COAL LEASE AGREEMENT

            This COAL LEASE AGREEMENT, made and entered into this 9th day of
February, 1998, by and among N&G HOLDINGS COMPANY, a Kentucky corporation with
offices at P.O. Box 1655, Hazard, Kentucky 41702, party of the first part
("Lessor"), and LESLIE RESOURCES, INC., a Kentucky corporation with offices at
1021 Tori Drive, Hazard, Kentucky 41701, party of the second part ("Lessee"),
and AEI HOLDING COMPANY, INC., a Delaware corporation with offices at 1500 North
Big Run Road, Ashland, Kentucky 41102 ("Guarantor");

                                   WITNESSETH:

      Lessor, in consideration of the rentals, royalties, covenants, agreements
and conditions hereinafter specified on the part of Lessee, does hereby grant,
demise, let and lease unto Lessee, its successor and assigns, all of the
mineable and merchantable coal in the Hazard No. 5A coal seam (as that seam is
commonly known and regardless of its formal geologic classification) and all
overlying seams of coal, and the right to mine such other portions of above
drainage seams as may be removed incidental to the installation of hollow fills
(the "Coal") lying in, on and under those tracts of land (the "Property")
depicted on the map which is attached hereto as Exhibit "A" and described more
fully in the deed(s) and other instruments set forth on Exhibit "B" attached
hereto together with the mining rights and easements appurtenant to the Coal and
necessary for its removal, transportation and sale, subject to the following
terms, conditions, and covenants which the Lessors and Lessee agree faithfully
to perform:

                                    ARTICLE I

                                  TERM OF LEASE

      Section 1.1 The primary term of this Lease shall be for a period of five
(5) year(s), beginning upon final execution of this Lease Agreement, but this
Lease shall be automatically extended after the primary term from year to year
thereafter in perpetuity until all of the mineable and merchantable coal herein
leased has been mined and removed from the Property by Lessee or until Lessee
has ceased to use the Property in conjunction with its operations on adjacent or
nearby lands, whichever last occurs.

                                   ARTICLE II

                              MINING RIGHTS GRANTED

      Section 2.1 Mining Rights and Methods. By way of enlargement, and not by
way of restriction, Lessee shall have the exclusive right to enter and use so
much of the Property as may be necessary for the exploration, excavation,
mining, drainage, storage, cleaning, processing, transportation or removal of
the Coal in, on, or underlying the Property by any surface coal mining method
now existing or hereinafter devised, including contour strip, auger, area,

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mountaintop removal and present and future highwall mining techniques (but the
use of auger and highwall mining techniques are subject to Lessor's prior
approval as provided in Section 2.8 below), and the right to construct, operate
and maintain upon the Property any and all buildings and improvements as may be
necessary or convenient in connection with the mining, processing or removal of
coal by Lessee, and including, but not limited to, the right to core drill and
make crop openings, the right to use sand, stone, water and gravel from the
Property free of charge, the right to construct power lines, power stations,
gas, telephone and other public utility lines, waterlines, and water drains,
mine buildings, shops, stockpiles, water reservoirs, silt dams, impoundments,
and the right to establish refuse and waste disposal areas and the right to dump
refuse and waste materials thereon. In addition, Lessee is granted the right to
engineer, construct, maintain, use, operate, enlarge and relocate private,
public, county or other roads across the Property at such locations as Lessee
may deem necessary in connection with its mining operations. Notwithstanding the
foregoing, in situ gasification or liquification are not approved methods of
mining under this Lease without the further written agreement and consent of the
Lessor.

      Section 2.2 Deposit and Use of Spoil. Lessee shall have the right to
deposit anywhere upon the surface or sub-surface of the Property material which
is produced in connection with the operations hereunder or from other lands or
to take and use off the Property any such material for the purpose of utilizing
the same in building of roads or other facilities as may be necessary or
convenient for the operation of Lessee hereunder or to its operations upon
adjacent or neighboring lands. It is understood and agreed by the parties hereto
that any such spoil shall remain on the property in perpetuity.

      Section 2.3 Haulage Rights. Lessee, its permittees, successors and
assigns, shall have the right to enter into, upon, over, or through the Property
for the purposes of mining and transporting the Coal and coal from adjoining or
other lands, with the right to use the roads for the purposes of transporting
the Coal and coal from adjoining or other lands, including the right to store,
land and market coal from adjoining or other lands upon the Property. The
haulage rights herein granted are nonexclusive rights, and the Lessor shall have
the privilege of permitting its other existing or future lessees of other coal
upon the Property to utilize the Property in a similar fashion for
transportation of coal from the Property and from other lands, provided such
uses do not unreasonably interfere with the exercise of Lessee's rights
hereunder.

      Section 2.4 Re-entry for Reclamation. It is expressly understood by the
parties that Lessee's right to enter upon and use the Property shall include the
license to re-enter the Property in the future if necessary to perform
additional reclamation work to secure release of any reclamation bond or to
comply with federal or state laws, rules or regulations pertaining to
reclamation, and this right of entry shall be continuing in nature until the
final release of any and all reclamation obligations by appropriate authorities
whether or not the remaining provisions of this Agreement may have terminated or
expired by their terms. Lessor shall not engage in any activities or operations
nor allow any third party to engage in any operations on the Property which
would preclude or unreasonably interfere with the fulfillment of Lessee's
reclamation obligations or the full and complete release of any bond or other
security held by any person or regulatory authority as security for reclamation
of the Lessee's operations.

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      Section 2.5 Reservation of Rights. Lessor excepts and reserves from this
Lease all coal, mineral, oil and gas and mineral substances or combinations
thereof other than the Coal which is herein leased, together with the exclusive
right to mine, bore for, produce, store, manufacture and market such excepted
oil, gas, other coal, mineral and mineral substances; and also excepts and
reserves the right to build, maintain, operate and use roads, ways, tram roads,
railroads, sidings, power lines, water and gas or oil pipelines, for any and all
of the purposes aforesaid, provided such uses shall not unreasonably interfere
with the exercise of Lessee's rights hereunder. Lessor further reserves all
timber lying and being upon said leasehold on each and every tract upon which
Lessor owns the surface or fee, of whatever species, and lessee agrees that
before removing any timber upon said surface and/or fee land (which shall only
be done in such a manner as to not unreasonably interfere with the exercise of
Lessee's rights hereunder), reasonable notice (and in any event not less than
three (3) months notice) shall be given by Lessee to Lessor in order that it may
cut and remove timber affected by such mining. If any of such timber shall
interfere with the mining operations of the Lessee, and should the Lessor fail
to remove such timber after the giving of such notice, then Lessee may remove
and destroy such timber without any liability to the Lessor hereunder. Lessor
also excepts from this lease all rights previously conveyed to others concerning
ownership and development of the Property or the Coal, other coal, oil, gas or
other mineral resources of the same, and nothing herein contained shall be
construed to abrogate or modify in any manner any of the rights or relationships
of the parties thereunder. Except as may be dictated by the terms of prior
grants of rights affecting the Coal or the Property, all of the rights of the
Lessor reserved and excepted pursuant to this Section shall be exercised by
Lessor, its successors and assigns with due regard for the requirements,
convenience and safety of the operators of the Lessee hereunder, and
unreasonable interference with said operations shall be avoided.

      Section 2.6 Compliance with Title Limitations. Lessor grants only such
mining rights and privileges as it possesses or has acquired in the Coal or the
Property under the deeds and other papers which are duly and properly executed
and recorded and by which it or its predecessors claims title, and only insofar
as Lessor has the legal right to grant such rights and privileges to the Lessee.
Lessee shall ascertain what mining rights and privileges Lessor owns or may have
previously conveyed to third parties and shall thoroughly familiarize itself
with same and with the boundary lines of the Property before the removal of any
Coal therefrom. Lessee covenants that it shall observe and perform all
conditions, limitations and covenants with reference to the mining of the Coal
contained in any of the instruments under which Lessor holds title or the
Property is bound and to save Lessor harmless from the breach of such
limitations or covenants as required by Section 11 below. If, in order to mine
and remove the Coal by any of the mining methods specified herein, the Lessee
shall need any rights, easements and privileges in addition to those currently
owned by Lessor, including without limitation surface disturbance rights and
pre-mining or post-mining consents or waivers, the Lessee shall be responsible
for obtaining the same at its own expense.

      Section 2.7 Coordination with Other Operations. Lessee acknowledges that
the various other seams of coal and oil, gas and other mineral rights existing
within the Property are now or may be subsequently leased or otherwise conveyed
to third parties. Lessee agrees that it will prosecute its mining operations
under this Lease in such a manner so as not to violate any rights previously
granted to third parties or otherwise unduly interfere with any past, existing
or future operations by third parties. This covenant is personal to the Lessor
and is not intended by

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the parties to create any rights, duties or obligations on the part of the
Lessee in favor of any such third parties. To the extent permitted by the terms
of prior grants affecting the Property, the Lessor covenants that it shall
exercise any retained rights under such grants consistent with the grant of
rights to the Lessee hereunder.

      Section 2.8 Use of Auger or Highwall Mining Techniques. The Lessor and the
Lessee agree that the use of existing or future auger or highwall mining
techniques, including but not limited to the Addcar(TM) highwall mining
technique, is expressly permitted under the Lease only in areas of the Property
where such use has been approved in writing by the prior mutual consent of the
Lessor and Lessee.

                                   ARTICLE III

                        CONDUCT OF DEVELOPMENT AND MINING

      Section 3.1 Control of Operations. The time, nature, location and extent
of any and all of the mining operations of the Lessee and the cessation and
resumption thereof shall be at the total discretion of the Lessee so long as
this Lease remains in effect. Lessee shall mine the Coal and carry on all
incidental work in all respects at its own expense and risk as a tenant or
lessee in its own right; Lessor shall in no way be liable for any damage
resulting from Lessee's operations, directly or indirectly, to persons or
property. It is the intention of the parties that Lessee shall be an independent
contractor with regard to any and all acts and operations performed and
conducted by it under and pursuant to this Lease. Lessor shall have no right of
supervision or control over the acts and operations of Lessee, the right of
inspection and survey of the premises and the right of review and approval of
general mining plans being solely for the purpose of assuring Lessor that the
royalties paid hereunder accurately reflect the quantity of coal mined and
removed from the Property and that Lessee is conducting its mining operations in
general conformity with its covenants herein set forth.

      Section 3.2 Compliance with Laws. Lessee agrees to cause all development
work and mining to be carried out in a careful manner, to conform its operations
in all material respects to the labor, health and safety, mining and
environmental statutes and regulations of the Commonwealth of Kentucky and of
the United States, and to conform its operations in all material respects to the
regulations of the various agencies of both, including but not limited to
governmental requirements under the Surface Mining Control and Reclamation Act,
the Clean Air Act, Water Pollution Control Act, Resource Conservation and
Recovery Act, the Noise Control Act, Toxic Substance Control Act, the
Comprehensive Environmental response, Compensation and Liability Act; the
Federal Coal Mine Safety and Health Act of 1969, the Black Lung Benefits Act of
1972, the Federal Mine Safety and Health Act of 1977, the Black Lung Benefits
Reform Act of 1977, the Black Lung Benefits Amendments of 1981, the Occupational
Safety and Health Act, the Fair Labor Standards Act, KRS Chapter 224, KRS
Chapter 342 and KRS Chapter 350. Lessee agrees that it shall be solely
responsible for the compliance with such laws, including the duty to abate any
violations or dangerous conditions and payment of any fines or penalties
resulting therefrom. Lessee shall hold Lessor harmless from and against any
liabilities or claims, if any, arising from the failure to comply with this
Section in the manner and to the extent required by Section 11 below.

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      Section 3.3 Diligent Development. Lessee covenants that it shall promptly
take steps to secure all necessary permits or other legal consents or
authorization to commence the mining of the Coal hereunder (Lessee expects said
process to take approximately twelve (12) months) and thereafter diligently
pursue same until obtained. Lessee covenants that it shall commence the actual
mining of Coal hereunder promptly upon receipt of necessary governmental permits
or approvals and that it shall continue mining the Coal thereafter with due
diligence and without undue interruption. The payment of minimum advance
royalties or other forms of compensation to the Lessor by Lessee shall not be
deemed nor construed to defer, abrogate or otherwise modify the express
obligations of the Lessee to develop the Coal on the Property in a diligent
manner.

      Section 3.4 Standard of Mining. Lessee covenants to work and mine the Coal
and to conduct all of its other operations hereunder in a prudent, efficient and
workmanlike manner and to use and follow customary engineering practices. Lessee
covenants to locate all dumps, spoil banks or hollow fills and silt dams and to
dispose of all overburden and waste material safely so as to prevent damage or
injury to roadways, streams and the property of adjacent landowners and riparian
owners. Lessee shall so conduct its operations hereunder as not to violate any
rights of lateral or subjacent support belong to any owner or lessee (other than
Lessor) of the surface of any of the lands herein described, or pertaining to
holders of rights of way for water, gas, or electric utility lines. The approval
by Lessor of General mining plans submitted by Lessee hereunder shall not be
construed to constitute a wavier of the requirements of this Section. Lessee
shall hold Lessor harmless from and against any liabilities or claims, if any,
arising from the failure to comply with this Section in the manner and to the
extent required by Section 11 below.

      Section 3.5 Licenses, Permits and Bonds. Lessee shall at its expense
obtain all required federal, state or local surface mining licenses and permits
prior to commencement of coal mining operations under this Lease, and Lessee
shall post all required bonds, letters of credit or other applicable surety for
the completion of reclamation relating to its operations or to secure
performance of other statutory obligations for its operations which may now or
in the future be required by governmental authorities in conjunction with its
operations. Lessee shall thereafter comply in all material respects with the
provisions of such licenses, permits and bonds and indemnify and hold harmless
Lessor from and against any liabilities with respect to Lessee's failure so to
comply in the manner and to the extent required by Section 11 below.

      Section 3.6 Liens. Without Lessor's prior written consent, which Lessor
may withhold in its sole and absolute discretion, the Lessee shall conduct its
operations hereunder in such manner as to avoid the imposition upon the Coal,
the Property or any improvements thereto, or the Lessee's leasehold interest
therein, of any lien, charge, encumbrance or other claim for borrowed money,
labor done or materials furnished whether imposed by KRS 376.140, 376.150 or
other applicable statutory, common law or contractual provision or obligation.
Lessee shall immediately discharge any such lien, charge, encumbrance or other
claim which may be imposed upon the Coal, the Property or other interest
therein; provided, however, that Lessee may, if it wishes to contest any such
claim in good faith, post a bond in favor of Lessor with good and sufficient
surety or provide other security and assurances satisfactory to Lessor in lieu
of discharging same. Nothing herein contained shall be construed to constitute
Lessor's consent to the performance of labor or the furnishing of materials by
any third party under circumstances which could give rise to the imposition of a
lien hereunder, and lessee shall not be authorized or

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deemed to act as an agent or representative of Lessor for purpose of contracting
for any labor, materials or other improvements required as part of Lessee's
operations hereunder. Lessee shall not otherwise pledge, encumber or suffer the
creation of any liens, charges or encumbrances, directly or indirectly,
voluntary or involuntary, by operation of law or otherwise against the Property,
the Coal or its leasehold interest under this Lease without the prior consent,
in writing, of Lessor. Nothing contained in this Section shall preclude the
Lessee from granting to third parties any security interest in its own equipment
and other personalty which may be upon the Property from time to time or from
granting a security interest in Lessee's accounts receivable for the Coal sold
from the Property; provided, however, that such security interests as may be
granted by Lessee shall not take priority over the lien or claim of the Lessor
to payment for royalties for Coal actually mined and removed from the Property
which shall in all respects remain a first and prior lien or claim hereunder
unless the Lessor shall otherwise consent in writing.

      Section 3.7 Mine Plans and Maps. Lessee agrees to employ a competent and
experienced mining engineer who shall make accurate surveys and prepare plans
and maps for the mining operations of the Lessee upon the Property. Such
surveys, plans and maps shall show in reasonable detail all coal seams being
mined or to be mined, seam elevations and thicknesses, refuse disposal areas,
the extent, location, length and width of coal pits, the edges and toes of
spoil, highwalls or faces of coal, sedimentation ponds and other structures,
leasehold boundary lines, property lines, rights of way, and any other
information reasonably required by Lessor or by governmental authorities from
time to time. Mining plans and maps requested to be delivered by Lessee to
Lessor shall be, unless otherwise requested or required by law, on a scale of
four hundred (400) feet to the inch. Mining plans shall be furnished by Lessee
to Lessor prior to submittal of the initial application for mining permit in any
area and prior to any major change to the mine plan. Lessor shall have ten (10)
days after submittal of any mining plan in which to notify Lessee in writing of
Lessor's rejection of such plan, which rejection may only be for a reasonable
purpose or purposes, and shall specify with particularity such reasons. Failure
of Lessor to timely object to the plan as set forth herein shall constitute
Lessor's approval of such mining plan. Time is of the essence with respect to
the compliance by Lessee and Lessor of the obligations pursuant to this Section.
After approval of a mining plan, the Lessee shall not thereafter deviate in any
material respect from the mining plan without the written consent of the Lessor.
In addition to mining plans which may be submitted in advance of operations,
after the commencement of mining the Lessee shall furnish the Lessor with mine
maps, including pit survey maps, showing any "as-mined" operations of the Lessee
on the Property which shall be updated not less frequently than quarterly as of
April 30, June 30, September 30 and December 31 of each year. The map prepared
for production through December 31 of each year shall be accompanied with a
statement describing the acreage of each seam of coal mined, abandoned, or lost
as a result of production during the year and a statement of remaining coal in
each seam, in form satisfactory to the Kentucky Revenue Cabinet for purposes of
assessment of unmined minerals taxes as of January 1 of the succeeding year.

      Section 3.8 Core Drilling or Other Exploration. In the event Lessee shall
conduct core drilling or other exploration operations upon the Property as a
part of any of its operations under this Lease, it shall furnish to Lessor
accurate copies of all reports, drill logs, and analyses of the quantity and
quality of the Coal or other coal sampled thereby. Lessor shall make available
to

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Lessee all reports, drill logs and analysis of the quantity and quality of the
coal in its possession or readily available to Lessor.

      Section 3.9 Definition of "Mineable and Merchantable". The term "mineable
and merchantable" as used in reference to the Coal herein, means Coal which when
reached in the normal mining process could be mined at a profit by the use of
good business practices and up to date mining machinery and by the use of
industry standard mining and cleaning methods under the supervision of qualified
mining engineers and mining personnel. Provided, however, that when in the
mining process local conditions shall render a particular section or area of the
mine unprofitable under the foregoing definition, such particular section shall
be determined to be unmineable and unmerchantable only after due consideration
of all relevant factors, including but not limited to the following factors: (1)
the area of Coal beyond the local conditions which will be lost or rendered
unmineable or otherwise adversely affected; (2) the extent and nature of the
local condition; (3) past experiences, if any, with similar condition in the
mine; (4) anticipated costs in overcoming the condition as compared to the loss
of or adverse effects upon the Coal beyond the condition; (5) the past and
present profitability of the mine as a whole; and (6) whether requiring the
Lessee to mine such Coal is reasonable under all of the circumstances.

      Section 3.10 Abandoned and Lost Coal. Lessee shall not retreat from,
bypass or otherwise abandon or render unmineable any Coal which has not
previously been stipulated by the parties through approved mining plans to be
not "mineable or merchantable" without having first given Lessor at least ten
(10) days written notice thereof, defining the area and the tonnage proposed to
be abandoned and giving the reasons therefor. Any dispute between the Lessor and
Lessee as to abandonment of Coal shall be submitted promptly to a qualified
engineer mutually acceptable to the parties, and his decision shall be binding.
In the event the parties are unable to agree upon the selection of an engineer,
the dispute shall be submitted promptly to binding arbitration as provided in
Section 23 below. The failure of Lessee to afford Lessor prior notice of its
intention to retreat from, bypass or otherwise abandon or render unmineable any
Coal under this Lease shall create a rebuttable presumption that such Coal was
"mineable and merchantable" which may be overcome by a preponderance of the
evidence to the contrary. Lessee shall pay royalty at the rate stipulated herein
for all mineable and merchantable Coal, whether in place or mined, which is
abandoned, lost in place, or destroyed by fire, explosion or other means, if
such loss is proximately caused by the negligence of Lessee, its employees,
contractors, agents or other representatives. Calculation of royalty due for
such Coal shall be based upon the most recent tonnage rate and gross sales price
data for comparable quality coal sales by Lessee for the six (6) months
preceding the date the Coal was determined to have been lost or at the minimum
royalty rate specified in the Lease if no comparable data is available. Coal
which is lost in place shall be paid for on the basis of an assumed recovery
rate of Ninety Percent (90%) or the rate of actual recovery based upon Lessee's
prior experience in the same coal seam on the Property, whichever is less. If
Lessee subsequently mines and removes any Coal which has been bypassed and paid
for within the contemplation of this Section, Lessee shall not be liable for any
additional royalty for such Coal.

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                                   ARTICLE IV

                                WARRANTY OF TITLE

      Section 4.1 Special Warranty. The Lessor warrants specially the title to
the Property and to the Coal, mining rights and privileges hereby leased and let
unto the Lessee and not otherwise. Provided, however, if the title of the Lessor
to any of the mineable and merchantable Coal, the right to mine and remove which
is hereby leased, shall be defeated by the holder of an outstanding superior
title, by reason whereof the any of the mineable and merchantable Coal is lost
to the Lessee, and the same is adjudged by a court of last resort in the
Commonwealth of Kentucky or of the United States, then in that event no royalty
shall be paid to Lessor by Lessee on account of the Coal so lost. If royalty on
the Coal so lost to the holder of such outstanding superior title has already
been paid to Lessor by the Lessee, then Lessor shall repay to the Lessee such
royalty together with interest if and to the extent that an award of interest is
made in favor of the holder of superior title, but no additional recovery shall
be had against the Lessor by reason thereof. In the event the Coal so lost is
purchased by the Lessor, which it may do, the same forthwith shall become a part
of the leasehold as though included herein by perfect title in the first
instance. For informational purposes only, and without warranting the adequacy
or accuracy of the contents thereof, the Lessor has provided Lessee with a copy
of that certain Commitment for Title Insurance of Commonwealth Land Title
Insurance Company effective January 12, 1998, relating to the Lessor's
acquisition of certain property from Triple A Minerals, L.L.C.

      Section 4.2 Proportionate Reduction of Royalty. If Lessor actually owns a
lesser interest in the Coal and property rights herein leased than the entire
and undivided fee simple interest therein, then all advance and production
royalties hereunder shall be paid to Lessor only in the proportion that its
actual interest bears to the whole and undivided fee simple estate in the Coal
and rights herein granted.

      Section 4.3 Defense of Title and Trespass Claims. In all suits against the
lessor wherein the title to the Coal or the Property herein leased shall be
placed in issue and all such suits against the Lessee (when the Lessor shall be
timely notified by the Lessee) shall be defended by, and at the exclusive cost
of the Lessor as to the issue of title, but the Lessee may on its own account
and at its own expense, have associate counsel in any such litigation. However,
until such time as title is actually controverted or otherwise placed into issue
by an adverse claimant, it shall be the duty of the Lessee to protect the Coal
and the mining rights and privileges granted hereunder against trespass and to
take such action and to conduct all such proceedings as may be necessary to that
end. All suits involving trespass upon the leasehold interest of the Lessee
shall be prosecuted or defended by the Lessee at its cost and expense, but the
Lessor shall supply such information as it may have and assist generally in the
prosecution or defense of such litigation, including issues other than the
validity of Lessor's title.

      Section 4.4 Disclaimer of Warranties. Lessor disclaims any express or
implied warranty regarding the existence, quantity, quality, mineability or
merchantability of the Coal located in or under the Property. The use of any
name conforming to the geological designation of a coal seam shall not be taken
or construed as a warranty by said description, it being understood and
acknowledged by Lessee that the use of such name is employed for general

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reference purposes only and may not be geologically exact; nor shall the
furnishing of any exploratory data, analyses or samples to Lessee constitute a
representation that such data is accurate and/or complete, or a warranty that
the Coal conforms to any such data, analyses or samples. The Property is leased
by the boundary and not by the acreage. Lessor discloses to the Lessee that
mining operations have been prosecuted in, on and under the Property, and that
coal seams above and below the Coal have heretofore been developed. Lessor
disclaims any warranty or representation, express or implied, regarding the
condition of the Property (or any mine entries, working places, structures or
surface conditions), the use or occupation that may be made of the Property, the
income that may be derived therefrom or otherwise. Lessee acknowledges the
foregoing, and further acknowledges that (1) it has made such independent
examination of data concerning the Property as it deems advisable; (2) it has
inspected the Property and is familiar with the physical condition thereof; and
(3) it is sufficiently informed as to existing conditions and limitations
applicable to the Property which may be set forth in Lessor's title instruments
or imposed by law, ordinance or governmental regulation. Lessee accepts the
Property "as is."

                                    ARTICLE V

                              PRODUCTION ROYALTIES

      Section 5.1 Production Royalties. Lessee shall pay to Lessor for each ton
of two thousand (2000) pounds of Coal that is mined, removed and marketed from
any tract of the Property on which Lessor owns both the surface and the Coal,
production royalty in the amount of Three Dollars ($3.00) or Ten Percent (10%)
of the monthly average gross sales price actually received for such Coal,
whichever is greater. Lessee shall pay to Lessor for each ton of two thousand
(2000) pounds of Coal that is mined, removed and marketed from any tract of the
Property on which Lessor owns the Coal but not the surface, production royalty
in the amount of Two and 50/100 Dollars ($2.50) or Eight Percent (8%) of the
monthly average gross sales price actually received for such Coal, whichever is
greater. The term "gross sales price" as used herein means the sales price to
the ultimate consumer F.O.B. at each shipping point after final preparation and
loading and without deduction of commission or selling expenses. However, Coal
sold for export, transshipment by lake or to independent coal yards, or under
comparable conditions, if in bona fide arm's length transactions, shall be
considered as sold to the ultimate consumer. Sales of Coal to coal sales or
brokerage companies affiliated with Lessee, sales by, to or among parent or
subsidiary corporations or other entities owned by or under common ownership or
control with Lessee or to any officer, director or agent for any of the
foregoing shall not be considered as sold to the ultimate consumer unless (1)
Lessor shall have furnished its prior written consent to such sale; and (2) the
purchaser in such transaction shall grant prior written consent for Lessor, or
its agents or representatives to audit purchaser's records in relation thereto;
and (3) the sales price of the Coal shall meet or exceed the average sales price
of similar quality coal sold from the Hazard Coal Field by Lessee and others
under reasonably similar type sales.

      Section 5.2 Calculation of Tonnage. Lessee covenants that it shall keep a
proper account of the tonnage of Coal mined from the Property as well as a
proper account of the tonnage of coal mined from other lands which may be
commingled with the Coal for purposes of sale. In determining the tonnage of
Coal mined and removed from the Property, net truck

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weights ascertained from scale facilities approved in advance by Lessor shall be
utilized. Such scale facilities shall be tested and calibrated periodically at
Lessee's expense by a competent and qualified independent licensed weightmaster
to insure accuracy, and the results of such testing shall be certified to
Lessor. Royalty payments shall be calculated and paid on a "clean coal" basis
for Coal which is required to be washed or otherwise processed to remove
impurities. For purposes of calculation and payment of royalties, "clean coal"
includes mine run Coal of adequate quality which is sold by Lessee to its
customers without washing or preparation. No reduction in royalties payable
hereunder shall be permitted for moisture, ash or other impurities in the
product sold to the ultimate consumer. Should there arise any dispute between
the Lessor and Lessee as to calculation of tonnage of Coal reported and used for
the payment of royalty hereunder, the Lessor and Lessee shall share equally the
cost to employ a mutually acceptable, independent, certified engineer or
laboratory, as the case may be, to verify the tonnage using ASTM methods for
laboratory analyses and standard engineering practices for calculation of
tonnage mined, removed and sold from the Property. Lessee and Lessor shall
cooperate fully with said engineer or firm and make available all maps, reports
or other data reasonably requested by him to complete his work. The
determination of tonnage by the engineer selected pursuant to this Section shall
be as fully binding upon the parties and enforceable as though it were a final
award reached in arbitration under the United States Arbitration Act, Title 9 of
the United States Code. In the event the parties are unable to agree upon the
selection of an engineer or firm, the dispute shall be submitted promptly to
binding arbitration as provided in Section 23 below.

      Section 5.3 Payment Date. All production royalties shall be paid by Lessee
to Lessors on or before the 20th day of each and every month for all of the coal
mined and removed from the Property during the previous calendar month. Late
payments shall bear interest from the due date until paid at the rate of Eight
Percent (8%) per annum.

                                   ARTICLE VI

                            ADVANCE MINIMUM ROYALTIES

      Section 6.1 Advance Royalty for First Lease Year. Lessee shall pay to
Lessors an advance minimum royalty of Eight Hundred Seventy Eight Thousand Seven
Hundred Fifty and no/100 Dollars ($878,750.00) during the first year of the term
of this Lease, payable in four equal installments of Two Hundred Nineteen
Thousand Six Hundred Eighty Seven Dollars and Fifty Cents ($219,687.50) on or
before March 31, 1998, June 30, 1998, September 30, 1998 and December 31, 1998.
Advance royalty payments made pursuant to this Section shall be recoupable as
provided in Section 6.3 below.

      Section 6.2 Annual Advance Royalty. During the second year of the term of
this Lease and in each succeeding year until the exhaustion of all mineable and
merchantable Coal from the Property, Lessee shall pay Lessors an advance minimum
royalty equal to One Million Five Hundred Thousand and no/100 Dollars
($1,500,000.00), payable in four equal installments of Three Hundred Seventy
Five Thousand Dollars ($375,000.00) on or before March 31, June 30, September 30
and December 31 of each such year. Advance royalty payments made pursuant to
this Section shall be recoupable as provided in Section 6.3 below.

                                      -10-
<PAGE>

      Section 6.3 Right of Recoupment Against Production Royalties. Should
Lessee fail in any year to mine sufficient Coal from the Property to pay
production royalty equal to the amount of the advance minimum royalty payments
required to be paid pursuant to this Article, then Lessee shall have the right
in any one of the immediately succeeding five (5) years (if this Lease then
remains in effect), and after sufficient Coal has been mined to satisfy advance
minimum royalty payments in each such year, to mine sufficient Coal from the
Property free from production royalty to recoup or reimburse itself for any
advance royalties paid pursuant to Sections 6.1 or 6.2 in excess of production
royalties in such preceding year(s); but in no event shall any credit be carried
forward to any subsequent year for any production royalty paid in excess of the
required minimum annual requirement during any given year.

      Section 6.4 Existence of Mineable and Merchantable Coal. The obligation of
the Lessee to pay advance minimum royalties hereunder shall continue during the
term of this Lease so long as any mineable and merchantable Coal remains to be
produced from the Property. The depletion of or non-existence of mineable and
merchantable Coal shall not be a defense to any claim for unpaid or delinquent
advance minimum royalty which accrued under the Lease prior to (1) notification
of Lessor by Lessee of the depletion of or non-existence of mineable and
merchantable Coal; and (2) the surrender to Lessor of this Lease and possession
of the Property.

                                   ARTICLE VII

                  ACCOUNTING, REPORTING AND RIGHT OF INSPECTION

      Section 7.1 Accounting and Record Keeping. Lessee shall furnish to
Lessors, at or before each monthly payment of royalty, a certified statement of
the number of tons mined and removed from the Property, the average gross sales
price of such coal, the balance of any recoupable advance minimum royalty
recouped or recoupable for the applicable period and any other readily available
information reasonably requested from time to time by Lessor. Lessee shall keep
accurate books of account of all of the Coal mined and removed from the
Property, which books shall be open to the inspection of Lessors, their agents
and attorneys, at all reasonable times. Lessee shall maintain all of its records
pursuant to this Section for a period of not less than three (3) years following
the conduct of any mining reported therein. In the event of a dispute concerning
Record keeping by Lessee, the Lessee shall cooperate in good faith with Lessor
and Lessor's representatives to exercise Lessee's rights of access, if any, to
inspect the records of any trucking, tippling, coal brokerage firm or customer
to independently verify the accuracy of Lessee's books and records.

      Section 7.2 Audit of Records. All of Lessee's records pertaining in any
manner to this Lease shall be subject to being inspected or audited by Lessor,
or the authorized representative(s) of Lessor, during normal business hours and
upon reasonable advance notice to Lessee. Such inspections/audits shall not take
place at more frequent intervals than six months except upon good cause shown.
Should any such audit show an underpayment of Lessee of royalties and other
payments due hereunder in any amount of less than Fifty Thousand Dollars
($50,000.00) in any one calendar year, Lessee shall promptly pay all of said
deficit together with eight percent (8%) interest per annum thereon from the
date

                                      -11-
<PAGE>

said sum or sums were due until paid; and if said deficit shall amount to more
than Fifty Thousand Dollars ($50,000.00), Lessee shall promptly pay all of said
deficit together with eight percent (8%) interest per annum thereon from the
date said sum or sums were due until paid and the total cost of the audit. In
case of disagreement as to the sums due, the parties shall name an independent
nationally recognized auditing firm to re-audit said books and records, the cost
of any such re-audit to be shared equally by Lessor and Lessee. In the event the
parties are unable to agree upon a mutually acceptable auditing firm to re-audit
the books and records, the dispute shall be submitted promptly to binding
arbitration as provided in Section 23 below.

      Section 7.3 Right of Physical Inspection. Lessor's representatives shall
have the right to enter in and upon the Property at reasonable times for
inspection purposes, to make surveys and to measure the Coal, and for such other
rightful purposes as may be deemed necessary; provided, however, that physical
inspection of the Property shall be at Lessor's sole risk and liability,
Lessor's representatives shall comply with all safety requirements and
reasonable rules or procedures required by Lessee, and Lessee shall have no
liability to Lessor, its officers, agents or employees for personal injury or
property damage sustained while inspecting the Property, and Lessor shall
indemnify and hold harmless Lessee with respect to the same.

                                  ARTICLE VIII

                                PAYMENT OF TAXES

      Section 8.1 Taxes. Lessee agrees to pay all taxes, assessments, and
governmental charges that may be levied or assessed against the property,
property rights, and privileges hereby leased and let, or against Lessor as
owner thereof, including, but not limited to ad valorem tax and unmined minerals
taxes; and to pay all taxes on all equipment, improvements, or betterments
erected or placed thereon by Lessee, and upon all Coal mined or produced
hereunder; and in the event any such taxes, assessments, or governmental charges
payable by Lessee are paid by Lessor, which it may do, the same shall be
promptly paid to it by Lessee. In the event same is not paid within thirty (30)
days from the date of the invoice from Lessor to Lessee, same shall bear
interest at the rate of twelve (12%) percent per annum until paid. Lessee agrees
to pay all taxes or assessments that may be levied or assessed by the United
States of America, the Commonwealth of Kentucky, or any county or taxing
district upon the production or output of coal produced from the Property, or
based thereon, whether levied or assessed against Lessor or Lessee. All such
taxes, assessments, and governmental charges, general or special, shall be paid
promptly by Lessee as the same become due and payable, and Lessee covenants that
it will exhibit to Lessor at any time upon request, legal evidence of the
payment of all such taxes, assessments, and governmental charges. Lessor shall
cooperate with Lessee to contest in good faith any tax assessment which Lessee
may specify, but the Lessee shall indemnify and hold harmless the Lessor against
any expense or liability, including but not limited to fines and penalties,
arising from contest of such assessment or the nonpayment of such tax as and to
the extent provided in Section 11 below. Lessor shall pay all income taxes
levied or assessed against it by any taxing power vested with the authority to
levy same.

                                      -12-
<PAGE>

                                   ARTICLE IX

                                  FORCE MAJEURE

      Section 9.1 Prevention of Performance. If Lessee is unable to perform any
of the terms or covenants of this Lease Agreement by reason of damage or delay
resulting from acts of God, acts of the public enemy, insurrections, riots,
labor disputes, boycotts, labor and material shortages, fires, explosions,
floods, breakdowns of or damage to plants, equipment, or facilities,
interruptions to transportation, embargoes, acts of military authorities, or any
other condition beyond its control which prevents the mining, sale, delivery
and/or loading of the Coal, Lessee shall be excused from performance of its
obligations hereunder (except for the obligation to pay advance minimum
royalties) during the period of such prevention, and the time for performance of
such obligations shall be extended for a period equal to the period or periods
of prevention.

      Section 9.2 Notice and Mitigation. If because of force majeure Lessee is
unable to carry out its obligations under this Lease Agreement, it shall
promptly give notice in writing to Lessor of such force majeure and exercise
reasonable diligence to remove the cause of the force majeure except that Lessee
shall not be required to settle strikes or other labor difficulties contrary to
its own judgment.

      Section 9.3 Right of Termination. In the event that Lessee is precluded
from performing its mining obligations by any force majeure pursuant to this
Article, and if the cause of such force majeure shall not be removed for a
period of Six (6) months, or if the aggregate period of all such force majeure
events declared by Lessee under this Lease shall exceed eighteen (18) months,
then Lessor may at its sole election terminate this Lease.

                                    ARTICLE X

                             DEFAULT AND FORFEITURE

      Section 10.1 Default. It is mutually covenanted by and between Lessor and
Lessee that all of the terms, conditions, covenants, stipulations and agreements
to be performed and observed by Lessee hereunder, and the covenant of Lessee to
perform and observe the same shall inure to the benefit of Lessor, and Lessor
may, by proper action at law or suit in equity, re-entry, distress or other
property proceedings, enforce any and all of said terms, conditions, covenants,
stipulations and agreements and the covenants of Lessee to perform and observe
the same. In case Lessee shall fail in the performance of observance of any of
the terms, conditions, covenants, stipulations and agreements, and any such
failure as to any of such terms, conditions, covenants, stipulations and
agreements shall continue for the period of thirty (30) days after Lessor shall
have given written notice of such default to Lessee or shall use the Property
herein described contrary to the provisions or limitations hereof and such use
shall continue for a period of thirty (30) days after Lessor shall have given
written notice thereof to Lessee, then in either or any of said events and as
often as the same may occur, Lessor shall have the right to forfeit and
terminate this Lease, and the terms created thereby and all of the rights and
privileges of Lessee under this Lease, seek damages and re-enter upon the
Property by its agent or agents and the same again have, repossess and re-enjoy
it as fully as if this Lease had never been executed, but it shall not be
necessary for Lessor to make any such re-entry in order to enforce any such

                                      -13-
<PAGE>

forfeiture, or in order to bring any action or suit for damages or to recover
the demised premises; and a waiver by Lessor of any particular cause of
forfeiture shall not prevent the forfeiture and cancellation of this Lease or
claim for damages for any other cause of forfeiture or for the same cause
occurring at any other time.

      Section 10.2 Rents Reserved Upon Contract. In addition to the production
royalty specified in Section 5.1 and the minimum royalty specified in Section
6.1 and 6.2 hereof, any and all payments which Lessee is required to make
hereunder to or for the benefit of Lessor shall be deemed additional rents and
royalties and considered as rents reserved by Lessor upon contract and all
remedies now or hereunder given to landlords by the laws of the Commonwealth of
Kentucky for collection of such rents shall exist in favor of Lessor, in
addition to any rights and remedies specified herein. If any of the royalties,
rentals or other payments shall remain unpaid for thirty (30) days after the
same shall become due and payable, as herein provided, and thirty (30) days
after notice of such default has been given to Lessee in writing, Lessor shall
have the right to enforce the payment thereof by remedies given by law to
landlords against delinquent tenants for non-payment of rent; and not only shall
the personal property of Lessee on the Property be subject to distress as
contemplated and directed by law, but Lessor may also enter upon the Property
and sell the interest of Lessee hereunder, or any part thereof together with
improvements thereon, for the default in the payment of the royalties, rentals,
and other payments as aforesaid, and at any sale of this leasehold, or any part
thereof, or of the improvements or the personal property made or placed by
Lessee on said leasehold, Lessor shall have the right to become the purchaser
thereof free from any and all claims of Lessee. Lessor's entitlement to
royalties and minimum advance royalties shall not be impaired by Lessor's
re-entry. The remedies for the collection of unpaid royalties herein provided
are in addition and supplemental to all other provisions and remedies of Lessor
in this Lease for the redress of defaults hereunder. The obligation of Lessee to
pay royalties and rents are indivisible obligations and continuing defaults of
any payments can be sued on in one cumulative action with the balance due
continually accruing.

      Section 10.3 Liens Reserved Upon Contract. A lien is hereby reserved and
imposed upon all improvements, buildings, structures, equipment, machinery,
mining records, proceeds from any insurance policies, and other personal
property of Lessee at any time acquired for use in connection with Lessee's
operations on the Property, as well as upon the Lessee's leasehold interest in
the Property created hereby, to secure the payment of any and all said sums.
Lessee agrees that Lessor shall, and does hereby have as additional security for
the performance of all of the terms of this Lease, a further lien upon all the
mined Coal or other coal on the leasehold or in stockpiles used in connection
therewith, and upon all improvements and personal property made or placed by
Lessee on said leasehold. Said lien is in addition to all other statutory liens
and is given as further security for the payment of the royalties, rentals, and
other payments herein provided, and for the performance of each and all of the
covenants in the Lease contained, upon the part of Lessee to be observed, kept,
and performed. Lessee shall execute, upon request and from time to time, any
financing statement or other instrument or writing which Lessor may require in
order to perfect the security interests created hereunder.

      Section 10.4 Remedies are Cumulative and Non-Exclusive. All the provisions
contained herein for forfeiture of the Lease, collection of royalty, rentals, or
other payments or for the enforcement or protection of the rights of Lessor
shall be deemed cumulative and not

                                      -14-
<PAGE>

exclusive, and shall not deprive Lessor of the benefit of any other legal,
statutory, or equitable remedies, or other remedies in this lease provided.

      Section 10.5 Limited Right of Entry after Termination. Notwithstanding a
valid forfeiture or other termination of this Lease, Lessee shall nevertheless
have the continuing right of entry upon the Property for the purpose of
complying with federal and state mining laws and regulations relative to its
operations conducted on the Property, including, but not limited to, the right
to re-distribute materials, contour the lands, remove ponds and re-vegetate the
lands to the extent required by law; provided, however, that nothing contained
herein shall authorize any Coal removal, wheelage of coal or the exercise of the
other general mining rights and privileges associated with the Lease as a part
of Lessee's reclamation operations hereunder unless Lessor shall first give its
express consent in writing.

      Section 10.6 Bankruptcy or Insolvency. Lessee agrees that, excepting only
voluntary reorganization proceedings wherein Lessee shall be and remain a debtor
in possession, if at any time it should be place into voluntary or involuntary
bankruptcy, bankruptcy reorganization proceedings, or receivership, or permit or
suffer any assignment for the benefit of creditors, this Lease shall immediately
become henceforth null and void and canceled.

      Section 10.7 Reversionary Interest. Upon termination of the Lease, whether
by forfeiture, expiration or otherwise, all of the improvements placed by Lessee
in, under, or upon the Property shall be removed within six (6) months of such
event, and failure to do so shall be deemed abandonment of the same by Lessee.
Lessor shall have the right, but not the obligation, to re-let the Property or
portions thereof to new lessees, and Lessee shall allow any new lessee of the
Property to succeed to any mining permits(s) or license(s) which Lessee may hold
upon termination, provided Lessee is requested to do so. In the event Lessee
shall have acquired by purchase, lease or otherwise any coal, surface or mining
rights within the boundary of the Property during the term of the Lease, then
Lessee shall offer to convey same to the Lessor or to Lessor's designee at its
then fair market value. Lessor shall have not less than sixty (60) days after
termination or after such offer, whichever is later, in which to accept or
reject such terms, and if Lessor rejects such terms then Lessee may offer the
mineral or surface interests to third parties; provided, however, that Lessee
shall thereafter for a period of five (5) years continue to grant Lessor or
Lessor's designee a right of first refusal to acquire any such property or
property interest subsequently proposed to be sold.

                                   ARTICLE XI

                          INDEMNIFICATION AND INSURANCE

      Section 11.1 Indemnity. Lessee will indemnify and save harmless Lessor,
its successors and assigns, from any and all loss and/or liability for claims,
demands, suits, or causes of action in law or equity for damages and injuries,
including loss of the use thereof, and also including, but not limited to,
roads, pipelines, structures, or improvements of any nature, arising out of (or
claimed to have been caused by) or in any manner related to, Lessee's operations
in and about the Property, whether groundless or not, Lessee further hereby
covenants and agrees to indemnify, save harmless and defend Lessor, its
successors and assigns, from any and all loss, liability and/or damages arising
out of, or in any manner related to any breach of covenant,

                                      -15-
<PAGE>

condition, or act of default by Lessee under this Lease. In the event there
shall arise at any time whensoever any claim for damages, or any other lawful
claim of any kind whatsoever, growing out of or arising from Lessee's operations
hereunder, or by virtue of anything done pursuant to the terms of this Lease,
and any such claim or claims shall be asserted against Lessor, its successors or
assigns, either jointly with Lessee or severally, Lessee agrees and binds
itself, at its own cost and expense, to defend any and all such claims and to
save harmless Lessor in all respects from liability by reason thereof. However,
in any such event, Lessor may, at its own expense, employ its own counsel to
represent it and to make any defense it may have, either jointly or severally,
to any such claim or claims. The insurance which Lessee is required to obtain
under Section 7.2 shall not be deemed a limitation on any liability of Lessee
but shall be additional security therefor. The indemnity provisions of this
Section shall survive termination and performance of this Lease and includes any
environmental liabilities, whether arising under environmental laws in force as
of the effective date of this Lease or any such laws that may be enacted while
Lessee is operating hereunder, so long as such liabilities arise directly from
Lessee's operations hereunder. Lessee shall not be responsible for any
pre-existing environmental liabilities or environmental liabilities resulting
solely from any activities of Lessor on the Property.

      Section 11.2 Insurance.

            (a) Types of Insurance. In addition to, and not in limitation of,
its obligations to indemnify Lessor hereunder, Lessee shall, at its sole
expense, procure and maintain in full force and effect, the following insurance
coverage:

                  (1) Commercial general public liability insurance against
claims for bodily injury, death, or property damage, occurring in or about the
Property consistent with prevailing industry standard in an amount not less that
Five Million Dollars ($5,000,000.00), or such higher amount as Lessor may from
time-to-time reasonably request to bring such amount in line with the prevailing
industry standard, in respect of bodily injury or death to any one person or for
property damage, all arising out of one occurrence. The commercial general
public liability insurance shall provide coverage against losses arising out of
the legal liability of the Lessee due to the maintenance of the Property and
coal mining operations of the Lessee including, without limitation, losses from
the following categories as these terms are generally understood in the
insurance business: (i) premises and operations liability; (ii) contractual
liability; (iii) contingent liability; (iv) products liability; (v) automobile
liability including hired vehicles liability, non-owned vehicles liability and
liability arising out of employees' use of personal vehicles for company
business; and (vi) to the extent available at a reasonable cost in Lessee's good
faith discretion, liability from subsidence, pollution or contamination of
water, gob pile slides and movement of overburden.

                  (2) Insurance adequate to fully satisfy Lessee's legal
obligations under any state or federal workers' compensation statute including,
without limitation, obligations with respect to pneumoconiosis or "black lung."
Lessee may, however, self-insure against liability for workers' compensation
(including occupational disease) to the extent permitted by state and federal
law and, to such extent, Lessee may then satisfy its obligation to Lessor under
this Paragraph by meeting the requirements for self-insurance imposed by
statutes, regulations, rulings, and other laws of the state and federal agencies
administering the same, provided that

                                      -16-
<PAGE>

Lessee's funding of such liabilities shall be at least one hundred percent
(100%) of the amount of such liabilities. Lessee acknowledges that it is, and
shall be deemed to be, the operator of any coal mine located on the Property
with respect to any claim for black lung benefits ("benefits") filed by or on
account of any of its employees or former employees. Lessee shall require any
other person who operates, controls or supervises a coal mine or performs
services or construction at any time on the Property 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 the terms hereof
and shall provide Lessor, at least annually and more often upon request, with
the evidence thereof required hereunder.

            (b) Form of Insurance. All insurance required under this Article
shall name Lessor as an additional insured and shall contain a provision for
notice to Lessor of any overdue or unpaid premium and thirty (30) days' advance
notice to Lessor of any proposed cancellation or change in coverage. Each policy
of insurance shall be written as an "occurrence" contract unless the policy is
available only on a "claims made" basis in which case Lessee shall continue such
contract after the termination, expiration, cancellation or forfeiture of this
Lease for a period of five (5) years or until final release of Lessee's
environmental reclamation bonds required by any regulatory authority, whichever
is the later to occur.

            (c) Suspension of Operations During Lapse of Insurance. If at any
time any of the insurance coverage or any of the conditions required by law for
self-insurance as provided for in this Lease shall cease to be in force and
effect, Lessee shall immediately notify Lessor of that fact. Lessee shall also
immediately suspend all operations hereunder until such insurance coverage has
been reinstated or such conditions required for self-insurance have again been
met. Any such cessation shall not suspend or terminate the minimum royalty
obligation of Lessee hereunder, nor shall any such cessation in any way affect
Lessee's obligation to diligently mine the Property.

                                   ARTICLE XII

                                     NOTICE

      Section 12.1 Any notice required or permitted to be given to either party
hereunder shall be deemed effective if deposited in the United States mail, duly
registered or certified, with postage prepaid to the parties at their respective
addresses as set forth in the preamble to this Agreement. Either party may
change his address for purposes of receipt of notice upon two (2) days prior
written notice to the other parties.

                                  ARTICLE XIII

                                WAIVER OF RIGHTS

      Section 13.1 The failure of either party hereto to insist in any one or
more instances upon strict performance of any provision of this Lease Agreement
by the other party hereto, or to take advantage of any of its rights hereunder,
shall not be construed as a waiver of any such rights in respect of any
subsequent non-performance of such provision, but the same shall continue and
remain in full force and effect. Any waiver of rights or remedies by either
party under this Lease must be in writing and signed by the party to be charged
therewith. No course

                                      -17-
<PAGE>

of conduct, delay or omission on the part of the parties to exercise any right,
remedy or lien accruing upon any default or forfeiture by Lessee hereunder shall
impair, prejudice or waive any such right, remedy or lien. The receipt and
retention of royalties or other payments otherwise due under the terms of this
Lease shall not operate as a waiver of or otherwise estop the parties from
enforcing any rights or remedies available to it under the terms of this Lease.

                                   ARTICLE XIV

                             ASSIGNMENT AND SUBLEASE

      Section 14.1 Prohibition on Transfer. The parties hereto agree that a
major part of the consideration for entering into this Lease is the
representations of Lessee and the belief of Lessor that Lessee has (a) the
expertise and ability to install, operate and maintain a mining installation on
the leasehold sufficient to adequately mine all of the mineable and merchantable
Coal therein in a good and workmanlike manner; (b) the necessary financial
resources and coal marketing ability; and (c) the reputation for honesty and
integrity and the standing in the coal mining industry as an expert, reliable
and dependable producer and marketer of coal. Therefore, Lessee and Lessor agree
that this Lease is strictly personal to Lessee and that Lessee shall not
mortgage, encumber, assign, convey, lease, underlet or sublease hereunder
without the written consent of Lessor for that purpose being first had and
obtained, which shall not be unreasonably withheld. This paragraph shall not be
construed to prohibit Lessee from utilizing contract miners or to prohibit
assignment or sublease transactions with wholly-owned corporations and
subsidiary or affiliated companies, provided the Lessee or individual sublessee
guarantees the performance of all of the terms and conditions of this Lease. Any
such transferee corporation, subsidiary or affiliated company shall not be
subsequently sold, merged, or transferred so as to violate the intent and
purpose of this paragraph prohibiting assignments and transfers.

      Section 14.2 Bankruptcy or Insolvency. A reorganization proceeding under
the provisions of the Federal Bankruptcy Act (Title II, U.S.C.) shall not be
deemed an assignment or transfer in violation of this paragraph provided Lessee
shall continue to operate the mines on this leasehold as a debtor in possession,
shall comply in all other respects with the provisions of this Lease and shall
provide Lessor with adequate assurances of its future ability to comply strictly
and timely with each and every term of this Lease, including but not limited to
the timely payment of royalties or rentals, performance of reclamation,
compliance with other governmental requirements, and the indemnification of
Lessor against liabilities as required herein. However, it is understood and
agreed that any other assignment, transfer or attempt to so do in any
bankruptcy, receivership or insolvency proceedings, by or against Lessee, either
voluntary or involuntary, or any such transfer, assignment or encumbrances or
affirmative act of or against Lessee purporting so to do, including, but not
limited, to, an adjudication to bankruptcy, levy or execution, receivership,
creditor's suit, or other solvency proceedings, shall have the same effect as a
prohibited assignment of this Lease under Section 14.1 above.

      Section 14.3 Change in Ownership. Any sale, merger, dissolution,
reorganization, whether voluntary or involuntary, share exchange, or any other
disposition of stock in Lessee or of Guarantor (but not including public
offerings of the stock of Guarantor or any transfer pursuant to any now existing
or hereafter arising pledges to Guarantor's lender(s) of Guarantor's stock)
exceeding fifty percent (50%) of the capital stock or preferred stock or any
other form of

                                      -18-
<PAGE>

participation in the income and growth of Lessee shall be deemed a prohibited
assignment under Section 14.1 above.

                                   ARTICLE XV

                                  GOVERNING LAW

      Section 15.1 This Lease shall be interpreted and construed in accordance
with the laws of the Commonwealth of Kentucky.

                                   ARTICLE XVI

                                  PARTIES BOUND

      Section 16.1 This Lease Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.

                                   ARTICLE XVI

                                    CAPTIONS

      Section 17.1 The captions used in this Lease Agreement are inserted for
convenience sake only and shall be ignored in interpreting the terms hereof.

                                  ARTICLE XVII

                            EXECUTION OF COUNTERPARTS

      Section 18.1 This instrument may be simultaneously executed in any number
of counterparts, and all such counterparts shall constitute but one and the same
instrument.

                                   ARTICLE XIX

                                ENTIRE AGREEMENT

      Section 19.1 This Lease constitutes the entire agreement between the
parties hereto pertaining to the subject matter set forth herein and supersedes
any and all other prior or contemporaneous agreements, understandings,
negotiations and discussions, whether oral or written, which the parties may
have had in connection with the subject matter of this Agreement. No amendment
to any of the provisions of this Lease shall be enforceable against either party
unless made in writing signed by the party to be charged thereby.

                                   ARTICLE XX

                               POSTMINING LAND USE

      Section 20.1 Lessor will execute a postmining land use request in the form
annexed hereto as Exhibit "C" for reclamation of any portion of the surface of
the Property owned by Lessor to a postmining land use of "wildlife habitat" or
to such other use as the parties may

                                      -19-
<PAGE>

hereinafter mutually agree and Lessor will in the future execute any other
waiver application or request for retention haul roads, silt dams or water
impoundments or other instrument regarding post-mining land use which Lessee may
reasonably request. However, should federal, state or other reclamation laws or
regulations require such highwall restoration for Lessee's operations or other
reclamation work for Lessee's operations, then in such event it is understood
and agreed that Lessee shall restore any such highwall on the Surface or perform
other reclamation work in order to comply with such regulations or laws
requiring restoration.

                                   ARTICLE XXI

                                 BOUNDARY LINES

      Section 21.1 Upon the completion of mining by Lessee on the Surface,
Lessee shall re-establish the Lessors' boundary lines on such portion(s) of the
Surface where boundary markers or monuments were removed or affected by the
mining operations. Lessee shall re-establish such boundary lines at such
location(s) claimed by Lessors prior to commencement of mining; provided,
however, that in no event shall Lessee be liable for any damages to Lessor or to
any third party pursuant to this section in the event of any boundary line
dispute between Lessor and adjacent property owners or adverse claimants.

                                  ARTICLE XXII

                                   MEMORANDUM

      Section 22.1 Lessor shall execute that certain Memorandum of Lease in the
form annexed hereto as Exhibit "D" in order to enable Lessee to record notice of
this transaction and conveyance in the Perry County Clerk's Office or in such
other public office as may be deemed necessary or desirable by Lessee. Lessors
shall execute in the future any other letter, instrument or other document
acknowledging Lessee's rights hereunder which Lessee may reasonably request.

                                  ARTICLE XXIII

                                   ARBITRATION

      Section 23.1 Dispute Resolution. All controversies, disputes or claims
arising among the parties in connection with, or with respect to, any provision
of this Lease, which has not been resolved within twenty (20) days after either
Lessor or the Lessee have notified the other in writing of such controversy,
dispute or claim, shall be submitted for arbitration in accordance with the
rules of the American Arbitration Association or any successor thereof.
Arbitration shall take place at an appointed time and place in Lexington,
Kentucky.

            (a) Selection of Arbitrators. Unless Lessor and the Lessee otherwise
agree, all controversies, disputes or claims shall be heard by a panel of three
(3) arbitrators selected in accordance with the Commercial Arbitration Rules of
the American Arbitration Association (the "Rules"). Judgment upon any award of
the majority of arbitrators shall be binding and shall be entered in a court of
competent jurisdiction. Subject to the terms and conditions of this Lease, the
award of the arbitrators may grant any relief which might be granted by a court
of general

                                      -20-
<PAGE>

jurisdiction, including, without limitation, award of damages and/or injunctive
relief, and shall assess, in addition, the cost of the arbitration, including
the reasonable fees of the arbitrators and reasonable attorneys' fees and costs
of all prevailing parties against all non-prevailing parties.

            (b) Temporary Relief. Nothing herein contained shall bar the right
of any of the parties to seek and obtain temporary injunctive relief from a
court of competent jurisdiction in accordance with applicable law against
threatened conduct that will cause loss or damage, pending completion of the
arbitration, and the prevailing party therein shall be entitled to an award of
its reasonable attorneys' fees and costs.

            (c) Rules of Arbitration. All disputes and claims shall be
determined by arbitration in accordance with the Rules in effect on the date
hereof, except that such Rules shall be modified by this Agreement.

            (d) Arbitrators' Award. All arbitral proceedings arising under, or
in connection with, this Agreement shall be governed by the Federal Rules of
Civil Procedure and the United States Arbitration Act. Notwithstanding the
previous sentence, the arbitrators' award shall be made no later than ninety
(90) days after their appointment. Subject to the parties' right to be treated
fairly, the arbitrators may shorten the periods of time otherwise applicable to
the arbitral proceedings under the rules to permit the award to be made within
the time limitation set forth in the previous sentence.

                                   ARTICLE XIV

                                    GUARANTY

      Section 24.1 To induce the Lessor to enter into this Lease, the Guarantor
unconditionally and irrevocably guarantees payment and performance by Lessee,
when due, of all of its obligations under this Lease. The obligations of the
Guarantor shall not be impaired, diminished or discharged by any amendment,
modification or waiver of the terms hereof, any extension of time or other
indulgence granted by the Shareholder, or by any course of dealing between the
Lessor and Lessee, and the Guarantor hereby waives all customary guaranty and
suretyship defenses generally. The Guarantor agree to pay on demand (a) any
amount which the Lessor is required to pay under any bankruptcy, insolvency or
other similar law on account of any amount received by the Lessor under or with
respect to this Lease, and (b) all reasonable expenses of collecting and
enforcing this guaranty including, without limitation, reasonable expenses and
fees of legal counsel, court costs and the cost of appellate proceedings. This
guaranty is a guarantee of payment and performance and not of collection. The
Lessor shall not be required to resort to or pursue any of its rights or
remedies under or with respect to any other agreement or any collateral before
pursuing any of his rights or remedies under this guaranty. The failure or delay
by the Lessor in exercising any of its rights hereunder in any instance shall
not constitute a waiver thereof in that or any other instance. The Lessor may
not waive any of its rights except by an instrument in writing signed by its
duly authorized officer. This guaranty may not be amended without the written
approval of the Lessor.

      IN WITNESS WHEREOF, the parties or their duly authorized representatives
have affixed their signatures on the day and year first above written.

                                      -21-
<PAGE>

                                                       LESSOR:
                                                       N & G HOLDINGS COMPANY

                                                       By:  /s/ Gregory Wells
                                                            --------------------
                                                                Its: President

                                                       LESSEE:
                                                       LESLIE RESOURCES, INC.

                                                       By:  /s/ Donald P. Brown
                                                            --------------------
                                                                Its: President

                                                       GUARANTOR:
                                                       AEI HOLDING COMPANY, INC.

                                                       By:  /s/ Donald P. Brown
                                                            --------------------
                                                                Its: President

STATE OF KENTUCKY )
                  ) SS
COUNTY OF FAYETTE )

      I hereby certify that the foregoing instrument was duly signed and
acknowledged before me by Gregory Wells as the duly authorized officer of N & G
Holdings Company on this the 9th day of February, 1998.

                                                     /s/ Beth A. Kelly
                                                     --------------------
                                                     Notary Public

         My commission expires May 28, 2001.

STATE OF KENTUCKY )
                  ) SS
COUNTY OF BOYD    )

      I hereby certify that the foregoing instrument was duly signed and
acknowledged before me by Donald P. Brown as the duly authorized officer of
Leslie Resources, Inc. on this the 5th day of February, 1998.

                                                     /s/ Crystal Johnson
                                                     --------------------
                                                     Notary Public

      My commission expires June 10, 1998.

                                      -22-
<PAGE>

                     ASSIGNMENT OF REAL PROPERTY AGREEMENTS

      This Assignment of Real Property Agreements (this "Agreement"), dated as
of September 30, 2004, is among ICG HAZARD, LLC, a Delaware limited liability
company, with an address of 2000 Ashland Drive, Ashland, Kentucky 41101 (the
"Buyer"), and LESLIE RESOURCES, INC., 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 Perry County, Kentucky (the "Real Property Agreements").

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

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

                                      -2-

<PAGE>

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

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

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                      -3-

<PAGE>

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

BUYER:                                                ICG HAZARD, LLC

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

                                                      Title: Vice President

SELLER:                                               LESLIE RESOURCES, INC.

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

                                                      Title: President

                                      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 Louis Wax, as Vice President of ICG
Hazard, LLC, a Delaware limited liability company, for and on behalf of company.

                                       /s/ Joseph Mignone
                                       ----------------------------------------
                                       Notary Public, State at Large
                                       My Commission Expires: November 10, 2007

STATE OF NEW YORK
COUNTY OF NEW YORK

      The foregoing Assignment of Real Property Agreements was acknowledged
before me on September 29, 2004, by Scott Tepper, as President of Leslie
Resources, Inc., a Kentucky corporation, for and on behalf of the company.

                                       /s/ Cynthia Cusani
                                       ----------------------------------------
                                       Notary Public, State at Large
                                       My Commission Expires: September 24, 2006

THIS INSTRUMENT PREPARED BY:

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

                                       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>

                                                                      ICG-HZ-A-4

                                   SCHEDULE A



CONTRACT #     CONTRACT TYPE    LESSEE              LESSOR             CTY      ST    CONTRACT DATE     BOOK     PAGE        DOC
----------     -------------  ----------        --------------        -----     --    -------------     ----     ----        ---
                                                                                                  
                              Leslie            Amburgey,
                              Resources,        Sammy A. &
    200056     Surface Lease  Inc. (017)        Thelma                Perry     KY      04/09/2001       50       291

                              Leslie
                              Resources,        Anderson,
LA-193-020-LR  Surface Lease  Inc. (017)        Dorothy, Et Al        Perry     KY      05/30/1998       46       644

                              Leslie            Appalachian
                              Resources,        Enterprises,
    200073     Surface Lease  Inc. (017)        Llc                   Perry     KY      10/25/2001       51       229

                              Leslie
                              Resources,        Banks, Enos &
    200049     Surface Lease  Inc. (017)        Joyce                 Perry     KY      12/04/2000       49       797

                              Leslie
                              Resources,        Barger, Floyd,
    200046     Surface Lease  Inc. (017)        Et Al                 Perry     KY      06/16/2000       50       623

                              Leslie            Bingham,
                              Resources,        Stephen P. &
    200040     Surface Lease  Inc. (017)        Debra L.              Perry     KY      12/22/1999       48       668

                              Leslie
                              Resources,        Bowling, Beve
    200094     Surface Lease  Inc. (017)        Jr. & Revenna         Perry     KY      02/06/2004       55       295

                              Leslie            Burton,
                              Resources,        Spencer &
LA-193-026-LR  Surface Lease  Inc. (017)        Peggy,  Et Al         Perry     KY      08/21/1998       47       162

                              Leslie
                              Resources,
LA-193-046-LR  Surface Lease  Inc. (017)        Campbell, Emma        Perry     KY      04/28/1999       48       257

                              Leslie            Caudill,
                              Resources,        Verlon &
    200091     Surface Lease  Inc. (017)        Vallery               Perry     KY      11/25/2003       54       715

                              Leslie
                              Resources,        City Of Vicco,
    200061     Surface Lease  Inc. (017)        Kentucky              Perry     KY      05/17/2001       50       349

                              Leslie
                              Resources,        Combs, Heirs
    200087     Surface Lease  Inc. (017)        Of Rado               Perry     KY      05/24/2004       55       384

                              Leslie            Combs, Myrtle
                              Resources,        & Raymond, Et
LA-193-045-LR  Surface Lease  Inc. (017)        Al                    Perry     KY      06/04/1998       47        26

                              Leslie
                              Resources,        Coots, Joel D.
LA-193-022-LR  Surface Lease  Inc. (017)        & Brenda Sue          Perry     KY      06/16/1998       46       640

                              Leslie
                              Resources,        Couch, Sarah,
    100083     Surface Lease  Inc. (017)        Et Al                 Perry     KY      02/27/1990       44       347

                              Leslie
                              Resources,        Deaton, Ronald
    200004     Surface Lease  Inc. (017)        & Mary                Perry     KY      08/24/1999       49       137

                              Leslie
                              Resources,        Deaton, Ronald
    200005     Surface Lease  Inc. (017)        & Mary                Perry     KY      08/24/1999       49       132

                              Leslie            Dunn, Emma Lue
                              Resources,        & Donald Ray,
    200078     Surface Lease  Inc. (017)        Etal                  Perry     KY      04/13/2002       52       199


<PAGE>



CONTRACT #       CONTRACT TYPE        LESSEE            LESSOR         CTY      ST    CONTRACT DATE     BOOK     PAGE        DOC
----------     ------------------   ----------      --------------    -----     --    -------------     ----     ----        ---
                                                                                                  
                                    Leslie
                                    Resources,      Estep, Beulah
    100074     Surface Lease        Inc. (017)      Mae, Etal         Perry     KY      03/20/1998       46       462

                                    Leslie
                                    Resources,      Farra, Nancy
LA-193-024-LR    Coal Lease         Inc. (017)      S., Et Al         Perry     KY      06/10/1998       47        32

                                    Leslie
                                    Resources,      Feltner, Opal
LA-193-027-LR  Surface Lease        Inc. (017)      Marie, Etal       Perry     KY      09/10/1998       47       580

                                    Leslie
                                    Resources,      Fields, Ethel
LA-193-038-LR  Surface Lease        Inc. (017)      (Heirs)           Perry     KY      08/21/1998       47       595

                                    Leslie
                                    Resources,
    100038     Surface Lease        Inc. (017)      Fugate, Martha    Perry     KY      02/27/1990       51       655

                                    Leslie
                                    Resources,
    200045     Surface Lease        Inc. (017)      Fugate, Silas     Perry     KY      05/25/2000       49       421

                                    Leslie          Halcomb,
                                    Resources,      Louise &
    200085     Surface Lease        Inc. (017)      Daniel, Etal      Perry     KY      02/05/2003       53       748

                                    Leslie          Hamblin, James
                                    Resources,      T. & Sally H.
    100017     Surface Lease        Inc. (017)      Napier            Perry     KY      07/09/1990       61       543

                                    Leslie
                                    Resources,      Hensley,
    200060     Surface Lease        Inc. (017)      Sinda, Etal       Perry     KY      05/24/2001       51       702

                                    Leslie
                                    Resources,      Hill, Gary W.
LA-193-023-LR  Surface Lease        Inc. (017)      & Justine         Perry     KY      06/16/1998       46       636


                                    Leslie          Jenkins,
                                    Resources,      Donald Ray &
    200048     Surface Lease        Inc. (017)      Christine L.,     Perry     KY      12/04/2000       49       804
                                                    Etal

                                    Leslie          Jenkins,
                                    Resources,      Pascal &
    200055     Surface Lease        Inc. (017)      Goldie, Et Al     Perry     KY      12/13/2000       51       106

                                    Leslie          Jenkins,
                                    Resources,      Pascal &
    200071     Surface Lease        Inc. (017)      Goldie, Etal      Perry     KY      12/04/2001       51        97

                                    Leslie
                                    Resources,      Jent, Luther &
    200001     Surface Lease        Inc. (017)      Mable, Etal       Perry     KY      03/24/1999       49       668

                                    Leslie
                                    Resources,      Jett, Anna
    100053     Surface Lease        Inc. (017)      Lee, Et Al        Perry     KY      03/30/1998       46       466

                                    Leslie
                                    Resources,      Joab Begley
LA-193-031-LR  Coal Lease           Inc. (017)      Heirs             Perry     KY      08/01/1998       47       539

                                                    Johnson,
                                    Leslie          Richard M. &
                                    Resources,      Nancye B.,
    300000     Wheelage Agreement   Inc. (017)      Et Al              Perry     KY      04/05/1999       45       162

                                    Leslie          Jones, Jeffrey
                                    Resources,      Scott &
    200097     Surface Lease        Inc. (017)      Christie R.       Perry     KY      05/05/2004       55       365

                                    Leslie          Jones,
                                    Resources,      Jennifer &
    200039       Coal Lease         Inc. (017)      Clifford          Perry     KY      12/22/1999       48       664

                                    Leslie
                                    Resources,      Jones, Lillian
    200082     Surface Lease        Inc. (017)      Et Al             Perry     KY      06/25/2002       52       532


                                                                               2

<PAGE>



 CONTRACT #      CONTRACT TYPE        LESSEE            LESSOR         CTY      ST    CONTRACT DATE    BOOK    PAGE         DOC
-------------  ------------------   ----------      ---------------   -----     --    -------------    -----  -------  ------------
                                                                                            
                                                    Kentucky
                                    Leslie          Mountain
                                    Resources,      Partnership,
LA-193-032-LR  Fee Lease            Inc. (017)      Inc               Perry     KY      11/05/1998        47      502

                                    Leslie          Kentucky River
                                    Resources,      Coal
    100027     Fee Lease            Inc. (017)      Corporation       Perry     KY      12/08/1948        51      730

                                    Leslie          Kentucky River
                                    Resources,      Coal
    100159     Coal Lease           Inc. (017)      Corporation       Perry     KY      06/12/1986     61,51  613,786

                                    Leslie          Kentucky River
                                    Resources,      Coal
    100160     Coal Lease           Inc. (017)      Corporation       Perry     KY      03/21/1975        51      758

                                    Leslie          Kentucky River
                                    Resources,      Coal
    100162     Coal Lease           Inc. (017)      Corporation       Perry     KY      12/30/1981        51      780

                                    Leslie
                                    Resources,      Lewis, Shirley
LA-193-035-LR  Surface Lease        Inc. (017)      & Ed, Etal        Perry     KY      12/02/1998        47      574

                                    Leslie
                                    Resources,      Maggard, Jess
    100032     Surface Lease        Inc. (017)      & Clara           Perry     KY      12/05/1989        51      651

                                    Leslie
                                    Resources,      Mcintosh,
    100033     Surface Lease        Inc. (017)      Gaynell, Et Al    Perry     KY      04/10/1998        46      470

                                    Leslie          Miller, Jerry
                                    Resources,      Wayne & Anita,
LA-193-034-LR  Surface Lease        Inc. (017)      Et Al             Perry     KY      11/06/1998     47,51  494,659

                                    Leslie
                                    Resources,
    200044     Surface Lease        Inc. (017)      Miller, Marty     Perry     KY      05/25/2000        49      414

                                    Leslie
                                    Resources,      Miniard,
    100068     Surface Lease        Inc. (017)      Jeannette         Perry     KY      06/20/1990        51      693

                                                                                                                       Letcher Co.-
                                    Leslie                                                                             2/10/98:Lb-
                                    Resources,      N&G Holdings                                                       43, Pg-622.
    100051     Coal Lease           Inc. (017)      Company           Perry     KY      02/09/1998        46      205

                                    Leslie          Pigman, Betty
                                    Resources,      Ruth & Carl,
    100138     Coal Lease           Inc. (017)      Etal              Perry     KY      04/01/1992        51      671

                                    Leslie          Pine Branch
                                    Resources,      Coal Sales,
WA-193-036-LR  Wheelage Agreement   Inc. (017)      Inc.              Perry     KY      12/18/1998        47      489

                                    Leslie          Pine Branch
                                    Resources,      Coal Sales,
    100094     Surface Lease        Inc. (017)      Inc., Et Al       Perry     KY      03/29/1997        51      643

                                    Leslie
                                    Resources,      Price, Frank &
    100034     Surface Lease        Inc. (017)      Rita, Et Al       Perry     KY      03/30/1998        51      667

                                    Leslie
                                    Resources,      Raleigh,
LA-193-040-LR  Surface Lease        Inc. (017)      Charles & Greta   Perry     KY      02/08/1999        47      570

                                    Leslie
                                    Resources,      Raleigh, Elmer
LA-193-028-LR  Surface Lease        Inc. (017)      Ray & Nora Lee    Perry     KY      06/15/1998        50      222

                                    Leslie
                                    Resources,
LA-193-041-LR  Surface Lease        Inc. (017)      Raleigh, Thelma   Perry     KY      03/11/1999        47      667


                                                                               3

<PAGE>



CONTRACT #     CONTRACT TYPE       LESSEE              LESSOR             CTY      ST    CONTRACT DATE     BOOK     PAGE        DOC
----------     -------------     ----------        --------------        -----     ---   -------------     ----     ----        ---
                                                                                                     
                                 Leslie
                                 Resources,        Roark, Grant
200079         Surface Lease     Inc. (017)        And Sadie             Perry     KY      05/22/2002       52       440

                                 Leslie
                                 Resources,        Roark, Grant W
200079A        Surface Lease     Inc. (017)        And Sadie             Perry     KY      08/12/2002       53       268

                                 Leslie
                                 Resources,        Roark, Walden
200084         Surface Lease     Inc. (017)        & Nona Jane           Perry     KY      01/27/2003       53       716

                                 Leslie            Stidham,
                                 Resources,        Nellie Sue Et
200083         Surface Lease     Inc. (017)        Al                    Perry     KY      05/20/2002       52       479

                                 Leslie
                                 Resources,        Stidham, Oscar
100040         Surface Lease     Inc. (017)        & Dorothy             Perry     KY      11/29/1989       51       680

                                 Leslie
                                 Resources,        Vernease
200093         Surface Lease     Inc. (017)        Sumner Et Al          Perry     KY      03/10/2004       55       319


                                                                               4

<PAGE>

STATE OF KENTUCKY

COUNTY OF PERRY

      I, Haven King, Clerk of the State and County aforesaid do certify that the
foregoing instrument was lodged for record in my office and it the foregoing and
this my certificate have duly recorded in my office in Deed Book No. 312 Page
551.

      Witness my hand this 20th day of December 2004.

                                              Haven King, Clerk
                                              Perry County

                                              By /s/ Barbara Sae Franks  D.C.
                                                 ----------------------

Source: OneCLE Business Contracts.