Document:

<PAGE>

                                                                   EXHIBIT 10.10

                          THIS LEASE made the 8th day of April, in the year
                    1965, between JAMES D. KNIGHT, widower, and LILLIAN K. INK
                    and IRA M. INK, her husband, parties of the first part and
                    Lessors, and CHERRY RIVER COAL AND COKE COMPANY, a
                    corporation, party of the second part and Lessee.

Leased                    WITNESSETH: That the Lessors lease and let unto the
Premises            Lessee all the mineable, merchantable coal, in all those
                    certain lands located in Glade District, Webster County,
                    West Virginia, containing 1305 acres, more or less, more
                    particularly bounded and described in a document marked
                    "Exhibit A" attached hereto and made part hereof.

Exceptions                This lease is made subject to the exceptions and
                    reservations in the Lessors' documents of title and to all
                    existing rights of way on the land, and the Lessors reserve
                    the right to use the land in any way which does not
                    interfere with operations hereunder.

Warranty                  Subject to such exceptions and reservations, the
                    Lessors warrant their title generally and that they have the
                    lawful right to make this lease and that there are no other
                    leases upon or rights against the coal or rights therewith
                    inconsistent with this lease.

Term                      The term of this lease shall be five (5) years from
                    and after the date hereof and shall thereafter be
                    automatically extended and renewed for additional periods of
                    five years each until the exhaustion of the mineable,
                    merchantable coal, unless the Lessee gives the Lessors a
                    three month's written notice of termination before the end
                    of any five year period. Exhaustion of the mineable,
                    merchantable coal shall terminate this lease.

Mining                    The Lessee shall have the right to enter in, upon and
Rights              under the land, explore for, mine, remove and process all
                    the coal by deep, strip and augar mining, without liability
                    for damage to the surface or anything therein or thereon; to
                    drain, ventilate, furnish power and communication and
                    transportation facilities for all operations; to make
                    excavations and erect structures; to use stone, gravel,
                    sand, water, timber under 14 inches in diameter two feet
                    from the ground; to dump waste from this and other

<PAGE>

                    land without liability for dust, smoke or otherwise; to
                    conduct its operations without regard to statutory pillars;
                    all to the extent that the Lessors have and can transfer
                    such rights.

Transport-ation           The Lessee shall have the right to
                    transport coal, machinery, equipment, supplies, power and
                    employees and provide ventilation, drainage and
                    communication to and from other lands, through, over and
                    under the above lands, insofar as the Lessors have and can
                    transfer same, and the same to continue during the life of
                    this lease and thereafter without payment of minimums so
                    long as the Lessee, its successors and assigns shall have
                    such other coal under ownership or lease.

Royalty                   The Lessee promises to pay unto the Lessors a royalty
                    of 12 cents per net ton of 2000 pounds of coal mined,
                    removed and marketed from the premises, and same to be paid
                    on or before the 25th day of each month for coal mined,
                    removed and marketed during the preceding calendar month,
                    and weights to be determined by railroad weights when
                    separately obtainable, but if this coal be commingled with
                    coal from other lands before separate railroad weights are
                    obtainable then weights shall be determined by scales or by
                    measurement or other engineering methods.

REPORTS                   With each monthly settlement of royalty, the
                    Lessee shall make report of the tonnage covered by the
                    payment.

Minimum Royalty           The Lessee agrees to pay an annual minimum royalty of
                    $3,000.00, beginning with the calendar year 1966, the same
                    to be settled on or before January 25 of each year covering
                    the next preceding calendar year. Per-ton royalty for the
                    year shall be credited against the minimum. Any minimum
                    royalty paid in excess of the per-ton royalty for any year
                    may be recaptured by mining in excess of the minimum in any
                    subsequent year during the life of this lease and then
                    taking credit therefor.

Taxes                     The Lessee shall pay all taxes, levies and assessments
                    which may be assessed against the leasehold estate and all
                    the Lessee's property and improvements thereon, and the
                    Lessors shall pay all taxes on the land and the coal in
                    place.

 Mining                   The Lessee agrees to mine and remove the coal in a
                    good and workmanlike manner according to modern, approved
                    methods and to comply with all federal and state laws, rules
                    and regulations applicable thereto.

Engineer                  The Lessee agrees to employ a competent engineer to
                    make surveys and maps

                                        2
<PAGE>

                    required by law.

Maps                      The Lessee agrees to furnish the Lessors a copy
                    of all maps required by state law and at the times required
                    by such law.

Records                   The Lessee shall keep accurate records of the coal
                    mined and removed.

Inspection                The Lessors shall have the right at reasonable
                    intervals during business hours to enter the premises,
                    workings and operations for any lawful purpose of
                    inspection, and the right at such times to inspect the
                    Lessee's records and maps relating to the property.

Removal of                Upon termination of this lease, the Lessee shall have
Property            six months within which to remove all its property, whether
                    affixed or not, from the premises.

Assignment                The Lessee may assign or sublet this lease
                    without consent, but shall remain fully liable for
                    performance hereunder.

Liens                     Money payable by the Lessee hereunder shall be
                    treated as rents reserved upon contract, and the Lessors
                    shall have a lien upon the Lessee's property on the premises
                    to secure same and shall have the benefit of all remedies
                    provided by law for the collection of same.

Forfeiture                In case of any material breach by the Lessee of any
                    promise or agreement herein contained to be kept and
                    performed by it and in case of its failure to correct the
                    same after a thirty-day written notice so to do, the Lessors
                    shall have the right to terminate this lease by written
                    notice of such election.

Agent                     It is expressly understood and agreed by and
                    between the parties hereto that James D. Knight, 71
                    West Franklin Street, Nelsonville, Ohio, and Ira M. Ink,
                    2045 Bayside Parkway, Fort Myers, Florida, are designated as
                    co-agents of the Lessors herein, to receive from the Lessee
                    herein any and all payments on rents, royalty, one-half of
                    said such payments to be delivered to each agent, and to
                    receive all notices as provided for in this lease which
                    shall be directed to the said James D. Knight and Ira M.
                    Ink, and each of them, which notices shall constitute
                    compliance with conditions appertaining thereto. The Lessors
                    may change their agent by notice in writing providing that
                    not more than two be so authorized at all times.

Notices                   Notices hereunder may be given by Certified U. S. Mail
                    to the Lessors through their agent above, and to the Lessee
                    at 530 Fifth Avenue, New York City.

                                        3
<PAGE>

Successors                This lease shall be binding upon and inure to the
and Assigns         benefit of the successors and assigns of the parties.

                    Witness the following signatures and seals.

                                                    /s/ James D. Knight   (SEAL)
                                                    --------------------
                                                        James D. Knight

                                                    /s/ Lillian K. Ink    (SEAL)
                                                    --------------------
                                                        Lillian K. Ink

                                                    /s/ Ira M. Ink        (SEAL)
                                                    --------------------
                                                        Ira M. Ink

                                        4
<PAGE>

ATTEST:                                           CHERRY RIVER COAL AND COKE CO.

                                                  By  /s/ Robert S. Nace
                                                  ------------------------------
/s/ A.J. Blackburn                                        Vice President
------------------
Secretary

State of Ohio,

County of Athens, to-wit:

            I, James F. Shumaker, a Notary Public in and for said state, do
certify that James D. Knight, widower, whose name is signed to the writing
above, bearing date on the 8th day of April, 1965, has this day acknowledged the
same before me in my said county.

            Given under my hand and notarial seal this the 8th day of April,
1965.

SEAL OF
NOTARY
                                                        /s/ James F. Shumaker
                                                        ------------------------
                                                        Notary Public
                                                        State of Ohio
                                My commission expires   Lifetime Commission

State of Florida,

County of Lee, to-wit:

            I, Margery F. Welch, a Notary Public in and for said county and
state, do certify that Lillian K. Ink and Ira M. Ink, her husband, whose names
are signed to the writing above, bearing date on the 6th day of April, 1965,
have this day acknowledged the same before me in my said county.

            Given under my hand and notarial seal this the 6th day of April,
1965.

SEAL OF                                 /s/ Margery F. Welch
NOTARY                                   -------------------
                                            Notary Public

               My commission expires May 28, 1965

                                        5
<PAGE>

STATE OF NEW YORK
COUNTY OF NEW YORK, to-wit

            I, Edwin J. Morgan, a Notary Public in and for said County, do
certify that Robert S. Nace, who signed the within writing bearing date on the
8th day of April, 1965, for Cherry River Coal and Coke Co., has this day, before
me, acknowledged the same to be the act and deed of said Corporation.

            Given under my hand this the 23rd day of April, 1965.

                                              /s/ Edwin J. Morgan
                                              --------------------
                                                 Notary Public

My Commission Expires:
March 30th, 1966

                                        6
<PAGE>

                           PARTIAL ASSIGNMENT OF LEASE

            THIS PARTIAL ASSIGNMENT, made and entered into as of the 20th day of
September, 1984, by and between CHERRY RIVER COAL AND COKE CO., a West Virginia
corporation ("Assignor") and TWIN RIVER COAL COMPANY, a California corporation,
P. O. Box 12190, Lexington, Kentucky 40581-2190 ("Assignee");

                                   WITNESSETH:

            That for and in consideration of Ten Dollars ($10.00), cash in hand
paid, the assumption by Assignee of obligations as hereinafter set forth and
other good and valuable consideration, the receipt of which is hereby
acknowledged, Assignor hereby assigns, transfers and conveys unto Assignee, its
successors and assigns, all of its estate, interest, rights and privileges under
that certain lease dated April 8, 1965, by and between James D. Knight, et al.
as lessors and Assignor as lessee (such lease, as amended, hereinafter referred
to as the "Lease"), to mine and remove all of the coal which is within the area
described in Exhibit A, attached hereto and made a part hereof (the "Assigned
Premises". Assignee shall have, and is hereby granted, all of the rights and
privileges of Assignor under the Lease to the Assigned Premises to the same
extent and as if Assignee were the original lessee therein.

            In consideration of the foregoing assignment, Assignee hereby
accepts said assignment, assumes and agrees to perform all of the covenants,
duties and obligations of the lessee under the Lease as to the Assigned Premises
to the same extent and as if it were the original lessee thereunder. In addition
to the foregoing Assignee agrees to pay all minimum royalties and taxes
applicable to the unassigned premises. Assignor is hereby absolved of all
further obligation and liability under the Lease as to the Assigned Premises
arising after the date of this Partial Assignment.

            Assignor hereby warrants specially its leasehold title to the
Assigned Premises covered by the Lease. This Partial Assignment shall be binding
upon and inure to the benefit of the parties hereto, their successors and
assigns.

<PAGE>

            IN WITNESS WHEREOF, the parties have caused this Assignment to be
executed by their duly authorized officers as of the date first above written.

                                        CHERRY RIVER COAL AND COKE CO.
ATTEST:

                                        By  /s/ T M. Kelsay
                                        ----------------------------------------

/s/  Robert P. Reineke                  Its  VICE PRESIDENT
--------------------------------
Secretary

                                        TWIN RIVER COAL COMPANY
ATTEST:

                                        By  /s/ C. N. Gilmore
                                            ------------------------------------

/s/  Dirk G. Cook                       Its  PRESIDENT
--------------------------------
Assistant Secretary

STATE OF KENTUCKY

COUNTY OF FAYETTE

            The foregoing Assignment was acknowledged before me this 20th day of
Sept., 1984, by D. G. Kelsay as Vice President of Cherry River Coal and Coke
Co., a West Virginia corporation, on behalf of the corporation.

            My commission expires:      Jan. 31, 1985

                                        /s/  Patricia W. Riker     [Notary Seal]
                                        ------------------------
                                        Notary Public

STATE OF KENTUCKY

COUNTY OF FAYETTE

            The foregoing Assignment was acknowledged before me this 20th day of
Sept., 1984, by C. N. Gilmore as President of Twin River Coal Company, a
California corporation, on behalf of the corporation.

            My commission expires:      Jan. 31, 1985

This instrument was
prepared by:                            /s/  Patricia W. Riker     [Notary Seal]
                                        ------------------------

/s/ Robert P. Reineke
-----------------------
Robert P. Reineke
Attorney at Law
2355 Harrodsburg Road
Lexington, Kentucky

<PAGE>

                                    EXHIBIT A

            A certain tract of land situate on the waters of Beaver Creek, Glade
District, Webster County, West Virginia, and more particularly described as
follows:

      BEGINNING at an 8" iron pin filled with concrete to take the place of a
      poplar called for in the original survey, with two black gums, beech and
      white oak marked as pointers in the Wethered line; running thence with the
      Wethered line N 5-1/2 E 611-1/2 poles to an 8" iron pipe filled with
      concrete to take the place of a chestnut oak, original corner of said
      survey in the division line of Hutchinson and Hanna and running with the
      same; thence N 76-1/2 W 564 poles to an 8" iron pipe to take the place of
      a stone pile; thence S 8 W 301 poles to an 8" iron pipe filled with
      concrete to take the place of a poplar and maple called for in the
      original calls; thence S 84-1/2 E 263 poles to an 8" iron pipe to take the
      place of a white oak; thence S 33 E 498-1/2 poles to the beginning,
      containing 1,305 acres, more or less, excepting therefrom a certain tract
      of land more particularly bounded and described as follows:

      Beginning at an 8" iron pipe, said iron pipe being a corner to the land
      now or formerly owned by H. R. Deitz, a point in the line of the land now
      or formerly owned by Tioga Lumber Company, and being the northwest corner
      of the parent 1,305 acre tract; thence, leaving the land of said Tioga
      Lumber Company, with the land of said Deitz, as follows:

      South 76 degrees 30' East, approximately 1,460 feet to a point in the
      center of O'Brien Fork; thence, leaving the land of said Deitz, severing
      the said 1,305 acre tract, as follows:

      Downstream with the meanders of said O'Brien Fork to its confluence with
      Beaver Creak; thence,

      Downstream with the meanders of said Beaver Creak to where said Beaver
      Creek intersects the western property line of the said 1,305 acre parent
      tract, said point being in the line of the land of said Tioga Lumber
      Company; thence, leaving said Beaver Creek, with the land of said Tioga
      Lumber Company, as follows:

      North 8 degrees 00' East approximately 1,820 feet to the place of
      beginning, containing 40.00 acres more or less, leaving in the parent
      tract 1,265.00 acres more or less.

      STATE OF WEST VIRGINIA, Webster County

      Commission Clerk's Office August 7, 1985

      The foregoing Partial Assignment together with the certificate of its
      acknowledgement, was this day presented in said office and admitted to
      record.

            Teste: /s/ Nancy C. Gilespie Clerk
                   ---------------------------

<PAGE>

                   GENERAL CONVEYANCE, ASSIGNMENT AND TRANSFER

KNOW ALL MEN BY THESE PRESENTS that:

            WHEREAS, Twin River Coal Company, a California corporation
(hereinafter called "Twin River"), and Island Creek Coal Company, a Delaware
corporation (hereinafter called "Island Creek"), entered into an Agreement of
Merger, dated December 6th, 1988, providing for the merger of Twin River into
Island Creek, the surviving corporation, which said Agreement of Merger has been
adopted by the boards of directors of the constituent corporations and has been
executed by the proper officers of said corporations and is in the process of
being filed and recorded, all as provided by the corporation laws of California
and Delaware; and

            WHEREAS, upon said merger becoming effective, Island Creek, pursuant
to the said corporation laws, will possess all of the rights, privileges, powers
and franchises, public and private, of Twin River and all business and property,
real, personal and mixed, belonging to Twin River shall be vested in Island
Creek; and to carry out and effectuate said merger it is desired to further
evidence the passage of title of the properties of Twin River to and into Island
Creek;

            NOW, THEREFORE, Twin River, in consideration of the premises, does
hereby grant, bargain, sell, convey, transfer, assign, set over and deliver unto
Island Creek, all and singular the properties, assets and rights of Twin River
wheresoever situated including, but not limited to, those situated in the
Counties of Christian, Henderson, Hopkins, McLean, Muhlenberg, Union and
Webster, State of Kentucky, and in the Counties Braxton, Logan, Mingo, Nicholas,
Upshur, Webster and Wyoming, State of West Virginia, and rights and interests in
coal, oil, gas and other mineral leases, all coal, oil, gas and other minerals,
all mineral rights and interests and all royalty interests, all rights of way,
easements, permits and licenses; together with all rights of Twin River to the
name "Twin River Coal Company"; and also all properties, assets and rights of
Twin River of every kind, character and description, real, personal or mixed,
situated in the United States of America or elsewhere, owned by Twin River or to
which it may be entitled.

<PAGE>

            TO HAVE AND TO HOLD all and singular the properties, assets and
rights hereby transferred, assigned and conveyed or intended to be transferred,
assigned and conveyed unto Island Creek, its successors and assigns forever.
This general conveyance, assignment and transfer is made with full substitution
and subrogation of Island Creek in and to all covenants and warranties by others
hereunder given or made in respect of said properties, assets and rights, or any
part thereof.

            This instrument shall be effective for all purposes as of the
effective date of said merger.

            This conveyance, assignment and transfer may be executed in any
number of counterparts, and each of such counterparts shall for all purposes be
deemed to be an original; and all such counterparts shall constitute but one and
the same general conveyance, assignment and transfer.

            IN WITNESS WHEREOF, Twin River Coal Company, grantors herein, has
caused this instrument to be duly executed on the 8th day of December, 1988.

                                        TWIN RIVER COAL COMPANY

                                        BY /s/ S. O. Ogden
                                           -----------------------------
                                            President

ATTEST:

/s/ Robert P. Reineke
-----------------------
Secretary

STATE OF KENTUCKY

COUNTY OF FAYETTE

            The foregoing General Conveyance, Assignment and Transfer was
acknowledged before me this 8th day of December, 1988, by S. O. OGDEN, as
President of Twin River Coal Company, a California corporation, on behalf of the
corporation.

            My Commission Expires: Aug. 27, 1989

[Notary Seal]                           /s/ Cathy H. Judy
                                        --------------------------------
                                        Notary Public, State-At-Large

                                      - 2 -

<PAGE>

                          DECLARATION OF CONSIDERATION

            I hereby declare that the document to which this Declaration is
appended is a conveyance of real property made pursuant to a merger of
corporations and is therefore exempt from the West Virginia Excise Tax on
Privilege of Transferring Real Property pursuant to Chapter 11, Article 22,
Section 1 of the West Virginia Code.

            Given under my hand this 8th day of December, 1988.

                                        ISLAND CREEK COAL COMPANY

                                        BY: /s/ Robert P. Reineke
                                            --------------------------------
                                               Secretary

This Instrument Prepared By:

/s/ Robert P. Reineke
----------------------------
Robert P. Reineke
250 West Main Street
Lexington, Kentucky  40507

STATE OF WEST VIRGINIA

Nicholas County Commission Office 1-25-1991 This merger was this day presented
to said office and thereupon together with the certificate thereto annexed is
admitted to record.

            Teste /s/ John Greer Clerk

STATE OF WEST VIRGINIA, Webster County

Commission Clerk's Office January 11, 1991
            General Conveyance,

The foregoing Assignment & Transfer together with the certificate of its
acknowledgment, was this day presented in said office and admitted to record.

            Teste: /s/ Nancy C. Gillespie Clerk

Office of the Clerk of the County Court 1-18-89 Mingo County, West Virginia 9:19
A.M.

            The foregoing writing together with the certificate of
acknowledgement thereof, thereto annexed, was this day admitted to record in and
since.

Recording Fee: 4.00 Clerk: /s/ Tommy D. Diamond

                                      - 3 -

<PAGE>

                                   ASSIGNMENT

            THIS ASSIGNMENT, made and entered into this the 18 day of December,
1990, by and between ISLAND CREEK COAL COMPANY, a Delaware corporation, 250 West
Main Street, P. O. Box 11430, Lexington, Kentucky 40575-1430, hereinafter
referred to as "Assignor", and LAUREL RUN MINING COMPANY, a Virginia
corporation, 250 West Main Street, P. O. Box 11430, Lexington, Kentucky
40575-1430, hereinafter referred to as "Assignee";

                                   WITNESSETH:

            WHEREAS, Assignor is, through mense conveyances and mergers, the
owner of certain rights under and pursuant to that certain Lease dated April 8,
1965, between JAMES D. KNIGHT, et al. ("Lessors"), and CHERRY RIVER COAL AND
COKE CO. ("Lessee") appearing of record in Lease Book 21, Page 31, in the Office
of the Clerk of the County Commission of Webster, West Virginia, as subsequently
amended, modified, supplemented and assigned (collectively, the "Agreements");
and

            WHEREAS, Assignor desires to now transfer, assign and convey to
Assignee all of Assignor's right, title and interest in and to said Agreements
and Assignee desires to acquire and accept same and to assume the rights and
obligations of Assignor thereunder.

            NOW, THEREFORE, for and in consideration of the sum of TEN DOLLARS
($10.00), cash in hand paid, and the performance and observance of the terms and
conditions set forth in the Agreements and contained herein, and other good and
valuable consideration, the receipt and sufficiency of which being hereby
acknowledged, Assignor has bargained and sold and does hereby transfer, assign,
set over and convey to Assignee, its successors and assigns, subject to the
terms and conditions of the Agreements assigned hereby, all of its right, title
and interest in and to the Agreements.

            TO HAVE AND TO HOLD said Agreements and all rights and obligations
of Assignor incident thereto or accruing thereunder, subject only to the terms
and conditions of the Agreements, together with all rights and privileges
appurtenant thereto, unto Assignee, its successors and assigns forever, with
covenant of Special Warranty of title.

            Assignor does covenant to and with Assignee that it has fulfilled
its obligations due on or before the date hereof under each of the Agreements
and that each of said Agreements is valid, binding and enforceable in accordance
with its terms, except as may be limited by bankruptcy, reorganization or
similar laws affecting the rights of creditors generally.

            Assignee accepts the assignment made herein and assumes the
Agreements; and does hereby covenant to and with Assignor, its successors and
assigns, that it will perform and comply with the terms and conditions of the
Agreements as if it had been the contracting party originally named therein, and
that it will indemnify and save harmless Assignor from and against any and all
liabilities, obligations, damages, claims, costs, expenses and disbursements
(including without limitation attorney's fees and expenses) arising out of or in
connection with the Agreements from and after the date hereof which may be
imposed upon, incurred by or asserted against Assignor.

<PAGE>

            IN WITNESS WHEREOF, the parties have executed this Assignment on
this the day and year first above written.

                                        ISLAND CREEK COAL COMPANY

                                        By:  /s/ Richard C. Harris
                                             -----------------------------------

                                        Its: President

                                        LAUREL RUN MINING COMPANY

                                        By:  /s/ Richard C. Harris
                                             -----------------------------------

                                        Its: President

                                      - 2 -

<PAGE>

STATE OF KENTUCKY
COUNTY OF FAYETTE

            The foregoing instrument was acknowledged before me on this 18 day
of December, 1990, by Richard C. Harris as President of ISLAND CREEK COAL
COMPANY, a Delaware corporation, for and on behalf of said corporation.

My Commission Expires:

May 16, 1991                                  /s/ Freeland Davis
                                              ---------------------------
                                              Notary Public

[Notary Seal]

STATE OF KENTUCKY
COUNTY OF FAYETTE

            The foregoing instrument was acknowledged before me on this 18 day
of December, 1990, by Richard C. Harris as President of LAUREL RUN MINING
COMPANY, a Virginia corporation, for and on behalf of said corporation.

My Commission Expires:

May 16, 1991                                  /s/ Freeland Davis
                                              ---------------------------
                                              Notary Public

[Notary Seal]

This Instrument Prepared By:
     JACKSON & KELLY
     Attorneys at Law
     175 E. Main Street, Suite 500
     Lexington, KY 40595-2150

/s/ A. Rodes Brow
----------------------------

            STATE OF WEST VIRGINIA, Webster County

            Commission Clerk's Office January 11, 1991

            The foregoing Assignment together with the certificate of its
            acknowledgment, was this day presented in said office and admitted
            to record.

                     Teste: /s/ Nancy C. Gillespie Clerk
                            -----------------------------

                                      - 3 -

<PAGE>

                                                     October 25, 1995

Gauley Eagle Holdings, Inc.
300 East Main St., Suite 400
Lexington, KY 40507

Consent to Assignment of Lease to Black Eagle Holdings, Inc. and Partial
Assignment to Eastern Kentucky Energy Corporation

Gentlemen:

Reference is made to that certain coal lease dated April 8, 1965 originally by
and between James D. Knight, Lillian K. Ink and Ira Ink, husband and wife, as
lessors and Cherry River Coal and Coke Company as lessee as amended and
supplemented (hereinafter the "Lease"). By various assignments and successions,
James G. Knight and Clara Belle Knight, husband and wife, Shirley K. Gunyou and
Lyman J. Gunyou, husband and wife and Stanley K. Ink, became the lessors (the
"Lessors") and Laurel Run Mining Company ("Laurel Run") became the lessee.

Pursuant to Section 5 of that Amendment and Supplement to Lease dated March 10,
1995, the Lessors agreed that the Lease could be assigned by Laurel Run to
Gauley Eagle Holdings, Inc. ("Gauley Eagle"), and further, Gauley Eagle could
assign the Lease to a third party as part of the sale of its coal holdings in
the area.

As contemplated in the above-noted Amendment, the Lease has now been assigned to
Gauley Eagle, and Gauley Eagle will be transferring certain coal properties in
the area so that mining may begin in the near future on the Lease. In order to
facilitate this transfer, Gauley Eagle has been requested to obtain the written
consent of the Lessors to the following Assignments of the Lease:

1.    That Assignment of the Lease from Laurel Run Mining Company to Black Eagle
      Holdings, Inc. dated October 9, 1995 and the subsequent Assignment from
      Black Eagle Holdings, Inc. to Gauley Eagle Holdings, Inc. dated October
      19, 1995.

2.    A Partial Assignment of the Lease to be made by Gauley Eagle to East
      Kentucky Energy Corporation, a Kentucky corporation located at 50 Jerome
      Lane, Fairview Heights, Illinois 62208, whereby the northeast corner of
      the leased premises (located east and north of the Oldhe Fork drainage)
      under the Lease, consisting of approximately 94 acres, will be assigned to
      Eastern Kentucky Energy Corporation.

<PAGE>

The Lessors hereby consent to the above described Assignments. The Lessors are
granting their consent on the understanding that the respective Assignees under
the above Assignments will assume and perform all of the lessee's obligations
under the Lease. Further, Gauley Eagle shall, upon execution of the Partial
Assignment, deliver copies of all Assignments to the Lessors.

                                        Sincerely,

                                              /s/ James G. Knight
                                              ----------------------------------
                                              James G. Knight

                                              /s/ Clara Belle Knight
                                              ----------------------------------
                                              Clara Belle Knight

                                              /s/ Shirley K. Gunyou
                                              ----------------------------------
                                              Shirley K. Gunyou

                                              /s/ Lyman J. Gunyou
                                              ----------------------------------
                                              Lyman J. Gunyou

                                              /s/ Stanley K. Ink
                                              ----------------------------------
                                              Stanley K. Ink

<PAGE>

                     PARTIAL ASSIGNMENT OF KNIGHT-INK LEASE

      THIS PARTIAL ASSIGNMENT OF KNIGHT-INK LEASE, made and entered into this
30th day of October, 1995, by and between GAULEY EAGLE HOLDINGS, INC., a
Delaware corporation, HC 59, Box 48K, Craigsville, West Virginia 26205 ("Gauley
Eagle"), and EAST KENTUCKY ENERGY CORPORATION, a Kentucky corporation, 50 Jerome
Lane, Fairview Heights, Illinois 62208 ("EKE");

                                   WITNESSETH:

      WHEREAS, Gauley Eagle is, by assignment, the owner of the entire leasehold
estate under and pursuant to that certain Lease, as previously assigned, amended
and supplemented, between James D. Knight and Lillian K. Ink and Ira M. Ink, her
husband, as Lessors, and Cherry River Coal and Coke Company, as Lessee, dated
April 8, 1965, and recorded January 29, 1988, in Lease Book 21, page 31, in the
Office of the Clerk of the County Commission of Webster County, West Virginia
(the "Lease"), and also recorded January 29, 1988, in Lease Book 21, page 42, in
the Office of the Clerk of the County Commission of Webster County, West
Virginia, which Lease includes, among other properties, a certain parcel or
tract of property, containing 94 acres, more or less, located in Glade District,
Webster County, West Virginia, as more particularly described on the attached
Exhibit "A" (the "Property"); and

      WHEREAS, Gauley Eagle desires to transfer, assign and convey to EKE all of
Gauley Eagle's right, title and interest in and to the Lease only insofar as the
Lease covers the Property, and EKE desires to acquire and accept the same and to
assume the rights and obligations of Gauley Eagle thereunder to the extent
herein set forth.

      NOW, THEREFORE, that for and in consideration of the sum of Ten Dollars
($10.00), in hand paid, and the performance and observance of the terms and
conditions set forth in the Lease, insofar, and only insofar, as the Lease
covers the Property, and this Assignment, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:

      1. PARTIAL ASSIGNMENT OF LEASE. Subject to the terms and conditions of the
Lease, Gauley Eagle does hereby transfer, assign, set over and convey to EKE,
its successors and assigns, all of Gauley Eagle's right, title and interest in
and to the Lease insofar, and only insofar, as the Lease covers the Property,
and EKE accepts from Gauley Eagle all of Gauley

<PAGE>

Eagle's right, title and interest in and to the Lease, and agrees to perform and
comply with the terms and conditions of the Lease as lessee, insofar, and only
insofar, as the Lease covers the Property. This Partial Assignment of Lease is
made by Gauley Eagle without any covenant, representation or warranty
whatsoever, whether expressed or implied.

      2. PAYMENT OF ROYALTIES; TAXES AND ASSESSMENTS. All advance, minimum,
production (to the extent of mining conducted by EKE) and other royalties coming
due under the Lease pertaining to the Property from and after the date hereof
shall be paid directly by EKE to the Lessors, their successors or assigns. That
portion of advance or minimum royalties paid prior to the date hereof for any
period from and after the date hereof and attributable to the Property shall be
allocated and paid to Gauley Eagle by EKE. All taxes, charges, fees, minimum or
advance royalties and assessments required by the Lease to be paid by the lessee
which are accrued or incurred prior to the date hereof shall be prorated between
the parties hereto as of the date of this Assignment on a calendar year basis
and allocated between the parties on the basis of their respective acreages
covered under the Lease. Specifically, the parties agree that the minimum
royalty and taxes shall be allocated as follows: seven percent (7%) to EKE and
ninety-three percent (93%) to Gauley Eagle.

      3. NOTICE OF DEFAULT OR OTHER CLAIM. Upon receipt by either party to this
Assignment ("recipient") of any notice of default, demand, claim or other notice
with respect to the Lease (regardless of whether such notice relates to the
Property), any activities under the Lease (regardless of whether such notice
relates to the Property) or in, on or under the Property (including, but not
limited to, any claim with respect to any environmental liabilities) ("initial
notice"), from any person or entity, whether private, commercial or
governmental, the recipient shall immediately notify and inform the other party
hereto of such initial notice by giving to the other party a written copy of
such initial notice, in the manner specified in Section 9 of this Assignment.

      4. JOINT USE OF ROADS, RAILROAD AND POWER LINES. To the extent allowed by
the Lease, Gauley Eagle and EKE hereby grant each to the other all reasonable
and necessary rights of way to use all the premises covered by the Lease for
roads, railroads, power lines and such other uses and rights of ingress and
egress that may be required for their respective use of the leased premises and
upon adjoining, adjacent or nearby lands, all as provided in the Lease. The
parties hereto agree that all maintenance costs associated with any roads
commonly used by both

                                        2

<PAGE>

parties, their agents, contractors, successors and assigns, shall be borne by
each party in proportion to the respective usage of such road by each party.

      5. GOVERNING LAW. This Assignment shall be governed by and be construed
and interpreted in accordance with the laws of the State of West Virginia.

      6. BINDING EFFECT. This Assignment shall be binding upon and inure to the
benefit of the parties hereto, their successors and assigns.

      7. MODIFICATION; AMENDMENT. This Assignment shall not be modified or
amended in any respect except by a written instrument signed by the parties
hereto.

      8. NO WAIVER. No waiver of a breach of any of the covenants of this
Assignment shall be construed to be a waiver of any succeeding breach of the
same covenant or of any breach of any other covenant hereunder.

      9. NOTICES. Any notice which may be given or is required to be given in
connection with and according to the terms of this Assignment shall be given by
telefax machine and by registered or certified United States mail, postage
prepaid, return receipt requested, and shall be deemed given when placed in the
mail or sent as follows:

      For Gauley Eagle:                      Gauley Eagle Holdings, Inc.
                                             c/o Larry Schifano
                                             HC 59, Box 48K
                                             Craigsville, West Virginia 26205
                                             Tel. 304-742-6003
                                             Fax 304-742-6010

                                             with a copy to

                                             T. Randolph Cox, Esq.
                                             Spilman, Thomas & Battle
                                             P. O. Box 273
                                             Charleston, WV  25321
                                             Tel. 304-340-3829
                                             Fax 304-340-3801

      For EKE:                               East Kentucky Energy Corporation
                                             c/o Michael Bauersachs
                                             50 Jerome Lane
                                             Fairview Heights, Illinois  62208
                                             Tel. 618-394-2400
                                             Fax 618-394-2473

                                        3

<PAGE>

Nothing herein contained shall be construed as prohibiting the parties
respectively from changing the place at which notice is to be given, but no such
change shall be effective unless and until it shall have been accomplished by
written notice given in the manner set forth in this Section 9.

      10. CAPTIONS. The captions of this Assignment are for convenience only and
do not in any way limit or amplify the terms and provisions hereof.

      11. COVENANTS TO MAINTAIN LEASE. EKE agrees to assume and perform in
accordance with the terms of the Lease the obligations, covenants and duties of
Gauley Eagle under the Lease, insofar as same pertain to the Property, and to be
bound by each and every term, covenant, condition and provision of the Lease,
insofar as same pertain to the Property, to the same extent as if it had been
named the original lessee thereunder. Gauley Eagle agrees to perform and comply
with all the obligations of the lessee under the Lease insofar as same pertain
to the remainder of the leasehold premises under the Lease excluding the
Property so as to maintain in full force and effect all rights and benefits of
the lessee under the Lease throughout the term of the Lease. Neither EKE nor
Gauley Eagle shall modify, amend, supplement, forfeit, terminate or surrender
that portion of the Lease which relates to the other party's interest therein,
or in any way diminish any of the lessee's rights thereunder, or in any way
release the Lessors of or from any obligations, covenants, conditions and
agreements of the Lessors to be done and performed by the Lessors, as they
relate to the other parties' interest, without the prior written consent of the
other, which shall not be unreasonably withheld, and otherwise subject to the
terms and conditions of the Lease. Upon receipt of any initial notice as
provided in Section 3 of this Assignment, the party responsible for that portion
of the leased premises to which the initial notice applies shall promptly take
all necessary action to cure, address, satisfy or otherwise resolve the
applicable default, claim, demand or other matters subject of said initial
notice. In the event that such responsible party does not promptly cure,
address, satisfy or otherwise resolve the said default, claim, demand or other
matters subject of said initial notice, the other party to this Assignment shall
have all the rights and privileges of the responsible party to cure, address,
satisfy or otherwise resolve the said default, claim, demand or other matters
subject of the initial notice at the expense of the responsible party.

      12. INDEMNIFICATION. EKE shall indemnify and save harmless, and if
requested, defend Gauley Eagle against and from any and all losses, damages,
injuries and deaths suffered by anyone whomsoever, occurring on or after the
date hereof, and all claims, demands and

                                        4

<PAGE>

liabilities therefor, including any claim, demand, loss or damage resulting from
any breach by EKE of any covenant of the Lease or the failure of EKE to perform
any of the obligations under the Lease, from and after the date hereof arising
as a result of or during the use, occupancy or presence of EKE of, in or on the
Property, excluding in any case all losses, damages, claims, demands and
liabilities arising from or based upon the act of transferring, assigning or
conveying the Property hereunder.

      IN WITNESS WHEREOF, the parties have executed this Assignment as of the
date first above written.

                                        GAULEY EAGLE HOLDINGS, INC.,
                                        a Delaware corporation

                                        BY:  /s/ Larry Schifano
                                             ----------------------------
                                                                     , President

                                        EAST KENTUCKY ENERGY CORPORATION,
                                        a Kentucky corporation

                                        BY:  /s/ Stephen H. Ernest
                                             ----------------------------
                                                                     , President

                                        5

<PAGE>

STATE OF WEST VIRGINIA     )
                           ) SS:
COUNTY OF KANAWHA          )

      I, Pamela Jane Coffield, a Notary Public in and for said County, do
certify that Larry Schifano, the President, who signed the within writing
bearing date on the 30th day of October, 1995, for Gauley Eagle Holdings, Inc.,
a Delaware corporation, on behalf of said corporation, has this day, before me,
acknowledged the same to be the act and deed of said corporation.

      Given under my hand this the 30th day of October, 1995.

      My Commission expires:   January 11, 2005

                               /s/ Pamela Jane Coffield
                               ---------------------------
                               NOTARY PUBLIC

[NOTARIAL SEAL]

STATE OF WEST VIRGINIA     )
                           ) SS:
COUNTY OF KANAWHA          )

      I, Linda M. Blackshire, a Notary Public in and for said County, do certify
that Stephen H. Ernest, the President, who signed the within writing bearing
date on the 30th day of October, 1995, for East Kentucky Energy Corporation, a
Kentucky corporation, on behalf of said corporation, has this day, before me,
acknowledged the same to be the act and deed of said corporation.

      Given under my hand this the 30th day of October, 1995.

      My Commission expires:   February 26, 2005

                               /s/ Linda M. Blackshire
                               ---------------------------
                               NOTARY PUBLIC

[NOTARIAL SEAL]

This Instrument Prepared By:   JACK D. FOWLER
                               Attorney at Law
                               2201 College Drive
                               P. O. Box 626
                               Mt. Carmel, IL  62863
                               (618) 262-7801

                                        6

<PAGE>

                                  EXHIBIT "A"

                             PARTIAL ASSIGNMENT OF
                              KNIGHT/INK LEASEHOLD

                                     [MAP]

<PAGE>

                         ASSIGNMENT OF KNIGHT-INK LEASE

      This Assignment of Knight-Ink Lease, made and entered into this 30th day
of October, 1995, by and between GAULEY EAGLE HOLDINGS, INC., a Delaware
corporation, HC 59, Box 48K, Craigsville, West Virginia 26205 ("Gauley Eagle"),
and EAST KENTUCKY ENERGY CORPORATION, a Kentucky corporation, 50 Jerome Lane,
Fairview Heights, Illinois 62208 ("EKE");

                                  WITNESSETH:

      WHEREAS, Gauley Eagle is, by assignment, the owner of the entire leasehold
estate under and pursuant to that certain Lease between James D. Knight and
Lillian K. Ink and Ira M. Ink, her husband, as Lessors, and Cherry River Coal
and Coke Company, as Lessee, dated April 8, 1965, and recorded January 29, 1988,
in Lease Book 21, Page 31, in the Office of the Clerk of the County Commission
of Webster County, West Virginia, and also recorded January 29, 1988, in Lease
Book 21, Page 42, in the Office of the Clerk of the County Commission of Webster
County, West Virginia, as subsequently modified, amended and supplemented by
various amendments and supplements ("the Lease"); and

      WHEREAS, the Lease covers the following described real property:

            A tract situated on the waters of Beaver Creek, Glade District,
      Webster County, West Virginia, and more substantially described as
      follows:

            Beginning at an 8" iron pin filled with concrete to take the place
            of a poplar called for in the original survey, with two black gums,
            beech and white oak marked as pointers in the Wethered line; running
            thence with the Wethered line N 5-1/2 E 611-1/2 and poles to an 8"
            iron pipe filled with concrete to take the place of a chestnut oak,
            original corner of said survey in the division line of Hutchinson
            and Hanna and running with the same; thence N 76-1/2 W 564 poles to
            an 8" iron pipe to take the place of a stone pile; thence S 8 W 301
            poles to an 8" iron pipe filled with concrete to take the place of a
            poplar and maple called for in the original calls; thence S 84-1/2 E
            263 poles to an 8" iron pipe to take the place of a white oak;
            thence S 33 E 498-1/2 poles to the beginning, containing 1,305
            acres, more or less,

(the "Property"); and

<PAGE>

      WHEREAS, by Partial Assignment dated October 30, 1995, Gauley Eagle
transferred, assigned and conveyed to EKE a portion of Gauley Eagle's right,
title and interest in and to the premises covered by the Lease; and

      WHEREAS, Gauley Eagle desires to transfer, assign and convey to EKE all of
the remainder of Gauley Eagle's right, title and interest in and to the Lease,
and EKE desires to acquire and accept same and to assume the rights and
obligations of Gauley Eagle thereunder.

      NOW, THEREFORE, for and in consideration of the sum of Ten Dollars
($10.00), in hand paid, and the performance and observance of the terms and
conditions set forth in the Lease and this Assignment, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:

      1. ASSIGNMENT OF LEASE. Subject to the terms and conditions of the Lease,
Gauley Eagle does hereby transfer, assign, set over and convey to EKE, its
successors and assigns, all of Gauley Eagle's right, title and interest in and
to the Lease, including, but not limited to, the right of recoupment of advance,
minimum and other royalties to which Gauley Eagle is entitled under the Lease,
and EKE accepts from Gauley Eagle all of Gauley Eagle's right, title and
interest in and to the Lease, and agrees to perform and comply with the terms
and conditions of the Lease as lessee. This Assignment is made by Gauley Eagle
without any covenant, representation or warranty whatsoever, whether express or
implied.

      2. PAYMENT OF ROYALTIES. All advance, minimum, production and other
royalties coming due under the Lease from and after the date hereof shall be
paid directly by EKE to the Lessors, their successors or assigns. That portion
of advance or minimum royalties paid prior to the date hereof for any period
from and after the date hereof and attributable to the Property shall be
allocated and paid to Gauley by EKE. All taxes, charges, fees, minimum or
advance royalties and assessments required by the Lease to be paid by the lessee
which are accrued or incurred prior to the date hereof shall be prorated between
the parties hereto as of the date of this Assignment on a calendar year basis
and allocated between the parties on the basis of their respective acreages
covered under the Lease. All taxes, charges, fees, minimum or advance royalties
and assessments required by the Lease to be paid by the lessee and which accrue
or are incurred from and after the date of this Assignment shall be paid by EKE.

      3. NOTICE OF CLAIMS. Upon receipt by either party to this Assignment
("recipient") of any notice of default, demand, claim or other notice with
respect to the Lease or any activities

                                        2

<PAGE>

under the Lease in, on or under the real property covered by the Lease
(including, but not limited to, any claim with respect to any environmental
liabilities) ("initial notice"), from any person or entity, whether private,
commercial or governmental, the recipient shall immediately notify and inform
the other party hereto of such initial notice in the manner specified in Section
5 of this Assignment.

      4. BINDING EFFECT. This Assignment shall be binding upon and inure to the
benefit of the parties hereto, their successors and assigns.

      5. NOTICES. Any notice which may be given or is required to be given in
connection with and according to the terms of this Assignment shall be given by
telefax machine and by registered or certified United States mail, postage
prepaid, return receipt requested, and shall be deemed given when placed in the
mail or sent as follows:

      For Gauley Eagle:                        Gauley Eagle Holdings, Inc.
                                               c/o Larry Schifano
                                               HC 59, Box 48K
                                               Craigsville, WV 26205
                                               Tel. 304-742-6003
                                               Fax 304-742-6010

                                               with a copy to

                                               T. Randolph Cox, Esq.
                                               Spilman, Thomas & Battle
                                               P. O. Box 273
                                               Charleston, WV  25321
                                               Tel. 304-340-3829
                                               Fax 304-340-3801

                                               East Kentucky Energy Corporation
      For EKE:                                 c/o Michael Bauersachs
                                               50 Jerome Lane
                                               Fairview Heights, Illinois 62208
                                               Tel. 618-394-2400
                                               Fax 618-394-2473

Nothing herein contained shall be construed as prohibiting the parties
respectively from changing the place at which notice is to be given, but no such
change shall be effective unless and until it shall have been accomplished by
written notice given in the manner set forth in this Section 5.

      6. CAPTIONS. The captions of this Assignment are for convenience only and
do not in any way limit or amplify the terms and provisions hereof.

                                        3

<PAGE>

      7. COVENANTS TO MAINTAIN LEASE. EKE hereby expressly assumes and agrees to
perform in accordance and comply with all of the terms of the Lease, and all
obligations, covenants and duties of the lessee under the Lease and to be bound
by each and every term, covenant, condition and provision of the Lease to the
same extent as if it had been named the original lessee thereunder.

      8. INDEMNIFICATION. EKE shall indemnify and save harmless, and if
requested, defend Gauley Eagle against and from any and all losses, damages,
injuries and deaths suffered by anyone whomsoever, occurring on or after the
date hereof, and all claims, demands and liabilities therefor, including any
claim, demand, loss or damage resulting from any breach by EKE of any covenant
of the Lease or the failure of EKE to perform any of the obligations under the
Lease, from and after the date hereof arising as a result of or during the use,
occupancy or presence of EKE of, in or on the Property, excluding in any case
all losses, damages, claims, demands and liabilities arising from or based upon
the act of transferring, assigning or conveying the Property hereunder.

                                        4

<PAGE>

      IN WITNESS WHEREOF, Gauley Eagle and EKE have executed this Assignment as
of the date first above written.

                                        GAULEY EAGLE HOLDINGS, INC.,
                                        a Delaware corporation

                                        BY: /s/ Larry Schifano
                                            ----------------------------
                                                                     , President

                                        EAST KENTUCKY ENERGY CORPORATION,
                                        a Kentucky corporation

                                        BY: /s/ Stephen H. Ernest
                                            ----------------------------
                                                                     , President

                                        5

<PAGE>

STATE OF WEST VIRGINIA     )
                           ) SS:
COUNTY OF KANAWHA          )

      I, Pamela Jane Coffield, a Notary Public in and for said County, do
certify that Larry Schifano, the President, who signed the within writing
bearing date on the 30th day of October, 1995, for Gauley Eagle Holdings, Inc.,
a Delaware corporation, on behalf of said corporation, has this day, before me,
acknowledged the same to be the act and deed of said corporation.

      Given under my hand this the 30th day of October, 1995.

      My Commission expires:    January 11, 2005.

                                /s/ Pamela Jane Coffield
                                -------------------------
                                NOTARY PUBLIC

[NOTARIAL SEAL]

STATE OF WEST VIRGINIA     )
                           ) SS:
COUNTY OF KANAWHA          )

      I, Linda M. Blackshire, a Notary Public in and for said County, do certify
that Stephen H. Ernest, the President, who signed the within writing bearing
date on the 30th day of October, 1995, for East Kentucky Energy Corporation, a
Kentucky corporation, on behalf of said corporation, has this day, before me,
acknowledged the same to be the act and deed of said corporation.

      Given under my hand this the 30th day of October 1995.

      My Commission expires:   Feb. 26, 2005.

                               /s/ Linda M. Blackshire
                               -------------------------
                               NOTARY PUBLIC

[NOTARIAL SEAL]

This Instrument Prepared By: JACK D. FOWLER, Attorney at Law, 2201 College
Drive, P.O. Box 626, Mt. Carmel, IL 62863 (618) 262-7801

                    STATE OF WEST VIRGINIA, Webster County

                    Commission Clerk's Office October 15, 1996

                    The foregoing Assignment together with the certificate
                    of its acknowledgment, was this day presented in said
                    office and admitted to record.

                           Teste: /s/ Terry J. Payne Clerk
                                  --------------------------

<PAGE>

                     ASSIGNMENT OF REAL PROPERTY AGREEMENTS

      This Assignment of Real Property Agreements (this "Agreement"), dated as
of Sept. 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.

                                        2

<PAGE>

      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
            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 on 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:

                                        [Notary Stamp & Seal]

STATE OF NEW YORK
COUNTY OF NEW YORK

      The foregoing Assignment of Real Property Agreements was acknowledged
before me on 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:
                                        [Notary Stamp & Seal]

THIS INSTRUMENT PREPARED BY:

/s/ Warren J. Hoffman                   CHICAGO TITLE INSURANCE CO.
---------------------------------       171 N. CLARK ST.  MLC:  04SP
Warren J. Hoffman, Esq.                 CHICAGO, IL  60601
Frost Brown Todd LLC                    ATTN:  LILIA 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>
  WV-B-4       Surface Lease    East Kentucky          Boggs, Estle D.         Webster    WV      07/03/1978     055     282   17950
                                Energy Corp. (434)     And/Or Margaret
                                                       (Base Lessors)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                                                   EXHIBIT 10.11

                                  SURFACE LEASE

      THIS SURFACE LEASE, made this 23rd day of February, 2000, by and between
NGHD LANDS, INC., a West Virginia Corporation, T. C. LANDS, INC., a West
Virginia Corporation, AED, LLC, a West Virginia Limited Liability Company, LARRY
A. DEITZ and GLORIA K. DEITZ, his wife, and 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 unto Lessee the surface interests owned by Lessor in and to
that certain tract or parcel of land situate in Glade District, Webster County,
West Virginia, and more particularly described on Schedule A, attached hereto
and made a part hereof (the "Property"), the approximate location of which is
shown on the map attached hereto and made a part hereof and marked for
identification:

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

                                       S-1
<PAGE>

which Property, together with the rights granted Lessee in Article II hereof, is
sometimes hereinafter referred to as the "demised premises", and Lessee does
hereby accept this demise and lease and the same is made upon the following
terms, covenants and agreements, that is to say:

                                    ARTICLE 1

                                TITLE AND ACREAGE

      1.1 No Warranty of Title or Acreage. Lessor hereby leases unto Lessee only
such 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 of 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 use the surface of the demised premises in connection
with its mining and removal of any coal in, on,

                                      S-2
<PAGE>

or under the demised premises 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 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 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
in, on, or under the demised premises.

      (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 on, in, or under the demised

                                      S-3
<PAGE>

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 objects or structures located on the surface of the demised premises;
provided, however, that with respect to any part of the surface of the demised
premises where Lessor may not own all of the interest therein, Lessor's waiver
of subjacent support on 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.

                                      S-4
<PAGE>

      Subject to all of the limitations, requirements and conditions hereinabove
contained in this paragraph, Lessee may deposit such overburden as is
hereinabove described from adjoining and coterminous lands if, and only if, the
making of such deposits is clearly and reasonably necessary in order to
facilitate removal of Lessor's coal; and, such additional deposits are permitted
only to that extent, that is to say removal of Lessor's coal, subject to the
approval of Lessor. Any violation of this provision shall be an event of default
having equal dignity with non-payment of rents or royalties to be paid under
this Lease.

      Lessor has the option to sell to Lessee all surface area contained in this
lease or, subject to Lessor's approval, any surface area required for the
placement of overburden, refuse, valley fills and ponds for the mining of
Lessor's coal and adjoining landowners' coal as described above, Lessor shall
convey to Lessee such surface area at the cost of One Dollar ($1.00) per acre.
Any such conveyance shall reserve to the Lessor rights of way for ingress and
egress over and across same. Provided, however, that any such transfer shall not
release Lessee's obligation to pay minimum royalties, tonnage royalty and
wheelage as is otherwise provided in this Lease.

      Further, in the event Lessee surrenders this Lease Agreement pursuant to
Article 4.1 of the Coal Lease executed July 1, 1999, with this Surface Lease,
Lessee agrees to convey to Lessor the surface land shown as Tract WE49 contain
50 acres and the neighboring tract of 13 acres which are owned by Lessee which
are overlying the coal tracts owned by Lessor pursuant to the same terms and
conditions as contained in paragraph 2.1(e) of said Surface Lease, excluding the
payment of wheelage by Lessor to Lessee for transportation of any adverse coal
over and across said property conveyed.

      (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

                                      S-5
<PAGE>

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, 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 over and across 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 over or across the entire demised premises as
follows: GROUP 1: 35-Acre tract (WE45), 82.20-Acre tract (WE46), 36-Acre tract
(WE46A), 75-Acre tract (WE47), 24-Acre tract (WE50), 83-Acre tract (WE51),
129-Acre tract (WE48), and 25-Acre tract (WE44) have been pooled and regardless
of which tract is being used for transporting over or across as aforesaid, the
Lessors (owners) shall be paid wheelage as follows and as shown on Map Exhibit 1
Surface Wheelage:

<TABLE>
<CAPTION>
GROUP 1:
--------
<S>                              <C>
NGHD LANDS, INC.                  21.64%
AED, LLC                          35.66%
T. C. LANDS, INC.                 14.60%
LARRY A. DEITZ                    28.10%
                                 ------
         TOTAL                   100.00%
</TABLE>

      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.

                                      S-6
<PAGE>

      (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.

      2.2 Operations On Other Properties. Lessee shall not have the right to use
the demised premises in connection with its operations on other lands, except
for the transportation of adverse coal on, across or over the demised premises
is provided for in Paragraph 2.1(g) above, and the deposit of overburden from
other properties as set forth in the second paragraph of ARTICLE II, 2.1(e).

                                   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 surface of
the demised premises and all rights pertaining thereto, except only to the
extent herein expressly leased to Lessee, together with the stone, sand, water
and timber, 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 elements and rights excepted in this Article shall not
unreasonably interfere with the requirements and safety of the operations of
Lessee.

                                      S-7
<PAGE>

      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
surface of the demised premises used in connection therewith and Lessor makes no
warranty or representation regarding the condition of the demised premises.
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 February 23, 2000, and
ending June 30, 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.

                                      S-8
<PAGE>

              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 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) Sixty Cents ($0.60) or (b) Three Percent (3%) of the gross sales
price, whichever sum is greater, 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
pooled for the purpose of payment of tonnage royalty:

              25.00 Acres (WE44)
              35    Acres (WE45)
             137.50 Acres (WE46)
              36    Acres (WE 46A)
             129.00 Acres (WE48)

                                      S-9
<PAGE>

              24    Acres (WE50)
              83.00 Acres (WE51)      GROUP 1

              75.00 Acres (WE47)      GROUP 2

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

<TABLE>
<S>                              <C>
GROUP 1: NGHD LANDS, INC.         21.64%
         AED, LLC                 35.66%
         T. C. LANDS, INC.        14.60%
         LARRY A. DEITZ           28.10%
                                 ------
                 TOTAL           100.00%

GROUP 2: MAXEY ANN TULLY          50.00%
         T. C. LANDS, INC.        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.

                                      S-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.

                                      S-11
<PAGE>

      (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) 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 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 same, 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 and Map
Exhibits to be supplied by

                                      S-12
<PAGE>

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 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

            25.00 Acres (WE44)
            35.00 Acres (WE45)
           137.50 Acres (WE46)
            36.00 Acres (WE46A)
           129.00 Acres (WE48)
            24.00 Acres (WE50)
            83.00 Acres (WE51)

                                      S-13
<PAGE>

<TABLE>
<S>                   <C>          <C>
         Sub-total    $ 4,690.00   GROUP 1
75.00 Acres (WE47)    $   750.00   GROUP 2
                      ----------
         Total        $ 5,440.00
</TABLE>

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

<TABLE>
<S>                              <C>
GROUP 1: NGHD LANDS, INC.         21.64%
         AED, LLC                 35.66%
         T. C. LANDS, INC.        14.60%
         LARRY A. DEITZ           28.10%
                                 ------
         TOTAL                   100.00%

GROUP 2: MAXEY ANN TULLY          50.00%
         T. C. LANDS, INC.        50.00%
                                 ------
                  TOTAL          100.00%
</TABLE>

Said minimum annual royalty shall be payable on or 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 Surface which 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

                                      S-14
<PAGE>

Lessor Four Thousand Four Hundred Dollars ($4,400.00) non-recoupable rent,
payable to each individual Lessor her/his/its prorata share as shown in Group 1
and Group 2, Article 5.1 hereof and as shown on Map Exhibit 1 Surface.

      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 Group I and Group 2, and against each individual tract as outlined
in Schedule B. The payment of any tonnage royalties in any lease year in excess
of the 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 a coal mining operation, all in
compliance with all laws, rules, regulations, and ordinances.

                                      S-15
<PAGE>

      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 all mining
operations to be conducted upon the demised premises. These plans 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 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 days. 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

                                      S-16
<PAGE>

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 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

                                      S-17
<PAGE>

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, 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.

                                      S-18
<PAGE>

                                  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 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

                                      S-19
<PAGE>

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.

      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.

                                      S-20
<PAGE>

                                    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.

      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

                                      S-21
<PAGE>

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 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

                                      S-22
<PAGE>

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.

      11.5 Decisions Concerning Mining. Except as provided in Section 7.9
hereof, notwithstanding anything 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.

                                      S-23
<PAGE>

                                  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.

                                  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,

                                      S-24
<PAGE>

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 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,

                                      S-25
<PAGE>

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:

      (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

                                      S-26
<PAGE>

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 modem 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 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, 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

                                      S-27
<PAGE>

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, West Virginia 26651, who is duly
appointed agent of Lessor for purposes of receiving notice and approving mining
plans and changes thereto, for the following:

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

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

                        AED, LLC
                        P. O. BOX X
                        SUMMERSVILLE, WV 26651

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

                                      S-28
<PAGE>

                        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 Larry A. Deitz, HC 71, Box 12B, Augusta, West
Virginia 26704, 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 (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:

                        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.

                                      S-29
<PAGE>

                                   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,
contain all of the agreements, conditions and understandings made between the
parties hereto and may not be 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.

                                      S-30
<PAGE>

      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, et al.

      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 obligations, during the three (3) months following
such notice within which to acquire 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 pro rata
share as shown on the pooling schedule under Article 2.1(g), Article 5.1, and
Article 6.1.

      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 Articles 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

                                      S-31
<PAGE>

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.

                                   ARTICLE XX

                                      COAL

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

      The Parties hereto understand and agree that this Lease of the surface of
the certain tracts of land herein described is executed with another lease of
the coal (dated July 1, 1999) in, on and underlying 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 Coal Lease of July 1, 1999, the provisions
of the 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.

                                      S-32
<PAGE>

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 President                   Its:  President
                                        FEIN: 55-0698542

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

By: ____________________________        By: /s/ ANNE E. DEITZ
                                            ------------------------------------
      Its: Vice President                    Its:  President
                                        FEIN: 55-0690537

                                        AED, LLC
                                        a West Virginia Limited Liability Co.

                                        By: /s/ LARRY A. DEITZ
                                            ------------------------------------
                                             LARRY A. DEITZ, PRESIDENT
                                        FEIN: 55-6105758 Y
                                        SSN: ###-##-####

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

                                         /s/ MAXEY ANN TULLY
                                        ----------------------------------------
                                        MAXEY ANN TULLY, Widow
                                        SSN: ###-##-####

                                      S-33
<PAGE>

STATE OF WEST VIRGINIA

COUNTY OF NICHOLAS, TO-WIT:

      The foregoing instrument acknowledged before me, the undersigned
authority, this 23rd day of February, 2000, by NGHD LANDS, INC., a West Virginia
Corporation, by H. R. DIETZ, 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 WASHINGTON

COUNTY OF KING, TO-WIT:

      The foregoing instrument was acknowledged before me, the undersigned
authority, this 28th day of February, 2000, by T. C. LANDS, INC., a West
Virginia Corporation, by ANNE E. DIETZ, its President, for and on behalf of said
Corporation.

      My commission expires: 1/24/02

(Notarial Seal)                          /s/ Donald E. Wahl
                                        ----------------------------------------
                                                    Notary Public

                                      S-34
<PAGE>

STATE OF WEST VIRGINIA

COUNTY OF NICHOLAS, TO-WIT:

      The foregoing instrument was acknowledged before me, the undersigned
authority, this 23rd day of February, 2000, by LARRY A. DIETZ, President of AED,
LLC, a West Virginia Limited Liability Company, for an and behalf of said
Limited Liability Company.

      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 23rd day of February, 2000, by LARRY A. DEITZ and GLORIA K.
DIETZ, husband and wife.

      My commission expires: November 28, 2006

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

                                      S-35
<PAGE>

STATE OF WEST VIRGINIA

COUNTY OF NICHOLAS, TO-WIT:

      The foregoing instrument was acknowledged before me, the undersigned
authority, this 23rd day of February, 2000, by MAXEY ANN TULLY, widow.

      My commission expires: November 28, 2006

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

STATE OF VIRGINIA

CITY OF ROANOKE, TO-WIT:

      The foregoing instrument was acknowledged before me, the undersigned
authority this 16th day of March, 2000, by COASTAL COAL-WEST VIRGINIA, LLC, a
Limited Liability Company, by James W. Copley, its Vice President for and on
behalf of said Limited Liability Company.

      My commission expires: August 31, 2001

(Notarial Seal)                          /s/ Donna F. Adams
                                        ----------------------------------------
                                                      Notary Public

INSTRUMENT PREPARED BY:

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

                                      S-36
<PAGE>

                          LEASE AND SUBLEASE AGREEMENT

            THIS LEASE AND SUBLEASE AGREEMENT (this "Agreement") made and
entered into this 14th 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 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,

                                     - 12 -

<PAGE>

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.

                                     - 18 -

<PAGE>

            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 President

                                            COASTAL COAL COMPANY, LLC

                                            By: /s/ James W. Copley, Jr.
                                                ------------------------

                                            Its: Vice President

                                            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

                                     - 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 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]

                                     - 20 -

<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.

                                                        /s/ 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

                                     - 21 -

<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>

<TABLE>
<CAPTION>
NOTE:                        All of the above tracts are subject to minimum and per ton overriding royalties  See Exhibit B
-----                        ----------------------------------------------------------------------------------------------
<S>                          <C>
WE46                            13.6                     Wilson/Jackson Property
WE49                              50                     Wilson/Jackson Property
</TABLE>

                                     - 22 -

<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.

                                     - 23 -

<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

                                     - 24 -

<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

                                     - 25 -
<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 President

                                            COASTAL COAL COMPANY, L.L.C.

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

                                        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 123,
            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 #: WE 52
            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]

                                       11
<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 right, 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

                                        2

<PAGE>

            that any such Real Property Agreements 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 any 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

                                        3

<PAGE>

      such Buyer pursuant to Section 1 hereof, 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.

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.

                                        4

<PAGE>

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]

                                        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 COAL 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 PRINCE 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 Stickler
                                              ---------------------------

                                          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>

                                                                     Page 1 of 1

                                                                      SCHEDULE H
                                                                           NEWCO

              LMS - CONTRACTS BY COMPANY & COUNTY REPORT  5/18/2004

                              ICG Eastern Land, LLC       5:08:21 P.M.

<TABLE>
<S>                <C>               <C>      <C>        <C>       <C>     <C>
[HORIZON LOGO]     COMPANY TYPE:     NEWCO    ACTIVE:    ACTIVE    AREA    ICG EASTERN, LLC - LENDERS

                   COMPANY NO:        (A1)    STARTS:     (A1)
</TABLE>

<TABLE>
<CAPTION>
CO  CONTRACT NO   CONTRACT TYPE     STATUS       AREA             COMPANY/LESSEE                    LESSOR              COUNTY
--  -----------   -------------   ---------    ---------   ------------------------------   -----------------------     -------
<S> <C>           <C>             <C>          <C>         <C>                              <C>                         <C>
New    WV-N-4     Surface Lease   Producing    Evergreen   East Kentucky Energy Corp.(434)  Night Lands, Inc., Et AI     Webster

New    WV-N-3     Surface Lease   Future Prod  Evergreen   East Kentucky Energy Corp.(434)  Night Lands, Inc., Et AI     Webster
                                                                                            (Base Lessors)

New    WV-N-6     Coal Lease      Producing    Evergreen   East Kentucky Energy Corp.(434)  Night Lands, Inc., Et AI     Webster
                                                                                            (Base Lessors)

New    WV-N-5     Coal Lease      Producing    Evergreen   East Kentucky Energy Corp.(434)  Night Lands, Inc., Et AI     Webster
                                                                                            (Base Lessors)

<CAPTION>
CO     ST    CONTRACT DATE   VOL   PAGE   DOCUMENT
--     --    -------------   ---   ----   --------
<S>    <C>   <C>             <C>   <C>    <C>
New    WV     02/22/2000

New    WV     07/01/1999

New    WV     07/01/1999

New    WV     07/01/1999
</TABLE>

                                      S-1

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