other parts or portions of the Property.

            (b) If Lessor elects to have any part of the Property reclaimed and
restored, Lessee at its sole cost and expense shall reclaim and restore such
Property as required by applicable laws, regulations and permits (except as
directed by Lessor to accommodate the continued presence of any facilities or
other alterations or improvements on the Property if such accommodation is
permissible under applicable law or permits) and shall initiate and diligently
pursue and complete all things necessary to terminate all permits and
authorizations held by Lessee regarding such Property.

            (c) If Lessor elects to have Lessee leave any part of the Property
in such condition that mining by another may begin immediately, Lessee, at its
sole cost and expense, promptly upon receipt of notice of such election, shall
initiate and diligently pursue

                                      -7-
<PAGE>

and complete all things reasonably necessary, effective as soon as possible
after such election is made, to accommodate Lessor's election. Lessee shall do
all things requested by Lessor, if such request be made, to permit immediate
mining by another, including but not limited to the transfer or assignment to
Lessor or its designee of applicable permits (subject to the replacement of all
bonds or other security required to be posted in connection with such permits),
except to the extent Lessee is not in compliance with such permits. No mining by
Lessor or another shall occur, without the prior written consent of Lessee being
first had and obtained, prior to the transfer of such permits on that portion of
the Property covered by the transfer of such permits. The parties agree that any
noncompliance by Lessee under any applicable laws or permits shall be determined
by a final inspection by the State compliance inspector(s) as close as possible
to, but prior to, the time of transfer. Once the activity, if any, which is not
in compliance has been corrected by Lessee, such transferee shall be responsible
for all future obligations with respect to such activity.

      3.4 Notwithstanding any other provision of this Article, this Agreement
shall automatically terminate with respect to any Property Document pertaining
to the Property upon termination or expiration of such Property Document, or any
extensions thereof.

ARTICLE FOUR. TAXES.

      4.1 Lessee shall pay all severance taxes, unmined minerals tax, black lung
fees and reclamation fees assessed by the state, federal or local governments
upon the coal or the Property for all periods during which the Agreement is in
effect with respect thereto and

                                      -8-
<PAGE>

shall pay or reimburse Lessor for all taxes payable by Lessor with respect
to all interests owned or controlled by Lessor in the Property for all periods
during which this Agreement is in effect with respect thereto (it being
recognized that some of the leases or other documents pertaining to the Leased
Tracts may not require Lessor to pay real estate taxes). Lessee shall also pay
all taxes payable with respect to all the improvements and property of Lessee
upon the Property for all periods during which this Agreement is in effect.

      4.2 Taxes assessed against Lessor for which Lessee is responsible may be
paid by Lessor initially and reimbursed by Lessee to Lessor on presentment of a
copy of receipted invoice or canceled check for same. In the alternative, Lessor
may present such tax invoices to Lessee which shall promptly pay them.

ARTICLE FIVE. REMOVAL OF IMPROVEMENTS ON TERMINATION.

      5.1 At the termination of this Agreement, whether by termination,
expiration, or otherwise, other than termination by forfeiture, provided Lessee
is not then in default hereunder in which case such default shall be remedied
before anything is removed, Lessee shall have for a period of ninety (90) days
thereafter the right and privilege of removing all of the personal property,
machinery, equipment, and improvements placed by Lessee in, under, or upon the
Property.

                                      -9-
<PAGE>

ARTICLE SIX. WARRANTIES.

      6.1 Lessor disclaims and makes no warranty, express or implied, whether of
merchantability, quality, quantity, recoverability, title or otherwise as to the
Property or interests therein, or coal reserves, or mining rights owned by, or
leased to Lessor, or as to the condition of the Property and Lessee shall rely
upon its own examination thereof through engineers and other representatives
selected and employed solely by Lessee.

ARTICLE SEVEN. INDEMNITY; INSURANCE.

      7.1   (a)   (i) In addition to the indemnity set forth in the Property
Documents which shall run to the Lessor, Lessee and AEI agree to indemnify,
defend and hold the Lessor and Coastal and their members, shareholders,
directors, officers and agents (the "Indemnified Party") harmless from and
against any and all claims, demands, actions, causes of action, losses, lost
coal claims, costs and expenses of any kind whatsoever, arising out of, relating
to or resulting from Lessee's breach or failure to keep, maintain or perform any
terms or conditions of this Agreement or any of the Property Documents.

                  (ii) The foregoing covenant of indemnity shall survive the
cancellation or termination of this Agreement or any of the Property Documents.
This indemnification by Lessee and AEI shall not be negated or reduced by
Lessee's and AEI's insurance carrier's denial of insurance coverage for the
occurrence or event which is the subject matter of the claim or refusal to
defend Lessee and AEI or Lessor and Coastal. Simultaneous with the execution of
this Agreement, AEI will execute and deliver to Lessor and Coastal the Guaranty
attached hereto and made a part hereof as Exhibit D.

                                      -10-
<PAGE>

            (b) In addition to the insurance requirements of the Property
Documents, Lessee and AEI shall maintain and carry, during the term of the this
Agreement and for so long thereafter until final bond release on any Property
disturbed, Environmental Impairment Liability insurance covering environmental
damages resulting from Lessee's operations under this Agreement, including clean
up and third party liability of not less than $5,000,000 per occurrence and
$10,000,000 annual aggregate, and shall name Lessor and Coastal as an additional
insureds with respect thereto. Failure to maintain such coverage shall be
considered a default of this Agreement. Lessor and Coastal shall be named as
additional insureds with respect to the coverages required in the Property
Documents and this paragraph; shall contain a waiver of subrogation in favor of
Lessor and Coastal; and shall require thirty (30) days advance notice to Lessor
and Coastal of any proposed cancellation or material change in coverage. If at
any time Lessee and AEI fail to maintain the aforesaid insurance coverages
Lessor and/or Coastal, their successors and assigns, shall have the right to
cause all activities under this Agreement to cease until such coverage(s) are
reinstated or to procure such insurance coverage and to be reimbursed for the
cost therefor by either Lessee or AEI. The insurance requirement set forth in
the Property Documents and herein are minimum requirements and shall not limit
Lessee and AEI's liability in any manner.

            (c) Lessee further covenants and agrees that all employees of Lessee
and/or any and all other persons performing work on the Property pursuant to the
rights granted in this Agreement will be fully covered by or insured at all
times by Workers' Compensation, and to that end Lessee shall comply with all
applicable Workers' Compensation laws, rules and regulations and shall make all
necessary contributions and/or premium or other

                                      -11-
<PAGE>

payments. In addition, Lessee shall comply with all laws pertaining to payment
of employees including without limitation the provision of W. Va. Code Section
21-5-1, et. seq. and provide Lessor evidence of posting of any bond required by
W. Va. Code Section 21-5-14 or other similar law.

            (d)   (i) Lessee agrees that it shall comply with all of the terms
and provisions of all of the "black lung laws." Lessee acknowledges that, as
between itself and Lessor, it is, and shall be deemed to be, the operator of any
coal mine or coal preparation facility or facility used for the extraction,
preparation or transportation of coal produced from the Property and of all
related activities, including, but not limited to, coal mine construction or
maintenance engaged in by Lessee pursuant to the terms of this Agreement with
respect to any claim for black lung benefits filed by or on account of any of
its employees or former employees. Lessee shall secure and shall require any
other person or entity claiming by, through or under Lessee who operates,
controls, or supervises a coal mine or coal preparation facility on the Property
or performs services of construction, maintenance, transportation, or other
activities related to coal mining or preparation under the terms of this
Agreement, or who otherwise may be liable for the payment of black lung
benefits, to secure the payment of such black lung benefits to or on account of
employees or former employees in accordance with the black lung laws and shall
provide Lessor, upon request, with appropriate certification that each of them
has provided security in compliance with all black lung laws for the payment of
such black lung benefits.

                  (ii) Without limiting the generality of Lessee's obligations
to comply with all other provisions of this Agreement, Lessee does hereby agree
that it will

                                      -12-
<PAGE>

indemnify and hold Lessor and Coastal harmless from any liability and expenses,
including reasonable attorney fees and expenses, which Lessor or Coastal may
suffer directly or indirectly, as a result of or with respect to any claim for
black lung benefits filed by or on account of any of Lessee's employees or
former employees, or employees or former employees of others who may be required
to secure the payment of black lung benefits with respect to the mining or other
activities under or pursuant to this Agreement.

                  (iii) "Black lung laws" mean the Black Lung Benefits Act,
Title IV of the Federal Mine Safety and Health Act of 1977, 30 U.S.C. 901 et
seq., and the Internal Revenue Code, 26 U.S.C. 1 et seq., Black Lung Benefits
Reform Act of 1977 (P.L. 95-239), Black Lung Benefits Revenue Act of 1977 (P.L.
75-227), Black Lung Benefits Revenue Act of 1981 (P.L. 97-119), and the Black
Lung Benefits Amendments Act of 1981 (P.L. 97-119), as now or hereafter amended
or replaced, and all rules and regulations adopted pursuant thereto.

      7.2 AEI will cause that certain Irrevocable Standby Letter of Credit No.
Y022207 established by UBS AG, Stamford Branch, to be amended to allow Coastal
to draw on the Letter of Credit for any costs and expenses of every kind and
nature (including, but not limited to, reasonable attorney's fees) which may be
imposed upon or incurred by Lessor or Coastal as a result of or in connection
with Lessee's performance of or activities under this Agreement or as a result
of the breach or default by Lessee of the terms and conditions of the Property
Documents or this Agreement for which Lessee or AEI fail to indemnify Lessor
and/or Coastal.

                                      -13-
<PAGE>

ARTICLE EIGHT. DEFAULT, FORFEITURE; REMEDIES CUMULATIVE.

      8.1   (a) In any of the following events, that is to say:

                  (i) Lessee shall fail for a period of five (5) days after
written demand therefor (or such shorter period as may be set out in any
applicable Property Document) to pay any installment of rent or royalty or other
payment due hereunder after the same becomes due and payable; or

                  (ii) Lessee shall abandon the Property; or

                  (iii) Lessee shall fail to

                        A. conduct its operations as required in Section 1.5
      hereof;

                        B. provide insurance as required in Article 7 hereof;

                        C. pay taxes as provided in Article 4 hereof; or

                        D. keep and perform any of the other terms, conditions,
      covenants and agreements of this Agreement to be kept and performed;
and if any such failure as specified in this subpart (iii) shall continue
without Lessee diligently pursuing the cure of any such failure for a period of
30 days after Lessor shall have given written notice of such failure to Lessee
(or for a period 15 days less than any period set out in any applicable Property
Document);

                  (iv) Lessee is in default of any condition of default as set
forth in the Property Documents, which are incorporated herein by reference; or

                  (v) Lessee be adjudicated a bankrupt or discharged by the
Court as an insolvent debtor, or if any receiver or assignee or other person or
persons be

                                      -14-
<PAGE>
appointed by any court to take charge of the Property or the property of
Lessee, or the mines and equipment upon the same;

then in any such event this Agreement and the estate hereby created, and all
rights of the Lessee hereunder with respect to the Property shall at the option
of Lessor, become forfeited and cease and terminate, and Lessor shall have the
right to reenter the Property and to exclude Lessee therefrom, and to hold the
Property and all improvements thereon free of any claims of Lessee, anything
herein contained to the contrary notwithstanding; provided that in any such
event, Lessee shall have a right of access to the Property (to the extent Lessor
can grant such right) to perform any reclamation required by this Agreement or
by applicable law or permits.

            (b) Upon any forfeiture, all estate, rights and privileges of Lessee
hereunder with respect to the Property shall cease and terminate, and Lessor may
thereupon or at any time thereafter, without further notice, demand or action by
any of its agents, reenter and take possession of the Property, or any part
thereof in the name of Lessor, to the extent and with like effect as though this
Agreement had never been made, and Lessor in making said reentry and taking
possession of said property shall have the right to do so without legal action,
or without notice or process, as may be required by the laws of the State of
West Virginia, as amended.

            (c) All provisions herein contained for the collection of rents,
royalties or other payments, or concerning the remedy of Lessor in case of
breach by Lessee of any condition, covenant or agreement herein contained, or
contained in any other Property Document, shall be deemed to be cumulative and
not exclusive, and shall not deprive Lessor

                                      -15-
<PAGE>

of any of its other legal or equitable remedies which may now or hereafter be
provided under the laws of the State of West Virginia.

            (d) A waiver by Lessor of any particular default upon the part of
Lessee which would entitle Lessor to forfeit and terminate this Agreement and
reenter and take possession, shall not prevent Lessor from forfeiting and
terminating this Agreement for any other cause, or for the same cause occurring
at any other time. The receipt by Lessor from Lessee of payments of rentals,
royalties, or other sums after the occurrence of any default that would
authorize Lessor to declare a forfeiture of this Agreement, or the continued
recognition of Lessor of Lessee as its subtenant after the occurrence of any
default entitling Lessor to declare a forfeiture shall not be deemed a waiver of
Lessor's right of forfeiture, so long as the cause of forfeiture continues to
exist.

            (e) It is understood and agreed that Lessor does hereby reserve such
rights and remedies as were reserved to the original lessor(s) in the Property
Documents, as if such rights and remedies were fully set out herein.

ARTICLE NINE. ASSIGNMENT PROHIBITED.

      9.1 Lessee agrees that it will not assign, sublet or otherwise transfer
its rights hereunder, either voluntarily or by operation of law, without the
prior written consent of Lessor. Nothing herein contained shall prevent or
hinder the right of Lessee to sublease to its affiliated company, Evergreen
Mining Company, or contract any part or portion of its operations under this
Agreement in the usual and ordinary course of its business but such subleasing,
contracting or subcontracting shall not release or relieve Lessee or AEI from
any of its obligations or liabilities under this Agreement or Guaranty of even
date herewith.

                                      -16-
<PAGE>

ARTICLE TEN. NOTICES.

      10.1 Any notice which Lessee may desire to serve upon Lessor and/or
Coastal may be made by mailing the same postage prepaid by registered or
certified mail, return receipt requested, or express mail, addressed to Lessor
and/or Coastal at P. O. Box 1871, Roanoke, Virginia 24008. Any notice which
Lessor may desire to serve upon Lessee and/or AEI may be made mailing the same
postage prepaid by registered or certified mail, return receipt requested, or
express mail, addressed to Lessee and/or AEI at 2000 Ashland Drive, Ashland,
Kentucky 41101.

ARTICLE ELEVEN. APPLICABLE LAW.

      11.1 This Agreement shall be governed by and interpreted in accordance
with the laws of the State of West Virginia.

ARTICLE TWELVE. SUCCESSORS AND ASSIGNS.

      12.1 The covenants, agreements, terms and conditions of this Agreement
shall inure to the benefit of, and shall be binding upon the parties hereto,
their respective successors and assigns.

ARTICLE THIRTEEN. MODIFICATION OR AMENDMENT.

      13.1 This Agreement may not be modified, altered or amended in any manner
except by written agreement executed by Lessor and Lessee.

                                      -17-
<PAGE>

ARTICLE FOURTEEN. ARTICLE HEADINGS.

      14.1 The headings of, or captions to each article of this Agreement are
for convenience only and are not to be used to interpret, amend, or alter any of
the provisions hereof.

ARTICLE FIFTEEN. COUNTERPARTS.

      15.1 This Agreement may be executed in any one or more counterparts, each
of which shall be deemed an original and it shall not be necessary in making
proof of this Agreement to produce or account for more than one such
counterpart.

      IN WITNESS WHEREOF, Lessor, Coastal, Lessee and AEI have hereunto caused
this Agreement to be executed as of the day and year first above written.

                            COASTAL COAL-WEST VIRGINIA, LLC

                            By: /s/ James W. Copley
                                -----------------------------------------------
                            Its: Vice Pres.

                            COASTAL COAL COMPANY, LLC

                            By: /s/ James W. Copley
                                -----------------------------------------------
                            Its: Vice Pres.

                            EAST KENTUCKY ENERGY CORPORATION

                            By: /s/ Gary Colley
                                -----------------------------------------------
                            Its: Attorney-in-Fact

                                      -18-
<PAGE>

                            AEI RESOURCES, INC.

                            By: /s/ Gary Colley
                                -----------------------------------------------
                            Its: Attorney-in-Fact

STATE OF WEST VIRGINIA  )

COUNTY OF WEBSTER       ), to-wit:

      The foregoing instrument was acknowledged before me this 14th day of
March, 2001, by James W. Copley, Jr., the Vice President of COASTAL COAL-WEST
VIRGINIA, LLC, a Delaware limited liability company, on behalf of the
organization.

                                                 /s/ Arley M. Johnson
                                -----------------------------------------------
                                                 Notary Public

My commission expires: 01/17/2011                [Notary Seal]

STATE OF WEST VIRGINIA  )

COUNTY OF WEBSTER       ), to-wit:

      The foregoing instrument was acknowledged before me this 14th day of
March, 2001, by James W. Copley, Jr., the Vice President of COASTAL COAL
COMPANY, LLC, a Delaware limited liability company, on behalf of the
organization.

                                                 /s/ Arley M. Johnson
                                -----------------------------------------------
                                                 Notary Public

My commission expires: 01/17/2011                [Notary Seal]

                                      -19-
<PAGE>

STATE OF WEST VIRGINIA  )

COUNTY OF WEBSTER       ), to-wit:

      The foregoing instrument was acknowledged before me this 14th day of
March, 2001, by Gary L. Colley, the Attorney-in-Fact of EAST KENTUCKY ENERGY
CORPORATION, a Kentucky corporation, on behalf of the corporation.

                                               /s/ Arley M. Johnson
                                -----------------------------------------------
                                               Notary Public

My commission expires: 01/17/2011              [Notary Seal]
STATE OF WEST VIRGINIA  )

COUNTY OF WEBSTER       ), to-wit:

      The foregoing instrument was acknowledged before me this 14th day of
March, 2001, by Gary L. Colley, the Attorney-in-Fact of AEI RESOURCES, INC., a
Kentucky corporation, on behalf of the corporation.

                                               Arley M. Johnson
                                -----------------------------------------------
                                               Notary Public

My commission expires: 01/17/2011              [Notary Seal]

This instrument was prepared by:

Coastal Coal-West Virginia, LLC
Legal Department
P. O. Box 1871
Roanoke, VA 24008

eastky.las

                                      -20-
<PAGE>

                            EXHIBIT A - OWNED TRACTS

<TABLE>
<CAPTION>
TRACT#                              ACREAGE                               REMARKS
------                              -------                               -------
<S>                                 <C>                   <C>
WE44                                  25                  Johnson Property
WE45                                  35                  Bragg Property
WE46 & WE46A                         137.5                Norman Heirs Property (188 acres)
                                                          less exceptions of 36 acres and 14 acres
WE46A                                 36                  Selman Property
WE47                                  75                  McAvoy Property
WE48                                  69.5                McAvoy Property (part of 129 acres)
WE48                                  35                  McAvoy Property (part of 129 acres)
WE50                                  24                  Selman Property
WE51                                  50                  Selman Property (part of 83 acres)
WE51                                  33                  Selman Property (part of 83 acres)
</TABLE>

NOTE: All of the above tracts are subject to minimum and per ton overriding
      royalties See Exhibit B

<TABLE>
<S>                                   <C>                 <C>
WE46                                  13.6                Wilson/Jackson Property
WE49                                  50                  Wilson/Jackson Property
</TABLE>

                                      -21-
<PAGE>

                            EXHIBIT B - LEASED TRACTS

SUBLEASE OF TOTAL LEASE AREA:

1.    That certain Coal Lease dated July 1, 1999, from NGHD Lands, Inc.; T. C.
      Lands, Inc.; Larry A. Deitz and Gloria K. Deitz; White Pine, Inc.; G. D.
      Herold Estate by James H. Wolverton and Eugenia P. Herold, Co-executors;
      and Maxey Ann Tulley to Coastal Coal-West Virginia, LLC.

      TRACT #: WE45, WE46, WE47, WE48, WE50, WE51, WE52
      Acreage: 28, 188, 73, 202, 20.75, 76, 43.54
      Recoupable Prepaid Balance Reimbursed by Lessee (Section 1.5): $41,580.00

2.    That certain Coal Lease dated July 1, 1999, from NGHD Lands, Inc.; T. C.
      Lands, Inc.; White Pine, Inc.; B & W Land Company; Ottaway Trent, Trustee;
      Ernestine Trent; and Ottaway Trent and Tinia Faye Trent to Coastal
      Coal-West Virginia, LLC.

      TRACT #: WE49
      Acreage: 50
      Recoupable Prepaid Balance Reimbursed by Lessee (Section 1.5): $3,500.00

3.    That certain Coal and Surface Lease Agreement dated October 19, 1978, from
      Boyd F. Selman (successor in interest to Maggie White Selman and Herold
      Selman) to Coastal Coal-West Virginia, LLC (successor in interest to ANR
      Coal Development Company), of record in the clerk's office of Webster
      County, West Virginia, in Book 12, at page 430, as supplemented by
      Supplement to Lease dated October 19, 1978, of record in the aforesaid
      clerk's office in Book 12, at page 445, and amended by Amendment of Coal
      and Surface Lease Agreement dated November 28, 1983, of record in the
      aforesaid clerk's office in Book 18, at page 387.

      TRACT #: WE52
      Acreage: 69
      Recoupable Prepaid Balance Reimbursed by Lessee (Section 1.5): $.00

4.    That certain Lease dated July 13, 1976, from Lavonne Cobb, Keith S.
      Roberts, Edsel F. Roberts, Wayland S. Roberts, and Kay Vannest (successors
      in interest to Glen Roberts and Ruby Roberts) to Coastal Coal-West
      Virginia, LLC (successor in interest to Harold Roberts), as amended by
      that certain Supplement to Lease dated October 25, 1978, of record in the
      clerk's office of Webster County, West Virginia, in Book 42, at page 422,
      and that certain Supplement to Lease dated December 5, 1978 [unrecorded],
      and those certain extension letters dated September 9, 1988 and August 31,
      1998.

                                      -22-
<PAGE>

      TRACT #: WE53
      Acreage: 1/2 of 28
      Recoupable Prepaid Balance Reimbursed by Lessee (Section 1.5): $76,200.00

5.    That certain Surface Lease dated July 1, 1999, from NGHD Lands, Inc.;
      White Pine, Inc.; B & W Land Company; Ottaway Trent, Trustee; Ernestine
      Trent; and Ottaway Trent and Tinia Faye Trent to Coastal Coal-West
      Virginia, LLC

      TRACT #: WE48A
      Acreage: 77
      Recoupable Prepaid Balance Reimbursed by Lessee (Section 1.5): $1,540.00

SUBLEASE OF PARTIAL LEASE AREA:

1.    That certain Coal Lease Agreement dated April 25, 1978, from Charles A.
      Roberts and Marlene R. Roberts and Orlen P. Roberts and Mary Jane Roberts
      to Coastal Coal-West Virginia, LLC (successor in interest to ANR Coal
      Development Company), as evidenced by Memorandum of Lease of record in the
      clerk's office of Webster County, West Virginia, in Book 13, page 306, as
      amended by Amendment dated August 30, 1996.

      TRACT #: WE44
      Acreage: 25
      Recoupable Prepaid Balance: $8,000.00
      Portion of Balance Reimbursed by Lessee (Section 1.5): $1,325.00
      Portion of Annual Minimum to be paid by Lessee Effective 04-04-2001:
      $662.00

2.    That certain Lease dated July 3, 1978, from Estle D. Boggs or Margaret
      Boggs to Coastal Coal-West Virginia, LLC (successor in interest to ANR
      Coal Development Company), as amended by that certain Amendment of Lease
      executed on July 1, 1983, of record in the clerk's office of Nicholas
      County, West Virginia, in Book 55, at page 282.

      TRACT #: WE52, WE100 (Partial)
      Acreage: 95.8, Part of 26
      Recoupable Prepaid Balance: $64,000.00
      Portion of Balance Reimbursed by Lessee (Section 1.5): $.00
      Portion of Annual Minimum to be paid by Lessee Effective 07-03-2001:
      $1,350.00

                                      -23-
<PAGE>

3.    That certain Lease dated September 22, 1977, from Evelyn Boggs and Ronald
      S. Boggs and Linda G. Boggs (successors in interest to Roy Boggs and
      Evelyn Boggs) to Coastal Coal-West Virginia, LLC (successor in interest to
      Revere Coal Company), of record in the clerk's office of Webster County,
      West Virginia, in Book 12, at page 64, as amended by those certain
      Supplements to Lease dated November 3, 1977, October 19, 1978, and
      December 1, 1978, and those certain extension letters dated July 17, 1987
      and August 8, 1997.

      TRACT #: WE53,
      Acreage: 1/2 of 28
      Recoupable Prepaid Balance: $72,000.00
      Portion of Balance Reimbursed by Lessee (Section 1.5): $19,237.00
      Portion of Annual Minimum to be paid by Lessee Effective 01-25-2001:
      $1,924.00

4.    That certain Lease dated October 14, 1977, from M-B, LLC (successor to M-B
      Partners, Ltd.) to Coastal Coal-West Virginia, LLC (successor in interest
      to ANR Coal Development Company), as evidenced by Memorandum of Lease of
      record in the clerks' office of Webster County, Nicholas County, and
      Braxton County, West Virginia, in Book 13, page 283; Book 50, page 223;
      and Book 380, page 727, respectively.

      TRACT #: WE54, WE55
      Acreage: 735.15, 28.88 (portions of 838 and 107 acre tracts located east
               of Barnett Run and south of Birch River only)
      Recoupable Prepaid Balance: $.00
      Portion of Balance Reimbursed by Lessee (Section 1.5): $.00
      Portion of Annual Minimum to be paid by Lessee: $.00

OVERRIDING ROYALTY ON OWNED TRACTS

1.    That certain Surface Lease dated February 23, 2000, from NGHD Lands, Inc.;
      T. C. Lands, Inc.; AED, LLC, Larry A. Deitz and Gloria K. Deitz; and Maxey
      Ann Tulley to Coastal Coal-West Virginia, LLC

      TRACT #: WE44, WE45, WE46 and 46A, WE46A, WE47,WE48, WE48, WE50, WE51,
               WE51
      Acreage: 25, 35, 137.5, 36, 75, 69.5, 35, 24, 50, 33
      Recoupable Prepaid Balance Reimbursed by Lessee (Section 1.5): $10,880.00

                                      -24-

<PAGE>

                   MEMORANDUM OF LEASE AND SUBLEASE AGREEMENT

      THIS MEMORANDUM OF LEASE AND SUBLEASE AGREEMENT is made and entered into
as of the 1st day of June, 2001 (the "Effective Date"), by and among COASTAL
COAL-WEST VIRGINIA, L.L.C., a Delaware limited liability company, hereinafter
referred to as LESSOR; COASTAL COAL COMPANY, L.L.C., a Delaware limited
liability company, hereinafter referred to as "COASTAL"; EAST KENTUCKY ENERGY
CORPORATION, a Kentucky corporation, hereinafter referred to as "LESSEE"; and
AEI RESOURCES, INC., a Kentucky corporation, hereinafter referred to as "AEI."

                              W I T N E S S E T H:

      WHEREAS, Lessor is the owner in fee of certain surface properties located
in the Glade District of Webster County, West Virginia, as more fully identified
on Exhibit A attached hereto and made a part hereof (collectively the "Owned
Tracts"); and,

      WHEREAS, Lessor is the lessee of certain coal and coal mining rights on
certain tracts or parcels of land located in the Glade District of Webster
County, West Virginia, as more fully identified on Exhibit B attached hereto
(collectively the "Leased Tracts"); and,

      WHEREAS, the Owned Tracts and Leased Tracts are more particularly defined
as shown on the map attached hereto and made a part hereof as Exhibit C; and,

      WHEREAS, the parties entered into a Lease and Sublease Agreement dated
March 14, 2001, (the "Agreement") by which Lessee has been granted certain
mining and transportation rights in and to the Owned Tracts and Leased Tracts;
and,

      WHEREAS, the Leased Tracts documents and the Owned Tracts documents are
herein collectively referred to as the "Property Documents;" and,

      WHEREAS, the parties desire to execute a memorandum of the Agreement to be
recorded in order to give notice of its existence and certain of its terms and
conditions, however, reference is hereby made to said Agreement for a complete
explanation of all rights and obligations of the parties thereto.

      NOW, THEREFORE, notice is hereby given of the existence of the Agreement,
and that the Agreement contains, inter alia, the following terms and provisions:

      1.    Lessor does not undertake to lease to Lessee any greater or other
            rights in the Property than it has by virtue of (i) deeds or leases
            pursuant to which it acquired its interests in the Property, and
            (ii) all right, title and interest which Lessor may have acquired by
            operation of law.

<PAGE>

      2.    Excluded from the scope of this Agreement and reserved by Lessor for
            all purposes other than those for which this Agreement is made, are
            all of the rights and remedies of the underlying lessor(s) or
            granting party under the Property Documents with respect to all
            operations on the Property in the same manner as if Lessor were the
            original lessor or granting party under the Property Documents.

      3.    Lessee covenants to commence mining the mineable and merchantable
            coal in and on the Property as soon as practicable (presently
            projected to be within five years) and to thereafter continue mining
            the same with due diligence during the term of this Agreement except
            when prevented by circumstances beyond Lessee's control. The term
            "mineable and merchantable coal" as used in this Agreement shall be
            the definition as ascribed to it in the Property Documents for each
            tract. Provided, however, Lessor and Lessee recognize and agree that
            the Property covered hereby forms a part of a larger mining area and
            that from time to time prudent mining practices and the logical and
            practical sequence of Lessee's operations within such mining area
            will cause Lessee to commence and discontinue from time to time its
            coal removal operations on the Property.

      4.    Lessee hereby assumes all of the obligations and conditions
            contained in the Property Documents with respect to all of its
            operations on the Property in the same manner as if Lessee were the
            original lessee or party under the Property Documents, except as
            otherwise specifically set forth herein. Lessee acknowledges that it
            has received a copy of the Property Documents, has read and examined
            same, and hereby agrees that all operations in the exercise of
            Lessee's mining rights under this Agreement shall be in compliance
            with all the terms, conditions and obligations of the Property
            Documents. If there is any conflict or inconsistency between this
            Agreement and any provision in any one or more of the Property
            Documents, the provisions of the applicable Property Document shall
            be controlling to determine obligations hereunder.

      5.    The term of this Agreement shall terminate with respect to each
            Property Document upon (i) exhaustion of all the mineable and
            merchantable coal from the tract(s) in the Property covered thereby,
            or (ii) the surrender or termination thereof in accordance with
            Section 1.1 hereof, or (iii) the expiration of the term of such
            Property Document, whichever occurs sooner. This Agreement shall
            likewise terminate upon exhaustion of all of the mineable and
            merchantable coal in all tracts in the Property. To the extent that
            Lessor has the right under the Property Documents to grant such
            right, Lessee shall have the right of entry (to any such tract(s))
            following the term of this Agreement to perform reclamation required
            by law and Lessor shall not interfere with the same.

      6.    Notwithstanding any other provision of this Article, this Agreement
            shall automatically terminate with respect to any Property Document
            pertaining to the Property upon termination or expiration of such
            Property Document, or any extensions thereof.

                                       2
<PAGE>

      7.    At the termination of this Agreement, whether by termination,
            expiration, or otherwise, other than termination by forfeiture,
            provided Lessee is not then in default hereunder in which case such
            default shall be remedied before anything is removed, Lessee shall
            have a period of ninety (90) days thereafter the right and privilege
            of removing all of the personal property, machinery, equipment, and
            improvements placed by Lessee in, under, or upon the Property.

      8.    Lessee agrees that it will not assign, sublet or otherwise transfer
            its rights hereunder, either voluntarily or by operation of law,
            without the prior written consent of Lessor. Nothing herein
            contained shall prevent or hinder the right of Lessee to sublease to
            its affiliated company, Evergreen Mining Company, or contract any
            part or portion of its operations under this Agreement in the usual
            and ordinary course of its business but such subleasing, contracting
            or subcontracting shall not release or relieve Lessee or AEI from
            any of its obligations or liabilities under this Agreement or
            Guaranty of even date herewith.

      9.    By its express terms, the Agreement is binding upon the parties,
            their respective successors and assigns.

      10.   Each party has an executed copy of the Agreement and all terms and
            conditions of said Agreement are incorporated herein by reference
            and made a part hereof as if fully set forth.

      IN TESTIMONY WHEREOF, witness the signatures of the parties hereto this
day and year first above written.

                                     LESSOR:

                                     COASTAL COAL-WEST VIRGINIA, L.L.C.

                                     BY: /s/ James W. Copley
                                         --------------------------------------
                                     ITS: Vice Pres.

                                     COASTAL COAL COMPANY, L.L.C.

                                     BY: /s/ James W. Copley
                                         --------------------------------------
                                     ITS: Vice Pres.

                                       3
<PAGE>

                                     LESSEE:

                                     EAST KENTUCKY ENERGY CORPORATION

                                     BY: /s/ Bernie Mason
                                         --------------------------------------
                                     ITS: Vice President

                                     AEI RESOURCES, INC.

                                     BY: /s/ Bernie Mason
                                         --------------------------------------
                                     ITS: Vice President

STATE OF WEST VIRGINIA

COUNTY OF WEBSTER

      The foregoing instrument was subscribed, sworn to and acknowledged before
me this 1st day of June, 2001, by James W. Copley, Jr. as Vice President of
COASTAL COAL-WEST VIRGINIA, L.L.C., a Delaware limited liability company, for
and on behalf of said entity.

      My Commission Expires: April 7, 2009

[NOTARY SEAL]

                                         /s/ Melody Martin
                                         --------------------------------------
                                         Notary Public

STATE OF WEST VIRGINIA

COUNTY OF WEBSTER

      The foregoing instrument was subscribed, sworn to and acknowledged before
me this 1st day of June, 2001, by James W. Copley, Jr. as Vice President of
Coastal Coal Company, LLC, a Delaware limited liability company, for and on
behalf of said entity.

      My Commission Expires: April 7, 2009

[NOTARY SEAL]

                                         /s/ Melody Martin
                                         --------------------------------------
                                         Notary Public

                                       4
<PAGE>

STATE OF KENTUCKY

COUNTY OF GREENUP

      The foregoing instrument was subscribed, sworn to and acknowledged before
me this 25th day of May, 2001, by Bernie Mason as Vice President of EAST
KENTUCKY ENERGY CORPORATION, a Kentucky corporation, for and on behalf of said
corporation.

      My Commission Expires: 11-14-03

[NOTARY SEAL]

                                         /s/ Denise G. Mitchell
                                         --------------------------------------
                                         Notary Public

STATE OF KENTUCKY

COUNTY OF GREENUP

      The foregoing instrument was subscribed, sworn to and acknowledged before
me this 25th day of May, 2001, by Bernie Mason as Vice President of AEI
RESOURCES, INC., a Kentucky corporation, for and on behalf of said corporation.

      My Commission Expires: 11-14-03

[NOTARY SEAL]

                                         /s/ Denise G. Mitchell
                                         --------------------------------------
                                         Notary Public

THIS INSTRUMENT PREPARED BY:

/s/ George M. Hogg
---------------------------
George M. Hogg, Attorney
Addington Corporate Center
2000 Ashland Drive
Ashland, Kentucky 41101
(606) 920-7890

                                       5
<PAGE>

                            EXHIBIT A - OWNED TRACTS

<TABLE>
<CAPTION>
TRACT#                                 ACREAGE                                  REMARKS
------                                 -------                                  -------
<S>                                    <C>                      <C>
WE44                                     25                     Johnson Property
WE45                                     35                     Bragg Property
WE46 & WE46A                             137.5                  Norman Heirs Property (188 acres) less
                                                                Exceptions of 36 acres and 14 acres
WE46A                                    36                     Selman Property
WE47                                     75                     McAvoy Property
WE48                                     69.5                   McAvoy Property (part of 129 acres)
WE48                                     35                     McAvoy Property (part of 129 acres)
WE50                                     24                     Selman Property
WE51                                     50                     Selman Property (part of 83 acres)
WE51                                     33                     Selman Property (part of 83 acres)
WE46                                     13.6                   Wilson/Jackson Property
WE49                                     50                     Wilson/Jackson Property
</TABLE>

The above described and set forth properties were acquired by Lessor, or its
predecessor(s) by and through the following Deeds, namely:

      Deed dated January 25, 2000, from Larry A. Deitz and Gloria Deitz, his
      wife, to Coastal Coal-West Virginia, L.L.C., such Deed appearing of record
      in Deed Book 249, at Page 313, in the Office of the Clerk of the County
      Commission for Webster County, West Virginia.

      Deed dated February 25, 2000, from T. C. Lands, Inc. to Coastal Coal-West
      Virginia, LLC, such Deed appearing of record in Deed Book 249, at Page
      337, in said Clerk's office.

      Deed dated February 25, 2000, from NGHD Lands, Inc. to Coastal Coal-West
      Virginia, LLC, such Deed appears of record in Deed Book 349, at Page 327,
      in said Clerk's office.

      Deed dated February 25, 2000, from AED, LLC, to Coastal Coal-West
      Virginia, LLC, such Deed appearing of record in Deed Book 249, at Page
      304, in said Clerk's Office.

      Deed dated October 2, 1979, from Charles Russell Jackson and Edith M.
      Jackson, his wife, to ANR Coal Development Company, such Deed appearing of
      record in Deed Book 186, at Page 638, in said Clerk's Office.

                                       6
<PAGE>

      Deed dated September 18, 1978, between William Hunt Real Estate, Inc. and
      ANR Coal Development Company, such Deed appearing of record in Deed Book
      183, at Page 98, in said Clerk's Office.

                                       7
<PAGE>

                            EXHIBIT B - LEASED TRACTS

SUBLEASE OF TOTAL LEASE AREA:

1.    That certain Coal Lease dated July 1, 1999, from NGHD Lands, Inc.; T. C.
      Lands, Inc.; Larry A. Deitz and Gloria K. Deitz; White Pine, Inc.; G. D.
      Herold Estate by James H. Wolverton and Eugenia P. Herold, Co-executors;
      and Maxey Ann Tulley to Coastal Coal-West Virginia, LLC.

      TRACT #: WE45, WE46, WE47, WE48, WE50, WE51, WE52
      Acreage: 28, 188, 73, 202, 20.75, 76, 43.54

2.    That certain Coal Lease dated July 1, 1999, from NGHD Lands, Inc.; T. C.
      Lands, Inc.; White Pine, Inc.; B & W Land Company; Ottaway Trent, Trustee;
      Ernestine Trent; and Ottaway Trent and Tinia Faye Trent to Coastal
      Coal-West Virginia, LLC.

      TRACT #: WE49
      Acreage: 50

3.    That certain Coal and Surface Lease Agreement dated October 19, 1978, from
      Boyd F. Selman (successor in interest to Maggie White Selman and Herold
      Selman) to Coastal Coal-West Virginia, LLC (successor in interest to ANR
      Coal Development Company), of record in the clerk's office of Webster
      County, West Virginia, in Book 12, at page 430, as supplemented by
      Supplement to Lease dated October 19, 1978, of record in the aforesaid
      clerk's office in Book 12, at page 445, and amended by Amendment of Coal
      and Surface Lease Agreement dated November 28, 1983, of record in the
      aforesaid clerk's office in Book 18, at page 387.

      TRACT #: WE52
      Acreage: 69

4.    That certain Lease dated July 13, 1976, from Lavonne Cobb, Keith S.
      Roberts, Edsel F. Roberts, Wayland S. Roberts, and Kay Vannest (successors
      in interest to Glen Roberts and Ruby Roberts) to Coastal Coal-West
      Virginia, LLC (successor in interest to Harold Roberts), as amended by
      that certain Supplement to Lease dated October 25, 1978, of record in the
      clerk's office of Webster County, West Virginia, in Book 42, at page 422,
      and that certain Supplement to Lease dated December 5, 1978 [unrecorded],
      and those certain extension letters dated September 9, 1988 and August 31,
      1998.

                                       8
<PAGE>

      TRACT #: WE53
      Acreage: 1/2 of 28

5.    That certain Surface Lease dated July 1, 1999, from NGHD Lands, Inc.;
      White Pine, Inc.; B & W Land Company; Ottaway Trent, Trustee; Ernestine
      Trent; and Ottaway Trent and Tinia Faye Trent to Coastal Coal-West
      Virginia, LLC

      TRACT #: WE48A
      Acreage: 77

SUBLEASE OF PARTIAL LEASE AREA:

1.    That certain Coal Lease Agreement dated April 25, 1978, from Charles A.
      Roberts and Marlene R. Roberts and Orlen P. Roberts and Mary Jane Roberts
      to Coastal Coal-West Virginia, LLC (successor in interest to ANR Coal
      Development Company), as evidenced by Memorandum of Lease of record in the
      clerk's office of Webster County, West Virginia, in Book 13, page 306, as
      amended by Amendment dated August 30, 1996.

      TRACT #: WE44
      Acreage: 25

2.    That certain Lease dated July 3, 1978, from Estle D. Boggs or Margaret
      Boggs to Coastal Coal-West Virginia, LLC (successor in interest to ANR
      Coal Development Company), as amended by that certain Amendment of Lease
      executed on July 1, 1983, of record in the clerk's office of Nicholas
      County, West Virginia, in Book 55, at page 282.

      TRACT #: WE52, WE100 (Partial)
      Acreage: 95.8, Part of 26

                                       9
<PAGE>

3.    That certain Lease dated September 22, 1977, from Evelyn Boggs and Ronald
      S. Boggs and Linda G. Boggs (successors in interest to Roy Boggs and
      Evelyn Boggs) to Coastal Coal-West Virginia, LLC (successor in interest to
      Revere Coal Company), of record in the clerk's office of Webster County,
      West Virginia, in Book 12, at page 64, as amended by those certain
      Supplements to Lease dated November 3, 1977, October 19, 1978, and
      December 1, 1978, and those certain extension letters dated July 17, 1987
      and August 8, 1997.

      TRACT #: WE53,
      Acreage: 1/2 of 28

4.    That certain Lease dated October 14, 1977, from M-B, LLC (successor to M-B
      Partners, Ltd.) to Coastal Coal-West Virginia, LLC (successor in interest
      to ANR Coal Development Company), as evidenced by Memorandum of Lease of
      record in the clerks' office of Webster County, Nicholas County, and
      Braxton County, West Virginia, in Book 13, page 283; Book 50, page 223;
      and Book 380, page 727, respectively.

      TRACT #: WE54, WE55
      Acreage: 735.15, 28.88 (portions of 838 and 107 acre tracts located east
               of Barnett Run and south of Birch River only)

                                       10
<PAGE>

                                      [MAP]

<PAGE>

                     ASSIGNMENT OF REAL PROPERTY AGREEMENTS

      This Assignment of Real Property Agreements (this "Agreement"), dated as
of September 30, 2004, is among (1) ICG Natural Resources, LLC, ICG ADDCAR
Systems, LLC, ICG East Kentucky, LLC, ICG Illinois, LLC, ICG Eastern, LLC, ICG
Hazard, LLC, ICG Knott County, LLC, ICG Hazard Land, LLC, ICG Eastern Land, LLC,
each a Delaware limited liability company, with an address of 2000 Ashland
Drive, Ashland, Kentucky 41101 (collectively, the "Buyers"); and (2) Appalachian
Realty Company, a Kentucky corporation; Ayrshire Land Company, a Delaware
corporation; Bluegrass Coal Development Company, a Delaware corporation;
Evergreen Mining Company, a West Virginia corporation; Fairview Land Company,
LLC, a Delaware limited liability company; Horizon Natural Resources Sales
Company, a Kentucky corporation; Horizon NR LLC, a Delaware limited liability
corporation; Leslie Resources, Inc., a Kentucky corporation; Leslie Resources
Management, Inc., a Kentucky corporation; Aceco, Inc., a Kentucky corporation;
Pro-Land, Inc. d/b/a Kem Coal Company, a Kentucky corporation; River Coal
Company, Inc., a Kentucky corporation; Highland Coal, Inc., a Kentucky
corporation; Mountain-Clay, Incorporated d/b/a Mountain Clay, Inc., a Kentucky
corporation; Sunny Ridge Enterprises, Inc., a Kentucky corporation; Sunny Ridge
Mining Company, Inc., a Kentucky corporation; Turris Coal Company, a Delaware
corporation; Ikerd-Bandy Co., a Kentucky corporation; Shipyard River Coal
Terminal Company, a South Carolina corporation; Franklin Coal Sales Company, a
Delaware corporation; Kentucky Prince Mining Company, a New York corporation; RP
Terminal, LLC, a Kentucky limited liability corporation; Mining Technologies,
Inc., a Kentucky corporation; East Kentucky Energy Company, a Kentucky
corporation; CC Coal Company, a Kentucky corporation; Meadowlark, Inc., an
Indiana corporation; Old Ben Coal Company, a Delaware corporation; Zeigler Coal
Holding Company, a Delaware corporation; HNR Mining, Inc., a Kentucky
corporation; Mountaineer Coal Development Company, a West Virginia corporation;
Kermit Coal Company, an West Virginia corporation; Horizon Natural Resources
Company, a Delaware corporation; 17 West Mining, Inc., a Delaware corporation;
Princess Beverly Coal Company, a West Virginia corporation; Mountain Coals
Corporation, a Delaware corporation; Cannelton Industries, Inc., a West Virginia
corporation; Mid-Vol Leasing, Inc., a West Virginia corporation; West
Virginia-Indiana Coal Holding Company, Inc., a Delaware corporation; Kindill
Mining, Inc., an Indiana corporation; McCoy Coal Company, a Kentucky
corporation; and Horizon Natural Resources Holding Company, LLC, a Delaware
limited liability corporation; each with an address of 2000 Ashland Drive,
Ashland, Kentucky 41101 (collectively, the "Sellers").

                                    RECITALS

      A. This Agreement is being entered into to effect the transactions
contemplated by the Amended and Restated Asset Purchase Agreement, dated June 2,
2004 (as the same may be hereafter amended or supplemented, the "Purchase
Agreement"), between Newcoal, LLC and the Complete Sellers, the Partial Sellers,
the Coal Inventory Sellers and Parent (collectively, the "Sellers"). Capitalized
terms not otherwise defined herein shall have the meanings given to such terms
in the Purchase Agreement.

<PAGE>

      B. Each Seller is a party to certain of those real property agreements set
forth on Schedules A - H hereto, which pertain to real property located in those
counties and states identified on such Schedules (the "Real Property
Agreements").

      C. The Sellers desire to assign to the Buyers in the manner set forth
below, and the respective Buyers desire to assume, all of the Sellers' right,
title and interest in and to the Real Property Agreements, pursuant to the terms
of the Purchase Agreement as set forth herein.

      D. The assignment of the Real Property Agreements covered hereby has been
approved by Order Pursuant to 11 U.S.C. Sections 105(A), 362, 363, 365, 1123 and
1146(C) and Fed. R. Bankr. P. 2002, 6004, 6006 and 9014: (A) Approving Asset
Purchase Agreements, (B) Authorizing Sale of Substantially All Assets Free and
Clear of All Liens, Claims, Interests and Other Encumbrances, and (C)
Authorizing Assumption and Assignment of Certain Agreements, entered on
September 16, 2004, by the United States Bankruptcy Court for the Eastern
District of Kentucky, Ashland Division, in the Chapter 11 proceeding styled In
Re: Horizon Natural Resources Company, et al. (including Seller) (the "Sale
Order," a copy of which is attached hereto and made a part hereof as Exhibit 1),
such proceedings being jointly administered under Case No. 02-14261. Pursuant to
the Sale Order and Section 1146 of the U.S. Bankruptcy Code, the execution and
delivery of this instrument shall not be taxed under any law imposing a transfer
tax, stamp tax or similar tax.

      NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

      1. Assignment. The Sellers hereby grant, assign, transfer, convey, deliver
and set over unto the respective Buyers all of their right, title, interest,
duties and obligations in, to and under the Real Property Agreements as set
forth below:

            (a) Each Seller who is a party to any of the Real Property
Agreements set forth on Schedule A hereby grants, assigns, transfers, conveys,
delivers, and sets over unto ICG Natural Resources, LLC all of its fight, title,
interest, duties and obligations in, to and under those Real Property Agreements
set forth on such Schedule A to the extent that any such Real Property
Agreements are not being assigned to ICG Natural Resources, LLC pursuant to any
other instrument dated as of even date herewith.

            (b) Each Seller who is a party to the Real Property Agreements set
forth on Schedule B hereby grants, assigns, transfers, conveys, delivers, and
sets over unto ICG East Kentucky, LCC all of its right, title, interest, duties
and obligations in, to and under those Real Property Agreements set forth on
such Schedule B to the extent that any such Real Property Agreements are not
being assigned to ICG East Kentucky, LLC pursuant to any other instrument dated
as of even date herewith.

            (c) Each Seller who is a party to the Real Property Agreements set
forth on Schedule C hereby grants, assigns, transfers, conveys, delivers, and
sets over unto ICG Illinois, LLC all of its right, title, interest, duties and
obligations in, to and under those Real Property Agreements set forth on such
Schedule C to the extent that any such Real Property Agreements

                                       2
<PAGE>

are not being assigned to ICG Illinois, LLC pursuant to any other instrument
dated as of even date herewith.

            (d) Each Seller who is a party to the Real Property Agreements set
forth on Schedule D hereby grants, assigns, transfers, conveys, delivers, and
sets over unto ICG Eastern, LLC all of its right, title, interest, duties and
obligations in, to and under those Real Property Agreements set forth on such
Schedule D to the extent that any such Real Property Agreements are not being
assigned to ICG Eastern, LLC pursuant to any other instrument dated as of even
date herewith.

            (e) Each Seller who is a party to the Real Property Agreements set
forth on Schedule E hereby grants, assigns, transfers, conveys, delivers, and
sets over unto ICG Hazard, LLC all of its right, title, interest, duties and
obligations in, to and under those Real Property Agreements set forth on such
Schedule E to the extent that any such Real Property Agreements are not being
assigned to ICG Hazard, LLC pursuant to ay other instrument dated as of even
date herewith.

            (f) Each Seller who is a party to the Real Property Agreements set
forth on Schedule F hereby grants, assigns, transfers, conveys, delivers, and
sets over unto ICG Knott County, LLC all of its right, title, interest, duties
and obligations in, to and under those Real Property Agreements set forth on
such Schedule F to the extent that any such Real Property Agreements are not
being assigned to ICG Knott County, LLC pursuant to any other instrument dated
as of even date herewith.

            (g) Each Seller who is a party to the Real Property Agreements set
forth on Schedule G hereby grants, assigns, transfers, conveys, delivers, and
sets over unto ICG Hazard Land, LLC all of its right, title, interest, duties
and obligations in, to and under those Real Property Agreements set forth on
such Schedule G to the extent that any such Real Property Agreements are not
being assigned to ICG Hazard Land, LLC pursuant to any other instrument dated as
of even date herewith.

            (h) Each Seller who is a party to the Real Property Agreements set
forth on Schedule H hereby grants, assigns, transfers, conveys, delivers, and
sets over unto ICG Eastern Land, LLC all of its right, title, interest, duties
and obligations in, to and under those Real Property Agreements set forth on
such Schedule H to the extent that any such Real Property Agreements are not
being assigned to ICG Eastern Land, LLC pursuant to any other instrument dated
as of even date herewith.

      2. Assumption. Each Buyer hereby assumes the Sellers' right, title,
interest, duties and obligations in, to and under those Real Property Agreements
assigned to such Buyer pursuant to Section 1 hereof and agrees to be bound by
all of the terms and conditions of such Real Property Agreements and to pay,
perform and discharge when due, all duties and obligations of the respective
Seller under the Real Property Agreements assigned to such Buyer pursuant to
Section 1 hereof, in each case, however, only to the extent such obligations are
Assumed Liabilities.

                                       3
<PAGE>

      3. Conflict. This Agreement is subject to all the terms and conditions of
the Purchase Agreement and Sale Order. No provision of this Agreement shall be
deemed to enlarge, alter or amend the terms or provisions of the Purchase
Agreement or the Sale Order. Notwithstanding anything to the contrary set forth
herein, if there is any conflict between the terms and conditions of this
Agreement and the terms and conditions of the Purchase Agreement and the Sale
Order, the terms and conditions of the Purchase Agreement and the Sale Order
shall control.

      4. Governing Law. Except to the extent inconsistent with the United States
Bankruptcy Code, this Agreement shall be governed by and construed according to
the laws of the State of Delaware, without regard to or application of its
conflict of laws rules. The parties to this Agreement agree that the Bankruptcy
Court shall have exclusive jurisdiction, and the parties hereby submit to such
jurisdiction, of any dispute arising under or related to this Agreement.

      5. Counterparts. This Agreement may be executed in one or more
counterparts (including by means of facsimile signature pages) and all such
counterparts taken together shall constitute one and the same Agreement.

      6. Severability. If any provision of this Agreement or its application is
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of all other applications of that provision, and of all other
provisions and applications hereof, will not in any way be affected or impaired.
If any court shall determine that any provision of this Agreement is in any way
unenforceable, such provision shall be reduced to whatever extent is necessary
to make such provision enforceable.

      7. Entire Agreement. All prior negotiations and agreements by and among
the parties hereto with respect to the subject matter hereof are superseded by
this Agreement, the Purchase Agreement, the Sale Order and the Related
Agreements, and there are no representations, warranties, understandings or
agreements with respect to the subject matter hereof other than those expressly
set forth in this Agreement, the Purchase Agreement, the Sale Order and the
Related Agreements.

      8. Headings. Section headings are not to be considered part of this
Agreement, are solely for convenience of reference, and shall not affect the
meaning or interpretation of this Agreement or any provision in it.

      9. No Third-Party Beneficiaries. Nothing in this Agreement shall confer
any rights upon any person or entity other than the parties hereto and their
respective successors and permitted assigns.

      10. Successors and Assigns. The terms of this Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns.

      11. Further Assurances. Each party hereto agrees, upon the reasonable
request of the other party hereto, to make, execute and deliver any and all
documents or instruments of any kind or character, and to perform all such other
actions, that may be reasonably necessary or

                                       4
<PAGE>

proper (without the expenditure of funds) to effectuate, confirm, perform or
carry out the terms or provisions of this Agreement.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       5
<PAGE>

      IN WITNESS WHEREOF, the parties hereto have caused their authorized
representatives to execute this Agreement as of the date first set forth above.

                                  ICG NATURAL RESOURCES, LLC:

                                  By: /s/ David Wax
                                      -----------------------------------------

                                  Name: David Wax

                                  Title:  Vice President

                                  ICG ADDCAR SYSTEMS, LLC:

                                  By: /s/ David Wax
                                      -----------------------------------------

                                  Name: David Wax

                                  Title: Vice President

                                  ICG EAST KENTUCKY, LLC:

                                  By: /s/ David Wax
                                      -----------------------------------------

                                  Name: David Wax

                                  Title: Vice President

                                  ICG ILLINOIS, LLC:

                                  By: /s/ David Wax
                                      -----------------------------------------

                                  Name: David Wax

                                  Title: Vice President

                                      S-1
<PAGE>

                                  ICG EASTERN, LLC:

                                  By: /s/ David Wax
                                      -----------------------------------------

                                  Name: David Wax

                                  Title: Vice President

                                  ICG HAZARD, LLC:

                                  By: /s/ David Wax
                                      -----------------------------------------

                                  Name: David Wax

                                  Title: Vice President

                                  ICG KNOTT COUNTY, LLC:

                                  By: /s/ David Wax
                                      -----------------------------------------

                                  Name: David Wax

                                  Title: Vice President

                                  ICG HAZARD LAND, LLC:

                                  By: /s/ David Wax
                                      -----------------------------------------

                                  Name: David Wax

                                  Title: Vice President

                                      S-2
<PAGE>

                                  ICG EASTERN LAND, LLC:

                                  By: /s/ David Wax
                                      -----------------------------------------

                                  Name: David Wax

                                  Title: Vice President

                                  APPALACHIAN REALTY COMPANY

                                  By: /s/ Scott Tepper
                                      -----------------------------------------

                                  Name: Scott Tepper

                                  Title: President

                                  AYRSHIRE LAND COMPANY

                                  By: /s/ Scott Tepper
                                      -----------------------------------------

                                  Name: Scott Tepper

                                  Title: President

                                  BLUEGRASS DEVELOPMENT COMPANY

                                  By: /s/ Scott Tepper
                                      -----------------------------------------

                                  Name: Scott Tepper

                                  Title: President

                                  EVERGREEN MINING COMPANY

                                  By: /s/ Scott Tepper
                                      -----------------------------------------

                                  Name: Scott Tepper

                                  Title: President

                                      S-3

<PAGE>

                                  FAIRVIEW LAND COMPANY, LLC

                                  By: /s/ Scott Tepper
                                      -----------------------------------------

                                  Name: Scott Tepper

                                  Title: President

                                  HORIZON NATURAL RESOURCES SALES COMPANY

                                  By: /s/ Scott Tepper
                                      -----------------------------------------

                                  Name: Scott Tepper

                                  Title: President

                                  HORIZON NR, LLC

                                  By: /s/ Scott Tepper
                                      -----------------------------------------

                                  Name: Scott Tepper

                                  Title: President

                                  LESLIE RESOURCES, INC.

                                  By: /s/ Scott Tepper
                                      -----------------------------------------

                                  Name: Scott Tepper

                                  Title: President

                                  LESLIE RESOURCES MANAGEMENT, INC.

                                  By: /s/ Scott Tepper
                                      -----------------------------------------

                                  Name: Scott Tepper

                                  Title: President

                                      S-4
<PAGE>

                                  ACECO, INC.

                                  By: /s/ Scott Tepper
                                      -----------------------------------------

                                  Name: Scott Tepper

                                  Title: President

                                  PRO-LAND, INC. d/b/a KEM COAL COMPANY

                                  By: /s/ Scott Tepper
                                      -----------------------------------------

                                  Name: Scott Tepper

                                  Title: President

                                  RIVER COAL COMPANY, INC.

                                  By: /s/ Scott Tepper
                                      -----------------------------------------

                                  Name: Scott Tepper

                                  Title: President

                                  HIGHLAND COAL, INC

                                  By: /s/ Scott Tepper
                                      -----------------------------------------

                                  Name: Scott Tepper

                                  Title: President

                                  MOUNTAIN-CLAY, INCORPORATED

                                  By: /s/ Scott Tepper
                                      -----------------------------------------

                                  Name: Scott Tepper

                                  Title: President

                                      S-5
<PAGE>

                                  SUNNY RIDGE ENTERPRISES, INC.

                                  By: /s/ Scott Tepper
                                      -----------------------------------------

                                  Name: Scott Tepper

                                  Title: President

                                  SUNNY RIDGE MINING COMPANY, INC.

                                  By: /s/ Scott Tepper
                                      -----------------------------------------

                                  Name: Scott Tepper

                                  Title: President

                                  TURRIS COAL COMPANY

                                  By: /s/ Scott Tepper
                                      -----------------------------------------

                                  Name: Scott Tepper

                                  Title: President

                                  IKERD-BANDY CO.

                                  By: /s/ Scott Tepper
                                      -----------------------------------------

                                  Name: Scott Tepper

                                  Title: President

                                  SHIPYARD RIVER COAL TERMINAL COMPANY

                                  By: /s/ Scott Tepper
                                      -----------------------------------------

                                  Name: Scott Tepper

                                  Title: President

                                      S-6
<PAGE>

                                  FRANKLIN COAL SALES COMPANY

                                  By: /s/ Scott Tepper
                                      -----------------------------------------

                                  Name: Scott Tepper

                                  Title: President

                                  KENTUCKY PRICING MINING COMPANY

                                  By: /s/ Scott Tepper
                                      -----------------------------------------

                                  Name: Scott Tepper

                                  Title: President

                                  RP TERMINAL LLC

                                  By: /s/ Scott Tepper
                                      -----------------------------------------

                                  Name: Scott Tepper

                                  Title: President

                                  MINING TECHNOLOGIES, INC.

                                  By: /s/ Scott Tepper
                                      -----------------------------------------

                                  Name: Scott Tepper

                                  Title: President

                                  EAST KENTUCKY ENERGY CORPORATION

                                  By: /s/ Scott Tepper
                                      -----------------------------------------

                                  Name: Scott Tepper

                                  Title: President

                                      S-7
<PAGE>

                                  CC COAL COMPANY

                                  By: /s/ Dan Stickler
                                      -----------------------------------------

                                  Name: Dan Stickler

                                  Title: Secretary

                                  MEADOWLARK, INC.

                                  By: /s/ Scott Tepper
                                      -----------------------------------------

                                  Name: Scott Tepper

                                  Title: President

                                  OLD BEN COAL COMPANY

                                  By: /s/ Dan Stickler
                                      -----------------------------------------

                                  Name: Dan Stickler

                                  Title: Secretary

                                  ZEIGLER COAL HOLDING COMPANY

                                  By: /s/ Dan Stickler
                                      -----------------------------------------

                                  Name: Dan Stickler

                                  Title: Secretary

                                  HNR MINING INC.

                                  By: /s/ Scott Tepper
                                      -----------------------------------------

                                  Name: Scott Tepper

                                  Title: President

                                      S-8
<PAGE>

                                  MOUNTAINEER COAL DEVELOPMENT COMPANY

                                  By: /s/ Dan Strickler
                                      -----------------------------------------

                                  Name: Dan Stickler

                                  Title: Secretary

                                  KERMIT COAL COMPANY

                                  By: /s/ Scott Tepper
                                      -----------------------------------------

                                  Name: Scott Tepper

                                  Title: President

                                  HORIZON NATURAL RESOURCES COMPANY

                                  By: /s/ Scott Tepper
                                      -----------------------------------------

                                  Name: Scott Tepper

                                  Title: President

                                  17 WEST MINING, INC.

                                  By: /s/ Scott Tepper
                                      -----------------------------------------

                                  Name: Scott Tepper

                                  Title: President

                                  PRINCESS BEVERLY COAL COMPANY

                                  By: /s/ Dan Stickler
                                      -----------------------------------------

                                  Name: Dan Stickler

                                  Title: Secretary

                                      S-9
<PAGE>

                                  MOUNTAIN COALS CORPORATION

                                  By: /s/ Dan Stickler
                                      -----------------------------------------

                                  Name: Dan Stickler

                                  Title: Secretary

                                  CANNELTON INDUSTRIES, INC.

                                  By: /s/ Dan Stickler
                                      -----------------------------------------

                                  Name: Dan Stickler

                                  Title: Secretary

                                  MID-VOL LEASING, INC.

                                  By: /s/ Scott Tepper
                                      -----------------------------------------

                                  Name: Scott Tepper

                                  Title: President

                                  WEST VIRGINIA-INDIANA COAL HOLDING COMPANY,
                                  INC.

                                  By: /s/ Dan Stickler
                                      -----------------------------------------

                                  Name: Dan Stickler

                                  Title: Secretary

                                  KINDILL MINING, INC.

                                  By: /s/ Dan Stickler
                                      -----------------------------------------

                                  Name: Dan Stickler

                                  Title: Secretary

                                      S-10

<PAGE>

                                  MCCOY COAL COMPANY

                                  By: /s/ Scott Tepper
                                      -----------------------------------------

                                  Name: Scott Tepper

                                  Title: President

                                  HORIZON NATURAL RESOURCES HOLDING COMPANY

                                  By: /s/ Scott Tepper
                                      -----------------------------------------

                                  Name: Scott Tepper

                                  Title: President

                                      S-11

<PAGE>

                                                                      SCHEDULE H
                                                                           NEWCO

      LMS - CONTRACTS BY COMPANY & COUNTY REPORT

                              ICG EASTERN LAND, LLC

                                                         5/16/2004

                                                         8:08:25 P.M.

            Company Type: NewCo   Active: Active   Area  ICG Eastern, LLC-Lessor

            Company No:   (AI)    Starts  (AI)           Page 1 of 1
<TABLE>
<CAPTION>
    CONTRACT CONTRACT                                                                                   CONTRACT
CO  NO.      TYPE     STATUS    AREA     COMPANY/LESSEE        LESSOR                         COUNTY ST    DATE    VOL PAGE DOCUMENT
------------------------------------------------------------------------------------------------------------------------------------
<S> <C>      <C>      <C>       <C>       <C>                  <C>                            <C>     <C> <C>      <C> <C>  <C>
New WV-N-4   Surface  Producing Evergreen East Kentucky Energy Night Lands, Inc. EtA1         Webster WV  02/23/2000
             Lease                        Corp. (434)

New WV-N-3   Surface  Future    Evergreen East Kentucky Energy Night Lands, Inc. EtA1 (Base   Webster WV  07/01/1999
             Lease    Prod                Corp. (434)                                 Lessors)

New WV-N-6   Coal     Producing Evergreen East Kentucky Energy Night Lands, Inc. EtA1 (Base   Webster WV  07/01/1999
             Lease                        Corp. (434)                                 Lessors)

New WV-N-5   Coal     Producing Evergreen East Kentucky Energy Night Lands, Inc. EtA1 (Base   Webster WV  07/01/1999
             Lease                        Corp. (434)                                 Lessors
</TABLE><PAGE>

                                                                   EXHIBIT 10.13

                                   COAL LEASE

                                     between

                          M-B PARTNERS, LTD., as Lessor

                                       and

                     ANR COAL DEVELOPMENT COMPANY, as Lessee

                             Dated: October 14, 1977

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                          Page
                                                                                          ----
<S>                                                                                       <C>
SECTION ONE
      Granting Clause                                                                       1

SECTION TWO
      Exceptions                                                                            4

SECTION THREE
      Warranty                                                                              6

SECTION FOUR
      Term                                                                                  8

SECTION FIVE
      Wheelage                                                                              9

SECTION SIX
      Royalty                                                                              11

SECTION SEVEN
      Minimum Royalty                                                                      13

SECTION EIGHT
      Weight of Coal Mined                                                                 15

SECTION NINE
      Timber                                                                               18

SECTION TEN
      Reports                                                                              18

SECTION ELEVEN
      Taxes                                                                                19

SECTION TWELVE
      Plan for Mine Development                                                            20

SECTION THIRTEEN
      Engineer                                                                             22

SECTION FOURTEEN
      Maps and Records                                                                     22

SECTION FIFTEEN
      Inspection                                                                           24

SECTION SIXTEEN
      Records                                                                              24
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                                                                          Page
                                                                                          ----
<S>                                                                                       <C>
SECTION SEVENTEEN
      Proper Workings                                                                      25

SECTION EIGHTEEN
      Reclamation                                                                          27

SECTION NINETEEN
      Liability of Lessee, Insurance                                                       27

SECTION TWENTY
      Condemnation                                                                         29

SECTION TWENTY-ONE
      Assignments                                                                          29

SECTION TWENTY-TWO
      Bankruptcy, Mortgages, Subleases                                                     30

SECTION TWENTY-THREE
      Default                                                                              32

SECTION TWENTY-FOUR
      Force Majeure                                                                        33

SECTION TWENTY-FIVE
      Lessor's Rights not Waived                                                           35

SECTION TWENTY-SIX
      Arbitration                                                                          35

SECTION TWENTY-SEVEN
      Financial Statements                                                                 36

SECTION TWENTY-EIGHT
      Modifications                                                                        36

SECTION TWENTY-NINE
      Notices                                                                              36

SECTION THIRTY
      Successors and Assigns                                                               37
</TABLE>

                                       -2-

<PAGE>

            THIS AGREEMENT AND LEASE, executed in duplicate, made as of the 14th
day of October, 1977, by and between M-B PARTNERS, LTD., a limited partnership
under the laws of the State of West Virginia, party of the first part,
hereinafter referred to as Lessor, and ANR COAL DEVELOPMENT COMPANY, a Delaware
corporation, party of the second part, hereinafter referred to as Lessee.

                                   WITNESSETH:

                                   SECTION ONE

                                GRANTING CLAUSE:

Section 1.1 For and in consideration of One Dollar ($1.00) cash in hand paid by
each party to the other, receipt of which is hereby acknowledged, and of the
premises, and of the rentals and royalties, covenants, and agreements
hereinafter set forth, by and on the part of Lessee to be paid, kept and
performed, said Lessor does hereby demise, lease and let unto said Lessee, all
of the mineable and merchantable coal in and underlying those certain lands
containing approximately 9,526 acres situated in the Counties of Webster,
Nicholas and Braxton, State of West Virginia, together with the overlying
surface, where owned, and some areas of surface only, all as described in
Exhibit A attached hereto and made a part hereof, to which reference is here
made and which constitute all lands and interests in lands owned by the Lessor
in Webster, Nicholas and Braxton Counties, together with any other lands and
interests in lands owned by Lessor in said Counties not described in Exhibit A;

            AND, with respect to those tracts described in Exhibit A as to which
Lessor does not own the surface ("Coal Only Tracts"), this Lease is made
together with all those mining rights and privileges which Lessor owns;

<PAGE>

            AND, with respect to all tracts other than Coal Only Tracts
described in Exhibit A, this Lease is made together with the right to deep mine
and strip mine and/or with Lessor's consent, which shall not be unreasonably
withheld, to auger drill, or otherwise to develop and work and process for
market said coal in and underlying said coal properties and other coal now owned
or hereafter acquired by Lessor, its successors and assigns, by any method or
machinery now or here-after employed, including the free and uninterrupted right
and right-of-way into, upon, over, across, under and through the said land at
such points and in such manner as may be convenient or necessary for the purpose
of all operations in connection therewith and in the horizons of said coal seams
and in the strata above or below the same and other coal now owned or hereafter
acquired by Lessee, its successors or assigns, including but not limited to the
transportation of coal, refuse, personnel, supplies, and equipment, and the
right to explore, test drill, mine, drain, ventilate, store, transport, and
carry away said coal and other material and other coal and materials now owned
or which may be hereafter acquired by Lessee, its successors or assigns, and to
erect and maintain on the premises such buildings, shafts, coal cleaning plants,
tipples, engines, machinery, appliances, devices, wells, roadways, tracks, power
lines, pipelines, communication lines and all other structures and improvements
necessary or convenient to said operations; and without being required to leave
or provide subjacent or lateral support for the overlying strata or surface or
anything therein, thereon, or thereunder, including structures or improvements
now or hereafter erected thereon; and in connection with strip mining, auger
mining, excavation, or similar mining methods, the right and privilege to
excavate, drill, remove, drain, and displace any or all of the earth, rock or
other strata or materials and the water in, upon, or about said coal and said
other coal and the horizons thereof; to dump or deposit refuse resulting from
Lessee's mining operations on and off the Leased Premises; and

                                       -2-
<PAGE>

Lessor, for itself, successors, and assigns, for the consideration aforesaid,
does hereby covenant to waive and release all surface damages and damages of any
sort howsoever caused arising from the removal of, and all operations in
connection with said coal and materials and said coal or the horizons thereof,
by Lessee, its successors and assigns, or arising from any physical conditions
now present or which may hereafter develop in, about and/or above the same
(except such damages as may arise from Lessee's breach of the covenants of
Lessee herein contained, or which may arise by reason of governmental action, or
third party action, against either Lessor or Lessee herein, or against both
Lessor and Lessee); and if in connection with coal mining operations hereunder,
other mineable and merchantable substances or minerals are removed from the area
of said coal seams or the horizons thereof, Lessor hereby leases the same to
Lessee, its successors and assigns, for such reasonable consideration as the
parties may then agree upon.

Section 1.2 All of the lands, coal and mining rights hereinabove, granted are
hereinafter referred to as the "Leased Premises."

Section 1.3 Lessor covenants and agrees that the right of Lessee, its successors
and assigns to haul or otherwise transport coal and coal products, whether or
not mined on the Leased Premises, over, under, through, upon and across the
Leased Premises shall be without additional consideration to Lessor, except as
provided in Section 5.1 herein, and shall be exclusive during the term hereof
and any extensions thereof, including the right of Lessee to grant and convey
from time to time to any railroad company, so much of the surface of said Leased
Premises as may be required by said railroad for right-of-way or other railroad
purposes.

                                       -3-
<PAGE>

                                   SECTION TWO

                                   EXCEPTIONS:

Section 2.1 (a) This Lease is made under and subject to:

                  (1)   the exceptions and reservations in Lessor's documents of
                        title; and

                  (2)   to all existing rights-of-way over said lands.

            (b) Further, Lessor does except and reserve unto Lessor and Lessor's
successors and assigns:

                  (1) The entire ownership and control of the Leased Premises
for all purposes except those herein expressly granted to Lessee, including the
right to use, lease, sell and otherwise dispose of the Leased Premises, subject
to the terms and conditions of this Lease and the rights of Lessee in the Leased
Premises;

                  (2) All natural gas, petroleum, oil and minerals (other than
coal) in and upon the Leased Premises and also all timber, stone, sand, common
clay, fire clay, and other products of said lands not specifically granted to
the Lessee, except natural gas which escapes as a result of Lessee's coal mining
operations and other reserved materials mined and transported out of the mine
with the coal;

                  (3) The right to carry on in and upon the Leased Premises such
operations as Lessor may deem proper or convenient for or in connection with the
discovery, extraction, cultivation, preparation, utilization, removal, and sale
of any and all the materials and products herein reserved to Lessor;

                  (4) The right to drain water not required by Lessee in its
mining operations; to transmit electrical energy and other power; to
non-exclusively transport any materials other than coal and its products whether
from the Leased Premises or any other lands,

                                       -4-
<PAGE>

over, across, or through the Leased Premises; make excavations, sink or bore
slopes, shafts, drifts, tunnels and wells; erect buildings, structures,
machinery and improvements, construct ditches, transmission and transportation
over, across, or through the Leased Premises; select and grant rights-of-way
therefor, with full and free rights of ingress, egress and regress as may be
necessary or convenient in the proper development of the same or other lands or
in the proper exercise of the rights hereby reserved;

                  (5) The non-exclusive right to grant and convey from time to
time to any railroad company, so much of the Leased Premises as may be required
by said railroad for rights-of-way or other railroad purposes;

                  (6) All other rights in respect to the Leased Premises which
are not expressly granted to the Lessee.

Section 2.2 Lessor and Lessee expressly agree that all rights reserved to the
Lessor are to be exercised so as not unreasonably to interfere with the coal
mining operations which are to be carried on by the Lessee hereunder. Lessor
recognizes that the leasehold and rights demised to Lessee constitute the
dominate estate in such lands. If Lessor shall hereafter voluntarily let or
exercise any right to construct or maintain power lines, railroads or pipelines
or similar facilities on the Leased Premises, Lessor will make provision for
submitting to and obtaining the approval of Lessee, which shall not be
unreasonably withheld, of the proposed location of any wells, slopes, shafts,
drifts or tunnels, pipeline, power line, railroad or other facility before
construction of such facilities commences and will make reasonable effort for
the one-time moving of such facilities installed in the future.

                                       -5-
<PAGE>

                                  SECTION THREE

                                    WARRANTY:

Section 3.1 Subject to the exceptions and reservations contained in Section Two,
Lessor warrants that it has title to the coal and that it has the lawful right
to make this Lease and to grant the rights hereunder granted to the Lessee and
that there are no other leases upon or rights against the Leased Premises
inconsistent with this Lease, with the exception of those of record, and except
as hereinafter provided. No representation is made by Lessor as to exact acreage
or location of boundary lines.

Section 3.2 If Lessee determines that title to any tract or tracts of coal or
mining rights is not good and marketable or that the mining rights are
insufficient, then Lessee shall not be required to mine the coal under such
tract or tracts unless Lessor perfects the title or obtains sufficient mining
rights. If Lessor does not perfect the title or obtain sufficient mining rights,
then Lessee shall have the right to perfect the title or obtain sufficient
mining rights. Where Lessee exercises its right to perfect the title or obtain
sufficient mining rights, Lessor shall reimburse Lessee for its reasonable
out-of-pocket costs incurred therefor provided that Lessor has given its prior
approval and concurrence to the reasonableness of such costs and such approval
and concurrence shall not be unreasonably withheld. If Lessor does not reimburse
Lessee for such costs, Lessee may apply royalties or payments otherwise payable
to Lessor hereunder towards satisfaction of its claim for such reimbursement. If
Lessor's interest in the coal and mining rights in the Leased Premises is less
than 95% of the entire estate therein, then the minimum royalty payments shall
be reduced in the proportion that such interest of the Lessor is less than 95%
of the entire estate in the coal and mining rights in the Leased Premises.
Provided, however, that if Lessee should determine within nine (9) months after
the execution of this Lease that Lessor's interest in such

                                       -6-
<PAGE>

coal and mining rights is less than 70% of the entire estate and that it would
therefore be uneconomic for Lessee to mine the coal, then Lessee shall have the
right to terminate this Lease.

Section 3.3 Whenever Lessor and/or Lessee find it is desirable and possible to
exchange coal lands for the purpose of straightening the boundaries of the
Leased Premises, or otherwise improving the Leased Premises, Lessor and/or
Lessee agree to consider the release from this Lease such part of the Leased
Premises as is necessary to such exchange and to accept in lieu thereof coal
lands acquired by such exchange but only to the extent that the recoverable coal
acreage thereby acquired by Lessee shall equal in amount and quality and
mineability the recoverable coal acreage released by Lessee.

Section 3.4 Lessor agrees that Lessee, after thirty (30) days written notice to
Lessor, at its option, may discharge any valid and/or uncontested unsatisfied
tax, mortgage, other lien or encumbrance suffered or permitted upon or against
the Leased Premises. In that event, Lessee shall be subrogated to such lien, and
have the right to enforce same, and may apply royalties or payments accruing to
Lessor hereunder towards satisfying same.

Section 3.5 The provisions hereof shall extend to the successors and assigns of
the parties; but no change in division of the ownership of the land or
royalties, however accomplished, shall operate to enlarge the obligations or
diminish the rights of Lessee. No such change or division in the ownership of
the land or royalties shall be binding upon Lessee for any purpose until such
person acquiring any interest has furnished Lessee with an instrument or
instruments or certified copies thereof constituting such person's chain of
title from the original Lessor. So long as any lands herein described are
subject to mineral deed, lease, or other instrument entitling other persons to
mine the Leased Premises for coal or to claim such right or in the event of
dispute or

                                       -7-
<PAGE>

litigation as to title or as to royalties or other payment, such royalties or
other payments may be held in escrow by Lessee, with interest thereon to accrue
to Lessor, until such lease, mineral deed, or other instrument has been released
or cancelled as to the Leased Premises or until such dispute or litigation is
finally terminated. Any sums, plus interest, so held in escrow by Lessee shall
be deemed payment of royalties or other sum due hereunder.

Section 3.6 When this Lease terminates, Lessor shall have the option subject to
the superior right of the property owner and/or existing leases, if any, (other
than Lessee and its affiliates) to buy the mine openings suitable for use in
removing coal from Lessor's premises whether or not such openings are
continguous to Lessor's boundary lines. If Lessor exercises such option, then
Lessor shall (1) assume all responsibility and liability for operations
associated with such mine openings and (2) for closing such mine openings in
accordance with applicable law. Lessee shall have no further obligation,
responsibility or indemnification requirement with respect thereto.

                                  SECTION FOUR

                                      TERM:

Section 4.1 Lessee shall have and hold said Leased Premises (subject to
provisions relating to termination hereinafter set forth);

            (a) Until all of the mineable and merchantable coal has been mined,
removed and shipped from the Leased Premises.

            (b) Provided, however, that if neither deep mining nor surface
mining has commenced before the end of the fifth (5th) year of the Lease term,
Lessor shall have the right to terminate this Lease at the end of such fifth
(5th) year by giving written notice to Lessee within ninety (90) days prior to
the end of the fifth (5th) year or at the end of any subsequent five year period
thereafter for up to twenty years; and if mining has not commenced before the
end of the

                                       -8-
<PAGE>

twentieth (20th) year of the Lease term, Lessor and Lessee shall each have the
right to terminate this Lease at the end of such twentieth (20th) year, or at
the end of any year thereafter in which mining has not commenced, by giving
written notice to the other party not less than ninety (90) days prior to the
end of the twentieth (20th) year or any year thereafter.

            (c) Any termination under the provisions of this Section Four shall
not relieve Lessee of its covenant to Lessor to complete any reclamation work
required by law or contract, and Lessee shall have the right to continue to
enter the premises for such purposes. Lessee shall be permitted for a period of
two years following the termination of the Lease to remove any improvements,
structures, fixtures, machinery, equipment, and supplies or other property of
Lessee from the Leased Premises. Subject to the prior rights of third parties
pursuant to transactions contemplated by Section Twenty One, any of such
property remaining on the Leased Premises after such two year period shall
become the property of Lessor, unless Lessor would suffer an economic loss
thereby, in which event Lessor shall have the right to require Lessee to remove
such property. Should Lessee elect to sell any of such property upon termination
of this Lease, Lessor shall have the right of first refusal to buy all but not
part of such property, but such right shall be subject to the prior rights of
affiliates of Lessee or of third persons pursuant to contracts entered into
prior to such termination. As to any right of first refusal hereunder, Lessor's
election to purchase must be made within ninety (90) days after Lessee shall
have given written notice to Lessor of the terms of any other bona fide offer to
purchase.

                                  SECTION FIVE

                                    WHEELAGE:

Section 5.1 Lessee shall also have the right (insofar as Lessor has such right)
to use the Leased Premises to mine and market coal from other lands, including,
without limitation, the

                                       -9-
<PAGE>

rights to haul coal, equipment, supplies, employees, and refuse and to process,
clean, store and ship coal and store refuse thereon from other lands. There
shall be no additional rent or royalty with respect to the coal mined from lands
other than the Leased Premises which is hauled over, through or under the Leased
Premises so long as the tonnage of coal which is mined and hauled from such
other lands in any calendar year does not exceed the tonnage of coal which is
mined from the Leased Premises in such calendar year. If in any calendar year
Lessee hauls over, through or under the Leased Premises an amount of coal from
other lands which is in excess of the tonnage mined from the Leased Premises,
Lessee shall pay a wheelage royalty for such excess coal at the rate of three
cents ($0.03) per ton or one half of one percent (1/2 of 1%) of Gross Sales
price per ton, whichever is higher, for each ton of such excess coal (adjusted
for unmerchantable material to be rejected in preparation for market). Such
additional rent or royalty, if any, shall be due and payable on or before
February 25 of each year for the preceeding calendar year.

Section 5.2 Lessee shall also have the right to use the stone on the Leased
Premises for road building purposes and other similar uses; but if any stone
from the Leased Premises is used off the premises, Lessee shall pay to Lessor
for such stone the highest prevailing market price for similar stone in place in
similar circumstances in Nicholas, Braxton and Webster Counties. Any such
payments shall be made monthly on the 25th day of the following month in which
any stone shall have been used off the Leased Premises.

Section 5.3 Within six and one half (6-1/2) years after the execution date of
this document, Lessee shall complete on or near the Leased Premises the
construction of process facilities, including, but not limited to, a washing and
cleaning plant and tipple. Such facilities shall have

                                      -10-
<PAGE>

the capacity to prepare not less than 1,000,000 tons of clean coal annually. If
such plant construction is not completed as set forth above, then Lessor shall
have the option to terminate this Lease by giving written notice to Lessee
within ninety (90) days after the end of such six and one half (6-1/2) years.

Section 5.4 Lessee shall utilize cleaning plants or washers so as to better
prepare for market the coal mined and removed from the Leased Premises, and
Lessor agrees that no tonnage royalties shall be paid upon the refuse of such
plants unless such refuse is sold by Lessee.

Section 5.5 Lessee shall operate said cleaning or washing plants in an efficient
and workmanlike manner so as to minimize refuse and produce the greatest
possible quantity of merchantable coal commensurate with obtaining a profitable
product.

                                   SECTION SIX

                                    ROYALTY:

Section 6.1 As consideration for all the mineable and merchantable coal, mining
rights and privileges herein leased, Lessee shall pay to Lessor for each and
every net ton of 2,000 pounds of coal which is mined and removed from said
Leased Premises and which is shipped, sold or used on said Leased Premises by
the Lessee, a tonnage royalty of the greater of either (a) One Dollar ($1.00)
per net ton, or, (b) an amount per net ton computed by using the following
percentage royalty rates: (i) Seven percent (7%) of the Gross Sales price of all
coal mined and removed by deep (or underground) mining methods; (ii) Eight
percent (8%) of the Gross Sales price of all coal mined and removed by surface
mining methods, or auger mining methods, from land where Lessor owns the coal
and the surface, i.e., fee ownership; and (iii) Six percent (6%) of the Gross
Sales price of coal surface or auger mined from Coal Only Tracts. Such Tonnage
Royalties shall

                                      -11-
<PAGE>

be hereinafter referred to as "Tonnage Royalties." For purposes of this Lease,
"Gross Sales" shall be construed as the average gross sales price per ton f.o.b.
railroad car or truck at the mine of all coal sold and shipped in each month,
without deduction for transportation cost to the loading point, sales
commissions, or any other charges whatsoever.

Section 6.2 The Tonnage Royalty as set forth above, shall be computed by
multiplying (a) the applicable percentage rate by (b) the Gross Sales price
received by Lessee for the coal mined and removed from the Leased Premises which
is shipped, sold or used during the preceding calendar month without deductions
for any sales commissions by (c) the number of tons mined and removed during
such month. Provided, however, that no Tonnage Royalty shall be computed for
coal used by Lessee for thermal drying so long as that the amount of coal so
used shall not exceed 1.5% of the amount of coal which is sold by Lessee. The
Tonnage Royalty provided for herein shall be paid monthly by Lessee on or before
the 25th day of each month for the coal mined, removed and sold, shipped or used
in the preceding month.

Section 6.3 If Lessee sells any coal which is mined from the Leased Premises (a)
to an affiliated or subsidiary company or (b) in a transaction which is not at
arms' length, then the price of such coal to be used in computing Gross Sales
shall be the current reasonable market value of similar coal sold to
non-affiliated purchasers under terms and conditions similar to the sale to the
affiliate.

Section 6.4 If Lessee should enter into a fixed price contract or an agreement
for the sale of coal produced hereunder with a duration (or term) of more than 3
years, which does not provide for price increases, then royalties paid to
Lessors for coal sold under any such contract or agreement shall be determined
monthly as such coal is sold by computing 6%, 7% or 8%, as the

                                      -12-
<PAGE>

case may be, of the sales price of such contract as adjusted by the percentage
of change in the U. S. Dept. of Labor Consumer Price Index as of month of sale
against the index level existing as of the execution date of such contract or
agreement.

Section 6.5 If any substandard material containing some coal but having an
abnormal percentage of refuse shall be sold and shipped from the Leased
Premises, the royalty shall be computed in the same manner as that provided for
stone in Section 5.2 hereof.

Section 6.6 Sales of coal in non-cash transactions will be priced under the
provisions of Section 6.3 herein.

                                  SECTION SEVEN

                                MINIMUM ROYALTY:

Section 7.1 The Lessee shall pay to the Lessor as a Minimum Royalty hereunder
the sum of Two Hundred Forty-Seven Thousand Six Hundred and Seventy-Six
($247,676.00) Dollars per year for each year of the Lease term ("Minimum
Royalty"). The first quarterly payment of this annual Minimum Royalty shall
total Sixty-One Thousand Nine Hundred and Nineteen ($61,919.00) Dollars, and
shall be paid at and upon the signing and execution of this Lease. Thereafter,
one-fourth of the yearly Minimum Royalty shall be paid in a quarterly
installment on or before the 25th day of the month following the end of the
quarter lease year, whether or not any coal was mined during the said quarter
year. Any Minimum Royalty payment for the quarter year shall be reduced by the
amount of any Tonnage Royalty paid during such quarter year.

Section 7.2 In any year of the lease term, and as of the first day of such year,
if a hypothetical Tonnage Royalty computed on the basis of 5% of the Gross Sales
Price that would be paid for 137,500 tons of coal in the Counties of Webster,
Nicholas and Braxton which is similar in

                                      -13-
<PAGE>

quality to Lessor's coal is greater than the Minimum Royalty specified in
Section 7.1, then for that year Lessee shall pay Lessor such greater sum in lieu
of the Minimum Royalty. In such case, such hypothetical Tonnage Royalty shall
take the place of Minimum Royalty for the year.

Section 7.3 Any Minimum Royalty paid in excess of the Tonnage Royalty for any
lease year may be recaptured and recouped by Lessee in any one or more of the
next subsequent ten (10) years, but not thereafter, by credit on a dollar for
dollar basis, to the extent that Tonnage Royalty due for coal mined is in excess
of the annual Minimum Royalty payment for such year or years, as specified
herein. No payment of Tonnage Royalty hereinabove specified in excess of Minimum
Royalty for any lease year shall be credited against a deficiency in any
subsequent lease year.

Section 7.4 When Lessee has mined all mineable and merchantable coal as herein
defined from the Leased Premises and paid therefor as herein specified, this
Lease shall terminate.

Section 7.5 After Lessee has mined (or paid for by unrecaptured Minimum Royalty
payments) all of the mineable and merchantable coal on the Leased Premises, if
Lessee desires to utilize the said Leased Premises for the purpose of mining and
transporting coal from other lands, Lessee may extend this Lease for an
additional term of twenty (20) years, with no Minimum Royalty, terminable by
Lessee on ninety (90) days notice. During such extension, Lessee shall (1) pay
taxes for the benefit of Lessor, as provided in Section Eleven, (2) continue to
indemnify Lessor and provide insurance as provided in this instrument, and (3)
pay wheelage to Lessor as provided in Section 5.1 hereof.

Section 7.6 If and when Lessee shall have paid Minimum Royalties (to the extent
the same have not been credited against Tonnage Royalties) equal to the minimum
Tonnage Royalty

                                      -14-
<PAGE>

($1.00 per ton) which would be due on mineable and merchantable coal then
estimated to be remaining unmined and in place, then Lessee shall have the right
to discontinue payment of any further Minimum Royalty until Lessee has mined and
removed coal tonnage equal to such tonnage estimated to be remaining unmined and
in place, on which Lessee shall pay Tonnage Royalty (less the $1.00 minimum
Tonnage Royalty per ton) at the rate specified herein. Lessee shall give notice
of Lessee's determination that no further royalty is due hereunder accompanied
by appropriate maps and data and the opinion of an independent mining engineer
supporting such determination, not less than ninety (90) days prior to the date
when the next Minimum Royalty payment would otherwise be due.

Section 7.7 For purposes of this Lease, "mineable and merchantable coal" shall
mean coal which when reached in the course of Lessee's normal operations can be
mined, prepared and sold at a reasonable profit by competent operators utilizing
mining methods and practices as found in comparable operations in Central and
Southern West Virginia as the Leased Premises is developed for mining and by
application of generally accepted accounting principles.

                                  SECTION EIGHT

                              WEIGHT OF COAL MINED:

Section 8.1 The quantity of coal on which Tonnage Royalty is payable if shipped
by rail shall be determined by weighing upon the nearest official railroad
scales in transit to market, or by belt scales, certified as to accuracy by the
State of West Virginia as provided by law, or by truck scales certified as to
accuracy by the State of West Virginia as provided by law, adjusted for reject
material if weighed before preparation, by percentage of reject established by
sampling or other methods as agreed upon in writing by Lessor and Lessee.

                                      -15-
<PAGE>

Section 8.2 Lessee shall have the right to commingle coal mined from the Leased
Premises with other coals, and in such event the Lessee shall adopt and use
after receipt of written approval of Lesser such method of ascertainment and
apportionment by weights, reasonably satisfactory to Lessor, as will provide for
an accurate determination of the number of tons of coal for which payment is due
to Lessor. If necessary, Lessee shall adopt and use such method of ascertainment
of unmerchantable material, which will be rejected in preparation, and
apportionment of weights, in accordance with generally accepted practice, as
will provide for an accurate determination of the number of tons of coal from
the Leased Premises for which Tonnage Royalty is due to Lessor.

Section 8.3 Railroad weights, when truly weighed shall be accepted as proof of
weight, subject to correction for any error at any time found therein, and the
statements herein provided to be furnished by Lessee shall show the quantity of
coal mined and shipped according to such railroad weights. When actual weights
are absolutely not available, then estimates used for payment of rail freight
shall be accepted as proof of weight.

Section 8.4 Where it is necessary in shipping said coal by railroad to load the
same over a tipple or tipples over which other coal is loaded, thereby mixing
the coal from the Leased Premises with other coal, Lessee agrees to keep a
strict account of the number of mine cars, trucks or other vehicles and the
weight of coal therein going from the Leased Premises, with the weight of such
cars, trucks or other vehicles, as well as a strict account of the number of
mine cars, trucks or other vehicles from other premises dumped over the same
tipple or tipples, together with the weight of such cars, trucks and vehicles,
all in such manner that the quantity of coal mined from the Leased Premises may
be ascertained at all times and the statements herein

                                      -16-
<PAGE>

required to be furnished by Lessee shall show the quantity of coal mined and
shipped according to such mine cars, trucks, vehicles and weights.

Section 8.5 If, in the development of its integrated mining operation on the
Leased Premises and on other lands, Lessee uses a belt conveyor system of
transporting coal which results in Lessor's coal being commingled with other
coal before it is weighed, or if the weight of coal in stockpile must be
determined so that it is impracticable for Lessee to comply with Subsection 8.4
above, Lessee shall calculate by cubic measurement the weight of coal mined from
the Leased Premises and the coal mined from other lands each month which, when
adjusted for the weight of unmerchantable material which will be rejected during
preparation and reconciled to the railroad weights of all coal mined and shipped
from the Leased Premises and other lands, will result in an accurate accounting
for the clean coal weight of all coal mined from the Leased Premises.

Section 8.6 The statements herein provided to be furnished Lessor shall in such
case show:

            (a)   The total railroad or other scale weights of coal shipped from
                  Lessee's integrated operation;

            (b)   The calculation of the weight of coal mined from (x) the
                  Leased Premises and (y) other lands, based upon cubic
                  measurement;

            (c)   The adjustment made for unmerchantable material contained in
                  coal mined from (x) the Leased Premises and (y) from other
                  lands.

Section 8.7 The weight of coal shipped by unit train shall be determined in
accordance with estimates of weights or such other method which is satisfactory
to the then customer and in accord with industry practice.

                                      -17-
<PAGE>

Section 8.8 Lessor shall have the right at any time, at its option and expense,
to place and keep an inspector or other representative at any tipple operated by
Lessee.

                                  SECTION NINE

                                     TIMBER:

Section 9.1 The Lessee shall notify the Lessor at least 180 days in advance
during each of the first three years of this Lease, and thereafter one year
prior to the time it intends to surface mine any certain area on the Leased
Premises, where surface is owned by Lessor, in order for the Lessor to cut and
remove the timber. If the Lessor does not cut and remove the timber within said
period, then the Lessee shall have the right to surface mine the area and cut,
remove, destroy or otherwise dispose of such timber without further liability or
responsibility to the Lessor with regard to such timber for payment or
otherwise.

                                   SECTION TEN

                                    REPORTS:

Section 10.1 With each monthly settlement of royalty, the Lessee shall make a
detailed report, certified by Lessee, of the tonnage covered by the payment and
the average gross sales price per ton received therefor. The details of each
report shall include the information specified in Section Eight and other
pertinent sections of this document.

                                 SECTION ELEVEN

                                     TAXES:

Section 11.1 Lessee shall pay all taxes (including any severance taxes) that
have been or may be imposed on the Leased Premises by the State of West Virginia
or any of its political subdivisions or by the United States of America; and
shall pay all taxes, levies, assessments, and

                                      -18-
<PAGE>

other charges imposed by the State of West Virginia or any of its political
subdivisions, or by the United States of America upon the leasehold estate
hereby created, upon all plant and equipment and improvements of Lessee thereon,
and upon coal mined and produced from the Leased Premises by the Lessee, so that
Lessor shall be entirely relieved from such charges. If any payment on account
of any or all of the above shall be made by Lessor, the same shall be repaid by
Lessee unto Lessor upon statement and demand. Nothing in this paragraph shall
require Lessee to pay any so-called income, excise, privilege or profit taxes
levied or assessed upon or measured by the income of Lessor; nor shall Lessee be
obligated to pay taxes on interests or estates in Lessor's said lands which are
outstanding in persons other than Lessee; nor shall Lessee be obligated to pay
taxes on any plant, equipment and improvements now or hereafter placed on the
lands included in the Leased Premises which are not leased to Lessee under this
Lease where such plant, equipment and improvements are owned by persons other
than the Lessee, taxes on oil or gas or minerals (other than coal), nor taxes on
additional valuations of such lands resulting from the discovery of oil or gas
or minerals other than coal. Lessee shall furnish Lessor copies of paid tax
receipts within 45 days after payment.

Section 11.2 In case the Lessee shall fail to pay any of the taxes, duties,
charges or assessments herein provided to be paid by it as and when the same
become due and payable, the Lessor shall have the right upon 30 days written
notice to the Lessee to pay the same or any of them if the Lessor shall deem
such payment necessary or proper for the protection of its interests; and in
case of such payment by the Lessor the Lessee shall forthwith be liable to repay
to the Lessor the amount thereof with interest, computed at eight (8%) percent
per annum, together with any reasonable expense incurred by the Lessor in
connection therewith, and the amount shown in the tax bills so paid by the
Lessor shall be conclusive upon the Lessee as to the amount of such taxes

                                      -19-
<PAGE>

payable by it and shall be treated in law and equity as money paid by special
request of the Lessee for its account. Provided, however, that Lessee reserves
the right to appeal or protest any ruling, regulation, order or other
determination; and if in so doing, Lessee elects not to pay taxes, duties,
charges or assessments, Lessor will be precluded from paying same pending final
determination of Lessee's appeal or protest.

                                 SECTION TWELVE

                           PLAN FOR MINE DEVELOPMENT:

Section 12.1 Lessee shall work and mine the coal in accordance with general and
detailed plans of mining and description thereof, pursuant to the provisions of
this Lease, which plans and description shall be prepared by Lessee and
submitted to Lessor who shall act upon the same with reasonable diligence. Said
plan or plans shall not be put in operation unless and until the same has been
approved in writing by Lessor, who shall not unreasonably refuse approval. No
change in, or modification of, or departure from any plan so approved, shall be
made in the development or operation of the mine except as requested by Lessee,
and approved in writing by Lessor, or as requested by Lessor and approved in
writing by Lessee; any such request from either Lessor or Lessee is to be
accompanied by plans illustrating such change, modification or departure. Any
plans requiring the approval of the Lessor not approved or disapproved within 40
days after delivery of the plans to Lessor, shall be considered as approved. If
Lessee shall encounter adverse mining conditions which in its opinion require
prompt, immediate action in order to protect its mining operations hereunder and
the coal of the Lessor, it shall have the right to take such action as it shall
deem prudent under the circumstances and advise the Lessor immediately in
writing of the action taken.

                                      -20-
<PAGE>

Section 12.2 Lessee shall consult with Lessor with respect to the location of
all dumps for, and the manner of disposal of, waste material of whatever nature
and shall give due consideration to the property rights and interests excepted
and reserved to Lessor hereunder.

Section 12.3 Lessee shall use its best efforts to fully obey and comply with all
applicable laws of the United States of America and of the State in which mining
operations take place, and with all rules, regulations, orders and ordinances of
any political subdivision, bureau, or department thereof, relating to Lessee's
use and occupancy of the Leased Premises or the condition thereof; and the
mining of said coal and any and all conditions, activities, or operations
relating thereto, including all such laws, rules, regulations, orders and
ordinances now in effect or made, enacted or issued during the term hereof, to
the end that Lessor shall be under no responsibility or liability therefor;
provided, however, that Lessee reserves the right to appeal from any ruling,
regulations, order or other determination and to carry on its operations in
accordance with its interpretation of the same pending final determination -- in
which event Lessee agrees to indemnify and hold harmless Lessor from any loss,
liability, civil or monetary, criminal penalty, or expense resulting from an
adverse determination. Lessee shall have the right to drive entries and air
courses across the outside boundaries of the Leased Premises where Lessee has
the right to mine in the adjacent land and Lessor hereby expressly waives all
duties, statutory or otherwise, on the part of Lessee to maintain a barrier
pillar in the coal in each or either side of the outside boundary line of the
Leased Premises, where Lessee has the right to mine the adjacent coal and obtain
a similar waiver with respect to such barrier pillar from the owner of such
adjacent coal.

                                      -21-
<PAGE>

Section 12.4 No auger mining shall be undertaken unless specific written consent
to do so is obtained by Lessee from Lessor for each work area. Such consent
shall not be unreasonably withheld by Lessor.

                                SECTION THIRTEEN

                                    ENGINEER:

Section 13.1 The Lessee agrees to employ at its own expense a competent engineer
to make maps and surveys required by law, and for the proper performance of the
requirements of this Lease.

                                SECTION FOURTEEN

                                MAPS AND RECORDS:

Section 14.1 The Lessee shall keep its workings surveyed by competent engineers
at its own cost, and:

            (a) Semi-annually on or before the 20th day of January and July in
each year shall furnish to the Lessor in writing, a map or blueprints or
tracings thereof which shall truly and accurately on a scale of not more than
one hundred feet to the inch showing the workings and extensions thereof as they
were at the end of the last preceding calendar month.

            (b) Unless otherwise agreed to by the parties, said maps shall
contain among other things the following details and specifications covering the
area under operation:

            1.    An accurate delineation of the boundary lines of the premises
                  and the outcrops of the seams worked.

            2.    All openings, excavations, tunnels, entries, airways, rooms
                  and other workings, and all railroads, tipples, furnaces,
                  buildings and other structures used in connection with the
                  mining operations.

            3.    The elevations above datum of points at distances not more
                  than 100 feet apart of and along tunnels, entries, airways,
                  waterways, drifts and slopes;

                                      -22-
<PAGE>

                  also the elevations of points at distances not more than 100
                  feet apart of and along the faces of the working places and in
                  rooms adjacent to boundary lines, barriers and outcrops; also
                  the position of all bench marks and their elevations above
                  datum.

            4.    A section of the coal seams being worked with partings at
                  distances not less than 500 feet apart of and along the
                  tunnels, entries, waterways, drifts and slopes or at working
                  faces of rooms next to or adjacent to the boundary lines or
                  barriers.

            5.    Pillars and ribs when withdrawn shall be indicated by coloring
                  or hatching.

            6.    The centers by which the workings are to be carried on shall
                  be indicated in a suitable manner.

            7.    All measurements shall be in feet and decimals thereof, and
                  the bearings of the entries shall be clearly marked thereon or
                  a true meridian line shown.

            (c) The Lessor shall at all reasonable times have access to the
maps, plans, tracings and other memoranda of the Lessee relating to the mine
workings and operations and may make copies of all or any part of the same.

            (d) In case the Lessee shall fail to furnish the maps as
hereinbefore provided, the Lessor shall have the right at any time after thirty
(30) days notice of such default to make or cause to be made at the expense of
the Lessee such surveys, measurements and maps as may in the opinion of the
Lessor be necessary; and the Lessee shall pay to the Lessor the entire cost of
such work within ten days after receiving a statement of such cost.

            (e) The Lessee shall, in addition to the maps above provided for,
furnish to Lessor copies of such maps and mining reports as the Lessee shall
from time to time file with the Director of the Department of Mines of West
Virginia, the U.S. Bureau of Mines, or with any other public office.

                                      -23-
<PAGE>

            (f) All maps required by this Lease shall be oriented to permanent
monuments with accurate coordinating values and such monuments shall be so
located as to be undisturbed by mining operations and shall be tied into a
government bench mark.

                                 SECTION FIFTEEN

                                   INSPECTION:

Section 15.1 The Lessor, its agents, engineers, or other persons in its behalf,
shall at all reasonable times have the right and privilege of entering the works
and mines of Lessee in, upon or beneath the surface of the lands herein
described, in order to inspect, examine, survey or measure the same or any part
thereof and for these purposes to use freely, without hindrance or molestation,
and without cost, the means of access which is to be furnished by Lessee to the
said works and mines. It is understood and agreed (a) that the agents, engineers
or other persons acting in behalf of the Lessor, when in or on the Leased
Premises for any purpose, shall not be regarded under the law, or otherwise, as
employees of Lessee, and (b) that Lessor, its agents, engineers or other persons
acting in behalf of Lessor who shall enter the works and mines of Lessee shall
make such entry at their own risk, and Lessee shall not be liable for injury or
damage which such agents, engineers or other persons may suffer during or as a
consequence of such entry.

                                 SECTION SIXTEEN

                                    RECORDS:

Section 16.1 Lessee shall keep, for a period of five years, books of accounts of
the mining, use of the Leased Premises and shipping of coal mined hereunder; and
said books shall be open at all reasonable times for inspection of Lessor, its
agents, attorneys and other persons on its behalf,

                                      -24-
<PAGE>

for the purpose of verifying the accuracy of the Tonnage Royalty payments paid
by the Lessee hereunder.

Section 16.2 Lessee shall furnish to Lessor's engineer (as designated by Lessor
in writing from time to time) a copy of each of the maps, plans and records
specified in this Lease for delivery to Lessor. Such copies shall be sent by
Lessee (at no cost to Lessor) to Lessor's engineer at the same time each copy is
sent to Lessor. Said engineer shall be an experienced mining engineer, and shall
be available to Lessee for consultation and review of such questions as may
arise from time to time during the term of this Lease.

                                SECTION SEVENTEEN

                                PROPER WORKINGS:

Section 17.1 Lessee shall in accordance with plans of mining and descriptions
thereof, as provided for herein, work and mine the veins and seams of coal
herein leased in the most effectual, workmanlike and proper manner, according to
approved and suitable methods of mining in effect at the time of operations
hereunder and in such manner as to ultimately recover all of the mineable and
merchantable coal therefrom which may be lawfully recovered, subject to barrier
coal along boundaries, as modified by this document, under the mining rights and
privileges owned by Lessor and in such manner that the mining of said veins and
seams of coal shall not unreasonably interfere with the proper exercise of any
rights or privileges herein excepted and reserved to Lessor; and shall use its
best efforts to comply in every respect with the laws of the State of West
Virginia or of the United States, now existing or hereafter passed, regulating
the management and operations of mines.

                                      -25-
<PAGE>

Section 17.2 Lessee shall, by diamond drilling or some other approved method,
test within, beyond or around such area or areas of the seams of coal that may
not with reasonable and usual preparation yield merchantable coal, so as
reasonably to establish the extent and limits of such portion or portions of
said seams of coal and shall drive such entries and air courses through the
same, provided same is economically practical, as may be reasonably found
necessary in order to reach coal which, under the terms hereof, Lessee is
obligated to mine.

Section 17.3 Lessor and Lessee shall undertake to amend the existing oil and gas
leases between Lessor and third parties so that those leases will provide that
such third parties must submit to Lessee, for Lessee's prior written approval,
all plans for drilling, redrilling, plugging or abandoning of oil and gas wells
on the Leased Premises.

Section 17.4 If at any time Lessee shall not conduct its operations as provided
in this Lease, and loss of coal or other damage to Lessor may thereby result or
be threatened, Lessor shall have authority to determine where and in what
particular the said provisions are being violated, and request the work be
stopped at such place until Lessee shall comply with the said provisions in the
further prosecution of its operations; and Lessee shall pay to the Lessor the
full amount of Tonnage Royalty on the estimated tonnage of coal lost or that may
not be mined or that may remain unmined by reason of the failure of Lessee to
conduct its operations as aforesaid, in the same manner as if said coal had been
mined and removed, and shall compensate the Lessor for the full amount of any
other damage that the Lessor shall sustain thereby, such royalty or other
damages to be recovered, in default of prompt payment, under Section Twenty-Two
hereof; subject, of course, to the provisions of Section Twenty-Five hereof.

                                      -26-
<PAGE>

Section 17.5 Lessor and Lessee jointly, at least as frequently as once each year
(within 100 days after the end of the prior calendar year) and more often if
required by Lessor or Lessee, shall determine whether Lessee has failed to mine
and remove all of the mineable and merchantable coal from the seam or seams in
any given area or part of the Leased Premises. Results of each determination
shall be given in written report form to both Lessor and Lessee. In case of any
disagreement between them with respect to the matter, the same shall be
submitted to arbitration.

                                SECTION EIGHTEEN

                                  RECLAMATION:

Section 18.1 In reclamation work done on all surface areas owned by Lessor,
Lessee shall do all planting and vegetation work in accordance with all
applicable federal and state laws and regulations, and Lessee agrees that it
will work with Lessor, to the extent that is economically practical to do so to
meet Lessor's long range plans and desires for the use of the land. Each surface
area shall be returned after strip or auger mining is completed by Lessee to
Lessor at the same time as Lessee is released from its bond requirements by
State and/or Federal agencies.

                                SECTION NINETEEN

                         LIABILITY OF LESSEE, INSURANCE:

Section 19.1 Lessee hereby agrees to indemnify, protect and hold harmless Lessor
and its agents from and against any and all liability for damage to person or
property of any person whatsoever arising in any way from Lessee's use of the
premises. Lessor shall not be liable for any damages or compensation to the
employees of the Lessee or claims asserted by any employee of Lessee because of
any act or acts of Lessee or Lessee's employees or agents upon any portion of
the Leased Premises. Lessee further agrees to indemnify and save harmless

                                      -27-
<PAGE>

Lessor from any and all claims, suits, demands, judgments, decrees, liens,
damages, expenses, assessments, including the legal fees, court costs and other
expenses of counsel paid to represent Lessor, and criminal and civil penalties
imposed on either Lessee or Lessor, caused by or arising out of Lessee's
operations hereunder or its use of the Leased Premises, whether permitted under
the terms of this Lease or not. Lessee further agrees to indemnify and save
harmless Lessor from any and all responsibility, accountability or liability
that may result directly or indirectly from any plan of mining suggested,
proposed, adopted, being carried on, or completed by Lessee, and Lessor's
approval or consent to such plan of mining shall not be construed as shifting
any part of the responsibility, accountability or liability to Lessor. This
clause shall survive cancellation, nullification and expiration of this Lease;
however Lessee does not hereby waive any defense otherwise available based on
applicable statutes of limitation. Lessor shall as a condition precedent to its
right to be indemnified and saved harmless under this Section, give to Lessee
prompt notice in writing of any claims made upon it and further, upon request,
give to Lessee such information as Lessee may reasonably require and, if at the
time of any claim this Lease is no longer in effect, provide Lessee, its agents
and attorneys access to the Leased Premises to investigate the merits of any
claim. For the purpose of this subsection 19.1, a "claim made" shall include not
only any written notice that it is the intention of a third party to hold Lessor
responsible for the results of any specified act, error or omission, but any
awareness by Lessor of any occurrence which may subsequently give rise to a
claim being made against Lessor in respect to any alleged act, error or
omission. Lessee, at its option, may take over the defense of any claim made
against Lessor hereunder either before or after legal action against Lessor has
been instituted.

                                      -28-
<PAGE>

Section 19.2 During Lessee's occupancy of the Leased Premises, Lessee shall
carry adequate coal mine liability and contract liability insurance; the initial
limits of such insurance shall be of $200,000 per occurrence and $500,000 per
policy period, subject to adjustment upon agreement of the parties. Lessee shall
cause Lessor to be designated an additional insured of all such coverages, and
shall provide Lessor with full copies of policies, contracts, and endorsements
showing compliance herewith.

                                 SECTION TWENTY

                                  CONDEMNATION:

Section 20.1 In the event any part or parts of the Leased Premises are the
subject of condemnation, actual or threatened, this Lease shall not be affected.
Lessor shall be entitled to any award or settlement with respect to Lessor's
property interests and any damages direct or consequential thereto. Lessee shall
be entitled to any amounts attributable to (1) the taking of or damage to any of
the Lessee's property or improvements thereto located on or made by the Lessee
on or in the Leased premises and (2) to damage to Lessee's leasehold estate.

                               SECTION TWENTY-ONE

                                  ASSIGNMENTS:

Section 21.1 Lessor hereby consents to the assignment of this Lease to any
affiliated corporation of Lessee (a corporation of which Lessee or its parent or
subsidiary owns 50% or more of the capital stock) and consents to Lessee or any
permitted Assignee merging into or consolidating with another corporation
whereby the surviving corporation acquires all or substantially all of the
assets of Lessee or such Assignee and assumes Lessee's obligations hereunder. In
addition to the foregoing, for purposes of this Section 21.1, Lessor agrees that
The North American Coal Company, an Ohio corporation, and its wholly-owned
subsidiaries may be

                                      -29-
<PAGE>

considered at this time to be affiliates of Lessee. If in the opinion of Lessor,
such Assignee or surviving corporation is financially responsible and assumes
Lessee's obligations hereunder, Lessor shall release Lessee from further
liability hereunder. Absent such release, Lessee shall not be relieved from any
liability or obligation hereunder.

Section 21.2 Lessee or a permitted Assignee may execute mortgages or deeds of
trust upon its leasehold estate, the improvements thereon, and all rights of
Lessee or such Assignee hereunder, subordinate however to all of rights and
estates of Lessor, except as provided in Section 22.4.

Section 21.3 Except as provided for above in this Section Twenty-One, Lessee
shall not assign this Lease or any portion thereof without the written consent
of Lessor.

                               SECTION TWENTY-TWO

                        BANKRUPTCY, MORTGAGES, SUBLEASES:

Section 22.1 Lessee covenants and agrees that, except as permitted in Section
Twenty-One and Subsection 22.4 hereof, no part of the estate, interest or rights
created hereby, or the improvements which may be placed upon said tracts or
parcels of land, shall be mortgaged, assigned, sublet, or encumbered without the
consent of Lessor in writing first had and obtained. Except pursuant to
mortgages and deeds of trust permitted by Section Twenty-One, neither this
Lease, the estate hereby created, nor the rights of Lessee created hereunder
shall be subject to sale, disposition or transfer of possession thereof, in
whole or in part, under the judgment or decree of any court, or by or through
judicial process of law or equity, except for the purpose of enforcing, at the
instance of Lessor, its rights hereunder.

Section 22.2 Unless this Lease is then subject to a mortgage or a deed of trust,
if Lessee is adjudicated a bankrupt or a receiver in the nature of an insolvency
receiver is appointed for

                                      -30-
<PAGE>

Lessee's property or if, whether voluntarily or involuntarily, Lessee takes
advantage of any debtor relief proceeding under any present or future law
whereby the Minimum or Tonnage Royalty, or any part thereof, is reduced or
payment thereof deferred or if Lessee makes any assignment for the benefit of
creditors Lessee shall be deemed to have breached this Lease and all rights of
Lessee hereunder shall immediately cease and determine and this Lease shall
automatically be forfeited, without notice, upon the occurrence of any of the
events contained by this paragraph; and, subject to liens permitted by Section
22.4 hereof, all personal property on the leasehold estate at the time of such
occurrence, belonging to the Lessee or its assigns, shall become the absolute
property of the Lessor for the purpose of reimbursing it for any sum which may
be due hereunder, but Lessor shall not have any right to any sum in excess of
the amount due it under this Lease.

Section 22.3 Irrespective of the foregoing provisions, if the successor of
Lessee hereunder, by way of a permitted assignment or mortgage or deed of trust
by Lessee, shall comply with all of the provisions and obligations of this Lease
including, but not limited to, the payment of Tonnage Royalty, Minimum Royalty,
and taxes, then, notwithstanding any of the foregoing events involving
insolvency of Lessee, said Lease shall not be forfeited and this Lease shall not
be deemed to have been breached.

Section 22.4 Lessor agrees that Lessee may (i) lease machinery, equipment and
other items of personal property, or purchase machinery, equipment and other
items of personal property under conditional sales contracts, or contracts
reserving title to secure, or security agreements securing the purchase money
unpaid thereon, and may give a chattel mortgage or mortgages on, or grant a
security interest or security interests in newly acquired machinery and
equipment to secure the

                                      -31-
<PAGE>

unpaid purchase money due therefor, or to secure money borrowed therefor; and
(ii) may include such items of personal property under long-term financing
arrangements requiring a first lien on such personal property; and Lessor and
Lessee agree that the lien of the Lessor with respect thereto shall be
subordinate to the above. It is further agreed that nothing herein contained
shall prevent the Lessee from disposing of any items of personal property or
coal located on the Leased Premises in the normal conduct of its business free
and clear of the lien of Lessor as long as Lessee is not then in default
hereunder.

                              SECTION TWENTY-THREE

                                    DEFAULT:

Section 23.1 Subject to the provisions of Section Twenty-Six which makes
arbitration a condition precedent to forfeiture;

            (a) If Lessee shall fail to pay royalties due hereunder, and such
default shall continue for a period of thirty (30) days after Lessee shall have
received Lessor's written notice of said default, then Lessor may, at its
option, terminate and cancel this Lease and declare the rights and privileges
herein granted to be forfeited, whereupon the said rights and privileges shall
cease and determine and this Lease shall terminate. Lessor may repossess itself
of the Leased Premises and, subject to Section Twenty-Two, take possession of
all machinery, equipment, rails, ties and other property attached to the Leased
Premises. Lessor's repossession shall in no way impair the right of Lessor to
royalties due or accrued up to the time of such repossession, nor shall it
create upon Lessor any liability or obligation to Lessee by reason of any such
action.

            (b) If Lessee shall default in the performance of any of the terms,
conditions, covenants, and stipulations required by this Lease other than the
failure to make royalty payments, Lessor may, at its option, give written notice
to Lessee that at the expiration of ninety

                                      -32-
<PAGE>

(90) days from the date of such notice, if the default be not cured or remedied
within said period, Lessor may terminate and cancel this Lease; however, if such
default is not susceptible to being cured within ninety (90) days, then such
period shall be extended for such reasonable time as Lessee diligently proceeds
with good faith efforts to correct such default. At the expiration of said
ninety (90) days, extended as aforesaid, if Lessor shall terminate and cancel
this Lease, Lessee's rights and privileges hereunder shall cease and determine
and this Lease shall terminate and, subject to Section Twenty-Two, Lessor may
repossess itself of the Leased Premises.

            (c) Lessor's right of forfeiture under the provisions of this
paragraph shall be suspended during the pendency of any arbitration or judicial
proceedings concerning an alleged default.

            (d) Lessor reserves the right to pursue any and all remedies
available under the laws of the State of West Virginia for breach of any
covenant, term or condition of this Lease; and such remedies shall be deemed
cumulative and not exclusive.

            (e) Should Lessor at any time terminate this Lease for any breach,
default, forfeiture or failure to pay royalties, in addition to any other
remedies it may have, it may recover from Lessee all damages it may incur by
reason of such breach, or action, including the cost of recovering the Leased
Premises, reasonable attorneys' fees, and including the worth, at the time of
such termination of the amount of royalties which Lessor would be entitled to
receive under this Lease for the remainder of the term of this Lease; all of
which amounts shall be immediately due and payable from Lessee to Lessor.

                               SECTION TWENTY-FOUR

                                 FORCE MAJEURE:

                                      -33-
<PAGE>

Section 24.1 Lessee shall be excused from performance hereunder, including the
payment of Minimum Royalty, if it shall be permanently prevented or prohibited
from mining by law, ordinance or other governmental regulation, restraint or
court order or by permanent inability to obtain permits or licenses; in which
event this Lease shall terminate provided Lessee has exercised good faith in its
attempts to mine and to obtain the necessary permits or licenses. Lessee shall
not be excused from payment of any portion of the Minimum Royalty unless a
temporary interruption of operations hereunder shall continue for two (2) years,
or more, in which event the Minimum Royalty is to be reduced to 50% of the
amount otherwise due, until such time as the order requiring interruption is
lifted. Upon the lifting of any such order, the 100% payment of Minimum Royalty
as specified herein shall become effective. Any Minimum Royalty payments due or
paid prior to the occurrence of any of the above stated events of force majeure
shall not be subject to repayment by Lessor, but Lessee shall have the right to
reduce the Minimum Royalty due in the next succeeding year by the pro rata
amount abated based upon the period of delay as aforesaid. Nothing herein shall
relieve Lessee of its obligation to pay taxes during the term hereof.

Section 24.2 It is understood and agreed between the parties hereto that when
and if Lessee shall determine to conduct strip or auger mining on any portion of
the Leased Premises, it will promptly apply to appropriate authorities for
permits to conduct such mining; that Lessee will keep Lessor advised of such
applications, and make copies of all applications, letters, and memoranda
pertaining thereto available to Lessor upon request; that Lessee will earnestly
pursue such applications; but that, after diligent effort, if the Lessee cannot
secure appropriate mining permits from the West Virginia Department of Natural
Resources and the West Virginia Department of Mines, or any other state or
federal agency requiring mining permits of any type

                                      -34-
<PAGE>

or character to conduct mining operations on the Leased Premises, then, in that
event only, Lessee is excused from further performance of this Lease relating to
surface mining; notwithstanding the foregoing, the provisions of this Lease
relating to deep mining shall continue in full force and effect.

                               SECTION TWENTY-FIVE

                           LESSOR'S RIGHTS NOT WAIVED:

Section 25.1 No delay or omission of the Lessor to exercise any right, remedy or
lien accruing, or otherwise available, upon any default or forfeiture hereunder,
or to exercise any other right or remedy of Lessor hereunder, shall impair,
prejudice or waive any such right, remedy or lien, but every such right, remedy
and lien may be exercised by the Lessor in the same manner and to the extent as
if such delay or omission had not occurred.

                               SECTION TWENTY-SIX

                                  ARBITRATION:

Section 26.1 If, at any time and from time to time, and unless the parties shall
otherwise agree in writing, a dispute shall arise between the parties hereto or
either of their respective successors or assigns with respect to the meaning,
interpretation or construction of the language of this Lease, or performance or
nonperformance of any obligation or duty hereunder, or the right of exercise of
any power or privilege, such dispute shall be settled by arbitration in
accordance with the Rules of the American Arbitration Association. The
arbitration award shall be final and may, upon request of either party and
pursuant to Chapter 55, Article 10, Section 3 of the West Virginia Code of 1931,
be entered in any court of competent jurisdiction as the judgment of such court.
Submission of any such dispute or controversy to arbitration shall be a
condition precedent to the bringing of any legal action or to the pursuit of any
other remedy in regard to

                                      -35-
<PAGE>

such matter. The expenses and charges of the American Arbitration Association or
its Arbitrator for any such arbitration as provided herein shall be divided
equally between the parties to the dispute unless otherwise ordered in the
arbitration award. Other costs and expenses shall be borne by the party
incurring them.

                              SECTION TWENTY-SEVEN

                              FINANCIAL STATEMENTS:

Section 27.1 Lessee shall provide Lessor annually within ninety (90) days after
the end of its calendar or fiscal year an annual report, which shall be an
audited report if such is available in the normal course of Lessee's normal
business.

                              SECTION TWENTY-EIGHT

                                 MODIFICATIONS:

Section 28.1 No waiver, release, modification, alteration or amendment of any of
the terms, conditions or provisions of this Lease shall be valid or set up or
relied upon or offered in any judicial proceeding or otherwise unless the same
is in writing, duly executed by the said Lessor and Lessee.

                               SECTION TWENTY-NINE

                                    NOTICES:

Section 29.1 Any notices given hereunder shall be sufficient if sent by
Certified or Registered U. S. Mail or personally delivered in writing addressed
to Lessor at P. O. Box 390, Forsyth, Georgia; and to Lessee at One Woodward
Avenue, Detroit, Michigan 48226. Lessor or Lessee may, at any time, change the
designated place of receiving notice by giving written notice of such change to
the other.

                                      -36-
<PAGE>

                                 SECTION THIRTY

                             SUCCESSORS AND ASSIGNS:

Section 30.1 This Lease shall be binding upon and inure to the benefit of the
successors and/or assigns of the parties hereto, but these provisions shall not
be construed as modifying the provisions of the complete Section Twenty-One
herein.

            WITNESS the signatures and seals of the party of the first part, and
the party of the second part has signed its corporate name and affixed its
corporate seal hereto by its proper officers thereunto duly authorized.

                                           LESSOR:

WITNESS:                                   M-B PARTNERS, LTD.

/s/ Pamela Smith                           By /s/ Margaret L. E. Hardin  (SEAL)
---------------------------------------       ----------------------------

/s/ Judith B. Speir                           /s/ Mrs. E. L. Engle Tufts  (SEAL)
---------------------------------------       -----------------------------

My commission expires April 27, 1979

                                           LESSEE:

ATTEST:                                    ANR COAL DEVELOPMENT COMPANY

                                           By /s/ Noel F. Mermer
____________________________________       ------------------------------
Secretary                                             Noel F. Mermer

(CORPORATE SEAL)                           Its Executive Vice President

                                      -37-
<PAGE>

                          LEASE AND SUBLEASE AGREEMENT

            THIS LEASE AND SUBLEASE AGREEMENT (this "Agreement") made and
entered into this 14 day of March, 2001, by and between COASTAL COAL-WEST
VIRGINIA, LLC, a Delaware limited liability company, (hereinafter referred to as
"Lessor"); COASTAL COAL COMPANY, LLC, a Delaware limited liability company,
(hereinafter referred to as "Coastal"); EAST KENTUCKY ENERGY CORPORATION, a
Kentucky corporation, (hereinafter referred to as "Lessee"); and AEI RESOURCES,
INC., a Kentucky Corporation (hereinafter referred to as "AEI").

                              W I T N E S S E T H:

            Lessor is the owner of certain surface properties located in the
Glade District of Webster County, West Virginia, as more fully identified on
Exhibit A attached hereto and made a part hereof (collectively, the "Owned
Tracts"). In addition, Lessor is the lessee of certain coal and coal mining
rights on certain tracts or parcels of land located in the Glade District of
Webster County, West Virginia, as more fully identified on Exhibit B attached
hereto (collectively the "Leased Tracts"). The Owned Tracts and the Leased
Tracts are herein collectively referred to as the "Property", and are more
particularly defined as shown on the map attached hereto and made a part hereof
as Exhibit C. Lessee acknowledges receipt of copies of the documents by which
Lessor is currently the lessee of the Leased Tracts and copies of the documents
by which Lessor is obligated to pay an overriding royalty on all but two (2) of
the Owned Tracts, all of which are identified on Exhibit B attached hereto. The
Leased Tracts documents and the Owned Tracts documents are herein collectively
referred to as the "Property Documents."

<PAGE>

            By this Agreement, Lessor desires to lease and sublease to Lessee
and Lessee desires to obtain from Lessor, rights to mine the coal on and under
the Property as more fully specified hereinafter.

            NOW, THEREFORE, in consideration of One Dollar ($1.00) in hand paid
by Lessee to Lessor and of the terms, conditions, covenants and royalties
hereinafter set forth, Lessor does hereby lease and sublease, as appropriate, to
Lessee the exclusive right to mine and remove the coal on or under the Property,
together with mining rights with respect thereto, by the mining methods and in
the seams as specified in the Property Documents.

ARTICLE ONE. RIGHTS AND OBLIGATIONS.

            1.1 Reference is made to Exhibits A, B and C attached hereto and
which identify the tracts which comprise the Property. If Lessee determines in
its reasonable discretion that any right owned or controlled by Lessor (by lease
or otherwise) within the tracts identified on Exhibits A and B should be
terminated or not renewed, it shall first consult with Lessor and if Lessor
agrees, the parties shall mutually cooperate to terminate or not renew such
right. If the parties do not agree that such right should be terminated or not
renewed, Lessee shall cause such right to be surrendered to Lessor and Lessor
shall thereupon acquire all rights related thereto, including the benefit of any
recoupable amounts without reimbursement to Lessee, and shall assume all
obligations related thereto accruing after the date of such surrender. Except as
otherwise expressly provided herein, Lessor shall take all action required to
maintain its leasehold rights in full force and effect in order to protect the
concurrent right of Lessee.

                                     - 2 -
<PAGE>

            1.2 Lessor does hereby lease unto Lessee its mining rights and
privileges with respect to the coal on the Property together with rights of
ingress, egress and regress and other rights and privileges
incidental to operation and production of coal from the Property.

            1.3 Lessor does not undertake to lease to Lessee any greater or
other rights in the Property than it has by virtue of (i) deeds or leases
pursuant to which it acquired its interests in the Property, and (ii) all right,
title and interest which Lessor may have acquired by operation of law.

            1.4 Excluded from the scope of this Agreement and reserved by Lessor
for all purposes other than those for which this Agreement is made, are all of
the rights and remedies of the underlying lessor(s) or granting party under the
Property Documents with respect to all operations on the Property in the same
manner as if Lessor were the original lessor or granting party under the
Property Documents.

            1.5 Lessee covenants to commence mining the mineable and
merchantable coal in and on the Property as soon as practicable (presently
projected to be within five years) and to thereafter continue mining the same
with due diligence during the term of this Agreement except when prevented by
circumstances beyond Lessee's control. The term "mineable and merchantable coal"
as used in this Agreement shall be the definition as ascribed to it in the
Property Documents for each tract. Provided, however, Lessor and Lessee
recognize and agree that the Property covered hereby forms a part of a larger
mining area and that from time to time prudent mining practices and the logical
and practical sequence of Lessee's operations within such mining area will cause
Lessee to commence and discontinue from time to time its coal removal operations
on the Property.

                                     - 3 -
<PAGE>

            1.6 Lessee hereby assumes all of the obligations and conditions
contained in the Property Documents with respect to all of its operations on the
Property in the same manner as if Lessee were the original lessee or party under
the Property Documents, except as otherwise specifically set forth herein.
Lessee acknowledges that it has received of a copy of the Property Documents,
has read and examined same, and hereby agrees that all operations in the
exercise of Lessee's mining rights under this Agreement shall be in compliance
with all the terms, conditions and obligations of the Property Documents. If
there is any conflict or inconsistency between this Agreement and any provision
in any one or more of the Property Documents, the provisions of the applicable
Property Document shall be controlling to determine obligations hereunder.

            1.7 Except as set forth in Section 2.1 of this Agreement, payments
due under the Property Documents shall be paid by Lessee directly to the party
entitled to the same at the times required by the Property Documents and Lessee
shall, at the same time, provide to Lessor evidence that all such payments have
been made in a timely manner. Lessee has this day paid to Lessor the sum of One
Hundred Fifty Four Thousand Two Hundred Sixty-Two Dollars ($154,262.00) to
reimburse Lessor for recoupable amounts heretofore paid by Lessor under the
Property Documents as set forth on Exhibit B attached hereto and Lessee shall
hereafter have the benefit of such recoupable amounts. Lessor warrants to Lessee
that the amounts set forth on Exhibit B are true and correct and are recoupable
in accordance with the applicable Property Documents.

            1.8 The parties acknowledge that Lessor has reserved certain rights
hereunder and imposed certain requirements on Lessee hereunder solely for the
purpose of

                                     - 4 -
<PAGE>

insuring that the mineable and merchantable coal is recovered from the Property
and that Lessor (to the extent applicable) and its lessor(s) each receive
payments due it; and nothing herein shall be construed in such a way as to
express or imply any right of Lessor to control Lessee or its mining or other
activities under this Agreement.

ARTICLE TWO. SHARING OF MINIMUM ROYALTY OBLIGATIONS.

            2.1 Under the Property Documents whereby Lessee is subleasing only a
portion of the lease area, the portion of the minimum royalty obligation to be
paid by Lessee is set forth on Exhibit B and Lessee shall pay its share directly
to the party entitled to the same as set forth in Section 1.7 of this Agreement.
Lessor and Lessee hereby agree that, in the event either party is able to recoup
all of its portion of the prepaid minimum royalty balance, prior to paying the
underlying lessor royalties in excess of said minimum royalty balance, it shall
consult with the other to determine if Lessor or Lessee, as the case may be, has
any outstanding recoupable prepaid minimum royalty on said lease. If so, Lessor
or Lessee, as the case may be, shall recoup such balance from the underlying
lessor's tonnage royalty and shall reimburse the other any amounts so recouped.

            2.2 At such time as Lessor or Lessee, as the case may be, has mined
and removed all of the mineable and merchantable coal from its portion of the
area under the Property Documents where Lessee is subleasing only a portion of
the underlying area, the party with mineable and merchantable coal remaining
shall be obligated thereafter to pay the full amount of the minimum royalty due
under the applicable Property Document in order to keep said Property Document
in full force and effect. Lessor or Lessee, as the case may be,

                                     - 5 -
<PAGE>

shall notify the other party of such event no less than sixty (60) days prior to
the date the next minimum royalty would be due under such Property Document to
the underlying lessor(s).

ARTICLE THREE. TERM.

            3.1 The term of this Agreement shall terminate with respect to each
Property Document upon (i) exhaustion of all the mineable and merchantable coal
from the tract(s) in the Property covered thereby, or (ii) the surrender or
termination thereof in accordance with Section 1.1 hereof, or (iii) the
expiration of the term of such Property Document, whichever occurs sooner. This
Agreement shall likewise terminate upon exhaustion of all of the mineable and
merchantable coal in all tracts in the Property. To the extent that Lessor has
the right under the Property Documents to grant such right, Lessee shall have
the right of entry (to any such tract(s)) following the term of this Agreement
to perform reclamation required by law and Lessor shall not interfere with the
same.

            3.2 Upon termination of this Agreement, Lessee shall be in
compliance with all terms of this Agreement including, without limitation, the
payment of tonnage royalties, minimum annual royalties, taxes and all other
payments due under the Property Documents, prorated to the date of such
termination. Notwithstanding the surrender or other termination of this
Agreement (in whole or in part), Lessee shall remain responsible for and perform
all reclamation upon the Property as may be required by law, subject to the
provisions of Section 3.3 hereof. Any recoupable balance pertaining to any
minimum royalty under the Property Documents, to the extent of the portions of
the Property affected by any such surrender or

                                     - 6 -
<PAGE>

termination, shall become the sole and absolute property of Lessor without any
reimbursement to Lessee.

            3.3   (a) At such time as Lessee shall have mined and removed all of
the mineable and merchantable coal in and underlying the Property or upon
termination of Lessee's right to mine, process and ship coal as provided herein
or upon termination of this Agreement with respect to any portion of the
Property, at Lessor's election made within 60 days thereof, Lessee either (i)
shall commence and within a reasonable period thereafter fully reclaim and
restore such portions of the Property in accordance with all applicable laws,
regulations and permits or (ii) shall leave such portions of the Property in
such condition that mining by another may begin immediately after termination
hereof, each as hereinafter more fully described. Lessor in its sole discretion
may elect option (i) for parts or portions of the Property and option (ii) for
other parts or portions of the Property.

                  (b) If Lessor elects to have any part of the Property
reclaimed and restored, Lessee at its sole cost and expense shall reclaim and
restore such Property as required by applicable laws, regulations and permits
(except as directed by Lessor to accommodate the continued presence of any
facilities or other alterations or improvements on the Property if such
accommodation is permissible under applicable law or permits) and shall initiate
and diligently pursue and complete all things necessary to terminate all permits
and authorizations held by Lessee regarding such Property.

                  (c) If Lessor elects to have Lessee leave any part of the
Property in such condition that mining by another may begin immediately, Lessee,
at its sole cost and expense, promptly upon receipt of notice of such election,
shall initiate and diligently pursue

                                     - 7 -
<PAGE>

and complete all things reasonably necessary, effective as soon as possible
after such election is made, to accommodate Lessor's election. Lessee shall do
all things requested by Lessor, if such request be made, to permit immediate
mining by another, including but not limited to the transfer or assignment to
Lessor or its designee of applicable permits (subject to the replacement of all
bonds or other security required to be posted in connection with such permits),
except to the extent Lessee is not in compliance with such permits. No mining by
Lessor or another shall occur, without the prior written consent of Lessee being
first had and obtained, prior to the transfer of such permits on that portion of
the Property covered by the transfer of such permits. The parties agree that any
noncompliance by Lessee under any applicable laws or permits shall be determined
by a final inspection by the State compliance inspector(s) as close as possible
to, but prior to, the time of transfer. Once the activity, if any, which is not
in compliance has been corrected by Lessee, such transferee shall be responsible
for all future obligations with respect to such activity.

            3.4 Notwithstanding any other provision of this Article, this
Agreement shall automatically terminate with respect to any Property Document
pertaining to the Property upon termination or expiration of such Property
Document, or any extensions thereof.

ARTICLE FOUR. TAXES.

            4.1 Lessee shall pay all severance taxes, unmined minerals tax,
black lung fees and reclamation fees assessed by the state, federal or local
governments upon the coal or the Property for all periods during which the
Agreement is in effect with respect thereto

                                     - 8 -
<PAGE>

shall pay or reimburse Lessor for all taxes payable by Lessor with respect to
all interests owned or controlled by Lessor in the Property for all periods
during which this Agreement is in effect with respect thereto (it being
recognized that some of the leases or other documents pertaining to the Leased
Tracts may not require Lessor to pay real estate taxes). Lessee shall also pay
all taxes payable with respect to all the improvements and property of Lessee
upon the Property for all periods during which this Agreement is in effect.

            4.2 Taxes assessed against Lessor for which Lessee is responsible
may be paid by Lessor initially and reimbursed by Lessee to Lessor on
presentment of a copy of receipted invoice or canceled check for same. In the
alternative, Lessor may present such tax invoices to Lessee which shall promptly
pay them.

ARTICLE FIVE. REMOVAL OF IMPROVEMENTS ON TERMINATION.

            5.1 At the termination of this Agreement, whether by termination,
expiration, or otherwise, other than termination by forfeiture, provided Lessee
is not then in default hereunder in which case such default shall be remedied
before anything is removed, Lessee shall have for a period of ninety (90) days
thereafter the right and privilege of removing all of the personal property,
machinery, equipment, and improvements placed by Lessee in, under, or upon the
Property.

                                     - 9 -
<PAGE>

ARTICLE SIX. WARRANTIES.

            6.1 Lessor disclaims and makes no warranty, express or implied,
whether of merchantability, quality, quantity, recoverability, title or
otherwise as to the Property or interests therein, or coal reserves, or mining
rights owned by, or leased to Lessor, or as to the condition of the Property and
Lessee shall rely upon its own examination thereof through engineers and other
representatives selected and employed solely by Lessee.

ARTICLE SEVEN. INDEMNITY; INSURANCE.

            7.1   (a)   (i) In addition to the indemnity set forth in the
Property Documents which shall run to the Lessor, Lessee and AEI agree to
indemnify, defend and hold the Lessor and Coastal and their members,
shareholders, directors, officers and agents (the "Indemnified Party") harmless
from and against any and all claims, demands, actions, causes of action, losses,
lost coal claims, costs and expenses of any kind whatsoever, arising out of,
relating to or resulting from Lessee's breach or failure to keep, maintain or
perform any terms or conditions of this Agreement or any of the Property
Documents.

                        (ii) The foregoing covenant of indemnity shall survive
the cancellation or termination of this Agreement or any of the Property
Documents. This indemnification by Lessee and AEI shall not be negated or
reduced by Lessee's and AEI's insurance carrier's denial of insurance coverage
for the occurrence or event which is the subject matter of the claim or refusal
to defend Lessee and AEI or Lessor and Coastal. Simultaneous with the execution
of this Agreement, AEI will execute and deliver to Lessor and Coastal the
Guaranty attached hereto and made a part hereof as Exhibit D.

                                     - 10 -
<PAGE>

                  (b) In addition to the insurance requirements of the Property
Documents, Lessee and AEI shall maintain and carry, during the term of the this
Agreement and for so long thereafter until final bond release on any Property
disturbed, Environmental Impairment Liability insurance covering environmental
damages resulting from Lessee's operations under this Agreement, including clean
up and third party liability of not less than $5,000,000 per occurrence and
$10,000,000 annual aggregate, and shall name Lessor and Coastal as an additional
insureds with respect thereto. Failure to maintain such coverage shall be
considered a default of this Agreement. Lessor and Coastal shall be named as
additional insureds with respect to the coverages required in the Property
Documents and this paragraph; shall contain a waiver of subrogation in favor of
Lessor and Coastal; and shall require thirty (30) days advance notice to Lessor
and Coastal of any proposed cancellation or material change in coverage. If at
any time Lessee and AEI fail to maintain the aforesaid insurance coverages
Lessor and/or Coastal, their successors and assigns, shall have the right to
cause all activities under this Agreement to cease until such coverage(s) are
reinstated or to procure such insurance coverage and to be reimbursed for the
cost therefor by either Lessee or AEI. The insurance requirement set forth in
the Property Documents and herein are minimum requirements and shall not limit
Lessee and AEI's liability in any manner.

                  (c) Lessee further covenants and agrees that all employees of
Lessee and/or any and all other persons performing work on the Property pursuant
to the rights granted in this Agreement will be fully covered by or insured at
all times by Workers' Compensation, and to that end Lessee shall comply with all
applicable Workers' Compensation laws, rules and regulations and shall make all
necessary contributions and/or premium or other

                                     - 11 -
<PAGE>

payments. In addition, Lessee shall comply with all laws pertaining to payment
of employees including without limitation the provision of W. Va. Code Section
21-5-1, et. seq. and provide Lessor evidence of posting of any bond required by
W. Va. Code Section 21-5-14 or other similar law.

                  (d)   (i) Lessee agrees that it shall comply with all of the
terms and provisions of all of the "black lung laws." Lessee acknowledges that,
as between itself and Lessor, it is, and shall be deemed to be, the operator of
any coal mine or coal preparation facility or facility used for the extraction,
preparation or transportation of coal produced from the Property and of all
related activities, including, but not limited to, coal mine construction or
maintenance engaged in by Lessee pursuant to the terms of this Agreement with
respect to any claim for black lung benefits filed by or on account of any of
its employees or former employees. Lessee shall secure and shall require any
other person or entity claiming by, through or under Lessee who operates,
controls, or supervises a coal mine or coal preparation facility on the Property
or performs services of construction, maintenance, transportation, or other
activities related to coal mining or preparation under the terms of this
Agreement, or who otherwise may be liable for the payment of black lung
benefits, to secure the payment of such black lung benefits to or on account of
employees or former employees in accordance with the black lung laws and shall
provide Lessor, upon request, with appropriate certification that each of them
has provided security in compliance with all black lung laws for the payment of
such black lung benefits.

                        (ii) Without limiting the generality of Lessee's
obligations to comply with all other provisions of this Agreement, Lessee does
hereby agree that it will

                                     - 12 -
<PAGE>

indemnify and hold Lessor and Coastal harmless from any liability and expenses,
including reasonable attorney fees and expenses, which Lessor or Coastal may
suffer directly or indirectly, as a result of or with respect to any claim for
black lung benefits filed by or on account of any of Lessee's employees or
former employees, or employees or former employees of others who may be required
to secure the payment of black lung benefits with respect to the mining or other
activities under or pursuant to this Agreement.

                        (iii) "Black lung laws" mean the Black Lung Benefits
Act, Title IV of the Federal Mine Safety and Health Act of 1977, 30 U.S.C. 901
et seq., and the Internal Revenue Code, 26 U.S.C. 1 et seq., Black Lung Benefits
Reform Act of 1977 (P.L. 95-239), Black Lung Benefits Revenue Act of 1977 (P.L.
75-227), Black Lung Benefits Revenue Act of 1981 (P.L. 97-119), and the Black
Lung Benefits Amendments Act of 1981 (P.L. 97-119), as now or hereafter amended
or replaced, and all rules and regulations adopted pursuant thereto.

            7.2 AEI will cause that certain Irrevocable Standby Letter of Credit
No. Y022207 established by UBS AG, Stamford Branch, to be amended to allow
Coastal to draw on the Letter of Credit for any costs and expenses of every kind
and nature (including, but not limited to, reasonable attorney's fees) which may
be imposed upon or incurred by Lessor or Coastal as a result of or in connection
with Lessee's performance of or activities under this Agreement or as a result
of the breach or default by Lessee of the terms and conditions of the Property
Documents or this Agreement for which Lessee or AEI fail to indemnify Lessor
and/or Coastal.

                                     - 13 -
<PAGE>

ARTICLE EIGHT. DEFAULT; FORFEITURE; REMEDIES CUMULATIVE.

            8.1   (a)   In any of the following events, that is to say:

                        (i)   Lessee shall fail for a period of five (5) days
after written demand therefor (or such shorter period as may be set out in any
applicable Property Document) to pay any installment of rent or royalty or other
payment due hereunder after the same becomes due and payable; or

                        (ii)  Lessee shall abandon the Property; or

                        (iii) Lessee shall fail to

                              A. conduct its operations as required in Section
            1.5 hereof;

                              B. provide insurance as required in Article 7
            hereof;

                              C. pay taxes as provided in Article 4 hereof; or

                              D. keep and perform any of the other terms,
            conditions, covenants and agreements of this Agreement to be kept
            and performed;

      and if any such failure as specified in this subpart (iii) shall continue
      without Lessee diligently pursuing the cure of any such failure for a
      period of 30 days after Lessor shall have given written notice of such
      failure to Lessee (or for a period 15 days less than any period set out in
      any applicable Property Document);

                        (iv) Lessee is in default of any condition of default as
set forth in the Property Documents, which are incorporated herein by reference;
or

                        (v) Lessee be adjudicated a bankrupt or discharged by
the Court as an insolvent debtor, or if any receiver or assignee or other person
or persons be

                                     - 14 -
<PAGE>

appointed by any court to take charge of the Property or the property of Lessee,
or the mines and equipment upon the same;

then in any such event this Agreement and the estate hereby created, and all
rights of the Lessee hereunder with respect to the Property shall at the option
of Lessor, become forfeited and cease and terminate, and Lessor shall have the
right to reenter the Property and to exclude Lessee therefrom, and to hold the
Property and all improvements thereon free of any claims of Lessee, anything
herein contained to the contrary notwithstanding; provided that in any such
event, Lessee shall have a right of access to the Property (to the extent Lessor
can grant such right) to perform any reclamation required by this Agreement or
by applicable law or permits.

                  (b) Upon any forfeiture, all estate, rights and privileges of
Lessee hereunder with respect to the Property shall cease and terminate, and
Lessor may thereupon or at any time thereafter, without further notice, demand
or action by any of its agents, reenter and take possession of the Property, or
any part thereof in the name of Lessor, to the extent and with like effect as
though this Agreement had never been made, and Lessor in making said reentry and
taking possession of said property shall have the right to do so without legal
action, or without notice or process, as may be required by the laws of the
State of West Virginia, as amended.

                  (c) All provisions herein contained for the collection of
rents, royalties or other payments, or concerning the remedy of Lessor in case
of breach by Lessee of any condition, covenant or agreement herein contained, or
contained in any other Property Document, shall be deemed to be cumulative and
not exclusive, and shall not deprive Lessor

                                     - 15 -
<PAGE>

of any of its other legal or equitable remedies which may now or hereafter be
provided under the laws of the State of West Virginia.

                  (d) A waiver by Lessor of any particular default upon the part
of Lessee which would entitle Lessor to forfeit and terminate this Agreement and
reenter and take possession, shall not prevent Lessor from forfeiting and
terminating this Agreement for any other cause, or for the same cause occurring
at any other time. The receipt by Lessor from Lessee of payments of rentals,
royalties, or other sums after the occurrence of any default that would
authorize Lessor to declare a forfeiture of this Agreement, or the continued
recognition of Lessor of Lessee as its subtenant after the occurrence of any
default entitling Lessor to declare a forfeiture shall not be deemed a waiver of
Lessor's right of forfeiture, so long as the cause of forfeiture continues to
exist.

                  (e) It is understood and agreed that Lessor does hereby
reserve such rights and remedies as were reserved to the original lessor(s) in
the Property Documents, as if such rights and remedies were fully set out
herein.

ARTICLE NINE. ASSIGNMENT PROHIBITED.

          9.1 Lessee agrees that it will not assign, sublet or otherwise
transfer its rights hereunder, either voluntarily or by operation of law,
without the prior written consent of Lessor. Nothing herein contained shall
prevent or hinder the right of Lessee to sublease to its affiliated company,
Evergreen Mining Company, or contract any part or portion of its operations
under this Agreement in the usual and ordinary course of its business but such
subleasing, contracting or subcontracting shall not release or relieve Lessee or
AEI from any of its obligations or liabilities under this Agreement or Guaranty
of even date herewith.

                                     - 16 -
<PAGE>

ARTICLE TEN. NOTICES.

            10.1 Any notice which Lessee may desire to serve upon Lessor and/or
Coastal may be made by mailing the same postage prepaid by registered or
certified mail, return receipt requested, or express mail, addressed to Lessor
and/or Coastal at P. O. Box 1871, Roanoke, Virginia 24008. Any notice which
Lessor may desire to serve upon Lessee and/or AEI may be made mailing the same
postage prepaid by registered or certified mail, return receipt requested, or
express mail, addressed to Lessee and/or AEI at 2000 Ashland Drive, Ashland,
Kentucky 41101.

ARTICLE ELEVEN. APPLICABLE LAW.

            11.1 This Agreement shall be governed by and interpreted in
accordance with the laws of the State of West Virginia.

ARTICLE TWELVE. SUCCESSORS AND ASSIGNS.

            12.1 The covenants, agreements, terms and conditions of this
Agreement shall inure to the benefit of, and shall be binding upon the parties
hereto, their respective successors and assigns.

ARTICLE THIRTEEN. MODIFICATION OR AMENDMENT.

            13.1 This Agreement may not be modified, altered or amended in any
manner except by written agreement executed by Lessor and Lessee.

                                     - 17 -
<PAGE>

ARTICLE FOURTEEN. ARTICLE HEADINGS.

            14.1 The headings of, or captions to each article of this Agreement
are for convenience only and are not to be used to interpret, amend, or alter
any of the provisions hereof.

ARTICLE FIFTEEN. COUNTERPARTS.

            15.1 This Agreement may be executed in any one or more counterparts,
each of which shall be deemed an original and it shall not be necessary in
making proof of this Agreement to produce or account for more than one such
counterpart.

            IN WITNESS WHEREOF, Lessor, Coastal, Lessee and AEI have hereunto
caused this Agreement to be executed as of the day and year first above written.

                                            COASTAL COAL-WEST VIRGINIA, LLC

                                            By:  /s/ James W. Copley, Jr.
                                                 -------------------------------
                                            Its: Vice Pres.

                                            COASTAL COAL COMPANY, LLC

                                            By:  /s/ James W. Copley, Jr.
                                                 -------------------------------
                                            Its: Vice Pres.

                                            EAST KENTUCKY ENERGY CORPORATION

                                            By:  /s/ Gary L. Colley
                                                 -------------------------------
                                            Its: Attorney-in-Fact

                                            AEI RESOURCES, INC.

                                            By:  /s/ Gary L. Colley
                                                 -------------------------------
                                            Its: Attorney-in-Fact

                                     - 18 -
<PAGE>

STATE OF WEST VIRGINIA )

COUNTY OF WEBSTER      ), to-wit:

            The foregoing instrument was acknowledged before me this 14th day of
March, 2001, by James W. Copley, Jr., the Vice President of COASTAL COAL-WEST
VIRGINIA, LLC, a Delaware limited liability company, on behalf of the
organization.

                                            /s/ Arley M. Johnson
                                            -------------------------------
                                            Notary Public

My commission expires:  01/17/2011

STATE OF WEST VIRGINIA )

COUNTY OF WEBSTER      ), to-wit:

            The foregoing instrument was acknowledged before me this 14th day of
March, 2001, by James W. Copley, Jr., the Vice President of COASTAL COAL
COMPANY, LLC, a Delaware limited liability company, on behalf of the
organization.

                                            /s/ Arley M. Johnson
                                            -------------------------------
                                            Notary Public

My commission expires:  01/17/2011

                                     - 19 -
<PAGE>

STATE OF WEST VIRGINIA  )

COUNTY OF WEBSTER       ), to-wit:

            The foregoing instrument was acknowledged before me this 14th day of
March, 2001, by Gary L. Colley, the Attorney-in-Fact of EAST KENTUCKY ENERGY
CORPORATION, a Kentucky corporation, on behalf of the corporation.

                                            /s/ Arley M. Johnson
                                            -------------------------------
                                            Notary Public

My commission expires:  01/17/2011

STATE OF WEST VIRGINIA )

COUNTY OF WEBSTER      ), to-wit:

            The foregoing instrument was acknowledged before me this 14th day of
March, 2001, by Gary L. Colley, the Attorney-in-Fact of AEI RESOURCES, INC., a
Kentucky corporation, on behalf of the corporation.

                                            /s/ Arley M. Johnson
                                            -------------------------------
                                            Notary Public

My commission expires:  01/17/2011

This instrument was prepared by:

Coastal Coal-West Virginia, LLC
Legal Department
P. O. Box 1871
Roanoke, VA 24008

                                     - 20 -
<PAGE>

                            EXHIBIT A - OWNED TRACTS

<TABLE>
<CAPTION>
TRACT#                 ACREAGE                          REMARKS
------                 -------                          -------
<S>                    <C>               <C>
WE44                    25               Johnson Property
WE45                    35               Bragg Property
WE46 & WE46A            137.5            Norman Heirs Property (188 acres) less
                                         exceptions of 36 acres and 14 acres
WE46A                   36               Selman Property
WE47                    75               McAvoy Property
WE48                    69.5             McAvoy Property (part of 129 acres)
WE48                    35               McAvoy Property (part of 129 acres)
WE50                    24               Selman Property
WE51                    50               Selman Property (part of 83 acres)
WE51                    33               Selman Property (part of 83 acres)
</TABLE>

NOTE:   All of the above tracts are subject to minimum and per ton overriding
        royalties See Exhibit B

<TABLE>
<S>                     <C>               <C>
WE46                    13.6              Wilson/Jackson Property
WE49                    50                Wilson/Jackson Property
</TABLE>

                                     - 21 -
<PAGE>

                            EXHIBIT B - LEASED TRACTS

SUBLEASE OF TOTAL LEASE AREA:

1.    That certain Coal Lease dated July 1, 1999, from NGHD Lands, Inc.; T. C.
      Lands, Inc.; Larry A. Deitz and Gloria K. Deitz; White Pine, Inc.; G. D.
      Herold Estate by James H. Wolverton and Eugenia P. Herold, Co-executors;
      and Maxey Ann Tulley to Coastal Coal-West Virginia, LLC.

      TRACT #: WE45, WE46, WE47, WE48, WE50, WE51, WE52
      Acreage: 28, 188, 73, 202, 20.75, 76, 43.54
      Recoupable Prepaid Balance Reimbursed by Lessee (Section 1.5):  $41,580.00

2.    That certain Coal Lease dated July 1, 1999, from NGHD Lands, Inc.; T. C.
      Lands, Inc.; White Pine, Inc.; B & W Land Company; Ottaway Trent, Trustee;
      Ernestine Trent; and Ottaway Trent and Tinia Faye Trent to Coastal
      Coal-West Virginia, LLC.

      TRACT #: WE49
      Acreage: 50
      Recoupable Prepaid Balance Reimbursed by Lessee (Section 1.5):  $3,500.00

3.    That certain Coal and Surface Lease Agreement dated October 19, 1978, from
      Boyd F. Selman (successor in interest to Maggie White Selman and Herold
      Selman) to Coastal Coal-West Virginia, LLC (successor in interest to ANR
      Coal Development Company), of record in the clerk's office of Webster
      County, West Virginia, in Book 12, at page 430, as supplemented by
      Supplement to Lease dated October 19, 1978, of record in the aforesaid
      clerk's office in Book 12, at page 445, and amended by Amendment of Coal
      and Surface Lease Agreement dated November 28, 1983, of record in the
      aforesaid clerk's office in Book 18, at page 387.

      TRACT #: WE52
      Acreage: 69
      Recoupable Prepaid Balance Reimbursed by Lessee (Section 1.5):  $.00

4.    That certain Lease dated July 13, 1976, from Lavonne Cobb, Keith S.
      Roberts, Edsel F. Roberts, Wayland S. Roberts, and Kay Vannest (successors
      in interest to Glen Roberts and Ruby Roberts) to Coastal Coal-West
      Virginia, LLC (successor in interest to Harold Roberts), as amended by
      that certain Supplement to Lease dated October 25, 1978, of record in the
      clerk's office of Webster County, West Virginia, in Book 42, at page 422,
      and that certain Supplement to Lease dated December 5, 1978 [unrecorded],
      and those certain extension letters dated September 9, 1988 and August 31,
      1998.

                                     - 22 -
<PAGE>

      TRACT #: WE53
      Acreage: 1/2 of 28
      Recoupable Prepaid Balance Reimbursed by Lessee (Section 1.5):  $76,200.00

5.    That certain Surface Lease dated July 1, 1999, from NGHD Lands, Inc.;
      White Pine, Inc.; B & W Land Company; Ottaway Trent, Trustee; Ernestine
      Trent; and Ottaway Trent and Tinia Faye Trent to Coastal Coal-West
      Virginia, LLC

      TRACT #: WE48A
      Acreage: 77
      Recoupable Prepaid Balance Reimbursed by Lessee (Section 1.5):  $1,540.00

SUBLEASE OF PARTIAL LEASE AREA:

1.    That certain Coal Lease Agreement dated April 25, 1978, from Charles A.
      Roberts and Marlene R. Roberts and Orlen P. Roberts and Mary Jane Roberts
      to Coastal Coal-West Virginia, LLC (successor in interest to ANR Coal
      Development Company), as evidenced by Memorandum of Lease of record in the
      clerk's office of Webster County, West Virginia, in Book 13, page 306, as
      amended by Amendment dated August 30, 1996.

      TRACT #: WE44
      Acreage: 25
      Recoupable Prepaid Balance:  $8,000.00
      Portion of Balance Reimbursed by Lessee (Section 1.5):  $1,325.00
      Portion of Annual Minimum to be paid by Lessee Effective 04-04-2001:
      $662.00

2.    That certain Lease dated July 3, 1978, from Estle D. Boggs or Margaret
      Boggs to Coastal Coal-West Virginia, LLC (successor in interest to ANR
      Coal Development Company), as amended by that certain Amendment of Lease
      executed on July 1, 1983, of record in the clerk's office of Nicholas
      County, West Virginia, in Book 55, at page 282.

      TRACT #: WE52, WE100 (Partial)
      Acreage: 95.8, Part of 26
      Recoupable Prepaid Balance:  $64,000.00
      Portion of Balance Reimbursed by Lessee (Section 1.5):  $.00
      Portion of Annual Minimum to be paid by Lessee Effective 07-03-2001:
      $1,350.00

                                     - 23 -
<PAGE>

3.    That certain Lease dated September 22, 1977, from Evelyn Boggs and Ronald
      S. Boggs and Linda G. Boggs (successors in interest to Roy Boggs and
      Evelyn Boggs) to Coastal Coal-West Virginia, LLC (successor in interest to
      Revere Coal Company), of record in the clerk's office of Webster County,
      West Virginia, in Book 12, at page 64, as amended by those certain
      Supplements to Lease dated November 3, 1977, October 19, 1978, and
      December 1, 1978, and those certain extension letters dated July 17, 1987
      and August 8, 1997.

      TRACT #: WE53,
      Acreage: 1/2 of 28
      Recoupable Prepaid Balance:  $72,000.00
      Portion of Balance Reimbursed by Lessee (Section 1.5):  $19,237.00
      Portion of Annual Minimum to be paid by Lessee Effective 01-25-2001:
      $1,924.00

4.    That certain Lease dated October 14, 1977, from M-B, LLC (successor to M-B
      Partners, Ltd.) to Coastal Coal-West Virginia, LLC (successor in interest
      to ANR Coal Development Company), as evidenced by Memorandum of Lease of
      record in the clerks' office of Webster County, Nicholas County, and
      Braxton County, West Virginia, in Book 13, page 283; Book 50, page 223;
      and Book 380, page 727, respectively.

      TRACT #: WE54, WE55
      Acreage: 735.15, 28.88 (portions of 838 and 107 acre tracts located east
               of Barnett Run and south of Birch River only)
      Recoupable Prepaid Balance:  $.00
      Portion of Balance Reimbursed by Lessee (Section 1.5):  $.00
      Portion of Annual Minimum to be paid by Lessee:  $.00

OVERRIDING ROYALTY ON OWNED TRACTS

1.    That certain Surface Lease dated February 23, 2000, from NGHD Lands, Inc.;
      T. C. Lands, Inc.; AED, LLC, Larry A. Deitz and Gloria K. Deitz; and Maxey
      Ann Tulley to Coastal Coal-West Virginia, LLC

      TRACT #: WE44, WE45, WE46, and 46A, WE46A, WE47,WE48, WE48, WE50, WE51,
               WE51
      Acreage: 25, 35, 137.5, 36, 75, 69.5, 35, 24, 50, 33
      Recoupable Prepaid Balance Reimbursed by Lessee (Section 1.5):  $10,880.00

                                     - 24 -
<PAGE>

                   MEMORANDUM OF LEASE AND SUBLEASE AGREEMENT

      THIS MEMORANDUM OF LEASE AND SUBLEASE AGREEMENT is made and entered into
as of the 1st day of June, 2001 (the "Effective Date"), by and among COASTAL
COAL-WEST VIRGINIA, L.L.C., a Delaware limited liability company, hereinafter
referred to as LESSOR; COASTAL COAL COMPANY, L.L.C., a Delaware limited
liability company, hereinafter referred to as "COASTAL"; EAST KENTUCKY ENERGY
CORPORATION, a Kentucky corporation, hereinafter referred to as "LESSEE"; and
AEI RESOURCES, INC., a Kentucky corporation, hereinafter referred to as "AEI."

                              W I T N E S S E T H:

      WHEREAS, Lessor is the owner in fee of certain surface properties located
in the Glade District of Webster County, West Virginia, as more fully identified
on Exhibit A attached hereto and made a part hereof (collectively the "Owned
Tracts"); and,

      WHEREAS, Lessor is the lessee of certain coal and coal mining rights on
certain tracts or parcels of land located in the Glade District of Webster
County, West Virginia, as more fully identified on Exhibit B attached hereto
(collectively the "Leased Tracts"); and,

      WHEREAS, the Owned Tracts and Leased Tracts are more particularly defined
as shown on the map attached hereto and made a part hereof as Exhibit C; and,

      WHEREAS, the parties entered into a Lease and Sublease Agreement dated
March 14, 2001, (the "Agreement") by which Lessee has been granted certain
mining and transportation rights in and to the Owned Tracts and Leased Tracts;
and,

      WHEREAS, the Leased Tracts documents and the Owned Tracts documents are
herein collectively referred to as the "Property Documents;" and,

      WHEREAS, the parties desire to execute a memorandum of the Agreement to be
recorded in order to give notice of its existence and certain of its terms and
conditions, however, reference is hereby made to said Agreement for a complete
explanation of all rights and obligations of the parties thereto.

      NOW, THEREFORE, notice is hereby given of the existence of the Agreement,
and that the Agreement contains, inter alia, the following terms and provisions:

      1.    Lessor does not undertake to lease to Lessee any greater or other
            rights in the Property than it has by virtue of (i) deeds or leases
            pursuant to which it acquired its interests in the Property, and
            (ii) all right, title and interest which Lessor may have acquired by
            operation of law.

<PAGE>

      2.    Excluded from the scope of this Agreement and reserved by Lessor for
            all purposes other than those for which this Agreement is made, are
            all of the rights and remedies of the underlying lessor(s) or
            granting party under the Property Documents with respect to all
            operations on the Property in the same manner as if Lessor were the
            original lessor or granting party under the Property Documents.

      3.    Lessee covenants to commence mining the mineable and merchantable
            coal in and on the Property as soon as practicable (presently
            projected to be within five years) and to thereafter continue mining
            the same with due diligence during the term of this Agreement except
            when prevented by circumstances beyond Lessee's control. The term
            "mineable and merchantable coal" as used in this Agreement shall be
            the definition as ascribed to it in the Property Documents for each
            tract. Provided, however, Lessor and Lessee recognize and agree that
            the Property covered hereby forms a part of a larger mining area and
            that from time to time prudent mining practices and the logical and
            practical sequence of Lessee's operations within such mining area
            will cause Lessee to commence and discontinue from time to time its
            coal removal operations on the Property.

      4.    Lessee hereby assumes all of the obligations and conditions
            contained in the Property Documents with respect to all of its
            operations on the Property in the same manner as if Lessee were the
            original lessee or party under the Property Documents, except as
            otherwise specifically set forth herein. Lessee acknowledges that it
            has received a copy of the Property Documents, has read and examined
            same, and hereby agrees that all operations in the exercise of
            Lessee's mining rights under this Agreement shall be in compliance
            with all the terms, conditions and obligations of the Property
            Documents. If there is any conflict or inconsistency between this
            Agreement and any provision in any one or more of the Property
            Documents, the provisions of the applicable Property Document shall
            be controlling to determine obligations hereunder.

      5.    The term of this Agreement shall terminate with respect to each
            Property Document upon (i) exhaustion of all the mineable and
            merchantable coal from the tract(s) in the Property covered thereby,
            or (ii) the surrender or termination thereof in accordance with
            Section 1.1 hereof, or (iii) the expiration of the term of such
            Property Document, whichever occurs sooner. This Agreement shall
            likewise terminate upon exhaustion of all of the mineable and
            merchantable coal in all tracts in the Property. To the extent that
            Lessor has the right under the Property Documents to grant such
            right, Lessee shall have the right of entry (to any such tract(s))
            following the term of this Agreement to perform reclamation required
            by law and Lessor shall not interfere with the same.

      6.    Notwithstanding any other provision of this Article, this Agreement
            shall automatically terminate with respect to any Property Document
            pertaining to the Property upon termination or expiration of such
            Property Document, or any extensions thereof.

                                     - 2 -
<PAGE>

      7.    At the termination of this Agreement, whether by termination,
            expiration, or otherwise, other than termination by forfeiture,
            provided Lessee is not then in default hereunder in which case such
            default shall be remedied before anything is removed, Lessee shall
            have a period of ninety (90) days thereafter the right and privilege
            of removing all of the personal property, machinery, equipment, and
            improvements placed by Lessee in, under, or upon the Property.

      8.    Lessee agrees that it will not assign, sublet or otherwise transfer
            its rights hereunder, either voluntarily or by operation of law,
            without the prior written consent of Lessor. Nothing herein
            contained shall prevent or hinder the right of Lessee to sublease to
            its affiliated company, Evergreen Mining Company, or contract any
            part or portion of its operations under this Agreement in the usual
            and ordinary course of its business but such subleasing, contracting
            or subcontracting shall not release or relieve Lessee or AEI from
            any of its obligations or liabilities under this Agreement or
            Guaranty of even date herewith.

      9.    By its express terms, the Agreement is binding upon the parties,
            their respective successors and assigns.

      10.   Each party has an executed copy of the Agreement and all terms and
            conditions of said Agreement are incorporated herein by reference
            and made a part hereof as if fully set forth.

      IN TESTIMONY WHEREOF, witness the signatures of the parties hereto this
day and year first above written.

                                            LESSOR:

                                            COASTAL COAL-WEST VIRGINIA, L.L.C.

                                            BY:  /s/ James W. Copley Jr.
                                                 -------------------------------
                                            ITS: Vice Pres.

                                            COASTAL COAL COMPANY, L.L.C.

                                            BY:  /s/ James W. Copley Jr.
                                                 -------------------------------
                                            ITS: Vice Pres.

                                     - 3 -
<PAGE>

                                            LESSEE:

                                            EAST KENTUCKY ENERGY CORPORATION

                                            BY:  /s/ Bernie Mason
                                                 -------------------------------
                                            ITS: Vice President

                                            AEI RESOURCES, INC.

                                            BY:  /s/ Bernie Mason
                                                 -------------------------------
                                            ITS: Vice President

STATE OF WEST VIRGINIA

COUNTY OF WEBSTER

      The foregoing instrument was subscribed, sworn to and acknowledged before
me this 1st day of June, 2001, by James W. Copley, Jr. as Vice President of
COASTAL-WEST VIRGINIA, L.L.C., a Delaware limited liability company for and on
behalf of said entity.

      My Commission Expires: April 7, 2009

                                            /s/ Melody Martin
                                            ------------------------------------
                                            Notary Public

                                     - 4 -
<PAGE>

STATE OF WEST VIRGINIA

COUNTY OF WEBSTER

      The foregoing instrument was subscribed, sworn to and acknowledged before
me this 1st day of June, 2001, by James W. Copley, Jr. as Vice President of
Coastal Coal Company, LLC, a Delaware limited liability company for and on
behalf of said entity.

      My Commission Expires: April 7, 2009

                                            /s/ Melody Martin
                                            ------------------------------------
                                            Notary Public

                                     - 5 -
<PAGE>

STATE OF KENTUCKY

COUNTY OF GREENUP

      The foregoing instrument was subscribed, sworn to and acknowledged before
me this 25th day of May, 2001, by Bernie Mason as Vice President of EAST
KENTUCKY ENERGY CORPORATION, a Kentucky corporation, for and on behalf of said
corporation.

      My Commission Expires: November 14, 2003

                                            /s/ Denise G. Mitchell
                                            ------------------------------------
                                            Notary Public

STATE OF KENTUCKY

COUNTY OF GREENUP

      The foregoing instrument was subscribed, sworn to and acknowledged before
me this 25th day of May, 2001, by Bernie Mason as Vice President of AEI
RESOURCES, INC., a Kentucky corporation, for and on behalf of said corporation.

      My Commission Expires: November 14, 2003

                                            /s/ Denise G. Mitchell
                                            ------------------------------------
                                            Notary Public

THIS INSTRUMENT PREPARED BY:

/s/ George M. Hogg
------------------------------
George M. Hogg, Attorney
Addington Corporate Center
2000 Ashland Drive
Ashland, Kentucky 41101
(606) 920-7890

                                     - 6 -
<PAGE>

                            EXHIBIT A - OWNED TRACTS

<TABLE>
<CAPTION>
TRACT#                 ACREAGE                           REMARKS
------                 -------                           -------
<S>                    <C>                <C>
WE44                    25                Johnson Property
WE45                    35                Bragg Property
WE46 & WE46A            137.5             Norman Heirs Property (188 acres) less
                                          Exceptions of 36 acres and 14 acres
WE46A                   36                Selman Property
WE47                    75                McAvoy Property
WE48                    69.5              McAvoy Property (part of 129 acres)
WE48                    35                McAvoy Property (part of 129 acres)
WE50                    24                Selman Property
WE51                    50                Selman Property (part of 83 acres)
WE51                    33                Selman Property (part of 83 acres)
WE46                    13.6              Wilson/Jackson Property
WE49                    50                Wilson/Jackson Property
</TABLE>

The above described and set forth properties were acquired by Lessor, or its
predecessor(s) by and through the following Deeds, namely:

      Deed dated January 25, 2000, from Larry A. Deitz and Gloria Deitz, his
      wife, to Coastal Coal-West Virginia, L.L.C., such Deed appearing of record
      in Deed Book 249, at Page 313, in the Office of the Clerk of the County
      Commission for Webster County, West Virginia.

      Deed dated February 25, 2000, from T. C. Lands, Inc. to Coastal Coal-West
      Virginia, LLC, such Deed appearing of record in Deed Book 249, at Page
      337, in said Clerk's office.

      Deed dated February 25, 2000, from NGHD Lands, Inc. to Coastal Coal-West
      Virginia, LLC, such Deed appears of record in Deed Book 349, at Page 327,
      in said Clerk's office.

      Deed dated February 25, 2000, from AED, LLC, to Coastal Coal-West
      Virginia, LLC, such Deed appearing of record in Deed Book 249, at Page
      304, in said Clerk's Office.

      Deed dated October 2, 1979, from Charles Russell Jackson and Edith M.
      Jackson, his wife, to ANR Coal Development Company, such Deed appearing of
      record in Deed Book 186, at Page 638, in said Clerk's Office.

                                     - 7 -
<PAGE>

      Deed dated September 18, 1978, between William Hunt Real Estate, Inc. and
      ANR Coal Development Company, such Deed appearing of record in Deed Book
      183, at Page 98, in said Clerk's Office.

                                     - 8 -
<PAGE>

                            EXHIBIT B - LEASED TRACTS

SUBLEASE OF TOTAL LEASE AREA:

1.    That certain Coal Lease dated July 1, 1999, from NGHD Lands, Inc.; T. C.
      Lands, Inc.; Larry A. Deitz and Gloria K. Deitz; White Pine, Inc.; G. D.
      Herold Estate by James H. Wolverton and Eugenia P. Herold, Co-executors;
      and Maxey Ann Tulley to Coastal Coal-West Virginia, LLC.

      TRACT #: WE45, WE46, WE47, WE48, WE50, WE51, WE52
      Acreage: 28, 188, 73, 202, 20.75, 76, 43.54

2.    That certain Coal Lease dated July 1, 1999, from NGHD Lands, Inc.; T. C.
      Lands, Inc.; White Pine, Inc.; B & W Land Company; Ottaway Trent, Trustee;
      Ernestine Trent; and Ottaway Trent and Tinia Faye Trent to Coastal
      Coal-West Virginia, LLC.

      TRACT #: WE49
      Acreage: 50

3.    That certain Coal and Surface Lease Agreement dated October 19, 1978, from
      Boyd F. Selman (successor in interest to Maggie White Selman and Herold
      Selman) to Coastal Coal-West Virginia, LLC (successor in interest to ANR
      Coal Development Company), of record in the clerk's office of Webster
      County, West Virginia, in Book 12, at page 430, as supplemented by
      Supplement to Lease dated October 19, 1978, of record in the aforesaid
      clerk's office in Book 12, at page 445, and amended by Amendment of Coal
      and Surface Lease Agreement dated November 28, 1983, of record in the
      aforesaid clerk's office in Book 18, at page 387.

      TRACT #: WE52
      Acreage: 69

4.    That certain Lease dated July 13, 1976, from Lavonne Cobb, Keith S.
      Roberts, Edsel F. Roberts, Wayland S. Roberts, and Kay Vannest (successors
      in interest to Glen Roberts and Ruby Roberts) to Coastal Coal-West
      Virginia, LLC (successor in interest to Harold Roberts), as amended by
      that certain Supplement to Lease dated October 25, 1978, of record in the
      clerk's office of Webster County, West Virginia, in Book 42, at page 422,
      and that certain Supplement to Lease dated December 5, 1978 [unrecorded],
      and those certain extension letters dated September 9, 1988 and August 31,
      1998.

                                     - 9 -
<PAGE>

      TRACT #: WE53
      Acreage: 1/2 of 28

5.    That certain Surface Lease dated July 1, 1999, from NGHD Lands, Inc.;
      White Pine, Inc.; B & W Land Company; Ottaway Trent, Trustee; Ernestine
      Trent; and Ottaway Trent and Tinia Faye Trent to Coastal Coal-West
      Virginia, LLC

      TRACT #: WE48A
      Acreage: 77

SUBLEASE OF PARTIAL LEASE AREA:

1.    That certain Coal Lease Agreement dated April 25, 1978, from Charles A.
      Roberts and Marlene R. Roberts and Orlen P. Roberts and Mary Jane Roberts
      to Coastal Coal-West Virginia, LLC (successor in interest to ANR Coal
      Development Company), as evidenced by Memorandum of Lease of record in the
      clerk's office of Webster County, West Virginia, in Book 13, page 306, as
      amended by Amendment dated August 30, 1996.

      TRACT #: WE44
      Acreage: 25

2.    That certain Lease dated July 3, 1978, from Estle D. Boggs or Margaret
      Boggs to Coastal Coal-West Virginia, LLC (successor in interest to ANR
      Coal Development Company), as amended by that certain Amendment of Lease
      executed on July 1, 1983, of record in the clerk's office of Nicholas
      County, West Virginia, in Book 55, at page 282.

      TRACT #: WE52, WE100 (Partial)
      Acreage: 95.8, Part of 26

                                     - 10 -
<PAGE>

3.    That certain Lease dated September 22, 1977, from Evelyn Boggs and Ronald
      S. Boggs and Linda G. Boggs (successors in interest to Roy Boggs and
      Evelyn Boggs) to Coastal Coal-West Virginia, LLC (successor in interest to
      Revere Coal Company), of record in the clerk's office of Webster County,
      West Virginia, in Book 12, at page 64, as amended by those certain
      Supplements to Lease dated November 3, 1977, October 19, 1978, and
      December 1, 1978, and those certain extension letters dated July 17, 1987
      and August 8, 1997.

      TRACT #: WE53,
      Acreage: 1/2 of 28

4.    That certain Lease dated October 14, 1977, from M-B, LLC (successor to M-B
      Partners, Ltd.) to Coastal Coal-West Virginia, LLC (successor in interest
      to ANR Coal Development Company), as evidenced by Memorandum of Lease of
      record in the clerks' office of Webster County, Nicholas County, and
      Braxton County, West Virginia, in Book 13, page 283; Book 50, page 223;
      and Book 380, page 727, respectively.

      TRACT #: WE54, WE55
      Acreage: 735.15, 28.88 (portions of 838 and 107 acre tracts located east
               of Barnett Run and south of Birch River only)

                                     - 11 -

<PAGE>

                                     [MAP]
<PAGE>

                     ASSIGNMENT OF REAL PROPERTY AGREEMENTS

      This Assignment of Real Property Agreements (this "Agreement"), dated as
of September 30, 2004, is among ICG EASTERN LAND, LLC, a Delaware limited
liability company, with an address of 2000 Ashland Drive, Ashland, Kentucky
41101 (the "Buyer"), and EAST KENTUCKY ENERGY CORPORATION (SUCCESSOR-IN-INTEREST
TO AND/OR f/k/a AND/OR d/b/a CLIPPER COAL CORPORATION), a Kentucky corporation,
with an address of 2000 Ashland Drive, Ashland, Kentucky 41101 (the "Seller").

                                    RECITALS

      A. This Agreement is being entered into to effect the transactions
contemplated by the Asset Purchase Agreement, dated May 13, 2004 as amended and
restated on June 2, 2004 (as the same may be hereafter amended or supplemented,
the "Purchase Agreement"), between the Buyer and Horizon Natural Resources
Company ("Parent") and certain of its subsidiaries (collectively, the
"Sellers"). Capitalized terms not otherwise defined herein shall have the
meanings given to such terms in the Purchase Agreement.

      B. The Seller is one of the Sellers, and is a party to the real property
agreements set forth on Schedule A hereto, which pertain to real property
located in Webster County, West Virginia (the "Real Property Agreements").

      C. The Seller desires to assign to the Buyer, and the Buyer desires to
assume, all of the Seller's right, title and interest in and to the Real
Property Agreements, pursuant to the terms of the Purchase Agreement.

      D. The assignment of the Real Property Agreements covered hereby has been
approved by Order Pursuant to 11 U.S.C. Sections 105(A), 362,363,365, 1123 and
1146(C) and Fed. R. Bankr. P. 2002, 6004, 6006 and 9014: (A) Approving Asset
Purchase Agreements, (B) Authorizing Sale of Substantially All Assets Free and
Clear of All Liens, Claims, Interests and Other Encumbrances, and (C)
Authorizing Assumption and Assignment of Certain Agreements, entered on
September 16, 2004, by the United States Bankruptcy Court for the Eastern
District of Kentucky, Ashland Division, in the Chapter 11 proceeding styled In
Re: Horizon Natural Resources Company, et al. (including Seller) (the "Sale
Order," a copy of which is attached hereto and made a part hereof as Exhibit 1),
such proceedings being jointly administered under Case No. 02-14261. Pursuant to
the Sale Order and Section 1146 of the U.S. Bankruptcy Code, the execution and
delivery of this instrument shall not be taxed under any law imposing a transfer
tax, stamp tax or similar tax.

      NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

      1. Assignment. The Seller hereby grants, assigns, transfers, conveys,
delivers and sets over unto the Buyer all of its right, title, interest, duties
and obligations in, to and under the Real Property Agreements.

<PAGE>

      2. Assumption. The Buyer hereby assumes all of the Seller's right, title,
interest, duties and obligations in, to and under the Real Property Agreements
and agrees to be bound by all of the terms and conditions of the Real Property
Agreements and to pay, perform and discharge when due, all duties and
obligations of the Seller under the Real Property Agreements, in each case,
however, only to the extent such obligations are Assumed Liabilities.

      3. Conflict. This Agreement is subject to all the terms and conditions of
the Purchase Agreement and Sale Order. No provision of this Agreement shall be
deemed to enlarge, alter or amend the terms or provisions of the Purchase
Agreement or the Sale Order. Notwithstanding anything to the contrary set forth
herein, if there is any conflict between the terms and conditions of this
Agreement and the terms and conditions of the Purchase Agreement and the Sale
Order, the terms and conditions of the Purchase Agreement and the Sale Order
shall control.

      4. Governing Law. Except to the extent inconsistent with the United States
Bankruptcy Code, this Agreement shall be governed by and construed according to
the laws of the State of Delaware, without regard to or application of its
conflict of laws rules. The parties to this Agreement agree that the Bankruptcy
Court shall have exclusive jurisdiction, and the parties hereby submit to such
jurisdiction, of any dispute arising under or related to this Agreement.

      5. Counterparts. This Agreement may be executed in one or more
counterparts (including by means of facsimile signature pages) and all such
counterparts taken together shall constitute one and the same Agreement.

      6. Severability. If any provision of this Agreement or its application is
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of all other applications of that provision, and of all other
provisions and applications hereof, will not in any way be affected or impaired.
If any court shall determine that any provision of this Agreement is in any way
unenforceable, such provision shall be reduced to whatever extent is necessary
to make such provision enforceable.

      7. Entire Agreement. All prior negotiations and agreements by and among
the parties hereto with respect to the subject matter hereof are superseded by
this Agreement, the Purchase Agreement, the Sale Order and the Related
Agreements, and there are no representations, warranties, understandings or
agreements with respect to the subject matter hereof other than those expressly
set forth in this Agreement, the Purchase Agreement, the Sale Order and the
Related Agreements.

      8. Headings. Section headings are not to be considered part of this
Agreement, are solely for convenience of reference, and shall not affect the
meaning or interpretation of this Agreement or any provision in it.

      9. No Third-Party Beneficiaries. Nothing in this Agreement shall confer
any rights upon any person or entity other than the parties hereto and their
respective successors and permitted assigns.

                                     - 2 -
<PAGE>

      10. Successors and Assigns. The terms of this Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns.

      11. Further Assurances. Each party hereto agrees, upon the reasonable
request of the other party hereto, to make, execute and deliver any and all
documents or instruments of any kind or character, and to perform all such other
actions, that may be reasonably necessary or proper (without the expenditure of
funds) to effectuate, confirm, perform or carry out the terms or provisions of
this Agreement.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                     - 3 -
<PAGE>

      IN WITNESS WHEREOF, the parties hereto have caused their authorized
representatives to execute this Agreement as of the date first set forth above.

BUYER:                                      ICG EASTERN LAND, LLC

                                            By: /s/ David Wax
                                                ------------------------------

                                            Name: David Wax

                                            Title: Vice President

SELLER:                                     EAST KENTUCKY ENERGY CORPORATION
                                            (SUCCESSOR-IN-INTEREST TO AND/OR
                                            f/k/a AND/OR d/b/a CLIPPER COAL
                                            CORPORATION)

                                            By: /s/ Marc Merritt
                                                --------------------------------

                                            Name: Marc Merritt

                                            Title: Treasurer

                                     S-1
<PAGE>

STATE OF New York
COUNTY OF New York

      The foregoing Assignment of Real Property Agreements was acknowledged
before me this September 29, 2004, by David L. Wax as Vice President of ICG
Eastern Land, LLC, a Delaware limited liability company, for and on behalf of
company.

                                            /s/ Allison B. Petrone
                                            ------------------------------------
                                            Notary Public, State at Large
                                            My Commission Expires ______________

STATE OF New York
COUNTY OF New York

      The foregoing Assignment of Real Property Agreements was acknowledged
before me this September 29, 2004, by Marc Merritt, as Treasurer of East
Kentucky Energy Corporation (successor-in-interest to and/or f/k/a and/or d/b/a
Clipper Coal Corporation), a Kentucky corporation, for and on behalf of company.

                                            /s/ Margie Tuan
                                            ------------------------------------
                                            Notary Public, State at Large
                                            My Commission Expires ______________

THIS INSTRUMENT PREPARED BY:

/s/ Warren J. Hoffmann                      CHICAGO TITLE INSURANCE CO.
-------------------------------             171 N. CLARK ST. MLC:  04SP
Warren J. Hoffmann, Esq.                    CHICAGO, IL 60601
Frost Brown Todd LLC                        ATTN: ILIA RODRIGUEZ
250 West Main Street
Suite 2700
Lexington, Kentucky 40507-1749
(859) 231-0000

                                      S-2
<PAGE>

                                   SCHEDULE A

      The real property agreements being assigned or otherwise transferred by
this instrument are those leases or instruments described in this Schedule A and
being recorded at the indicated book/volume and page numbers identified in the
charts in this Schedule A.

<PAGE>

                                   SCHEDULE A

<TABLE>
<CAPTION>
  CONTRACT           CONTRACT                                                                 CONTRACT
      #                TYPE              LESSEE              LESSOR          CTY      ST        DATE         BOOK     PAGE     DOC
---------------   --------------  -------------------  ------------------  --------   ---    ----------    -------    ----    ------
<S>               <C>              <C>                 <C>                 <C>        <C>    <C>           <C>        <C>     <C>
                                                       Boggs, Estle D.
                                   East Kentucky       And/Or Margaret
   WV-B-4         Surface Lease    Energy Corp. (434)  (Base Lessors)      Webster    WV     07/03/1978      055       282    17950

                                   East Kentucky       Boggs, Evelyn Et    Webster    WV     09/22/1977       12        64
   WV-B-2           Coal Lease     Energy Corp. (434)  Al (Base Lessors)

                                                                                                                       430,
                                   East Kentucky       Boyd Selman, Et Al  Webster    WV     10/19/1978    12, 12,     445,
   WV-S-1           Fee Lease      Energy Corp. (434)                                                         18       387

                                                       Brooks Run Mining
                                   East Kentucky       Company, Llc        Webster    WV     03/14/2001       24       619
   WVL711            Sublease      Energy Corp. (434)  (Lessor/Sublesor)

                                                                                                                       414,
                                   East Kentucky       Cobb, Lavonne Et    Webster    WV     07/13/1976    12, 12,     416,
   WV-R-2           Coal Lease     Energy Corp. (434)  Al (Base Lessors)                                      42       422

                                   East Kentucky       Knight-Ink Heirs    Webster    WV     04/08/1965       21        31
 WV00003001         Coal Lease     Energy Corp. (434)

                                                                                                                       283,
                                   East Kentucky       M-B, Llc (Base      Webster    WV     10/14/1977    13, 50,     223,
   WV-M-1           Fee Lease      Energy Corp. (434)  Lessor)                                               380       727

                                                       Roberts, Charles A.
                                   East Kentucky       Et Al (Base         Webster    WV     04/25/1978       13       306
   WV-R-1           Coal Lease     Energy Corp. (434)  Lessors)

 RW02250001       Easement/Right   East Kentucky       Armentrout, Martha  Webster    WV     05/31/1991      221       510     1166
                      Of Wa        Energy Corp. (434)

 RW02256001
                  Easement/Right   East Kentucky
                      Of Wa        Energy Corp. (434)  Bright William T.   Webster    WV     09/05/1991      222       237     1616

 RW02249001
                  Easement/Right   East Kentucky       Crosby, Hardy       Webster    WV     04/11/1991      220       620      605
                      Of Wa        Energy Corp. (434)

 RW02254001
                  Easement/Right   East Kentucky       Hall, Melvin        Webster    WV     05/31/1991      221       521     1168
                      Of Wa        Energy Corp. (434)

 RW02251001
                  Easement/Right   East Kentucky       Hoke, Lucille       Webster    WV     05/31/1991      221       533     1171
                      Of Wa        Energy Corp. (434)

 RW02252001
                  Easement/Right   East Kentucky       Mathes, Denver      Webster    WV     05/31/1991      221       529     1170
                      Of Wa        Energy Corp. (434)

 RW02255001
                  Easement/Right   East Kentucky       Short, Victor       Webster    WV     05/31/1991      221       517     1167
                      Of Wa        Energy Corp. (434)

 RW02253001
                  Easement/Right   East Kentucky       Wayne, Mack         Webster    WV     05/31/1991      221       525     1169
                      Of Wa        Energy Corp. (434)

 RW02257001
                  Easement/Right   East Kentucky
                      Of Wa        Energy Corp. (434)  Woods, Jesse        Webster    WV     07/18/1991      221       475     1140
</TABLE>

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00086-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00086-of-00352.parquet"}]]